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MINISTRY OF

MANPOWER
DIRECTORATE GENERAL OF TECHNOLOGICAL
EDUCATION COLLEGES OF TECHNOLOGY

BAMG42
16

Strategic
Management

7S Strategy Model-McKinsey

Introduction to Strategy: What is strategy


The term strategy is derived from the Greek word STRATEGOS, which means
Generalship - the actual direction of military force. Therefore, the word strategy
means THE ART OF GENERAL. It is a part of every successful business. The
process of outlining a strategy involves: Vision, Goals, Plan of Action,
Implementing the Plan, and Evaluating Progress (Five Elements of a Plan).
Without guidelines set up through a written strategy, there is little effective
communication or common direction towards the goal. It is difficult to achieve the
business objectives of survival, profit and growth without the five elements of a
plan.
Profit

Survival

Growth

Three Objectives of Business

Definitions of Strategy are as follows:


According to Alfred Chandler, strategy is the determination of basic long-term goals
and objectives of an enterprise; the adoption of the course of action; and the
allocation of resources for carrying out these goals.

William Glueck defines strategy as a unified, comprehensive and integrated plan


designed to assure that the basic objectives of the enterprises are achieved.
Michael Porters opinion is that the core of general management is strategy.
Before making a decision, managers have to look into the course of deciding
strategy as it involves situations like:
a) How to face the competition
b) How to satisfy the goal of Stakeholders
c) To be focused/broad-based
c) Whether to undertake expansions/diversification
d) How to chart a turn around, etc.
Initiation of Strategy: Triggering Events
A triggering event is something that stimulates a change in strategy.
Some examples of triggering events are:
New CEO
General understanding and practice is that whenever there is change in the
top management; it is meant for strategy change.
Intervention by an External Institution
The firms bank refuses to agree to a new loan that was part of the business
plan or suddenly calls for payment in full on the old one, prompting new
strategy to counter the finance crisis.
Threat of a Change in Ownership
Another firm may initiate a takeover by buying a companys common stock.
By gaining majority shares, the new shareholders' group can switch to a new
Board of Directors (BoD) and change the existing strategic outlook.
Managements Recognition of a Performance Gap
A performance gap exists when performance does not meet expectations.
For example, company realizes that sales and profits are no longer increasing
or may even be falling.
Nature of Strategy:

Any company can outperform the rivals; only if it can establish a difference that can
deliver greater value at a reasonable cost/price and preserve the same in the long

run. Strategy rests on unique activities The essence of strategy is in the activities
choosing to perform things differently and to perform different activities than rivals.
Strategy is long term. If companys focus is only on operational effectiveness, it can
be good and not better. Growth is achieved by deepening strategy.

Strategy is all about deciding the following:


1. It provides direction to businessto take the company from the present
position to a new position in future. This is about the company size, image or
position with competition.
2. It guides on the marketsthe size, share and scope; local, domestic and
international.
3. It prepares the company to face competition effectivelycreating an
advantage over competition regard to products and markets.
4. It allows the business to organize the resources required to achieve
objectives4 MsMoney, Material, Machines and Manpower, like skills,
technology, facilities, etc. It is concerned with the resources available today
and those that will be required for the future plan of action.
5. It allows the company to analyze the environmentthe factors/forces that
have a direct or indirect influence on business operations. It gathers all
information regarding the internal forces and external forces, (PEST analysis)
to complete the (SWOT Analysis) Strengths, Weaknesses, Opportunities and
Threats analysis. It is about the trade off between its different activities and
creating a fit among these activities.
6. It addresses the values of all stakeholdersShareholders, Employees,
Customers, Suppliers, Institutions, Government, and Society.

Strategic Management:

Strategic Management is a dynamic process of preparing and aligning strategies,


performance and business results; it is all about leadership, people, technology and
processes. Effective combination of these elements will help with strategic direction
and successful product/service delivery. It is a continuous activity of setting and
maintaining the strategic direction of the organization and its business, and making

decisions on a day-to-day basis to deal with changing circumstances and the


challenges of the business environment.

Definition of Strategic Management


Strategic Management is

the process of identifying and pursuing the

organizations long term objectives by aligning internal capabilities with the external
demands of its environment, and then ensuring that the plans are being executed
properly to accomplish business goals.
Strategic Management is defined as the process of specifying an organizations
objectives, developing plans and policies to achieve these objectives and allocating
resources (4 Ms) to implement the plans to achieve the objectives.

DEVELOPMENT AS A DICIPLINE:

Strategic management as a discipline originated in the 1950s and 60s. Primarily the
development of this dicipline can be devided into four phases:

Phase 1 - Basic financial planning: Seek better operational control by trying to meet
budgets.

Phase 2 - Fore-cast based planning: Seeking more effective planning for growth by
trying to predict the future beyond next year.

Phase 3- Externally oriented planning (strategic planning): Seeking increasing


responsiveness to markets and competition by trying to think strategically.

Phase 4- Seeking a competitive advantage and a successful future by managing all


resources; this includes a consideration of strategy implementation, evaluation and
control, in addition to the emphasis on the strategic planning as in Phase 3.

General Electric, one of the pioneers of the strategic planning, led the transition from
the strategic planning to strategic management; this was started during the 1980s.

By the 1990s, most corporations around the world had also begun the conversion to
strategic management.

Historical Development As A Discipline:

Although there were numerous early contributors to the literature, the most
influential pioneers were Alfred D. Chandler, Philip Selznick, Igor Ansoff, Peter
Drucker and Michael Porter.

Alfred Chandler recognized the importance of coordinating the various aspects of


management under one all-encompassing strategy. Prior to this time the various
functions of management were separate with little overall coordination or strategy.
Interactions between functions or between departments were typically handled by a
boundary position, that is, there were one or two managers relaying information back
and forth between two departments. In his 1962 groundbreaking work Strategy and
Structure, Chandler showed that a long-term coordinated strategy was necessary to
give a company--- structure, direction, and focus. He says it concisely, structure
follows strategy.

In 1957, Philip Selznick introduced the idea of matching the organization's internal
factors with external environmental circumstances. This core idea was developed
into what we now call SWOT analysis; by Learned, Andrews, and others at the
Harvard Business School--General Management Group. The process is aimed to
assess the Strengths and weaknesses of the firm in light of the opportunities and
threats from the business environment.

Igor Ansoff built on Chandler's work by adding a range of strategic concepts and
inventing a whole new vocabulary. He developed a strategy grid that compared
market penetration strategies, product development strategies, market development
strategies and horizontal and vertical integration and diversification strategies. In his
1965 classic Corporate Strategy, he developed the gap analysis still used today in
which we must understand the gap between where we are currently and where we
would like to be, then develop what he called gap reducing actions.

Peter Drucker was a prolific strategy theorist, author of dozens of management


books, with a career spanning five decades. His contributions to strategic
management were many but two are most important. Firstly, he stressed the
importance of objectives. As early as 1954 he was developing a theory of
management based on objectives. This evolved into his theory of Management by
Objectives (MBO). According to Drucker, the procedure of setting objectives and
monitoring the progress towards them should permeate the entire organization, top
to bottom. His other important contribution was in predicting the importance of what
today we would call intellectual capital. He predicted the rise of what he called the
knowledge worker and explained the consequences of this for management.

In 1985, Ellen-Earle Chaffee summarized what she thought were the main elements
of strategic management theory by the 1970s:

Strategic management involves adapting the organization to its business


environment.

Strategic management is fluid and complex. Change creates novel


combinations

of

circumstances

requiring

unstructured

non-repetitive

responses/decisions.

Strategic management affects the entire organization by providing direction.

Strategic management involves both strategy formation (she called it


content) and also strategy implementation (she called it process).

Strategic management is done at several levels: overall corporate strategy,


and individual business strategies.

Michael E. Porter: Perhaps the most comprehensive writing on stratgeic


management was from Michael E. Porter, who developed several dimensions to this
lucid subject. His Five Force Model that explains the attractiveness of an industry
and the value chain analysis and the concept of core competency are some
notable contributions to startegic management.

Importance of Strategic Management


1.

Plans were merely extensions of what has been done in the past. Unless
these plans are altered as per the changes in the environment the
business may not get desired results. This is due to some environmental
shocks such as energy crises, accelarating technical changes and
increasing global competition.

Thus, the approach to long-range

planning is by developing a systematic approach to analysing the


environment, assessing the organizations strengths and weaknesses,
and identifying opportunities for competitive advantage; this is possible
only with a poper strategic management process in place;
2.

Strategic management is involved in many of the decisions that managers


make; It is involved in many significant current business events and covers
all the functional areas of business-Finance-Production-Marketing and
HRM (Human Resource Management) for proper managers strategic
decisions;

3.

It provides setting of specific goals and providing staff with unified vision;
and

4.

Companies with formal strategic management system have higher


financial returns; even Non-profit organizations are also using strategic
management.

Importance and Role of Managers In Strategic Management:


1. Strategic management integrates the knowledge and experience gained in
various

functional areas. Managers have a clear vision of the purpose and

direction of the company and dont hesitate to approach new directions or to


initiate major changes.
2. Managers have a strategic plan in order to ensure a strong competitive
position on the market and therefore achieve the desired outcome. They

believe that the competitive advantage is the key for obtaining a high revenue
and a long term success;
3.

High-performing organizations are strongly results-oriented and performanceconscious. Their managers consider the individual performance of each
employee as the motor of organizational competitiveness, and they fairly
reward outstanding results.

4.

It helps in understanding how policies are formulated and in creating


appreciation of complexities of environment. Managers understand the
internal requirements for successful strategy implementation and they insist
that careful attention be paid to the details required for first-rate execution of
the chosen strategy. They personally lead the process of strategy
implementation and execution. Managers need to begin by gaining an
understanding of the business environment (External and Internal) and how
to controlstrategic leadership.

Reasons Why Strategic Plans Fail:


Failure to execute in overcoming the four key organizational hurdles
o

Cognitive hurdle

Motivational hurdle

Resource hurdle

Political hurdle

Failure to understand the customer


o

Why do they buy

Is there a real need for the product

inadequate or incorrect marketing research

Inability to predict environmental reaction


o

What will competitors do

Fighting brands

Price wars

Over-estimation of resource competence

Can the staff, equipment, and processes handle the new strategy

Failure to develop new employee and management skills

Failure to coordinate
o

Reporting and control relationships not adequate

Organizational structure not flexible enough

Failure to obtain employee commitment


o

New strategy not well explained to employees

No incentives given to workers to achive the new strategy

Keys to Successful Strategy:


a) Searching actively for innovative ways the organization can improve on what it
is already doing.
b) Identifying new opportunities for the organization to pursue.
c) Developing ways to increase the firm's competitive strength and put it in a
stronger position to cope with competitive forces. Devising ways to build and
maintain a competitive advantage.
d) Deciding how to meet threatening external developments.
e) Encouraging individuals throughout the organization to put forth their ideas
f) Directing resources away from areas of low or diminishing results toward
areas of high or increasing results.
g) Choosing which businesses (or products) to abandon, which of the continuing
ones to emphasize, and which new ones to enter or add.
Review Questions:
1. Define Strategy and Explain its Nature?
2. Define Strategic Management and discuss various triggering events that

prompt a change in the strategy?


3. Give an outline of various contributions by early authors of stratgeic
management? Explain the benefits of strategic management?
4. Managers play a key role in ensuring success of a strategy? Do you agree?
Discuss

The total process of strategy formulation can be divided under two heads; (i)
Formulation and (ii) implementation. One should understand these two parts
thoroughly before initiating the strategy.
1. Strategy Formulation: This process has three major activities like:
a. The first step is to scan the environment. This is called also situation
analysis. It is about gathering information about the companys
strengths and weaknesses, self evaluationInternal. It is also about
examining the external environment-PEST analysis (P-Political, EEconomical, S-Social and T-Technology) and competitor analysis.
b. Next step is to decide on the objectives to be achievedboth financial
(Profit and ROI) and growth-Volume and Market Share.
c. Third important step is to design various operational plans to achieve
these set objectives. These plans cover all the functional areas of
business.
2. Strategy Implementation is critical for the success of strategy.
This involves the following activities:
a. The most important step in strategy implementation is to allocate
resources to various functional areas of business.Finance required,
technology required, employee skill development, new employee
recruitment and market support in the form of advertisement and
promotion, etc.

b. The organization should encourage employee participation which is


very important for the success of strategy. Employees are responsible
to utilize the resources effectively to achieve the objectives.

c. Third step is controlling and monitoring the actual results to ensure


that the plans are achieved effectively at all levels.

The Strategic Management Flow Chart

The Strategic Management Stages:


Stage I: Mission and Objectives:

The first stage in the formulation of strategy is to establish the mission statement of
an organisation.

Mission states the very purpose of the existence of an organisation.

It enlist the business psychology and management intent in defining its core
values pertaining to its customers (products and services) and stakeholders
(shareholders, employees, suppliers, financiers, government, society and
other interest groups).

The significance of mission is that all other managerial functions and the
direction of the organisation revolve around it. It pictures the idea of long run
commitment of the business.

Objectives are the end results that pave the way for achieving the mission

Objectives are derived from the mission statement.

Dalton McFarland defines objectives as, The goals, aims and purposes that
organisation wish to achieve over varying periods of time.

They show the required direction to managers to decide on what to achieve


and are integrated to the benefit of organisation and society.

Objectives are formulated at the corporate level, department level and


operational level.

Stage II: Environmental Scanning & SWOT Analysis


Weakness

OOpportunity

TThreat

SStrength

Environment refers to all those conditions that have direct or indirect bearing or
influence on the actions of a business for accomplishing the set objectives and
goals.
Environmental scanning is a process of gathering, analyzing, and dispensing
information for tactical or strategic purposes. The environmental scanning process
entails obtaining both factual and subjective information on the business
environments in which a company is operating or considering entering.
There are three ways of scanning the business environment:
Ad-hoc scanning - Short term, infrequent examinations usually initiated by a
crisis
Regular scanning - Studies done on a regular schedule (e.g. once a year)
Continuous scanning (also called continuous learning) - continuous structured
data collection and processing on a broad range of environmental factors
Nature of Environment: from the above definition some elements of environment
can be drawn and are presented below:
1.

Environment is largely external to the firm, even though internal factors do

matter in assessing the situation


2.

Factors of environment are mostly uncontrollable

3.

Change in environment factors is routine and a firm should try to


accurately measure these changes to the extent possible

4.

The environment varies from country to country

5.

Business activity is to relate its internal environment to the external


environment.

Significance of Environment Scanning:

A thorough analysis of environment allows a firm to identify the opportunities


and threats prevailing. A firm can avail the opportunities and prepares to
defend against the threats posed by the environmental factors.

Study of competitors position shall enable the firm to frame strategies to


improve the market standing.

The process allows a firm to improve the internal strengths pertaining to its
resources so as to face the external challenges more aptly. Environment
scanning helps a business organisation to prepare for any change with
alterations in internal factors, through effective change management
mechanism.

It incorporates a culture of dynamic and pro-active organisation.

Collection of information is vital for environment scanning which shall be useful


for day-to-day managerial decision-making.

Employees shall find the organisation more stable and results in low attrition
rate and high morale.

Types of Environments:
A business firm operates in three sets of environments:
(a) Mega Environment
(b) Macro Environment and
(c) Micro Environment

1. Mega Environment:
External mega environment is again two parts:

Part A: consists of global environment both overall world scenario and or specific
countries, which the firm intends to explore for possible entry. This shall pertain
to political, economical, social and technological (PEST) changes and the
influence on the industry in general, and on the firm. It is to

study

the

developments; opportunities and threats at global level.


Global Environment Analysis:

Global political influences on domestic country

World economical conditions

Trade agreements and tariffs

Social and cultural factors that may have bearing on the


domestic industry

FDIForeign Direct Investment and change

Part B: refers to the thorough analysis and evaluation of the concerned


industry (competition) in which the firm operates; for example iron and steel
industry, mining, textiles, retail, IT, etc. This competition analysis is done at
the doemstic level, in particular (All those countries where the firm has
operations) and at global level, in general to study the developments
and benchmarking.
Industry (Competition) Analysis:

Number and quality of competition

Market growth ratepresent and projected

Costs associated with the industry

Level of investment required for new entrant

Consumer loyalty pattern

Significance of technology

Global changes anticipated in the industry-Technology and


Marketing

Benchmarking of practices

Threat of entry of MNCs (Multi National Corporations)

2. Macro Environment:

Firms macro environment refers to the PESTEL framework: This covers


the total analysis of the country of operations (All the countries where
the firm has operations) ; the forces, which have a definete bearing on
the firm's operations and planning.

P- Political - Political stability, laws and regulations, import tariffs and


export incentives, industrial climate and support

E- Economical

- Economical Factors, foreign trade policy, national

income and GDP, currency exchange rates, unemployment, balance of


payments, personal income

S- Social-cultural - Socio-cultural factors, family and pattern of life


styles, role of women, urbanization, life expectancy, age distribution,
religion

T- Technological - Technology, changes in technology in particular


and in general that may affect the industry. Rate of adoption of
technology, R & D, communications and information technology.

E- Environmental

- Environmental issues, social awareness and

pollution control mechanism, legal framework and regulations, affluent


treatment.

L- Legal factors prevailing within the country of operations - Legal


framework of the country, patents and business laws, labour and
industrial disputes, companies act

3. Micro-Environment:
Internal micro-environment refers to the strengths and weaknesses of
the firm pertaining to its production, marketing, human and financial
resources (All Four Functional Areas)

Firms product mix and breadth of product line


Consumer loyalty
Band equity
Market share and position
Financial reserves
Credibility-- Ability to raise funds
Working capital cycle management
Patents
Raw material advantage
Inventory control mechanism

Technology used
R&D
Quality control
Human resource skills and morale
Attrition rate
Working climate
Public image
Top managements initiation and capabilities

Stage III: Identification and choice of Strategic Alternatives:


Michel Porter has advocated the concept of generic strategic alternatives for a
business at the corporate and business level. Once the objectives are laid and
environment scanned a business has to choose an appropriate alternative from the
corporate level and business level strategies. This is done with proper analysis of
strengths and weaknesses vis--vis the opportunity and threat measurement with the
interacted approach to companys overall objectives. It should appropriately take into
consideration the availability of resources and limitations of the firm.
Stage IV: Implementation of Strategy
Once the strategies are identified, management should allocate resources for
implementing the strategy. These resources may be financial, human or new
technology. Necessary change mechanism is to be incorporated at various levels in
the organisation to accept the new strategy. A manager has to prepare draft plans to
cover all the functional areas of businessoptions of finance, technology, creation of
facilities, products, services, distribution, suppliers; arrangement

of necessary

resources.
Stage V: Review and Control of Strategy
Proper control mechanism should be put in place to ensure that the chosen strategy
is on the right path and in line with the objectives and desired results. Standards are
fixed and time frame is set to ascertain and compare the actual results with
standards in order to find deviations and embark upon appropriate corrective
measures to ensure that the results are achieved.

STRATEGIC PORTFOLIO PLANNING


This approach seeks the best mix of investments among alternative business
opportunities available with the group companies.
THE BCG (Boston Consulting Group) MATRIX analyzes business
opportunities according to market growth rate and market share. The comparison
results in four possible business conditions, each with strategic implications:

Stars are high-market share businesses in high growth-markets.


They produce large profits through substantial penetration of expanding
markets. The preferred strategy for stars is growth, and further
resource investments are recommended.

Question Marks are low-market share businesses in high-growth


markets. They do not produce much profit, but they compete in rapidly
growing markets. The preferred strategy is growth but the risk exists
that further investment will not result in improved market share. Only
promising question marks should be targeted for growth; others are
candidates for retrenchment by re-structuring or divestiture.

Cash Cows are high-market share businesses in lo-growth markets.


They produce large profits and a strong cash flow. Because the
markets offer little growth opportunity, the preferred strategy is stability

or modest growth. Cows should be milked to generate cash that


can be used to support investments in stars and question marks.

Dogs are low-market-share businesses in low-growth markets. They


do not produce much profit, and they show little potential for future
improvement. The preferred strategy for dogs is retrenchment by
divestiture

Levels of Planning: StrategicTacticalOperational


Strategic Planning Features:
1. Strategic planning is menat to be long-term in nature say, 1-3 yrs
2. It is the job of the top management-Set Objectives at the corporate (Group)
and Business Level (Individual Business in the group)
3. Resource mobilizationFinance, HR, Production, Marketing
4. Strategic Partnerships and Alliances
5. Commitment on Information TechnologyMIS
6. Establish Policies and Action plans in consultation with middle management
Tactical Planning Features:
1. It is for a period of 1 to 6 months
2. Job of the Middle Management
3. Resource utilization is a key areaCommitment of funds, Creation of
Facilities, R & D Activities, HR initiates and Market support
4. Establish Time standards, Procedures and Budgets
5. Operational decisions like OutsourcingMake or Buy
6. Benchmarking of operationsJIT, TQM, etc.

7. Decisions related to Sourcing (Vendor Management or Supplier Relationship


Management), Inventory, Logistics, Product/Service related Strategies
Channel Partners Management, Custromer Relationship Management (CRM).
8. Preparation of reports for feedback to Top management

Operational Planning Features:


1. Job of the lower management 1 week/1 month
2. Day-to Day ActivitiesRules and Regulations
3. Scheduling the working of the company on daily/weekly basis
4. Demand planning and forecastingboth market (Finished product) and
production (Raw material)
5. Inventory managementreceiving, storing, issuing, transport and delivery of
Finished product to markets
6. Transaction processing, accounting, banking, employee salaries & Wages,
Welfare
7. Customer Relationship Management-After Sales Service.
8. Preparation of reports for feedback to middle management

Review Questions:
1. Strategy Formulation process can be summed up as formulation and
implementation? List the steps under each head?
2. Define Environment? What are the types of Enviroment scanning
3. Environment Scaning is essential for Strategy formulation? Do you
agree? Why?
4. Explain the PESTEL Framework with two examples under each
category?
5. Discuss in deatil the BCG matrix and how it helps in portfolio planning?
6. Planning is done at three levels? Discuss

Classroom Activity:
Sample mission statements are given below for reference.

Dell Computer's mission statement:

"Dell's mission is to be the most successful computer company in the world at


delivering the best customer experience in markets we serve. In doing so, Dell will
meet customer expectations of:

Highest quality ------------------------Leading technology


Competitive pricing------------------Individual and company accountability
Best-in-class service and support-----------Flexible customization
capability
Superior corporate citizenship------------------Financial stability"

McDonald's mission statement is:


"McDonald's vision is to be the world's best quick service restaurant experience.
Being the best means providing outstanding quality, service, cleanliness and value,
so that we make every customer in every restaurant smile. To achieve our vision, we
are focused on three worldwide strategies:
1. Be the best employer for our people in each community around the world,
2. Deliver operational excellence to our customers in each of our restaurants,
and
3. Achieve enduring profitable growth by expanding the brand and leveraging
the strengths of the McDonald's system through innovation and technology."
Mission HCT
The mission of the College of Technology is to achieve and sustain a strong
reputation for excellence in teaching and learning. The College is dedicated to the
delivery of high quality technical education and aims to produce graduates who have
the professional and personal skills to enter employment with confidence,
contributing effectively to the Sultanate's ongoing economic development.

Activity: Create your own company and write the mission statement.

Case Study/Assignment 1:
Wal-Mart to Offset Weaker Sales
It's no secret that a meaningful percentage of the country's retail business goes on
under the roof of Wal-Mart 's (NYSE:WMT) stores. To that end, when consumers are
feeling pressure (particularly those on the less affluent side of the ledger) it shows up
in Wal-Mart's sales numbers. This gigantic retailer didn't have a bad fiscal first
quarter, and it sounds like the fiscal year ahead should get better, but once again
Wal-Mart is having to turn to operating efficiencies to wring out some growth. The
structure and operations of this company have been defined by the need to lower its
costs and increase its productivity so that it could pass these savings on to its customers
in the form of lower prices. Result of effective SCM Strategies
Cross-docking is a practice of unloading materials from an incoming truck or rail-car
and loading these materials directly into outbound trucks, with little or no storage in

between. This may be done to change type of conveyance, to sort material intended
for different destinations, or to combine material from different origins into transport
vehicles (or containers) with the same, or similar destination.

A Tough Selling Environment Pressures the First Quarter

Wal-Mart reported just 1% revenue growth for the first fiscal quarter, though
underlying constant currency growth was a little more robust at nearly 2% and last
year's leap day weighed on the growth by almost a full point.

Sales for Wal-Mart's U.S. stores rose barely at all, and so too for Sam's Club (though
sales were up about 0.5% excluding fuel). Sales in Wal-Mart's international
operations were up about 3% as reported and more than 5% in constant currency
terms. On a same-store basis, though, U.S. companies declined about 1% with a
nearly 2% decline in traffic. Sales were relatively stronger in essentials like groceries
and weaker in more discretionary areas like entertainment and apparel.

Fierce efficiency has long been a hallmark of Wal-Mart (and a source of frequent
criticism), and that helped deliver better results once again. Operating income rose
about 1%, with the operating margin basically holding steady.
Will It Get Any Easier From Here?
Wal-Mart cited several factors at play in the first quarter. Due to the last-minute
changes in the tax code, refunds came a little later this year and that seemed to
impact the quarter to some extent. Likewise, customers found themselves with less
disposable income after the payroll tax increase, and would expect this to show up in
the results of other discount chains like Target (NYSE:TGT) and Dollar General
(NYSE:DG).
As it stands today, don't see any particular reason to expect a big rebound. The new
payroll tax isn't going away anytime soon, and the here today/gone tomorrow
nature of improvements in economic statistics like unemployment/job growth, wage
growth, and consumer confidence don't speak to a big surge in demand anytime
soon. Moreover, with over 50% of store revenue coming from groceries,
improvements would be a little negative anyway, though in-store efforts to improve
other areas likely to produce results should help at least incrementally.

Some analysts also speculate that Wal-Mart could be at risk from renewed
turnaround/improvement efforts of retailers like Kohl's (NYSE:KSS) and JC Penney
(NYSE:JCP). Don't exactly doubt that Wal-Mart has benefited from Penney's failures,
but it seems like there's always somebody doing better or worse at any given point in
the cycle.
The Bottom Line
Still prefer Wal-Mart's international operations to their U.S. business. Wal-Mart's
huge size within the retail sector makes it effective on the retail sector and investor
confidence in that sector. Consequently, the fact that even a long-term growth
forecast of 8% is possible only when everyone feels better about the U.S. economy.
Two Major Strengths of Wal-Mart are:
Cross docking-Inventory Management-Benchmark
Every-day low prices- EDLP
Activity:
Prepare SWOT from WAL MART
What is your own SWOT for a Super Market in MUSCAT?
Which businesses level strategy you recommend and why?
Cost Leadership
Differentiation
Summary & Suggestions

A company will need strategy at various levels, as there is a different need at each
level. A company may have a different business with a central corporate office. Thus,
there will be multiple strategies at different levels.

Different Levels of Strategy


The three main levels of strategy are:
1. Corporate level strategy
2. Competitive/Business level strategy

3. Functional/Departmental strategy

a.

Corporate level strategy


Every business must chose the number of businesses in which it will compete
and the relationships that will exist among those businesses. These decisions are
driven by the firms corporate level strategy, which identifies the range of
businesses that will comprise the total company. Corporate level strategy
occupies the highest level of strategic decision-making and covers actions
dealing with the objective of the firm, acquisition and allocation of resources and
coordination of strategies of various SBUs for optimal performance. Top
management of the organization makes such decisions.

Corporate level strategy makers analyze the commonalities of various business


units and work to add value to the whole system besides individual growth of
participating business units. In other words, corporate level strategy takes a view

at the overall scope of an organization and how to enhance stakeholders value.


Issues concerning the introduction of new products or expansion into new
markets or segments are all part of this strategic level. Assessing the value of a
business unit in the overall portfolio of activities is also a corporate level decision
alongside with optimal resource allocation for units (Ex: BCG Matrix).
Companies can pursue one or more of the following corporate strategies when
deciding what businesses to be in and how these businesses should relate to
each other.

Michel Porter has advocated the concept of generic strategic

alternatives for a business at the corporate and business level. Once the
environment is scanned, the firm has to weigh the appropriate strategy to match
its objectives. A firm can decide on any of the following alternatives:
These are further sub divided into three groups:
1. Stability Strategies
2. Growth/Expansion Strategies
3. Retrenchment Strategies
1. Stability Strategy: As the word specifies stability is to consolidate rather than
taking chances of exploring new areas. Stability strategies are adopted when an
economy is slowing down, particular industry forecast show rapid changes, the
markets are fully exploited by the firm and needs to safeguard the same against
possible threat of new entrants,etc., are some reasons. Under this strategies the
following are the variants:
(a) No change strategy: Under this strategy the firm shall concentrate on
protecting the present position for sometime rather taking charge to expand
and diversify. This normally happens when there is a major shift in the top
management and it shall take sometime for the new management to
understand the current situation of the business. It is also common to see
small business groups otping for desired profitability rather than growth and
once the state of profitability is reached shall try to protect the same.
(b) Pause and proceed: Slow groth is preferred rather than sudden expansion.
For example, when major changes are expected in the political and
economical factors that have a bearing on the business, the management
adopts to pause and proceed strategy. The basic idea is to watch the
changes of these forces to asses the positive/negative impacts and then

formulate the strategy.


(c) Profit strategy: When the firm is in a turbulent business environment with
uncertainty, it prefers to defend its markets and safeguard the present
profitability through cutting costs and reduction in wastage of resources, etc.
2. Growth Strategies: When an economy is booming and the industry indexes are
showing positive signs a firm shall embark on growth strategies. The growth
strategies are of five types:
(i) Growth through concentration: This is done with expanding the existing
business to the maximum possible extent. The firm wishes to exploit the
business to the maximum extent by concentrating on its products and markets.
The variants of this strategy are developed by Ansoff .
Market penetration: It is aimed to cover the existing markets to the full
extent covering the segments with existing products to enhance the market
share. It is backed by advertising and sales promotion tools and depends
on the stage of product life cycle. It is a process to pull the customers from
competitors and convert non users into users.
Market development: This is done with developing new markets for
existing products, which are so far unexploited with new channel partners
and expanding globally.

Product development: It is aimed to develop new products for existing


markets in the form of substitutes and compliments. For example, a
toothpaste manufacturer can expand by adding tooth powder (substitute),
tooth brushes and mouth fresheners (compliments) and
Diversification (Diffusion): This involves the process of developing new
products and venturing into new markets.
(ii)

Growth through integration: There are two variants under this


strategy:

Vertical integration, which shall prompt the firm to venture backwards


into its own raw material and components business. For example, a

steel plant may acquire iron ore minesbackward integration. Or it


shall result in forward integration, when a firm starts its own distribution
channels and warehousing. For example, a consumer electronic firm
opens own showrooms to sell the products directly to consumers.

Horizontal integration, when a firm acquires competing firms in the


same line of business. It is adopted in an effort to increase the size,
sales, profits, and potential market share.

(iii)

Growth

through

diversification:

Diversification

can

be

concentric

diversification that is expanding into related business in terms of existing markets,


products or using the same technology. For example, a TV manufacturing company
to expand into making of DVD playersserving the same markets as that of TVs.
Again in case the TV manufacturer starts computer monitors unit, it is using the
same

technology

and

treated

as

concentric

diversification.

Alternatively

conglomerate diversification is starting totally unrelated business venture to serve


different customers originally never belonged to the company and products that need
altogether different set of technologymachines and facilities. For example, a
company diversifying into unrelated fields like realestate, hotels, paper, edible oils,
etc.
(iv) Growth through internationalization: This is the result of the firms quest to
explore the international markets either with its existing products or manufacturing
products that are in demand in global target markets.
(v) Growth thorough cooperation: Strategic alliances form part of this type of
expansion. Firms come together with their distinct advantages like market access,
financial capability, and technological supremacy and HR skills to share the benefit
among them. These can be from a simple MoU (Memorandum of Understanding) to
a systematic JV (Joint Venture).
3. Retrenchment Strategies: This alternative is opted under a situation when a firm
wishes to apply contraction of or wind up of its operations. This is done thorough (i)
Turnaround; (ii) Divestment; and (iii) liquidation.
a. Turnaround Strategy: Turnaround strategy is designed to reverse a
negative trend in business by pruning the costs, reducing the distribution and

selling expenses, and finding other useful ways to get rid of unprofitable
products to transform the company into profit making and efficient
organisation.
b.

Divestment Strategy: This involves the sale of those units or parts of a


business that no longer contribute to the profits and growth of the business.
This also pertains to cutting down the size of the bsuiness. For example, an
automobile manufacturing firm may cut its capacity by half say from 10000
cars per year to 5000 cars. This will result in downszing work force by almost
half alongwith saving in expenses and hence it will be easier to manage and
survive.

c.

Liquidation Strategy: When both turnaround and divestment attempts to


improve the firms position fails, as a last resort the firm opts for liquidation.
Liquidation strategy is the choice in a situation of continuous and
accumulated losses, declining long term trend in sales and profits and when
the revival seems impossible with existing resources. This process of
liqidation involves legal aspect and has to be done according to the
provisions of prevailing Business Laws in the country of operation.

II. Competitive Strategies (Business Level Strategies)


Whether a company decides to concentrate on a single business or to diversify
into

several different ones, it should develop a competitive strategy for each

business.

According to Michael Porter, competitive strategy is a plan to

establish a profitable and long-term competitive position against competition.


According to Porter, three basic or generic competitive strategic options are
possible:
Business level strategies are essentially positioning strategies whereby
businesses tend to secure for themselves an identity and position in the market.
The aim here is to increase the business value for the corporate and
stakeholders by increasing the brand awareness and value perceived by the
customers.

A strategic business unit (SBU) may be a division or other profit center that can
be planned independently from the other business units of the firm. At the
business unit level, the strategic issues are about developing and sustaining a
competitive advantage for the goods and services that are produced.
,

Cost Leadership, Differentiation and Focus


1. Cost Leadership
The objective is to become the lowest cost producer in the industry. This
strategy is usually associated with large scale businesses offering standard
products with relatively little differentiation that are perfectly acceptable to the
majority of customers. Sometimes such organizations also give discounts to
maximize sales and further increase the market share. Examples of Cost
leadership: Dell Computers, Acer, Air Arabia Airlines.

Cost leadership requires aggressive construction of efficient scale facilities,


vigorous pursuit of cost reductions from experience, tight cost control,
avoidance of marginal customer accounts, and cost minimisation in areas like
R&D, service, sales force, advertising and so on. Low cost help defend itself
against all the five competitive forces.
Achieving low cost leadership requires:

High relative market share

Favourable access to raw material

Designing product that are easy to manufacture

Maintaining wide range of related products to spread the cost.

Aggressive pricing

Start up loss to build to market.

Once achieved, the low cost position provides high margin which can be reinvested to build up the resources in order to maintain the cost leadership.
Risks
Cost leadership imposes severe burdens on firms to keep up its positions,
which means re-investing in modern equipment, ruthless scrapping of obsolete
assets, avoiding product line proliferation(increase) and being alert on
technological improvements.

Thus, leadership is vulnerable to some risks which are:


Technological change which nullifies past investment or learning
Low-cost learning by industry newcomers or followers, through imitation or
through their ability to invest in state of art facilities.
Inability to see required product or marketing change because of attention
placed on cost
Inflation in costs that narrow the firms ability to maintain enough of a price
differential to offset competitors brands, image or other approaches of
differentiation.

2. Differentiation
It involves giving customers clear reasons to prefer the product over competitor
products. Example of Differentiation: Mercedes-Benz emphasizes quality,
Caterpillar emphasizes durability. This strategy involves selecting one or more
important features of product as preferred by buyers and then positioning the
business uniquely to meet those features.

Approaches to differentiation can take many forms such as:


Design or brand image
Technology
Customer service

Differentiation, if achieved is a viable strategy for earning above-average returns in


an industry because it creates a defensible position for coping with five competitive
forces, in a different way than cost leadership.

Differentiation provides insulation against rivals by:

Building brand loyalty by customers and resulting lower sensitivity to


price.

It also increases margins without low cost leadership

For the competitor to break the loyalty and the uniqueness of the product
is entry barrier.

It also helps to deal with supplier power because of better bargaining


power.

Achieving differentiation will imply trade-of with cost position if the activities
required in creating it are inherently costly, such as :
Extensive research
Product design
High quality materials
Intensive customer support
Risks
The cost differential between low-cost competitors and the differentiated firm
becomes too great for differentiation to hold brand loyalty. Buyers thus
sacrifice some of the features, services or image possessed by the
differentiated firm for large cost savings;
Buyers need for the differentiating factors falls due to any reason
Imitation narrows perceived differentiation, a common occurrence as industries
mature.
3. Focus
A business pursuing a focus strategy selects a market segment and builds its
competitive strategy on serving the customers in its market better and sometimes
more cheaply

than its competitors. This is also called niche marketing,

concentrating on single segment. For example: In USA there are certain


readymade cloth manufacturers which focus on very tall or fat people. This
strategy is focusing on a particular buyer group, segment of product line, or
geographical market. Like differentiation, focus may take many forms. Although
the low cost and differentiation strategies are aimed at achieving their objectives
industry wide, the entire focus strategy is build around serving a particular target
very well, and each functional policy is developed with this in mind. The strategy
rests on the premises that the firm is able to serve its narrow strategic target more
effectively and efficiently than those competitors who are competing more broadly.
As the result the firm achieves either differentiation from better meeting the needs
of the particular target, or lower cost in serving this target or both. Even though

the focus strategy does not achieve low cost or differentiation from perspective of
the market as a whole it does achieve either or both of these positions vis--vis
its market target.

The three generic strategies differ in dimensions other than the functional
differences noted above. Implementing them successfully requires different
resource skills. The generic strategies also imply differing organizational
arrangements. Control procedures and inventive systems. As a result of
sustained commitment to one of the strategies as primary target usually
necessary to achieve success.
Generic
strategy
Overall cost
leadership

Differentiation

Focus

Commonly required skills and


Common organisational
resources
requirements
Substantial capital investment
Tight cost control
and access to capital
Process engineering skills
Frequent , detailed control reports
Structured
organisation
and
Intensive supervision of labor
responsibilities
Products designed for ease in Incentive based on meeting strict
manufacture
quantitative targets.
Low-cost distribution system
Employeee retention
Strong
coordination
among
Strong marketing abilities
functions
in
R&D,
product
development, and marketing.
Subjective
measurement
and
Product
engineering
and
incentives instead of quantitative
creative flair, R & D
measures
Corporate reputation for quality Amenities to attract highly skilled
or technological leadership
labor, scientist, or creative people.
Long tradition in industry or
Effetive
CRM
&
Custioemr
unique combination of skills
Retention
drawn from other businesses
Strong
cooperation
from
Effcetive feedback mechanism
channels
Combination of above policies Combination of above policies
directed at a particular strategic directed at the particular strategic
target
target

Competitive Strategy and Five Forces Model

To formulate a competitive strategy, the manager should understand the


competitive forces that together determine how intense the industrys rivalries are
and how to best compete. Based on that analysis, the organization must find a
sustainable competitive advantage, that is, a basis on which to identify a relative
superiority over competitors. According to Porter, competitive strategy depends
on competitive intensity.
Michel Porters Five Force Model

The Five Forces Framework

Source: Adapted from M.E. Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors 1980, Free
Press, 1980, p. 4. Copyright 1980,1988 by The Free Press, a division of Simon & Schuster Inc. Reproduced with permission.

Exhibit 2.5
Tutor Peter Considine. (Core Text Exploring Corporate Strategy, Seventh Edition, Pearson Education Ltd 2005)

Competitive Intensity Reflects Five Competitive Forces:

a) Threat of entry, In general, the more easily new competitors can enter the
business, the more intense the competition. However, there are several
barriers which can make it difficult for new entrants to enter. For example its
not easy to enter automobile industry because of high investment required for
plant, equipment and technology. Sometimes, government rules and
regulations make it more difficult for new players to enter the field. For
example, in Oman, there was only one mobile service provider because
except Oman Mobile, no other company had the license. Now there are
several mobile service providers because the government allows more
licenses for the other providers.

b) Competitive Rivalry among existing competitors, Rivalry among existing


competitors results in tactics like price competition, advertising battles, and
increased customer services. For example: the competition among competitors in
the housing sector in Dubai was not so intense a decade ago. But the level of
competition has changed with the entry of more property developers.

c) Pressure from substitute products, substitute products performs the same


or similar functions. The more substitutes available for a product, the more would
be the competition as every company wants to retain its customers from moving
to substitute products by offering lower prices, discounts, schemes, etc. coffee
and tea are good examples of substitute products.
d) Bargaining power of buyers The buyers power is another competitive factor.
For example, a buyer group is powerful if it purchases large volumes relative to
the company sales. Wal-Mart purchases huge volumes of products for its stores
all over the world. This will intensify the competition as all companies try to
acquire the business from Wal-Mart and Wal-Mart naturally dictates the terms.

e) Bargaining power of the suppliers. Suppliers can also influence an


industrys competitive intensity and attractiveness, for example, by threatening to
raise prices or reduce quality. The bargaining power of the suppliers increases
when:
a) There are only a few firms supplying the item--electricity
b) few substitutes are available-petrol
c) suppliers products are an important input to the buyers business-special
chemicals

III. Functional Strategies


The functional level of the organization is the level of the operating divisions and
departments. The strategic issues at the functional level are related to business
processes and the value chain. Functional level strategies in marketing, finance,
operations, human resources, and R&D involve the development and coordination of

resources through which business unit level strategies can be executed efficiently
and effectively.
Functional units of an organization are involved in higher level strategies by
providing input into the business unit level and corporate level strategy, such as
providing information on resources and capabilities on which the higher level
strategies can be based. Once the higher-level strategy is developed, the functional
units translate it into discrete action-plans that each department or division must
accomplish for the strategy to succeed.

Functional strategies cannot be formulated unless the business has a clear direction
in terms of the competitive strategy it wants to pursue. Once that is done, the
functional areas must match its competitive strategy. Some examples of generic
marketing strategies are given below:

(i) Defensive
It's often said that the best defense is a good offense. Here, that means taking care
of customers lest a competitor takes them away. That calls for a defensive marketing
strategy designed to retain customers and continually win their business. Customer
Relationship Management (CRM) and customer loyalty programs are two excellent
marketing tactics for improving markets and revenues around your best customers.
Ex: Apple & Blackberry
(ii) Offensive
With a defensive marketing strategy in place, you can mount an offensive. Maybe
your company has a new product/service. Or you spot a weak area in competitor's
product/service offering. It may be an untapped opportunity for your product offering.
Offensive strategy is to be carefully adopted as you are about to touch the
competitor and may invite resistance from competitors in the form of improved
advertisements/price reductions/better value products. Best example of offensive
strategy is the smart phones of Samsung, which made the company market leader

due to sustained R & D and product improvements that left competition brands
loosing customers to Samsung.

Review Questions:
1. Under what circumstances an organisation prefers stability strategy? Explain all
the options under stability strategy?
2. A firm wishes to specialize in one line of business What are your alternatives
for growth?
3. Compare and analyze the cost leadership and differentiation strategies? In your
opinion, which is good?
4. Explain in detail the BCG Matrix? How it helps in portfolio planning?
5. Five Force Model examines the competitive position of a particular industry
Discuss
6. Write Short Notes on:
a. Integration strategies
b. Focus Strategy

Classroom Exercise/Assignment
How Nokia went from a position of domination to abandoning its
handset business
In just five years Nokia fell from dominating the mobile phone industry to
abandoning the handset business, a swift fall from grace with lessons for
market leaders.
The story of Nokia, now at the toughest stage of the restructuring cycle, is a
particularly salutary business case about the fast-moving, high-risk, high-reward,
tech sector consumer goods. The rapid decline, which is ending with the 5.44
billion euro ($7.5 billion) sale of the mobile phone division to Microsoft, owed
much to Nokia growing too big, too fast and its management getting drunk on
their own success, analysts say.
Looking back after years of Apple iPhone dominance, some may have difficulty in
recalling that Nokia, in its heyday in 2007 took more than 50 percent of the world
market for early smartphones. They had become arrogant at Nokia and as a
result they were too slow to react to changes in the world around them," Petri
Rouvinen, a researcher at the economic think tank ETLA, told AFP.
The technology of the iPhone upended the mobile handset business. It also
highlighted the critical importance in any business, but particularly in the hightech sector, of getting the timing right. Not only did the iPhone, with its touch
screen, become a hot fashion item worldwide, but also the operating system with
paid-for applications invented a new revenue stream for Apple.

When Google's Android took off in 2009, it became clear that handset
manufacturers had lost dominance to the operating systems which generated
revenue from applications sold to users. Nokia's management was aware that a
digital revolution was underway but in a recent book it's former chief executive
Jorma Ollila said the company peaked too soon investing heavily in smart phone
technology before operators were ready to offer services.
Analysts said another lesson is to have the appropriate expertise on the
board. They said that Nokia had suffered from a culture of sycophancy towards
Ollila at the helm for 14 years until 2006. Canadian firm BlackBerry is the latest
example of a market leader fallen by the wayside.
Nokia was already a business case of how to engineer corporate
transformation.

2. Sony CorpStruggling Fish


Sony Corp stepped up efforts to turn around its unprofitable electronics
operations, quitting the personal computers business and splitting its TV division
into a separate unit as it warned it expects steep losses this year.
The Japanese company said on Thursday the restructuring will cut 5,000 jobs
and trim 100 billion yen a year from fixed costs in the longer term. Losses in the TV
business have long dogged its efforts to compete with global consumer electronics
giants like Apple Inc and Samsung Electronics Co. Sony said the PC division, as
widely expected, will be sold to investment fund Japan Industrial Partners, which will
set up a separate company to take over the operations. Financial terms of the sale
weren't disclosed, but Sony will initially hold a 5 percent stake in that company.
The TV operations will be spun off into a separate unit by July 2014, Sony said.
Having last turned an annual operating profit in the 12 months ended March 2004,
Sony's TV business piled up losses of 761.9 billion yen in the nine fiscal years before
the current one. Sony officials on Thursday said they expect to lose another 25
billion yen on TVs this year.
Buoyed by a strong performance in its financial services unit in the OctoberDecember quarter, Sony posted an operating profit for the three months of 90.3
billion, up from 46.43 billion yen a year earlier. That was above consensus forecasts
of 71.9 billion yen, the average of estimates from six analysts surveyed by Thomson
Reuters I/B/E/S.

But with core businesses like its smartphone, PCs, TVs and audio operations weaker
than it expected through the first nine months of the fiscal year, Sony slashed its fullyear operating profit forecast to 80 billion yen from the 170 billion yen it previously
expected.

1.
2.
3.
4.
5.

Answer all those highlighted words in Bold?


What is your PEST in Electronics Business in Oman
Prepare SWOT (Expected--depending on the PEST analysis) ?
What strategy you suggest to already existing companies in mobile business?
What is your strategy for a new company willing to start a mobile phone
manufacturing business in Oman?

A business undertaking performs several activities in order to finally deliver the


product to the ultimate consumer. These activities keep adding the value to the base
raw material by the time it reaches the consumer. Michiel Porter has divided these
activities as Primary and Secondary.
Value Chain analysis is a process of identifying the primary and secondary
activties of an organisation and benchmarking the same for competitive advantage.

Primary Activities:

Inbound Logistics: Receiving, warehousing and storing the raw material

Production Operations: The process of converting raw material into


finished products

Outbound Logistics: Physical movement of finished goods to the channel


partners and ultimately reaching the consumer

Marketing and Sales: Identification of consumer needs and designing the


product or service accordingly and sales function is converting the finished
products into cash.

After Sales Service: Is the support activities involved post sale of the
product

Support Activities:

Procurement: A process of arranging the right quantity of inputsraw


material, spares and equipment, components, etc. at the right time of the
right quality.

Human Resource Management: Planning to arrange right employees at all


levels with right qualifications and skills as demanded by various jobs. It
includes the development and compensation of employees.

Research and Development: A set of activities designed to strive for


continuous improvement in the methods and procedures, designs and
operations of all activities, products and services.

Administration and Infrastructure Management: Involves the administrative


support activities like finance, legal, MIS, facilities management, etc.

All these activities, if done in a systematic manner shall enhance the value to
create an advantage for the firm and increase consumer satisfaction in the form of
improved quality at reasonable price. The chain of activities gives the products more
added value than the sum of added values of all activities. It is the effect of synergy.
It is important not to mix the concept of the value chain with the costs occurring for
the activities. For example, the activity of polishing a wooden chair may involve less
time and less skill but the value added is more significant as the chair without polish
looks raw and may not be attractive.

Picture of Value Chain Analysis

Significance of Value Chain Analysis:


The continuous analysis and improvement in the activities of a firm shall result in
several advantages to the organization, as explained below:
Continuous analysis and improvements in work methods and procedures eliminates
waste and contributes to lower cost and high profits.
1. Improved production methods contributes to quality enhancement and less
defectives
2. The value chain analysis creates value all long the chain of activities for better
value service to customers.
3. The process aims at time management in procurement and dispatch of
materials resulting in savings in material handling and storage costs. Proper
analysis of activities like procurement, and logistics facilitate a firm to operate
with low inventories and reduced operation cycle of working capital.
4. Improved performance with emphasis on employee training and development

results in employee satisfaction and less absenteeism and attrition.


5. Value chain analysis shall result in competitive advantage to a firm both
through overall cost leadership and improved attributes of product, resulting in
differentiation.
6. It shall result in improved coordination among various activities for synergy.
7. A systematic analysis of various activities shall prompt a firm to take outsourcing decisions all along the value chain activities, such as make or buy,
manufacture or assemble, etc.

CORE COMPETENCY/COMPETITIVE ADVANTAGE


The basic pupose of any strategy is to provide the firm with a competitive advantage,
an edge over competition. In other words, any strategy without competitive
advantage is like a car without fuel.
Definition: Competitive Advantage is defined as the ability to do something so well
that one outperforms competitors. It is the ability to use resources in such a way that
the organization performs better than the competitors.
Sources of Competitive Advantage

Cost and Quality- where strategy drives an emphasis on operating efficiency


and product or service quality

Knowledge and Speed where strategy drives an emphasis on innovation


and speed of delivery to market for new ideas

Barriers to Entry where strategy drives an emphasis on creating a market


stronghold that is protected from entry by others

Financial Resources where strategy drives an emphasis on investments or


loss absorption that competitors cannot match.

It is that strength through which a firm can dictate terms of its own in the market.
Competition finds it difficult to imitate this particular advantage in the short run. The
area of core competency/advantage can be a low price, market coverage, product
features, brand and customer base, etc. For example, Toyota cars are known for the
quality and market coverage. Sony products are known for quality.
Features of Competitive Advanatge:
1. It is unique to a particular organization
2. It pertains to any functional area like production, marketing, finance, and
personnel.
3. It cannot be easily imitated by competitors in the short run
4. It should give considerable returns to an organization in the form of new
markets or improved position in the existing market
Achieving Competitive Advantage: An organisation needs best practices to
achieve competitive advantage, which are explained below:
a. Localization of Global Markets: Implementing simultaneous strategies of
localization and globalization in global market returned Panasonic to a profitable
growth path. In 2000, the company suffered its first loss due to Chinese competitors
effectively exporting to the US, Europe and South Asia. In response, Panasonic
shifted from a US-based view to a global view. It set up a center focused both on
local Chinese market needs and on globally available and soon-to-be available
Panasonic products. The center uncovered a need for narrower refrigerators,
allowing fridge sales to increase ten-fold in one year. It also found a need to sterilize
laundry. Panasonic was the first major player to bring this capability to market. As a
result, the front-loaded washer market share in China increased from 3% to 15%.
b. Strategic Alliance or Acquisition: Strategic Alliances are an important source
of capabilities a firm may not otherwise possess. Few firms have all the capabilities
needed to compete effectively in the world of fast-paced change. Consequently,
successful strategic alliances can bring significant competitive advantage.
c. Company Wide Market Orientation: Based on 9 years of data, Kumar et al find
that market orientation has a positive effect on business performance in the short
and the long run. It can take some time for the market orientation to have a positive

effect, so management needs to provide support. It is in the interest of long run


success companies need to shift from production to market orientation.
d. Strategic Fit Between Production and Marketing: The crux of this is to ensure
the customer requirements of the companys marketing strategy are met by the
manufacturing strategy. Misalignments need to be identified and transformed into
strategic fit.
e. Human Capital: Human capital in the form of a highly trained workforce can be
the source of competitive advantage, particularly if employees do not take their skills
to competitors. Many studies demonstrate that employee engagement can be a
source of competitive advantage. One study, taking place in the labor-intensive
hotel industry, found that the highly satisfied, motivated, committed and fully
engaged employees yielded a higher market share than their competitor

Developing Core Competency/ Competitive Advantage:

1. Learning Curve Effect: Learning curve denotes the efficiencies acquired


by a firm through the passage of time. As the same process of business
activity is done time and again, the chances of improving the technology,
methodology and employee skills are bright, compared to a new business.
This practice makes the business achieve perfection and allows
developing significant competencies like patents, cost leadership and
superior quality goods and services, which may act as core competency to
gain market advantage over competition.
2. Acquisition advantage: A core competency may be the result of
acquisition of another business venture. For example, an existing steel
plant without its own iron ore mines may acquire a company with iron ore
mines and thus, can develop competency to deliver the product at cheaper
cost.
3. Alliance: A competency may be acquired through partnership with other
businesses, which are strong in a particular area of expertise. For
example, in India, Fiat of Italy has formed its alliance with TaTa Motors,
which has strong dealer network to distribute its cars.

4. Innovation: A core competency may be because of constant R&D activity


and creativity on the part of the business to invent new technology,
methods of operation, etc.

It is to be noted that a core competency is not exclusive to any business. It is


developed with dedication and hard wok from all the forces in an organization. An
organization should incorporate all essential features of a successful business like:

(i)

Focusing its activities on customer;

(ii)

Concentrating on TQM (Total Quality Management);

(iii)

Adapting to change;

(iv)

Forming alliances and coalitions with others; and

(v)

Developing teamwork and innovation in organization through


employee participation

Review Questions:
1. Define value chain analysis and explain the primary activities of Value chain?
2. Do you think secondary activities needs all the attention-Why
3. Developing core competency needs some best practicesWhat are they
4. Explain in detail how an organisation can develop competitive advantage?

INTRODUCTION
The fundamental idea of corporate social responsibility is that business
corporations have an obligation to work for social betterment."
The Classical View
Some observers, ranging from Adam Smith to Milton Friedman, have argued that
social responsibility should not be a part of management's decision making process.
Milton Friedman has maintained that business functions best when it sticks to its
primary mission - producing goods and services within society's legal restrictions. Its
sole responsibility is to attempt to maximize returns. Friedman states his theory
about social responsibilities of business in the following passage from Capitalism
and Freedom:

In such an economy, there is one and only one social responsibility of


business - to use its resources and engage in activities designed to increase
its profits so long as its stays within the rules of the game, which is to say,
engages in open and free competition without deception or fraud.

Peter Drucker argues business have a role in society which is "to supply goods and
services to customers and an economic surplus to society...rather than to supply
jobs to workers and managers, or even dividends to shareholders". The latter he
argues, are means not ends. Drucker contends that it is mismanagement to forget
that a hospital exists for its patients and a university for its students. This classical
view holds that business should not assume any social responsibility; thus, the one
and only obligation of business is to maximize its profits without deception or fraud.

In earlier times,

managers had only to concern themselves with the economic

results of their decisions. Today, it is generally accepted that business firms have
social responsibilities. Moreover, managers feel that in order to respond effectively
and efficiently to the major social issues, corporate social policy must be integrated
into corporate strategy.

The Contemporary View


The contemporary view is that business, as important and influential members of
society, are responsible to help maintain and improve the society's overall welfare.
Kenneth Dayton argues, that:
To maintain that business must change its priorities. We are not in business
to make maximum profit for our shareholders. We are in business for only one
reason - to serve society. Profit is our reward for doing it well. If business does
not serve society, society will not tolerate our profits or even our existence.

A strong advocate of corporate social responsibility, Keith Davis offered a classic


definition of corporate responsibility as:

"the firm's consideration of, and response to, issues beyond the narrow
economic, technical, and legal requirements of the firm in order to accomplish
social benefits along with the traditional economic gains which the firm
seeks."

He elaborates on this view in terms of the following five propositions:


Proposition 1: Social responsibility arises from social power.

Proposition 2: Business shall operate as a two-way open system with open receipt
of inputs from society and open disclosure of its operation to the public.
Proposition 3: Both the social costs and the social benefits of an activity, product, or
service shall be thoroughly calculated and considered in order to decide whether or
not to proceed with it.
Proposition 4: Social costs related to each activity, product, or service shall be
passed on to the consumer.
Proposition 5: Business institutions, as citizens, have the responsibility to become
involved in certain social problems that are outside of their normal areas of
operation.

Comparison of Two Views on Social Responsisibility


The question of whether or not it is proper for a corporation to pursue social
responsibilities objectives has long been a subject of controversy among
researchers and managers.
A. Argument For Voluntary Actions by Corporations.
According to Steiner and Steiner, there are three major ideas in the argument that
business should assume social responsibilities:
Society expects business to assume social responsibilities.
The long-run self-interests of business are best served when business assumes
responsibilities.
The assumption of social responsibilities serves to reduce government
regulation and public criticism.

B. Arguments Against Voluntary Actions by Corporations.


This view is founded on four related ideas:
Profit maximizing is the only legitimate purpose of business.
Social responsibility subverts (undermine) the market system.
The roles of government and business will be confused.

The pursuit of social programs as well as economic goals could make


corporations too powerful.

Managers today feel that once a clear separation between public and private sectors
has broken down; in order to respond effectively and efficiently to the major social
issues and demands of the day, corporate social policy must be integrated into
corporate strategy; at the same time many of these stakeholders feel that much of
the business community has not and is not adequately dealing with many of these
social problems of concern.

Social responsibility is complex because it must be made in a wide variety of areas.


It encompasses three major areas for social issues:
1. Total compliance with international, federal, state, and local legislative laws
and acts.
2. Moral and ethical standards and procedures under which the firm will operate.
3. Philanthropic giving.
Some Factors that must be considered are:
Unique laws and codes of ethics in each country
Taxes, price fixing, and bribery
Joint venture as differentiated from full ownership of foreign operations
Training of foreign nationals
Control of air, water, solid waste, radiation, noise, land, and chemical
pollution
Safety standards
Health care
Education
Equal opportunity regardless of race, sex, age, handicap, religion, or creed
Unemployment
Inadequate transportation
Product safety, packing, and quality
Pricing
Support
Enrichment of the arts
Other areas of community

The question of whether or not it is proper for a corporation to pursue social


responsibilities, objectives has long been a subject of controversy among
researchers and managers. The classical view holds that business should not
assume any social responsibility. The contemporary approach to social responsibility
is that business, as important and influential members of society, are responsible to
help maintain and improve the society's overall welfare.

Corporate Social Responsibility (CSR)


Social responsibility of a business can be conveniently summed as the obligation on
the part of the business to discharge its duties as any other citizen in an ethical
manner towards the society in general and towards various stakeholders of
businessrelated both directly and indirectly, in order to justify business as a
member of modern society of equality and prosperity.

Business enterprises are primarily accountable to six major interest groups: These
groups are also known as stakeholders.

A. Shareholders
The primary responsibility of a business is to protect the interests of its shareholders.
They expect the management to use the capital properly and operate the business in
a way that ensures a good return on their investment, both through dividends and
through increase in stock value. Shareholders should be provided with adequate and
timely information about the functioning of the organization.

B. Employees
The traditional economic concept of organizational functioning does not give workers
their proper share in the distribution of income. The owners and managers have too
much power under the economic state of affairs. Thus, it is the management's
responsibility to protect the interest of workers in the organization.

Laws and

government regulations now define the responsibilities of the employer: ensuring


equal employment for men and women, offering pensions and other retirement
benefits, and providing a safe and healthy work environment.

C .Customers
The growth of consumerism has made firms more aware of their duties towards
consumers.
Business firms can fulfill their obligations to their customers by:
1. Customers should be charged a fair and reasonable price.
2. The supply of safe goods and services should be of uniform standard and of
reasonable quality.
3. The distribution of goods and services should be widespread so that customers
do not face any problems in procuring them.
4. Unethical practices like profiteering, hoarding, or creating artificial scarcity should
be avoided.
5. Management should not mislead the customers by false, misleading and exaggerated advertisements.
D. Creditors and Suppliers
Creditors and suppliers are responsible for providing inputs for production
process in the form of raw materials and capital. Management is responsible for
fulfilling its obligations to its creditors and suppliers.
This can be done by:
i. Creating a long-term and healthy business relationship with them.
ii. Making prompt payments to creditors and suppliers.
E. Society
Organizations function within a social system and draw their resources from this
system. Therefore, they have certain obligations towards society. The
management of business organizations can fulfill their obligations toward society
by preserving and enhancing the well-being of the members of society.
Management can do so by establishing development programmers for the benefit
of economically weaker sections of society like providing basic amenities,
healthcare and education facilities, thus, creating better living conditions.
F. Government

The government of a country provides the basic facilities required for the survival
and growth of businesses. The government monitors and, to a certain extent,
controls the business systems of the country. Most of the controls imposed by the
government are in the best interests of businesses and society.
To fulfill its obligations to the government, the management of business
organizations should:
i. Be law-abiding.
ii. Pay taxes and other dues fully, timely and honestly.
iii. Not to bribe government servants to obtain favors for the company.
iv. Not try to use political influence in its favor.
Measuring Social Responsibility: To help evaluate how well as company is doing
in the areas of social responsibility, the social audit has been developed as
preliminary guide. Based on the results of this basic evaluation, the company can
see what and where improvements can be implemented. The various categories for
measuring the social responsiveness of organizations are discussed below (these
can vary depending on the industry or company).

1. Companies make direct financial contributions to charitable and civic projects


2. Companies involvement in fund-raising for a social cause, either by the
organization itself or by assisting voluntary social organizations in fundraising.
3. Volunteerism refers to the involvement of employees in civic activities.
4. To conserve the environment, materials like plastic, paper etc. should be
recycled into useful products.
5. Often, companies make direct investments to provide facilities for a locality or
a community.
6. Pollution is a major problem caused by rapid industrialization. Increasing
public awareness and government pressure have made corporations more
environment conscious.
Corporate Social Responsibility-strategies:

1. Proactive Strategy:

Take initiative in social programs

Meet economical, legal, ethical and discretionery


repsonibilities

2. Accommodative Strategy:

Do what is ethically required


Meet economic, legal and ethical responsibilities

3. Defensive Stratgey:

Do minimum legally required


Meet economical and legal responsibilites

4. Obstructional Stratgey:

Fight social demands


Meet economic repsonibilities

Action Plan:
1. Proactive Strategy: Meets all the creteria of social responsibility
including descretionery performance
2. Accommodative Strategy: Accepts CSR and tries to satisfy
economic, legal and ethical standards
3. Defensive Stratgey: Seeks protection by doing what is minimum
4. Obstructional Stratgey: Avoids CSR; infact opposes the business
role in CSR and reflects mainly economic proirities

Review Questions:
1. The contemporary view is that business, as important and influential members of
society, are responsible to help maintain and improve the society's overall
welfare -Discuss
2. List various points to study under CSR towards, Customers, Employees and
Government?
3. Define CSR? How you can understand that an organisation is socially
responsible?
4. Discuss in detail various strategies of companies towards CSR alongwith the
corresponding action plan?

No matter how well or elegantly selected, a strategy requires supporting structures, a


good allocation of tasks and workflow designs, and the right people
aspects of operations.

to staff all

The strategy needs to be enthusiastically supported by

leaders who are capable of motivating everyone, building individual commitments,


and utilizing teams and teamwork to their best advantage. And, the strategy needs to
be well and continually communicated to all relevant parties.
Poor Management Practices Hinder Strategy Implementation In A Number Of
Ways:

Failures of Substance reflect inadequate attention to the major strategic


planning elements, resulting to poor strategic analysis and bad strategy
formulation

Failures of Process reflects poor handling of the ways in which strategic


management is accomplished.

Lack of Participation Error is a failure to include key persons in the planning


process. As a result, they lack commitment to all-important action and followthrough. Process failure also occurs with too much centralization of planning
from top management, or too much delegation to staff planners or separate
planning department.

Goal Displacement- is the tendency to get so bogged down in details that


planning process becomes an end in itself, instead of a means to an end.

Corporate Governance Corporate governance is a set of processes, policies,


laws, and institutions which have impact on the way a company is controlled. An
important theme of corporate governance is the nature and extent of accountability
of people in the business, and mechanisms to monitor those people.
Corporate governance also includes the relationships among the many stakeholders
involved and the goals for which the corporation is governed. In contemporary
business corporations, the main external stakeholder groups are shareholders, debtholders, trade creditors, suppliers, customers and communities affected by the
corporation's activities. Internal stakeholders are the board of directors, executives,
and other employees.

Corporate scandals of various forms have maintained public and political interest in
the regulation of corporate governance. In the U.S., these include Enron Corporation
and MCI Inc. (formerly WorldCom).

Areas of Corporate Governance:

1. Rights and equitable treatment of shareholders: Organizations should


respect the rights of shareholders and help shareholders to exercise those

rights. They can help shareholders exercise their rights by openly and
effectively communicating information and by encouraging shareholders to
participate in general meetings.
2. Interests of other stakeholders: Organizations should recognize that they
have legal, contractual, social, and market driven obligations to nonshareholder stakeholders, including employees, investors, creditors, suppliers,
local communities, customers, and policy makers.
3. Role and responsibilities of the board: The board needs sufficient relevant
skills and understanding to review and challenge management performance. It
also needs adequate size and appropriate levels of independence and
commitment to fulfill its responsibilities and duties.
4. Integrity and ethical behavior: Integrity should be a fundamental requirement
in choosing corporate officers and board members. Organizations should
develop a code of conduct for their directors and executives that promotes
ethical and responsible decision making
5. Disclosure and transparency: Organizations should clarify and make publicly
known the roles and responsibilities of board and management to provide
stakeholders with a level of accountability. They should also implement
procedures to independently verify and safeguard the integrity of the company's
financial reporting. Disclosure of material matters concerning the organization
should be timely and balanced to ensure that all investors have access to clear,
factual information.

Tools for Evaluating Corporate Governance:

Auditing
Board and management structure and process
Balance of Power-MBO
Structure and Role Dispersion (Middle-Lower Level)
Corporate Social Responsibility and compliance
Financial transparency and information disclosure

Corporate Governance and Competitive Strategy:

1. Corporate governance mechanisms can be viewed as having various


elements that are able to affect an institution's motivation and capability
to undertake competitive actions. The capability components of
corporate governanceequality, transparency, employee participation,
reward system, social accountability, etc., supplement institution's
capability, thus having direct effects on firmlevel competitive behavior.
2. Its scope covers the activities of planning, implementation, evaluation,
and control of various actions in order to achieve the objectives. This is
done through effective policy formulation, environment interface
(including political, economical and competition analysis). Thus
ensuring performance at all levels.
3. Serious and sustained attention adopted towards building a sound
system of human values shall develop a healthy corporate culture that
helps in employee retention, for competitive advantage.
4. TQMTotal Quality Management is an integral part of corporate
governance, which shall ensure long-term and healthy growth in the
competitive market conditions.

Corporate governance propagates the trusteeship function of the management and


as such shall concentrate on division of benefits among all the stakeholders. Thus
there is need for intellectual honesty, integrity and transparency, which shall form the
basis for good corporate governance

Strategic Control makes sure strategies are well implemented and that poor
strategies are scrapped or modified.
The current trend is toward greater emphasis on the responsibilities of corporate
governance.

Top management feel more performance accountability today than

ever before to boards of directors and other stakeholder interest groups. But just as
a board of directors is expected to exercise strategic control of the enterprise. That is
they are supposed to make sure that strategies are well implemented and that poor
strategies are scrapped or modified to quickly meet performance demands of
changing conditions.

And just when questions are asked if there was strategic control over the previous
years. Was top management in control of these firms in the run-up to the economic
crisis and collapse of markets, or was lack of control in part to blame for their
inabilities to achieve and maintain competitive advantage versus foreign rivals?
Strategic Leadership inspires people to continuously change, refine and improve
strategies and their implementation. The following are additional aspects of strategic
leadership tasks:

A strategic leader should be the guardian of trade offs.

A strategic leader needs to create a sense of urgency

A strategic leader needs to make sure that everyone understands the


strategy

Thus,

A strategic leader needs to be a teacher

we can say the purpose of strategic management is manifold. To be

successful in

business, one should possess/have holistic approach and should

know how to integrate the knowledge gained in various functional areas of


management. By having generalist approach, a senior manager can understand the
complex inter linkages operating within the organisation and should have systematic
approach in decision-making in relation with the changes which takes place in the
environment.

GLOBALIZATION AND STRATEGY


Opportunities and Challenges in Globalization:
1. Liberalisation of international trade has reduced the significance of distance
as a trade barrier. With distance not being a major barrier, business,

particularly multinational companies, have expanded into areas and regions


where they were unable to reach before.
2. Increasing foreign competition in domestic and export markets.

Without

import quotas and with substantially reduced tariffs, firms need to compete
with cheaper, and in some cases higher quality, imports in their domestic
markets.

There

is

pressure

on

businesses

therefore

to

improve

competitiveness by lowering their cost and by increasing the quality of their


products.
3. Cultural shocks are common when globalization of trade is done and it is the
responsibility of the concerned governments and groups to safeguard the
local culture from being influenced by international inflow of variety of cultures.
This is done by passing necessary legislation. Legislation should not however,
become a roadblock for globalization.
4. To some extent protection to local industry is acceptable and again the limit to
be set, which should not stop the process of globalization. It is recommended
to go in for partnerships and alliances between the international and local
players.
5. Domestic business is better integrated into international supply value-chains
by meeting stringent quality and delivery requirements in highly competitive
and integrated markets.
6. The fast paced trade globalization helped major advances in cost-effective
production, communication and transportation.

7. To turn the opportunities of international trade into an engine for development


in developing countries requires thinking and innovation at two levels.

a. At the first level, governments in developing countries need to put in


place policies, regulatory systems and institutions that permit the
progressive transformation of their economic structures from lowincome, low-technology activities to high income, high technology
activities and that provides an enabling environment for the private
sector to enhance trade competitiveness.
b. Encouragement and creating an atmosphere for international alliances
such as joint-ventures, outsourcing and increased bilateral trade.
At the end of it all the key issue is turning trade opportunities into
opportunities for development for the majority of the population in these countries.
Institutional reforms that support innovation and entrepreneurial development; and to
undertake strategic investments on key infrastructures of trade logistics that are
crucial to connect businesses to local, regional and international markets.
Trade Agreements and FTAs:
A liberal trade regime has been part to Omans impressive economic performance
over the past few years, with high real GDP growth, low inflation, and surpluses in
both its overall fiscal position and external current account, according to a report by
WTO*. (Oman became member of WTO on 9 th November 2000).
The report also notes that a key element of Omans reform process relates to full
economic integration under the Gulf Cooperation Council (GCC), which in turn
entered into trade agreements with EU, Australia and New Zealand. Oman also
participates in the Pan Arab Free Trade Area (PAFTA), and has signed a trade
agreement with the United States. GCC States of Heads have agreed that any
member having an agreement, except with US, the same agreement shall be
accepted by all other members thus paving way for exchanging trade related
development among the GCC members.

Review Questions:
1.

Poor management practices hinder strategy implementationExplain?

2.

Write Short Notes on:a.Corporate Governance


b. Strategic Control
c.Strategic Leadership

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