RM – 302 RETAIL STRATEGY

Unit 1:

Retail strategic management process: strategists and their role in strategic

management. Hierarchy of Strategic intent: vision, mission, business definition, goals
and objectives. Environmental appraisal: environmental scanning, appraising the
environment, industry analysis, synthesis of external factors, ETOP study

Unit 2:

Organisational appraisal: organisational capability factors, considerations in

organisational appraisal, methods and techniques used for organisational appraisal,
structuring organisational appraisal.

Company level strategies: grand, stability, expansion, retrenchment and combination

strategies and corporate restructuring.

Unit 3:

Business Level Strategy: Business level, generic business and tactics for business
strategies. Strategic analysis and choice: Process of strategic choice, Corporate level
and business level strategic analysis. Routes to Competitive Advantage.

Unit 4:

Strategy implementation and control: Organisation for action, developing programmes,

budgets and procedures, strategy implementation; Mckinsey’s framework,
management and control.

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Unit 3:

BUSINESS LEVEL STRATEGY:

Business strategies are courses of action adopted by a firm for each of its businesses
separately to serve identified customer groups and provide value to the customer by a
satisfaction of their needs.

Porter lists two dynamic factors that determine the choice of a competitive strategy:

1. Industry structure

2. Positioning of the firm in the industry

Industry structure is determined by the competitive forces. These forces are five in
number – threat of new entrants, threat of new products and services, the bargaining
power of suppliers, bargaining power of buyers and the rivalry among the existing
competitors in the industry.

Positioning of the firm in the industry is the firm’s overall approach to competing.
It is designed to attain competitive advantage and is based on two variables:

a. Competitive advantage – can arise due to lower cost or differentiation

Lower cost – mass produced products distributed through mass marketing

thereby resulting in lower cost per unit.

Differentiation – marketing relatively higher priced products of a limited variety

but intensely focussed on identified customer groups who are willing to pay the
higher price. Product or service is differentiated on some tangible basis.

b. Competitive scope – can be in terms of two factors – broad target and narrow
target. Competitive scope is the breadth of the firm’s target within the industry.
Breadth on a firm’s target means the range of products, distribution channels,
types of buyers, geographic areas served, etc. Broad target approach means full
range of products/services to a wider target spread over a larger geographical
area. Narrow targeting would mean a limited range of products/services to a few
customer groups in a restricted geographical area.

GENERIC BUSINESS STRATEGIES:

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Competitive advantage and competitive scope combined together give rise to generic
business strategies. There are three types:

1. Cost Leadership
(low cost and broad
target)

2. Differentiation

SCOPE
COMPETITIVE
(differentiation/broad
target)

3. Focus (lower
Broad
cost or Cost
target Differentiatio
Leadership
n

Focussed
Focussed Cost Differentiatio
Narrow Leadership n
target

Low cost Differentiated

products/services products/services
COMPETITIVE
ADVANTAGE
differentiation/narrow target)

GENERIC BUSINESS STRATEGIES - PORTER

Cost Leadership Business Strategy:

When the competitive advantage of a firm lies in a lower cost of products or
services relative to what the competitors have to offer, it is termed as cost leadership.
e.g. Amul (Gujarat Cooperative Milk Marketing Federation – GCMMF)
Moser Baer India – CDs
Cost leadership strategy – risks involved
• Cost advantage is ephemeral
• Can limit experimentation
• Technological shifts are a threat to cost leadership

Differentiation Business Strategy:

When the competitive advantage of a firm lies in special features incorporated
into the product/service, which are demanded by the customers who are willing to pay
for those, then the strategy adopted is differentiation business strategy.
A differentiation firm can charge a premium price for its products/services, gain
additional customers who value the differentiation and command customer loyalty.
e.g. GATI, a multimodal transport company differentiated services by offering
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tangibles like risk insurance, refund on failure to deliver on time, door-to-door pick-up
and delivery, etc.
 Parle Agro had packaging as a differentiator when it launched Frooti in 1985 in
tetra packs.

Focus Business Strategies:

These rely on either cost leadership or differentiation but cater to a narrow
segment of the total market. Focus strategies are niche strategies.
e.g T-Series focused on low price offerings in 1980’s by introducing cheap
cassettes of Hindi film songs. While Times Music differentiates on the basis of premium
pricing.
Tanishq differentiates on the basis of certification of gold carats.
Pustak Mahals Rapidex English speaking books provide low price publication to
price sensitive audience.

TACTICS FOR BUSINESS STRATEGIES

Time:

Market Location: (as in market leader, market follower, niche, etc.)

STRATEGIC ANALYSIS AND CHOICE:

Process of Strategic Choice: is a decision making process.

Strategic choice – is the decision to select from among the grand strategies considered,
the strategy which will best meet the enterprise’s objectives.

Process of Strategic Choice has four steps:

1. Focussing on alternatives:

2. Considering the Selection factors:

3. Evaluation of strategic alternatives:

4. Making the strategic choice:

Corporate level strategic analysis: the strategies considered under this are
stability, expansion, retrenchment and combination. Majority of methods used are
grouped under the Corporate Portfolio Analysis while Corporate Parenting Analysis is
used in context of corporate headquarters managing Strategic Business Units.

a) Corporate Portfolio Analysis

Methods used for the same under Corporate Portfolio Analysis are:
BCG Matrix
GE Nine Cell Matrix
Hofer’s Product Market Evolution Matrix
Directional Policy Matrix
SPACE (Strategic Position and Action Evaluation) diagram
b) Corporate Parenting Analysis: A diversified corporation or a multi-business
company having a corporate headquarter with SBUs acting as satellites, nurtures
individual businesses based on the value created by each and is termed as
corporate parenting.
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Based on positive contributions and negative effects, five different strategic positions
result, each having different implications for corporate strategy. These are:
 a. Heartland businesses: parent understands their CSF (critical success factor)
better and there are opportunities to make improvements. Expansion strategies
suit heartland businesses.

b. Edge of Heartland businesses: in these some parenting characteristics suit

business well but others do not. Business would engage the attention of the
parent as they would try and understand them better.

c. Ballast businesses: these fit well with parent characteristics but present few
opportunities for improvement by the parent. They are somewhat like cash cows.
Having been around for a long time, there is not much that can be changed
about them. They are better off being retrenched at an opportune time if the
realised price exceeds the likely value of future cash flows.

d. Alien territory businesses: there is a misfit between the units parenting

characteristics and the units’ CSFs. These SBUs are often the result of misguided
diversifications in the past and are best treated with retrenchment.

e. Value trap businesses: fit reasonably well with parenting opportunities but are a
misfit with the parent’s understanding of the units’ CSFs. While these present
attractive opportunities, they may not be suited to building the core
competencies of the corporation.

Business level strategic analysis:

Experience Curve Analysis: It states that the more often a task is performed, the lower
will be the cost of doing it. The task can be the production of any good or service. Each
time cumulative volume doubles, value added costs (including administration,
marketing, distribution, and manufacturing) fall by a constant and predictable
percentage.
Reasons for the effect include:

Labour efficiency - Workers become physically more dexterous. They become mentally
more confident and spend less time hesitating, learning, experimenting, or making
mistakes. Over time they learn short-cuts and improvements. This applies to all
employees and managers, not just those directly involved in production.
Standardization, specialization, and methods improvements - As processes, parts, and
products become more standardized, efficiency tends to increase. When employees
specialize in a limited set of tasks, they gain more experience with these tasks and
operate at a faster rate.

Technology-Driven Learning - Automated production technology and information

technology can introduce efficiencies as they are implemented and people learn how to
use them efficiently and effectively.

Better use of equipment - as total production has increased, manufacturing equipment

will have been more fully exploited, lowering fully accounted unit costs. In addition,
purchase of more productive equipment can be justifiable.

Changes in the resource mix - As a company acquires experience, it can alter its mix of
inputs and thereby become more efficient.

Product redesign - As the manufacturers and consumers have more experience with the
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product, they can usually find improvements. This filters through to the manufacturing
process. A good example of this is Cadillac's testing of various "bells and whistles"
specialty accessories. The ones that did not break became mass produced in other
General Motors products; the ones that didn't stand the test of user "beatings" were
discontinued, saving the car company money. As General Motors produced more cars,
they learned how to best produce products that work for the least money.

Network-building and use-cost reductions - As a product enters more widespread use,

the consumer uses it more efficiently because they're familiar with it. One fax machine
in the world can do nothing, but if everyone has one, they build an increasingly efficient
network of communications. Another example is email accounts; the more there are,
the more efficient the network is, the lower everyone's cost per utility of using it.

Shared experience effects - Experience curve effects are reinforced when two or more
products share a common activity or resource. Any efficiency learned from one product
can be applied to the other products.

Life Cycle Analysis: Organizational life cycle is the life cycle of an organization from
birth level to the termination.

There are five level/stages in any organization.

1. Birth
2. Growth
3. Maturity
4. Decline
5. Death
According to Richard L. Daft there are four stages in an Organizational Life Cycle.
The four stages are:
1. Entrepreneurial stage -> Crisis: Need for leadership
2. Collectivity stage -> Crisis: Need for delegation
3. Formalization stage -> Crisis: Too much red tape
4. Elaboration stage -> Crisis: Need for revitalization

Industry Analysis: Porter’s Five Forces Model

Routes to Competitive Advantage:

Unit 4:

Strategy implementation and control: Organisation for action, developing programmes,

budgets and procedures, strategy implementation; Mckinsey’s framework,
management and control.

STRATEGY IMPLEMENTATION:
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MANAGING RESOURCE ALLOCATION

There are different types of resources – financial, physical and human – derived
from different sources. Finance is considered to be the primary source and is
used for the creation and maintenance of other resources.

TYPES OF RESOURCES
Basically there are two types of finances – long term and short term.
Long term finance is required for the creation of capital assets.
[Capital assets is “All tangible property which cannot easily be converted into
cash and which is usually held for a long period, including real estate,
equipment, etc.”]
Short term finance is for working capital.

[Working Capital is “Working capital, also known as net working capital, is a

financial metric which represents operating liquidity available to a business.
Along with fixed assets such as plant and equipment, working capital is
considered a part of operating capital. It is calculated as current assets minus
current liabilities. If current assets are less than current liabilities, an entity has
a working capital deficiency, also called a working capital deficit.”]

Both types of finances can be procured from internal sources and external
sources.

Internal sources include retained earnings, depreciation provisions, taxation

provisions and other types of reserves like development rebate and investment
allowance reserves.

[Retained Earnings: In accounting, retained earnings refers to the portion of net

income which is retained by the corporation rather than distributed to its
owners as dividends. Similarly, if the corporation makes a loss, then that loss is
retained and called variously retained losses, accumulated losses or
accumulated deficit. Retained earnings and losses are cumulative from year to
year with losses offsetting earnings. Retained earnings are reported in the
shareholders' equity section of the balance sheet. Companies with net
accumulated losses may refer to negative shareholders' equity as a
shareholders' deficit.]

External sources consist of capital market sources such as equity, and loans
and money market sources such as bank credit, hire-purchase debt, trade
credit, installment credit, etc.

APPROACHES TO RESOURCE ALLOCATION

There could be three approaches to resource allocation –

a) top-down approach: resources are distributed through a process of

segregation down to the operating levels. Usually adopted in entrepreneurial
mode of strategy implementation.
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b) bottom-up approach: where resources are allocated after a process of

aggregation from the operating level.
 c) mix of both approaches: involves an iterative form of decision making
between different levels of management. This approach has been termed as
strategic budgeting.

MEANS OF RESOURCE ALLOCATION

Strategic Budgeting: this is an iterative process involving a multi-level,
organization wide effort and needs to carry the approval of all concerned. It
takes into account strategic factors such as environmental changes, their likely
impact on the implementation of strategy, corporate core competencies and
their probable effect on the objective-achieving capability of the organization.
BCG Based budgeting: in a BCG matrix, SBU’s or products are identified as
cash cows, dogs, stars and questions marks. Investment and cash flow decisions
are made on this basis.

PLC based Budgeting: Resource allocation could be linked to the different

stages in a products (or SBU’s) life cycle. A product in the introduction and
growth phases may attract more resources and these could be diverted from
high profit yielding products that have reached the maturity phase.

Capital Based Budgeting: Existing projects in case of restructuring and

modernisation could use capital budgeting for resource allocation.

Zero-based budgeting is a technique of planning and decision-making which

reverses the working process of traditional budgeting. In traditional incremental
budgeting, departmental managers justify only increases over the previous year
budget and what has been already spent is automatically sanctioned. No
reference is made to the previous level of expenditure. By contrast, in zero-
based budgeting, every department function is reviewed comprehensively and
all expenditures must be approved, rather than only increases. Zero-based
budgeting requires the budget request be justified in complete detail by each
division manager starting from the zero-base. The zero-base is indifferent to
whether the total budget is increasing or decreasing.

Parta System: Parta is normally made at the start of Project / New Plant / New
Machinery / New Product Manufacturing. All information were validated by
discussion & questioning with related persons. Finally the management board
approves Parta for each unit. Sanction for capital expenditure is given only after
the Parta is approved. Working of parta to get details of:

(1) INPUT Raw Material (a) Mix (Quantity), (b) Source, (c) Quality
(2) Production Cost, (a) Capacity Utilization, (b) plant no of days running in year
(3) Selling & Administrative Cost per Unit of Product, 1) Fixed 2) variable
(4) Marketing & Advertising costs: one-time and Regular.

There is a meeting of different units manufacturing the same product (like

cement business parta) at a common place which generates healthy
competition and sharing of knowledge as well as concerns. Parta system keeps
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a close watch on efficiency.

FACTORS AFFECTING RESOURCE ALLOCATION
a) Objectives of the organization: which could be official (or explicit)
while others would be operative (or implicit) objectives. Operative
objectives tend to influence the pattern of resource allocation to the
maximum extent.
b) Preference of dominant strategists: most often the CEO influences
the way resources are allocated.
c) Internal Politics: resources are often misconstrued as power. Executives
who are able to affect the process of resource allocation in their favour are
seen as more effective and powerful in the organization.
d) External Influences: These influences arise due to government policies
and stipulations, financial institutions, community and others. E.g. legal
requirements may require investments in labour welfare and security, or
in pollution control, CSR, etc.

DIFFICULTIES IN RESOURCE ALLOCATION

a) Scarcity of resources
b) Restrictions on generating units
c) Overstatement of needs

STRUCTURAL IMPLEMENTATION
What is Structure?
An organization structure is the way in which the tasks and subtasks required to
implement strategy are arranged. It is important for an effective implementation of
strategy that there should be a good match between the organization structure and
strategy. One alternative is to link the structure to the stage of development that an
organization exists in at a given point of time.

Stages of Development: the life-cycle of an organization may be divided into four

stages that are not distinct and may overlap.
Stage I organizations are small-scale enterprises usually managed by a single person
who is the entrepreneur-owner-manager. These organisations are characterised by
the simplicity of objectives, operations and management. It can often be termed as
entrepreneurial. The strategies adopted are generally of the expansion type.

Stage II organizations are bigger than stage one organizations in terms of size and
have a wider scope of operations. They are characterised by functional specialisation
or process orientation. Strategies adopted may range from stability to expansion.

Stage III organizations are large and widely scattered organizations generally having
units or plants at different places. Each division is semi-autonomous and linked to
the head quarters but function independently. Strategies adopted may either be
stability or expansion.

Stage IV organizations are the most complex. They are generally multiplant, multi
product organizations that result from the adoption of related and unrelated
diversification strategies. The organizational form is divisional. The corporate
headquarters assume the responsibility of providing strategic direction and policy
guidelines through the formulation of corporate level strategies. The divisions (which
may be companies, profit centres and /or SBUs) formulate their business-level
strategies and may adopt stage – I, II or III type structures.
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STRUCTURES FOR STRATEGIES

Entrepreneurial Structure: Owner
Manager

Employees
 Advantages:
• Quick decision making, as the power is centralised
• Timely response to environmental changes
• Informal and simple organizational systems
Disadvantages:
• Excessive reliance on the owner-manager, hence very demanding for him
• May divert the attention of the owner manager from strategic decision making
to day-to-day operational matters
• Increasingly inadequate for future requirements if volume of business
expands.

Functional Structure: Functional structures seek to distribute decision-making and

operational authority along functional
lines. Owner
Advantages: Manager
• Efficient distribution of work through
specialisation Public
Legal
• Delegation of day-to-day operational Relations
functions
• Providing time for the top Marketin Personn
management to focus on Finance
g el
strategic decisions
Disadvantages:
• Creates difficulty in coordination among different
functional areas
• Creates specialists which results in narrow specialisation, often at the cost of
the overall benefit of the organization.
• Leads to functional and line-staff conflicts

Divisional Organization Structure

Divisional Organization Structure also called profit decentralisation by Newman
and other in built around business units with each unit being relatively self
contained and independent of other units. Divisional structure is suited for
organisations with several products. Problem with the structure is that all the
facilities have to be arranged for each division. Unless a division justifies its
cost, it should not be opened. In this form the organisation is divided into fairly
autonomous units and each unit is relatively self-contained in that it has
resources to operate independently. It is similar to dividing an organization into
several smaller organizations.
Advantages:
• Enables grouping of functions required for the performance of activities
related to a division
• Generates quick response to environmental changes affecting the businesses
of different divisions
• Enables the top management to focus on strategic matters.
Disadvantages
• Problems in the allocation of resources and corporate overhead costs
• Inconsistency arising from the sharing of authority between the corporate and
divisional levels
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 • Policy inconsistencies between the different divisions

Manager (Production)

Corporate Research &

Legal
Marketing
services Finance Finance
planning development

Chemicals Electronics
Consumer product division division
Marketing Finance
div

Manufacturing Manufacturing Manufacturing

Marketing Marketing Marketing

Personnel Personnel Personnel

Purchasing Purchasing Purchasing

Accounting Accounting Accounting

Matrix Organization Structure
Matrix Organization Structure is a violation of the principle of Unity of
Command. In a matrix organization structure two complementary structures –
pure project structure and functional structure are merged together. It employs
multiple command.
In a matrix organization structure a project manager is appointed to coordinate
the activities of the project. Personnel are drawn from their respective functional
departments. On the completion of the project, these people may return to their
respective departments for further assignments. Thus, each functional staff has
two bosses – his administrative head and his project manager.
During his assignment to a project, he works under the coordinative command
of a project manager and he may be called upon by his permanent superior to
perform certain services needed in the department. Thus, a subordinate in a
matrix structure may receive instructions from two bosses. Therefore, he must
coordinate the instructions received from two or more bosses.

Similarly the matrix superior has to share the facilities with others. He reports in
a direct line to the top, but does not have a complete line of command below.
Problems with the structure
1. Power struggle because of overlapping command on resources
2. Anarchy can develop
3. Delay in decision making
4. Quite costly because of top heavy management

Advantages:
• Allows individual specialists to be assigned where their talent is most needed
• Fosters creativity because of the pooling of diverse talent
• Provides good exposure to specialists in general management
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Disadvantages:
 • Dual accountability creates confusion and difficulty for individual team
members
• Requires a high level of vertical and horizontal combination
• Shared authority may create communication problems
Line authority
General Manager
Project authority

Production Marketing Finance Personnel

Prod Mktg Fin Pers

Project
A

Prod Mktg Fin Pers

Project
B

Prod Mktg Fin Pers

Project
C

Prod Mktg Fin Pers

Project
D
BEHAVIOURAL IMPLEMENTATION
Behavioural implementation deals with the impact on the behaviour of strategists in
implementing the chosen strategies. There are five major issues of:
• Leadership
• Corporate culture
• Corporate politics
• Personal values and business ethics
• Social responsibility

LEADERSHIP IMPLEMENTATION
Role of the appropriate leader in strategic success is highly significant. Khandwalla has
found that there are basically seven management styles: Entrepreneurial, neo-
scientific, quasi-scientific, muddling through, conservative, democratic and middle-of-
the-road. Each of these can be described on the basis of the five dimensions given
below:
1. Risk-taking :Willingness to take risky decisions
2. Technocracy :Use of planning, qualified personnel and techniques
3. Organicity :Extent of organizational structural flexibility
4. Participation :Involvement of managers
5. Coercion :Domination by top management
Entrepreneurial stlye could be characterised by high risk-taking, moderate to low
technocracy, moderate to low organicity, moderate to low participation and variable
coercion.
Democratic style could be described as having moderate to low risk taking, moderate
to low technocracy, moderate to high organicity, high participation and variable
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coercion.
It basically demonstrates that when the management style matches with the
environment (and strategy), the firm was more effective than when management style
did not match the environment.

Development of strategists: three issues are important for top management in

developing strategists
– The choice of future strategists;
- Their career planning and development and
- Succession planning.

CORPORATE CULTURE
Organizational or corporate culture is the set of important assumptions – often unstated
– that members of an organization share in common. There are two major assumptions
– belief and values.
Beliefs are assumptions about reality and are derived and reinforced by experience.
Values are assumptions about ideals that are desirable and worth striving for.

Creation of a strategy supportive culture is the main aim of the leadership within the
organization. The strategists have four approaches to create a strategy-supportive
culture.
1. To ignore corporate culture
2. To adapt strategy implementation to suit corporate culture
3. To change the corporate culture to suit strategic requirements
4. To change the strategy to fit the corporate culture

CORPORATE POLITICS
Power is defined as the ability to influence others.
Corporate politics is the carrying out of activities not prescribed by polices for the
purpose of influencing the distribution of advantages within the organization. Politics is
related to the use of power but is not similar to it.

Social psychologists French and Raven, have given five categories of power which
reflect the different bases or resources that power holders rely upon. One additional
base (informational) was later added.
Positional Power : Also called "Legitimate Power, it refers to power of an
individual because of the relative position and duties of the holder of the position within
an organization. Legitimate Power is formal authority delegated to the holder of the
position. It is usually accompanied by various attributes of power such as uniforms,
offices etc. This is the most obvious and also the most important kind of power.
Referent Power : Referent Power means the power or ability of individuals to
attract others and build loyalty. It's based on the charisma and interpersonal skills of
the power holder. Here the person under power desires to identify with these personal
qualities, and gains satisfaction from being an accepted follower. Nationalism or
Patriotism counts towards an intangible sort of referent power as well. For example,
soldiers fight in wars to defend the honor of the country. This is the second least
obvious power, but the most effective.
Expert Power: Expert Power is an individual's power deriving from the skills or
expertise of the person and the organization's needs for those skills and expertise.
Unlike the others, this type of power is usually highly specific and limited to the
particular area in which the expert is trained and qualified.
Reward Power: Reward Power depends upon the ability of the power wielder to
confer valued material rewards, it refers to the degree to which the individual can give
others a reward of some kind such as benefits, time off, desired gifts, promotions or
increases in pay or responsibility. This power is obvious but also ineffective if abused.
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People who abuse reward power can become pushy or became reprimanded for being
too forthcoming or 'moving things too quickly'.
 Coercive Power: Coercive Power means the application of negative influences
onto employees. It might refer to the ability to demote or to withhold other rewards. It's
the desire for valued rewards or the fear of having them withheld that ensures the
obedience of those under power. Coercive Power tends to be the most obvious but least
effective form of power as it builds resentment and resistance within the targets of
Coercive Power.
Charisma Power: Charisma Power is the power of one individual to influences
another by force of character, often called personal charisma. A person may be
admired because of specific personal trait, and this admiration creates the opportunity
for interpersonal influence. Advertisers have long recognized charisma power in making
use of sports figures for products endorsements, for example. The charismatic appeal
of the sports star supposedly leads to an acceptance of the endorsement, although the
individual may have little real credibility outside the sports arena.
Information Power: Information Power is derived from possession of important
information at a crtical time when such information is necessary to any organizational
functions.

The nature of strategy implementation requires consensus building, managing

coalitions and creating commitments, conflict resolution and balancing of interests.
With an understanding of the use of power and politics, strategists can perform the
tasks of strategic management much better.

PERSONAL VALUES AND BUSINESS ETHICS

Values Scan: Evaluation of Business Culture is Critical

• Personal values of the Planning team - not to change, but to understand each
other
• Values of Organization as a whole
- profit vs. Growth
- to what extent is this to be a value added organization
- importance of being a good "corporate citizen"
- importance of being a "good" place to work
• Company's operating philosophy
- How work is done
- How conflict is managed
- Accounting procedures
• Impact of and on other stakeholders

Creating consistency among business values and ethics and the proposed strategy,
which can be done through:
a) Inculcating the right set of values
This starts right from the first step – recruitment and selection, where it is important
to ensure compatibility of the character traits of the potential employee to the ethical
system of the organization;
Incorporating the statement of values and code of ethics into employee training and
educational programmes
Example setting by top management in terms of actions and behaviour that
reinforce values.
Communication of values and code of ethics through wide publicity and explanation
of compliance procedures.
Constant monitoring of compliance by superior staff and top management.
Consistent nurturing of values within the organization through their integration into
policies, practices and actions.

b) Reconciling divergent values: divergent values of different groups needs to

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be reconciled in light of strategic requirements and environmental

considerations.
 c) Modifying values to create consistency: A judicious use of politics, power
and redesigning of corporate culture and making systematic changes in
organizations can help to modify values gradually.

SOCIAL RESPONSIBILITY
Drivers: Corporations may be influenced to adopt CSR practices by several drivers.
Ethical consumerism
The rise in popularity of ethical consumerism over the last two decades can be linked
to the rise of CSR. As global population increases, so does the pressure on limited
natural resources required to meet rising consumer demand. Industrialization in
many developing countries is booming as a result of technology and globalization.
Consumers are becoming more aware of the environmental and social implications of
their day-to-day consumer decisions and are beginning to make purchasing decisions
related to their environmental and ethical concerns.

Globalization and market forces

As corporations pursue growth through globalization, they have encountered new
challenges that impose limits to their growth and potential profits. Government
regulations, tariffs, environmental restrictions and varying standards of what
constitutes labour exploitation are problems that can cost organizations millions of
dollars. Some view ethical issues as simply a costly hindrance. Some companies use
CSR methodologies as a strategic tactic to gain public support for their presence in
global markets, helping them sustain a competitive advantage by using their social
contributions to provide a subconscious level of advertising. Global competition
places particular pressure on multinational corporations to examine not only their
own labour practices, but those of their entire supply chain, from a CSR perspective.

Social awareness and education

The role among corporate stakeholders to work collectively to pressure corporations
is changing. Shareholders and investors themselves, through socially responsible
investing are exerting pressure on corporations to behave responsibly. Non-
governmental organizations are also taking an increasing role, leveraging the power
of the media and the Internet to increase their scrutiny and collective activism
around corporate behavior. Through education and dialogue, the development of
community in holding businesses responsible for their actions is growing.

Ethics training
The rise of ethics training inside corporations, some of it required by government
regulation, is another driver credited with changing the behaviour and culture of
corporations. The aim of such training is to help employees make ethical decisions
when the answers are unclear. The most direct benefit is reducing the likelihood of
"dirty hands", fines and damaged reputations for breaching laws or moral norms.
Organizations also see secondary benefit in increasing employee loyalty and pride in
the organization. Increasingly, companies are becoming interested in processes that
can add visibility to their CSR policies and activities.

Laws and regulation

Another driver of CSR is the role of independent mediators, particularly the
government, in ensuring that corporations are prevented from harming the broader
social good, including people and the environment. The issues surrounding
government regulation pose several problems. Regulation in itself is unable to cover
every aspect in detail of a corporation's operations. This leads to burdensome legal
processes bogged down in interpretations of the law and debatable grey areas.
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e.g. General Electric is an example of a corporation that has failed to clean up the
Hudson River after contaminating it with organic pollutants. The company continues
 to argue via the legal process on assignment of liability, while the cleanup remains
stagnant.

Crises and their consequences

Often it takes a crisis to precipitate attention to CSR. One of the most active stands
against environmental management is the CERES Principles that resulted after the
Exxon Valdez incident in Alaska in 1989. Other examples include the lead poisoning
paint used by toy giant Mattel, which required a recall of millions of toys globally and
caused the company to initiate new risk management and quality control processes.

In the fall of 1989, Ceres published the Ceres Principles, a ten-point code of corporate
environmental conduct to be publicly endorsed by companies as an environmental
mission statement or ethic. Ceres (pronounced "series"), a non-profit organization
based in the United States, is a national network of investors, environmental
organizations and other public interest groups working with companies and investors to
address sustainability challenges such as global climate change.
The 10 Ceres Principles are:
1.Protection of the Biosphere ; 2.Sustainable Use of Natural Resources ; 3.Reduction
and Disposal of Wastes
4. Energy Conservation ; 5. Risk Reduction ; 6. Safe Products and Services ; 7.
Environmental Restoration
8. Informing the Public 9. Management Commitment and 10. Audits and Reports

Stakeholder Priorities
Increasingly, corporations are motivated to become more socially responsible
because their most important stakeholders expect them to understand and address
the social and community issues that are relevant to them. Understanding what
causes are important to employees is usually the first priority because of the many
interrelated business benefits that can be derived from increased employee
engagement (i.e. more loyalty, improved recruitment, increased retention, higher
productivity, an so on). Key external stakeholders include customers, consumers,
investors (particularly institutional investors, regulators, academics, and the media).

FUNCTIONAL AND OPERATIONAL IMPLEMENTATION

MARKETING STRATEGY
BASIC MARKET-PRODUCT STRATEGIES - THE CUSTOMER-PRODUCT DECISION
Market penetration strategy - (stay in current markets with existing
products)
increase rate of purchase/consumption; attract rival’s customers; buy out rivals;
convert non-users into current users
Market development strategy (find new markets for current products)
enter new geographical markets; find new uses for existing products; find new target
markets
Product development strategy (develop new products for existing
markets)
improve features; improve quality/reliability/durability; enhance aesthetics/styling;
add models
Diversification strategy (develop new products for new markets)

THE FOUR P’s OF MARKETING - Marketing mix issues

• Product Strategy - Specifying the exact product or service to be offered
• New or existing product? …for new or existing customers?
• Promotion Strategy - How the product or service is to be communicated to
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customers
• “Push” - spend on promotions and discounts to push products
 • “Pull” - spend to build brand awareness so consumers will ask for it
by name
• Channel or “Place” Strategy - Selecting the method for distributing the
product or service
• Distribute through dealer networks or through mass merchandisers?
• Sell directly to consumers through own stores or through internet?
• Price Strategy - Establishing a price for the product or service
• “Skim pricing” (high) when you are a pioneer
• “Penetration pricing” (low) builds market shares
• “Dynamic pricing” (prices vary frequently) based on
demand/availability

FINANCIAL MANAGEMENT STRATEGIES

Capital acquisitions
– Debt leverage, stock sales, & gains from operations
• Equity financing is preferred for related diversification
• Debt financing is preferred for unrelated diversification
• Leveraged buyouts (lbos) make the acquired firm pay off
the debt
Resource allocations
– Dividends, stock price, & reinvestment
• Reinvest earnings in fast-growing companies
• Keeping the stockholders contented with consistent dividends
• Use of stock splits ( or reverses) to maintain high stock prices
• Tracking stock keeps interest in company, but doesn’t allow
takeover

RESEARCH & DEVELOPMENT STRATEGIES

• LEVEL OF INNOVATION
– Pioneer (Leader) v. Copy Cat (Follower)
• Technological leadership fits well with differentiation
• A “follower” strategy makes sense with cost-leader strategies
• Are we better at finding applications and customer adaptations than
actually inventing something really new?
– Different types of R & D (basic, product, process)
• Where is the firm’s historic expertise / advantage?
• How competent are the R & D Personnel?
• ACQUISITION OF TECHNOLOGY
– Internally developed v. acquired from outside
• Technology “Scouts”
• Strategic Technology Alliances
• Acquire minority stake in promising high-tech ventures
OPERATIONS STRATEGIES
• MANUFACTURING LOCATION
– Internal Production v. Outsourcing
– Domestic Plants v. International Locations
• SYSTEM LAYOUT
– Product v. Process Layouts
• Continuous production / dedicated transfer lines helps achieve cost
leadership
• Use of robots and CAD/CAM v. Labor intense manufacturing

PURCHASING STRATEGIES
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 • Sourcing components and supplies - where can the highest quality
components be found?
– Outsourcing (our firm buys everything)
• Buying on the Open Market (Spot) (prices fluctuate)
• Long-Term Contracts with Multiple Suppliers (low bid)
• Sole Sourcing (only one supplier) improves quality
• Parallel Sourcing (two suppliers) provides protection
– Backward Integration (our firm has an ownership stake in the suppliers we
use)
• Quasi-integration (minority ownership position in a supplier)
• Tapered (produce some of what we need, but not all)
• Full (produce all of our own needs)
– Use of Component Inventories v. Just-in-time supply delivery

LOGISTICS STRATEGIES
• Type of materials transported (bulky or compact?)
– Raw materials, supplies, & components; Finished goods
• Best mode of transportation:
– Air; Rail; Truck; Barge
• Outsource transportation or do it yourself?
– Contract with others
• Use multiple shippers v. Just one (ups)?
• Consider batch deliveries v. Just-in-time arrangements?
- Ownership in distribution chain – Quasi; Tapered; Full
HUMAN RESOURCE STRATEGIES
• Talent acquisition
– Recruit from outside v. Internal development
– Require experienced, highly-skilled workers v. “we will train you”
– Offer “top” wages & benefits v. Mentoring and a career
• Work arrangements
– Individual jobs v. Team positions
– Narrowly-defined jobs v. Positions with discretion and autonomy
– On-premises work v. Telecommuting options
• Motivation & appraisal
– Extrinsic v. Intrinsic reward systems
– Assessment for development v. Assessment for rewards
– Incentives for ideas & originality v. Incentives for conformity?

INFORMATION SYSTEMS STRATEGIES

Worker productivity & connectivity
Employees networked together across globe; “follow the sun management”…
pass projects on to next team
Sales & inventory management
Internet sales & dev. of customer databases; Instant sales reports allow
immediate inventory reorders
Shipping & tracking goods
Fedex powership software…stores addresses, prints labels, etc.; Tracking the
progress of package shipment…fedex

STRATEGIC EVALUATION AND CONTROL

Strategic evaluation and control constitutes the final phase of strategic management.
Importance of strategic evaluation lies in its ability to coordinate the tasks performed
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by individual managers. There are other factors that make strategic evaluation
important, like the need for feedback, appraisal and reward, check on the validity of
strategic choice, congruence between decisions and intended strategy, successful
culmination of the strategic management process, and creating inputs for new strategic
planning.

BARRIERS IN EVALUATION
1. Limits of control – control mechanism presents the dilemma of too much versus
too little control.

2. Difficulties in measurement – control system may be distorted and may not

evaluate uniformly or may measure attributes which are not intended to be
evaluated.

3. Resistance to evaluation: Evaluation process involving controlling behaviours is

resisted by the managers.

4. Short-termism: Managers tend to rely on short term implications of activities and

try to measure the immediate results. Often the long term impact is ignored.

5. Relying on efficiency versus effectiveness: Efficiency is ‘doing the things rightly’

and effectiveness is ‘doing the right things.’

OPERATIONAL CONTROL
Operational control is aimed at the allocation and use of organizational resources
through an evaluation of the performance of organizational units, such as divisions,
SBUs and so on, to assess their contribution to the achievement of organizational
objectives.

DIFFERENCE BETWEEN STRATEGIC AND OPRATIONAL CONTROL

Attribute Strategic control Operational control
Basic Are we moving in the right How are we performing?
question direction?
Aim Proactive, continuous Allocation and use of organizational
questioning of the basic direction resources.
of strategy
Main Steering the organization’s Action control
concern future direction
Focus External environment Internal organization
Time Long-term Short-term
horizon
Exercise of Exclusively by top management, Mainly by executive or middle level
control may be through lower-level management on the direction of top
support management
Main Environmental scanning, Budgets, schedules, MBO
techniques information gathering,
questioning and review

PROCESS OF EVALUATION
This basically deals with four steps:

1. Setting standards of performance: quantitative vs qualitative

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2. Measurement of performance: aspects include difficulties, timing and periodicity

in measuring
 3. Analysing variances: actual performance matching/deviating from budgeted
performance

4. Taking corrective action: checking performance & standards, reformulating

strategies, plans, objectives

TECHNIQUES OF STRATEGIC EVALUATION AND CONTROL

Evaluation techniques for strategic control:
Strategic momentum control: aimed at assuring that the assumptions on whose basis
strategies were formulated are still valid. There are three techniques:
1. Responsibility control centres – form the core of management control systems
and are of four types: revenue, expense, profit and investment centres.

2. The underlying success factors – enables organizations to focus on the CSFs

(Critical Success Factors) in order to examine the factors that contribute to the
success of the organization.

3. The Generic Strategies – based on the assumption that strategies adopted by a

firm similar to another firm are comparable.

Strategic Leap Control: When environment is relatively unstable, organizations are

required to make strategic leaps in order to make significant changes. There are four
techniques:

1. Strategic Issue Management – aims at identifying one or more strategic issues

and assessing their impact on the organization.

2. Strategic Field analysis – is a way of examining the nature and extent of

synergies that exist or are lacking between the components of an organization.

3. Systems modelling – is based on computer based models that simulate the

essential features of the organization and its environment.

4. Scenarios – are perceptions about the likely environment a firm would face in the
future.

Evaluation techniques for operational control:

Internal analysis: deals with the identification of the strengths and weaknesses of the
organization in absolute terms. Tools used include value chain analysis, qualitative/
quantitative analysis e.g. ABC and EVA.
Comparative analysis: compares the performance of a firm with its own past
performance or with other firms. Includes historical analysis, industry norms and
benchmarking as methods.
Comprehensive analysis: adopts a total
approach of evaluating the firm rather
than one area of activity, unit or
department. It includes balanced
scorecard method, network
techniques e.g. CPM and PERT,
MBO.
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MCKINSEY’S 7-S MODEL

7-S framework of McKinsey
The 7-S framework of McKinsey is a Value Based Management (VBM) model
that describes how one can holistically and effectively organize a company. Together
these factors determine the way in which a corporation operates.
Shared Value
The interconnecting center of McKinsey's model is: Shared Values. What does the
organization stands for and what it believes in. Central beliefs and attitudes.
Strategy
Plans for the allocation of a firms scarce resources, over time, to reach identified goals.
Environment, competition, customers.
Structure
The way the organization's units relate to each other: centralized, functional divisions
(top-down); decentralized (the trend in larger organizations); matrix, network, holding,
etc.
System
The procedures, processes and routines that characterize how important work is to be
done: financial systems; hiring, promotion and performance appraisal systems;
information systems.
Staff
Numbers and types of personnel within the organization.
Style
Cultural style of the organization and how key managers behave in achieving the
organization’s goals.
Skill
Distinctive capabilities of personnel or of the organization as a whole.

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