BA7302 - STRATEGIC MANAGEMENT

Unit-I Strategy and process Concept of strategy:

The term strategy is derived from Greek word strategies which mean generalship. A plan or
course of action or a set of decision rules making a pattern or creating a common thread.
Definition for strategic management: Strategic Management is defined as the dynamic process
of formulation, implementation, evaluation and control of strategies to realize the organizations
strategic intent.
Conceptual framework for the development of strategic management:
 Strategic Advantage
 Organizational capability
 Competencies
 Synergistic Effects
 Strengths and weaknesses
 Organizational Resources
 Organizational behavior

Meaning for Goal: Goal denotes what an organization hopes to accomplish in a future period of
time . Meaning for Objectives: Objectives are the ends that state specifically how the goals
shall be achieved. They are concrete and specific in contrast to goals that are generalized.
Role of Objectives:
 Objectives define the organizations relationship with its environment.
 Objectives help an organization pursue its vision and mission.
 Objectives provide the basis for strategic decision making.
 Objectives provide the standards for performance Appraisal.
Characteristics of Objectives:
 Objectives should be understandable.
 Objectives should be concrete and specific.
 Objectives should be related to a time frame
 Objectives should be measurable and controllable.

1
 1. Objectives should be challenging.
Meaning of vision: A vision statement is sometimes called a picture of your company in
the future. Vision statement is your inspiration; it is the dream of what you want your
company to accomplish.
Meaning for mission: A mission statement is a brief description of a company‟s
fundamental purpose. The mission statement articulates the company‟s purpose both for
those in the organizations and for the public.
Strategic Management

Strategic management has now evolved to the point that it is primary value is to help the
organization operate successfully in dynamic, complex global environment. Corporations have to
become less bureaucratic and more flexible. In stable environments such as those that have
existed in the past, a competitive strategy simply involved defining a competitive position and
then defending it. Because it takes less and less time for one product or technology to replace
another, companies are finding that there are no such thing as enduring competitive advantage
and there is need to develop such advantage is more than necessary. Corporations must develop
strategic flexibility: the ability to shift from one dominant strategy to another. Strategic flexibility
demands a long term commitment to the development and nurturing of critical resources. It also
demands that the company become a learning organization: an organization skilled at creating,
acquiring, and transferring knowledge and at modifying its behaviour to reflect new knowledge
and insights. Learning organizations avoid stability through continuous self-examinations and
experimentations. People at all levels need to be involved in strategic management: scanning the
environment for critical information, suggesting changes to strategies and programs to take
advantage of environmental shifts, and working with others to continuously improve work
methods, procedures and evaluation techniques. At Murugappa Group in Tamil nadu, for
example, all employees have been trained in small-group activities and problem solving
techniques. In Eqitas

Mission must be feasible and attainable. It should be possible to achieve it.

Mission should be clear enough so that any action can be taken.
It should be inspiring for the management, staff and society at large.
It should be precise enough, i.e., it should be neither too broad nor too narrow.

2
It should beunique and distinctive to leave an impact in everyone’s mind.
It should be analytical , i.e., it should analyze the key components of the strategy.
It should be credible , i.e., all stakeholders should be able to believe it.

Vision
A vision statement identifies where the organization wants or intends to be in future or where it
should be to best meet the needs of the stakeholders. It describes dreams and aspirations for
future. For instance,
Microsoft’s vision is “to empower people through great software, any time, any place, or any
device.”
Wal-Mart’s vision is to become worldwide leader in retailing. A vision is the potential to view
things ahead of themselves. It answers the question “where we want to be”. It gives us a
reminder about what we attempt to develop. A vision statement is for the organization and it’s
members, unlike the mission statement which is for the customers/clients. It contributes in
effective decision making as well as effective business planning. It incorporates a shared
understanding about the nature and aim of the organization and utilizes this understanding to
direct and guide the organization towards a better purpose. It describes that on achieving the
mission, how the organizational future would appear to be. An effective vision statement must
have following features-

It must be unambiguous .
It must be clear
It must harmonize with organization’s culture and values.
The dreams and aspirations must be rational/realistic
Vision statements should be shorter so that they are easier to memorize. In order to realize the
vision, it must be deeply instilled in the organization, being owned and shared by everyone
involved in the organization.

he strategic management process means defining the organization’s strategy. It is also defined as
the process by which managers make a choice of a set of strategies for the organization that will

3
enable it to achieve better performance. Strategic management is a continuous process that
appraises the business and industries in which the organization is involved; appraises it’s
competitors; and fixes goals to meet all the present and future competitor’s and then reassesses
each strategy.

Strategic management process has following four steps:

1. Environmental Scanning- Environmental scanning refers to a process of collecting,

scrutinizing and providing information for strategic purposes. It helps in analyzing the
internal and external factors influencing an organization. After executing the
environmental analysis process, management should evaluate it on a continuous basis and
strive to improve it.
2. Strategy Formulation- Strategy formulation is the process of deciding best course of
action for accomplishing organizational objectives and hence achieving organizational
purpose. After conducting environment scanning, managers formulate corporate, business
and functional strategies.
3. Strategy Implementation- Strategy implementation implies making the strategy work as
intended or putting the organization’s chosen strategy into action. Strategy implementation
includes designing the organization’s structure, distributing resources, developing decision
making process, and managing human resources.
4. Strategy Evaluation- Strategy evaluation is the final step of strategy management process.
The key strategy evaluation activities are: appraising internal and external factors that are the
root of present strategies, measuring performance, and taking remedial / corrective actions.
Evaluation makes sure that the organizational strategy as well as it’s implementation meets
the organizational objectives.

These components are steps that are carried, in chronological order, when creating a new
strategic management plan. Present businesses that have already created a strategic management
plan will revert to these steps as per the situation’s requirement, so as to make essential changes.

4
Components of Strategic Management Process:
Goals and objectives
A goal is a desired future state or objective that an organization tries to achieve. Goals specify in
particular what must be done if an organization is to attain mission or vision. Goals make
mission more prominent and concrete. They co-ordinate and integrate various functional and
departmental areas in an organization. Well made goals have following features-.

These are precise and measurable

These look after critical and significant issues.
These are realistic and challenging.
These must be achieved within a specific time frame.
These include both financial as well as non-financial components
.Objectives are defined as goals that organization wants to achieve over a period of time. These
are the foundation of planning. Policies are developed in an organization so as to achieve these
objectives. Formulation of objectives is the task of top level management. Effective objectives
have following features-
1. These are not single for an organization, but
multiple.
2.Objectives should be both short-term as well as long-term
.3. Objectives must respond and react to changes in environment, i.e., they must be
flexible
.4.These must be feasible, realistic and operational

Tactics
Tactics are concerned with the short to medium term co-ordination of activities and the
deployment of resources needed to reach a particular strategic goal. Some typical questions one
might ask at this level are: "What do we need to do to reach our growth / size / profitability
5
goals?" "What are our competitors doing?" "What machines should we use?" The decisions are
taken more at the lower levels to implement the strategies based on ground realities.
How strategy is initiated?
A triggering event is something that stimulates a change in strategy .Some of the possible
triggering events is:

An organization’s mission is its purpose, or the reason for its existence. It states what it is
providing to society .A well conceived mission statement defines the fundamental, unique
purpose that sets a company apart from other firms of its types and identifies the scope of the
company ‘s operation in terms of products offered and markets served
Objectives
Objectives are the end results of planned activity; they state what is to be accomplished by when
and should be quantified if possible. The achievement of corporate objectives should result in
fulfillment of the corporation’s mission.
Strategies
A strategy of a corporation is a comprehensive master plan stating how corporation will achieve
its mission and its objectives. It maximizes competitive advantage and minimizes competitive
disadvantage. The typical business firm usually considers three types of strategy: corporate,
business and functional.
Policies
A policy is a broad guideline for decision making that links the formulation of strategy with its
implementation. Companies use policies to make sure that the employees throughout the firm
make decisions and take actions that support the corporation’s mission, its objectives and its
strategies.
Strategic decision making
Strategic deals with the long-run future of the entire organization and have three characteristic
1. Rare- Strategic decisions are unusual and typically have no precedent to follow.
2. Consequential-Strategic decisions commit substantial resources and demand a great deal of
commitment
3. Directive- strategic decisions set precedents for lesser decisions and future actions throughout
the organization.
Mintzberg’s mode s of strategic decision making

6
According to Henry Mintzberg, the most typical approaches or modes of strategic decision
making are entrepreneurial, adaptive and planning.
Making better strategic decisions
He gives seven steps for strategic decisions
1. Evaluate current performance results
2. Review corporate governance
3. Scan the external environment
4. Analyze strategic factors (SWOT)
5. Generate, evaluate and select the best alternative strategy
6. Implement selected strategies
7. Evaluate implemented strategies
SBU or Strategic Business Unit
An autonomous division or organizational unit, small enough to be flexible and large enough to
exercise control over most of the factors affecting its long-term performance. Because strategic
business units are more agile (and usually have independent
Missions and objectives), they allow the owning conglomerate to respond quickly to changing
economic or market situations.

Corporate Governance: Corporate Governance involves a set of relationships amongst the

company‟s management its board of directors, shareholders and other stakeholders. These
relationships which various rules and incentives provide the structure through which the
objectives of the company are set and the means of attaining the objectives and monitoring
performance are determined.
Definition for Business: A company should define its business in terms of three dimensions: 1.
Who is being satisfied (what customer groups) 2. What is being satisfied (what customer needs)
3. How customer needs are being satisfied (by what skills, knowledge or distinctive
competencies)
Stake holders in Business: Stake holders are the individuals and groups who can affect by the
strategic outcomes achieved and who have enforceable claims on a firm‟s performance. Stake
holders can support the effective strategic management of an organization.

7
 Stake holder’s relationship management Stake holders can be divided into:
1. Internal Stakeholders
Shareholders Employees Managers Directors
2. External Stakeholders
 Customers
 Suppliers
 Government
 Banks/creditors
 Trade unions
 Mass Media

Stake holder’s Analysis:

 Identify the stake holders.
 Identify the stake holders expectations interests and concerns
 Identify the claims stakeholders are likely to make on the organization
 Identify the stakeholders who are most important from the organizations perspective.
 Identify the strategic challenges involved in managing the stakeholder relationship.

Key aspects of Good Corporate Governance

 Transparency of corporate structures and operations
 corporate responsibility towards employees, creditors, suppliers and local communities where
the corporation operates.

Corporate Governance Mechanisms:

 Ownership concentration
 Board of Directors
 Top management compensation
 Threat of takeover

Relating corporate Governance to strategic management:

 Corporate Governance and strategic intent

8
 Corporate Governance and strategy formulation
 Corporate Governance and strategy implementation
 corporate governance and strategy Evaluation

Social Responsibility of Business: Meaning: Social Responsibility of business refers to all such
duties and obligations of business directed towards the welfare of society. The obligation of any
business to protect and serve public interest is known as social responsibility of business. Why
should business be socially responsible?
 Public image
 Government Regulation
 Survival and growth
 Employee satisfaction
 Consumer Awareness

Social Responsibility towards different Interest groups:

1. Responsibility towards owners: Owners are the persons who own the business. They
contribute capital and bear the business.
 Run the business efficiently
 Proper utilization of capital and other resources.
 Regular and fair return on capital invested.
2. Responsibility towards Investors: Investors are those who provide finance by way of
investment in shares, bonds, etc. Banks, financial institutions and investing public are all
included in this category.
Ensuring safety of their investment Regular payment of interest.
Responsibility towards employees: Business needs employees or workers to work for it. If the
employees are satisfied and efficient, then the business can be successful.
 Timely and regular payment of wages and salaries.
 Opportunity for better career prospects.
 Proper working conditions
 Timely training and development
 Better living conditions like housing, transport, canteen and crèches.

9
Responsibility towards customers: No business can survive without the support of customers.
 Products and services must be able to take care of the needs of the customers.
 There must be regularity in supply of goods and services.
 Price of the goods and services should be reasonable and affordable
 There must be proper after sales-service
 Grievances of the consumers if any must be settled quickly.

Responsibility towards competitors: Competitors are the other businessmen or organization

involved in a similar type of business.
 Not to offer to customers heavy/discounts and or free products in every sale.
 Not to defame competitors through false advertisements.

Responsibility towards suppliers: Suppliers are businessmen who supply raw materials and
other items required by manufacturers and traders.
 Giving regular orders for purchase of goods
 Availing reasonable credit period
 Timely payment of dues.

8. Responsibility towards Government: Business activities are governed by the rules and
regulations framed by the government. Payment of fees, duties and taxes regularly as well as
honestly Conforming to pollution control norms set up by government Not to indulge in
restrictive trade practices.
9. Responsibility towards society: A society consists of individuals, groups, organizations,
families etc. They all are the members of the society.
 To help the weaker and backward sections of the society.
 To generate employment.
 To protect the environment
 . To provide assistance in the field of research on education, medical science, technology etc.
Steps in strategy formation process: Strategy formulation:
Existing business model

10
Mission,Vision, Values and goals
External Analysis, opportunities and threats
Internal Analysis, Strengths and weaknesses
SWOT Strategic choice
Functional level strategies
Business level strategies
Global strategies
Corporate level strategies
Strategy Implementation
 Governance and ethics
 Designing Organization structure
 Designing organization culture
 Designing organization controls
 Feedback
CORPORATE SOCIAL RESPONSIBILITY

Corporate Social Responsibility (CSR) is an important activity to for businesses . As

globalization accelerates and large corporations serve as global providers, these corporations
have progressively recognized the benefits of providing CSR programs in their various locations.
CSR activities are now being undertaken throughout the globe. What is corporate social
responsibility?
The term is often used interchangeably for other terms such as Corporate Citizenship and is also
linked to the concept of Triple Bottom Line Reporting (TBL) that is people, planet and profits.,
which is used as a framework for measuring an organization’s performance against economic,
social and environmental parameters. It is about building sustainable businesses, which need
healthy economies, markets and communities. The key drivers for CSR are Enlightened self-
interest - creating a synergy of ethics, a cohesive society and a sustainable global economy where
markets, labour and communities are able to function well together. Sustainability You need to
understand sustainability. It is being used mostly in organizational forums and a basic
understanding is needed for you. The discussion on sustainability is only for your understanding.
Sustainability means "meeting present needs without compromising the ability of future

11
generations to meet their needs’. These well-established definitions set an ideal premise, but do
not clarify specific human and environmental parameters for modelling and measuring
sustainable developments. The following definitions are more specific:
1. "Sustainable means using methods, systems and materials that won't deplete resources or harm
natural cycles".
2. Sustainability "identifies a concept and attitude in development that looks at a site's natural
land, water, and energy resources as integral aspects of the development".
3. "Sustainability integrates natural systems with human patterns and celebrates
continuity, uniqueness and place making". Combining all these definitions; Sustainable
developments are those which fulfil present and future needs while using and not harming
renewable resources and unique human-environmental systems of a site:[air, water, land, energy,
and human ecology and/or those of other [off-site] sustainable systems (Rosenbaum 1993 and
Vieria 1993).

Social investment - contributing to physical infrastructure and social capital is increasingly seen
as a necessary part of doing business.

Transparency and trust - business has low ratings of trust in public perception. There is
increasing expectation that companies will be more open, more accountable and be prepared to
report publicly on their performance in social and environmental arenas . Increased public
expectations of business - globally companies are expected to do more than merely provide jobs
and contribute to the economy through taxes and employment.
Corporate social responsibility is represented by the contributions undertaken by Companies to
society through its core business activities, its social investment and philanthropy programmes
and its engagement in public policy. In recent years CSR has become a fundamental business
practice and has gained much attention from chief executives, chairmen, boards of directors and
executive management teams of larger international companies. They understand that a strong
CSR program is an essential element in achieving good business practices and effective
leadership. Companies have determined that their impact on the economic, social and
environmental landscape directly affects their relationships with stakeholders, in particular
investors, employees, customers, business partners, governments and communities. According to

12
the results of a global survey in 2002 by Ernst & Young, 94 per cent of companies believe the
development of a Corporate Social Responsibility (CSR) strategy can deliver real business
benefits, however only 11 per cent have made significant progress in implementing the strategy
in their organisation. Senior executives from 147 companies in a range of industry sectors across
Europe, North America and Australasia were interviewed for the survey. The survey concluded
that CEOs are failing to recognize the benefits of implementing Corporate Social Responsibility
strategies, despite increased pressure to include ethical, social and environmental issues into their
decision-making processes. Research found that company CSR programs influence 70 per cent
of all consumer purchasing decisions, with many investors and employees also being swayed in
their choice of companies.

Unit-2
Competitive Advantage External Environment Concept of Environment:

13
Environment literally means the surroundings, external objects, influences or circumstances
under which someone or something exists. The environment of any organization is the aggregate
of all conditions events and influences that surround and affect it.
Characteristics of Environment:
o Environment is Complex:
o Environment is Dynamic
o Environment is Multi-faceted
o Environment has a far- reaching impact

Macro Environmental Factors:

 Demographic Environment
 Technological Environment
 Socio-cultural Environment
 Economic Environment
 Political Environment
 Regulatory Environment
 International Environment
 Supplier Environment
 Task Environment
Environmental Scanning: Environmental scanning plays a key role in strategy formulation by
analyzing the strengths and weaknesses and opportunities and threats in the environment.
Environmental scanning is defined as „monitoring, evaluating, and disseminating of information
from external and internal environments to managers in organizations so that long term health of
the organization will be ensured and strategic shocks can be avoided.

Porter’s five forces model:

14
Risk of entry by potential competitors
Bargaining power of suppliers
Bargaining power of buyers
Intensity of Rivalry among established firms
Threat of substitutes

His model focuses on five forces that shape competition within an Industry. Porter argues that the
stronger each of these forces is the more limited is the ability of established companies to raise
prices and earn greater profits. Within porter‟s framework, a strong competitive force can be
regarded as a threat because it depresses profits. A weak competitive force can be viewed as an
opportunity because it allows a company to earn greater profits. The task facing managers is to
recognize how changes in the five forces give rise to new opportunities and threats and to
formulate appropriate strategic responses.

Strategic groups within Industries Meaning: Companies in an industry often differ

significantly from each other with respect to the way they strategically position their products in
the market in terms of such factors as the distribution channels they use, the market segments

15
they serve, the quality of their products, technological leadership, customer service, pricing
policy, advertising policy, and promotions. As a result of these differences, within most industries
it is possible to observe groups of companies in which each company follows a business model
that is similar to that pursued by other companies in the group. These different groups of
companies are known as strategic groups.

 Proprietary group:

The companies in this proprietary strategic group are pursuing a high risk high return strategy. It
is a high risk strategy because basic drug research is difficult and expensive. The risks are high
because the failure rate in new drug development is very high.
Generic group: Low R&D spending, Production efficiency, as an emphasis on low prices
characterizes the business models of companies in this strategic group. They are pursuing a low
risk, low return strategy. It is low risk because they are investing millions of dollars in R&D. It is
low return because they cannot charge high prices.

Competitive changes during Industry Evolution Industry: An industry can be defined as a

group pf companies offering products services that are close substitutes for each other that is
product or services that satisfy the same basic customer needs. A company‟s closest competitors
its rivals are those that serve the same basic customer needs.

Industry and sector: An important distinction that needs to be made is between an industry and
a sector. A sector is a group of closely related industries.

Industry and market segments: Market segments are distinct groups of customers within a
market that can be differentiated from each other on the basis of their distinct attributes and
specific demands.
Industry life cycle Analysis The task facing managers is to anticipate how the strength of
competitive forces will change as the industry environment evolves and to formulate strategies
that take advantage of opportunities arise and that counter emerging threats.

16
Stages in Industry life cycle Analysis:
 Embryonic Stage
 Growth Stage
 Industry shakeout
 Maturity stage
 Declining stage

Globalization and Industry Structure In conventional economic system, national markets are
separate entities separated by trade barriers and barriers of distance, time and culture. With
globalization, markets are moving towards a huge global market place. The tastes and
preferences of customers of different countries are converging on common global norm. Products
like coco-cola, Pepsi, Sony walkman and McDonald hamburgers are globally accepted. The
intense rivalry forces all firms to maximize their efficiency, quality, innovative power and
customer satisfaction. With hyper competition, the rate of innovation has increased significantly.
Companies try to outperform their competitors by pioneering new products, processes and new
ways of doing business. Previously protected national markets face the threat of new entrants and
intense rivalry. After regulation of Indian economy the industrial sector has witnesses‟ enormous
changes. The banking sector reforms also contributed to changes in the economic conditions of
India. Merger, acquisition and joint venture with MNCs take place in large number. Ultimately
intense competition is felt in the industrial scene. A vibrant stock market has emerged.

National Context and Competitive advantage:

In spite of globalization of markets and production successful companies in certain industries are
found in specific countries
 Japan has most successful consumer electronics companies in the world
 Germany has many successful chemical and engineering companies in the world
 United states has many of the world‟s successful companies in computer and biotechnology
 It shows that national context has an important bearing on the competitive position of the
companies in the global market .

17
 Economists consider the cost and quality of factors of production as the major reason for the
competitive advantage of some countries with respect to certain industries.

Factors of production include basic factors such as labor, capital, raw material, land and
advanced factors such as technological know-how, managerial talent and physical infrastructure
The competitive advantages U.S enjoys in bio-technology due to technological know-how, low
venture capital to fund risky start-ups in industries. According to Michael porter the nation‟s
competitive position in an industry depends on factor conditions, Industry rivalry, demand
conditions, and related and supporting industries.

The determinants of national competitive advantage:

Intensity of Rivalry
Factor conditions
Local Demand conditions
Competitiveness of related and supporting industries

Strategic Types: Miles and snow have classified the strategic types into:
 Defenders:
The defender strategic type companies have a limited product line and they focus on efficiency
of existing operations.
 Prospectors:
These firms with broad product items focus on product innovation and market opportunities.
They are pre-occupied with creativity at the expense of efficiency.
Analyzers: Analyzers are firms which operate in both stable and variable markets. In stable
markets the companies emphasize efficiency and in variable markets they emphasize innovation,
creativity and differentiation.

 Reactors:

18
The firms, which do not have a consistent strategy to pursue, are called reactors. There is an
absence of well-integrated strategy structure culture relationship. Their strategic moves are not
integrated but piecemeal approach to environmental change makes them ineffective.

Internal Analysis: Distinctive Competencies, Competitive advantage, and Profitability

Internal Analysis is a three step process:

Manager must understand process by which companies create value for customers and profit for
themselves and they need to understand the role of resources, capabilities and distinctive
competencies in this process They need to understand how important superior efficiency,
innovation, quality and responsiveness to customers are in creating value and generating high
profitability. They must be able to identify how the strengths of the enterprise boost its
profitability and how any weaknesses lead to lower profitability.
Competencies, Resources and Competitive advantage Meaning of Competitive advantage:

A company has a competitive advantage over its rivals when its profitability is greater than the
average profitability of all companies in its industry. It has a sustained competitive advantage
when it is able to maintain above average profitability over a number of years.

Distinctive Competencies: Distinctive competencies are firm specific strengths that allow a
company to differentiate its product and achieve substantially lower costs than its rivals and thus
gain a competitive advantage.

Resources: Resources are financial, physical, social or human, technological and organizational
factors that allow a company to create value for its customers.

Capabilities: Capabilities refer to a company‟s skills at co-coordinating its resources and

putting them to productive use.

A critical distinction between Resources and capabilities: The distinction between resources
and capabilities is critical to understanding what generates a distinctive competency. A company

19
may have valuable resources, but unless it has the capability to use those resources effectively, it
may not be able to create a distinctive competency. For Example: The steel mini-mill operator
Nucor is widely acknowledged to be the most cost efficient steel maker in the United States. Its
distinctive competency in low cost steel making does not come from any firm specific and
valuable resources. Nucor has the same resources as many other mini-mill operators. What
distinguishes Nucor is its unique capability to manage its resources in a highly productive way.
Specifically Nucor‟s structure, control systems and culture promote efficiency at all levels
within the company.
Strategy, Resources, Capabilities and competencies The relationship of a company‟s
strategies distinctive competencies and competitive advantage. Distinctive competencies shape
the strategies that the company pursues which lead to competitive advantage and superior
profitability. However, it is also very important to realize that the strategies a company adopts
can build new resources and capabilities or strengthen the existing resources and capabilities
thereby enhancing the distinctive competencies of the enterprise. Thus the relationship between
distinctive competencies and strategies is not a linear one, rather it is a reciprocal one in which
distinctive competencies shape strategies and strategies help to build and create distinctive
competencies. Competitive advantage of a company becomes depends on three factors:
 The value customers place on the company‟s products
 The price that a company charges for its products
 The costs of creating those products.
The value customers place on a product reflects the utility they get from a product, the happiness
or satisfaction gained from consuming or owning the product utility must be distinguished from
price. Utility is something that customers get from a product. It is a function of the attributes of
the product such as its performance, design, quality, and point of sale and after-sale service.

Differentiation and cost structure Toyota has differentiated itself from General motors by its
superior quality, which allows it to charge higher prices, and its superior productivity translates
into a lower cost structure. Thus its competitive advantage over GM is the result of strategies that
have led to distinctive competencies resulting in greater differentiation and a lower cost
structure. Consider the automobile Industry, In 2003 Toyota made 2402 dollar in profit on every
vehicle it manufactured in North America. GM in contrast, made only 178 dollar profit per

20
vehicle. What accounts for the difference? First has the best reputation for quality in the industry.
The higher quality translates into a higher utility and allows Toyota to charge 5 to 10 percent
higher prices than GM. Second Toyota has a lower cost per vehicle than GM in part because of
its superior labor productivity.

Generic Building Blocks of Competitive advantage:

 Superior Quality
 Superior Efficiency
 Superior Customer responsiveness
 Superior Innovation
 Competitive advantage
 Low cost
 Differentiation

1. Superior Efficiency: A business is simply a device for transforming inputs into outputs.
Inputs are basic factors of production such as labor, land, capital, management, and technological
know-how. Outputs are the goods and services that the business produces. The simplest measure
of efficiency is the quantity of inputs that it takes to produce a given output. That is efficiency
outputs/Inputs. Two important components of efficiency:
 Employee productivity
 Capital productivity.

2. Superior quality: A product can be thought of as a bundle of attributes. The attributes of

many physical products include their form, features, performance, durability, reliability, style and
design.
3. Superior Innovation:
Innovation refers to the act of creating new products or processes. Product innovation is the
development of products that are new to the world or have superior attributes to existing
products. Process innovation is the development of a new process for producing products and
delivering them to customers.

21
Superior customer Responsiveness: To achieve superior responsiveness to customers a
company must be able to do a better job than competitors of identifying and satisfying its
customer needs. Customers will then attribute more utility to its products and creating a
differentiation based on competitive advantage.
Core competencies: Core competence is a fundamental enduring strength which is a key to
competitive advantage. Core competence may be a competency in technology, process,
engineering capability or expertise which is difficult for competitors to imitate. One core
competence gives rise to several products. Honda‟s core competence in designing and
manufacturing engines had led to several products and business such as cars, motorcycles,
lawnmowers, generators etc.
The durability of competitive advantage
 Barriers to Imitation
 Capability of competitors
 General dynamism of the Industry environment
Avoiding failures and sustaining competitive advantage When a company loses its
competitive advantage, its profitability falls. The company does not necessarily fail; it may just
have average or below average profitability and can remain in this mode for considerable time
although its resource and capital base is shrinking. A failing company is one whose profitability
is new substantially lower than the average profitability of its competitors, it has lost the ability
to attract and generate resources so that its profit margins and invested capital are shrinking
rapidly.

Reasons for failure:

 Inertia
 Prior strategic commitments
 The Icarus Paradox

Steps to Avoid failure:

 Focus on the building blocks of competitive advantage
 Institute continuous improvement and learning
 Track Best Industrial Practice and Benchmarking

22
 Overcome Inertia

Evaluation of key resources :( VRIO) Barney has evolved VRIO framework of analysis to
evaluate the firm‟s key resources. The following questions are asked to assess the nature of
resources.
 Value- Does it provides competitive advantage?
 Rareness- Do other competitors possess it?
 Imitability- Is it costly for others to imitate?
 Organization- Does the firm exploit the resources

Unit-3 Strategies Generic Strategic Alternatives Meaning of Corporate Strategy:

Corporate strategy helps to exercise the choice of direction that an organization adopts. There
could be a small business firm involved in a single business or a large, complex and diversified
conglomerate with several different businesses. The corporate strategy in both these cases would
be about the basic direction of the firm as a whole.

According to Gluek, there are four strategic alternatives:

 Expansion strategies
 Stability strategies
 Retrenchment Strategies
 Combination strategies

1. Expansion strategies: The corporate strategy of expansion is followed when an

organization aims at high growth by substantially broadening the scope of one or more of
its businesses in terms of their respective customer groups, customer functions and
alternative technologies singly or jointly in order to improve its overall performance.

2. Stability strategies:

23
The corporate strategy of stability is adopted by an organization when it attempts an incremental
improvement of its performance by marginally changing one or more of its businesses in terms
of their respective customer groups, customer functions and alternative technologies respectively.
3. Retrenchment strategies:

The corporate strategy of retrenchment is followed when an organization aims at contraction of

its activities through a substantial reduction or elimination of the scope of one or more of its
businesses in terms of their respective customer groups, customer functions or alternative
technologies either singly or jointly in order to improve its overall performance.

4. Combination strategies:

The combination strategy is followed when an organization adopts a mixture of stability,

expansion and retrenchment strategies either at the same time in its different businesses or at
different times in one of its businesses with the aim of improving its performance
5. Growth strategy:

Growth strategy is a corporate level strategy, designed to achieve increase in sales, assets and
profits. Growth strategies may be classified as follows:
 Vertical growth
 Horizontal growth

Vertical growth occurs when one function previously carried over by a supplier or a distributor is
being taken over by the company in order to reduce costs, to maintain quality of input and to
gain control over scarce resources. Vertical growth results in vertical integration.
1. Horizontal integration: A firm is said to follow horizontal integration if it acquires another
firm that produces the same type of products the same type products with similar production
process/marketing practices.
2. Vertical integration: Vertical integration means the degree to which a firm operates vertically
in multiple locations on an industry‟s value chain from extracting raw materials to

24
manufacturing and retailing. Vertical integration occurs when a company produces its own inputs
or disposes of its own outputs.
3. Backward Integration: Backward integration refers to performing a function previously
provided by a supplier.
4. Forward integration: Forward integration means performing a function previously provided
by a retailer.

Diversification: Diversification is considered to be a complex one because it involves a

simultaneous departure from current business, familiar products and familiar markets. Firms
choose diversification when the growth objectives are very high and it could not be achieved
within the existing product/market scope.

Types of diversification:

 Related diversification:

In related diversification the firm enters into a new business activity, which is linked in a
company‟s existing business activity by commonality between one or more components of each
activity‟s value chain.
 Unrelated diversification:

In unrelated diversification, the firm enters into new business area that has no obvious
connection with any of the existing business. It is suitable, if the company‟s core functional
skills are highly specialized and have few applications outside the company‟s core business.

 Concentric diversification:

25
Concentric diversification is similar to related diversification as there are benefits of synergy
when the new business is related to existing business through process, technology and marketing.

Strategic Alliance Meaning: A strategic alliance is a formal relationship between two or more
parties to pursue a set of agreed upon goals or to meet a critical business need while remaining
independent organizations.

Types of Strategic Alliances:

 Joint Venture
 Equity Strategic Alliance
 Non-equity Strategic Alliance
 Global Strategic Alliance
Stages of Alliance operation:
 Strategy Development
 Partner Assessment
 Contract Negotiation
 Alliance Operation
 Alliance Termination

Advantages of Strategic alliance:

 Allowing each partner to concentrate on activities that best match their capabilities
 Learning from partners developing competences that may be more widely exploited
elsewhere.
 Adequacy a suitability of the resources competencies of an organization for it to survive

Disadvantages of strategic Alliance:

 Alliances are costly
 Alliances can create indirect costs by blocking the possibility of cooperating with competing
companies, thus possibly even denying the company various financing options.
 Joint ventures also expose the company to its partners and the unique technologies that it has
are sometimes revealed to its partner company.

26
McKinsey’s 7S Model
This was created by the consulting company McKinsey and company in the early 1980s. Since
then it has been widely used by practitioners and academics alike in analyzing hundreds of
organizations. The Paper explains each of the seven components of the model and the links
between them. It also includes practical guidance and advice for the students to analyze
organizations using this model. At the end, some sources for further information on the model
and case studies available. The McKinsey 7S model was named after a consulting company,
McKinsey and company, which has conducted applied research in business and industry. All of
the authors worked as consultants at McKinsey and company, in the 1980s, they used the model
to analyze over 70 large organizations. The McKinsey 7S Framework was created as a
recognizable and easily remembered model in business. The seven variables, which the authors
terms “levers”, all begin with the letter “S”.

Description of 7Ss: Strategy: Strategy is the plan of action an organization prepares in response
to, or anticipation of changes in its external environment.

Structure: Business needs to be organized in a specific form of shape that is generally referred
to as organizational structure. Organizations are structured in a variety of ways, dependent on
their objectives and culture.

Systems: Every organization has some systems or internal processes to support and implement
the strategy and run day-to-day affairs. For example, a company may follow a particular process
for recruitment.

Style/culture: All organizations have their own distinct culture and management style. It
includes the dominant values, beliefs and norms which develop over time and become relatively
enduring features of the organizational life.
Staff: Organizations are made up of humans and it‟s the people who make the real difference to
the success of the organization in the increasingly knowledge-based society. The importance of

27
human resources has thus got the central position in the strategy of the organization, away from
the traditional model of capital and land.
Shared Values/super ordinate Goals: All members of the organization share some common
fundamental ideas or guiding concepts around which the business is built. This may be to make
money or to achieve excellence in a particular field. The seven components described above are
normally categorized as soft and hard components:
 Hard components
 Soft components
Hard components are:
 Strategy
 Structure
 Systems
Soft components are:
 Shared values
 Style
 Staff
 Skills
Distinctive Competitiveness Meaning: Distinctive Competence is a set of unique capabilities
that certain firms possess allowing them to make inroads into desired markets and to gain
advantage over the competition; generally, it is an activity that a firm performs better than its
competition. To define a firm‟s distinctive competence, management must complete an
assessment of both internal and external corporate environments. When management finds an
internal strength and both meets market needs and gives the firm a comparative advantage in the
market place, that strength is the firm‟s distinctive competence.
Defining and Building Distinctive Competence:
To define a company‟s distinctive competence, managers often follow a particular process.
1. They identify the strengths and weaknesses in the given marketplace.
2. They analyze specific market needs and look for comparative advantages that they have over
the competition.

28
Balanced Scorecard: The balanced scorecard is a strategic performance management tool- a
semi- standard structured report supported by proven design methods and automation tools that
can be used by managers to keep track of the execution of activities by staff within their control
and monitor the consequences arising from these actions.
History:
The first balanced scorecard was created by Art Schneider man (an independent consultant on the
management of processes) in 1987 at Analog Devices, a mid-sized semi-conductor company. Art
Schniederman participated in an unrelated research study in 1990 led by Dr.Robert S.Kaplan in
conjunction with US management consultancy Nolan-Norton, and during this study described his
work on balanced Scorecard. Subsequently, Kaplan and David P.Norton included anonymous
details of this use of balanced Scorecard in their 1992 article on Balanced Scorecard. Kaplan &
Norton‟s article wasn‟t the only paper on the topic published in early 1992. But the 1992
Norton paper was a popular success, and was quickly followed by a second in 1993. In 1996,
they published the book The Balanced Scorecard. These articles and the first book spread
knowledge of the concept of Balanced Scorecard widely, but perhaps wrongly have led to
Kaplan & Norton being seen as the creators of the Balanced Scorecard concept.

Four Perspectives:
1. Financial: Encourages the identification of a few relevant high-level financial measures.
2. Customer: Encourages the identification of measures that answer the question “How do
customers see us?”
3. Internal Business Process: encourages the identification of measures that answer the question
“What must we excel at?”
4. Learning and Growth: encourages the identification of measures that answer the question
“Can we continue to improve and create value?”
Business level strategy This chapter examines how a company selects and pursues a business
model that will allow it to complete effectively in an industry and grows its profits and
profitability. A successful business model results from business level strategies that create a
competitive advantage over rivals and achieve superior performance in an industry. In this
chapter we examine that competitive decisions involved in creating a business model that will

29
attract and retain customers and continue to do so over time so that a company enjoys growing
profits and profitability

. To create a successful business model, strategic managers must:

1. Formulate business- level strategies that will allow a company to attract customers away from
other companies in the industry.
2. Implement those business level strategies which also involve the use of functional level
strategies to increase responsiveness to customers, efficiency, innovation and quality.
Competitive positioning and the Business model:
1. To create a successful business model, managers must choose a set of business-level strategies
that work together to give a company competitive advantage over its rivals
2. To craft a successful model a company must first define its business, which entails decisions
about
a. Customer needs or what is to be satisfied
b. Customer groups or what is to be satisfied
c. Distinctive competencies or how customer needs are to be satisfied.

The decision managers make about these three issues determine which set of strategies they
formulate and implement to put a company‟s business model into action and create value for
customers.
Formulating the Business model: Customer needs and product Differentiation

1. Customer needs: are desires, wants that can be satisfies by means of the attributes or
characteristics of a product a good or service. For Example: A person‟s craving for something
sweet can be satisfied by chocolates, ice-cream, spoonful of sugar. Factors determine which
products a customer chooses to satisfy these needs:
 The way a product is differentiated from other products of its type so that it appeals to
customers
 The price of the product
 All companies must differentiate their products to a certain degree to attract customer

30
 Some companies however decide to offer customers a low prices products and do not engage
in much product differentiation

Companies that seek to create something unique about their product differentiation, their
products to a much greater degree that others so that they satisfy customers needs in ways other
products cannot. Product differentiation: It is the process of designing products to satisfy
customer‟s needs. A company obtains a competitive advantage when it creates makes and sells a
product in a way that better satisfies customer needs than its rivals do. If managers devise
strategies to differentiate a product by innovation, excellent quality, or responsiveness to
customers they are creating a business model based on offering customers differentiated
products. Formulating the Business model
3. Customer groups: The second main choice involved in formulating a successful business
model is to decide which kind of products to offer to which customer groups. Customer groups
are the sets of people who share a similar need for a particular product. Because a particular
product usually satisfies several different kinds of desires and needs, many different customer
groups normally exist in a market. In the car market, for example some customers want basic
transportation and others want the thrill of driving a sports car. Some want for luxury purpose.
4. Identifying customer groups and market segments: In the athletic shoe market the two
main customer groups are those people who use them for sporting purposes those who like to
wear them because they are casual and comfort. Within each customer group there are often
subgroups composed of people who have an even more specific need for a product. Inside the
group of people who buy athletic shoes for sporting purposes, for example are subgroups of
people who buy shoes suited to a specific kind of activity, such as running, aerobics, walking and
tennis.
A company searching for a successful business model has to group customers according to the
similarities or differences in their needs to discover what kinds of products to develop for
different kinds of customers. Once a group of customers who share similar or specific need for a
product has been identified, this group is treated as a market segment.

31
Three Approaches to Market Segmentation:
 No Market segmentation: First a company might choose not to recognize that different
market segments exist and make a product targeted at the average or typical customer. In this
case customer responsiveness is at a minimum and the focus is on price, not differentiation.
 High Market segmentation: Second a company can choose to recognize the differences
between customer groups and make a product targeted toward most or all of the different market
segments. In this case customer responsiveness is high and products are being customized to
meet the specific needs of customers in each group, so the emphasis is on differentiation not
price.
 Focused Market segmentation: Third a company might choose to target just one or two
market segments and decide its resources to developing products for customers in
just these segments. In this case, it may be highly responsive to the needs of customers in only
these segments, or it may offer a bare-bones product to undercut the prices charged by
companies who do focus on differentiation.

Generic Business- level strategies:

 Cost leadership: A company‟s business model in pursuing a cost-leadership strategy is based
on doing everything it can to lower its cost structure so it can make and sell goods or services at
a lower cost than its competitors. In essence a company seeks to achieve competitive advantage
and above average profitability by developing a cost leadership business model that positions it
on the value creation frontier as close as possible to the lower costs/lower prices axis.

Focused Cost leadership: A cost leader is not always a large national company that targets the
average customer. Sometimes a company can target one or a few market segments and
successfully pursue cost leadership by developing the right strategies to serve those segments.
 Differentiation: A differentiation business model is based on pursuing a set of generic
strategies that allows a company to achieve a competitive advantage by creating a product that
customers perceive as different or distinct in some important way.

32
Focused Differentiation: A in the case of the focused cost leader, a company that pursues a
business model based on focused differentiation chooses to specialize in serving the needs of one
or two market segments of niches. One it has chosen its market segment. A focused company
position itself using differentiation

Gap Analysis Meaning: In gap Analysis, the strategist examines what the organization wants to
achieve (desired performance) and what it has really achieved (actual performance). The gap
between what is desired and what is achieved widens as the time passes no strategy adopted.

Corporate portfolio Analysis Meaning: Corporate portfolio analysis could be defined as a set
of techniques that help strategists in taking strategic decisions with regard to individual products
or business in a firm‟s portfolio. It is primarily used for competitive analysis and strategic
planning in multi-product and multi-business firms. They may also be used in less diversified
firms, if these consist of a main business and other minor complementary interests. The main
advantages in adopting a portfolio approach in a multi-product multi-business firm is that
resources could be targeted at the corporate level to those businesses that possess the greatest
potential for creating competitive advantage.

33
 UNIT-III

Strategies:-

Generic Strategic Alternatives

 Generic Corporate (Growth) Strategy Alternatives

 Table of Contents:
 Growth strategies
It is a corporate strategy which expands company’s activities
Goal: increases sales and earnings
Uses: during high market growth , economic prosperity
Other generic corporate strategy alternatives are:
 Stability strategy - aims to increase profitability
 Defensive or retrenchment strategy – ensures survival by cutting costs and losses

 Combination strategy – aims to increase earnings and cut costs

 Growth strategies (concentration)

Concentration strategy focuses on a single or on a small number of
closely related products/service.
E.g: Kellogs, Coca-cola
Approaches used to pursue a concentration strategy are:
 Market development – to expand market of current business by gaining a larger share in
the market, attracting new market segments etc.
 Product development- to alter the product/service or add a closely related product/service
that can be sold through the current marketing channel.
 Horizontal Integration - when an organization adds 1 or more business producing similar
products/services and operating at same stage in the product marketing chain. E.g. Dr.
pepper merging with Canada dry in 1982.

Pros : low initial risk, perfection achieved

Cons : high risk
 Growth strategies ( Vertical Integration)
It refers to the degree to which the firm owns its upstream suppliers and its downstream buyers is
known as Vertical integration.
There are 2 types of vertical integration:
 Backward integration – occurs when a firm integrates with it’s suppliers in order to
reduce dependency.

E.g: Nescafe integrates with the coffee suppliers controlling the supply of coffee beans.
 Forward integration– occurs when the activities of the firm are expanded to
include control of the direct distribution of its products.

E.g: Tady line integrating with Radio shack.

Pros: cost advantages, stable quality of components, makes operations difficult for competitors.

34
Cons:reduces flexibility, raises exit barriers, prevents firms from seeking the best latest
components from suppliers used by competitors.
 Vertical Integration
 Growth Strategies (Diversification)
Diversification occurs when an organization moves into areas that are clearly differentiated from
its current businesses.
Diversification strategy can be classified into:
 Concentric(Related)diversification: occurs when a firm adds related products, markets or
technology but is distinct from the firm’s current business.

E.g. Dell diversifying by launching a smart phone.

 Conglomerate (Un-related) diversification: occurs when a firm diversifies into areas that
are unrelated to its current line of business.

E.g. ITC, a cigarette company diversifying into the hotel industry.

 More growth strategies
Previous strategies can be implemented through cooperation strategies.
The different types of cooperative strategies are:
 Mergers
 Takeover ( Acquisitions)

 Alliances v Joint venture

 Mergers
A Merger refers to a process in which two companies become one by coming together.
In this case one company does not rules over the other, the management control is shared equally
and names of both the companies are retained for the resulting companies.
E.g. Sony Ericsson (mobile) , GlaxoSmithKline (pharmaceutical)
 Acquisition (Takeover)
Acquisitions refers to the process in which one company buys the other company.
Here, the buying company absorbs the bought company into the existing company.
E.g. News Corp Inc acquired MySpace (the leading online networking site) with about100
million registered users not in order to merge it with the other news businesses, but to expand the
corporate portfolio.
 Alliances v Joint ventures
It is an approach in which two or more companies agree to pool their resources together to form
a combined force in the marketplace.
This way the companies become of doing things and can share the risks of the venture.
Joint venture is a very popular form of an alliance.
E.g. Costa Coffee, the leading coffee brand across the UK and Western Europe, it entered the
Chinese market recently with a joint venture with the Yueda Group based in Jiangsu Province in
China. Costa coffee joint ventured to learn and get a hold about the new market.

Competitive Advantage

35
A competitive advantage is one gained over competitors by offering consumers better value. You
increase value by lowering prices or increasing benefits and services to justify the higher price.
Differentiation and cost leadership strategies search for competitive advantage on a broad scale,
while focus strategies work in a narrow market. Sometimes, businesses look for a combination
strategy to please customers looking for multiple factors such as quality, style, convenience and
price.

Cost Leadership Strategy

To practice cost leadership, organizations compete for the largest number of customers through
price. Cost leadership works well when the goods or services are standardized. That way, the
company can sell generic acceptable goods at the lowest prices. They can minimize costs to the
company in order to minimize costs to the customer without decreasing profits. A company
either sells its goods at average industry prices to earn higher profits than its competitors or it
sells at below-industry prices, trying to profit by gaining the market share. Wal-Mart is an
example of a company with a cost leadership strategy.

Differentiation Strategy

Differentiation strategy calls for a company to provide a product or service with distinctive
qualities valued by customers. You draw customers because you set yourself apart from the
competition. To succeed at this strategy, your business should have access to leading scientific
research (or perform this research); a highly skilled and creative product development team; a
strong sales and marketing team; and a corporate reputation for quality and innovation. Apple,
for example, uses differentiation strategy.

Focus Strategy

Focus strategy is just what it sounds like: concentrate on a particular customer, product line,
geographical area, market niche, etc. The idea is to serve a limited group of customers better than
your competitors who serve a broader range of customers. A focus strategy works well for small
but aggressive businesses. Specifically, companies that do not have the ability or resources to
engage in a nationwide marketing effort will benefit from a focus strategy. Focus can be based on
cost or differentiation strategy. It involves focusing the cost leadership or differentiation on a
small scale. The idea is to make your company stand out within a specific market sector.

Integrated Cost Leadership-Differentiation Strategy

Companies that integrate strategies rather than relying on a single generic strategy are able to
adapt quickly and learn new technologies. The products produced under the integrated cost
leadership-differentiation strategy are less distinctive than differentiators and costs are not as low
as the cost-leader, but they combine the advantages of both approaches. A somewhat distinctive
product that is mid-range-priced can be a bigger draw to customers than a cheap generic product
or an expensive special one.

Stability strategies:

36
Stability strategy is most commonly used by an organization. An organization will continue in
similar business as it currently pursues similar objectives and resource base. Discuss six
situations when it is good/best to pursue stability strategy. Give some Indian examples.

Meaning: In an effective stability strategy, companies will concentrate their resources where the
company presently has or can rapidly develop a meaningful competitive advantage in the
narrowest possible product market scope consistent with the firm’s resources and market
requirements.

Good parenting can help SBUs to follow any strategy effectively including stability strategies.
And there are some identified specific situations when the Stability Strategy is best to pursue:

 Perception of Management about Performance: If the management is satisfied with

present performance and, is not willing to take market risks, they may like to adopt
stability strategy and continue with it. The management may consider change of strategy
only if results are not forthcoming.

 Slowness to Change: Some organizations are slow to change or resistant to change. This
is particularly true of public sector companies. Many such companies are not
organizationally equipped for fast or sudden change and lack the ability to cope with risk
and uncertainty inherent in such change.

 Frequent Past Changes: If a company had made frequent strategic changes in the past, it
should follow stability strategy for some period for more efficient management. In fact, it
is always recommended that, after a period of internal change and restructuring or
expansions, stability strategy should be pursued as a pause or rehabilitation. Otherwise,
the organization may show signs of destabilization.

 Strategic Advantage: If an organization’s strategic advantage lies in the present business

and market, it should pursue stability strategy. If, for example, an organization has high
market share, it can continue in the same business and defend its position through
incremental strategic changes.

 Profit Objective/Maximization: Every company has some profit objective which is

commensurate with the level of investment, output level, market structure, willingness to
take risk, etc. If the stability strategy helps the company achieve its profit objective, the
company should stick to this. Sometimes, stability strategy may even help in profit
maximization.

 Stable Environment: Given the organizational resources and capabilities, the nature of
environment determines, to a large extent, the kind of strategy to be followed by a
company.

37
If the environment is generally stable in terms of macroeconomic situation, government policy
regulations and competition, stability strategy may be the best. The particular strategy to be
followed depends on the precise nature of the environmental impact. If the environment is hostile
or volatile, stability strategy is not recommended.

Types of Stability Strategies

1. Pause/Process with caution strategy – Some organizations pursue stability strategy for
a temporary period of time until the particular environmental situation changes,
especially if they have been growing too fast in the previous period. Stability strategies
enable a company to consolidate its resources after prolonged rapid growth. Sometimes,
firms that wish to test the ground before moving ahead with a full-fledged grand strategy
employ stability strategy first.
2. No change strategy – No change strategy is a decision to do nothing new i.e continue
current operations and policies for the foreseeable future. If there are no significant
opportunities or threats operating in the environment, or if there are no major new
strengths and weaknesses within the organization or if there are no new competitors or
threat of substitutes, the firm may decide not to do anything new.

3. Profit strategy – Profit strategy is an attempt to artificially maintain profits by reducing

investments and short-term expenditures. Rather than announcing the company’s poor
position to shareholders and other investors at large, top management may be tempted to
follow this strategy. Obviously, the profit strategy is useful to get over a temporary
difficulty, but if continued for long, it will lead to a serious deterioration in the company’s
position. The profit strategy is thus usually the top management’s short term and often
self serving response to the situation.

Expansion strategy

Seven Ways to Expand: From Local to Global

1. Increase your sales and products in existing markets. This is obviously the easiest and most
risk-free way to expand. This tactic may require a bigger location, different pricing strategies,
new/improved marketing techniques - but it will be in a customer group with whom you already
have a relationship. If you get off track, your present customers will let you know!

2. Introduce a New Product. You have a successful product/service that you have been offering
for some time and have been collecting data, customer feedback and doing the tinkering on your
newest product. This is a normal evolution in business, not just an expansion tactic. When
positioned as adding value and being responsive to customer needs, this can be a relatively risk-
free way to expand.

38
3. Develop a New Market Segment or Move into New Geography. Both of these areas require
cost outlays and uncertainty. Moving your products into new categories or demographic
segments requires market research, beta testing and new marketing strategies, i.e. a message for a
16-year old will differ that one for a 60-year old. Management of new remote locations may
absorb significant time and attention. While the risks are more, the payoffs are large - and for
most businesses looking to expand, these two methods of expansion are inevitable.

4. Start a Chain. A restaurant, retail or service business that's easily reproduced and can be run
from a distance is all you need to launch a chain. But, you must be cognizant of what made the
first location a success - was it location, your staff or you? If it is just you, then duplication is
only possible through detailed operations plans and sharing staff between locations. You will
need to duplicate the plan of your first location while meeting increased customer demands.
Starting a chain gives your current staff a crack at "management" duties, training opportunities
and an opportunity to expand their horizons.

5. Franchise or License. While it's a quick way to grow, a franchise agreement can cost
(minimally) $100,000 to prepare. You will need to be a good teacher, be able to prepare the
training manuals (preferably in more than one language), be very organized and willing to travel.
Licensing can carry less risk, but demands giving up a certain amount of control. Licensing a
patent, trademark or industrial design means that you sell manufacturing, distribution or
production rights.

6. Join Forces / Strategic Alliance. A merger or acquisition combines the best of two
companies, expands your customer base, increases intellectual capital and delivers operational
efficiencies. The trick is finding the right partner. These partners may be new distributors, but be
forewarned large retailers exact heavy performance expectations. Can you perform to the letter
of your promise? Can you meet high standards of quality (ISO, or the like) and adapt your
procedures to meet just-in-time delivery? Due diligence and strong contractual arrangements are
essential here.

7. Go Global. You can decide to go global in a number of ways. Growing markets, rising
consumer spending, improved business climate--sometimes the only place to find these things is
overseas. Doing business internationally can take the form of exporting, licensing, a joint venture
or manufacturing, but whatever form you choose, the basic business rules apply: assess customer
demand, gain legal and accounting assistance, protect intellectual property and obey regulations.

More difficult to understand than the regular business affairs may be the cultural nuances -
ignore them at your peril. In some countries, particularly those in Asia, a local partner is virtually
a requirement. Your first stop should be your target country's economic development agency,
which can help marshal local resources to get you on your way, possibly with a small financial
boost. Be patient. Growing your business globally can take more than one "sightseeing trip" to
the region. Here are some steps in going global, from easiest to hardest.

39
Retrenchment strategy

A strategy used by corporations to reduce the diversity or the overall size of the operations of the
company. This strategy is often used in order to cut expenses with the goal of becoming a more
financial stable business. Typically the strategy involves withdrawing from certain markets or the
discontinuation of selling certain products or service in order to make a beneficial turnaround.

Retrenchment is a short-run renewal strategy designed to overcome organizational weaknesses

that are contributing to deteriorating performance. It is meant to replenish and revitalize the
organizational resources and capabilities so that the organization can regain its competitiveness.
Retrenchment may be thought as a minor surgery to correct a problem. Managers often try a
minimal treatment first-cost cutting or a small layoff-hoping that nothing more painful will be
needed to turn the firm around. When performance measures reveal a more serious situation,
more drastic action must be taken to restore performance.

Retrenchment strategies call for two primary actions:

1. Cost cutting and

2. Restructuring.

Variants of Retrenchment Strategy:

1. Turn around Strategies

Turnaround strategy means backing out, withdrawing or retreating from a decision wrongly
taken earlier in order to reverse the process of decline.
There are certain conditions or indicators which point out that a turnaround is needed if the
organization has to survive. These danger signs are as follows:
a) Persistent negative cash flow
b) Continuous losses
c) Declining market share
d) Deterioration in physical facilities
e) Over-manpower, high turnover of employees, and low morale
f) Uncompetitive products or services
g) Mismanagement
2. Divestment Strategies
Divestment strategy involves the sale or liquidation of a portion of business, or a major division,
profit centre or SBU. Divestment is usually a restructuring plan and is adopted when a
turnaround has been attempted but has proved to be unsuccessful or it was ignored. A divestment
strategy may be adopted due to the following reasons:
40
a) A business cannot be integrated within the company.
b) Persistent negative cash flows from a particular business create financial problems for the
whole company.
c) Firm is unable to face competition
d) Technological up gradation is required if the business is to survive which company cannot
afford.
e) A better alternative may be available for investment
3. Liquidation Strategies
Liquidation strategy means closing down the entire firm and selling its assets. It is considered the
most extreme and the last resort because it leads to serious consequences such as loss of
employment for employees, termination of opportunities where a firm could pursue any future
activities, and the stigma of failure.
Generally it is seen that small-scale units, proprietorship firms, and partnership, liquidate
frequently but companies rarely liquidate. The company management, government, banks and
financial institutions, trade unions, suppliers and creditors, and other agencies do not generally
prefer liquidation.
Liquidation strategy may be unpleasant as a strategic alternative but when a "dead business is
worth more than alive", it is a good proposition. For instance, the real estate owned by a firm
may fetch it more money than the actual returns of doing business.
Liquidation strategy may be difficult as buyers for the business may be difficult to find.
Moreover, the firm cannot expect adequate compensation as most assets, being unusable, are
considered as scrap.
Reasons for Liquidation include:
(i) Business becoming unprofitable
(ii) Obsolescence of product/process
(iii) High competition
(iv) Industry overcapacity
(v) Failure of strategy
Combination strategy:

Corporate planning aimed at achieving two or more goals (such as consolidation, growth,
stability) simultaneously.
Business-Level Strategy

41
An organization's core competencies should be focused on satisfying customer needs or
preferences in order to achieve above average returns. This is done through Business-level
strategies. Business level strategies detail actions taken to provide value to customers and gain a
competitive advantage by exploiting core competencies in specific, individual product or service
markets. Business-level strategy is concerned with a firm's position in an industry, relative to
competitors and to the five forces of competition.

Customers are the foundation or essence of a organization's business-level strategies. Who will
be served, what needs have to be met, and how those needs will be satisfied are determined by
the senior management.

Who are the customers?

Demographic, geographic, lifestyle choices (tastes and values), personality traits, consumption
patterns (usage rate and brand loyalty), industry characteristics, and organizational size.

What are the goods and/or services that potential customers need?

Knowing ones customers is very import in obtaining and sustaining a competitive advantage.
Being able to successfully predict and satisfy future customer needs is important. (Perhaps one of
Compaq's mistakes was not understanding who their real customer was and what that customer --
end user -- wanted.)

How to satisfy customer needs?

Organizations must determine how to bundle resources and capabilities to form core
competencies and then use these core competencies to satisfy customer needs by implementing
value-crating strategies.

Business-Level Strategies

There are four generic strategies that are used to help organizations establish a competitive
advantage over industry rivals. Firms may also choose to compete across a broad market or a
focused market. We also briefly discuss a fifth business level strategy called an integrated
strategy.

1. Cost Leadership – Organizations compete for a wide customer based on price. Price is based
on internal efficiency in order to have a margin that will sustain above average returns and cost
to the customer so that customers will purchase your product/service. Works well when
product/service is standardized, can have generic goods that are acceptable to many customers,
and can offer the lowest price. Continuous efforts to lower costs relative to competitors is
necessary in order to successfully be a cost leader. This can include:
 Building state of art efficient facilities (may make it costly for competition to imitate)
 Maintain tight control over production and overhead costs
 Minimize cost of sales, R&D, and service.

42
Porter's 5 Forces Model

Earlier we discussed Porter's Model. A cost leadership strategy may help to remain profitable
even with: rivalry, new entrants, suppliers' power, substitute products, and buyers' power.
 Rivalry – Competitors are likely to avoid a price war, since the low cost firm will
continue to earn profits after competitors compete away their profits (Airlines).
 Customers – Powerful customers that force firms to produce goods/service at lower
profits may exit the market rather than earn below average profits leaving the low cost
organization in a monopoly positions. Buyers then loose much of their buying power.
 Suppliers – Cost leaders are able to absorb greater price increases before it must raise
price to customers.
 Entrants – Low cost leaders create barriers to market entry through its continuous focus
on efficiency and reducing costs.
 Substitutes – Low cost leaders are more likely to lower costs to entice customers to stay
with their product, invest to develop substitutes, purchase patents.
How to Obtain a Cost Advantage?
 Determine and Control Cost
 Reconfigure the Value Chain as Needed

Risks
 Technology
 Imitation
 Tunnel Vision
Value Chain – A framework that firms can use to identify and evaluate the ways in which their
resources and capabilities can add value. The value of the analysis lays in being able to break the
organization's operations or activities into primary (such as operations, marketing & sales, and
service) and support ( staff activities including human resources management & procurement)
activities. Analyzing the firm's value-chain helps to assess your organizations to what you
perceive your competitors value-chain, uncover ways to cut costs, and find ways add value to
customer transactions that will provide a competitive advantage.

2. Differentiation - Value is provided to customers through unique features and characteristics of

an organization's products rather than by the lowest price. This is done through high quality,
features, high customer service, rapid product innovation, advanced technological features,
image management, etc. (Some companies that follow this strategy: Rolex, Intel, Ralph Lauren)

Create Value by:

 Lowering Buyers' Costs – Higher quality means less breakdowns, quicker response to
problems.
 Raising Buyers' Performance – Buyer may improve performance, have higher level of
enjoyment.
 Sustainability – Creating barriers by perceptions of uniqueness and reputation, creating
high switching costs through differentiation and uniqueness.

43
Risks of Using a Differentiation Strategy
 Uniqueness
 Imitation
 Loss of Value

Porter's Five Forces Model – Effective differentiators can remain profitable even when the five
forces appear unattractive.
 Rivalry – Brand loyalty means that customers will be less sensitive to price increases, as
long as the firm can satisfy the needs of its customers (audiofiles).
 Suppliers – Because differentiators charge a premium price they can more afford to
absorb higher costs and customers are willing to pay extra too.
 Entrants – Loyalty provides a difficult barrier to overcome. Substitutes (trans. 4-26) –
Once again brand loyalty helps combat substitute products.

3. Focused Low Cost- Organizations not only compete on price, but also select a small segment
of the market to provide goods and services to. For example a company that sells only to the U.S.
government.

4. Focused Differentiation - Organizations not only compete based on differientation, but also
select a small segment of the market to provide goods and services.

Focused Strategies - Strategies that seek to serve the needs of a particular customer segment
(e.g., federal gov't).
Companies that use focused strategies may be able serve the smaller segment (e.g. business
travelers) better than competitors who have a wider base of customers. This is especially true
when special needs make it difficult for industry-wide competitors to serve the needs of this
group of customers. By serving a segment that was previously poorly segmented an organization
has unique capability to serve niche.
Risks of Using Focused Strategies:
 Maybe out focused by competitors (even smaller segment)
 Segment may become of interest to broad market firm(s)

5. Using an Integrated Low-Cost/Differentiation Strategy

This new strategy may become more popular as global competition increases. Firms that use this
strategy may see improvement in their ability to:
 Adaptability to environmental changes.
 Learn new skills and technologies
 More effectively leverage core competencies across business units and products lines
which should enable the firm to produce produces with differentiated features at lower
costs.
Thus the customer realizes value based both on product features and a low price. Southwest
airlines is one example of a company that does uses this strategy.

44
However, organizations that choose this strategy must be careful not to: becoming stuck in the
middle i.e., not being able to manage successfully the five competitive forces and not achieve
strategic competitiveness. Must be capable of consistently reducing costs while adding
differentiated features.

Global Strategic Management

During the last half of the twentieth century, many barriers to international trade fell and a wave
of firms began pursuing global strategies to gain a competitive advantage. However, some
industries benefit more from globalization than do others, and some nations have a comparative
advantage over other nations in certain industries. To create a successful global strategy,
managers first must understand the nature of global industries and the dynamics of global
competition.

Sources of Competitive Advantage from a Global Strategy

A well-designed global strategy can help a firm to gain a competitive advantage. This advantage
can arise from the following sources:

 Efficiency
o Economies of scale from access to more customers and markets
o Exploit another country's resources - labor, raw materials
o Extend the product life cycle - older products can be sold in lesser developed
countries
o Operational flexibility - shift production as costs, exchange rates, etc. change over
time
 Strategic
o First mover advantage and only provider of a product to a market
o Cross subsidization between countries
o Transfer price
 Risk
o Diversify macroeconomic risks (business cycles not perfectly correlated among
countries)
o Diversify operational risks (labor problems, earthquakes, wars)
 Learning
o Broaden learning opportunities due to diversity of operating environments
 Reputation
o Crossover customers between markets - reputation and brand identification

Corporate Strategy

45
The Corporate Strategy Interest Group considers the decisions, actions and outcomes associated
with an organization's portfolio of business lines. The research and practice of corporate strategy
considers actions associated with changing the firm's scope and profile of business lines
including vertical integration, mergers and acquisitions, divestitures, corporate diversification
strategy/organization, implementation and performance. Recent research considers how
resources shape a firm's scope and relatedness of business lines, how firm resource composition
influence merger and acquisition outcomes, how diversified firms are managed most effectively
and why and when divestiture becomes viable. Other areas of interest include how a firm's
resources impact upon its growth and divestment decisions, when different modes of growth and
reduction are used, and what tradeoffs exist among various types of diversification strategy and
its organization alternatives. Corporate strategy draws from a wide range of theories and methods
to help explain the determinants and performance outcomes of managing the scope and
boundaries of the diversified firm.

Vertical integration:
When pursuing a vertical integration strategy, a firm gets involved in new portions of the value
chain This approach can be very attractive when a firm’s suppliers or buyers have too much
power over the firm and are becoming increasingly profitable at the firm’s expense. By entering
the domain of a supplier or a buyer, executives can reduce or eliminate the leverage that the
supplier or buyer has over the firm. Considering vertical integration alongside Porter’s five
forces model highlights that such moves can create greater profit potential. Firms can pursue
vertical integration on their own, such as when Apple opened stores bearing its brand, or through
a merger or acquisition, such as when eBay purchased PayPal.

By-Product Diversification. One of the first diversification moves that are vertically integrated
company makes is to sell by-products from points along the industry chain. But the company has
changed neither its industry nor its center of gravity. A key dimension that distinguishes among
companies pursuing this strategy is the number of industries into which by-products are sold.
Related Diversification. Related Diversification is a strategic change in which the company
moves its core industry into other industries that are related to the core industry. The position
taken here is that relatedness has two dimensions: 1. one is the degree to which the new industry
is related to the core industry; 2. the other - more important - is the degree to which the company
operates at the same center of gravity in the new industry.
Related diversification is a strategic change in which the company diversifies be entering new
industry but always enters business in that industry at the same center of gravity. An appreciation
for the degree of relatedness is needed to estimate the amount of strategic change that is being
attempted. A scale of relatedness could be constructed by listing the functional aspects of any
business, such as process technology, product technology, product development, purchasing,
assembly, packing, shipping, inventory management, quality, labor relations, distribution, selling,
promotion, advertising, consumer / customer, buying habits, working capital, and credit.

46
The magnitude of strategy implementation problem is directly proportional to the amount of
relatedness in the diversification move. The less related the diversification, the greater the
difficulty of strategy implementation, and the greater the likelihood of acquisition versus internal
growth.
Intermediate diversification. Between related and unrelated diversifiers are a large number of
firms whose businesses are somewhat related but operate at a number of centers of gravity. The
strategic change hypothesized is to be more difficult because it involves managing businesses
with different centers of gravity. The company must learn not only new businesses but also new
ways of doing business.
Unrelated Diversification. The unrelated company has several centers of gravity, operate in
many industries, and actually seek to avoid relatedness (e.g., electronic, energy). However, the
intermediate and unrelated diversification does not change the centers of gravity of their core
business.

A single product strategy is always a risky one. Because the firm has staked its survival on a
single product (or a small basket of products like Colgate) the organization has to work very hard
to ensure the success of that product. If the product is not accepted by the market or is replaced
by a new one the firm will suffer. Given the risk of a single product strategy, most large
organizations today operate in several different businesses, industries or markets.

Diversification describes the number of different businesses that an organization is engaged in

and the extent to which these businesses are related to one another. Diversification involves entry
into fields where both products and markets are significantly different than those of a firm’s
initial base. Related diversification occurs when a firm expands into industries similar to its
initial business in terms of at least one major function. Unrelated diversification involves
expansion into fields that do not share any financial or skill based interrelationship with a firm’s
initial business.

WhyDiversification?
–When their objectives can no longer be met by merely expanding within their existing product
market.
–Because the retained cash exceeds the investment demand for more expansion.
–If there are greater profit opportunities than in its present product market.
–Firms may explore diversification possibilities if the information available does not permit a
conclusive comparison between expansion and diversification.
–Firms diversify to avoid dependence on one product line, to achieve greater stability of profits,
to make greater use of an existing distribution system and to acquire know how.
–Firms diversity because it helps them avoid the danger of over specialization, helps in balancing
the vulnerabilities due to one’s own wrong size. Further, the firm’s technology research and
development may also help in finding our products which appear to have promise.

The company can put its resources and related capabilities to good effect. The existing
businesses might have saturated a bit and the only way to grow could be through diversification,
exploiting opportunities in the environment. Diversification, of course is not a sure bet.

47
Diversification may lead to neglect of old business. The managers may fail to understand the
intricacies of new business as well because they have entered the field without full knowledge
and adequate preparation. To make matters worse, competitors may retaliate with full force,
adversely impacting even the existing businesses. To be successful, diversification requires
careful planning and meticulous preparation. The company must have deep pockets and strong
staying power. The company must have relevant core competency in the field that it is trying to
look at. The chosen field must be attractive and the company should have capable managers to
handle the associated risks in a competent way. The cost of entry should also be reasonable.

Vertical integration allows the firm to enlarge its scope of operations within the same overall
industry. It takes place when one firm acquires another that is involved either in an earlier stage
of the production process (backward or upstream) or a later stage of the production process
(forward or downstream).
Backward vertical integration occurs when the companies acquired supply the firm with
products, components or raw materials. Reliance Industries for example, started its business with
textiles and went for backward integration to manufacture PFY and PSF critical raw materials for
textiles, PTA and MEG raw materials for PSF and PFY, para- xylene – raw materials for PTA and
MEG, and ultimately naptha for producing para-xylene. The company has also gone in favour of
forward integration by opening retail shops for marketing its textile products. The main reason
for backward integration is to gain a firm grip over supply and quality of raw materials.
Backward integration is quite common in industries where low cost and certainty of supply are
important to maintaining the firm’s competitive advantage in its end markets.

Forward integration on the other hand helps a firm gain control over sales and prices of its
existing products. However, increased risks are inherently present in both types of integration. It
is not easy to share the additional burden and diverse responsibilities are thrust upon the
managers in the changed scenario. The longer chain increases the costs of coordination and
bureaucracy. At times, a technological innovation in the vertical channel may compel all of the
vertically linked businesses to modify their operations. In a dynamic setting where changes in
technology and demand are highly unpredictable outsourcing may be a better option.

Apart from forward or backward integration firms can vertically integrate in varying degrees.
Full integration occurs when the firm seeks to control all stages of the value chain related to the
final end product or service. At the same time, a firm can also have a limited form of vertical
integration known as partial integration. Partial integration here refers to a selective choice of
those value adding stages that are brought in-house. Two such partial vertical integration
strategies are taper integration and quasi integration. Taper strategies demand firms to
manufacture a portion of their requirements and purchase the rest from outside suppliers. For
example most of Automobile’s spark plugs, instruments and ignition equipment are supplied
externally.

Strategic alliance: It is a Agreement for cooperation among two or more independent firms to
work together toward common objectives. Unlike in a joint venture, firms in a strategic alliance
do not form a new entity to further their aims but collaborate while remaining apart and distinct.

48
A strategic alliance is a relationship between two or more entities that agree to share resources to
achieve a mutually beneficial objective. For example, a company manufactures and distributes a
product in the United States and desires to sell it in other countries. Another company wants to
expand its product line with the type of product the first company creates, and has a worldwide
distribution channel. The two companies establish an alliance to expand the distribution of the
first company’s product.

Critical Success Factors

A successful strategic alliance is mutually beneficial to the two companies involved. Each must
see a clear benefit from the arrangement. The responsibilities of each company in implementing
the alliance must be clearly identified. Both parties must agree on the objectives of the
relationship and be flexible and adaptable in the operation of the alliance. Each company may
have a different culture and method of doing business.
Basic Steps
To secure a strategic alliance, define what type of partner you are seeking, along with the ideal
characteristics of a partner. Clearly identify what strengths you could offer the other party and
why the potential partner would want to forge a relationship with you. Develop a list of potential
alliance candidates. If possible, contact alliance partners through someone you both know. If that
isn’t feasible, send out a direct letter outlining your interest and asking for an opportunity to
explore a relationship. Have an exploratory meeting and, if there is an interest, develop a letter of
understanding outlining how both partners will work together and how money will be allocated.
Have your attorney prepare a formal agreement for both of you to sign.
Advantages
Strategic alliances permit a company to pursue an opportunity more quickly, leveraging the
resources and knowledge of the other party. Fewer resources are required than if a company
pursued an opportunity on its own. An alliance can provide easier access to new opportunities
and a lower barrier to entry.
Disadvantages
Implementing and managing a strategic alliance may be difficult because each alliance partner
has a different way of operating. Mistrust could occur, particularly when competitive or
proprietary information is involved. The alliance partners could become more dependent on each
other, making it difficult to operate again as separate entities if required.

Building the strategic management

49
The strategic management process means defining the organization’s strategy. It is also defined
as the process by which managers make a choice of a set of strategies for the organization that
will enable it to achieve better performance. Strategic management is a continuous process that
appraises the business and industries in which the organization is involved; appraises it’s
competitors; and fixes goals to meet all the present and future competitor’s and then reassesses
each strategy.

Collaborative strategies are a powerful way for nonprofits to accelerate their impact. We are a
trusted resource to the sector on the continuum of nonprofit partnerships, with a balanced
approach that combines objective analysis with careful attention to the people and processes
necessary for success.

Nonprofit Collaboration

Every day, nonprofits across the sector are exploring new and creative ways of working together.
But effective collaboration does not come easy. Our unparalleled experience and proven
methodologies provide frameworks for success that help organizations align behind common
goals and achieve outstanding outcomes.

Strategic Restructuring

Strategic restructuring can help nonprofits expand their reach, deliver more effective programs,
and advance their missions. The term “strategic restructuring” refers to a range of partnerships,
from shared administrative services and joint programming to mergers and more. Our seasoned
team of consultants works with you to explore your options and expertly guides you through the
strategic restructuring process, from assessment and negotiation to implementation and
integration.

Strategy Analysis & Choice

1. Subjective decisions based on objective information

2. Generating alternative strategies
3. Selecting strategies to pursue
4. Best alternative course of action to achieve mission & objectives
5. Derived from vision, mission, objectives, external audit, and internal audit

Strategic analysis and choice are two important components of the implementation stage of the
strategic management plan. These two components are crucial links in the strategic management
implementation procedure. Strategic analysis involves a number of steps.
Strategic implementation is the penultimate stage of strategic management and strategic analysis
and choice are two significant constituents of that process.The strategy of a company refers to its
all-inclusive plan or program for the purpose of accomplishing its aims and targets in the long
run.
Different types of strategies include business unit strategy, corporate strategy, operational
strategy and others. Strategic analysis implies the examination of the present condition of a

50
business and consequently developing an appropriate business strategy.

Strategic analysis carries higher importance with regards to conglomerates that offer a wide
range of diversified products. Strategic choice refers to the selection of the appropriate business
strategy.
At the time of performing strategic analysis and arriving at strategic choices, long term goals are
fixed and different types of strategies are chosen that are most appropriate for the mission of the
company and the variable conditions.

Strategic analysis and choice of strategies are done with the help of a number of techniques. If
the appropriate strategy is chosen, a company would become more efficient to establish
sustainability in competitive advantage and maximize firm valuation.

Factors Taken into Consideration for Strategic Analysis and Choice

Key Internal Factors

 Marketing
 Management

 Operations/Production
 Accounting/Finance
 Computer Information Systems
 Research and Development

Key External Factors

 Political/Governmental/Legal
 Economy

 Technological
 Social/Demographic/Cultural/Environmental
 Competitive

51
McKinsey’s 7S Model

This was created by the consulting company McKinsey and company in the early 1980s.
Since then it has been widely used by practitioners and academics alike in analyzing
hundreds of organizations. The Paper explains each of the seven components of the
model and the links between them.It also includes practical guidance and advice for the
students to analyze organizations using this model. At the end, some sources for further
information on the model and case studies available.

The McKinsey 7S model was named after a consulting company, McKinsey and
company, which has conducted applied research in business and industry. All of the
authors worked as consultants at McKinsey and company, in the 1980s, they used the
model to analyze over 70 large organizations. The McKinsey 7S Framework was created
as a recognizable and easily remembered model in business. The seven variables, which
the authors terms “levers”, all begin with the letter “S”.

Description of 7Ss:

Strategy

Strategy is the plan of action an organization prepares in response to, or anticipation of

changes in its external environment.

Structure:

Business needs to be organized in a specific form of shape that is generally referred to as

organizational structure. Organizations are structured in a variety of ways, dependent on
their objectives and culture.

Systems:

Every organization has some systems or internal processes to support and implement the
strategy and run day-to-day affairs. For example, a company may follow a particular
process for recruitment.

Style/culture:

All organizations have their own distinct culture and management style. It includes the
dominant values, beliefs and norms which develop over time and become relatively
enduring features of the organizational life.

Staff:

Organizations are made up of humans and it‟s the people who make the real difference to
the success of the organization in the increasingly knowledge based society. The

52
 importance of human resources has thus got the central position in the strategy of the
organization, away from the traditional model of capital and land

Shared Values/super ordinate Goals:

All members of the organization share some common fundamental ideas or guiding concepts
around which the business is built. This may be to make money or to achieve excellence in a
particular field. The seven components described above are normally categorized as soft and
hard components:

Hard components are:

 Strategy
 Structure
 Systems
Soft components are:
 Shared values
 Style
 Staff
 Skills

Distinctive Competitiveness
Meaning:
Distinctive Competence is a set of unique capabilities that certain firms possess allowing
them to make inroads into desired markets and to gain advantage over the competition;
generally, it is an activity that a firm performs better than its competition. To define a
firm‟s distinctive competence, management must complete an assessment of both
internal and external corporate environments. When management finds an
internalstrength and both meets market needs and gives the firm a comparative advantage
in the market place, that strength is the firm‟s distinctive competence.

Defining and Building Distinctive Competence:

To define a company‟s distinctive competence, managers often follow a particular
process.
1.They identify the strengths and weaknesses in the given marketplace.
2.They analyze specific market needs and look for comparative advantages that they
have over the competition.

Balanced Scorecard: The balanced scorecard is a strategic performance management

tool -a semi-standard structured report supported by proven design methods and
automation tools that can be used by managers to keep track of the execution of activities
by staff within their control and monitor the consequences arising from these actions.

History:The first balanced scorecard was created by Art Schneider man ( an independent
consultant on the management of processes) in 1987 at Analog Devices, a midsized semi-
conductor company. Art Schniederman participated in an unrelated research study in
1990 led by Dr.Robert S.Kaplan in conjunction with US management consultancy
Nolan - Norton, and during this study described his work on balanced Scorecard.

53
 Subsequently, Kaplan and David P.Norton included anonymous details of this use of
balanced Scorecard in their 1992 article on Balanced Scorecard. Kaplan & Norton‟s
article wasn‟t the only paper on the topic published in early 1992.

But in 1992 Kaplan& Norton paper was a popular success, and was quickly followed by a
second in 1993. In 1996, they published the book The Balanced Scorecard. These articles
and the first book spread knowledge of the concept of Balanced Scorecard widely, but
perhaps wrongly have led to Kaplan & Norton being seen as the creators of the Balanced
Scorecard concept.

Four Perspectives:
1.Financial : Encourages the identification of few relevant high-level financial measures.
2.Customer:Encourages the identification of measures that answer the question “How do
customers see us?”
3.Internal Business Process: encourages the identification of measures that answer the
question “What must we excel at?”
4. Learning and Growth: encourages the identification of measures that answer the
question “Can we continue to improve and create value?

Gap Analysis

Meaning:In gap Analysis, the strategist examines what the organization wants to achieve
(desired performance) and what it has really achieved (actual performance). The gap
between what is desired and what is achieved widens as the time passes no strategy
adopted.

Corporate portfolio Analysis

Meaning:Corporate portfolio analysis could be defined as a set of techniques that help

strategists in taking strategic decisions with regard to individual products or business in a
firm‟s portfolio. It is primarily used for competitive analysis and strategic planning in
multi-product and multi-business firms. They may also be used in less diversified firms,
if these consist of a main business and other minor complementary interests. The main
advantages in adopting a portfolio approach in a multi product multi -business firm is that
resources could be targeted at the corporate level to those businesses that possess the
greatest potential for creating competitive advantage.

SWOT Analysis
Meaning: Every organization is a part of an industry. Almost all organizations face competition
either directly or indirectly. Thus the industry and competition are vital considerations in making
a strategic choice. It is quite obvious that any strategic choice made by an organization cannot be

54
made unless the industry and competition have been analyzed. The environmental as well
organizational appraisal dealt with the opportunities, threats, strengths and weaknesses relevant
for an organization.

GE Nine-cell Matrix
This corporate portfolio analysis technique is based on the pioneering efforts of the General
Electric Company of the United States , supported by the consulting firm of McKinsey&
company. The vertical axis represents industry attractiveness, which is a weighted composite
rating based on eight different factors. These factors are: market size and growth rate , Industry
profit margin , competitive intensity, seasonality, cyclicality, economies of scale, technology and
social, environmental, legal and human impacts.

The horizontal axis represents business strength competitive position, which is again a weighted
composite rating based on seven factors. These factors are: relative market share, profit margins,
ability to compete on price and quality, knowledge of customer and market, competitive
strengths and weaknesses, technological capability and calibre of management.

55
 Unit-4
Strategy Implementation and Evaluation Introduction:
Organizational structure and culture can have a direct bearing on a company‟s profits. This
chapter examines how managers can best implement their strategies through their organization‟s
structure and culture to achieve a competitive advantage and superior performance.
Implementing strategy through organizational design: Strategy implementation involves the use
of organizational design, the process of deciding how a company should create, use and combine
organizational structure control systems and culture to pursue a business model successfully.
Strategy Implementation through Organizational design: The implementation of strategy
involves three steps:
 Organizational structure
 Organizational culture
 control systems
Basics of designing organization structure: The following basic aspects which require a
strategist‟s attention while designing structure
 Differentiation
 Integration
 Bureaucratic cost
 Allocating Authority and Responsibility

Span of control: Span of control means the number of subordinate‟s manager controls
effectively. The term span of control refers to the number of subordinates who report directly to a
manager.
 Grouping Tasks, functions and Divisions
 Tall and Flat organizations
 Centralization
 Decentralization

56
Integration and Integrating Mechanisms: Much coordination takes place among people,
functions and divisions through the hierarchy of authority, often however as a structure becomes
complex, this is not enough and top managers need to use various integrating mechanisms to
increase communication and coordination among functions and divisions. Greater the complexity
of an organizations structure the greater is the need for coordination among people, functions and
divisions to make the organizational structure work efficiently. Three kinds of integrating
mechanisms:
 Direct contact
 Liaison Role
 Teams
Designing Strategic Control Systems: Introduction: Strategic control systems provide
managers with required information to find out whether strategy and structure move in the same
direction. It includes target setting, monitoring, evaluation and feedback system. Steps in
Strategic Control process: Establish standards and Targets Create Measuring and monitoring
systems Compare Actual with targets Evaluate and take corrective actions Levels of control:
Corporate level managers Divisional level managers Functional level managers First level
managers Types of control system:
 Personal control
 Output control
 Behavior control
Organizational power and Politics: Organizational power: The organizational power is the
ability to influence people or things usually obtained through the control of important resources.
Organizational Politics: The organizational politics may be viewed as the tactics by which self
interested individuals and groups try to power to influence the goals and objectives of the
organization to further their own interest. Sources of power
 Ability to cope with uncertainty
 Centrality
 Control over information
 Non-substitutability
 Control over contingencies

57
 Control over resources

Organizational Conflict: Conflict may be defined as a situation when the goal directed behavior
of one group blocks the goal directed behavior of another. Organizational conflict process:
 Latent conflict
 Perceived conflict
 Felt conflict
 Manifest conflict
 conflict aftermath

Conflict Resolution strategies:

Changing task Relationship
Changing controls
Implementing strategic change
Changing Leadership
Changing the strategy

Managing the organization: The basic principles for organization change are as follows:
 Unfreezing
 Movement
 Refreezing

Techniques of Strategic Evaluation and control: Strategic Control: Strategy formulation is

based on assumptions about environmental and organizational factors which are nebulous and
dynamic in nature. The time gap between strategy formulation and implementation is the major
reason for these assumptions turned out to be invalid.
Types of strategic controls:
 Premise control
 Implementation control
 Strategic Surveillance

58
 Special Alert control
Techniques of Strategic Evaluation and control: There are two methods in strategic
evaluation and control:
 Strategic momentum control
 Strategic leap control
 Strategic Issue Management
 Strategic field Analysis
 Systems Modeling
 Scenarios

59
 UNIT-5
Other Strategic Issues Strategic Issues in Managing Technology and
Innovation

The strategic issues in managing technology and innovation and their influence on
environmental scanning, Strategy formulation, Strategy implementation, Strategy evaluation and
control are worth studying from the perspective of strategists in modern organization.
Research studies have pointed out that innovative companies such as 3M, Procter Gamble and
Rubbermaid are slow in introducing new products and their rate of success is not encouraging
Role of Management: The top management should emphasize the importance of technology and
innovation and they should provide proper direction.
Environmental Scanning:
External Scanning
Impact of stakeholders on innovation
Lead users
Market Research
New product Experimentation
Internal scanning
Resource allocation issues

Time to Market Issues: The new product development period is again a crucial issue. Within
four years many new products are imitated. Shorter the period, more beneficial for the company.
Japanese auto manufacturers have gained competitive advantage over their rivals due to
relatively short product development cycle. Strategy Formulation: The following crucial
questions are raised in strategy formulation
 Is the firm a leader or follower in respect of R&D strategy?
 Should we develop our own technology?
 Or should we go for technology outsourcing?
 What should be the mix of basic and applied research?

60
Technology sourcing: There are two methods for acquiring technology. It involves make or buy
decision. In-house R&D capability is one method and tapping the R&D capabilities of
competitors, suppliers and other organizations through contracts is another choice available for
companies. Strategic R&D alliance involves
 Joint programmes to develop new technology
 Joint ventures establishing a separate company to take a new product to market.
 Minority investments in innovative firms.

It will be appropriate for companies to buy technology which is commonly available from others
but make technology themselves which is rare, to remain competitive. Outsourcing of technology
will be suitable under the following conditions.
 The technology is of low significance to competitive advantage
 The supplier has proprietary technology
 The supplier‟s technology is easy to adopt with the present system
 The technology development needs expertise
 The technology development needs new resources and new people
Technology competence: In the case of technology outsourcing, the companies should have a
minimal R&D capability in order to judge the value of technology developed by others.

Strategy Implementation: To develop innovative organizations deployment of sufficient

resources and development of appropriate culture are crucial at all stages of new product
development.

Innovative Culture: Entrepreneurial culture is a part of innovative culture which presupposes

flexibility and dynamism into the structure. “Diffusion of Innovation” observes that an
innovative organization has the following characteristics.
 Positive Attitude to change
 Decentralized Decision Making
 Informal structure
 Inter connectedness

61
 Complexity
 Slack resources
 System openness

The employees who are involved in innovative process usually fulfill three different roles such
as:
Product champion
Sponsor
Orchestrator
Corporate entrepreneurship: Corporate Entrepreneurship is also known as intrapreneurship.
According to Gifford Pinchot an intrapreneur is a person who focuses on innovation and
creativity and who transforms and dreams of an idea into a profitable venture by operating within
the organizational environment. Intrapreneur acts like an entrepreneur but within the
organizational environment.
Evaluation and control: The purpose of research is to gain more productivity at a speedy rate.
The effectiveness of research function is evaluated in different ways in various organizations.
Improving R&D: The following best practices can be considered as benchmark for a
company‟s R&D activities.
 Corporate and business goals are well defined and clearly communicated to R&D department.
 Investments are made in order to develop multinational R&D capabilities to tap ideas
throughout the world.
 Formal, cross functional teams are created for basic, applied and developmental projects.

New Business models and strategies for the Internet Economy INTERNET ECONOMY:
The internet economy is an economy is based on electronic goods and services produced by the
electronic business and traded through electronic commerce. The Internet Economy refers to
conducting business through markets whose infrastructure is based on the internet and world-
wide web. An internet economy differs from a traditional economy in a number of ways,
including communication, market segmentation, distribution costs and price. Impact of the
Internet and E-commerce 1. Impact on external industry environment 2. Changes character of the
market and competitive environment 3. Creates new driving forces and key success factors 4.

62
Breeds formation of new strategic groups 5. Impact on internal company environment 6. Having,
or not having, an e-commerce capability tilts the scales 7. toward valuable resource strengths or
threatening weaknesses 8. Creatively reconfiguring the value chain will affect a firm‟s
competitiveness rivals. Characteristics of Internet Market Structure: Internet is composed of 1.
Integrated network of user‟s connected computers 2. Banks of servers and high speed computers
3. Digital switches and routers 4. Telecommunications equipment and lines Strategy-shaping
characteristics of the E-Commerce Environment Internet makes it feasible for companies
everywhere to compete in global markets.
 Competition in an industry is greatly intensified by new e-commerce. Strategic initiatives of
existing rivals and by entry of new, enterprising e-commerce rivals.
 Entry barriers into e-commerce world are relatively low
 On-line buyers gain bargaining power
 Internet makes it feasible for firms to reach

Effects of the Internet and E-commerce: Major groups of internet and e-commerce firms
comprising the supply side include 1. Makers of specialized communications components and
equipment 2. Providers of communications services 3. Suppliers of computer components and
hardware 4. Developers of specialized software 5. E-Commerce enterprises Overview of E-
Commerce Business Models and Strategies:
Business Models: Suppliers of communications Equipment: 1. Traditional business model of
a manufacturer is being used by most firms to make money. 2. Sell products to customers at
prices above costs 3. Produce a good return on investment 4. Strategic issues facing equipment
makers 5. Several competing technologies for various components of the internet infrastructure
exist 6. Competing technologies may have different performance pluses and minuses and be
compatible Strategy options for suppliers of communications Equipment:
1. Invest aggressively in R&D to win the technological race against rivals
2. Form strategic alliances to build consensus for favored technological approaches
3. Acquire other companies with complementary technological expertise
4. Hedge firm‟s bets by investing sufficient resources in mastering one or more of the competing
technologies

63
Business Models: Suppliers of Communication Services: 1. Business models based on
profitably selling selling services for a fee-based on a flat rate per month or volume of use 2.
Firms must invest heavily in extending lines and installing equipment to have capacity to provide
desired point-to- point service and handle traffic load. 3. Investment requirements are
particularly heavy for backbone providers, creating sizable up-front expenditures and heavy
fixed costs
Strategic Options: 1. Provide high speed internet connections using new digital line technology
2. Provide wireless broadband services or cable internet service 3. Bundle local telephone
service, long distance service, cable TV service and Internet access into a single package for a
single monthly fee.
Business Models: suppliers of Computer Components and Hardware: Traditional business
model is used-Make money by selling products at prices above costs Strategic approaches Stay
on cutting edge of technology Invest in R&D Move quickly to imitate technological advances
and product innovations of rivals Key to success- Stay with or ahead of rivals in introducing
next-generation products Competitive advantage will most likely be based on strategies key to
low cost
 Business Models: Developers of Specialized E-Commerce Software
 Business model involves
 Investments in designing and developing specialized software
 Marketing and selling software to other firms
 Profitability hinges on volume
 Strategic approaches: Sell software at a set price per copy
 Collect a fee for every transaction provided by the software.
 Rent or lease the software
Business Models: Media Companies and content providers:
 Using intellectual capital to develop music, games, video, and text, media firms
 Charge subscription fees or
 Rely on a pay-per-use model
 Business model of content providers involves creating content to attract users, then selling
advertising to firms wanting to deliver a message

64
 Key success factors for content providers
 Create a sense of community
 Deliver convenience and entertainment value as well as information.
Business Models: E-Commerce Retailers:
 Sell products at or below cost and make money by selling advertising to other merchandisers
 Use traditional model of purchasing goods from manufacturers and distributors, marketing
items at a web store
 Filling orders from inventory at a warehouse
 Operate website to market and sell product/ service and outsource manufacturing, distribution
and delivery activities to specialists.

Strategic Approaches: E-Commerce Retailers:

 Spend heavily on advertising to build widespread
 Add new product offerings to help attract traffic to firm‟s website.
 Be a first-mover or at worst on early mover
 Pay consideration attention to website attractiveness to generate “buzz” about the site among
surfers
 Keep the web site innovative, fresh, and entertaining

Key Success Factors: Competing in the E-Commerce Environment:

 Employ an innovative business model
 Develop capability to quickly adjust business model and strategy to respond to changing
conditions
 Focus on a limited number of competencies and perform a relatively specialized number of
value chain activities
 Stay on the cutting edge of technology
 Use innovative marketing techniques that are efficient in reaching the targeted audience and
effective in stimulating purchases
 Engineer an electronic value chain that enables differentiation or lower costs or better value
for the money.

65
Strategic issues for Non-Profit organizations Meaning: “A non-profit organizations also
known as a not-for- profit organization is an organization that does not distribute its surplus
funds to owners or shareholders, but instead uses them to help pursue its goals/ Types of non-
profit-organizations:
 Private non-profit organizations
 Public governmental units
Two Major Reasons: Society needs certain goods services Private not for profit organization are
exempted. Sources of Revenue: Profit making organization (Sales of goods or services)
Not for profit organization (Sponsor or donations) Constraints in Not-for-profit organization:
 Service is intangible in nature.
 The clients have very little influence.
 The sponsor mainly donate the fund for not for profit organization
 the professional people is going to join
 Restraints on the use of rewards and punishments.
Problems in the strategy formulation:
The main aim is to collect the funds.
They don‟t know how to frame strategy.
Internal conflict with the sponsor
Worthless will be rigid.
Problems in Strategy implementation:
The problem in decentralization
Links in internal external
Rewards and punishment.
Popular Strategies for Not-for-profit organizations:
Strategic piggybacking
Mergers
Strategic Alliances

66