Definition of Business Policy

Business Policy deIines the scope or spheres within which decisions can be taken by the
subordinates in an organization. It permits the lower level management to deal with the
problems and issues without consulting top level management every time Ior decisions.
Business policies are the guidelines developed by an organization to govern its actions. They
deIine the limits within which decisions must be made. Business policy also deals with
acquisition oI resources with which organizational goals can be achieved. Business policy is
the study oI the roles and responsibilities oI top level management, the signiIicant issues
aIIecting organizational success and the decisions aIIecting organization in long-run.

Features of Business Policy
An eIIective business policy must have Iollowing Ieatures-

1. $5ecific- Policy should be speciIic/deIinite. II it is uncertain, then the implementation
will become diIIicult.
2. lear- Policy must be unambiguous. It should avoid use oI jargons and connotations.
There should be no misunderstandings in Iollowing the policy.
3. #eliable/Uniform- Policy must be uniIorm enough so that it can be eIIiciently Iollowed
by the subordinates.
4. 55ro5riate- Policy should be appropriate to the present organizational goal.
5. $im5le- A policy should be simple and easily understood by all in the organization.
6. nclusive/om5rehensive- In order to have a wide scope, a policy must be
comprehensive.
7. Flexible- Policy should be Ilexible in operation/application. This does not imply that a
policy should be altered always, but it should be wide in scope so as to ensure that the
line managers use them in repetitive/routine scenarios.
8. $table- Policy should be stable else it will lead to indecisiveness and uncertainty in
minds oI those who look into it Ior guidance.
Difference between Policy and $trategy
The term 'policy should not be considered as synonymous to the term 'strategy. The
difference between 5olicy and strategy can be summarized as Iollows-
1. Policy is a blueprint oI the organizational activities which are repetitive/routine in nature.
While strategy is concerned with those organizational decisions which have not been
dealt/Iaced beIore in same Iorm.
2. Policy Iormulation is responsibility oI top level management. While strategy Iormulation
is basically done by middle level management.
3. Policy deals with routine/daily activities essential Ior eIIective and eIIicient running oI an
organization. While strategy deals with strategic decisions.
4. Policy is concerned with both thought and actions. While strategy is concerned mostly
with action.
5. A policy is what is, or what is not done. While a strategy is the methodology used to
achieve a target as prescribed by a policy.


LnvlronmenLal scannlng

rganizational environment consists oI both external and internal Iactors. Environment must be
scanned so as to determine development and Iorecasts oI Iactors that will inIluence
organizational success. nvironmental scanning refers to 5ossession and utilization of
information about occasions, 5atterns, trends, and relationshi5s within an organization`s
internal and external environment. It helps the managers to decide the Iuture path oI the
organization. Scanning must identiIy the threats and opportunities existing in the environment.
While strategy Iormulation, an organization must take advantage oI the opportunities and
minimize the threats. A threat Ior one organization may be an opportunity Ior another.
nternal analysis of the environment is the Iirst step oI environment scanning. rganizations
should observe the internal organizational environment. This includes employee interaction with
other employees, employee interaction with management, manager interaction with other
managers, and management interaction with shareholders, access to natural resources, brand
awareness, organizational structure, main staII, operational potential, etc.
Also, discussions, interviews, and surveys can be used to assess the internal environment.
Analysis oI internal environment helps in identiIying strengths and weaknesses oI an
organization.
As business becomes more competitive, and there are rapid changes in the external environment,
inIormation Irom external environment adds crucial elements to the eIIectiveness oI long-term
plans. As environment is dynamic, it becomes essential to identiIy competitors` moves and
actions. rganizations have also to update the core competencies and internal environment as per
external environment. Environmental Iactors are inIinite, hence, organization should be agile and
vigile to accept and adjust to the environmental changes. For instance - Monitoring might
indicate that an original Iorecast oI the prices oI the raw materials that are involved in the
product are no more credible, which could imply the requirement Ior more Iocused scanning,
Iorecasting and analysis to create a more trustworthy prediction about the input costs. In a similar
manner, there can be changes in Iactors such as competitor`s activities, technology, market tastes
and preIerences.
While in external analysis, three correlated environment should be studied and analyzed
O immediate / industry environment
O national environment
O broader socio-economic environment / macro-environment
Examining the industry environment needs an appraisal oI the competitive structure oI the
organization`s industry, including the competitive position oI a particular organization and it`s
main rivals. Also, an assessment oI the nature, stage, dynamics and history oI the industry is
essential. It also implies evaluating the eIIect oI globalization on competition within the industry.
Analyzing the national environment needs an appraisal oI whether the national Iramework
helps in achieving competitive advantage in the globalized environment. Analysis oI macro-
environment includes exploring macro-economic, social, government, legal, technological and
international Iactors that may inIluence the environment. The analysis oI organization`s external
environment reveals opportunities and threats Ior an organization.
Strategic managers must not only recognize the present state oI the environment and their
industry but also be able to predict its Iuture positions.

Compet|tors Ana|ys|s

rganizations must operate within a competitive industry environment. They do not exist in
vacuum. Analyzing organization`s competitors helps an organization to discover its weaknesses,
to identiIy opportunities Ior and threats to the organization Irom the industrial environment.
While Iormulating an organization`s strategy, managers must consider the strategies oI
organization`s competitors. Competitor analysis is a driver oI an organization`s strategy and
eIIects on how Iirms act or react in their sectors. The organization does a competitor analysis to
measure / assess its standing amongst the competitors.
om5etitor analysis begins with identifying 5resent as well as 5otential com5etitors. It
portrays an essential appendage to conduct an industry analysis. An industry analysis gives
inIormation regarding probable sources oI competition (including all the possible strategic
actions and reactions and eIIects on proIitability Ior all the organizations competing in the
industry). However, a well-thought competitor analysis permits an organization to concentrate on
those organizations with which it will be in direct competition, and it is especially important
when an organization Iaces a Iew potential competitors.
Michael Porter in Porter`s Five Forces Model has assumed that the competitive environment
within an industry depends on Iive Iorces- Threat oI new potential entrants, Threat oI substitute
product/services, bargaining power oI suppliers, bargaining power oI buyers, Rivalry among
current competitors. These Iive Iorces should be used as a conceptual background Ior identiIying
an organization`s competitive strengths and weaknesses and threats to and opportunities Ior the
organization Irom it`s competitive environment.
The main objectives of doing com5etitor analysis can be summarized as Iollows:
To study the market;
To predict and Iorecast organization`s demand and supply;
To Iormulate strategy;
To increase the market share;
To study the market trend and pattern;
To develop strategy Ior organizational growth;
When the organization is planning Ior the diversiIication and expansion plan;
To study Iorthcoming trends in the industry;
Understanding the current strategy strengths and weaknesses oI a competitor can suggest
opportunities and threats that will merit a response;
Insight into Iuture competitor strategies may help in predicting upcoming threats and
opportunities.
Competitors should be analyzed along various dimensions such as their size, growth and
proIitability, reputation, objectives, culture, cost structure, strengths and weaknesses, business
strategies, exit barriers, etc.

orLers model

Michael Porter (Harvard Business School Management Researcher) designed various vital
Irameworks Ior developing an organization`s strategy. ne oI the most renowned among
managers making strategic decisions is the Iive competitive Iorces model that determines
industry structure. According to Porter, the nature oI competition in any industry is personiIied in
the Iollowing Iive Iorces:
i. Threat oI new potential entrants
ii. Threat oI substitute product/services
iii. Bargaining power oI suppliers
iv. Bargaining power oI buyers
v. Rivalry among current competitors

FU# Porter`s Five Forces model
The Iive Iorces mentioned above are very signiIicant Irom point oI view oI strategy Iormulation.
The potential oI these Iorces diIIers Irom industry to industry. These Iorces jointly determine the
proIitability oI industry because they shape the prices which can be charged, the costs which can
be borne, and the investment required to compete in the industry. BeIore making strategic
decisions, the managers should use the Iive Iorces Iramework to determine the competitive
structure oI industry.
Let`s discuss the Iive Iactors oI Porter`s model in detail:
1. #isk of entry by 5otential com5etitors Potential competitors reIer to the Iirms which
are not currently competing in the industry but have the potential to do so iI given a
choice. Entry oI new players increases the industry capacity, begins a competition Ior
market share and lowers the current costs. The threat oI entry by potential competitors is
partially a Iunction oI extent oI barriers to entry. The various barriers to entry are-
O Economies oI scale
O Brand loyalty
O overnment Regulation
O Customer Switching Costs
O Absolute Cost Advantage
O Ease in distribution
O Strong Capital base
2. #ivalry among current com5etitors Rivalry reIers to the competitive struggle Ior
market share between Iirms in an industry. Extreme rivalry among established Iirms
poses a strong threat to proIitability. The strength oI rivalry among established Iirms
within an industry is a Iunction oI Iollowing Iactors:
O Extent oI exit barriers
O Amount oI Iixed cost
O Competitive structure oI industry
O Presence oI global customers
O Absence oI switching costs
O rowth Rate oI industry
O emand conditions
3. Bargaining Power of Buyers Buyers reIer to the customers who Iinally consume the
product or the Iirms who distribute the industry`s product to the Iinal consumers.
Bargaining power oI buyers reIer to the potential oI buyers to bargain down the prices
charged by the Iirms in the industry or to increase the Iirms cost in the industry by
demanding better quality and service oI product. Strong buyers can extract proIits out oI
an industry by lowering the prices and increasing the costs. They purchase in large
quantities. They have Iull inIormation about the product and the market. They emphasize
upon quality products. They pose credible threat oI backward integration. In this way,
they are regarded as a threat.
4. Bargaining Power of $u55liers Suppliers reIer to the Iirms that provide inputs to the
industry. Bargaining power oI the suppliers reIer to the potential oI the suppliers to
increase the prices oI inputs( labour, raw materials, services, etc) or the costs oI industry
in other ways. Strong suppliers can extract proIits out oI an industry by increasing costs
oI Iirms in the industry. Suppliers products have a Iew substitutes. Strong suppliers`
products are unique. They have high switching cost. Their product is an important input
to buyer`s product. They pose credible threat oI Iorward integration. Buyers are not
signiIicant to strong suppliers. In this way, they are regarded as a threat.
5. %hreat of $ubstitute 5roducts Substitute products reIer to the products having ability
oI satisIying customers needs eIIectively. Substitutes pose a ceiling (upper limit) on the
potential returns oI an industry by putting a setting a limit on the price that Iirms can
charge Ior their product in an industry. Lesser the number oI close substitutes a product
has, greater is the opportunity Ior the Iirms in industry to raise their product prices and
earn greater proIits (other things being equal).
The power oI Porter`s Iive Iorces varies Irom industry to industry. Whatever be the industry,
these Iive Iorces inIluence the proIitability as they aIIect the prices, the costs, and the capital
investment essential Ior survival and competition in industry. This Iive Iorces model also help in
making strategic decisions as it is used by the managers to determine industry`s competitive
structure.
Porter ignored, however, a sixth signiIicant Iactor- complementaries. This term reIers to the
reliance that develops between the companies whose products work is in combination with each
other. Strong complementors might have a strong positive eIIect on the industry. Also, the Iive
Iorces model overlooks the role oI innovation as well as the signiIicance oI individual Iirm
diIIerences. It presents a stagnant view oI competition.

Components of a Strategy Statement

The strategy statement oI a Iirm sets the Iirm`s long-term strategic direction and broad policy
directions. It gives the Iirm a clear sense oI direction and a blueprint Ior the Iirm`s activities Ior
the upcoming years. The main constituents oI a strategic statement are as Iollows:
$trategic ntent
An organization`s strategic intent is the purpose that it exists and why it will continue to
exist, providing it maintains a competitive advantage. Strategic intent gives a picture
about what an organization must get into immediately in order to achieve the company`s
vision. It motivates the people. It clariIies the vision oI the vision oI the company.
Strategic intent helps management to emphasize and concentrate on the priorities.
Strategic intent is, nothing but, the inIluencing oI an organization`s resource potential
and core competencies to achieve what at Iirst may seem to be unachievable goals in the
competitive environment. A well expressed strategic intent should guide/steer the
development oI strategic intent or the setting oI goals and objectives that require that all
oI organization`s competencies be controlled to maximum value.
Strategic intent includes directing organization`s attention on the need oI winning;
inspiring people by telling them that the targets are valuable; encouraging individual and
team participation as well as contribution; and utilizing intent to direct allocation oI
resources. Strategic intent diIIers Irom strategic Iit in a way that while strategic Iit deals
with harmonizing available resources and potentials to the external environment, strategic
intent emphasizes on building new resources and potentials so as to create and exploit
Iuture opportunities.
Mission $tatement
Mission statement is the statement oI the role by which an organization intends to serve
it`s stakeholders. It describes why an organization is operating and thus provides a
Iramework within which strategies are Iormulated. It describes what the organization
does (i.e., present capabilities), who all it serves (i.e., stakeholders) and what makes an
organization unique (i.e., reason Ior existence). A mission statement diIIerentiates an
organization Irom others by explaining its broad scope oI activities, its products, and
technologies it uses to achieve its goals and objectives. It talks about an organization`s
present (i.e., 'about where we are). For instance, Microsoft`s mission is to help people
and businesses throughout the world to realize their Iull potential. Wal-Mart`s mission is
'To give ordinary Iolk the chance to buy the same thing as rich people. Mission
statements always exist at top level oI an organization, but may also be made Ior various
organizational levels. ChieI executive plays a signiIicant role in Iormulation oI mission
statement. nce the mission statement is Iormulated, it serves the organization in long
run, but it may become ambiguous with organizational growth and innovations. In
today`s dynamic and competitive environment, mission may need to be redeIined.
However, care must be taken that the redeIined mission statement should have original
Iundamentals/components. Mission statement has three main components-a statement oI
mission or vision oI the company, a statement oI the core values that shape the acts and
behaviour oI the employees, and a statement oI the goals and objectives.
Features of a Mission
a Mlsslon musL be eas|b|e and aLLalnable lL should be posslble Lo achleve lL
b Mlsslon should be n|ear enough so LhaL any acLlon can be Laken
c lL should be |nsp|r|ng for Lhe managemenL sLaff and socleLy aL large
d lL should be pren|se enough le lL should be nelLher Loo broad nor Loo narrow
e lL should be n|qe and dlsLlncLlve Lo leave an lmpacL ln everyone's mlnd
f lL should be ana|yt|na|le lL should analyze Lhe key componenLs of Lhe sLraLegy
g lL should be nred|b|e le all sLakeholders should be able Lo belleve lL
'ision
A vision statement identiIies where the organization wants or intends to be in Iuture or
where it should be to best meet the needs oI the stakeholders. It describes dreams and
aspirations Ior Iuture. For instance, Microsoft`s vision is 'to empower people through
great soItware, 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 oI
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 Ior the organization and it`s members,
unlike the mission statement which is Ior the customers/clients. It contributes in eIIective
decision making as well as eIIective business planning. It incorporates a shared
understanding about the nature and aim oI 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 Iuture would appear to be.
An eIIective vision statement must have Iollowing Ieatures-
a lL musL be namb|gos
b lL musL be n|ear
c lL musL armon|ze wlLh organlzaLlon's culLure and values
d @he dreams and asplraLlons musL be rat|ona|]rea||st|n
e Ilslon sLaLemenLs should be sorter so LhaL Lhey are easler Lo memorlze

In order to realize the vision, it must be deeply instilled in the organization, being owned
and shared by everyone involved in the organization.
oals and objectives
A goal is a desired Iuture state or objective that an organization tries to achieve. oals
speciIy in particular what must be done iI an organization is to attain mission or vision.
oals make mission more prominent and concrete. They co-ordinate and integrate
various Iunctional and departmental areas in an organization. Well made goals have
Iollowing Ieatures-
a @hese are pren|se and measrab|e
b @hese look afLer nr|t|na| and s|gn||nant lssues
c @hese are rea||st|n and challenglng
d @hese musL be achleved wlLhln a spen||n t|me frame
e @hese lnclude boLh |nann|a| as we|| as non|nann|a| nomponents
bjectives are deIined as goals that organization wants to achieve over a period oI time.
These are the Ioundation oI planning. Policies are developed in an organization so as to
achieve these objectives. Formulation oI objectives is the task oI top level management.
EIIective objectives have Iollowing Ieatures-
f @hese are noL slngle for an organlzaLlon buL m|t|p|e
g b[ecLlves should be boLh sortterm as we|| as |ongterm
h b[ecLlves musL respond and reacL Lo changes ln envlronmenL le Lhey musL be
|ex|b|e
l @hese musL be feaslble rea||st|n and operat|ona|



SLraLegy ueflnlLlon and leaLures
The word 'strategy is derived Irom the reek word 'stratgos; stratus (meaning army) and
'ago (meaning leading/moving).
$trategy is an action that managers take to attain one or more oI the organization`s goals.
Strategy can also be deIined as 'A general direction set Ior the company and its various
components to achieve a desired state in the Iuture. Strategy results Irom the detailed strategic
planning process.
A strategy is all about integrating organizational activities and utilizing and allocating the scarce
resources within the organizational environment so as to meet the present objectives. While
planning a strategy it is essential to consider that decisions are not taken in a vaccum and that
any act taken by a Iirm is likely to be met by a reaction Irom those aIIected, competitors,
customers, employees or suppliers.
Strategy can also be deIined as knowledge oI the goals, the uncertainty oI events
and the need to take into consideration the likely or actual behavior oI others. Strategy is the
blueprint oI decisions in an organization that shows its objectives and goals, reduces the key
policies, and plans Ior achieving these goals, and deIines the business the company is to carry on,
the type oI economic and human organization it wants to be, and the contribution it plans to
make to its shareholders, customers and society at large.
Features of $trategy
1. Strategy is SigniIicant because it is not possible to Ioresee the Iuture. Without a perIect
Ioresight, the Iirms must be ready to deal with the uncertain events which constitute the
business environment.
2. Strategy deals with long term developments rather than routine operations, i.e. it deals
with probability oI innovations or new products, new methods oI productions, or new
markets to be developed in Iuture.
3. Strategy is created to take into account the probable behavior oI customers and
competitors. Strategies dealing with employees will predict the employee behavior.
$trategy is a well defined roadma5 of an organization. It deIines the overall mission, vision
and direction oI an organization. The objective oI a strategy is to maximize an organization`s
strengths and to minimize the strengths oI the competitors.
Strategy, in short, bridges the gap between 'where we are and 'where we want to be.



$trategic Management - n ntroduction
Strategic Management is all about identiIication and description oI the strategies that managers
can carry so as to achieve better perIormance and a competitive advantage Ior their organization.
An organization is said to have competitive advantage iI its proIitability is higher than the
average proIitability Ior all companies in its industry.
Strategic management can also be deIined as a bundle oI decisions and acts which a manager
undertakes and which decides the result oI the Iirm`s perIormance. The manager must have a
thorough knowledge and analysis oI the general and competitive organizational environment so
as to take right decisions. They should conduct a SWT Analysis (Strengths, Weaknesses,
pportunities, and Threats), i.e., they should make best possible utilization oI strengths,
minimize the organizational weaknesses, make use oI arising opportunities Irom the business
environment and shouldn`t ignore the threats. Strategic management is nothing but planning Ior
both predictable as well as unIeasible
contingencies. It is applicable to both small as well as large organizations as even the smallest
organization Iace competition and, by Iormulating and implementing appropriate strategies, they
can attain sustainable competitive advantage.
Strategic Management is a way in which strategists set the objectives and proceed about attaining
them. It deals with making and implementing decisions about Iuture direction oI an organization.
It helps us to identiIy the direction in which an organization is moving.
Strategic management is a continuous process that evaluates and controls the business and the
industries in which an organization is involved; evaluates its competitors and sets goals and
strategies to meet all existing and potential competitors; and then reevaluates strategies on a
regular basis to determine how it has been implemented and whether it was successIul or does it
needs replacement.
Strategic Management gives a broader perspective to the employees oI an organization and they
can better understand how their job Iits into the entire organizational plan and how it is co-
related to other organizational members. It is nothing but the art oI managing employees in a
manner which maximizes the ability oI achieving business objectives. The employees become
more trustworthy, more committed and more satisIied as they can co-relate themselves very well
with each organizational task. They can understand the reaction oI environmental changes on the
organization and the probable response oI the organization with the help oI strategic
management. Thus the employees can judge the impact oI such changes on their own job and can
eIIectively Iace the changes. The managers and employees must do appropriate things in
appropriate manner. They need to be both eIIective as well as eIIicient.
ne oI the major role oI strategic management is to incorporate various Iunctional areas oI the
organization completely, as well as, to ensure these Iunctional areas harmonize and get together
well. Another role oI strategic management is to keep a continuous eye on the goals and
objectives oI the organization.
Following are the important conce5ts of $trategic Management
Strategy - eIinition and Features
Components oI a Strategy Statement
Strategic Management Process
Environmental Scanning
Strategy Formulation
Strategy Implementation
Strategy Formulation vs Implementation
Strategy Evaluation
Strategic ecisions
Business Policy
BC Matrix
SWT Analysis
Competitor Analysis
Porter`s Five Forces Model
Strategic Leadership
Corporate overnance
Business Ethics
Core Competencies


5troteqy vo/uotion Process ond its 5iqnificonce
Strategy Evaluation is as signiIicant as strategy Iormulation because it throws light on the
eIIiciency and eIIectiveness oI the comprehensive plans in achieving the desired results. The
managers can also assess the appropriateness oI the current strategy in todays dynamic world
with socio-economic, political and technological innovations. Strategic Evaluation is the Iinal
phase oI strategic management.
%he significance of strategy evaluation lies in its ca5acity to co-ordinate the task 5erformed
by managers, grou5s, de5artments etc, through control of 5erformance. Strategic Evaluation
is signiIicant because oI various Iactors such as - developing inputs Ior new strategic planning,
the urge Ior Ieedback, appraisal and reward, development oI the strategic management process,
judging the validity oI strategic choice etc.
%he 5rocess of $trategy valuation consists of following ste5s-
1. Fixing benchmark of 5erformance - While Iixing the benchmark, strategists encounter
questions such as - what benchmarks to set, how to set them and how to express them. In
order to determine the benchmark perIormance to be set, it is essential to discover the
special requirements Ior perIorming the main task. The perIormance indicator that best
identiIy and express the special requirements might then be determined to be used Ior
evaluation. The organization can use both quantitative and qualitative criteria Ior
comprehensive assessment oI perIormance. Quantitative criteria includes determination
oI net proIit, RI, earning per share, cost oI production, rate oI employee turnover etc.
Among the Qualitative Iactors are subjective evaluation oI Iactors such as - skills and
competencies, risk taking potential, Ilexibility etc.
2. Measurement of 5erformance - The standard perIormance is a bench mark with which
the actual perIormance is to be compared. The reporting and communication system help
in measuring the perIormance. II appropriate means are available Ior measuring the
perIormance and iI the standards are set in the right manner, strategy evaluation becomes
easier. But various Iactors such as managers contribution are diIIicult to measure.
Similarly divisional perIormance is sometimes diIIicult to measure as compared to
individual perIormance. Thus, variable objectives must be created against which
measurement oI perIormance can be done. The measurement must be done at right time
else evaluation will not meet its purpose. For measuring the perIormance, Iinancial
statements like - balance sheet, proIit and loss account must be prepared on an annual
basis.
3. nalyzing 'ariance - While measuring the actual perIormance and comparing it with
standard perIormance there may be variances which must be analyzed. The strategists
must mention the degree oI tolerance limits between which the variance between actual
and standard perIormance may be accepted. The positive deviation indicates a better
perIormance but it is quite unusual exceeding the target always. The negative deviation is
an issue oI concern because it indicates a shortIall in perIormance. Thus in this case the
strategists must discover the causes oI deviation and must take corrective action to
overcome it.
4. %aking orrective ction - nce the deviation in perIormance is identiIied, it is
essential to plan Ior a corrective action. II the perIormance is consistently less than the
desired perIormance, the strategists must carry a detailed analysis oI the Iactors
responsible Ior such perIormance. II the strategists discover that the organizational
potential does not match with the perIormance requirements, then the standards must be
lowered. Another rare and drastic corrective action is reIormulating the strategy which
requires going back to the process oI strategic management, reIraming oI plans according
to new resource allocation trend and consequent means going to the beginning point oI
strategic management process.

Following are the main diIIerences between Strategy Formulation and Strategy Implementation-
$trategy Formulation $trategy m5lementation
Strategy Formulation includes planning and
decision-making involved in developing
organization`s strategic goals and plans.
Strategy Implementation involves all those
means related to executing the strategic plans.
In short, Strategy Formulation is 5lacing the
Forces before the action.
In short, Strategy Implementation is managing
forces during the action.
Strategy Formulation is an ntre5reneurial
ctivity based on strategic decision-making.
Strategic Implementation is mainly an
dministrative %ask based on strategic and
operational decisions.
Strategy Formulation emphasizes on
effectiveness.
Strategy Implementation emphasizes on
efficiency.
Strategy Formulation is a rational 5rocess. Strategy Implementation is basically an
o5erational 5rocess.
Strategy Formulation requires co-ordination
among Iew individuals.
Strategy Implementation requires co-ordination
among many individuals.
Strategy Formulation requires a great deal oI
initiative and logical skills.
Strategy Implementation requires speciIic
motivational and leadershi5 traits.
Strategic Formulation precedes Strategy
Implementation.
STrategy Implementation Iollows Strategy
Formulation.

Bcg matrix

Boston onsulting rou5 (B Matrix is a Iour celled matrix (a 2 * 2 matrix) developed by
BC, USA. It is the most renowned corporate portIolio analysis tool. It provides a graphic
representation Ior an organization to examine diIIerent businesses in it`s portIolio on the basis oI
their related market share and industry growth rates. It is a two dimensional analysis on
management oI SBU`s (Strategic Business Units). In other words, it is a comparative analysis oI
business potential and the evaluation oI environment.
According to this matrix, business could be classiIied as high or low according to their industry
growth rate and relative market share.
#elative Market $hare SBU Sales this year leading competitors sales this year.

Market rowth #ate Industry sales this year - Industry Sales last year.
The analysis requires that both measures be calculated Ior each SBU. The dimension oI business
strength, relative market share, will measure comparative advantage indicated by market
dominance. The key theory underlying this is existence oI an experience curve and that market
share is achieved due to overall cost leadership.
BC matrix has Iour cells, with the horizontal axis representing relative market share and the
vertical axis denoting market growth rate. The mid-point oI relative market share is set at 1.0. iI
all the SBU`s are in same industry, the average growth rate oI the industry is used. While, iI all
the SBU`s are located in diIIerent industries, then the mid-point is set at the growth rate Ior the
economy.
Resources are allocated to the business units according to their situation on the grid. The Iour
cells oI this matrix have been called as stars, cash cows, question marks and dogs. Each oI these
cells represents a particular type oI business.

x x x
Figure B Matrix
1. $tars- Stars represent business units having large market share in a Iast growing industry.
They may generate cash but because oI Iast growing market, stars require huge
investments to maintain their lead. Net cash Ilow is usually modest. SBU`s located in this
cell are attractive as they are located in a robust industry and these business units are
highly competitive in the industry. II successIul, a star will become a cash cow when the
industry matures.
2. ash ows- Cash Cows represents business units having a large market share in a
mature, slow growing industry. Cash cows require little investment and generate cash that
can be utilized Ior investment in other business units. These SBU`s are the corporation`s
key source oI cash, and are speciIically the core business. They are the base oI an
organization. These businesses usually Iollow stability strategies. When cash cows loose
their appeal and move towards deterioration, then a retrenchment policy may be pursued.
3. "uestion Marks- Question marks represent business units having low relative market
share and located in a high growth industry. They require huge amount oI cash to
maintain or gain market share. They require attention to determine iI the venture can be
viable. Question marks are generally new goods and services which have a good
commercial prospective. There is no speciIic strategy which can be adopted. II the Iirm
thinks it has dominant market share, then it can adopt expansion strategy, else
retrenchment strategy can be adopted. Most businesses start as question marks as the
company tries to enter a high growth market in which there is already a market-share. II
ignored, then question marks may become dogs, while iI huge investment is made, then
they have potential oI becoming stars.
4. Dogs- ogs represent businesses having weak market shares in low-growth markets.
They neither generate cash nor require huge amount oI cash. ue to low market share,
these business units Iace cost disadvantages. enerally retrenchment strategies are
adopted because these Iirms can gain market share only at the expense oI
competitor`s/rival Iirms. These business Iirms have weak market share because oI high
costs, poor quality, ineIIective marketing, etc. Unless a dog has some other strategic aim,
it should be liquidated iI there is Iewer prospects Ior it to gain market share. Number oI
dogs should be avoided and minimized in an organization.
imitations of B Matrix
The BC Matrix produces a Iramework Ior allocating resources among diIIerent business units
and makes it possible to compare many business units at a glance. But BC Matrix is not Iree
Irom limitations, such as-
1. BC matrix classiIies businesses as low and high, but generally businesses can be
medium also. Thus, the true nature oI business may not be reIlected.
2. Market is not clearly deIined in this model.
3. High market share does not always leads to high proIits. There are high costs also
involved with high market share.
4. rowth rate and relative market share are not the only indicators oI proIitability. This
model ignores and overlooks other indicators oI proIitability.
5. At times, dogs may help other businesses in gaining competitive advantage. They can
earn even more than cash cows sometimes.
6. This Iour-celled approach is considered as to be too simplistic.