Unit II

Strategic Management
Unit II
Unit II
Environment Appraisal: Concept & Environmental Sector; PEST
Analysis, Organizational Appraisal: Concepts & Capability Factors ;
Porters Value Chain Model, Framework for developing Strategic
Advantage, SWOT Analysis as a Tool for assessing Organizational
Capabilities and Environment Opportunities,
Type of Strategies: Corporate Level (Concept of Grand Strategies) ,
Business Level and Functional Level., Guidelines for Crafting
Successful Business Strategies.
Strategy Analysis and Choice: Corporate Level Strategy Analysis:
BCG Matrix & GE 9 cell Matrix, Business Level Strategy Analysis: Life
Cycle Analysis, Porters Five Forces of Industry Analysis, Concept of
Strategic Decision Making, Subjective Factors in Strategic Choice
and Process of Strategic Choice
ENVIRONMENTAL ANALYSIS
Environmental AnalysisScanning general supervision of all env. Factors & their interaction in order
1.
to identify early signals of change,
2.
Detect env. Changes underway
Monitoring -- tracking the env. Trends sequences of events or stream of activities.
Study of Indicators, assemble data to discern emerging patterns. Three
outcomes emerges in monitoring
1.
A specific description of env. trends
2.
Identification of trends
3.
Identification of areas of further scans
Forecasting -scanning & monitoring provide a picture of what is happening strategic
decision Making requires future orientation. Forecasting is developing future
projections of changes
Assessment - outputs of above 3 steps are assessed to determine implementation.
Assessment involves identifying & evaluate how & why current & projected
env. Changes affect strategic Mgt. Of the organization
Concept of Environment: 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:
Environment is Complex:
Environment is Dynamic
Environment is Multi-faceted
Environment has a far- reaching impact
1) Micro Environment
2) Macro Environment
Micro Environment-
Supplier
Customers-industrial, retailers, wholesalers, Govt., foreigners
Market intermediates- middlemen, physical distribution firms,

marketing service agencies, and financial intermediaries
CompetitorsDesire competitions limited disposable income many

unsatisfied desires T.V./washing machine/ investment
Generic competition-among alternatives which satisfied
particular category of desire- Investment in
U.T.I./P.O./Bank/Any other.
Product form competition- Washing machine, semi/
automotive
Brand competition- videocon/godrej
Public
media
citizen action public
local public
Macro Environment-uncontrollable
1.
Economic Environment
Eco. Conditions- business cycle, growth of economy, size
of domestic Market & its dynamic effect
Eco. Policies- budgets, industrial regulations, eco planning,
import & export regulations, business laws, , industrial
policy, control on price & wages, trade & transport policy,
size of national income, demand & supply of various
goods
Economic Systemof a country
free enterprise i.e. capitalist
socialist
communist
mixed
2. Political & Govt. Environment.

Legislature- decide particularly course of
action
Executive -implementation
Judiciary -to see above both working public

interest.
3. Socio Cultural Environment- people attitude

to work & health, role of family, marriage,
religion & education, ethical issues, social
responsibilities of business
4. Natural Environment- geographical &
ecological factors- natural resources
endowments, weather & climatic conditions,
topographical factors, locational aspects,
port facilities
5. Demographic Environment. - Size growth age

composition of population, family size,
economic stratification of population,
educational level, caste religion etc.
6. Technological Environment- marketing,
innovation, R & D
7. International Environment-liberation force of
view global perspectives
Techniques of Environment Analysis

SWOT Analysis, strengths, weakness, opportunities, & threats.
Forecasting methods
Time services analysis & projection-moving averages, exponential
smoothing book Jenkins, trend projection.
Casual Methods- regression model, econometric model, anticipation
surveys, input output model, diffusion index, leading indicators, life cycle
analysis.
Qualitative Method-Delphi method, market research, panel consensus,
visionary forecast, historical analogy.
Scenario technique- preparation of background, selection of critical
indicators, establishing past behavior of indicators, verification of potential
future events, forecasting the indicators, writing of scenario.
Preparation of ETOP-environmental threat & opportunity profile is a
summary of environmental factors. It is a structured way. Assessing
Importance of environmental factors, assessing impact factor combining
importance & impact factor.
Environment analysis has 3 basic objectives

Under taking of current & potential changes
Should provide inputs for strategic decision making
Rich source of idea & understanding of the context,
bring fresh views
Environmental Scanning &

Monitoring
Environmental scanning is a concept from business
management by which businesses gather information from
the environment, to better achieve a sustainable competitive
advantage.
To sustain competitive advantage the company must also
respond to the information gathered from environmental
scanning by altering its strategies and plans when the need
arises.
Environmental Scanning & MonitoringTechniques

SWOT
PEST
Techniques
Industry Analysis
Competitor Analysis
What is PEST?
Political Factors
Economic Fators
Sociocultural Factors
Technological Factors
PEST Analysis The Meaning

A PEST analysis is an analysis of the external macroenvironment that affects all firms.
P.E.S.T. is an acronym for the Political, Economic,
Social, and Technological factors of the external macroenvironment.
Such external factors usually are beyond the firm's
control and sometimes present themselves as threats.
However, changes in the external environment also

create new opportunities.
a. Political Factors.
The political arena has a huge influence upon the regulation
of businesses, and the spending power of consumers and
other businesses. You must consider issues such as:
1.How stable is the political environment?
2.Will government policy influence laws that regulate or tax
your business?
3.What is the government's position on marketing ethics?
4. What is the government's policy on the economy?
6. Is the government involved in trading agreements such as
EU, NAFTA, ASEAN, or others?
b. Economic Factors.
Marketers need to consider the state of a trading
economy in the short and long-terms. This is
especially true when planning for international
marketing. You need to look at:
1. Interest rates.
2. The level of inflation Employment level per capita.
3. Long-term prospects for the economy Gross
Domestic Product (GDP) per capita, and so on.
c. Sociocultural Factors.
The social and cultural influences on business vary from
country to country. It is very important that such factors are
considered. Factors include:
1.What is the dominant religion?
2.What are attitudes to foreign products and services?
3.Does language impact upon the diffusion of products onto
markets?
5.What are the roles of men and women within society?
6.How long are the population living? Are the older
generations wealthy?
d. Technological Factors.
Technology is vital for competitive advantage, and is a major
driver of globalization. Consider the following points:
1. Does technology allow for products and services to be made
more cheaply and to a better standard of quality?
2.Do the technologies offer consumers and businesses more
innovative products and services such as Internet banking, new
generation mobile telephones, etc?
3.How is distribution changed by new technologies e.g. books
via the Internet, flight tickets, auctions, etc?
4.Does technology offer companies a new way to communicate
with consumers e.g. banners, Customer Relationship
Management (CRM), etc?
Designing Profiles
After analyzing the environmental factors they are recorded
into the profiles.
Such profiles record each component or variables into left
side and their positive, negative, or neutral indicators
including their statement in the right side.
Internal areas are recorded in Strategic Advantages Profile
(SAP) and external areas are recorded in Environmental
Threat and Opportunity Profile (ETOP). Strength, Weakness,
Opportunity, and Threat (SWOT) profile can be designed
combining both of these two profiles into one.
Preparing ETOP
Environmental threat and opportunity profile is
referred as ETOP profile. It identifies the relevant
environmental factors. Such factors might be general
environmental factors and task environment factors.
Thereafter, it is necessary to identify their nature.
Some factors are positive to the organization
whereas others are negative. Therefore, it is
necessary to find out their impact to the
organization. Positive, neutral, and negative sign in
ETOP denotes the relevant impact of environmental
factors.
Preparing SAP
/ CAP (Competitive Advantage Profile)
Strategic advantage profile is known as SAP. It shows strength
and weakness of an organization. Preparation of SAP is very
similar process to the ETOP.
There are generally five functional areas in most of the
organizations. These areas are Production or Operation,
Finance or Accounting, Marketing or Distribution, Human
Resource & Corporate Planning, and Research &
Development. These functional areas are listed to identify
their relative strength and weakness in SAP. Very similar to the
ETOP, positive, neutral,and negative signs are denoted and
brief description is written in SAP profile.
Each functional area is very broad having many components
inside.
STRATEGIC ADVANTAGE PROFILE

SAP tries to find out the org strengths and
weaknesses with relation to some CSF.
Critical Success Factor Analysis

Developed John Rockart
Satisfactory performance required for
organization achieve goals
Identify tasks & requirements for success
CSFs means to achieve goals
Sources of CSF - industry, environment &
temporal factors
Characteristics of CSF Analysis

Internal
External
Monitor
Develop
Process of CSF Analysis Identify

CSF
Critical information internal & external
Critical assumption set
Critical decisions
Benefits of CSF Analysis

Results needs enterprise clearly
Measure success prioritize goals
Needs of end users & enterprise are met
Organizational capability
An organizational capability refers to an organizational ability to perform a coordinated task, utilizing organizational resources, for the purpose of achieving a
particular end result. Organisations have unique resources, and they are not
productive in themselves they have to be converted into capabilities by being
managed and coordinated. So it is how the resources are used that determines
performance differences in organisations. These resources include: (a) the tangible
financial, physical, (b) the intangible technology, reputation, culture, and (c) the
human specialised skills and knowledge, communication and interactive abilities,
motivation. Haertsch (2003, p.1) writes about the alignment of three different
forms of capital.
A central to the building of the organizations capability is the combination of
human capital (people skills and knowledge), social capital (relationships between
people) and organisational capital (the organisations processes), and aligning
them such that each supports the others.
Three models
1. Organisational Capability Questionnaire Hase and colleagues (Hase 2000)
constructed this diagnostic, self-report instrument of 35 items. They
identified 10 key factors:
10 key factors in organizational capability:
Recognition by all staff levels of complexity and ongoing nature of organisational change
A CEO who supports a vision for the future and protects the champions for change
Skilled leaders with excellent grasp of people-oriented skills
Team-based structures that enable people to be involved in decision- making
Adequate reward systems that provide for intrinsic/extrinsic needs of people
Feeling of empowerment, that their abilities are recognised and used
Opportunities for multi-skilling, commitment to development of competencies
Clear focus and commitment to learning
Performance evaluation, perceived by staff as clear and equitable
Provision of time and resources for staff learning and development.
2. Model of Organisational Capability

This model was developed by Gill and Delahaye (2004) and is based on three domains
strategic intent, organisational structure and individual knowledge.
3. EFQM (European Foundation for Quality Management) Excellence Model
This third model is widely used in both private and public sector organisations in
Europe (Consortium for Excellence in Higher Education, 2003, p.5). Underpinning
this model are the principles of knowing where your organisation is at, where it
wants to go and how it can get there. The model is based on nine criteria leadership, people, policy and strategy, partnerships and resources, processes,
people results, customer results, society results, and key performance indicators.
What appears useful about this model is its non-prescriptive nature, its holistic
approach in examining all areas of an organisation, and that it is a self-assessment
process based on obtaining factual evidence to provide a more balanced set (than
some other models) of results indicators beyond the financial.
The Internal Environment:

Resources, Capabilities and
Core Competencies
External Environment
What the Firm Might Do
Sustainable
Competitive
Advantage
Internal Environment
What the Firm Can Do
SWOT Analysis
Strengths
Weaknesses
Opportunities
Threats
SWOT Analysis
SWOT Analysis
Learning Objectives
What is SWOT
SWOT Analysis?
Analysis?
Aim of SWOT Analysis
Who needs SWOT Analysis?
How to conduct SWOT Analysis?
Benefits & Pitfalls of SWOT Analysis
Brainstorming & Prioritization in SWOT Analysis
Tips & Exercise for SWOT Analysis
Example text
Go ahead and replace it with
your own text. This is an
example text.
Your own footer
Your Logo
What is SWOT Analysis?
Strengths
Oppurtunity
SWOT
Analysis
Threats
Weakness
Acronym for Strengths,

Weaknesses, Opportunities,
and Threats.
Technique is credited to Albert
Humphrey who led a research
project at Stanford University
in the 1960s and 1970s.
Planning tool used to
understand Strengths,
Weaknesses, Opportunities, &
Threats involved in a project /
business.
Used
as framework for
organizing and using data
and information gained from
situation analysis of internal
and external environment.
Technique that enables a
group / individual to move from
everyday problems / traditional
strategies to a fresh
perspective.
STRENGTHS
Characteristics of the business or a team
that give it an advantage over others in
the industry.
Positive tangible and intangible
attributes, internal to an organization.
Beneficial aspects of the organization
or the capabilities of an organization,
which includes human competencies,
process capabilities, financial
resources, products and services,
customer goodwill and brand loyalty.
Examples - Abundant financial resources,

Well-known brand name, Economies of
scale, Lower costs [raw materials or
processes], Superior management talent,
Better marketing skills, Good distribution
skills, Committed employees.
WEAKNESSES
Characteristics that place the firm at a
disadvantage relative to others.
Detract the organization from its
ability to attain the core goal and
influence its growth.
Weaknesses are the factors which do
not meet the standards we feel they
should meet. However, weaknesses
are controllable. They must be
minimized and eliminated.
Examples - Limited financial resources,

Weak spending on R & D, Very narrow
product line, Limited distribution, Higher
costs, Out-of-date products / technology,
Weak market image, Poor marketing skills,
Limited management skills, Under-trained
employees.
OPPORTUNITIES
Chances to make greater profits in the
environment - External attractive factors
that represent the reason for an
organization to exist & develop.
Arise when an organization can take
benefit of conditions in its
environment to plan and execute
strategies that enable it to become
more profitable.
Organization should be careful and
recognize the opportunities and grasp
them whenever they arise. Opportunities
may arise from market, competition,
industry/government and technology.
Examples - Rapid market growth, Rival
firms are complacent, Changing customer
needs/tastes, New uses for product
discovered, Economic boom, Government
deregulation, Sales decline for a substitute
product .
What
is SWOT
Analysis?
SWOT
ANALYSIS
- THREAT
THREATS
External elements in the environment that
could cause trouble for the business External factors, beyond an organizations
control, which could place the
organizations mission or operation at risk.
Arise when conditions in external
environment jeopardize the reliability
and profitability of the organizations
business.
Compound the vulnerability when they
relate to the weaknesses. Threats are
uncontrollable. When a threat comes, the
stability and survival can be at stake.
Examples - Entry of foreign competitors,
Introduction of new substitute products,
Product life cycle in decline, Changing
customer needs/tastes, Rival firms adopt
new strategies, Increased government
regulation, Economic downturn.
Aim of SWOT Analysis?
To help decision makers

share and compare ideas.
To bring a clearer
common purpose and
understanding of
factors for success.
To organize the
important factors linked
to success and failure
in the business world.
To analyze issues that

have led to failure in
the past.
To provide linearity to
the decision making
process allowing
complex ideas to be
presented
systematically.
When the team has not met its

targets
Customer service can be better
Launching a new business unit to
pursue a new business
New team leader is appointed
Business Unit
Job Holder
1
When supervisor has issues with

work output
Assigned to a new job
New financial year fresh targets
Job holder seeks to improve
performance on the job
Company
When revenue, cost & expense

targets are not being achieved
Market share is declining
Industry conditions are unfavorable
Launching a new business venture

SWOT Analysis is also
required for / during...
Changing Jobs
Product Launch
Decision Making
Personal Development Planning
Competitor Evaluation
Product Evaluation
Strategic Planning
Brainstorming Meetings
Workshop Sessions
1. Analyse Internal &

2. Perform SWOT Analysis

& Document
3. Prepare Action Plans
1. Analyse Internal & External Environment


& Document

2. Perform SWOT Analysis & Document
Carry your findings forward - Make sure that the
SWOT analysis is used in subsequent planning.
Revisit your findings at suitable time intervals.
Evaluate listed ideas against
Objectives - With the lists compiled,
sort and group facts and ideas in
relation to the objectives.
Create a workshop
environment - Encourage an
atmosphere conducive to the free
flow of information.
Select contributors Expert opinion may be
required for SWOT
List Strengths,
Weaknesses,
Opportunities, & threats
Allocate research & information gathering

tasks - Background preparation can be
carried out in two stages Exploratory and
Detailed. Information on Strengths &
Weaknesses should focus on the internal
factors & information on Opportunities &
Threats should focus on the external factors.
Establish the objectives - Purpose of
conducting a SWOT may be wide / narrow,
general / specific.


& Document

3. Prepare Action Plan
Once the SWOT analysis has been completed, mark each point with:
Things that MUST be addressed immediately
Things that can be handled now

Things that should be researched further
Things that should be planned for the future

Benefits of SWOT Analysis
Benefits of
SWOT
Analysis
Knowing the Competion

Reviews a company's
competitors & benchmarks
against them to configure
strategies that will put the
company in a competitive
advantage.
Decision Making Tool

Provides well-rounded
information that prompt
well-informed decisions.
Forecasting
Provides a variety of information
critical to forecasted variables.
Threats, for e.g., can impact a
business's forecast. By
understanding the company's
advantages & disadvantages,
forecasts will be more accurate.

Benefits of SWOT Analysis
Besides the broad benefits, here are few more benefits of conducting SWOT
Analysis:
Helps in setting of objectives for strategic planning
Provides a framework for identifying & analyzing strengths, weaknesses,
opportunities & threats
Provides an impetus to analyze a situation & develop suitable strategies
and tactics
Basis for assessing core capabilities & competencies
Evidence for, and cultural key to, change

Provides a stimulus to participation in a group experience

Pitfalls of SWOT Analysis
Can be very subjective. Two people rarely come up with the same final
version of a SWOT. Use it as a guide and not as a prescription.
May cause organizations to view circumstances as very simple due to
which certain key strategic contact may be overlooked.
Categorizing aspects as strengths, weaknesses, opportunities & threats
might be very subjective as there is great degree of uncertainty in market.
To be effective, SWOT needs to be conducted regularly. The pace of
change makes it difficult to anticipate developments.
The data used in the analysis may be based on assumptions that

subsequently prove to be unfounded [good and bad].
It lacks detailed structure, so key elements may get missed.
Brainstorming & Prioritization in SWOT Analysis
Brainstorming
Prioritization
Output from Brainstorming exercise is Prioritized

Begin brainstorming by asking the
following questions:
What opportunities exist in our
external environment?
What threats to the institution exist
in
our external environment?
What are the strengths of our
institution?
What are the weaknesses of our
institution?
At the end of the Brainstorming exercise:

Reduce the list of strengths & weaknesses to
no
more than five distinctive competencies and
debilitating weaknesses
Strengths that are distinctive
competencies
Weaknesses that are debilitating
Reduce threats and opportunities to the five
most
critically important of each.
Tips & Exercise

TIPS
Dos
Donts
Be analytical and specific.
Try to disguise weaknesses.
Record all thoughts and ideas.
Merely list errors and mistakes.
Be selective in the final evaluation.
Lose sight of external influences and
Choose the right people for the exercise.
trends.
Choose a suitable SWOT leader or
Allow the SWOT to become a blame-
facilitator.
laying
Think out of the box
Be open to change
exercise.
Ignore the outcomes at later stages of the
planning process.
Tips & Exercise

EXERCISE
Assume that a car manufacturing company has recently launched its

products. Perform a SWOT analysis for the same.
Tips & Exercise

EXERCISE
Helpful
STRENGTHS
External
No Competition in the EV
Segment.
Environment friendly
Economic to Drive [Rs. 0.4
per km] *
Government subsidies [8%
excise duty] *
WEAKNESSES
High Price
Low aesthetic appeal
Small driving range [up to
80 KM]
Competition from gasoline
vehicles
OPPORTUNITIES
THREATS
Huge untapped EV market

Growing demand of green
technologies
Rising fuel costs
Growing road congestion
in urban cities
Government incentives
to gasoline vehicles
Entry of competitors
Stringent safety
requirements anticipated
Availability of hybrid vehicles
* Hypothetical figures
Harmful
Tips & Exercise

EXAMPLE
Mc Donalds SWOT Analysis
Tips & Exercise

Mc Donalds
SWOT Analysis
INTERNAL
STRENGTHS
WEAKNESSES
Ranks very high on the Fortune Magazine's most

admired list
Community oriented
Global operations all over the world
Cultural diversity in the foods
Excellent location
Assembly line operations.
Use of top quality products
Failing pizza test market thus limiting the

ability to compete with pizza providers.
High training costs due to high turnover.
Minimal concentration on organic foods.
Not much variation in seasonal products .
Quality concerns due to franchised operations.
Focus on burgers / fried foods not on healthier
options for their customers.
OPPORTUNITIES
THREATS
Opening more joint ventures.

Being more responsive to healthier options.
Advertising wifi services in the branches.
Expanding on the advertising on being
more socially responsible
Expansions of business into newly developed
parts of the world.
Open products up to
allergen free options
such as peanut free.
Marketing strategies that entice people from

small children to adults.
Lawsuits for offering unhealthy foods.
Contamination risks that include the threat of
e-coli containments.
The vast amount of fast food restaurants that
are open as competition.
Focus on healthier dieting by consumers.
Down turn in economy affecting the ability to eat
that much.
Copyright 2008 - 2012
EXTERNAL
managementstudyguide.com. All rights

reserved.
Tips & Exercise

Points to Ponder
Keep your SWOT short and simple, but remember to include important details. For
example, if you think your communication skills is your strength, include specific details,
such as verbal / written communication.
When you finish your SWOT analysis, prioritize the results by listing them in order of the
most significant factors that affect you / your business to the least.
Get multiple perspectives on you / your business for your SWOT analysis. Ask for input
from your employees, colleagues, friends, suppliers, customers and partners.
Apply your SWOT analysis to a specific issue, such as a goal you would like to achieve or
a problem you need to solve. You can then conduct separate SWOT analyses on individual
issues and combine them.
The purpose of SWOT Analysis

It is an easy-to-use tool for developing an
overview of a companys strategic situation
It forms a basis for matching your companys
strategy to its situation
What is Core Competency?

Core competency is a unique skill or technology that creates
distinct customer value. For instance, core competency of Federal
express (Fed Ex) is logistics management. The organizational unique
capabilities are mainly personified in the collective knowledge of
people as well as the organizational system that influences the way
the employees interact. As an organization grows, develops and
adjusts to the new environment, so do its core competencies also
adjust and change. Thus, core competencies are flexible and
developing with time. They do not remain rigid and fixed. The
organization can make maximum utilization of the given resources
and relate them to new opportunities thrown by the environment.
Resources and capabilities are the building blocks upon which an
organization create and execute value-adding strategy so that an
organization can earn reasonable returns and achieve strategic
competitiveness.
Competitive
Advantage
Discovering Core
Competencies
Gained through
Core Competencies
Strategic
Competitiveness
Core
Competencies
Discovering
Core
Competencies
Above-Average
Returns
Sources of
Competitive
Advantage
Capabilities
Criteria of
Sustainable
Advantages
Teams of
Resources
Value
Chain
Analysis
Resources
* Tangible
* Intangible
*
*
*
*
Valuable
Rare
Costly to Imitate
Nonsubstitutable
* Outsourc
e
Key Questions for Managers

in Internal Analysis
How do we assemble bundles of
Resources, Capabilities and Core
Competencies to create VALUE for
customers?
And...
Will environmental changes make our
core competencies obsolete?
Are substitutes available for our core
competencies?
Are our core competencies easily imitated?
Discovering Core
Competencies
Resources
* Tangible
* Intangible
Resources
What a firm Has...
What a firm has to work with:

its assets, including its people
and the value of its brand name
Resources
What a firm Has...

its assets, including its people and the
value of its brand name
Resources represent inputs into

a firms production process...
such as capital equipment,
skills of employees, brand
names, finances and talented
managers
Resources
What a firm Has...

Resources represent inputs into a firms

production process...
such as capital equipment, skills of
employees, brand names, finances and
talented managers
Some genius invented the Oreo. Were

just living off the inheritance.
F. Ross Johnson,
Former President & CEO,
RJR Nabisco
Resources
What a firm Has...

Tangible Resources
*
*
*
*
Financial
Physical
Human Resources
Organizational

Resources represent inputs into a firms

production process...
such as capital equipment, skills of
employees, brand names, finances and
talented managers
Intangible Resources
Technological
Innovation
Reputation
Some genius invented the Oreo. Were just

living off the inheritance.
F. Ross Johnson,
Former President & CEO, RJR Nabisco
Discovering Core
Competencies
Capabilities
Teams of
Resources
Resources
* Tangible
* Intangible
Capabilities
What a firm Does...
Capabilities represent:
the firms capacity or ability to integrate
individual firm resources to achieve a
desired objective.
Capabilities
What a firm Does...
the firms capacity or ability to integrate individual firm resources

to achieve a desired objective.
Capabilities develop over time as a result of

complex interactions that take advantage of the
interrelationships between a firms tangible and
intangible resources that are based on the
development, transmission and exchange or
sharing of information and knowledge as carried
out by the firm's employees.
Capabilities
What a firm Does...
the firms capacity or ability to integrate individual firm resources

to achieve a desired objective.
Capabilities develop over time as a result of complex interactions that take
advantage of the interrelationships between a firms tangible and
intangible resources that are based on the development, transmission and
exchange or sharing of information and knowledge as carried out by the
firm's employees.
Capabilities become important when they are

combined in unique combinations which create
core competencies which have strategic value and
can lead to competitive advantage.
Discovering Core
Competencies
Core
Competencies
Sources of
Competitive
Advantage
Capabilities
Teams of
Resources
Resources
* Tangible
* Intangible
Discovering
Core
Competencies
Core Competencies
What a firm Does...

that is Strategically
Valuable
are the essence of what makes an

organization unique in its ability to provide
value to customers.
Leonard-Barton, Bowen, Clark, Holloway &
Wheelwright
McKinsey & Co. recommends identifying three to

four competencies to use in framing strategic
actions.
Discovering Core
Competencies
Core
Competencies
Discovering
Core
Competencies
Sources of
Competitive
Advantage
Capabilities
Criteria of
Sustainable
Advantages
Teams of
Resources
Resources
* Tangible
* Intangible
*
*
*
*
Valuable
Rare
Costly to Imitate
Nonsubstitutable
* Outsource
Core Competencies
For a strategic capability to
be a Core Competency, it
must be:
What a firm Does...

Valuable
Valuable
Rare
Costly to Imitate
Nonsubstitutable
Core Competencies
Core Competencies must
be:Valuable
What a firm Does...

Valuable
Capabilities that either help a firm to exploit opportunities to create value for
customers or to neutralize threats in the environment
Rare
Capabilities that are possessed by few, if any, current or potential competitors
Costly to Imitate
Capabilities that other firms cannot develop easily, usually due to unique historical
conditions, causal ambiguity or social complexity
Nonsubstitutable
Capabilities that do not have strategic equivalents, such as firm-specific

knowledge or trust-based relationships
Discovering Core
Competencies
Core
Competencies
Discovering
Core
Competencies
Sources of
Competitive
Advantage
Capabilities
Criteria of
Sustainable
Advantages
Teams of
Resources
Value
Chain
Analysis
Resources
* Tangible
* Intangible
*
*
*
*
Valuable
Rare
Costly to Imitate
Nonsubstitutable
* Outsource
VALUE CHAIN ANALYSIS

A value chain identifies and isolates the
various economic value adding activities that
occur in every firm. It portrays activities
required to create value for customer for a
given product.
Value Chain Analysis
Identifying Resources and Capabilities That Can Add Value
Firm Infrastructure
Human Resource Management

Technological Development
Primary Activities
Service
Marketing
& Sales
Outbound
Logistics
Operations
Procurement
Inbound
Logistics
Support
Activities
The Value Chain System

A firm's value chain is part of a larger
system that includes the value chains of
upstream suppliers and downstream
channels and customers. Porter calls this
series of value chains the value system,
Value Chain Analysis describes the activities that take place in a business
and relates them to an analysis of the competitive strength of the
business. Influential work by Michael Porter suggested that the activities
of a business could be grouped under two headings:
(1) Primary Activities - those that are directly concerned with creating and
delivering a product (e.g. component assembly); and
(2) Support Activities, which whilst they are not directly involved in
production, may increase effectiveness or efficiency (e.g. human resource
management). It is rare for a business to undertake all primary and
support activities.
Value Chain Analysis is one way of identifying which activities are best
undertaken by a business and which are best provided by others ("out
sourced").
Steps in Value Chain Analysis

Value chain analysis can be broken down into a three
sequential steps:
(1) Break down a market/organization into its key activities
under each of the major headings in the model;
(2) Assess the potential for adding value via cost advantage or
differentiation, or identify current activities where a business
appears to be at a competitive disadvantage;
(3) Determine strategies built around focusing on activities
where competitive advantage can be sustained
Primary
Activity
Description
Inbound
logistics
All those activities concerned with receiving and storing externally

sourced materials
Operations
The manufacture of products and services - the way in which

resource inputs (e.g. materials) are converted to outputs (e.g.
products)
Outbound
logistics
All those activities associated with getting finished goods and

services to buyers
Marketing
and sales
Essentially an information activity - informing buyers and

consumers about products and services (benefits, use, price etc.)
Service
All those activities associated with maintaining product performance

after the product has been sold
Secondary Description
Activity
Procureme This concerns how resources are acquired for a business
nt
(e.g. sourcing and negotiating with materials suppliers)
Human
Those activities concerned with recruiting, developing,
Resource motivating and rewarding the workforce of a business
Manageme
nt
Technology Activities concerned with managing information processing
Developme and the development and protection of "knowledge" in a
nt
business
Infrastructu Concerned with a wide range of support systems and
re
functions such as finance, planning, quality control and
general senior management
The primary value chain activities

are:
Inbound Logistics: the receiving and
warehousing of raw materials, and their
distribution to manufacturing as they are
required.
Operations: the processes of transforming
inputs into finished products and services.
Outbound Logistics: the warehousing and
distribution of finished goods.
The primary value chain

activities are:
Marketing & Sales: the identification of
customer needs and the generation of
sales.
Service: the support of customers after
the products and services are sold to
them.
These primary activities are

supported by:
The infrastructure of the firm:
organizational structure, control systems,
company culture, etc.
Human resource management: employee
recruiting, hiring, training, development,
and compensation.
These primary activities are

supported by:
Technology development: technologies to
support value-creating activities.
Procurement: purchasing inputs such as
materials, supplies, and equipment.
Cost Advantage and the Value

Chain
Porter identified 10 cost drivers related to
value chain activities:
Economies of scale
Learning
Capacity utilization
Linkages among activities
Interrelationships among business units
10 cost drivers related to value

chain activities:
Degree of vertical integration

Timing of market entry
Firm's policy of cost or differentiation
Geographic location
Institutional factors (regulation, union
activity, taxes, etc.)
Differentiation and the Value

Chain
Policies and decisions

Linkages among activities
Timing
Location
Interrelationships
Differentiation and the Value

Chain
Learning
Integration
Scale (e.g. better service as a result of
large scale)
Institutional factors
Technology and the Value

Chain
Inbound Logistics Technologies

Transportation
Material handling
Material storage
Communications
Testing
Information systems
Operations Technologies
Process
Materials
Machine tools
Material handling
Packaging
Operations Technologies
Maintenance
Testing
Building design & operation
Information systems
Outbound Logistics
Technologies
Transportation
Material handling
Packaging
Communications
Information systems
Marketing & Sales

Technologies
Media
Audio/video
Communications
Information systems
Service Technologies
Testing
Communications
Information systems
Linkages Between Value Chain

Activities
Value chain activities are not isolated
from one another. Rather, one value chain
activity often affects the cost or
performance of other ones. Linkages may
exist between primary activities and also
between primary and support activities.
Linkages Between Value Chain

Activities
Consider the case in which the design of
a product is changed in order to reduce
manufacturing costs. Suppose that
inadvertently the new product design
results increased service costs; the cost
reduction could be less than anticipated
and even worse, there could be a net
cost increase.
Outsourcing
Strategic Choice to Purchase Some Activities From Outside
Suppliers
Firm Infrastructure

Technological Development
Primary Activities
Service
Marketing
& Sales
Outbound
Logistics
Operations
Procurement
Inbound
Logistics
Support
Activities
Outsourcing
Strategic Choice to Purchase Some Activities From Outside
Suppliers
Firm Infrastructure

Firms often purchase a
Inbound
Logistics
Operations
Procurement
Operations
Outbound
Logistics
Primary Activities
Service
Procurement
Marketing
& Sales
Technological
portion of their value-creating

activities from specialty
Development
external suppliers who can
perform these functions more
efficiently
Outbound
Logistics
Technological
Development
Inbound
Logistics
Support
Activities
Marketing
& Sales
Service
Outsourcing Value Chain

Activities
Whether the activity can be performed
cheaper or better by suppliers.
Whether the activity is one of the firm's
core competencies from which stems a
cost advantage or product
differentiation.

Activities
The risk of performing the activity inhouse. If the activity relies on fast
changing technology or the product is
sold in a rapidly-changing market, it may
be advantageous to outsource the activity
in order to maintain flexibility and avoid
the risk of investing in specialized assets.

Activities
Whether the outsourcing of an activity
can result in business process
improvements such as reduced lead time,
higher flexibility, reduced inventory, etc.
Competitive
Advantage
Discovering Core
Competencies
Gained through
Core Competencies
Strategic
Competitiveness
Core
Competencies
Discovering
Core
Competencies
Above-Average
Returns
Sources of
Competitive
Advantage
Capabilities
Criteria of
Sustainable
Advantages
Teams of
Resources
Value
Chain
Analysis
Resources
* Tangible
* Intangible
*
*
*
*
Valuable
Rare
Costly to Imitate
Nonsubstitutable
* Outsource
Core Competencies--Cautions and Remind

Never take for granted that core competencies will
continue to provide a source of competitive
advantage
All core competencies have the potential to
become Core Rigidities
Core Rigidities are former core competencies that

sow the seeds of organizational inertia and
prevent the firm from responding appropriately to
changes in the external environment
Strategic myopia and inflexibility can strangle the
firms ability to grow and adapt to environmental
change or competitive threats
COMPETITIVE ADVANTAGE
Competitive advantage occurs when a organization acquires
or develops an attribute or combination of attributes that
allows it to outperform its competitors. These attributes can
include access to natural resources, such as high grade ores or
inexpensive power, or access to highly trained and skilled
personnel human resources. New technologies such as
robotics and information technology either to be included as a
part of the product, or to assist making it. The term
competitive advantage is the ability gained through attributes
and resources to perform at a higher level than others in the
same industry or market
How to build/acquire CA?
Innovation
Integration
Alliances/mergers/acquisitions
R&D
Entry Barriers
Benchmarking
Value chain approach
How to build/acquire CORE

COMPETENCE?
Focus on two or more skills
Low cost strategies
Benefits of cost leadership
CORPORATE LEVEL
STRATEGIES
Corporate Strategy
is primarily about the choice of direction

for the firm as a whole (small one-product
company and a large multi business company)
is
also about managing various product

lines and business units for maximum
value (large multi business company)
Corporate Strategy
3 Key Issues
The firms overall orientation toward growth,
stability or retrenchment (directional strategy)
The industries or markets in which the firm
competes through its products and BU (portfolio
strategy)
The manner in which management coordinates
activities, transfer resources, and cultivates
capabilities among product lines and BUs
(parenting strategy)
Corporate Directional Strategy
3 Grand Strategies
1. Growth Strategies -A corporation can grow internally by expanding

its operation both globally and domestically, or
it can grow externally

Orientation toward growth
Expansion, contraction, status quo
Concentration or diversification
Internal development or acquisitions,

mergers, or alliances
1. Growth Strategies -
External mechanisms:
Mergers (Allied Corporation+ Signal Companies=

Allied Signal)
Acquisitions (Procter & Gamble acquisition of
Richardson-Vicks knowing for Oil of Olay and
Vidal Sassoon brands)
Strategic alliances
1. Growth Strategies -
Main advantages:
May mask flaws in a company

Provide a big cushion for turnaround in case a
strategic error is made
Give more bargaining power
Offer more opportunities for advancement,
promotion, and interesting jobs
2 Basic forms:
Concentration
Diversification
Basic Concentration Strategies
Vertical Growth -
Vertical integration
Full integration (100% suppliers +controls
distributors)
Taper integration (<50% supplies; use own and
external distribution channels)
Quasi-integration (buy/sell from outside
suppliers/distributors that under its partial control)
Long-term contract
Backward integration
Forward integration
Is a logical strategy for a corporation or BU with a strong

competitive position in a highly attractive industry
Basic Concentration Strategies
Horizontal Growth / Concentration -by expanding the firms products into other
geographic locations and/or by increasing
the range of products and services offered
to current markets.
Horizontal integration
Full to partial ownership
Long-term contracts
INTENSIFICATION
Market penetration
Market development
Product development
Innovation

Basic Diversification Strategies
Concentric Diversification when a firm has a

strong competitive position but industry
attractiveness is low
When an org diversifies into a related but distinct
business. With concentric diversification, new
businesses can be related to existing businesses
through products, markets or technology. Example:
Philips into Cellular phones,etc
Growth into related industry

Search for synergies
Basic Diversification Strategies
Conglomerate diversification when industry is

unattractive and a firm lacks outstanding abilities and
skills
An org diversifies into an area that are unrelated to

its business. The decision is taken due to
technological change.
Growth into unrelated industry

Concern with financial considerations

Growth into areas related to a companys
current product lines is generally more
successful than is growth in completely
areas.
From successful growth projects:
80 % vertical growth
50% horizontal growth
35% concentric diversification
28% conglomerate diversification

International Entry Options -
Exporting
Licensing
Franchising
Joint Ventures
Acquisitions
Green-Field Development
Production Sharing
Turnkey Operation
BOT Concept (Build, Operate, Transfer)
Management Contracts
2. Stability Strategies -
When firms are satisfied with their current rate of growth and profits, they may
decide to use a stability strategy. This strategy is essentially a continuation of
existing strategies. Such strategies are typically found in industries having
relatively stable environments. The firm is often making a comfortable income
operating a business that they know, and see no need to make the
psychological and financial investment that would be required to undertake a
growth strategy.
Pause/proceed with caution (timeout before continuing

growth or retrenchment)
No change (to do nothing new)
Profit strategies (to support profits by reducing

investments and short-term expenditures)
3. Retrenchment Strategies -
Retrenchment strategies involve a reduction in the scope of

a corporation's activities, which also generally necessitates
a reduction in number of employees, sale of assets
associated with discontinued product or service lines,
possible restructuring of debt through bankruptcy
proceedings, and in the most extreme cases, liquidation of
the firm.
Turnaround
Captive Company Strategy
Selling out
Divestment
Bankruptcy
Liquidation
Corporate Strategy
Portfolio Analysis -
Resource commitment on best

products to ensure continued success
Resource commitment on new costly

products high risk
Portfolio Analysis
SBU: Strategic Business Unit, any part of the
company that can be managed separately
SBUs are often called divisions or departments
In Marketing a product, product line, or a brand
may be an SBU
Portfolio Management: management of SBUs
according to organizational objectives and the SBUs
contribution to the companys performance
Ex: investing in selected SBUs vs. eliminating SBUs
The Growth Share Matrix

A Matrix is created considering the market
growth and relative market share of all the
businesses in their respective industries
and businesses are placed in that matrix for

analysis and evaluation.
The Growth Share Matrix

The market growth rate on the vertical axis is the
proxy measure for the industry Attractiveness.
The relative market share is proxy for its
competitive strength in the industry.
SBUs are evaluated from two ways

1. Industry attractiveness
(market growth)
And
2. Competitive strength
(relative market share)
BCG Growth-Share Matrix

In BCG approach, the company classifies all its
SBUs into 4 types as
star,
cash cow,
question mark
and
dog
according to their market growth and relative
market share.
The BCG Matrix
Market growth rate
High
Stars
Stars
Question
Question
marks
marks
Cash cows
Dogs
Cash cows
Dogs
Low
High
Relative market share
Source: Perspectives, No. 66, The Product Portfolio, Adapted by permission from The Boston Consulting Group, Inc., 1970.
Low
Fig. 9-1: The BCG Growth-Share Matrix

Cash Generation (market share)
High
Cash Use
(growth
rate)
High
Low
Low
BCG: Boston Consulting Group

BCGs Growth-Share Matrix
High Market
Growth Rate
QUESTION MARKS:
Earnings are low &
unstable, but
growing
Strategy: ?
Low Market
Growth Rate
DOGS:
Earnings are low &
unstable.
Strategy: Divest?
Dimensions
STARS:
Earnings are high,
stable, and
growing.
Strategy: Invest or
extend product
lines
CASH COWS:
Earnings are high
& stable
Strategy: Milk =
harvest revenues
Low relative market High relative

share
market share
BCG Market Share/Market Growth Matrix
Fig. 9-1: The BCG Growth-Share Matrix

Description of Dimensions
Market Share
Sales relative to those of
other competitors in the
market (dividing point is
usually selected to have
only the two-three largest
competitors in any market
fall into the high market
share region)
Growth Rate
Industry growth rate in
constant dollars (dividing
point is typically the
GNPs growth rate)
BCG Matrix
Stars are high market share/high growth businesses. The

preferred strategy is growth.
Question marks are low market share/high growth
businesses. The preferred strategies are growth for
promising question marks and restructuring or divestiture
for the other question marks.
Cash cows are high market share/low growth
businesses. The preferred strategy is stability or modest
growth.
Dogs are low market share/low growth businesses. The
preferred strategy is retrenchment by divestiture.
Stars
are high-growth, high-share businesses or
products. They often need heavy investment to
finance their rapid growth. Therefore, they
may not be producing a positive cash flow. The
business strategy will generally be for growth
fueled by externally acquired capital.
Eventually, their growth will slow, and they will
turn into cash cows.
Cash cows
are low-growth, high-share businesses or
products. These established and successful SBUs
need less investment to keep their market share.
They produce a lot of cash to be used for other
business units of the company. They are either
milked for investment in stars or question marks
or harvested if there is little optimism for a stable
future.
Question marks
sometimes called problem children, are low-share
business units in high-growth markets. They
need a lot of cash to keep and increase their
share; they can not generate enough cash
themselves. Management must decide which
question mark it should build into stars and
which should phase out.
Dogs
are low-growth, low-share businesses and
products. They often have poor profitability.
Therefore, the business strategy for a dog is
most often to divest, but occasionally to hold
for possible strategic repositioning as a
question mark or cash cow.
BCG Matrix
Star: Sony Playstation 2 (trendy products)
Cash Cow: Ivory soap for Procter & Gamble (old, stable
brands)
???: MP3 players (relatively new products)
Dogs: Playboy the magazine (lossmakers to keep or )
Portfolio Strategies
BUILD
Does the SBU have the potential to be a star?
HOLD
Can you maintain and preserve market share?
Four
Portfolio
Strategies
HARVEST
.
Increase the short-term return without
impacting long-run prospects.
DIVEST
Is it appropriate to dump SBUs
with low-growth potential?
Limitations of the BCG Matrix

1.
Market Growth rate is an inadequate descriptor of overall

industry attractiveness.
2.
Relative market share is inadequate as a descriptor of overall

competitive strength.
3.
The analysis is highly sensitive to how growth and share are

measured.
4.
It provide little guidance on how best to implement the

investment strategies.
5.
The model implicitly assumes that business units are

independent or one another except for the flow of cash.
How to Identify SBUs?

It is the basic competitive unit of a company.
It has a specific and identifiable group of customers.
It has specific and identifiable competitors.
It can be measured as an independent entity in

terms of profit and loss.
Therefore, it may require a separate marketing
strategy.
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.
GE / McKinsey Matrix
In consulting engagements with General Electric in
the 1970's, McKinsey & Company developed a ninecell portfolio matrix as a tool for screening GE's large
portfolio of strategic business units (SBU). This
business screen became known as the GE/McKinsey
Matrix and is shown below:
The GE matrix has nine cells vs. four cells in the
BCG matrix.
GE/McKinsey Matrix
C
Winners
A
High
Winners
B
Question
Marks
D
Winners
E
Medium
Average
Businesses
F
Losers
Losers
G
Low
Profit
Producers
Strong
Losers
Average
Weak
Business Strength/Competitive Position
Industry Attractiveness
The vertical axis of the GE / McKinsey matrix is industry
attractiveness, which is determined by factors such as the
following:
Market growth rate
Market size
Demand variability
Industry profitability
Industry rivalry
Global opportunities
Macroenvironmental factors (PEST)
Business Unit Strength

The
horizontal axis of the GE / McKinsey matrix is the strength of the

business unit. Some factors that can be used to determine business unit
strength include:
Market
share
Growth
in market share
Brand
equity
Distribution
Production
Profit
channel access
capacity
margins relative to competitors
The business unit strength index can be calculated by
multiplying the estimated value of each

factor by the factor's weighting, as done for industry attractiveness.
GE MATRIX contd..
Industry
attractiveness and business unit

strength are calculated by first identifying criteria
for each, determining the value of each
parameter in the criteria, and multiplying that
value by a weighting factor. The result is a
quantitative measure of industry attractiveness
and the business unit's relative performance in
that industry
Industry
attractiveness =
factor value1 x factor weighting1

+ factor value2 x factor weighting2+
GE/McKinsey Matrix
Business strengths reflect market share,

technological advantage, product quality, operating
costs, and price competitiveness.
Industry attractiveness reflects market size and
growth, capital requirements and competitive intensity.
Both business strength and industry
attractiveness are categories as low, medium, and
high.
Combining the business strength and industry
attractiveness variables yields a nine-cell matrix that
identifies business units as winners, question
marks, average businesses, profit producers, or
losers.
The G.E. Matrix:

Indexes of SBU
Performance
Market size
Market growth
Comp. pressure
Price level
Regulation
Market share
Customer knowledge
Customer satisfaction
Cost efficiency
Product quality
Financial strength
Index of Business Strength
High
Market
Medium
Attractiveness
Low
Index
Strong
Average
Weak
Green
Green
Yellow?
Green
Yellow?
Red
Red
Red
Yellow?
GE Matrix
Green SBU go ahead and invest in the long-run
Yellow SBU be cautious, SBU maintenance
Red SBU stop, drive SBU out of market
Strategic Implications
Resource allocation recommendations can be made to grow, hold,

or harvest a strategic business unit based on its position on the
matrix as follows:
Grow strong business units in attractive industries, average

business units in attractive industries, and strong business units in
average industries.
Hold average businesses in average industries, strong

businesses in weak industries, and weak business in attractive
industries.
Harvest weak business units in unattractive

industries, average business units in unattractive
industries, and weak business units in average
industries.
There
are strategy variations within these three

groups. For example, within the harvest group the
firm would be inclined to quickly divest itself of a
weak business in an unattractive industry, whereas it
might perform a phased harvest of an average
business unit in the same industry.
GE Mckinsey Matrix
Bus Str STR
AVERA
- ONG GE
Ind at
High
GROW
AVERAGE
Low
WEAK
HOLD
HOLD
HARVEST
Fig. 9-3: Industry Attractiveness-Business

Strength Matrix
High
Business Strength
High
Medium
Low
Medium
Low
Fig. 9-3: Industry Attractiveness-Business

Strength Matrix
Description of Dimensions
Subjective assessment
based on broadest
possible range of external
opportunities & threats
beyond the strict control
of management
Business Strength
Subjective assessment
of how strong a
competitive advantage is
created by a broad range
of the firms internal
strengths & weaknesses
GE/McKinsey Matrix
Limitations:
It can get quite complicated and cumbersome

The numerical estimates of industry attractiveness
and business strength/competitive position give the
appearance of objectivity, but they are in reality
subjective judgments
It cannot effectively depict the positions or business
units in developing industries
The GE / McKinsey matrix is similar to the BCG

growth-share matrix in that it maps strategic business
units on a grid of the industry and the SBU's position
in the industry. The GE matrix however, attempts to
improve upon the BCG matrix in the following two
ways:

The GE matrix generalizes the axes as "Industry
Attractiveness" and "Business Unit Strength" whereas
the BCG matrix uses the market growth rate as a
proxy for industry attractiveness and relative market
share as a proxy for the strength of the business unit.
Portfolio Analysis
Advantages of portfolio analysis:
It encourages top management to evaluate each of

the businesses individually and set objectives and
allocate resources for each.
It stimulates the use of externally oriented data to
supplement managements judgment.
It raises the issue of cash flow availability for use in
expansion and growth.
Its graphic depiction facilitates communication.
Portfolio Analysis
Limitations of portfolio analysis:
It is not easy to define product/market segments.

It suggests the use of standard strategies that can
miss opportunities or be impractical.
It provides an illusion of scientific rigor when in
reality positions are based on subjective judgments.
It is not always clear what makes an industry
attractive or where a product is in its life cycle.
Corporate Strategy
Corporate Parenting Strategy -
Strategic factors
Performance improvement
Analyze fit
Corporate Parenting
Value creation only occurs under three conditions:
the parent sees an opportunity for a business to improve

performance and a role for the parent in helping to grasp
the opportunity
the parent has the skills, resources and other
characteristics needed to fulfill the required role
the parent has sufficient understanding of the business
and sufficient discipline to avoid other value-destroying
interventions.
Corporate Parenting
According to Campbell, Good and Alexander the
developing a corporate parenting strategy includes
3 steps:
To examine each BU in terms of its strategic factors.

To examine each BU in terms of areas in which
performance can be improved.
To analyze how well the parent corporation fits with
the BU.
Corporate Parenting
Heartland business has opportunity for

improvement by the parent and priority for all
corporate activities
Edge-of Heartland business has some parenting
characteristics fit the business, but others do not
Ballast businesses fit very comfortably with the
parent corporation but contain very few opportunities
to be improved by the parent
Alien territory businesses have little opportunity to
be improved by the corporate parent
Value trap businesses fit well with parenting
opportunities, but misfit with parents understanding
of the units strategic factors
MISFIT between critical success factors

and parenting characteristics
Parenting-Fit Matrix
Low
Heartlan
d
Ballast
Edge
of
Heartland
Alien
Territory
Value Trap
High
Low
High
FIT between parenting opportunities
and parenting characteristics
176
Fig. 8-4: Grand Strategy Selection Matrix

Overcome Weakness
Internal
(redirected
resources
within the
firm)
Turnaround or
retrenchment
Divesture
Liquidation
Conglomerate
diversification
I
II
IV III
Concentrated growth
Market development
Product development
Innovation
Concentric diversification
Joint venture
Maximize Strengths
External
(acquisition
or merger for
resource
capability)
Fig. 8-5: Model of Grand Strategy Clusters

Rapid Market Growth
Reformulation of concentrated
growth
Divestiture
Liquidation
Concentrated growth
Strong
Competitive
Forces
II
IV III
Conglomerate diversification
Joint ventures
Turnaround or retrenchment
Conglomerate diversification
Divestiture
Liquidation
Slow Market Growth
Weak
Competitive
Forces
BUSINESS-LEVEL STRATEGIES
Business-level strategies are similar to

corporate-strategies in that they focus on
overall performance. In contrast to corporatelevel strategy, however, they focus on only one
rather than a portfolio of businesses. Business
units represent individual entities oriented
toward a particular industry, product, or
market
A common focus of business-level strategies

are sometimes on a particular product or
service line and business-level strategies
commonly involve decisions regarding
individual products within this product or
service line. There are also strategies
regarding relationships between products.
Business level strategy

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 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 companys
business model into action and create value for customers.
Sources of Superior Performance

Above Normal
Profits
(in Excess of the Competitive Level)
Avoid
Competitors
Attractive
Industry
Attractive
Strategic
Group
Attractive
Niche
Entry
Barriers
Mobility
Barriers
Isolating
Mechanisms
Be Better Than
Competition
Cost
Advantage
Differentiation
Advantage
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 persons craving for something
sweet can be satisfied by chocolates, icecream, 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
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 customers 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. 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 Strategy

No two strategies are exactly alike but
Helps firms identify common strategic
characteristics.
A classification system for business-level
strategies based on common strategic
characteristics
Low-cost leadership vs. differentiation?
Best Value
Broad vs. Focus
ANALYSIS OF BUSINESS-LEVEL
STRATEGIES
PORTER'S GENERIC STRATEGIES.:

Cost leadership Strategy
Differentiation Strategy
Focus Strategy
Generic Strategies Matrix
COST LEADERSHIP
Cost-leadership strategies require firms to develop
policies aimed at becoming and remaining the lowest
cost producer and/or distributor in the industry. Note
here that the focus is on cost leadership, not price
leadership. This may at first appear to be only a
semantic difference, but consider how this finegrained definition places emphases on controlling
costs while giving firms alternatives when it comes to
pricing (thus ultimately influencing total revenues).
DIFFERENTIATION STRATEGY
Differentiation strategies require a firm to create something
about its product that is perceived as unique within its market.
Whether the features are real, or just in the mind of the
customer, customers must perceive the product as having
desirable features not commonly found in competing products.
The customers also must be relatively price-insensitive.
Adding product features means that the production or
distribution costs of a differentiated product will be somewhat
higher than the price of a generic, non-differentiated product.
Customers must be willing to pay more than the marginal cost
of adding the differentiating feature if a differentiation strategy
is to succeed.
FOCUS STRATEGY
Focus, the third generic strategy, involves concentrating on a
particular customer, product line, geographical area, channel of
distribution, stage in the production process, or market niche.
The underlying premise of the focus strategy is that the firm is
better able to serve its limited segment than competitors
serving a broader range of customers. Firms using a focus
strategy simply apply a cost-leader or differentiation strategy
to a segment of the larger market. Firms may thus be able to
differentiate themselves based on meeting customer needs
through differentiation or through low costs and competitive
pricing for specialty goods.
Competitive Edge Through

Generic /Competitive Strategies at
Business Level
Differentiation = attempt to distinguish
products or services from that of competitors
Cost leadership = aggressively seeks efficient
facilities, pursues cost reductions, and uses
tight cost controls to produce products more
efficiently than competitors
Focus = concentrates on a specific regional
market or buyer group
Types of Differentiation Themes

Unique taste -- Dr. Pepper
Multiple features -- Microsoft Windows and
Office
Wide selection and one-stop shopping -Home Depot and Amazon.com
Superior service -- FedEx, Ritz-Carlton
Spare parts availability -- Caterpillar
More for your money -- McDonalds, Wal-Mart
Prestige -- Rolex
Quality manufacture -- Honda, Toyota
Technological leadership -- 3M Corporation
Top-of-line image -- Ralph Lauren
Pitfalls of Differentiation
Strategies
Buyers see little value in unique attributes

of product
Appealing product features are easily
copied by rivals
Differentiating on a feature buyers do not
perceive as lowering their cost or enhancing
their well-being
Over-differentiating such that product
features exceed buyers needs
Charging a price premium
buyers perceive is too high
Examples of Focus Strategies

eBay
Online auctions
Porsche
Sports cars
Jiffy Lube International

Maintenance for motor vehicles
Pottery Barn Kids

Childrens furniture and accessories
Bandag
Specialist in truck tire recapping
Industry Analysis: Three sections

A. Industry Life Cycle Analysis
B. Study of the structure and characteristics of
an Industry
C. Profit Potential of Industry (Porter Model)
A. Industry Life Cycle Analysis

Four Stages:
Pioneering Stage
Rapid Growth Stage
Maturity and Stabilization Stage
Decline Stage
B. Study of the structure and

characteristics of an Industry
1. Structure of the Industry and nature of
Competition
2. Nature and Prospectus of the demand
3. Cost, Efficiency and Profitability
4. Technology and Research
3. Profit Potential of Industry (Porter Model)
1.
2.
3.
4.
5.
Michael Porter has argued that the profit

potential of an industry depends on the
combined strength of the:
Threat of new entrant
Rivalry among existing firms
Pressure from substitute products
Bargaining power of buyers
Bargaining power of sellers
Porter's five forces analysis is a framework for the industry

analysis and business strategy development developed by
Michael E. Porter of Harvard Business School in 1979 . It uses
concepts developed in Industrial Organization (IO) economics
to derive five forces which determine the competitive intensity
and therefore attractiveness of a market. Attractiveness in this
context refers to the overall industry profitability. An
"unattractive" industry is one where the combination of forces
acts to drive down overall profitability. A very unattractive
industry would be one approaching "pure competition".
a. The threat of substitute products

The existence of close substitute products
increases the propensity of customers to
switch to alternatives in response to price
increases (high elasticity of demand).
buyer propensity to substitute
relative price performance of substitutes
buyer switching costs
perceived level of product differentiation
b.
The threat of the entry of new competitors
Profitable markets that yield high returns will draw firms. This results in many new
entrants, which will effectively decrease profitability. Unless the entry of new firms
can be blocked by incumbents, the profit rate will fall towards a competitive level
(perfect competition).
the existence of barriers to entry (patents, rights, etc.)
economies of product differences
brand equity
switching costs or sunk costs
capital requirements
access to distribution
absolute cost advantages
learning curve advantages
expected retaliation by incumbents
government policies
c. The intensity of competitive rivalry

For most industries, this is the major determinant of the competitiveness of
the industry. Sometimes rivals compete aggressively and sometimes rivals
compete in non-price dimensions such as innovation, marketing, etc.
number of competitors
rate of industry growth
intermittent industry overcapacity
exit barriers
diversity of competitors
informational complexity and asymmetry
fixed cost allocation per value added
level of advertising expense
Economies of scale
Sustainable competitive advantage through improvisation
d. The bargaining power of customers

Also described as the market of outputs. The ability of customers to put the firm
under pressure and it also affects the customer's sensitivity to price changes.
buyer concentration to firm concentration ratio
degree of dependency upon existing channels of distribution
bargaining leverage, particularly in industries with high fixed costs
buyer volume
buyer switching costs relative to firm switching costs
buyer information availability
ability to backward integrate
availability of existing substitute products
buyer price sensitivity
differential advantage (uniqueness) of industry products
RFM Analysis
e. The bargaining power of suppliers

Also described as market of inputs. Suppliers of raw materials,
components, labor, and services (such as expertise) to the firm can be a
source of power over the firm. Suppliers may refuse to work with the firm,
or e.g. charge excessively high prices for unique resources.
supplier switching costs relative to firm switching costs
degree of differentiation of inputs
presence of substitute inputs
supplier concentration to firm concentration ratio
employee solidarity (e.g. labor unions)
threat of forward integration by suppliers relative to the threat of
backward integration by firms
cost of inputs relative to selling price of the product.
Ansoff-Matrix or
Product-Market Expansion Grid
Dimensions Existing Products
New Products
Existing
Markets
1.1. Do nothing
2. Withdraw
3. Consolidate
4. Penetrate
Product
Development
(risky + expensive)
New
Markets
Market
Development
(when product is
very competitive)
Diversification
(assuming new
activities)
Ansoff-Matrix
Improving the performance of existing businesses
Do Nothing if the environment is static (short-run only)
Withdraw when there is an irreversible decline in demand or
opportunity costs of staying in a market are too high
Consolidation means concentration of resources and focusing on
existing competitive advantages
Penetration means gaining market share
FUNCTIONAL STRATEGY
Functional strategy is the approach, a functional area takes to achieve
corporate and business unit objectives and strategies by maximizing
resource productivity. It is concerned with developing and nurturing a
distinctive competence to provide a company and business firm with a
competitive advantage. The orientation of the functional strategy is
dictated by its parent business units strategy.
Eg: A business unit following a competitive strategy of differentiation
through high quality needs a manufacturing functional strategy that
emphasizes expensive quality assurance process over cheaper, highvolume production. A HR functional strategy that emphasizes the hiring
and training of a highly skilled but costly workforce and a marketing
functional strategy that emphasizes distribution channel pull using
advertising to increase consumer demand over push using
promotional allowances to retailers.
If a business unit were to follow a low cost competitive strategy, however
a different set of functional strategies would be needed to support the
business strategy. Functional Strategies may need to vary from region to
region.
FUNCTIONAL STRATEGY
EVERY BUSINESS UNIT DEVELOPS FUNCTIONAL
STRATEGIES FOR EACH MAJOR DEPARTMENT
MARKETING STRATEGY
FINANCIAL STRATEGY
RESEARCH & DEVELOPMENT STRATEGY
OPERATIONS STRATEGY
PURCHASING STRATEGY
LOGISTICS STRATEGY
HUMAN RESOURCES STRATEGY
INFORMATION TECHNOLOGY STRATEGY
STRATEGIC ANALYSIS AND CHOICE
Strategic Analysis and choice

Meaning of strategic choice: Choice of a strategy
involves an understanding of choice mechanism
and issues involved in it.
Definition: Gleuek has defined strategic choice as
the process of selecting the best strategy out of
all available strategies.
Steps in strategic choice: Focusing on strategic
alternatives Evaluating strategic alternatives
Considering Decision factors Choice of strategy
STRATEGY CHOICE
How effective has the existing strategy been?
How effective will that strategy be in the
future?
What will be the effectiveness of selected
strategies?
STRATEGY CHOICE
Strategists collect and evaluate information to assess strengths and
weaknesses of the internal environment and opportunities and threats of
the external environment. Such an assessment presents a list of possible
strategic alternatives.From among those alternatives, choices are made.
It determines the characteristics and forms of an organization's strategic
direction.
the decision to select among the grand strategies considered,
the strategy which will best meet the enterprises
objectives.
Objective factors are grouped into two categories: Environmental

factors: It includes volatility of environment, input supply from
environment and powerful stakeholders.
Organizational factors: It includes organizations mission, the
strategic intent, its business definition and its strengths and
weaknesses.
Subjective factors: Various subjective factors may be classified as:
Organizations past strategies
Personal factors
Attitude to risks
Internal political consideration
Pressure from stakeholders
Process of Strategic choice: Strategic choice involves evaluation of the pros

and cons of each strategic alternative and selection of the best alternative.
Three techniques are used in the process of selection of a strategy.
Devils Advocate
Dialectical Enquiry
Strategic shadow Committee
1. Devils Advocate in strategic decision making is responsible for identifying

potential pitfalls and problems in a proposed strategic alternative by making a
formal presentation.
2. Dialectical inquiry involves making two proposals with contrasting
assumptions for each strategic alternative. The merits and demerits of the
proposal will be argued by advocates before the key decision makers. Finally
one alternative will emerge viable for implementation.
3. A strategic shadow committee consists of members drawn below executive

level. They serve the committee for two years. They inspect all materials and
attend all meetings of
executive strategy. The members generate views regarding constraints faced by
management. Their report is submitted to Board of Directors.
GAP Analysis
Gap analysis is a tool that helps a company to compare its
actual performance with its potential performance.
It simply answer two questions - where are we now? and
where do we want to be? .
The difference between the two is the GAP - this is how you
are going to get there.
Tools of Determining Strategic Choice
BCG Portfolio
GE Multifactor Portfolio Matrix
Hofers Product-Market Evolution Matrix
Shell Direction Policy
Industrys level policy
Porters five forces model
Subjective Factors influencing Strategic

Choice
Commitment of past strategies

Attitudes towards risk
Degree of firms external dependence
Internal political considerations
Time constraints
Competitive reactions
Corporate culture.
Strategic Decisions
Strategic decisions are the decisions that are
concerned with whole environment in
which the firm operates, the entire
resources and the people who form the
company and the interface between the
two.
Characteristics/Features of Strategic Decisions

Strategic decisions have major resource propositions for an organization.
These decisions may be concerned with possessing new resources, organizing
others or reallocating others.
Strategic decisions deal with harmonizing organizational resource capabilities
with the threats and opportunities.
Strategic decisions deal with the range of organizational activities. It is all
about what they want the organization to be like and to be about.
Strategic decisions involve a change of major kind since an organization
operates in ever-changing environment.
Strategic decisions are complex in nature.
Strategic decisions are at the top most level, are uncertain as they deal with
the future, and involve a lot of risk.
Strategic decisions are different from administrative and operational
decisions. Administrative decisions are routine decisions which help or rather
facilitate strategic decisions or operational decisions. Operational decisions
are technical decisions which help execution of strategic decisions. To reduce
cost is a strategic decision which is achieved through operational decision of
reducing the number of employees and how we carry out these reductions
will be administrative decision.

Unit II

Caricato da

Informazioni sul documento

Titolo originale

Copyright

Formati disponibili

Condividi questo documento

Condividi o incorpora il documento

Opzioni di condivisione

Hai trovato utile questo documento?

Questo contenuto è inappropriato?

Copyright:

Formati disponibili

Unit II

Caricato da

Copyright:

Formati disponibili

Strategic Management

Concept of Environment: Environment literally means

Market intermediates- middlemen, physical distribution firms,

CompetitorsDesire competitions limited disposable income many

2. Political & Govt. Environment.

Judiciary -to see above both working public

3. Socio Cultural Environment- people attitude

5. Demographic Environment. - Size growth age

Techniques of Environment Analysis

Environment analysis has 3 basic objectives

Environmental Scanning &

Environmental Scanning & MonitoringTechniques

PEST Analysis The Meaning

However, changes in the external environment also

STRATEGIC ADVANTAGE PROFILE

Critical Success Factor Analysis

Characteristics of CSF Analysis

Process of CSF Analysis Identify

Benefits of CSF Analysis

2. Model of Organisational Capability

The Internal Environment:

What is SWOT Analysis?

Acronym for Strengths,

What is SWOT Analysis?

Examples - Abundant financial resources,

What is SWOT Analysis?

Examples - Limited financial resources,

What is SWOT Analysis?

Aim of SWOT Analysis?

To help decision makers

To analyze issues that

Who needs SWOT Analysis?

When the team has not met its

When supervisor has issues with

When revenue, cost & expense

Who needs SWOT Analysis?

How to conduct SWOT Analysis?

1. Analyse Internal &

2. Perform SWOT Analysis

3. Prepare Action Plans

How to conduct SWOT Analysis?

1. Analyse Internal & External Environment

How to conduct SWOT Analysis?

How to conduct SWOT Analysis?

1. Analyse Internal &

2. Perform SWOT Analysis

3. Prepare Action Plans

How to conduct SWOT Analysis?

Allocate research & information gathering

How to conduct SWOT Analysis?

1. Analyse Internal &

2. Perform SWOT Analysis

3. Prepare Action Plans

How to conduct SWOT Analysis?

Things that MUST be addressed immediately

Things that can be handled now

Benefits & Pitfalls of SWOT Analysis

Knowing the Competion

Decision Making Tool

Benefits & Pitfalls of SWOT Analysis

Evidence for, and cultural key to, change

Benefits & Pitfalls of SWOT Analysis

The data used in the analysis may be based on assumptions that