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 Chapter 1 – Introduction to Strategic Management (Chart 1.1)
MANAGEMENT: STRATEGY STRATEGIC MANAGEMENT
MEANING & NATURE
- It is game plan, management is using to take market position, conduct its operations, Definition Benefits of SM
attract & satisfy customers, compete successfully, & achieve organizational objectives
The term ‘management’ can
- It is a long range blueprint of org's desired image, direction & destination what it wants - It refers to managerial - SM is very important for the
be used in two major survival and growth of business
to be, what it wants to do & where it wants to go process of forming
contexts. d By :C A Sa hil Grover
- It is formulated at corporate, divisional & functional level Compi le strategic vision, organizations in dynamic &
- A key group in an - Igor H. Ansoff: The common thread among the organization's activities and product- setting objectives, turbulent business environment.
organization in-charge of its markets that defines the essential nature of business that the organization was or planned crafting a strategy, - Gives direction to the company
affairs. Management is the to be in future. implementing & to move ahead. It helps defines
chief organ entrusted with - William F. Glueck: A unified, comprehensive and integrated plan designed to assure that executing strategy & realistic goals and missions
the task of making an the basic objectives of the enterprise are achieved. then over times which are line with vision of co.
organization a purposeful - It is opposite of adhoc responses to the changes in the environment, in competition, initiating whatever - Helps to be more proactive than
and productive entity. The consumer tastes, technology and other variables. corrective reactive in shaping its future
survival and success of an - It amounts to long-term, well thought-out and prepared responses to the changes in the adjustments in vision, - Provides framework for all major
organisation depend to a environment in competition, consumer tastes, technology and other variables objectives, strategy, business decision. It provides
large extent on the - However, strategy is no substitute for sound, alert and responsible management. & execution are better guidance to entire
Strategy can never be perfect, flawless and optimal. It is in the very nature of strategy deemed appropriate. organisation on the crucial point
competence and character of
that it is flexible and pragmatic; - The process does not - what it is trying to do.
its management.
end, it keeps going on - Ensuring a good future for firm.
- Set of interrelated functions - In sound strategy, allowances are made for possible miscalculations & unanticipated
events. in cyclic manner Prepare the corporation to face
and processes carried out by the future and act as pathfinder
- It involves developing
the management of an STRATEGY IS PARTLY PROACTIVE AND PARTLY REACTIVE the company’s vision, to various business
organisation to attain its - A company's strategy is typically a blend of opportunities. Helps org identify
environmental
objectives. These functions  proactive actions on the part of managers to improve the company's market scanning (both opportunities & means to reach
include Planning, Organizing, position and financial performance and external and them.
Directing, Staffing and  reactions to unanticipated developments and fresh market conditions. internal), strategy - Serves as corporate defense
Control. The functions or sub- - In other words, a company uses both proactive and reactive strategies to cope up the formulation, strategy mechanism against mistakes &
processes of management uncertain business environment. implementation & pitfalls
are wide-ranging but closely - Proactive strategy is planned strategy whereas reactive strategy is adaptive reaction to evaluation & control. - Helps org to evolve certain core
interrelated. changing circumstances competencies & competitive
Objectives advantages that assist in its fight
- When strategy is based on anticipated events-Proactive Strategy
Management is an influence - When strategy is formulated in reaction to events not anticipated-Reactive Strategy for survival and growth
- To create
process to make things - In proactive strategy, organizations will analyze possible environmental scenarios and competitive Limitations of SM
happen, to gain command create strategic framework after proper planning and set procedures and work on these advantage, so that
over phenomena, to induce strategies in a predetermined manner. the company can 1) Environment is highly complex
and direct events and - However in reality no company can forecast both internal and external environment outperform the and turbulent. It is difficult to
people in a particular exactly. Everything cannot be planned in advance. It is not possible to anticipate moves competitors in order understand the complex
manner. Influence is backed of rival firms, consumer behavior, evolving technologies and so on. Things happen that to have dominance environment and exactly
by power, competence, cannot be fully anticipated or planned over the market. pinpoint how it will shape-up in
knowledge and resources. - There can be significant deviations between what was visualized and what actually - To guide the future.
Managers formulate happens. Strategies need to be attuned or modified in light of possible environmental company 2) Time-consuming process.
organisational goals, values changes successfully through 3) A costly process. Strategic
and strategies, to cope with, - Reactive strategy is triggered by the changes in the environment and provides ways and all changes in the management adds a lot of
to adapt and to adjust means to cope with the negative factors or take advantage of emerging opportunities environment. That is expenses to an org.
themselves with the - Crafting a strategy thus involves stitching together a proactive/intended strategy and to react in right 4) It is difficult to clearly estimate
behavior and changes in the then adapting first one piece and then another as circumstances surrounding the manner the competitive responses to a
company’s situation change or better options emerge-a reactive/adaptive strategy.
environment. Compiled By:CA Sahil Grover firm’s strategies.
 Chapter 1- Introduction to Strategic Management (Chart 1.2)
STRATEGIC LEVELS IN ORGANISTION Compiled By:CA Sahil Grover STRATEGIC INTENT
A) CORPORATE LEVEL NETWORK OF RELATIONSHIP BETWEEN THE - It refers to purposes of what the
THREE LEVELS organization strives for.
- Corporate Level management consists of CEO, other senior top level executives
- Senior managers must define “what
- These individuals occupy the apex of decision making within the organization. There are multiple ways in which all the 3 levels of they want to do” and “why they want
They participate in strategic decision making within the organization. management are interlinked, and interestingly it to do”. “Why they want to do”
- Role of corporate-level managers includes depends on the organisation as a whole to decide
o to oversee the development of strategies for the whole organization. represents strategic intent of the firm
what kind of network of relationship suits their - Strategic intent can be understood as
o defining the mission and goals of the organization, culture and aspirations. There are 3 major types of
o determining what businesses it should be in, the philosophical base of strategic
networks of relationship between the levels and also management. It implies the purposes,
o allocating resources among the different businesses
amongst the same levels of a business: which an organization endeavours to
o Formulating and implementing strategies that span individual businesses.
o Providing leadership for the organization.  Functional and Divisional Relationship achieve.
o Provide a link between the people who oversee the strategic development of a - It is an independent relationship, where each - Gives an idea of what the organization
firm and those who own it function or a division is run independently headed desires to attain in future
o Corporate-level managers, and particularly the CEO, can be viewed as the by the function/division head, who is a business - Generally stated in broad terms but
guardians of shareholders’ welfare. It is their responsibility to ensure that the level manager, reporting directly to the business when stated in precise terms it is an
corporate and business strategies of the company are consistent with head, who is a corporate level manager. expression of aims to be achieved
maximizing shareholders’ wealth operationally i.e. goals and objectives.
- Functions maybe like Finance, Human Resources,
o Managing the divestment and acquisition process
Marketing, etc. while Divisions may depend on the Elements
In simple words, corporate level managers provide an organisation level view of
strategy & what they want to achieve, but it is on the business level managers to products like for a toys manufacturer - kids toys,
ensure that or their particular business, the one they are responsible for. teenager toys, etc. could be divisions. 1. Vision: Blueprint of the co.’s future
 Horizontal Relationship position. Describes where the co.
B) BUSINESS LEVEL - All positions, from top management to staff-level wants to land. It depicts the
employees, are in the same hierarchical position. organisation’s aspirations and provides
- A strategic business unit is a self-contained unit with its own functions(eg. finance, a glimpse of what the organization
production) that provides a product or service for a particular market - It is a flat structure where everyone is considered
would like to become in future.
- The principal general manager at the business level, or the business level manager, is at same level. This leads to openness and
2. Mission: Describes the firm’s business,
the head of the division. transparency in work culture and focused more on
goals & ways to reach the goals.
- The strategic role of these managers is to translate the general statements of idea sharing and innovation. Explains the reason for the existence of
direction and intent that come from the corporate level into concrete strategies for - This type of relationship between levels is more firm in the society
individual businesses. suitable for startups where the need to share ideas 3. Goals and Objectives: Are the base of
- Thus, whereas corporate-level general managers are concerned with strategies that with speed is more desirable. measurement. Goals are end results
span individual businesses, business-level general managers are concerned with
 Matrix Relationship organizations attempt to achieve.
strategies that are specific to a particular business
- It features a grid-like structure of levels in an Objectives are time based measurable
Compiled By:CA Sahil Grover organisation, with teams formed with people from targets, which help in accomplishment
C) FUNCTIONAL LEVEL of goals. These are the end results
various departments that are built for temporary
- Responsible for specific business functions or operations -human resources, task-based projects. which are to be attained with the help
purchasing, product development, customer service and so on. Thus their - This relationship helps manage huge of an overall plan, over the particular
responsibility is generally confined to one organizational activity whereas general conglomerates with ease where it is nearly period
managers oversee the operation of a whole company or division. impossible to track and manage every single team 4. Values/ Value System: Values form the
- Responsible for strategy implementation: the execution of corporate ¬and business- independently. omnipresent foundation of each and
level plans. every decision that the management
- In Matrix relationship - there are more than one
- Closer to the customer than the typical general manager takes. Values are the deep-rooted
business level managers for each functional level
- Provide most of the information that makes it possible for business- and corporate- principles which guide an
teams. It is complex for smaller organisations, but organisation’s decisions and actions.
level general managers to, formulate realistic and attainable strategies. Thus, it is
important for general managers to listen closely to the ideas of their functional extremely useful for large organisations.
managers.
 Chapter 1- Introduction to Strategic Management (Chart 1.3)
Vision MISSION Compiled By:CA Sahil Grover

Meaning Meaning Examples VISSION vs. MISSION

- Top management’s views about the company’s direction and - Mission statement is typically - HDCF Bank has two-fold mission: first, 1. A Mission statement tells you the
the product customer- market-technology focus constitute focused on present business scope - to be the preferred provider of banking fundamental purpose of the
the strategic vision for the company. "who we are & what we do", services for target retail and wholesale organization. It concentrates on
- It points out a particular direction, charts a strategic path to - It broadly describes org's present customer segments. The second is to the present. On the other hand, a
capabilities, customer focus, achieve healthy growth in profitability, Vision statement outlines what
be followed in future, and moulding organisational identity.
activities & business makeup consistent with the bank’s risk the organization wants to be. It
- It communicates management's aspirations to stakeholders
- It is an expression of growth appetite. concentrates on the future.
& helps steer energies of Co personnel in common direction ambition of the firm. It provides a
- It is road map of company's future providing specifics about - LIC Ltd.’s Mission is - Ensure and 2. Mission defines the customer and
dramatic picture of what the the critical processes. It informs
technology & customer focus, geographic & product markets enhance the quality of life of people
company wants to become. It is the you of the desired level of
through financial security by providing
to be pursued, capabilities it plans to develop, & kind of Co. corporation’s dream crystallised
products and services of aspired performance whereas Vision is a
that management is trying to create - It is a grand design of the firm’s
attributes with competitive returns, source of inspiration. It provides
future
Examples Essential of strategic and by rendering resources for clear decision-making criteria.
- Serves as justification for firm’s
vision economic development. 3. The Vision describes a future
1. HDFC Bank Ltd., one of the presence and existence. It legitimizes
largest banks in India has 1. Entrepreneurial challenge in the firm's presence. - Apple’s mission has been defined as - identity while the Mission serves
clearly defined its Vision of developing a strategic vision - Purpose is to give internal direction “to bring the best user experience to its as an ongoing and time-
for the future of the corporation. customers through innovative independent guide.
being a world class Indian is to think creatively about
bank. This vision helps them how to prepare a company hardware, software, and services.” 4. The Vision statement can
keep in mind, “where we for the future. Why org. should have mission galvanize the people to achieve
Imp points for writing mission defined objectives, even if they
want to go”, as the central 2. Forming a strategic vision is (Importance)
thought of their strategic an exercise in intelligent Statement are stretch objectives, provided
decision making. entrepreneurship. 1) To ensure unanimity of purpose the vision is specific, measurable,
1) It should give org its own special
2. Apple Inc.’s CEO Tim Cook 3. A well-articulated strategic within org. achievable, and relevant and time
2) To provide a basis for motivating identity-one that typically distinct it
defined the vision of the vision creates enthusiasm bound. A Mission statement
from other similarly positioned
company as - “We believe for the course management use of org resources provides a path to realize the
has charted and engages 3) To establish general tone of companies.
that we are on the face of vision in line with its values.
the earth to make great members of the organizational climate 2) The company’s business is defined
5. A Vision statement defines the
products, and that’s not organization 4) To develop a basis or standard for by needs which business tries to
purpose or broader goal for being
changing.” 4. The best-worded vision allocating organizational resources satisfy, which customer groups it is
in existence or in the business and
3. LIC Ltd., the largest insurance statement clearly and 5) To facilitate translation of targeting, technology, competencies
can remain the same for decades
company of India has defined crisply illuminates the objective & goals into work it uses & activities it performs
if crafted well while a Mission
its visions as – A trans- direction in which
structure involving the assignment 3) Good mission statements are highly
statement is more specific in
nationally competitive organization is headed. personalized--unique to the
5. Many successful of tasks to responsible elements terms of both the future state and
financial conglomerate of within the organization. organization
organizations need to the time frame. Vision describes
significance to societies and 6) To serve as focal point for those 4) It should not be to make profit.
change direction not in what will be achieved if the
Pride of India. Surpluses may be required for
order to survive but in order who can identify with organization is successful.
4. ICAI: World’s leading survival and growth but cannot be
to maintain their success organization’s purpose
accounting body, a regulator mission of a company.
7) To specify organizational purposes
and developer of trusted and
& translation of these purposes
independent professionals
into goals in such a way that cost,
with world class
time, and performance parameters
competencies.
can be assessed and controlled. Compiled By:CA Sahil Grover
 Chapter 1- Introduction to Strategic Management (Chart 1.4)
OBJECTIVES & GOALS VALUES Approaches to Decision Making
Meaning - Values are the deep-rooted principles There are two approaches for decision making - top
which guide an organisation’s down or bottom up.
- Objectives are organizations performance targets - the results & outcomes it wants to decisions and actions.
achieve. - Top down approach of decision making is when
- Values form the omnipresent
- All organizations have objectives. They provide meaning and sense of direction to foundation of each and every decisions are made solely by leadership at top i.e.
organizational endeavour. decision that the management takes. corporate level of management.
- They function as yardstick for tracking an orgnisations performance & progress - A few common examples of values - It describes a centralized approach to strategy
- They act as benchmarks for guiding organizational activity and for evaluating how org. is are – Integrity, Trust, Accountability,
performing. formulation in which the corporate center or head
Humility, Innovation, and Diversity
- Business organisation translates their vision and mission into goals and objectives. office determines mission, strategic intent,
As such the term objectives are synonymous with goals, however, some authors IMPORTANCE objectives and strategies for the organization as a
make an attempt to distinguish the two. - A company’s value sets the tone for whole and for all parts. Unit managers are seen as
- Goals are open-ended attributes that denote the future states or outcomes. how the people of think and behave, implementers of pre-specified corporate strategies
Objectives are close-ended attributes which are precise and expressed in specific especially in situations of dilemma.
terms. - Bottom up approach is when all the teams across
- It creates a sense of shared purpose
- Thus, the objectives are more specific and translate the goals to both long term and the levels are given voice in decision making. It is
to build a strong foundation and
short-term perspective. However, this distinction is not made by several theorists the characteristic of autonomous or semi-
focus on longevity of the company’s
on the subject. Accordingly, we will also use the term interchangeably. autonomous divisions or subsidiary companies in
success.
Characteristics of objectives - Employees prefer to work with which the corporate center does not conceptualize
employers whose values resonate its strategic role as being directly responsible for
- Objectives should be Specific & concrete with them - the ones they can relate determining the mission, objectives, or strategies
- Objectives should be Measurable & controllable to in their daily work and personal of its operational activities. It may prefer to act as
- Objectives should facilitate achievement of mission & vision life.
a catalyst and facilitator, keeping things
- Objectives should define the organization’s relationship with its environment. - Similarly majority of consumers say
- Objectives should be related to Time Frame reasonably simple and confining itself to
that they would prefer to buy
- Objectives should be challenging products and services from perspective and broader strategic intent
Compiled By:CA Sahil Grover
- Objectives should be Understandable companies that have a purpose that
- Objectives should Correlate with each other reflects their own value and belief Compiled By:CA Sahil Grover
- Objectives should be set within constraints of organizational resources and external system
environment Hence, values have both internal as
well as external implications.
ST & LT Objectives
As a rule, a company’s set of financial and strategic objectives ought to include both short-
term and long-term performance targets.
Long-term objectives: To achieve long-term prosperity, strategic planners commonly
establish long-term objectives in seven areas.
i. Profitability.
ii. Productivity.
iii. Competitive Position.
iv. Employee Development.
v. Employee Relations.
vi. Technological Leadership.
vii. Public Responsibility.
Short-range objectives can be identical to long-range objectives if an organization is already
performing at the targeted long-term level. They serve as steps toward achieving long term
objective
 Chapter 2 –Strategic Analysis-External Environment (Chart 2.1)
Compiled By:CA Sahil Grover
STRATEGIC ANALYSIS BUSINESS ENVIRONMENT
- The process of strategic formulation ISSUES TO CONSIDER FOR STRATEGIC ANALYSIS MEANING
begins with a strategic analysis. a) Strategy evolves over period of time: A key element of strategic
- The term "business environment" refers to all external factors, influences, or
- Its objective is to compile information analysis is the probable outcomes of everyday decisions. A current
situations that in some way affect business decisions, plans, and operations.
about internal and external strategy is the result of several little choices taken over a
environments in order to assess protracted period of time. In other words a strategy is a result of - Organisational success is determined by its business environment, and even
possibilities while formulating strategic series of small decisions taken over an extended period of time. more from its relationship with it.
objectives and contemplating strategic Strategy is influenced by experience, but it has to be updated when - The business environment is highly dynamic and continuously evolving
activities. the results become clear. Thus, it evolves over a period of time. - To flourish, a business must be aware of, assess, and respond to the many
- Solid in-depth analysis of company’s b) Balance: opportunities and threats present in its environment.
external & internal situation is called Strategic analysis necessitates creating a reasonable balance - In order to succeed, the business must not only be aware of the numerous
strategic analysis between many and conflicting challenges, because a perfect fit aspects of its surroundings but also be able to handle and adapt to them. The
- Judgments about what strategy to between them is unlikely. business must continuously evaluate its environment and modify its operations
pursue need to flow directly from Management must consider opportunities, influences, and in order to thrive and expand.
analysis of organisational external constraints while taking a strategic decision. The process of
strategy formulation is thus often described as one of the REASONS FOR UNDERSTANDING BUSINESS ENVIRONMENT
environment & internal situation
- A systematic approach to environmental matching the internal potential of the organization with the
Strategic management is involved with choosing a long-term direction in relation
assessment is essential for managing risk environmental opportunities. In reality, as perfect match
to these resources and opportunities. There is a close and continuous interaction
and uncertainty. between the two may not be feasible, strategic analysis involves
between a business and its environment. This interaction helps in strengthening
- The strategic analysis is a component of a workable balance between diverse and conflicting
the business firm and using its resources more effectively. It helps the business in
business planning that has a methodical considerations
the following ways:
approach, makes the right resource c) Risk: In strategic analysis, the principle of maintaining balance is
important. However, the complexity and intermingling of i. Determine opportunities and threats: The interaction between the business and
investments, and may assist business in
variables in the environment reduces the strategic balance in the its environment would explain opportunities and threats to the business. It
achieving its objective.
organisation. Competitive markets, liberalization, globalization, helps to find new needs and wants of the consumers, changes in laws, changes
- Important situational considerations are
in social behaviours, and tells what new products the competitors are bringing
 Industry & competitive conditions booms, recessions, technological advancements, inter-country
in the market to attract consumers
 Company’s own competitive relationships all affect businesses and pose risk at varying
ii.Give direction for growth:
capabilities resources, internal degrees. An important aspect of strategic analysis is to identify
The interaction with the environment enables the business to identify the areas
strengths & weaknesses, & market potential imbalances or risks and assess their consequences. A
for growth and expansion of their activities. Once the business is aware and
position. broad classification of the strategic risk that requires understands the changes happening around, it can plan and strategise to have
- It forces to think about the rivals and consideration in strategic analysis is given below: successful business.
aids in the evaluation of business plans iii.Continuous Learning: The managers are motivated to continuously update their
to stay ahead of the competition. knowledge, understanding and skills to meet the predicted changes in the
LIMITATIONS OF STRATEGIC ANALYSIS realm of business.
The strategic analysis is a continuous iv. Image Building: Environmental understanding helps the business organizations
process which is not without to improve their image by showing their sensitivity to the environment in which
limitations. There are two major they operate. Understanding the needs of the environment help to showcase
limitations of strategic analysis that that the business is aware and responsive to the needs. It creates a positive
we need to be aware of: image and helps it to prosper and win over the competitors.
1. It gives a lot of innovative options v. Meeting Competition: It helps the businesses to analyse the competitors’
but doesn't tell which one to pick. strategies and formulate their own strategies accordingly. The idea is to
The options can be overlapping, flourish and beat competition for its products and services
confusing or difficult to
implement. MICRO AND MACRO ENVIRONMENT
2. It can be time consuming at times,
hurting overall organisational External risk is on account of inconsistencies between strategies and The external environment can be categorised in two major types as follows:
functioning and also strain other the forces in the environment.  Micro environment
efficient innovations such as
Internal risk occurs on account of forces that are either within the  Macro environment Compiled By:CA Sahil Grover
developing a new product or a
organization or are directly interacting with the organization on a
service
routine basis.
 Chapter 2 –Strategic Analysis-External Environment (Chart 2.2)
MICRO ENVIRONMENT ELEMENTS OF MACRO ENVIRONMENT Compiled By:CA Sahil Grover

- Micro-environment is related to small area DEMOGRAPHIC SOCIO-CULTURAL ECONOMIC POLITICAL-LEGAL ENVIRONMENT

or immediate periphery of an ENVIRONMENT ENVIRONMENT ENVIRONMENT
organization. It influences an organization - Political-legal environment takes into account
regularly and directly. - Demographics are the - Socio-cultural environment - The economic environment elements like
- Micro environment consists of suppliers, characteristics of a population consists of factors related to refers to the overall  the general level of political development,
consumers, marketing intermediaries, that have been classified and human relationships and the economic situation around  the degree to which business and economic
competitors, etc. explained according to certain impact of social attitudes and the business and include issues have been politicized,
- These are specific to the said business or criteria, such age, gender, and cultural values which has conditions at the regional,  the degree of political morality,
firm and affect its working on a direct and income, in order to understand
bearing on the operations of national and global levels.  the state of law and order,
regular basis. the features of a specific
the organization. - It encompasses conditions in  political stability,
- Within the micro or the immediate group. the markets for resources  political ideology & practices of ruling party,
- It represents a complex group
environment in which a firm operates we - Demographical analysis that have an effect on the  the effectiveness and purposefulness of
considers factors such as of factors such as
need to address the following issues: supply of inputs and outputs governmental agencies, and
 The employees of the firm, their - race, - age,  social traditions,  the scope and type of governmental
of the business, their costs,
characteristics and how they are - income, - education,  values and beliefs, and the dependability, intervention in the economy and industry.
organised. - ethic mix  level and standards of quality, and availability. - Business is highly guided and controlled by
 The existing customer base on which the - possession of assets, literacy, - Economic environment government policies. Hence the type of
firm relies for business. - house ownership,  the ethical standards and determines the strength and government running a country is a powerful
 The ways in which the firm can raise its - job position, state of society, size of the market. The influence on business.
finance.  the extent of social purchasing power in an - A business has to consider the changes in the
- region, and
 Who are the firm suppliers and how are economy depends on current regulatory framework and their impact on the
- geographic dispersion stratification, conflict,
the links between the two being income, prices, savings, business. Taxes & duties are other critical areas
developed? - Data about these qualities cohesiveness and so forth.
across homes and within a circulation of money, debt - In any country businesses must have a good
 The local community within which the working knowledge of the major laws
demographic variable are of - It differs from demographics and credit availability.
firm operates.
- Income distribution pattern protecting consumers, competitions and
 The direct competition and their importance to both businesses in the sense that it is not the
and economists. Marketers characteristics of the determine the business organizations.
comparative performance.
and other social scientists population, but it is the possibilities. TECHNOLOGICAL ENVIRONMENT
MACRO ENVIRONMENT behaviour and the belief - The economic conditions of a
regularly divide up populations
- The macro environment is the portion of based on their demographic system of that population. nation refer to a set of - A highly important factor in the present times
the outside world that significantly affects makeup. - The beliefs, values and norms economic factors that have is technology. Technology has changed the way
how an organisation operates but is - Considering demographics is of of a society determine how great influence on business people communicate and do things.
typically much beyond its direct control immense importance for any individuals and organizations organizations and their Technology has also changed the ways of how
and influence. operations. These include: businesses operate now.
business. Business should be interrelated.
- Macro environment has broader - gross domestic product, - Technology is leading to many new business
organizations need to study - The core beliefs of a particular
dimensions as it consists of economic, - per capita income, opportunities as well as making obsolete most
different demographic factors. society tend to be persistent. of the existing business products and services
sociocultural, technological, political and - Particularly, they need to It is difficult for a business to - markets for goods and
legal factors. - Changes in technology have an effect on how a
address following issues: change these core values, services, business runs its operations. The technological
- As per Gluek and Jauch “The environment  What demographic trends which becomes a determinant - availability of capital,
includes factors outside the firm which can advancements might require a business to
will affect the market size of its functioning. This means, - foreign exchange reserve, drastically alter its operational, production and
lead to opportunities for, or threats to the that businesses have to adjust
of the industry? - growth of foreign trade, marketing strategies
firm. Although, there are many factors, the
most important of the factors are socio-  What demographic trends to social norms and beliefs to - strength of capital market, - Technology can act as opportunity, when a
economic, technological, supplier, represent opportunities or operate successfully. - interest rates, business effectively adopts technological
competitors, and government.” threats? - The social environment - disposable income, innovations to their strategic advantage.
- Identifying the implications of primarily affects the strategic - unemployment, However, at the same time technology can act
Elements of Macro Environment changing demographic management process within as a threat too.
- inflation, etc
i. Demographic Environment characteristics or population the organization in the areas - All these factors generally - Artificial intelligence, machine learning, robotic
ii. Socio-Cultural Environment components for a future of mission and objective tell the state of the process automation is some of the new
iii. Economic Environment strategic competitiveness is setting, and decisions related economy- whether it is doing technological tools that businesses are
iv. Political-Legal Environment often a challenge for to products and markets. good or is it performing adopting and can act as both opportunity and
v. Technological Environment strategists. poorly threat to a business.
 Chapter 2 –Strategic Analysis-External Environment (Chart 2.3)
PESTLE ANALYSIS INTERNATIONALIZATION OF BUSINESS Compiled By:CA Sahil Grover

- The term PESTLE is often used to describe a framework MEANING Developing internationally (Steps involved in Why do companies go global?
for analysis of macro environmental factors.
- Internationalization has emerged international planning) - The first and foremost reason is need
- PESTLE analysis is frequently used to assess the business
environment in which a firm operates. as the dominant commercial trend The steps in international strategic planning are as to grow. It is basic need of
- Political, economic, social, and technological (PEST) over the last couple of decades. follows: organizations. Often finding
analysis was the name given to the framework in the - It enables a business to enter new  Evaluate global opportunities and threats and rate opportunities in the other parts of the
past; however, later, the framework has been expanded markets in search of greater globe organisation extend their
them with the internal capabilities.
to include environmental and legal factors as well earnings and less expensive
 Describe the scope of the firm's global commercial businesses and globalise
- PESTLE analysis involves identifying the political, resources. Additionally, expanding
operations. - The rapid shrinking of time and
economic, socio-cultural, technological, legal and internationally enable a business
environmental influences on an organization and to achieve greater economies of  Create the firm's global business objectives. distance across the globe thanks to
providing a way of scanning the environmental scale and extend the lifespan of its  Develop distinct corporate strategies for the global faster communication, speedier
influences that have affected or are likely to affect an products. business and whole organisation. transportation, growing financial flows
organization or its policy. - The strategic-management and rapid technological changes.
- PESTLE analysis is an increasingly used and recognized process is essentially the same for Assessments of the international environment - Domestic markets are no longer
analytical tool, and it is an acronym for: global firms as it is for domestic (Levels) adequate and rich. The competition
P- Political E- economic S- socio-cultural firms; nevertheless, international present domestically may not exist in
An assessment of the external environment is the first
T- Technological L- legal E- environmental processes are much more some of the international markets.
step toward internationalisation. Analysing international
Key Factors complicated due to additional environment is important since it allows organisation to - There can be varied other reasons such
 Political factors are how and to what extent the variables and linkages discover opportunities in the global market and evaluate as need for reliable or cheaper source
government intervenes in the economy and the - A business can approach feasibilities of capitalising on these opportunities. of raw-materials, cheap labour, etc.
activities of business firms. Political factors may also internationalisation systemically Many foreign businesses shift and set
Assessments of the international environment can be
influence goods and services which the government with the aid of international up some of their operations to take
done at three levels: multinational, regional, and
wants to provide or be provided and those that the strategy planning. advantage of availability of vast pool of
country.
government does not want to be provided. - One method for an organization talent
Furthermore, governments have great influence on the to identify opportunities and  Multinational environmental analysis
- Companies often set up overseas
health, education and infrastructure of a nation. threats in global markets is by - It involves identifying, anticipating, and monitoring
plants to reduce high transportation
 Economic factors have major impacts on how scanning the external significant components of the global environment on
costs. It may be cheaper to produce
businesses operate and take decisions. For example, environment. The development of a large scale.
near the market to reduce the time
interest rates affect a firm's cost of capital and effective strategies and the - Understanding global developments covering
and costs involved in transportation.
therefore to what extent a business grows and formulation of global strategic economic and other macro elements is important.
objectives are made feasible by - Governments may have free or interventionist - Higher sales and better cash flows:
expands. Exchange rates affect the costs of exporting When exporting organisations find
goods and the supply and price of imported goods in internationalisation. tendencies in economies that needs to be carefully
considered. foreign markets to open up or grow
an economy. The money supply, inflation, credit flow,
CHARACTERISTICS OF A - These characteristics are evaluated based on their big, they may naturally look at
per capita income, growth rates have a bearing on the
GLOBAL COMPANY present and expected future impact. overseas manufacturing plants and
business decisions.
 sales branches to generate higher sales
 Social factors affect the demand for a company's - It is a conglomerate of multiple Regional environmental analysis
- It is a more in-depth evaluation of the critical factors and better cash flow.
products and how that company operates. units (located in different parts of
 Technological factors can determine barriers to entry, in a specific geographical area. - The apparent and real collapse of
the globe) but all linked by
minimum efficient production level and influence - The emphasis would be on discovering market international trade barriers. The trade
common ownership.
outsourcing decisions. Furthermore, technological opportunities for a goods, services, or innovations in tariffs and custom barriers are getting
- Multiple units draw on a common lowered, resulting in increased flow of
shifts can affect costs, quality, and lead to innovation the chosen location.
pool of resources, such as money,
 Legal factors affect how a company operates, its costs,  Country environmental analysis business.
credit, information, patents,
and the demand for its products, ease of business. - It has to take a deeper look at the important - Globalization has made companies in
trade names and control systems.
 Environmental factors affect industries such as environmental factors. Study of economic, legal, different countries to form strategic
- The units respond to some political, and cultural dimensions is required in order alliances to ward off economic and
tourism, farming, and insurance. Growing awareness to
climate change is affecting how companies operate common strategy. Besides, its for planning to be successful. technological threats and leverage
and the products they offer--it is both creating new managers and shareholders are - The analysis must be customized for each of the their respective comparative and
markets and diminishing or destroying existing ones also based in different nations. countries to develop effective market entrance competitive advantages
Compiled By:CA Sahil Grover strategies.
 Chapter 2 –Strategic Analysis-External Environment (Chart 2.4)
UNDERSTANDING PRODUCT AND INDUSTRY Compiled By:CA Sahil Grover
CHARACTERISTICS OF PRODUCTS PRODUCT LIFE CYCLE VALUE CHAIN ANALYSIS
Businesses sell products. A product can be It is a useful concept for guiding strategic - Value chain analysis is a method used by strategists to break down each process that their
either a good or a service. It might be physical choice. PLC is S-shaped curve which exhibits business employs. This analysis could be used to improve the sequence of operations,
good or a service, an experience. Business enhancing efficiency and creating a competitive advantage.
relationship of sales with respect of time for
products have certain characteristics as
product that passes through four successive - Value chain analysis is a method of examining each activity in value chain of a business in order
follows:
stages: to identify areas for improvements. Its aim is to help analyse how each stage in the process
 Products are either tangible or intangible: A adds or subtracts value from the end product or service.
1. Introduction: Competition is almost
tangible product can be handled, seen, and - It has been widely used as a means of describing the activities within and around an
physically felt, such as a car, book, pen, negligible, prices are relatively, markets are
limited. The growth in sales is at a lower organization, and relating them to an assessment of the competitive strength of an organization
table, mobile handset and so on.
rate because of lack of knowledge on the (or its ability to provide value-for money products or services.
Alternatively, an intangible product is not a
physical good, such as telecom services, part of customers. - It was originally introduced as an accounting analysis to shed light on the 'value added' of
banking, insurance, or repair services. separate steps in complex manufacturing processes, in order to determine where cost
2. Growth : Demand expands rapidly, prices
 Product has a price: Businesses determine improvements could be made and/or value creation improved.
fall, competition increases & market
the cost of their products and charge a price - The two basic steps of identifying separate activities and assessing the value added from each
expands, The customer has knowledge
for them. The dynamics of supply and were linked to an analysis of an organization's competitive advantage by Michael Porter.
about the product and shows interest in
demand influence the market price of an - One of the key aspects of value chain analysis is the recognition that organizations are much
purchasing it
item or service. The market price is the price more than a random collection of machines, money and people. These resources are of no value
at which quantity provided equals quantity 3. Maturity: Competition gets tough & market unless deployed into activities and organised into routines and systems which ensure that
desired. The price that may be paid is gets stabilized, Profit comes down. At this products or services are produced which are valued by the final consumer/user.
determined by the market, the quality, the stage organisations may work for
marketing, and the targeted group. In the maintaining stability. COMPONENTS OF A VALUE CHAIN
present competitive world price is often 4. Decline: Sales & profits fall down sharply
given by the market and businesses have to PRIMARY ACTIVITIES
due to some new product replaces existing
work on costs to maintain profitability product. So a combination of strategies can  Inbound logistics: Activities concerned with receiving, storing & distributing the inputs to the
 Products have certain features that deliver be implemented to stay in the market either product/service. This includes materials handling, stock control, transport etc.
satisfaction: A product feature is a by diversification or retrenchment.  Operations: Transform these various inputs into the final product or service: machining,
component of a product that satisfies a packaging, assembly, testing etc. covert raw materials into finished goods.
consumer need. Features determine  Outbound logistics: Collect, store and distribute the product to customers. For tangible products
product pricing, and businesses alter this would be warehousing, materials handling, transport, etc. In the case of services, it may be
features during the development process to more concerned with arrangements for bringing customers to the service if it is a fixed location
optimise the user experience. Products (e.g. sports events).
should be able to provide value satisfaction  Marketing & sales: Provide the means whereby consumers/users are made aware of the
to the customers for whom they are meant.
product/service and are able to purchase it. This would include sales administration, advertising,
Features of the product will distinguish it in
selling and so on.
terms of its function, design, quality and
experience.  Service: are all those activities, which enhance or maintain the value of a product/service, such
 Product is pivotal for business: as installation, repair, training and spares Compiled By:CA Sahil Grover
The product is at the centre of business
around which all strategic activities revolve. SECONDARY ACTIVITIES
The product enables production, quality,  Procurement: Refers to the processes for acquiring the various resource inputs to the primary
sales, marketing, logistics and other - The main advantage of PLC is that it can be activities. As such, it occurs in many parts of the organization.
business processes. Product is the driving used to diagnose a portfolio of products (or  Technology development: All value activities have a 'technology', even if it is simply know-how.
force behind business activities. businesses) in order to establish the stage at The key technologies may be concerned directly with the product (e.g. R&D product design) or
 A product has a useful life: which each of them exists. with processes (e.g. process development) or with a particular resource (e.g. raw materials
Every product has a usable life after which it - Particular attention is to be paid on the improvements).
must be replaced, as well as a life cycle after businesses that are in the declining stage.  Human resource management: It is concerned with those activities involved in recruiting,
which it is to be reinvented or may cease to Depending on the diagnosis, appropriate managing, training, developing and rewarding people within the organization
exist. For example fixed line telephone
strategic choice can be made  Infrastructure: The systems of planning, finance, quality control, information management, etc.
instruments have largely been replaced by are crucially important to an organization's performance in its primary activities. Infrastructure
mobile phones. also consists of the structures and routines of the organization which sustain its culture.
 Chapter 2 –Strategic Analysis-External Environment (Chart 2.5)
VALUE CREATION INDUSTRY ENVIRONMENT ANALYSIS
- The concept of value creation was introduced primarily for COMPETITIVE LANDSCAPE COMPETITIVE STRATEGY
providing products and services to the customers with
more worth. - Business analysis which identifies competitors, either direct or - The competitive strategy of a business is concerned with how to
- Value is measured by a product’s features, quality, indirect. compete in the business areas in which the organization operates.
availability, durability, performance and by its services - It is about identifying and understanding the competitors and at - In other words, competitive strategy defines how a firm expects to
for which customers are willing to pay. the same time, it permits the comprehension of their vision, create and sustain a competitive advantage over competitors
- Value creation is an activity or performance by the firm mission, core values, niche market, strengths and weaknesses. - Having a competitive advantage over competitors means being
to create value that increases the worth of goods, - Its understanding requires an application of “competitive more profitable in the long run.
services, business processes or even the whole business intelligence”. - The competitive strategy of a firm within a certain business field is
system. - An in-depth investigation and analysis of a firm’s competition analysed using two criteria: the creation of competitive advantage
- Ultimately, this concept gives business a competitive allows it to allows to assess strengths & weaknesses of and the protection of competitive advantage.
advantage in the industry and helps them earn above competitors & choose effective strategies that will improve - An important component of industry and competitive analysis
average profits/returns. Competitive advantage leads to competitive advantage involves delving into the industry’s competitive process to
superior profitability. - Thus, understanding the competitive landscape is important to discover what the main sources of competitive pressure are and
- At the most basic level, how profitable a company build upon a competitive advantage how strong each competitive force is.
becomes depends on three factors: Steps To Understand the Competitive Landscape - Porter’s five forces model is useful in understanding the
1) the value customers place on the company’s competition Compiled By:CA Sahil Grover
products; i. Identify the competitor: The first step to understand the
competitive landscape is to identify the competitors in the firm’s EXPERIENCE CURVE
2) the price that a company charges for its
products; and industry and have actual data about their respective market
share This answers the question: ‘Who are the competitors?’ - Experience Curve is akin to a learning curve which explains the
3) the costs of creating those products.
ii. Understand the competitors: Once the competitors have been efficiency increase gained by workers through repetitive productive
- The value customers place on a product reflects the
utility they get from a product—the happiness or identified, the strategist can use market research report, internet, work.
satisfaction gained from consuming or owning the newspapers, social media, industry reports, and various other - Experience curve is based on commonly observed phenomenon that
product. Utility must be distinguished from price. sources to understand the products and services offered by them unit costs decline as firm accumulates experience in terms of
Utility is something that customers get from a product. in different markets This answers the question: ‘What are their cumulative volume of production. As a business grows, it
It is a function of the attributes of the product, such as product and services?’ understands the complexities and benefits from its experiences
its performance, design, quality, and point-of-sale and iii. Determine the strengths of the competitors: - The implication is that larger firms in an industry would tend to
after-sale service What are the strengths of the competitors? What do they do have lower unit costs as compared to those for smaller companies,
- It is basically the value consumer wants to pay, over well? Do they offer great products? This answers the questions: thereby gaining a competitive cost advantage.
and above the price that the business wants to charge  What are their financial positions? - It results from variety of factors such as learning effects, economies
from the consumer. This excess amount is called value  What gives them cost and price advantage? of scale, product redesign & technological improvements in
creation, wherein the consumers values the product or  What are they likely to do next? production.
service more than it actually costs them  How strong is their distribution network? - Experience Curve has following features:
 What are their human resource strengths?  As business organisation grow, they gain experience.
iv. Determine the weaknesses of the competitors:
 Experience may provide an advantage over the competition.
Identify the areas where the competitor is lacking or is weak.
Experience is a key barrier to entry
Weaknesses (and strengths) can be identified by going through
consumer reports and reviews appearing in various media.  Large and successful organisation possess stronger
Financial strength & weakness can always be learnt from annual “experience effect”.
reports. This answers the question: ‘Where are they lacking?’ - The concept of experience curve is relevant for a number of areas
v. Put all of the information together: in strategic management. For instance,
At this stage, the strategist should put together all information  Experience curve is considered a barrier for new firms
about competitors and draw inference about what they are not contemplating entry in an industry.
offering and what the firm can do to fill in the gaps. The strategist  It is also used to build market share and discourage
can also know the areas which need to be strengthen by the firm. competition
This answers the questions:
- In the contemporary Indian two wheeler market, the experience
- What will the business do with this information?
- What improvements does the firm need to make? curve phenomenon seems to be working in Maruti Suzuki.
- How can the firm exploit the weaknesses of competitors? Compiled By:CA Sahil Grover
 Chapter 2 –Strategic Analysis-External Environment (Chart 2.6)
PORTER'S FIVE FORCES MODEL - COMPETITIVE ANALYSIS
- Every business operates in the competitive environment. Competitive state of an industry applies a strong influence on how firms develop their strategies. To gain a deep understanding of a
company’s industry and competitive environment, managers do not need to gather all the information they can find and waste a lot of time digesting it. Rather, the task is much more focused.
- A powerful and widely used tool for systematically diagnosing the significant competitive pressures in a market and assessing the strength and importance of each is the five-force model of
competition. This model holds that the state of competition in an industry is a composite of competitive pressures operating in five areas of the overall market.
- The strategists can use the five-force model to determine what competition is like in a given industry is to build the picture of competition in three steps:
Step 1: Identify the specific competitive pressures associated with each of the five forces.
Step 2: Evaluate how strong the pressures comprising each of the five forces are (fierce, strong, moderate to normal, or weak). Compiled By:CA Sahil Grover
Step 3: Determine whether the collective strength of the five competitive forces is conducive to earning attractive profits.
- The interrelationship among these five forces gives each industry its own particular competitive environment.- By applying Porter’s five forces model of industry attractiveness to their own
industries, the manager can gauge their own firm’s strengths, weaknesses, and future opportunities.

Threat of new Entrants Bargaining Power of Customers Bargaining Power of Rivalry among Current Players Threats from Substitutes
Suppliers
 New Entrants- - It Influences not only the prices that the
- Quite often suppliers, too, - The rivalry among existing players is - Substitute products are a
- Are a powerful source of producer can charge but also influences in
exercise considerable quite obvious. This is what is latent source of competition
competition. many cases, costs and investments of the
bargaining power over normally understood as in an industry. In many cases
- place a limit on prices and affect the producer because powerful buyers usually
companies. competition. they become a major
profitability of existing players. bargain for better services which involve
- The more specialised the - The intensity of rivalry in an constituent of competition.
- reduce industry profitability because costs and investment on the part of the
offering from the supplier, industry is a significant determinant - Substitute products offering
they add new production capacity producer.
greater is his clout. of industry attractiveness and a price advantage and/or
leading to increase supply of the - A powerful force that influences the
- If the suppliers are also profitability. The intensity of rivalry performance improvement
product even at a lower price and can competitive condition of the industry. This
limited in number they can influence the costs of suppliers, to the consumer can
substantially erode existing firm’s force will become heavier depending on
stand a still better chance distribution, and of attracting drastically alter the
market share position. the possibilities of the buyers forming
to exhibit their bargaining customers and thus directly affect competitive character of an
 The new capacity and product range groups or cartels. Mostly, this is a
power. the profitability. industry. For example, coir
they bring in throw up new phenomenon seen in industrial products
- The bargaining power of - The more intensive the rivalry, the suffered at the hands of
competitive pressure. And the bigger - Such collusion on the part of buyers can be
suppliers determines the less attractive is the industry. synthetic fibre.
the new entrant, the more severe the a major force in some industries. Quite
cost of raw materials and Rivalry among competitors tends to - Wherever substantial
competitive effect often, users of industrial products come
other inputs of the be cutthroat and industry investment in R&D is taking
 To discourage new entrants, existing together formally or informally and exert
industry and, therefore, profitability low when place, threats from
firms can try to raise barriers to entry. pressure on the producer in matters such as
industry attractiveness i. An industry has no clear leader, substitute products can be
price, quality and delivery. Bargaining
Common barriers to entry and profitability thus there is continuous war for expected. Substitutes, too,
power of buyers is particularly evident
- Suppliers can command leadership usually limit the prices and
when:
Barriers to entry represent economic bargaining power over a ii. Competitors in the industry are profits in an industry.
i. Buyers have full knowledge of the sources
forces (or ‘hurdles’) that slow down or firm when: numerous. - The threat of substitutes is
of products and their substitutes. Thus,
impede entry by other firms. Common i. Their products are iii. Competitors operate with high great in many high tech
challenging the price being charged by
barriers to entry include: crucial to the buyer and fixed costs. industries.
producers
i. Capital requirements substitutes are not iv. Thus, aiming for better Return on - The threat of substitutes is
ii. They spend a lot of money on the
available. Investment with more fierce great in many high tech
ii. Economies of scale industry’s products i.e. they are big
iii. Product differentiation ii. They can erect high tactics. industries as well.
buyers. Thus, in a position to demand
iv. Switching costs switching costs. v. Competitors face high exit - To predict profit pressure
favourable terms of contract.
iii. They are more barriers. from this source, firms must
v. Brand identity iii. The industry’s product is not perceived as
concentrated than their vi. Competitors have little search for products that
vi. Access to distribution channels critical to the buyer’s needs and buyers
vii. Possibility of aggressive buyers. Less suppliers, opportunity to differentiate their perform the same, or nearly
are more concentrated than firms
retaliation by existing players more buyers offerings. the same, function as their
supplying the product. They can easily
vii. The industry faces slow or existing products.
switch to the substitutes available.
Compiled By:CA Sahil Grover diminished growth
 Chapter 2 –Strategic Analysis-External Environment (Chart 2.7)
COMMON BARRIERS TO ENTRY FACTORS AFFECTING INTENSITY OF ATTRACTIVENESS OF INDUSTRY
RIVALRY AMONG COMPETITORS - The industry analysis culminates into identification of various issues and draw
To discourage new entrants, existing firms can try to
raise barriers to entry. Barriers to entry represent conclusions about the relative attractiveness or unattractiveness of the industry, both
i. Industry Leader: A strong industry leader can near-term and long-term. Strategists assess the industry outlook carefully, deciding
economic forces (or ‘hurdles’) that slow down or discourage price wars by disciplining initiators whether industry and competitive conditions present an attractive business
impede entry by other firms. Common barriers to entry of such activity. Because of its greater financial opportunity for the organisation or whether its growth and profit prospects are
include: resources, a leader can generally outlast gloomy. The important factors on which the management may base such conclusions
i. Capital Requirements: When a large amount of smaller rivals in a price war. Knowing this, include:
capital is required to enter an industry, firms lacking smaller rivals often avoid initiating such a  The industry’s growth potential, is it futuristically viable?
funds are effectively barred from the industry, thus contest.  Whether competition currently permits adequate profitability and whether
enhancing the profitability of existing firms in the ii. Number of Competitors: Even when an industry competitive forces will become stronger or weaker?
industry  Whether industry profitability will be favourably or unfavorably affected by the
leader exists, the leader’s ability to exert prevailing driving forces?
ii. Economies of Scale: Many industries are pricing discipline diminishes with the increased
characterized by economic activities driven by  The competitive position of an organisation in the industry and whether its
number of rivals in the industry as position is likely to grow stronger or weaker
economies of scale. Economies of scale refer to the  The potential to capitalize on the vulnerabilities of weaker rivals

Compiled By:CA Sahil Grover

communicating expectations to players
decline in the per-unit cost of production (or other becomes more difficult.  Whether the company is able to defend against or counteract the factors that
activity) as volume grows. A large firm that enjoys iii. Fixed Costs: When rivals operate with high fixed make the industry unattractive?
economies of scale can produce high volumes of costs, they feel strong motivation to utilize their  The degrees of risk and uncertainty in the industry’s future.
goods at successively lower costs. This tends to capacity and therefore are inclined to cut prices  The severity of problems confronting the industry as a whole.
discourage new entrants - As a general proposition, if an industry’s overall profit prospects are above average,
when they have excess capacity. Price cutting the industry can be considered attractive; if its profit prospects are below average, it is
iii. Product Differentiation: Product differentiation causes profitability to fall for all firms in the
refers to the physical or perceptual differences, or unattractive.
industry as firms seek to produce more to cover - An assessment that the industry is fundamentally attractive typically suggests that
enhancements, that make a product special or costs that must be paid regardless of industry current industry participants employ strategies calculated to strengthen their long
unique in the eyes of customers. Firms in the demand. For this reason, profitability tends to term competitive positions in the business, expanding sales efforts and investing in
personal care products and cosmetics industries be lower in industries (for example, airline, additional facilities and equipment as needed.
actively engage in product differentiation to enhance telecommunications) characterized by high fixed - If the industry and competitive situation is judged relatively unattractive,
their products’ features. Differentiation works to costs.  more successful industry participants may choose to invest cautiously, look for
reinforce entry barriers because the cost of creating iv. Exit Barriers: Rivalry among competitors ways to protect their long-term competitiveness and profitability, and perhaps
genuine product differences may be too high for the acquire smaller firms if the price is right; over the longer term, strong companies
declines if some competitors leave an industry. consider diversification into more attractive businesses.
new entrants Profitability therefore tends to be higher in
iv. Switching Costs: To make a switch, buyers may need  Weak companies in unattractive industries may consider merging with a rival to
industries with few exit barriers. When barriers bolster market share and profitability or, begin looking outside the industry for
to test a new firm’s product, negotiate new purchase to exit are powerful, competitors desiring exit attractive diversification opportunities.
contracts, and train personnel to use the equipment, may refrain from leaving. Their continued
or modify facilities for product use. Buyers often presence in an industry exerts downward KEY FACTORS FOR COMPETITIVE SUCCESS
incur substantial financial (and psychological) costs in pressure on the profitability of all competitors.
switching between firms. When such switching costs The crux is, if an organisation cannot exit, it - An industry's Key Success Factors (KSFs) are those things that most affect industry
are high, buyers are often reluctant to change. members' ability to prosper in the marketplace-the particular strategy elements,
would fight for its survival, and thus, intensify product attributes, resources, competencies, competitive capabilities, and business
v. Brand Identity: The brand identity of products or competition.
services offered by existing firms can serve as outcomes that spell the difference between profit and loss and, ultimately, between
v. Product Differentiation: Firms can sometimes competitive success or failure.
another entry barrier. Brand identity is particularl insulate themselves from price wars by - KSFs are the prerequisites for industry success.KSFs are the factors that shape
important for infrequently purchased products that differentiating their products from those of whether a company will be financially and competitively successful.
carry a high unit cost to the buyer. New entrants rivals. As a consequence, profitability tends to - Managers need to understand the industry situation well enough to know what is
often encounter significant difficulties in building up be higher in industries that offer opportunity for more important to competitive success and what is less important. Misdiagnosing the
the brand identity, because to do so they must differentiation. Profitability tends to be lower in industry factors critical to long-term competitive success greatly raises the risk of a
commit substantial resources over a long period. industries involving undifferentiated misdirected strategy.
vi. Access to Distribution Channels: The unavailability of - KSFs vary from industry to industry and even from time to time within the same
commodities such as, memory chips, natural industry as driving forces and competitive conditions change.
distribution channels for new entrants poses another resources, processed metals and railroads. For
significant entry barrier. Often, existing firms have - The purpose of identifying KSFs is to make judgments about what things are more
Example, ONGC & Indian Oil, cannot offer major important to competitive success and what things are less important.
significant influence over the distribution channels product differentiation in their products. Hence,
and can retard or impede their use by new firms. How to identify the KSF?
the level of competition would always be high.
vii. Possibility of Aggressive Retaliation: Sometimes the vi. Slow Growth: Industries whose growth is The answers to three questions help identify an industry's key success factors:
mere threat of aggressive retaliation by incumbents slowing down tend to face more intense rivalry.  On what basis do customers choose between the competing brands of sellers?
can deter entry by other firms into an existing What product attributes are crucial to sales?
As industry growth slows, rivals must often fight  What resources and competitive capabilities does a seller need to have to be
industry. For example, introduction of products by a harder to grow or even to keep their existing
new firm may lead incumbents firms to reduce their competitively successful better human capital, quality of product or quantity of
market share. The resulting intensive rivalry product, cost of service, etc.?
product prices and increase their advertising tends to reduce profitability for all.  What does it take for sellers to achieve a sustainable competitive advantage
budgets. something that can be sustained for long term?
 Chapter 3 – Strategic Analysis-Internal Environment (Chart 3.1)
INTERNAL UNDERSTANDING KEY STAKEHOLDERS
ENVIRONMENT-
MEANING MEANING OF STAKEHOLDERS MENDELOW’S MATRIX (STAKEHOLDER ANALYSIS MATRIX)
- Stakeholders can be defined as any - The Mendelow Stakeholder Developing a Grid of Stakeholders
- Internal environment refers person/group of individuals, internal or matrix (also known as the
to the sum total of external, that has an interest in, or Stakeholder Analysis matrix - Mendelow’s Matrix is based on Power and Interest. It suggests to identify which
 people – individuals and impact on the business or corporate and the Power-Interest matrix) stakeholders are incredibly important.
groups, stakeholders, strategy of the organisation. is a simple framework to help - Metrics to define the importance being High Power and High Interest which
 processes- input- - They have the power to influence the manage key stakeholders. management would need to manage closely, while investing a lot of time and resources.
throughput-output, strategy or performance of that - Managing a project is For example, the CEO is likely to have more Power to influence the work and also high
 physical infrastructure- organisation. extremely complicated as it interest in it being successful. Keeping them informed almost daily should be a priority.
space, equipment and - Generally, stakeholders include involves managing the - However, those stakeholders with low power and low interest like research institutes
physical conditions of management, employees, competing interests of various seeking an organisation data should be monitored rarely and minimum effort expended
shareholders, customers and vendors. stakeholders. Who needs to on them in terms of time and money
work,
 administrative apparatus- Additionally, other individuals and know what and when, who
lines of authority & power, groups, such as governments, labour needs to give their feedback
unions and local groups, which are and who has the final approval

Compiled By:CA Sahil Grover

responsibility,
often considered as stakeholders can be confusing. However,
accountability and
depending on their impact on the managing stakeholders is
 organizational culture critical to the success of a
particular organisation.
intangible aspects of project. This is where a
- Each stakeholder or stakeholder group
working- relationships, will be affected by the business stakeholder analysis matrix i.e.
philosophy, values, ethics- strategy that the organisation chooses Mendelow’s Matrix can help.
that shape an and implements. - Mendelow suggests that one
organization’s identity. should analyse stakeholder
- In other words, the internal IDENTIFYING THE DIFFERENT groups based on
environment is specific to STAKEHOLDERS  Power (the ability to
each organisation. influence org.strategy or
- It is based on its structure - It is important to first identify the key resources) and In above figure, we see categorisation of stakeholders into 4 groups by Mendelow’s;
and business model and stakeholders.  Interest (how interested  KEEP SATISFIED Stakeholders: High power, less interested people –Organisation should
includes all stakeholders like - Each stakeholder exerts a different they are in the organisation put in enough work with these people to keep them satisfied with their intended
top management, investors, level of influence and can have succeeding). information on a regular basis. For example, banks, government, customers, etc.
differing levels of interest in the - Mendelow suggests that all  KEY PLAYERS Stakeholders: High power, highly interested people -Organisation’s aim
employees, board of
organisation. stakeholders may seem to should be to fully engage this group of stakeholders, making the greatest efforts to
directors, investors, etc.
- For example, an organisation involved have lots of power and satisfy them, take their advice, build actions and keep them informed with all
- Internal environment also in healthcare innovation needs to have
involves understanding of organisation may hope they information on a regular basis. For example, Shareholders, CEO, BOD, etc.
a long-term perspective about its would have lots of interest  LOW PRIORITY Stakeholders: Low power, less interested people –
the ethics, principles, work return on investment (ROI) as there too. But in reality, some Organisation should only monitor them with no actions to satisfy their expectations.
environment, employee may be a long time between stakeholders will hold more Strategically, minimal efforts should be spent on this group of stakeholders while
friendliness, and confidence investment into research timelines and keeping an eye to check if their levels of interest or power change. For example,
Power than others, and some
of investors and other a commercial outcome. While, stakeholders will have more business magazines, media houses, etc.
philosophical and cultural shareholders, whose main concern is Interest than others. For  KEEP INFORMED Stakeholders: Low power, highly interested people -
aspects of business, which quick profits, may be more hesitant to example, a big shareholder is Organisation should adequately inform this group of people and communicate with
aim for the success of the support the organisation spending likely to have high power and them to ensure that no major issues arise. This audiences can also help with real time
organisation. funds on something that they may not high interest in the feedbacks and areas of improvement for an organisation. For example, employees,
- Thus Strategic Analysis is see the return in the near future. organisation, whereas a big vendors, suppliers, legal experts, etc.
equally important when it - Since the expectations of key competitor would have high An important thing that strategists should be aware of, is that environment is highly
comes to internal stakeholders can influence the power to impact strategy, but dynamic and certain things might happen that can cause stakeholders to suddenly move
environment assessment. organisation’s strategy, a clash of potentially less Interest in between quadrants. For example, an organisation might inadvertently contravene a
objectives may have unfavourable success of rival organisation regulation, say GST compliance which would cause the regulatory body i.e. the Indirect
consequences for the organisation.
Compiled By:CA Sahil Grover Taxes Department to move from High Power, Low Interest to High Power, High Interest.
 Chapter 3 – Strategic Analysis-Internal Environment (Chart 3.2)
STRATEGIC DRIVERS
An important aspect of internal analysis is assessing the current performance of the business. And in assessing current performance, the strategic drivers consider what differentiates an organisation
from its competitors. It involves analysis of the key markets in which the organisation operates, as well as its key customers, the products and services it provides, the channels in which the products
or services are delivered, and the organisation’s competitive advantage. There can be varied ways to assess the current performance of a business but in general, the key strategic drivers of an
organisation include: 1) industry and markets, 2) customers, 3) products/services, 4) channels Compiled By:CA Sahil Grover
1. INDUSTRY AND MARKETS 2. CUSTOMERS

Industry and Markets Analysing Industry and Markets MEANING CUSTOMER ANALYSIS
In terms of the internal environment, Industry and market analysis is extremely important to identify - A customer is a person or business that buys - Customer analysis is an essential
it is very important for an one’s position as compared to the competitors, who can be of products or services from another organisation. marketing component of any
organisation to understand its equal size and value, or bigger in size and value or even smaller - Customers are important because they provide strategic business plan.
relative position in the industry and and newer. A tool to study the market positions of rival companies revenue and organisations cannot exist without
- It identifies target clients,
in the market in which it operates. by grouping them into like positions is strategic group mapping. them.
determines their wants, and then
There are many ways to do this but - Understanding the different types of customers to
STRATEGIC GROUP MAPPING defines how the product meets
require analysis and understanding whom the organisation’s products/services are
- It is useful analytical tool for comparing the market positions of sold or provided, is not only important but also those needs. Thus, it involves the
of the environment. examination and evaluation of
INDUSTRY each firm separately or for grouping them into like positions the first step in deciding the product/service.
when an industry has so many competitors that it is not practical - Different customers may have different needs and consumer needs, desires, and wants.
- Similar companies are grouped - Customer analysis includes
together into industries. Basically,
to examine each one in-depth. require different sales models or distribution
- A strategic group consists of those rival firms with similar channels  the administration of customer
industry grouping is based on the surveys,
competitive approaches and positions in the market. - For example of a headphones brand - the
primary product that a company
- Companies in the same strategic group can resemble one another customers can be grouped under high value  the study of consumer data,
makes or sells.
in any of the several ways: they may have comparable product- buyers, medium value buyers and low value  the evaluation of market
- For example, Maruti, Mahindra, buyers based on the amount they are willing to
line breadth, sell in the same price/quality range, emphasize the positioning strategies,
Tata Motors, TVS, Bajaj Auto, are all
same distribution channels or offer buyers similar services and spend on a product  development of customer
selling automotives as their primary
technical assistance. DIFFERENCE BETWEEN CUSTOMER AND profiles, and
product and thus categorised into
- An industry contains only one strategic group when all sellers CONSUMER  the selection of the best market
Automotive Industry. Similarly,
pursue essentially identical strategies and have comparable segmentation techniques.
Zara, H&M, Marks & Spencer, - The terms customer and consumer are practically
Pantaloons, Westside, Uniqlo, are market positions. At the other extreme, there are as many - Using the facts generated by
synonymous and are frequently used
all selling apparels and accessories strategic groups as there are competitors when each rival pursues customer analysis, an effective
interchangeably. There is, however, a thin
for the youth, and thus categorised a distinctively different competitive approach and occupies a distinction. profiling of customers may be
under apparels industry. substantially different competitive position in the marketplace. - Individuals or businesses that consume or utilise established. Customer profiles can
- The procedure for constructing a strategic group map and products and services are referred to as reveal demographic information
MARKET deciding which firms belong in which strategic group is about customers.
consumers. Customers are the purchasers of
- A market is defined as the sum total straightforward: - A number of parties, including
products and services in the economy,
of all the buyers and sellers in the i. Identify the competitive characteristics that differentiate firms buyers, sellers, distributors,
area or region under consideration. - A customer can be a consumer and vice versa. But
in the industry typical variables are price/quality range (high, for strategy teams especially marketing teams it is salespeople, managers,
The value, cost and price of items wholesalers, retailers, suppliers,
medium, low); geographic coverage (local, regional, national, important to understand the customer and
traded are as per forces of supply
global); degree of vertical integration (none, partial, full); consumer separately. and creditors, can assist in
and demand in a market.
product-line breadth (wide, narrow); use of distribution - From a pricing perspective - the customer is of gathering information to
- A market is a place for interested
parties, buyers and sellers, where channels (one, some, all); and degree of service offered (no- more importance and from value creation and effectively assess the needs and
items and services can be frills, limited, full). design/usability, consumer needs to be the kept desires of consumers.
exchanged for a price. ii. Plot the firms on a two-variable map using pairs of these at the center of decision making. - Successful businesses constantly
- The market might be physical, such differentiating characteristics. - For example, baby diapers are bought by parents monitor the behaviour of existing
as a departmental store where iii. Assign firms that fall in about the same strategy space to the (customers) who are willing to pay higher price for and prospective customers
people engage in person. They may same strategic group. higher quality, while the real consumers are the
also be virtual, such as an online iv. Draw circles around each strategic group making the circles babies, who are more concerned about the
market where buyers and sellers do proportional to the size of the group's respective share of total comfort and easiness of the diaper. If babies do Compiled By:CA Sahil Grover
not meet in person but tools of industry sales revenue. not accept the product i.e. if consumers aren’t
technology to strike a deal. satisfied, it is difficult to retain the buyer i.e.
customers as well.
 Chapter 3 – Strategic Analysis-Internal Environment (Chart 3.3)
CUSTOMER BEHAVIOUR 3. PRODUCT / SERVICES Compiled By:CA Sahil Grover
- Customer behaviour moves beyond the identification of customers to explain how
they purchase products. - Products and services are closely linked and PRICING OF NEW PRODUCTS
- It examines elements like shopping frequency, product preferences, and the interrelated with the markets that the For a new product, pricing strategies for entering a
perception of your marketing, sales, and service offerings. organisation wants to serve. market need to be designed and for that matter at
- Understanding the behaviours of customers enables businesses to establish effective - In this component of the strategic drivers’ analysis, least three objectives must be kept in mind:
marketing and advertising campaigns, provide products and services that meet their business identifies the key products/ services that  Have customer-centric approach while making a
needs, and retain customers for repeat sales. the organisation offers and how those product.
- Consumer behaviour may be influenced by a number of things. These elements can products/services are performing.  Produce sufficient returns through a reasonable
be categorised into the following four conceptual domains: - It attempts to answer the general question: What margin over cost.
 External Influences: External influences, like advertisement, peer recommendations
business are we in and what should be done to win  Increasing market share
or social norms, have a direct impact on the psychological and internal processes
over competition in each product/service we
that influence various consumer decisions. The focus of external effects is on the
numerous elements that have an impact on customers as they choose which needs serve. MARKETING OF PRODUCT AND SERVICES
to satisfy and which products to use to do so. These aspects are divided into two - Product stands for the combination of “goods-and- - The term "marketing" encompasses a wide range of
groups – the company's marketing efforts and the numerous environmental services” that the company offers to the target operations, including research, designing, pricing,
elements. market. promotion, transportation, and distribution.
 Internal Influences: Internal processes are psychological factors internal to customer - Strategies are needed for managing existing - Often market activities are categorised and
and affect consumer decision making. Consumer behaviour is influenced by a product over time, adding new ones and dropping explained in terms of four Ps of marketing –
combination of internal and external influences, including motivation and attitudes. failed products. Strategic decisions must also be product, place, pricing, and promotion.
 Decision Making: A rational consumer, as decision maker would seek information made regarding branding, packaging and other - These four kinds of marketing activities help
about potential decisions and carefully integrate this with the existing knowledge product features such as warranties. marketers identify customer needs so they may
about the product. After weighing the advantages & disadvantages of each option, meet their demands and deliver satisfaction.
PRODUCT DIFFERENTIATION
they would make a decision. The stages of decision making process can be described - Delivering the best customer experience and
as: - Products can also be differentiated on the basis of establishing, maintaining, and growing relationships
- Problem recognition, i.e., identify an existing need or desire that is unfulfilled size, shape, colour, packaging, brand names, after- with customers are the main goals of marketing.
- Search for desirable alternative and list them sales service and so on.
- Seeking information on available alternatives and weighing their pros and cons. - Organizations seek to hammer into customers’ ORIENTATION OF PRODUCT MARKETING
- Make a final choice minds that their products are different from - The orientation of product marketing has evolved
This behaviour of making decisions happens very frequently. However, it mostly others. It does not matter whether the and acquired different dimensions centered around
applies when the purchase is one that is significant to the customer, such as when differentiation is real or imaginary. product, production, sales and customers.
the product could have a significant influence on their health or self-image - Quite often the differentiation is psychological  Businesses that have product orientation think
 Post-decision Processes: After making a decision and purchasing a product, the final that buyers will choose those products that have
rather than physical. It is enough if customers are
phase in the decision-making process is evaluating the outcome. The consumer's the best quality, performance, design, or
persuaded to believe that the marketer’s product
reaction may vary depending upon the satisfaction. While a happy customer may features.
is different from others.
make repeat purchase and recommend to others, customer with dissonance will  Next, there are production oriented businesses
neither purchase the product again nor recommend it to others. - For example, Shampoos with different branding that believe that customers choose low price
namely Head & Shoulders, Olay, Old Spice, products.
Pantene are all produced by the same company  Sales-oriented businesses believe that if they
Compiled By:CA Sahil Grover P&G. spend enough money on advertisement, sales
- Organizations formalize product differentiation and promotion, customers can be persuaded to
through designating ‘brand names’ to their make a purchase.
respective products. These are generally  In a customer or market-oriented approach
reinforced with legal sanction and protection. strategists prioritise efforts on their customers.
- Brands enable customers to identify the product In order to create better value propositions for
and the organization behind it. The products and customers, businesses gather, disseminate, and
even firms’ image is built around brands through use customer and competitive information. A
advertising and other promotional strategies. customer centric business is one that
- Customers tend to develop strong brand loyalty continuously learn from its customers' needs
and market dynamics. In the present times
for a particular product over a period of time.
success, many business lies in customer centric
approaches.
 Chapter 3 – Strategic Analysis-Internal Environment (Chart 3.4) Compiled By:CA Sahil Grover
MARKETING STRATEGY 4. CHANNELS
1) Social Marketing: It refers to design, implementation, and control of programs seeking to - Channels are the distribution system by which an organisation distributes its product or provides
increase the acceptability of a social ideas, cause, or practice among a target group to bring in
its service.
social change. For instance, the publicity campaign for prohibition of smoking in Delhi explained
the place where one can and can't smoke in Delhi and also indicates that smoking is injurious to - Some examples of channel used by companies distribute their products and services;
health.  Lakme - sells its products via retail stores, intermediary stores (like Nykaa, Westside, and
2) Augmented Marketing: This type of marketing involves additional customer services and Reliance Trends), as well as online mode like amazon, flipkart, nykaa online and its own
benefits built around the core and actual products that is being offered. It can be in form of website.
introduction of hi-tech services like movies on demand, on-line computer repair services,  Boat Headphones - only online via e-commerce platforms like flipkart and amazon
secretarial services, etc. Such innovative offerings provide a set of benefits that promise to  Coca Cola - retail shops across the nation, in each district, each town as well as online mode via
elevate customer service to unprecedented levels.
dunzo, blinkit, etc.
3) Direct Marketing: Marketing through various advertising media that interact directly with
consumers, generally calling for the consumer to make a direct response Direct marketing All the above are the channels via which companies sell their products and services to the
includes catalogue selling, mail, tele-computing, electronic marketing, shopping, and TV customers.
shopping. - The wider and stronger the channel the better position a business has to fight and win over
4) Relationship Marketing: The process of creating, maintaining, and enhancing strong, value-laden competition.
relationships with customers and other stakeholder For example, Airlines offer special lounges at - Having robust channels of business distribution help keep new players away from entering the
major airports for frequent flyers. Thus, providing special benefits to select customers to strength industry, thus acting as barriers to entry.
bonds It will go a long way in building relationships. - There are typically three channels that should be considered: sales channel, product channel and
5) Services Marketing: It is applying the concepts, tools, and techniques, of marketing to services.
service channel.
Services is any activity or benefit that one party can offer to another that is essentially intangible
and does not result in the banking, savings, retailing, educational or utilities. This marketing  The sales channel: These are the intermediaries involved in selling the product through each
requires different marketing strategies since it has peculiar characteristics of its own such as channel and ultimately to the end user. The key question is: Who needs to sell to whom for
inseparability, variability etc. your product to be sold to your end user? For example, many fashion designers use agencies to
6) Person Marketing: People are also marketed. Person marketing consists of activities undertaken sell their products to retail organisations, so that consumers can access them.
to create, maintain or change attitudes or behaviour towards particular people. For example,  The product channel: The product channel focuses on the series of intermediaries who
politicians, sports stars, film stars, professional i.e., market themselves to get votes, or to physically handle the product on its path from its producer to the end user. This is true of
promote their careers and income. Australia Post, who delivers and distributes many online purchases between the seller and
7) Organization Marketing: It consists of activities undertaken to create, maintain, or change
purchaser when using eBay and other online stores
attitudes and behavior of target audiences towards an organization. Both profit and non-profit
organizations practice organization marketing.  The service channel: The service channel refers to the entities that provide necessary services to
8) Place Marketing: Place marketing involves activities undertaken to create, maintain, or change support the product, as it moves through the sales channel and after purchase by the end user.
attitudes and behaviour towards particular places say, business sites marketing, tourism The service channel is an important consideration for products that are complex in terms of
marketing. installation or customer assistance. For example, a Bosch dishwasher may be sold in a Bosch
9) Enlightened Marketing: It is a marketing philosophy holding that a company's marketing should showroom, and then once sold it is installed by a Bosch contracted plumber.
support the best long-run performance of the marketing system that is beyond the prevailing
mindset; its five principles include customer-oriented marketing, innovative marketing, value - Channel analysis is important when the business strategy is to scale up and expand beyond the
marketing, sense-of-mission marketing, and societal marketing.
current geographies and markets.
10) Differential Marketing: A market-coverage strategy in which a firm decides to target several
market segments and designs separate offer for each. Differentiation can be achieved through - When a business plans to grow to newer markets, they need to develop or leverage existing
variation in name, colour, size, brand names etc. For example, Hindustan Unilever Limited has channels to get to new customers.
Lifebuoy, Lux and Rexona in popular segment and Dove and Pears in premium segment - Thus, analysis of channels that suit one’s products and customers is of utmost importance.
11) Synchro-marketing: When the demand for the product is irregular due to season, some parts of - For example - if a healthcare brand wants to reach out to elderly customers – they need to be more
the day, or on hour basis, Causing idle capacity or overworked capacities, synchro-marketing can focused on offline mode of business where agents reach out physically to the elderly as most of
be used to find ways to alter the Same pattern of demand through flexible pricing, promotion, their potential customers (i.e. the old aged) are not active on smartphones.
and other incentives. For example, products such as movie tickets can be sold at lower price over
- Another example being - if a new drink brand wants to acquire customers – they need to place their
week days to generate demand
12) Concentrated Marketing: It is a market-coverage strategy in which a firm goes after a large share products via every channel possible to get more attraction from customers like placing their drinks
of one or few sub-markets. It can also take the form of Niche marketing. in stores, and shops alike, offering competitive campaigns to create awareness via online modes
13) Demarketing: It includes marketing strategies to reduce demand temporarily or permanently-the (social media) and so and so forth. Thus, channels, the partners in growth, play a crucial role in
aim is not to destroy demand, but only to reduce or shift it. This happens when there is overfull internal strategic alignment.
Compiled By:CA Sahil Grover
demand. For example, buses are overloaded in the morning and evening, roads are busy for most
of times, zoological parks are over-crowded on Saturdays, Sundays and holidays. Here de-
marketing can be applied to regulate demand.
 Chapter 3 – Strategic Analysis-Internal Environment (Chart 3.5)
CORE COMPETENCE COMBINING EXTERNAL AND INTERNAL ANALYSIS
- Core Competencies are capabilities that serve as a source of competitive advantage for a firm over its (SWOT ANALYSIS)
rivals. - SWOT analysis is a planning tool used by organizations for evolving strategic options
- A unique strength of an organization which may not be shared by others. for the future. The term SWOT refers to the analysis of strengths, weaknesses,
- Core Competencies are those capabilities that are critical to a business achieving competitive advantage. opportunities and threats facing a company.
- C.K. Prahalad and Gary Hamel: They defined core competency as the collective learning in the - The primary objective of a SWOT analysis is to help organizations develop a full
organization, especially coordinating diverse production skills and integrating multiple streams of awareness of all the factors (external as well as internal), involved in making a
technologies. business decision.
- Competency is defined as a combination of skills & techniques rather than individual skill or separate - An important component of strategic thinking requires the generation of a series of
technique .For core competencies, it is characteristic to have a combination of skills and techniques, strategic alternatives, or choices of future strategies to pursue, given the company’s
which makes the whole organization utilize these several separate individual capabilities. Therefore, internal strengths and weaknesses and its external opportunities and threats. The
core competencies cannot be built on one capability or single technological know-how, instead, it has to comparison of strengths, weaknesses, opportunities, and threats is normally referred
be the integration of many resources. to as SWOT analysis
- Core competencies are often visible in the form of organizational functions. For example: Marketing and - Strengths and weaknesses are identified in the internal environment, whereas
Sales is a core competence of Hindustan Unilever Limited (HUL) opportunities and threats are located in the external environment.
- A core competency for a firm is whatever it does best. For example: Wal-Mart focuses on lowering its  Strength: It is an inherent capability of organisation to gain strategic advantage over
operating costs its competitors. An example of strength is superior research and development skill
- According to C.K. Prahalad and Gary Hamel, major core competencies are identified in three areas
which can be used for continuous product innovation or for new product
i. Competitor differentiation: The company can consider having a core competence if the competence
development so that the company gains competitive advantage
is unique and it is difficult for competitors to imitate. This can provide a company an edge compared
to competitors. It allows the company to provide better products or services to market with no fear  Weaknesses- Inherent limitation/ constraint of organisation which creates strategic
that competitors can copy it. The company has to keep on improving these skills in order to sustain disadvantage to it. For eg. Weak brand image or reputation, obsolete facilities etc.
its competitive position.  Opportunities-favorable condition in organization's environment which enables it
ii. Customer value: When purchasing a product or service it has to deliver a fundamental benefit for strengthens its position. An example of an opportunity is growing demand for the
the end customer in order to be a core competence. It will include all the skills needed to provide products or services that a company provides. For e.g. rising demand of product in
fundamental benefits. The service or the product has to have real impact on the customer as the one or more market segments
reason to choose to purchase them. The essence is that the consumer should value the  Threats- An unfavorable condition in the external environment which causes a risk
differentiation offered. Without it, the core competency does not make sense for, or damage to the organization’s position. For eg. Likely entry of potent new
iii. Application of competencies to other markets: Core competence must be applicable to the whole competitors, Loss of sales to substitute products etc. Compiled By:CA Sahil Grover
organization; it cannot be only one particular skill or specific area of expertise. A core competence is
a unique set of skills and expertise, which will be used throughout the organisation to open up KEY REASONS FOR SWOT ANALYSIS
potential markets to be exploited.
SWOT analysis helps managers to craft a business model (or models) that will allow a
If the three above-mentioned conditions are met, then the company can regard it competence as core
company to gain a competitive advantage in its industry (or industries). Competitive
competency Compiled By:CA Sahil Grover
advantage leads to increased profitability, and this maximizes a company’s chances of
CRITERIA FOR BUILDING CORE COMPETENCIES surviving in the fast-changing, competitive environment.
Key reasons for SWOT analysis are:
Four specific criteria of sustainable competitive advantage that firms can use to determine those - Provides a logical framework: It provides logical framework for systematic and sound
capabilities that are core competencies. clubbing of issues which influences the business situation, generation of alternative
i. Valuable: Valuable capabilities are the ones that allow the firm to exploit opportunities or avert the strategies & choice of strategy.
threats in its external environment. A firm created value for customers by effectively using capabilities
- Comparative Account: It presents comparative account of information about both
to exploit opportunities
external & internal environments in a structured form & facilitates comparison of
ii. Rare: Core competencies are very rare capabilities and very few of the competitors possess this.
external threats & opportunities with internal strength & weaknesses. This helps in
Capabilities possessed by many rivals are unlikely to be sources of competitive advantage for any one of
matching external and internal environments so that a strategist can come out with
them. Competitive advantage results only when firms develop and exploit valuable capabilities that
suitable strategy by developing certain patterns of relationship.
differ from those shared with competitors.
- Guides in strategy identification: It guides the strategist in Strategy Identification.
iii. Costly to imitate: Costly to imitate means such capabilities that competing firms are unable to develop
SWOT analysis guides the strategist to think of overall position of the organization
easily
that helps to identify the major purpose of the strategy under focus.
iv. Non-substitutable: Capabilities that do not have strategic equivalents are called non-substitutable
capabilities. This final criterion for a capability to be a source of competitive advantage is that there must LIMITATION/CRITICISM
be no strategically equivalent valuable resources that are themselves either not rare or imitable. The The major criticisms of this tool is that it does not generally provide for evaluation of
strategic value of capabilities increases as they become more difficult to substitute. strengths, weaknesses, opportunities and threats in the competitive context
 Compiled By:CA Sahil Grover Chapter 3 – Strategic Analysis-Internal Environment (Chart 3.6)
COMPETITIVE ADVANTAGE MICHAEL PORTER'S GENERIC STRATEGIES
- Competitive Advantage allows a firm to gain an edge over rivals - According to Porter, strategies allow organizations to gain competitive advantage from three different bases: cost
when competing. leadership, differentiation, and focus.
- It is a set of unique features of a company and its products that are - Porter calls these base generic strategies. These strategies have been termed generic because they can be pursued by any
perceived by the target market as significant and superior to the type or size of business firm and even by not-for-profit organisations
competition.  Cost leadership emphasizes producing standardized products at a very low per-unit cost for consumers who are price-
- In other words, an organization is said to have competitive sensitive.
advantage if its profitability is higher than the average profitability  Differentiation is a strategy aimed at producing products and services considered unique industry wide and directed at
for all companies in its industry. consumers who are relatively price-insensitive.
- It is achieved when the firm successfully formulates and implements  Focus means producing products and services that fulfill the needs of small groups of consumers.
the value creation strategy and other firms are unable to duplicate it - Larger firms with greater access to resources typically compete on a cost leadership and/or differentiation basis, whereas
or find it too costly to imitate. smaller firms often compete on a focus basis.
- Competitive advantage is ability to offer buyers something different Compiled By:CA Sahil Grover
and thereby providing more value for the money. It is the result of a 1. COST LEADERSHIP
successful strategy. ADVANTAGES
- The basic idea of this strategy is to under-price competitors and gain market
- This position gets translated into higher market share, higher profits share and sales, driving some competitors out of the market entirely
when compared to those that are obtained by competitors - Rivalry-Competitors are likely to
- It is a low cost competitive strategy that aims at broad mass market. avoid a price war since the low cost
operating in the same industry. - It requires vigorous pursuit of cost reduction in the areas of procurement,
- A firm is successful in achieving competitive advantage only after firm will continue to earn profits
production, storage and distribution of product or service and also economies after competitors compete away
other firms’ efforts to duplicate or imitate it fails. in overhead costs. Because of its lower costs, the cost leader is able to charge their profits.
Characteristics of Resources That Define Sustainability of a lower price for its products than its competitors and still make satisfactory - Buyers-Powerful buyers/customers
profits. would not be able to exploit the
Competitive Advantage
- Striving to be the low-cost producer in an industry can be effective when cost leader firm & will continue to
The sustainability of competitive advantage and a firm’s ability to earn
 market is composed of many price-sensitive buyers buy.
profits from its competitive advantage depends upon four major
 There are few ways to achieve product differentiation - Suppliers-Cost leaders are able to
characteristics of resources and capabilities:
 When buyers do not care much about differences from brand to brand absorb greater price increases from
1) Durability: The period over which a competitive advantage is  There are large number of buyers with significant bargaining power suppliers before it must raise price
sustained depends in part on the rate at which a firm’s resources and - A successful cost leadership strategy usually permeates the entire firm, as to customers.
capabilities deteriorate. In industries where the rate of product evidenced by high efficiency, low overhead, limited perks, intolerance of - Entrants-Low cost leaders create
innovation is fast, product patents are quite likely to become waste, intensive screening of budget requests, wide spans of control, barriers to market entry through its
obsolete. Similarly, capabilities which are the result of the rewards linked to cost containment, & broad employee participation in cost continuous focus on efficiency and
management expertise of the CEO are also vulnerable to his or her control efforts. reducing costs.
retirement or departure. On the other hand, many consumer brand - Substitutes: Low cost leaders are
names have a highly durable appeal. Risks of pursuing cost leadership more likely to lower costs to induce
2) Transferability: The ability of rivals to attack position of competitive - Competitors may imitate the strategy, thus driving overall industry profits customers
advantage relies on their gaining access to the necessary resources down
- Technological breakthroughs in the industry may make the strategy DISADVANTAGES
and capabilities. The easier it is to transfer resources and capabilities
between companies, the less sustainable will be the competitive ineffective - Cost advantage may not be
advantage which is based on them. - Buyer interest may swing to other differentiating features besides price. remaining for long as competitors
3) Imitability: If resources and capabilities cannot be purchased by a may also follow cost reduction
would-be imitator, then they must be built from scratch. How easily ACHIEVING COST LEADERSHIP STRATEGY technique.
and quickly can the competitors build the resources and capabilities - Can succeed only if the firm can
To achieve cost leadership, following are the actions that could be taken:
on which a firm’s competitive advantage is based? This is the true achieve higher sales volume.
- Forecast the demand of a product or service promptly. - Cost leaders tend to keep their
test of imitability.
- Optimum utilization of the resources to get cost advantages.
4) Appropriability: Appropriability refers to the ability of the firm’s costs low by minimizing
owners to appropriate the returns on its resource base. Even where - Achieving economies of scale leads to lower per unit cost of product/service. advertising, market research, and
resources and capabilities are capable of offering sustainable - Standardization of products for mass production to yield lower cost per unit. research and development, but this
advantage, there is an issue as to who receives the returns on these - Invest in cost saving technologies and try using advance technology for smart approach can prove to be
resources. This means that rewards are directed to from where the working. expensive in the long run.
funds were invested, rather than creating an advantage with no - Resistance to differentiation till it becomes essential - Technology changes are a great
threat to the cost leader
actual reward to people to invested capital.
 Chapter 3 – Strategic Analysis-Internal Environment (Chart 3.7)
2. DIFFERENTIATION 3. FOCUS
- This strategy is aimed at broad mass market and STEPS TO ACHIEVE - A successful focus strategy depends on industry segment that is ADVANTAGES
involves the creation of a product or service that is of sufficient size, has good growth potential, & is not crucial to
- Offer utility for the customers and match success of other major competitors. 1. Premium prices can
perceived by the customers as unique
the products with their tastes and - Focus strategies are most effective when consumers have be charged by the
- The uniqueness can be associated with product design,
preferences distinctive preferences or requirements & when rival firms are organizations for
brand image, features, technology, dealer network or
- Elevate the performance of the product. not attempting to specialize in same target segment their focused
customer service - Organization using a focus strategy may concentrate on a product/ services.
- Offer high quality product/service for
- Because of differentiation, the business can charge a particular group of customers, geographic markets, or on 2. Due to the
buyer satisfaction.
premium for its product. particular product-line segments in order to serve a well-defined tremendous
- Rapid product innovation to keep up with
but narrow market better than competitors who serve a broader expertise about the
dynamic environment
RISK OF DIFFERENTIATION STRATEGY market. goods and services
- Taking steps for enhancing image and its
 Unique product may not be valued highly enough - Risk of focus strategy: that organizations
brand value.  Competitors will recognize and copy it. following focus
by customers
 Competitors may develop ways to copy the
- Fixing product prices based on the unique  Consumer preference will drift towards attributes desired by strategy offer, rivals
features of the product and buying market as a whole & new entrants
differentiating features quickly
capacity of the customer - Midsize and large firms can effectively pursue focus-based may find it difficult
strategies only in conjunction with differentiation or cost to compete.
BASIS OF DIFFERENTIATION leadership-based strategies
ADVANTAGES
There are several basis of differentiation: product, - Focused cost leadership: A focused cost leadership strategy DISADVANTAGES
pricing and organization. 1. Rivalry: Brand loyalty acts as a safeguard requires competing based on price to target a narrow market. A
firm that follows this strategy does not necessarily charge the 1. The firms lacking in
 Product: Innovative products that meet customer against competitors. It means that
lowest prices in the industry. Instead, it charges low prices relative distinctive
needs can be an area where a company has an customers will be less sensitive to price to other firms that compete within the target market. Firms that competencies may
advantage over competitors. The pursuit of new increases, as long as the firm can satisfy compete based on price and target a narrow market are following not be able to
product offerings can be costly – research and the needs of its customers. a focused cost leadership strategy. pursue focus
development, as well as production and marketing 2. Buyers: They do not negotiate for price - Focused differentiation: A focused differentiation strategy strategy.
costs can all add to the cost of production and as they get special features and also they requires offering unique features that fulfill the demands of a 2. Due to the limited
have fewer options in the market narrow market. Similar to a focused low-cost strategy, narrow demand of
distribution. The payoff, however, can be great as
product/services,
customer’s flock to be among the first to have the 3. Suppliers: As differentiators charge a markets are defined in different ways in different settings. Some
costs are high
new product. For Example: Apple iPhone, has premium price, they can afford to absorb firms using a focused differentiation strategy concentrate their
efforts on a particular sales channel, such as selling over the which can cause
invested huge amounts of money in R&D, and the higher costs of supplies and customers problems.
internet only Compiled By:CA Sahil Grover
customers’ value that. They want to be among the are willing to pay extra too. 3. In long run, the
first ones to try the new offerings from the company 4. Entrants: Innovative features are an STEPS TO ACHIEVE niche could
 Pricing: It can fluctuate based on its supply and expensive offer. So, new entrants disappear or be
demand, and also be influence by the customer’s generally avoid these features because it - Selecting specific niches which are not covered by cost leaders taken over by
is tough for them to provide the same and differentiators larger competitors
ideal value for the product. Companies that
product with special features at a - Creating superior skills for catering to such niche markets. by acquiring the
differentiate based on product price can either - Generating high efficiencies for serving such niche markets.
comparable price. same distinctive
determine to offer the lowest price, or can attempt to - Developing innovative ways in managing the value chain. competencies
establish superiority through higher prices. For 5. Substitutes: Substitute products can’t
Example, Apple iPhone dominates the smart phone replace differentiated products which
BEST-COST PROVIDER STRATEGY
segment by charging higher prices for its products. have high brand value and enjoy
 Organisation: Organisational differentiation is yet customer loyalty - The new model of best cost provider strategy is a further development of above three
another form of differentiation. Maximizing the generic strategies.
DISADVANTAGES - It is directed towards giving customers more value for the money by emphasizing both
power of a brand, or using the specific advantages low cost and upscale differences
that an organization possesses can be instrumental to 1. In long term, uniqueness is difficult to - It involves providing customers more value for money by emphasizing low cost & better
a company’s success. Location advantage, name sustain. quality.
recognition and customer loyalty can all provide 2. Charging too high a price for - The objective is to keep costs & prices lower than those of other sellers of comparable
additional ways for a company differentiate itself differentiated features may cause the products.
from the competition. For Example Apple has been customer to switch-off to another - It can be done through :
alternative. a) Offering products at lower price than what is being offered by rivals for products
building customer loyalty since years and has a with comparable quality & features
3. Differentiation fails to work if its basis is
fanbase of consumers that are called “Apple b) Charging similar price as by rivals for products with much higher quality & better
something that is not valued by the
Fanboys/Fangirls Compiled By:CA Sahil Grover customers. features
 Chapter 4 – Strategic Choices (Chart 4.1) (Grand Strategies/Directional Strategies)
Corporate Level Strategies, also called Grand Strategies, provide basic direction for strategic actions towards achieving the strategic goals. Therefore these strategies are also called
directional strategies. They are formulated at the corporate level or top level management and can be divided in four broad categories as discussed below:

STABILITY GROWTH/EXPANSION RETRENCHMENT (STRATEGIC EXITS) COMBINATION

- A stability strategy is pursued by a firm when it - This strategy is implemented by redefining - Strategic exits are followed when an organization - It refer to mix of
continues to serve in the same or similar markets & the business by enlarging the scope of substantially reduces the scope of its activity. different strategies
deals in same or similar products and services. The business and substantially increasing
- This is done through an attempt to find out the problem like stability;
strategic decisions focus on incremental investment in the business.
areas and diagnose the causes of the problems. Next, expansion,
improvement of functional performance - This strategy tends to be equated with
steps are taken to solve the problems. These steps result diversification or
- This strategy is typical for those firms whose product dynamism, vigour, promise and success
have reached the maturity stage of product life cycle or in different kinds of retrenchment strategies retrenchment to suit
- It is often characterised by significant
those who have sufficient market share but need to - If the organization chooses to focus on ways and means particular situations
reformulation of goals and directions
retain that . to reverse the process of decline, it adopts at turnaround that an enterprise is
- Expansion also includes diversifying,
Characteristics strategy. facing.
acquiring and merging businesses.
- Firm stays with same business, same product- market - If it cuts off the loss-making units, divisions, or SBUs, - An enterprise may
posture and functions, maintaining same level of effort Characteristics seek stability in
curtails its product line, or reduces the functions
as at present. - Involves a redefinition of the business of the some areas of
performed, it adopts a divestment (or divestiture)
- Endeavour is to enhance functional efficiencies in an corporation.
strategy. activity, expansion in
incremental way, through better deployment and - Opposite of stability strategy. While in
- If none of these actions work, then it may choose to some and
utilization of resources. stability strategy, rewards are limited, in
abandon the activities totally, resulting in a liquidation retrenchment in the
- Growth objective of firms employing this strategy will expansion strategy they are very high. In the
strategy others
be quite modest. matter of risks, too, the two are the opposites
of each other. - Retrenchment may be done either internally or - Retrenchment of
- Does not involve a redefinition of the business of the externally. Compiled By:CA Sahil Grover ailing products
corporation. - Leads to business growth.
- Process of renewal of the firm through fresh followed by stability
- Basically a safety-oriented, status quo-oriented REASONS FOR PURSUING and capped by
strategy. investments and new businesses/
products/markets - The management no longer wishes to remain in expansion in some
- Does not warrant much of fresh investments.
- Highly versatile strategy; it offers several business either partly or wholly due to continuous situations may be
- Risk of pursuing this strategy is also less.
permutations and combinations for growth. losses and unviability. thought of.
- Benefit of concentrating firm’s resources and attention
on the existing businesses/products and markets. - Two major strategy routes: Intensification - The management feels that business could be made
- Usually followed in recession time. Diversification. Both of them are growth viable by divesting some of the activities or Reasons for
- It is not a ‘do nothing’ strategy. It involves keeping track strategies; the difference lies in the way in liquidation of unprofitable activities. Pursuing
of new developments to ensure that the strategy which the firm actually pursues the growth. - A business that had been acquired proves to be a
continues to make sense. It involves remaining updated mismatch and cannot be integrated within the - The organization is
and keeping pace with dynamic & volatile business Reasons for Pursuing large and faces
company
world to preserve the market share - It may become imperative when - Persistent negative cash flows from a particular complex
Reasons for Pursuing environment demands increase in pace of business create financial problems for the whole environment.
activity. company, creating the need for divestment of that - The organization is
- A product has reached the maturity stage of the - Strategists may feel more satisfied with business.
product life cycle. composed of
the prospects of growth from expansion; - Severity of competition and the inability of a firm to
- Staff feels comfortable with the status quo as it chief executives may take pride in different businesses,
cope with it may cause it to divest
involves less changes and less risks. each of which lies in
presiding over organizations perceived to - Technological upgradation is required if the business
- It is opted when the environment in which the firm is
be growth-oriented. is to survive but where it is not possible for the firm a different industry
operating faced is relatively stable
- It is advisable when expansion may be perceived as - Expansion may lead to greater control to invest in it, a preferable option would be to divest. requiring a different
being threatening over the market vis-a-vis competitors. - A better alternative may be available for investment, response.
- After rapid expansion ,the firm might want to - Advantages from the experience curve and causing a firm to divest a part of its unprofitable
stabilise an consolidate scale of operations may accrue Compiled By:CA Sahil Grover
businesses
 Chapter 4 – Strategic Choices (Chart 4.2) (Types of Growth/Expansion Strategies)
INTERNAL GROWTH STRATEGIES Compiled By:CA Sahil Grover EXTERNAL GROWTH STRATEGIES
Through Intensification Through Diversification THROUGH MERGERS & ACQUISITIONS

Expansion through - When a firm tries to grow and expand by diversifying into various products or fields, it is called growth - M&A is defined as a process of combining two or
intensification means that by diversification. This is also an internal growth strategy. more organizations together. There is a thin line of
the organisation tries to grow - Diversification is defined as an entry into new products or product lines, new services or new markets, difference between the two terms:
internally by intensifying its involving substantially different skills, technology and knowledge. o Merger is a process when two or more companies
operations either by market - Diversification endeavours can be related or unrelated and can be classified as follows: come together to expand their business
penetration or market operations. In such a case the deal gets finalized
development or by product 1) Concentric Diversification: It takes place when the 3) Expansion through Innovation: Innovation
on friendly terms and both the organizations
development. products are related.The new business is linked to drives upgradation of existing product lines or
processes, leading to increased market share, share profits in the newly created entity. In a
It tries to cash on its internal the existing businesses through process,
revenues, profitability and most important, merger two organizations combine to increase
capabilities and internal technology or marketing. New product is a spin-off
resources. customer satisfaction. For a business to grow their strength and financial gains along with
from the existing facilities and products/processes.
With intensification strategy, long term, innovation offers the following; breaking the trade barriers.
The new product is only connected in a loop-like
the firm pursues growth by o When one organization takes over the other
manner at one or more points in the firm's existing  Helps to solve complex problems: A business
working with its current strives to find opportunities in existing organization and controls all its business
process/technology/product chain.
businesses. problems of the society, and it does so operations, it is known as acquisitions. In this
Intensification, in turn, It is generally understood in two directions, vertical
though planned innovation in areas of process of acquisition, one financially strong
encompasses three and horizontal integration; organization overpowers the weaker one.
expertise. Innovation help solve complex
alternative routes: a) Vertically integrated: Firms opt to engage in A deal in case of an acquisition is often done in an
problems by developing customer centric
1. Market Penetration: The businesses that are vertically related to the unfriendly manner, it is more or less a forced
sustainable solutions. For eg, the pressing
most common expansion existing business of the firm. The firm remains association where the powerful organization
problem of environmental damage is being
strategy is market vertically within the same process sequence but tackled by shifting to renewable sources of either consumes the operation or a company in
penetration/concentration moves forward or backward in the chain energy like solar, wind, sea waves, etc loss is forced to sell its entity.
on the current business. The  Forward integration: It is moving forward in the  Increases Productivity: Innovation leads to
firm directs its resources to value chain and entering business lines that use simplification and in most cases automation TYPES OF MERGERS
the profitable growth of a existing productsForward integration will also of existing tasks. Productivity is defined as a
single product, in a single 1. Horizontal merger: Horizontal mergers are
take place where organizations enter into measure of final output from a task or a
market, and with a single combinations of firms engaged in the same
businesses of distribution channels process, and companies are willing to spend
industry. It is a merger with a direct competitor. The
technology.  Backward integration: It is concerned with millions on increasing their productivity,
principal objective behind this type of mergers is to
2. Market Development: It creation of effective supply by entering business Innovation, by automating repetitive tasks,
achieve economies of scale in the production
consists of marketing of input providers. Strategy employed to and simplifying the long chain of processes,
process.
present products, to expand profits and gain greater control over adds to productivity of teams and thereby
2. Vertical merger: It is a merger of two organizations
customers in related production/supply of a product whereby a the organisation as a whole. For example,
that are operating in the same industry but at
market areas by adding MSExcel, every finance professional uses this
company will purchase or build a business that different stages of production or distribution
different channels of software to simplify and automate their
will increase its own supply capability or lessen system. This often leads to increased synergies with
distribution or by changing manual tasks.
its cost of production. the merging firms
the content of advertising  Gives Competitive Advantage: Being ahead of
b) Horizontal Diversification: Acquisition of one or 3. Co-generic merger: In Co-generic merger two or
or the promotional media. competition is a need, and businesses spend
more similar business operating at the same more merging organizations are associated in some
3. Product Development: It majority of their strategic time building
stage of the production-marketing chain that is way or the other related to the production
solutions to achieve this advantage. The
involves substantial going into complementary products, by-products processes, business markets, or basic required
faster a business innovates, the farther it
modification of existing or taking over competitors’ products technologies. Such merger includes the extension of
goes from its competitor’s reach. Innovative
products or creation of the product line or acquiring components that are
products need less marketing as they aim to
new but related items that 2) Conglomerate Diversification (Unrelated): The new required in the daily operations.
provide added satisfaction to consumers,
can be marketed to current 4. Conglomerate merger: Conglomerate mergers are
businesses/ products are disjointed from the thus, creating a competitive advantage.
customers through the combination of organizations that are unrelated
existing businesses/products in every way. It is a Innovation not only helps retain the existing to each other. There are no linkages with respect to
establish channels. totally unrelated diversification. No common customers but helps acquire new ones with customer groups, customer functions and
thread at all with the firm's present position ease. Compiled By:CA Sahil Grover technologies being used.
 Chapter 4 – Strategic Choices (Chart 4.3) (Types of Retrenchment Strategies)
EXTERNAL GROWTH STRATEGIES Turnaround Strategies Divestment
THROUGH STRATEGIC ALLIANCE - Retrenchment may be Stages of Implementation of Turnaround Strategy - It involves sale or liquidation of portion of
done either internally or [Action Plan for Turnaround Strategy] business, or major division, profit centre or
- Strategic Alliance is relationship between two or
externally. SBU.
more businesses that enables each to achieve Stage One – Assessment of current problems
certain strategic objectives which neither would be - INTERNAL - It is usually a part of rehabilitation or
The first step is to assess the current problems & to get to the restructuring plan and is adopted when a
able to achieve on its own. RETRENCHMENT: For
root causes and the extent of damage the problem has caused. turnaround has been attempted but has
- Strategic partners maintain their status as internal retrenchment to
independent and separate entities, share the Once the problems are identified, the resources should be proved to be unsuccessful.
take place, emphasis is
benefits and control over the partnership, and focused toward those areas essential to efficiently work on
laid on improving internal REASONS TO ADOPT
continue to make contributions to the alliance correcting and repairing any immediate issues.
efficiency, known as i. A business that had been acquired proves to
until it is terminated. Stage Two - Analyze the situation and develop a strategic plan
TURNAROUND STRATEGY be a mismatch and cannot be integrated
- They are often formed in the global marketplace Before making any changes determine the chances of the
between businesses that are based in different within the company.
DANGER business’s survival. Identify appropriate strategies and develop
regions of the world ii. Persistent negative cash flows from a
SIGNS/INDICATORS THAT a preliminary action plan. For this one should look for the particular business create financial problems
ADVANTAGES NECESSITATE viable core businesses, adequate bridge financing and available for the whole company, creating the need for
TURNAROUND STRATEGY organizational resources. Analyze the strengths and divestment of that business.
1. Organizational: Strategic alliance helps to learn
necessary skills and obtain certain capabilities weaknesses in the areas of competitive position. Once major iii. Severity of competition and the inability of a
- Persistent negative
from strategic partners. Strategic partners may problems and opportunities are identified, develop a strategic firm to cope with it may cause it to divest.
cash flow
also help to enhance productive capacity, provide - Negative profits plan with specific goals and detailed functional actions. iv. Technological up gradation is required if the
- Declining market share Stage Three – Implementing an emergency action plan
a distribution system, or extend supply chain. business is to survive but where it is not
Having a strategic partner who is well-known and If the organization is in a critical stage, an appropriate action possible for the firm to invest in it, a
respected also helps add legitimacy and - Deterioration in
physical facilities plan must be developed to stop the bleeding and enable the preferable option would be to divest.
creditability to a new venture v. A better alternative may be available for
- Over-staffing, high organization to survive. The plan typically includes human
2. Economic: There can be reduction in costs and investment, causing a firm to divest a part of
risks by distributing them across the members of turnover of employees resource, financial, marketing and operations actions to
its unprofitable businesses.
& Low morale restructure debts, improve working capital, reduce costs,
the alliance. Greater economies of scale can be
- Uncompetitive improve budgeting practices, prune product lines and CHARACTERISTICS
obtained in an alliance as production volume can
products or Services accelerate high potential products. A positive operating cash - This strategy involves divestment of some of
increase, causing the cost per unit to decline.
- Mismanagement flow must be established as quickly as possible and enough
3. Strategic: Rivals can join together to cooperate the activities in a given business of the firm or
funds to implement the turnaround strategies must be raised sell-out of some of the businesses as such.
instead of compete. Strategic alliances may also IMPORTANT ELEMENTS Stage Four – Restructuring the business
be useful to create a competitive advantage by THAT CONTRIBUTE TO During the turnaround, the “product mix” may be changed, - Divestment is to be viewed as an integral part
the pooling of resources and skills. May also be of corporate strategy without any stigma
TURNAROUND requiring the organization to do some repositioning. Core
used to get access to new technologies or to attached.
pursue joint research and development. products neglected over time may require immediate Like expansion strategy, divestment strategy,
- Changes in the top
4. Political: Strategic alliances are also formed with attention to remain competitive. Some facilities might be too, involves a redefinition of the business of
management
a local foreign business to gain entry into a closed; the organization may even withdraw from certain the corporation
- Initial credibility- Compiled By:CA Sahil Grover
foreign market either because of local prejudices markets to make organization leaner or target its products
building actions
or legal barriers to entry
- Neutralizing external toward a different niche. Morale Building is another
DISADVANTAGES pressures important ingredient in the organization’s competitive
- Identifying quick effectiveness. Reward and compensation systems that
1. The major disadvantage is sharing. Strategic payoff activities encourage dedication and creativity among employees to
alliances require sharing of resources and profits, - Quick cost think profits and return on investments.
and also sharing knowledge and skills that reductions Stage Five – Returning to normal Compiled By:CA Sahil Grover
otherwise organisations may not like to share. - Revenue generation In the final stage of turnaround, the organization should
Sharing knowledge and skills can be problematic - Asset liquidation for begin to show signs of profitability, return on investments
if they involve trade secrets. generating cash and enhancing economic value-added. Emphasis is placed on
2. Strategic alliances may also create a potential - Better internal a number of strategic efforts such as carefully adding new
competitor. An ally may become a competitor in coordination products and improving customer service, creating alliances
future when it decides to separate out. with other organizations, increasing the market share, etc.
 Chapter 4 – Strategic Choices (Chart 4.4) (Strategic Options)
- These models are primarily used for competitive analysis and corporate strategic planning in multi-product and multi business firms. They may also be used in less diversified firms, if
these consist of a main business and other minor complementary interests.
- The main advantage in adopting a portfolio approach in a multi-product, multi-business firm is that resources could be channelised at the corporate level to those businesses that
possess the greatest potential.
- In order to design the business portfolio, the management must analyse its current business portfolio and decide which business should receive more, less, or no investment.
- Depending upon analyses management may develop growth strategies for adding new products or businesses to the firm’s portfolio. Compiled By:CA Sahil Grover
ANSOFF'S PRODUCT MATRIX BCG MATRIX
- The Ansoff’s product market growth matrix (proposed by Igor Ansoff) is a useful - The BCG growth-share matrix is the simplest way to portray a corporation's portfolio of investments. It's also
tool that helps businesses decide their product & market growth strategy. known for its cow and dog metaphors and is popularly used for resource allocation in a diversified company.
- With the use of this matrix a business can get a fair idea about how its growth - Using it, a company classifies its different businesses on a two-dimensional growth-share matrix.
depends upon it markets in new or existing products in both new and existing - In the matrix:
markets. Companies should always be looking to the future.  The vertical axis represents market growth rate and provides a measure of market attractiveness.
- One useful device for identifying growth opportunities for the future is the  The horizontal axis represents relative market share and serves as a measure of company strength in the
product/market expansion grid. The product/market growth matrix is a market.
portfolio-planning tool for identifying company growth opportunities. - Using the matrix, organizations can identify four different types of products or SBU as follows:
 Stars, a position in the matrix, are characterised by

Compiled By:CA Sahil Grover

high market share and high growth rate. They are
products or SBUs that are growing rapidly. They also
need heavy investment to maintain their position
and finance their rapid growth potential. Business
organisations that enjoy star positions have best
opportunities for expansion and growth
 Cash Cows are low-growth, high market share
businesses or products. They generate cash and
have low costs. They are established, successful,
and need less investment to maintain their market
share. In long run when the growth rate slows
Market Penetration: Market penetration refers to a growth strategy where the down, stars become cash cows.
business focuses on selling existing products into existing markets. It is achieved  Question Marks, sometimes called problem children
by making more sales to present customers without changing products in any POST IDENTIFICATION STRATEGIES or wildcats, are low market share business in high-
major way. It might require greater spending on advertising or personal selling. growth markets. They require a lot of cash to hold
Market Development: Market development refers to a growth strategy where 1. Build (Question Mark): Here the objective is to their share. They need heavy investments with low
the business seeks to sell its existing products into new markets. It is a strategy increase market share, even by forgoing short-term potential to generate cash. Question marks if left
earnings in favour of building a strong future with unattended are capable of becoming cash traps it is
for company growth by identifying and developing new markets for current
large market share for business organisations to turn them stars and
company products. This strategy may be achieved through new geographical
2. Hold (Stars): The objective is to preserve market then to cash cows when the growth rate reduces.
markets, new product dimensions or packaging, new distribution channels or  Dogs are low-growth, low-share businesses and
share.
different pricing policies to attract different customers or create new market 3. Harvest (Cash Cow): The objective is to increase products. They may generate enough cash to
segments short-term cash flow regardless of long- term effect maintain themselves, but do not have much future.
Product Development: Product development refers to a growth strategy where 4. Divest (Dog): The objective is to sell or liquidate theSometimes they may need cash to survive. Dogs
business aims to introduce new products into existing markets. It is a strategy business because resources can be better used should be minimized by means of divestment or
for company growth by offering modified or new products to current markets. It elsewhere. liquidation
may require the development of new competencies and requires the business to -
develop modified products which can appeal to existing markets PROBLEMS & LIMITATIONS
Diversification: Diversification refers to a growth strategy where a business
- Difficult, - Time-consuming - Costly to implement.
markets new products in new markets. It is a strategy by starting up or acquiring - Management may find it difficult to define SBUs and measure market share and growth.
businesses outside the company's current products and markets. This strategy is - It also focuses on classifying current businesses but provide little advice for future planning.
risky because it does not rely on either the company's successful product or its - They can lead the company to place too much emphasis on market-share growth or growth through entry into
position in established markets. Here business is moving into markets in which it attractive new markets. This can cause unwise expansion into hot, new, risky ventures or giving up on
has little or no experience. established units too quickly
 Chapter 4 – Strategic Choices (Chart 4.5) (Strategic Options)
ADL MATRIX GE Model
- ADL matrix has derived its name from Arthur D. Little. Compiled By:CA Sahil Grover - This model has been used by General Electric Company (developed by GE with the
- It is a portfolio analysis method that is based on product life cycle. assistance of the consulting firm McKinsey & Company).
- The approach forms a two dimensional matrix based on stage of industry maturity and the firms - This model is also known as Business Planning Matrix, GE Nine-Cell Matrix and GE
competitive position, environmental assessment and business strength assessment. Electric Model.
- Stage of industry maturity is an environmental measure that represents a position in industry's life cycle. - The strategic planning approach in this model is inspired from traffic control lights.
- Competitive position is a measure of business strengths that helps in categorization of products or SBU's - The lights that are used at crossings to manage traffic are: green for go, amber or
into one of five competitive positions: yellow for caution, and red for stop.
1) Dominant: This is a comparatively rare position and in many cases is attributable either to a monopoly or - This model uses two factors while taking strategic decisions: Business Strength and
a strong and protected technological leadership Market Attractiveness.
2) Strong: By virtue of this position, the firm has a considerable degree of freedom over its choice of - The vertical axis indicates market attractiveness and the horizontal axis shows the
strategies and is often able to act without its market position being unduly threatened by its business strength in the industry.
competitions
- The market attractiveness is measured by a number of factors like: Size of the
3) Favorable: This position, which generally comes about when the industry is fragmented and no one market, Market growth rate, Availability of technology, pricing trends, Overall risk
competitor stand out clearly, results in the market leaders a reasonable degree of freedom. of returns in the industry, Demand variability.
4) Tenable: Although the firms within this category are able to perform satisfactorily and can justify staying - Business strength is measured by considering the typical drivers like: Market share,
in the industry, they are generally vulnerable in the face of increased competition from stronger and
Market share growth rate, Profit margin, Brand image and Customer loyalty.
more proactive companies in the market.
5) Weak: The performance of firms in this category is generally unsatisfactory although the opportunity for
improvement does exist.

1. If product falls in green section, business is at advantageous position. To reap

benefits, strategic decision can be to expand, invest & grow.
2. Amber or yellow zone- firm needs caution & managerial discretion is called for
marketing strategic choices.
3. Red zone- it will eventually lead to losses that would make things difficult for
organizations. In such cases, the appropriate strategy should be retrenchment,
divestment or liquidation.
Compiled By:CA Sahil Grover
Differences between GE & BCG matrix
A. Market attractiveness replaces market growth as the dimension of industry
attractiveness, and includes a broader range of factors other than just the market
growth rate.
B. Competitive strength replaces market share as the dimension by which the
competitive position of each SBU is assessed.
 Chapter 5 – Strategy Implementation and Evaluation (Chart 5.1) (Strategy Formulation)
STAGES IN STRATEGIC MANAGEMENT Compiled By:CA Sahil Grover

Developing Strategic Vision & Environmental and Formulation of strategy Implementation of strategy Evaluation & Control
formulation of statement of organizational analysis.
- The first step in strategy - Implementation and execution is an operations- - The final stage of
mission, goals and objectives
This stage is the diagnostic formulation is developing oriented, activity aimed at shaping the strategic management
- Vision: Firstly a Co. must determine phase of strategic analysis. It strategic alternatives in the light performance of core business activities in a process-Evaluating
what directional Path Company strategy-supportive manner. company's progress,
entails two types of analysis: of organization strengths and assessing impact of new
should take & what changes in - It is the most demanding and time-consuming part
company's product, market, i. Environmental scanning weaknesses and opportunities external developments,
of the strategy-management process.
customer, technology, focus would ii. Organisational analysis and threats in the environment. & making corrective
- To convert strategic plans into actions & results, a
improve its current market position - External environment of a firm - The second step is the deep adjustments is trigger
manager must be able to direct organizational
& its future prospect point for deciding
consists of economic, social, analysis of various strategic change, motivate people,
- Top management’s views and - build and strengthen company competencies and
whether to continue or
technological, market and other alternatives for the purpose of
conclusions about the company’s change company's vision,
forces which affect its choosing the most appropriate competitive capabilities, create strategy- objectives, strategy, &/or
direction and the product-
functioning. The firm’s external alternative which will serve as supportive work climate, & meet or beat strategy-execution
customer-market- technology focus
constitute a strategic vision for the performance targets methods
environment is dynamic and strategy of the firm
company. STRATEGY-EXECUTION PROCESS - Whenever a company
uncertain. So, the management - A company may be confronted
- A clearly articulated strategic vision INCLUDES THE FOLLOWING PRINCIPAL encounters disruptive
must systematically analyse with several alternatives such
communicates management’s ASPECTS changes in its external
aspirations to stakeholders and various elements of as: environment, questions
helps steer the energies of environment to determine i. Should the company continue i. Developing budgets that steer ample resources into need to be raised about
company personnel in a common opportunities and threats for those activities critical to strategic success. the appropriateness of
in the same business carrying
direction ii. Staffing the organization with the needed skills and its direction and
the firm in future. on the same volume of
- Mission & Strategic Intent: expertise, consciously building and strengthening strategy.
- Organisational analysis activities? strategy-supportive competencies and competitive - If a company experiences
Managers need to be clear about
involves a review of financial ii. If it should continue in the capabilities, and organizing the work effort. a downturn in its market
what they see as the role of their
organization, and this is often resources, technological iii. Ensuring that policies and operating procedures position or shortfalls in
same business, should it grow
expressed in terms of a statement resources, productive capacity, facilitate rather than impede effective execution performance, then
by expanding the existing
of mission marketing and distribution iv. Using the best-known practices to perform core company managers are
effectiveness, research and units or by establishing new obligated to ferret out
- Corporate goals and objectives business activities and pushing for continuous
flow from the mission and growth development, human resource units or by acquiring other improvement. whether the causes
ambition of the corporation. skills and so on. units in the industry? v. Installing information and operating systems that relate to poor strategy,
Basically, they represent the - This would reveal iii. If it should diversify, should it enable company personnel to better carry out poor execution, or both
quantum of growth the firm seeks organisational strengths and and then to take timely
diversify into related areas or their strategic roles day in and day out.
to achieve in the given time frame. weaknesses which could be corrective action
unrelated areas? vi. Motivating people to pursue the target objectives
- The objective provides the basis for matched with the threats and - Periodically assessing
energetically.
major decisions of the firm and also opportunities in the external iv. Should it get out of an what aspects of strategy
vii. Creating a company culture and work climate execution are working
set the organizational performance environment. existing business fully or conducive to successful strategy implementation
to be realised at each level. partially? well and what needs
- This would provide us a and execution.
- The managerial purpose of setting improving is normal and
framework for SWOT analysis - The above strategic alternatives viii. Exerting the internal leadership needed to drive
objectives is to convert the strategic desirable. Successful
which could be in the form of may be designated as Stability implementation forward and keep improving strategy execution
vision into specific performance a table highlighting various strategy execution entails vigilantly
targets – results and outcomes the strengths and weaknesses of
strategy, growth/ expansion
management wants the achieve - strategy and retrenchment searching for ways or
the firm and opportunities and Good strategy execution involves creating strong
continuously improve
and then use these objectives as
threats which the strategy. “fits” between strategy and organizational
yardsticks for tracking the and then making
environment we create for the - A company may also follow a capabilities, between strategy and the reward
company’s progress and corrective adjustments
firm. combination these alternatives structure, between strategy and internal operating whenever and wherever
performance. systems, and between strategy and the
Compiled By:CA Sahil Grover called combination strategy. it is useful to do so.
organization’s work climate and culture
 Chapter 5 – Strategy Implementation and Evaluation (Chart 5.2) (Strategy Formulation)
STRATEGIC MANAGEMENT PROCESS PLANNING –CORPORATE STRATEGY STRATEGIC UNCERTAINTY
- The process of developing an organisation’s strategy is quite - Planning entails choosing what has to be done in the future - Strategic uncertainty refers to the unpredictability of
methodical. (today, next week, next month, next year, over the next future events and circumstances that can impact an
- The strategic management process is dynamic and couple of years, etc.) and creating action plans. organization's strategy and goals.
continuous. The process never really ends. - An essential element of effective management is adequate - It can be driven by factors such as changes in the market,
- The strategic management process can best be studied and planning. Choosing a path of action to achieve defined goals is technology, competition, regulation, and other external
applied using a model. Every model represents some kind of a part of planning. factors.
process. - Planning relates to deciding what needs to done in the future Compiled By:CA Sahil Grover
- The model by (Fred R David) illustrated in the Figure below is and generating blueprints for action How to deal with strategic uncertainty?
a widely accepted, comprehensive. - Planning is future oriented in nature - Dealing with strategic uncertainty can be challenging and
- Planning can be strategic or operational organizations need to have the flexibility, resilience, and
- Strategic plans:-Are made by senior mngmt for entire agility to quickly respond to changes in the environment
organisation after evaluating strengths & weaknesses in light and minimize its impact.
of opportunities & weaknesses, involves acquisition & - To be manageable, they need to be grouped into logical
allocation of resourses. clusters or themes. It is then useful to assess the
- Operational plans: Are made by middle and lower level
importance of each cluster in order to set priorities with
management, provide specifics on how the resources are to
respect to Information gathering and analysis.
be utilized efficiently
 Flexibility: Organizations can build flexibility into their
strategies to quickly adapt to changes in the
STRATEGIC PLANNING
environment.
- The formation of corporate strategy is the result of a process  Diversification: Diversifying the organization's product
known as strategic planning. portfolio, markets, and customer base can reduce the
- Strategic planning is the process of determining the objectives impact of strategic uncertainty.
of the firm, resources required to attain these objectives and  Monitoring and Scenario Planning: Organizations can
formulation of policies to govern the acquisition, use and regularly monitor key indicators of change and conduct
disposition of resources scenario planning to understand how different future
- Strategic planning involves a fact of interactive and scenarios might impact their strategies.
overlapping decisions leading to the development of an  Building Resilience: Organizations can invest in building
effective strategy for the firm. internal resilience, such as strengthening their
- Strategic planning determines where an organisation is going operational processes, increasing their financial
- This model like any other model of management does not over the next year or more and the ways for going there. flexibility, and improving their risk management
guarantee sure-shot success, but it does represent a clear and - The process is organisation-wide or focused on a major capabilities.
practical approach for formulating, implementing, and function such as a division or other major function.  Collaboration and Partnerships: Collaborating with other
evaluating strategies. Relationships among major components organizations, suppliers, customers, and partners can
of the strategic management process are shown in the model Characteristics of Strategic Characteristics of help organizations pool resources, share risk, and gain
- The strategic management process is not as cleanly divided Planning Operational Planning access to new markets and technologies.
and neatly performed in practice as the strategic management
model suggests. In practice strategists do not go through the  Shapes the organisation and its  Deals with current IMPACT OF STRATEGIC UNCERTAINITY
process in lockstep fashion. Generally, there is give-and-take resources deployment of resources. - Each strategic uncertainty involves potential trends or
among hierarchical levels of an organization.  Assesses the impact of  Develops tactics rather than events that could have an impact on present, proposed,
- The process essentially is iterative and involves a lot of back- environmental variables. strategy. and even potential strategic business units (SBUs).
and-forth considerations across different stages in the strategic  Takes a holistic view of the  Projects current operations
management process. - The impact of a strategic uncertainty will depend on the
organisation. into the future. importance of the impacted SBU to a firm.
- Many organizations conduct formal meetings semi-annually to
 Develops overall objectives and  Makes modifications to the
discuss and update the firm’s vision/mission, - The importance of established SBUs may be indicated by
strategies business functions but not their associated sales, profits, or costs.
opportunities/threats, strengths/weaknesses, strategies,
objectives, policies, and performance. Creativity from  Is concerned with the long-term fundamental changes. - Such measures might need to be supplemented for
participants is encouraged in meeting. Good communication success of the organisation.  Is the responsibility of proposed or growth SBUs for which present sales,
and feedback are needed throughout the strategic  Is a senior management functional managers profits, or costs may not reflect the true value to a firm.
management process responsibility. Compiled By:CA Sahil Grover
 Chapter 5 – Strategy Implementation and Evaluation (Chart 5.3) (Strategy Implementation)
Interrelation between strategy formulation & DIFFERENCES Efficiency and effectiveness Issues in Strategy
implementation Strategy formulation Strategy implementation Implementation
1. It includes planning and It involves all those means - Efficiency pertains to designing and
Strategy implementation concerns the managerial achieving suitable input output ratios of - Strategies, by themselves,
decision-making involved in related to executing the
exercise of putting a freshly chosen strategy into place. funds, resources, facilities and efforts
developing organization’s strategic plans. do not lead to action.
Strategy execution deals with the managerial exercise of strategic goals and plans. whereas effectiveness is concerned with Strategies, therefore, have
supervising the ongoing pursuit of strategy, making it 2. It is placing forces before It is managing forces the organization's attainment of goals to be activated through
work, improving the competence with which it is the action. during the action. including that of desired competitive implementation.
executed and showing measurable progress in achieving 3 .It emphasises on It emphasises on position. - Strategies should lead to
the targeted results. It is concerned with translating a effectiveness. efficiency. - While efficiency is essentially introspective, formulation of different
decision into action .A company will be successful only 4. It is primarily an intellectual It is primarily an effectiveness highlights the links between kinds of programmes.
when the strategy formulation is sound and & rational process. operational process. the organization and its environment. In
Programmes are usually
implementation is excellent. There is no such thing as general terms, to be effective is to do the
5. It requires good intuitive It requires special supported by funds
successful strategic design. This sounds obvious, but in right things while to be efficient is to do
logical skills, conceptual and motivation and allocated for plan
practice the distinction is not always made. Thus things rightly.
analytical skills. leadership skills implementation.
organizational success is a function of good strategy and - The responsibility for efficiency lies with
6. It requires coordination It requires coordination - Programmes lead to the
proper implementation. operational managers, with top
among the executives at the among executives at the formulation of projects. It
management having the responsibility for
The matrix in the figure below represents various top level middle and lower levels requires allocation of funds
the strategic orientation of the org.
combinations of strategy formulation and 7. It is an entrepreneurial It is an administrative based on capital budgeting
implementation activity based on strategic task based on strategic by organizations.
Compiled By:CA Sahil Grover decision-making. and operational decisions
- Implementation of strategies
8. It precedes Strategy It follows
is not limited to formulation
Implementation. Strategy Formulation.
of plans, programmes, and
projects. Projects would also
FORWARD & BACKWARD LINKAGES
require resources.
Forward Linkages: - After resources have been
Different elements in strategy formulation starting with provided, it would be
objective setting through environmental& organizational - An org. that finds itself in cell 1 is well essential to see that a proper
appraisal, strategic alternatives & choice to strategic plan placed and thrives, since it is achieving organizational structure is
determine course that an organization adopts for itself. what it aspires to achieve with an efficient designed, systems are
Square A is the situation where a company apparently has output/input ratio.
With the formulation of new strategies, or reformulation of installed, functional policies
formulated a very competitive strategy, but is showing - In contrast, an org. in cell 2 or 4 is doomed, are devised, and various
existing strategies, many changes have to be effected
difficulties in implementing it successfully.In such a unless it can establish some strategic
within the organization. For instance, the organizational behavioral inputs are
situation the company will aim at moving from square A to direction.
structure has to undergo a change in the light of the provided so that plans may
square B, given they realize their implementation difficulties The particular point to note is that cell 2 is
requirements of the modified or new strategy. The style of - work.
Square B is the ideal situation where a company has a worse place to be than is cell 3 since, in
leadership has to be adapted to the needs of the modified - Given below in sequential
succeeded in designing a sound and competitive strategy the latter, the strategic direction is present manner the issues in
or new strategies. In this way, the formulation of strategies
and has been successful in implementing it. to ensure effectiveness even if rather too strategy implementation
has forward linkages with their implementation
Square D is the situation where the strategy formulation is much input is being used to generate which are to be considered:
Backward Linkages Compiled By:CA Sahil Grover
flawed, but the company is showing excellent outputs. - Project
Just as implementation is determined by the formulation of
implementation skills. When a company finds itself in square - To be effective is to survive whereas to be implementation
strategies, the formulation process is also affected by efficient is not in itself either necessary or
D the first thing they have to do is to redesign their strategy - Procedural
factors related with implementation. While dealing with sufficient for survival. implementation
before readjusting their implementation/execution skills. strategic choice, remember that past strategic actions also -
Square C is reserved for companies that haven't succeeded determine the choice of strategy. Organizations tend to An emphasis on efficiency rather than on - Resource allocation
effectiveness is clearly wrong. - Structural
in coming up with a sound strategy formulation and in adopt those strategies which can be implemented with the - Change comes through implementation and implementation
addition are bad at implementing their flawed strategic help of the present structure of resources combined with - Functional
evaluation, not through the plan. A
model. Their path to success also goes through business some additional efforts. Such incremental changes, over a implementation
technically imperfect plan that is
model redesign and implementation/execution period of time, take the organization from where it is to implemented well will achieve more than a - Behavioral
readjustment. where it wishes to be. perfect plan that never gets off paper Implementation
 Chapter 5 – Strategy Implementation and Evaluation (Chart 5.4) (Strategic Change)
STRATEGIC CHANGE HOW DOES DIGITAL TRANSFORMATION WORK?
- The changes in the environmental forces often require businesses to make modifications in their existing Digital Transformation
strategies and bring out new strategies. - The use of digital technologies to develop fresh, improved, or entirely new
- It is complex process & it involves corporate strategy focused on new markets, products, services & new ways of company procedures, goods, or services is known as "digital transformation."
doing business - Digital transformation is a process of organizational change that enables an
Steps To Initiate Strategic Change organization to use technology to create new value for customers,
employees, and other stakeholders
1) Recognize need for change: The first step is to diagnose which parts of the present corporate culture are
- Organizations can plan, prepare for, and carry out changes to their
strategy supportive and which are not. This basically means going for environmental scanning involving
operations, including digital transformations, with the aid of the discipline of
appraisal of both internal and external capabilities and then identify the problems/improvement areas and
change management.
determine scope for change.
- When implemented correctly, change management may assist firms in
2) Create shared vision to manage change: Objectives and vision of individuals and organization should coincide.
overcoming the obstacles posed by the digital transition and reaping the full
This is possible only if the management and the organization members follow a shared vision. Senior
rewards of their investment
managers need to constantly and consistently communicate the vision to all the organizational members.
They have to convince all those concerned that the change in business culture is not superficial or cosmetic. Change Management
3) Institutionalise change: This is basically an action stage which requires implementation of changed strategy. - Change management is a process or set of tools and best practices used to
Creating and sustaining a different attitude towards change is essential to ensure that the firm does not slip manage changes in an organization.
back into old ways of thinking or doing things. Besides, change process must be regularly monitored and - It assists in making changes in a safe and regulated manner, reducing the
reviewed to analyze the after-effects of change. Any discrepancy or deviation should be brought to the notice possibility of detrimental effects on the company.
of the persons concerned so that the necessary corrective actions are taken. - It takes time for the changed - Any sort of organisation, including enterprises, organisations, governmental
culture to prevail. bodies, and even families, can utilise change management to manage
Compiled By:CA Sahil Grover changes.
Kurt Lewin’s Change Process Compiled By:CA Sahil Grover
To make the change lasting, Kurt Lewin proposed three phases of the change process for moving the organization Essential Elements of Change Management
from the present to the future. These stages are as follows: Change management in the digital transition consists of four essential
1. Unfreezing situation: Unfreezing is the process of breaking down the old attitudes and behaviors, customs and elements:
traditions so that they start with a clean slate. This can be achieved by making announcements, holding 1. Defining the goals and objectives of the transformation
meetings and promoting the ideas throughout the organization. The process of unfreezing simply makes the 2. Assessing the current state of the organization and identifying gaps
individuals or organizations aware of the necessity for change and prepares them for such a change. Lewin 3. Creating a roadmap for change that outlines the steps needed to reach
proposes that the changes should not come as a surprise to the members of the organization. the desired state
2. Changing to New situation: Once the unfreezing process has been completed and the members of the 4. Implementing and managing the change at every level of the
organization recognize the need for change and have been fully prepared to accept such change, their behavior organization
patterns need to be redefined. To navigate a digital transformation successfully, each of these elements is
H.C. Kellman has proposed three methods for reassigning new patterns of behaviour: necessary.
a) Compliance: It is achieved by strictly enforcing the reward and punishment strategy for good or bad
behavior. Fear of punishment, actual punishment or actual reward seems to change behavior for the Need for Change Management
better. - Although change management is frequently viewed as a difficult and
b) Identification: Identification occurs when members are psychologically impressed upon to identify complicated process, it is vital for ensuring that digital transformation
themselves with some given role models whose behavior they would like to adopt and try to become like projects are successful.
them. - For any organisation undergoing a digital transition, change management is
c) Internalization: It involves some internal changing of the individual's thought processes in order to adjust crucial.
to a new environment. They have given freedom to learn and adopt new behavior in order to succeed in - A properly implemented change management strategy can help an
the new set of circumstances. organization to:
3. Refreezing: Refreezing occurs when the new behavior becomes a normal way of life. The new behavior must  Specify the parameters and goals of the digital transformation
replace the former behavior completely for successful and permanent change to take place. In order for the  Determine which procedures and tools need to be modified.
new behavior to become permanent, it must be continuously reinforced so that this new acquired behavior  Make a plan for implementing the improvements.
does not diminish or extinguish.  Involve staff members and parties involved in the transformation
Change process is not a onetime application but a continuous process due to dynamism and ever changing process.
environment. The process of unfreezing, changing and refreezing is a cyclical one and remains continuously in  Track progress and make required course corrections
action.
 Chapter 5 – Strategy Implementation and Evaluation (Chart 5.5)
BEST PRACTICES FOR MANAGING CHANGE Key points to manage ORGRANISATIONAL FRAMEWORK
change during digital
The five best practices for managing change in small and MCKINSEY 7S MODEL
medium-sized businesses are: transformation
1. Begin at the top: A focused, invested, united leadership that - The McKinsey 7S Model refers to a tool that analyzes a company’s “organizational
Any organisation may find the design.”
is on the same page about the company's future is reflected work of digital transformation
in change that begins at the top. The culture that will - The goal of the model is to depict how effectiveness can be achieved in an organization
challenging and overwhelming. To
motivate the rest of the organisation to accept change can through the interactions of hard and soft elements.
ensure that a digital transition is
only be generated and promoted in this way. effective, change management is - The McKinsey 7s Model focuses on how the "Soft Ss" and "Hard Ss" elements are
2. Ensure that the change is both necessary and desired: The essential. Here are some pointers interrelated, suggesting that modifying one aspect might have a ripple effect on the
fact that decision-makers are unaware of how to properly for navigating change during the other elements in order to maintain an effective balance Compiled By:CA Sahil Grover
handle a digital transformation and the effects it will have on digital transformation:
their firm is one of the main causes of this. If a corporation HARD ELEMENTS SOFT ELEMENTS
doesn’t have a sound strategy in place, introducing too much 1. Specify the digital
too fast can frequently become a major issue down the road. transformation’s aims and The Hard elements are directly The Soft elements are difficult to define as
3. Reduce disruption: Employee perceptions of what is required objectives: What is the intended controlled by the management. The they are more governed by the culture. But
or desirable change can differ by department, rank, or outcome? What are the precise following elements are the hard these soft elements are equally important
performance history. It's crucial to lessen how changes affect objectives that must be elements in an organization. in determining an organization’s success as
staff. The introduction of new tactics or technologies accomplished? It will be easier to  Strategy: the direction of the well as growth in the industry. The
organization, a blueprint to build on a following are the soft elements in this
intended to improve management and corporate operations make sure that everyone is on the
core competency and achieve model;
causes employee concern about change. It is possible to same page and pursuing the same
reduce workplace disruption by: aims if everyone has a clear grasp
competitive advantage to drive  Shared Values: The core values which get
margins and lead the industry. reflected within the organizational
a) Getting the word out early and preparing for some of the goals.
 Structure: depending on the culture or influence the code of ethics of
interruption. 2. Always, always, always availability of resources and the the management.
b) Giving staff members the knowledge and tools, they communicate: It might be degree of centralisation or  Style: This depicts the leadership style
need to adjust to change. challenging for people to accept decentralization that the and how it influences the strategic
c) Creating an environment that encourages change and adjust to it. Ensure management desires, it choses from decisions of the organisation. It also
transformation or change. that you routinely and honestly the available alternatives of revolves around people motivation and
d) Empowering change agents to provide context and discuss the objectives of the organizational structures. organizational delivery of goals.
clarity for changes, such as project managers or digital transformation and how  Systems: the development of daily  Staff: The talent pool of the organisation.
team leaders. they will affect stakeholders, tasks, operations and teams to  Skills: The core competencies or the key
e) Ensuring that IT department is informed of changes including employees, clients, and execute the goals and objectives in skills of the employees play a vital role in
in technology or infrastructure and is prepared to other parties. the most efficient and effective defining the organizational success.
support them. 3. Be ready for resistance: Even manner.
4. Encourage communication: Create channels so that workers when a change is for the better, it
Limitations of the model
may contact you with queries or complaints. Encourage can be challenging for people to
departmental collaboration to propagate ideas and embrace it. Have a strategy in - It ignores the importance of the
innovations as new procedures take root. Communication place for dealing with any external environment and
promotes efficiency and has the power to influence culture, resistance that may arise. depicts only the most crucial
just like your vision. The people who will be affected the 4. Implement changes gradually: elements within the
most by these changes are reassured that they are not in Changes should ideally be organization.
danger through effective communication, which keeps implemented gradually rather - The model does not clearly
everyone on the same page. than all at once. In order to avoid explain the concept of
5. Recognize that change is the norm, not the exception: overwhelming individuals with organizational effectiveness or
Change readiness may be defined as “the ability to too much change at once, this will performance.
continuously initiate and respond to change in ways that give people time to become used - The model is considered to be
create advantage, minimize risk, and sustain performance.” to the new way of doing things. more static and less flexible for
In order to keep up with the customers, businesses must 5. Offer assistance and training: decision making.
also adapt their operations. They must prepare for change Workers will need guidance in the - It is generally criticized for
in advance and expect them. It may run into difficulties new procedures, software missing out the reals gaps in
because change is not a project but rather an ongoing applications, etc. conceptualization and execution
process. Compiled By:CA Sahil Grover of strategy.
 Chapter 5 – Strategy Implementation and Evaluation (Chart 5.6)
ORGANISATION STRUCTURE Compiled By:CA Sahil Grover

MEANING Changes in strategy often require changes in the way an organization is structured for two TYPES OF ORGANISTION STRUCTURE
- An organizational major reasons:
SIMPLE STRUCTURE FUNCTIONAL STRUCTURE
structure defines 1. Structure largely dictates how objectives and policies will be established to achieve the
how activities strategic objectives. For example, objectives and policies established under a - An organizational form in which the - A functional structure groups tasks
such as task geographic organizational structure are couched in geographic terms. Objectives and owner-manager makes all major decisions and activities by business function
allocation, policies are stated largely in terms of products in an organization whose structure is directly and monitors all activities, while such as production/operations,
coordination and based on product groups. The structural format for developing objectives and policies the company’s staff merely serves as an marketing, finance/accounting,
supervision are can significantly impact all other strategy-implementation activities executor. research and development, and
directed towards 2. Structure dictates how resources will be allocated to achieve strategic objectives. If an - This structure is most appropriate for management information systems.
the achievement organization's structure is based on customer groups, then resources will be allocated in companies that follow a single- business - This structure consists of a chief
of organizational that manner. Similarly, if an organization's structure is set up along functional business strategy and offer a line of products in a executive officer or a managing
aims. lines, then resources are allocated by functional areas. single geographic market. director and limited corporate staff
- Organizational - Appropriate for companies implementing with functional line managers in
According to Chandler, changes in strategy lead to changes in organizational structure.
structure is the focused cost leadership or focused dominant functions such as
- Structure should be designed or redesigned to facilitate the strategic pursuit of a firm
company's formal differentiation strategies. production, accounting, marketing,
and, therefore, structure should follow strategy. Chandler found a particular structure
configuration of - Characteristics: R&D, engineering, and human
sequence to be often repeated as organizations grow and change strategy over time.
its intended roles,  Little specialization of tasks, resources.
- There is no one optimal organizational design or structure for a given strategy.
procedures,  Few rules, - Advantages:
- What is appropriate for one organization may not be appropriate for a similar firm,
governance although successful firms in a given industry do tend to organize themselves in a  Little formalization,  Simplicity and low cost
mechanisms,  Promotes specialization of labour,
similar way.  Unsophisticated information systems
authority, and
 Direct involvement of owner-manager in  Encourages efficiency,
decision-making  Minimizes the need for an
all phases of day-to-day operations
processes. elaborate control system,
- In this structure communication is
- Organizational  Allows rapid decision
frequent and direct, and new products
structure, - Disadvantages:
tend to be introduced to the market
influenced by
quickly, which can result in a competitive  Forces accountability to the top,
factors such as an
advantage. minimizes career development
organization’s age
- This structure may result in competitive opportunities, and is sometimes
and size, acts as a
advantages for some small companies times characterized by low
framework which
relative to their larger counterparts employee morale, line/staff
reflects managers’
- These potential competitive advantages conflicts, poor delegation of
determination of - Every firm is influenced by numerous external and internal forces. But no firm can
include a broad-based openness to authority, and inadequate
what a company change its structure in response to each of these forces, because to do so would lead to
chaos. innovation, greater structural flexibility, planning for products and
does and how
- However, when a firm changes its strategy, the existing organizational structure may and an ability to respond more rapidly to markets.
tasks are
become ineffective. Symptoms of an ineffective organizational structure include too environmental changes.  Differences in functional
completed, given
many levels of management, too many meetings attended by too many people, too - As company grows, more extensive and specialisation and orientation
the chosen
much attention being directed toward solving interdepartmental conflicts, too large a complicated information-processing may impede communications and
strategy.
span of control, and too many unachieved objectives. requirements place significant pressures coordination.
- The most
- Changes in organisational structure can facilitate strategy implementation efforts, but on owner-managers (often due to a lack of  Functional specialists develop a
important issue is
changes in structure should not be expected to make a bad strategy good, to make bad organizational skills or experience or myopic (narrow) perspective,
that the
managers good, or to make bad products sell simply due to lack of time). losing sight of the company’s
company’s Compiled By:CA Sahil Grover
Structure can also influence strategy. - To coordinate more complex strategic vision and mission.
structure must be
congruent with or Structure can also influence strategy. If a proposed strategy required massive structural organizational functions, companies Most large companies abandoned
changes, it would not be an attractive choice. In this way, structure can shape the choice should abandon the simple structure in the functional structure in favour of
fit with the of strategy. But a more important concern is determining what types of structural changes favour of the functional structure
company’s are needed to implement new strategies and how these changes can best be
decentralization and improved
strategy accountability
accomplished.
 Chapter 5 – Strategy Implementation and Evaluation (Chart 5.7)
TYPES OF ORGANISTION STRUCTURE Compiled By:CA Sahil Grover

DIVISIONAL STRUCTURE MULTI-DIVISIONAL SBU STRUCTURE

STRUCTURE
- As a small organization grows, it has more Divisional structure can be organized in - It is composed of operating units where each unit represents a separate
difficulty in managing different products one of four ways: by geographic area, by - Composed of operating business to which the top corporate officer delegates responsibility for
and services in different markets. Some product or service, by customer, or by divisions where each division day-to-day operations and business unit strategy to its managers.
form of divisional structure generally process. represents a separate business - By such delegation, the corporate office is responsible for formulating
becomes necessary. - By Geographic Area: is appropriate for to which the top corporate and implementing overall corporate strategy and manages SBUs through
- Divisional structure can be organized in one organizations whose strategies need to officer delegates responsibility strategic and financial controls.
of four ways: by geographic area, by for day-to-day operations and - The SBU structure groups similar divisions into strategic business units
be tailored to fit the particular needs
product or service, by customer, or by business unit strategy to and delegates authority and responsibility for each unit to a senior
and characteristics of customers in
process. division managers. executive who reports directly to the chief executive officer.
different geographic areas. This type of
- With a divisional structure, functional - By such delegation, the - It consists of at least three levels, with a corporate headquarters at the
activities are performed both centrally and structure can be most appropriate for
corporate office is responsible top, SBU groups at the second level, and divisions grouped by
in each separate division. organizations that have similar branch relatedness within each SBU at the third level.
facilities located in widely dispersed for formulating and
- Advantages: implementing overall corporate - Within each SBU, divisions are related to each other, as also that SBU
 The accountability is clear. Divisional areas. A divisional structure by
geographic area allows local strategy and manages divisions groups are unrelated to each other. Within each SBU, divisions producing
managers can be held responsible for through strategic and financial similar products and/or using similar technologies can be organised to
sales and profit. participation in decision making and achieve synergy.
controls.
 Employee morale is generally higher in a improved coordination within a region - Individual SBUs are treated as profit centres and controlled by corporate
divisional structure than it is in - By Product (or services): is most - It was developed in the 1920s,
headquarters that can concentrate on strategic planning rather than
centralized structure. Because a effective for implementing strategies in response to coordination- operational control
divisional structure is based on extensive when specific products or services and control-related problems in Advantages:
delegation of authority, managers and need special emphasis. Also, this type large firms  Establishing coordination between divisions having common
employees can easily see the results of of structure is widely used when an - Multidivisional structure calls strategic interests.
their good or bad performances. organization offers only a few products for:  Facilitates strategic management and control on large & diverse orgs.
 Creates career development or services, when an organization's  Creating separate divisions,  Fixes accountabilities at the level of distinct business units.
opportunities for managers, allows local products or services differ each representing a distinct  Helps allocate corporate resources to areas with greatest growth
control of local situations, leads to a substantially. business opportunities.
competitive climate within an - By Customer: can be the most effective  Each division would house its  Makes the task of strategic review by top executives more objective
organization, and allows new businesses way to implement strategies when a functional hierarchy; and more effective.
and products can be added easily. few major customers are of paramount  Division managers would be  Allows strategic planning to be done at the most relevant level
- Limitations: importance and many different given responsibility for within the total enterprise.
i. Divisional structure is costly, for a services are provided to these managing day-to-day - Disadvantages:
number of reasons: customers, then this structure allows operations;  Requires an additional layer of management, which increases salary
 First, each division requires functional an organization to cater effectively to  A small corporate office that expenses, and
specialists who must be paid. the requirements of clearly defined would determine the long-  The role of the group vice president is often ambiguous.
 Secondly, there exists some customer groups. For example, book- term strategic direction of the
duplication of staff services, facilities, Meaning of SBU & Its Characteristics
publishing companies often organize firm and exercise overall - SBU is a unit of the company that has a separate mission and objectives
and personnel; for instance, functional
their activities around customer groups financial control over the and which can be planned independently from other businesses of the
specialists are also needed centrally (at
HO) to coordinate divisional activities. such as colleges, secondary schools, semi-autonomous divisions organisation.
 Third, managers must be well and private commercial schools. - This would enable the firm to - SBU can be a co. division, a product line within a division or even a single
qualified, better-qualified individuals - By Process: is similar to a functional more accurately monitor the product/brand, specific group of customers or geographical location.
requires higher salaries. structure, because activities are performance of individual - The SBU is given the authority to make its own strategic decisions within
 it requires an elaborate, headquarters- organized according to the way work is businesses, simplifying control corporate guidelines as long as it meets corporate objectives.
driven control system. actually performed. However, a key problems, facilitate CHARACTERISTICS
ii. Conflicts between divisional managers: difference between these two designs comparisons between  It is a single business or a collection of related businesses which offer
Certain regions, products, or customers is that functional departments are not divisions, improving the scope for independent planning and which might feasibly stand alone
may sometimes receive special accountable for profits or revenues, allocation of resources and from the rest of the organization.
treatment, and it may be difficult to whereas divisional process stimulate managers of poorly  Has its own set of competitors? Compiled By:CA Sahil Grover
maintain consistent, companywide departments are evaluated on these performing divisions to seek  Has a manager who has responsibility for strategic planning and profit
practices. criteria. ways to improve performance performance. He has control of profit-influencing factors
 Chapter 5 – Strategy Implementation and Evaluation (Chart 5.8)
MATRIX STRUCTURE HOURGLASS STRUCTURE NETWORK STRUCTURE
a) - In the recent years information technology b)
- In matrix structures, functional & product Davis and Lawrence, have - A radical organizational design, the network structure is an
forms are combined simultaneously at same proposed three distinct phases and communications have significantly example of what could be termed a "non-structure" by its
for development of matrix altered the functioning of organizations.
level of the organisation. virtual elimination of in house business functions.
structure - The role played by middle management is
- Employees have, two superiors, a product or - Many activities are outsourced.
diminishing as the tasks performed by them
project manager and a functional manager. i. Cross-functional task force: - A corporation organized in this manner is often called a virtual
are increasingly being replaced by the
- The "home" department − that is, Temporary cross-functional
technological tools. organization because it is composed of a series of project groups
engineering, manufacturing, or sales − is task forces are initially used
- Hourglass structure consists of 3 layers with or collaborations linked by constantly changing non-hierarchical,
usually functional and is reasonably when a new product line is constricted middle layer .The structure has cobweb-like networks
permanent. People from these functional being introduced. A project short & narrow middle-management level - This structure becomes most useful when the environment of a
units are often assigned temporarily to one manager is in charge as the - IT links top & bottom levels in org taking firm is unstable and is expected to remain so.
or more product units or projects. key horizontal link. away many tasks that are performed by - Instead of having salaried employees, organisation may contract
- The product units or projects are usually ii. Product/brand middle level managers. A shrunken middle with people for a specific project or length of time.
temporary and act like divisions in that they management: layer coordinates diverse lower-level - Long-term contracts with suppliers and distributors replace
are differentiated on a product-market basis If the cross-functional task activities. services that the company could provide for itself through
- It is the most complex of all designs because forces become more - Contrary to traditional middle level vertical integration.
it depends upon both vertical and horizontal permanent, the project managers who are often specialist, managers - Organization's business functions are scattered worldwide. The
flows of authority and communication manager becomes a are generalists & they handle cross-
organization is, in effect, only a shell, with a small headquarters
(hence the term matrix). product or brand manager functional issues emanating such as those
acting as a "broker", electronically connected to some
and a second phase begins. from marketing, finance or production
- It was developed to combine the stability of completely owned divisions, partially owned subsidiaries, and
In this arrangement, Advantages: Compiled By:CA Sahil Grover
the functional structure with the flexibility of other independent companies.
the product form. function is still the primary  Reduced costs - The network organization is a series of independent firms or
- The matrix structure is often found in an organizational structure,  It also helps in enhancing responsiveness by business units linked together by computers in an information
organization or within an SBU when the but product or brand simplifying decision making. Decision making system that designs, produces, and markets a product or
following three conditions exists: managers act as the service.Eg companies like Airtel.
authority is shifted close to the source of
 Ideas need to be cross-fertilized across integrators of semi-
information so that it is faster. - This structure provides an organization with increased flexibility
projects or products, permanent products or
Limitations: and adaptability to cope with rapid technological change and
brands.
 Resources are scarce and  With reduced size of middle management the shifting patterns of international trade and competition. It allows a
iii. Mature matrix
 Abilities to process information and to promotion opportunities for the lower levels company to concentrate on its distinctive competencies. while
The third and final phase of
make decisions need to be improved. diminish significantly. gathering efficiencies from other firms who are concentrating
matrix development
- This structure can result in higher overhead their efforts in their areas of expertise.
involves a true dual  Continuity at same level may bring monotony
because it more management positions. and lack of interest and it becomes difficult to - Disadvantages:
authority structure. Both
- Characteristics of a matrix structure that  The availability of numerous potential partners can be a
the functional and product keep the motivation levels high.
contribute to overall complexity include dual source of trouble.
structures are permanent.   Contracting out functions to separate suppliers/distributors
lines of budget authority (a violation of the
All employees are may keep the firm from discovering any synergies by
unity command principle), dual sources of
connected to both a combining activities. If a particular firm overspecializes on
reward and punishment, shared authority,
vertical functional superior only a few functions, it runs the risk of choosing the wrong
dual reporting channels, and a need for an functions and thus becoming non- competitive.
and a horizontal product
extensive and effective communication
manager. Functional and
system.
product managers have
- Advantages: equal authority and must
Objectives are clear, there are many channels work well together to
of communication workers can see the visible resolve disagreements over
results of their work, and shutting down a resources and priorities.
project is accomplished relatively easily.
- Widely used in many industries, including
Compiled By:CA Sahil Grover
construction, healthcare, research and
defence.
 Chapter 5 – Strategy Implementation and Evaluation (Chart 5.9)
CORPORATE CULTURE
MEANING IMPORTANCE OF CORPORATE CULTURE CHANGING CORPORATE CULTURE
- Corporate culture refers to a A culture where creativity, embracing change, and Changing problem cultures is very difficult because of deeply held values and habits. It
company's values, beliefs, business challenging the status quo are pervasive themes is very takes concerted management action over a period of time to replace an unhealthy culture
principles, traditions, ways of conducive to successful execution of a product innovation with a healthy culture or to root out certain unwanted cultural obstacles and instill ones
operating and internal work and technological leadership strategy. A culture built around that are more strategy-supportive.
such business principles as listening to customers, Compiled By:CA Sahil Grover
environment.
- Every corporation has a culture that encouraging employees to take pride in their work, rind STEPS TO CHANGE A COMPANY'S PROBLEM CULTURE
exerts powerful influences on the giving employees a high degree of decision-making - The first step is to diagnose which facets of the present culture are strategy supportive
responsibility is very conducive to successful execution of a and which are not.
behavior of managers.
strategy of delivering superior customer service.
- Culture affects not only the way - Then, managers have to talk openly and forthrightly to all concerned about those aspects
managers behave within an i. A strong strategy-supportive culture nurtures and of the culture that have to be changed
organization but also the decisions motivates people to do their jobs in ways conducive to - The talk has to be followed swiftly by visible, aggressive actions to modify the culture-
they make about the organization's effective strategy execution; it provides structure, actions that everyone will understand are intended to establish a new culture more in
standards, and a value system in which to operate; and it
relationships with its environment tune with the strategy.
promotes strong employee identification with the
and its strategy. - The menu of culture-changing actions includes revising policies and procedures, altering
company's vision, performance targets, and strategy.
ii. All this makes employees feel genuinely better about their incentive compensation, visibly praising and recognizing people who display the new
"Culture is a strength that can also jobs and work environment and the merits of what the cultural traits, recruiting and hiring new managers and employees who have the desired
be a weakness". company is trying to accomplish. cultural values and can serve as role models for the desired cultural behaviour, replacing
As a Strength iii. Employees are stimulated to take on the challenge of key executives who are strongly associated with the old culture, taking every
- Culture can facilitate realizing the company's vision, do their jobs competently opportunity to communicate to employees the basis for cultural change and its benefits
communication, decision making and with enthusiasm, and collaborate with others as to all concerned.
and control and instil cooperation needed to bring the strategy to success.
and commitment. IMPACT OF CORPORATE CULTURE.
- An organization's culture could be ROLE OF CORPORATE CULTURE. - Corporate culture refers to values, beliefs, business principles, traditions, ways of
strong and cohesive when it operating, and internal work environment.
- Strong cultures promote good strategy execution when
conducts its business according to - An organization’s culture is either an important contributor or an obstacle to successful
there's fit and hurt execution when there's negligible fit. A
clear and explicit set of principle strategy execution.
culture grounded in values, practices, and behavioral norms
and values, which the that match what is needed for good strategy execution - The beliefs, vision, objectives, business approaches and practices underpinning a
management devotes considerable helps energize people throughout the organization to do company's strategy may be compatible with its culture or not. When they are, the
time to communicating to their jobs in a strategy- supportive manner. culture becomes a valuable ally in strategy implementation and execution.
employees and which values are - A culture built around such business principles as listening - Strong culture promotes good strategy execution when there’s fit and impedes
shared widely across the to customers, encouraging employees to take pride in their execution when there’s negligible fit.
organisation. work, and giving employees a high degree of decision- - When the culture is in conflict with some aspect of the company's direction,
As a weakness. making responsibility. This is very conducive to successful performance targets or strategy, the culture becomes a stumbling block that impedes
- A Culture, as a weakness can execution of a strategy of delivering superior customer successful strategy implementation and execution.
obstruct the smooth service. - A culture grounded in values, practices, and behavioural norms that match what is
implementation of strategy by - A work environment where the culture matches the needed for good strategy execution helps energize people throughout the company to
creating resistance to change. conditions for good strategy execution provides a system of do their jobs in a strategy-supportive manner, adding significantly to the power and
- An organization's culture could be informal rules and peer pressure regarding how to conduct effectiveness of strategy execution.
characterized as weak when many business internally and how to go about doing one's job. - A culture where creativity, embracing change, and challenging the status quo are
sub-cultures exists, few values and - A strong strategy-supportive culture makes employees feel pervasive themes is very conducive to successful execution of a product innovation and
behavioral norms are shared and genuinely better about their jobs and work environment technological leadership strategy.
traditions are rare. and the merits of what the company is trying to accomplish. - A culture built around such business principles as listening to customers, encouraging
- In such organizations, employees Employees are stimulated to take on the challenge of employees to take pride in their work, and giving employees a high degree of decision-
realizing the organizational vision, do their jobs making authority is very conducive to successful execution of a strategy of delivering
do not have a sense of
competently and with enthusiasm, and collaborate with superior customer value.
commitment, loyalty and sense of
others.
identity.
 Chapter 5 – Strategy Implementation and Evaluation (Chart 5.10)
ORGANISATIONAL CONTROL STRATEGIC CONTROL STRATEGIC LEADERSHIP
- Controlling is a function intended to ensure and make possible the performance of - According to Schendel and HoferIt Strategic Control focuses MEANING
planned activities and to achieve the pre-determined goals and results. Control is on dual questions of whether:
intended to regulate and check. a) Strategy is being implemented as planned - Strategic leadership is the ability of influencing
- Control function involves monitoring the activity and measuring results against b) Results produced by strategy are those intended others to voluntarily make decisions that
pre-established standards, analysing and correcting deviations as necessary and - It is process of evaluating strategy as it is formulated & enhance prospects for the organization's long-
maintaining/adapting the system. Compiled By:CA Sahil Grover
implemented. term success while maintaining short-term
- There is often a time gap between the stages of strategy financial stability.
Elements: The process of control has the following elements:
formulation and its implementation. A strategy might be - It sets the firm's direction by developing and
a) Objectives of the business system which could be operationalized into
affected on account of changes in internal and external communicating a vision of future, formulate
measurable and controllable standards. environments of organisation. strategies in the light of internal and external
b) A mechanism for monitoring and measuring the performance of the system. - Strategic Control is directed towards identifying problems environment, brings about changes required to
c) A mechanism (i) for comparing the actual results with reference to the & changes in premises and making necessary adjustments. implement strategies and inspire the staff to
standards (ii) for detecting deviations from standards and (iii) for learning new TYPES OF STRATEGIC CONTROL contribute to strategy execution.
insights on standards themselves. a) Premise control: A strategy is formed on the basis of
d) A mechanism for feeding back corrective and adaptive information and certain assumptions or premises about the complex and LEADERSHIP ROLES PLAYED BY
instructions to the system, for effecting the desired changes to set right the turbulent org. environment. Over a period of time these MANAGERS
system to keep it on course. premises may not remain valid. Premise Control is a tool  Staying on top of what is happening, closely
- Primarily there are THREE TYPES OF ORGANIZATIONAL CONTROL: for systematic & continuous monitoring of the monitoring progress , solving out issues,
- OPERATIONAL CONTROL - MANAGEMENT CONTROL - STRATEGIC CONTROL. environment to verify the validity and accuracy of the and learning what obstacles lie in the path of
premises on which the strategy has been built. It primarily good execution.
OPERATIONAL CONTROL involves monitoring two types of factors:  Promoting a culture that mobilizes and
- The thrust of operational control is on individual tasks or transactions as against (i) Environmental factors such as economic (inflation, energizes organizational members to execute
total or more aggregative management functions. For example, procuring specific liquidity, interest rates), technology, social and legal- strategy in a competent fashion and perform
items for inventory is a matter of operational control, in contrast to inventory regulatory. at a high level.
management as a whole. (ii) Industry factors such as competitors, suppliers,  Keeping organization responsive to changing
- One of the tests that can be applied to identify operational control areas is that substitutes. conditions, alert for new opportunities,
there should be a clear-cut and somewhat measurable relationship between b) Strategic surveillance: It is unfocussed. It involves general bubbling with innovative ideas and remain
inputs and outputs which could be predetermined or estimated with least monitoring of various sources of information to uncover ahead of rivals in developing competitively
uncertainty. unanticipated information having a bearing on the valuable competencies and capabilities
- Many of the control systems in organisations are operational and mechanistic in organizational strategy  Ethical leadership & insisting that the
nature. A set of standards, plans and instructions are formulated. The control c) Special alert control: At times unexpected events may organization conduct its affairs like a model
activity consists of regulating the processes within certain ‘tolerances’, force organizations to reconsider their strategy. Sudden
irrespective of the effects of external conditions on the formulated standards, corporate citizen.
changes in government, natural calamities, unexpected  Pushing corrective actions to improve
plans and instructions. merger/acquisition by competitors, industrial disasters and
- Some of the examples of operational controls can be stock control (maintaining strategy execution & overall strategic
other such events may trigger an immediate and intense performance.
stocks between set limits), production control (manufacturing to set review of strategy. Compiled By:CA Sahil Grover
programmes), quality control (keeping product quality between agreed limits), d) Implementation control: Implementation control is
cost control (maintaining expenditure as per standards), budgetary control RESPONSIBILITIES OF STRATEGIC
directed towards assessing the need for changes in the
(keeping performance to budget). LEADER
overall strategy in light of unfolding events and results
- associated with incremental steps and actions. The two
MANAGEMENT CONTROL - Making strategic decisions.
basis forms of implementation control are: - Formulating policies and action plans to
- Management control is more inclusive & more aggregative, in the sense of - Monitoring strategic thrusts: Monitoring strategic implement strategic decision.
embracing the integrated activities of a complete department, division or even thrusts help managers to determine whether the overall
entire org., instead of mere narrowly circumscribed activities of sub-units. - Ensuring effective communication in the
strategy is progressing as desired or whether there is
- The basic purpose of management control is the achievement of enterprise goals organisation.
need for readjustments.
-short range and long range - in a most effective and efficient manner. - Managing human capital (perhaps the most
- Milestone Reviews: All key activities necessary to
- The term management control is defined by Robert Anthony as ‘the process by implement strategy are segregated in terms of time, critical of the strategic leader’s skills).
which managers assure the resources are obtained and used effectively and events or major resource allocation. It normally involves - Managing change in the organisation.
efficiently in the accomplishment of the organization’s objectives. Controls are a complete reassessment of the strategy. It also assesses - Creating and sustaining strong corporate
necessary to influence the behavior of events and ensure that they conform to the need to continue or refocus the direction of an culture.
plans organization. - Sustaining high performance over time.
 Chapter 5 – Strategy Implementation and Evaluation (Chart 5.11)
APPROACHES TO LEADERSHIP STRATEGIC PERFORMANCE MEASURES
STYLE
MEANING TYPES OF STRATEGIC PERFORMANCE MEASURES FACTORS
- TRANSFORMATIONAL LEADERSHIP
STYLE-
- Strategic performance  Financial Measures: Financial measures, such as revenue growth, In selecting the right measures,
measures are key indicators return on investment (ROI), and profit margins, provide an organizations should consider the
o It uses charisma and enthusiasm to
that organizations use to track understanding of the organization's financial performance and its following factors:
inspire people to exert them for the the effectiveness of their ability to generate profit.  Relevance: The measure should be
good of the organization. strategies and make informed relevant to the organization's goals
o May be appropriate in  Customer Satisfaction Measures: Customer measures, such as
decisions about resource customer satisfaction, customer retention, and customer loyalty, and objectives and provide
- turbulent environments, allocation. information that is actionable and
- in industries at the very start or end provide insight into the organization's ability to meet customer
- The measures provide a meaningful.
needs and provide high-quality products and services.
of their life- cycles, snapshot of the organization's  Data Availability: The measure should
- in poorly performing organizations performance, enabling leaders  Market Measures: Market measures, such as market share,
be based on data that is readily
when there is a need to inspire a to assess whether their customer acquisition, and customer referrals, provide
available and can be collected and
company to embrace major changes. strategies are aligned with their information about the organization's competitiveness in the analyzed in a timely manner.
o Transformational leaders offer goals and objectives and to marketplace and its ability to attract and retain customers.  Data Quality: The measure should be
excitement, vision, intellectual make necessary adjustments to  Employee Measures: Employee measures, such as employee based on high-quality data that is
stimulation and personal satisfaction. improve their performance satisfaction, turnover rate, and employee engagement, provide accurate and reliable.
o They inspire involvement in a mission, - Key performance measures and insight into the organization's ability to attract and retain  Data Timeliness: The measure should
giving followers a 'dream' or 'vision' of indicators must be created, talented employees and create a positive work environment. be based on data that is current and
a higher calling so as to elicit more selected, combined into reports  Innovation Measures: Innovation measures, such as research and up-to-date, enabling organizations to
dramatic changes in organizational and acted upon so that strategy development (R&D) spending, patent applications, and new make informed decisions in a timely
implementation can have product launches, provide insight into the organization's ability to manner
performance.
tangible outcomes. innovate and create new products and services that meet
o Such a leadership motivates followers
- Firstly, there needs to be a customer needs.
to do more than originally affected to
clear cause and effect  Environmental Measures: Environmental measures, such as Compiled By:CA Sahil Grover
do by stretching their abilities and relationship between the
increasing their self-confidence, and energy consumption, waste reduction, and carbon emissions,
indicators and strategic
also promote innovation throughout provide insight into the organization's impact on the
outcomes. Secondly, KPIs need
the organization. environment and its efforts to operate in a sustainable manner.
to be carefully chosen because
- TRANSACTIONAL LEADERSHIP STYLE- they will influence the Managing the Political Aspects of
o Focus more on designing systems and behaviour of people within the IMPORTANCE Implementing a Strategy
controlling the organization's activities organisation.
 Goal Alignment: Strategic performance measures help
and are more likely to be associated - A company's performance - People involved in the planning process
organizations align their strategies with their goals and
with improving the current situation. depends heavily on execution for the implementation of a strategy
of strategy. Companies that objectives, ensuring that they are on track to achieve their
o More formalized approach to may be affected by two sets of forces.
desired outcomes.
motivation, setting clear goals with continuously outperform their  The "rational" forces of openness,
competitors are those who  Resource Allocation: Strategic performance measures provide communication, and self-analysis.
explicit rewards or penalties for
execute well. Executives in a organizations with the information they need to make informed  The “political” forces concerned with
achievement or non-achievement
variety of businesses should decisions about resource allocation, enabling them to prioritize preserving empires and fostering
o It uses authority of its office to exchange
explore about utilizing strategic their efforts and allocate resources to the areas that will have the internal rivalry that urge knowledge
rewards, such as pay & status
performance measurement greatest impact on their performance. retention, selective communication,
o Appropriate in settled environment, in
(SPM).  Continuous Improvement: Strategic performance measures and caution.
growing or mature industries, and in
- SPM is a method that increases provide organizations with a framework for continuous
organizations that are performing well.
line executives' understanding improvement, enabling them to track their progress and make - When these two techniques conflict,
o The style is better suited in persuading of an organization's strategic adjustments to improve their performance over time. the politically acceptable aspects may
people to work efficiently and run goals and offers a continuous  External Accountability: Strategic performance measures help end up in the explicit strategy while the
operations smoothly. system for tracking progress sensitive elements may form an
organizations demonstrate accountability to stakeholders,
o Transactional leaders try to build on the towards these objectives using unspoken plan that contains the
including shareholders, customers, and regulatory bodies, by
existing culture and enhance current clear-cut performance implicit strategy
providing a clear and transparent picture of their performance.
practices. measurements
o Compiled By:CA Sahil Grover