CHAPTER 1

INTRODUCTION TO STRATEGIC MANAGEMENT

OVERVIEW

INTRODUCTION
● With increased competition, business management has acquired a strategic dimension. All
executives and professionals, including Chartered Accountants, working towards growth
of businesses, must possess sound knowledge of concepts of strategic management.

1.MEANING AND NATURE OF STRATEGIC MANAGEMENT

What do you mean by strategic management and describe its nature?

To understand the concept of strategic management, we need to have a basic understanding of

the term management. The term ‘management’ is used in two senses, such as:

(a) It is used with reference to a key group in an organisation in-charge of its affairs. In
relation to an organisation, management is the chief organ entrusted with the task of
making it a purposeful and productive entity, by undertaking the task of bringing together
and integrating the disorganised resources of manpower, money, material, and technology,
which are then combined into a functioning whole. The survival and success of an
organisation depends on the competence and character of its management.

[Type here]
 (b) The term ‘Management’ is also used with reference to a set of interrelated functions and
processes carried out by the management of an organisation. These functions include
Planning, Organising, Directing, Staffing and Control. The functions or sub-processes of
management are wide-ranging but closely interrelated. They range all the way from
determination of the goals, design of the organisation, mobilisation and acquisition of
resources, allocation of tasks and resources among the personnel and activity units and
installation of control system to ensure that what is planned is achieved. Management is
an influence process to make things happen, to gain command over phenomena, to induce
and direct events and people in a particular manner.

The strategic management process is the set of activities that firm managers undertake to put
their firms in the best possible position to compete successfully in the marketplace. Strategic
management is made up of several distinct activities: developing the firm’s vision and mission;
strategic analysis; developing objectives; creating, choosing, and implementing strategies; and
measuring and evaluating performance.

2. CONCEPT OF STRATEGY
What is strategy? Describe briefly.

The very incorporation of the idea of strategy into business organizations is intended to unravel
complexity and to reduce uncertainty caused by changes in the environment.

Strategy seeks to relate the goals of the organization to the means of achieving them.

Strategy is the game plan that the management of a business uses to take market position,
conduct its operations, attract and satisfy customers, compete successfully, and achieve
organizational objectives.

The term strategy is associated with unified design and action for achieving major goals, gaining
command over the situation with a long-range perspective and securing a critically advantageous
position, its implications for corporate functioning are obvious.

We may define the term ‘strategy’ as a long-range blueprint of an organization’s desired image,
direction and destination, i.e., what it wants to be, what it wants to do, how it wants to do things,
and where it wants to go.

Following are also important other definitions are to understand the term:

Igor H. Ansoff: The common thread among the organization’s activities and product-markets
that defines the essential nature of business that the organization has or planned to be in future.

William F. Glueck: A unified, comprehensive and integrated plan designed to assure that the
basic objectives of the enterprise are achieved.

[Type here]
Strategy is consciously considered and flexibly designed scheme of corporate intent and action
to mobilise resources, to direct human effort and behaviour, to handle events and problems, to
perceive and utilise opportunities, and to meet challenges and threats for corporate survival and
success.

Strategy is meant to fill in the need of organizations for a sense of dynamic direction, focus and
cohesiveness.

Strategy provides an integrated framework for the top management to search for, evaluate and
exploit beneficial opportunities, to perceive and meet potential threats and crisis, to make full
use of resources and strengths, and to offset corporate weaknesses.

Important to note that strategy is no substitute for sound, alert and responsible management. It
must be recognised that strategy can never be perfect, flawless and optimal. It is in the very
nature of strategy that it is flexible and pragmatic to take care of sudden emergencies,
pressures, and avoid failures and frustrations. In a sound strategy, allowances are made for
possible miscalculations and unanticipated events.

In large organisations, strategies are formulated at:

● Corporate,
● Divisional, and
● Functional Levels

Corporate strategies are formulated by the top managers. Such strategies include the
determination of the plans for expansion and growth, vertical and horizontal integration,
diversification, takeovers and mergers, new investment and divestment areas, R & D projects, and
so on.

These corporate wide strategies need to be operationalized by divisional and functional

strategies regarding product lines, production volumes, quality ranges, prices, product promotion,
market penetration, purchasing sources, personnel development and like.

Strategy is partly proactive and partly reactive: A company’s strategy is typically a blend of:

● Proactive actions on the part of managers to improve the company’s market position and
financial performance.
● Reactions to unanticipated developments and fresh market conditions in the dynamic
business environment.

In other words, a company uses both proactive and reactive strategies to cope up the uncertain
business environment. Proactive strategy is planned strategy whereas reactive strategy is
adaptive reaction to changing circumstances.

[Type here]
As is evident from the figure, a company’s current strategy flows from both previously initiated
actions and business approaches that are working well enough to merit continuation, as well as
newly initiated managerial decisions and actions that strengthen the company’s overall position
and performance. Thus, strategy partly is deliberate and proactive, standing as the product of
management’s analysis and strategic thinking about the company’s situation.

However, not every strategic move is the result of proactive planning and deliberate management
design. When market and competitive conditions take an unexpected turn or some aspect of a
company’s strategy hits a stone wall, some kind of strategic reaction or adjustment is required.
Hence, partially, a company’s strategy is always developed as a reasoned response to unforeseen
developments in the business environment as well as the situations within the firm.

Crafting a strategy thus involves stitching together a proactive/intended strategy based on prior
successful experience and then adapting pieces of successful reactions as circumstances
surrounding the company’s situation change or better options emerge - a reactive/adaptive
strategy.

Strategy helps unravel complexity and reduce uncertainty caused by changes in the environment.
It also means to identify existing problems and solving them by executing revolutionary ideas.

EXAMPLE in the recent times, that is UPI, UPI has changed the entire digital payments landscape
in India and has now even gone global. A true example of Made in India for the world. It was all
because of a well-planned identification of existing problem statement, formulating a strategy
putting it to perfect execution.

[Type here]
3.STRATEGIC MANAGEMENT-Importance and limitations
what is strategic management and explain their importance and limitations?

The importance of Strategic Management essentially lies in enabling an organisation to perform

better than its competitors and its own past and present performance.

That is, delivering superior returns to the investors, superior value to the customers and superior
performance vis-à-vis expectations of the employees, suppliers, government and society.

The overall objectives of strategic management are two-fold:

1. To create competitive advantage (something unique and valued by the customer), so that
the company can outperform the competitors in all aspects of organisational performance.
2. To guide the company successfully through all changes in the environment. That is to
react in the right manner.

The organizational operations are highly influenced by the increasing rate of change in the
environment and the ripple effect created on the organization. Changes can be external to the
firm, or they may be introduced in the firm by the managers. It may manifest in the blurring of
industry and firm boundaries, driven by technology, deregulation, or, through globalization.

The tasks of crafting, implementing and executing company strategies are the heart and
soul of managing a business enterprise.

The term ‘strategic management’ refers to the managerial process of developing a strategic
vision, setting objectives, crafting a strategy, implementing and evaluating the strategy, and
finally initiating corrective adjustments were deemed appropriate. The process does not end, it
keeps going on in a cyclic manner.

Developing
strategic
vision

Initiating
Setting
corrective
objectives
adjustments

Implementing
Crafting a
and evaluating
strategy
statergy

Strategic management involves developing the company’s vision, environmental scanning (both
external and internal), strategy formulation, strategy implementation and evaluation and control.

Originally called, business policy, strategic management emphasizes the monitoring and evaluation
of external opportunities and threats in the light of a company’s strengths and weaknesses and
designing strategies for the survival and growth of the company

[Type here]
3.1 IMPORTANCE OF STRATEGIC MANAGEMENT

Formulation of strategies and their implementation have become essential for all organizations
for their survival and growth in the present turbulent business environment. ‘Survival of the
fittest ‘as propagated by Charles Darwin is the only principle of survival for all organizations,
where ‘fittest’ are not the ‘largest’ or strongest’ organizations but those who can change and adapt
successfully to the changes in business environment.

Many business giants have followed the path of extinction failing to manage drastic changes in
the business environment.

EXAMPLE-Bajaj Scooters, LML Scooters, Murphy Radio, BPL Television, Videocon, Nokia, kodak
and so on.

Businesses follows the war principle of ‘win or lose’, and only in a small number of cases, win-win
situation arises. Hence, each organization has to build its competitive advantage over the
competitors in the business warfare in order to win. This can be done only by following the process
of strategic management - strategic analysis, formulation and implementation, evaluation and
control of strategies.

The major benefits of strategic management are:

1. The strategic management gives a direction to the company to move ahead. It helps
define the goals and mission. It helps management to define realistic objectives and goals
which are in line with the vision of the company.
2. Strategic management helps organisations to be proactive instead of reactive in shaping
its future. Organisations are able to analyse and take actions instead of being mere
spectators. Thereby they are able to control their own destiny in a better manner. It helps
them in working within vagaries of environment and shaping it, instead of getting carried
away by its turbulence or uncertainties.

[Type here]
 3. Strategic management provides frameworks for all major decisions of an enterprise
such as decisions on businesses, products, markets, manufacturing facilities, investments
and organisational structure. It provides better guidance to entire organisation on the
crucial point - what it is trying to achieve.
4. Strategic management seeks to prepare the organisation to face the future and act as
pathfinder to various business opportunities. Organisations are able to identify the
available opportunities and identify ways and means to reach them.
5. Strategic management serves as a corporate defence mechanism against mistakes and
pitfalls. It helps organisations to avoid costly mistakes in product market choices or
investments.
6. Strategic management helps to enhance the longevity of the business. With the state
of competition and dynamic environment it may be challenging for organisations to survive
in the long run. It helps the organization to take a clear stand in the related industry and
makes sure that it is not just surviving on luck. Actions over expectations is what strategic
management ensures.
7. Strategic management helps the organisation to develop certain core competencies and
competitive advantages that would facilitate assist in its fight for survival and growth.

The importance of strategic management lies in delivering superior organizational performance

than that would otherwise obtain. In the competitive context it implies performance superior
to that of the competitors or more generally, above average performance.

3.2 LIMITATIONS OF STRATEGIC MANAGEMENT

The presence of strategic management cannot counter all hindrances and always achieve success.
There are limitations too, attached to strategic management

1. Environment is highly complex and turbulent. It is difficult to understand the complex

environment and exactly pinpoint how it will shape-up in future. The
organisational estimate about its future shape may awfully go wrong and
jeopardise all strategic plans. The environment affects as the
organisation has to deal with suppliers, customers, governments and
other external factors. Thus, relying on a business strategy blindly
could go absolutely wrong if the environment is turbulent.

EXAMPLE- Two-Wheeler Electric Vehicles brands counted on strategic benefits they

would have because of the huge push from the government for electric mobility. However,
customers are getting reluctant to purchase EVs due to the safety concerns amid the
frequent incidents of battery’s catching fire. So, strategy cannot overcome a turbulent
environment.
2. Strategic management is a time-consuming process. Organisations spend a lot of time in
preparing, communicating the strategies that may impede daily operations and negatively

[Type here]
 impact the routine business. Planning and strategizing are important but putting them in
action is where the actual success lies.

Similar to us students, planning and strategizing what to study, from where

and at what time of the day to study, consumes so much of our actual study
time that by the time we have to study, we are almost exhausted. Similarly
in business if way too much time is spent on planning and formulating, then it
might not be as fruitful.

3. Strategic management is a costly process. Strategic management adds a

lot of expenses to an organization. Expert strategic planners need to be
engaged, efforts are made for analysis of external and internal
environments, devise strategies and properly implement. These experts are
costly resources. These can be really costly for organisations with limited
resources particularly when small and medium organisation create
strategies to compete. Thus, the process as a whole requires good amount
of funds to be spent.

4. In a competitive scenario, where all organisations are trying to

move strategically, it is difficult to clearly estimate the
competitive responses to a firm’s strategies. It is quite difficult
to gauge the strategic planning of competitors because most of
these decisions are taken within closed doors by the top
management.

EXAMPLE- Apple changed the market dynamics of the speaker industry by choosing to
remove 3.5mm audio jack from iPhones. Now, to be relevant in the market, all major speaker
brands had to put concentrated efforts to develop their own true wireless speakers (TWS)
and compete with new entrants.

4.STRATEGIC INTENT
What is a strategic intent in strategic management?

Strategic Management is defined as a dynamic process of formulation, implementation,

evaluation, and control of strategies to realise the organisation’s strategic intent. Strategic
intent refers to purposes of what the organisation strives for senior managers must define “what
they want to do” and “why they want to do”.

“Why they want to do” represents strategic intent of the firm. Clarity in strategic intent is
extremely important for the future success and growth of the enterprise, irrespective of its
nature and size.

[Type here]
Strategic intent can be understood as the philosophical base of strategic management. It implies
the purposes, which an organisation endeavours to achieve.

Strategic intent gives an idea of what the organisation desires to attain in future. It answers the
question what the organisation strives or stands for? It indicates the long-term market position,
which the organisation desires to create or occupy and the opportunity for exploring new
possibilities.

Strategic intent provides the framework within which the firm would adopt a predetermined
direction and would operate to achieve strategic objectives.

Strategic intent could be in the form of vision and mission statements for the organisation at
the corporate level. It could be expressed as the business definition and business model at the
business level of the organisation.

Strategic intent is generally stated in broad terms but when stated in precise terms it is an
expression of aims to be achieved operationally, i.e., goals and objectives.

1. Vision: Vision implies the blueprint of the company’s future position. It describes where
the organisation wants to land. It depicts the organisation’s aspirations and provides a
glimpse of what the organisation would like to become in future. Every sub system of the
organisation is required to follow its vision.
2. Mission: Mission delineates the firm’s business, its goals and ways to reach the goals. It
explains the reason for the existence of the firm in the society. It is designed to help
potential shareholders and investors understand the purpose of the firm. A mission
statement helps to identify, ‘what business the firm undertakes.’ It defines the present
capabilities, activities, customer focus and role in society.
3. Goals and Objectives: These are the base of measurement. Goals are the end results, that
the organisation attempts to achieve. On the other hand, objectives are time-based
measurable targets, which help in the accomplishment of goals. These are the end results
which are to be attained with the help of an overall plan, over the particular period.
However, in practice, no distinction is made between goals and objectives and both the
terms are used interchangeably.

[Type here]
 The vision, mission, business definition, and business model explain the philosophy of the
organisation but the goals and objectives represent the results to be achieved in multiple
areas of business.

While Strategic Intent is the purpose that an organisation aims to achieve, Values form the
omnipresent foundation of each and every decision that the management takes. An organisation
without values is like an organisation with no real intent.

4. Values/ Value System: Values are the deep-rooted principles which guide an 0rganisation’s
decisions and actions.
Collins and Porras succinctly define core values as being inherent and sacrosanct; they
can never be compromised, either for convenience or short-term economic gain. Values
often reflect the values of the company’s founders. They are the source of a company’s
distinctiveness and must be maintained at all costs.

4.1 VISION

Top management’s views about the company’s direction and the product- customer-market-
technology focus constitute the strategic vision for the company.

Strategic vision delineates management’s aspirations for the business, providing a panoramic view
of the “where we are to go” and a convincing rationale for why this makes good business sense for
the company.

Strategic vision thus points out a particular direction, charts a strategic path to be followed in
future, and moulding organisational identity.

A clearly articulated strategic vision communicates management’s aspirations to stakeholders and

helps steer the energies of company personnel in a common direction.

For instance, Henry Ford’s vision of a car in every garage had power because it captured the
imagination of others, aided internal efforts to mobilize the Ford Motor Company’s resources,
and served as a reference point for gauging the merits of the company’s strategic actions.

Vision of different companies

● HDFC Bank Ltd., one of the largest banks in India has clearly defined its Vision of being
a world class Indian bank. This vision helps them keep in mind, “where we want to go”, as
the central thought of their strategic decision making.
● LIC Ltd., the largest insurance company of India has defined its visions as - A trans-
nationally competitive financial conglomerate of significance to societies and Pride of
India.
● Apple Inc.’s CEO Tim Cook defined the vision of the company as - “We believe that we are
on the face of the earth to make great products, and that’s not changing.”

[Type here]
Essentials of a strategic vision

● The entrepreneurial challenge in developing a strategic vision is to think creatively about

how to prepare a company for the future.
● Forming a strategic vision is an exercise in intelligent entrepreneurship.
● A well-articulated strategic vision creates enthusiasm among the members of the
organisation.
● The best-worded vision statement clearly illuminates the direction in which organisation
is headed.

4.2 MISSION

A mission is an answer to the basic question ‘what business are we in and what we do’. It has been
observed that many firms fail to conceptualise and articulate the mission and business definition
with the required clarity. Such firms are seen to fumble in the identification of opportunities and
fail in formulating strategies to make use of opportunities. Firms working to manage their
organisation strategically cannot be lax in the matter of mission and business definition, as the
two ideas are absolutely central to strategic planning.

Why should an organisation have a mission? (NEED OF MISSION)

● To ensure unanimity of purpose within the organisation.

● To develop a basis, or standard, for allocating organisational resources.
● To provide a basis for motivating the use of the organisation’s resources.
● To establish a general tone or organisational climate, to suggest a business- like operation.
● To serve as a focal point for those who can identify with the organisation’s purpose and
direction.
● To facilitate the translation of objective and goals into a work structure involving the
assignment of tasks to responsible elements within the organisation.
● To specify organisational purposes and the translation of these purposes into goals in such
a way that cost, time, and performance parameters can be assessed and controlled.

Mission of different companies

● HDCF Bank has two-fold mission: first, to be the preferred provider of banking services
for target retail and wholesale customer segments. The second is to achieve healthy
growth in profitability, consistent with the bank’s risk appetite.
● LIC Ltd.’s Mission is - Ensure and enhance the quality of life of people through financial
security by providing products and services of aspired attributes with competitive
returns, and by rendering resources for economic development.
● Apple’s mission has been defined as - “to bring the best user experience to its customers
through innovative hardware, software, and services.”

[Type here]
A company’s mission statement is typically focused on its present business scope – “who we are
and what we do”.

Mission statements broadly describe an organisations present capability, customer focus,

activities, and business makeup.A good mission statement should be precise, clear, feasible,
distinctive and motivating.

Following points are useful while writing a mission of a company:

● One of the roles of a mission statement is to give the organisation its own special identity,
business emphasis and path for development – one that typically sets it apart from other
similarly positioned companies.
● A company’s business is defined by what needs it is trying to satisfy, which customer
groups it is targeting and the technologies and competencies it uses and the activities it
performs.
● Good mission statements are – unique to the organisation for which they are developed.

What is our mission? And what business are we in?

The well-known management experts, Peter Drucker and Theodore Levitt were among the first
to agitate this issue through their writings. They emphasised that as the first step in the business
planning endeavour, every business firm must clarify the corporate mission and define accurately
the business the firm is engaged in. They also explained that towards facilitating this task, the
firm should raise and answer certain basic questions concerning its business, such as:

● What is our mission?

● What is our ultimate purpose?
● What do we want to become?
● What kind of growth do we seek?
● What business are we in?
● Do we understand our business correctly and define it accurately in its broadest
connotation?
● Whom do we intend to serve?
● What human need do we intend to serve through our offer?
● What brings us to this particular business?
● What would be the nature of this business in the future?
● In what business would we like to be in, in the future?

The corporate mission is an expression of the growth ambition of the firm. It is, in fact, the
firm’s future visualised. In other words, the mission is a grand design of the firm’s future.

Mission amplifies what brings the firm to this business or why it is there, what existence it seeks
and what purpose it seeks to achieve as a business firm. In other words, the mission serves as a
justification for the firm’s very presence and existence; it legitimises the firm’s presence.

[Type here]
According to Peter Drucker, every organisation must ask an important question “What business
are we in?” and get the correct and meaningful answer. The answer should have marketing or
external perspective and should not be restated to the production or generic activities of
business.

What business are we in?

4.3 GOALS AND OBJECTIVES

Business organisation translates their vision and mission into goals and objectives.

Goals are open-ended attributes that denote the future states or outcomes. Objectives are
close-ended attributes which are precise and expressed in specific terms.

Thus, the Objectives are more specific and translate the goals to both long term and short-term
perspective. However, this distinction is not made by several theorists on the subject.
Accordingly, we will also use the term interchangeably.

All organisations have objectives. The pursuit of objectives is an unending process such that
organisations sustain themselves. They provide meaning and sense of direction to organisational
endeavour. Organisational structure and activities are designed, and resources are allocated
around the objectives to facilitate their achievement. They also act as benchmarks for guiding
organisational activity and for evaluating how the organisation is performing.

Objectives with strategic focus relate to outcomes that strengthen an organisation’s overall
business position and competitive vitality.

Objectives, to be meaningful to serve the intended role, must possess the following
characteristics (CHARACTERSTICS OF OBJECTIVES)

[Type here]
 ● Objectives should define the organisation’s relationship with its environment.
● They should be facilitative towards achievement of mission and purpose.
● They should provide the basis for strategic decision-making.
● They should provide standards for performance appraisal.
● They should be concrete and specific.
● They should be related to a time frame.
● They should be measurable and controllable.
● They should be challenging.
● Different objectives should correlate with each other.
● Objectives should be set within the constraints of organisational resources and external
environment.

A need for both short-term and long-term objectives:

As a rule, a company’s set of financial and strategic objectives ought to include both short-term
and long-term performance targets. Having quarterly or annual objectives focuses attention on
delivering immediate performance improvements.

Targets to be achieved within three to five years’ prompt considerations of what to do now to put
the company in position to perform better down the road.

A company that has an objective of doubling its sales within five years can’t wait until the third
or fourth year to begin growing its sales and customer base.

By spelling out annual (or perhaps quarterly) performance targets, management indicates the
speed at which longer-range targets are to be approached.

Long-term objectives: To achieve long-term prosperity, strategic planners commonly establish

long-term objectives in seven areas.

● Profitability
● Productivity
● Competitive Position
● Employee Development
● Employee Relations
● Technological Leadership
● Public Responsibility

Long-term objectives represent the results expected from pursuing certain strategies.
Strategies represent the actions to be taken to accomplish long-term objectives. The time frame
for objectives and strategies should be consistent, usually from two to five years.

Short-range objectives can be identical to long-range objectives if an organisation is already

performing at the targeted long-term level.

[Type here]
FOR INSTANCE, if a company has an ongoing objective of 15 percent profit growth every year
and is currently achieving this objective, then the company’s long-range and short-range
objectives for increasing profits coincide.

The most important situation in which short-range objectives differ from long-range objectives
occurs when managers are trying to elevate organisational performance and cannot reach the long-
range target in just one year. Short-range objectives then serve as steps toward achieving long
term objective.

Clearly established objectives offer many benefits. They provide direction, allow synergy, aid in
evaluation, establish priorities, reduce uncertainty, minimize conflicts, stimulate exertion, and aid
in both the allocation of resources and the design of jobs.

4.4 VALUES

“Business, as I have seen it, places one great demand on you: it needs you to self- impose a
framework of ethics, values, fairness and objectivity on yourself at all times.” - Ratan N Tata,
2006 (Source: TATA Group Website)

A few common examples of values are – Integrity, Trust, Accountability, Humility, Innovation,
and Diversity.

But why are values so important?

A company’s value sets the tone for how the people of think and behave, especially in situations
of dilemma. It creates a sense of shared purpose to build a strong foundation and focus on
longevity of the company’s success. Employees prefer to work with employers whose values
resonate with them - the ones they can relate to in their daily work and personal life.

Interestingly, majority of consumers say that they would prefer to buy products and services
from companies that have a purpose that reflects their own value and belief system.

Hence, values have both internal as well as external implications.

FOR REFERENCE, a lot of values were put to actions during Covid 19 pandemic when leaders of
the organisations put people before everything else. It projected how deep the foundation of the
organisations were and how important it was for them to uphold their core values

[Type here]
The above graphic represents the interconnection of Intent, Vision, Mission, Goals and Values;
Values remain the center/core of Vision, Mission, Goals and putting all them to action. Vision is
followed by Mission, followed by Goals and finally executing via real actions

5.STRATEGIC LEVELS IN ORGANISATIONS

What are the various strategic levels in organisation?

[Type here]
A typical large organization is a multi-divisional organisation that competes in several different
businesses. It has separate self-contained divisions to manage each of these businesses.

EXAMPLE- Patanjali has healthcare, FMCG, Organic Foods, Medicinal Oils and Herbs, and various
different businesses. It has separate divisions which work within themselves to sustain each of
these businesses.

Generally, there are three main levels of management:

● Corporate level
● Business level
● Functional level

General managers are found at the first two of these levels, but their strategic roles differ
depending on their sphere of responsibility.

An organization is divided into a number of segments that work together to bring a particular
product or service to the market.

If a company provides several and/or different kinds of products or services, it often duplicates
these functions and creates a series of self-contained divisions (each of which contain its own set
of functions) to manage each different product or service. The general managers of these
divisions then become responsible for their particular product line.

The overriding concern of the divisional managers is healthy growth of their divisions. They are
responsible for deciding how to create a competitive advantage and achieve higher profitability
with the resources and capital they have at their disposal. Such divisions are called Strategic
Business Units (SBUs).

The corporate level of management consists of the Chief Executive Officer (CEO), other senior
executives, the board of directors, and corporate staff. These individuals participate in strategic
decision making within the organization.

[Type here]
The role of corporate-level managers is to oversee the development of strategies for the whole
organization. This role includes defining the mission and goals of the organization, determining
what businesses it should be in, allocating resources among the different businesses, formulating
and implementing strategies that span individual businesses, and providing leadership for the
organization as a whole.

Besides overseeing resource allocation and managing the divestment and acquisition processes,
corporate-level managers provide a link between the people who oversee the strategic
development of a firm and those who own it (the shareholders).

Corporate-level managers, and particularly the CEO, can be viewed as the guardians of
shareholders’ welfare. It is their responsibility to ensure that the corporate and business
strategies of the company are consistent with maximizing shareholders’ wealth. If they are not,
then ultimately the CEO is likely to be held accountable by the shareholders.

In simple words, corporate level managers provide an organisation level view of strategy and what
they want to achieve, but it is on the business level managers to ensure that or their particular
business, the one they are responsible for.

EXAMPLE- Ahmedabad headquartered Adani Group is an Indian multinational conglomerate active

in a wide range of businesses, including mining, operating ports and airports, power generation and
transmission and cement. The main strategic responsibilities of its Group Chairman, Mr. Gautam
Adani, are setting overall strategic objectives, allocating resources among the different business
areas, deciding whether the firm should divest itself of any of its businesses, and determining
whether it should acquire any new ones. In other words, it is up to Mr. Adani and other senior
executives to develop strategies that span individual businesses and building and managing the
corporate portfolio of businesses to maximize corporate profitability. However, it is not their
specific responsibility to develop strategies for competing in the individual business areas, such
as financial services. The development of such strategies is the responsibility of those in charge
of different businesses called business level managers.

As we now know, a strategic business unit is a self-contained division (with its own functions - For
EXAMPLE- finance, purchasing, production, and marketing departments) that provides a product
or service for a particular market. The principal general manager at the business level, or the
business-level manager, is the head of the division.

The strategic role of business level managers is to translate the general statements of direction
and intent that come from the corporate level into concrete strategies for individual businesses.
Thus, whereas corporate-level managers are concerned with strategies that span individual
businesses, business-level managers are concerned with strategies that are specific to a
particular business.

Functional-level managers are responsible for the specific business functions or operations
(human resources, purchasing, product development, customer service, and so on) that constitute
a company or one of its divisions.

[Type here]
Thus, a functional manager’s sphere of responsibility is generally confined to one organizational
activity, whereas general managers oversee the operation of a whole company or division. Although
they are not responsible for the overall performance of the organization, functional managers
nevertheless have a major strategic role: to develop functional strategies in their area that help
to fulfil the strategic objectives set by business- and corporate-level general managers.

Functional managers provide most of the information that makes it possible for business- and
corporate-level general managers to formulate realistic and attainable strategies. Indeed,
because they are closer to the customer than the typical general manager is, functional managers
themselves may generate important ideas that subsequently may become major strategies for the
company.

Thus, it is important for general managers to listen closely to the ideas of their functional
managers. An equally great responsibility for managers at the operational level is strategy
implementation: the execution of corporate and business-level plans.

5.1 Network of relationship between the three levels

The corporate level decides what the business wants to achieve, while the business level draws
ideas and plan to execute the same, which eventually flow down to functional level to execute and
achieve results. But there are multiple ways in which all the 3 levels of management are

[Type here]
interlinked, and interestingly it depends on the organisation as a whole to decide what kind of
network of relationship suits their culture and aspirations.

There are 3 major types of networks of relationship between the levels and also amongst the
same levels of a business;

● Functional and Divisional Relationship: It is an independent relationship, where each

function or a division is run independently headed by the function/division head, who is a
business level manager, reporting directly to the business head, who is a corporate level
manager.
Functions maybe like Finance, Human Resources, Marketing, etc. while Divisions may
depend on the products like for a toys manufacturer - kid’s toys, teenager toys, etc. could
be divisions.

● Horizontal Relationship: All positions, from top management to staff-level employees, are
in the same hierarchical position. It is a flat structure where everyone is considered at
same level. This leads to openness and transparency in work culture and focused more on
idea sharing and innovation.
This type of relationship between levels is more suitable for startups where the need to
share ideas with speed is more desirable.

● Matrix Relationship: It features a grid-like structure of levels in an organisation, with

teams formed with people from various departments that are built for temporary task-
based projects. This relationship helps manage huge conglomerates with ease where it is
nearly impossible to track and manage every single team independently. In Matrix
relationship - there are more than one business level managers for each functional level
teams. It is complex for smaller organisations, but extremely useful for large
organisations.

[Type here]
Strategic Analysis: External Environment

INTRODUCTION

Organisations are distinguished based on their size, type of products, markets, geographical
coverage, legal status, and like because of vast organisational diversity. Whatever their size or
other distinguishing feature they do not operate in a vacuum. They continuously act and react to
what happens outside their periphery.

The process of strategic formulation begins with a strategic analysis. Its objective is to compile
information about internal and external environments in order to assess possibilities while
formulating strategic objectives and contemplating strategic activities.

STRATEGIC ANALYSIS
Strategy formulation is not a task in which managers can get by with intuition, opinions,
instincts, and creative thinking. Judgments about what strategies to pursue need to flow
directly from analysis of a firm’s external environment and its internal resources and
capabilities.

Environmental scanning is a natural and continuous activity for every business and some do it on
an informal basis, while others have a formal structure to collect meaningful information.

The majority of the rapidly expanding organisations use strategic planning throughout various
stages of their operations. The strategic analysis is a component of business planning that has a
methodical approach, makes the right resource investments, and may assist business in achieving
its objective.

It forces to think about the rivals and aids in the evaluation of business plans to stay ahead of
the competition. The two important situational considerations are:

1) industry and competitive conditions, and

2) an organisation’s own capabilities, resources, internal strengths, weaknesses, and market
position.

[Type here]
 Accurate diagnosis of the business situation is necessary for managerial preparation to
decide on a sound long-term direction, setting appropriate objectives, and crafting a
winning strategy. The strategic analysis is a continuous process which is not without
limitations.

Issues to consider for Strategic Analysis

1)Strategy evolves over a period of time: A key element of strategic analysis is

the probable outcomes of everyday decisions. A current strategy is the result of
several little choices taken over a protracted period of time. A management radically
changes strategy when they try to speed up the organisational growth. Strategy is
influenced by experience, but it has to be updated when the results become clear. It
therefore evolves with time

2) Balance of external and internal factors: strategic analysis necessitates

creating a reasonable balance between many and conflicting challenges, because a
perfect fit between them is unlikely. Strategy formulation involves matching internal
strengths and weaknesses with external opportunities and threats.

3)Risk: The complexity and intermingling of variables in the environment reduce the
strategic balance in the organisation. An important aspect of strategic analysis
is to identify potential imbalances or risks and assess their consequences. A broad
classification of the strategic risk that requires consideration in strategic analysis.

Short Time Long Time

[Type here]
 External Errors in interpreting the changes in the environment
environment cause strategic lead to obsolescence of
failure strategy.

Internal Organizational capacity is Inconsistencies with the

unable to cope up with strategy are developed on
strategic demands. account of changes in
internal capacities and
preferences

External risk is on account of inconsistencies between strategies and the forces in the
environment.
Internal risk occurs on account of forces that are either within the organization or are directly
interacting with the organization on a routine basis.

Framework of Strategic Analysis

It is evident that industries differ widely in their economic characteristics, competitive
situations, and future profit prospects. The economic character of industries varies according
to such factors as overall size and market growth rate, the pace of technological change, the
geographic boundaries of the market (which can extend from local to worldwide), the number
and size of buyers and sellers, whether sellers’ products are virtually identical or highly
differentiated, the extent to which costs are affected by economies of scale, and the types of
distribution channels used to access buyers, marketing opportunities, disposable income of
prospective buyers, government support, etc. Competitive forces can be moderate in one
industry and fierce, even cutthroat, in another.

Strategic Analysis

External Analysis Internal Analysis

Customer Analysis: Segments, motivations, Performance Analysis: Profitability, sales,

unmet needs. customer satisfaction, product qualify,
relative cost, new products, human resources.
Competitor Analysis: Strategic groups,
Opportunities, threats, trends, and
performance, objectives, strategies, culture,
Determinants Analysis: Past and current
cost structure.
strategies, strategic problems, organizational

Market Analysis: Size, growth, profitability, Capabilities and constraints, financial

entry barriers. resources, strengths, and weaknesses.

[Type here]
 Environmental Analysis: Technological,
government, economic, cultural, demographic.

Opportunities, threats, trends, And Strategic strengths, weaknesses, problems,

constraints, and uncertainties
Strategic uncertainties

Strategy Identification & Selection

♦ Identify strategic alternatives ♦ Review strategies

♦ Select strategy ♦ Implement the operating plan

STRATEGY AND BUSINESS ENVIRONMENT

To accomplish the goals and objectives of a business, business strategist create strategies and
formulate policies considering both internal and external factors. A framework for adjusting to
the demands of an unpredictable environment and an uncertain future is provided by strategic
management.

The term "business environment" refers to all external factors, influences, or situations
that in some way affect business decisions, plans, and operations. Organisational success is
determined by its business environment, and even more from its relationship with it.

Strategic management is involved with choosing a long-term direction in relation to these

resources and opportunities. This interaction helps in strengthening the business firm and using
its resources more effectively. It helps the business in the following ways:

1) Determine opportunities and threats: The interaction between the business and its
environment would explain opportunities and threats to the business. It helps to find
new needs and wants of the consumers, changes in laws, changes in social behaviours,
and tells what new products the competitors are bringing in the market to attract
consumers.
2) Give direction for growth: The interaction with the environment enables the
business to identify the areas for growth and expansion of their activities. Once the
business is aware and understands the changes happening around, it can plan and
strategise to have successful business.

[Type here]
 3) Continuous Learning: The managers are motivated to continuously update their
knowledge, understanding and skills to meet the predicted changes in the realm of
business.
4) Image Building: Environmental understanding helps the business organizations to
improve their image by showing their sensitivity to the environment in which they
operate.
5) Meeting Competition: It helps the businesses to analyse the competitors’ strategies
and formulate their own strategies accordingly. The idea is to flourish and beat
competition for its products and services.
Business strategies relate organisational resources to challenges and opportunities in the larger
environment. The changes happening in the external environment challenge organisations to find
novel and unique strategies to remain in business and succeed. Strategic analysis covering
internal and external environment is highly relevant and important for the strategists in
organisations in order to achieve competitive advantage, as well as ensure high performance for
survival and growth.

To flourish, a business must be aware of, assess, and respond to the many opportunities
and threats present in its environment. In order to succeed, the business must not only be
aware of the numerous aspects of its surroundings but also be able to handle and adapt to
them. The business must continuously evaluate its environment and modify its operations in
order to thrive and expand.
Strategic decisions are significant aspects of business management and are essential for the
success and continued existence. Two crucial aspects for the success include are the function of
top management and the method of formulating strategic.

Micro and Macro Environment

The environment in which an organization exists can be described in terms of the opportunities
and threats operating in the external environment apart from the strengths and weaknesses
existing in the internal environment.
For making any strategic decision, they should be able to comprehend the facts available and
challenge the underlying assumptions. The external environment can e categorised in to major
types as follows:
● Micro environment
● Macro environment

Micro-environment
Micro-environment is related to small area or immediate periphery of an organization.
It influences an organization regularly and directly. Micro environment consists of suppliers,
consumers, marketing intermediaries, competitors, etc. These are specific to the said business
or firm and affect its working on a direct and regular basis. Within the micro or the immediate
environment in which a firm operates we need to address the following issues:
♦The employees of the firm, their characteristics and how they are organised.
♦ The existing customer base on which the firm relies for business.

[Type here]
♦ The ways in which the firm can raise its finance.
♦ Who are the firm suppliers and how are the links between the two being developed?
♦ The local community within which the firm operates.
♦ The direct competition and their comparative performance.
The factors in micro environment often relate an organization to the macro issues influencing
the way a firm reacts in the market place. The macro environment is the portion of the outside
world that significantly affects.

Elements of Macro Environment

Macro environment has broader dimensions as it consists of economic, socio cultural,
technological, political and legal factors.
“The environment includes factors outside the firm which can lead to opportunities for, or
threats to the firm. Although, there are many factors, the most important of the factors are
socio-economic, technological, supplier, competitors, and government.”: Gluek and Jauch
The classification of the relevant environment into components or sectors helps an organization
to cope with its complexity, comprehend the different influences operating, and relating the
environmental changes to its strategic management process.

1. Demographic Environment: Demographics are the characteristics of a population that have

been classified and explained according to certain criteria, such age, gender, and income, in
order to understand the features of a specific group. Demographical analysis considers factors
such as race, age, income, education, possession of assets, house ownership, job position, region,
and the degree of education. Data about these qualities across homes and within a demographic
variable are of importance to both businesses and economists.
Considering demographics is of immense importance for any business. Business Organizations
need to study different demographic factors. Particularly, they need to address following
issues:
♦ What demographic trends will affect the market size of the industry?
♦ What demographic trends represent opportunities or threats? The size, age distribution,
geographic dispersion, ethnic mix, and income distribution of a population are all of great
importance to the organisation. Identifying the implications of changing demographic
characteristics or population components for a future strategic competitiveness is often a
challenge for strategists.

2. Socio-Cultural Environment:
● It represents a complex group of factors such as social traditions, values and beliefs,
level and standards of literacy, the ethical standards and state
of society, the extent of social stratification, conflict, cohesiveness and so
forth.
● It differs from demographics in the sense that it is not the characteristics
of the population, but it is the behaviour and the belief system of that
population.

[Type here]
 ● Socio-cultural environment consists of factors related to human
relationships and the impact of social attitudes and cultural values which
has bearing on the operations of the organization.
● Businesses have to adjust to social norms and beliefs to operate successfully.
The social environment primarily affects the strategic management process
within the organization in the areas of mission and objective setting, and
decisions related to products and markets.

3. Economic Environment: Economic conditions have a direct bearing over the business
strategies. The economic environment refers to the overall economic situation around the
business and include conditions at the regional, national and global levels. It encompasses
conditions in the markets for resources that have an effect on the supply of inputs and outputs
of the business, their costs, and the dependability, quality, and availability. Economic
environment determines the strength and size of the market. Income distribution pattern
determine the business possibilities. The important point to consider is to find out the effect of
economic prospect, growth and inflation on the operations of the business.
Higher interest rates are detrimental for the businesses with high debt. In the real
estate market, they reduce the capability of the prospective buyers to avail loan and pay
instalments, thus lower the demand.
These include gross domestic product, per capita income, markets for goods and services,
availability of capital, foreign exchange reserve, growth of foreign trade, strength of capital
market, interest rates, disposable income, unemployment, inflation, etc.

4. Political-Legal Environment: Political-legal environment takes into account elements like the
a) general level of political development,
b) the degree to which business and economic issues have been politicised,
c) the degree of political morality, the state of law and order,
d) political stability,
e) the political ideology and practises of the ruling party,
f) the effectiveness and purposefulness of governmental agencies,
g) the scope and type of governmental intervention in the economy and industry.

Business is highly guided and controlled by government policies. Hence the type of government
running a country is a powerful influence on business.
A business has to consider the changes in the regulatory framework and their impact on the
business. Taxes and duties are other critical areas that may be levied and affect the business.

Nationalism supports measures aimed at enhancing the position of a country in international

business. Presently, there is immense thrust on nationalism in Indian business through
policies like Make in India and Aatmanirbhar Bharat. Production Linked Incentives scheme,
another step in the direction, rewards businesses for increased sales of goods produced
domestically. The scheme encourages foreign businesses to open businesses in India, and at
the same time incentivises domestic businesses to open or expand their manufacturing
facilities, create more jobs, and lessen India's reliance on imports.

[Type here]
5. Technological Environment: A highly important factor in the present times is technology.
Technology has changed the way people communicate and do things. Technology has also changed
the ways of how businesses operate now. Technology and business are linked and are
interdependent on one another. Businesses help society access the outcomes of technological
research and development, raising everyone's standard of living.

Technology has impacted on how businesses are conducted. With use of technology, many
organisations are able to reduce paperwork, schedule payments more efficiently, are able to
coordinate inventories efficiently and effectively. This helps to reduce costs of companies, and
shrink time and distance, thus, capturing a competitive advantage for the company
.
Changes in technology have an effect on how a business runs its operations. The
technological advancements might require a business to drastically alter its operational,
production and marketing strategies.

technology can act as opportunity, when a business effectively adopts technological innovations
to their strategic advantage. However, at the same time technology can act as a threat too.
Artificial intelligence, machine learning, robotic process automation is some of the new that
businesses are adopting and can act as both opportunity and threat to a business.

PESTLE– A tool to Analyse Macro Environment

The term PESTLE is often used to describe a framework for analysis of macro environmental
factors. PESTEL analysis is frequently used to assess the business environment in which a firm
operates.
PESTLE analysis involves identifying the political, economic, socio-cultural, technological, legal
and environmental influences on an organization and providing a way of scanning the
environmental influences that have affected or are likely to affect an organization or its policy.
PESTLE analysis is an increasingly used and recognized analytical tool, and it is an acronym for:
P- political
E- economic
S- socio-cultural
T- technological
L- legal
E- environmental

Key Factors
a) Political factors: Political factors are how and to what extent the government intervenes
in the economy and the activities of business firms.
Political factors may influence goods and services which the government wants to provide or be
provided and those that the government does not want to be provided. Furthermore,
governments have great influence on the health, education and infrastructure of a nation.

[Type here]
b) Economic factors: Economic factors have major impacts on how businesses operate and
take decisions.
Example: interest rates affect a firm's cost of capital and therefore to what extent a business
grows and expands.
Exchange rates affect the costs of exporting goods and the supply and price of imported goods
in an economy. The money supply, inflation, credit flow, per capita income, growth rates have a
bearing on the business decisions.

c) Social factor: Social factors affect the demand for a company's products and how that
company operates.

d) Technological factors: Technological factors can determine barriers to entry, minimum

efficient production level and influence outsourcing decisions. Furthermore, technological
shifts can affect costs, quality, and lead to innovation.

e) Legal factors: Legal factors affect how a company operates, its costs, and the demand
for its products, ease of business.

f) Environmental factors
Environmental factors affect industries such as tourism, farming, and insurance. Growing
awareness to climate change is affecting how companies operate and the products they offer--it
is both creating new markets and diminishing or destroying existing ones.

SUMMARY

[Type here]
 Internationalization has emerged as the dominant commercial trend over the last couple
of decades.

Internationalization of Business
Internationalization has emerged as the dominant commercial trend over the last couple
of decades. The strategic-management process is essentially the same for global firms
as it is for domestic firms; nevertheless, international processes are much more
complicated due to additional variables and linkages. A business can approach
internationalisation systemically with the aid of international strategy planning. One
method for an organization to identify opportunities and threats in global markets is by
scanning the external environment.

Characteristics of a global business

● It is a conglomerate of multiple units (located in different parts of the globe) but all
linked by common ownership.

[Type here]
 ● Multiple units draw on a common pool of resources, such as money, credit, information,
patents, trade names and control systems.
● The units respond to some common strategy. Besides, its managers and shareholders
are also based in different nations.

Developing internationally
International development is expensive and challenging. Moving on in a thorough and
structured manner is thus the ideal approach to adopt. The steps in international
strategic planning are as follows:
● Evaluate global opportunities and threats and rate them with the internal capabilities.
● Describe the scope of the firm's global commercial operations.
● Create the firm's global business objectives.
● Develop distinct corporate strategies for the global business and whole organisation.

Why do businesses go global?

Technological developments and evolving political views are two important factors in the rapid
rise of multinational organisations. Worldwide communication makes it easier to define and
implement global strategy by linking corporate headquarters with their abroad operations.
There are several reasons why companies go global. These are explained as follows:
● The first and foremost reason is the need to grow. It is basic need of every
organisation. Often finding opportunities in the other parts of the globe, organisations
extend their businesses and globalise their operations.
● The first and foremost reason is the need to grow. It is basic need of every
organisation. Often finding opportunities in the other parts of the globe, organisations
extend their businesses and globalise their operations.
● It is being realised that the domestic markets are no longer adequate. The competition
present domestically may not exist in some of the international markets.
● There can be varied other reasons such as need for reliable or cheaper source of raw-
materials, cheap labour, etc. Many foreign businesses shift and set up some of their
operations to take advantage of availability of vast pool of talent.
● Companies often set up overseas plants to reduce high transportation costs. It may be
cheaper to produce near the market to reduce the time and costs involved in
transportation.
● When exporting organisations find foreign markets to open up or grow big, they may
naturally look at overseas manufacturing plants and sales branches to generate higher
sales and better cash flow.
● The rise of services to constitute the largest single sector in the world economy; and
regional economic integration, which has involved both the world’s largest economies as
well as certain developing economies.
● The apparent and real collapse of international trade barriers redefines the roles of
state and industry. The trend is towards increased privatization of manufacturing and
services sectors, less government interference in business decisions and more
dependence on the value-added sector to gain marketplace competitiveness.
● Globalization has made companies in different countries to form strategic alliances to
ward off economic and technological threats and leverage their respective comparative
and competitive advantages.

[Type here]
International Environment
The social, cultural, demographic, environmental, political, governmental, legal, technological
factors that an international organisation faces are nearly limitless, and the number and
complexity of these
factors increase manifold as the number of products produced and geographic areas served
increase.

Assessments of the international environment can be done at three levels:

1. Multinational environmental analysis
2. Regional environmental analysis
3. Country environmental analysis

Multinational environmental analysis: Multinational environmental analysis involves identifying,

anticipating, and monitoring significant components of the global environment on a large scale.
Governments may have free or interventionist tendencies in economies that needs to be
carefully considered. These characteristics are evaluated based on their present and expected
future impact.

Regional environmental analysis: Regional environmental analysis is a more in-depth evaluation

of the critical factors in a specific geographical area. The emphasis would be on discovering
market opportunities for a goods, services, or innovations in the chosen location.

Country environmental analysis: Country environmental analysis has to take a deeper look at the
important environmental factors. Study of economic, legal, political, and cultural dimensions is
required in order for planning to be successful. international environment has become an
inherent part of strategic management for businesses of all sizes with global interests. It
essentially involves various global aspects like political risks, cultural differences, exchange rate
fluctuations, legal compliances and taxation issues.

UNDERSTANDING PRODUCT INDUSTRY

Business products have certain characteristics as follows:
a) Products are either tangible or intangible.
A tangible product can be handled, seen, and physically felt, such as a car, book, pen, table,
mobile handset and so on. Alternatively, an intangible product is not a physical good, such as
telecom services, banking, insurance, or repair services.
b) Product has a price.
Businesses determine the cost of their products and charge a price for them. The dynamics
of supply and demand influence the market price of an item or service. The market price is
the price at which quantity provided equals quantity desired. The price that may be paid is
determined by the market, the quality, the marketing, and the targeted group. In the

[Type here]
 present competitive world price is often given by the market and businesses have to work on
costs to maintain profitability.
c) Products have certain features that deliver satisfaction.
A product feature is a component of a product that satisfies a consumer need. Features
determine product pricing, and businesses alter features during the development process to
optimise the user experience. Features of the product will distinguish it in terms of its
function, design, quality and experience.
d) Product is pivotal for business.
The product is at the centre of business around which all strategic activities revolve. The
product enables production, quality, sales, marketing, logistics and other business processes.
Product is the driving force behind business activities.
e) A product has a useful life.
Every product has a usable life after which it must be replaced, as well as a life cycle after
which it is to be reinvented or may cease to exist. We have observed that fixed line
telephone instruments have largely been replaced by mobile phones.

Product Life Cycle

An important concept in strategic choice is that of product life cycle (PLC)
PLC is an S-shaped curve which exhibits the relationship of sales with respect of time for a
product that passes through the four successive stages of introduction, growth, maturity
and decline.
a) The first stage: of PLC is the introduction stage with slow sales growth, in which
competition is almost negligible, prices are relatively high, and markets are limited. The
growth in sales is at a lower rate because of lack of awareness on the part of customers.
b) The second phase: of PLC is growth stage with rapid market acceptance. In the growth
stage, the demand expands rapidly, prices fall, competition increases, and market
expands. The customer has knowledge about the product and shows interest in
purchasing it.
c) The third phase: of PLC is maturity stage where there is slowdown in growth rate. In
this stage, the competition gets tough, and market gets stabilised. Profit comes down
because of stiff competition. At this stage, organisations have to work for maintaining
stability.
d) the fourth stage: of PLC is declines with sharp downward drift in sales. The sales and
profits fall down sharply due to some new product replaces the existing product. So, a
combination of strategies can be implemented to stay in the market either by
diversification or retrenchment.

[Type here]
 ● The main advantage of PLC approach is that it can be used to diagnose a portfolio of
products (or businesses) in order to establish the stage at which each of them exists.
Particular attention is to be paid on the businesses that are in the declining stage.
● Depending on the diagnosis, appropriate strategic choice can be made.
● Mature businesses may be used as sources of cash for investment in other businesses
which need resources.
● A combination of strategies like selective harvesting, retrenchment, etc. may be
adopted for declining businesses.

Value Chain Analysis

Value chain analysis is a method used by strategists to break down each process that
their business employees.
This analysis could be used to improve the sequence of operations, enhancing efficiency
and creating a competitive advantage. Value chain analysis can be used by businesses of
all sizes, from sole proprietorships to multinational organisations.
Value chain analysis is a method of examining each activity in value chain of a business
in order to identify areas for improvements. When you do a value chain analysis, you
must analyse how each stage in the process adds or subtracts value from the end
product or service.
Value chain analysis has been widely used as a means of describing the activities within
and around an organization and relating them to an assessment of the competitive
strength of an organization.
The two basic steps of identifying separate activities and assessing the value added
from each were linked to an analysis of an organization’s competitive advantage by
Michael Porter.

[Type here]
 One of the key aspects of value chain analysis is the recognition that organizations are
much more than a random collection of machines, material, money and people.
It is these competences to perform particular activities and the ability to manage
linkages between activities which are the source of competitive advantage for
organizations. Porter argued that an understanding of strategic capability must start
with an identification of these separate value activities.

The primary activities of the organization are grouped into five main areas:
● Inbound logistics: are the activities concerned with receiving, storing and distributing
the inputs to the product/service. This includes materials handling, stock control,
transport etc. Like, transportation and warehousing.
● Operations transform: these inputs into the final product or service: machining,
packaging, assembly, testing, etc. convert raw materials in finished goods.
● Outbound logistics: collect, store and distribute the product to customers. For tangible
products this would be warehousing, materials handling, transport, etc. In the case of
services, it may be more concerned with arrangements for bringing customers to the
service, if it is a fixed location (e.g. sports events).
● Marketing and sales provide the means whereby consumers/users are made aware of
the product/service and are able to purchase it. This would include sales administration,
advertising, selling and so on. In public services, communication networks which help
users’ access a particular service are often important.
● Service are all those activities, which enhance or maintain the value of a
product/service, such as installation, repair, training and spares. Each of these groups of
primary activities are linked to support activities. These can be divided into four areas;
● Procurement: This refers to the processes for acquiring the various resource inputs to
the primary activities (not to the resources themselves). As such, it occurs in many
parts of the organization.

[Type here]
 ● Technology development: All value activities have a ‘technology’, even if it is simply
know-how. The key technologies may be concerned directly with the product (e.g. R&D
product design) or with processes or with a particular resource.
● Human resource management: This is a particularly important area which transcends all
primary activities. It is concerned with those activities involved in recruiting, managing,
training, developing and rewarding people within the organization.
● Infrastructure: The systems of planning, finance, quality control, information
management, etc. are crucially important to an organization’s performance in its primary
activities. Infrastructure also consists of the structures and routines of the
organization which sustain its culture.

INDUSTRY ENVIRONMENT ANALYSIS

A combination of ideas and methodologies may be utilised to create a clear picture of
a) key industry traits
b) competition intensity
c) industry change drivers,
d) rival firms' market positions and tactics,
e) competitive success, and
f) profit forecasts.
Industry analysis enable strategic understanding about the entire state of any industry and
make decisions about whether the industry is a lucrative or not.
The goal of the industry environment analysis, which is typically an important step of strategic
analysis, is to estimate the amount of competitive pressures the business is presently facing and
is expected to face in the near future.
The purpose of industrial analysis is to get insight into a wide range of elements within and
outside the business. Analysing these elements enhances knowledge of surrounding and serves as
the foundation for aligning strategy with changing industry circumstances and realities.

Porter’s Five Forces Model

● Competitive state of an industry applies a strong influence on how firms develop their
strategies.
● Porter's Five Forces analysis is a simple but efficient way for determining the key sources
of competition in business or industry.
● It is a powerful and widely used tool to systematically diagnose the significant competitive
pressures in a market and assess the strength and importance of each.
● Strategist may use a strong position to organizational advantage or reinforce a weak one to
avoid making mistakes in the future.
● Michael Porter believes that the basic unit of analysis for understanding is a group of
competitors producing goods or services that compete directly with each other. It is the
industry where competitive advantage is ultimately won or lost. It is through competitive
strategy that the organisation attempts to adopt an approach to compete in the industry.
● The model holds that the state of competition in an industry is a composite of
competitive pressures operating in five areas of the overall market:

[Type here]
 a) Competitive pressures associated with the market manoeuvring and jockeying for
buyer patronage that goes on among rival sellers in the industry.
b) Competitive pressures associated with the threat of new entrants into the market.
c) Competitive pressures coming from the attempts of companies in other industries to
win buyers over to their own substitute products.
d) Competitive pressures stemming from supplier bargaining power and supplier-seller
collaboration.
e) Competitive pressures stemming from buyer bargaining power and seller buyer
Collaboration.

The strategists can use the five-forces model to determine what competition is like in a
given industry by undertaking the following 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).
Step 3: Determine whether the collective strength of the five competitive forces is conducive
to earning attractive profits.

Porter’s five forces model is one of the most effective and enduring conceptual frameworks
used to assess the nature of the competitive environment and to describe an industry’s
structure.
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.
1. The Threat of New Entrants:
New entrants can reduce industry profitability because they add new production
capacity leading to an increase supply of the product even at a lower price and can
substantially erode existing firm’s market share position.
New entrants are always a powerful source of competition. The new capacity and product
range they bring in throw up new competitive pressure. And the bigger the new entrant,
the more severe the competitive effect.
To discourage new entrants, existing firms can try to raise barriers to entry. Barriers
to entry represent economic forces (or ‘hurdles’) that slow down or impede entry by
other firms.
Common barriers to entry are explained here:
1 Capital When a large amount of capital is required to enter an industry,
Requirements: firms lacking funds are effectively barred from the industry,
thus enhancing the profitability of existing firms in the
industry.

2 Economies of Many industries are characterized by economic activities driven

Scale: by economies of scale. Economies of scale refer to the decline

[Type here]
 in the per-unit cost of production (or other activity) as volume
grows. This tends to discourage new entrants.

3 Product Product differentiation refers to the physical or perceptual

Differentiation: differences, or enhancements, that make a product special or
unique in the eyes of customers.

4 Switching To succeed in an industry, new entrant must be able to

Costs: persuade existing customers of other companies to switch to
its products. To make a switch, buyers may need to test a new
firm’s product, negotiate new purchase contracts, and train
personnel to use the equipment, or modify facilities for product
use

5 Brand Identity: The brand identity of products or services offered by existing

firms can serve as another entry barrier. Brand identity is
particularly important for infrequently purchased products that
carry a high unit cost to the buyer. New entrants often
encounter significant difficulties in building up the brand
identity, because to do so they must commit substantial
resources over a long period.

6 Access to he unavailability of distribution channels for new entrants poses

Distribution another significant entry barrier. Despite the growing power of
Channels: the internet, many firms may continue to rely on their control
of physical distribution channels to sustain a barrier to entry to
rivals.

7 Possibility of Sometimes the mere threat of aggressive retaliation by

Aggressive incumbents can deter entry by other firms into an existing
Retaliation: industry

2. Bargaining Power of Buyers:

● This force will become heavier depending on the possibilities of the buyers forming
groups or cartels. Mostly, this is a phenomenon seen in industrial products. Quite often,
users of industrial products come together formally or informally and exert pressure on
the producer.
● The bargaining power of the buyers influences not only the prices that the producer can
charge but also influences in many cases, costs and investments of the producer because
powerful buyers usually bargain for better services which involve costs and investment
on the part of the producer.
● Buyers of an industry’s products or services can sometimes exert considerable pressure
on existing firms to secure lower prices or better services.
● This leverage is particularly evident when:
i. Buyers have full knowledge of the sources of products and their substitutes.
ii. They spend a lot of money on the industry’s products i.e. they are big buyers.

[Type here]
 iii. The industry’s product is not perceived as critical to the buyer’s needs and
buyers are more concentrated than firms supplying the product. They can easily
switch to the substitutes available.
3. Bargaining Power of Suppliers:
● The more specialised the offering from the supplier, greater is his clout. And, if the
suppliers are also limited in number, they stand a still better chance to exhibit their
bargaining power.
● The bargaining power of suppliers determines the cost of raw materials and other inputs
of the industry and, therefore, industry attractiveness and profitability.
● Suppliers can influence the profitability of an industry in a number of ways.
● Suppliers can command bargaining power over a firm when:
(i) Their products are crucial to the buyer and substitutes are not available.
(ii) They can erect high switching costs.
(iii)They are more concentrated than their buyers.

4. The Nature of Rivalry in the Industry:

The rivalry among existing players is quite obvious. This is what is normally understood
as competition. For any player, the competitors influence strategic decisions at
different strategic levels.
The intensity of rivalry in an industry is a significant determinant of industry
attractiveness and profitability.
The intensity of rivalry can influence the costs of suppliers, distribution, and of
attracting customers and thus directly affect the profitability.
The more intensive the rivalry, the less attractive is the industry. Rivalry among
competitors tends to be cutthroat and industry profitability low under various
conditions explained as follows:
(i) Industry Leader: A strong industry leader can discourage price wars by
disciplining initiators of such activity. Because of its greater financial resources,
a leader can generally outlast smaller rivals in a price war. Knowing this, smaller
rivals often avoid initiating such a contest.
(ii) Number of Competitors: Even when an industry leader exists, the leader’s
ability to exert pricing discipline diminishes with the increased number of rivals
in the industry as communicating expectations to players becomes more difficult.
(iii) Fixed Costs: When rivals operate with high fixed costs, they feel strong
motivation to utilize their capacity and therefore are inclined to cut prices when
they have excess capacity. Price cutting causes profitability to fall for all firms
in the industry as firms seek to produce more to cover costs that must be paid
regardless of industry demand.
(iv) Exit Barriers: Rivalry among competitors declines if some competitors leave an
industry. Profitability therefore tends to be higher in industries with few exit
barriers. Exit barriers come in many forms. Assets of a firm considering exit
may be highly specialized and therefore of little value to any other firm. Such a
firm can thus find no buyer for its assets. This discourages exit. When barriers
to exit are powerful, competitors desiring exit may refrain from leaving.
(v) Product Differentiation: Firms can sometimes insulate themselves from price
wars by differentiating their products from those of rivals. As a consequence,

[Type here]
 profitability tends to be higher in industries that offer opportunity for
differentiation. Profitability tends to be lower in industries involving
undifferentiated commodities such as, memory chips, natural resources,
processed metals and railroads.
(vi) Slow Growth: Industries whose growth is slowing down tend to face more
intense rivalry. As industry growth slows, rivals must often fight harder to grow
or even to keep their existing market share. The resulting intensive rivalry tends
to reduce profitability for all.

V. Threat of Substitutes
● Substitute products are a latent source of competition in an industry.
● Substitute products offering a price advantage and/or performance improvement to
the consumer can drastically alter the competitive character of an industry.
Example: coir suffered at the hands of synthetic Fiber
A final force that can influence industry profitability is the availability of
substitutes for an industry’s product. To predict profit pressure from this source,
firms must search for products that perform the same, or nearly the same, function
as their existing products.
Example: Real estate, insurance, bonds and bank deposits for example are clear
substitutes for common stocks, because they represent alternate ways to invest
funds. The five forces together determine industry attractiveness/ profitability.
This is so because these forces influence the causes that underlie industry.

Attractiveness of Industry

The industry analysis culminates into identification of various issues and draw conclusions about
the relative attractiveness or unattractiveness of the industry, both near-term and long-term.
The important factors on which the management may base such conclusions include:
● The industry’s growth potential, is it futuristically viable?
● Whether competition currently permits adequate profitability and whether competitive
forces will become stronger or weaker?
● Whether industry profitability will be favourably or unfavourably affected by the prevailing
driving forces?
● The competitive position of an organisation in the industry and whether its position is likely
to grow stronger or weaker. (Being a well-entrenched leader or strongly positioned
contender in an otherwise lackluster industry can still produce good profitability; however,
having to fight an uphill battle against much stronger rivals can make an otherwise
attractive industry unattractive).
● The potential to capitalize on the vulnerabilities of weaker rivals (perhaps converting an
unattractive industry situation into a potentially rewarding company opportunity).
● Whether the company is able to defend against or counteract the factors that make the
industry unattractive?
● The degrees of risk and uncertainty in the industry’s future.
● The severity of problems confronting the industry as a whole.
● Whether continued participation in this industry adds importantly to the firm’s ability to be
successful in other industries in which it may have business interests?

[Type here]
Experience Curve

Experience curve akin to a learning curve which explains the efficiency increase gained by
workers through repetitive productive work.
Experience curve is based on the commonly observed phenomenon that unit costs decline as
a firm accumulates experience in terms of a cumulative volume of production. It is based on
the concept, “we learn as we grow”.
Experience curve results from a variety of factors such as learning effects, economies of
scale, product redesign and technological improvements in production.

Experience curve has following features:

● As business organisation grow, they gain experience.
● Experience may provide an advantage over the competition. Experience is a key barrier to
entry.
● Large and successful organisation possess stronger “experience effect”
A typical experience curve may be depicted as follows:
As a business grows, it understands the complexities and benefits from its experiences.
The concept of experience curve is relevant for a number of areas in strategic management.
experience curve is considered a barrier for new firms contemplating entry in an industry.
Example: the experience curve phenomenon seems to be working in Maruti Suzuki. The likely
strategic choice for competitors can be a market niche approach or segmentation based on
demography or geography.

Value Creation
The concept of value creation was introduced primarily for providing products and services
to the customers with more worth.

[Type here]
 Value is measured by a product’s features, quality, availability, durability, performance and
by its services for which customers are willing to pay.

Thus, we can say that the value creation is an activity or performance by the firm to create
value that increases the worth of goods, services, business processes or even the whole
business system.
This concept gives business a competitive advantage in the industry and helps them earn
above average profits/returns.
Competitive advantage leads to superior profitability. At the most basic level, how
profitable a company becomes depends on three factors:
(1) the value customers place on the company’s products
(2) the price that a company charges for its products; and
(3) The costs of creating those products.
The value customers place on a product reflects the utility they get from a product—the
happiness or satisfaction gained from consuming or owning the product. Utility must be
distinguished from price.
It is a function of the attributes of the product, such as its performance, design, quality,
and point-of-sale and after-sale service.
Companies are ultimately aiming to achieve sustainable competitive advantage, which enables
them to succeed in the long run.
Michael Porter argues that a company can generate competitive advantage in two different
ways, either through differentiation or cost advantage.
● According to Porter’s, differentiation means the capability to provide customers superior
and special value in the form of product’s special features and quality or in the form of
aftersales customer service.
● As a result of differentiation, a company can demand higher price for its products or
services.
● A company will earn higher profits due to differentiation in case the expenses stay
comparable to the costs of competitors.
● The above-mentioned differentiation and cost advantage will affect a company’s ability to
achieve competitive advantage, but there are many different organizational functions that

[Type here]
 will influence whether a company can achieve cost advantage or differentiation advantage.
Michael Porter used the concept of value chain to explore closer different functions of the
organisations and mutual interactions among those functions.
Value chain analysis provides an excellent tool to examine the origin of competitive
advantage.
It divides the organisations into two different strategically important group of activities,
namely, primary activities and supporting activities, which can help to comprehend the
potential sources for differentiation and to understand an organisation’s costs behaviour.

MARKET AND CUSTOMER

● A market is a place for interested parties, buyers and sellers, where items and services can
be exchanged for a price.
● The market might be physical, such as a departmental store where people engage in person.
● They may also be virtual, such as an online market where buyers and sellers do not meet in
person but tools of technology to strike a deal.
● For example, it might be used to describe the stock exchange, where securities are traded.
● The term "marketing" encompasses a wide range of operations, including research, designing,
pricing, promotion, transportation, and distribution.
● The market activities are categorised and explained in terms of four Ps of marketing –
product, place, pricing, and promotion. These four kinds of marketing activities help
marketers identify customer needs so they may meet their demands and deliver satisfaction
● The orientation of product marketing has evolved and acquired different dimensions centred
around product, production, sales and customers.
● In a customer or market-oriented approach strategists prioritise efforts on their
customers. In order to create better value propositions for customers, businesses gather,
disseminate, and use customer and competitive information.

Customer
● A customer is a person or business that buys products or services from another
organisation.
● Customers are important because they provide revenue and organisations cannot exist
without them. Customers are the purchasers of products and services in the economy, and
they might exist as consumers or only as customers.
● The terms customer and consumer are practically synonymous and are frequently used
interchangeably. There is, however, a thin distinction. Individuals or businesses that
consume or utilise products and services are referred to as consumers.
● Customers are frequently categorised based on demographics like as age, race, gender,
ethnicity, economic level, and geographic region, which may all assist businesses in developing
a profile of a perfect customer.

Customer Analysis
● Customer analysis is an essential marketing component of any strategic business plan. It
identifies target clients, determines their wants, and then defines how the product meets
those needs.
● Customer analysis includes:
a) the administration of customer surveys,
b) the study of consumer data,

[Type here]
 c) the evaluation of market positioning strategies,
d) development of customer profiles,
e) the selection of the best market segmentation techniques.

● Customer profiles can reveal demographic information about customers. A number of

parties, including buyers, sellers, distributors, salespeople, managers, wholesalers, retailers,
suppliers, and creditors, can assist in gathering information to effectively assess the needs
and desires of consumers.

Customer Behaviour
● Customer behaviour moves beyond the identification of customers to explain how they
purchase products. It examines elements like shopping frequency, product preferences, and
the perception of your marketing, sales, and service offerings.
● Understanding the behaviours of customers enables businesses to establish effective
marketing and advertising campaigns, provide products and services that meet their needs,
and retain customers for repeat sales.
● Consumer behaviour may be influenced by a number of things. These elements can be
categorised into the following three conceptual domains:
1) External Influences: External influences, like advertisement, peer recommendations or
social norms, have a direct impact on the psychological and internal processes 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 to satisfy and which products to
use to do so. These aspects are divided into two groups – the company's marketing efforts
and the numerous environmental elements.
2) Internal Influences: Internal processes are psychological factors internal to customer and
affect consumer decision making. Consumer behaviour is influenced by a combination of
internal and external influences, including motivation and attitudes.
3) Decision Making: A rational consumer, as decision maker would seek information about
potential decisions and carefully integrate this with the existing knowledge about the
product.
The stages of decision making process can be described as:
i. Problem recognition, i.e., identify an existing need or desire that is
unfulfilled.
ii. Search for desirable alternative and list them.
iii. Seeking information on available alternatives and weighing their pros and
cons.
iv. Make a final choice
This behaviour of making decisions happens very frequently. It mostly applies
when the purchase is one that is significant to the customer, such as when
the product could have a significant influence on their health or self-image.
4) Post-decision Processes: After making a decision and purchasing a product, the final phase
in the decision-making process is evaluating the outcome. The consumer's reaction may vary
depending upon the satisfaction. While a happy customer may make repeat purchase and
recommend to others, customer with dissonance will neither purchase the product again nor
recommend it to others.

COMPETITIVE STRATEGY

[Type here]
 ● Competition is a fundamental attribute of economic systems and business, and it is
frequently connected with small and large organisations.
● Within a industry, competition is frequently encouraged with the wider goal of attaining
and achieving higher quality services or superior goods that the firm may manufacture
or develop.
● The competitive strategy of a business is concerned with how to compete in the business
areas in which the organization operates.
● The competitive strategy of a firm within a certain business field is analysed using two
criteria: the creation of competitive advantage and the protection of competitive
advantage.
● An important component of industry and competitive analysis involves delving into the
industry’s competitive process to discover what the main sources of competitive
pressure are and how strong each competitive force is. This analytical step is essential
because managers cannot devise a successful strategy without in-depth understanding
of the industry’s competitive character
● the competitive process works similarly enough to use a common analytical framework in
gauging the nature and intensity of competitive forces.
● Porter’s five forces model is useful in understanding the competition.

COMPETITIVE LANDSCAPE
● Competitive landscape is a business analysis which identifies competitors, either direct
or indirect.
● Competitive landscape is about identifying and understanding the competitors and at the
same time, it permits the comprehension of their vision, mission, core values, niche
market, strengths and weaknesses.
● Understanding of competitive landscape requires an application of “competitive
intelligence”.
● Thus, understanding the competitive landscape is important to build upon a competitive
advantage.
● Steps to understand the Competitive Landscape:
1) Identify the competitor: The first step to understand the competitive landscape is to
identify the competitors in the firm’s industry and have actual data about their
respective market share.
⮚ Who are the competitors and how big are they?
2) Understand the competitors: Once the competitors have been identified, the strategist
can use market research report, internet, newspapers, social media, industry reports,
and various other sources to understand the products and services offered by them in
different markets.
⮚ What are their product and services?
3) Determine the strengths of the competitors: What are the strengths of the
competitors? What do they do well? Do they offer great products? Why are consumers
liking their product/service? Do they utilize marketing in a way that comparatively
reaches out to more consumers? Why do customers give them their business?
⮚ What are their financial positions?
⮚ What gives them cost and price advantage?
⮚ What are they likely to do next?
4) Determine the weaknesses of the competitors: Identify the areas where the
competitor is lacking or is weak. Weaknesses (and strengths) can be identified by going

[Type here]
 through consumer reports and reviews appearing in various media. Financial strength and
weakness can always be learnt from annual reports.
⮚ Where are they lacking?
5) Put all of the information together: At this stage, the strategist should put together
all information about competitors and draw inference about what they are not offering
and what the firm can do to fill in the gaps. The strategist can also know the areas
which need to be strengthen by the firm.
⮚ What will the business do with this information?
⮚ What improvements does the firm need to make?
⮚ How can the firm exploit the weaknesses of competitors?

Key factors for competitive success

● An industry’s Key Success Factors (KSFs) are those things that most affect industry
members’ ability to prosper in the marketplace - the particular strategy elements, product
attributes, resources, competencies, competitive capabilities, and business outcomes that
spell the difference between profit and loss and, ultimately, between competitive success or
failure. KSFs by their very nature are so important that all firms in the industry must pay
close attention to them.
● Key success factors are the prerequisites for industry success or, to put it another
way, KSFs are the factors that shape whether a company will be financially and
competitively successful.
● The answers to three questions help identify an industry’s key success factors:
⮚ On what basis do customers choose between the competing brands of sellers? What
product attributes are crucial to sales?
⮚ What resources and competitive capabilities does a seller need to have to be
competitively successful, better human capital, quality of product or quantity of
product, cost of service, etc.?
⮚ What does it take for sellers to achieve a sustainable competitive advantage,
something that can be sustained for long term?

CHAPTER 3

[Type here]
 STRATEGIC ANALYSIS: Internal Environment
OVERVIEW

INTRODUCTION
● Internal refers to sum total of people – individuals & groups, stakeholders, processes –
input –throughput – output, physical, infrastructure –space, equipment & physical
conditions of work, lines of authority, responsibility, accountability & organizational
culture – intangible aspects of working – relationships, philosophy, values, ethics that
shape an organization’s identity.
● Internal is specific to each organization. It is based on its structure & business model &
includes all stakeholders like top management, investors, employees, board of directors
etc.

[Type here]
1.KEY STAKEHOLDERS
Who are Stakeholders and how do we identify them?

Stakeholders can be defined as any person/group of

individuals, internal or external, that has an interest in,
or impact on the business or corporate strategy of the
organisation. They have the power to influence the
strategy or performance of that organization.

It is important to first identify the key stakeholders.

Each stakeholder exerts a different level of influence
and can have differing levels of interest in the organisation. The expectations of key stakeholders
can influence the organisation’s strategy, a clash of objectives may have unfavourable
consequences for the organisation.

EXAMPLE of Key Stakeholders and their requirements for an OTT Platform

1.1 MENDELOW’S MATRIX

The Mendelow Stakeholder matrix (also known as the Stakeholder Analysis matrix and the Power-
Interest matrix) is a simple framework to help manage key stakeholders

[Type here]
Mendelow suggests that one should analyse stakeholder groups based on Power (the ability to
influence organisation strategy or resources) and Interest (how interested they are in the
organisation succeeding).

Developing a Grid of Stakeholders

Mendelow’s Matrix is based on Power and Interest. It suggests to identify which stakeholders
are incredibly important. Metrics to define the importance being High Power and High Interest
which management would need to manage closely, while investing a lot of time and resources.

EXAMPLE: The CEO is likely to have more Power to influence the work and also high interest in it
being successful. Keeping them informed almost daily should be a priority.

1In the above figure, we see categorisation of stakeholders into four groups by Mendelow’s;

1. KEEP SATISFIED Stakeholders: High power, less interested people - Organisation

should put in enough work with these people to keep them satisfied with their intended
information on a regular basis.
EXAMPLE: banks, government, customers, etc.
2. KEY PLAYERS Stakeholders: High power, highly interested people - Organisation’s aim
should be to fully engage this group of stakeholders, making the greatest efforts to
satisfy them, take their advice, build actions and keep them informed with all information
on a regular basis. For EXAMPLE, Shareholders, CEO, Board of Directors, etc

[Type here]
 3. LOW PRIORITY Stakeholders: Low power, less interested people - Organisation should
only monitor them with no actions to satisfy their expectations. Strategically, minimal
efforts should be spent on this group of stakeholders while keeping an eye to check if
their levels of interest or power change.
EXAMPLE: business magazines, media houses, etc.
4. KEEP INFORMED Stakeholders: Low power, highly interested people - Organisation
should adequately inform this group of people and communicate with them to ensure that
no major issues arise. This audiences can also help with real time feedbacks and areas of
improvement for an organisation.
EXAMPLE: employees, vendors, suppliers, legal experts, etc.

An important thing that strategists should be aware of, is the importance to remember that
environment is highly dynamic and certain things might happen that can cause stakeholders to
suddenly move between quadrants.

EXAMPLE: An organisation might inadvertently contravene a regulation, say GST compliance which
would cause the regulatory body i.e. the Indirect Taxes Department to move from High Power,
Low Interest to High Power, High Interest. This would then require a different way of managing
and communicating with this stakeholder. Equally, the media houses would also move from Low
Power, Low interest, to Low Power, High Interest.

So, it’s always worth re-analysing the Mendelow’s grid for one’s organisation in the event of a
change in the environment.

[Type here]
2.STRATEGIC DRIVERS
What are strategic drivers and their impact?

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.

But in general, the key strategic drivers of an organisation include:

♦ Industry and markets

♦ Customers
♦ products/services
♦ Channels

2.1 INDUSTRY AND MARKETS

A market is defined as the sum total of all the buyers and sellers in the area or region under
consideration. The value, cost and price of items traded are as per forces of supply and demand
in a market. The market may be a physical entity or may be virtual like e-commerce websites
and applications. It may further be local or global, depending on which all countries the business
sells its products in.

[Type here]
In terms of the internal environment, it is very important for an organisation to understand
it’s relative position in the industry and in the market in which it operates. Similar companies
are grouped together into industries. Basically, industry grouping is based on the primary
product that a company makes or sells.

EXAMPLE: Maruti, Mahindra, Tata Motors, TVS, Bajaj Auto, are all selling automotives
as their primary product and thus categorised into Automotive Industry.

Analysing industry and markets

Industry and market analysis is extremely important to identify one’s position as compared
to the competitors, who can be of equal size and value, or bigger in size and value or even
smaller and newer. A tool used for this is called - STRATEGIC GROUP MAPPING.

A strategic group consists of those rival firms which have similar competitive approaches and
positions in the market. Companies in the same strategic group can resemble one another in
any of the several ways:

♦ comparable product-line breadth,

♦ sell in the same price/quality range
♦ same distribution channels,
♦ same product attributes to appeal to similar types of buyers,
♦ identical technological approaches,
♦ offer buyers similar services and technical assistance

Construction of strategic group

The procedure for constructing a strategic group map and deciding which firms belong in which
strategic group is straightforward:

1. Identify the competitive characteristics that differentiate firms in the industry

typical variables are price/quality range (high, medium, low); geographic coverage (local,
regional, national, global); degree of vertical integration (none, partial, full); product-
line breadth (wide, narrow); use of distribution channels (one, some, all); and degree of
service offered (no-frills, limited, full)
2. Plot the firms on a two-variable map using pairs of these differentiating
characteristics.
3. Assign firms that fall in about the same strategy space to the same strategic group.
4. Draw circles around each strategic group making the circles proportional to the size
of the group’s respective share of total industry sales revenues.
[Type here]
ABC, DEF, GHI, XYZ AND PQR are companies operating in the same industry. Let us assume
these all are companies selling Laptops.

Now on the Y-Axis (vertical) is the reputation of the company and on the X-Axis (horizontal)
is the range of their products.

The Reputation is depicted through the size of the bubble of the company along with how high
it is on the Y-Axis. While on the X-Axis, we can see how huge their product range is, whether
they have few models or they have many models on offer for the customers.

A simple glance of the mapping chart shows us that even though ABC has few models, but it
has great reputation in the market. Similarly, GHI has a good range of products and is the
most reputed company in laptops. Another view is that XYZ and GHI have the same number of
models as both are on the same place on X-Axis, but GHI has much greater reputation than
XYZ, as it has a bigger bubble and is higher on the Y-Axis.

This analysis helps a business understand its competition in terms of two or more factor in a
single graphical representation.

[Type here]
2.2 CUSTOMERS

Understanding the different types of customers to whom the organisation’s products/services

are sold or provided, is not only important but also the first step in deciding the
product/service. Different customers may have different needs and require different sales
models or distribution channels

As customers are often responsible for the generation of profits obtained by an

organisation, it is important to be able to collect and display data in order to show customer
trends and profitability. Issues with customers can be identified, and target areas for
growth can be pursued based on the findings.

CUSTOMER AND CONSUMER

while a customer is the one buys a product/service, the consumer is the one who finally
uses/consumes the bought product or service.
EXAMPLE - A parent buying stationery products for their kids might be the customers, but
consumers of stationery are the kids who would actually use it. Thus, understanding both is
important for the marketers.

From a pricing perspective - the customer is of more importance and from value creation and
design/usability, consumer needs to be the kept at the center of decision making.

Customer versus Consumer

A simple bifurcation yet extremely important for strategy build up. Consumers are the
ones who finally use a product/service, while customers are the buyers of that product. A
customer can be a consumer and vice versa. But for strategy teams especially marketing
teams it is important to understand the customer and consumer separately. For EXAMPLE,
baby diapers are bought by parents (customers) who are willing to pay higher price for
higher quality, while the real consumers are the babies, who are more concerned about
the comfort and easiness of the diaper. If babies do not accept the product i.e. if
consumers aren’t satisfied, it is difficult to retain the buyer i.e. customers as well.

[Type here]
2.3 PRODUCTS/SERVICES
Product stands for the combination of “goods-and-services” that the company offers to
the target market. Strategies are needed for managing existing product over time, adding
new ones and dropping failed products. Strategic decisions must also be made regarding
branding, packaging and other product features such as warranties.
In this component of the strategic drivers’ analysis, business identifies the key products/
services that the organisation offers and how those products/services are performing.
It attempts to answer the general question: What business are we in and what should be
done to win over competition in each product/service we serve.
♦ There are products that have wide range of quality and workmanship and these also
change over time since products and markets are infinitely dynamic. An organization has
to capture such dynamics through a set of policies and strategies.
♦ Products can also be differentiated on the basis of size, shape, colour, packaging, brand
names, after-sales service and so on.
♦ Quite often the differentiation is psychological rather than physical. It is enough if
customers are persuaded to believe that the marketer’s product is different from
others.
EXAMPLE-Shampoos with different branding namely Head & Shoulders, Olay, Old
Spice, Pantene are all produced by the same company P&G.
♦ Organizations formalize product differentiation through designating ‘brand names’ to
their respective products. These are generally reinforced with legal sanction and
protection. Brands enable customers to identify the product and the organization behind
it. The products and even firms’ image is built around brands through advertising and
other promotional strategies. Customers tend to develop strong brand loyalty for a
particular product over a period of time
♦ For a new product, pricing strategies for entering a market need to be designed and for
that matter at least three objectives must be kept in mind:
▪ Have customer-centric approach while making a product.
▪ Produce sufficient returns through a reasonable margin over cost.
▪ Increasing market share.

♦ Products and services need heavy investment in reaching out to customers. Over the
years, a number of marketing strategies have been evolved, which are given to handle
marketing strategically and fight the competition in the market.

[Type here]
 1. Social Marketing: It refers to the design, implementation, and control of
programs seeking to increase the acceptability of a social ideas, cause, or
practice among a target group to bring in a social change.
EXAMPLE- the publicity campaign for prohibition of smoking in Delhi explained
the place where one can and can’t smoke and also indicates that smoking is
injurious to health.
2. Augmented Marketing: This type of marketing includes additional customer
services and benefits that a product can offer besides the core and actual
product that is being offered. It can be in the form of introduction of hi-tech
services like movies on demand, online computer repair services, secretarial
services, etc. Such innovative offerings provide a set of benefits that promise
to elevate customer service to unprecedented levels.
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 includes catalogue selling, e-mail, telecomputing,
electronic marketing, shopping, and TV shopping.
4. Relationship Marketing: The process of creating, maintaining, and enhancing
strong, value-laden relationships with customers and other stakeholders.
EXAMPLE- Airlines offer special lounges at major airports for frequent flyers.
Thus, providing special benefits to select customers to strengthen bonds. It
can go a long way in building relationships.
5. Services Marketing: It is applying the concepts, tools, and techniques, of
marketing to services. Services is any activity or benefit that one party can
offer to another that is essentially intangible. This marketing requires
different marketing strategies since it has peculiar characteristics of its own
such as inseparability, variability etc.
6. Person Marketing: People can also be marketed. Person marketing consists of
activities undertaken to create, maintain or change attitudes and behaviour
towards particular person.
EXAMPLE-politicians, sports stars, film stars, etc. i.e., market themselves to
get votes, or to promote their careers.
7. Organization Marketing: It consists of activities undertaken to create,
maintain, or change attitudes and behaviour of target audiences towards an
organization. Both profit and non-profit organizations practice organization
marketing.

[Type here]
 8. Place Marketing: Place marketing involves activities undertaken to create,
maintain, or change attitudes and behaviour towards particular places say,
marketing of business sites, tourism marketing.
9. Enlightened Marketing: It is a marketing philosophy holding that a company’s
marketing should 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 marketing, sense-of-
mission marketing, and societal marketing.
10. Differential Marketing: It is a market-coverage strategy in which a firm
decides to target several market segments and designs separate offer for
each.
EXAMPLE-Hindustan Unilever Limited has Lifebuoy, Lux and Rexona in popular
segment and Dove and Pears in premium segment.
11. Synchro-marketing: When the demand for a product is irregular due to season,
some parts of the day, or on hour basis, causing idle capacity or overworked
capacities, synchro-marketing can be used to find ways to alter the pattern of
demand through flexible pricing, promotion, and other incentives.
EXAMPLE-products such as movie tickets can be sold at lower price over
weekdays to generate demand.
12. Concentrated Marketing: It is a market-coverage strategy in which a firm goes
after a large share of one or few sub-markets. It can also take the form of
Niche marketing.
13. Demarketing: It includes marketing strategies to reduce demand temporarily
or permanently. The aim is not to destroy demand, but only to reduce or shift
it. This happens when there is overfull demand.
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 demarketing can be applied to regulate demand.

2.4 CHANNELS
Channels are the distribution system by which an organisation distributes its product or
provides its service.
EXAMPLEs of how the following companies distribute their products and services;
● Lakme - sells its products via retail stores, intermediary stores (like Nykaa,
Westside, Reliance Trends), as well as online mode like amazon, Flipkart, nykaa
online and its own website.

[Type here]
 ● Boat Headphones - only online via e-commerce platforms like Flipkart and
amazon.
● Coca Cola - retail shops across the nation, in each district, each town as well as
online mode via dunzo, blinkit, etc.

The wider and stronger the channel the better position a business has to fight and win over
competition. Also, having robust channels of business distribution help keep new players away
from entering the industry, thus acting as barriers to entry.
There are typically three channels that should be considered: sales channel, product channel
and service channel.

1. The sales channel - These are the intermediaries involved in selling the product
through each channel and ultimately to the end user. The key question is: Who needs
to sell to whom for your product to be sold to your end user?
EXAMPLE-many fashion designers use agencies to sell their products to retail
organisations, so that consumers can access them.
2. The product channel - The product channel focuses on the series of intermediaries
who physically handle the product on its path from its producer to the end user.
This is true of Australia Post, who delivers and distributes many online purchases
between the seller and purchaser when using eBay and other online stores.
3. The service channel - The service channel refers to the entities that provide
necessary services to support the product, as it moves through the sales channel
and after purchase by the end user. The service channel is an important
consideration for products that are complex in terms of installation or customer
assistance.
EXAMPLE-a Bosch dishwasher may be sold in a Bosch showroom, and then once sold
it is installed by a Bosch contracted plumber.

[Type here]
Channel analysis is important when the business strategy is to scale up and expand beyond
the current geographies and markets. When a business plans to grow to newer markets, they
need to develop or leverage existing channels to get to new customers. Thus, analysis of
channels that suit one’s products and customers is of utmost importance.
EXAMPLE - if a healthcare brand wants to reach out to elderly customers - they need to be
more focused on offline mode of business where agents reach out physically to the elderly
as most of their potential customers (i.e. the old aged) are not active on smartphones.

3.CORE COMPETENCIES
What is core competency and how it is identified?
Core competency is defined as the collective learning in the organization, especially
coordinating diverse production skills and integrating multiple streams of technologies. An
organization’s combination of technological and managerial know-how, wisdom and experience
are a complex set of capabilities and resources that can lead to a competitive advantage
compared to a competitor.
By C.K. Prahalad and Gary Hamel
Competency is defined as a combination of skills and techniques rather than individual skill
or separate technique. The optimal way to define core competence is to consider it as sum
of 5- 15 areas of developed expertise. For core competencies, it is characteristic to have a
combination of skills and techniques, which makes the whole organization utilize these
several separate individual capabilities.
According to C.K. Prahalad and Gary Hamel, major core competencies are identified in three
areas -
1) competitor differentiation,
2) customer value, and
3) application to other markets

1. Competitor differentiation: The company can consider having a core competence if

the competence 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 that competitors can
copy it. The company has to keep on improving these skills in order to sustain its
competitive position. Although all companies operating in the same market would
have the equal skills and resources, if one company can perform this significantly
better; the company has obtained a core competence.

[Type here]
 EXAMPLE, it is quite difficult to imitate patented innovation, like Tesla has been
winning over competition in electric vehicles.
2. Customer value: When purchasing a product or service it has to deliver a
fundamental benefit for the end customer in order to be a core competence. It will
include all the skills needed to provide fundamental benefits. The service or the
product has to have real impact on the customer as the reason to choose to purchase
them. If customer has chosen the company without this impact, then competence is
not a core competence, and it will not affect the company’s market position. The
essence is that the consumer should value the differentiation offered. Without it,
the core competency does not make sense.
3. Application of competencies: Core competence must be applicable to the whole
organization; it cannot be only one particular skill or specified area of expertise.
Therefore, although some special capability would be essential or crucial for the
success of business activity, it will not be considered as core competence if it is not
fundamental from the whole organization’s point of view. Thus, a core competence
is a unique set of skills and expertise, which will be used throughout the organisation
to open up potential markets to be exploited.
If the three above-mentioned conditions are met, then the company can regard it
competence as core competency.
Core Competence-based diversification reduces risk and investment and increases the
opportunities for transferring learning and best practice across business units.
Core competencies are often visible in the form of organizational functions.
EXAMPLE- Marketing and Sales is a core competence of Hindustan Unilever Limited (HUL)
This means that HUL has used its resources to form marketing related capabilities that in
turn allow it to market its products in ways that are superior those of competitors. Because
of this core competence, HUL is capable of launching new brands in the market successfully.

3.1 CRITERIA FOR BUILDING CORE COMPETENCIES

Four specific criteria of sustainable competitive advantage that firms can use to determine
those capabilities that are core competencies.
1. Valuable: Valuable capabilities are the ones that allow the firm to exploit
opportunities or avert the threats in its external environment. A firm creates value
for customers by effectively using capabilities to exploit opportunities. Finance
companies build a valuable competence in financial services. In addition, to make
such competencies as financial services highly successful require placing the right
people in the right jobs. Human capital is important in creating value for customers.

[Type here]
 2. Rare: Core competencies are very rare capabilities and very few of the competitors
possess this. Capabilities possessed by many rivals are unlikely to be sources of
competitive advantage for any one of them. Competitive advantage results only when
firms develop and exploit valuable capabilities that differ from those shared with
competitors.
3. Costly to imitate: Costly to imitate means such capabilities that competing firms
are unable to develop easily.
EXAMPLE: Intel has enjoyed a first-mover advantage more than once
because of its rare fast R&D cycle time capability that brought SRAM and
DRAM integrated circuit technology and brought microprocessors to
market well ahead of the competitor. The product could be imitated in due
course of time, but it was much more difficult to imitate the R&D cycle
time capability.
4. 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 be no strategically equivalent valuable
resources that are themselves either not rare or imitable.
EXAMPLE-for years, firms tried to imitate Tata’s low-cost strategy, but most have
been unable to duplicate Tata’s success. They did not realize that Tata has a unique
culture and attracts some of the top talent in the industry. The culture and
excellent human capital worked together in implementing Tata’s strategy and are
the basis for its competitive advantage.
The strategic value of capabilities increases as they become more difficult to
substitute.
EXAMPLE-Competitors are deeply aware about Apple’s operating system’s
(iOS) successful model. However, to date, no competitor has been able to
imitate Apple’s capabilities. These are also protected through copyrights.

When a capability is valuable, rare, costly to imitate, and non-substitutable, it is a core

competence and a source of competitive advantage. Core competencies are a source of
competitive advantage only when they allow the firm to create value by exploiting
opportunities in its external environment

[Type here]
4.SWOT ANALYSIS-Combining internal and external analysis

What do you mean by swot analysis and how it is implemented?

SWOT analysis is the analysis of a business’s strengths, weaknesses, opportunities and
threats. The primary objective of a SWOT analysis is to help organizations develop a full
awareness of all the factors (external as well as internal), involved in making a business
decision.
SWOT analysis shall be implemented before all company actions, whether it is exploring new
initiatives, revamping internal policies, considering opportunities to grow or alter a plan
midway. One shall also use SWOT analysis to discover recommendations and strategies, with
a focus on leveraging strengths and opportunities to overcome weaknesses and threats.
Since its creation, SWOT has been the most widely used tools for business owners to grow
their companies. The analysis can show areas where an organization is performing well, as
well as areas that need improvement.

[Type here]
EXAMPLE of a law firm - what could its SWOT analysis help understand about its business.

The benefit of this analysis is that it identifies the complex issues for an organisation and
puts them into a simple framework. While on the other hand, one of the major criticisms of
this tool is that it does not generally provide for evaluation of strengths, weaknesses,
opportunities and threats in the competitive context.
Therefore, an organisation while using this tool, SWOT analysis, should consider relative
competitors, and external factors affecting the organisation. Although a simple tool, it is a
useful starting point for analysis.

SWOT Analysis for Internal or External Environment?

SWOT stands for Strengths, Weaknesses, Opportunities and Threats. Internal analysis is
more focused on understanding the existing structure and competencies of the business,
thus highlighting the Strengths and Weaknesses, while External Analysis is about
identifying and preparing for uncontrollable which can either be Opportunities or
threats.
Therefore, SWOT Analysis is a tool which is used for both Internal and External Analysis.

[Type here]
5.COMPETITIVE ADVANTAGE (using MICHAEL PORTER’S GENERIC STRATERGIES)

What is a competitive advantage?

If a company’s strategies result in superior performance, it is said to have a competitive
advantage.
Strategic management involves development of competencies that managers can use to
achieve better performance and a competitive advantage for their organization. Competitive
advantage allows a firm to gain an edge over rivals when competing. ‘It is a set of unique
features of a company and its products that are perceived by the target market as
significant and superior to the competition.’
The competitive advantage is the achieved advantage over rivals when a company’s
profitability is greater than the average profitability of firms in its industry. It is achieved
when the firm successfully formulates and implements the value creation strategy and other
firms are unable to duplicate it or find it too costly to imitate.

5.1 SUSTAINABILITY OF COMPETITIVE ADVANTAGE

The sustainability of competitive advantage and a firm’s ability to earn profits from its
competitive advantage depends upon four major characteristics of resources and
capabilities:
1. Durability: The period over which a competitive advantage is sustained depends in
part on the rate at which a firm’s resources and capabilities deteriorate. In
industries where the rate of product innovation is fast, product patents are quite
likely to become obsolete.
Similarly, capabilities which are the result of the management expertise of the CEO
are also vulnerable to his or her retirement or departure. On the other hand, many
consumer brand names have a highly durable appeal.
2. Transferability: Even if the resources and capabilities on which a competitive
advantage is based are durable, it is likely to be eroded by competition from rivals.
The ability of rivals to attack position of competitive advantage relies on their
gaining access to the necessary resources and capabilities. The easier it is to
transfer resources and capabilities between companies, the less sustainable will be
the competitive advantage which is based on them.
3. Imitability: If resources and capabilities cannot be purchased by a would-be
imitator, then they must be built from scratch. How easily and quickly can the
competitors build the resources and capabilities on which a firm’s competitive
advantage is based? This is the true test of imitability.
EXAMPLE- In financial services, innovations lack legal protection and are easily
[Type here]
 copied. Here again the complexity of many organizational capabilities can provide a
degree of competitive defence. Where capabilities require networks of
organizational routines, whose effectiveness depends on the corporate culture,
imitation is difficult.
4. Appropriability: Appropriability refers to the ability of the firm’s owners to
appropriate the returns on its resource base. Even where resources and capabilities
are capable of offering sustainable advantage, there is an issue as to who receives
the returns on these resources. This means, that rewards are directed to from
where the funds were invested, rather than creating an advantage with no actual
reward to people to invested capital.

5.2 MICHAEL PORTER’S GENERIC STRATEGY

According to Porter, strategies allow organizations to gain competitive advantage from three
different bases: cost leadership, differentiation, and focus. Porter called these base generic
strategies. These strategies have been termed generic, because they can be pursued by any
type or size of business firm and even by not-for-profit organisations.

1. Cost leadership emphasizes on producing standardized products at a very low per-

unit cost for consumers who are price-sensitive.
2. Differentiation is a strategy aimed at producing products and services considered
unique industry-wide and directed at consumers who are relatively price-insensitive.
3. Focus means producing products and services that fulfil the needs of small groups
of consumers with very specific taste

[Type here]
 Porter’s strategies imply different organizational arrangements, control procedures, and
incentive systems.

Larger firms with greater access to resources typically compete on a cost leadership
and/or differentiation basis, whereas smaller firms often compete on a focus basis.

Porter stresses the need for strategists to perform cost-benefit analysis to evaluate
“sharing opportunities” among the firm’s existing and potential business units. Sharing
activities and resources enhances competitive advantage by lowering costs or raising
differentiation.

Porter stresses the need for firms to “transfer” skills and expertise among autonomous
business units effectively in order to gain competitive advantage.

Depending upon factors such as type of industry, size of firm and nature of competition,
various strategies could yield advantages in cost leadership differentiation, and focus.

Cost leadership strategy

It is a low-cost competitive strategy that aims at broad mass market. It requires vigorous
pursuit of cost reduction in the areas of procurement, production, storage and
distribution of product or service and also economies in overhead costs. Because of its
lower costs, the cost leader is able to charge a lower price for its products than most of
its competitors and still earn satisfactory profits

EXAMPLE-McDonald’s fast-food restaurants have successfully followed low-cost

leadership strategy. Decathlon Group’s mega sports stores have been following low-cost
leadership strategy to gain international recognition and also beat competition.

A primary reason for pursuing forward, backward, and horizontal integration strategies
is to gain cost leadership benefits. A number of cost elements affect the relative
attractiveness of generic strategies, including economies or diseconomies of scale
achieved, learning and experience curve effects, the percentage of capacity utilization
achieved, and linkages with suppliers and distributors. Other cost elements to consider
while choosing among alternative generic strategies include the potential for sharing
costs and knowledge within the organization, R&D costs associated with new product
development or modification of existing products, labour costs, tax rates, energy costs,
and shipping costs. This internal strategy of sharing resources to build a competitive
advantage is called synergy benefit.

[Type here]
 Striving to be a low-cost producer in an industry can especially be effective,

♦ when the market is composed of many price-sensitive buyers and

♦ when there are few ways to achieve product differentiation.

A successful cost leadership strategy usually permeates the entire firm, as evidenced by
high efficiency, low overheads, limited perks, intolerance of waste, intensive screening of
budget requests, wide span of controls, rewards linked to cost containment, and broad
employee participation in cost control efforts.

Some risks of pursuing cost leadership are;

1. that competitors may imitate the strategy, therefore driving overall industry
profits down;

2. that technological breakthroughs in the industry may make the strategy

ineffective; or that buyer interests may swing to other differentiating features
besides price.

Achieving cost leadership strategy

1. Prompt forecasting of demand of a product or service.

2. Optimum utilization of the resources to achieve cost advantages.

3. Achieving economies of scale; thus, lower per unit cost of product/service.

4. Standardisation of products for mass production to yield lower cost per unit.

EXAMPLE of McDonald’s

5. Invest in cost saving technologies and using advance technology for smart
efficient working.

6. Resistance to differentiation till it becomes essential.

Advantages of Cost Leadership Strategy

A cost leadership strategy may help to remain profitable even with rivalry, new
entrants, suppliers’ power, substitute products, and buyers’ power.

1. Rivalry – Competitors are likely to avoid a price war, since the low-cost firm will
continue to earn profits even after competitors compete away their profits.

2. Buyers – Powerful buyers/customers would not be able to exploit the cost leader
firm and will continue to buy its product.

[Type here]
 3. Suppliers – Cost leaders are able to absorb greater price increases from suppliers
before they need to raise prices for customers.

4. Entrants – Low-cost leaders create barriers to market entry through their

continuous focus on efficiency and cost reduction.

5. Substitutes – Low-cost leaders are more likely to lower the costs to induce existing
customers to stay with their products, invest in developing substitutes, and even
purchase patents.
Disadvantages of Cost Leadership Strategy

1. Cost advantage may not last long as competitors may imitate cost reduction
techniques.

2. Cost leadership can succeed only if the firm can achieve higher sales volume.

3. Cost leaders tend to keep their costs low by minimizing cost of advertising, market
research, and research and development, but this approach can prove to be
expensive in the long run.

4. Technological advancement areas a great threat to cost leaders.

Differentiation Strategy
This strategy is aimed at broad mass market and involves the creation of a product or
service that is perceived by the customers as unique. The uniqueness can be associated
with product design, brand image, features, technology, dealer network or customer
service. Because of differentiation, the business can charge a premium for its product.

EXAMPLE-Domino’s Pizza has been offering home delivery within 30 minutes or the order
is free, is a unique selling point that differentiates if from its rivals.

Differentiation does not guarantee competitive advantage, especially if standard

products sufficiently meet customer needs or if rapid imitation by competitors is possible.

Successful differentiation can mean greater product flexibility, greater compatibility,

lower costs, improved service, less maintenance, greater convenience, or more features.
A successful differentiation strategy allows a firm to charge a higher price for its
product and to gain customer loyalty, because consumers may become strongly attached
to the differentiated features.

Product development is an EXAMPLE of a strategy that offers the advantages of

differentiation.

[Type here]
 Differentiation strategy should be pursued only after a careful study of buyers’ needs
and preferences to determine the feasibility of incorporating one or more differentiating
features into a unique product that features the customers’ desired attributes.

Special features that differentiate one’s product can include superior service, spare
parts availability, engineering design, product performance, useful life, gas mileage, or
ease of use.

Some risks of pursuing differentiation strategy are that

1. The unique product may not be valued high enough by customers to justify the
higher price. When this happens, a cost leadership strategy will easily defeat a
differentiation strategy.

2. Competitors may develop ways to copy the differentiating features quickly. Firms
must find durable sources of uniqueness that cannot be imitated quickly or cheaply
by rival firms.

Example -amazon prime offers deliver within two hours. This is quite difficult to
imitate by its rivals, and thus this differentiating factor helps it to lead the
market.

Basis of Differentiation

There are several bases of differentiation, major being: Product, Pricing and
Organization.

1. Product: Innovative products that meet customer needs can be an area where a
company has an advantage over competitors. However, the pursuit of a new product
offering can be costly. The payoff, however, can be great as customer’s flock to be
among the first to have the new product.

EXAMPLE-Apple iPhone, has invested huge amounts of money in R&D, and the
customers’ value that. They want to be among the first ones to try the new
offerings from the company.

2. Pricing: It fluctuates based on its supply and demand and may also be influenced by
the customer’s ideal value for a product. Companies that differentiate based on
product price can either determine to offer the lowest price or can attempt to
establish superiority through higher prices.

EXAMPLE-Apple iPhone dominates the smart phone segment by charging higher

prices for its products.

[Type here]
 3. Organization: Organizational differentiation is yet another form of
differentiation. Maximizing the power of a brand or using the specific advantages
that an organization possesses can be instrumental to a company’s success. Location
advantage, name recognition and customer loyalty can all provide additional ways
for a company differentiate itself from the competition.

EXAMPLE-Apple has been building customer loyalty since years and has a fanbase
of consumers that are called “Apple Fanboys/Fangirls”.

Achieving Differentiation Strategy

To achieve differentiation, following strategies could be adopted by an organization:

1. Offer utility to the customers and match products with their tastes and
preferences.

2. Elevate/Improve performance of the product.

3. Offer the high-quality product/service for buyer satisfaction.

4. Rapid product innovation to keep up with dynamic environment.

5. Taking steps for enhancing brand image and brand value.

6. Fixing product prices based on the unique features of product and buying capacity
of the customer.

Advantages of Differentiation Strategy

A differentiation strategy may help an organization to remain profitable even with

rivalry, new entrants, suppliers’ power, substitute products, and buyers’ power.

1. Rivalry - Brand loyalty acts as a safeguard against competitors. It means that

customers will be less sensitive to price increases, as long as the firm can satisfy
the needs of its customers.

2. Buyers – They do not negotiate for price as they get special features and they have
fewer options in the market.

3. Suppliers – Because differentiators charge a premium price, they can afford to

absorb higher costs of supplies as the customers are willing to pay extra too.

4. Entrants – Innovative features are an expensive offer. So, new entrants generally
avoid these features because it is tough for them to provide the same product with
special features at a comparable price.

[Type here]
 5. Substitutes – Substitute products can’t replace differentiated products which
have high brand value and enjoy customer loyalty.

Disadvantages of Differentiation Strategy

1. In the long term, uniqueness is difficult to sustain.

2. Charging too high a price for differentiated features may cause the customer to
switch-off to another alternative. As we see a shift of iPhone users to other
android flagship smart phones.

3. Differentiation fails to work if its basis is something that is not valued by the
customers. Home delivery of packed snacks in 30 minutes would not even be a
differentiator as the consumer wouldn’t value such an offer.

Focus Strategies
A successful focus strategy depends on an industry segment that is of sufficient size,
has good growth potential, and is not crucial to the success of other major competitors.
Strategies such as market penetration and market development offer substantial
focusing advantages.

Focus strategies are most effective when consumers have distinctive preferences or
requirements, and when the rival firms are not attempting to specialize in the same target
segment.

Some Risks of pursuing a focus strategy include,

1. the possibility of numerous competitors recognizing the successful focus
strategy and imitating it

2. that consumer preferences may drift towards the product attributes desired by
the market as a whole.

An organization using a focus strategy may concentrate on a particular group of

customers, geographic markets, or on particular product-line segments in order to serve
a well-defined but narrow market better than competitors who serve a broader market.
EXAMPLE-Ferrari sports cars.

Focused cost leadership: A focused cost leadership strategy requires competing based
on price to target a narrow market. A firm that follows this strategy does not necessarily
charge the lowest prices in the industry. Instead, it charges low prices relative to other
firms that compete within the target market. Firms that compete based on price and
target a narrow market follow a focused cost leadership strategy.

[Type here]
 Focused differentiation: A focused differentiation strategy requires offering unique
features that fulfil the demands of a narrow market. Similar to focused low- cost
strategy, narrow markets are defined in different ways in different settings. Some firms
using a focused differentiation strategy concentrate their efforts on a particular sales
channel, such as selling over the internet only, Others target particular demographic
groups. Firms that compete based on uniqueness and target a narrow market are following
a focused differentiations strategy.
EXAMPLE-Rolls-Royce sells limited number of high-end, custom-built cars.

Achieving Focused Strategy

To achieve focused cost leadership/differentiation, following strategies could be adopted

by an organization:

1. Selecting specific niches which are not covered by cost leaders and differentiators.

2. Creating superior skills for catering such niche markets.

3. Generating high efficiencies for serving such niche markets.

4. Developing innovative ways in managing the value chain.

Advantages of Focused Strategy

1. Premium prices can be charged by the organizations for their focused

product/services.

2. Due to the tremendous expertise in the goods and services that the organizations
following focus strategy offer, rivals and new entrants may find it difficult to
compete.
Disadvantages of Focused Strategy

1. The firms lacking in distinctive competencies may not be able to pursue focus
strategy.

2. Due to the limited demand of product/services, costs are high, which can cause
problems.

3. In the long run, the niche could disappear or be taken over by larger competitors
by acquiring the same distinctive competencies.

[Type here]
Best-Cost Provider Strategy
The new model of best cost provider strategy is a further development of above three
generic strategies. It is directed towards giving customers more value for the money by
emphasizing on both, low cost and upscale differences.

The objective is to keep costs and prices lower than those of other sellers of “comparable
products".

Best-cost provider strategy involves providing customers more value for the money by
emphasizing on lower cost and better-quality differences.

It can be done through:

(a) offering products at lower price than what is being offered by rivals for products
with comparable quality and features

Or

(b) charging similar price as by the rivals for products with much higher quality and
better features.

EXAMPLE-android flagship phones from OnePlus, Xiaomi, Oppo, Vivo, etc, are all
rooting for giving better quality at lowest prices to the customers. They are
following the best-cost provider strategy to penetrate market.

[Type here]