Strategic Management

Compiled by: Dr. Vivek Verma

(For internal circulation only)
STRATEGY
A unified, comprehensive and integrated plan designed to assure that the basic objective of
the enterprise is achieved.

A strategy is a unified comprehensive and integrated plan that relates the strategic advantages of
the firm to the challenges of the environment. It is designed to ensure that the basic objectives of
the enterprise are best achieved through proper execution by the organisation

“A company‟s strategy consists of the combination of competitive moves and business

approaches that managers employ to please customers, compete successfully and achieve
organisational objectives.”- Thompson &Strickland

 Derived from Greek word „Strategoes‟ (Stratos- Army + Ago- Leading/Guiding) which
means generalship- the actual direction of military force as distinct from the policy
governing the deployment.
 A plan or course of action or a set of decision rules forming a pattern or creating a
common thread.
The pattern or common thread is related to the organization‟s activities which are derived
from its policies, objectives & goals.
It is related to pursuing those activities which move an organisation from its current
position to a desired future state.
 Concerned with the resources necessary for implementing a plan or following a course of
action.
 Connected to the strategic positioning of a firm, making trade offs between its different
activities.

STRATEGIC MANAGEMENT

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 “Strategic Management is a stream of decisions and actions which leads to the development
of an effective strategy or strategies, which help to achieve corporate objectives”. William F.
Glueck

“The process which deals with the fundamental organizational renewal and growth with the
development of strategies, structures and systems necessary to achieve such renewal and
growth, and with the organizational systems needed to effectively manage the strategy
formulation & implementation processes.” Hofer & Other

BUSINESS POLICY:

It is the study of the function and responsibilities of senior management, the crucial problems
that affect success in the total enterprise and the decisions that determine the direction of the
organization and shape its future.

Business policy is the term traditionally associated with the course in business schools
devoted to integrating the educational programme of these schools and understanding what
today is called strategic management.

NATURE OF BUSINESS POLICY:

1. It is a study of functions & responsibilities of the senior management related to those

organizational problems which affect the success of the organization.

2. It deals with the determination of future course of action that an organization has to
adopt.

3. It involves choosing the purpose & defining what needs to be done in order to mould the
character & identity of an organization.

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 4. It is also concerned with the mobilization of resources which will help the organization to
achieve its goals.

IMPORTANCE OF BUSINESS POLICY:

For learning the course: - Integration of knowledge & experience gained in various
functional
areas of management.

- It enables a learner to understand and make sense of complex

interaction that takes place between different functional areas.

- Business policy cuts across the narrow functional boundaries and

draws upon a variety of sources like economics, sociology,
political science, psychology etc. to develop a theoretical structure
of its own.

- It makes the study and practice of management more meaningful

as one can view business decision making in its proper perspective

For understanding the business environment: - It helps to create an understanding of how

policies
are formulated.

- Understanding complexities of business environment

- Implementation of policies become simpler & easier due to greater

understanding of business environment, managers become more
receptive to ideas and suggestions of the senior management

- Its easier to implement changes.

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For understanding the organization: - It presents a basic framework for understanding
strategic
Decisions making while a person is at the middle level of
management.

- Brings the benefit of years of distilled experience in strategic

decision making

- Leads to an improvement in job performance. This has far-

reaching implications for managerial functions like coordination
and communication and also for avoidance of interdepartmental
conflicts

For Personal development: - It is beneficial for an executive to understand the impact of policy
shifts on
the position one occupies.
- An understanding of business policy enable executives to avail an
opportunity or avoid risk with regard to career planning and
development
- It provides an adequate grounding for understanding the macro
factors and their impact at the micro level.
- It offers a unique perspective to executive to understand the senior
management‟s viewpoint.
- It provides the organization a theoretical framework in the form of
the strategic management model, which provides powerful insights
for dealing with policy making at the macro level as well as at an
individual level through self analysis.

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NATURE OF STRATEGIC DECISIONS:

1. Strategy may or may not involve explicit formulation of what the organization intends to
do i.e. whether or not an organization formulates a strategy, it is presumed to have
established a relationship with its environment &hence there is a strategy which can be
examined and described even though it is not spelt out in so many words.

2. While shaping the future, strategic decisions often mould the organizational identity and
character deciding whether the enterprise will continue to be in the same line of business
or combine new lines of activity with the existing business, enter new market segments or
seek to acquire a dominant position in the same market and so on.

3. Strategic decisions are primarily concerned with external rather than internal problems
and more specifically with the selection of the product mix which will be produced and
the markets to which the products will be sold, thus establishing, what Ansoff calls “ an
impedance match” between the organization and its environment.

PURPOSE OF BUSINESS POLICY:

A business policy seeks to integrate the knowledge gained in various functional areas so as to
develop a generalist approach in management studies. Such an approach is helpful in viewing
organizational problems in their totality.

It can also create awareness about the repercussions that an action taken in one area of
management can have on other areas individually and on the organization as a whole.

Three fold purpose of business policy:

1. To integrate the knowledge gained in various functional areas of management.

2. To adopt a generalist approach to problem solving.

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 3. To understand the complex interlinkages operating within an organization through the
use of a systems approach to decision making and relating these to the changes taking
place in the external environment.

OBJECTIVES OF BUSINESS POLICY

 In terms of knowledge:
1. Understand various concepts involved like strategy, plans, policies, programmes,
etc.
2. Understand the environment in which a firm operates
3. Determination of the mission, objectives and strategy of a firm.
4. To visualize how the implementation of strategic management can take place.
5. To develop a general approach problem solving and decision making. This makes
an organization to deal with a wide variety of situation.
6. To survey literature & researches taking place

 In terms of skills:
1. Developing skills & Apply what has been learnt (by analyzing case studies and
their interpretations.
2. To develop analytical ability and use it to understand the situation in a given case
or incident
3. Identifying factors relevant in decision making, identifying SWOT for an
organization
4. Increasing mental ability of learners and making them use this ability while taking
appropriate action.
5. Development of oral as well as written communication skills through case
analysis.

 In terms of attitude:
1. To develop a „generalist‟ attitude that enables the learners to approach and assess
a situation from all possible angles.

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 2. To develop a „practitioner‟ rather than a „perfectionist‟. This is because a
generalist is able to function under condition of partial ignorance by using his or
her judgment and intuition.

3. To introduce a manager with liberal attitude and be receptive to new ideas.

4. To develop a creative and innovative attitude is the hallmark of a general manager

who refuses to be bound by precedents and stereotyped decisions.

EVOLUTION OF THIS COURSE:

Genesis of Business Policy: 1911, Harvard Business School introduced an integrative course in
management capability. The course aimed at improving the general management capabilities of
students. It was intended to tie together and give proper focus to the first year courses by
showing how the functions of business both internally and as between businesses, were closely
interrelated in practice and how a chief executive had to recognize and deal with those
relationships.

Evolution based on Managerial practices:

short term planning tools were the only tools with organization to rely on for future estimation &
decision making.

Around 1930s systematic attempts were made to go deep into future and prepare the
organizations for likely changes in future. Budgets control systems management by objectives
and capital budgeting techniques were pressed into service with a view to predict future impacts
based on current trends. These techniques unfortunately failed to capture the essence of future
conditions in an appropriate way.

Long range planning was used to remedy the situation.

Corporate plans, prepared by people at various levels based on current practices and likely
changes in future, were often pushed upwards for approval by top management. Top

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management‟s participation in such lopsided exercises was minimal and there was always the
danger of the recommendations not being followed. This process is called as first generation
planning. First generation planning puts lot of emphasis on picking up an appropriate course of
action (generally a single plan) based on environmental challenges and organizational strengths
and weaknesses. The came the second generation planning in the form of strategic management
which came to occupy the center stage in the business world ,emphasizing interaction by
managers at all levels of the organizational hierarchy in planning and implementation .

Hofer - et- al called this evolution a paradigm shift. They have summarized the developments in
this regard thus:

First Phase: Paradigm of Adhoc Policy (till mid 1930s): Adhoc policy making necessitated by
the expansion of American firms in terms of product markets and customers and the consequent
need to replace informal controls and coordination by farming functional policies to guide
managers.

Second Phase: Paradigm of planned Policy (1930s – 1940s): Replacement of adhoc policy
making by planned policy formulation and shifting attention towards integration of functional
areas, in line with environmental requirements.

Third Phase Strategy Paradigm ( 1960s): Rapid force of environmental changes and
increasing complexity of managerial functions demanding a critical look at the concept of
business in relation to its environment hence the need for strategic decisions.

Fourth Phase: Paradigm of Strategic Management (1980s): shifting of focus to the strategic
management process and the responsibility of general management in resolving strategic issues.

POINTERS TO THE FUTURE:

Resolution of strategic issues that affect a business firm has been a continual endeavor in
the subject of business policy.
The general principles undergirding strategic thinking have been the focus of the efforts
of researchers and academicians in the field of business policy

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 Now there is an emerging trend to have several courses, such as the theory of strategy,
competitive strategy industry dynamics, hyper competition and global strategy in the
curriculum.

INDIAN SCENARIO:

Formal Management education started – 1950s

Establishment of IIMs & other institutions- 1960s
AICTE: Regulatory agency for Management education in India, prescribed Business
Policy as a subject in curriculum- 1990s
Association of Indian Management schools included BPSM as a compulsory course
AIMA includes course on BPSM in its curriculum in all of their management
programmes.

Changes taking place in Indian context:

There is now a professional association, strategic Management Forum of India, which is

exclusively devoted to the development and propagation of the theory & practice of strategic
management.

Indian companies are now acutely aware of the need for strategic management & have been
hiring consultants to advise them on strategic matters.

HOW STRATEGIC MANAGEMENT EVOLVED:

I. Forecasting: “Forecasting is an attempt to foresee the future by examining the past.”

Forecasts: predictions, projections, or estimates of future events or conditions in the

environment in which the organization operates.

 Used to try to predict the future

 Uses two main methods:

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 1. Qualitative: seeking opinions on which
to base decision making.

Consumer panels, focus groups, etc

2. Quantitative – using statistical data to help inform decision making

1. Identifying trends
2. Moving averages – seasonal, cyclical, random
3. Extrapolation – simple

II. Long Range Planning: Forecasting helped organizations a lot, but still there existed a
gap between what organizations needed and what they were getting out from
forecasting. Forecasts are never error free, so planning in either case is mandatory. So
organizations started planning for long term. Day to day planning techniques were
unable to emphasize the role of future adequately. Looking into the matters with an
objective of dealing through future aspects and taking into consideration the impact of
future on today‟s position.

Long Range Planning means analyzing the future prospects and threats to make plans
and policies for current use and implementation.

III. Strategic Planning: Strategic Planning is concerned with the selection of the product
mix which a company may produce and the markets in which it may sell its products.

Strategic planning is defined as, “The process of deciding on objectives, on the

changes in the objectives, on the resources used to attain the objectives and on the
policies that are to govern acquisition, use and deposition of these resources.”

It is the determination of the basic long goals and objectives in an enterprise and the
adoption of courses of action and the allocation of resources necessary for carrying
out these goals.

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 FORECASTING

Forecasting is the process of making statements about events whose actual outcomes
have not yet been observed. A commonplace example might be estimation for some
variable of interest at some specified future date.

Forecasting can be described as predicting what the future will look like, whereas
planning predicts what the future should look like.

STRATEGIC PLANNING

Strategic Planning is the managerial process of developing and maintaining a strategic fit
between the organization's objectives and resources and its changing market opportunities.

LEVELS AT WHICH STRATEGY OPERATES

1. Corporate level strategy

2. Business level strategy
3. Functional level strategy

Corporate Level Strategy: Strategic decisions relate to organizations wide policies and are
most useful in the case of multi divisional companies or firms having wide ranging business
interests. The nature of strategic decisions at the corporate level tend to be value oriented,
conceptual and less concrete than decisions at business or functional level. There is also greater
risk, cost and profit potential as well as greater need for flexibility associated with corporate
level strategic activities.

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Business Level Strategy: Decision makers are primarily concerned with the immediate industry
or product- market issues and with policies bearing on the integration of the functional units.
Business level strategic decisions translate the general statements of direction and intent
generated at corporate level into concrete functional objectives and strategies for divisions or
strategic business units (SBUs).

Strategic decisions at business level should include policies including new product development,
marketing mix, research & development, personnel, etc.

Functional level strategy: It involves decision making with respect to specific functional areas-
production, marketing, personnel, finance, etc. Decisions at functional levels stress on „doing
things right‟.

Operating level strategies are concerned with initiatives for managing frontline operating units
(like plants, sales districts, etc.) and for handling day to day tasks of strategic significance.
Although of limited scope, operating strategies add further detail and completeness to functional
strategies as also to the overall business plan.

STRATEGIC DECISION MAKING

Strategic Decision Making means moulding the organizational identity and character deciding
whether the enterprise will continue to be in the same line of business or combine new lines of
activity with the existing business, etc.

It means choosing the best strategic alternative from a variety of available options which would
affect the strategic positioning of the firm.

Strategic Decisions: Strategic Decisions are mainly concerned with external rather than internal
problems.

Three types of decisions in a firm:

Strategic decisions: Decisions related to the development of effective strategies of firm.

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Operating decisions: Decisions related to the day to day activities or current operations

Administrative decisions: Structuring the firm‟s resources so as to create a maximum potential

of performance.

Decisions concerned with the authority & responsibility relationships, work flows,
communication, developing sources of raw material supply.

DIMENSIONS OF STRATEGIC DECISIONS

1. Top Management Involvement: Strategic decisions are very crucial for organization, so
involvement of top management is mandatory. Even if top management does not involve
in the actual practice & implementation process but it supports each and every phase of
strategy formulation, implementation & control.
2. Allocation of large amount of resources: All the strategic decisions involve a
requirement of large amount of resources to be allocated. A firm may use a large amount
of manpower, machinery, money, materials in the strategic implementation, so
organization needs to allocate a large amount of resources.
3. Impact on long term prosperity of the firm: All the strategic decisions are crucial for
the firm. They affect long term prosperity of the firm. These decisions either make them
worst or better.
4. Future oriented: Strategic decision making is a proactive entrepreneurial approach.
5. Multi functional consequences: One strategy of the organization effects different
functional units & businesses of the firm. So strategic decisions have multi functional or
multi business consequences.
6. Readiness to make „non- self generative‟ decisions: Strategic decisions are non-
frequent decisions. These are contingent decisions to be made any time when required
and thus are non- self generative decisions.
7. Other determinants of strategy besides opportunities & capabilities: Values &
preferences of managers, managers‟ attitude towards risk, managerial power relations,
and social obligations of organization also determine the strategic decisions.

Issues in Strategic Decision Making:

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1. Criteria: „Criteria‟ refers to the long term orientation of organization towards objectives
& achievement of objectives. Different organizations may have different viewpoints
towards the achievement of their organizational objectives. Some organizations may wish
to achieve their objectives up to a satisfactory level; others may wish to maximize their
achievement of objectives. A few others may look at it in incremental approach, i.e.
movement toward objectives in small, logical & incremental steps.

This can be briefly listed in three points: A. Maximization

B. Satisfaction

C. Incrementalism

2. Rationality: Rationality refers to the decision making without any biasness, with the help
of complete information of all the alternative strategies & evaluation techniques.
Rationality means exercising a choice from among various alternative courses of action
in such a way that it may lead to the achievement of the objectives in the best possible
manner. Different firms, on the basis of their approach towards achievement of objectives
may have different rationalities. For example, those who support the maximizing
criterion consider a decision to be rational if it leads to profit maximization.
3. Creativity: To be creative, a decision must be original and different. A creative strategic
decision making process may considerably affect the search for alternatives where novel
and untried means may be overlooked for and adopted to achieve objectives in
exceptional manner. Develop the ability to go beyond and think and use creativity in
strategic decision making.
4. Variability: Different organizations, managers, persons have different viewpoint toward
same situation. They may handle the same situation differently and thus may have
different solutions to the same problem. This happens due to variability in decision
making. It also suggests that every situation is unique and there are no set formulas that
can be applied in strategic decision making.

CORPORATE PLANNING

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It is described as a formal, systematic managerial process, organized by responsibility, time
and information, to ensure that operational, project planning and strategic planning are
carried out regularly to enable top management to direct and control the future of enterprise.

Corporate Planning is a comprehensive planning process which involves continued

formulation of objectives and the guidance of affairs towards the attainment of objectives.

Corporate planning is concerned with determination of objectives and developing means to

achieve the objectives. It may encompass both short as well as long periods. Hence it
involves long range planning as well as short range planning

Constituents of Corporate Planning:

1. Project Planning
2. Operational Planning
3. Strategic Planning

Project Planning:

Operational Planning: It includes planning & managing organizations‟ on going operations

effectively. It involves the study of market conditions for the existing range of products to
maintain and improve the position of the firm in the face of competition.

These are short term exercises, less risk is involved. It is a simpler decision making than
other two components of corporate planning.

Project Planning: It is a forward looking exercise, concerned with new markets, new
products, and new facilities. Any new plan, task organization is starting with, is to be covered
under projects of the organization. Most of the projects are long term, and are of vital
importance for the organization.

Strategic Planning: Process of deciding on objectives, on changes in objectives, on

resources used to attain these objectives and policies that are to govern those acquisition, use

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 and disposition of resources. Formulation of a unified, comprehensive and integrated plan
aimed at relating the strategic advantage of the firm to the challenges of the environment.

Importance of Strategy Planning:

a. Guidance to entire organization: It provides necessary guidance to the entire

organization about what is expected to be achieved and how.
b. Development of managerial staff & management: It makes managers more
alert to new opportunities & potential threats. It helps in creating a more proactive
management posture.
c. Unifying organizational efforts: It helps in unifying orgaisational efforts,
leading to greater harmony and goal congruence.
d. Evaluation of organizational affairs: It provides the required rationale for
evaluating competing budget requests for steering resources into strategy
supportive results producing areas.

STRATEGIC MANAGEMENT

“The process through which organizations analyze and learn from their internal &
external environments, establish strategic direction, create strategies that are intended to help
achieve established goals and execute strategies all in an effort to satisfy key organisational stake
holders.”

The emphasis of the above definition is on:

1. Elements in strategic management process

2. Satisfaction of stakeholders of organization

3. General management responsibilities which are essential to relate the organization to the
environment in such a way that its objectives may be achieved.

Benefits of Strategic Management:

1. Financial benefits: improved financial performance in terms of profit & growth.

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2. Enhanced capability of problem prevention: Encouraged and rewarded subordinates

3. Improved quality of strategic decisions through group interaction: Better screening of

options due to specialized perspective of group members.

4. Greater employee motivation: Participation of employees or their representatives in

strategy formulation leads to a better understanding of the priorities and operation of the
reward system. Better appreciation on employee‟s part of productivity reward linkage
inherent in the strategic plan.

5. Reduction of gaps and overlaps in activities: Better understanding of responsibilities of

individuals and groups. Classification of roles & responsibilities and reduction of gaps
and overlapping of activities of groups & individuals.

6. Minimum resistance to change: Acceptability to change, greater awareness, and

elimination of uncertainty associated with resistance.

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 STRATEGIC MANAGEMENT PROCESS- PHASES IN STRATEGIC
MANAGEMENT

PERFORMING ESTABLISHING
STRATEGIC STRATEGIC
EVALUATION & INTENT
CONTROL

IMPLEMENTATI FORMULATION
ON OF OF STRATEGIES
STRATEGIES

Figure 1: Strategic Management Process

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 ESTABLISHING STRATEGIC INTENT
Creating Vision,
 Creating & communicating a vision Mission, Business
 Designing a mission statement definition, Goals &
 Defining the business Objectives
 Setting goals & objectives

FORMULATION OF STRATEGIES

 Performing environmental appraisal

SWOT Analysis
 Doing Organisational appraisal
Corporate level,
 Considering Corporate level, business level
Business level strategies
strategies
Strategic choice,
 Undertaking strategic analysis
strategic plan
 Exercising strategic choice
 Formulating strategies
 Preparing strategic plans

IMPLEMENTAION OF STRATEGIES
Project Implementation
 Activating Strategies Procedural
 Designing Structures & systems Implementation
Resource Allocation
 Managing behavioral implementation
Structural Implementation
 Managing functional implementation
Behavioral
 Operationalising strategies Implementation
Functional
Implementation
PERFORMING STRATEGIC EVALUATION & CONTROL Evaluation &
reformulation of
 Performing strategic Evaluation
strategies
 Exercising strategic control
 Reformulating strategies

Figure 2: Strategic Management Process

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 WORKING MODEL OF STRATEGIC MANAGEMENT PROCESS

STRATEGIC SWOT STRATEGIC STRATEGIC STRATEGY STRATEGY

INTENT ANALYSIS ALTERNATIVE ANALYSIS IMPLEMEN EVALUATI-
& CHOICE -TATION -ON

Strategic Control

Figure 3: Working model of Strategic Management Process

I. ESTABLISHING STRATEGIC INTENT

Vision, Mission, Business definition and objectives are established

What an organization stands for

Vision serves the purpose of stating what an organization wishes to achieve in

long run

Mission relates an organization to society

Business definition explains the business of an organization in terms of

customers‟ needs, customer groups, and alternative technologies

Objectives state what is to be achieved in a given time period. They serve as a

yardstick/ benchmarks for measuring performance.

II. FORMULATION OF STRATEGIES

Find out opportunities and threats operating in the environment and the
strengths & weaknesses of an organization in order to create a match between
them.

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 Opportunities can be availed and threats‟ impact can be neutralized.

Strategic alternatives and choices are required for evolving alternative

strategies out of many possible options and choosing most appropriate
strategy in the light of environmental opportunities and threats and corporate
strengths & weaknesses.

End result of strategic analysis and choice is “strategic plan” which can b
implemented in the organization

III. IMPLEMENTATION OF STRATEGY

Putting strategic plan into action through six sub processes:

- Project Implementation: Setting up of an organization

- Procedural Implementation: Regulatory framework of an

organization

- Resource Allocation: Procurement & commitment of resources

- Structural Implementation: Designing organization structure,

redesigning, re organizing.

- Behavioral Implementation: Leadership styles, culture, politics

- Functional & operational Implementation- Productivity, processes,

people & pace of implementation.

IV. STRATEGIC EVALUATION & CONTROL

Appraisal of Implementation & measuring organisational performance

Feedback is generated to control over the strategic management process

Reformation of strategies due to this feedback

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HIERARCHY OF STRATEGIC INTENT/ STRATEGIC VISION, CORPORATE
MISSION, OBJECTIVES & GOALS

STRATEGIC INTENT:

The purposes the organization strives for.

An intention of an organization to achieve a long term objective. It may be to achieve leadership,

overtake a market- niche or to pioneer a promising discovery, etc.

Intents normally go out of the present capabilities and market positions. They show a deep seated
commitment to winning even against odds.

This concept entails keeping in mind the idea of winning by virtue of motivating people, leaving
room for team contributions, maintaining their enthusiasm and guiding resource allocation
keeping in view the intent.

VISION:

„Direction setting Idea‟

„What an enterprise is going to be‟

„Road map of a company‟s future‟

“A picture of what a firm is intended to do/ to be in future”

To inspire members to work for the ultimate purpose with clarity of purpose, hope and
unity of purpose even with diversity of personal causes. It gives a sense of direction in
which to go on without ever reaching it.

It is rather imaginary or lacking substance. It is more than defining its future products.

It is the basic principle on which organization will work regardless of what happens
inside the organization and its environment.

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 It is the binding force for different parts of an organization to have shared values and not
to go in different directions even if they may be following different strategies.

Strategic Vision: A mental perception of the kind of environment that an organization aspires to
create with a broad time frame.

 It may be regarded as a dream in the sense of an ideal

 It is a description of something (an organization, corporate culture, a business, a

technology, an activity) in future.

Benefits of having a good vision:

Good visions are inspiring and exhilarating

Good visions represent discontinuity, a step function and a jump ahead so that the
company knows what it is to be.

It helps in creating common identity & shared sense of purpose.

A good vision is competitive, original and unique. It makes sense in market place as it is
practical.

It fosters risk taking and experimentation

It fosters long term thinking.

It represents integrity. It is truly genuine and can be used for the benefit of people.

Two major components of vision

1. Core Ideologies: Core values + Core purpose

2. Envisioned future: Audacious goal + vivid description of future

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 MISSION:

It is the statement which defines the role that an organization plays in a society.

„Reason- de- etre‟ Reason of existence of a firm in the society.

Mission may be described as the scope of operation in terms of products and markets or of
service and client.

An organization‟s mission statement tells what it is, why it exists and the unique
contribution it can make to the society.

It is defined as the fundamental, unique purpose that sets it apart from other firms of its type. It
indicates the nature and scope of business operations in terms of products, markets &
technologies.

Components of Mission:

Basic Product/ service to be offered.

Fundamental concern for survival through sustainable growth and profitability.

Managerial Philosophy/ Company‟s philosophy in terms of basic beliefs, values,

aspirations & philosophical priorities (what the company stands for )

Public Image to be sought.

„Self concept‟ that people affiliated should have of the firm, which may include
management style and work ethics.

Characteristics of mission statement:

1. Feasible: It should not be impossible. It should be realistic, credible & achievable.

2. Precise: It should not be so narrow as to restrict the organization‟s activities, nor should
it be too broad to make itself meaningless.

3. Clear: It should be clear enough to lead to action. Neither should it be a high sounding
set of platitudes meant for publicity purposes.

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4. Motivating: It should be felt worthwhile working.

5. Distinctive: It should create an important distinction in the public mind.

6. Indicator of strategic components: It should indicate major components of strategy.

What company is likely to follow a combination of stability, growth, diversification
strategies in future.

7. Indicator of objectives: It should indicate how objectives are to be accomplished, i.e.

clues regarding the manner in which the objectives are to be accomplished. It should deal
with the objectives to be achieved within a given time period.

Difference between Vision & Mission

VISION MISSION

1. Vision reflects a desired future & 1. Mission is „reason-de-etre‟- reason

what a firm has to keep striving to of existence of a firm in the society.
reach it.
2. It deals with the firm‟s present
2. It relates to the long term view of business scope- products, services,
an image that the company will like customers, present business
to have. capability and technologies.

3. It states where we are going? 3. It states who we are and what we

do?
4. It portrays the future business scope
of the company & involves the 4. It focuses on the organisation‟s
strategic path to take. present capabilities, its products and
services, customers and business
5. It focuses on deciding „Which way
makeup
are we going?‟
5. It answers ‟What business are we
in?‟

VISION + MISSION= FURURE ORIENTED MISSION STATEMENT

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 BUSINESS DEFIINITION:

It is a part of Mission statement

„It is a description of the products, activities or functions and markets that the firm presently
pursues.‟

Products: - Outputs of value created by the system to be sold to customers.

Markets: - Classes/ types of customers or geographic regions where the product/ service
is sold.

Technologies/ Functions: - Technologies/ processes used to create & add value.

It answers the question- „What is our business?‟

Dimensions of Business definition

1. Customer groups

2. Customer functions

3. Alternative technologies

Features of a good business definition:

1. It should be as precise as possible.

2. It should indicate major components of strategy (product, market, functions).

3. It should indicate how the mission is to be accomplished?

Importance of business definition:

1. It indicated the choice of objectives

2. It helps in exercising a choice among different strategic alternatives

3. It facilitates policy implementation.

4. It suggests appropriate organizational structure.

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Levels at which business could be defined:

Business could either be defined at the corporate level or SBU (Strategic business unit level)
level. A single business firm is active in just one area so its business definition is simple

A large conglomerate, operating in several businesses, would have a separate business definition
for each of its businesses.

Corporate level: Business definition concerns itself with the functions & alternative
technologies

SBU level: Each division have more accurate business definitions covering all the three
dimensions.

GOALS & OBJECTIVES:

GOALS: goals denote what an organization hopes to accomplish in a future period of time.
They represent a future state or an outcome of the effort put in now. A broad category of
financial & non- financial issues are addressed by the goals that a firm sets for it.

OBJECTIVES: these are the ends that state specifically how the goals shall be achieved. They
are concrete and specific in contrast to goals which are generalized. In this manner, objectives
make the goals operational.

While goals may be qualitative, objectives tend to be mainly quantitative in specification. In

this way, they are measurable & comparable.

Role of objectives & goals in Strategic Management:

1. They define the organisation‟s relationship with its environment. With employees,
customers & society.

2. They help in pursuing an organization‟s vision & Mission

27
 3. They provide the basis for strategic decision making by directing the attention of
strategists to those areas where strategic decisions need to be taken. They lead to desired
standards & help to coordinate strategic decision making.

4. They provide the standards for performance appraisal. As objectives to be achieved in

given time, clear definite basis for evaluating its performance.

Characteristics of Goals & Objectives:

1. Understandable

2. Concrete & specific

3. Related to a time frame

4. Measurable & controllable

5. Challenging

6. Correlated with each other

7. Set within constraints

Need of Objectives:

They help define the organization in its environment

They help in coordinating decisions and decision makers

They provide standards for assessing organizational performance

They provide organization with more tangible targets than mission statements

Factors Influencing formulation of Objectives, Goals & Mission:

1. Forces in environment- stakeholders

2. Internal resources & powers

3. Values of top management

28
 4. Past development of the firm

ENVIRONMENTAL ANALYSIS

Environmental analysis is the process by which strategists monitor the environmental

sectors to determine opportunities for and threats to their firms.

Analysis is the tracking of an opportunity or threat to a source. It also involves breaking a whole
into its parts to find its nature, function and relationships.

Environmental diagnosis consists of managerial decisions made by assessing the significance of

the data (opportunities & threats) of the environmental analysis.

These decisions lead to other decisions- whether to react, ignore, and try to influence or
anticipate the opportunities or threats discovered. Thus, manager‟s perception of the environment
may differ from its objective condition.

In effect, diagnosis is an opinion resulting from an analysis of the facts to determine the nature of
a problem with a view to acting to take advantage of an opportunity or to effectively manage a
threat.

ENVIRONMENT

Environment means the surroundings, external obstacles/ objects/ influences/ circumstances

under which someone or something is.

„Environment of an organization is the aggregate of all conditions, events and influences that
surround and affect it.‟

“Business Environment consists of totality of all factors which are external to and largely beyond
the control of individual business firms.”

29
ENVIRONMENTAL ANALYSIS/ ENVIRONMENTAL APPRAISAL/
ENVIRONMENTAL SCANNING

“It is the process by which corporate planners monitor economic, governmental, suppliers,
technological and market settings to determine the opportunities for and threats to their
enterprise”

Identifying and analyzing environmental influences individually and collective to determine their
potential effects on an organization.

Difference between Analysis & Diagnosis:

I. ANALYSIS:

Identify the current strategy the firm uses to relate to the environment. What are the
assumptions or predictions about the environment on which current strategy is based?

Predict the future environmental conditions the same as in step one or is there a gap?

II. DIAGNOSIS:

Assess the significance of the gap between the current and the future environments
for the firm. Are changes in objectives needed? Do changes in the strategies or not?

CHARACTERISTICS OF ENVIRONMENT

1. Environment is complex- Many factors, events, conditions, instances are uncertain &
turbulent. It is difficult to grasp in its totality.

2. Environment is dynamic- Environment is constantly changing.

3. Environment is multifaceted- Environment depends upon the perception of the observer.

Same development may be viewed as an opportunity as well as threat by different
organisations & different strategists

4. Environment has far reaching impact: Environment influences the growth & profitability
of an organization.

30
NEED FOR ENVIRONMENTAL SCANNING

1. Need to analyze the conditions like opening up new opportunities & major threats for
better future.

2. To grow, innovate and manage change

3. To analyze any need for any adjustment of goals/change of strategy.

4. To provide a broader perspective to corporate planners in formulating plans and strategies

while reports on market research and economic forecasts are helpful in a limited way.

5. Strategic decision makers are better able to narrow the range of available alternatives and
eliminate options that are clearly inconsistent with forecast opportunities.

Characteristics of Environmental Analysis:

It is a holistic exercise in the sense that it must comprise a total view of the environment rather
than viewing trends piecemeal.

The analysis of environment must be a continuous process rather than being an intermittent
scanning system.

Difference between scanning & monitoring

Scanning: General scanning is essential to pick up new signals from the environment to keep
track of shifts in the overall pattern of developing trends.

Monitoring: It is designed to focus closely on the track of previously identified trends which
have been analyzed & assessed & found to be of particular importance of the firm.

It is heuristic/ exploratory process. While the monitoring aspect of the system is concerned with
present developments, a larger part of the process seeks to explore the unknown terrain, the
dimensions of possible futures, what could happen, not necessarily what will happen.

CATEGORIZATION OF ENVIRONMENT

External & Internal Environment:

31
External Environment: It includes all the factors outside the organisation which provide
opportunities or pose threats to the organisation.

Internal Environment: It refers to all the factors within an organisation which impart strengths
or cause weaknesses of strategic nature.

General& Relevant environment:

General Environment: A wider perception of environment which encompasses a variety of

factors, like: International, national and local economy; social changes demographic variables;
political systems; technology; attitude towards business; energy sources; raw materials and other
resources; and many other macro level factors.

Relevant Environment: The environment which is of high strategic relevance to the

organisation. It may be a part of general environment. It enables an organisation to focus its
attention on those factors which are intimately related to its mission, purpose, objectives &
strategies.

ENVIRONMENT OF THE FIRM

I. GENERAL ENVIRONMENT

SOCIO ECONOMIC

TECHNOLOGICAL

CULTURAL

POLITICAL

ECONOMICAL

REGULATARY

II. INDUSTRY ENVIRONEMENT

CUTOMERS

SUPPLIERS

32
 COMPETITORS

III. INTERNATIONAL ENVIRONMENT

MARKET ENVIRONMENT:

Customer/ client factors: Factors like needs preferences, perceptions, attitudes, values
bargaining power, buying behavior and satisfaction of customers.

2. Product Factors: Demand of product, Image of Product, features, utility, function, design, life
cycle, price, promotion, distribution, differentiation & availability of products or services.

3. Marketing intermediary factors: Distribution channels, logististics, cost, delivery system &
Financial intermediaries

4. Competitor related factors: Factors like different competitors, entry & exit of major
competitors, nature of competition, and relative strategic position of major competitors.

SUPPLIER ENVIRONMENT: It consists of the factors related to the cost, reliability and
availability of the factors of production or service that have an impact on the business of an
organization.

1. Cost, availability & continuity of supply of raw materials.

2. Cost & availability of required finance.

3. Cost & availability of energy for production processes

4. HR availability & cost

5. Infrastructural support, bargaining power of suppliers, existence of substitutes.

TECHNOLOGICAL ENVIRONMENT: It consists of factors that are related to the knowledge

applied and the materials and machines used in the production of goods & services which have
an impact on the business of an organization.

1. Sources of technology, cost of technology acquisition

33
 2. Technol
ogical development, rate of change of technology, research & development.

3. Impact of technology on human beings

4. Communication & Infrastructural technology in management.

ECONOMIC ENVIRONMENT: Macro level factors related to the means of production &
distribution of wealth which have an impact on the basis on the business of an organization.

1. Economic stage of the country

2. Economic structure (Capitalistic, socialistic. Mixed)

3. Economic policies (Industrial, monetary, fiscal)

4. Economic Planning (5 year plans, annual budgets, etc.)

5. Economic Indices (national Income, Distribution of Income, Per capita Income, GND,
GDP)

6. Infrastructural Factors (Financial Institutions, banks, modes of transportation,

communication facilities)

REGULATORY ENVIRONMENT: Factors related to planning promotion & regulation of

economic activities by government, which have an impact on the business of an organization.

1. Constitutional framework, rights

2. Licensing Policies, monopolies, Foreign Investments

3. Pricing & distribution policies & control

4. Import & Export policies

5. Policies related with public sector, SSIs, Sick Industries, Consumer protection, Pollution
control.

34
POLITICAL ENVIRONMENT: Factors related to management of public affairs a7 their
impact on the business of an organization.

1. Political system & features (political parties, centers of power)

2. Political structures (Goals & stability)

3. Political processes (Election, funding of elections, legislation)

4. Political Philosophy (Government role in business, interventions, policies)

SOCIOCULTURAL ENVIRONMENT: Factors related to human relationships within a

society; the development, forms & functions of such a relationship & the learnt & shared
behavior of groups of human beings which have a bearing on the business of an organization.

1. Demographic characteristics

2. Socio-cultural concerns (Environment pollution, consumerism, corruption)

3. Socio-cultural attitudes & values (Expectations from society, beliefs, rituals & practices)

4. Family structure & changes in it.

5. Role & position of men, women, children in the family, etc.

6. Educational level, awareness, consciousness of rights, etc.

INTERNATIONAL ENVIRONMENT: Factors that operate at the transnational, cross cultural

& across-the-border level which have an impact on the business of an organization.

1. Globalization ( Process, content & direction)

2. Global economic forces, organizations

3. Global trade & commerce

4. Global financial systems, sources of finance

5. Geo-political situation, alliances, strategic interest of nations

35
 6. Global demographic patterns

7. Global Information system (Communication, media)

8. Global technological & quality systems, standards

9. Global markets, competitiveness.

10. Global legal system, adjudication & arbitration mechanisms

11. Globalization of management (disciplines, techniques)

FACTORS TO BE CONSIDERED FOR ENVIRONMENTAL SCANNING

1. EVENTS: Events are important and specific occurrences, taking place in different environmental sectors.

2. TRENDS: trends are the general tendencies or the courses of action along which events take place.

3. ISSUES: Issues are the current concerns that arise in response to events and trends

4. EXPECTATIONS: Expectations are the demands made by interested groups in the light of their concern for
issues.

APPROACHES TO ENVIRONMENTAL SCANNING:

1. Systematic Approach: Information for environmental scanning is collected

systematically. Information related to legislation, regulations, government policies, etc.
can be collected to continuously monitor changes & take the relevant factors into
account.

Such information is not only helpful in strategic management, but also in operational
activities.

2. Ad hoc approach: Conducting special surveys & studies to deal with specific
environmental issues from time-to-time.

Changes & unforeseen developments may also be investigated with regard to their impact
on the organization.

36
 3. Processed form approach: An organization uses information in a processed form
available from different sources both inside and outside the organization.

When an organization uses information supplied by government agencies or private

institutions, it uses secondary sources of data and the information is available in a
processes form.

TECHNIQUES OF ENVIRONMENTAL SCANNING:

I. PEST ANALYSIS:

1. Politico Legal Environment: a. Monopolies Legislation

b. Environment Protection laws

c. Taxation policy

d. Foreign Trade regulations

e. Employment laws,

f. Government stability.

2. Economic Environment: a. Business cycles

b. GNP trends

c. Interest rates

d. Money supply

e. Inflation

f. Unemployment

g. Disposable Income

h. Energy availability & cost

3. Socio-cultural Environment: a. Population demographics

37
 b. Income distribution

c. social class mobility

d. Life style changes

e. Attitude to work and leisure

f. Consumerism

g. Levels of education

h. Socio cultural concerns- for pollution, consumerism,

corruption, etc.

4. Technological Environment: a. Government spending on research

b. Industry Focus on technological efforts

c. New discoveries/ developments

d. Speed of technological developments

e. Speed of technology transfer

f. Rates of obsolescence

Contribution of PEST to environmental scanning

1. It may enable identification of a smaller number of key environmental influences.

2. It may also be helpful in identifying long term drivers of change in the environment.

3. It may help to examine the differential impact of external influences on

organisations either historically or in terms of likely future impact.

38
II. STRUCTURAL ANALYSIS OF COMPETITIVE ENVIRONMENT: By
MICHAEL PORTER

Porter‟s Five Forces Model

The model analyses the five forces which determine the intensity and state of competition in
an industry and the collective impact of which determines the long run profit potential in the
industry.

The objective of the model is to study the competitive environment of the firm and analyzing
the collective impact of the competition on profit potential of the firm. Strategic competitive
advantage ensures and enhances the profit potential of the firm. So, this model is the
diagnosis of intensity and state of competition in an industry and its influence on an
organisation.

These five forces are and the issues related to these forces are:

1. Degree of competitive rivalry among the competitors

o Number of competitors

o Size of competitors

o Industry growth rate

o Strategic position of competitors

o Exit barriers

o Product differentiation

2. Threat of entry posed by potential entrants

o Barriers to entry: Economies to scale, Industry growth rate, Cost advantage,

Capital Investment for entry, brand image, cost of switching over to another
product, Govt. polices & regulations.

o Types of barriers

39
 o Extent of barriers

o Position of organisation

3. Threat of actual substitutes and potential substitutes

o Product differentiation

o Price differentiation

o Public Image

4. Bargaining power of suppliers

o Concentration of suppliers

o Monopoly of supplier

o Switching cost to the company

o Threats of forward integration by suppliers

o Importance of customers/ organisation for suppliers

5. Bargaining power of customers

o Concentration of buyers

o Switching cost

o Threats of backward integration by organisational buyers

o Substitutes available

o Alternate sources of supply

40
 Degree of
competitive rivalry

Bargaining power of
customers

Threat of potential
Organisation entrants

Bargaining power of
suppliers

Threats of potential
and actual
substitutes

Figure 1: Structural analysis/ Porter’s five forces model

III. ETOP: ENVIRONMENT THREAT & OPPORTUNITY PROFILE

Given by Glueck

It involves division of environment into different sectors and then analyzing the
impact of each sector into sub factors and then the impact of each sub factor on the
organisation.

Sub dividing each sector into sub factors and then the impact of each sub factor on the
organisation on the organisation is describes in the form of a statement.

Some aspects of strategic planning act as the basis of ETOP and are given special emphasis

41
 1. Selection of issues: Critical success factors of organisation, Competitive domestic trends,
global competition, export potential, customer or user preferences, technological trends,
diversification opportunities.

2. Selection of data: No biasness in personal data collection, in verification of data &

interpretation of data. Relevance checking of data, Importance, manageability, variability
and cost of data should be kept in mind.

3. Impact study: Conducting Impact studies to determine overall consequences of

implementing available alternative strategies. Transformation of environmental data into
situation specific information

4. Flexibility of strategic plans: Required due to uncertainties in the environmental

conditions. . Framing strategies in general terms so as to give directions but leaving some
discretion in implementation. Reviewing strategies frequently. Keeping options open and
allowing strategies to be used as rule so that exceptions may be justified.

IV. ISSUES PRIORITY MATRIX

It is a nine-cell matrix which an organisation designs to identify the factors which are
most crucial for them to work upon.

Issue: An issue is a factor which if it develops, can have a significant effect on the
firm in the future.

Construction of scenarios/ Issues

Identify a number of likely trends emerging in the societal and task

environments. These strategic environmental issues, or important trends if
they happen will determine what various industries will look like.

Assess the probability (from low to high) of these trends actually occurring.

Attempt to ascertain the likely impact (fro low to high) of each of these trends
on the corporation.
Prepare Select Establish Verify Forecast Write
background Past potential
Critical each scenerio
behavior for future
Indicators indicator
each
events
42
indicator
 Probable impact on Corporation

HIGH MEDIUM LOW

H HIGH HIGH MEDIUM
I
G PRIORITY PRIORITY PRIORITY
Probability of Occurrence

M HIGH MEDIUM LOW

E
D
I
PRIORITY PRIORITY PRIORITY
U
M

L MEDIUM LOW LOW

O PRIORITY
W PRIORITY PRIORITY

FACTORS AFFECTING DIAGNOSIS OF ENVIRONMENT

1. Strategist related Factors: Age, Education, Experience, Motivation level, cognitive

styles, Ability to withstand time pressure & stain.

2. Organisation related Factors: Nature of business, size and complexity, Nature of

markets, Products & services that it provides.

3. Environment related factors: Complexity of environment, volatility of environment,

Hostility & diversity of environment

43
INTERNAL/ ORGANISATIONAL ANALYSIS

Analysis of Internal resources

Scanning & analyzing the external environment for opportunities and threats is not enough to
provide an organisation a competitive advantage. Strategic managers must also look within the
corporation itself to identify internal strategic factors. Those critical strengths and weaknesses
which are likely to determine whether the firm will be able to take advantage of opportunities
while avoiding threats. This internal scanning often referred to as organisational analysis is
concerned with identifying and developing an organisation‟s resources.

An organisation uses different types of resources & exhibits a certain type of behavior.

Interplay of these resources along with the prevalent behavior produces synergy with an
organisation; which leads to the development of strengths & weaknesses over a period of time.

Need of Internal Resource Analysis

1. All enterprises are not equally strong in all their functional attributes: Companies with a
highly competent general management team may not have an equally favorable
competitive advantage. One which is financially sound and prosperous may be lagging in
R & D efforts.
2. The effect of deficiencies on companies‟ prosperity & growth is certainly visible. It is
evidenced over a period of time when some companies continue to grow and prosper
while others stagnate and decline.
3. Executives must be aware of their competencies as well as deficiencies to be able to
match their capabilities with the environmental challenges and threats. Awareness of
corporate strengths & weaknesses can be possible only if there is a systematic analysis of
the factors reflecting strategic advantages.

Indeed the basic purpose of analyzing internal resources and capabilities is for the strategist
to ascertain what the company is capable of doing. Considering the external environment in
which it operates.

44
 The choice of corporate strategy is predicted on 2 sets of considerations:

I. Relating to the external opportunities & threats

II. Comprising the company‟s capabilities.

FRAMEWORK FOR THE DEVELOPMENT OF STRATEGIC ADVANTAGE BY AN

ORGANISATION

Organisational resources: The organisational resources are the formal systems & structures as
well as informal relations among groups. A firm is a bundle of resources- tangible, intangible.
These include all assets, capabilities, organisational processes, information, knowledge and so
on. These resources could be classified as physical, human and organisational resources.

45
 a. Physical resources- technology, plant & equipment, geographic location, access to raw
materials.
b. Human resources- Training, experience, judgment, intelligence, relationships and so on.
c. Organisational resources- Formal systems & structures as well as informal relations
among groups.

But the mere possession of resources does not make an organisation capable. Much depends on
their usage within an organisation. The usage in turn is based on organisational behavior.

Organisational behavior: It is the manifestation of the various forces & influences operating in
the internal environment of an organisation that create the ability for, and place constraints in the
usage of resources.

It leads to the development of a special identity & character of an organisation.

Organisation‟s resources & behavior do not exist in isolation. They combine in a complex
fashion to create strengths & weaknesses within the internal environment of an
organisation.

Synergistic effects: Like resources & behavior, strengths & weaknesses do not exist individually
but combine in a variety of ways. Synergy is a situation where attributes do not add
mathematically but combine to produce an enhanced or a reduced impact. This is synergistic
effect.

The synergy is the idea that the whole of is greater or lesser than the sum of its parts. It is also
expressed as „the-two-plus-two-is-equal-to-five-or-three-effect‟

Competencies: These are special qualities possessed by an organisation that make them
withstand pressures of competition in the market place. Synergistic effects manifest themselves
in terms of organisational competencies. Net result of strategic advantage and disadvantages that
exist for an organisation determines its ability to compete with its rivals. These may b unique
resources, core capabilities, invisible assets or embedded knowledge in the organisation.

Distinctive competence any advantage a company has over its competitors because it can do
something which they cannot or it can do something better than they can.

46
Difference between competencies, core competencies & distinctive competencies lies in the
degree in the uniqueness associated with them.

Organisational Capability: The inherent capacity or potential of an organisation to use its

strengths & overcome its weaknesses in order to exploit opportunities & face threats in its
external environment. It is the skill of coordinating resources and putting them to productive use.
Without capability, resources even though valuable & unique, may become worthless.

Strategic advantage: It is the outcome of organisational capabilities. The result of

organisational activities leading to rewards in terms of financial parameters such as profit or
shareholder value and or non-financial parameters such as market share or reputation.

A special case of strategic advantage where there is one or more identified rivals against whom
rewards or penalties could be measured is known as competitive advantage.

BARNEY‟S VRIO FRAMEWORK

A company‟s competencies can be evaluated by Barney‟s VRIO framework.

1. Value: Does it provide competitive advantage?

2. Rareness: Do other competitors possess it?
3. Imitability: Is it costly for others to imitate?
4. Organisation: Is the firm organized to exploit the resources?
If the answer to these questions is yes for a particular competency, it is considered to be
strength and thus a distinctive competency.
STRATEGIC ADVANTAGE ANALYSIS
The process by which strategists examine a firm‟s resources and capabilities in the key
functional areas to determine where the firm has significant strengths (& weaknesses) so
that it can exploit the opportunities & meet the threats in the environment.

Factors of common concern:

Assessment of the strengths & weaknesses of a firm centers round an analysis of the
following factors:

47
1. MARKETING & DISTRIBUTION FACTORS:
a. Competitive position and market share
b. Product line
c. Product life cycle
d. Pricing strategy
e. Mature of the market
f. Channels of distribution
g. Brand image
h. Market research
i. Packaging
j. Marketing policy
2. FINANCE & ACCOUNTING FACTORS:
a. Financial resources & strength
b. Capital structure & cost of capital
c. Relations with owners (shareholders)
d. Financial planning & budgeting
e. Accounting system & audit procedures
f. Tax planning & tax advantages.
3. PRODUCTION & OPERATIONS MANAGEMENT:
a. Cost of operations
b. Capacity utilization (existing demand can be fulfilled & capital fully utilized or
not)
c. Production facilities
d. Cost & availability of materials & components
e. Plant location
f. Purchasing & inventory control
g. Operation procedures (design, testing, scheduling & quality control)
h. Production control & management information
4. RESEARCH & DEVELOPMENT AND PRODUCTION ENGINEERING:
a. Facilities created (adequate labs, equipments, tooling & testing arrangements)
b. R&D expenditure

48
 c. Results of R&D efforts
d. Technical expertise & personnel
e. Work environment (creativity & innovation)
f. Nature of R&D projects (long term projects/ short term projects)
5. H.R & ORGANISATIONAL FACTORS:
a. Organisational climate
b. Employees performance record (consistency)
c. Personnel policies & practices (effectively implemented or not?)
d. Managerial/ leadership style
e. Union-management relationships
f. Corporate image (source of loyalty & pride for employees)
6. GENERAL MANAGEMENT CAPABILITY- It is defined as its propensity & its
ability to engage in behavior which will optimize attainment of firm‟s objectives.
A profile of general management capability should therefore comprise the following
aspects
1. Managers- Mentality, power, competence, capacity
2. Organisational climate- Culture (attitude towards change, risk, time perspective,
critical success factors)
3. Organisational competence- problem solving skills, organisational structure‟s
flexibility, managerial reward system, organisational capacity.

VALUE CHAIN APPROACH TO INTERNAL ANALYSIS:

Generic Value chain- Micheal Porter

Identifying the series of activities which are undertaken by the firm and are strategically
relevant for meeting customers demand and in respect of which the firm may potentially
have an edge over its competitors. Thus, internal factors of key importance are sought to
be linked with the chain of value activities through systematic identification of the
discrete activities as potential sources of strengths & weaknesses.

Two categories of value activities are:

49
 1. Primary activities- Activities connected with physical creation of firm‟s product /
service, its marketing & delivery provision of after sales support.
2. Support Activities-Activities which provide inputs or infrastructure for primary
activities to be performed.

PRIMARY ACTIVITIES:

Inbound Logistics: Activities associated with storage and flow of inputs to the product like
material handling, warehousing, inventory control, vehicle scheduling & returns to suppliers. It
involves activities like warehousing, material handling, inventory control, scheduling.

Operations: Activities associated with transformation of inputs into final products like
machining, assembly, packaging, equipment maintenance, testing and facility operation belong
to this category.

50
Outbound logistics: Activities associated with collection, storage, physical distribution of
finished goods, order processing, scheduling deliveries, operation of delivery vehicles.

Marketing & sales: Activities like advertising, sales promotion, sales force management,
channel selection, channel relation, pricing.

Service: Activities aimed at providing services to enhance or maintain the value of the product,
like installation, repair, training, supply of parts & product adjustment.

SUPPORT ACTIVITIES

Provide infrastructure for primary activities and required to be identified by isolating them on the
basis of technological & strategic distinctiveness.

1. Procurement: purchasing inputs, purchasing equipments & machinery. It pervades all

other activities as inputs are needed everywhere.
2. Technological development: Activities related with creating and improving the way in
which various activities in the value chain performed. It includes up gradation &
development of technology.
3. HRM: recruitment, Training & development, remuneration, performance appraisals,
etc.
4. Firm Infrastructure: Distinct from specific primary/ support activities because these
are essential for entire chain of activities.

Benefits of Value chain approach:

It provides guidance for a systematic internal analysis of the firm‟s existing or potential strengths
& weaknesses.

It enables the strategist to identify key internal factors for closer examination as potential
services of competitive advantage.

51
FUNCTIONAL AREA PROFILE & RESOURCE DEPLOYMENT MATRIX

It was given by Hofer & Schendel

Matrix is prepared by using functional areas and some common characteristics to each
functional area.
Resource outlay and focus of efforts over time in respective functional areas be
presented also in the form of a matrix.
The matrix indicates how the key functional areas stand in relation to each other and
as compared to the competitors with respect to the deployment of resources and the focus
of efforts in the respective areas.
Functional area profile & resource deployment matrix helps in determining the
interpretation and diagnosis of data and constitute the basis on which strengths and
weaknesses are to be identified.
Strategist should consider what policies and approaches were governing the
operations, are governing the operations and will be governing the operations.
Present position should be examined in the light of past achievements, future
expectations and internal requirements.
Strength sometimes work as weaknesses with different policies & situations.
Analysis takes into account the position over a period of time. This would enable the
strategist to see whether the areas of advantage are being further strengthened or getting
dissipated.
Relative strengths & weaknesses of key functional areas should be considered
together. If a company has developed competencies in one functional area, it needs to be
examined whether the capabilities in other areas have compatible potentialities.
Otherwise, the imbalance may lead to a position of weakness for the company as a whole.
In this capability analysis, strengths & weaknesses are compared.
Emphasis on strengths rather than on weaknesses because of optimism and to take
advantage of an opportunity on the basis of strengths.
Strengths & weaknesses are considered on the basis of external conditions, usually in
realtion to competing firms.

52
 Choice of competitor firms should also b appropriate i.e. companies in same phase of
product life cycle, with similar mission statements and more than one company should be
considered.
Strengths & weaknesses should be diagnosed on the basis of operational details and
also on the basis of key areas & indicators.
These areas may be the areas of activity of company excellence, activities of poor
performance.
Identification of intensity of weaknesses.

FUNCTIONAL RESOURCE 2006-2007 2007-2008 2009-2010 2010-2011

AREA DEPLOYMENT
&
FOCUS OF
EFFORTS
MARKETING Development
outlay (%)
Focus of
efforts
PRODUCTION Development
outlay (%)
Focus of
efforts
FINANCE Development
outlay (%)
Focus of
efforts
R&D Development
outlay (%)
Focus of
efforts
MANAGEMENT Development

53
 outlay (%)

Focus of
efforts

STRATEGIC ADVANTAGE PROFILE

SAP is a summary statement which provides an overview of the advantages& disadvantages in

key areas likely to affect future operations of the firm.

It systematically evaluates the strategic advantage factors and diagnose each factor in each
functional area and then prepares a detailed profile.

It is a summary statement of corporate capabilities in summarizing the functional competencies;

a comparative view needs to be taken in the light of external conditions & the time horizon of
projections.

It is also taken in consideration that how much strength can be relied upon and how long will it
be considered as an advantage in the near future.

It must also recognize the danger of relying on strengths in a particular area without
simultaneously reckoning the capabilities in other interdependent units of activity.

Internal area/ capability factor Competitive strengths or weaknesses

Marketing +

Operations +

R&D +

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Finance +

SWOT Analysis

Matching internal capabilities with environmental opportunities & threats.

Interlinking ETOP & SAP

SWOT MATRIX

Strengths Weaknesses

Threats ST- Strengths required to WT- Weaknesses which an

face threats organisation should over
come to face threats

Opportunities SO- Strengths required to SW- weaknesses which an

acquire opportunities organisation should
overcome to acquire
opportunities

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Strategic decisions are the decisions that are concerned with whole environment in which the
firm operates, the entire resources and the people who form the company and the interface
between the two.

Characteristics/Features of Strategic Decisions

a. Strategic decisions have major resource propositions for an organization. These

decisions may be concerned with possessing new resources, organizing others or
reallocating others.
b. Strategic decisions deal with harmonizing organizational resource capabilities with the
threats and opportunities.
c. Strategic decisions deal with the range of organizational activities. It is all about what
they want the organization to be like and to be about.
d. Strategic decisions involve a change of major kind since an organization operates in
ever-changing environment.
e. Strategic decisions are complex in nature.

f. Strategic decisions are at the top most level, are uncertain as they deal with the future,
and involve a lot of risk.
g. Strategic decisions are different from administrative and operational decisions.
Administrative decisions are routine decisions which help or rather facilitate strategic
decisions or operational decisions. Operational decisions are technical decisions which
help execution of strategic decisions. To reduce cost is a strategic decision which is
achieved through operational decision of reducing the number of employees and how we
carry out these reductions will be administrative decision.

The differences between Strategic, Administrative and Operational decisions can be summarized
as follows-

Strategic Decisions Administrative Decisions Operational Decisions

Strategic decisions are long- Administrative decisions are Operational decisions are not
term decisions. taken daily. frequently taken.

These are considered where These are short-term based These are medium-period
The future planning is Decisions. based decisions.
concerned.

Strategic decisions are taken in These are taken according These are taken in
Accordance with organizational to strategic and operational accordance with strategic
mission and vision. Decisions. and administrative decision.

These are related to overall These are related to working These are related to

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Counter planning of all of employees in an production.
Organization. Organization.

These deal with organizational These are in welfare of These are related to
Growth. employees working in an production and factory
organization. growth.

Formulation of strategy:

Matching ETOP & SAP by SWOT analysis provides the necessary informational
backdrop to the strategic planner.

Possible alternative strategies are generated.

These alternative options are evaluated and most possible alternative is chosen.

Responsibility of top management & board of directors.

But collection of collation of required data is the responsibility of staff specialists.

Approaches to strategy Formulation

Intuition: Strategy evolves in the mind of the chief executive without ever being explicitly
stated and without the aid of formal procedures.

- Along with intuition, personal judgment is also a necessary element in this approach.

- Problems, opportunities and „bright ideas‟ do not arise according to some time table; they
have to be dealt with whenever they happen to be perceived.

- There is no model or technique. Indeed any attempt to introduce a systematic approach is

quite likely to damper the essential element of creativity.

Disjointed Incrementalism: This approach reflects an attitude of management having strong

preference for acting only when forced to and then considering a few convenient alternatives
involving only small, non- disruptive changes in the organisation.

- Decisions are of remedial nature.

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 - Only those alternatives are considered which are important, interesting & easily
understandable.

- Instead of comprehending strictly and literally present state of affairs or the consequences
of present policies, attempt only to understand the respects in which various possible
states differ from each other and from the status quo.

Entrepreneurial Approach: Approach is related with the role of manager as an entrepreneur.

- Opportunity focused search for strategy & not problem focused.

- Entrepreneurial manager.

„Inside-Out‟ Planning: Strategies ought to be first conceived in a thought process arising out of
the unique talents possessed by a company.

- Market forecasts should be considered later as a kind of check or constraints on strategies

so conceived.

Key factor approach: Determining really significant factors that are important in the success of
a particular business and concentrating major decisions on it.

Integrated Approach: Analyzing present internal & external conditions.

- Identifying & evaluating present strategy.

- Developing alternative unified strategies for problems & opportunities.

- Evaluation of strategy.

The strategies could be formulated at different levels. There could be the corporate, SBU or
business and functional level strategies.

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This means that a firm has to exercise a choice at three levels for choosing alternatives that
it would implement an organisation may first choose the corporate strategy & then the
SBU or business level strategy.

I. CORPORATE LEVEL STRATGY

Corporate level strategies are decisions related to allocating resources among the
different businesses of a firm, transforming resources from one set of businesses to
others and managing and nurturing a portfolio of businesses.

Corporate strategies help to exercise the choice of direction that an organisation

adopts.

In small firms, corporate strategy would mean the adoption of courses of action that
yield better profitability for the firm.

In large, multi- business firms, the corporate strategy would also be about managing
the various business definitions.

Four major types of corporate level strategies:

a. Expansion strategies/ growth strategies/ Intensification strategies

When an organisation aims at high growth by substantially broadening the scope of

one or more of its businesses in terms of their respective customer groups, customer
functions and alternative technologies- singly or jointly in order to improve its overall
performance.

Reasons for adopting an expansion strategy:

1. It may become imperative when an the environment demands increase in pace of

activity.

2. Psychologically, strategists may feel more satisfied with the prospects of growth
from expansion. Chief executives may take pride in presiding over organisations
perceived to be growth oriented.

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 3. Increasing size may lead to more control over the market vis-à-vis competitors.

4. Advantages from the experience curve and scale of operations may accrue.

Expansion strategies have a profound impact on the company‟s internal configuration

causing extensive changes in almost all aspects of internal functioning.

MAJOR EXPANSION STRATEGIES: Concentration

Integration

Diversification

Co-operation

Internationalization

Digitalization

1. Concentration:

- Simple first level type

- Converging resources in one or more of a firm‟s businesses in terms of their respective

customer needs, customer functions, or alternative technologies- either singly or jointly-
in such a manner that expansion results.

- Also called- Intensification, focus or specialization strategies

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 Ansoff‟s product- market matrix

Product/ Present New

Market

Present Market Product

Penetration development

New Market Diversification

Development

Market Penetration: - Selling more products to the same market

- Maintain or increase market share of present products.

Market development: - Selling same product to new markets

- Not necessarily geographically but also demographically

Product development: -Selling new product to the same market

Diversification: - Selling new product to the new market

2. Integration

- Integration means combining activities related to the present activity of a firm

- Results in a widening of scope of the business definition of a firm.

Horizontal Integration: When organisation takes up the same type of products at same
level of production or marketing process. It keeps the organisation at same level. Industry
remains the same.

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 Benefits: - Economies of scale

- Economies of scope

- Increased product differentiation

- Increased market power

- Replicating a successful business model

- Reduction in industry rivalry

Vertical Integration: Organisation starts making new products that serve its own needs.
Such activities are undertaken with the purpose of either supplying inputs or serving as a
customer for outputs.

Backward Integration- Retreating to the source of raw materials

Forward Integration- Taking the organisation nearer to the ultimate activities.

3. Diversification

Substantial change in business definition, singly/ jointly in terms of customer

function, customer groups or alternative technologies of one or more of firm‟s
businesses

- New products/ new markets

Concentric/ related diversification: Activities related to the existing business definition

of one or more of a firm‟s businesses

- Market- related concentric definition

- Technology- related

- Marketing & technology related

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 Conglomerate diversification/ unrelated diversification: adoption of strategy which
requires taking up those activities which are unrelated to the existing business definition
of its businesses.

Why using diversification?

1. To minimize risk by spreading businesses

2. To capitalize on its capabilities so as to maximize organisation strengths or minimize

weaknesses

3. In case of only way out if growth in existing business in blocked due to

environmental and regulatory factors.

Risks in diversification:

- Complex strategy to formulate and implement needs high level of managerial, operational
and financial competence.

- Demands wide range and wide variety of skills.

- Less attention to all businesses

- No promised rewards as reverse cases have been identified

- Increases administrative cost of managing, integrating and controlling a wide business

portfolio.

b. Stability Strategies

The corporate strategy of stability is adopted by an organisation when it attempts at

incremental improvement of its performance by marginally changing one or more of
its businesses in terms of their respective customer functions and alternative
technologies- either singly or collectively.

Reasons for adopting stability strategies:

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 1. These are less risky; involve fewer changes and people feel comfortable with
things as they are.

2. The environment faced is relatively stable.

3. Expansion may be perceived as being threatening.

4. Consolidation is sought through stabilizing after a period of rapid expansion.

The strategies aim at stability by causing the companies to marginally improve their
performance or at least letting them remain where they are in case they face a volatile
environment and a highly competitive market.

The essence of stability strategies is, therefore, not doing anything but sustaining
moderate growth in line with the existing trends.

c. Retrenchment strategies

The corporate strategy of retrenchment is followed when an organisation aims at

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

It means total or partial withdrawal from a customer group, customer functions or

alternative technology in one or more of firm‟s businesses.

Reasons for adopting retrenchment strategy:

1. The management no longer wishes to remain in business either partly or wholly,

due to continuous losses and the organisation becoming unviable.

2. The environment faced is threatening.

3. Stability can be ensured by reallocation of resources from unprofitable to

profitable businesses.

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 4. Retrenchment attempts to „trim the fat‟ and results in a „slimmer‟ organisation,
bereft of unprofitable customer groups, customer functions or alternative
technologies.

5. An over simplification of the complex reality that an organisation faces.

d. Combination strategies

When an organisation adopts a mixture of stability, expansion and retrenchment

strategies, either at the same time in its different businesses or at different times in one of
its business, with the aim of improving its performance.

Reasons for adopting combination strategies:

1. The organisation is large and faces complex environment.

2. The organisation is compared of different businesses each of which lies in a different

industry, requiring a different response.

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Strategic Implementation

Strategy implementation is the translation of chosen strategy into organizational action so

as to achieve strategic goals and objectives. Strategy implementation is also defined as the
manner in which an organization should develop, utilize, and amalgamate organizational
structure, control systems, and culture to follow strategies that lead to competitive advantage and
a better performance. Organizational structure allocates special value developing tasks and roles
to the employees and states how these tasks and roles can be correlated so as maximize
efficiency, quality, and customer satisfaction-the pillars of competitive advantage. But,
organizational structure is not sufficient in itself to motivate the employees.

An organizational control system is also required. This control system equips managers with
motivational incentives for employees as well as feedback on employees and organizational
performance. Organizational culture refers to the specialized collection of values, attitudes,
norms and beliefs shared by organizational members and groups.

Follwoing are the main steps in implementing a strategy:

Developing an organization having potential of carrying out strategy successfully.

Disbursement of abundant resources to strategy-essential activities.
Creating strategy-encouraging policies.
Employing best policies and programs for constant improvement.
Linking reward structure to accomplishment of results.
Making use of strategic leadership.

Excellently formulated strategies will fail if they are not properly implemented. Also, it is
essential to note that strategy implementation is not possible unless there is stability between
strategy and each organizational dimension such as organizational structure, reward structure,
resource-allocation process, etc.

Strategy implementation poses a threat to many managers and employees in an organization.

New power relationships are predicted and achieved. New groups (formal as well as informal)
are formed whose values, attitudes, beliefs and concerns may not be known. With the change in
power and status roles, the managers and employees may employ confrontation behaviour.

Following are the main differences between Strategy Formulation and Strategy Implementation-

Strategy Formulation Strategy Implementation

Strategy Formulation includes planning and Strategy Implementation involves all those
decision-making involved in developing means related to executing the strategic plans.
organization‟s strategic goals and plans.

In short, Strategy Formulation is placing the In short, Strategy Implementation is managing

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Forces before the action. forces during the action.

Strategy Formulation is an Entrepreneurial Strategic Implementation is mainly an

Activity based on strategic decision-making. Administrative Task based on strategic and
operational decisions.

Strategy Formulation emphasizes on Strategy Implementation emphasizes on

effectiveness. efficiency.

Strategy Formulation is a rational process. Strategy Implementation is basically an

operational process.

Strategy Formulation requires co-ordination Strategy Implementation requires co-ordination

among few individuals. among many individuals.

Strategy Formulation requires a great deal of Strategy Implementation requires specific

initiative and logical skills. motivational and leadership traits.

Strategic Formulation precedes Strategy STrategy Implementation follows Strategy

Implementation. Formulation.

Strategy Evaluation

Strategy Evaluation is as significant as strategy formulation because it throws light on the

efficiency and effectiveness of the comprehensive plans in achieving the desired results. The
managers can also assess the appropriateness of the current strategy in todays dynamic world
with socio-economic, political and technological innovations. Strategic Evaluation is the final
phase of strategic management.

The significance of strategy evaluation lies in its capacity to co-ordinate the task performed
by managers, groups, departments etc, through control of performance. Strategic Evaluation
is significant because of various factors such as - developing inputs for new strategic planning,
the urge for feedback, appraisal and reward, development of the strategic management process,
judging the validity of strategic choice etc.

The process of Strategy Evaluation consists of following steps-

1. Fixing benchmark of performance - While fixing the benchmark, strategists encounter

questions such as - what benchmarks to set, how to set them and how to express them. In
order to determine the benchmark performance to be set, it is essential to discover the
special requirements for performing the main task. The performance indicator that best
identify and express the special requirements might then be determined to be used for
evaluation. The organization can use both quantitative and qualitative criteria for
comprehensive assessment of performance. Quantitative criteria includes determination
of net profit, ROI, earning per share, cost of production, rate of employee turnover etc.

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 Among the Qualitative factors are subjective evaluation of factors such as - skills and
competencies, risk taking potential, flexibility etc.
2. Measurement of performance - The standard performance is a bench mark with which
the actual performance is to be compared. The reporting and communication system help
in measuring the performance. If appropriate means are available for measuring the
performance and if the standards are set in the right manner, strategy evaluation becomes
easier. But various factors such as managers contribution are difficult to measure.
Similarly divisional performance is sometimes difficult to measure as compared to
individual performance. Thus, variable objectives must be created against which
measurement of performance can be done. The measurement must be done at right time
else evaluation will not meet its purpose. For measuring the performance, financial
statements like - balance sheet, profit and loss account must be prepared on an annual
basis.
3. Analyzing Variance - While measuring the actual performance and comparing it with
standard performance there may be variances which must be analyzed. The strategists
must mention the degree of tolerance limits between which the variance between actual
and standard performance may be accepted. The positive deviation indicates a better
performance but it is quite unusual exceeding the target always. The negative deviation is
an issue of concern because it indicates a shortfall in performance. Thus in this case the
strategists must discover the causes of deviation and must take corrective action to
overcome it.
4. Taking Corrective Action - Once the deviation in performance is identified, it is
essential to plan for a corrective action. If the performance is consistently less than the
desired performance, the strategists must carry a detailed analysis of the factors
responsible for such performance. If the strategists discover that the organizational
potential does not match with the performance requirements, then the standards must be
lowered. Another rare and drastic corrective action is reformulating the strategy which
requires going back to the process of strategic management, reframing of plans according
to new resource allocation trend and consequent means going to the beginning point of
strategic management process.

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There are many benefits of strategic management and they include identification,
prioritization, and exploration of opportunities. For instance, newer products, newer markets,
and newer forays into business lines are only possible if firms indulge in strategic planning.
Next, strategic management allows firms to take an objective view of the activities being done by
it and do a cost benefit analysis as to whether the firm is profitable.

Just to differentiate, by this, we do not mean the financial benefits alone (which would be
discussed below) but also the assessment of profitability that has to do with evaluating whether
the business is strategically aligned to its goals and priorities.

The key point to be noted here is that strategic management allows a firm to orient itself to its
market and consumers and ensure that it is actualizing the right strategy.

Financial Benefits

It has been shown in many studies that firms that engage in strategic management are more
profitable and successful than those that do not have the benefit of strategic planning and
strategic management. When firms engage in forward looking planning and careful evaluation of
their priorities, they have control over the future, which is necessary in the fast changing
business landscape of the 21st century. It has been estimated that more than 100,000 businesses
fail in the US every year and most of these failures are to do with a lack of strategic focus and
strategic direction. Further, high performing firms tend to make more informed decisions
because they have considered both the short term and long-term consequences and hence, have
oriented their strategies accordingly. In contrast, firms that do not engage themselves in
meaningful strategic planning are often bogged down by internal problems and lack of focus that
leads to failure.

Non-Financial Benefits

The section above discussed some of the tangible benefits of strategic management. Apart from
these benefits, firms that engage in strategic management are more aware of the external threats,
an improved understanding of competitor strengths and weaknesses and increased employee
productivity. They also have lesser resistance to change and a clear understanding of the link
between performance and rewards. The key aspect of strategic management is that the problem
solving and problem preventing capabilities of the firms are enhanced through strategic
management. Strategic management is essential as it helps firms to rationalize change and
actualize change and communicate the need to change better to its employees. Finally, strategic
management helps in bringing order and discipline to the activities of the firm in its both internal
processes and external activities.

Closing Thoughts

In recent years, virtually all firms have realized the importance of strategic management.
However, the key difference between those who succeed and those who fail is that the way in

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which strategic management is done and strategic planning is carried out makes the difference
between success and failure. Of course, there are still firms that do not engage in strategic
planning or where the planners do not receive the support from management. These firms ought
to realize the benefits of strategic management and ensure their longer-term viability and success
in the marketplace.

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Boston Consulting Group (BCG) Matrix is a four celled matrix (a 2 * 2 matrix) developed by
BCG, USA. It is the most renowned corporate portfolio analysis tool. It provides a graphic
representation for an organization to examine different businesses in it‟s portfolio on the basis of
their related market share and industry growth rates. It is a two dimensional analysis on
management of SBU‟s (Strategic Business Units). In other words, it is a comparative analysis of
business potential and the evaluation of environment.

According to this matrix, business could be classified as high or low according to their industry
growth rate and relative market share.

Relative Market Share = SBU Sales this year leading competitors sales this year.

Market Growth Rate = Industry sales this year - Industry Sales last year.

The analysis requires that both measures be calculated for each SBU. The dimension of business
strength, relative market share, will measure comparative advantage indicated by market
dominance. The key theory underlying this is existence of an experience curve and that market
share is achieved due to overall cost leadership.

BCG matrix has four cells, with the horizontal axis representing relative market share and the
vertical axis denoting market growth rate. The mid-point of relative market share is set at 1.0. if
all the SBU‟s are in same industry, the average growth rate of the industry is used. While, if all
the SBU‟s are located in different industries, then the mid-point is set at the growth rate for the
economy.

Resources are allocated to the business units according to their situation on the grid. The four
cells of this matrix have been called as stars, cash cows, question marks and dogs. Each of these
cells represents a particular type of business.

10 x 1x 0.1 x

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 Figure: BCG Matrix

1. Stars- Stars represent business units having large market share in a fast growing industry.
They may generate cash but because of fast growing market, stars require huge
investments to maintain their lead. Net cash flow is usually modest. SBU‟s located in this
cell are attractive as they are located in a robust industry and these business units are
highly competitive in the industry. If successful, a star will become a cash cow when the
industry matures.
2. Cash Cows- Cash Cows represents business units having a large market share in a
mature, slow growing industry. Cash cows require little investment and generate cash that
can be utilized for investment in other business units. These SBU‟s are the corporation‟s
key source of cash, and are specifically the core business. They are the base of an
organization. These businesses usually follow stability strategies. When cash cows loose
their appeal and move towards deterioration, then a retrenchment policy may be pursued.
3. Question Marks- Question marks represent business units having low relative market
share and located in a high growth industry. They require huge amount of cash to
maintain or gain market share. They require attention to determine if the venture can be
viable. Question marks are generally new goods and services which have a good
commercial prospective. There is no specific strategy which can be adopted. If the firm
thinks it has dominant market share, then it can adopt expansion strategy, else
retrenchment strategy can be adopted. Most businesses start as question marks as the
company tries to enter a high growth market in which there is already a market-share. If
ignored, then question marks may become dogs, while if huge investment is made, then
they have potential of becoming stars.
4. Dogs- Dogs represent businesses having weak market shares in low-growth markets.
They neither generate cash nor require huge amount of cash. Due to low market share,
these business units face cost disadvantages. Generally retrenchment strategies are
adopted because these firms can gain market share only at the expense of
competitor‟s/rival firms. These business firms have weak market share because of high
costs, poor quality, ineffective marketing, etc. Unless a dog has some other strategic aim,
it should be liquidated if there is fewer prospects for it to gain market share. Number of
dogs should be avoided and minimized in an organization.

Limitations of BCG Matrix

The BCG Matrix produces a framework for allocating resources among different business units
and makes it possible to compare many business units at a glance. But BCG Matrix is not free
from limitations, such as-

1. BCG matrix classifies businesses as low and high, but generally businesses can be
medium also. Thus, the true nature of business may not be reflected.
2. Market is not clearly defined in this model.
3. High market share does not always leads to high profits. There are high costs also
involved with high market share.
4. Growth rate and relative market share are not the only indicators of profitability. This
model ignores and overlooks other indicators of profitability.

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5. At times, dogs may help other businesses in gaining competitive advantage. They can
earn even more than cash cows sometimes.
6. This four-celled approach is considered as to be too simplistic.

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 Strategic leadership

Strategic leadership refers to a manager‟s potential to express a strategic vision for the
organization, or a part of the organization, and to motivate and persuade others to acquire
that vision. Strategic leadership can also be defined as utilizing strategy in the management of
employees. It is the potential to influence organizational members and to execute organizational
change. Strategic leaders create organizational structure, allocate resources and express strategic
vision. Strategic leaders work in an ambiguous environment on very difficult issues that
influence and are influenced by occasions and organizations external to their own.

The main objective of strategic leadership is strategic productivity. Another aim of strategic
leadership is to develop an environment in which employees forecast the organization‟s needs in
context of their own job. Strategic leaders encourage the employees in an organization to follow
their own ideas. Strategic leaders make greater use of reward and incentive system for
encouraging productive and quality employees to show much better performance for their
organization. Functional strategic leadership is about inventiveness, perception, and planning to
assist an individual in realizing his objectives and goals.

Strategic leadership requires the potential to foresee and comprehend the work environment. It
requires objectivity and potential to look at the broader picture.

A few main traits / characteristics / features / qualities of effective strategic leaders that do
lead to superior performance are as follows:

Loyalty- Powerful and effective leaders demonstrate their loyalty to their vision by their
words and actions.
Keeping them updated- Efficient and effective leaders keep themselves updated about what
is happening within their organization. They have various formal and informal sources of
information in the organization.
Judicious use of power- Strategic leaders makes a very wise use of their power. They must
play the power game skillfully and try to develop consent for their ideas rather than forcing
their ideas upon others. They must push their ideas gradually.
Have wider perspective/outlook- Strategic leaders just don‟t have skills in their narrow
specialty but they have a little knowledge about a lot of things.
Motivation- Strategic leaders must have a zeal for work that goes beyond money and power
and also they should have an inclination to achieve goals with energy and determination.
Compassion- Strategic leaders must understand the views and feelings of their subordinates,
and make decisions after considering them.
Self-control- Strategic leaders must have the potential to control distracting/disturbing
moods and desires, i.e., they must think before acting.
Social skills- Strategic leaders must be friendly and social.

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 Self-awareness- Strategic leaders must have the potential to understand their own moods
and emotions, as well as their impact on others.
Readiness to delegate and authorize- Effective leaders are proficient at delegation. They
are well aware of the fact that delegation will avoid overloading of responsibilities on the
leaders. They also recognize the fact that authorizing the subordinates to make decisions will
motivate them a lot.
Articulacy- Strong leaders are articulate enough to communicate the vision(vision of where
the organization should head) to the organizational members in terms that boost those
members.
Constancy/ Reliability- Strategic leaders constantly convey their vision until it becomes a
component of organizational culture.

To conclude, Strategic leaders can create vision, express vision, passionately possess vision and
persistently drive it to accomplishment.

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