BBA LLB V SEM.

BBA LLB 313

Strategic Management
Unit-3- Strategic Analysis & Strategic Choice

Strategic Analysis
Strategic Analysis is equally important when it comes to internal environment
assessment.
Internal environment refers to the sum total of people - individuals and groups,
stakeholders, processes- input-throughput-output, physical infrastructure- space,
equipment and physical conditions of work, administrative apparatus- lines of
authority & power, responsibility, accountability and organizational culture-
intangible aspects of working- relationships, philosophy, values, ethics- that shape
an organization's identity.
Nature of Strategic Analysis
Strategic analysis is the process of examining an organization and its environment to
form a clear understanding of its strategic positioning and to guide future decision-
making. This analysis allows organizations to identify internal strengths and
weaknesses, as well as external opportunities and threats.
The key elements of strategic analysis include:
1. Internal Analysis: Examines internal resources, capabilities, and core
competencies to determine strengths and areas needing improvement.
2. External Analysis: Focuses on understanding the external environment,
including industry trends, competition, market demand, and regulatory
conditions.
3. SWOT Analysis: A widely used tool in strategic analysis, which evaluates
Strengths, Weaknesses, Opportunities, and Threats, enabling organizations to
make balanced strategic decisions.
4. Long-term Planning: Strategic analysis often aligns with long-term
planning, aiming to identify sustainable competitive advantages and formulate
strategies for growth and adaptation over time.
By combining these components, strategic analysis enables organizations to develop
effective strategies that are responsive to both internal conditions and external
market dynamics.

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Understanding Key Stakeholders

Who are Stakeholders and how do we identify them?

A firm may be viewed as a coalition of stakeholders- all those individuals and entities
that have a stake in its success and can impact it as well. They may be the
employees, shareholders, investors, suppliers, customers, regulators and so on. This
view of the firm is in contrast to the earlier view of the firm that was considered to
be an extension of the owners and shareholders alone.
Thus, it may be reiterated that the stakeholders can be defined as any person/group
of individuals, internal or external, that has an interest in, or impact on the business
or corporate strategy of the organisation. They have the power to influence the
strategy or performance of that organisation.
Generally, stakeholders include management, employees, shareholders,
customers and vendors. Additionally, other individuals and groups, such as
governments, labour unions and local groups, which are often considered as
stakeholders depending on their impact on the particular organisation. Each
stakeholder or stakeholder group will be affected by the business strategy that the
organisation chooses and implements.

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Mendelow's Matrix
The Mendelow Stakeholder matrix (also known as the Stakeholder Analysis matrix
and the Power-Interest matrix) is a simple framework to help manage key
stakeholders.
Managing a project is extremely complicated as it involves managing the competing
interests of various stakeholders. Who needs to know what and when, who needs to
give their feedback and who has the final approval can be confusing. However,
managing stakeholders is critical to the success of a project. This is where a
stakeholder analysis matrix i.e. Mendelow's Matrix can help.
Mendelow suggests that one should analyse stakeholder groups based on Power
(the ability to influence organisation strategy or resources) and Interest (how
interested they are in the organisation succeeding). A thing to remember is that all

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stakeholders may seem to have lots of power and organisation may hope they would
have lots of interest too. But in reality, some stakeholders will hold more Power than
others, and some stakeholders will have more Interest than others. For example, a
big shareholder is likely to have high power and high interest in the organisation,
whereas a big competitor would have high power to impact strategy, but potentially
less Interest in success of rival organisation.

Combining Internal & External Analysis- SWOT Analysis

SWOT analysis is the analysis of a business's strengths, weaknesses, opportunities

and threats. The primary objective of a SWOT analysis is to help organizations
develop a full awareness of all the factors (external as well as internal), involved in
making a business decision.
SWOT analysis shall be implemented before all company actions, whether it is
exploring new initiatives, revamping internal policies, considering opportunities to
grow or alter a plan midway. One shall also us SWOT analysis to discover

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recommendations and strategies, with a focus on leveraging strengths and

opportunities to overcome weaknesses and threats.
Since its creation, SWOT has been the most widely used tools for business owners to
grow their companies. Sometimes it's wise to perform SWOT analysis just to check
on the current landscape of your business to improve business operations as
needed. The analysis can show areas where an organization is performing well, as
well as areas that need improvement.

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Competition Advantage: Micheal Porter Generic Strategies

According to Porter, strategies allow organizations to gain competitive advantage

from three different bases: cost leadership, differentiation, and focus. Porter called
these base generic strategies. These strategies have been termed generic, because
they can be pursued by any type or size of business firm and even by not-for-profit
organisations.
Cost leadership emphasizes on producing standardized products at a very low per-
unit cost for consumers who are price-sensitive.
Differentiation is a strategy aimed at producing products and services considered
unique industry-wide and directed at consumers who are relatively price-insensitive.
Focus means producing products and services that fulfil the needs of small groups of
consumers with very specific taste.
Porter's strategies imply different organizational arrangements, control procedures,
and incentive systems. Larger firms with greater access to resources typically
compete on a cost leadership and/or differentiation basis, whereas smaller firms
often compete on a focus basis.

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Strategic Choices
Businesses follow different types of strategies to enter the market, to stay relevant
and grow in the market. A large number of strategies with different nomenclatures
have been employed by different businesses and also suggested by different authors
on strategy. For instance, William F Glueck and Lawrence R Jauch discussed four
generic strategies including stability, growth, retrenchment and combination. These
strategies have also been called Grand Strategies/Directional Strategies by many
other authors. Michael E. Porter suggested competitive strategies including Cost
Leadership, Differentiation, Focus Cost Leadership and Focus Differentiation which
could be used by the corporates for their different business units.
Stages in the process of Strategic Choice:
The process of making strategic choices involves several key stages to guide
decision-making toward achieving organizational goals. The stages generally include:
1. Relating Intent to Vision and Mission: The organization clarifies its
intent, aligning it with its vision and mission to ensure strategic choices
support its fundamental purpose.
2. Generating Alternatives: This stage involves brainstorming various
strategic options that can help the organization achieve its objectives. It
allows a range of choices that meet organizational goals.
3. Analysing Strategic Alternatives: Each option is assessed in terms of
potential outcomes, risks, and alignment with organizational values and goals.
This includes examining costs, benefits, and feasibility.
4. Evaluating and Selecting the Best Strategy: This stage involves
weighing alternatives using criteria such as profitability, sustainability, and

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strategic fit. Decision-makers select the option that best meets the
organization's strategic objectives.
5. Implementation and Monitoring: After a choice is made, the strategy is
implemented and closely monitored to ensure it is progressing as planned.
Adjustments may be made based on performance and unforeseen changes.
These stages provide a structured approach to making strategic choices that align
with the organization's long-term objectives.

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Stability Strategies
One of the important goals of a business enterprise is stability strategy is to
stabilise- it may be opted to safeguard its existing interests and strengths, to pursue
well established and tested objectives, to continue in the chosen business path, to
maintain operational efficiency on a sustained basis, to consolidate the commanding
position already reached, and to optimise returns on the resources committed in the
business.

Growth Strategies
Growth/Expansion strategy is implemented by redefining the business by enlarging
the scope of business and substantially increasing investment in the business. It is a
strategy that can be equated with dynamism, vigour, promise and success. It is
often characterised by significant reformulation of goals and directions, major
initiatives and moves involving investments, exploration and onslaught into new
products, new technology and new markets, innovative decisions and action
programmes and so on. This strategy may take the enterprise along relatively
unknown and risky paths, full of promises and pitfalls.

The growth strategies can be classified into two main types:

A. Internal growth strategies
B. External growth strategies
A. Internal growth strategies
Internal growth strategies can be further divided into:
I Expansion through Intensification
II Expansion through Diversification
Expansion or growth through Intensification
Expansion or growth through intensification means that the organisation tries to
grow internally by intensifying its operations either by market penetration or market
development or by product development. It tries to cash on its internal capabilities
and internal resources. The firm can intensify by adopting any of the following
strategies:
(i) Market Penetration: Highly common expansion strategy is market
penetration/concentration on the current business. The firm directs its

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resources to the profitable growth of its existing product in the existing

market.

(ii) Market Development: It consists of marketing present products, to

customers in related market areas by adding different channels of
distribution or by changing the content of advertising or the promotional
media.
(iii) Product Development: Product development involves substantial
modification of existing products or creation of new but related items that
can be marketed to current customers through establish channels.
Igor. H. Ansoff gave a framework as shown in figure below which
describes the intensification options available to a firm.

II. Expansion or Growth through Diversification

When a firm tries to grow and expand by diversifying into various products
or fields, it is called growth by diversification. This is also an internal
growth strategy. Innovative and creative firms always look for
opportunities and challenges to grow, to venture into new areas of activity
and to break new frontiers with the zeal of entrepreneurship using their
internal resources. They feel that diversification offers greater prospects of
growth and profitability than intensification.

Diversification is defined as an entry into new products or product lines,

new services or new markets, involving substantially different skills,
technology and knowledge.

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Based on the nature and extent of their relationship to existing

businesses, diversification can be classified into two broad categories:

(i) Concentric diversification: diversification into related business

to benefit from synergistic gains.

(ii) Conglomerate diversification: diversification into unrelated

business to explore more opportunities beyond existing areas of
expertise.

(iii) Expansion through Innovation

B. External Growth Strategies

When the organization instead of growing internally thinks of diversifying by making
alliances with external organisations, it is called external growth diversification. It
can be classified in two ways:
I. Expansion through Mergers and Acquisitions

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Acquisition or merger with an existing concern is an instant means of achieving the

expansion. It is an attractive and tempting proposition in the sense that it
circumvents the time, risks and skills involved in screening internal growth
opportunities, seizing them and building up the necessary resource base required to
materialise growth. Organizations consider merger and acquisition proposals in a
systematic manner, so that the marriage will be mutually beneficial, a happy and
lasting affair.

Types of Mergers
The following are the types of mergers and are quite similar to the types of
diversification.

(a) Horizontal Merger

Horizontal merger is a combination of firms engaged in the same industry. It is a
merger with a direct competitor. The principal objective behind this type of merger is
to achieve economies of scale in the production process by shedding duplication of
installations and functions, widening the line of products, decrease in working capital
and fixed assets investment, getting rid of competition and so on. For example,
formation of Brook Bond Lipton India Ltd. through the merger of Lipton India and
Brook Bond.
(b) Vertical Merger
It is a merger of two organizations that are operating in the same industry but at
different stages of production or distribution system. This often leads to increased
synergies with the merging firms. If an organization takes over its
supplier/producers of raw material, then it leads to backward integration. On the
other hand, forward integration happens when an organization decides to take over
its buyer organizations or distribution channels. Vertical merger results in many
operating and financial economies. Vertical mergers help to create an advantageous
position by restricting the supply of inputs to other players, or by providing the
inputs at a higher cost. For example, backward integration and forward integration.
(c) Co-generic Merger
In Co-generic merger two or more merging organizations are associated in some
way or the other related to the production processes, business markets, or basic
required technologies. Such merger includes the extension of the product line or
acquiring components that are required in the daily operations. It offers great
opportunities to businesses to diversify around a common set of resources and
strategic requirements. For example, an organization in the white goods category

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such as refrigerators can diversify by merging with another organization having

business in kitchen appliances.

(d) Conglomerate Merger

Conglomerate mergers are the combination of organizations that are unrelated to
each other. There are no linkages with respect to customer groups, customer
functions and technologies being used. There are no important common factors
between the organizations in production, marketing, research and development and
technology. In practice, however, there is some degree of overlap in one or more of
these factors.

Strategic Exits
Strategic Exits are followed when an organization substantially reduces the scope of
its activity. This is done through an attempt to find out the problem areas and
diagnose the causes of the problems. Next, steps are taken to solve the problems.
These steps result in different kinds of retrenchment strategies. If the organization
chooses to focus on ways and means to reverse the process of decline, it adopts at
turnaround strategy. If it cuts off the loss-making units, divisions, or SBUs, curtails
its product line, or reduces the functions performed, it adopts a divestment (or
divestiture) strategy.
Defensive strategies in strategic management are actions companies take to
protect their market position, retain customer loyalty, and maintain profitability in
the face of competitive threats. These strategies are often essential when a
company faces aggressive competition or when market conditions are changing. Key
defensive strategies include:
1. Retrenchment
Retrenchment involves reducing operations or pulling back in specific markets
or product lines to focus resources on the company’s core areas. This can
include cost-cutting, selling off unprofitable segments, or reducing workforce
to stabilize finances.
2. Divestiture
Divestiture entails selling off business units, product lines, or assets that no
longer align with the company’s core strategy. This approach allows a
company to free up resources and focus on more profitable or strategic areas.
3. Liquidation
Liquidation is a more extreme defensive measure where a company decides
to sell all of its assets and cease operations, often as a last resort when
recovery is unlikely or when the value of assets exceeds potential earnings.

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Red Ocean & Blue Ocean Strategies

Red Ocean and Blue Ocean strategies are frameworks in strategic management that
help companies position themselves in their markets to gain a competitive
advantage:

1. Red Ocean Strategy

In a Red Ocean, companies compete in an existing, crowded market where
demand is already established. The focus is on outperforming rivals, often
through cost-cutting, quality improvements, or incremental innovation. This
strategy leads to a "bloody" competition, hence the term "Red Ocean."
o Key Characteristics: Highly competitive, saturated markets.
o Examples: Fast-food chains competing on price or quality, like
McDonald's vs. Burger King.
2. Blue Ocean Strategy
A Blue Ocean strategy seeks to create a new market space, or "blue ocean,"
that is uncontested and free from competition. Instead of competing for
existing demand, companies focus on creating demand in unexplored areas.
By offering unique value, companies can often set higher prices and attract
new customer segments.
o Key Characteristics: Innovation-driven, focuses on differentiation
and value creation.
o Examples: Cirque du Soleil reinvented the circus by combining
acrobatics with theatrical performances, targeting a new audience and
creating a new market.
Each approach has its advantages: Red Ocean strategies work well for short-term
gains in competitive markets, while Blue Ocean strategies are ideal for long-term
growth through innovation and differentiation.

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Strategic Options

Strategic options need to be carved out from existing products and innovations that
are happening in the industry. There are a set of models that help strategists in
taking strategic decisions with regard to individual products or businesses in a firm's
portfolio. Primarily used for competitive analysis and corporate strategic planning in
multi-product and multi business firms. They may also be used in less- diversified
firms, if these consist of a main business and other minor complementary interests.
The main advantage in adopting a portfolio approach in a multi-product, multi-
business firm is that resources could be channelised at the corporate level to those
businesses that possess the greatest potential.
Ansoff’s Product Growth Matrix

The Ansoff's product market growth matrix (proposed by Igor Ansoff) is a useful tool
that helps businesses decide their product and market growth strategy. With the use
of this matrix a business can get a fair idea about how its growth depends upon it
markets in new or existing products in both new and existing markets. Companies
should always be looking to the future. One useful device for identifying growth
opportunities for the future is the product/market expansion grid. The
product/market growth matrix is a portfolio-planning tool for identifying growth
opportunities for the company.
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Market Penetration: Market penetration refers to a growth strategy where the

business focuses on selling existing products into existing markets. It is achieved by
making more sales to present customers without changing products in any major
way. Penetration might require greater spending on advertising or personal selling.
Overcoming competition in a mature market requires an aggressive promotional
campaign, supported by a pricing strategy designed to make the market unattractive
for competitors. Penetration is also done by effort on increasing usage by existing
customers.
For example, Gucci, a luxury clothing brand, selling its luxury clothing in European
markets with new designs, is market penetration.
Market Development: Market development refers to a growth strategy where the
business seeks to sell its existing products into new markets. It is a strategy for
company growth by identifying and developing new markets for current company
products. This strategy may be achieved through new geographical markets, new
product dimensions or packaging, new distribution channels or different pricing
policies to attract different customers or create new market segments.
For example, Gucci, a luxury clothing brand, selling its luxury clothing in Chinese
markets, is market development.
Product Development: Product development refers to a growth strategy where
business aims to introduce new products into existing markets. It is a strategy for

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company growth by offering modified or new products to current markets. This

strategy may require the development of new competencies and requires the
business to develop modified products which can appeal to existing markets.
For example, Gucci, a luxury clothing brand, selling casual clothing in European
markets, is product development.
Diversification: Diversification refers to a growth strategy where a business
markets new products in new markets. It is a strategy by starting up or acquiring
businesses outside the company's current products and markets. This strategy is
risky because it does not rely on either the company's successful product or its
position in established markets. Typically, the business is moving into markets in
which it has little or no experience.
For example, Gucci, a luxury clothing brand, selling casual clothing in Chinese
markets, is diversification.
As market conditions change overtime, a company may shift product-market growth
strategies. For example, when its present market is fully saturated a company may
have no choice other than to pursue new market.

Boston-Consulting Group (BCG) Growth Share Matrix

The BCG growth-share matrix is the simplest way to portray a corporation's portfolio
of investments. Growth share matrix also known for its cow and dog metaphors is
popularly used for resource allocation in a diversified company. Using the BCG
approach, a company classifies its different businesses on a two- dimensional
growth-share matrix.

In the matrix:
• The vertical axis represents market growth rate and provides a measure of
market attractiveness.
• The horizontal axis represents relative market share and serves as a measure
of company strength in the market.

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• Stars are products or SBUS that are growing rapidly. They also need heavy
investment to maintain their position and finance their rapid growth potential.
They represent best opportunities for expansion.
• Cash Cows are low-growth, high market share businesses or products. They
generate cash and have low costs. They are established, successful, and need
less investment to maintain their market share. In long run when the growth
rate slows down, stars become cash cows.
• Question Marks, sometimes called problem children or wildcats, are low
market share business in high-growth markets. They require a lot of cash to
hold their share. They need heavy investments with low potential to generate
cash. Question marks if left unattended are capable of becoming cash traps.
Since growth rate is high, increasing it should be relatively easier. It is for
business organisations to turn them stars and then to cash cows when the
growth rate reduces.

• Dogs are low-growth, low-share businesses and products. They may

generate enough cash to maintain themselves, but do not have much future.
Sometimes they may need cash to survive. Dogs should be minimised by
means of divestment or liquidation.

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BCG Matrix: Post Identification Strategies

Experience Curve

Experience curve akin to a learning curve which explains the efficiency increase
gained by workers through repetitive productive work. Experience curve is based on
the commonly observed phenomenon that unit costs decline as a firm accumulates
experience in terms of a cumulative volume of production. It is based on the
concept, "we learn as we grow".
The implication is that larger firms in an industry would tend to have lower unit costs
as compared to those for smaller companies, thereby gaining a competitive cost
advantage.
Experience curve results from a variety of factors such as learning effects,
economies of scale, product redesign and technological improvements in production.
Experience curve has following features:
As business organisation grow, they gain experience.
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Experience may provide an advantage over the competition. Experience is a key

barrier to entry.
Large and successful organisation possess stronger "experience effect".
A typical experience curve may be depicted as follows:

As a business grows, it understands the complexities and benefits from its

experiences.
The concept of experience curve is relevant for a number of areas in strategic
management. For instance, experience curve is considered a barrier for new firms
contemplating entry in an industry. It is also used to build market share and
discourage competition. In the contemporary Indian automobile industry, the
experience curve phenomenon seems to be working in Maruti Suzuki. The likely
strategic choice for competitors can be a market niche approach or segmentation
based on demography or geography.

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