Unit 1 Introduction to Strategy

Strategy refers to a comprehensive plan or a set of decisions and actions designed to achieve specific long-term
goals or objectives. It involves making choices that allocate resources, guide organizational efforts, and align
activities to attain a competitive advantage or address challenges in a dynamic environment. It is usually made
for 5 years.

Characteristics of Strategy

1. Long-Term Orientation:
Strategies are generally formulated with a long-term perspective, focusing on the organization's future direction
and sustained success.

2. Goal-Oriented:
Strategies are developed to achieve specific goals and objectives. They provide a roadmap for reaching desired
outcomes.

3. Resource Allocation:
Strategies necessitate the allocation of resources, including financial, human, and technological resources, to
support the chosen courses of action.

4. Adaptability:
Effective strategies are adaptable to changing circumstances. They should allow organizations to respond to shifts
in the internal or external environment.

5. Dynamic Nature:
Strategies need to be dynamic and adaptable to changing conditions. The ability to adjust strategies in response
to new information is crucial for sustained success.

6. Competitive Advantage:
A key characteristic of strategy is to seek and maintain a competitive advantage. This could be through
differentiation, cost leadership, innovation, or other means.

7. Risk and Uncertainty:

Strategies involve managing risk and uncertainty. They require an understanding of potential challenges and
contingencies.

8. Alignment with Mission and Values:

Strategies should align with the organization's mission and values. They reflect the fundamental purpose and
principles of the organization.

9. Continuous Review and Evaluation:

Effective strategies are subject to continuous review and evaluation. Regular assessment ensures that strategies
remain relevant and responsive to changing conditions.
10. Informed Decision-Making:
Developing a strategy involves gathering and analyzing information. It requires informed decision-making based
on a thorough understanding of the internal and external environment.

Levels of Strategy

1. Corporate Strategy:
- Made by the top level management for the entire organization.
a. Stability Strategy:
- Objective: Maintain the current business operations and market share.
- Approach: Avoid significant changes, focus on efficiency, and resist expansion or contraction.

b. Expansion/Growth Strategy:
- Objective: Increase market share, revenue, and profitability.
- Approach: Pursue opportunities for market expansion, diversification, mergers, acquisitions, or strategic
alliances.

c. Retrenchment Strategy:
- Objective: Address organizational weaknesses and improve financial performance.
- Approach: Cut costs, divest non-core assets, and streamline operations to recover from setbacks.

d. Combination/Mixed Strategy:
- Objective: Combine elements of stability, growth, and retrenchment strategies.
- Approach: Tailor strategies to different business units or markets based on their specific needs.

2. Business Strategy:
- Made by the middle level management for the specific department or branches.
a. Cost Leadership Strategy:
- Objective: Achieve the lowest production and operational costs in the industry.
- Approach: Efficient production processes, economies of scale, and cost control.

b. Differentiation Strategy:
- Objective: Create unique and distinctive products or services.
- Approach: Emphasize innovation, quality, branding, and customer experience.

c. Focus Strategy:
- Objective: Concentrate efforts on a specific market segment or niche.
- Approach: Tailor products or services to the needs of a particular group of customers.

3. Functional Strategy:
- Made by the low level management for the conducting daily smooth operations.
a. Production Strategy:
- Objective: Optimize manufacturing processes and efficiency.
- Approach: Lean production, quality control, and process improvement.
b. Marketing Strategy:
- Objective: Increase market share, brand visibility, and customer satisfaction.
- Approach: Targeted advertising, branding, market segmentation, and promotional activities.

c. Finance Strategy:
- Objective: Optimize financial performance, manage resources effectively.
- Approach: Financial planning, budgeting, risk management, and capital structure decisions.

d. Human Resource Strategy:

- Objective: Develop a skilled and motivated workforce.
- Approach: Recruitment, training, employee engagement, and performance management.

e. R & D (Research and Development) Strategy:

- Objective: Drive innovation and develop new products or technologies.
- Approach: Investment in research, technology development, and product innovation.

Concept of Strategic Decisions

Strategic decisions are critical choices made by top-level management that influence the overall direction and
long-term success of an organization. These decisions involve allocating resources, setting goals, and determining
the path a company will take to achieve a competitive advantage. Strategic decisions guide the organization's
strategy, impacting its position in the market and its ability to adapt to a dynamic environment.

Features of Strategic Decisions

1. Long-Term Impact:
Strategic decisions have a profound and enduring impact on the organization's future. These decisions set the
course for the organization over an extended period, shaping its trajectory and defining its competitive position.

2. Complexity:
Strategic decisions are complex and multifaceted. They involve considering numerous factors, such as market
conditions, competition, internal capabilities, and global trends, making the decision-making process intricate.

3. Organization-Wide Scope:
Strategic decisions affect the entire organization. These decisions transcend individual departments or functions,
influencing the organization as a whole and requiring coordination across various levels and units.

4. Risk and Uncertainty:

Strategic decisions involve inherent risks and uncertainties. Due to the complexity of factors and the long-term
nature of these decisions, there is a level of unpredictability and risk associated with strategic choices.

5. Top-Level Involvement:
Strategic decisions are made at the highest levels of management. Top executives, such as CEOs and board
members, are typically responsible for making strategic decisions, considering their significance and impact.
6. Resource Allocation:
Strategic decisions involve the allocation of significant resources. Whether financial, human, or technological,
these decisions determine where and how resources will be invested to achieve strategic objectives.

7. Alignment with Mission and Vision:

Strategic decisions align with the organization's mission and vision. These decisions reflect the organization's
core purpose and long-term aspirations, ensuring consistency with its overarching goals.

8. External Orientation:
Strategic decisions consider external factors. Organizations analyze market trends, competitor actions, regulatory
changes, and other external influences to inform strategic decision-making.

9. Innovative Thinking:
Strategic decisions often require innovative thinking. To gain a competitive edge, organizations may need to think
creatively, introducing new products, services, or business models.

10. Adaptability:
Strategic decisions allow for adaptability. While strategic decisions set a direction, they should allow for
adjustments in response to changing circumstances, ensuring flexibility in execution.

11. Feedback and Evaluation:

Strategic decisions are subject to feedback and evaluation. Organizations regularly assess the outcomes of
strategic decisions, seeking feedback from performance metrics and adjusting strategies as needed.

Strategic Decision vs. Operational Decision

Criteria Strategic Decision Operational Decision

Focus Concerned with the overall direction and long- Concerned with day-to-day activities and
term goals of the organization. immediate tasks.
Scope Impact the entire organization and its Impact specific departments or functions
positioning in the market. within the organization.
Time Frame Long-term orientation, often spanning several Short-term orientation usually covers the
years. immediate future.
Frequency Made infrequently. Made frequently and routinely.
Strategic Typically made by top-level executives (e.g., Made by middle and lower-level managers.
Decisions CEOs, board members).
Impact Affects the entire organization. Affects specific departments or processes.
Scope Broad and complex, involving multiple aspects Specific and focused on day-to-day tasks.
of the organization.
Complexity Involves high levels of complexity and Generally less complex and routine in
uncertainty. nature.
Decision- Based on long-term goals, market positioning, Based on efficiency, productivity, and day-
Making and competitive advantage. to-day task management.
Resource Involves significant resource allocation, such as Involves routine resource allocation to
Allocation financial, human, and technological resources. ensure daily tasks are carried out efficiently.
Flexibility and Should allow for adaptability over time due to Require less flexibility, as they are focused
Adaptability their long-term nature. on immediate tasks.
 Measurement Evaluated based on the achievement of long- Evaluated based on day-to-day efficiency,
of Success term objectives and market positioning. productivity, and task completion.
Relationship Strategic decisions set the overall direction, Operational decisions are guided by the
influencing subsequent operational decisions. strategic framework set by higher-level
decisions.

Concept of Strategic Management

Strategic management is the comprehensive process of formulating, implementing, and evaluating strategies to
achieve organizational objectives. It involves making decisions and taking actions that align an organization's
resources and capabilities with its mission and external environment. Strategic management is crucial for adapting
to change, sustaining a competitive advantage, and achieving long-term success.

Process of Strategic Management

1. Strategic Planning:
It is the process of defining an organization's strategy, setting goals, and determining actions to achieve objectives.
Here, activities like Environmental analysis, setting mission and vision, defining goals, and formulating strategies
are carried out.

2. Strategy Implementation:
It is the phase where the formulated strategy is put into action. Here, activities like Allocating resources, designing
organizational structures, aligning processes, and executing planned activities are carried out.

3. Strategic Control:
In this phase, monitoring and adjusting the implementation of strategies are carried out to ensure they are on track.
Here activities like Performance measurement, comparing actual results with planned results, and taking
corrective actions are carried out.

4. Feedback:
In this last phase, information on the outcomes of strategic actions for continuous improvement is gathered. Here
activities like Learning from successes and failures, adapting strategies based on feedback, and making necessary
adjustments are carried out.

Benefits/Importance of Strategic Management

1. Direction Setting:
It provides a clear direction for the organization by setting goals and priorities.

2. Adaptation to Change:
It enables organizations to adapt to changes in the external environment and seize opportunities.

3. Competitive Advantage:
It helps in building and sustaining a competitive advantage in the market.

4. Resource Allocation:
It facilitates the efficient allocation of resources, ensuring they are used effectively.
5. Risk Management:
It identifies and manages risks associated with strategic decisions.

6. Organizational Alignment:
It aligns the organization's activities and resources with its mission and goals.

7. Performance Measurement:
It provides a framework for measuring and evaluating organizational performance.

8. Innovation and Creativity:

It encourages innovation and creative thinking to stay ahead in the market.

9. Continuous Improvement:
It promotes a culture of continuous improvement by learning from past experiences.

Phases of Strategic Management

1. Policy Phase:
- Focus: Establishing policies to guide decision-making.
- Activities: Setting broad guidelines and principles for organizational actions.

2. Strategic Planning Phase:

- Focus: Formulating strategies based on environmental analysis.
- Activities: Identifying strengths, weaknesses, opportunities, and threats; setting goals; and developing plans.

3. Strategic Management Phase:

- Focus: Implementing and executing the chosen strategies.
- Activities: Allocating resources, designing structures, and managing operations to achieve strategic goals.

4. Global Strategic Management Phase:

- Focus: Expanding strategic management to a global context.
- Activities: Addressing challenges and opportunities in the global market, considering cultural and
geographical differences.

Strategic Planning

Strategic planning is a systematic and comprehensive process that organizations undertake to define their
direction, make informed decisions, allocate resources, and align internal capabilities with external opportunities
and challenges. It involves setting goals, formulating strategies, and outlining actions to achieve a competitive
advantage and long-term success.

Characteristics of Strategic Planning

1. Forward-Looking:
- Strategic planning has a future-oriented perspective, focusing on where the organization wants to be and what
it wants to achieve.
2. Comprehensive:
- It addresses the organization as a whole, considering various internal and external factors that impact its
performance.

3. Systematic Process:
- Strategic planning follows a structured and systematic approach, involving multiple steps and phases.

4. Adaptability:
- It allows for adaptability to changing circumstances by incorporating feedback and adjustments.

5. Involvement of Key Stakeholders:

- Key stakeholders, including top management and relevant departments, are involved in the planning process.

6. Alignment with Mission and Vision:

- Strategic planning ensures that organizational goals align with its mission and vision.

7. Data-Driven:
- It relies on data and analysis to inform decisions, using information from internal and external sources.

8. Continuous:
- Strategic planning is an ongoing process, requiring periodic reviews and updates to remain relevant.

Steps of Strategic Planning

1. Define Vision and Mission:

- Activity: Clarify the organization's purpose, values, and aspirations.
- Importance: Provides a foundation for setting goals and making strategic decisions.

2. Environmental Analysis:
- Activity: Evaluate the external and internal factors that may impact the organization.
- Importance: Understands the competitive landscape, identifies opportunities, and assesses potential threats.

3. Determination of Long-Term Goals:

- Activity: Establish specific, measurable, achievable, relevant, and time-bound (SMART) long-term goals.
- Importance: Sets the direction for the organization and provides a basis for strategy formulation.

4. Strategy Formulation:
- Activity: Develop strategies that align with the goals and capitalize on opportunities.
- Importance: Guides decision-making on how the organization will achieve its objectives.

Components of Strategic Planning

1. Vision:
- Definition: A forward-looking, inspirational statement that describes the organization's desired future state.
- Role: Guides and inspires stakeholders by articulating the long-term aspirations of the organization.
2. Mission:
- Definition: A concise statement that defines the fundamental purpose, values, and core activities of the
organization.
- Role: Provides clarity on why the organization exists and what it aims to achieve.

3. Objectives:
- Definition: Specific, measurable, achievable, relevant, and time-bound (SMART) goals that support the
mission and vision.
- Role: Concrete targets that guide decision-making and actions, contributing to the achievement of the
organization's mission.

Challenges in Strategic Management

1. Innovation:
- Challenge: Balancing the need for innovation with the associated risks and uncertainties.
- Importance: Innovation is essential for staying competitive, but organizations must navigate the challenges of
introducing new ideas and technologies.

2. Sustainability:
- Challenge: Integrating sustainable practices into strategic decisions while maintaining financial viability.
- Importance: Addressing environmental and social considerations is crucial for long-term success and corporate
responsibility.

3. Globalization:
- Challenge: Navigating the complexities of operating in a globalized market with diverse cultures, regulations,
and competitive landscapes.
- Importance: Globalization presents opportunities and threats that require strategic management to adapt and
thrive in an interconnected world.

CEO (Chief Executive Officer)

The Chief Executive Officer (CEO) is the highest-ranking executive in an organization, responsible for making
major corporate decisions, managing the overall operations, and ensuring the company's success.

Roles of CEO in Strategic Management

1. Role in Formulation/Strategic Planning:

• Visionary Leadership:
o Responsibility: Articulate a compelling vision for the organization's future.
o Importance: Sets the direction and inspires stakeholders by defining a clear and ambitious vision.

• Mission Definition:
o Responsibility: Define the organization's mission, values, and fundamental purpose.
o Importance: Provides a foundation for strategic planning and decision-making.

• Setting Strategic Objectives:

o Responsibility: Work with top management to establish SMART long-term goals.
 o Importance: Guides the organization by setting specific objectives aligned with its mission and
vision.

• Environmental Analysis:
o Responsibility: Oversee the analysis of the external and internal environment.
o Importance: Ensures a comprehensive understanding of factors influencing strategic decisions.

• Decision-Making on Strategies:
o Responsibility: Contribute to the formulation of strategies that align with organizational goals.
o Importance: Plays a key role in shaping the strategies that will drive the organization's success.

• Risk Management:
o Responsibility: Assess risks associated with strategic decisions.
o Importance: Helps the organization navigate uncertainties and make informed choices.

2. Role in Implementation:
• Resource Allocation:
o Responsibility: Allocate resources effectively to support strategic initiatives.
o Importance: Ensures that the organization has the necessary resources to execute the chosen
strategies.

• Leadership in Implementation:
o Responsibility: Provide leadership and direction during the implementation phase.
o Importance: Ensures that the organization is aligned and committed to executing the strategic plan.

• Organizational Alignment:
o Responsibility: Ensure that the organizational structure and processes are aligned with the chosen
strategies.
o Importance: Improves the likelihood of successful strategy execution.

• Communication and Engagement:

o Responsibility: Communicate the strategic vision and engage employees at all levels.
o Importance: Fosters a sense of purpose and commitment among employees, driving successful
implementation.

• Monitoring and Control:

o Responsibility: Oversee the monitoring of strategic initiatives and implement control mechanisms.
o Importance: Ensures that the organization stays on track and can make adjustments as needed.

• Performance Evaluation:
o Responsibility: Evaluate the performance of the organization against strategic objectives.
o Importance: Provides feedback for continuous improvement and informs future strategic
decisions.
 Changes in the Approach of Strategic Management

1. Financial Budgeting:
In the 1950s and 1960s, organizations experienced significant growth in size and complexity. This expansion
necessitated a greater emphasis on financial budgeting as a means to manage resources efficiently. Financial
budgets helped organizations allocate funds effectively, plan for future investments, and monitor performance
against financial targets. However, as business environments evolved, reliance solely on financial metrics proved
inadequate for long-term success.

2. Corporate Planning:
During the same period, particularly in the 1950s and 1960s, customers were primarily focused on price. In
response, organizations engaged in extensive corporate planning to remain competitive. Corporate planning
involved setting objectives, forecasting market trends, allocating budgets, and establishing priorities to optimize
resources and achieve financial goals. While effective for its time, the static nature of corporate planning failed
to address the increasing complexity and dynamism of the business landscape.
3. Emergence of Strategic Management:
By the 1970s and 1980s, the limitations of traditional corporate planning became apparent. Rising competition,
shifting consumer preferences, and rapid changes in the business environment rendered static plans ineffective.
Consequently, organizations began adopting a more dynamic approach known as strategic management. Strategic
management focused on positioning the organization within the market to gain a competitive advantage. This
involved analyzing external opportunities and threats, leveraging internal strengths, and adapting strategies to
changing conditions.
4. The Quest for Competitive Advantage:
In the 1990s, competition intensified, leading organizations to seek sustainable competitive advantages. Rather
than solely focusing on market positioning, organizations started analyzing their internal resources and
capabilities to identify unique strengths. This shift towards internal analysis allowed organizations to differentiate
themselves from competitors and create value for customers. Competitive advantage became synonymous with
innovation, quality, and customer experience.
5. Adapting to Turbulence (Hypercompetition):
The concept of hypercompetition, coined by D'Aveni in 1994, characterized the intense competition and conflict
prevalent in modern markets. As market leaders became increasingly aggressive, smaller organizations faced
challenges in maintaining competitiveness. To survive in this hypercompetitive environment, organizations
turned to collaboration, cooperation, networking, and joint alliances. By forming strategic partnerships and
alliances, organizations aimed to leverage collective strengths and navigate the complexities of hypercompetition
effectively.
These shifts in the approach to strategic management reflect the evolving nature of business environments and
the strategic responses adopted by organizations to thrive in an increasingly competitive landscape.
 Different Perspective on Strategy Formulation

1. The Design Perspective:

The design perspective views strategy formulation as a rational, deliberate process akin to designing a blueprint.
It emphasizes the importance of thorough analysis, systematic planning, and clear goal setting. In this approach,
organizations carefully evaluate their external environment, assess internal capabilities, and articulate strategic
objectives. Strategies are formulated based on this analysis, with a focus on aligning resources and activities to
achieve desired outcomes. The design perspective often involves techniques such as SWOT analysis, scenario
planning, and strategic planning frameworks to develop comprehensive strategies that guide organizational
decision-making.
2. The Level Perspective:
The level perspective recognizes that strategy formulation occurs at multiple levels within an organization,
ranging from corporate-level strategies that define the overall direction of the firm to business-level and
functional-level strategies that guide specific units or departments. Each level of strategy formulation is
interconnected and contributes to the achievement of organizational objectives. Corporate-level strategies address
questions of diversification, market positioning, and resource allocation across multiple business units. Business-
level strategies focus on competitive positioning within specific markets or industries, while functional-level
strategies aim to optimize the performance of individual functions or departments. The level perspective
emphasizes the need for coherence and alignment across different levels of strategy to ensure organizational
effectiveness.
3. The Positioning Perspective:
The positioning perspective, popularized by Michael Porter, emphasizes the importance of achieving a sustainable
competitive advantage by positioning the organization effectively within its industry or market. This perspective
focuses on understanding the competitive forces at play within the industry and identifying opportunities to
differentiate the organization from rivals. Strategies are formulated based on an analysis of industry structure,
competitive dynamics, and the organization's unique strengths and capabilities. The goal is to carve out a distinct
market position that allows the organization to capture value and outperform competitors over the long term. Key
concepts associated with the positioning perspective include Porter's Five Forces framework and the concept of
strategic fit.
4. The Resource-Based Perspective:
The resource-based perspective shifts the focus of strategy formulation from external market forces to internal
resources and capabilities. This perspective argues that sustainable competitive advantage stems from the
organization's ability to leverage its unique resources and capabilities in ways that are difficult for competitors to
replicate. Strategies are formulated based on a careful assessment of the organization's tangible and intangible
assets, including physical assets, human capital, intellectual property, and organizational culture. The resource-
based perspective emphasizes the importance of building and leveraging distinctive competencies that create
value for customers and provide a basis for competitive advantage. Core concepts associated with this perspective
include resource identification, resource bundling, and dynamic capabilities.

Approaches to Strategy Formulation

1. Intended Strategy:
Intended strategy refers to the deliberate course of action that an organization plans to pursue to achieve its goals.
It represents the strategic direction set by top management through formal planning processes, such as strategic
planning sessions, goal-setting exercises, and the development of detailed strategic plans. Intended strategies are
typically based on a thorough analysis of the external environment, internal capabilities, and organizational
objectives. They reflect management's vision for the future and are intended to guide decision-making and
resource allocation throughout the organization. However, intended strategies may not always unfold as planned
due to unforeseen circumstances, changing market conditions, or implementation challenges.
2. Realized Strategy:
Realized strategy, also known as implemented strategy, refers to the actual pattern of actions and decisions that
an organization takes over time. It represents the strategy that emerges through the day-to-day activities, choices,
and adaptations made by individuals and groups within the organization. While intended strategy provides a
roadmap for organizational direction, realized strategy reflects how strategies are translated into action on the
ground. Realized strategies may deviate from intended strategies due to factors such as resource constraints,
competitive pressures, shifting customer preferences, and internal dynamics within the organization. Analyzing
realized strategy provides insights into how strategies are executed and adapted in response to changing
circumstances.
3. Emergent Strategy:
Emergent strategy refers to the unplanned patterns of action and learning that emerge over time as organizations
navigate complex and uncertain environments. Unlike intended strategy, which is formulated top-down by
management, emergent strategy arises bottom-up through experimentation, adaptation, and learning at various
levels of the organization. It reflects the cumulative effect of ongoing interactions, feedback loops, and emergent
opportunities that shape the organization's trajectory. Emergent strategies often emerge in response to unexpected
events, market disruptions, or serendipitous discoveries that challenge existing assumptions and spark innovation.
While emergent strategy can complement intended strategy by providing flexibility and resilience, it can also
pose challenges in terms of coherence, coordination, and alignment with organizational goals.
 Unit 2: Vision, Mission, Objectives, and Strategy
Strategic Vision / Vision
Strategic vision refers to a clear, compelling, and aspirational description of an organization's desired future state.
It articulates where the organization aims to be in the long term and serves as a guiding beacon for decision-
making, resource allocation, and goal-setting. A strategic vision provides a sense of purpose, direction, and
alignment for all stakeholders, inspiring them to work towards common objectives.
“Where do we want to go?”
Characteristics of Strategic Vision:
1. Clarity:
A strategic vision is succinct and easy to understand, ensuring that everyone within the organization shares a
common understanding of the desired future state.
2. Inspiration:
It inspires and motivates stakeholders by painting a compelling picture of what success looks like and why it
matters, instilling a sense of purpose and commitment.
3. Long-Term Orientation:
A strategic vision focuses on the long term, transcending short-term challenges and fluctuations in the business
environment to provide a stable foundation for strategic planning.
4. Alignment:
It aligns organizational activities, goals, and initiatives towards a common vision, fostering coherence, synergy,
and collective effort across different functions and departments.
5. Differentiation:
A strategic vision sets the organization apart from competitors by defining unique value propositions, competitive
advantages, and aspirations that distinguish it in the marketplace.
6. Flexibility:
While providing a clear direction, a strategic vision allows for adaptability and responsiveness to changing
circumstances, enabling the organization to evolve and thrive in dynamic environments.
Benefits of Strategic Vision:
1. Guidance:
A strategic vision provides a roadmap for decision-making and resource allocation, guiding organizational
priorities and actions towards achieving long-term goals.
2. Motivation:
It inspires and energizes stakeholders, fostering a shared sense of purpose, pride, and commitment to realizing
the organization's vision.
3. Alignment:
A strategic vision aligns diverse stakeholders and activities towards common objectives, promoting synergy,
collaboration, and unity of effort.
4. Resilience:
By focusing on long-term objectives and aspirations, a strategic vision helps organizations weather short-term
challenges and setbacks, maintaining a sense of direction and purpose.
5. Differentiation:
A compelling strategic vision sets the organization apart from competitors, attracting customers, investors, and
talent who resonate with its values, mission, and aspirations.
6. Innovation:
It stimulates innovation and creativity by challenging the status quo, encouraging bold ideas, and fostering a
culture of continuous improvement and experimentation.
Considerations for Developing Strategic Vision:
1. Environmental Scan:
Conduct a comprehensive analysis of the external environment, including market trends, competitor actions,
technological advancements, regulatory changes, and societal shifts.
2. Stakeholder Engagement:
Involve key stakeholders, including employees, customers, partners, and investors, in the visioning process to
ensure diverse perspectives and buy-in.
3. Core Values and Purpose:
Align the strategic vision with the organization's core values, mission, and purpose, reflecting its identity,
aspirations, and commitment to stakeholders.
4. Long-Term Goals:
Define clear, ambitious, and achievable long-term goals and objectives that encapsulate the desired future state
of the organization.
5. Flexibility and Adaptability:
Anticipate uncertainties and changes in the business environment, building flexibility and adaptability into the
strategic vision to accommodate evolving circumstances.
6. Communication and Engagement:
Communicate the strategic vision effectively and consistently across the organization, fostering understanding,
enthusiasm, and ownership among all stakeholders.
7. Monitoring and Review:
Establish mechanisms for monitoring progress towards the strategic vision and periodically review and revise it
in response to internal and external developments.
Mission
A mission statement is a concise declaration that outlines the fundamental purpose, values, and objectives of an
organization. It defines why the organization exists, what it seeks to achieve, and how it intends to conduct its
operations. The mission statement serves as a guiding beacon, informing stakeholders about the organization's
identity, aspirations, and commitments.
“Why do we exist?”
Characteristics of mission:
1. Conciseness:
A mission statement is brief and to the point, capturing the essence of the organization's purpose and goals in a
few sentences or phrases.
2. Clarity:
It communicates the organization's core purpose, values, and objectives in clear and understandable language,
ensuring that all stakeholders share a common understanding.
3. Relevance:
A mission statement is relevant to the organization's activities, reflecting its unique identity, strengths, and
aspirations in the context of its industry, market, and stakeholders.
4. Inspiration:
It inspires and motivates stakeholders by articulating a compelling vision of what the organization seeks to
achieve and why it matters, fostering commitment and alignment.
5. Differentiation:
A mission statement distinguishes the organization from competitors by highlighting its unique value
proposition, competitive advantages, and commitment to stakeholders.
6. Long-Term Orientation:
While providing a sense of direction, a mission statement focuses on enduring values and objectives,
transcending short-term challenges and fluctuations in the business environment.
Benefits of Mission:
1. Guidance:
A mission statement provides a framework for decision-making, goal-setting, and resource allocation, guiding
organizational priorities and actions towards fulfilling its purpose and objectives.
2. Alignment:
It aligns diverse stakeholders and activities towards common goals and values, promoting coherence, synergy,
and unity of effort across different functions and departments.
3. Motivation:
A clear and compelling mission statement inspires and energizes stakeholders, fostering a shared sense of
purpose, pride, and commitment to the organization's vision and objectives.
4. Accountability:
It serves as a yardstick for evaluating performance and accountability, enabling stakeholders to assess whether
the organization's actions and outcomes are consistent with its stated mission and values.
5. Differentiation:
A well-crafted mission statement sets the organization apart from competitors, attracting customers, investors,
and talent who resonate with its values, purpose, and aspirations.
6. Cohesion:
By articulating a common purpose and identity, a mission statement fosters cohesion, loyalty, and a sense of
belonging among employees, customers, partners, and other stakeholders.
Considerations for Developing Mission:
1. Self-Reflection:
Engage in introspection to identify the organization's core purpose, values, and objectives, considering its
history, culture, strengths, weaknesses, opportunities, and threats.
2. Stakeholder Involvement:
Involve key stakeholders, including employees, customers, partners, and investors, in the mission development
process to ensure diverse perspectives and buy-in.
3. Market Analysis:
Conduct a thorough analysis of the industry, market trends, customer needs, competitor actions, and regulatory
environment to inform the mission statement's relevance and differentiation.
4. Alignment with Values:
Ensure that the mission statement aligns with the organization's core values, ethics, and principles, reflecting its
commitment to integrity, social responsibility, and ethical conduct.
5. Long-Term Focus:
Define enduring objectives and values that transcend short-term challenges and fluctuations in the business
environment, providing a stable foundation for strategic planning and decision-making.
6. Communication and Engagement:
Communicate the mission statement effectively and consistently across the organization, fostering
understanding, enthusiasm, and ownership among all stakeholders.
7. Flexibility and Adaptability:
Build flexibility and adaptability into the mission statement to accommodate changes in the business
environment, technology, customer preferences, and stakeholder expectations.
8. Review and Revision:
Periodically review and revise the mission statement in response to internal and external developments,
ensuring its continued relevance, alignment, and effectiveness in guiding organizational activities and
aspirations.
Creating a Mission Statement:
1. Identify Core Values:
Determine the organization's fundamental values, principles, and beliefs that guide its behavior and decision-
making.
2. Define Purpose:
Clarify the organization's reason for existence, answering questions such as why it was founded, who it serves,
and what it seeks to achieve.
3. Set Objectives:
Establish clear, measurable, and achievable long-term goals and objectives that reflect the organization's
aspirations and aspirations.
4. Craft Statement:
Distill the core values, purpose, and objectives into a concise, memorable, and impactful statement that captures
the essence of the organization's mission.
5. Seek Feedback:
Solicit input and feedback from key stakeholders, including employees, customers, partners, and investors, to
ensure that the mission statement resonates and reflects diverse perspectives.
6. Refine and Finalize:
Revise and refine the mission statement based on feedback and insights, ensuring clarity, relevance, and
alignment with the organization's identity and aspirations.
7. Communicate:
Share the finalized mission statement with all stakeholders through internal and external communication
channels, ensuring widespread understanding, acceptance, and commitment.
 Differences Between Vision and Mission
Criteria Vision Mission
Definition A vision statement outlines the long-term A mission statement defines the
aspirations and ultimate goals of an fundamental purpose, values, and
organization. It describes the desired future objectives of an organization. It articulates
state that the organization aims to achieve. why the organization exists, what it seeks to
accomplish, and how it intends to conduct
its operations.
Focus It focuses on the future and sets a direction for It focuses on the present and outlines the
the organization to strive towards. It provides organization's current purpose and
a broad and inspiring image of what success activities. It provides a framework for daily
looks like. operations and decision-making.
Time Horizon It has a long-term time horizon, spanning It applies to the present moment and guides
several years or decades. It reflects the the organization's immediate actions and
organization's long-range aspirations and priorities. It may evolve over time but
goals. remains relevant in the short to medium
term.
Scope It encompasses the broader impact and It focuses on the specific activities,
significance of the organization's activities. It products, or services that the organization
often transcends specific products, services, or provides. It defines the organization's niche
markets. and unique value proposition.
Inspirational It serves as an inspirational statement that It serves as an operational statement that
vs. motivates and energizes stakeholders. It paints guides daily decision-making and resource
Operational a compelling picture of the organization's allocation. It provides a practical
future success. framework for achieving the organization's
goals.
Change It evolves over time as the organization grows, It tends to remain stable over time,
vs. adapts to changes in the business environment, reflecting the enduring values, principles,
Stability and achieves milestones. It may be revised and objectives of the organization. While it
periodically to reflect new opportunities or may be refined or updated, its core essence
challenges. remains consistent.
External It is targeted towards external stakeholders, It primarily focuses on internal
vs. such as customers, investors, and partners. It stakeholders, such as employees, managers,
Internal communicates the organization's aspirations and board members. It aligns and motivates
Orientation and value proposition to the broader internal teams by providing a shared sense
community. of purpose and direction.

Linking Vision, Mission, and Company Values

Company values, often referred to as core values or guiding principles, represent the fundamental beliefs and
principles that guide the behavior, decisions, and actions of an organization and its employees. They define the
ethical and cultural foundation upon which the organization operates and interacts with its stakeholders, including
employees, customers, suppliers, and the community at large.
Company values answer the question, "What do we believe in?" They reflect the collective beliefs, ideals, and
aspirations of the organization, shaping its identity and influencing its corporate culture. These values serve as a
compass for decision-making and behavior, helping employees understand what is important to the organization
and how they are expected to conduct themselves in their roles.
Some common examples of company values include:
 • Integrity: Upholding honesty, transparency, and ethical behavior in all interactions.
• Respect: Treating everyone with dignity, fairness, and consideration.
• Innovation: Embracing creativity, curiosity, and continuous improvement.
• Teamwork: Collaborating effectively, valuing diversity, and supporting one another's success.
• Customer Focus: Prioritizing the needs and satisfaction of customers in all endeavors.
• Excellence: Striving for the highest standards of quality, performance, and achievement.
• Responsibility: Taking ownership of one's actions, commitments, and environmental/social impact.
• Adaptability: Embracing change, learning from experiences, and remaining flexible in dynamic
environments.
These values are not just words on a page; they should be deeply ingrained in the organization's culture and
reflected in its daily operations, interactions, and strategic decisions. When effectively communicated and upheld,
company values can foster a positive work environment, enhance employee engagement and morale, strengthen
relationships with stakeholders, and ultimately contribute to the organization's long-term success and
sustainability.
Linking vision, mission, and company values forms the cornerstone of an organization's strategic framework,
guiding its purpose, direction, and actions. At the heart of this linkage is the organization's core values, which
represent its fundamental beliefs and principles. These values serve as guiding lights, influencing decision-
making, shaping organizational culture, and defining the norms that govern behavior within the company.
The mission statement, on the other hand, articulates why the organization exists and what it seeks to achieve. It
outlines the organization's purpose, objectives, and approach to delivering value to its stakeholders. When crafted
in alignment with the company's core values, the mission statement becomes a powerful expression of the
organization's commitment to upholding its principles while pursuing its goals.
When core values and mission are combined, they give rise to the organization's vision – a compelling depiction
of where the company aspires to be in the future. The vision statement represents the organization's long-term
aspirations and goals, painting a vivid picture of the desired destination. It encapsulates the collective hopes,
dreams, and ambitions of the stakeholders, inspiring them to rally behind a common cause.

Core Values + Mission = Vision

In essence, the above equation represents the interconnectedness of these key elements in shaping the
organizational strategy. Core values provide the moral compass that guides decision-making and behavior, while
the mission statement articulates the organization's purpose and objectives. When these foundational elements are
aligned and integrated effectively, they give rise to a visionary outlook that propels the organization towards its
desired future state.
This equation underscores the importance of grounding the organization's vision in its core values and mission,
ensuring that it remains true to its beliefs and principles while charting a course towards success. It highlights the
symbiotic relationship between values, mission, and vision, emphasizing the need for coherence and alignment
in driving organizational strategy and decision-making.
 Concept of Objectives/Goals

Objectives are the specific and measurable targets that an organization sets to achieve its overall goals. They
provide a sense of direction and serve as benchmarks for measuring progress. Objectives are critical in helping
organizations remain focused on their mission and vision.

For example: A Nepalese company like Nepal Airlines Corporation might set an objective to increase its fleet
size by 20% within the next five years to meet rising domestic and international travel demands.

Components of Objectives OR Quality of Good Objectives

Good objectives must follow the SMART criteria:

1. Specific: Objectives should be clear and precise.

o Example: A tourism company in Nepal such as Yeti Holidays might set a specific objective to
attract 5,000 international tourists for trekking in the Annapurna region annually.
2. Measurable: Objectives should include quantifiable metrics to assess progress.
o Example: Himalayan Bank may aim to increase customer deposits by 15% by the end of the fiscal
year.
3. Achievable: Objectives should be realistic and attainable with the available resources.
o Example: Unilever Nepal may aim to expand its distribution network to 10 new rural districts
within one year.
4. Relevant: Objectives should align with the organization's mission and goals.
o Example: Kantipur Media Group focusing on increasing its digital audience aligns with its goal of
staying relevant in the digital era.
5. Time-Bound: Objectives must have a clear deadline.
o Example: Ncell could set an objective to roll out 5G services in Kathmandu by mid-2025.

Levels of Objectives

Organizations operate on multiple levels, and each level has distinct objectives:

1. Corporate-Level Objectives:
These are the broad, overall objectives of the organization.
o Example: Nepal Telecom might set a corporate-level objective to be the leading digital service
provider in Nepal by 2030.
2. Business-Level Objectives:
These focus on specific business units or products.
o Example: The Dairy Division of Chaudhary Group (CG) might aim to launch a new dairy product
in the market within a year.
3. Functional-Level Objectives:
These objectives guide specific departments like marketing, operations, or finance.
o Example: The marketing team at Himalayan Java might aim to increase brand visibility by running
digital ad campaigns targeting 100,000 people.
4. Individual-Level Objectives:
These focus on the performance of individuals within the organization.
o Example: A bank teller at Everest Bank might have an individual-level objective to process 50
customer transactions daily.
 Roles of Objectives in Strategic Management

Objectives play several critical roles in strategic management, such as:

1. Providing Direction:
Objectives guide the entire organization by clearly stating what needs to be achieved.
o Example: The Government of Nepal’s objective of increasing hydroelectricity production to 10,000
MW by 2030 provides direction for the energy sector.
2. Motivating Employees:
Clear objectives inspire employees to work hard and achieve common goals.
o Example: Daraz Nepal’s sales team may work towards an objective of generating revenue worth
NPR 5 billion during their annual 11.11 sale.
3. Measuring Performance:
Objectives act as benchmarks to evaluate success and performance.
o Example: The progress of the Melamchi Water Supply Project can be measured against objectives
like completing phase one by a certain year.
4. Facilitating Strategic Decisions:
Objectives help in prioritizing resource allocation and strategic decision-making.
o Example: Nepal Investment Bank Limited might prioritize investments in digital banking solutions
over opening physical branches to align with its digital transformation objective.
5. Promoting Coordination:
Objectives ensure alignment and coordination across departments and teams.
o Example: For Nepal Electricity Authority (NEA), achieving nationwide electrification involves the
coordination of its production, transmission, and distribution units.

Differences between Financial Objectives and Strategic Objectives

Aspect Financial Objectives Strategic Objectives

Focus on measurable financial outcomes Broader goals related to long-term growth and
Definition
like revenue, profit, etc. competitive edge.

Focus Short-term performance metrics. Long-term direction and sustainability.

Example in Jyoti Life Insurance targeting NPR 1 Himalayan Distillery aiming to be a market leader
Nepal billion premium collection by 2025. in spirits by focusing on premium products.

Typically shorter, like quarterly or

Time Horizon Longer-term, often spanning several years.
annual objectives.

Quantifiable financial results (e.g., Achievement of strategic milestones (e.g., market

Measurement
revenue, cost reduction). expansion).
 Unit 3: Strategic Analysis Strategic Analysis

Concept of Strategic Analysis

Strategic analysis is the process of researching and understanding an organization's internal and external
environments to identify its strengths, weaknesses, opportunities, and threats (SWOT). It helps in making
informed strategic decisions to achieve long-term goals and maintain a competitive edge.

For examples:

• Nabil Bank performs a strategic analysis by assessing the rise of digital banking (opportunity) and
identifying competition from fintech startups (threat).
• Himalayan Java analyzes its internal strengths like strong branding and weaknesses like limited rural
presence while expanding its outlets.

Concept of Business Environment

The business environment refers to all external and internal factors that influence an organization's operations,
decisions, and performance. It encompasses a dynamic mix of political, economic, social, technological,
environmental, and legal factors, as well as internal organizational factors.

For examples:

• The Nepalese government’s policies on hydropower development directly impact companies like
Butwal Power Company.
• The rise in digital literacy and smartphone usage in Nepal has created opportunities for Daraz Nepal to
expand its e-commerce platform.

Features of Business Environment

1. Dynamic: The business environment is constantly changing due to shifts in economic, political, and social
factors.
o Example: The COVID-19 pandemic significantly altered consumer behavior, encouraging
businesses like Pathao Nepal to expand delivery services.
2. Complex: It involves multiple interrelated components that impact businesses in diverse ways.
o Example: The opening of new border points with India affects both Nepal's agricultural exports
and its import-dependent industries.
3. Multi-Faceted: Different aspects of the environment impact various industries differently.
o Example: Government subsidies positively impact Nepal’s agriculture sector, while high tax rates
burden the hospitality sector.
4. Unpredictable: Sudden changes like political instability or natural disasters create uncertainty for
businesses.
o Example: The 2015 earthquake disrupted operations in multiple sectors, including tourism and
manufacturing.
5. Far-Reaching Impact: Business environment changes have both immediate and long-term consequences.
o Example: The introduction of digital payment systems like eSewa and Khalti has permanently
shifted payment preferences in Nepal.
6. Interdependent: Changes in one factor (e.g., technology) can impact others (e.g., market demand).
o Example: The growth of 4G internet services in Nepal has driven increased demand for online
education platforms.
 Types/Components of Business Environment
1. Internal Environment

Factors within the organization that affect its operations and strategies.

1. Organizational Goals:
Clear objectives guide the organization's direction and strategies.
o Example: Unilever Nepal aims to increase its market share by launching eco-friendly products.
2. Organizational Resources:
Includes human, financial, and physical resources.
o Example: Himalayan Distillery utilizes its advanced machinery and skilled workforce to
dominate the spirits market.
3. Organizational Structure:
Defines roles and responsibilities within the organization.
o Example: Nepal Telecom adopts a hierarchical structure to manage its nationwide operations.
4. Organizational Culture:
Refers to shared values, beliefs, and practices within the organization.
o Example: Teach For Nepal fosters a culture of collaboration and innovation to drive education
reforms.

2. External Environment

Factors outside the organization that impact its operations, are divided into general (macro) and operating
(micro) environments.

A. General/Remote/Macro Environment – PESTELG Analysis

1. Political Factors:
Government policies, stability, and regulations.
o Example: Nepal’s tax policies on imports significantly impact the automobile industry, such as
CG Motors.
2. Economic Factors:
Economic growth, inflation, unemployment, and interest rates.
o Example: The decline in remittance due to global economic challenges affects spending power in
Nepal.
3. Social Factors:
Cultural norms, demographics, and consumer behavior.
o Example: Growing health awareness in Nepal has increased demand for organic products like
those from Himalayan Herbal Tea.
4. Technological Factors:
Innovations, IT infrastructure, and automation.
o Example: The rise of digital wallets like Khalti reflects Nepal's technological advancement.
5. Environmental Factors:
Sustainability, climate change, and natural resource availability.
o Example: Hydropower projects like Upper Tamakoshi Hydropower are influenced by
environmental regulations.
6. Legal Factors:
Laws and regulations governing business operations.
o Example: NIC Asia Bank must comply with Nepal Rastra Bank's regulations for banking
services.
 7. Global Factors:
International trade policies, foreign investments, and global trends.
o Example: Nepal's growing trade relationship with China impacts businesses like Chinese
electronics distributors in Nepal.

B. Operating/Task/Micro Environment

Factors that directly affect the organization's day-to-day operations.

1. Customers:
Organizations must understand and fulfill customer needs.
o Example: Bhatbhateni Supermarket regularly adapts its offerings based on customer
preferences.
2. Suppliers:
Reliable suppliers ensure smooth operations and product availability.
o Example: Surya Nepal Pvt. Ltd. depends on raw material suppliers to maintain its production.
3. Competitors:
Businesses need to monitor and respond to competition.
o Example: Hulas Steel faces competition from imported steel products.
4. Financial Institutions:
Provide necessary funding and financial services.
o Example: Startups in Nepal often rely on loans from NMB Bank to scale their operations.
5. Distributors:
Ensure timely delivery of products to the market.
o Example: Dalle Restaurants relies on local distributors for fresh ingredients.
6. Media:
Influences public perception and brand image.
o Example: Positive media coverage of The Cliff Nepal boosts its reputation as a premier bungee
jumping destination.
7. Labor Unions:
Represent workforce interests and influence workplace policies.
o Example: Strikes organized by labor unions can disrupt operations in industries like cement
manufacturing.

Differences Between Internal and External Environment

Basis Internal Environment External Environment

Factors within the organization that influence Factors outside the organization that impact its
Definition
its operations and decision-making. performance but are beyond its control.

Fully or partially controllable by the

Control Beyond the control of the organization.
organization.

Includes organizational goals, resources, Includes political, economic, social,

Components
structure, and culture. technological, environmental, and legal factors.

Specific to the organization and unique to Common to all businesses operating in the
Nature
each business. same environment.
 Basis Internal Environment External Environment

Indirect and long-term impact on the

Impact Direct and immediate impact on operations.
organization.

Example in - Himalayan Java’s organizational structure - Government policies on taxes affect Unilever
Nepal allows flexibility for decision-making. Nepal’s pricing.

Differences Between Micro and Macro Environment

Basis Micro Environment Macro Environment

The immediate environment that directly The broader environment that influences the
Definition
affects the organization’s daily operations. organization at a large scale.

Specific to the industry or market the

Scope Encompasses national and global factors.
business operates in.

Political, economic, social, technological,

Customers, suppliers, competitors,
Components environmental, legal, and global (PESTELG
distributors, financial institutions, etc.
factors).

Can be partially influenced or managed by

Control Completely beyond the organization’s control.
the organization.

Nature Industry-specific and dynamic. Universal and affects all industries.

Direct impact on business strategies and Indirect and long-term impact on business
Impact
day-to-day operations. strategies.

Example in - Pathao Nepal negotiates with suppliers - Fluctuations in remittance inflow affect
Nepal and partners for operational efficiency. demand for goods and services in Nepal.

Concept of Environmental Analysis

Environmental analysis is the process of evaluating the external and internal environments to identify
opportunities and threats that influence an organization's strategic decisions. It involves understanding key
trends, uncertainties, and forces that shape the business environment.

For examples:

• Nepal Airlines conducts environmental analysis to identify opportunities in tourism growth and threats
from increasing competition like Buddha Air and Yeti Airlines.
• CG Foods (Wai Wai) monitors changing consumer preferences for healthier instant noodles to adapt its
product offerings.
 Process of Environmental Analysis

Environmental analysis involves four key steps:

1. Scanning:

Identifying early signals of potential changes or trends in the environment.

• Example: Ncell scans for technological advancements like 5G adoption in Nepal to stay competitive.

2. Monitoring:

Tracking identified trends and events to understand their patterns and impact.

• Example: Nepal Tourism Board monitors global travel trends, especially post-pandemic recovery in
tourism.

3. Forecasting:

Predicting future changes based on current trends and historical data.

• Example: Nepal Electricity Authority (NEA) forecasts energy demand to plan future hydropower
projects.

4. Assessing:

Evaluating the significance and impact of identified changes on the organization.

• Example: Himalayan Distillery assesses how changes in liquor taxes affect its pricing strategy.

Importance of Environmental Analysis

1. Identifying Opportunities and Threats:

Helps businesses recognize external factors that can impact operations.
o Example: Daraz Nepal identified the opportunity for growth in e-commerce during the COVID-19
lockdowns.
2. Strategic Decision-Making:
Informs long-term planning and strategies.
o Example: Nabil Bank adopted digital banking based on environmental analysis of increasing
internet penetration.
3. Adaptability and Resilience:
Enables organizations to adapt to changes and mitigate risks.
o Example: Hulas Steel adapted to rising steel import duties by increasing local production.
4. Competitive Advantage:
Provides insights to outperform competitors by leveraging opportunities.
o Example: DishHome introduced internet services to compete with ISPs based on demand analysis.
5. Resource Allocation:
Helps allocate resources effectively to areas with the most potential.
o Example: Nepal Investment Bank allocated resources to rural banking initiatives based on analysis
of financial inclusion gaps.
 Techniques of Environmental Analysis
1. PESTELG Analysis:

Analyzing Political, Economic, Social, Technological, Environmental, Legal, and Global factors that influence
the business environment.

• Example in Nepal:
o Political: Policies favoring hydropower projects impact Butwal Power Company.
o Economic: Rising remittance inflows drive consumption for FMCG companies like Unilever
Nepal.
o Social: Increased demand for organic food benefits Himalayan Java Farms.
o Technological: Growth of digital wallets like Khalti reshapes payment systems.
o Environmental: Climate change impacts agro-businesses like Krishi Premura Nepal.
o Legal: Labor laws affect industries like Surya Nepal Pvt. Ltd..
o Global: Changing oil prices impact import costs for businesses in Nepal.

2. Scenario Planning:

Developing multiple future scenarios and preparing strategies to address them.

• Example in Nepalese Context:

o Nepal Tourism Board prepares scenarios based on post-pandemic travel restrictions and
focuses on promoting domestic tourism.
o Himalayan Java may prepare for scenarios where coffee demand increases or declines due to
changes in consumer preferences or import costs.

3. Porter’s Five Forces Model:

Porter’s Five Forces Model is a strategic

tool developed by Michael E. Porter to
analyze the competitive environment of
an industry. It helps businesses assess the
intensity of competition and understand
the profitability of the industry.

a. Threat of New Entrants

• Refers to the ease with which

new competitors can enter the
industry and pose a threat to
existing players.
• Factors influencing the threat:
o Barriers to entry: High
investment requirements,
brand loyalty, economies
of scale, and government
regulations.
o Nepalese Context
Example: In the telecom
sector of Nepal,
companies like Ncell and
 Nepal Telecom face low threats of new entrants due to high capital investment and licensing
barriers.

b. Bargaining Power of Suppliers

• Suppliers' ability to influence the cost or availability of inputs for businesses.

• Factors influencing suppliers’ power:
o Number of suppliers, uniqueness of the product/service, and switching costs.
o Nepalese Context Example: In the cement industry, suppliers of raw materials like limestone
hold significant bargaining power due to limited resources and alternatives.

c.. Bargaining Power of Buyers

• Buyers’ ability to influence the price or demand better quality and service.
• Factors influencing buyers’ power:
o Number of buyers, product differentiation, and price sensitivity.
o Nepalese Context Example: In the e-commerce industry, customers hold high bargaining
power as platforms like Daraz Nepal face tough competition and need to offer better prices and
services to retain users.

d. Threat of Substitute Products or Services

• The risk that customers will switch to alternative products or services that meet the same need.
• Factors influencing the threat:
o Availability of substitutes, switching costs, and price-performance trade-off of substitutes.
o Nepalese Context Example: In the tea industry, substitutes like coffee or herbal drinks pose a
threat to traditional tea brands in Nepal like Tokla Tea.

e. Industry Rivalry

• The intensity of competition among existing players in the industry.

• Factors influencing rivalry:
o Number of competitors, market growth, and product differentiation.
o Nepalese Context Example: In the tourism sector, competition among trekking agencies like
Himalayan Treks and Ace the Himalaya is intense, especially for popular trekking routes like
the Annapurna Circuit.

Importance of Porter’s Five Forces

• Strategic Decision Making: Helps businesses identify opportunities and threats in their industry.
• Profitability Analysis: Assesses the potential profitability of entering or continuing in an industry.
• Resource Allocation: Guides companies on where to invest their efforts and resources.