Unit 1: Strategic Management

Strategy: Meaning, Nature, scope and importance

Model of strategic management
Strategic Decision-Making Process
Composition of the board
Role and Responsibilities of the board of directors
Trends in corporate governance
Corporate Social Responsibility

Unit 2 – Strategic Management

Environmental Scanning:

Understanding the Macro Environment: PESTEL Analysis, Industrial

Organization (IO) & the Structure Conduct Performance (SCP) approach,
Porter’s Five Forces Model,

Understanding the Micro Environment: Resource Based View (RBV) Analysis,

VRIO Framework, Using resources to gain Competitive advantage & its
sustainability, Value Chain Analysis. Case Studies and Latest Updates

Unit 3 – Strategic Management

Strategy Formulation: Situational Analysis using SWOT approach Business
Strategies:

Competitive Strategy: – Cost Leadership, Differentiation &

Focus, Cooperative Strategy: – Collusion & Strategic Alliances

Corporate Strategies: Directional Strategy: Growth strategies, Stability

Strategies & Retrenchment Strategies. Corporate Parenting Functional
Strategies: Marketing, Financial, R&D, Operations, Purchasing, Logistics, HRM
& IT.
The sourcing decision: Outsourcing & offshoring Case Studies and Latest
Updates.

Unit 4 – Strategic Management

Strategy Choice and Analysis: Scenario Analysis Process, Tools & Techniques
of strategic Analysis: BCG Matrix, Ansoff Grid, GE Nine Cell Planning Grid,
McKinsey’s 7’S framework. Case Studies and Latest Updates.

Strategy implementation: Developing Programs, Budget and Procedures,

Stages of Corporate Development, Organizational Life cycle, Organizational
Structures: Matrix, Network & Modular/Cellular; Reengineering and Strategy
implementation, Leadership and corporate culture, Case Studies and Latest
Updated.

Unit 5 – Strategic Management

Strategy Evaluation & Control: Evaluation & Control process,

Measuring performance: types of controls, activity based costing, enterprise

risk management, primary measures of corporate performance, balance
scorecard approach to measure key Performance, responsibility centers,
Benchmarking, Problems in measuring Performance & Guidelines for proper
control. Strategic Audit of a Corporation. Case Studies and Latest updates.
Suggested Readings
1. Wheelen, L. Thomas and Hunger, David J.; Concepts in Strategic
Management and Business Policy, Pearson Education,
2. Stewart Clegg, Chris Carter, Martin Kornberger & Jochen
Schweitzer : Strategy – Theory and Practice.(SAGE Publishing
India)
3. Kazmi, Azhar; Business Policy and Strategic Management;
McGraw-Hill Education. David, Fred; Strategic Management:
Concepts and Cases; PHI Learning.
4. Thomson, Arthur A. and Strickland, A. J.; Strategic Management:
Concept and Cases; McGraw Hill Education,
5. Jauch, L.F., and Glueck, W.F.; Business Policy and Strategic
Management; McGraw-Hill Education.
Strategic Management

Introduction
 Concept, Nature & Importance

The concept of strategy in business has been borrowed from military science and sports where it
implies out- maneuvering the opponent. The term strategy began to be used in business with increase
in competition and complexity of business operations.

A strategy is an administrative course of action designed to achieve success

in the face of difficulties. It is a plan for meeting challenges posed by the
activities of competitors and environmental forces.

Strategy is the complex plan for bringing the organization from a given state
to a desired position in a future period of time. Strategy results from the
detailed strategic planning process.
For example, if management anticipates price-cut by competitors, it may decide upon a strategy of
launching an advertising campaign to educate the customers and to convince them of the superiority of
its products.

While Planning strategy it is essential to consider that decisions are not taken in vacuum and that any
act taken by a firm is likely to meet by a reaction from those affected, consumers, customers,
employers and suppliers
We can conclude
Strategy is the blueprint of decisions in an organization that shows objectives and goals, reduces the
key policies and plan for achieving these goals, and defines the business the company is to carry on,
the type of economic and human organization it wants to be and the contribution it plans to make to its
shareholders, customers and society at large.

Characteristics of Strategy:
1. A plan or a course of action or a set of decision rules making a pattern or creating a
common thread.
2. The pattern or common thread related to the organization’s activities which are derived
from the policies, objectives and goals
3. Related to pursuing activities which move an organization from its current position to a
desired future state
4. Concerned with the resources necessary for implementing a plan or following a course of
action
5. Connected to the strategic positioning of a firm , making trade-offs between its different
activities and creating a fit between among these activities
6. The planned or actual coordination of the firm’s major goals and actions, in time and space
that continuously co-align the firm with its environment
 NATURE OF STRATEGY

1. It is a major course of action through which an organization relates itself to its environment
particularly the external factors to facilitate all actions involved in meeting the objectives of the
organization.

2. Strategy is the blend of external and internal factors. To meet the opportunities and threats
provided by the external factors internal factors are matched with them.

3. Strategy is the combination of actions aimed to meet a particular condition, to solve certain
problems or to achieve a desirable end. The actions are different for different situations

4. Due to its dependence on environmental variables, strategy may involve a contradictory action. An
organization may take contradictory actions either simultaneously or with gap of time. For example
a firm is engaged in closing down some of its business and at the same time expanding some.

5. Strategy is future oriented . Strategic actions are required for new situations which have not arisen
before in the past.

6. Strategy requires some systems and norms for its efficient adoption in any organization

7. Strategy provides overall framework for guiding enterprise thinking and action.
 Importance of Strategy

1. Provides directions and action Plans: It establishes in a clear, concise and strategically sound way the
direction for the organization how this will be achieved, including detailed action plans

2. Prioritizes and Align Activities: Strategic planning is about making choices establishing priorities,
allocating resources to strategic initiatives and coordinating to achieve desired results.

3. Defines Accountabilities: It defines clear lines of accountability and timelines for achieving expected
results on the agreed strategic initiatives

4. Enhances Communication and Commitment: In clarifying the vision and accountabilities, the strategic
plan increases the alignment of all organizational activities and fosters commitment at all levels.

5. Provides a framework for ongoing Decision Making: Since all decisions should support the strategy,
the strategy and the strategic initiatives are the reference point for decision making’

It is a matter of having both a daily plan on how to get things done and an overarching strategy to guide those
daily plans so you progress towards your long term goals.
 Strategic Management

It is all about identification and description of strategies that managers can carry so as to achieve
better performance & competitive advantage for their organization.

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

evaluation and control of strategies to realize the organization’s strategic intent.

Strategic Management is nothing but planning for both predictable as well as infeasible
contingencies. It gives a broader perspective to the employees of an organization and they can
better understand how their job fits into the entire organizational plan and how it is correlated to
other organizational members.

Characteristics of strategic Management:

1. It is not a one time, static or mechanistic process. Thus it is known as a dynamic

process. Being dynamic strategic management is a continual evolving, iterative
process.
2. Strategic Management cannot be a rigid, rather it is a step-wise collection of a few
activities arranged in a sequential order.
 Elements in Strategic Management Process

There are four sequential phases of strategic management process. In different companies these
phases may have different nomenclature and the phases may have different sequence, however the
basic contents remain the same. The four phases are as following

1.Establishing the strategic intent for the organization is the first phase which means to set
the hierarchy of objectives that an organization sets for itself. Within this we identify vision,
mission, business definition, and objectives
2. The second phase is concerned with the devising of a strategy
or a few strategies. This is an analytical phase in which strategist
think, analyze and plan strategies

3. The third phase is of implementation means ‘putting into action

phase’. The strategies formulated are implemented through a
series of administrative and managerial actions.

4. The fourth phase of evaluation and control involves assessing

how appropriately strategies were formulated and how effectively
they are being implemented. Depending on the outcome of
assessment actions could be taken ranging from fine tuning
implementation to a drastic reformulation of strategies
 Elements in Strategic Management Process

Each phase of the strategic management process consists of a number of elements, which are discrete and
identifiable activities performed in logical and sequential steps.
There are four sequential phases of strategic management process. In different companies
these phases may have different nomenclature and the phases may have different sequence,
however the basic contents remain the same. The four phases are as following:

1.Establishing the hierarchy of the strategic intent: The strategic planner has to define what
is intended to be accomplished. This will help in defining the objectives strategies and policies.
The hierarchy of the strategic intent lays the foundation of strategic management of any
organization. In this the mission, vision, business definition and objectives are established. It
consists of following steps:
• Creating and communicating a vision:
Vision states what an organization want to achieve in the long run
• Designing a mission statement:
Mission clears purpose for which the organization is established
• Defining the business:
It explains the business of an organization in the terms of customer needs, customer
groups and alternative TECHNOLGIES
• Adopting the business model
• Setting objectives:
These are ends which organizations wants to achieve
2. Formulation of Strategies : Environment and organizational appraisal help to find out the
opportunities and threats operating in the environment and the strengths and weaknesses of an
organization in order to create a match between them. In such a manner, opportunities could be availed of
and the impact of threats neutralized in order to capitalize on the organizational strengths and minimize the
weaknesses.
Strategies can be formulated after diagnosing the environment. Each strategy with suitable sub strategies and
alternative strategies should be available to top management. Thus top management always mentors the
administration with the strategies which can be adapted from time to time.
This phase consists of the following steps
• Performing environmental appraisal
• Doing Organizational appraisal
• Formulating corporate- level strategies
• Formulating business- level strategies
• Undertaking strategic analysis
• Exercising strategic choice
• Preparing strategic plan
3.Implementation of Strategies: This is an important stage in the strategic
management process as sometimes well defined strategies fail in implementation.
Hence adaptability of strategies and implementation process should be well
defined while formulating strategies. For the implementation of strategy the
strategic plan is put into process into following sub process

• Activating Strategies
• Designing the structure, systems and processes
• Managing behavioral implementation
• Managing functional implementation
• Operationalizing strategies.
4. Performing Strategic Evaluation and Control: The strategist should
evaluate each strategy after implementing them. The strategist should
evaluate when there is profit maximization or cost minimization or
achievement of long run or short term goal whatever be. The feedback from
strategic evaluation is meant to exercise strategic control over the strategic
management process.

Strategies may be reformulated, if necessary. Strategic evaluation and

control consists of the following steps
• Performing strategic evaluation
• Exercising strategic Control
• Reformulating strategies.
 Organization’s purpose/mission

The mission defines the fundamental reason for the organization’s

existence.
• It provides a framework for decision making that gives direction for the
entire organization.
• It is an overall goal of the organization that provides a sense of direction and a
guide to decision-making for all levels of management i.e. organizational
objectives and strategies at lower levels are developed from the mission.
• The mission describes the organization’s line of business, its products
and specifies the markets it serves within a time frame of 3 to 5 years.
• The mission defines the boundaries or domain within which the organization
will operate. The boundaries may be defined as industries or types of
industries.
• The mission should not prevent change but provides direction for seeking new
opportunities.
• It should be broad enough to allow exploitation of new opportunities but
 A mission should be achievable, in writing and should have
a time frame for achievement.
Mission statements should include the following components
• Targets customers and markets
• Principal products
• Geographic domain
• Core technologies used
• Concern for survival, growth and profitability
• Organizational self concept
• Desired public image.
• The organization’s guiding philosophy
Examples of Mission
• Hyatt : To provide authentic hospitality by making a difference in the lives of the people
we touch every day.
• TripAdvisor: To help people around the world plan and have the perfect trip
• Uber: Uber is evolving the way the world moves. By seamlessly connecting riders to
drivers through our apps, we make cities more accessible, opening up more possibilities
for riders and more business for drivers.
• Walt Disney: To be one of the world’s leading producers and providers of entertainment
and information, using its portfolio of brands to differentiate its content, services and
consumer products.
• Sony: To be a company that inspires and fulfills your curiosity.
• The New York Times: To enhance society by creating, collecting and distributing high-
quality news and information.
 Mission and Vision of Tata Steel
• VISION: We aspire to be the global steel industry benchmark for Value
Creation and Corporate Citizenship.
• MISSION
 Tata Steel strives to strengthen India’s industrial base through effective
utilisation of staff and materials. The means envisaged to achieve this are
cutting-edge technology and high productivity, consistent with modern
management practices.
 Tata Steel recognises that while honesty and integrity are essential
ingredients of a strong and stable enterprise, profitability provides the main
spark for economic activity.
 Overall, the Company seeks to scale the heights of excellence in all it does
in an atmosphere free from fear, and thereby reaffirms its faith in
democratic values.
The organization’s philosophy establishes the values and beliefs of the
organization about how the business should be done and the
organization’s role in the society. It establishes the relationship between
the organization and its stakeholders i.e. its responsibilities towards
customers, employees, shareholders and general public.

Establishing organizational objectives

An objective is a statement of what is to be achievable, measurable and

stated with specific time frames. They can be classified as either short-
range, medium or long range. They may also be corporate, business unit
or functional/ departmental objectives. Organizational objectives may be in
the following areas;
1. Profitability
2. Service to customers
3. Employee wellbeing and welfare
4. Social responsibility.
Strategic Business Units (SBUs)

• A large organization’s activities can be segmented as business units. A

business unit is an operating unit in an organization that sells a distinct set of
products to a distinct market in competition with a well defined set of
competitors. It is normally referred to as an SBU.
• An organizational SBU often has the following characteristics;
• It has its own set of customers.
• It should have a clear set of competitors, which it is trying to surpass.
• It should have its own strategic planning manager responsible for its
success.
• Its performance must be measurable in terms of profit and loss, i.e. it must
be a true profit centre. .
Benefits of strategic management

• It provides the organization with consistency of action i.e. helps ensure

that all organizational units are working toward the same objectives
(direction).
• The process forces managers to be more proactive and conscious of
their environments i.e. to be future oriented.
• It provides opportunity to involve different levels of management,
encourage the commitment of participating managers and reducing
resistance to proposed change.
 Business Policy

Business Policy defines the scope or sphere within which decisions can be taken by the
subordinates in an organization. It permits the lower level management to deal with the
problems and issues without consulting top level management every time for decisions.

Business Policy as defined by Christensen & others, is ‘is the study of the function and
responsibilities of senior management, the crucial policies that affect success in the total
enterprise and the decisions that determine the direction of the organization and shape its
future.

Features of Business Policy

An effective business policy must have following features

1. Specific: A business policy must be specific/definite. If a business policy is uncertain than it is
difficult to implement.
2. Clear: Policy must be unambiguous. It should avoid use of jargons and connotations. There
should be no misunderstandings in the policy.
3. Reliable / Uniform: Policy should be uniform enough so that it can be
efficiently followed by subordinates.
4. Appropriate: Policy should be appropriate to the present organizational
goal.
5. Simple: A policy should be simple and easily understood by all in the
organization
6. Inclusive /Comprehensive : In order to have a wide scope policy should be
comprehensive.
7. Flexible: Policy should be flexible in operation and application. This does
not imply that policy should be altered always, but it should be wide in scope
so as to ensure that the line managers should use them in repetitive and
routine scenario.
8. Stable: Policy should be stable enough else it would lead to indecisiveness
and uncertainity in the mind of those who seek guidance from them.
 Difference between Policy and Strategy
Policy Strategy

• It is blue print of the organizational • Strategy is concerned with those

activities which are repetitive and Organizational decisions which have
routine in nature. not been dealt or faced before in the
• Policy formulation is the organization.
responsibility of top management • Strategy formulation is typically done by
• Policy deals with routine/ daily middle management
activities essential for effective and • Strategy deals with strategic decisions
efficient running of the organization • Strategy is concerned mostly with
• Policy is concerned with both actions
thought and actions • Strategy is the methodology used to
• A Policy is what is or what is not to achieve the target as prescribed by a
be done business policy.
Strategic Decision Making

It is the process of charting a course based on long-term goals and longer term
vision.

Strategic decision making process involves the following steps

1. Objectives to be achieved are determined.
2. Alternative ways of achieving the objectives are identified
3. Each alternative is evaluated in terms of its objective achieving ability.
4. The best alternative is chosen.

The end result of the above process is a decision or a set of decisions to be implemented.

Issues in Strategic Decision making

Being a complex process, strategic decision making is difficult to perform. It is

incomprehensible and cannot be analyzed and explained easily. It is difficult to have a
theoretical model for strategic decision making but still some issues associated with
it are as follows:
1.Criteria for Decision making: The process requires objective setting which serve as
yardsticks to measure the efficiency and effectiveness of the decision making process.
There are three major view points regarding criteria for decision making

• Maximization : Objectives are set at the highest point. The behavior of the firm is
oriented towards achieving these objectives and in the process maximizing its returns.
• Satisficing: This envisages setting objectives in such a manner that a firm an
achieve them realistically, through a process of optimization.
• Incrementalism: The process of decision making , which includes objective setting is
essentially a continually-evolving political consensus building. Through such an
approach the firm moves towards its objectives in small , logical and incremental
steps

2. Rationality in Decision making: It means exercising a choice from among various

alternative courses of action in such a way that it leads to the achievement of objectives in
the best possible manner.
3. Creativity in Decision Making: Creativity as a trait is normally associated with the
individuals and is sought to be developed through techniques such as brainstorming. A
creative strategic decision making process may considerably affect the search for
alternatives where novel and untried means may be looked for and adopted to achieve
organizational objectives in an exceptional manner.

4. Variability in Decision Making : It suggests that every situation is unique and there are
no set formulas that can be applied in strategic decision making

5. Person related factors in decision making: There are host of person related factors that
play a role in decision making. Some of the factors like age, education, intelligence, personal
values, cognitive style, risk taking capability, creativity play an important and positive role in
decision making.

6.Individual vs group Decision making: Individuals such as chief executives or

entrepreneurs play the most important role as strategic decision makers. But as organization
becomes bigger and more complex and face an increasingly turbulent environment,
individuals come together in a groups for the purpose if strategic decision making.
 Corporate Governance

NFCG( National Foundation for Corporate Governance ) has been set

up by Ministry of corporate affairs of the government of India in
partnership with the Confederation of Indian Industry, the Institute of
Company secretaries of India and the Institute of Chartered
accountants of India, for promoting better corporate governance
practices in India.

“Corporate governance is the system of rules, practices and

processes by which a company is directed and controlled.”
Corporate Governance
Corporate governance refers to the structures, policies, and
processes through which companies are directed and controlled.
It involves a set of relationships between a company’s
management, its board, shareholders, and other stakeholders,
aiming to ensure the corporate objectives align with the interest of
all stakeholders.
Effective corporate governance provides a company with a
framework to achieve sustainable growth, manage risks, and
enhance stakeholder trust. At its core are principles such as
accountability, fairness, transparency, and responsibility.
Features of Corporate Governance

 Corporate Governance identifies who has power and accountability,

and who makes decisions. It is, in essence, a toolkit that enables
management and the board to deal more effectively with the challenges of
running a company.

 Governance at a corporate level includes the processes through which

a company’s objectives are set and pursued in the context of the
social, regulatory and market environment. It is concerned with practices
and procedures for trying to make sure that a company is run in such a way
that it achieves its objectives, while ensuring that stakeholders can have
confidence that their trust in that company is well founded.
Features of Corporate Governance
Corporate governance ensures that businesses have
appropriate decision-making processes and controls in
place so that the interests of all stakeholders
(shareholders, employees, suppliers, customers and the
community) are balanced.
Corporate governance has a broad scope. It includes both
social and institutional aspects.It is all about balancing
individual and societal goals, economic as well as social
goals.
Benefits of Corporate governance:
• Good corporate governance ensures corporate success and
economic growth.
• It lowers the capital cost.
• It lays the positive impact on the share price.
• Strong corporate governance maintains investors confidence, as a
result of which company can raise capital effectively and efficiently.
• It provides proper inducements to the owners as well as managers
to achieve objectives that are in interests of the shareholder and
the organization.
• It helps in brand formation and development
• Good corporate governance reduces wastage, corruption, risk and
mismanagement.
 Challenges of Corporate governance
The main problem with corporate governance is that it doesn't stand alone;
it has to work in conjunction with a company's mission and values
statement to give directors and stakeholders a clear guide about how they
should behave. There are several problems that a business might struggle with
as follows:

 Conflicts of interest: A conflict of interest occurs when a controlling member

of the company has other financial interests that could influence his decision-
making or conflict with the objectives of the company.
For example, a board member of a wind turbine company who owns a significant
amount of stock in an oil company is likely to be conflicted, because she has a
financial interest in not representing the advancement of green energy. Conflicts
of interest erode the trust of stakeholders and the public and potentially open the
business up to litigation.
Governance standards: A board can have all the equitable rules and
policies it likes but if it can't propagate those standards throughout the
business, what chance does the company have?
 Resistant managers can subvert good corporate governance at the operational
level, leaving the business exposed to state or federal law violations and
reputational damage with stakeholders. A policy of corporate governance needs
a clear enforcement mechanism, applied consistently, as a check and balance
against the actions of executive staff.
Short-termism: Good corporate governance requires that boards
should have the right to manage the company for the long-term, to
create sustainable value.
This is problematic for a couple of reasons.
 First, the rules governing a listed company's performance
tend to prioritize short-term performance for the benefit of
shareholders. Managers face an unrelenting pressure to meet
quarterly earnings targets, since dropping the earnings per share
by even a cent or two could hit the company's stock price.
 The second problem is that directors only sit on boards for a
brief period and many face re-election every three years.
While this has some benefits – there's an argument that directors
cannot be considered independent after 10 years of service –
short tenures could rob the board of long-term oversight and
critical expertise.
Diversity: It's common sense that boards should have an
obligation to ensure the proper mix of skills and perspectives in
the boardroom, but few boards take a hard look at their
composition and ask whether it reflects the age, gender, race and
stakeholder composition of the company.

• For example, should workers be given a place on the board? This

is the norm across most of Europe and evidence suggests that
worker participation leads to companies having lower pay
inequalities and a greater regard for their workforce. It's a
balancing act, however, as companies may focus on protecting
jobs instead of making tough decisions.
Accountability Issues: Under the current model of corporate
governance, the board is positioned squarely between shareholders
and management. Authority flows from the shareholders at the
top and accountability flows back the other way. In other words,
it's shareholders – not stakeholders generally – who are most
protected by corporate governance.

While it's certainly not undesirable to have the actions of the board
checked by shareholders in this way, the future of corporate
governance is perhaps more holistic. Companies can and do have
ethical obligations to their communities, customers, suppliers,
creditors and employees, and must take care to protect the interests
of non-owner stakeholders in the company code of conduct.
Importance of corporate governance
 Minimize Agency Problems
• Agency is when one entity acts as another entity’s agent. In companies,
the management acts on behalf of the shareholders, which is a type of
agency relationship. In some instances, the board of directors may not
act in the shareholders’ best interests. Corporate governance tackles that
problem by ensuring the objectives of both the shareholders and the
management are in line.
 Protect Stakeholders
• Apart from minimizing agency problems, corporate governance protects a
company’s other stakeholders as well. These may include both internal
and external stakeholders. Corporate governance defines the relationship
that companies must have with their stakeholders. By doing so, it
ascertains that each stakeholder’s rights are clear for companies to fulfill.
 Attract Investors
Corporate governance provides companies with a system for best practices. Through this, it
ensures a company’s operations are efficient. As mentioned, it also protects shareholders’ and
other stakeholders’ rights. When investors look for companies to invest in, they will always
prefer companies with good corporate governance. This way, corporate governance can attract
new investors.
 Promotes Accountability
A good corporate governance system ensures that companies follow a sound, transparent, and
credible financial reporting system. This way, corporate governance helps promote
accountability in a company. This accountability can also help in the above aspects, helping
attract more investors or protect stakeholders.
 Mitigate Risks
Corporate governance also focuses on risk mitigation for companies. One of the areas that help
with this is the audit committee or risk committee. These committees are responsible for
managing and mitigating a company’s risks from various sources. By defining such committees,
corporate governance ensures that the risks that companies face are minimal.
 Ensure Compliance
Companies are complex business structures. Therefore, they must comply with various rules
and regulations. Corporate governance also applies to this area as it ensures companies
meet these obligations. Compliance with rules and regulations is also a part of a company’s
risk management process. By complying with rules and regulations, companies can avoid
any unnecessary issues.
 Improve Efficiency
Corporate governance also helps companies maximize operational and organizational
efficiency. Many companies have ineffective governance, which also translates into below-
average performance. Corporate governance lays the foundation for how a company handles
its operations, uses its resources, applies innovation, and implements corporate strategies.
Through these, it also improves a company’s efficiency.
 Ensure Corporate Social Responsibility
One area that corporate governance introduces is corporate social responsibility. It usually
applies to how companies interact with the environment in which they operate. Corporate
social responsibility enables companies to consider the impact their operations have on the
environment. Similarly, it promotes sustainability and social responsibility.
Corporate Social Responsibility
• Corporate social responsibility (CSR) is a self-regulating business
model that helps a company be socially accountable—to itself, its
stakeholders, and the public. By practicing corporate social
responsibility, also called corporate citizenship, companies can be
conscious of the kind of impact they are having on all aspects of
society, including economic, social, and environmental.
• To engage in CSR means that, in the ordinary course of business,
a company is operating in ways that enhance society and the
environment, instead of contributing negatively to them.
• Through CSR programs, philanthropy, and volunteer efforts,
businesses can benefit society while boosting their brands.
Corporate social responsibility

India is the first country in the world to make CSR mandatory ,

following an amendment in the company Act 2013, in April
2014.Business can invest their profits in areas such as
education, hunger, poverty, gender equality etc.

The amendment notified in schedule vii of the companies act

notifies that a company with a net worth of US$ 73M ( Rs. 4.96
billion) or more or an annual turnover of US$ 146 million(Rs.
9.92 billion)or more or a profit of US $ 732654 (Rs. 50 million) or
more during a financial year shall earmark their 2 % of average
of net profit of three years towards their CSR activities.
As important as CSR is for the community, it is equally valuable for a company. CSR activities can help
forge a stronger bond between employees and corporations, boost morale, and help both employees and
employers feel more connected with the world around them.
For a company to be socially responsible, it first needs to be accountable to itself and its shareholders.
Often, companies that adopt CSR programs have grown their business to the point where they can give
back to society. Thus, CSR is typically a strategy that's implemented by large corporations. After all, the
more visible and successful a corporation is, the more responsibility it has to set standards of ethical
behavior for its peers, competition, and industry.

Features of CSR
• Corporate social responsibility is a business model in which companies make a concerted effort to
operate in ways that enhance rather than degrade society and the environment.
• CSR helps both society and the brand image of companies.
• Corporate responsibility programs are a great way to raise morale in the workplace.

In 2010, the International Organization for Standardization (ISO) released ISO 26000, a set of voluntary
standards meant to help companies implement corporate social responsibility. Unlike other ISO standards,
ISO 26000 provides guidance rather than requirements because the nature of CSR is more qualitative than
quantitative, and its standards cannot be certified.6
ISO 26000 clarifies what social responsibility is and helps organizations translate CSR principles into
practical actions. The standard is aimed at all types of organizations, regardless of their activity, size, or
location. And, because many key stakeholders from around the world contributed to developing ISO 26000,
this standard represents an international consensus.
 Problems and prospects concerning corporate social
responsibility
1. Interaction of business with a society at a large

2. Issues of environment and packages of financial statements

3. Transparency and accountability

4. Stock markets and social or environmental disclosures

5. Accounting and sustainability

6. Social and green Accounting

7. Environmental issues and auditing practices

8. Environmental influence on corporate , managers and accountants

9. Accounting education
Example of Corporate Social Responsibility

Starbucks has long been known for its keen sense of corporate social responsibility and commitment
to sustainability and community welfare. According to the company, Starbucks has achieved many of
its CSR milestones since it opened its doors. According to its 2020 Global Social Impact Report,
these milestones include reaching 100% of ethically sourced coffee, creating a global network of
farmers and providing them 100 million trees by 2025, pioneering green building throughout its
stores, contributing millions of hours of community service, and creating a groundbreaking college
program for its employees.
Starbucks' goals for 2021 and beyond include hiring 5,000 veterans and 10,000 refugees, reducing
the environmental impact of its cups, and engaging its employees in environmental leadership.
The 2020 report also mentioned how Starbucks planned to help the world navigate the coronavirus
pandemic. The company's response to the pandemic focuses on three essential elements: prioritizing
the health of its customers and employees, supporting health and government officials in their
attempts to mitigate the effects of the pandemic, and showing up for communities through
responsible and positive actions.

Assignment :Identify the csr practices of Ben & Jerry’s ice-cream

Environmental scanning

Unit -2
 Business environment and Importance
The environment for any organization can be defined as the aggregate of all conditions, events, and
influences that surround and affect it.

Business environment is complicated and active in nature and has a far- reaching impact on the survival
and growth of the business.
• Determining Opportunities and Threats
• Giving Direction for Growth
• Continuous Learning
•Image Building
• Meeting Competition
• Identifying Firm’s Strength and Weakness

Environmental Influences of Business-

The natural environment has influenced business in a variety of ways. Environmental influence has
captured the attention of companies and consumers worldwide on how products and services are
delivered, and to work with the natural environment instead of slowly destroying it. Businesses that ignore
or underestimate environmental influence will eventually fail. Businesses must continuously monitor and
adapt to survive the environmental threats as well as identify, appraise, and respond to various
opportunities in the environment.
Business decisions are influenced by two sets of factors
• Internal factors (The Internal Environment
• External Factors( The External Environment)

Business Environment presents two challenges to the enterprise

• The challenge to combat the environmental threats
• Exploit the business opportunities

Problems in Understanding the Environmental. Influences:-

• The environment encapsulates different influence and diversity which makes strategic decision making
difficult.
• Uncertainty due to fast technological and global change makes it difficult to understand future external
influences on organization.
• Coping with business and environmental complexities is based on ever changing environment. The
strategic management task is to simplify and achieve useful and usable level of analysis without bias.
 Environmental Appraisal

Environmental Analysis is one of the first steps in Strategic Management

• The process by which strategists monitor the economic, governmental/legal, market / competitive,
supplier / technological, geographic, and social settings to determine opportunities and threats to their
firms”
• “Environmental diagnosis consists of managerial decisions made by analyzing the significance of
data (opportunities and threats) of the environmental analysis”

The environmental impact is studied on the basis of its division into internal and external factor
Internal environment:
The internal environment refers to all factors within an organization that impacts strengths or cause
weaknesses of a strategic nature.
Strength is an inherent capacity which an organization can use to gain strategic advantage. For eg.
Good reputation among customers, resources, assets, people experience, knowledge, data and
capabilities.
Weakness is an inherent limitation or constraint which creates strategic disadvantages. For eg. Gap in
capabilities, financial deadlines, low morale and overdependence on a single product line.
External environment
The external environment includes all the factors outside the organization which provides opportunities
or pose threat to the organization.

Opportunity is a favorable condition in the organizations environment which enables it to consolidate and
strengthen its position. For eg. Economic boom, favorable demographic shifts, arrival of new
technologies, loosening of regulations, favorable global influences and unfulfilled customer needs.

Threat is an unfavorable condition in the organization’s environment which creates risk or damage to the
organization. For eg. Economic downturn, demographic shifts, new competitors, unexpected shift in
consumer tastes, demanding new regulations, unfavorable political or legislation and loss of key staff.

Factors affecting the environmental appraisal

Under same environmental conditions no two strategists or organizations apprise the environment in a
similar manner. The factors that affect the environmental appraisal are as follows

• Strategist related factors

• Organization related factors
• Environment related factors
 ETOP of Motor-Bicycle company
Environmental Sectors Nature of Impact of each sector
Impact
Social (↑) Customer preference for motorbike, which are fashionable,
easy to ride and durable.
Political (→) No significant factor.

Economic (↑) (↑) Growing affluence among urban consumers; Exports

potential high.
Regulatory (↑) (↑) Two Wheeler industry a thrust area for exports.

Market (↑) (↑) Industry growth rate is 10 to 12 percent per year, For
motorbike growth rate is 40 percent, largely Unsaturated
demand.
Supplier (↑) (↑) Mostly ancillaries and associated companies supply parts
and components, REP licenses for imported raw materials
available.
Technological (↑) (↑) Technological up gradation of industry in progress. Import
of machinery under OGL list possible.
The resources, behavior, strengths, weaknesses, synergistic effects and the competencies of an
organization determine the nature of its internal environment.

Internal Factors
The conditions and forces that exist within the organization are called the internal environment factors of
an organization. Internal environment factors portray an organization’s ‘in-house’ situations. An
organization has full control over these situations. Unlike the external environment, the internal
environment is much more directly controllable. It includes various internal factors such as resources,
owners/shareholders, the board of directors, employees and trade unions, goodwill, and corporate culture.
These internal environment factors are detailed out below.

1. Resources of the organization:

The resources of the organization are important for internal environment factors. It can be discussed
under five broad heads. Such as:-
• Physical Resources: Physical resources include land and buildings, warehouses, all kinds of
materials, equipment, and machinery. Examples are office buildings, computers, furniture, fans, and air
conditioners.

• Human Resources: Human resources embrace all association employees from the top to the lowest
level of the association. Examples are marketing executives in a manufacturing company, teachers in a
university, and manual workers in a factory.
• Financial Resources: Financial resources embrace capital used to sponsor the organization’s processes,
counting working capital. Examples are reserve investment by funds, profits, owners, and revenues received.

• Informational Resources: Informational resources encompass ‘usable data needed to make effective
decisions.’ Examples are sales forecasts, price lists from suppliers, and market-related data employee
profiles and production reports.

• Technological Resources: There different technological resources are automated systems, applications
software

2. Owners/Stockholders/Shareholders:
Owners or stockholders or shareholders of an organization may be individuals in the sole proprietorship
business, partners in a partnership firm, shareholders or stockholders in a limited company, or members in a
cooperative society. In public enterprises, the government of the country is the owner. Whom so ever the
owners, they are an integral part of the origination’s internal environment factors. Owners perform a significant
role in influencing the activities of the business. This is the cause why managers should take more overhaul of
the owners.
3. Board of Directors: In our state, every single registered corporation (public or private limited
company) must have a board of directors as per the Companies Act, 1994. The number of directors on
the board is stipulated in the company’s Articles of Association. They are accountable for top-level
approach making and providing guidelines to the company. They are strategic decision-makers and
planners. They monitor and oversee the general functioning of the company. Certain organizations have
not existed a board of directors. Rather they have created the ‘board of trustees’ (such as in a charitable
organization, a hospital, or a university) or ‘Managing Committee’ (such as in a non-government school
or NGO) or a Governing Body (such as in a college).

4.Organization’s Culture: The culture of an organization is viewed as the basis of its internal
environment factors. Organizational (or corporate) culture significantly influences employee behavior.
Culture is imperative to every single employee, counting managers who effort into the organization.
Strong culture aids a firm to reach its goals better than a firm having a poor culture. Culture in an
organization advances and ‘blossoms’ over several years, initiating from the founder’s practices (s).
Since culture is a vital internal environmental apprehension for an organization, managers need to
recognize its influence on organizational activities.

5.Organization’s image/ goodwill: The status of an organization is an actual cherished intangible

asset. Goodwill or high reputation develops a promising image of the organization in the minds of the
public (so to say, in the customers’ minds). ‘No-Reputation’ cannot create any positive image. A negative
image abolishes the organization’s efforts to appeal to customers in a competitive sphere.
 SWOT ANALYSIS
SWOT Analysis leads to strategy formulation
The strategists in an organization assess the organization’s internal strengths and weaknesses. You also
evaluate its environmental opportunities and threats. SWOT analysis facilitates a firm to formulate
appropriate strategies in the context of the firm’s vision and mission. The strategies help in accomplishing
the firm’s vision or mission. These are gained by exploiting its strengths and opportunities as well as by
overcoming its threats and correcting.
1. Strength
The first indicator of SWOT analysis is a strength. Strength is something that a company is good at doing. It
is a distinctive competence of an organization that enables it to achieve a particular advantage in the
marketplace. Any resource, skill, or other advantage relative to competitors can be called strength. Anything
can be a strength if it gives the organization enhanced competitiveness. Power can take the produce of an
expertise/skill, valuable human assets, valuable physical assets, fruitful alliances, valuable intangible assets,
etc. adequate physical facilities such as land and building or machinery, sufficient financial resources,
trained and qualified marketing people, well-managed information systems, able top leadership and right
image of the organization are some examples of internal strengths.

2. Weakness
The second indicator of SWOT analysis is a weakness. Unfortunate situation and lack of organization are
called weakness. Weakness places the organization at a drawback. Weakness indicates a deficiency or
limitation, or constraint. Any fault affects an organization’s performance adversely. An organization’s internal
weakness can relate to the following things. For instance:-
• Competitively essential skills;
• A lack of competitively valuable physical, organizational or intangible assets
• Weak/missing competitive capabilities in critical areas.
Examples of internal weaknesses include inadequate physical and financial resources, untrained
executives, strained labor-management relations, poor leadership at the top, use of old technology that
hinders production, and the like.
3. Opportunity
Opportunity is the third one of SWOT analysis. An opportunity is something that an organization may grab for
growth and profitability. It is a favorable condition in an organization’s external environment. An opportunity
arises when a business can benefit from circumstances in its outer atmosphere to articulate and implement
strategies, That enable it to earn higher profits. Opportunities offer essential avenues for profitable growth and
indicate the potential for competitive advantage.
Examples of opportunities include opening up new markets in other countries, deregulation policy of a
government, reducing taxes on imported raw materials, higher tax rebates on firm’s income, government
subsidy, increasing demand for products among customers, and so forth. As an instance, we can cite the case of
deregulation of the airline industry in Bangladesh. Deregulation is a significant opportunity for private airlines
such as GMG and United Airlines to serve those routes that Bangladesh Biman does not help. However, this can
be a threat to Biman. So, the opportunity for one organization can be a strategic threat to another organization.
4. Threat
The final one of SWOT analysis is a threat. A warning is something a firm may expose to in the external
environment that may cause suffering in growth or profitability. It is an unfavorable trend in the external
environment. A threat arises when circumstances in the outside environment jeopardize a firm’s business’s
reliability and viability. Certain factors in a firm’s external environment may pose threats to its profitability and
competitive well-being. Frequent advances in technology, foreign competitors’ entry, smuggling of products
through the border, cheap imported products, civil war, and unstable political situations in the country, frequent
changes of government regulations, and uncontrolled law and order situation are typical examples of threat.
 Importance of SWOT Analysis

• It evaluates the strengths, weaknesses, opportunities, and threats of the company and concludes the
attractiveness of its causes.

• It points out the need for strategic action.

• The strengths are identified through SWOT Analysis. It can use as the cornerstones of strategy and the basis
on which to build competitive advantages.

• SWOT analysis enables the company to build its strategy around what the company does best based on its
strengths. It should avoid procedures whose success depends heavily on areas where the company is weak.

• The results of the SWOT analysis help correct competitive weaknesses that make the company vulnerable.

• Based on the opportunities identifies through SWOT analysis. Managers can aim their strategies at pursuing
opportunities well-suited to the company’s capabilities and provide a defense against external threats.
 VRIO – Framework

American management professor in 1991Jay B. Barney developed the so-called

VRIO Framework or VRIO Analysis. Jay called his original framework, VRIN. In
1995, in his later work, he introduced VRIO framework as an improvement of VRIN
model. The VRIO Analysis is perfectly suited for the evaluation of the use of
company resources.

The VRIO framework is a tool for identifying the competitive advantages of an

organization (if they have any). It not only helps to only identify competitive
advantages in our own organization but turn those competitive advantages into
sustained competitive advantages. Usually, companies possess various kinds of
resources and capabilities. For example, such resources could be financial,
human, organizational, physical, or technological in nature. The VRIO analysis is
an internal analysis tool that helps determine the quality and usefulness of a firm’s
resources and capabilities.
Valuable Hard to Imitate
When a resource is valuable, it's providing Resources are hard to imitate if they are extremely
the organization with some sort of benefit. expensive for another organization to acquire
However, a resource that is valuable and them. A resource may also be hard for an
doesn't fit into any of the other dimensions of organization to imitate if it's protected by legal
the framework, is not a competitive means, such as patents or trademarks. Resources
advantage. An organization can only achieve are considered a competitive advantage if they're
competitive parity with a resource that is valuable, rare, and hard to imitate. However,
valuable and neither rare nor hard to imitate. organizations that aren't organized to fully take
advantage of the resource, may mean the
Rare resource is an unused competitive advantage.
A resource that is uncommon and not
possessed by most organizations is rare. Organized to Capture Value
When a resource is both valuable and rare, An organization's resource is organized to capture
you have a resource that gives you a value only if it is supported by the processes,
competitive advantage. The competitive structure, and culture of the company. A resource
advantage achieved from a resource that is that is valuable, rare, hard to imitate, and
both valuable and rare is usually short lived organized to capture value is a long-term
though. Competitors will quickly realize and competitive advantage. A resource can not confer
can imitate the resource without too much any advantage for a company if it’s not organized
trouble. Therefore it's only a temporary to capture the value. Only a firm that is capable to
competitive advantage. exploit valuable, rare, and imitable resources can
achieve sustained competitive advantage.
Resources may be tangible or intangible in nature and generally fall into one of the following categories:

Financial Resources Material Resources

Money Raw materials
Shares Machinery Equipments
Bond Facilities
Debentures Equipments

Human Resources Non-Material Resources

People skills Patents
Knowledge Brand name
People Intellectual property
Categorize resources into one of the following groups: competitive parity, temporary competitive
advantage, unused competitive advantage, or long-term competitive advantage.
After categorizing the resources into the four categories, we have a good understanding of where our
competitive advantages lie, and whether they'll be short or long-term advantages.
Analyzing Resources

With the resources categorized through the VRIO framework, we can now start to
analyze each.
•Are there any competitive implications?
•Is there a potential for improvement in certain resources?

The aim is to find the resources that have the potential to move from their current
category into a higher one. For example, an organization may have a resource that
is valuable and rare, such as a certain invention they created. They deem their
invention a Temporary Competitive Advantage as per the VRIO analysis. The
organization comes to this conclusion because they decide it wouldn't be difficult or
expensive for a competitor to imitate the invention if they wanted to.
Upon analysis, the organization sees an opportunity to move their Temporary
Competitive Advantage to a higher category. After some analysis, they come to the
conclusion that if they can obtain a patent for their invention, the resource would
then become very difficult for competitors to imitate. The resource would then enter
a higher category, as it is valuable, rare, and hard to imitate.
Transforming Competitive Advantages into Sustainable Competitive Advantages
As previously mentioned, a resource that is a competitive advantage is not a guarantee of value
provided to the organization, the resource may be unused by the organization, or it may be only a
temporary advantage. What organizations really need to create is a sustainable competitive
advantage. However, creating this is much easier said than done. So now that we've categorized our
resources and analyzed those with potential, where to next?
The category that usually poses the biggest potential for improvement is the Unused Competitive
Advantage Category. The resources are already competitive advantages, they only lack the
organization required to fully utilize them and gain value from them. This is where your strategic plan
comes into play. As mentioned, resources in the Unused Competitive Advantage category don't have
the support, processes, and culture in place to completely utilize their value. Developing a strategic
plan that takes these unused competitive advantages into account and works to support these
resources through strategic management will allow companies to transform their resources into
sustained competitive advantages. A strategic plan will align the processes, people, and structure
needed to support these resources and turn them into sustainable competitive advantages.
By no means is this an easy or quick solution. Developing a good strategic plan that exploits your
unused competitive advantages is only the beginning, the organization then needs to manage and
track the strategy to ensure its successful execution.
 PESTEL Analysis

Political Factors
These are all about how and to what degree a government intervenes in the economy. This can include –
government policy, political stability or instability in overseas markets, foreign trade policy, tax policy, labor law,
environmental law, trade restrictions and so on.
It is clear from the list above that political factors often have an impact on organiZations and how they do
business. Organizations need to be able to respond to the current and anticipated future legislation, and adjust
their marketing policy accordingly.
Economic Factors
Economic factors have a significant impact on how an organization does business and also how profitable they
are. Factors include – economic growth, interest rates, exchange rates, inflation, disposable income of
consumers and businesses and so on.
These factors can be further broken down into macro-economical and micro-economical factors. Macro-
economical factors deal with the management of demand in any given economy. Governments use interest rate
control, taxation policy and government expenditure as their main mechanisms they use for this.
Micro-economic factors are all about the way people spend their incomes. This has a large impact on B2C
organizations in particular.

Social Factors
Also known as socio-cultural factors, are the areas that involve the shared belief and attitudes of the population.
These factors include – population growth, age distribution, health consciousness, career attitudes and so on.
These factors are of particular interest as they have a direct effect on how marketers understand customers and
what drives them.

Technological Factors
We all know how fast the technological landscape changes and how this impacts the way we market our
products. Technological factors affect marketing and the management thereof in three distinct ways:
New ways of producing goods and services
New ways of distributing goods and services
New ways of communicating with target markets
Environmental Factors
These factors have only really come to the forefront in the last fifteen years or so. They have become
important due to the increasing scarcity of raw materials, pollution targets, doing business as an ethical and
sustainable company, carbon footprint targets set by governments (this is a good example where one factor
could be classed as political and environmental at the same time). These are just some of the issues
marketers are facing within this factor. More and more consumers are demanding that the products they buy
are sourced ethically, and if possible from a sustainable source.

Legal Factors
Legal factors include - health and safety, equal opportunities, advertising standards, consumer rights and laws,
product labelling and product safety. It is clear that companies need to know what is and what is not legal in
order to trade successfully. If an organization trades globally this becomes a very tricky area to get right as
each country has its own set of rules and regulations.
 Structured Conduct Performance Model

The structure conduct performance model refers to an analytical framework that explains the connection
between economic or market structure, market conduct and its performance. This is a concept or model in
Industrial Organization Economics that examines and describes the interaction between organization structure
(environment), organizational conduct ( behavior) and organizational performance (achievement).

This model was first published in 1933 by two economists Edward Chamberlin and Joan Robinson before it
was later developed by Joe S. Bain in 1959.

The SCP model examines the interplay between three major components of an industrial organization which
are structure, conduct and performance. SCP paradigm was considered as a pillar of the industrial organization
theory because it serves as an analytical framework for analyzing the major elements of market. Market
structure and conduct are major determinants of market performance.

There are three elements or variables of market that are considered important as they influence market
behaviors exhibited by both buyers and sellers. These elements are structure, conduct and performance.

Structure - This refers to the construction, formation and the makeup of an industrial organization. It also
describes the kind of environment in which an organization or market operates.
Conduct - This describes the behavior or comportment of buyers and sellers to the structure of a market. It also
refers to the way buyers and sellers interact with each other and the way they behave.

Performance - This refers to the achievement or accomplishment or results of a particular market or industry.
Performance variables that are considered in the market include product quantity, product quality, and production
efficiency.

Limitations :
•It is often difficult to predict market structure due to the effects of the behaviors of buyers and sellers.
•The multiple definitions and extension of markets and its structure make an inquiry into this paradigm more
complex.

Some studies also suggest that the structure of the market will always be determined by the nature of the
product and the technology available.

Importance
•The SCP model is very useful in analyzing a non-changing industry.
•It is also useful in the prediction of the effects of external shock on an industry’s profitability.
•It is useful in the analysis of the response of an industry's structure to price conduct and vice versa.
•It studies whether structure drives performance and also influence conduct.
•Also, any inquiry into structure, conduct and performance of an industry or a market makes the SCP model
useful.
•This model can be used to justify consolidation in the industry.
• It also helps in the analysis of the effects of a more attractive industry structure on the performance of the
industry.

This is an example of how to analyze the structure, conduct and performance using the SCP model.

•First is a highlight in structure which includes an analysis of the Industry concentration (Herfindahl index),
minimum efficient scale, the market share pattern and the ownership of major companies in the industry.

•Second is a highlight in conduct which reflects why industries compete in prices, services and product
innovation. It also looks at the stability of the conduct and different strategies displayed by players in the
market. The notion of good competitors and bad competitors are also explored.

•Third is a highlight in performance such as return on capital employed, economic profit, shareholders returns
and others. It also entails an analysis of factors responsible for certain performances in the industry.
 Porter’s Five Forces Model
 Porter's Five Forces is a model that identifies and analyzes five competitive forces that
shape every industry and helps determine an industry's weaknesses and strengths. Five
Forces analysis is frequently used to identify an industry's structure to determine corporate
strategy.
 Porter's model can be applied to any segment of the economy to understand the level of
competition within the industry and enhance a company's long-term profitability.
 Porter's Five Forces is a business analysis model that helps to explain why various industries are
able to sustain different levels of profitability. The model was published in Michael E. Porter's
book, "Competitive Strategy: Techniques for Analyzing Industries and Competitors" in 1980.1
 The Five Forces model is widely used to analyze the industry structure of a company as well as
its corporate strategy.
 Porter identified five undeniable forces that play a part in shaping every market and industry in the
world, with some caveats. The five forces are frequently used to measure competition intensity,
attractiveness, and profitability of an industry or market.
Value Chain Analysis.

Resource-Based View
According to resource-based theory, organizations that own “strategic resources” have
important competitive advantages over organizations that do not. Some resources, such as cash
and trucks, are not considered to be strategic resources because an organization’s competitors
can readily acquire them. Instead, a resource is strategic to the extent that it is valuable, rare,
difficult to imitate, and organized to capture value.

Figure 4.2:
Southwest Airlines’s unique organizational culture is reflected in the customization of their
aircraft, such as the “Lone Star One” design.

Consider how Southwest Airlines’s organizational culture serves as a strategic resource.

Table 4.1 Resource-Based View: The Basics

Strategic Resource Expansion

Although the airline industry is extremely
VALUABLE resources aid in improving competitive, Southwest Airlines’s turns a profit
the organization’s effectiveness and virtually every year. One key reason for their
efficiency while neutralizing the success is a legendary organizational culture that
opportunities and threats of competitors. inspires employees to do their very best.

Southwest Airlines’s culture provides the firm

RARE resources are those held by few with uniquely strong employee relations in an
or no other competitors. industry where strikes, layoffs, and poor morale
are common.
 DIFFICULT-TO-IMITATE resources
Southwest’s culture arose from its very humble
often involve legally protected
beginnings and has evolved across decades.
intellectual property such as trademarks,
Because of this unusual history, other airlines
patents, or copyrights. Other difficult-to-
could not replicate Southwest’s culture, regardless
imitate resources, such as brand names,
of how hard they might try.
usually need time to develop fully.

The influence of Southwest’s organizational

ORGANIZED TO CAPTURE VALUE:
culture extends to how customers are treated by
Having in place the organizational
employees. Executives strongly encourage flight
systems, processes, and structure to
attendants to entertain passengers, like hiding in
capitalize on the potential of the
an overhead compartment. Processes related to
resources and capabilities of the firm to
passengers are infused with customer service
provide a competitive advantage.
attention and actions.

Important Points to Remember:

1. Resources such as Southwest’s culture that reflect all four qualities—valuable, rare,
difficult to imitate, and organized to capture value—are ideal because they can create
sustained competitive advantages. A resource that has three or less of the qualities can
provide an edge in the short term, but competitors can overcome such an advantage
eventually.
2. Firms often bundle together multiple resources and strategies (that may not be unique
in and of themselves) to create uniquely powerful combinations. Southwest’s culture is
complemented by approaches that individually could be copied—the airline’s emphasis
on direct flights, its reliance on one type of plane, and its unique system for passenger
boarding—in order to create a unique business model in which effectiveness and
efficiency is the envy of competitors.
3. Satisfying only one or two of the valuable, rare, difficult-to-imitate, organized to capture
value criteria will likely only lead to competitive parity or a temporary advantage.

Resources and capabilities are the basic building blocks that organizations use to create
strategies. These two building blocks are tightly linked—capabilities from using resources over
time.

Resources can be divided into two main types: tangible and intangible. While resources refer
to what an organization owns, capabilities refer to what the organization can do. More
specifically, capabilities refer to the firm’s ability to bundle, manage, or otherwise exploit
resources in a manner that provides added value and, hopefully, advantage over competitors.

Table 4.2 Resources and Capabilities

Resources
 Tangible resources are resources that can be readily seen, touched, and quantified. Physical assets such as
a firm’s property, plant, and equipment are considered to be tangible resources, as is cash.

Intangible resources are quite difficult to see, touch, or quantify. Intangible resources include, for example,
the knowledge and skills of employees, a firm’s reputation, and a firm’s culture. In a nod to Southwest
Airlines’ outstanding reputation, the firm ranks eighth in Fortune magazine’s 2018 list of the “World’s
Most Admired Companies.”

Capabilities

A dynamic capability exists when a firm is skilled at continually updating its array of capabilities to keep
pace with changes in its environment. Coca-Cola, for example, has an uncanny knack for building new
brands and products as the soft drink market evolves. Not surprisingly, this firm ranks among the top
twelve in Fortune’s “World’s Most Admired Companies” for 2020.

Resources and Capabilities

The tangibility of a firm’s resources is an important consideration within resource-based

theory. Tangible resources are resources that can be readily seen, touched, and quantified.
Physical assets such as a firm’s property, plant, and equipment, as well as cash, are considered
to be tangible resources. In contrast, intangible resources are quite difficult to see, to touch, or
to quantify. Intangible resources include, for example, the knowledge and skills of employees,
a firm’s reputation, brand name, exclusive rights to intellectual property, leadership traits of
executives, and a firm’s culture. In comparing the two types of resources, intangible resources
are more likely to meet the criteria for strategic resources (i.e., valuable, rare, difficult-to-
imitate, and organized to capture value) than are tangible resources. Executives who wish to
achieve long-term competitive advantages should therefore place a premium on trying to
nurture and develop their firms’ intangible resources.

Capabilities are another key concept within resource-based theory. An effective way to
distinguish resources and capabilities is this: resources refer to what an organization owns,
capabilities refer to what the organization can do (Table 4.2). Capabilities tend to arise over
time as a firm takes actions that build on its strategic resources. Southwest Airlines, for
example, has developed the capability of providing excellent customer service by building on
its strong organizational culture. Capabilities are important in part because they are how
organizations capture the potential value that resources offer. Customers do not simply send
money to an organization because it owns strategic resources. Instead, capabilities are needed
to bundle, to manage, and otherwise to exploit resources in a manner that provides value added
to customers and creates advantages over competitors.

Some firms develop a dynamic capability. This means that a firm has a unique ability to create
new capabilities. Said differently, a firm that enjoys a dynamic capability is skilled at
continually updating its array of capabilities to keep pace with changes in its environment.
Coca-Cola has an uncanny knack for building new brands and products as the soft-drink market
evolves. Not surprisingly, Coca-Cola ranks among the top twelve in Fortune’s “World’s Most
Admired Companies” for 2020.

VRIO: Four Characteristics of Strategic Resources

Resource-based theory can be confusing because the term resources is used in many different
ways within everyday common language. It is important to distinguish strategic resources from
other resources. To most individuals, cash is an important resource. Tangible goods such as
one’s car and home are also vital resources. When analyzing organizations, however, common
resources such as cash and vehicles are not considered to be strategic resources. Resources such
as cash and vehicles are valuable, of course, but an organization’s competitors can readily
acquire them. Thus an organization cannot hope to create an enduring competitive advantage
around common resources.

Southwest Airlines provides an illustration of resource-based theory in action. Resource-based

theory contends that the possession of strategic resources provides an organization with a
golden opportunity to develop competitive advantages over its rivals (Table 4.1). These
competitive advantages in turn can help the organization enjoy strong profits (Barney, 1991;
Wernerfelt, 1981).

A strategic resource is an asset that is valuable, rare, difficult to imitate, and organized to capture
value (Barney, 1991; Chi, 1994). A resource is valuable to the extent that it helps a firm create
strategies that capitalize on opportunities and ward off threats. Southwest Airlines’ culture fits
this standard well. Most airlines struggle to be profitable, but Southwest makes money virtually
every year. One key reason is a legendary organizational culture that inspires employees to do
their very best. This culture is also rare in that strikes, layoffs, and poor morale are common
within the airline industry. Southwest embraces a culture of fun for both its customers and
employees. Most other airlines do not have this philosophy.

Competitors have a hard time duplicating resources that are difficult to imitate. Some difficult
to imitate resources are protected by various legal means, including trademarks, patents, and
copyrights. Other resources are hard to copy because they evolve over time and they reflect
unique aspects of the firm. Southwest’s culture arose from its very humble beginnings. The
airline had so little money that at times it had to temporarily “borrow” luggage carts from other
airlines and put magnets with the Southwest logo on top of the rivals’ logo. Southwest is a “rags
to riches” story that has evolved across several decades. Other airlines could not replicate
Southwest’s culture, regardless of how hard they might try, because of Southwest’s unusual
history.

A resource is organized to capture value when the firm has organizational systems, processes,
and structure in place to capitalize on the resource for a competitive advantage. This may
provide bargaining power for the firm in the marketplace. A key benefit of Southwest’s culture
is that it leads employees to treat customers well, which in turn creates loyalty to Southwest
among passengers. This customer loyalty is why many passengers choose Southwest over other
airlines.
The key to using the Resource Based View is to evaluate a firm’s resources and capabilities
using the VRIO framework decision tree.

Figure 4.3: The

VRIO Framework

Note that the decision tree is used to assess resources and capabilities, NOT a firm’s products,
services, or the firm itself. The evaluation occurs within the industry of the firm being evaluated.
Using Southwest Airlines culture as the resource to evaluate with VRIO:
 1. Is Southwest’s culture valuable? If not, all the effort to develop it is a waste of resources
and a competitive disadvantage. If yes, go to number 2.
2. Is Southwest’s culture rare within the airline industry? If not, then this resource only
provides Southwest competitive parity. It does not help or hurt Southwest competitively.
If yes, go to number 3.
3. In the airline industry, is Southwest’s culture hard to imitate? If not then culture provides
Southwest with a temporary competitive advantage over its rivals, but competitors can
imitate it. If yes, go to number 4.
4. Has Southwest organized this resource of culture to capture value? If not, then it still
only provides a temporary competitive advantage. If yes, then Southwest’s culture is
providing a sustained competitive advantage.

For the company culture resource of Southwest Airlines, a yes can be answered for each of the
four steps, providing a sustained competitive advantage for this organization. As can be seen
from its exceptional organizational performance over many years when compared to other
airlines, VRIO shows that company culture is one reason why it is more successful than its
competitors.

Figure 4.4 The VRIO Framework Decision Matrix: Southwest’s Company Culture

Difficult to Organized to Competitive

Valuable? Rare?
imitate? capture value? Advantage

Sustained
Yes Yes Yes Yes Competitive
Advantage

As another example, what about Southwest Airlines’ capability to arrive on time at a much
higher rate than the industry average? What kind of competitive advantage, if any, does this
capability provide?

Capability: High on-time arrival

Figure 4.5 VRIO Analysis of On-Time Arrival Capability of Southwest Airlines

Difficult to Organized to Capture

Valuable? Rare? Competitive Advantage?
Imitate? Value?

Temporary Competitive
Yes Yes No
Advantage
In the case of on-time arrival capability, Southwest Airline enjoys a temporary competitive
advantage (the third line), but it is not that difficult for rivals to imitate this ability. In working
through the decision tree, once a no is obtained, there is no need to continue through the tree.

Ideally, a firm will its own resources, like Southwest’s culture, that embrace the four VRIO
qualities shown in Table 4.1. If so, these resources can provide not only a competitive advantage
but also a sustained competitive advantage—one that will endure over time and help the firm
stay successful far into the future. Resources that do not have all four qualities can still be very
useful, but they are unlikely to provide long-term advantages. A resource that is valuable and
rare but that can be imitated, for example, might provide an edge in the short term, but
competitors can eventually overcome such an advantage.

Figure 4.6 VRIO Analysis Worksheet

Organized to
Resource or Costly to Competitive
Valuable? Rare? capture
Capability Imitate? Implication
value?

Resource-based theory also stresses the merit of an old saying: the whole is greater than the
sum of its parts. Specifically, it is important to recognize that strategic resources can be created
by taking several strategies and resources that each could be copied and bundling them together
in a way that cannot be copied. For example, Southwest’s culture is complemented by
approaches that individually could be copied—the airline’s emphasis on direct flights, its
reliance on one type of plane, and its unique system for passenger boarding—to create a unique
business model whose performance is without peer in the industry.

On occasion, events in the environment can turn a common resource into a strategic resource.
Consider, for example, a very generic commodity: water. Humans simply cannot live without
water, so water has inherent value. Also, water cannot be imitated (at least not on a large scale),
and no other substance can substitute for the life-sustaining properties of water. Despite having
three of the four properties of strategic resources, water in the United States has remained cheap;
however, this may be changing. Major cities in hot climates such as Las Vegas, Los Angeles,
and Atlanta are confronted by dramatically shrinking water supplies. As water becomes more
and more rare, landowners in Maine stand to benefit. Maine has been described as “the Saudi
Arabia of water” because its borders contain so much drinkable water. It is not hard to imagine
 a day when companies in Maine make huge profits by sending giant trucks filled with water
south and west or even by building water pipelines to service arid regions.

Strategy at the Movies

That Thing You Do! [02:48]

How can the members of an organization reach success “doing that thing they do”? According
to resource-based theory, one possible road to riches is creating—on purpose or by accident—
a unique combination of resources. In the 1996 movie That Thing You Do!, unwittingly
assembling a unique bundle of resources leads a 1960s band called The Wonders to rise from
small-town obscurity to the top of the music charts. One resource is lead singer Jimmy
Mattingly, who possesses immense musical talent. Another is guitarist Lenny Haise, whose fun
attitude reigns in the enigmatic Mattingly. Although not a formal band member, Mattingly’s
girlfriend Faye provides emotional support to the group and even suggests the group’s name.
When the band’s usual drummer has to miss a gig due to injury, the door is opened for
charismatic drummer Guy Patterson, whose energy proves to be the final piece of the puzzle
for The Wonders.

Despite Mattingly’s objections, Guy spontaneously adds an up-tempo beat to a sleepy ballad
called “That Thing You Do!” during a local talent contest. When the talent show audience goes
crazy in response, it marks the beginning of a meteoric rise for both the song and the band.
Before long, The Wonders perform on television and “That Thing You Do!” is a top-ten hit
record. The band’s magic vanishes as quickly as it appeared, however. After their bass player
joins the Marines, Lenny elopes on a whim, and Jimmy’s diva attitude runs amok, the band is
finished and Guy is left to “wonder” what might have been. That Thing You Do! illustrates that
while bundling resources in a unique way can create immense success, preserving and
managing these resources over time can be very difficult.

The Wonders- That Thing You Do!

This video is the song “That Thing You Do!” by the Wonders.

You can view this video here: https://youtu.be/BJn-Jl2ZeQU.

Key Takeaway

 Resource-based theory suggests that tangible or intangible resources that are valuable,
rare, difficult to imitate, and organized to capture value best position a firm for long-
term success. These strategic resources can provide the foundation to develop firm
capabilities that can lead to superior performance over time. Capabilities are needed
to bundle, to manage, and otherwise to exploit resources in a manner that provides
added value to customers and creates advantages over competitors. The VRIO tool
can be used to determine if resources or capabilities are valuable, rare, difficult-to-
imitate, and organized to capture value, and thereby understand what type of
competitive advantage they offer to a firm.
Strategy Formulation
UNIT-3
 Business Strategy
Business strategy can be understood as the course of action or set of
decisions which assist the entrepreneurs in achieving specific business
objectives.
It is nothing but a master plan that the management of a company
implements to secure a competitive position in the market, carry on its
operations, please customers and achieve the desired ends of the
business.
In business, it is the long-range sketch of the desired image, direction and
destination of the organization. It is a scheme of corporate intent and action, which
is carefully planned and flexibly designed with the purpose of:
 Achieving effectiveness
 Perceiving and utilizing opportunities
 Mobilizing resources
 Securing an advantageous position
 Meeting challenges and threats
 Directing efforts and behavior
 Gaining command over the situation.
A business strategy is a set of competitive moves and actions that a business uses to
attract customers, compete successfully, strengthening performance, and achieve
organizational goals. It outlines how business should be carried out to reach the
desired ends.

Business strategy equips the top management with an integrated framework, to

discover, analyze and exploit beneficial opportunities, to sense and meet potential
threats, to make optimum use of resources and strengths, to counterbalance weakness.
 Levels Of Business Strategy
Corporate level strategy: It is a long-range,
action-oriented, integrated and comprehensive
plan formulated by the top management. It is
used to ascertain business lines, expansion and
growth, takeovers and mergers, diversification,
integration, new areas for investment and
divestment and so forth. These are based on the
company’s business environment and internal
capabilities. It also called as Grand Strategy.
Business Level Strategy: The strategies that relate to a particular business are
known as business-level strategies. It is developed by the general managers, who
convert mission and vision into concrete strategies. It is like a blueprint of the entire
business.

Functional level strategy: Developed by the first-line managers or supervisors,

functional level strategy involves decision making at the operational level concerning
particular functional areas like marketing, production, human resource, research and
development, finance and so on.
 Nature of Business Strategy
A business strategy is a combination of proactive actions on the part of
management, for the purpose of enhancing the company’s market position and
overall performance and reactions to unexpected developments and new
market conditions.
The maximum part of the company’s present strategy is a result of formerly
initiated actions and business approaches, but when market conditions take an
unanticipated turn, the company requires a strategic reaction to cope with
contingencies. Hence, for unforeseen development, a part of the business
strategy is formulated as a reasoned response.
 Corporate-Level Strategy
Features of Corporate Level Strategy

 Corporate Level Strategies is developed by the company’s highest level of

management considering the company’s overall growth and
opportunities in future.
 It describes the orientation and direction of the enterprise in the long run
and the overall boundaries which acts as the basis for formulating the
company’s middle and low-level strategies, i.e. business strategies
and functional strategies.
 While formulating corporate-level strategies, the company’s available resources
and environmental factors are kept in mind.
 It is concerned with the decisions regarding the two-way flow of company’s
information and resources between the various levels of management.

In better words, corporate-level strategy implies the topmost degree of strategic

decision making, which covers those business plans which are concerned with the
company’s objective, procurement and optimal allocation of resources and
coordination of business strategies of different units and divisions for satisfactory
performance.
 Classification
of
Corporate-Level Strategies
Stability Strategy
Stability is a critical business goal which is
required to defend the existing interest and
strengths, to follow the business objectives,
to continue with the existing business, to
keep the efficiency in operations, etc.
In the stability strategy, the firm continues
with its existing business and product
markets, as well as it maintains the current
level of endeavor as the firm is satisfied with
the marginal growth.
Expansion Strategy
Also called a growth strategy, wherein the company’s business is reevaluated so as to extend
the capacity and scope of business and considerably increasing the overall investment in the
business.
In the expansion strategy, the enterprise looks for considerable growth, either from the
existing business or product market or by entering a new business, which may or may not be
related to the firm’s existing business. Basically, it encompasses diversification, merger and
acquisitions, strategic alliance, etc.
Retrenchment Strategy
This is pursued when the company opts for decreasing its scope of activity or operations. In
retrenchment strategy, a number of business activities are retrenched (cut or reduced) so as to
minimize cost, as a response to the firm’s financial crisis. Sometimes, the business itself is
dropped by selling out or liquidation.
Therefore, areas where there is a problem is identified and reasons for those problems are
diagnosed, after that corrective or remedial steps are taken to solve those problems. So, when
the firm concentrates on the ways to reverse the process of decline, it is called a turnaround
strategy.
However, if it drops the loss-making venture or part of the company or minimizes the
functions undertaken, it is called a divestment or divestiture strategy. If nothing works, then
the firm may choose for closing down the firm, it is called a liquidation strategy.

Combination Strategy
In this strategy, the enterprise combines any or all of the three corporate strategies, so as to
fulfil the firm’s requirements. The firm may choose to stabilize some areas of activity while
expanding the other and retrenching the rest (loss-making ones).
The primary focus on corporate-level strategies is on the “directing” the managers on ‘how
to manage the scope of various business activities’ and ‘how to make optimum utilization of
firm’s resources (material, money, men, machinery), etc. on different business activities’
Divestment Strategy:
It is another form of retrenchment that includes the
downsizing of the scope of the business. The firm is
said to have followed the divestment strategy, when it
sells or liquidates a portion of a business or one or
more of its strategic business units or a major division,
with the objective to revive its financial position.

The divestment is the opposite of investment; wherein

the firm sells the portion of the business to realize cash
and pay off its debt. Also, the firms follow the
divestment strategy to shut down its less profitable
division and allocate its resources to a more profitable
one.
An organization adopts the divestment strategy only
when the turnaround strategy proved to be
unsatisfactory or was ignored by the firm.
Following are the indicators that mandate the firm to adopt this strategy:

 Continuous negative cash flows from a particular division

 Unable to meet the competition
 Huge divisional losses
 Difficulty in integrating the business within the company
 Better alternatives of investment
 Lack of integration between the divisions
 Lack of technological up-gradations due to non-affordability
 Market share is too small
 Legal pressures

Example: Tata Communications is the best example of divestment strategy. It has started the
process of selling its data center business to reduce its debt burden.
The Turnaround Strategy is a retrenchment strategy followed by an organization when it feels that
the decision made earlier is wrong and needs to be undone before it damages the profitability of the
company.
Simply, turnaround strategy is backing out or retreating from the decision wrongly made earlier and
transforming from a loss making company to a profit making company.
Now the question arises, when the firm should adopt the turnaround strategy? Following are certain
indicators which make it mandatory for a firm to adopt this strategy for its survival. These are:
 Continuous losses
 Poor management
 Wrong corporate strategies
 Persistent negative cash flows
 High employee attrition rate
 Poor quality of functional management
 Declining market share
 Uncompetitive products and services
Also, the need for a turnaround strategy arises because of the changes in the external environment Viz,
change in the government policies, saturated demand for the product, a threat from the substitute
products, changes in the tastes and preferences of the customers, etc.
Example: Dell is the best example of a turnaround strategy. In 2006. Dell announced the cost-cutting
measures and to do so; it started selling its products directly, but unfortunately, it suffered huge losses.
Then in 2007, Dell withdrew its direct selling strategy and started selling its computers through the
retail outlets and today it is the second largest computer retailer in the world.

Liquidation Strategy is the most unpleasant strategy adopted by the organization that includes selling
off its assets and the final closure or winding up of the business operations.
It is the most crucial and the last resort to retrenchment since it involves serious consequences such as
a sense of failure, loss of future opportunities, spoiled market image, loss of employment for
employees, etc.
The firm adopting the liquidation strategy may find it difficult to sell its assets because of the non-
availability of buyers and also may not get adequate compensation for most of its assets. The
following are the indicators that necessitate a firm to follow this strategy:
 Failure of corporate strategy
 Continuous losses
 Obsolete technology
 Outdated products/processes
 Business becoming unprofitable
 Poor management
 Lack of integration between the divisions
Generally, small sized firms, proprietorship firms and the partnership firms follow the liquidation
strategy more often than a company. The liquidation strategy is unpleasant, but closing a venture that
is in losses is an optimum decision rather than continuing with its operations and suffering heaps of
losses.
 Stability Strategy

The Stability Strategy is adopted when the organization attempts to maintain its current
position and focuses only on the incremental improvement by merely changing one or more
of its business operations in the perspective of customer groups, customer functions and
technology alternatives, either individually or collectively.
Generally, the stability strategy is adopted by the firms that are risk averse, usually the small
scale businesses or if the market conditions are not favorable, and the firm is satisfied with its
performance, then it will not make any significant changes in its business operations. Also, the
firms, which are slow and reluctant to change finds the stability strategy safe and do not look
for any other options.
Examples:
• The publication house offers special services to the
educational institutions apart from its consumer sale
through the market intermediaries, with the intention to
facilitate a bulk buying.
• The electronics company provides better after-sales
services to its customers to make the customer happy
and improve its product image.
• The biscuit manufacturing company improves its existing
technology to have the efficient productivity.
In all the above examples, the companies are not making
any significant changes in their operations, they are serving
the same customers with the same products using the same
technology.
 No- Change
The No-Change Strategy, as the name itself suggests, is the stability strategy followed when an
organization aims at maintaining the present business definition. Simply, the decision of not doing
anything new and continuing with the existing business operations and the practices referred to as a no-
change strategy.
When the environment seems to be stable, i.e. no threats from the competitors, no economic
disturbances, no change in the strengths and weaknesses, a firm may decide to continue with its present
position. Therefore, by analyzing both the internal and external environments, a firm may decide to
continue with its present strategy.
The no-change strategy does not imply that no decision has been taken by the firm, however, taking
no decision can sometimes be a decision itself. There should be a clear distinction between the firms
which are inactive and do not want to make changes in their strategies and the ones which
consciously decides to continue with their present business definition by scrutinizing both the
internal and external conditions.

Generally, the small or mid-sized firms catering to the needs of a niche market, which is limited in
scope, rely on the no-change strategy. This stability strategy is suitable till no new threats emerge in
the market, and the firm feels the need to alter its present position.
 Profit Strategy
It is followed when an organization aims to maintain the profit by whatever means possible. Due to
lower profitability, the firm may cut costs, reduce investments, raise prices, increase productivity or
adopt any methods to overcome the temporary difficulties.
The profit strategy can be followed when the problems are temporary or short-lived and will go
away with time. The problems could be the economic recession or inflation, industry downturn,
worst market conditions, competitive pressure, government policies and the like. Till then, the firm
adopts the artificial measures to tackle these problems and sustain the profitability of the firm.
If the problem persists for long, then profit strategy would only deteriorate the firm’s overall
financial position. In the crisis, the companies may overcome the temporary difficulties by selling the
assets such as land or building or setting off the losses of one division against the profits of another
division. Also, the firms may offer the outsourcing facilities to those firms who are in need of it and
can realize the temporary cash.
The profit strategy focuses on capitalizing the situation when the obsolete technology or the old
technology is to be replaced with the new one. Here no new investment is made; the same
technology is followed, at least partially with new technological domains.
Strategic Analysis and Choice: Nature, Techniques,
Approaches, Ways and Factors
Strategic Analysis and Choice – Nature of Strategy Analysis and Choice
Strategy analysis and choice focuses on generating and evaluating alternative
strategies, as well as on selecting strategies to pursue. Strategy analysis and choice
seeks to determine alternative courses of action that could best enable the firm to
achieve its mission and objectives.
The firm’s present strategies, objectives, and mission together with the external and
internal audit information, provide a basis for generating and evaluating feasible
alternative strategies. The alternative strategies represent incremental steps that
move the firm from its current position to a desired future state.
Alternative strategies are derived from the firm’s vision, mission, objectives, external
audit, and internal audit and are consistent with past strategies that have worked well.
The strategic analysis discusses the analytical techniques in two stages i.e.
techniques applicable at corporate level and then techniques used for business-level
strategies.
The techniques that have been discussed for the corporate level include BCG matrix,
GE nine-cell planning grid, Hofer’s matrix and Shell Directional Policy Matrix and the
techniques for business- level include SWOT analysis, experience curve analysis,
grand strategy selection matrix, grand strategy clusters.
The judgmental factors constitute the other aspect on the basis of which strategic
choice is made. We discuss the several factors that guide the strategists in strategic
choice. The selection of strategies in three ways i.e. selection against objectives,
referral to a higher authority and by partial implementation has been discussed.
Contingency strategies in order to face various situations that may arise in the course
of strategy implementation have been discussed. Finally, we discuss the nature and
contents of a strategic plan document.

Strategic Analysis and Choice – Strategic Analysis at the Corporate

Level: Techniques
Strategic analysis at the corporate level treats a corporate body constituting a portfolio
of businesses in a corporate vase. The analysis considers the various issues
regarding the several businesses in the corporate portfolio.
The strategic options are the generic strategies of stability, expansion, retrenchment,
and combination. The corporate level strategic analysis is relevant to a multi-business
corporation. For single business entities, business-level strategic analysis would
suffice.
We begin with an explanation of the corporate level analysis techniques that form a
major part of the analysis performed at the corporate level.
Corporate Portfolio Analysis:
During the 1960s and 1970s a number of management consulting companies
developed a series of conceptual techniques aimed to help the top officers of
diversified corporations better manage their portfolio of businesses. A fundamental
method of corporate strategic analysis in diversified, multi-industry companies is the
business portfolio analysis approach.
Corporate portfolio analysis can be defined as a group of techniques that assist
strategists in making strategic decisions regarding individual products or businesses
in a firm’s portfolio. Corporate portfolio analysis may be employed for competitive
analysis and strategic planning in multi-business corporations as well as for less
diversified firms.
The main benefit of using a portfolio approach in a multi-business corporation lies in
allocating resources at the corporate level to the businesses with highest potential.
For instance, a well -diversified company may consider diverting resources from cash-
rich businesses to the businesses with faster-growth potential to achieve corporate
objectives in an optimal way.
A number of techniques considered suitable for corporate portfolio analysis are
discussed below:
BCG Matrix:
The BCG matrix is a tool that can be used to determine what priorities should be
given in the product portfolio of a business unit. It has 2 dimensions; market share
and market growth. The basic idea behind it is that the bigger the market share a
product has or the faster the product’s market grows the better it is for the company.
Placing products in the BCG matrix results in 4 categories in a portfolio of a company.
Boston Consulting Group’s growth/share matrix has become one of the most widely
used approaches that facilitate corporate strategic analysis of likely “generators” and
optimum “users” of corporate resources. Each of the company’s businesses is
positioned in the matrix in accordance with its market growth rate and relative
competitive position.
Market growth rate refers to the projected rate of sales growth for the market that a
particular business caters to. It is usually measured as the percentage increase in
sales in a market or unit volume over the two most recent years. Market growth rate
indicates relative attractiveness of the markets each of the businesses serves in a
portfolio of businesses.
Relative competitive position means the ratio of a business’s market share divided by
the market share of the largest competitor in that market and provides a basis for
comparing the relative strengths of different businesses in the portfolio.
Stars:
Stars are businesses that have high market share in a high growth environment. They
are growing rapidly and are the best long-run opportunities in terms of growth and
profitability in the firm’s portfolio. They are leaders in their business and generate
large amount of cash. They require substantial investment to maintain and expand
their dominant position in a growing market.
The investment requirement often exceeds the internal cash generation. These
businesses, therefore, are short-tern, priority consumers of corporate resources.
Because of their high share, they are expected to enjoy a lower cost structure than
their lower share competitors because of the experience effects. In brief,
Stars (=high growth, high market share)
i. Use large amounts of cash and are leaders in the business so they should also
generate large amounts of cash.
ii. Frequently roughly in balance on net cash flow. However if needed any attempt
should be made to hold share, because the rewards will be a cash cow if market
share is kept.
Cash Cows:
Cash cows are low-growth, high market-share products or divisions. Because of their
high market share, they have low costs and generate cash. Since growth is slow,
reinvestment costs are low. Cash cows provide funds for overhead, dividends, and
investment for the rest of the firm and are in excess of their needs.
Therefore, these businesses serve as a source of corporate resources for deployment
elsewhere (to stars and question marks) and are managed to maintain their strong
market share while efficiently generating excess They are the foundation of the firm,
and stability is the appropriate strategy for them.
Cash Cows (=low growth, high market share)
i. profits and cash generation should be high , and because of the low growth,
investments needed should be low. Keep profits high
ii. Foundation of a company
Dogs:
Such businesses are defined as those in which the growth rate is slow and the
relative market share is low compared to the leading competitors. Because of their
low market share these businesses are often expected to have a higher cost structure
than industry leaders.
It is difficult and extremely expensive for them to gain share in a mature market.
Divestment or rapid harvesting is the recommended strategies for such weak
businesses. Often these low capital intensity businesses can be fruitful cash
generators.
Dogs (=low growth, low market share)
i. Avoid and minimize the number of dogs in a company.
ii. Beware of expensive ‘turn around plans’.
iii. Deliver cash, otherwise liquidate
Question Marks (= high growth, low market share)
a. Have the worst cash characteristics of all, because high demands and low returns
due to low market share.
b. If nothing is done to change the market share, question marks will simply absorb
great amounts of cash and later, as the growth stops, a dog.
c. Either invest heavily or sell off or invest nothing and generate whatever cash it can.
Increase market share or deliver cash.
Question marks are high-growth, low-market-share products or divisions. Their
conditions are the worst, for their cash needs are high, but cash generation is low.
Such businesses are seen to indicate opportunity. They need to gain share by
generating additional market share and hence lower cost via experience gains, while
the growth rate in the industry is high.
The primary objective of such businesses should be to gain share rather than
maximize short-term profitability. So question marks should be converted into stars,
then later into cash cows. This strategy will lead to a cash drain in the short run but
positive flow in the long run. The other option is divestment.
This technique usually applies to multiple-SBU firms making decisions about the
expansion, maintenance and retrenchment of different SBUs. Its’ goal is to determine
the corporate strategy that best provides a balanced portfolio of business units.
Glueck observes, ‘The goal of all this is to have a balanced portfolio of product or
divisions’.
Some of the BCG prescriptions could ultimately lead to a lack of innovative product
introductions, since by definition, new products start as a dog or question marks”
The BCG matrix was a valuable initial development in the portfolio approach to
corporate-level strategy evaluation. BCG’s ideal, balanced portfolio would have the
largest sales in cash cows and starts, with only a few question marks and very few
dogs.
BCG matrix makes two major contributions to corporate strategic choice:
1. The assignment of a specific role or mission for each business unit.
2. The integration of multiple business units into a total corporate strategy.
Limitations of BCG Matrix:
BCG matrix suffers from a number of limitations:
1. Since it is difficult to define a market clearly, measuring market share and market
growth rate becomes more difficult.
2. Dividing the matrix into four cells based on a high/low classification scheme is too
simplistic. It does not recognize the markets with average growth rates or the
businesses with average market shares.
3. The relationship between market share and profitability varies across industries
and market segments. In some industries a large market share creates major
advantages in unit costs; in others it does not. Some companies, for instance
Mercedes Benz and Polaroid, with low market share can generate superior
profitability and cash flow with careful strategies based on differentiation, innovation
or market segmentation.
4. The matrix is not helpful particularly in comparing relative investment opportunities
across different business units in the corporate portfolio. For example, is every star
better than a cash cow? How should one question mark be compared to another in
terms of whether it should be built into a star or divested?
5. Strategic evaluation of a set of businesses requires examination of more than
relative market shares and market growth. The attractiveness of an industry may
increase based on technological, seasonal, competitive, or other considerations as
much as on growth rate. Likewise, the value of a business within a corporate portfolio
is often linked to considerations other than market share.
6. The four colorful classification in the BCG matrix somewhat oversimplify the types
of businesses in a corporate portfolio. Likewise, the simple strategic missions
recommended by the BCG matrix often don’t reflect the diversity of options available.
7. Executives dislike the use of terminology such as dog, question mark cash-cow in
BCG matrix. These terms are seen as negative, stable and unnecessarily graphic.
 GE Nine-Cell Planning Grid:
GE nine cell planning grid, tries to overcome some of the limitations of BCG matrix in
two ways:
1. It uses multiple factors to assess industry attractiveness and business strength in
place of the single measure employed in the BCG matrix.
2. It expanded the matrix from four cells to nine cells. It replaced the high/low axes
with high/medium/low making a finer distinction between business portfolio positions.
The grid then does rating of each of the company’s business units on multiple sets of
strategic factor within each axis of the grid.
In order to assess the industry attractiveness factors such as market growth, size of
market, industry profitability, competition, seasonality and cyclical qualities,
economies of scale, technology, and social/environmental/ legal/human factors are
included.
For assessing business strength factors such as market share, profit margin, ability to
compete, customer and market knowledge, competitive position, technology, and
management caliber are identified.
The strategists then calculate “subjectively” a business’s position within the planning
grid by quantifying the two dimensions of the grid.
The strategist first selects industry attractiveness factors to measure industry
attractiveness and then assign each industry attractiveness factor a weight that
reflects its perceived importance as compared to other attractiveness factors.
Favorable to unfavorable future conditions for those factors are forecast and rated
based on some scale (0 to 1 scale is illustrative).
Then a weighted composite scope is obtained for a business’s overall industry
attractiveness. In order to assess business, a similar procedure is followed in
selecting factors, assigning weights to them, and then rating the business on these
dimensions.
Thus the GE planning grid might prove to be a useful tool for assessing a business
within a corporate portfolio. Usually several managers are involved during the
planning process. The inclusion and exclusion of factors and their rating and
weighting are primarily matters of managerial judgment. This classifies businesses in
terms of both the projected strength of the business and the projected attractiveness
of the industry.
The decisions concerning the resource allocation remain quite similar to those in the
BCG approach. Business classified as invest to grow would be treated like the stars in
the BCG matrix. These businesses would be provided resources to pursue growth-
oriented strategies.
Businesses classified in the harvest/divest category would be managed like the dogs
in the BCG matrix. Businesses classified, as selectivity/ earnings would either be
managed as cash cows or as question marks.
While the strategic recommendations generated by the GE planning grid are similar to
those from the BCG matrix, the GE nine-cell grid improves on the BCG matrix in three
fundamental ways.
i. The terminology associated with GE grid is preferable because it is less offensive
and more universally understood.
ii. The multiple measures associated with each dimension of the GE grid include more
factors relevant to business strength and market attractiveness than simply market
share and market growth.
iii. The nine-cell format allows finer distinction between portfolio positions than does
the four-cell BCG format.

Ansoff’s Grid Matrix

 The Ansoff Matrix, also called the Product/Market Expansion Grid, is a tool used by firms to
analyze and plan their strategies for growthSustainable Growth RateThe sustainable growth rate
is the rate of growth that a company can expect to see in the long term. Often referred to as G,
the sustainable growth rate can be calculated by multiplying a company's earnings retention
rate by its return on equity. The growth rate can be calculated on a historical basis and
average. The matrix shows four strategies that can be used to help a firm grow and also
analyzes the risk associated with each strategy

Understanding the Ansoff Matrix

The matrix was developed by applied mathematician and business manager, H. Igor
Ansoff, and was published in the Harvard Business Review in 1957. The Ansoff Matrix has
helped many marketers and executives better understand the risks inherent in growing their
business.

The four strategies of the Ansoff Matrix are:

1. Market Penetration: This focuses on increasing sales of existing products to an

existing market.
2. Product Development: Focuses on introducing new products to an existing market.
3. Market Development: This strategy focuses on entering a new market using existing
products.
 4. DiversificationProduct DiversificationProduct diversification is a strategy employed by
a company to increase profitability and achieve higher sales volume from new products.
Diversification: Focuses on entering a new market with the introduction of new
products.

Of the four strategies, market penetration is the least risky, while diversification is the riskiest.

The Ansoff Matrix: Market Penetration

In a market penetration strategy, the firm uses its products in the existing market. In other
words, a firm is aiming to increase its market share with a market penetration strategy.

The market penetration strategy can be executed in a number of ways:

1. Decreasing prices to attract new customers

2. Increasing promotion and distribution efforts
3. Acquiring a competitor in the same marketplace

For example, telecommunication companies all cater to the same market and employ a market
penetration strategy by offering introductory prices and increasing their promotion and
distribution effortsAIDA Model. The AIDA model, which stands for Attention, Interest, Desire,
and Action model, is an advertising effect model that identifies the stages that an individual.

The Ansoff Matrix: Product Development

In a product development strategy, the firm develops a new product to cater to the existing
market. The move typically involves extensive research and development and expansion of the
company’s product range. The product development strategy is employed when firms have a
strong understanding of their current market and are able to provide innovative solutions to
meet the needs of the existing market.

This strategy, too, may be implemented in a number of ways:

1. Investing in R&DResearch and Development (R&D)Research and Development (R&D)

is a process by which a company obtains new knowledge and uses it to improve
existing products and introduce to develop new products to cater to the existing market
2. Acquiring a competitor’s product and merging resources to create a new product that
better meets the need of the existing market
3. Forming strategic partnerships with other firms to gain access to each partner’s
distribution channels or brand
For example, automotive companies are creating electric cars to meet the changing needs of
their existing market. Current market consumers in the automobile market are becoming more
environmentally conscious.

The Ansoff Matrix: Market Development

In a market development strategy, the firm enters a new market with its existing product(s). In
this context, expanding into new markets may mean expanding into new geographic regions,
customer segments, etc. The market development strategy is most successful if (1) the firm
owns proprietary technology that it can leverage into new markets, (2) potential consumers in
the new market are profitable (i.e., they possess disposable income), and (3) consumer
behavior in the new markets does not deviate too far from that of consumers in the existing
markets.

The market development strategy may involve one of the following approaches:

1. Catering to a different customer segment

2. Entering into a new domestic market (expanding regionally)
3. Entering into a foreign market (expanding internationally)

For example, sporting goods companies such as Nike and Adidas recently entered the Chinese
market for expansion. The two firms are offering roughly the same products to a new
demographic.

The Ansoff Matrix: Diversification

In a diversification strategy, the firm enters a new market with a new product. Although such a
strategy is the riskiest, as both market and product development are required, the risk can be
mitigated somewhat through related diversification. Also, the diversification strategy may offer
the greatest potential for increased revenues, as it opens up an entirely new revenue stream for
the company – accesses consumer spending dollars in a market that the company did not
previously have any access to.

There are two types of diversification a firm can employ:

1. Related diversification: There are potential synergies to be realized between the existing
business and the new product/market.

For example, a leather shoe producer that starts a line of leather wallets or accessories is
pursuing a related diversification strategy.
2. Unrelated diversification: There are no potential synergies to be realized between the
existing business and the new product/market.

For example, a leather shoe producer that starts manufacturing phones is pursuing an
unrelated diversification strategy.

McKinsey 7S model
McKinsey 7S model is a tool that analyzes firm’s organizational design by looking at 7
key internal elements: strategy, structure, systems, shared values, style, staff and skills,
in order to identify if they are effectively aligned and allow organization to achieve its
objectives.

Understanding the tool

McKinsey 7s model was developed in 1980s by McKinsey consultants Tom Peters,
Robert Waterman and Julien Philips with a help from Richard Pascale and Anthony G.
Athos. Since the introduction, the model has been widely used by academics and
practitioners and remains one of the most popular strategic planning tools. It sought to
present an emphasis on human resources (Soft S), rather than the traditional mass
production tangibles of capital, infrastructure and equipment, as a key to higher
organizational performance. The goal of the model was to show how 7 elements of the
company: Structure, Strategy, Skills, Staff, Style, Systems, and Shared values, can be
aligned together to achieve effectiveness in a company. The key point of the model is
that all the seven areas are interconnected and a change in one area requires change in
the rest of a firm for it to function effectively.

Below you can find the McKinsey model, which represents the connections between
seven areas and divides them into ‘Soft Ss’ and ‘Hard Ss’. The shape of the model
emphasizes interconnectedness of the elements.
The model can be applied to many situations and is a valuable tool when organizational
design is at question. The most common uses of the framework are:

 To facilitate organizational change.

 To help implement new strategy.
 To identify how each area may change in a future.
 To facilitate the merger of organizations.
7s factors
In McKinsey model, the seven areas of organization are divided into the ‘soft’ and ‘hard’
areas. Strategy, structure and systems are hard elements that are much easier to
identify and manage when compared to soft elements. On the other hand, soft areas,
although harder to manage, are the foundation of the organization and are more likely to
create the sustained competitive advantage.

Hard S Soft S

Strategy Style

Structure Staff
Hard S Soft S

Systems Skills

Shared Values

Strategy is a plan developed by a firm to achieve sustained competitive advantage and

successfully compete in the market. What does a well-aligned strategy mean in 7s
McKinsey model? In general, a sound strategy is the one that’s clearly articulated, is
long-term, helps to achieve competitive advantage and is reinforced by strong vision,
mission and values. But it’s hard to tell if such strategy is well-aligned with other
elements when analyzed alone. So the key in 7s model is not to look at your company to
find the great strategy, structure, systems and etc. but to look if its aligned with other
elements. For example, short-term strategy is usually a poor choice for a company but if
its aligned with other 6 elements, then it may provide strong results.

Structure represents the way business divisions and units are organized and includes
the information of who is accountable to whom. In other words, structure is the
organizational chart of the firm. It is also one of the most visible and easy to change
elements of the framework.

Systems are the processes and procedures of the company, which reveal business’
daily activities and how decisions are made. Systems are the area of the firm that
determines how business is done and it should be the main focus for managers during
organizational change.

Skills are the abilities that firm’s employees perform very well. They also include
capabilities and competences. During organizational change, the question often arises of
what skills the company will really need to reinforce its new strategy or new structure.

Staff element is concerned with what type and how many employees an organization will
need and how they will be recruited, trained, motivated and rewarded.

Style represents the way the company is managed by top-level managers, how they
interact, what actions do they take and their symbolic value. In other words, it is the
management style of company’s leaders.
Shared Values are at the core of McKinsey 7s model. They are the norms and
standards that guide employee behavior and company actions and thus, are the
foundation of every organization.

The authors of the framework emphasize that all elements must be given equal
importance to achieve the best results.

Using the tool

As we pointed out earlier, the McKinsey 7s framework is often used when organizational
design and effectiveness are at question. It is easy to understand the model but much
harder to apply it for your organization due to a common misunderstanding of what
should a well-aligned elements be like.

We provide the following steps that should help you to apply this tool:

Step 1. Identify the areas that are not effectively aligned

During the first step, your aim is to look at the 7S elements and identify if they are
effectively aligned with each other. Normally, you should already be aware of how 7
elements are aligned in your company, but if you don’t you can use the checklist
from WhittBlog to do that. After you’ve answered the questions outlined there you should
look for the gaps, inconsistencies and weaknesses between the relationships of the
elements. For example, you designed the strategy that relies on quick product
introduction but the matrix structure with conflicting relationships hinders that so there’s a
conflict that requires the change in strategy or structure.

Step 2. Determine the optimal organization design

With the help from top management, your second step is to find out what effective
organizational design you want to achieve. By knowing the desired alignment you can
set your goals and make the action plans much easier. This step is not as
straightforward as identifying how seven areas are currently aligned in your organization
for a few reasons. First, you need to find the best optimal alignment, which is not known
to you at the moment, so it requires more than answering the questions or collecting
data. Second, there are no templates or predetermined organizational designs that you
could use and you’ll have to do a lot of research or benchmarking to find out how other
similar organizations coped with organizational change or what organizational designs
they are using.

Step 3. Decide where and what changes should be made

This is basically your action plan, which will detail the areas you want to realign and how
would you like to do that. If you find that your firm’s structure and management style are
not aligned with company’s values, you should decide how to reorganize the reporting
relationships and which top managers should the company let go or how to influence
them to change their management style so the company could work more effectively.

Step 4. Make the necessary changes

The implementation is the most important stage in any process, change or analysis and
only the well-implemented changes have positive effects. Therefore, you should find the
people in your company or hire consultants that are the best suited to implement the
changes.

Step 5. Continuously review the 7s

The seven elements: strategy, structure, systems, skills, staff, style and values are
dynamic and change constantly. A change in one element always has effects on the
other elements and requires implementing new organizational design. Thus, continuous
review of each area is very important.

Example of McKinsey 7S Model

We’ll use a simplified example to show how the model should be applied to an existing
organization.

Current position #1

We’ll start with a small startup, which offers services online. The company’s main
strategy is to grow its share in the market. The company is new, so its structure is simple
and made of a very few managers and bottom level workers, who undertake specific
tasks. There are a very few formal systems, mainly because the company doesn’t need
many at this time.

Alignment

So far the 7 factors are aligned properly. The company is small and there’s no need for
complex matrix structure and comprehensive business systems, which are very
expensive to develop.

McKinsey 7s Example (1/3)

Aligned?

Strategy Market penetration Yes

Structure Simple structure Yes

Few formal systems. The systems are mainly concerned with customer support
Systems and order processing. There are no or few strategic planning, personnel Yes
management and new business generation systems.

Few specialized skills and the rest of jobs are undertaken by the management
Skills Yes
(the founders).

Few employees are needed for an organization. They are motivated by

Staff successful business growth and rewarded with business shares, of which market Yes
value is rising.

Style Democratic but often chaotic management style. Yes

The staff is adventurous, values teamwork and trusts each other. Yes
Shared
Values

Current position #2

The startup has grown to become large business with 500+ employees and now
maintains 50% market share in a domestic market. Its structure has changed and is now
a well-oiled bureaucratic machine. The business expanded its staff, introduced new
motivation, reward and control systems. Shared values evolved and now the company
values enthusiasm and excellence. Trust and teamwork has disappeared due to so
many new employees.

Alignment

The company expanded and a few problems came with it. First, the company’s strategy
is no longer viable. The business has a large market share in its domestic market, so the
best way for it to grow is either to start introducing new products to the market or to
expand to other geographical markets. Therefore, its strategy is not aligned with the rest
of company or its goals. The company should have seen this but it lacks strategic
planning systems and analytical skills.

Business management style is still chaotic and it is a problem of top managers lacking
management skills. The top management is mainly comprised of founders, who don’t
have the appropriate skills. New skills should be introduced to the company.

McKinsey 7s Example (2/3)

Aligned?

Strategy Market penetration No

Structure Bureaucratic machine Yes

Systems No
Order processing and control, customer support and personnel management
 systems.

Skills related to service offering and business support, but few managerial and
Skills No
analytical skills.

Staff Many employees and appropriate motivation and reward systems. Yes

Style Democratic but often chaotic management style. No

Shared
Enthusiasm and excellence No
Values

Current position #3

The company realizes that it needs to expand to other regions, so it changes its strategy
from market penetration to market development. The company opens new offices in
Asia, North and South Americas. Company introduced new strategic planning systems
hired new management, which brought new analytical, strategic planning and most
importantly managerial skills. Organization’s structure and shared values haven’t
changed.

Alignment

Strategy, systems, skills and style have changed and are now properly aligned with the
rest of the company. Other elements like shared values, staff and organizational
structure are misaligned. First, company’s structure should have changed from well-oiled
bureaucratic machine to division structure. The division structure is designed to facilitate
the operations in new geographic regions. This hasn’t been done and the company will
struggle to work effectively. Second, new shared values should evolve or be introduced
in an organization, because many people from new cultures come to the company and
they all bring their own values, often, very different than the current ones. This may
hinder teamwork performance and communication between different regions. Motivation
and reward systems also have to be adapted to cultural differences.
McKinsey 7s Example (3/3)

Aligned?

Strategy Market development Yes

Structure Bureaucratic machine No

Order processing and control, customer support, personnel management and

Systems Yes
strategic planning systems.

Skills Skills aligned with company’s operations. Yes

Employees form many cultures, who expect different motivation and reward
Staff No
systems.

Style Democratic style Yes

Shared
Enthusiasm and excellence No
Values

We’ve showed the simplified example of how the Mckinsey 7s model should be applied.
It is important to understand that the seven elements are much more complex in reality
and you’ll have to gather a lot of information on each of them to make any appropriate
decision.

The model is simple, but it’s worth the effort to do one for your business to gather some
insight and find out if your current organization is working effectively.

Stages of Corporate Development.

The six stages or plays of growth of any company are as follows:
1. Company Launch or Customer Development
2. Product / Market Validation
3. Business Model Validation
4. Product / Market Growth
5. New Product / Market Extensions
6. Exit
Each of these six stages is uniquely different and requires a different focus, management styles, metrics,
and talent to achieve the unique strategic objectives of each stage. Some of these stages can be
accomplished quite quickly; others may take years. The stages may take on unique characteristics, and
each company is unique in its journey, but I have found these stages to be common to every company with
which I have worked or that the company was in a turnaround driven by skipping or improperly executing
one of these stages.
Some might want to add acquisitions (and divestitures) into this; while the act of acquiring and integrating
(or divesting) other businesses is a distinct operation with many considerations unique to the action, I prefer
to classify them as a strategy driven tactic that is one of several possible ways to implement within New
Product / Market Extensions, and possibly Business Model Validation and Product / Market Growth.
Looking at acquisitions and divestitures this way can help focus the purpose of the acquisition or divestiture
on the method by which it increases corporate value rather than the glamor of the transaction itself.
Recognizing that the process of acquiring often destroys at least some corporate value and success in
M&A comes from creating more value through the acquisition and integration than is destroyed in the
process.
These stages can be placed into a logical sequence as shown in Figure 1. It is important to note that while
some of these stages may end up being accelerated and streamlined by circumstance, each represents a
different problem being solved. For this reason, all product / service introductions follow a basic sequence
of introduction, product/market validation, business model valuation, and then growth. When a company
becomes larger and more mature, there can and should be multiple stages occurring in parallel; this is
especially true when introducing business models and associated products that purposefully evolve as they
move the market. Exit can occur at any time in these sequences, though it is very rare for it to occur during
Company / Product Launch. Nevertheless, some of the considerations of Exit should always be kept in
mind. It’s worth noting that Exit defines the end of the process for one set of owners and investors, but the
process continues with the new owners either where it left off, when the acquisition becomes an
independent subsidiary, or as an extension of the new parent company’s stages when integrated.
Startups evolving into growth stage companies are generally far better off establishing their launch product
/ service into the growth stage before taking on the New Product / Market extension cycle. That should
not be viewed as an absolute rule; there are certainly cases where New Product / Market Extensions can
be a critical part of building sufficient barriers to entry by competitors or in achieving the necessary market
consumption transitions that occur as the market learns a new way of solving a problem.
By understanding the unique challenges of each of these stages, it becomes easier to understand the
objectives, focus, and appropriate activities necessary to be successful. This understanding can prevent a
very common problem for high growth companies: doing the right thing at the wrong time. Investing in
product development before the target market and problem are well understood and the potential for
building a viable business evaluated can introduce substantial risk of wasted resources and enterprise
failure. Likewise, investing in sales and marketing expansion before the product / market fit is truly
developed and understood and the basics of those processes are developed, will often result in high
customer acquisition cost and the acquisition of a cadre of customers for whom the enterprise cannot
deliver value. These customers will eventually churn resulting in lost revenue and confidence, the inability
to raise capital, and a myriad of other negative enterprise-killing effects. Similarly, pivoting to growth before
the production and delivery processes are made sufficiently efficient, can drive substantial cash losses, and
customer satisfaction issues with loss of reliability and effectivity in the delivery. The result, via a slightly
different mechanism is the same. As a veteran of five successful turnarounds, I find clear causation of
many turnarounds in failure to follow these stages in a logical and appropriate order.
It would be logical to ask how this process flow relates to the strategy development and execution
processes laid out in my previous blog post. That post laid out a reference process to be followed on a
periodic basis (development) and ongoing basis (execution). Within that process, there was a reference to
the corporate development stage; this post relates directly to corporate development stage. In fact, that
blog post outlined the process for a company in Product / Market Growth. For early-stage companies, the
corporate development stage is on the spectrum of 1-2-3-4-6 (referring to the stages in Figure 1); later
stage companies will include stage 5. As noted in that post, corporate development stage is critical to diving
the appropriate focus of strategy development and execution. This post explains further how the process
laid out in that blog post is tailored as a function of corporate development stage.
Once a company becomes mature enough to introduce product / market extensions, then the corporate
development state is a blend of stages driven by the plurality of product and services within its portfolio and
the maturity of each of those. I will write a deeper blog post on product portfolio management and product
management to relate product to corporate strategy. In Figure 1, it may seem that there is no explicit
strategic step for trimming the business and product portfolio. This very necessary step should be
addressed explicitly as part of Product / Market Growth and is also a decision point in New Product /
Market Extension, as well as both Product / Market and Business Model Validation.

Organizational life Cycle

Organizational life cycle, as the name suggests, is the life cycle of an organization from the
point of its creation or onset to the point it is terminated. It has five distinct stages which
are conception, expansion, stability, growth, and termination.

The organizational life cycle is referred to as a model that has linked business organizations
with living organisms and proposed that it passes through predictable sequences of
various development and growth stages.

It is believed that like human beings, organizations also are born, they grow and mature with
time and there comes a stage when they start declining and like any other human being die.
Some of the organizations have a long shelf life, whereas others are unable to cope with
the demands and have a short life. Still, it is a fact that every life follows a pattern, and this
seems predictable for every organization.

It is up to the management to realise and understand all the phases of the organizational life
cycle so that they can understand the priorities of that stage and make decisions accordingly
that will work best for that period.

Understanding organizational cycle

The organizational life cycle is described as social systems where a group of people are
organised around a common goal or purpose. They indulge in numerous activities like
business planning, strategic planning, marketing, product development and financial
management. All the activities have both formal and informal goals and include taking steps to
achieve these goals by making adjustments along the way if necessary.

The social system is focused on the entire organization that provides for individuals,
teams products services etc. and goes through regular life cycles just as other living organisms
do.

For the first time organizations were compared to living organisms by the economist Alfred
Marshall in the 1890s and sixty years later it was proved by Kenneth Boulding that the
organizations do pass through a life cycle that is very similar to that of living organisms.

Mason Haire was the researcher who came up with the idea that all the organizations adhere to
a straight path in the course of their life cycle that can be explained by making similarities with
those of living organisms.

More than one hundred and thirty years have passed since the first research was published
and the concept of the organizational life cycle has gained prominence over time because of its
usefulness in making changes that helps it to cope with the difficulties of every stage.

Organizations are typically changing into different phases, and it is up to an organization to

understand the stage or the life cycle which their company is going through. All the
organizational life cycle stages present challenges and priorities that should be met head-on to
thrive in this world. The various stages of the organizational life cycle are as follows-

1. The start-up or existence phase

This is the first stage of the organizational life cycle and is known by several names as

 The birth stage

 The existence stage

 The start-up stage

 The entrepreneurial stage

All the names have the same meaning and signify the same thing that it is the start of an
organization. There is a need for a practical and workable business model at this time that will
help the company to find its due course

This is the stage when the companies have to accumulate capital, develop products and
services and hire workers. Thus this phase is all about entrepreneurial thinking and includes
writing and forming a business plan, formation of various teams, making investment plans to
kick-start the business. In case a company does not require outside funds then gearing up for
taking out the necessary funds from the personal account.

At this stage, the firms exhibit a simple structure with centralised power at the top of the
hierarchy. The primary purpose of this point in time is to establish competencies and generate
initial success in terms of products and market.

This is the stage where you will find lots of trial and errors as the companies have to change
their products and services in a manner to suit the demands of its customers and establish
distinct competencies. The pursuit of a niche strategy and frequent innovations are part of this
phase.

The product development and delivery stage during the first phase involve employees wearing
several hats and leaders being engaged in strategic as well as tactical levels. The significant
attributes in this environment are flexibility and lean management of assets and resources for
the continued existence of the company. The success in this birth stage is in finding a niche
product/market that will provide enough revenues to maintain and develop the organization and
often involves growth via vision and creativity.

Understanding the business model will help in getting a close view of the bigger picture so that
it becomes possible to know how to generate earnings and revenues and control expenses for
future growth and development of the company.
It is generally seen that by the end of this stage, the organization more often experience
explosive and unprecedented growth. To meet the demands, it has to rapidly hire new
employees because the business opportunities start surpassing resources and infrastructure.

2. The growth or survival phase

The second stage of the organizational life cycle is the growth stage that is also referred to as
the survival stage. It is aptly named because at this point; the companies are looking to solidify
their roots, establish a framework, pursue growth and develop their capabilities. The onus is on
setting targets and generating revenues for expansion and growth plans. There are two
possible scenarios in the growth stage; first, some companies enjoy success and growth and
can enter the next step with aplomb whereas some organizations are unable to achieve the
desired success and subsequently fail to survive.

The growth stage is crucial for an organization, and this is why it puts its onus on early
product diversification and sales growth. Product lines are broadened; efforts are on tailoring
products to suit new markets, managers try to identify subgroups of customers and make small
modifications in product and services to serve them in a better way.

The niche strategy is often sidelined for a temporary phase to address the broadened markets.
Generally, the organizations attain profitability in this stage and might require additional funding
to meet the numerous growth opportunities.

In this stage a functionally-based structure is established, procedures are formalised, some

authority is delegated to the middle managers, customers influence decisions, and the goal
encompasses fulfilling the wishes of the customer to a higher degree.

The roles now become differentiated, and there is an increase in sales and marketing to
generate and fulfil demands. In other words, diversification of the customer base and product
line results in the specialization. To maintain control, the organization introduces formal
methods and cross-functional activities.

One issue that an organization can face in this stage is autonomy. Fewer onuses
on innovation activities and limited decentralisation of power can make the company less
responsive to market changes. The growth stage will start to end when the sales of an
organization begin to slow down.

3. The maturity phase

The next stage in the organizational life cycle is the maturity stage where the company enters a
hierarchal structure of management. In this phase, the companies pay fewer onuses on
expansion and more on safeguarding their interests and maintaining the existing growth and
development strategies and plans. It is the middle and top levels management that take up the
mantle of specialising in tasks like routine work, planning, strategising etc.

By the time an organization reaches its maturity level one can see stabilisation in the sales.
This happens because of market saturation and high levels of competitive activities.

Some organizations are highly profitable, and the goal then is to maintain smooth functioning to
maximise their profits in case the company goes through a declining sales growth phase. The
companies put their onus on internal efficiency, and for this, they start installing control
mechanisms in place.

Firms remain centralised and functional, and departmental structures continue to exist as they
are apt for product-market scope. The delegation of power is less compared to the growth
stage because the operations are now more stable and straightforward and do not require the
efforts of numerous people.

There is an emphasis on budgets, formal cost controls, performance measures and

coordination so that various departments and units can work together effectively.

The maturity phase in an organizational life cycle shows a less proactive and less innovative
decision-making stage. This is because the aim of the company at this point is apparent – to
focus on efficiency instead of a novelty. It waits for the competition to make the first move and
lead the way and then imitates the innovation if necessary.

The maturity stage of an organization can continue for a very long period because as long as
the organization is showing good sales and revenues figure there is no need to change the
status quo or rock the boat.

4. The renewal phase

The next stage in the organizational life cycle is known as the renewal stage. This is because,
at this point, the companies will experience a renewal in their management structure that shifts
from a hierarchical organizational structure to a matrix style of organizational structure. This
change facilitates flexibility and creativity in the organization.

The renewal stage is also referred to as the revival stage because of its functions. It is an
optional stage, and several organizations do not put the onus on it whereas other takes care of
it diligently. The revival stage generally occurs between maturity and a decline stage of the
organizational life cycle. This happens because an organization recognises the need for drastic
changes and initiates plans to implement the set strategies that can alter their current path.
The revival stage is considered for expansion and diversification of product-market scope.
Companies try to follow a policy of rapid growth through diversification, innovation and
acquisition. This stage involves increased investment and high risks.

The firm forms project teams and task forces to analyse issues and find solution alternatives
systematically. Information processing is expanded and becomes diverse because the
requirement changes from performance reporting and financial controls to information about
customer and market opportunities. This is for identifying the new trends and opportunities to
revive the organizational structure.

Significant changes start taking place because of the implementation of various policies by the
organization. The revival stage can either be successful, and then the organization can
maintain and see high growth or not successful, and this can be identified by the lack of
expected sales growth in the company.

5. The decline phase

The last stage of the organizational life cycle is the decline stage that signifies the death of an
organization. This can be identified by minimizing sales figures and profitability in the
organization. This happens because of market stagnation, reluctance for risk-taking, external
challenges, and lack of innovation.

In this stage of the organizational life cycle, organizations start putting the onus on conserving
resources. Their sales figures go plummeting downhill because of unappealing product lines
and lack of new technologies in the products. The communication between departments and
the levels is weak and well-developed mechanism is absent for information processing.

The declining stage is the worst in the organizational life cycle as individuals become
preoccupied with personal objectives instead of organizational goals and objectives. This slowly
and steadily destroys the feasibility and functionality of the entire company.
The Boston Consulting Group Matrix (BCG Matrix), also referred to as the
product portfolio matrix, is a business planning tool used to evaluate the strategic
position of a firm's brand portfolio. The BCG Matrix is one of the most popular
portfolio analysis methods.
It has 2 dimensions; market share and market growth. The basic idea behind it is
that the bigger the market share a product has or the faster the product’s market
grows the better it is for the company.
It classifies a firm’s product and/or services into a two-by-two matrix. Each
quadrant is classified as low or high performance, depending on the relative
market share and market growth rate.

Understanding the Boston Consulting Group (BCG) Matrix

The horizontal axis of the BCG Matrix represents the amount of market share of
a product and its strength in the particular market. By using relative market share,
it helps measure a company’s competitiveness.

The vertical axis of the BCG Matrix represents the growth rate of a product and
its potential to grow in a particular market.

In addition, there are four quadrants in the BCG Matrix:

1. Question marks: Products with high market growth but a low market
share.
2. Stars: Products with high market growth and a high market share.
3. Dogs: Products with low market growth and a low market share.
 4. Cash cows: Products with low market growth but a high market share.
The assumption in the matrix is that an increase in relative market share will result
in increased cash flow. A firm benefits from utilizing economies of scale and gains
a cost advantage relative to competitors. The market growth rate varies from
industry to industry but usually shows a cut-off point of 10% – growth rates higher
than 10% are considered high, while growth rates lower than 10% are considered
low.
The BCG Matrix: Question Marks

Products in the question marks quadrant are in a market that is growing quickly
but where the product(s) have a low market share. Question marks are the most
managerially intensive products and require extensive investment and resources
to increase their market share. Investments in question marks are typically funded
by cash flows from the cash cow quadrant.

In the best-case scenario, a firm would ideally want to turn question marks into
stars (as indicated by A). If question marks do not succeed in becoming a market
leader, they end up becoming dogs when market growth declines.

The BCG Matrix: Dogs

Products in the dogs quadrant are in a market that is growing slowly and where
the product(s) have a low market share. Products in the dogs quadrant are typically
able to sustain themselves and provide cash flows, but the products will never
reach the stars quadrant. Firms typically phase out products in the dogs quadrant
(as indicated by B) unless the products are complementary to existing products or
are used for a competitive purpose.

The BCG Matrix: Stars

Products in the star quadrant are in a market that is growing quickly and one where
the product(s) have a high market share. Products in the stars quadrant are market-
leading products and require significant investment to retain their market position,
boost growth, and maintain a competitive advantage.

Stars consume a significant amount of cash but also generate large cash flows. As
the market matures and the products remain successful, stars will migrate to
become cash cows. Stars are a company’s prized possession and are top-of-mind
in a firm’s product portfolio.
The BCG Matrix: Cash Cows

Products in the cash cows quadrant are in a market that is growing slowly and
where the product(s) have a high market share. Products in the cash cows quadrant
are thought of as products that are leaders in the marketplace. The products
already have a significant amount of investments in them and do not require
significant further investments to maintain their position.

Cash flows generated by cash cows are high and are generally used to finance
stars and question marks. Products in the cash cows quadrant are “milked” and
firms invest as little cash as possible while reaping the profits generated from the
products.

Ansoff Matrix

Developed by applied mathematician and business manager H. Igor Ansoff in

1957, the Ansoff Matrix (also known as the Product/Market Expansion
Grid) provides a structured approach for evaluating different growth strategies
based on whether they involve new or existing products and markets.

The Ansoff Matrix, often called the Product/Market Expansion Grid, is a two-by-
two framework used by management teams and the analyst community to help
plan and evaluate growth initiatives. In particular, the tool helps stakeholders
conceptualize the level of risk associated with different growth strategies.

It features Products on the X-axis and Markets on the Y-axis.

The Matrix is used to evaluate the relative attractiveness of growth strategies that
leverage both existing products and markets vs. new ones, as well as the level of
risk associated with each.

Each box of the Matrix corresponds to a specific growth strategy. They are:

1. Market Penetration – The concept of increasing sales of existing products

into an existing market
2. Market Development – Focuses on selling existing products
into new markets
3. Product Development – Focuses on introducing new products to
an existing market
4. Diversification – The concept of entering a new market with
altogether new products
Market Penetration

The least risky, in relative terms, is market penetration.

When employing a market penetration strategy, management seeks to sell more

of its existing products into markets that they’re familiar with and where they have
existing relationships. Typical execution strategies include:

 Increasing marketing efforts or streamlining distribution processes

 Decreasing prices to attract new customers within the market segment
 Acquiring a competitor in the same market

Consider a consumer-packaged goods business that sells into grocery chains.

Management may seek greater penetration by amending pricing for a large chain
in order to secure incremental shelf space not just for packaged food products but
also for several lines of its pet food products, too.

Market Development

A market development strategy is the next least risky because it does not require
significant investment in R&D or product development. Rather, it allows a
management team to leverage existing products and take them to a different
market. Approaches include:

 Catering to a different customer segment or target demographic

 Entering a new domestic market (regional expansion)
 Entering into a foreign market (international expansion)
An example is Lululemon; management made a decision to aggressively expand
into the Asia Pacific market to sell its already very popular athleisure products.
While building an advertising and logistics infrastructure in a foreign market
inherently presents risks, it’s made less risky by virtue of the fact that they’re
selling a product with a proven roadmap.

Product Development

A business that firmly has the ears of a particular market or target audience may
look to expand its share of wallet from that customer base. Think of it as a play
on brand loyalty, which may be achieved in a variety of ways, including:

 Investing in R&D to develop an altogether new product(s).

 Acquiring the rights to produce and sell another firm’s product(s).
 Creating a new offering by branding a white-label product that’s actually
produced by a third party.

An example might be a beauty brand that produces and sells hair care products
that are popular among women aged 28-35. In an effort to capitalize on the brand’s
popularity and loyalty with this demographic, they invest heavily in the
production of a new line of hair care products, hoping that the existing target
market will adopt it.

Diversification

In relative terms, a diversification strategy is generally the highest risk endeavour;

after all, both product development and market development are required. While
it is the highest risk strategy, it can reap huge rewards – either by achieving
altogether new revenue opportunities or by reducing a firm’s reliance on a single
product/market fit (for whatever reason).

There are generally two types of diversification strategies that a management team
might consider:

1. Related Diversification – Where there are potential synergies that can be

realized between the existing business and the new product/market.

An example is a producer of leather shoes that decides to produce leather car seats.
There are almost certainly synergies to be had in sourcing raw materials, although
the product itself and the production process will require considerable investment
in R&D and production.
2. Unrelated Diversification – Where it’s unlikely that any real synergies will be
realized between the existing business and the new product/market.

Let’s work on the leather shoe producer example again. Consider if management
wanted to reduce its overall reliance on the (highly cyclical) consumer
discretionary high-end shoe business, they might invest heavily in a consumer
packaged goods product in order to diversify.

Ansoff Matrix and Financial Analysis

The ability to translate qualitative findings from a SWOT or PESTEL analysis, an

Ansoff Matrix, or a Porter’s 5 Forces framework into model assumptions is what
sets world-class analysts apart from everyone else.

High-quality due diligence includes the ability to effectively model growth

drivers, as these can have a profound impact on valuation estimates and important
credit metrics.

GE 9 Cell Matrix (McKinsey Matrix)

Introduction

 The GE/McKinsey Matrix is a nine-cell (3 by 3) matrix used to perform

business portfolio analysis as a step in the strategic planning process.
 The GE/McKinsey Matrix identifies the optimum business portfolio as
one that fits perfectly to the company’s strengths and helps to explore
the most attractive industry sectors or markets.
 The objective of the analysis is to position each SBU on the chart depending
on the SBU’s Strength and the Attractiveness of the Industry Sector or
Market on which it is
 Each axis is divided into Low, Medium and High, giving the nine-cell
matrix as depicted below.
GE Nine Cell Matrix figure

GE nine cell planning grid, tries to overcome some of the limitations of BCG
matrix in two ways:
1. It uses multiple factors to assess industry attractiveness and business strength
in place of the single measure employed in the BCG matrix.
2. It expanded the matrix from four cells to nine cells. It replaced the high/low
axes with high/medium/low making a finer distinction between business portfolio
positions.
The grid then does rate of each of the company’s business units on multiple sets
of strategic factors within each axis of the grid.

GROW, HOLD, HARVEST

 Grow – Business units that fall under grow attract high investment. Firms
may go for product differentiation or Cost leadership. Huge cash is
generated in this phase. Market leaders exist in this phase.
 Hold – Business units that fall under hold phase attract moderate
investment. Market segmentation, Market penetration, imitation strategies
are adopted in this phase. Followers exist in this phase.
 Harvest – Business units that fall under this phase are unattractive. Low
priority is given in these business units. Strategies like divestment,
Diversification, mergers are adopted in this phase.
 In order to assess the industry attractiveness factors such as market growth,
size of market, industry profitability, competition, seasonality and cyclical
qualities, economies of scale, technology, and social/environmental/
legal/human factors are included.

For assessing business strength factors such as market share, profit margin, ability
to compete, customer and market knowledge, competitive position, technology,
and management caliber are identified.

McKinsey 7S Model

The McKinsey 7S Model refers to a tool that analyzes a company’s

“organizational design.” The goal of the model is to depict how effectiveness can
be achieved in an organization through the interactions of seven key elements –
Structure, Strategy, Skill, System, Shared Values, Style, and Staff.

The focus of the McKinsey 7s Model lies in the interconnectedness of the

elements that are categorized by “Soft Ss” and “Hard Ss

Hard S Soft S

Strategy Style

Structure Staff

Systems Skills

Shared Values
1. Structure

Structure is the way in which a company is organized – the chain of command

and accountability relationships that form its organizational chart.

2. Strategy

Strategy refers to a well-curated business plan that allows the company to

formulate a plan of action to achieve a sustainable competitive advantage,
reinforced by the company’s mission and values.

3. Systems

Systems entail the business and technical infrastructure of the company that
establishes workflows and the chain of decision-making.

4. Skills

Skills form the capabilities and competencies of a company that enables its
employees to achieve its objectives.

5. Style

The attitude of senior employees in a company establishes a code of

conduct through their ways of interactions and symbolic decision-making, which
forms the management style of its leaders.

6. Staff

Staff involves talent management and all human resources related to company
decisions, such as training, recruiting, and rewards systems

7. Shared Values

The mission, objectives, and values form the foundation of every organization and
play an important role in aligning all key elements to maintain an effective
organizational design.

he McKinsey 7s framework is often used when organizational design and

effectiveness are at question. It is easy to understand the model but much harder
to apply it for your organization due to a common misunderstanding of what
should a well-aligned elements be like.
Step 1. Identify the areas that are not effectively aligned

Step 2. Determine the optimal organization design

With the help from top management, your second step is to find out what effective
organizational design you want to achieve. By knowing the desired alignment you
can set your goals and make the action plans much easier.
Step 3. Decide where and what changes should be made

This is basically your action plan, which will detail the areas you want to realign
and how would you like to do that.
Step 4. Make the necessary changes

The implementation is the most important stage in any process, change or analysis
and only the well-implemented changes have positive effects
Step 5. Continuously review the 7s

The seven elements: strategy, structure, systems, skills, staff, style and values are
dynamic and change constantly. A change in one element always has effects on
the other elements and requires implementing new organizational design. Thus,
continuous review of each area is very important.

Example of McKinsey 7S Model

We’ll use a simplified example to show how the model should be applied to an
existing organization.

Current position #1

We’ll start with a small startup, which offers services online. The company’s main
strategy is to grow its share in the market. The company is new, so its structure is
simple and made of a very few managers and bottom level workers, who
undertake specific tasks. There are a very few formal systems, mainly because the
company doesn’t need many at this time.

Alignment
So far the 7 factors are aligned properly. The company is small and there’s no
need for complex matrix structure and comprehensive business systems, which
are very expensive to develop.

McKinsey 7s Example (1/3)

Aligned?

Strategy Market penetration Yes

Structure Simple structure Yes

Few formal systems. The systems are mainly

concerned with customer support and order processing.
Systems Yes
There are no or few strategic planning, personnel
management and new business generation systems.

Few specialized skills and the rest of jobs are

Skills Yes
undertaken by the management (the founders).

Few employees are needed for an organization. They

are motivated by successful business growth and
Staff Yes
rewarded with business shares, of which market value
is rising.

Style Democratic but often chaotic management style. Yes

Shared The staff is adventurous, values teamwork and trusts

Yes
Values each other.

Current position #2
The startup has grown to become large business with 500+ employees and now
maintains 50% market share in a domestic market. Its structure has changed and
is now a well-oiled bureaucratic machine. The business expanded its staff,
introduced new motivation, reward and control systems. Shared values evolved
and now the company values enthusiasm and excellence. Trust and teamwork has
disappeared due to so many new employees.

Alignment

The company expanded and a few problems came with it. First, the company’s
strategy is no longer viable. The business has a large market share in its domestic
market, so the best way for it to grow is either to start introducing new products
to the market or to expand to other geographical markets. Therefore, its strategy
is not aligned with the rest of company or its goals. The company should have
seen this but it lacks strategic planning systems and analytical skills.

Business management style is still chaotic and it is a problem of top managers

lacking management skills. The top management is mainly comprised of
founders, who don’t have the appropriate skills. New skills should be introduced
to the company.

McKinsey 7s Example (2/3)

Aligned?

Strategy Market penetration No

Structure Bureaucratic machine Yes

Order processing and control, customer support and

Systems No
personnel management systems.
 Skills related to service offering and business support,
Skills No
but few managerial and analytical skills.

Many employees and appropriate motivation and

Staff Yes
reward systems.

Style Democratic but often chaotic management style. No

Shared
Enthusiasm and excellence No
Values

Current position #3

The company realizes that it needs to expand to other regions, so it changes its
strategy from market penetration to market development. The company opens
new offices in Asia, North and South Americas. Company introduced new
strategic planning systems hired new management, which brought new analytical,
strategic planning and most importantly managerial skills. Organization’s
structure and shared values haven’t changed.

Alignment

Strategy, systems, skills and style have changed and are now properly aligned with
the rest of the company. Other elements like shared values, staff and
organizational structure are misaligned. First, company’s structure should have
changed from well-oiled bureaucratic machine to division structure. The division
structure is designed to facilitate the operations in new geographic regions. This
hasn’t been done and the company will struggle to work effectively. Second, new
shared values should evolve or be introduced in an organization, because many
people from new cultures come to the company and they all bring their own
values, often, very different than the current ones. This may hinder teamwork
performance and communication between different regions. Motivation and
reward systems also have to be adapted to cultural differences.
 McKinsey 7s Example (3/3)

Aligned?

Strategy Market development Yes

Structure Bureaucratic machine No

Order processing and control, customer support,

Systems Yes
personnel management and strategic planning systems.

Skills Skills aligned with company’s operations. Yes

Employees form many cultures, who expect different

Staff No
motivation and reward systems.

Style Democratic style Yes

Shared
Enthusiasm and excellence No
Values

We’ve showed the simplified example of how the Mckinsey 7s model should be
applied. It is important to understand that the seven elements are much more
complex in reality and you’ll have to gather a lot of information on each of them
to make any appropriate decision.

Organizational life Cycle

Organizational life cycle, as the name suggests, is the life cycle of an organization
from the point of its creation or onset to the point it is terminated. It has five
distinct stages which are conception, expansion, stability, growth, and
termination.
 Unit-V: Strategic Evaluation and Control

Overview of Strategic Evaluation; Strategic Control;

Īechniques of Strategic Evaluation and Control. Evaluation of
Strategic Alternatives - Product Portfolio Models, BCG
Matrix, GE Matrix, Gap Analysis; Strategic Control System.
• Strategic evaluation and control is the final phase in the process of strategic
management. Its basic purpose is to ensure that the strategy is achieving
the goals and objectives set for the strategy. It compares performance with
the desired results and provides the feedback necessary for management to
take corrective action.
• According to Fred R. David, strategy evaluation includes three basic
activities
– (1) examining the underlying bases of a firm’s strategy,
– (2) comparing expected results with actual results, and
– (3) taking corrective action to ensure that performance conforms to
plans. Sometime, the best formulated strategies become obsolete
(outdated) as a firm’s external and internal environments change.
• Strategic evaluation generally operates at two levels – strategic and
operational level. At the strategic level, managers try to examine the
consistency of strategy with environment. At the operational level, the
focus is on finding how a given strategy is effectively pursued by the
organisation.
• Strategic evaluation and control is defined as the process of determining
the effectiveness of a given strategy in achieving the organisational
objectives and taking corrective actions wherever required.
• According to Pearce and Robinson, strategic control is concerned with
tracking a strategy as it is being implemented, detecting problems or changes in
its underlying premises, and making necessary adjustments.
• Strategic control in an organisation is similar to what the “steering
control” is in a ship. Steering keeps a ship, for instance, stable on its
course.
• Similarly, strategic control systems sense to what extent the strategies
are successful in attaining goals and objectives, and this information is
fed to the decision-makers for taking corrective action in time.
• Strategic managers can steer the organisation by instituting minor
modifications or resort to more drastic changes such as altering the
strategic direction altogether. Strategic control systems thus offer a
framework for tracking, evaluating or reorienting the functioning of the
firm’s strategy.
• 1. S
imp
le:Strategy evaluation must be simple, not too comprehensive and
not too restrictive. Complex systems often confuse people and
accomplish little. The test of an effective evaluation system is its
simplicity not its complexity.
• 2. Econom ical: Strategy evaluation activities must be economical. Too
many controls can do more harm than good.
• 3. Mean igfu l:Strategy evaluation activities should be meaningful. They
should specifically relate to a firm’s objectives. They should provide
managers with useful information about tasks over which they have
control and influence.
• 4. T imely: Strategy evaluation activities should provide timely
information. For example, when a firm has diversified into a new
business by acquiring another firm, evaluative information may be
needed at frequent intervals. Time dimension of control must
coincide with the time span of the event being measured.
• 5.Truthfu l: Strategy evaluation should be designed to provide a true
picture of what is happening. Information should facilitate action and
should be directed to those individuals who need to take action based on
it.
• 6.Selctive:The control systems should focus on selective criteria like
key important factors which are critical to performance. Insignificant
deviations need not be focused.
• 7. F lexle: They must be flexible to take care of changing
ib
circumstances.
• 8. Su itab
le: Control systems should be suitable to the needs of the
organisation. They must conform to the nature and needs of the job and
area to be controlled.
• 9. Aceptab le: Controls will not work unless they are acceptable to
those who apply them.
• 10. Foster Understand ing and Trust: Control systems should not
dominate decisions. Rather they should foster mutual understanding,
trust and common sense. No department should fail to cooperate with
another in evaluating and control of strategies.
• Strategic control is a type of “steering control”. We have to track the strategy
as it is being implemented, detect any problems or changes in the
predictions made, and make necessary adjustments. This is especially
important because the implementation process itself takes a long time
before we can achieve the results.
• Strategic control is like an alarm long before the calamity can happen.
• Operational control is the process of ensuring that specific tasks are
carried out effectively and eefficiently. The operational control aims at
evaluating the performance of the organization. Most of the control
system in organization are operational in nature. Some examples of
operational control are : Budgetary control, Quality control, Inventory
control, Production Control, Cost control etc.
Attribute Strategic control Operational Control
Aim Proactive continuous questioning of Allocation and use of orgnisational
the basic direction of strategy. Its aim Resources
is find out whether or not strategy is
being implemented properly.
Basic “Are we moving in the right direction?” “How are we performing?”
Question
Main The main concern of strategic control The operational control is concerned
concern is pushing the company in the correct with the actions as it is based on plans,
future direction. standards and procedures.
Focus External environment Internal orgnisation
Time The strategic control considers long- The operational control is only for short
period term impact of strategy on the period say maximum for 1 year.
organization.
Exercise Exclusively by top management, may Mainly by executives of middlelevel
of control be through lower-level Support management on the direction of top
management
Technique Environmental scanning, Budgets, schedules and MBO
s used information gathering,
questioning and review
• 1. Facilitates coordination: Strategic evaluation and control facilitates
coordination among the various departments of the organization.
Whenever, there are any deviations the activities of the concerned
departments are coordinated so as to take collective and corrective
measures. The collectives efforts on the part of concerned departments
enable to correct the deviations and to accomplish the objective.

• 2. Facilitates
F optimum use of resources: Evaluation and control
enables optimum use of resources – physical, financial and human
resources. The resources are properly allocated and utilized which in
turn generates higher productivity and efficiency.

• 3. Guide to operations: Evaluation and control guides the actions of

the individuals and departments in the organization. Activities are
undertaken in the right direction and as such the organization would not
be able to accomplish its objectives.
• 4. Check on validity of strategic choice: Evaluation and control helps
the management to keep a check on the validity of the strategic choice.
The process of evaluation and control would provides feedback on the
relevance of the strategic choice made during the formulation stage.
This is due to the efficacy of the strategic evaluation to determine the
effectiveness of the strategy.

• 5. Facilitates performance appraisal: Evaluation and control facilitates

employees‟ appraisal. The actual performance is measured in the light
of the sstrategic planning. The managers measure the performance and
provide necessary feedback to the employees. This facilitates them to
improve their performance.

• 6. Motivates employees: Employees are aware that their performance is

reviewed periodically. Therefore, they put in their best possible efforts to
improve their performance. The employees are motivated as those
employees who show better performance are normally rewarded.
• 7. Fixes responsibility: Evaluation and control fixes responsibility on
the managers. It is the duty of the managers to correct the deviations,
when the actual performance is not taking place as per the targets.
Managers cannot ignore their responsibility for evaluation and control.

• 8. Creates inputs for future strategic planning: Strategic evaluation

and control provides a good amount of information and experience to
managers, which can be utilized in future strategic planning. Therefore,
future strategic planning can be better than before.
• 1. Determine what to measure: Top managers as well as operational
managers need to specify what implementation processes and results
will be monitored and evaluated. The processes and results must be
capable of being measured in a reasonably objective and consistent
manner. The focus should be on the most significant elements in a
process – the ones that account for the highest proportion of expense or
the greatest number of problems.
• 2. Setting of Standards: The strategists need to establish performance
targets, standards and tolerance limits for the objectives, strategy, and
implementation plan . Th standards can be established in terms of
quantity, quality , cost and time. Standard need to be definite and they
must be acceptable to employees. One cannot just fix high targets and
low targets or standards to be avoided.
• 3. Measuring actual performance: The next step is to measure the
actual performance. For this purpose, the manager may ask for
performance reports from the employees. The actual performance can be
measured both in quantitative terms as well as qualitative terms. The
actual performance also need to be measured in terms of time and the
cost factor.
• 4. Comparing actual performance with Standards: The actual
performance need to be compared with the standards. There must be
objective comparison of the actual performance against the
predetermined targets or standards. Such comparison is required to find
out deviations, if any.
• 5. Finding out Deviations: After comparison, the managers may notice
the deviations. For instance if the actual sales are only 9000 units as
compare to standards targets of 10,000 units of sales, then deviations
are to the extent of 1000 units of sales. If actual performance results
are within the desired tolerance range, the measurement process stops
here
• 6. Analyzing deviations: The deviations may be reported to the higher
authorities. The higher authorities analyze the cause of deviations. For
this purpose, the higher authorities may hold necessary discussion with
the functional staff. The causes of deviations should be identified.
• 7. Taking corrective Actions: If actual results fall outside the desired
tolerance range, corrective action must be taken to correct the deviation.
Some times there may be need for re-setting goals or objectives or re-
framing plans, policies and standards. The corrective steps must be taken
at the right time so as to accomplish the objectives.
 Techniques of Strategic Control
• A. Evaluation techniques for Strategic Control
Strategic control takes into account the changing assumptions that
determine the strategy by continuously evaluating the strategy during
the process of implementation and it also takes the required corrective
action as and when needed. Thus strategic control is like an alarm long
before the calamity can happen.
• 1. ManagementIn
formationsystems:Appropriate information systems act
as an effective control system. Management will come to know the latest
.M
performance in key areas and take appropriate corrective measures.
• 2. Benchmark
ing:It is a comparative method where a firm finds the best practices
in an area and then attempts to bring its own performance in that area in
line with the best practice. Best practices are the benchmarks that should be
adopted by a firm as the standards to exercise operational control. Through
this method, performance can be evaluated continually till it reaches the
best practice level. In order to excel, a firm shall have to exceed the
benchmarks. In this manner, benchmarking offers firms a tangible method
to evaluate performance.
• 3. Strategic Surveillance: Strategic surveillance is done to oversee the
organization as a whole. It sees whether any event either within or outside
the company threatens the strategies course of action in any way.
• 4. Implementation control: Only strategy implementation gives result
to plans, projects and programmes being set up. The strategist has to lay
down the resources to be allocated all every stage. Implementation
control deals with the evaluation whether the plans, projects and
programmes one leading the organization towards its predetermined
goal. This is done through identification and close monitoring of each
plan.
• 5. Special alert control: In case of emergencies the company needs to
take quick and correct decision in order to save the strategy in operation.
Special alert control can be exercised through the formulation of
contingency strategies by giving the job immediately to the crisis
management teams who is capable and experienced in handling such
emergencies e.g. unfortunate floods , share prices crash or real estate
prices crash etc.
• 6. Responsibility centres: Central centres can be established to monitor
specific functions, projects or divisions. Responsibility centres are used
to isolate a unit so that it can be evaluated separately from the rest of
the corporation. Each responsibility centre therefore has its own budget
and is evaluated on its use of budgeted resources.
• A responsibility centre is headed by the manager responsible for the
centres performance. They are of various types
– Cost centres, Revenue centres, Expense centres, Profit centres and
Investment centres.

• Operational control is the process of ensuring that specific tasks are

carried out effectively and efficiently. The operational control aims at
evaluating the performance of the organization. Most of the control
system in organization are operational in nature.
• 1. Networktechn
iques:Network techniques such as Programme Evaluation
and Review Technique (PERT), Critical Path Method (CPM), and their
variants, are used extensively for the operational controls of scheduling
and resource allocation in projects. When network techniques are
modified for use as a cost accounting system, they become highly
effective operational controls for project costs and performance.
• 2. Internal Analysis: The internal analysis deals with the strengths and
weakness of the firm. It involves following techniques.
– Value chain analysis, Quantitative analysis, ratio analysis, market
ranking, advertising, market surveys, experimentation and
observation.
3. Balanced scoreboard: In this techniques, the four key performance
measures are identified – customer perspective, internal business
perspective, innovation and learning perspective and the financial
perspective. This techniques adopts a balanced approach to evaluate
performance of the organization as a whole as a wide range of
parameters are considered.
4. Management by Objectives (MBO): It involves subordinate
managers in planning and controlling activities. In this case the
superior and subordinate managers jointly decide common goals, and
jointly frame plans. The subordinate then implements the plan, and
finally the performance of the plan is jointly reviewed by the
superior and subordinate managers.
• 5. Memorandum of Understanding (MOU): Memorandum of
Understanding is an agreement between a public enterprise and the
Government where clearly specify their commitments and
responsibilities.
• 6. Budgetary control: It is used to indicate the appraisal of
performance by a comparison of the actual with the budget and
corrective action for the same. Here budgets are used as an instrument
of control.
• 7. Zero-based Budgeting: Here annual budgets, revaluation of plans,
projects and programmes decide whether any change in resource
allocation is required to achieve the company‟s goals.
• Strategic Alternatives Business environments are highly
uncertain and executives need to be innovative and
flexible to survive.
• They achieve this through strategic alternatives that
enable their companies to maintain a competitive edge
over rivals.
• Some alternative strategies include price focus,
differentiation, diversification and adjacent businesses
• Environmental analysis is a strategic tool. It is a process to identify all
the external and internal elements, which can affect the organization’s
performance.. These evaluations are later translated into the decision-
making process. The analysis helps align strategies with the firm’s
environment.
• Our market is facing changes every day. Many new things develop over
time and the whole scenario can alter in only a few seconds. There are
some factors that are beyond your control. But, you can control a lot of
these things.
• There are many strategic analysis tools that a firm can use, but some are
more common. The most used detailed analysis of the environment is
the PESTLE analysis.
• This is a bird’s eye view of the business conduct. Managers and strategy
builders use this analysis to find where their market currently.
• PESTLE analysis consists of various factors that affect the business
environment. Each letter in the acronym signifies a set of factors. These
factors can affect every industry directly or indirectly.
• Portfolio Model is a technique used to analyse organisations in relation
to their environments
• Portfolio (set, collection, assortment, range, group)
• A business Portfolio may be any collection of brands/products, markets,
branches /divisions, income generating assets, etc.
• PA is usually applied to firms with multiple SBUs (more than one
product/services, customer categories, markets , divisions)
• Helps managers in taking decisions regarding which SBUs to allocate
more or less resources to at a given strategic point in time
• After portfolio analysis firm makes an informed strategic choice e.g.
– To have a balanced portfolio (minimize risk and maximize return) of
all portfolios
– To actively deploy a retrenchment strategy
• Have been developed by large firms in developed world, mostly named
against their inventors
• Are applicable even to smaller firms with multiple SBUs.
– Examples are shown below:
• The B.C.G model (Growth/Share matrix)
• The G.E Multi-directional model (competitive strengths/Attractiveness
matrix)
• Contribution Margin Analysis (how much profit margin does that biz
portfolio contribute?)
• Gap Analysis.
• The BCG matrix was developed by the Boston Consultancy group in
1970s. It is also called the “Growth share matrix”. This is the most
popular and the simplest matrix to describe a corporation’s portfolio of
businesses or products.
• According to this technique, business or products are classified as low or
high performance depending upon their market growth rate & relative
market share.
• This is the most popular business portfolio matrix
• It analyses the business portfolio in relation to market share and market
/ industry growth.
• The above 2 variables (share & growth) range from low to high
• A SBU is positioned in the model and the firms strategy is guided by the
SBU’s positioning.
• To understand the Boston Matrix you need to understand how market
share & market growth interrelated.
• Market share is the percentage of the total market that is being serviced
by your company measured either in the revenue terms or unit volume
terms.
• Market Growth Rate: Market Growth is used as a
measure of a market’s attractiveness.
• To assess
– Profile of product /business
– Cash demands of products
– The development cycle of product
– Resource allocation & divestment decisions

Main Steps of BCG Matrix

- Identifying & dividing a company into SBU
- Assessing & comparing the prospects of each SBU according to two
criteria
- 1) SBU’s relative market share
- 2) Growth rate of SBU’s industry
- Classifying the SBU’s on the basis of BCG matrix
- Developing strategic objective for each SBU
BCG Matrix
• Star products all have rapid growth and dominant market share.
• This means that star products can be seen as market leading products.
• These products will need a lot of investment to retain their position, to
support further growth as well as to maintain its lead over competing
products.
• This being said, star products will also be generating a lot of income
due to the strength they have in the market.
• The main problem for product portfolio managers it to judge whether
the market is going to continue to grow or whether it will go down.
• Star products can become Cash Cows as the market growth starts to
decline if they keep their high market share.
• Cash cows don’t need the same level of support as before.
• This is due to less competitive pressures with a low growth market and
they usually enjoy a dominant position that has been generated from
economies of scale.
• Cash cows are still generating a significant level of income but is not
costing the organisation much to maintain.
• These products can be “milked” to fund Star products.
• Products classified as dogs always have a weak market share in a low
growth market.
• These products are very likely making a loss or a very low profit at best.
• These products can be a big drain on management time and resources.
• The question for managers is whether the investment currently being
spent on keeping these products alive could be spent on making
something that would be more profitable
• The answer to this question is usually yes.
• Also sometime referred to as Question Marks, these products prove to be
tricky ones for product managers.
• These products are in a high growth market but do not seem to have a
high share of the market.
• The reason for this could be that it's a very new product to the market.
• If this is not the case, then some questions need to be asked.
• What is the organisation doing wrong?
• What are its competitors doing right?
• It could be that these products just need more investment behind them
to become Stars.
BCG Matrix For Apple
BCG Matrix For Samsung
BCG Matrix For Nestle
BCG Matrix For Beverage Industry
• Developed in 1970’s
• General Electric or GE McKinsey Matrix.
• A strategic tool for portfolio planning.
• A portfolio is a group of businesses that make up a company (SBU’s)
• No business has infinite amount of money to run effectively.
• The GE Matrix helps to determine;
– Which SBU should receive more or less investment.
– What new products or SBU’s are needed in the portfolio.
– Which products or SBU’s need to be divested.

This is a form of portfolio analysis used for classifying product lines or

strategic business units within a large company
It was developed by McKinsey for the US General Electric Company
It assesses areas of the business in terms of two criteria:
1. – The attractiveness of the industry/market concerned
2. – The strength of the business
• How does it differ from the BCG Matrix?

• There are similarities: –

– Two dimensions are used to create a matrix
– Each cell suggests an appropriate strategy
– In both cases we are concerned with the future strategy for a
particular area (e.g. a division) within the firm
• There are major differences;
– The GE matrix involves a wider analysis of the firm’s operations
– The dimensions of the GE matrix are industry attractiveness and
business strength (rather than market share and market growth)
– There are nine cells and a wider choice of strategies
– The Boston Matrix focuses on products within the firms product
range
– The GE matrix can be extended to look at strategic business units.
• The vertical axis of the matrix is industry attractiveness
• This concerns the attractiveness to a firm of entering, or remaining, in
a particular industry
• Industry attractiveness is assessed by considering a range of factors
each of which is given a weighting to produce a composite picture
• Criteria which makes a market attractive;
Factors Which Makes Market Attractiveness

1. Market size 7. Growth rate 13. PEST factors

2. Industry profitability 8. Intensity of competition 14. Profit margins
3. Differentiation 9. Industry fluctuations 15Government regulation
4. Variability of demand 10. Entry and exit barrier 16. Volatility
5. Availability of Market 11. Availability of Work 17. Global opportunities
intelligence force
6. Overall returns in the 12. Rate of technological 18. Customer/supplier
industry change relations
• Business unit strength: Horizontal axis of the matrix is the strength of the business unit
• This refers to how strong the firm or SBU is in terms of the market
• A market might be very attractive but the firm lacks strengths in terms of supplying the
market
• As with industry attractiveness a composite of industry strength is based on weighting a
range of factors
• Notice that the Boston Matrix dimensions are included in the GE matrix- market
growth is an element of industry attractive and market share is an element in business
strength
Factors Assessing Internal Strengths of Business Unit
1. Production capacity 8. Production flexibility 15. Unit costs
2. R and D capabilities 9. Quality 16. Reliability
3. Company image 10. Product uniqueness 17. Cost and profitability
4. Service quality 11. Manufacturing capability 18. Organisational skills
5. Market share 12. Growth in market share 19. Marketing capabilities
6. Management competence 13. Skills of workforce 20. Distribution network
7. Size and quality of sales 14. Profit margins relative to 21. Customer loyalty and
force competitors Brand recognition
 Business Unit Strength

Strong Average Weak

Industry Attractiveness

High Grow Grow Hold

Medium Grow Hold Harvest

Low Hold Harvest Harvest

• Advantages
• Helps to prioritize the limited resources in order to achieve
the best returns.
• Managers become more aware of how their products or
business units perform.
• Identifies the strategic steps the company needs to make to
improve the performance of its business portfolio.
• Disadvantages
• Requires a consultant or a highly experienced person to determine
industry’s attractiveness and business unit strength as accurately
as possible.
• It is costly to conduct.
• It doesn’t take into account the synergies that could exist between
two or more business units.
Gap Analysis
• Strategic control is also focused on the achievement of future goals,
rather than the evaluation of past performance.
• Strategic control is concerned with tracking a strategy as it is being
implemented, detecting problems or changes in its underlying premises,
and making necessary adjustments

• Schreyogg and Steinmann (1987) : “The critical evaluation of plans,

activities, and results, thereby providing information for the future
action“.
• The most important purpose of strategic control is to help achieve
organizational goals through monitoring and evaluating the strategic
management process.
• It is a continuous process
• It is a management process
• It is embedded in each level of organizational hierarchy
• It is forward looking
• It is closely linked with planning
• It is a tool for achieving organizational activities
• It is an end process
• 1. Premise Control
• 2. Implementation Control
• 3. Strategic Surveillance
• 4. Special Alert Control
 STRATEGIC
MANAGEMENT
Unit-1
Introduction to Strategic management
Strategic management:
What Is Strategic Management?
Strategic management is the management of an organization’s
resources to achieve its goals and objectives.
Strategic management involves setting objectives, analyzing
the competitive environment, analyzing the internal organization,
evaluating strategies, and ensuring that management rolls out the
strategies across the organization.
Example of Strategic Management
For example, a for-profit technical college wishes to increase
new student enrollment and enrolled student graduation rates over the
next three years. The purpose is to make the college known as the best
buy for a student's money among five for-profit technical colleges in the
region, with a goal of increasing revenue.
In that case, strategic management means ensuring the school
has funds to create high-tech classrooms and hire the most qualified
instructors. The college also invests in marketing and recruitment and
implements student retention strategies. The college’s leadership
assesses whether its goals have been achieved on a periodic basis.
Process of Strategic management:
There are four process of strategic management. They are

1. Environmental scanning
2. Strategy formulation
3. Strategy implementation
4. Strategy evaluation
Elements of Strategic management:
Conceptual framework for Strategic
management
STRATEGIC DECISION MAKING:

WHAT IS STRATEGIC DECISION MAKING?

Strategic decision-making is a process of understanding the
interaction of decisions and their impact upon the organization to gain
an advantage. Wrong decisions taken at the wrong time, may result in
catastrophic consequences. In other words, the power of strategic
thinking lies in combining the power of the right decision with the right
time.
ISSSUES IN STRATEGIC DECISION
MAKING:
STRATEGIC FORMULATION PROCESS:
WHAT IS STRATEGY FORMULATION?
Strategy formulation is the process of using available
knowledge to document the intended direction of a business and the
actionable steps to reach its goals.
This process is used for resource allocation, prioritization,
organization-wide alignment, and validation of business goals.
A successful strategy can allow your organization to share one
clear vision, catch biases by examining the reasoning behind goals, and
track performance with measurable key performance indicators (KPIs).
Tips for successful Strategic formulation
process:
1. Start with purpose
2. Consider current events
3. Consider data, case studies and trends
4. Set and Effectively communicate goals
5. Think of strategy as an ongoing process
Strategic management models:
Strategic management involves making decisions and taking actions
that can help organisations achieve their objectives by adopting a systematic
way of formulating the strategy, implementing the strategy, and evaluating
and controlling the strategy implemented. Strategic management, therefore,
integrates various functional areas like marketing, management, finance,
accounting, human resources, production and information systems in a formal
and systematic manner consistent with the objectives of the organisation and
superior performance. This definition also suggests that strategic management
comprises three key components, namely, strategy formulation, strategy
implementation and strategy evaluation and control.
There are three major components in strategic management, namely,
strategy formulation, strategy implementation and strategy evaluation.
Corporate Governance:
Definition:
Corporate governance, in strategic management, refers to the
set of internal rules and policies that determine how a company is
directed. Corporate governance decides, for example, which strategic
decisions can be decided by managers and which decisions must be
decided by the board of directors or shareholders.
Principles of Corporate Governance:
Elements of Corporate Governance
 UNIT-2

STRATEGIC FORMULATION
Business level strategy:
Meaning:
Business level strategies refer to the combined set of moves and
actions taken with an aim of offering value to the customers and
developing a competitive advantage, by using the firm’s core
competencies, in the individual product or service market. It determines
the market position of the enterprise, in relation to its rivals.
Business-Level Strategies are mainly concerned with the firms
having multiple businesses and each business is considered as Strategic
Business Unit (SBU).
Dynamics of Business level strategy:
Definition:
Strategy Dynamics explains how business performance has
developed up to the current date, and how to develop and implement
strategies to improve future performance. The approach emphasises
building and sustaining the resources and capabilities needed to succeed.
Strategy Dynamics focuses on performance over time.
Corporate level strategy:
What Is a Corporate-Level Strategy?
A corporate-level strategy can be instrumental in outlining
your company's goal for the following year. You need to break down all
steps that make it clear for your employees the path they're supposed to
take. The type of corporate-level strategy you select can be an indicator
of the company's financial success and the method they take to generate
profits.
Characteristics of corporate-level strategy:
• When you're considering the corporate-level strategies you should undertake, keep these
characteristic examples in mind:
• Diversification
• Forward or backward integration
• Horizontal integration
• Profit
• Turnaround
• Divestment
• Market penetration
• Liquidation
• Concentration
• Investigation
• No change
Types of Corporate-level strategy:
Expansion Strategy:
What is an Expansion Strategy?
An expansion strategy is synonymous with a growth
strategy. A firm seeks to achieve faster growth, compete, achieve higher
profits, grow a brand, capitalize on economies of scale, have greater
impact, or occupy a larger market share. This may entail acquiring more
market share through traditional competitive strategies, entering new
markets, targeting new market segments, offering new produce or
services, expanding or improving current operations.
Types of Expansion Strategy:
Stability Strategy:

What is a Stability Strategy?

As the name implies, a stability business strategy seeks to
maintain operations and market size and position. This strategy is
characteristic of small risk-averse firms or firms operating in a very
precarious market that is comfortable with its current position.
Types of Stability Strategy:
Retrenchment Strategy:
What is a Retrenchment Strategy?
A redemption strategy seeks to restructure, sell or otherwise
divest a business unit. The purpose is to reduce costs, streamline
operations, or stabilize cash flow.
The three major types of retrenchment strategies are;
1. Turnaround strategy
2. Divestment strategy
3. Liquidation strategy
Types of Retrenchment strategy:
Diversification and Strategic alliances:
What is diversification?
Diversification is a business development strategy in
which a company develops new products and services, or enters new
markets, beyond its existing ones.
Diversification strategy can kick-start a struggling
business, or it can further extend the success of already highly profitable
companies. There are four key reasons why businesses adopt a
diversification strategy:
1. The company wants more revenue
2. The company wants less economic risk
3. The company’s core business is in decline
. 4. The company wants to exploit potential synergies
Advantage and Disadvantage of
diversification:
 UNIT-3

COMPETITIVE ADVANTAGE
Dynamics of Internal Environment:
Meaning:
Internal environment is a component of the business
environment, which is composed of various elements present
inside the organization that can affect or can be affected with, the
choices, activities and decisions of the organization.
It encompasses the climate, culture,
machines/equipment, work and work processes, members,
management and management practices.
Factors influencing Internal environment:
Porter’s five force model:
What Are Porter's Five Forces?
Porter's Five Forces is a model that identifies and analyzes
five competitive forces that shape every industry and helps determine an
industry's weaknesses and strengths. Five Forces analysis is frequently
used to identify an industry's structure to determine corporate strategy.
Porter's model can be applied to any segment of the economy
to understand the level of competition within the industry and enhance a
company's long-term profitability. The Five Forces model is named after
Harvard Business School professor, Michael E. Porter.
Strategies for local company competing with
global company:
Local company:
Any company that provides goods or services to a local
population is considered a local business. Often denoted by the phrase,
"brick and mortar," a local business can be a locally owned business or a
corporate business with multiple locations operating in a specific area.
Global company:
Global business generally refers to international trade. A
company which is doing business all over the world, that business are
called global enterprises. Earlier also there was the exchange of goods
over great distances. Such trade, of course, was not by definition global
but had the same characteristics.
Strategies:
As protectionist barriers crumble in emerging markets around
the world, multinational companies are rushing in to find new
opportunities for growth. Their arrival is a boon to local consumers, who
benefit from the wider choices now available. For local companies,
however, the influx often appears to be a death sentence.
Accustomed to dominant positions in protected markets, they
suddenly face foreign rivals wielding a daunting array of advantages:
substantial financial resources, advanced technology, superior products,
powerful brands, and seasoned marketing and management skills. Often,
the very survival of local companies in emerging markets is at stake.
• Despite the heated rhetoric
surrounding globalization,
industries actually vary a great deal
in the pressures they put on
companies to sell internationally.
• Two parameters—the strength of
globalization pressures in an
industry and the company’s
transferable assets—can guide that
company’s strategic thinking.
• Far from weighing down operations
with low-margin sales, the
company’s distribution network
was the key to defending its home
turf.
Capabilities and Competencies:
Capability-based strategies are based on the notion that
internal resources and core competencies derived from distinctive
capabilities provide the strategy platform that underlies a firm's long-
term profitability.
Evaluation of these capabilities begins with a company
capability profile, which examines a company's strengths and
weaknesses in four key areas:
• Managerial
• Marketing
• Financial
• Technical
Distinctive Competence:
What Is Distinctive Competence?
Distinctive competence refers to a superior characteristic,
strength, or quality that distinguishes a company from its competitors.
This distinctive quality can be just about anything—innovation, a skill,
design, technology, name recognition, marketing, workforce, customer
satisfaction, or even being first to market.
Via distinctive competency, a company can provide a
premier value to customers. This unique aspect of the company, product,
or service is difficult to imitate by the competition and creates a strong
competitive advantage.
Why distinctive competencies is important?
Distinctive competencies enable companies to:
1. Increase competitive advantage
2. Improve customer delight and loyalty
3. Stand apart from competitors
4. Be difficult to imitate
5. Strengthen strategy
Resources and Capabilities:
Resource-based theory can be confusing because the
term resources is used in many different ways within everyday common
language. It is important to distinguish strategic resources from other
resources. To most individuals, cash is an important resource. Tangible
goods such as one’s car and home are also vital resources. When
analyzing organizations, however, common resources such as cash and
vehicles are not considered to be strategic resources. Resources such as
cash and vehicles are valuable, of course, but an organization’s
competitors can readily acquire them. Thus an organization cannot hope
to create an enduring competitive advantage around common resources.
A strategic resource is an asset that is valuable, rare, difficult
to imitate, and nonsubstitutable.
 While resources refer to
what an organization owns,
capabilities refer to what the
organization can do.
More specifically, capabilities refer
to the firm’s ability to bundle,
manage, or otherwise exploit
resources in a manner that provides
value added and, hopefully,
advantage over competitors.
Resources and Capabilities in relation to
competitive advantage:
The Links Among
Resources, Capabilities and
Competitive Advantage in NOCs.
The competitive advantage of an
organisation arises from the
resources and capabilities that are
in place within the organisation.
Competitive advantage leads to
strategic success and a lack of it
leads to a lack of success.
 UNIT-4
Strategic Analysis
Strategic Analysis:
What is Strategic Analysis?
Strategic analysis refers to the process of conducting research on a
company and its operating environment to formulate a strategy.
The definition of strategic analysis may differ from an academic or
business perspective, but the process involves several common factors:
1. Identifying and evaluating data relevant to the company’s strategy
.
2. Defining the internal and external environments to be analyzed.
3. Using several analytic methods such as Porter’s five forces
analysis, SWOT analysis, and value chain analysis.
Levels of strategic analysis:
Tools and Techniques for Strategic analysis:

There are three major tools are used

in strategic analysis. They are
1.Planning tools
2.Tracking tools
3.Managing tools
Corporate Portfolio analysis:
Corporate portfolio analysis is a set of techniques that help
strategist in taking strategic decision regard to individual product or business
in a firm’s portfolio.
Each segment of a company’s product line is evaluated
including sales, market share, cost of production and potential market
strength.
Techniques;
• BCG (Boston Consulting Group) Matrix
• GE(General Electric’s 9 cell) model
• Hofer’s Product Market Evolution
• Directional Policy & the strategic position
Strength, Weakness, Opportunity, and Threat
(SWOT) Analysis:
What Is SWOT Analysis?
SWOT (strengths, weaknesses, opportunities, and threats) analysis is a
framework used to evaluate a company's competitive position and to develop
strategic planning. SWOT analysis assesses internal and external factors, as well as
current and future potential.
A SWOT analysis is designed to facilitate a realistic, fact-based, data-
driven look at the strengths and weaknesses of an organization, initiatives, or within
its industry. The organization needs to keep the analysis accurate by avoiding pre-
conceived beliefs or gray areas and instead focusing on real-life contexts.
Companies should use it as a guide and not necessarily as a prescription.
Gap Analysis:

What Is Strategic Gap Analysis?

Strategic gap analysis is a business management technique that

requires an evaluation of the difference between a business endeavor's best
possible outcome and the actual outcome. It includes recommendations on
steps that can be taken to close the gap.
Strategic gap analysis aims to determine what specific steps a
company can take to achieve a particular goal. A range of factors including
the time frame, management performance, and budget constraints are looked
at critically in order to identify shortcomings.
Steps in GAP Analysis:
McKinsey’s 7s Framework:
The McKinsey 7S Framework is a management model
developed by business consultants Robert H. Waterman, Jr. and Tom
Peters (who also developed the MBWA-- "Management By Walking
Around" motif, and authored In Search of Excellence) in the 1980s. This
was a strategic vision for groups, to include businesses, business units,
and teams. The 7 S's are structure, strategy, systems, skills, style, staff
and shared values.
The model is most often used as an organizational
analysis tool to assess and monitor changes in the internal situation of
an organization. The model is based on the theory that, for an
organization to perform well, these seven elements need to be aligned
and mutually reinforcing.
GE 9 Cell Model:
• The GE McKinsey Matrix is a useful tool for strategic planning.
• Organizations use the GE 9 Cell Matrix to determine their position in
the market and then analyze strategies for growth.
• Developed by McKinsey for its client GE, the GE McKinsey Matrix
helps business strategists analyze three factors: products and markets,
competitors and organizational structure.
Distinctive Competitiveness:

Meaning:
Distinctive Competence is a set of unique capabilities that certain firms possess
allowing them to make inroads into desired markets and to gain advantage over the
competition; generally, it is an activity that a firm performs better than its competition. To
define a firm‟s distinctive competence, management must complete an assessment of both
internal and external corporate environments. When management finds an internal strength
and both meets market needs and gives the firm a comparative advantage in the market
place, that strength is the firm‟s distinctive competence.
Defining and Building Distinctive Competence:
To define a company‟s distinctive competence, managers often follow a
particular process.
1. They identify the strengths and weaknesses in the given marketplace.
2. They analyze specific market needs and look for comparative advantages that
they have over the competition.
Grand strategy selection matrix:
Defintion:
Grand strategy selection matrix is a popular tool for developing
feasible strategies with the help of the SWOT Analysis, BCG Matrix, IE
Matrix, and SPACE Matrix. It is also known as the grand strategy matrix. It is
the instrument to create alternative and various strategies for the company.
This strategy matrix is developed in 2 dimensions: market growth and
competitive position. Data required for placing SBUs (Strategic Business
Units) in this matrix is got from the portfolio analysis. Grand strategy matrix
gives feasible strategies for organizations that are listed in attractiveness’s
sequential order in the matrix’s each quadrant.
The grand strategy selection matrix has become a powerful tool in
developing alternative strategies for companies. Basically, this strategy matrix
is based on 4 crucial elements:
1.Rapid Market Growth
2.Slow Market Growth
3.Strong Competitive Position
4.Weak Competitive Position
Balanced Scorecard:

What Is a Balanced Scorecard (BSC)?

The term balanced scorecard (BSC) refers to a strategic
management performance metric used to identify and improve various
internal business functions and their resulting external outcomes. Used to
measure and provide feedback to organizations, balanced scorecards are
common among companies in the United States, the United Kingdom, Japan,
and Europe.
Data collection is crucial to providing quantitative results as
managers and executives gather and interpret the information. Company
personnel can use this information to make better decisions for the future of
their organizations.
 The balanced scorecard
model reinforces good behavior in
an organization by isolating four
separate areas that need to be
analyzed. These four areas, also
called legs, involve:
• Learning and growth
• Business processes
• Customers
• Finance1
 UNIT-5

Strategy Implementation and Evaluation

Strategic implementation:
Meaning:
Strategic implementation refers to the process of
executing plans and strategies. These processes aim to achieve long-
term goals within an organization.
Strategic implementation, in other words, is a technique
through which a firm develops. It utilizes and integrates new processes
into the structure of an organization.
Process of Strategy Implementation:

• Building an organization, that possess the capability to put the

strategies into action successfully.
• Supplying resources, in sufficient quantity, to strategy-essential
activities.
• Developing policies which encourage strategy.
• Such policies and programs are employed which helps in continuous
improvement.
• Combining the reward structure, for achieving the results.
• Using strategic leadership.
Nature of strategy implementation:

It is possible to turn strategies and plans into individual actions, necessary to produce a great business
performance. But it's not easy. Many companies repeatedly fail to truly motivate their people to work with
enthusiasm, all together, towards the corporate aims. Most companies and organizations know their
businesses, and the strategies required for success. However many corporations - especially large ones -
struggle to translate the theory into action plans that will enable the strategy to be successfully
implemented and sustained. Here are some leading edge methods for effective strategic corporate
implementation. These advanced principles of strategy realization are provided by the very impressive
Foresight Leadership organization, and this contribution is gratefully acknowledged.
Most companies have strategies, but according to recent studies, between 70% and 90% of organizations
that have formulated strategies fail to execute them.
A Fortune Magazine study has shown that 7 out of 10 CEOs, who fail, do so not because of bad strategy,
but because of bad execution.
In another study of Times 1000 companies, 80% of directors said they had the right strategies but only
14% thought they were implementing them well. implementation is "the process of allocating resources to
support the chosen strategies". This process includes the various management activities that are necessary to
put strategy in motion, institute strategic controls that monitor progress, and ultimately achieve organizational
goals.
• For example, according to Steiner, "the implementation process covers the entire managerial activities
including such matters as motivation, compensation, management appraisal, and control pr ocesses".
implementation is "the process of allocating resources to support the chosen strategies". This process includes the various management activities that are necessary to put strategy in motion, institute strategic controls that
monitor progress, and ultimately achieve organizational goals.

• For example, according to Steiner, "the implementation process covers the entire managerial activities including such matters as motivation, compensation, management appraisal, and control processes".
Strategy Implementation Process:
Models of Strategic implementation resource:
Strategic Allocation:
Factors Affecting Resource Allocation
Structures for Strategies:
Techniques of Strategic Evaluation and
Control:
Emerging Trends and Analytical Cases:

The top five emerging trends driving the global management consulting
services market are as follows:
• Increased strategic partnerships with market research firms
• Growth in technology automation
• Increased online collaboration among stakeholders
• Increase in commoditization of services
• Growth in offshoring
Top five suppliers in the global management
consulting services:
• PricewaterhouseCoopers
• Deloitte
• McKinsey & Company
• Boston Consulting Group
• Bain and Company