UNIT IV

Once all the possible strategies for corporate and business level have been identified, the next step in strategy
formulation is to select the most suitable strategy for the organization or business unit, based on existing external and
internal environment situation. This step is called the Strategic Choice and Analysis.

It is the process of choosing from all the available strategies, and is thus, a decision making process. This decision must
always be taken bearing in mind the following:
a. The external environment factors and current situation
b. The internal environment factors and current situation
c. Alignment with organization’s vision, mission, goals and objectives

Process of strategic choice and decision making

It involves 4 steps:
1. Focusing on strategic alternatives
2. Analysing the strategic alternatives
3. Evaluating the strategic alternatives
4. Final selection

1. Focusing
It involves visualizing the future state of the firm, and working backwards from that vision.
The future state is compared to the current state to identify the gap, and then a set of possible strategies are identified
that best suit to fill the gap. So, the applicable strategies’ list is narrowed down here.

(Gap here means difference between what the firm is today and what it wants to be in the future.)

For example, if the gap in current and future state is high, and the performance of the firm is also good, the preferred
strategies would be growth strategies. If the gap is low, and the performance is average, stability strategy is most
suitable. If the gap is very high while the performance is very low, then retrenchment from that business may be the
alternative.

2. Analysing
This is the phase where a study of all alternatives is done based on selection factors. The selection is based on certain
factors that constitute the criteria of evaluation. There are two types of factors:
 Subjective – based on perception of leaders and stakeholders. They are intuitive, and cannot be measured.
 Objective – based on analytical techniques, hard facts and data which is generally measurable

3. Evaluating
This step involves bringing together the results of analysis to compare the alternatives. Both subjective and objective
factors are considered here. There are multiple methods or approaches to do this evaluation.

4. Final Selection (Choosing)

This is the final selection of one or two strategies that will be implemented. A blue print is created around the chosen
strategy, its description and operational conditions. This blue print is called the Strategic Plan.
This step also involves creation of contingency strategies, which is like a back-up plan in case things do not go as
planned.

The subjective factors mentioned above may include the following:

i. Government policies
ii. Organizational culture
 iii. Quality of leadership – Is it ambitious? Is it risk prone or risk averse?
iv. Political stability in the operational country
v. Timing with respect to competitors
vi. Strategies that were adopted previously with their results and success/failure rate
vii. Pressure from stakeholders etc.

The objective factors that constitute the selection criteria may include the following:
i. Market size
ii. Market size growth rate
iii. Market share
iv. Market share growth rate
v. Profitability ratios
vi. Performance ratios etc.

For each subjective and objective factor, a detailed analysis is required before making the correct strategic choices.

There are multiple models that have been devised by industry specialists that help the organizations to study the
factors that need to be analysed before taking any major decisions. Some of these models are:

1. Corporate Portfolio Analysis – Study of all SBUs

2. Environmental analysis – SWOT
3. Experience Curve analysis – study of evolution of organization with increase in experience
4. Life cycle analysis – Study of product, firm and industry life cycle
5. Industry analysis – Porter’s 5 forces model
6. Competitor analysis

Corporate Portfolio analysis

1. Used by diversified organizations
2. Aims to create a balanced portfolio with respect to four aspects – profitability, cash flow, growth, risk
3. Can be done using experience curve or PLC concept or BCG matrix or GE 9 cell matrix, product market
evaluation matrix, DPM and Profit Impact of Marketing Strategies

I. BCG Model or BCG Growth Share matrix

1. Given by Henderson of Boston Consulting Group

2. Objective factors used are Market growth rate and market share into a 2X2 matrix
3. Cash cows, stars, Question marks and dogs
4. Growth in star, retrenchment in dogs, stability or growth in question marks, combination in cash cows
 5. Advantages – Easy to apply, Mixed portfolio with sustainable returns, clear picture of when to invest and
divest
6. Disadvantages – no consideration of risks, economic conditions or threats, social political factors not taken
into account, does not show what competition is planning, does not give a box to average performance (only
high and low categories).

II. GE 9 cell matrix

Example 1
 Example 2

GE 9 Cell matrix
1. Created by GE with consultation from McKinsey
2. Objective factors are business strength and industry attractiveness into a 3X3 matrix
3. Designed to overcome the disadvantage of BCG matrix where average players could not be placed.
4. Business strength includes sub-factors of

i. Market share
ii. Market share growth rate
iii. Profit margin
iv. Distribution efficiency
v. Brand image
vi. Ability to compete on price and quality
vii. Knowledge of customer
viii. Customer loyalty
ix. Production capacity
x. Access to financial resources
xi. Technological capability
xii. Management calibre etc.

Industry attractiveness includes sub-factors of

i. Size of market
ii. Market growth rate
iii. Industry profitability
iv. Competitive intensity
v. Economies of scale
vi. Technological requirements
vii. Pricing trends
viii. Overall risk of returns in the industry
ix. Opportunity for differentiation of products and services
x. Demand variability
xi. Segmentation
xii. Distribution structure etc.

5. BU is plotted as a circle on the matrix with area of circle proportionate to total industry sales and a pie
representing market share.
6. Called stop light or spotlight model because 9 cells are divided into red, yellow and green areas.
7. Green = invest and expand; yellow = caution, select/earn; red = retrenchment
 8. Advantages – Deeper divisions due to 3 scale division, all major aspects of business strength covered, all
major aspects of industry covered
9. Disadvantages – May become too complex, sometimes difficult to decide subjective sub-factors, difficult to
place a new business.

III. Directional Policy Matrix

1. Objective factors are Market attractiveness and Organizational capability
2. Sub-factors are not fixed, management chooses four to six most relevant / important sub-factors for
attractiveness and four to six CSFs for org capability
3. Business units are placed in a 3X3 matrix.

 Leader – Focus your resources on segments in this sector. GROWTH

 Growth leader – Grow by focusing just enough resources here. GROWTH
 Cash Generator – Milk segments in this sector for expansion elsewhere. NO CHANGE
 Phased withdrawal – Move cash to segments with greater potential. PAUSE/PROCEED with caution
 Custodial – Do not commit any more resources to segments in this sector. PAUSE
 Try harder –Determine if there are ways in which you can build your capability for segments in this sector for
low levels of cash. RETRENCH
 Double or quit – Invest in your capability or get out of segments in this sector.
  Divest – Liquidate or move assets used in segments in this sector as fast as you can.

IV. Profit Impact of Market Strategies (PIMS)

It was started by GE as a project to study their own data on which strategies were implemented and what were the
results. It was later continued by Harvard for few years and since then has been managed by SPI (Strategic Planning
Institute based in USA).

It is a long term study of performance of 1000s of SBUs in 100s of companies in all major industries.

PIMS database is currently maintained by SPI (Strategic Planning Institute) and its access is available on subscription.

Profit Impact of Marketing Strategy or PIMS is an ongoing study of strategies that drive business profitability, cash
flows, and revenues and help companies gaining and sustaining competitive advantage in the industry. The variables
that define the criteria include market share, product quality, investment intensity etc.

Experience of organizations is charted statistically to show what strategies were adopted in what situations, and what
the results were.

According to the SPI, the PIMS database is "a collection of statistically documented experiences drawn from thousands
of businesses, designed to help understand what kinds of strategies (e.g. quality, pricing, vertical integration,
innovation, and advertising) work best in what kinds of business environments. The data constitute a key resource for
such critical management tasks as evaluating business performance, analysing new business opportunities, evaluating
and reality testing new strategies, and screening business portfolios."

Database is created from information provided by companies that are members of SPI.

Data is categorized into 8 types and all the information for a specific SBU (its financials, market, product, competitors
etc.) is generalized – Consumer durables, consumer non-durables, components, retail, services etc. The numbers for
each category are shown as averages of the entire population in that category.

User can enter their financials and compare it with SPI averages in similar industry for benchmarking to see what they
can expect from a particular category.

Comparison is not just based on industry, but can be more effective when compared in a comprehensive manner
selecting the situation, environment etc.

SPI also provides consulting services.

I. Product / Market evolution matrix

This is a 15 cell matrix designed by Hofer, used for diversified organizations.

Matrix is created on the basis of two criteria: the maturity of the sector, divided into 5 phases and the competitive
position of companies in the sector, divided into three categories. In this matrix, circles are created which represent
different areas of activity in the company, and the size of the circle is proportional to size of the sector. Sometimes
segments could be added to the circle, which reflect the market share of company in the sector.

Evolution of sector/industry is divided into 5 phases – Early development or start up, Rapid growth or take-off, Shake-
out, Maturity or Saturation, Decline

Competitive position of the organization is divided into 3 scores – Strong, average and weak.

SBUs are placed in the cells as circles, area of circle proportionate to size of market, and pie showing market share.
Placement is done based on the phase of industry lifecycle in which the organization is operating, and the
organization’s competitive position in the market as against their competitors.

This matrix was designed to eliminate the disadvantage of previous matrices that did not reflect the industry lifecycle
stage.
Implementation of Strategies
Once the decision making process is over and a strategy has been identified, the next step is to implement it.

Characteristics of the implementation process:

1. Action oriented
2. Comprehensive in scope
3. Requires varied skills
4. Wide range of involvement from top to middle management
5. Integrated process with people from all functions or departments working together

Barriers to successful implementation process:

1. Change Management – Resistance to change

2. Vague strategy or not-clearly defined future state
3. No guidelines or model from strategists on how to implement
4. Communication gap in involved parties or teams and lack of information sharing
5. Poor planning of accountability and responsibility

Formulation and Implementation of Strategy have a forward backward linkage. Formulation must always be followed
by implementation, and implementation is always preceded by formulation.

Difference between formulation and implementation

Formulation Implementation
Thought oriented Action oriented
Involves only Top level management Widely distributed responsibility based on RACI
Theoretical and static process Dynamic process that needs constant changes
Strategic Decision making task Administrative task including operational decision
making
Results in an INTENDED plan Results in a REALIZED change

Process of Implementation

I. Activating strategies
II. Managing change
III. Achieving effectiveness

I. Activating Strategies
 i. Strategy which is selected is discussed in depth.
ii. A strategic plan or blue print is devised on how to reach the desired future state.
iii. The plan is divided into programmes that constitute phases of implementation.
iv. Each programme may have multiple projects which work parallel and in sync with each other. This step
involves creating the infrastructure for implementation. (Project Management – Initiate, Planning, Executing,
Controlling and Closing)
v. Budget allocation is done for each project. This may be done in a top down approach where the leadership
allocates budget based on availability, or may be done in a bottom up approach where allocation is done based
on needs reported to top management. When a mix of both approaches is used, where needs are determined
from lower level management, and then the top management allocates keeping in mind the needs as well as
availability, it is called as Strategic budgeting.
vi. Procedural implementation is done in the form of getting approvals from all relevant parties, like government
licenses, purchasing patents or copyrights etc. All environmental aspects are considered here.
vii. Resource allocation is done for each project based on availability and priority.

Resource Allocation

Resource allocation is an important step of activating strategies for implementation. It involves:

a. Procurement of resources and commitment of allocation to projects

b. Distribution of resources to projects
c. Appropriate utilization and tracking

Resources does not just include the capital or funds but is a collection of financial resources, Human resources or
people, information resources or knowledge base, and physical resources like land, raw material, machinery etc.

Challenges in Resource Allocation

1. Understanding priorities between competing demands to allocate to that project which is more
important/critical
2. Making a trade-off between two project needs
3. Managing scarcity of resources, since all resources have a cost associated to it
4. Restrictions on available resources, like capping on budget, or government policies restricting FDI
5. Overstated needs by a project causing incorrect allocation

Factors affecting resource allocation

1. Goals and Objectives of the organization

2. Presence of dominant strategists or leaders, and their preferences
3. Internal politics in the organization
4. External influences like government policies, demands of shareholders or financial institutes, environmental /
ecological requirements, Corporate Social Responsibility etc.

II. Managing change

 Degree of change – Radical or incremental
 Timing of change – Proactive approach or reactive
 Activity areas of change – Areas where a change is required, e.g. Organizational Structure, Organizational
leadership, and Organizational behaviour.

III. Achieving effectiveness

The ability to meet goals, and to obtain feedback through continuous evaluation.
Organizational Structure

An organizational structure is a system that outlines how certain activities are directed in order to achieve the goals
of an organization. These activities can include rules, roles and responsibilities, task allocation, coordination and
supervision. The organizational structure also determines how information flows between levels within the company.

Difference between Org Structure and Org Chart

Organizational structure is designed around the functions a business performs (e.g., sales, marketing, finance,
engineering, etc.). An org chart is built around people and titles. Organizational structure defines the purpose,
accountabilities, and key performance indicators (KPIs) for each business function and role.

Organizational structure Organizational Chart

Organizational structure is designed around the An org chart is built around people and titles.
functions a business performs (e.g., sales,
marketing, finance, engineering, etc.).
Organizational structure defines the purpose, An org chart shows each person’s job title and
accountabilities, and key performance may include HR stuff like job requirements.
indicators (KPIs) for each business function and
role
Once correctly defined, a structure changes An org chart needs to be updated frequently as
infrequently people come and go.

ORG STRUCTURE
ORG CHART

Types of Organizational Structures

Entrepreneurial structure – Basic structure for small org. Owned and managed by one person.

Functional structure – Most common type of org structure. This is where the organization is divided into smaller
groups based on its special functions such as IT, finance or marketing. This departmentalization allows greater
operational efficiency because the employees have their skills and knowledge to be shared within the group.
Divisional structure – The divisional organizational structure organizes the activities of a business around
geographical, market, or product and service groups. The divisional structure is especially useful when a company has
many regions, markets, and/or products.

The divisional organizational structure allows each division of a firm to be accounted for in isolation.

SBU Structure – More complex version of division structure, when the strategic intent and management of each
division is different, or the organization is too diversified.
Matrix Org structure – A matrix organizational structure is a company structure in which the reporting relationships
are set up as a grid, or matrix, rather than in the traditional hierarchy. In other words, employees have dual reporting
relationships - generally to both a functional manager and a product manager.

Network Org structure – is a newer type of organizational structure often viewed as less hierarchical (i.e., more flat),
more decentralized, and more flexible than other structures. It is based on both internal and external co-ordination
and info sharing.
ROLE OF LEADERSHIP IN STRATEGY IMPLEMENTATION

Implementing corporate strategy requires a team effort headed by the organization's leadership team. Each person
involved in change management has their responsibilities, and it is important for the entire organization to understand
the role of leadership in strategic implementation to make delegating responsibility more effective.

1. Ensure effectiveness and efficiency – Explain the change and how it impacts the organization, how it is related
to org vision and mission.
2. Interest – Take interest and stay up-to-date. Keep the interest level high with constant motivation. Keep
everyone in Q1 of time management.
3. Involvement and accountability – Ensure that people from all areas are included in the strategy
implementation team. Create a transparent reporting structure in the implementation team. Clear RACI.
4. Communication – Keep the information flowing, ensure transparency and manage insecurity.
5. Monitoring – Strategy implementation is dynamic, so constant vigil is required to know when the process
needs re-designing.
6. Next steps – Be ready for the next phase already, once the current phase gets over. Stay pro-active.
7. Conflict management – Make sure that the direction is towards the common goal, without personal agendas.

ROLE OF ORGANIZATIONAL CULTURE IN STRATEGY IMPLEMENTATION

1. Flexibility, adaptability and acceptance

2. Stability and security
3. Goal unification
4. Alignment with goals
5. Alignment with strategy

Approaches to strategy implementation as per org culture

1. To ignore the corporate culture

2. To adapt the implementation process to suit the culture
3. To change the culture to match strategic requirements
4. To change the strategy to match the corporate culture