Strategic Management Notes Old Compressed

Table of Contents
Business Environment 2
Introduction to Strategic Management 12
Dynamics of Competitive Strategy 22
Strategic Management Process 62
Corporate Level Strategies 74
Business Level Strategies 85
Functional Level Strategies 95
Organisation and Strategic Leadership 121
Strategic Implementation and Control 141
Six Sigma and TQM 164
Strategic Management www.IndigoLearn.com 1

Business Environment
Introduction
A business is an enterprise that provides products or services desired by customers.
In this constant changing business environment, survival of any business depends
mainly on two factors namely-
(i) Ability of a business to grow and prosper,
(ii) Ability of a business to adapt and respond to changes
Examples of businesses which survived, sustained and responded positively to change
are Tata Group, Bombay Dyeing Company etc.
Meaning of Business Environment

Business environment comprises of factors that effects the functioning of any
business-like external forces, decisions, strategies and any other impacting factors
within or outside an organisation.
- The success of any business highly depends on business environment.
- Businesses must identify these conditions and respond positively towards them.
- A proper response enables a business to function smoothly and enables growth
and success
Characteristics of Business Environment
(i) Complex Environment: -
It is very difficult to understand various conditions & factors affecting a
business and responding to them in a positive way.
(ii) Dynamic Environment: -
Constant and continuous change in business environment highly affects an
organisation and its functioning.
(iii) Multi- Faceted Environment: -
There can be multiple views for a single change by a business. For some
businesses the change can turn out to be very favorable and can be viewed
as an opportunity whereas for some it can pose serious threats for its
survival.
(iv) Far Reaching Impact: -

A very small change in business environment can affect the function and
process of an organisation very deeply. So every change whether small or
big must be assessed very carefully so as to neutralise its negative impact.
Importance of Business Environment

(i) Identifying Opportunities for & Threats to the business.
(ii) Identifying areas of growth and expansion for an organisation
(iii) Never ending learning and motivation of the managers and other employees
are very significant in the success of an organisation.
(iv) Understanding & responding to needs and demands within and outside an
organisation is a very vital aspect to be looked into for resolution.
(v) Sensing competition and quick reflex towards the same is also important
for any business
(vi) Identifying strength & weakness of an organisation is also important for any
business environment.
Relationship between Organisation and its Environment

Major relationships are outlined below:-
(i) Exchange of Information:-
Information received from external environment are used for planning,
decision making & control purposes. Information’s are also provided to
several external agencies who approaches the organisation for it.
(ii) Exchange of Resources:-
Inputs are procured from external markets and output of product &
services produced are disposed (sold) with the help of external
environment.
(iii) Exchange of Influence & Power:-
External environment holds considerable power and influence over the
organisation by virtue of its command over resources, information & other
inputs.
Organisation’s response to its Environment

(i) Administrative response:-
The sum total of organisations mission, objectives, policies and budgets
constitutes administrative response. These responses helps in defining
organisation purpose and key tasks.
(ii) Competitive Response:-

This type of response is mainly associated with profit seeking
organisations but it is applicable to non-profit organisations as well. This
type of response helps in increasing organisations performance.
(iii) Collective Response:-
This mainly relates to increased coordination with other organisations.
This type of response helps in controlling interdependencies among
organisations which include methods such as bargaining, contracting,
creating joint ventures etc.
Environmental Influence on Business.
-Businesses function within a relevant environment and find their way through it. A
successful business has to identify, appraise, and respond to various
opportunities and threats in its environment.
-Business function as a part of broader environment. The inputs and resources
obtained through the environment are converted to output and products. This
input-output exchange activity is deemed to be a continuous process.
-Following are frameworks to understand the environmental influences
Analysis of the nature of environment
Identification of environmental influences which will affect organisation
performance
Focusing towards competition area in which an organisation operates
Utility of Environmental Analysis

It helps in identifying opportunities and responding to them positively. It also
assists in framing strategies and identifying potential threats.
Purpose of Environmental Analysis

Analyzing changes and responding actively towards them.
Collecting useful information for strategic decision making.
Constantly implementing and adopting new ideas and techniques.
Environmental Scanning
Environmental scanning can be defined as the process by which organisations
monitor their relevant environment to identify opportunities and threats
affecting their business for the purpose of taking strategic decisions.

Factors to be considered for environmental scanning are:-
Events: - Events are certain happenings in organization’s environment.
Trends: - Trends are related events which usually suggests a pattern of change in
a particular area.
Issues: - Issues are concerns arising in response to events & trends
Expectations: - Expectations are demands towards a particular concern
Components of Business Environment

Internal Environment:-
Internal environment comprises of elements which influence businesses and are
present within the organisation itself. Example: - Organisation’s management,
Employees, Culture etc.
External Environment:-
External environment comprises of elements which influence businesses and are
present outside the physical boundaries of an organisation. These elements are
mainly beyond the control of an organisation. Example: - Customers, Competitors,
Suppliers etc.
Two major types of External Environment are:-
(i) Micro Environment
(ii) Macro Environment
SWOT Analysis
It is a technique used to study and analyse internal & external environment of an
organisation. It mainly focusses on the study of Strength, Weakness Opportunities
& Threats within and outside the environment of an organisation.
Detailed study on Micro & Macro Environment

Micro Environment: - It mainly consists of operating environment of an organisation
which directly affects it on a regular day to day basis. It consists of suppliers,
consumers, market intermediaries etc.
Macro Environment: - It mainly consists of elements prevailing in the economy as a
whole. Due to its vast and huge coverage it is usually beyond the control of an

organisation. It mainly consists of economic, technological, political, legal & socio-
cultural dimensions.
Elements of Micro Environment

a. Customers:-
A customer is an individual or business that purchases the goods or services
produced by a business. The organisation cannot survive without customers.
b. Competitors:-
Any person, business entity, organisation or industry which competes with any
other business and is a rival to them is called a competitor. Competition may
be direct or indirect and it shapes businesses.
c. Organisations:-
An organisation is a group of individuals working together to achieve one or
more objectives.
Following elements effects organisations activities: -
Owners: - a person who owns business and enjoy rights and benefits
associated and derived from it is called owner of that business.
Board of Directors: The chief governing body of an organisation or company

is termed as Board of Directors of that entity.
Employees: - They are the persons who work in an organisation collectively

towards achieving organisations goal & objectives.
d. Markets:-
Analysis of market trends & scenarios, price sensitivity, technological and cost
structure should be studied deeply by an organisation.
e. Suppliers:-
Suppliers provide goods or services that are needed by an organisation for its
operation and functioning.
f. Intermediaries: -
Persons such as broker, agents etc. are termed as intermediaries and they
significantly influence the business of an organisation.

Elements of Macro Environment
a. Demographic Environment:-
Demographic environment have great impact on the business of an
organisation and comprises of factors such as age profile, sex ratio,
education etc.
Few essential factors of demographic environment are discussed

below:-
Population Size: - Factors of population size such as changes in
birth rate, increase or decrease in population, rapid population
growth and its effect on resources and life expectancy plays a major
role in determination of framing of strategies and implementing
decisions.
Geographic Distribution:-It means shift of population from one

region or area to another region. Location of population have a
significant impact on the business of an organisation. It helps a
business in determination of availability of workforce and
governmental regulations in a particular location.
Ethnic Mix: - It impacts company’s potential customers and its

workforce.
Income Distribution: - Individuals income and purchasing power also

plays a vital role in determining market potential and its framework.
b. Economic Environment: -
Economic environment determines the strength & size of the market.
Following are the factors that affect the economic environment: -
1. Economic Systems: -
Capitalism: - A capitalist economy is an economy where the
laws of demand and supply operate freely.
Socialism: - Socialism is an economy where means of
production and resources are owned ,controlled and regulated
by the state directly
Mixed Economy: - A mixed economy comprises of
characteristics of both Capitalism & Socialism economy. In

this type of economy control vests in the hands of both private
players as well as the government.
2. Economic Conditions or Factors: -

It refers to set of economic factors that influence business and
operations of an organisation. Example: Gross Domestic Product, Per
Capita Income, inflation, unemployment etc.
3. Economic Policies: -
All business activities and operations are directly influenced by the
economic policies framed by the government from time to time.
Some important economic policies are: -
Industrial Policy
Fiscal Policy
Monetary Policy
Foreign Investment Policy
Export-Import(EXIM) Policy
c. Political-Legal Environment: -
Political & legal environments focus on the possibility for a company to
easily enter or not in a country. It relates to political & legal barriers
which a business face in a given country.
Three important elements in political-legal environment are: -

Government: - Government policies effects and control business in a
very big way. Example:- Tax & duties imposed by government
Legal: - Laws and regulations also influence business operations in a
significant way. Example: - New GST law will influence most of the
businesses.
Political:- Political system & political pressures also influence
organisations business
d. Socio-Cultural Environment:-
Socio-Cultural Environment consists of factors related to human
relationship and the impact of social attitudes and cultural values which
effects the operations of the organisation. Some important factors which
influence socio-cultural environment are Social Concerns, Social attitudes
& values, Role of women & Children in society, educational levels etc.
e. Technological Environment: -
It consists of methods and technology used in the production of goods or
services. Technological changes & advancement have a huge impact on the
business of an organisation.

Technological change, technological innovation, Research & Development
etc. are some of the major factors of technological Environment.
f. Global Environment: -
Almost everything has been globalised now a days. Any change in global
markets, international environment, global cultural environment etc. poses
a huge impact on organisations business. More and more companies are
interested in globalising themselves now a days.
PESTLE Analysis
It is a very simple & quick tool and is mainly used for the study and analysis of
macro environmental factors. It helps management of an organisation in strategic
decision-making function.
PESTLE is an acronym for: -
P- Political
E- Economic
S- Socio-Cultural
T- Technological
L- Legal
E- Environmental
Strategic Response to the Environment

Every organisation should focus towards minimising threats and availing opportunities
for survival and growth of its business. Following approaches may be adopted for
achieving the same:-
Least Resistance: -
Avoiding unnecessary friction with other organisations is very important for
minimising resistance.
Proceed with Caution: -
Smart & calculated moves & measures must be taken before implementation of
any strategy and decision.
Dynamic Response: -
An organisation must develop within itself the potential to convert any threat
into opportunities and must act proactively towards any changes in its
environment.

Introduction to Strategic Management
1. Concept of Strategy
‘Strategy’ is something that has to do with war and ways to win over enemy.
Businesses have a set of goals, objectives and mission
Strategy seeks to relate the goals of the organization to the means of achieving
them. It is the action plan for achieving the long- term goals of an
organization.
Businesses function in a dynamic and ever-changing environment.
Strategies help businesses to reduce the impact uncertainties caused by
environment.
Strategies also help business to gain control over situations [caused by internal
as well as external environments] with a long-range perspective.
Strategies help businesses to secure advantageous position
Strategies are consciously considered [It doesn’t happen on its own]
It helps companies/businesses to
o Mobilize resources
o Direct human behavior
o Handle events and problems
o Identify and utilize opportunities
o Meet challenges and threats
o Ensure corporate survival and success
A long range blueprint of an Strategy is the game plan that the

organization’s desired image, management of a business uses to
direction and destination - - take market position,
- what it wants to be, - conduct its operations,
- what it wants to do and - attract and satisfy customers,
- where it wants to go - compete successfully, and
- achieve organizational objectives.
Definitions
The common thread among the

organization’s activities and A unified, comprehensive and
product-markets that defines the integrated plan designed to assure
essential nature of business that that the basic objectives of the
the organization has or planned to enterprise are achieved
be in future. - Ansoff

Are Goals and Objectives alone sufficient?
Objectives and goals do not provided direction to organizations.

An organization needs direction and focus
Strategy provides a sense of direction to achieve goals and objectives.
Do Strategies replace management?

Strategy is not a substitute to management.
Strategies are flexible and require intervention of management to respond
to the changing environment.
Strategies are not perfect or flawless.
A sound and alert management is necessary to execute the best of
strategies
A cricket team may have a perfect strategy but if the captain is

unable to implement it or respond to the changes in match situation,
the strategy will not be successful.
Strategies are both Proactive and Reactive
Proactive actions on the part of managers to improve the company’s

market position and financial performance and
Reactions to unanticipated developments and fresh market conditions.
A company uses both proactive and reactive strategies to cope up the
uncertain business environment.
Proactive strategy is planned strategy whereas reactive strategy is
adaptive reaction to changing circumstances.
A reactive strategy can also be considered as a response to new
learnings as a strategy is implemented. [Improvements to existing
strategies]
Proactive = before event occurs/Based on anticipated events
Reactive = after even occurs/Not anticipated in advance.
Levels of Strategy
I. Corporate Level – At the level of Company
II. Business Level – At the level of Business (SBUs)
III. Functional Level – At the level of functions (finance, marketing etc.)

2. Concept of Management
What? A group of people Set of inter-related functions

and processes carried out by
the management (group of
people)
Purpose? To make an organization a To attain organization
purposeful entity objectives
How? By bringing together and Performing functions like
integrating resources like planning, organizing, directing,
money, material, manpower, staffing and control.
machinery, technology etc.
Importance The survival of an organization To determine goals, mobilize
depends to a large extent on the resources, design organization,
competency of the allocation of tasks and
management. achieving the objectives.
Managers formulate organizational goals, values and strategies, to cope with, to

adapt and to adjust themselves with the behavior and changes in the
environment.
Benefits [CLAPODD]
S.No. Points Key words or sentence to be include in

explanation of point
1. Direction Defines goal and realistic objective which
are in line with vision of company.
2. Proactive instead of reactive Organization able to analyze and take action
instead of mere spectators. It helps to avoid
or reduce the effect of uncertainties.
3. Framework for decision Framework for all major decision such as
decision on businesses, products, Markets,
manufacturing facilities, investment and
organizational structure.
4. Futuristic and Opportunities organization to face the future and act as a
pathfinder to various business opportunities
5. Avoids mistakes Act as a corporate defense mechanism and
help to avoid costly mistakes.

6. Longevity Organization work in competitive and
dynamic environment.
Strategic management helps to take a clear
stand in relate industry and make sure it is
not surviving on luck.
7. Core Competencies and Develop core competency and competitive
Competitive Advantages advantage that would facilitate assist in its
fight for survival and growth.
3. Concept of Strategic Management
DEFINITION: A managerial process of developing

1. Strategic vision
2. Setting objective
3. Crafting strategy (Strategy Planning)
4. Implementing the strategy
5.Initiating corrective adjustments
6. Evaluation of strategy
Objective of Strategic management
To create Competitive advantage,

Why competitive advantage?
So that the company can outperform the competitors in order to have dominance over
the market.
To guide the company successfully through all changes in the environment.
Strategic planning
- Involves developing a strategy to meet competition
- Ensure long term survival and growth of the company.
Strategic Management Involves SWOT Analysis (Strength, weakness,

opportunities, threat). It includes Monitoring and evaluating opportunities and
threats and analyzing companies strength and weakness
Why SWOT Analysis: To design strategies for the survival and growth of the
company.

Survival of fittest theory applicable on business organization also. Not only
“strongest” but those who can change and adapt successfully to the change in
business environment.
Benefits of Strategic Management

The strategic management gives a direction to the company to move ahead. It
defines the goals and mission.
It helps management to define realistic objectives and goals which are in line
with the vision of the company.
Strategic management helps organisations to be proactive instead of reactive in
shaping its future. They are able to control their destination in a better
manner.
Strategic management provides framework for all major decisions of an
enterprise such as decisions on businesses, products, markets, manufacturing
facilities, investments and organisational structure.
It provides better guidance to entire organisation on the crucial point - what it
is trying to do.
Strategic management seeks to prepare the organisation to face the future
Organisations are able to identify the available opportunities and identify ways
and means as how to reach them.
Strategic management serves as a corporate defence mechanism against
mistakes and pitfalls.
Strategic management helps to enhance the longevity of the business.
Strategic management helps the organisation to develop certain core
competencies and competitive advantages that would facilitate assist in its
fight for survival and growth.
Limitation of Strategic Management
S. No Points Key words or sentence to be include in

explanation of point
1. Complex Environment Highly complex and turbulent.
2. Time Consuming Process Spend lot of time in preparing and communicating
3. Costly Process Expert Strategic planners need to be engaged
4. Competitive Responses to All trying to move strategically and makes difficult to
Strategy estimate the competitive response to organization
strategy.

4. Strategic Levels in Business Organisation
Corporate Level
Who is involved CEO, Board of Directors.
Role To oversee the development of strategies for the whole

organization.
Activities Set Vision, Defining Mission, Deciding businesses to be in,
allocating resources among different Business, Formulating and
implementing strategies, providing leadership, Managing
divestment and acquisition processes.
BUSINESS LEVEL
Who is involved Divisional Manager and staff
Role Translate the general statement of direction and intent that come
from corporate level into concrete strategies for individual business
Activities Setting goals, Design strategies, implementing strategies for

particular product line in align with Corporate strategy.
Definition of SBUs
A particular segment of an organization who work together to bring a particular product or
service to market. [Covered in detail in later chapters]
FUNCTIONAL LEVEL
Who is involved Functional Manager like Finance manager.
Role Responsible for specific business functions or operation Like
marketing.
What to do To develop functional strategies in their area that help fulfill
the Strategic objectives set by business and corporate level
general Manager.
Functional manager provides information to business and corporate level general

manager to formulate realistic and attainable Strategies.

5. Government & Not for Profit Organisations
Not for profit organisations:
- Not having commercial objective of making profit and

- have a social welfare objective.
- They are service oriented.
Example – NGOs, ICAI
Non Commercial
Organisation
Societies
Govt.
Trust NGOs
Organisation
Edu. Institutions
Why Strategic Management is required in not for profit organization

Some of the Non-Commercial organization majorly have no competition.
Example Indian Railway
Then why is Strategic management required:
1. To improve operational efficiency
2. To minimize costs and reduce burden of subsidies.
3. To expand the service to public.
4. To Justify the needs for Financing.
Education institution :
Require Strategy to attract best student and to get Competitive advantage.
The motive is not to make profits but to attract best students who get placed
rightly and get best career opportunities.
For Example: IIMs. IIMs also have strategic management. Firstly, IIMs provide
only 2-year MBA programme but now IIMs have 1 year program as well to match
the competition.

IIMs change the structure of programmes and introduce new programme in
order to fulfill the demands of students and corporates.
With changes in technology online education is overtaking traditional education
system.
Medical Organization :
New strategies to provide more value to patients like door to door sample
facility, monitoring at home etc.
Backward Integration strategies like waste disposal services, acquiring
ambulances, labs etc.
Internet has changed the way of providing service.
Diagnosis and treatments using internet and robotics/computers.
Distance counselling
Government agencies and department:

Develop strategy to use tax payer money in most cost efficient way.
Although there is no profit motive but they have Social welfare goals. In order
to achieve the goal, they should have a proper direction.
Strategies required:
for effective utilization of fund invested
Efficient allocation of resources
Systematic development of sector.
There is less autonomy in changing the strategies for business as compared to
private enterprises.
Questions for Practice/Reference
MCQs
1. Which of the following statement is not true with regards to strategy?

a) Strategy reduces uncertainty.
b) Strategy is long range blueprint of desired position.
c) Strategy relates organisations to the external environment.
d) Strategy is perfect and flawless.
2. What can be defined as the art and science of formulating, implementing and
evaluating cross- functional decisions that enable an organization to achieve its
objectives?
a) Strategy formulation
b) Strategy evaluation
c) Strategy implementation
d) Strategic management

3. Financial objectives involve all of the following except:
a) Growth in revenues
b) Larger market share
c) Higher dividends
d) Greater return on investment
4. Strategy helps in:
a) Unravelling complexity
b) Reduce uncertainty
c) Relate the goals with the resources.
d) All of Above.
5. Which of the following statement is not true:
a) Strategic environment is complex

b) Strategic environment is turbulent.
c) High cost of strategy makes them useless for charitable organization.
d) Public sector units should implement business strategy
Correct/Incorrect
1. Strategy is a substitute for Sound, Alert and Responsible management.

2. Strategic management is not needed in non-profit Organisations.
3. All strategies emerge from Corporate vision.
4. Strategic management is a bundle of tricks and magic
5. Developing annual objectives & short-term strategies that are
compatible with the selected set of long-term objectives are one of the major task
of strategic management.
6. A company’s strategy has always to be proactive in nature.
7. Strategic vision and mission statements are needed only by large business
houses.
Descriptive Questions
1. What is Strategic Management? What benefits accrue by following a strategic
approach to managing?
Or Write short note on Importance of Strategic Management.
Or Briefly explain the importance of Strategic Management.
2. List the different strategic levels in an organization.
3. You are appointed as a Strategic Manager by XYZ Co. Ltd. Being a Strategic
Manager what should be your tasks to perform?

4. Are there any limitations attached to strategic management in organizations?
Discuss
Case Studies Type

1. Do Good Group’ is a not-for-profit organization based in northern India working
towards childcare. The group educates people towards immunization,
sanitation and works in coordination with local hospitals or medical centers.
Recently, a new team has taken over the management of its activities. Explain
whether tools of strategic Management are relevant for the group

Dynamics of Competitive Strategy
The business environment is highly dynamic & evolving and hence businesses need to
find unique strategies to stay competitive & succeed. The external environment affects
the internal environment of the firm.
The objective of a competitive strategy is to –
Generate competitive Increase in Beat

advantage Which leads market share Which competition
to will
Competitive advantage comes from a firm’s ability to perform activities more
effectively than its rivals. What is more important is whether the competitive
advantage is sustainable.
A competitive strategy consists of these actions-
Withstand
Strengthen market
Attract customers competitive
position
pressures
Competitive Landscape
Competitive landscape is about identifying & understanding the competitors & at the
same time it permits the comprehension of their mission, vision, core values, niche
market, strengths & weaknesses.
Understanding of competitive landscape requires an application of “competitive
intelligence”.
In-depth investigation & analysis of a firm’s competition allows it to assess the
competitor’s strengths & weaknesses in the market & helps it to choose & implement
effective strategies that will improve its competitive advantage.

Steps to understand Competitive Landscape
Identify the • Who are the competitors?

competitor • What is their market share?
• What are their products & services?

Understand the
• Use market research report, internet & other
competitors sources
• Why do customers give them business?

Determine strengths • What are their financial position?
of competitors • What gives them cost & price advantage?
• Where are they lacking?

Determine weakness
• Go through consumer reports & complaints
of competitors available in various media
• What improvements does the firm need to

make?
Put all the • Areas that need to be strengthened by the
information together firm?
• How can the firm exploit the weaknesses of
the competitors?
Strategic Analysis
Strategic formulation does not involve intuition, opinions, instincts or
creative thinking. It flows directly from an analysis of firm’s external
environment & internal resources & capabilities.

Two most important situational considerations are-
o Industry & competitive conditions [Competitive/External environment
Analysis]
o Organization’s own competitive capabilities, resources, market position,
strengths & weakness [Internal Analysis]
Accurate diagnosis of the company’s situation is necessary for deciding on a
sound long-term plan.
Without understanding of the strategic aspects of the external & internal
environment, the chances are higher that managers will finalise a strategic plan
that doesn’t fit the situation well.
Issues to consider for Strategic Analysis

1)Strategy evolves over a period of time:
The important aspect of strategic analysis is to consider the possible implications
of routine decisions.
Strategies are a result of a series of small decisions taken over an extended
period of time.
2)Balance of external & internal factors:

Matching of internal potentials with external opportunities
A perfect match as above is not feasible & hence a workable balance between
diverse & conflicting decisions is necessary
(example) There may be pressures driving towards entering a new market but,
constraints such as existence of a big competitor may exist
The impact of these constraining forces may vary in nature, degree, magnitude
& importance where some can be manages & several beyond the control of the
manager
Strategic Risk:
Industries differ widely in their economic characteristics, competitive situations &
future profit prospects.
An important aspect of strategic analysis is to identify potential imbalances or risks &
assess their consequences.
A broad classification of strategic risk that requires consideration in strategic analysis
is given below-

TIME
SHORT TERM LONG TERM

E
X
T Errors in Changes in the
E interpreting the environment
R environment lead to
N cause strategic obsolescence of
R A failure technology
I L
S
I
K
N Organizational Inconsistency
T capacity is with strategy is
E unable to keep developed due
R up with strategic to changes in
N demands internal capacity
A
L
External risk is on account of inconsistencies between strategies & the forces in the
environment. (opportunities, threats, trends, uncertainties)
Internal risk occurs on account of forces that are either within the organisation or are
directly interacting with the organisation on a routine basis.
(strategic strengths, weakness, problems, constraints, uncertainties)
Methods of industry & competitive analysis

Industry & competitive analysis aims at developing insight into several issues. It can be
done using a set of concepts & techniques to get a clear picture on key industry traits,
intensity of competition, drivers of industry change, market position, strategy of rivals
& so on. Analysing these issues build understanding of a firm’s surrounding environment
& form the basis for a matching strategy to this changing environment. The issues are
discussed below-
I. Dominant economic features of the industry

Industry is a “group of firms whose products have same/similar attributes such that
they compete for the same buyers”.
Some factors to be considered in profiling an industry’s economic features:
Acronym- “SCREAM GULP DEBT”
Size & nature

Scope of Competitive rivalry
Capital Requirements & the ease of entry & exit
Whether organisations can realise Economies of scale
The types of distribution channels used to Access consumers
Number of rivals & their relative Market share
Market Growth rate & position in the business life
Whether high rates of capacity Utilisation are crucial to achieving low-cost
production efficiency
Whether key industry participants are clustered in a particular Location
Whether industry Profitability is above/below par
Whether products & services of rival firms are highly/weakly Differentiated
or essentially identical
Whether certain industry activities are characterised by strong Experience
effects
The number of Buyers & their relative sizes
The pace of Technological change
II. Nature & strength of competition
Understand the main sources of competitive pressure & how strong each
competitive force is
This is essential because managers cannot devise a successful strategy without
in-depth understanding of the industry’s competitive character
Porter’s Five Forces model is a widely used tool for understanding the
competition
It is a powerful tool for systematically diagnosing the main competitive
pressures in a market & assessing how strong & important each one is
It is a relatively easy tool to apply & understand

III. Triggers of change
All industries are characterised by trends & new developments that gradually
produce changes important enough to require a strategic response from
participating firms.
Even though an industry’s life cycle stage (intro, growth, maturity, decline) strongly
influences overall industry growth rate, there are more causes of industry change
than an industry’s position in the life cycle.
Driving Forces:
Industry & competitive conditions change because forces are in motion that
creates incentives or pressures for changes
The most dominant forces are called driving forces
They have the biggest influence on what kind of changes will take place in the
industry’s structure & competitive environment
Two steps to analyse driving forces-
1) identify what the driving forces are
2) assess their impact on industry
Most common driving forces:

Acronym- “MEDICaL GP”
Marketing innovation
Entry or exit of major firms
Diffusion of technical know-how
Internet & e-commerce opportunities & threats
Changes in cost & efficiency
Long-term industry growth rate changes
Increasing Globalisation
Product innovation
IV. Identifying the Strongest/Weakest companies

(Strategic Group Mapping)
o It is important to study the market positions of rival companies.
o Strategic Group Mapping is a useful analytical tool for comparing the market
positions of each firm separately or for grouping them into like positions when

an industry has so many competitors that it is not practical to examine each
one in-depth.
o A Strategic Group consists of those rival firms which have similar competitive
approaches & positions in the market which maybe-
Comparable product-line breadth
Same price/quality range
Same distribution channels
Same product attributes
Similar line of buyers
Identical technological approach
Offer buyers similar services
•sellers pursure essentially identical strategies

only one strategic group •sellers have comparable market position
in the industry when
•each rival pursues distinctively different

as many strategic groups competitive approach
as there are competitors •occupies substantially different competitive
position

Procedure for constructing a strategic group map & deciding which firms belongs
to which strategic group is as follows-
Acronym- “iPAD”
1. Identify the competitive characteristics that differentiate firms in the
industry
2. Plot the firms on a two variable map using pairs of these differentiating
characteristics
3. Assign the firms that fall in about the same strategy space to the same
strategic group
4. Draw circles around each strategic group making the circles proportional to
the size of the group’s respective share of total industry sales revenue
V. Likely Strategic move of rivals
A company cannot expect to excel its rivals without monitoring their actions,
understanding their strategies, their resource strengths/weaknesses, the
plans they have announced & anticipating what their next moves are. This is
essential because the rival’s action will have a bearing on the company’s own
strategic moves.
VI. Key factors for competitive success

o An industry’s Key Success Factors (KSFs) are those that most affect industry
member’s ability to prosper in the marketplace (resources, competencies,
capabilities, etc) & ultimately achieve competitive success/failure.
o KSF’s are so important that all firms in the industry must pay close attention
to them because they are the rules that shape whether a company will be
financially & competitively successful.
o At the very least, managers need to understand the industry situation well
enough to know what is more important to competitive success & what is not.
o Misdiagnosing the industry factors critical to long term success greatly raises
the risk of misdirected strategy.
o In contrast, an organisation with perceptive understanding of the industry’s
KSF’s & stand out on a particular KSF enjoy a stronger market position.
o Hence, using the industry’s KSF’s & trying to gain sustainable competitive
advantage by excelling at one particular KSF is a fruitful competitive strategy
approach.

o How to identify industry’s KSF’s:
On what basis do customers choose between
competing brands of sellers? What product
attributes are crucial?
What resources & competitive capabilities does a

seller need to have to be competitively successful?
What does it take for sellers to achieve a

sustainable competitive advantage?
o Key success factors vary from industry to industry & even from time to time
within the same industry as driving forces & competitive conditions change.
o An industry at a time has only about three or four KSF & even among these
only one or two outrank the others in importance.
o If managers compile a list of every factor that matters even a little bit, then
it defeats the whole purpose of identifying & concentrating attention on the
KSF’s truly critical to long-term competitive success.
VII. Prospects & financial attractiveness of industry
Draw conclusions on the relative attractiveness or unattractiveness of the industry using

the results of analysis of the previous six issues.
The important factors on which to base such conclusions include-
Industry’s growth potential

Competitive forces will become stronger or weaker
Profitability will be favourable or unfavourable due to present driving forces
Degree of risk & uncertainty in the industry’s future
Competitive position is likely to grow stronger or weaker
Potential to capitalise on vulnerabilities of weaker rivals
Severity of problems confronting industry as a whole
If an industry’s overall profit prospects are above average, the industry can be
considered attractive; if below average it is unattractive.
However, attractiveness is relative, not absolute. Industry environments maybe
unattractive to weak competitors & attract to strong ones.

Core Competence
Core competencies are capabilities that serve as a source of competitive
advantage for a firm over its rivals. An organisation’s combo of technological &
managerial know-how & experience are a complex set of capabilities & resources
that can lead to a competitive advantage compared to a competitor.
Competency is defined as a combination of skills & techniques rather than
individual skill or separate technique which makes the whole org utilize these
several separate individual capabilities.
It has to be the integration of many resources. The optimal way to define core
competence is to consider it as a sum of 5-15 areas of expertise.
Major core competencies are identified in three areas:
Competitor Differentiation
Customer Value
Application of Competencies
Competitor Differentiation: The company is considered to have core

competence if the competence is unique & difficult to imitate thereby
providing a competitive edge over its competitors. Although all companies
operating in the same market would have the equal skills & resources, if
one company can outperform significantly better, the company has
obtained a core competence.
Customer value: When purchasing a product or service it has to deliver a
fundamental benefit to the end customer in order to be a core
competence. The product/service has to have a real impact on the
customer for them to choose it. If customer has chosen the company
without this impact, then competence is not a core competence & it will
not affect the company’s market position
Application of competencies: Core competence must be applicable to
the whole organization; it cannot be one particular skill or specified area
of expertise. If it is not fundamental from the whole organisation’s point
of view, it will not be considered as core competence even if it is a special
capability.
Core technological competencies are also corporate assets; & as assets, they
facilitate corporate access to a variety of markets & businesses.

Core competencies distinguish a company competitively & reflect its personality.
These competencies emerge over a period of time through a process of
accumulating & learning how to deploy different resources & capabilities.
It is important to identify core competencies because it is difficult to retain those
competencies in a price war & cost-cutting environment.
A core competency fulfils three criteria:
make significant
provide potential
contributions to difficult to imitate
access to a wide
the end products by competitors /
variety of
perceived by the rivals
markets
customer
How to build core competencies:
Four specific criteria of sustainable competitive advantage that firms can use to
determine those capabilities that are core competencies are-
Valuable, Rare, Costly to imitate, Non-substitutable.
•Create value for customers
Valuable •Effectively utilise capabilitites to exploit opportunities
•Avert threats in the external environment
•Very few competitors possess core competencies

Rare •Competitive advantage results in core competency only
when firm develops & exploits valuable capability
Costly to •This means that such capabilities that competing firms are
unable to develop easily
imitate •It may be costly in terms of finance or time
Non- •Capabilities that donot have strategic equivalents

•Final criteria for a capability to be a source of competetive
substitutable advantage
Value Chain Analysis:
It is a means of describing the activities within and around an organization.

Ability to assign or provide value for money, product or services.

Assessing the competitive strength of an organization.
Why value chain analysis?

Organizations are much more than just a random collection of machines, material,
money and people.
These resources are of no value unless deployed into appropriate activities.
It is important to know the value which is perceived by the final consumer/user.
Source of competitive advantage: Competences to perform particular activities and
the ability to manage linkages between these activities.
Porter’s Value Chain
Michael Porter argued that an understanding of the strategic capability must start with
identifying these separate value adding activities. The two basic steps of 1)identifying
separate activities &
2)assessing value added from each were linked to an analysis of competitive advantage
by Michael Porter.
Primary Activities:
1. Inbound Logistics-
Receiving, storing, distributing inputs to the product/service
Includes material handling, stock control, transport, etc
2. Operations-

Transform inputs into final product/service
Machining, packaging, testing, assembly, etc
3. Outbound logistics-
Collect, store, distribute product to the customers
For tangible products-warehousing, material handling, transport
For services- arrangements for bringing customers to the service
4. Marketing & Sales-
Consumers are made aware of the product/service
Able to purchase it
Includes sales admin, advertising, selling, etc
Communication network helps users access a particular service
5. Services-
Enhance/maintain the value of product/service
Installation, repair, training, spares, etc
Each of these groups of primary activities are linked to support activities.

Support Activities:
1. Procurement-
Process of acquiring the various resource inputs to the primary activities
Occurs in many parts of the organisation
2. Technology Development-
All value activities have technology (even if it is just know-how)
Key technologies may be directly concerned with the product (R&D) or
process (process development) or a resource (RM improvement)
3. Human Resource Management-
Important area which covers all primary activities
Recruiting, training, managing, developing, rewarding, etc
4. Infrastructure-
Structures & routines of the organization which sustain its culture
Systems of planning, finance, quality control, info management are
crucially important to performance of primary activities
Managing Linkages
Core competences may be imitated by competitors over time.
But it may be robust & difficult to imitate if they relate to management of
linkages within the organisation’s value chain & linkages into the supply &
distribution chains.

Specialization of roles & responsibilities is one way in which high levels of
competence in separate activities is achieved.
However, it often results in an incompatible situation – different departments
pulling in different directions – which adds to overall cost / diminishes value.
This management of internal linkages in the value chain could create competitive
advantage in a number of ways:
Linkages between primary activities
Management of linkages between a primary activity & a support activity
Linkages between support activities
In addition to the management of internal linkage, competitive advantage may
also be gained by the ability to complement/co-ordinate the organisation’s own
activities with those of suppliers, channels or customers.
This could occur in a number of ways:
Vertical integration attempts to improve performance through ownership
of more parts of the value system. Practical difficulties & cost of
coordination may outweigh the benefits.
Specifying requirements & controlling the performance of suppliers can
be critical to both quality enhancement & cost reduction.
Total quality management seeks to improve performance through closer
working relationships between the specialists within the value system.
Competitive Advantage
“If you don’t have a competitive advantage, don’t compete”
Competitive advantage is the achieved advantage over rivals when a company’s

profitability is greater than the average profitability of firms in its industry.
It can be said that a firm is successful in achieving competitive advantage only
after rivals efforts to duplicate or imitate it fails.
It is often strongly related to the resources firm holds & how they are managed.
Unique bundles of resources are the foundation for strategy & lead to wealth
creation.
If a firm possesses resources & capabilities which are superior to those of
competitors, then as long as the firm adopts a strategy that utilizes these
resources & capabilities effectively, it should be possible for it to establish a
competitive advantage.
Resources & capabilities create value only when the firm can use them to
perform certain activities that result in competitive advantage.
However, profitability from this competitive advantage can be assured only
based on the time period over which the firm can sustain its position since all
competitive advantages have a limited life.

The sustainability of competitive advantage & a firm’s ability to earn profits from
its competitive advantage depends upon 4 major characteristics of resources &
capabilities:

•The rate at which the firms resources & capabilities
deteriorate is of concern
•If industry product innovation is fast, patents may
Durability become obsolete soon
•However, many brand names have a highly durable
appeal
•Durability is likely to be eroded by rivals

•It depends on the rivals gaining access to the resources
Transferability & capabilities
•The easier it is to transfer the r&c, the less sustainable is
the competitive advantage
•If r&c cannot be purchased by a potential imitator, they

must be built from scratch
Imitability •True test of imitability is how easily/quickly rivals can
build the r&c on which the firms competitive advantage
is based
•Ability of the firms owners to appropriate the returns

on its resource base
Appropriability •Even when the r&c are capable of offering suatainable
advantage, there is an issue as to who receives the
returns on these resources
Value Creation
Value is measured by a product’s features, quality, availability, performance,

durability & by its services for which customers are willing to pay
Value creation is an activity or performance by the firm to create value that
increases the worth of goods, services, business processes
This concept gives business a competitive advantage in the industry & helps them
to earn above average profits
How profitable a company becomes depends on three factors-
o Value customers place on the company’s products
o Price the company charges for its products
o Costs of creating those products
The value customer place on a product reflects the utility they get
Utility is a function of the attributes of the product, such as its design,
performance, quality & point-of-sale & after-sale-service
Companies are ultimately aiming to achieve sustainable competitive advantage
which enables them to succeed in the long run

Internal & External Analysis (Portfolio Analysis)
Portfolio analysis is a tool by which management identifies & evaluates the various
businesses that make up the company.
In portfolio analysis, management views its business units as a series of investments
from which it expects returns.
The best business portfolio is one that best fits the company’s strengths & weaknesses
to opportunities in the environment.
Portfolio analysis is a set of techniques that help strategists in taking strategic decisions
with regard to individual products/businesses in a firm’s portfolio in multi-product &
multi-business firms.
The main advantage is that resources can be channelized at the corporate level to those
businesses that possess greater potential.
In order to design the business portfolio, the management must analyse its current
business portfolio & decide which business should receive more, less or no investment.
Depending upon analyses, management may develop growth strategies for adding new
products or businesses to the firm’s portfolio.
There are three important concepts, the knowledge of which is a prerequisite to
understand different models of portfolio analysis-
1) Strategic Business Unit
2) Experience Curve
3) Product Life Cycle
Strategic Business Unit

A unit of the company
Has separate mission, vision & objectives
Can be run independently from other company businesses
Can be a
company division
product line within a division
single product
brand
Common in organisations that are located in multiple countries with independent
manufacturing & marketing setups
After identifying SBU’s, management will assess their respective attractiveness
& decide how much support each deserves
An SBU has the following characteristics-

Single biz/collection
of related biz that can
be planned
separately
Has a manager
who is
Has its own set of
responsible for
competitors
strategic planning
& profit

The following is not an example of SBU
Experience Curve
Concept is similar to learning curve
Efficiency increases by workers through repetitive productive work
Unit costs decline as a firm accumulates experience in terms of cumulative
volume of production
Larger firms in industry gain competitive cost advantage due to this
It is a result of variety of factors- learning effects, economies of scale, product
redesign & technological improvements in production
It is a barrier for a new firm entering the industry
Used to build market share & discourage competition
Product Life Cycle

PLC is an S-shaped curve which exhibits the relationship of sales with respect to time
for a product that passes through the four successive stages.

Introduction •Competition is almost negligible
•Prices are relatively high
(slow sales •Markets are limited
•Lower rate of sales growth due to lack of knowledge by
growth) customers
Growth •Demand expands rapidly

•Fall in prices
(rapid market •Competition increase
•Market expands
acceptance) •Customer has knowledge & is interested in buying
Maturity •Market gets established

•Competition gets tough
(slowdown in •Profit reduces due to stiff competition
•Organisations have to work for maintaining stability
growth rate)
Decline •Sales & profits fall down sharply

•Some new product replace existing product
(sharp downward •Combo of strategies can be used to stay in the market
•Either diversification or retrenchment
drift)
Boston Consulting Group (BCG) Growth-Share Matrix

The BCG growth share matrix is used for resource/investment allocation in a
diversified company.
Using the BCG approach, a company classifies its different businesses on a two-
dimensional growth-share matrix. In the matrix:
Vertical axis represents market growth rate & a measure of market

attractiveness
Horizontal axis represents relative market share & a measure of company

strength

•Products or SBU's that are growing rapidly
STARS •Need heavy maintenance to finance their rapid growth

potential
•Represent best opportunity for expansion
•Low growth, high market share biz/products

•Generate cash & have low costs
CASH COWS •Established, successful, need low investment
•Stars become cash cows in the long run when growth
rate slows down
•Called problem children, wildcats

•Low market share in high growth market
QUESTION •Need heavy investments with low potential to generate

cash
•If left unattended, capable of cash traps
MARKS •Due to high growth rate, expansion is easier
•Org should strive to turn them to stars & then to cash
cows when growth rate reduces
•Low growth, low share business/products

•May generate cash to maintain themselves
DOGS •Donot have much future
•Sometimes may need cash to survive
•Minimise dogs by divestment/liquidation
After a firm has classified its products/SBU’s as above, it must determine what role
each will play in the future. The four strategies that can be adopted are:
• Hold - preserve market share
• Build - increase market share even by forgoing short term income to build
large market share
• Harvest – Increase cash flows
• Divest - sell/liquidate since resources can be better used elsewhere

Limitations of the BCG growth share matrix:
Difficult, time consuming, costly to implement

Difficult to define SBU’s & measure market share and growth
Focuses on classifying current businesses while providing little advice for future
planning
Places too much emphasis on increasing market share, growth & expansion into
new markets which leads to risky ventures or divesting established units too
quickly
Ansoff’s Product Market Growth Matrix

Companies should always be looking to the future & one useful tool for
identifying growth opportunities for the future is the product/market expansion
grid.
Ansoff’s product market growth matrix is a useful tool that helps businesses
decide their product & market growth strategy.
It is a portfolio-planning tool for identifying growth opportunities for the
company.

Market Penetration
Selling existing products into existing markets
More sales to present customers without majorly changing product
Greater spending on advertising & personal selling
Aggressive promotional campaign
Pricing strategy that makes market unattractive for competitors
Increase usage by existing customers
Market Development
Selling existing products into new markets
Identifying & developing new markets for current products
Maybe achieved through
o New geographical markets
o New product dimensions/packaging
o New distribution channels
o Different pricing policies
Product Development
Introduce new products into existing markets
May require the development of new competencies
Develop modified products which is appealing to existing customers

Diversification
The business markets new products in new markets
Starting up/acquiring businesses outside the company’s current products
& markets
Risky strategy since it does not rely on the current successful position of
the company in the market
Moving into markets where company has little/no experience
ADL Matrix
The ADL matrix approach forms a two dimensional matrix based on stage of
industry maturity (environmental assessment) & the firms competitive position
(business strength assessment).
Dominant
Rare position
Monopoly
Strong & protected technological leadership

Strong
Considerable degree of freedom

Act without its market position being threatened by rivals
Favourable
Fragmented industry
No one competitor stands out clearly
Reasonable degree of freedom
Tenable
Satisfactory performance
Staying in the industry is justifiable
Vulnerable in the case of intense competition from strong rivals
Weak
Unsatisfactory performance
Opportunities for improvement exist
General Electric Matrix (Stop Light Strategy model)

The strategic planning approach in this model has been inspired from traffic control
lights: green for go; yellow for caution; red for stop.
The vertical axis indicated market attractiveness & the horizontal axis shows the
business strength in the industry.
Market attractiveness is measured by factors like:
Acronym-“DISCS AT DOOR”
Demand variability
Industry profitability
Size of the market
Competitive intensity
Segmentation
Availability of technology
Pricing Trends
Distribution structure
Overall Risk of returns in the industry
Opportunity for differentiation

Market growth Rate
Business strength is measured by drivers like:

Acronym- “CM PLATE RIMS”
Relative Cost position

Management calibre
Production capacity
Customer Loyalty
Ability to compete on price & quality
Technological capability
Distribution Efficiency
Rate of market share growth
Brand Image
Profit Margin
Market Share

SWOT Analysis
The identification & analysis of Strength, Weakness, Opportunities and Threats
is normally referred to as SWOT analysis.
Strengths Weakness
Inherent Capability Inherent limitation/Constraint
Gain Strategic Advantage Creates strategic disadvantage
Opportunities Threats
Favourable environment condition Unfavourable environment condition
Strengthen Position Causes Risk/Damage to position

The organization’s performance in the marketplace is significantly influenced by the
following three factors:
1. Organisation’s correct market position
2. Nature of environmental opportunities & threats
3. Organisation’s resource capability to capitalize the opportunities & to protect
against the threats
The major purpose of SWOT analysis is to enable the management to create a firm-
specific business model that will best align firm’s resources & capabilities with
environmental demands.
Strategic managers compare & contrast various alternative strategies against each
other w.r.t their ability to achieve major goals & superior profitability.

Corporate-Level Strategy
• What businesses should we be in to maximise the long-run profitability
• How to do the above to gain competitive advantage
Business-Level Strategy
• Encompasses business's overall competitive theme
• Different positioning strategies that can be used in different industry
settings to gain competitive advantage
Functional-Level Strategy
• Directed at improving the effectiveness of operations withing the company
• production, finance, marketing, materials management, product
development, customer service, etc
Global-Level Strategy
• How to expand operations outside the home country to grow & prosper
and to compete in a global level
Significance of SWOT Analysis:

1. It provides a logical framework of analysis-
Variation in managerial perception about the organizational strengths,
weaknesses & environmental opportunities & threats lead to the approaches to
specific strategies & finally the choice of strategy that takes place through an
interactive process.
2. It presents a comparative account-

Presents a structures form where it is possible to compare external & internal
environments so that a strategist can come out with suitable strategy by
developing certain patterns of relationship.
3. It guides the strategist in strategy identification-

It is possible that the organisation may have several opportunities & some serious
threats and also may have powerful strengths coupled with major weaknesses.
In such situations, SWOT analysis guides the strategist to think of overall position
that helps to identify the major purpose of the strategies under focus.

Potential Resource Strengths Potential Resource Weaknesses
& &
Competitive Capabilities Competitive Deficiencies
A B
Potential Potential
Company External
Opportunities Threats
C D
A. Potential resource strengths & competitive capabilities
Powerful strategy
Strong financial position
Brand image
Cost advantages
Product innovation skills
E-commerce technologies & processes
Strong advertising & promotion
Superior supply chain management
Reputation for good customer service
B. Potential resource weaknesses & competitive deficiencies
No clear strategic decision

Obsolete facilities/technology
Weak balance sheet/too much debt
Higher overall unit costs as compared to competitors
Internal operating problems
Underutilized plant capacity
Unable to attract new customers
Narrow product line in comparison to rivals

C. Potential company opportunities
Expanding into new markets/segments

Exploiting emerging new technologies
Acquisition of rival firms
Ability to grow due to rising demand
Openings to take away market share from rivals
Using e-commerce to cut costs or pursue new growth opportunities
Forward/backward integration
Falling trade barriers in attractive foreign markets
D. Potential external threats to company’s well-being
Entry of potent new competitors

Loss of sales to substitute products
Slowdowns in market growth
Costly new regulatory requirements
Shift in buyers tastes
Adverse demographic changes
Vulnerability to industry driving forces
TOWS Matrix
While conducting SWOT analysis, managers often fail to come to terms with the
strategic choices that the outcome demands.
The incremental benefit of TOWS matrix lies in systematically identifying relationships
between these factors & selecting strategies on their basis.
Thus TOWS matrix has a wider scope than SWOT analysis.
TOWS is an action tool whereas SWOT is a planning tool.

Porter’s Five Forces Model
Porters Five-Force Model of competition is a powerful & widely used tool for
systematically diagnosing the significant competitive pressures in a market & assessing
the strength & importance of each.
The interrelationship among these five forces gives each industry its own particular
competitive environment and helps the manager to assess their own firm’s strength,
weakness and future opportunities:
1. Competitive pressures associated with the market maneuvering and jockeying
for buyer patronage that goes on among rival sellers in the industry.
2. Competitive pressures stemming from supplier bargaining power & supplier-

seller collaboration
3. Competitive pressures stemming from buyer bargaining power & seller-buyer

collaboration
4. Competitive pressures associated with threat of new entrants into the market.

5. Competitive pressures coming from the attempts of companies in other
industries to win buyers over to their own substitute products.
Steps to determine what competition is like in an industry-
Determine whether the

Identify the specific Evaluate how strong the collective strength of the
competitive pressures pressures comprising each of
five competitive forces is
associated with each of the the five forces are
(fierce/strong/moderate/weak) conducive to earning
five forces
profits
Threat of new entrants

Barriers to entry represent economic forces/hurdles that slow down or impede entry by
other firms.
Common barriers to entry:
Acronym- “SPACE BP”

Switching Costs
Product Differentiation
Access to Distribution Channels
Capital Requirements
Economies of Scale
Brand Identity
Possibility of Aggression
Switching costs
New entrant must be able to persuade existing customer of other firms to switch to
its product
Buyers often incur substantial costs in switching between firms & are often reluctant
to change
Cost of creating genuine differentiated product may be too high for new entrants
Refers to physical or perpetual differences or enhancements that make the product
special/unique

Access to distribution channels
Existing firms have significant influence over the distribution channels & can
control/restrict their use by new firms
Unavailability of distribution channels poses significant entry barrier
Capital Requirements
When a large amount of capital is required to enter an industry, firms lacking funds
are effectively barred from the industry
This enhances the profitability of the existing firms in the industry
Economies of Scale
Economies of scale refer to the decline in the per unit cost of production as activity
grows
A large firm that enjoys economies of scale can produce high volumes at lower costs
which is not available to a new entrant
Brand Identity
It is particularly important for infrequently purchased products that carry a high unit
cost to the buyer
Significant difficulties are faced in building up the brand identity, since to do so
they must commit resources over a long period of time
Possibility of Aggressive Retaliation
Mere threat of aggressive retaliation by existing firms can act as a barrier to

entry
Introduction of a product by a new firm may agitate the incumbent firms to
indulge in extreme activities such as drastically reducing prices and
increasing advertisement budgets
Bargaining power of Buyers

Buyers can sometimes exert considerable pressure on the firms to lower their prices
or improve their services. It is evident when-
Big Full Substitutes

Knowledge available
Buyers

Bargaining power of Suppliers
Suppliers can command bargaining power over a firm when-
More concentrated than their buyers
High switching costs
Products crucial to buyer & no substitutes are available
Rivalry in the industry

The more intense the rivalry in an industry, the less attractive the industry is. The
intensity of rivalry can influence attractiveness, profitability, cost of suppliers,
distribution.
Rivalry among competitors tends to be cutthroat & industry profitability lowers when-
Acronym-“LC FC EPS”

Industry Leader
Number of Competitors
Fixed Cost
Exit Barriers
Slow Growth
Industry Leader
A strong industry leader can discourage price wars
Due to its greater financial resources, a leader can outlast smaller rivals in a price
war
Due to this, smaller rivals usually avoid initiating such a war
Number of competitors
As competitors in an industry increase in number, even when a leader exists, his

ability to exert pricing discipline diminishes as communication between the leader
and the players becomes difficult
Fixed costs
When rivals operate at high fixed cost, they have the need to utilise their full/excess
capacity & therefore end up cutting prices
Price cutting causes profitability to fall for all firms in the industry
Exit Barriers
Rivalry if some competitors leave an industry

Profitability in industries with few exit barriers

When barriers to exit are powerful competitors desiring exit may refrain from
leaving
Competitors have little opportunity to differentiate their offerings

Profitability is in industries that offer opportunity for differentiation
Profitability is in industries involving undifferentiated commodities
Slow Growth
Industries whose growth is slowing down face more intense rivalry

As growth slows, rivals must fight harder grow or even maintain their existing market
share
This intense rivalry tends to overall profitability
Threat of Substitutes
A final force that can influence industry profitability is the availability of substitutes
for an industry’s product. Firms must search for products that perform the same/nearly
the same function as theirs. Substitutes can be either from the same industry (digital
filmless cameras replaced film cameras) or other industry (smart phones replaced
cameras to a great extent).
Globalisation
A Global Company (MNC/TNC) views the world as one market, minimises the importance
national boundaries, source capital & market wherever it can do the job best.
A global company has three characteristics-
It is a conglomerate of multiple units but all linked by common ownership.
Multiple units draw on a common pool of resources.
The units respond to some common strategy. Its managers & shareholders are
based in different nations.
There are several reasons why companies go global: -

The need to grow
Faster communication, speedier transportation & rapid technological changes
Domestic markets are no longer adequate & rich
Need for reliable/cheaper source of raw materials, labour, etc

Companies often set up overseas plants to reduce high transportation costs
Exporting organisations may setup overseas manufacturing units to boost sales &
cash flow
The rise of services to constitute the largest single sector in the world economy
Collapse of international trade barriers
Increased privatization of manufacturing & services sectors and less government
interference in business decisions
Companies in different countries form a strategic alliance to ward off economic
& technological threats
Multinational vs Transnational companies
MULTINATIONAL TRANSNATIONAL
Own a home company and its subsidiaries No subsidiaries but just many companies
Centralized management system No centralized management system
Barriers in decision making due to Gain more interest in the local market
centralized management system since they maintain their own system

Strategic Management Process

• within which firm adopts a predetemined direction and
A framework
operates
The purpose • which an organisation endeavours to achieve
• that provides a perspective of the means which will lead the

A statement
organisation to reach its vision in the long run
Vision Mission Goals &

Objectives
Business Business
Definition Model

the business,
products to be handled,
markets to be served,
functions to be performed and
major policies needed for the organization to execute

these decisions

Step 1 Step 2 Step 3 Step 4 Step 5
•Identify •Analyse •Formulate •Implement •Evaluate

vision, external strategy the and
mission, environment strategy control
goals and
objectives •Analyse
organisation
al strengths
and
weaknessess
STRATEGIC PLANNING
Strategy
Developing Strategic Strategic
Formulation /
Strategic Intent Analysis Planning
Decision-Making
Strategic Strategic
Strategic Implementat
evaluation & Management
Planning ion
control Process

VISION AND MISSION STATEMENTS – EXAMPLES

Corporate Level Strategies
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On the basis of Stages of On the basis of
On the basis of Level
Business Life Cycle Competition
(Entry / (Competiive
Introduction Stage) Strategies)
Corporate Level
Market Penetration
Strategy
Cost Leadership
Differentiation
Focus
(Growth Stage)
Business Level Growth/ Expansion
Strategy
(Collaboration
Strategies)
Joint venture
(Maturity Stage)
Functional Level Merger &
Stability Strategy Acquisition
Strategic Alliance
(Decline Stage)
Retrenchment/
Turnaround
Strategy

Growth / Expansion Strategy
Merger &
Diversification Strategic Alliance
Acquisition
Intensification Diversification
Market Vertically Horizontally

Concentric Congolomerate
Penetration Integrated Integrated
Market
Backward
Development
Production
Forward
Development

• Exchange or share assets or competencies by exploiting
• brand name
• marketing skills
Related • sales and distribution capacity
diversification • manufacurturing skills
• R&D / new product capabilities
• economies of scale
• Example : Concentric diversification
• Investment in new product portfolios

• Employment of new technologies
• Focus on multiple products
Unrelated
• Reduce risk by operating in multiple product markets
diversification
• Defend against takeover bids
• Provide executive interest
• Example: Conglomerate diversification
Products
Existing New
Existing
Market
Product
penetration
development
Markets
Market
Diversification
development
New

Horizontal Merger
•Merger with direct competitor, thus combination of firms in same industry
•Objective: to achieve economies of scale in production process, widen
line of poducts, decrease working capital etc.
•Eg: Brooke Bond + Lipton India = Brook Bond Lipton India Ltd.
Vertical Merger
•Merger with organisation in same industry but at different stage of
production or distribution system
•Backward Integration - taking over suppliers/ producers of raw material
•Forward integration - taking over buyers/ distribution channels
•Results in increased synergies, operating and financial economies, helps
control competition (by restricting raw material supply or by not letting
use the distribution channel)
Co-generic Merger
•Merger of organisations that are associated in some way or the other
related to the production processes, business markets, or basic
technologies
•Helps to diverisfy around a common set of resources
•Eg: Business of refrigerators merging with business of kitchen appliances
Conglomerate Merger
•Merger of unrelated organisations - no linkage to customer groups or
technologies or R&D or production and marketing

Pursued when an organization substantially reduces the scope of its activity
TURNAROUND STRATEGY DIVESTMENT STRATEGY

LIQUIDATION STRATEGY
When organisation wants to Involves sale or liquidation of

reverse the process of a portion / division of Involves closing down the
decline business or a profit centre / firm and selling assets
SBU
Is internal retrenchment - to Leads to unemployment,
improve internal efficiencies Adopted when turnaround losse including reputational,
has been unsuccessful. Is a hence the last resort
rehabilitation / restructuring
Important elements: plan Selling assets may be
Changes in top management difficult - hard to find buyers
Neutralise external pressures Adopted if:
Quick cost reductions an acquisition proves to be a Unpleasant, yet desirable if
Revenue generation efforts mismatch, and cannot be closing down is less loss-
integrated making than running the
Asset liquidiation for cash business
Improve internal coodination there are persistent negative
cash flows
Initiate credibility-building
inability to deal with severe
competition
Five stages for an effective unable to invest in
action plan for turnaround: technological upgradation
1 - Assess current problems, which otherwise is a must
identify root causes and a better alternative for
damage caused investment is available
2 - Idenitfy strategies,
develop action plan and
evaluate chances of survival Like expansion strategy, it
with each of such plans too involves redefinition of
busienss
3 - Implementing the action
plan by taking HR, financial,
operations, marketing
actions to restructure debts,
reduce costs, improve
working capital etc.
4 - Analyse and review cash
forecasts, assets & debts
position, etc., and take steps
to restructure the business
5 - Evaluate if there are signs
of returning to normal

Business Level Strategies
To satisfy customer
What is an organisation’s core needs & wants
competency?
In order to achieve Organisational

Objectives
How is it achieved?
Through Business
Level Strategies
Business level strategies are the courses of action undertaken by the

organisation for each of its businesses to serve & provide value to its identified
core customer groups.
It is concerned with a firm’s position in an industry, relative to its competitors
& to the five forces of competition (to be discussed below).
Customers are the foundation of an organization’s business level strategies.
Who will be served, what needs have to be met, how those needs will be
satisfied are determined by senior management.
Being able to successfully predict & satisfy future customer needs is important
& crucial.
Business level strategies detail actions to be taken to provide value to
customers & gain a competitive advantage by exploiting core competencies in
specific individual product/service market.
After selecting a market, organization must develop a plan to be successful in
that market.
Business strategy hence looks at how an organization can compete effectively
in a market that it has chosen.

Business Level Strategies is concerned with issues such as:
Meeting the
needs of key
customers
Achieving Avoiding
advantage competitive
over disadvantage
competitors
Michael Porter’s Generic Strategies

Competitive Advantage
Competitive Scope
These are called generic strategies because they can be adapted by any type/size of
firm, even by an NPO
Strategists need to perform cost benefit analysis to evaluate “sharing
opportunities” among the firm’s existing & potential business units
Sharing resources enhances competitive advantage by either lowering costs or
raising differentiation

Porter stresses the need for firms to “transfer” skills & expertise among
autonomous business units to gain competitive advantage
Depending on type of industry, size of firm & nature of competition, the firm
could yield advantages in cost leadership, differentiation & focus
Larger firms with greater access to resources compete on a cost leadership
&/or differentiation basis, whereas smaller firms often compete on a focus
basis
Cost Leadership Differentiation Focus
• standardised • unique • fulfill needs of

products products/services small groups
• low cost p.u • price insensitive • specific
• price sensitive requirements of
consumers
Cost Leadership strategy

Low cost competitive strategy
Aims at broad mass market
Cost reduction in areas of
o Procurement
o production
o Storage
o Distribution
Economies in OH costs
Charge same price & make high profits
Cost leader is able to
Charge low price & make satisfactory profits
Cost leadership pursued along with differentiation

Cost elements that affect the attractiveness of generic strategy
o Economies/diseconomies of scale
o Learning curve effect
o Capacity utilization
o Linkages with suppliers/distributors
Other cost elements to consider
o R&D costs of new products
o Costs of modifying existing products
o Labour costs
o Tax rates

Striving to be low cost provider in an industry can be especially
effective when
o Price sensitive buyers
o Low opportunity for product differentiation
o Buyers not inclined to brand
o Large number of buyers
o Significant bargaining power of buyers
Under price competitors gain market share drive away some
competitors out of the market
Characteristics of successful cost leadership strategy
o High efficiency
o Low overhead
o Limited perks
o Intolerance of waste
o Intensive screening of budgets
o Wide spans of controls
o Rewards linked to cost containment
o Employee participation in cost control
Risks of pursuing cost leadership
o Copying by competitors leading to lower industry profitability
o Technological breakthrough making the strategy ineffective
o Buyers interest may shift to other features besides price
Achieving cost leadership strategy

Acronym-“FOREST”
1. Forecast demand of product/service promptly
2. Optimum utilization of resources to get cost advantages
3. Resistance to differentiation till it is essential
4. Achieving Economies of scale leading to lower cost p.u
5. Standardisation of products for mass production
6. Invest in cost saving Technologies/advance technologies
Disadvantages of cost leadership strategy

Acronym-“CGST”

Competitors may also Copy the cost reduction technique
General costs such as marketing, advertising, R&D are kept low

but this can prove to be expensive in the long run
This approach can succeed only if higher Sales volume can be

achieved
Technological changes are a great threat
Differentiation Strategy
Creation of product/service that is perceived as unique by buyer
o Product design
o Brand image
o Features
o Technology
o Dealer network
o Customer service
Due to differentiation, the business can charge a premium for its
product
Differentiation doesn’t guarantee competitive advantage when
o Standard products sufficiently meet customer needs
o Rapid imitation is possible by competitors
Successful differentiation can mean
o Greater product flexibility
o Greater compatibility
o Price insensitive buyers
o Lower costs
o Barriers to quick copying by competitors
o Improved service
o Less maintenance
o Greater convenience
o Advanced features
Customers may become strongly attached to the differentiation
features, thereby the business gains customer loyalty
Differentiation should be adopted only after careful study of buyers
needs & preferences
Risk of pursuing differentiation strategy
o Unique product may not be perceived high enough to justify
the higher price

o Sometimes cost leadership strategy will easily defeat
differentiation strategy
o Competitors may copy the differentiation features
o Need to find source of uniqueness that is not cheaply/quickly
copied
Basis of differentiation
•Innovative & meet customer needs

Product •Costly due to R&D, production & marketing costs
•High payoff due to customer loyalty
• Fluctuate based on supply & demand

Pricing • Influenced by customers ideal value for the product
• Maximising the power of brand

Organisation • Specific advantages that the organisation possess
Achieving differentiation strategy

Acronym-“PUPPER’’
1. Elevate the Performance of the product
2. Offer Utility to the customers & match the products with their tastes &
preferences
3. Offer the Promise of high-quality product/service for buyer satisfaction
4. Fixing product Prices based on – unique feature of the product, &
buying capacity of the customer
5. Taking steps for Enhancing image & its brand value
6. Rapid product innovation
Disadvantages of differentiation strategy
Uniqueness is difficult to maintain in the long run

Charging too high for the differentiated features may cause the customer to
switch to an alternative

Differentiation fails to work if the basis is not valued as high by the customers
Advantages of Cost Leadership & Differentiation Strategies
Porter’s Five Cost Leadership Differentiation

Forces
Rivalry *Competitors likely to avoid *Brand loyalty acts as
price wars safeguard
*Low cost firm will continue *Customers will be less
to earn profits even if sensitive to price increases
competitors compete away if firm can satisfy the
for profits needs
Buyers Powerful buyers will not be *They do not negotiate as

able to exploit the cost they get special features
leader firm & will continue *Fewer options available in
to buy the market
Suppliers Cost leaders are able to *Since a premium is

absorb greater price charged, firm can afford to
increases before it must absorb higher costs of
raise price to customers supplies
*Customers are willing to
pay extra too
Entrants Barriers to market entry *Innovative features are

through continuous focus on expensive
cost reduction *Tough to provide these
features at comparable
price
Substitutes *Lower costs further to Less possibility to replace

induce customers to stay differentiated products
with their products which have high brand
*Invest to develop value & enjoy customer
substitutes loyalty
*Purchase patents

Focus Strategy
Strategies such as market penetration & market development offer
substantial focusing advantages
Midsize & large firms can pursue focus based strategies only in
conjunction with differentiation or cost leadership
Logically, all firms follow a differentiated strategy since only one firm
can differentiate itself as a low cost provider. The remaining firms need
to differentiate its products in other ways
A successful focus strategy can mean
o Identifying an industry segment of sufficient size
o Has a good growth potential
o Not crucial to the success of competitors
o Consumers of that segment have distinctive requirements
o Rival firms are not attempting to specialize in the same target
segment
Risks of pursuing focus strategy
o Numerous competitors will recognize the success
o Rivals will try to copy
o Consumer preferences will drift towards the product attributes
preferred by the entire market
Achieving focus strategy

*Selecting specific niches which are not
SELECT covered by cost leaders & differentiators.
*Creating superior skills for catering to such
CREATE
niche markets.
*Generating high efficiencies for serving
GENERATE such niche markets.
*Developing innovative ways in managing
DEVELOP the value chain.

Types of focus strategy
Focused cost leadership Focused differentiation

Compete based on price Compete based on uniqueness &
target narrow market & target narrow market
*doesn’t necessarily charge lowest *concentrate efforts on a prices
in the industry particular sales channel
*charges prices lower than competitors *may target a particular
competing in target market demographic group
Advantages of Focus strategy

1. Premium prices can be charged by the organisations for their focused
product/services
2. Rivals & new entrants may find it difficult to compete due to tremendous
expertise of the goods/services that the focused organisation offers
Disadvantages of Focus strategy

1. Firms lacking in distinctive competencies may not be able to pursue focus
strategy
2. Due to limited demand of products/services, costs are high which can cause
problems
3. In the long run, the niche could disappear or be taken over by larger
competitors by acquiring the same distinctive competencies
Best Cost Provider Strategy

It is a further development of cost leadership, differentiation & focus generic
strategies
It is directed towards
giving customers more value for the money
emphasizing both low cost & upscale differences
Objective is to keep costs & prices lower than those of other sellers of
comparable products

Best-cost provider strategy can be adopted by doing the following-
Offering products at a lower price than what is being offered by rivals for
products of comparable quality & features

Functional Level Strategies
Charging similar price as the rivals for products with much higher quality &
features

Functional Level
Strategies
Logistics & Human Resource

Marketing Financial Production
Supply Chain Management
Strategies Strategies Strategies
Management Strategies
Production System
Strategies
Operations
Strategies
R&D Strategies

Company's
chain of
activity
Value
Customers Delivery Suppliers
Network
Company's
chain of
activity

Product - Customer
solution
Price - Customer Cost
Place - Convenience
Promotion -
Communication

Analysis
Planning Implementation Control
Develop
Measure results
Strategic Plans
Develop
Evaluate results
Marketing Plans
Take corrective
actions

•Short summary of main goals and recommendations of
Executive Summary the plan
•Described target market and company's position.

Current marketing situation Includes: Market description, Product review, Analysis
of competition and Distribution
•Assessment of important developments and their impact

Threats and Opportunity Analysis on the Firm
•Manager sets the objectives and issues that will affect

Objectives and Issues these goals.
•This is the marketing logic by which the Firm hopes to

Marketing Strategies achieve the marketing objectives.
•Strategies for marketing mix components
•Specific action programs are documented
Action Programs
•Budgets and Control for the action programs are

Budgets & Controls outlined

Operating Expense
Cash budgets Sales budgets
budgets budgets
Divisional
Factory budgets Profit budgets Capital budgets
budgets
Variable
Flexible budgets Fixed budgets
budgets
HOODIE

Logistics
Management
Production
System
Operations
Planning &
Control

ICC TC
Manner in which
Nature of product / Markets to be Operations system
markets are to be
service served structure
served
Manufacturing /
service and supply / Customer service Resource utilization
delivery system

Product development Market Penetration
•Develop new products •Provide special

features in products
Concentric Cost Leadership

Diversification
•Maintain product utility
•Develop new products yet save on costs
/ Improve old products

Leader Follower Low Cost Producer
•Be the first firm to •Be an innovative •Be a low-cost producer

market new imitator of successful by mass-producing
technological products. products, thus products similar to but
•Glamorous and exciting minimizing the risks and less expensive than
strategy; but dangerous costs of startup. products recently
•Example: 3M and •Allow a pioneer firm to introduced.
General Electric develop the first version •Requires substantial
of the new product and investment in plant and
to demonstrate that a equipment
market exists. Then, •Fewer expenditures in
develop a similar R&D than the other two
product. approaches.
•Requires an excellent
R&D personnel and an
excellent marketing
department.

INDIGOLEARN
Organisation and Strategic Leadership
Chapter Overview
Organization
And
Strategic Leadership
Organization Strategic Strategy Supportive Entrepreneurship

Structure Leadership Culture And
Intrapreneurship
In
Simple Structure Transformational
Functional Transactional
Structure
Divisional
Structure
Strategic Business
Unit Structure
Matrix Structure
Network Structure

1. Organization Structure
The word organization means groups of individual working together to achieve
specific objective. The word structure means part of a system or object arranged
for a particular purpose.
Organizational structure is the company’s formal configuration of its (Acronym:
GAP ID)
Intended roles
Procedures
Governance mechanisms
Authority
Decision-making processes.
Organizational structure acts as a framework which reflects manager’s
determination of what a company does and how tasks are completed.
Organization structure influence by factor such as
organization’s age
organization’s size
Type of organization
The company’s structure must be congruent with or fit with the
company’s strategy.
Changes in corporate strategy often require changes in the way an
organization is structured for two reason
Structure largely dictates

Organization Structure
how operational objectives
dictates how resources will
and policies will be
be allocated to achieve
established to achieve the
strategic objectives.
strategic objectives
Changes in strategy lead to changes in organizational structure.

Structure should be designed or redesigned to facilitate the strategic pursuit of a
firm.
When organization structure become ineffective?
1) Too many levels of management.
2) Too many meetings attended by too many people.
3) Too much attention being directed toward solving interdepartmental
conflicts.
4) Too large a span of control.
5) Too many unachieved objectives.

How Structure can also influence strategy?
If a proposed strategy required massive structural changes it would not be an
attractive choice.
Reason for having an organization structure
To fix the roles and responsibility.
To fix the line of communication.
The person to whom reports should be submitted.
2. Types of organization Structure
1. SIMPLE STRUCTURE
Definition Characteristics Advantage
• A simple structure is an • Little specialization of • Communication is

organizational form in tasks. frequent and direct
which the owner- • Few rules. • New products tend to
manager makes all be introduced to the
• Little formalization.
major decisions directly market quickly.
and monitors all • Unsophisticated.
information systems. • Competitive advantage.
activities, while the
company’s staff merely • Direct involvement of • Ability to respond more
serves as an executor. owner-manager in all rapidly to
phases of day-to-day environmental changes.
operations. • Greater structural
flexibility.
Simple structure is appropriate for

1) Where operations are limited to specific geographical market.
2) Implementing focused cost leadership or focused differentiation
strategies.

As small companies grows, the company outgrows the simple structure due to
following reason:
1) As small company grows, there are significant increase in the amount of
competitively relevant information that requires processing. As a result, it
put pressure on owner-manager.
2) To coordinate more complex organizational functions.
2. FUNCTIONAL STRUCTURE
CEO or Managing
Director
Corporate Corporate Production Corporate

Finance Marketing R&D
Definition Advantage Limitation

• A functional structure • Simplicity and low cost. • Differences in functional
groups tasks and • Promotes specialization specialization and
activities by business of labour. orientation may impede
function, such as • Encourages efficiency. communications and
production/operations, coordination.
marketing, • Minimizes the need for
an elaborate control • Functional specialists
finance/accounting, often may develop a
research and system.
narrow perspective.
development, and • Allows rapid decision
making. • Losing sight of the
management company’s strategic
information systems. vision and mission.

Comparison of Functional structure and Simple Structure
Basis Functional Structure Simple structure
Decision Making Corporate decision by CEO Done by owner or manager.

or MD and respective (single person)
functional decision making
by respective functional
line manager.
Specialization It leads to specialization in Less specialization of task.
particular task.
Communication Differences in Functional Frequent and direct
specialization hamper communication.
communication and
coordination.

3. DIVISIONAL STRUCTURE
•The divisional structure can •Accounatbility is •Divisional Structure is

be organized in one of the clear.divisional managers can costly.Why ?
four ways: by geographic be held responsible for sales •Because division requires
area, by product or service, and profit level. functional specialists who
by customer, or by process. •Employee morale is generally must be paid.
•In divisional higher in a divisional •Because there exists some
Structure,functional structure than it is in duplication of staff services,
activities are performed both centralized structure because facilities, and personnel.
centrally and in each managers and employees can •Because the divisional design
division separately. easily see the results of their forces delegation of authority
good or bad performances. better -qualified individuals
•Creates career development requires higher salaries.
opportunities for managers. • It requires an elaborate,
•Allows local control of local headquarters-driven control
situations system.
•Leads to a competitive • Certain regions, products, or
climate within an customers may sometimes
organization. receive special treatment,
•Allows new businesses and and It may be difficult to
products in be added easily. maintain consistent, company
wide practices.
Divisional Structure by Geographic Area
Appropriate For: 1) organizations whose strategies are formulated to fit the

particular needs and characteristics of customers in different
geographic areas.
2) Organizations that have similar branch facilities located in
widely dispersed area.
Advantage: Allows local participation in decision making and improved
coordination within a region.

Divisional Structure by Product (or service) wise
Appropriate For: When specific products or services need special emphasis.

When an organization offers only a few products or services.
When an organization’s products or services differ substantially.
Advantage: Allows strict control over and attention to product lines.

Disadvantage: Require a more skilled management force and reduced top
management control.
Divisional Structure by Product (or service) wise
Appropriate For: when a few major customers are of paramount importance and
many different services are provided to these customers.
Advantage: Allows an organization to cater effectively to the requirements of
clearly defined customer groups.
Divisional Structure by Process

Similar to a functional structure, because activities are organized according to the way
work is actually performed.
Then what is the difference?

Functional departments are not accountable for profits or revenues,
whereas divisional process departments are evaluated on these criteria.

4. STRATEGIC BUSINESS UNIT (SBU STRUCTURE)
DEFINITION
An SBU is a grouping of related businesses, which is agreeable to composite planning treatment. A
multi-business enterprise groups its businesses into a few distinct business units in a scientific way.
NECESSITY FOR SBU STRUCTURE

It is impractical for an enterprise with a multitude of businesses to provide separate strategic
planning treatment to each one of its products/businesses.
CHARACTERISTICS OF A SBU
1) Single business or a collection of a related businesses, for which independent planning can be
done and which might feasibly standalone from the rest of the organization.
2) It has its own set of competitors.
3) It has a manager who has responsibility for strategic planning and profit performance.
4) Each SBU is a separate business from the strategic planning standpoint. In the basic factors, viz.,
mission, objectives, competition and strategy-one SBU will be distinct from another.
5) Each SBU will have a CEO. He will be responsible for strategic planning for the SBU and its profit
performance.
How SBUs are Developed?

1) Composed of operating units where each unit represents a separate business to which the top
corporate officer delegates responsibility for day- to-day operations and business unit strategy to
its managers.
2) By such delegation, the corporate office is responsible for formulating and implementing overall
corporate strategy and manages SBUs through strategic and financial controls.
3) Individual SBUs are treated as profit centers and controlled by corporate headquarters that can
concentrate on strategic planning rather than operational control.
The principle underlying the grouping is that all related products should fall under one SBU.

Corporate Headquarter
SBU Groups
Division
Groups
Three Levels of SBUs Structure
Advantage:
Within each SBU, divisions producing similar products and/or using similar
technologies can be organized to achieve synergy.
A scientific method of grouping the businesses of a multi-business
corporation which helps the firm in strategic planning.
An improvement over the territorial grouping of businesses and
strategic planning based on territorial units.
Products/businesses within an SBU receive same strategic planning
treatment and priorities.
Enables the company to more accurately monitor the performance
of individual businesses.
Facilitates comparisons between divisions.
Improving the allocation of resources.
Simplifying control problems.
Stimulate managers of poorly performing divisions to seek ways to
improve performance
Comparison of Divisional structure and SBU structure
Divisional SBU Structure
Structure
The responsibility for The responsibility for

overall direction for each overall direction for each
division lies with Corporate division lies with the SBU.
head office
Financial performance Financial performance is

indicator is not relevant as relevant for evaluation as
authority to take decision SBU managers are
lies with corporate head autonomous to great
office. extent.
5. MATRIX STRUCTURE
• In matrix structure, • Project objectives are • Higher overhead

functional and product clear. because it has more
forms are combined • Workers can see the management positions.
simultaneously at the visible results of their • Dual lines of budget
same level of the work. authority.
organization. • Shutting down a project • Dual sources of reward
• Employees have two is accomplished and punishment.
superiors, a product or relatively easily. • Complexity in shared
project manager and a authority.
functional manager.
• It is very useful when the • Dual reporting channels.
• A matrix structure is the external environment is • Need for an extensive
most complex of all very complex and and effective
designs because it changeable. communication system.
depends upon both
• It reflects the benefit of • Might be a continuous
vertical and horizontal
both functional and battle for power
flows of authority and
divisional strcuture. between product and
communication .
• Employee can adopt functional manger.
• Simply matrix structure
best practice from one • Difficulties in
is a combination of
division in another implementation and
Divisonal and functional
division. trouble in managing.
structure.
Appropriate:
Widely used in such business where the external environment is
not stable.
Widely used when the business is a project- based business.
Matrix structure was developed to combine the stability of the functional

structure with the flexibility of the product form.

Matrix structure need when
1) Ideas need to be cross- fertilized across projects or products.

2) Resources are scarce.
3) Abilities to process information and to make decisions need to be
improved.
Phases of Developing Matrix Structure
Cross Functional task Product/ brand Mature Matrix

force Managment •Involves a true dual-
•when the cross-functional authority structure.
•Involves people from task forces become more •Both the functional and
differnet fucntions froming permanent,the project product structures are
a temporary task force manager becomes a product permanent.
under charge of project or brand manager.
manager. •All employees are
•function is still the primary connected to both a vertical
•Temporary cross-functional organizational structure but functional superior and a
task forces are initially used product or brand managers horizontal product manager.
when a new product line is act as the integrators of
being introduced. semi permanent products or •Functional and product
brands. managers have equal
•A project manager is in authority and must work
charge as the key horizontal well together to resolve
link. disagreements over
resources and priorities.

6. NETWORK STRUCTURE

•The network organization is •Provides an organization •The availability of numerous
a series of independent with increased flexibility potential partners can be a
firms or business units and adaptability to cope source of trouble.
linked together by a with rapid technological •Contracting out functions to
common system that change and shifting separate suppliers/distributors
designs, produces, and patterns of international may keep the firm from
markets a product or trade and competition. discovering any synergies by
service. •It allows a company to combining activities.
•Network structure is concentrate on its •If a particular firm
termed a “non-structure” distinctive competencies. overspecialises on only a few
by its virtual elimination of functions, it runs the risk of
in house business functions. •While gathering choosing the wrong functions
•A corporation organized in efficiencies from other and thus becoming non-
this manner is often called firms who are competitive.
a virtualorganization concentrating their efforts
because it is composed of a in their areas of expertise.
series of project groups or
collaborations linked by
constantly changing non-
hierarchical, cobweb-like
networks.
Appropriate
When the environment of a firm is unstable and is expected to remain
so and there is usually a strong need for innovation and quick
response.
How Network Structure developed

Many activities of organization are outsourced. It can be called as a
virtual organization.
Instead of having salaried employees, it may contract with people
for a specific project or length of time.
Long-term contracts with suppliers and distributors replace
services that the company could provide for itself.
Works on “BUY” over a “MAKE” decision.

It is not located in a single building or area, an organization’s
business functions are scattered at different geographical
locations.
The organization is, in effect, only a shell, with a small headquarters

acting as a “broker”, electronically connected to some completely
owned divisions, partially owned subsidiaries, and other independent
organization.
8. Hourglass Structure
• Hourglass organization • Reduction in cost.

structure consists of • Helps in enhancing •promotion opportunities for
three layers with responsiveness by the lower levels diminish
constricted middle simplifying decision significantly due to
layer. making reduction in size of middle
• The structure has a short • Decision making management.
and narrow middle- authority is shifted close • It leads to monotony and
management level. to the source of lack of interest and it
becomes difficult to keep
• Information technology information so that it is the motivation levels high.
links the top and bottom faster.
levels in the organization
taking away many tasks
that are performed by
the middle level
managers.

Is Middle level not present in Hourglass Structure?
Middle level is present but it is constricted. A shrunken middle layer coordinates
diverse lower level activities.
The managers in the hourglass structure are generalists and perform wide variety of
tasks. They would be handling cross-functional issues emanating such as those from
marketing, finance or production.
Traditional Structure v/s Modern organization structure

Traditional Modern
One corporate to manage all the Multiple and smaller business units
operation managing themselves to a large extent.
Focus on vertical communication Focus on Horizontal Communication
Centralized decision making Decentralized decision making
Vertical Integration Outsourcing non-core activities
Acquire units or firms in the supply Outsourcing preferred over acquiring
chain as part of vertical integration
Specialized job designed focusing on an Value chain based job design and
individual creation.
3. Strategic Leadership
Strategic leadership sets the direction for the organization by
Developing and communicating vision of future.
Formulate strategies in the light of internal and external environment.
Brings about changes required to implement strategies.
Inspire the staff to contribute to strategy execution.
Strategic leadership needs the ability to

Anticipate and imagine
Maintain flexibility

Empower others to create strategic change as necessitated by external
environment.
What Strategic leader do?

Guide the company through the new competitive landscape by influencing the
behavior, thoughts and feelings of co-workers.
Deal with change and uncertainty.
Five Leadership Role to play
Staying on top of what is happening,Closely monitoring

progress, solving out issue and learning what obstacles lie in
the path of good execution.
Promoting a culture of ESPRIT DE CORPS i.e. the common

spirit existing in member of group .mobilizes and energizes
organizational members to execute strategy in a competent
fashion and perform at a high level
Keeping the organization responsive to changing conditions,

alert for new opportunities, bubbling with innovative ideas,
and ahead of rivals in developing competitively valuable
competencies and capabilities
Exercising ethical leadership and insisting that the company

conduct its affairs like a model corporate citizen.
Pushing corrective actions to improve strategy execution

and overall strategic performance.

Responsibilities of Strategic Leader
Making strategic decisions.
Formulating policies and action plans to implement strategic decision.
Ensuring effective communication in the organization.
Managing human capital (perhaps the most critical of the strategic leader’s
skills).
Managing change in the organization.
Creating and sustaining strong corporate culture.
Sustaining high performance over time.
Two Approaches for Strategic Leadership

1) Transformational leadership style
2) Transactional leadership style
Point Transformational Leadership Transactional Leadership

Focus Charisma and enthusiasm to inspire On designing systems and controlling
people to exert them for the good of the organization’s activities and are
the organization. more likely to be associated with
improving the current situation.
Appropriateness Appropriate Appropriate in

1) In turbulent environments 1) Static environment
2) In mature industry
2) In industries at the very start or
3) In organization that are performing
end of their life-cycles well.
3) In poorly performing organizations

when there is a need to inspire a
company to embrace major changes.
Approach Transformational leaders offer Prefer more formalized approach to

excitement, vision, intellectual motivation, setting clear goals with
stimulation and personal satisfaction. explicit rewards or penalties for
They inspire involvement in a mission. achievement or non-achievement.

produce more dramatic changes in
organizational performance
4. Strategy Supportive Culture

Every organization
Its own philosophy and principles
Its own history, values and rituals.
Its own way of approaching problems and making decision.
Its own work climate.
Its own embedded patterns of how to do things.
Its own ingrained beliefs and thought patterns and practices.
All of the above constitutes the corporate culture.
What is Corporate Culture?

Corporate culture refers to a company’s values, beliefs, business principles,
tradition, and ways of operating and internal work environment. It provides
structure, standards, and a value system in which the company operate.
Where does corporate culture come from?

A company culture Displayed in
Values and business principles that management preaches and practice.
Ethical standards and official policies.
Stakeholder’s relationship policies.
Supervisory practice.
Employee’s attitude and behavior.
When Company culture emerged as an ally to strategy execution?

When beliefs vision, objectives, and business approaches and practices of a
company are compatible with its culture.

When Company culture emerged as an obstacle to strategy execution?
When beliefs vision, objectives, and business approaches and practices of a
company are not compatible with its culture and hence the culture is in conflict
with the company’s direction, performance targets or strategy.
What is the Role of culture in strategy execution?

Well-intentioned corporate culture required for good strategy execution.
It helps to energize people throughout the company to do their jobs.
Adding significantly to the power and effectiveness of strategy execution.
It provides a system of informal rules and peer pressure regarding how to
conduct business internally and how to go about doing one’s job.
Perils of strategy culture conflict

When a company’s culture is out of sync with corporate strategy then there is a
strategy culture conflict.
For resolving it,
There will be overhauling of strategy to produce cultural fit or overhauling
the mismatched cultural features to produce strategy fit.
Strategy maker’s responsibility
In every corporate culture there are some unchangeable parts. To select a
strategy compatible with the unchangeable parts of prevailing corporate
culture.
Strategy implementer’s responsibility
To change whatever aspects of the corporate culture hinder effective
execution.
How the management handled it?

First step is to diagnose which aspects of the present culture are strategy
supportive and which are not.
Managers have to talk openly and straightforwardly to all concerned people
about those aspects of the culture that have to be changed.

An aggressive action to modify the culture are intended to establish a new
culture more in tune with the strategy.
The culture changing action includes
Revising policies and procedures in ways that will help drive cultural
change
Altering incentive compensation.
Visibly praising and recognizing people who display the new cultural
traits.
Recruiting and hiring new managers and employees who have the
desired cultural values.
Replacing key executives who are strongly associated with the old
culture.
Capitalize every opportunity to communicate to employees the basis
for cultural change and its benefits to all concerned.
Implanting the needed culture-building values and behavior depends on a sincere,
sustained commitment by the chief executive coupled with extraordinary persistence
in reinforcing the culture at every opportunity through both words and deed.
4. Entrepreneurship and Intrapreneurship

Concept of Entrepreneur
Entrepreneurship: It is an attitude of mind to seek opportunities take calculated

risk and drive benefits by starting and running a venture. It
comprises of numerous activities involved in the conception,
creation and running an enterprise.
Who is an entrepreneur?
An entrepreneur is a person who searched for business opportunity and
starts a new enterprise to make use of that opportunity. Entrepreneur
refers to a person who starts his own business with a new idea or
concept.
Characteristics of Entrepreneur
Initiates and innovates a new concept.
Recognizes and utilizes opportunity.
Arranges and coordinates resources such as man, material, machine and
capital.
Faces risks and uncertainties.
Establishes a startup company.

Adds value to the product or service
Takes decisions to make the product or service a profitable one.
Is responsible for the profits or losses of the company.
Entrepreneurship involves creation of a business idea and the fusion of capital,

technology and human talent to give practical shape to the idea.
Concept of Intrapreneur
Intrapreneur represents an employee who promotes innovation within
the limits of the organization. An intrapreneur is nothing but an
entrepreneur who operates within the boundaries of an organization.
He is an employee of a large organization, who is vested

with authority of initiating creativity and innovation in the company’s
products, services and projects
With authority of Redesigning the processes, workflows and systems.
Characteristics of Intrapreneur
Believe in change and do not fear failure.
They discover new ideas.
Look for such opportunities that can benefit the whole organization and take
risks.
Promote innovation to improve the performance and profitability of the
organization.

Strategic Implementation and Control
STARTEGY FORMULATION AND STRATEGY IMPLEMENTATION
STRATEGY CHANGE
STRATEGIC CONTROL
STRATEGY AUDIT
BUSINESS PROCESS REENGINEERING
BENCHMARKING
2. STRATEGY IMPLEMENTATION
A. Concept
Strategy implementation concerns the managerial exercise of putting a freshly
chosen strategy in action.
Supervising the ongoing implementation/pursuit of strategy and making it work.

Improving the competence with which it is executed and showing progress in
achieving the targeted result.
Organizational success is a function of good strategy and proper implementation.
B. Implementation of Strategy
Allocation of resources to new course of action.
Design organization structure.
Formulate Functional policies and provide strategic leadership.
Training personnel and devising appropriate systems.
C. Relationship between Strategy formulation and Strategy Implementation
A B Sound
FlawedC D
Weak Excellent
Strategy Implementation Strategy Formulation

Square A Square B Square C Square D
• Very competitive • Ideal Situation. • Haven’t • Strategy

strategy but Combination of succeeded in formulation is
difficulties in sound and coming up with flawed but the
implementing it competitive a sound strategy company is
Successfully. strategy and has formulation and showing
• Reason : Lack of been successful are bad at excellent.
experience, lack in implementing implementing • How to
of resources, it. their flawed improve:
missing strategy. Redesign their
leadership. • How to strategy.
Improve:
BusinessModel
redesign and
implementation
readjustment
Strategy is not a synonymous with ‘long term plan’. It consists of an enterprise’s

attempts to reach some preferred future state by adapting its competitive position as
circumstances change.
D. Concept of Efficiency and Effectiveness

Efficiency: The relationship between input and
Output. The responsibility
lies with Operational manager.
Effectiveness: Concerned with the attainment of organizational goals including that of

desired competitive position. It highlights the link between the organization and its
environment
Effective Ineffective
1 2
Efficient Thrive Die Slowly
3 4
Inefficient Survive Die Quickly

Cell 1 Cell 2 Cell 3 Cell 4
•Well-placed and •Doomed position •Organization is •Inefficient and

thrives(flourish). •Organization is effective but not ineffective.
•Organization has efficient but not efficient. •Worst situation
efficient effective to the •It ensure survival and organization
input/output ratio changing as organization collapse quickly.
and effective for environment. Strategic direction
changing present to ensure
environment. effectiveness.
•Efficiency is not
necessary for
survival.
Imperfect plan + well Implemented will achieve more than the Perfect plan + worst
implementation.
E. Strategy Formulation v/s Strategy Implementation

Point Strategy Formulation Strategy Implementation
Focus Focus on effectiveness Focus on efficiency
Process Primarily an Primarily an operational
intellectual process process
Skills Requires Conceptual Requires Motivation and
intuitive and analytical leadership skills.
skills.
Coordination Requires coordination Requires coordination among
among the executives at the executives at middle and
the top level. lower levels.
F. Linkage
Strategy formulation and strategy Implementation processes are intertwined (Link).
Two type of linkage: Forward linkage
Backward Linkage
Forward Linkage: Implementation of strategy is determined by formulation of

Strategy.
Strategy formulation starts with objective setting through environmental and
organizational appraisal.

Evaluating different alternatives for achieving objective and choose one of
them.
Formulation of new strategies or changes in the existing strategies leads to many
changes in the organization for implementation of decided strategy. Changes
like change in organization structure, style of leadership.
Backward Linkage: Formulation of strategy is also affected by factors related with

Implementation.
The past strategic action helps in determining the choice of strategy.
Organization adopt those strategies which can be implemented with the help of
the present structure of resources combined with some additional efforts.
Strategy formulation is primarily an entrepreneurial activity based on strategic

decision-making. The strategy implementation is mainly an administrative task based
on strategic as well as operational decision-making.
2. ISSUES IN STRATEGY IMPLEMENTATION

Strategies plan are a statement of intent while implementation tasks are meant
to realize the intent. Strategies activated through implementation.
Strategies should lead to formulation of different kinds of programmes.
What is Programme ? What is Project?

- A programme is a broad - A project is a highly specific programme
term, which includes goals, for which the time schedule and costs are
policies, procedures, rules, predetermined.
and steps to be taken in - Projects require resources.
putting a plan into action.
- Programme lead to the - It would be essential to see that a proper
formulation of projects. organizational structure is designed,
systems are installed, functional policies
Example: Organization has a are devised, and various behavioral inputs
Research and development are provided so that plans may work.
Programme for gaining
competitive advantage.
Example: Research and development
programme may consist of several projects,
each of which is intended to achieve a specific
and limited objective within a set time
schedule and cost.

A. Issue in Strategy Implementation
Project Procedural
Implementation Resources Allocation
Implementation
Functional
Behavioral
Implementation
Implementation
Structural
Implementation
Each of the above activities can be performed simultaneously, certain activities may
be repeated over time and some may be performed only once.
B. Additional Points
Divisional and functional manager must involve in strategy formulation and
strategist should also be involved as much as possible in strategy implementation
activities.
Strategists’ genuine personal commitment to implementation is a necessary and
powerful motivational force for managers and employees.
Top-down flow of communication is essential for developing bottom-up support.
3. Strategic Change
Changes in environmental forces requires business to make modifications in
their existing strategies.
Strategic change is a complex process that involves a corporate strategy focused
on new markets, products, services and new ways of doing business.
A .Steps to Initiate Strategic Change

•Analyzing the present corporate culture which parts of
corporate culture are strategy supportive and which
are not
Recognize the need for •Involves environmental scanning through SWOT
change analysis.
•PURPOSE : Determining where lacuna lies and scope
for change exists.
•Objectives of both individuals and organization should

coincide
•Senior managers need to constantly and consistently
Create a shared vision to communicate the vision to all the organizational
manage change members.
•PURPOSE : Management has to convince that the
change in business culture is not superficial or
cosmetic
• Basically an action stage which requires

implementation of changed strategy
Institutionalize the •Creating and sustaining a different attitude towards
change change is essential
•PURPOSE : To implement changes in strategy of the
organization.
B. Kurt Lewin’s Model of change

Three phases of the change process for moving the organization from the present to
future.
Unfreezing the situation:
Definition Process of breaking down the old attitudes and behaviours,

customs and traditions so that they start with a clean slate.
How to do Making announcements, holding meetings and promoting the
new ideas throughout the organization.
Why To make individuals aware of the necessity for change and
prepare them for such a change because sudden and
unannounced change would be socially destructive and morale
lowering.

Changing to the new situation:
Definition Process of reassigning new patterns of behavior for member

of the organization.
How to do 1. Compliance: strictly enforcing the reward and
punishment strategy for good or bad behavior.
2. Identification: occurs when members are psychologically

impressed upon identify themselves with some role
models whose behavior they would like to adopt.
3. Internalization: change in individuals thought processes

in order to adjust to the changes introduced. Provide
independence to learn and adopt new behavior.
Refreezing
Definition Process of Stabilizing the new behavior and continuously

reinforced so that this new acquired behavior does not
diminish or extinguish.
When it It occurs when the new behavior becomes a normal way of
complete life. The new behaviour must replace the former behaviour
completely for successful and permanent change to take place
4. Strategic Control
A. Definition:
The controlling function involves

monitoring the activity and
measuring results against pre-established standards,
analyzing and correcting deviations as necessary and
maintaining/adapting the system.
Controls are necessary to influence the behavior of events and ensure that they
conform to plans

B. Why is Control necessary?
To ensure and make possible the performance of planned activities.
To regulate and check the behavior of events and people.
To place restraints on undesirable tendencies.
To make people conform to certain norms and standards.
To ensure proper use of resources.
C. Process of control has following elements:

Objectives of the business system which could be operationalized into
measurable and controllable standards.
mechanism for
1. Monitoring and measuring the performance of the system.
2. Comparing the actual results with reference to the standards.
3. Detecting deviations from standards.
4. Learning new insights on standards.
5. Providing feedback and instruction for correction in system.
D. Type of organizational control
1) Operational control
Thrust of operational control is on individual tasks or transactions.
There is a measurable relationship between inputs and outputs which could
be predetermined or estimated with least uncertainty.
Most of the control are operational control in organization.
Example of Operational control are stock control, production control quality
control etc.
2) Management Control
Management control is more inclusive and more aggregative when compared
with operational control.
It integrated activities of a complete department, division or even entire
organization, instead or mere narrowly circumscribed activities of sub-units.
The basic purpose of management control is the achievement of enterprise
goals – short range and long range – in a most effective and efficient manner.

3) Strategic Control
Definition: Strategic control is the process of evaluating strategy as it is
formulated and implemented. It is directed towards identifying problems and
changes in premises and making necessary adjustments.
focuses on the dual questions of whether
the strategy is being implemented as planned
the results produced by the strategy are those intended
A strategy might be affected on account of changes in internal and external

environments of organization. So, there is a need for warning systems to
track a strategy as it is being implemented.
Type of Strategic Control
Premise Strategy Special Alert Implementation

Control Surveillance Control Control
Premise Control
What is premise? What is premise control? Premise control involves monitoring

Certain assumption about It is a tool for systematic and two types of factors
the complex and continuous monitoring of the
Environmental factors such as
turbulent organizational environment to verify the
economic Technology, social and
environment. A strategy validity and accuracy of the
legal-regulatory.
is formed on the basis of premises on which the strategy
certain premises. has been built. Industry factors such as competitors,
suppliers, substitutes
Can all premises be controlled?

It is neither feasible nor desirable to control all types of premises. Also, different
premises may require different amount of control. Thus, managers are required to
select those premises that are likely to change and would severely impact the
functioning of the organization and its strategy.

Strategy Surveillance
It involves general monitoring of various sources of information to uncover
unanticipated information having a bearing on the organizational strategy.
We can say it is a casual environment browsing.
Strategic surveillance may be loose form of strategic control but is capable of
uncovering information relevant to the strategy.
Example: Reading financial and other newspaper, attending conference, meetings
etc.
Special alert control

Unexpected events may force organizations to reconsider their strategy.
To cope up with such eventualities, the organizations form crisis management
teams to handle the situation.
Examples of Unexpected events: change in government, natural calamities,
terrorist attacks, unexpected merger/acquisition by competitors, industrial
disasters.
Implementation control
Strategy implement by converting major plan into concrete, sequential actions.
These Sequential actions are incremental step in implementation process.
Implementation control is directed towards assessing the need for changes in the
overall strategy in light of unfolding events and results associated with
incremental steps and actions.
Two basic form of Implementation control

1) Monitoring strategic thrusts: It helps managers to determine whether the
overall strategy is progressing as desired or whether there is need for
readjustments.
2) Milestone Reviews:
a. It normally involves a complete reassessment of the Strategy.
b. All major activities which are necessary for implementation of strategy
are segregated in terms of time, events or major resources allocation.
c. It also assesses the need to continue or refocus the direction of an
organization

6. Business process Reengineering
A. Business Process
What is Business Process?

What do you mean by "Process"? It is simply a set of activities that transform a set of
A process is a set of logically related tasks or activities inputs into a set of outputs for another person or
oriented towards achieving a specified outcome. process.
It is a collection of activities which creates an output of
value to the customer
Business Process
Example
one common process found almost in every
a business process involves a number of steps
organization is the order fulfilment. Order fulfilment
performed by different people in different
begins with procuring an order and ends with delivery
departments
of goods to the customer.
B. What is core business process?

It is a process which is extremely critical for the success and survival of the
enterprise.
A core business process creates value by the capabilities it provides to the
competitiveness.
They are crucial for generating competitive advantages for a firm in the
marketplace.
The core processes of a company may change over a period of time according to the
shifting requirements of its competitiveness.
C. Why is process redesign needed?

Process design needed due to following reason
1) Most of the processes that the organizations are engaged in might have been
developed by their functional units over a period of time. It also might have been
evolved based on a series of unplanned decisions.

2) The individual departments aim at optimizing their own performance
irrespective of the effect on other department. This may result in a sub-optimal
performance for the organization as a whole.
3) The existing business processes and work patterns might have largely
obsolete and irrational because of change in information and
communication technologies.
D. Premises of Business process Reengineering
The operational excellence of a company is a major basis for its

competitiveness
The business strategy of a company should be oriented towards

leveraging its operational excellence into the marketplace
A customer-focussed organization needs to be realigned in terms

of a process orientation
Process need to be managed, not only its components
Each and every concept, assumption, purpose, and principle, needs

to abandoned temporarily
How to compete is more important than deciding about where to

compete?
Dramatic improvement in performance is the prerequisite for

overcoming competition.
Continuous improvement is lacking in the organisation
E. Business Process Reengineering
Definition
Reengineering: means putting aside much of the age-old practices and procedures
of doing a thing.

Business Process Reengineering (BPR): It refers to the analysis and redesign of
workflows and processes both within and between the organizations.
Objective
1) The objective is to provide competitive advantage to the enterprise.
2) To obtain quantum (substantial) gains in the performance of the process in
terms of time, cost, output, quality, and responsiveness to customers.
3) Simplifying and streamlining a process by eliminating all redundant and non-
value adding steps.
4) Unusual improvement in operating effectiveness through the redesigning of
critical business processes and supporting business systems.
Nature
1) Focuses on critical business processes.
2) BPR looks at the minute details of the process, such as why the work is
done, who does it, where it is done and when it is done.
3) BPR include total deconstruction and rethinking of a business process in its
entirety irrespective of its existing structure and pattern.
In one sentence “Business process reengineering means starting all over, starting
from scratch.”

F. Elements of BPR (Acronym: FDR)
Points Description
Reengineering begins with a 1. Understanding fundamental question like what
Fundamental rethinking we do, why we do, why do we do it the way
we do?
2. The thinking process in reengineering begins
with a totally free state of mind without having
any preconceived notion.
3. Reengineering first determines what a
company must do and then it decides on how
to do it.
4. Reengineering ignores what the existing
Process is and concentrates on what it should
be.
Reengineering involves Radical 1. Radical redesigning means going to the root of

(Comprehensive) redesigning of the problem areas and not attempting to
process. make any superficial changes.
2. Radical redesign involves completely
discarding all existing structures and
procedures and evolving completely new ways
of doing the work.
Reengineering aims at achieving 1. Reengineering is not the solution for marginal
Dramatic improvement in performance. improvement in any area of operation.
2. Reengineering is meant for replacement of the
old process by altogether new one to achieve
dramatic improvement in the performance.
3. The main focus is on Process.
4. In order to improve its competitive position a
firm must try to identify the generic business
processes which significantly add to the value
for its output to the customer and should try to
focus on reengineering these processes first.
G. Generic Business Process classified in three broad categories: (Acronym PCM)

Points Description
1. Processes pertaining to Process: Research, Design, Engineering,
development and delivery of Manufacturing and logistics besides
Product(s) and/or services purchasing and material management.

2. Processes involving interface(s) Process: Marketing, advertising, order
with Customers fulfillment and service.
3. Processes comprising Includes: Strategy formulation, Planning and
Management activities budgeting, performance measurement and
reporting, human resource management and
building infrastructure.
H. Rationale of BPR
Improving business processes is paramount for businesses to stay competitive in
today’s marketplace.
New technologies (like Information Technology) are rapidly bringing new
capabilities to businesses, thereby raising the strategically options and the need
to improve business processes dramatically.
I. Implementation of BPR in organization

There are 2 Approaches:
1) Continuous Improvement Model: Understand and measure current process and
make Performance improvements.
2) Assume that current process are wrong or irrelevant and disassociation from
existing process. This helps in looking at the problem with a clean mind, free of
any biases.
J. Steps in BPR
Steps Description
1. Determining Objective Objectives are the desired end results of the
redesign process which the management and
organization attempts to realize.
BUT WHY?
To provide required focus, direction, and
motivation for the redesign process.
To help in building a comprehensive

foundation for the reengineering process.

2. Identify customers and Understand customer profile, their steps in
determine their needs acquiring using and disposing a product.
BUT WHY?
To redesign business process that clearly
provides value addition to the customer.
3. Study the existing process Studying existing process is relevant in

Continuous improvement model only.
BUT WHY?
To gain an understanding of the ‘what’, and
‘why’ of the targeted process.
4. Formulate a redesign process The information gained through above steps

plan translated into ideal design process.
Formulation of redesign plan is the real crux

of the reengineering efforts.
Customer focused redesign concepts are

identified and formulated.
Alternative Process are
considered and the best is
selected.
5. Implement the redesigned Implementation of the redesigned process
process and application of other knowledge gained
from the previous steps is key to achieve
dramatic improvements.

Joint responsibility of designer and
management to operationalize the new
process.
K. How IT helps in BPR

It enhances Business value in three distinct areas
1) Efficiency – by way of increased productivity.
2) Effectiveness – by way of better management.
3) Innovation – by way of improved products and services.
IT system Reduces the time for Business process, remove geographical barriers, and
helps in restructuring of relationship.
In a broader sense, IT enhances the quality of product and service which enable the
business in improving to competitiveness and customer satisfaction.
L. Centre Thrust of BPR
“The reduction of the total cycle time of a business process.”
BPR aims at reducing the cycle time of process by eliminating the unwanted and
redundant steps simplifying the systems and procedures
Eliminating the transit and waiting times as far as possible. Even after
redesigning of a process.
M. What is the characteristics of BPR which differentiate it with other process like
Restructuring?
Reengineering does not have any scope for any partial modification or marginal
improvement in the existing business processes.
BPR aims at utilizing information technology for evolving a new process, instead
of automating the existing process.
Focuses on a multidimensional approach disregarding the constraints of
departmental boundaries.
BPR efforts involve managing massive organizational change. Work changes from
task oriented to process oriented.

N. Are there any problems in BPR
It disturbs established hierarchies and functional structures
Involves resistance among the workforce.
Reengineering involves huge time and heavy expenditure.
Setting of targets is tricky and difficult.
BENCHMARKING
Definition
Standard or a point
of reference against Benchmarking is an
which things may be approach of setting
compared and by goals and
which something measuring
can be measured productivity based
and judged. It is
related to control on best industry
process of practices.
management
Benchmarking is a process
of continuous
improvement in search for
competitive advantage
Steps in Benchmarking
Steps Description
1. Identifying the need for Defining the objectives of the benchmarking
benchmarking exercise.

It will also involve selecting the type of
benchmarking.
Organization identify realistic opportunities for

improvements.
2. Clearly understanding existing This step will involve compiling information and
business processes data on performance.
Information and data is collected
by different methods such as
interviews, visits and filling of
questionnaires.
3. Identify best processes Within the selected framework, best processes

are identified
These may be within the same organization or
external to it.
4. Compare own processes and Comparing gaps in performance between the

performance with that of organization and better performers is
others: identified.
gaps in performance are analyzed to seek

explanations.
Feasibility of making the improvements is also
examined.
5. Prepare a report and Implement A report on the Benchmarking initiatives

the steps necessary to close the containing recommendations is prepared.
performance gap
Such a report includes the action
plan(s) for implementation.
6. Evaluation A business organization must evaluate the

Definition Objective
A strategy audit is an examination and 1) Helps an organization to identify
evaluation of areas affected by the problem areas and correct the
operation of a strategic management strategic approaches that have not
process within an organization been effective so far.
2) An assessment of the external
environment shows where changes
happen and where organization’s
strategic management no longer
match the demands of the
marketplace.
results of the benchmarking process in terms

of improvements vis-à-vis objectives and other
criteria set for the purpose.
It should also periodically evaluate and reset
the benchmarks, if required.
STRATEGY AUDIT
WHEN STRATEGY AUDIT NEEDED?

When the performance indicators reflect that a strategy is not working
properly.
When the goals and objectives of the strategy are not being accomplished.
When a major change takes place in the external environment of the
organization.
When the top management plans:
To fine-tune the existing strategies and introduce new strategies and
To ensure that a strategy that has worked in the past continues to be
in-tune with subtle internal and external changes.
ACTIVITIES IN STRATEGY AUDIT

Examining the underlying bases of a firm’s strategy.
Comparing expected results with actual results.
Taking corrective actions to ensure that performance conforms to plans.

Richards Rumelt’s criteria for strategy audit
CONSISTENCY
1. A strategy should not present inconsistent goals and policies.
2. Organizational conflict and interdepartmental argument may be a sign of
strategic inconsistency.
Three guidelines for determining if problems are due to inconsistencies

- If managerial problems tend to be issue-based rather than people-based
- If success for one organizational department leads to failure for another
department.
- If policy problems and issues continue to be brought to the top for
resolution.
Consonance
Consonance refers to the need for strategists to examine sets of trends, as

well as individual trends, in auditing strategies.
A strategy must represent an adaptive response to the external environment
and to the critical changes occurring within it.
Feasibility
Strategy should be implemented with the available or with possible acquiring of
human and Financial resources.
- A strategy must neither overtax available resources nor create unsolvable sub-
problems.
- It is important to examine whether an organization has demonstrated in the
past that it possesses the abilities, competencies, skills, and talents needed
to carry out a given strategy.
Advantage
- A strategy must provide for the creation and/or maintenance of a competitive
advantage in a selected area of activity.
- Competitive advantages normally are the result of superiority in one of three
areas
i. resources
ii. skills
iii. position

Why Strategy evaluation is more difficult today
A dramatic increase in the environment’s complexity.
The increasing difficulty of predicting the future with accuracy.
The increasing number of variables in the environment.
The rapid rate of obsolescence of even the best plans.
The increase in the number of both domestic and world events affecting
organizations.
The decreasing time span for which planning can be done with any degree of
certainty.

Six Sigma and TQM
1. Total Quality Management

CONCEPT
TQM is an integral part of high-level strategy.
It works horizontally across functions and departments,
involves all Employees, top to bottom, and extends
backward and forward to include the supply chain and
the customer chain.
TQM stresses learning and adaptation to continual change
as keys to organizational success.
Total Quality Management

(TQM) is a people-focused
management system that
aims at continual increase
in customer satisfaction at
continually lower real
cost.
Principles guiding TQM
A sustained management commitment to quality

1) An organization's personality and culture will ultimately reflect its senior
management’s values.
2) The organization's senior management has to be unwavering in its
commitment to quality.
Focusing on the customer

Customer satisfaction is a key rule. The satisfaction of the customers
determines the success
Of an organization.
Preventing rather than detecting defect

TQM is a management philosophy that seeks to prevent Poor quality in products
and services, rather than simply to detect and sort out defects.

Universal quality responsibility
1) The responsibility for quality is not restricted to an organization's quality
assurance department.
2) TQM is a guiding philosophy shared by everyone in an organization.
3) TQM requires that everyone takes responsibility for quality.
4) TQM concepts includes that quality is a measurable commodity.
Continuous improvement and learning

TQM adopts a philosophy of continuous improvement in all areas of an
organization.
This philosophy ties in closely with the quality measurement and universal
quality responsibility.
Continuous improvement" refers to both incremental and "breakthrough"
improvement.
Improvement may be of several types
1) Enhancing value to the customer through new and improved products and
services.
2) Developing new business opportunities
3) Reducing errors, defects, and waste.
4)Improving responsiveness and cycle time performance
5) Improving productivity and effectiveness in the use of all resources.
Learning refers to adaptation to change, leading to new goals or approaches.

Improvement and learning need to be embedded in the way an organization
operates.
Root cause corrective action

TQM seeks to prevent the continued occurrence of problems by identifying the
root causes of problems and by implementing corrective actions that address
problems at the root cause level.
Employee involvement and empowerment

1) Employee involvement means every employee is involved in running the
business and plays an active role in helping the organization meet its goals.

2)Employee empowerment means employees and management recognize that
many obstacles to achieving organizational goals can be overcome by employees
who are provided with the necessary tools and authority to do so.
The synergy of teams

Advantage of the synergy of teams is an effective way to address the problems
and challenges of continuous improvement.
Thinking statistically
Quality efforts often require reducing process or product-design variation, and
statistical methods are ideally suited to support this objective.
Inventory reduction
TQM includes Just in time concept. It helps in reducing in managing the
inventory effectively and efficiently.
Value improvement
The linkage between continuous improvement and value improvement is
simultaneously obvious.
The essence of value improvement is the ability to meet or exceed customer
expectations while removing unnecessary cost. But simply cutting costs,
however, will not improve value if the focus does not remain on satisfying
customer requirements and expectations.
Supplier teaming
TQM philosophy involves developing of long-term relationships with a few high-
quality suppliers, rather than simply selecting those suppliers with the lowest
initial cost.
Training
The concept is based on of empowering employees by providing the tools
necessary for continuous improvement. One of the most basic tools is training.
How TQM differs from Traditional management practices
Strategic Planning and Management Changing Relationships with

Customers and Suppliers
Quality planning and strategic business
planning are indistinguishable in TQM. In TQM, quality is defined as products
and services beyond present needs and
Quality goals are the cornerstone of the
expectations of customers.
Organizational Structure Organizational Change
TQM views the enterprise as a system of In TQM the environment in which the
interdependent processes, linked enterprise interacts is considered to be
laterally over time through a network of changing constantly.
collaborating (internal and external)
suppliers and customers. Management is to provide the leadership
Teamwork Motivation
for continualand Job Designand
improvement
Every process contains sub-processes innovation in processes and systems,
In TQM individuals cooperate TQM managers provide leadership
and is also contained within in team
a higher products, and services.
structures such as quality circles,
process. rather than overt intervention in the
steering committees, and self-directed processes of theirissubordinates.
External change inevitable, but a
This structure of processes is repeated
work teams. favorable future can be shaped.
throughout the hierarchy. People 'are motivated to make
Departments work together toward meaningful contributions to what they
system optimization through cross- believe is an important and noble
functional teamwork. cause, of value to the enterprise and
society.
2. Six Sigma and Management

Definition
Six Sigma means maintenance of the desired quality in processes and end
products.
It means taking systemic and integrated efforts toward improving quality
Six Sigma is a total management

commitment and philosophy of
excellence, customer focus, process
improvement, and the rule of
and reducing cost.
Six Sigma is a gradual process.
It starts with a dream or a vision.
Characteristics
1) It is a highly disciplined process that helps in developing and delivering near-
perfect products and services.
2) It strives to meet and improve organizational goals on quality, cost,
scheduling, manpower, new products etc.
3) It works continuously towards revising the current standards and
establishing higher ones.
4) Six Sigma strives that 99.99966% of products manufactured are defect
free.
5) Six Sigma puts the customer first and uses facts and data to drive better
solutions.
6) Six Sigma is not merely a quality initiative; it is a business initiative.
In statistical terms, "reaching Six Sigma" means that your process or product
will perform with almost no defects.

Six sigma Methodology
1. DMAIC

• It involves defining the process improvement
goals that are consistent with the strategy of
Define the organization and customer demand.
• The existing processes are measured to

facilitate future comparison
Measure • Six sigma experts collect process data by
mapping and measuring relevant processes
• Verify cause-and-effect relationship

between the factors in the processes.
• Experts need to identify the relationship
Analyze between the factors.
• They have to make an comprehensive
analyses to identify hidden or not so
obvious factor.
• On the basis of the analysis experts make a

Improve detailed plan to improve.
• Initial trial or pilots are run to establish

process capability and transition to production.
Control • Afterwards continuously measure the process to
ensure that variances are identified and
corrected before they result in defect.
DMADV Methodology

• Formally define goals of the design
activity that are consistent with
Define strategy of the organization and the
demands of the customer.
• Next identify the factors that are

critical to quality (CTQs).
• Measure factors such as product
Measure capabilities and production process
capability alonwith assesing the risks
involved.
• Develop and design alternatives.

• Create high-level design and evaluate
Analyze to select the best design.
• Develop details of design and optimise

it.
Design • Verify designs may require using
techniques such as simulations.
• Verify designs through simulations or

pilot runs.
Verify • Verified and implemented processes are
handed over to the process owners
Why Six Sigma?

Improving customer satisfaction.
Improving quality.
Reducing wastage.
Reducing cycle time.
Reducing defects.

Improvements in these areas usually represent
Dramatic cost savings to businesses
Opportunities to retain customers, capture new markets, and build a
reputation for top performing products and services.
Characteristics that differ Six sigma from other quality Programs
1) Six Sigma is customer focused

It's almost a preoccupation to keep external customer needs in plain sight,
driving the improvement effort.
2) Six Sigma projects produce major returns on investment

It established the new and innovative technologies which helps in reducing
defects and improvised quality.
3) Six Sigma changes how management operates

Senior executives and leaders throughout a business are learning the tools
and concepts of Six Sigma.
Learning new approaches to thinking, planning, and executing to achieve
results.
Six Sigma as a system of management
Six Sigma is a system that combines both strong leadership and grassroots
energy and involvement.
Management plays a key role in regularly monitoring program results and
accomplishments in six sigma.
The ideas, solutions, process discoveries, and Senior leader role and middle level
improvements that arise from Six Sigma take place participation is critical in six sigma
at the front lines of the organization. but six sigma is not owned or driven
by them.

Six Themes of Six sigma
Genuine focus on the customer

Customer focus becomes the top priority.
Six Sigma improvements are defined by their impact on customer satisfaction
and value.
Data and fact-driven management
Six Sigma discipline begins by clarifying what measures are key to gauging
business performance and then gathers data and analyzes key variables.
processes are where the action is
Six Sigma positions the process as the key vehicle of success
While focusing on designing products and services,
measuring performance,
improving efficiency and customer satisfaction,
or even running the business.
proactive management
Proactive means acting in advance of events rather than reacting to them.
It includes
defining ambitious goals and reviewing them frequently,
Setting clear priorities,
focusing on problem prevention rather than fire-fighting,
Questioning why we do things instead of blindly defending them.
Boundary less collaboration
The opportunities available through improved collaboration within companies
and with vendors and customers are huge.
“ Boundarylessness ” is a key to success.
Drive for perfection and tolerate failure

Drive for perfection and tolerate failure are complementary.
Company will get even close to Six Sigma by launching new ideas and
approaches-which always involve some risk.
The benefits of Six Sigma are not just financial. People find better
understanding of customers, clearer processes, meaningful measures, and
powerful improvement tools make their work more rewarding.


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Table of Contents

Strategic Management www.IndigoLearn.com 1

Meaning of Business Environment

Strategic Management www.IndigoLearn.com 2

Importance of Business Environment

Relationship between Organisation and its Environment

Organisation’s response to its Environment

Strategic Management www.IndigoLearn.com 3

Utility of Environmental Analysis

Purpose of Environmental Analysis

Strategic Management www.IndigoLearn.com 4

Components of Business Environment

Detailed study on Micro & Macro Environment

Strategic Management www.IndigoLearn.com 5

Elements of Micro Environment

Board of Directors: The chief governing body of an organisation or company

Employees: - They are the persons who work in an organisation collectively

Strategic Management www.IndigoLearn.com 6

Few essential factors of demographic environment are discussed

Geographic Distribution:-It means shift of population from one

Ethnic Mix: - It impacts company’s potential customers and its

Income Distribution: - Individuals income and purchasing power also

Following are the factors that affect the economic environment: -

Strategic Management www.IndigoLearn.com 7

2. Economic Conditions or Factors: -

Three important elements in political-legal environment are: -

Strategic Management www.IndigoLearn.com 8

Strategic Response to the Environment

Strategic Management www.IndigoLearn.com 9

A long range blueprint of an Strategy is the game plan that the

The common thread among the

Strategic Management www.IndigoLearn.com 12

Objectives and goals do not provided direction to organizations.

Do Strategies replace management?

A cricket team may have a perfect strategy but if the captain is

Strategies are both Proactive and Reactive

Proactive actions on the part of managers to improve the company’s

Strategic Management www.IndigoLearn.com 13

What? A group of people Set of inter-related functions

Managers formulate organizational goals, values and strategies, to cope with, to

S.No. Points Key words or sentence to be include in

Strategic Management www.IndigoLearn.com 14

3. Concept of Strategic Management

DEFINITION: A managerial process of developing

Objective of Strategic management

To create Competitive advantage,

To guide the company successfully through all changes in the environment.

Strategic Management Involves SWOT Analysis (Strength, weakness,

Strategic Management www.IndigoLearn.com 15

Benefits of Strategic Management

Limitation of Strategic Management

S. No Points Key words or sentence to be include in

Strategic Management www.IndigoLearn.com 16

Role To oversee the development of strategies for the whole

Activities Setting goals, Design strategies, implementing strategies for

Functional manager provides information to business and corporate level general

Strategic Management www.IndigoLearn.com 17

- Not having commercial objective of making profit and

Why Strategic Management is required in not for profit organization

Strategic Management www.IndigoLearn.com 18