and A

APplicay
nature and sis Chapte

es.
9 Strategic Planninmg
ftives.ormulating CHAPTER OUTLINE
Levels of Strategy
91
Concept and Nature.of Strategic Planning

compas ."D 9.2

9.3
Importance of Strategic Planning

Limitations of Strategic Planning

9.4
9.5 Business Level Strategic Planning

OF STRATEGY
9.1 LEVELS
Cueateoies are formulated at three ainrerent levels of management- corporate, business, and
functional levels.

BOARD OF DIRECTORS Corporate

Level
AND CHIEF EXECUTIVE

Business
SBU SBU
SBU Level
A B C

Functional
Level
ersonnel
Finance Marketing Operations

Making
Fig. 9.1 Levels ofStrategy to the choice
ot
decisions relate
1. Corporate level, strategic level stra-
the Corporate
irategy: At
corporate
objectives.
achieve its long-term
direction
that a firm will adopt to
 Manugemeni: Principlex
marke and Appl
srategiPlaming
d e t e r m i n e sh o w

9.2 concerning
the product
ket scope, acqui strategyi sl i m i

decisions
answer
tegies arc
hasically
Corporale
strateEY
provides
the basic que Functional
sta

a l l o c a t i o n of
resources. and services the firm
firm will offer p r o d u c t i o na n

(the products
(a)
What is our
business

scope)
SBUstrategy
(market
customers J .
allocatesr e s o
are our
(b) Who market share).
(basic goals e.g. v a r i o u sf u n c
want
What do
ding to Glue
we
(c) Strategies:AccoOrd
also known Grand
as corporatel e
strategies are a l t e r n a t i v e s stability, expansi
Corporate
are four grand
strategic
c o m b i n a t i o n of
these three.
trenchment an. 9.2 CONCEPT
oriented towards stability is generall..
lly
(a) Stahility
strategy:Astrategy
satisfied with its present
position. Stal followeis
oility strategy
Strategicplannin
overallobjective
enterprise when it
is
stable and simple
external environment. ik
ken process
ofdecids
be successful in a
is dynamic, managers may find: r e s o u r c e su s e d

(b) Growth strategy: When the environment

firm's operations. Growth
t
expand
desirable to and diversity the u s ea n dd i s p o s i
or
with rapidly changing technologie
generally used in dynamic industries A
Thes a l i e n t f e -

expansion and diversification. Alternati

may grow internally through
with other firms. Market penetratio () Strategi

may be achieved by integrating

are three forms of expansion, Inta
development and product development
and cus

strategyhas several alternatives e.g. backward integration, forward inte I ti s

lor
horizontal intergration, conglomerate integration, joint venutre, takeover. me (i) dayde

etc.
merge
a
It is
(c) Retrenchment or retreat strateg: An enterprise may retreat or retrench from (it)
present position in order to survive or improve its performance. Such a stratra (iv) It is
may be adopted during recession and other crisis such as heavy losses. Retrenchme the f
may take the form of Turnaround, Divestment or Liquidation. () It is
() Combination strategy: A large firm active in a number of industries may
combination strategy. It represents a mix of any of three
adopt pros

strategies given above. (vi) Itp

2. Business level strategy: A company operates through businesses. Therefore, business
level strategies are formulated to ob
implement corporate strategy. A Strategic Business
Unit (SBU) is an operating division of a
market segment or a well defined set of company
which serves as a distinct 9.3 IM
customers or a product
food and beverages and personal care geographical area. For example
products are two
Unilever. Business level strategy seeks to achieve different SBUs in Hindustan Strateg
the for the
to help achieve the overall
corporate objectives.
specific objectives of SBUs so as
strateg
Each SBU makes its own
strategy within the guidelines laid
SBU level strategy is concerned with 1.
down by corporate
among functional areas and coordination product market issues, strategy
allocation of
to the between them for making an optimal resources
achievement of corporate level objeciives.
business in which the firm will
While contribution
corporate strategy defines the
compete ana
aepioy its
resources, business strateg
.
 Apyi
9.3
qe
S i r a l e g i cP l a n n i n g

nes how the firm will compete in a given business. Thus, the scope of business
determines

e g y is limited in comparison to corporate strategy.

3. mCtional strategy: Every SBU functions through functions like finance, marketing
Functional.

roduction a and personnel. Therefore, functional strategies are formulated to implement

SBUstrategy. Functional strategy lays down objectives for a specific functional area,
cates resources among different operations within that functional area, and coordinates
t allocat

various functio for making optimal contribution to the achievement of business and
corporate level objectives.

AND NATURE OF STRATEGIC PLANNING

cONCEPT
9.2 involves formulat of strategies at different levels in order to achieve
planning
Strategic
Sraohicctives ofthe organisation. According to Robert Anthony, "Strategic planning is the
the organisation,
pocess
of decidingattain these
objectives
on
of the changes in these objectives, the
on
se objectives and on the policies that will govern the acquisition,
on

used to
esources

oftheseresources"
and disposition
alientfeatures off strategic planning are as follows
Sirategic planning identifies the basic mission and goals ofthe organisation. The business
firm are specified in it.
and customers of the
and provides a framework for operational planning and day-to
tis long-term in nature
day decision making.

E)t is a top management activity.

on forecasted opportunities and threats in the
environment and analysis of
v) h is based
weaknesses.
the fim's strengths and
that harmonises the organisation's policies,
) t is a comprehensive and unified plan
programmes and decisions.

the activities of the organisation so as to achieve long term

(vi) it provides direction for
objectives.
STRATEGY/STRATEGIC PLANNING
9.3 IMPORTANCE OF
will react to its environment. It is a scheme
Strategy defines the way in which an organization
1or the marshalling and deployment of resources in pursuit
of organizational objectives. A
in the following waysS:
srategy contributes to the success ofan organization
operates within the
.Helps in fucing environmental challenges: Every organization environment
socio-economic and political environment of a country. Business
Overall a business enterprise
as become increasingly turbulent. The long-term
success
of environment.
how it responds to the changes in its
Oepends, to a great extent, upon

Harvard Uni. Press, 1965. p. 56

NAnthony: Planning & Control-A Framework for Analysis,
 e g i cP l a

Management: Princ es and App Sirateg

e n v i r o n m e n t .
Strato licot
gies are helpfy 9.5
BUS

9.4 due to
the
dynamiC
ing strategi
Asdiscussed
formulating an o
for strategy
arises While

by the likely
f ganivra business uni

enviorrotunmem
Need challenges.
e n v i r o n m e n t a l
posed resources an
opportunities exploit the
facing and
dentifies

prepares
the
itself to
threats
successfully
and
face the
threats

nities businessi n
h o wt h ef i n

formulating strategies.
strategy
serves as the long term
guide towards SBUmust

to s o m e vital a l and crucial

2. Provides

achievement
direction: Corporate
It provides
of objectives.we in ? (b) what
answers

business should questWhoions 9 . 5 . 1

In

business are
as: (a) what Industrys
strategy indicates how the
customers, etc.
esouro
,
done usin-

of resources: Corporate for best results,t

3. Optimum utilization and deployed ensure n a t u r eo f

should marshalled be time, monS

the organization
efficient and effective
utilization organization
resources, e.g.,
of noney, talen Th

fir
etc.
interrelates the
Facilitates co-ordination and control: Master strategy differ m
It provides a unitying force by f
4.
departments and groups of the organization.
also simplifies control by prescribino s
focusin ba
attention on common objectives. Strategy broa CE

standards of performance. E
5. Competitive strength: Strategies are specifically designed to counter the actione (i)
ons a
competitors. A competitive strategy is formulated keeping in view the likely moVes
competitors. It helps in maintaining or increasing the firm's market share in theface
ves
computition.
Thus, strategic planning clarifies the objectives of the organisation, reduces
mental uncertainty by identifying the key factors for the success of
envios
fighting competition in the market and increases the chances of
business, helps
the enterprise. survival and growh

9.4 LIMITATIONS OF STRATEGIC PLANNING (iv)

Strategic planning suffers from the following
weaknesses:
() Strategic planning involves
take years for the strategic time, consiaerabie
planning to functionmoney and efforts. In some cases, it may
(ii) Trained and experienced smoothly.
professionals
threats and to assess strengths and are
required to
professionals. weaknesses. Few anticipate oppo
portunitiesand
(ii) Strategic planning may in some cases
organisations can attor
afford such
restrict he
organisation may fail to encash attractive organisationt P
(iv) Some organisations defer opportunities
important decisions due to in the
to less risky options. lE
of resources. short term environment.
compulsions and sho
ns and shortag
S t r a t eg i cl a n n i n g
9.5

USINESS LEVEL STRATEGIC PLANNING

BUS

9.5 section 9.1. a business level strategy is the strategy developed for a strategic
A sd i s c u s s c d

Asd nit (SBU) of the fim. h s strategy deals with product market issues, allocationof
unit (SBU
hsinesand developing competitive cdge for the SBUU, While corporate strategy defines the
resourcesanddev

busin. in which
hich the firm will compete and deploy its resonurces, business strategy determines
ompete in agiven business. While developing a business level strategy the
howt h ef i r m

analyze the dustry structure for its attractiveness.

I
must

Industry
Structure Analysis
9.5.1
Industry structu.
ctructure analysis is a pre requisite for developing business level strategy. It can be Can

Porter s Five Force Analysis'. Porter entified

done using P'orter forceswhi
identified five forces which determine the
in Theseaare:
the industry. These
in the
nature ofcompetition
Threats of
entry:
ent. The industry structure is determined by the ease with which new
Th
imms can enter market. Ifit is easy for new firms to enter the industry. the existing firms
may lose their market share to the new fims. This threat is reduced if there are strong
harriers to entry like economiesofscale, product differentiation, huge capital requirements.
onst disadvantages, restricted access to distribution channels and licensing requirements.

Bargaining power of Customers: Sometimes the industry may be dominated by the

buyers. This is especialy true in case of industrial or bulk buyers, undifferentiated products
or in case of backward integration. In such industries buyers have more bargaining
the terms of trade in their favour.
power and may negotiate
In industries where there are few suppliers selling
in Bargaining power of suppliers:
differentiated products having no close substitutes. In such industries the suppliers may
In
hold more bargaining power. Sometimes there may be threat of forward integration.
all such cases the suppliers will be able to charge higher prices.

(v) Substituteproducts: Availability of close substitutes affects the growth of the industry
better
and also defines the degree of competition in that industry. Substitutes having
lower prices are strong competitors and adversely affect the
quality, performance,
prospects of the industry.
the players in the industry.
(v) Rivalry between existingfirms: It is also important analyze
to
The number of competitors, their strengths and weaknesses, positioning of products,
all
differentiation, brand image, pricing, distribution channels and promotion strategies
influence the nature ofcompetition in the industry.
and
Porter's model provides framework of how value is created and divided among existing
potential participants in an industry. It allows the firm to analyze competition in the industry.
Industry analysis forms the basis of formulating an effective business level strategy
to counter

Competition. Thus, it helps to develop appropriate competitive poSilioning.

 ond Appl
PotentialEntrants Sirategs
9,6
Threat of Suitab
New Entrants
T h i ss t

Bargaining price
ss
Power
B a r g a i n i n g |f n d u s t r y C o m p e t í t o r s

Rivalry Among
Buyers Exam
o f
Power Existing F i m s
of Buyers Exam

Suppliers Amazc
Suppliers
attract
Substitute a lowo

Threatof o r Service
Products excell

Substitutes
Limit

Competition
Industry
Forces Driving
Fig. 9.2:

Level Strategies the fimm s

market share aand i

p ainganelaice
Business
9.5.2 onprotecting
profitability byofcountering competition.
business level
strategies isWhile the corporate strategies
hrough
gies (stability,
competitive
(stability,gr
The emphasis
achieved through competitive 2. D
well, but they
are

retrenchment) work
at business levelas namely, differentiation
cost leadership, diferentiai
three strategies (or of te This
Porter identified may adopt one more)
positioning. an SBU
the industry analysis,
other

strategy. Based
on
focus level strategy:
as business
prod

following generic positions p e r f o

1. Cost leadership strategy Coulc

a competitive edge through

lower costs. Thelowe high
Cost leadership strategy aims at gaining firm in achieving a large market shar
costs of production lead
to lower prices and help the
efficiencies while maintaining the overall quality Adv
Lower costs are the result ofinternal
strive to increase efficiency to maintainis
products and services. The firm must continuously
position as the cost leader. Costs can be reduced through:
Maintaining tight control over costs.
Controlling costs of R&D.

Investing in latest cost saving technologies ofproduction

Advantages:
.Increased profits due to higher margins.
Large market share
.Low costs create barrier to entry for new firms.
.The existing firms are not able to
compete on basis of
.Ability to withstand economic downturns as well prices.
than the competitors due lo low cost structure as
supplier and Sui
buyer press
essures etter

Thi
S r a t e g i eP l a n n i n g

9.7

Suitabiliy:
strategy
is s
uitable where
ere products and services are
standardized and consumers are
pricesenstive.
his

Example:
mnle of a company that follows cost
example

n
is a n
Amazon.
umber of customers by offering leadership strategy. It focuses on
ti0g and products at low prices. It buys
a has low overheads because of its online
cost
a
service (no physical products at
st and n facilities.
facilities. Despi
Despite lower prices it is able to maintain stores). It also has
ont distribution
exce
high margins.
Limitations
igation may develop
The organization
a tunnel vision and lose
focus of what the customers
really want.

I f the cost vantages are easily copied by competitors the firm may lose its strategic
as a cost
leader.
position
mergence of new
ew low cost technologies can also negate the firm's
advantage.
Diferentiation strateg
Thisstrategy involves using product differentiation to gain a competitive advantage over the
ms
outher
firms. In his case
In this firm tries to differentiate its
case the fir
products from the competitors. The
other v be differentiated on the basis of quality, features,
design, uses, services,
Pance,
rformance, durdurability, innovativeness, technology used etc. An excellence in this value discipline
couldresu. in customers perceivir the product as unique. This could help the firm generate
high revenue.

Advantages

.Creates a loyal customer base.

Brand loyalty creates a barrier to entry for the new firms and also
prevents the existing
competitors from capturing the firm's market share.
Ability to charge higher prices on the basis of differentiation.
Easier to sell the product.
Awell differentiated product is not
easily substituted.
Buyers do not have much power over a differentiated product's prices due to non-
availability of substitutes.
An increase in costs by the suppliers can be absorbed through charging higher prices
from customers.

Suitability:
is st
Suitable for a firm which is able to create
meaningful basis of differentiation.
 Managenment: Principle.
ciples and Apri
9.8 u ichas Stratega

Phones.
products
for its
created a loyal customer base which
Thri onugh.gu
diflerentiation
Example:

the strategy
of created. Suitab
follows it has
Apple and
technology.
T h i sst
development

products. f o rpre
for its
premium

Limitations:

is easy to imitate,
the advantage
mau:
be lost. E x a n

element R o l l s

diferentiating
ifthe ande

3 Focus strateg a particular

set customero
of .

the neds of Lim

to cater to better understan.
Focus strategies aim
focus on niches
and are able to seghe
and theirrequirene
product line. They either cost leadership
or differentiation
tion.
narrow

Focus strategy may

classified as -(a)
be based on
Focused low cost. (b)
Focused Differentiation. According
(a)Focusedlow cost: The fim caters to a all segment and offers its productj In
CO
services for low prices. By focusing on the needs of the niche market market, you desig
product at a low cost.

Advantages:
t has the same merits as the cost leadership.

Suitability:
This strategy is used when there is little
competition or competitors are not cost leaders
Example:
Atake-away food truck / stall
offering low prices. This food truck
segment that does not wish for a
costs because it does not dining experience but wishes to eat/stall caters to needs o
need servers or food on the go. It cuts t
large serving area with
Limitations: seating facility.
The segment
may be too
small to be
.If competitors enter the niche the profitable.
firm may lose
There few its
(b) Focused
are
opportunities of growmthas the size advantage.
differentiation strategy: of
the
caters to a segmentisis limited.
differentiated he firm
product or services. By focu small
limited.
design a
product that
usually willing to pay acaters to the specifie
ific needs
ocusing
the needs segment and offers awell
on
higher price for the necds of the se
of
of the niche market, yOu
nic
niche market.)
Advantages: product. segment. The customers: arc

This strategy offers the same

advantages as the
differentiation s

ategy
 nd Appo

nes.ThOu
ch is i Strategic Planning

S u i t a b i l i t y :

T h i ss t r a t e
is suitable for a previously uncatered market niche willing to pay a high premium
9.9

ering to its specific requirements.

st. roducts

E x a m p l e :

Rolls Royce
uses focused differentiation strategy. Their cars symbolize with luxury. quality,
ence. They are premium priced and focussed on a small niche market.
excellence.

maAthrekiert reaq SE and

engineering

L i m i t a t i o n s :

According
.
enter the niche the firm may lose its advantage.
. I fcompetitor
s its produs
There are few opportunities of growth as the size of the segment is limited.
which combines the
ddition to the above strategies, another hybrid strategy has emerged
arket, you In ad
leadership with

ditferentiation s t r a t e g
th differentiation. This strategy is known as the integrated low-cost

low-cos/diferentiation strategy
Integrated
combines the features of low cost with differentiation strategy. Here
.
strategy
This business stra
products at a low cost. In view the increasing competition
of
husiness offers differentiated
he business offerse
the products may not be unique
this is emerging as a desirable approach. Here,
inthe market
cost leader but rather has a reasonably
low cost.
the
is the company

cost leader
nor

Advantages:
differentiation as well as low prices.
are brand loyal due to product
Customers

Iers to Dei Example: at affordable prices.

thego.ho uses this strategy and
offers product
differentiation in design

ility. IKEA

Limitations leader nor considered

neither a cost
The organization is "stuck in
a compromise.
It involves making this may result in the company being
differentiation. In Porter's opinion,
excellent in
the middle".
ited. Choice of a Strategy decide which strategy
to adopt the
right strategy. To Core
ndoffesa to select the
It is important for the firm It must identify its core competencies.
hemarkel its internal resources. For example.
Tirm must evaluate over the competitors.
an edge
which give the firm a strategy
around
are the strengths must develop
customes

Competencies then it
technology from the competitors.
a firm is its latest
tne core competency ofuse this technology to
differentiate its products
cost raw
material., it
could
It could low
AcnologY. competency lies
in its access to environment

firm's its external

natively,ifthe
core
also evaluate
industry. The firm must
D e the costleaderin the
 9.10 Management: Principles and
and
the forces
identify the requirements
of the market. It must analyze the try structure
industry Application
ar cation
structurean
at work. Finally based on
corecompetency: it must choose a
all thethree-environment and target market, ind.naly,
value discipline it can excel in (cost/ differentiy wnalandyze
and select an
appropriate strategy. hation ete

TEST QUESTIONNS

1. What is Strategic Planning? Explain its advantages and limitations.

DIscuss the importance ofstrategic planning in today's era of globalizatioon.
(Delhi, 2006)
3 Define the term
'Strategic Planning.' Describe the process involved in Strategic Plannine
(Delhi, 2016 CBCS
4. What is business level
strategic planning? Explain the different business level strategies
that can be adopted by the firm to a gain competitive edge.
5. What aspects of industry structure
analysis affect business level strategic planning?
Explain in light to Porter's five force model.
6 Write detailed note on Strategic Planning. (Delhi, CBCS 2018)