Strategic Management

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Dear Students,

Welcome to the world of knowledge – JK Shah Classes

I have the pleasure of presenting this study material to you. It contains


exhaustive theory for Strategic Management. The questions are selected so
carefully from wide ranging sources. It is in alignment with the study materials
issued by the ICAI including RTP, MTP Suggested answers. The material is so
exhaustive that it leaves out nothing.

The subject will be taught by eminent professors who are highly experienced
and well versed with the job.

The coaching is very exhaustive and concept based. Also the coaching is very
systematic, well planned and absolutely time bound. I am sure you will feel
that the study is a pleasurable job and not a painful exercise.

I wish you a very happy study time.

Best of Luck

Prof. J. K. Shah
Chartered Accountant
INDEX

INTRODUCTION TO
01 STRATEGIC MANAGEMENT
Page No.
1-21

STRATEGIC ANALYSIS: Page No.


02 EXTERNAL ENVIRONMENT 22-61

STRATEGIC ANALYSIS:
03 INTERNAL ENVIRONMENT
Page No.
62-92

Page No.
04 STRATEGIC CHOICES
93-120

STRATEGY IMPLEMENTATION & Page No.


05 EVALUATION 121-169
STRATEGIC MANAGEMENT

INTRODUCTION TO STRATEGIC
1 MANAGEMENT

Concept 1: Concept of Management:

To understand the concept of strategic management, we need to have a basic understanding


of the term management. The term ‘management’ is used in two senses, such as:

1. People view;
It is used with reference to a key group in an organisation in-charge of its affairs. In
relation to an organisation, management is the chief organ entrusted with the task
of making it a purposeful and productive entity, by undertaking the task of bringing
together and integrating the disorganised resources of manpower, money, materials, and
technology into a functioning whole.

An organisation becomes a unified functioning system when management


systematically mobilises and utilises the diverse resources efficiently and effectively.

The survival and success of an organisation depends to a large extent on the competence
and character of its management. Management has to also facilitate organisational
change and adaptation for effective interaction with the environment.

2. Functional view;
The term ‘Management’ is also used with reference to a set of interrelated functions and
processes carried out by the management of an organisation to attain its objectives.

These functions include Planning, Organising, Directing, Staffing and Control. The
functions or sub-processes of management are wide-ranging but closely interrelated.
They range all the way from determination of the goals, design of the organisation,
mobilisation and acquisition of resources, allocation of tasks and resources among
the personnel and activity units and installation of control system to ensure that
what is planned is achieved.

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Management is an influence process to make things happen, to gain command over


phenomena, to induce and direct events and people in a particular manner. Influence
is backed by power, competence, knowledge and resources. Managers formulate
organisational goals, values and strategies, to cope with, to adapt and to adjust
themselves with the behaviour and changes in the environment.

Concept 2: Strategy:

Introduction;
The term strategy has been derived from the Greek word ‘strategos’ which means
generalship.

Business today is like fighting a war and businessmen have to respond to the dynamic and
hostile (i.e., unfriendly) environment. Every businessman makes use of strategies to face
the tricks of his enemy (i.e., rivals).

Strategy may be defined as a long-range blueprint of an organisation, what it wants to


be? (i.e., desired image), what it wants to do? (i.e., direction) and where it wants to go?
(i.e., destination).

Policy and Strategy are quite interrelated, but the interesting thing to study is how they
differ. Where a policy is a thought process, it talks about what should be done in a particular
situation, or what should be the reaction to a given circumstance. The strategy part of it
explains the real actions, strategy talks about how the policy would be followed.

For example, the policy of an organisation could be to not drop their prices to fight
competition. The strategy could be to give more quantity for the same price, or give some
other product as a freebie to attract customers without dropping their price.

Strategy is consciously considered and flexibly designed scheme of corporate intent and
action to mobilise resources, to direct human effort and behaviour, to handle events and
problems, to perceive and utilise opportunities, and to meet challenges and threats for
corporate survival and success.

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Strategy is the game plan that the management of a business uses to take market position,
conduct its operations, attract and satisfy customers, compete successfully, and achieve
organizational objectives.

Definition of Strategy;
Strategy is defined by William F. Glueck as, “A unified, comprehensive and integrated plan
designed to assure that the basic objectives of the enterprise are achieved”.

2.1 Classification of Strategy based on approach;


1. Proactive approach (i.e., Proactive strategy), and
2. Reactive approach (i.e., Reactive strategy).

Q. “Strategy is partly proactive and partly reactive.” do you agree?


Ans: Yes,

In Proactive Strategy, organizations will analyse possible environmental scenarios and


create strategic framework after proper planning and set procedures and work on these
strategies in a predetermined manner.

However, in reality no company can forecast both internal and external environment
exactly. Everything cannot be planned in advance. It is not possible to anticipate moves
of rival firms, consumer behaviour, evolving technologies and so on.

There can be significant deviations between what was visualized and what actually
happens. Strategies need to be modified in the light of possible environmental changes.
There can be significant or major strategic changes when the environment demands.

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It is based on unanticipated events such as Competitor’s strategies, Market changes require


changes in planned strategy is known as Reactive Strategy. Reactive strategy is triggered by
the changes in the environment and provides ways and means to cope with the negative
factors or take advantage of emerging opportunities.

Hence, strategy is partly proactive and partly reactive.

2.2 Characteristics of Strategy;


• Ways to win over enemy:
A typical dictionary defines the word ‘strategy’ as something that has to do with war
and ways to win over enemy.

• Forward looking:
Strategy is forward looking it defines in broad terms the action which an organisation
proposes to take in future.

• Designed to move to the desired future position:


Strategy is designed to move an organisation from its current position to the desired
future position.

• Pragmatic and flexible:


Strategy needs to pragmatic (i.e., practical) and flexible as per the situation.

• Strategy is partly proactive and partly reactive:


Proactive refers to actions on the part of managers to improve the company’s market position,
competitive advantage and financial performance by deciding and planning in advance.

However, if a company’s strategy is developed as a response to unanticipated


developments, it is known as reactive strategy. For E.g., Airtel changing its tariff rates
on introduction of JIO.

• Strategy is not a substitute:


Strategy is not a substitute for sound, alert and responsible management. It provides
a directions and support to the management. Strategy formulation should be
complemented (i.e., supported) with strategy implementation to achieve objectives.

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• Strategy can never be perfect, flawless and optimal:


Means strategies may fail if there are loopholes in formulation or implementation of
strategy. Similarly, it may also fail due to changes in environment. In a sound strategy,
allowances are made for possible miscalculations and unanticipated events.

• Strategy is not a bundle of tricks and magics:


Strategic management is not a bundle of tricks and magic. It is a deliberate managerial
process as it involves critical thinking and commitment of resources to action.

• Application of strategy:
Every organisation whether it is large or small requires strategies. These organisations
irrespective of their sizes face similar business environment and face competition. In
large organisations, strategies are formulated at the corporate, business (divisional)
and operational (functional) levels. Corporate strategies are formulated by the top
managers.

Q. “Strategic management is a bundle of tricks and magic. Do you agree?


Ans: No, the term ‘strategic management’ refers to the managerial process of;
• Developing a strategic vision,
• Setting objectives,
• Crafting a strategy,
• Implementing the strategy,
• Evaluating the strategy and
• Initiating corrective adjustments where deemed appropriate.
Hence, strategic management is not a bundle of tricks and magic.

Concept 3: Strategic Management:

Introduction;
In a hyper competitive marketplace, companies can operate successfully by creating
and delivering superior value to target customers and also learning how to adapt to a
continuously changing business environment. So, to meet changing conditions in their
industries, companies need to be farsighted and visionary, and must develop long-
term strategies. Strategic planning, an important component of strategic management,
involves developing a strategy to meet competition and ensure long-term survival and
growth of the company.

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Definition of Strategic Management;


“The art and science of formulating, implementing and evaluating cross-functional decisions
that enable an organization to achieve its objectives.”

3.1 The overall objectives of strategic management are twofold;


i. To create competitive advantage;
So that the company can outperform the competitors in order to have dominance
over the market.

ii. To guide the company successfully through all changes in the environment.
To put the concept in a few words, the term ‘strategic management’ refers
to the managerial process of developing a strategic vision, setting objectives,
crafting a strategy, implementing and evaluating the strategy, and finally
initiating corrective adjustments where deemed appropriate. The process does
not end, it keeps going on in a cyclic manner.

3.2 Importance (Benefits) of Strategic Management;

Introduction;
Formulation of strategies and their implementation have become essential for all
organizations for their survival and growth in the present turbulent business environment.

‘Survival of fittest ‘as promoted by Charles Darwin is the only principle of survival for
organization, where ‘fittest’ are not the ‘largest’ or ‘strongest’ organizations but those who
can change and adapt successfully to the changes in business environment.
Many business giants have followed the path of extinction failing to manage drastic changes in
the business environment. For E.g., Bajaj Scooters, LML Scooters, Murphy Radio, BPL Television,
Nokia, kodak and so on. Thus, it becomes essential to study Business Strategy.

The major benefits of strategic management are:


• Direction to the company:
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.

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• Proactive instead of Reactive:


Strategic management helps organisations to be proactive instead of reactive in
shaping its future. Organisations are able to analyse and take actions instead of
being mere spectators. Thereby they are able to control their own destiny in a better
manner. It helps them in working within unpredictable environment and shaping it,
instead of getting carried away by its turbulence or uncertainties.

• Framework for all major decisions:


Strategic management provides framework for all major decisions of an enterprise such
as decisions on businesses, products, markets, manufacturing facilities, investments
and organisational structure. In other words, it provides better guidance to entire
organisation on the crucial point - what it is trying to do.

• Futuristic:
Strategic management seeks (i.e., attempt) to prepare the organisation to face the
future and act as pathfinder to various business opportunities. Organisations are able
to identify the available opportunities and identify ways and means to reach them.

• Corporate Defence Mechanism:


Strategic management serves as a corporate defence mechanism against mistakes and
pitfalls. It helps organisations to avoid costly mistakes in product market choices or
investments.

• Enhance Longevity:
Strategic management helps to enhance the longevity (i.e., durability) of the business.
With the state of competition and dynamic environment it may not be possible for
organisations to survive in long run. It helps the organization to take a clear stand
in the related industry and makes sure that it is not just surviving on luck.

• Developing Core Competence and Competitive Advantage:


Strategic management helps the organisation to develop certain core competencies and
competitive advantages that would facilitate assist in its fight for survival and growth.

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3.3 Limitations (Drawbacks) of Strategic Management;

Introduction;
The presence of strategic management cannot counter all hindrances and always achieve
success. There are limitations attached to strategic management. These can be explained
in the following lines.

• Strategic management is a costly process;


Strategic management adds a lot of expenses to an organization. Expert strategic
planners need to be engaged, efforts are made for analysis of external and internal
environments devise strategies and properly implement.

These can be really costly for organisations with limited resources particularly when
small and medium organisation create strategies to compete. Strategic Management
requires experts and these experts are costly resources. Thus, the process as a whole
required good amount of funds to be spent

• Strategic management is a time-consuming process;


Organisations spend a lot of time in preparing, communicating the strategies that may
impede daily operations and negatively impact the routine business.

• Environment is highly complex and turbulent (i.e., unstable);


It is difficult to understand the complex environment and exactly pinpoint how it will
shape-up in future. The organisational estimate about its future shape may awfully
(i.e., inadequately go wrong) and jeopardise (i.e., causing harm to) all strategic plans.

The environment affects as the organisation has to deal with suppliers, customers,
governments and other external factors. Thus, relying on a business strategy blindly
could go absolutely wrong if the environment is turbulent.
• In a competitive scenario;
In a competitive scenario, where all organisations are trying to move strategically, it
is difficult to clearly estimate the competitive responses to a firm’s strategies.

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Concept 4: Strategic Intent;

Definition;
Strategic Management is defined as a dynamic process of; formulation, implementation,
evaluation, and control of strategies to realise the organization’s strategic intent.

Introduction;
The intentions with which organisational manager’s plans the future course of action, that
intention is known as strategic intent. Strategic intent is the base of all the activities every
manager at all levels is doing to achieve organisational goals.

It is the fire within the organisational officers which keeps them moving more closer to the
objectives and goals instead they face the hardest challenge and unfriendly business
environment.

As a name suggesting that “intent” related to future. Clarity in strategic intent is extremely
important for the future success and growth of the enterprise, irrespective of its nature and size.

Senior managers must define “what they want to do” and “why they want to do”. This “why
they want to do” underlies the end result that is likely to be achieved through “what they
want to do”. This end result is referred to as “strategic intent”

Strategic intent can be understood as the philosophical base of strategic management.

Strategic intent provides the framework within which the firm would adopt a predetermined
direction and would operate to achieve strategic objectives. Strategic intent could be in the
form of vision and mission statements for the organisation at the corporate level. It could
be expressed as the business definition and business model at the business level of the
organisation.

4.1 Element of Strategic Intent;


1. Vision: Vision implies the blueprint of the company’s future position. It describes
where the organisation wants to land. It depicts the organisation’s aspirations
and provides a glimpse of what the organisation would like to become in future.
Every sub system of the organisation is required to follow its vision.

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2. Mission: Mission delineates the firm’s business, its goals and ways to reach
the goals. It explains the reason for the existence of the firm in the society.
It is designed to help potential shareholders and investors understand the
purpose of the firm. A mission statement helps to identify, ‘what business the
firm undertakes.’ It defines the present capabilities, activities, customer focus
and role in society.
3. Goals and Objectives: These are the base of measurement. Goals are the end
results, that the organisation attempts to achieve. On the other hand, objectives
are time-based measurable targets, which help in the accomplishment of goals.
These are the end results which are to be attained with the help of an overall
plan, over the particular period. However, in practice, no distinction is made
between goals and objectives and both the terms are used interchangeably.
The vision, mission, business definition, and business model explain the
philosophy of the organisation but the goals and objectives represent the
results to be achieved in multiple areas of business.
While Strategic Intent is the purpose that an organisation aims to achieve,
Values form the omnipresent foundation of each and every decision that the
management takes. An organisation without values is like an organisation with
no real intent. Let us understand a bit more about values from a business
perspective.
4. Values/ Value System: Values are the deep-rooted principles which guide an
organisation’s decisions and actions. Collins and Porras succinctly define core
values as being inherent and sacrosanct; they can never be compromised,
either for convenience or short-term economic gain. Values often reflect the
values of the company’s founders—Hewlett-Packard’s celebrated “HP Way” is
an example. They are the source of a company’s distinctiveness and must be
maintained at all costs.

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Concept 5: Vision:
Introduction;
The most important issue organisational managers need to work on is clarity of destination
i.e., where they want the organisation to be in specified time period. Where to go is the
most important question and should be always asked before planning how to go.

Strategic vision thus points out a particular direction, charts a strategic path to be followed
in future, and moulding organizational identity.

Definition;
A Strategic vision is a road map of a company’s future – providing specifics about technology
and customer focus, the geographic and product markets to be pursued, the capabilities
it plans to develop, and the kind of company that management is trying to create.
 Vision implies the blueprint of the company’s future position.
 A strategic vision shows management’s aspirations for the business, providing a
view of “where we are going”.
 It describes where the organisation wants to land.
 Every sub system of the organization is required to follow its vision.

Some examples of Vision are


ICAI;
“To be World’s leading accounting body, A regulator and developer of
trusted and independent professionals, with world class competencies
in accounting, assurance, taxation, finance and business advisory
services.”

Tesla;
“to create the most compelling car company of the 21st century by
driving the world's transition to electric vehicles.”


Walt Disney
“to make people happy.”

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Amazon;
“to be earth's most customer-centric company; to build a place where people
can come to find and discover anything they might want to buy online.”

5.1 Essentials of a strategic vision;


• The entrepreneurial challenge in developing a strategic vision is to think creatively
about how to prepare a company for the future.
• Forming a strategic vision is an exercise in intelligent entrepreneurship.
• A well-articulated strategic vision creates enthusiasm among the members of
the organisation.
• The best-worded vision statement clearly enhances the direction in which
organization is headed.

Concept 6: Mission

Introduction;
A company’s mission statement is typically focused on its present business and answer to the
basic question scope – i.e., “who we are? And what we do?”

Mission statements broadly describe organizations;


• Present capabilities, • Customer focus,
• Activities, and • Business makeup.
It has been observed that many firms fail to conceptualise and articulate the mission and
business definition with the required clarity. Such firms are seen to fumble in the identification
of opportunities and fail in formulating strategies to make use of opportunities.
Firms working to manage their organisation strategically cannot be lax (meaning cannot
be careless i.e., लापरवाह or बेपरवाह) in the matter of mission and business definition, as the
two ideas are absolutely central to strategic planning.
 Mission statement should reflect the philosophy of the organizations that is perceived
by the senior managers.
 A good mission statement should be precise, clear, feasible, distinctive and motivating.
 The mission is a statement which defines the role that an organization plays in the
society.

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Some examples of Mission are


• ICAI will leverage technology and infrastructure and partner with its
stakeholders to:
• Impart world class education, training and professional development
opportunities to create global professionals.
• Develop an independent and transparent regulatory mechanism that
keeps pace with the changing times.
• Ensure adherence to highest ethical standards.
• Conduct cutting edge research and development in the areas of
accounting, assurance, taxation, finance and business advisory services.
• Establish ICAI members and firms as Indian multi-national service
providers.

Tesla;
“to accelerate the world’s transition to sustainable energy.”

Walt Disney
“to entertain, inform and inspire people.”

Amazon;
“We strive to offer our customers the lowest possible prices, the best
available selection, and the utmost convenience.”

6.1 Why an organization should have a mission?


• To ensure unanimity of purpose within the organization.
• To develop a basis, or standard, for allocating organizational resources.
• To provide a basis for motivating the use of the organization’s resources.
• To establish a general tone or organizational climate.
• To serve as a focal point for those who can identify with the organisation’s
purpose and direction.
• To facilitate the translation of objective and goals into a work structure involving
the assignment of tasks to responsible elements within the organisation.
• To specify organizational purposes and the translation of these purposes into
goals in such a way that cost, time, and performance parameters can be
assessed and controlled.

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6.2 Points (tips) to be considered (or useful) while writing mission statement;
 One of the roles of a mission statement is to give the organisation its own special
identity, business emphasis and path for development – one that typically sets
it apart from other similarly positioned companies.
 A company’s business is defined by what needs it is trying to satisfy, which customer
groups it is targeting and the technologies and competencies it uses and the
activities it performs.
 Good mission statements should be unique to the organisation for which they are
developed.
 The mission of a company should not be to make profit. Surpluses may be required
for survival and growth, but cannot be mission of a company.

6.3 What is our mission? And what business are we in?


The well-known management experts, Peter Drucker and Theodore Levitt were among
the first to agitate (i.e., concern) these issues through their writings. They emphasised
that as the first step in the business planning endeavour (i.e., effort), every business
firm must clarify the corporate mission and define accurately the business the firm is
engaged in. They also explained that towards facilitating this task, the firm should
raise and answer certain basic questions concerning its business, such as:
• What is our mission?
• What is our ultimate purpose?
• What do we want to become?
• What kind of growth do we seek?
• What business are we in?
• Do we understand our business correctly and define it accurately in its broadest
connotation?
• Whom do we intend to serve?
• What human need do we intend to serve through our offer?
• What brings us to this particular business?
• What would be the nature of this business in the future?
• In what business would we like to be in, in the future?

At the time these two experts raised this issue, the business managers of the world
did not fully appreciate the importance of these questions; those were the days when
business management was still a relatively simple process even in industrially
advanced countries like the US. It was only in subsequent years that captains of

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industry all over the world understood the significance of the seemingly simple
questions raised by Drucker and Levitt.

Corporate mission;
The corporate mission is an expression of the growth ambition of the firm. It is, in fact,
the firm’s future visualised. It provides a dramatic picture of what the company wants to
become. It is the corporation’s dream crystallised. It is a colourful sketch of how the firm
wants its future to look, irrespective of the current position. In other words, the mission is a
grand design of the firm’s future.

Mission amplifies what brings the firm to this business or why it is there, what existence
it seeks and what purpose it seeks to achieve as a business firm. In other words, the
mission serves as a justification for the firm’s very presence and existence; it legitimises the
firm’s presence.

Mission is also an expression of the vision of the corporation, its founder/ leader. To make the
vision come alive and become relevant, it needs to be spelt out. It is through the mission
that the firm spells out its vision.

It represents the common purpose, which the entire firm shares and pursues. A mission is not a
confidential affair to be confined at the top; it has to be open to the entire company. All people
are supposed to draw meaning and direction from it. It adds zeal to the firm and its people.
A mission is not a fad-it is a tool to build and sustain commitment of the people to the
corporation’s policies. A mission is not rhetoric - it is the corporation’s guiding principle.

Every organisation function through a network of goals and objectives. Mission statement is the
foundation from which the network of goals is built. The mission serves as a proclamation
to insiders and outsiders on what the corporation stands for. A mission, however, is not a
PR document; while it legitimises the corporation’s existence and role in society, its main
purpose is to give internal direction for the future of the corporation.

According to Peter Drucker, every organisation must ask an important question “What
business are we in?” and get the correct and meaningful answer. The answer should have
marketing or external perspective and should not be restated to the production or generic
activities of business. The table given below will clarify and highlight the importance of
external perspective.

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Company Production-oriented answer Marketing-oriented answer


Indian Oil We produce oil and gasoline We provide various types of safe
products. and cost-effective energy.
Indian Railways We run a railroad. We offer a transportation and
material-handling system.
Revlon In the factory, we make cosmetics In the retail outlet, we sell hope.

Concept 7: Goals and Objectives:

Introduction;
Business organisation translates their vision and mission into goals and objectives.
Goals and Objectives are the base of measurement. As such the term objectives are
synonymous with goals, however, some authors make an attempt to distinguish the two.
• Goals are the end results, that the organization attempts to achieve. Goals are open-
ended attributes that denote the future states or outcomes.
• Objectives are time-based measurable targets, which help in the accomplishment of
goals. Objectives are close-ended attributes which are precise and expressed in specific
terms.

Thus, the Objectives are more specific and translate the goals to both long term and
short-term perspective.
However, in practice, no distinction is made between goals and objectives and both the terms
are used interchangeably.
Objectives are organization’s performance targets. The results and outcomes it wants to
achieve. Objective function as yardsticks for tracking an organization’s performance and
progress.

7.1 Characteristics of Objectives;


All organisations have objectives. The pursuit of objectives is a never-ending process
such that organisation sustain themselves. Objectives provide meaning and sense of
direction to organisational endeavour.

Organisational structure and activities are designed and resources are allocated
around the objectives to facilitate their achievement. They also act as benchmarks
for guiding organisational activity and for evaluating how the organisation is
performing.

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Objectives with strategic focus relate to outcomes that strengthen an organisation’s


overall business position and competitive vitality.

Objectives, to be meaningful to serve the intended role, must possess the following
characteristics.
• Objectives should define the organization’s relationship with its environment.
• Objectives should be facilitative towards achievement of mission and purpose.
• Objectives should be measurable and controllable.
• Objectives should provide the basis for strategic decision-making.
• Objectives should provide standards for performance appraisal.
• Objectives should be concrete and specific.
• Objectives should be related to a time frame.
• Objectives should be challenging.
• Different objectives should correlate with each other.
• Objectives should be set within the constraints (i.e., scope) of organisational
resources and external environment.

7.2 Long-term Objectives;

Introduction;
As a rule, a company’s set of financial and strategic objectives ought to include both
short-term and long-term performance targets.
Long-term objectives represent the results expected from pursuing certain strategies,
Strategies represent the actions to be taken to accomplish long-term objectives. The time
frame for objectives and strategies should be consistent, usually from two to five years.
To achieve long-term prosperity, strategic planners commonly establish long-term
objectives in seven areas.

1. Profitability. 2. Productivity.
3. Competitive Position. 4. Employee Development.
5. Employee Relations. 6. Technological Leadership.
7. Public Responsibility.

Objectives should be quantitative, measurable, realistic, understandable, challenging,


hierarchical, and obtainable among organizational units. Each objective should also be
associated with a time line.

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Objectives are commonly stated in terms such as growth in assets, growth in sales,
profitability, market share, degree and nature of diversification, degree and nature of
vertical integration, earnings per share, and social responsibility.

7.3 Short-range objectives then serve as steps toward achieving long term objective?
Short-range objectives can be identical to long-range objectives if an organisation
is already performing at the targeted long-term level. For instance, if a company
has an ongoing objective of 15 percent profit growth every year and is currently
achieving this objective, then the company’s long range and short-range objectives
for increasing profits coincide.

The most important situation in which short-range objectives differ from long-range
objectives occurs when managers are trying to elevate organisational performance
and cannot reach the long-range target in just one year.

Hence, short-range objectives then serve as steps toward achieving long term
objective.

Concept 8: Values:

“Business, as I have seen it, places one great demand on you: it needs you to self- impose
a framework of ethics, values, fairness and objectivity on yourself at all times.” - Ratan
N Tata, 2006 (Source: TATA Group Website)
A few common examples of values are – Integrity, Trust, Accountability, Humility, Innovation,
and Diversity. But why are values so important? A company’s value sets the tone for how
the people of think and behave, especially in situations of dilemma. It creates a sense
of shared purpose to build a strong foundation and focus on longevity of the company’s
success. Employees prefer to work with employers whose values resonate with them -
the ones they can relate to in their daily work and personal life. Interestingly, majority of
consumers say that they would prefer to buy products and services from companies that
have a purpose that reflects their own value and belief system. Hence, values have both
internal as well as external implications.
For reference, a lot of values were put to actions during Covid 19 pandemic when leaders of
the organisations put people before everything else. It projected how deep the foundation
of the oragnisations’ were and how important it was for them to uphold their core values.

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The above graphic represents the interconnection of Intent, Vision, Mission, Goals and
Values; Values remain the center/core of Vision, Mission, Goals and putting all them to
action. Vision is followed by Mission, followed by Goals and finally executing via real
actions.

Concept 9: Strategic levels in Organisations:

Introduction;
A typical large organization is a multi-divisional organisation that competes in several
different businesses. It has separate self-contained divisions to manage each of these.

For example, Patanjali has healthcare, FMCG, Organic Foods, Medicinal Oils and Herbs,
and various different businesses. It has separate divisions which work within themselves
to sustain each of these businesses.

General managers are found at the first two of these levels, but their strategic roles differ
depending on their sphere of responsibility.

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9.1 Corporate level of management consists of;


1. The Chief Executive Officer (CEO),
2. Other Senior Executives,
3. The Board of Directors (BOD) and
4. Corporate Staff.
Those individuals are mainly strategic decision-making authority of the organisation.

Q. What tasks are performed by a strategic Manager? Or, The role of corporate level
management includes.
Ans: The primary task of the strategic manager is conceptualising, designing and executing
company strategy. For this purpose, his tasks include;
• To oversee the development of strategies for the whole organization.
• To set corporate vision, mission and goals,
• Determining what business, it should be in,
• Allocation of resources,
• Formulating strategies and implementing strategies that span (i.e., to cover or
to reach) individual businesses,
• Providing leadership for the organization as a whole, etc...

9.2 Distinction between strategic levels of the organisation;


i. Corporate Level;
Consist of?
Chief executive officer and other top-level executives. These individuals
participate in strategic decision making within the organization.

Role’s;
The role of corporate-level managers is to oversee the development of strategies
for the whole organization.

This role includes defining the mission and goals of the organization, determining
what businesses it should be in, allocating resources among the different
businesses, formulating and implementing strategies that span (i.e., cover or
to reach) individual businesses, and providing leadership for the organization
as a whole.

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ii. Business Level;


Consist of?
General Manager or Divisional Manager and Staff.

Role’s;
To translate the general statements (i.e., general strategies) into concrete
strategies of their individual businesses.

The strategic role of business-level manager, head of the division, is to translate


the general statements of direction and intent that come from the corporate
level into concrete strategies for individual businesses. Such divisions are called
Strategic Business Units (SBUs).

In other words, The development of strategies for individual business areas. To


support corporate strategy.

iii. Functional Level;


Consist of?
Functional Manager’s like, Finance Manager’s, HR Manager’s, etc...

Role’s;
Responsible for the specific business functions or operations such as human
resources, purchasing, product development, customer service, and so on.

To develop functional strategies in their area that help fulfil the strategic
objectives set by business and corporate level general managers. Functional
managers provide most of the information to formulate realistic and attainable
strategies.

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STRATEGIC ANALYSIS: EXTERNAL


2 ENVIRONMENT

Concept 1: Strategic Analysis:

Introduction;
Understanding the business environment before starting the business is known as
strategic analysis. Strategic analysis is conscious efforts made by the business managers in
understanding the internal factors (S & W) and external forces (O & T) which are related to the
business organization.

All business managers should perform situational analysis before they start planning for
the organization.

Strategy formulation is not a task in which managers can get by with intuition, opinions,
instincts, and creative thinking. But it is a judgment about what strategies to pursue need
to flow directly from analysis of;

• A firm’s external environment,


• Its internal resources, and
• Capabilities.

The two most important situational considerations (factors) are:


(i) Industry and Competitive Conditions, and
(ii) An organisation’s own competitive capabilities, resources, internal strengths,
weaknesses, and market position.

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For developing sound and meaningful long-term strategy strategist must perform
strategic appraisal of the external and internal situation, to evaluation of alternatives,
to the choice of strategy.

Efforts made in formulation of strategies without perceptive analysis of businesses factors


and forces will increase the chance of developing faulty strategy which will decrease the
chance of improving the performance of the organization, will lead to little prospect of
developing competitive advantage and unachieved vision, mission and objectives and
goals.

Issues (limitations) to consider for Strategic Analysis:


(a) Strategy evolves over a period of time;
Development of strategy requires detailed analysis of all the aspects of internal and
external factors and forces. This is time consuming process.

An important aspect of strategic analyses is to consider the possible implications of


routine decisions.

Strategy of a firm, at a particular point of time, is result of a series of small decisions


taken over an extended period of time.

(b) Balance of external and internal factors;


The process of strategy formulation is often described as one of the matching the
internal potential of the organization with the environmental opportunities.

In reality, as perfect match between the two may not be feasible. There are constraints
that limit the choice such as existence of a big competitor.

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(c) Risk;
Competitive markets, liberalization, globalization, booms, recessions, technological
advancements, inter-country relationships all affect businesses and pose risk at
varying degree.

In strategic analysis, the principle of maintaining balance is important. However, the


complexity and intermingling (i.e., inter mix) of variables in the environment reduces
the strategic balance in the organisation.

An important aspect of strategic analysis is to identify potential imbalances or risks


and assess their consequences.

External risk is on account of inconsistencies between strategies and the forces in the
environment.

Internal risk occurs on account of forces that are either within the organization or are
directly interacting with the organization on a routine basis.

1.1 Types of Risk;

Time
Short Term Long Term
An error in Changes in the
External

interpreting the environment lead to


Strategic Risks

environment, causes obsolescence of strategy.


strategic failure.

Organizational Inconsistencies with the


Internal

capacity is unable to strategy are developed


cope up with strategic on account of changes
demands. in internal capacities &
preferences.

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1.2 Framework of Strategic Analysis;

Concept 2: Strategy and Business Environment

In strategic analysis, the principle of maintaining balance is important. However, the


complexity and intermingling (i.e., inter mix) of variables in the environment reduces the
strategic bal
Management

Strategy Environment

Resources

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The business environment is highly dynamic and continuously evolving. Strategists provide
an interface between the organizational abilities and the opportunities and challenges it
must deal within the larger environment.

The term "business environment" refers to all external factors, influences, or


situations that in some way affect business decisions, plans, and operations.
Organisational success is determined by its business environment, and even more
from its relationship with it.

Strategic management is involved with choosing a long-term direction in relation to


these resources and opportunities. There is a close and continuous interaction between
a business and its environment. This interaction helps in strengthening the business firm
and using its resources more effectively. It helps the business in the following ways:
(i) Determine opportunities and threats: The interaction between the business and its
environment would explain opportunities and threats to the business. It helps to
find new needs and wants of the consumers, changes in laws, changes in social
behaviours, and tells what new products the competitors are bringing in the market
to attract consumers.

(ii) Give direction for growth: The interaction with the environment enables the business
to identify the areas for growth and expansion of their activities. Once the business
is aware and understands the changes happening around, it can plan and strategise
to have successful business.

(iii) Continuous Learning: The managers are motivated to continuously update their
knowledge, understanding and skills to meet the predicted changes in the realm of
business.

(iv) Image Building: Environmental understanding helps the business organizations to


improve their image by showing their sensitivity to the environment in which they
operate. For example, in view of the shortage of power, many companies have
set up captive power plants with their factories to meet their own requirement of
power as well as extend surplus capacities in the vicinity. Understanding the needs
of the environment help to showcase that the business is aware and responsive
to the needs. It creates a positive image and helps it to prosper and win over the
competitors.

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(v) Meeting Competition: It helps the businesses to analyse the competitors’ strategies
and formulate their own strategies accordingly. The idea is to flourish and beat
competition for its products and services.

Business strategies relate organisational resources to challenges and opportunities


in the larger environment. The changes happening in the external environment
challenge organisations to find novel and unique strategies to remain in business and
succeed. As the world is getting smaller and competition is increasing, organisations
have an increasing pressure to develop their businesses and strengthen their
competitiveness. Strategic analysis covering internal and external environment is
highly relevant and important for the strategists in organisations in order to achieve
competitive advantage, as well as ensure high performance for survival and growth.

Strategic decisions are significant aspects of business management and are essential for
To flourish, a business must be aware of, assess, and respond to the many
opportunities and threats present in its environment. In order to succeed, the
business must not only be aware of the numerous aspects of its surroundings
but also be able to handle and adapt to them. The business must continuously
evaluate its environment and modify its operations in order to thrive and expand.
the success and continued existence. Two crucial aspects for the success include
are the function of top management and the method of formulating strategic
decisions. Improvement of strategic decisions is constant endeavour for strategist.
Due to the contemporary environment's changes and the challenges that managers
must overcome when making decisions, there is interest in enhancing strategic
decision-making. The environment is far more dynamic and unpredictable than it
used to be.

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Concept 3: Micro and Macro Environment

The environment in which an organization exists can be described in terms of the


opportunities and threats operating in the external environment apart from the strengths
and weaknesses existing in the internal environment. Business strategists should always
be adequately informed on developments occurring in their company, its industry, and
within micro and macro environment of business. For making any strategic decision,
they should be able to comprehend the facts available and challenge the underlying
assumptions.

The external environment can be categorised in two major types as follows:


 Micro environment
 Macro environment

Micro-environment is related to small area or immediate periphery of an organization. It


influences an organization regularly and directly. Micro environment consists of suppliers,
consumers, marketing intermediaries, competitors, etc. These are specific to the said
business or firm and affect its working on a direct and regular basis. Within the micro or
the immediate environment in which a firm operates we need to address the following
issues:
 The employees of the firm, their characteristics and how they are organised.
 The existing customer base on which the firm relies for business.
 The ways in which the firm can raise its finance.
 Who are the firm suppliers and how are the links between the two being developed?
 The local community within which the firm operates.
 The direct competition and their comparative performance.
The factors in micro environment often relate an organization to the macro issues
influencing the way a firm reacts in the market place. The macro environment is the
portion of the outside world that significantly affects how an organisation operates but
is typically much beyond its direct control and influence.

Concept 4: Elements of Macro Environment

Macro environment has broader dimensions as it consists of economic, socio- cultural,


technological, political and legal factors. The classification of the relevant environment
into components or sectors helps an organization to cope with its complexity, comprehend

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the different influences operating, and relating the environmental changes to its strategic
management process.
“The environment includes factors outside the firm which can lead to opportunities for,
or threats to the firm. Although, there are many factors, the most important of the fac-
tors are socio-economic, technological, supplier, competitors, and government.”
Gluek and Jauch

The external environment of an organisation is made up of all the individuals, teams,


organisations, agencies, and factors that it routinely interacts with when conducting
business. In addition to carrying out transactions, it develops and puts into action
pertinent plans and policies to address environmental changes. It negotiates its way into
the future as well.

Demographic Environment
Demographics are the characteristics of a population that have been classified and
explained according to certain criteria, such age, gender, and income, in order to
understand the features of a specific group. Demographical analysis considers factors
such as race, age, income, education, possession of assets, house ownership, job position,
region, and the degree of education. Data about these qualities across homes and within
a demographic variable are of importance to both businesses and economists. Marketers
and other social scientists regularly divide up populations based on their demographic
makeup. India has relatively younger population as compared to many other countries.
Many multinationals are interested in India considering its population size.

Considering demographics is of immense importance for any business. Business


Organizations need to study different demographic factors. Particularly, they need to
address following issues:
 What demographic trends will affect the market size of the industry?
 What demographic trends represent opportunities or threats?

The size, age distribution, geographic dispersion, ethnic mix, and income distribution of a
population are all of great importance to the organisation. Identifying the implications
of changing demographic characteristics or population components for a future strategic
competitiveness is often a challenge for strategists.

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Socio-Cultural Environment
A general factor that influences almost all enterprises in a similar manner. It represents a
complex group of factors such as social traditions, values and beliefs, level and standards
of literacy, the ethical standards and state of society, the extent of social stratification,
conflict, cohesiveness and so forth. It differs from demographics in the sense that it is not
the characteristics of the population, but it is the behaviour and the belief system of that
population.

Socio-cultural environment consists of factors related to human relationships and the


impact of social attitudes and cultural values which has bearing on the operations of
the organization. The beliefs, values and norms of a society determine how individuals
and organizations should be interrelated. The core beliefs of a particular society tend to
be persistent. It is difficult for a business to change these core values, which becomes a
determinant of its functioning. This means, that businesses have to adjust to social norms
and beliefs to operate successfully. The social environment primarily affects the strategic
management process within the organization in the areas of mission and objective setting,
and decisions related to products and markets.

Economic Environment
Economic conditions have a direct bearing over the business strategies. The economic
environment refers to the overall economic situation around the business and include
conditions at the regional, national and global levels. It encompasses conditions in the
markets for resources that have an effect on the supply of inputs and outputs of the
business, their costs, and the dependability, quality, and availability.

Economic environment determines the strength and size of the market. The purchasing
power in an economy depends on current income, prices, savings, circulation of money, debt
and credit availability. Income distribution pattern determine the business possibilities.
The important point to consider is to find out the effect of economic prospect, growth and
inflation on the operations of the business.

Higher interest rates are detrimental for the businesses with high debt. In the real
estate market, they reduce the capability of the prospective buyers to avail loan and
pay instalments, thus lower the demand.
The economic conditions of a nation refer to a set of economic factors that have great
influence on business organizations and their operations. These include gross domestic
product, per capita income, markets for goods and services, availability of capital, foreign

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exchange reserve, growth of foreign trade, strength of capital market, interest rates,
disposable income, unemployment, inflation, etc. All these factors generally tell the state
of the economy. Whether it is doing good or is it performing poorly.

Political-Legal Environment
Political-legal environment takes into account elements like the general level of political
development, the degree to which business and economic issues have been politicised,
the degree of political morality, the state of law and order, political stability, the
political ideology and practises of the ruling party, the effectiveness and purposefulness
of governmental agencies, and the scope and type of governmental intervention in the
economy and industry. It is partly general to all similar enterprises and partly specific to
an individual enterprise.

Business is highly guided and controlled by government policies. Hence the type of
government running a country is a powerful influence on business. A business has to
consider the changes in the regulatory framework and their impact on the business. Taxes
and duties are other critical areas that may be levied and affect the business.
Businesses prefer to operate in a country where there is a sound legal system. However, in
any country businesses must have a good working knowledge of the major laws protecting
consumers, competitions and organizations. Businesses must understand the relevant
laws relating to companies, competition, intellectual property, foreign exchange, labour
and so on.

Technological Environment
Nationalism supports measures aimed at enhancing the position of a country in
International business. Presently, there is immense thrust on nationalism in Indian
business through policies like Make in India and Aatmanirbhar Bharat. Production Linked
Incentives scheme, another step in the direction, rewards businesses for increased sales
of goods produced domestically. The scheme encourages foreign businesses to open
businesses in India, and at the same time incentivises domestic businesses to open or
expand their manufacturing facilities, create more jobs, and lessen India's reliance on
imports.

A highly important factor in the present times is technology. Technology has changed the
way people communicate and do things. Technology has also changed the ways of how
businesses operate now. Technology and business are linked and are interdependent on

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one another. Businesses help society access the outcomes of technological research and
development, raising everyone's standard of living.

As a result, business leverages technology. Businesses use new discoveries to adapt


themselves for the advancement of society.

Technology has impacted on how businesses are conducted. With use of technology,
many organisations are able to reduce paperwork, schedule payments more efficiently,
are able to coordinate inventories efficiently and effectively. This helps to reduce costs of
companies, and shrink time and distance, thus, capturing a competitive advantage for
the company.

Changes in technology have an effect on how a business runs its operations. The
technological advancements might require a business to drastically alter its operational,
production and marketing strategies.

Technology is leading to many new business opportunities as well as making obsolete


most of the existing business products and services. Technology can act as opportunity,
when a business effectively adopts technological innovations to their strategic advantage.
However, at the same time technology can act as a threat too. Artificial intelligence,
machine learning, robotic process automation is some of the new technological tools
that businesses are adopting and can act as both opportunity and threat to a business.

PESTLE– A tool to Analyse Macro Environment


The term PESTLE is often used to describe a framework for analysis of macro environmental
factors. PESTEL analysis is frequently used to assess the business environment in which a
firm operates. Political, economic, social, and technological (PEST) analysis was the name
given to the framework in the past; however, later, the framework has been expanded to
include environmental and legal factors as well. PESTLE analysis involves identifying the
political, economic, socio-cultural, technological, legal and environmental influences on
an organization and providing a way of scanning the environmental influences that have
affected or are likely to affect an organization or its policy.

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‘PESTLE analysis is an increasingly used and recognized analytical tool, and it is an


acronym for:
P - political
E - economic
S - socio-cultural
T - technological
L - legal
E - environmental

The PESTLE analysis is simple to understand and quick to implement. The advantage of
this tool is that it encourages management into proactive and structured thinking in its
decision making.

The Key Factors:


 Political factors are how and to what extent the government intervenes in the economy
and the activities of business firms. Political factors may also influence goods and
services which the government wants to provide or be provided and those that the
government does not want to be provided. Furthermore, governments have great
influence on the health, education and infrastructure of a nation.

 Economic factors have major impacts on how businesses operate and take decisions.
For example, interest rates affect a firm's cost of capital and therefore to what extent
a business grows and expands. Exchange rates affect the costs of exporting goods
and the supply and price of imported goods in an economy. The money supply,
inflation, credit flow, per capita income, growth rates have a bearing on the business
decisions.

 Social factors affect the demand for a company's products and how that company
operates.

 Technological factors can determine barriers to entry, minimum efficient production


level and influence outsourcing decisions. Furthermore, technological shifts can
affect costs, quality, and lead to innovation.

 Legal factors affect how a company operates, its costs, and the demand for its
products, ease of business.

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 Environmental factors affect industries such as tourism, farming, and insurance.


Growing awareness to climate change is affecting how companies operate and the
products they offer-it is both creating new markets and diminishing or destroying
existing ones.
On the basis of these, it should be possible to identify a number of key environmental
influences, which are in effect, the drivers of change. These are the factors that
require to be considered in making meaningful decisions. Take a look at the table
given below:
Political Economic
 Political stability  Economy situation and trends
 Political principles and ideologies  Market and trade cycles
 Current and future taxation policy  Specific industry factors
 Regulatory bodies and processes  Customer/end-user drivers
 Government policies  Interest and exchange rates
 Government term and change  Inflation and unemployment
 Thrust areas of political leaders  Strength of consumer spending

Social Technological
 Lifestyle trends  Replacement technology/solutions
 Demographics  Maturity of technology
 Consumer attitudes and opinions  Manufacturing maturity and capacity
 Brand, company, technology image  Innovation potential
 Consumer buying patterns  Technology access, licensing,
 Ethnic/religious factors patents, property rights and
 Media views and perception copyrights

Legal Environmental
 Business and Corporate Laws  Ecological/environmental issues
 Employment Law  Environmental hazards
 Competition Law  Environmental legislation
 Health & Safety Law  Energy consumption
 International Treaty and Law  Waste disposal
 Regional Legislation

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Concept 5: Internationalisation of Business

5.1 To be specific, a global company has three characteristics:


1. It is a conglomerate of multiple units (i.e., located in different parts of the globe)
but all linked by common ownership.
2. Multiple units draw (i.e., utilised) on a common pool of resources, such as money,
credit, information, patents, trade names and control systems.
3. The units respond to some common strategy. Besides, its managers and
shareholders are also based in different nations.

5.2 Why do companies go global?


There are several reasons why companies go global. These are discussed as follows:
• The first and foremost reason is need to grow. It is basic need of organisations.
Often finding opportunities in the other parts of the globe organisation extend their
businesses and globalise.

• There is rapid shrinking of time and distance across the globe thanks to faster
communication, speedier transportation, growing financial flows and rapid
technological changes.

• It is being realised that the domestic markets are no longer adequate and rich.
For instance, Japanese have flooded the U.S. market with automobiles and
electronics because the home market was not large enough to absorb whatever
was produced.

• Companies often set up overseas plants to reduce high transportation costs.


For instance, making a car in Korea and exporting it in Europe and America
is expensive and time consuming therefore India as a manufacturing hub for
Hyundai proved to be better place.

• There can be varied other reasons such as need for reliable or cheaper source of
raw-materials, cheap labour, etc...
For instance, Hyundai got competent engineers at lower cost, industry friendly
Maharashtra Govt. which allowed them to setup a unit in India which supplies
spare parts for all Hyundai Cars across the world.

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• The rise of services to constitute the largest single sector in the world economy:
and regional economic integration, which has involved both the world’s largest
economies as well as certain developing economies.
For instance, Manufacturing of Hyundai cars in India will help to improve Indian
economy by generating more and more employment.

• The trend is towards increased privatization of manufacturing and services


sectors, less government interference in business decisions and more dependence
on the value-added sector to gain market place competitiveness.

• The trade tariffs and custom barriers are getting lowered, resulting in increased
flow of business.

• Globalization has made companies in different countries to form strategic


alliances to ward off economic and technological threats (i.e., to avoid being hit
by economic and technological threats) and leverage their respective comparative
and competitive advantages.

Concept 6: Understanding Product And Industry

Businesses sell products. A product can be either a good or a service. It might be


physical good or a service, an experience. Business products have certain characteristics
as follows:

• Products are either tangible or intangible. A tangible product can be handled, seen,
and physically felt, such as a car, book, pen, table, mobile handset and so on.
Alternatively, an intangible product is not a physical good, such as telecom services,
banking, insurance, or repair services.

• Product has a price. Businesses determine the cost of their products and charge a price
for them. The dynamics of supply and demand influence the market price of an item
or service. The market price is the price at which quantity provided equals quantity
desired. The price that may be paid is determined by the market, the quality, the
marketing, and the targeted group. In the present competitive world price is often
given by the market and businesses have to work on costs to maintain profitability.

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On account of competition, businesses are not able to fix market price by adding
profit margin on the costs. Rather, they work on reducing the costs given the
prevailing market price.

• Products have certain features that deliver satisfaction. A product feature is a component
of a product that satisfies a consumer need. Features determine product pricing,
and businesses alter features during the development process to optimise the user
experience. Products should be able to provide value satisfaction to the customers
for whom they are meant. Features of the product will distinguish it in terms of its
function, design, quality and experience. A customer's cumulative experience with a
product from its purchase to the end of its useful life is an important component of
a product feature.

• Product is pivotal for business. The product is at the centre of business around which
all strategic activities revolve. The product enables production, quality, sales,
marketing, logistics and other business processes. Product is the driving force behind
business activities.

• A product has a useful life. Every product has a usable life after which it must be
replaced, as well as a life cycle after which it is to be reinvented or may cease to
exist. We have observed that fixed line telephone instruments have largely been
replaced by mobile phones.

Concept 7: Product Life Cycle

Introduction;
PLC indicate S-shaped curve. PLC, which exhibits (i.e., indicate) the relationship of sales with
respect to time for a product that passes through the four successive stages of product
life cycle.
The different stages in a product life cycle are:

 Introduction (Slow sales growth),


 Growth (Rapid market acceptance),
 Maturity (Slowdown in growth), and
 Decline (Sharp downward fall).

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Product life cycle (PLC) has to do with the life of a product in the market with respect to
business/commercial costs and sales measures. PLC is a useful concept for guiding strategic
choice.

(i) Introduction Stage;


At the introduction stage in which competition is almost negligible, prices are relatively
high and markets are limited. The growth in sales is at a lower rate because of lack of
knowledge on the part of customers.
(ii) Growth Stage;
The demand expands rapidly, prices fall, competition increases and market expands.
The customer has knowledge about the product and shows interest in purchasing it.
(iii) Maturity Stage;
In this stage, the competition gets tough and market gets stabilised. Profit comes down
because of stiff competition. At this stage, organisations have to work for maintaining
stability.

(iv) Decline Stage;


The sales and profits fall down sharply due to some new product replaces the existing
product. So, a combination of strategies can be implemented to stay in the market
either by diversification or retrenchment.

The main advantage of PLC:


• It can be used to diagnose a portfolio of products (or businesses).
• Particular attention is to be paid on the businesses that are in the declining
stage.
• A combination of strategies can be implemented on various SBU’s.

Conclusion;
In this way, a balanced portfolio of businesses may be built up by exercising a
strategic choice based on the PLC concept.

Concept 8: Value Chain Analysis:

Introduction;
A value chain is a set of activities that a firm operating in a specific industry performs in
order to deliver a valuable product or service for the market.

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Value chain analysis has been widely used as a means of describing the activities within and
around an organization, and relating them to an assessment of the competitive strength
of an organization. In other words, its ability to provide value-for-money products or
services.

Value chain analysis was originally introduced as an accounting analysis to shed light (i.e.,
to reveal information) on the ‘value added’ of separate steps in complex manufacturing
processes, in order to determine where cost improvements could be made, value creation
improved.

The two basic steps of identifying separate activities and assessing the value added from each
were linked to an analysis of an organization’s competitive advantage by Michael Porter.

One of the key aspects of value chain analysis is the recognition that organizations are
much more than a random collection of Man (people), Machines, Material, and Money.
These resources are of no value unless deployed into activities and organised into systems
and routines which ensure that products or services are produced which are valued by the
final consumer i.e., user.

In other words, it is these competences to perform particular activities and the ability to
manage linkages between activities which are the source of competitive advantage for
organizations. Porter argued that an understanding of strategic capability must start with
an identification of these separate value activities.

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The primary activities of the organization are grouped into five main areas:
• Inbound logistics; These are the activities concerned with receiving, storing and
distributing the inputs to the product/service. This includes materials handling,
warehousing, inventory control, transport etc...

• Operations; It comprise the transformation of the inputs into the final product form.
This includes production, machining, assembly, packaging, testing, etc...

• Outbound logistics; It involve the collecting, storing, and distributing the product to
the buyers.
For tangible products this would be processing of orders, warehousing of finished
goods, materials handling, transport, etc...
In the case of services, it may be more concerned with arrangements for bringing
customers to the service, if it is a fixed location, for example sports events.

• Marketing and sales; It deals with how buyers can be convinced to purchase the
product. Provides the means whereby users are made aware of the product or service
and are able to purchase it. This would include sales administration, advertising,
promotion, distribution, etc...

• Service; It involves how to maintain the value of the product or service after it is
purchased. Through installation, repair, maintenance, training, etc..

Each of these groups of primary activities are linked to support activities. These can be divided
into four areas:
• Procurement; It concerned with the tasks of purchasing inputs such as raw materials,
equipment, and even labour.

• Technology Development; These activities are intended to improve the product (through
R&D in product design) and the process (through process development), or with a
particular resource (e.g., raw materials improvements).

• Human Resource Management; This is a particularly important area which to reach


all primary activities. It is concerned with those activities involved in recruiting,
managing, training, developing and rewarding people within the organization.

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• Firm Infrastructure; The activities which are not specific to any activity area. The
systems of planning, finance, quality control, information management, etc…. are
crucially important to an organization’s performance in its primary activities.
Infrastructure also consists of the structures and routines of the organization which
sustain its culture.

8.1 Use of Value Chain Analysis for Identifying Core Competences:


Introduction;
Value chain analysis is useful in describing the separate activities which are necessary to
support an organization’s strategies and how they link together both inside and outside the
organization.

Although a threshold competence in all of these activities is necessary to the


organization’s successful operation, it is important to identify those competences which
critically support the organization’s competitive advantage. These are known as the core
competences and will differ from one organization to another depending on how the
company is positioned and the strategies it is pursuing.

For E.g., Japanese manufacturers were developing competences in defect-free


manufacture. Which became critical success factors in allowing them to achieve
global sales.

Value chain analysis is a reminder that the long-term competitive position of an


organization is concerned with its ability to sustain value for-money products or services,
and it can be helpful in identifying those activities which the organization must
undertake at a threshold level of competence and those which represent the core
competences of the organization.

Core competences may also be the basis on which the organization stretches into new
opportunities. So, in deciding which competences are core, this is another criterion
which should be used - the ability to exploit the competence in more than one
market or arena.

However, in order to do this, it is necessary to identify the basis on which an


organization has gained competitive advantage and hence which are the core
competences in sustaining this advantage.

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8.2 Managing linkages:


Introduction;
Core competences in separate activities may provide competitive advantage for an
organization, but nevertheless over time it may be imitated by competitors.
Core competences are likely to be stronger and more difficult to imitate if they relate
to the management of linkages within the organization’s value chain (i.e., internal
linkages) and linkages into the supply and distribution chains (i.e., external linkages).

It is the management of these linkages which provides ‘leverage’ and levels of performance
which are difficult to match by the competitors.

The ability to co-ordinate the activities of specialist teams or departments may


create competitive advantage through improving value for money in the product or
service. Specialization of roles and responsibilities is common in most organizations
and is one way in which high levels of competence in separate activities is achieved.
However, it often results in a set of activities which are incompatible - different
departments pulling in different directions - adding overall cost, diminishing value
in the product or service.

This management of internal linkages in the value chain could create competitive advantage
in a number of ways:
• There may be important linkages between the primary activities.
For E.g., a decision to hold high levels of finished stock might ease production
scheduling problems and provide for a faster response time to the customer.

• Linkages between different support activities may also be the basis of core
competences.
For E.g., the extent to which human resource development is in tune with new
technologies has been a key feature in the implementation of new production
and office technologies.

• The management of the linkages between a primary activity and a support activity
may be the basis of a core competence.
For E.g., Computer-based systems provides better infrastructure to facilitate
quick sales and service especially in transport (Ola, Uber, etc...) & hotel (Oyo,
Make My Trip, etc...) business.

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External Linkages;
In addition to the management of internal linkage, competitive advantage may also
be gained by the ability to co-ordinate the organization’s own activities with those
of suppliers, channels or customers i.e., external linkage.

Again, this could occur in a number of different ways:


• Vertical integration;
Firm attempts to improve performance through ownership of more parts of
the value system, making more linkages internal to the organization. However,
the practical difficulties and costs of coordinating a wider range of internal
activities can outweigh the theoretical benefits.

• Closely monitoring the suppliers;


Within manufacturing industry, the competence in closely specifying
requirements and controlling the performance of suppliers (sometimes linked
to quality checking and/or penalties for poor performance) can be critical to
both quality enhancement and cost reduction.

• By applying concept of TQM;


A more recent philosophy has been total quality management, which seeks
to improve performance through closer working relationships between the
specialists within the value system. For example, many manufacturers will now
involve their suppliers and distributors at the design stage of a product or project.

Concept 9: Porter’s Five Forces Model

Five competitive forces in an industry as identified by Michael Porter;


1. Threat of new entrants:
New entrants can reduce an industry’s profitability, because they add new production
capacity, leading to increase in supply of the product, sometimes even at a lower
price and can substantially erode (i.e., diminish) existing firm’s market share position.

However, New entrants are always a powerful source of competition. The new capacity
and product range they bring in throws up a new competitive pressure. The bigger the
new entrant, the more severe the competitive effect. New entrants also place a limit
on prices and affect the profitability of existing players, which is known as Price War.

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For E.g., Reliance Jio offered economical services when it entered the telecom industry
in 2016, thus limiting the prices for existing players like Airtel, Vodafone, Idea, etc.

2. Bargaining power of customers (buyers):


The bargaining power of the buyers influences not only the prices that the producer
can charge but also influences costs and investments of the producer. This is because
powerful buyers usually bargain for better services which involves more investment
on the part of the producer.

This force becomes heavier depending on the possibility of buyers forming groups or cartels.
Mostly, this is a phenomenon (i.e., situation) seen in industrial products. Quite often,
users of industrial products come together formally or even informally, and exert
(i.e., apply) pressure on the producer.
For E.g., Car manufacturer companies can exert (i.e., apply) pressure on the tyre
manufacturer.

Buyers can sometimes apply considerable pressure on existing firms to secure lower
prices or better services. This leverage is particularly evident when;
• Buyers have full knowledge of the sources of products and their substitutes. Thus,
challenging the price being charged by producer.
• They spend a lot of money on the industry’s products i.e., they are big buyers. Thus,
in a position to demand favourable terms of contract.
• The industry’s product is not perceived (i.e., recognised) as critical to the buyer’s
needs and buyers are more concentrated than firms supplying the product.
They can easily switch to the substitutes available.

3. Bargaining power of suppliers:


Quite often, suppliers too, exercise considerable bargaining power over purchasing
companies. The more specialised the offering from the supplier, greater may be its effect.
Further, when the suppliers are limited in number, they may openly display their
bargaining power.

The bargaining power of suppliers determines the cost of raw materials and other inputs
of the industry, and therefore, an industry’s attractiveness and profitability.
For E.g., increase in cost of fuel, such as petrol, diesel etc. will impact input cost of
many industries.

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Suppliers can influence the profitability of an industry in a number of ways. Suppliers


can command bargaining power over a firm when:
• Their products are crucial to the buyer and substitutes are not available.
• They can erect high switching costs.
• They are more concentrated than their buyers. Meaning less suppliers, more buyers.

4. Rivalry among current players (competitors):


Rivalry between existing players is quite obvious. This is what is normally understood as
competition. For any player, the competitors influence strategic decisions at different strategic
levels. The impact is more evident at functional level, like in the prices being charged,
more aggressive advertising, and building pressures on costs, product and so on.

The intensity of rivalry in an industry is a significant determinant of an industry’s


attractiveness and profitability. The intensity of rivalry can influence the costs of
suppliers, distribution, and of attracting customers and thus, can directly affect the
profitability.

“The more intensive the rivalry, the less attractive is the industry”. Rivalry among
competitors tends to be cutthroat and industry profitability low when;
• An industry has no clear leader.
• Competitors in the industry are numerous.
• Competitors operate with high fixed costs.
• Competitors face high exit barriers.
• Competitors have little opportunity to differentiate their offerings.
• The industry faces slow or diminished growth.
Note: For detail explanation of above-mentioned points refer concept 1.5

5. Threats from substitutes:


Substitute products are a latent (hidden, indirect) but existing source of competition in
an industry. In many cases they grow to become a major constituent of competition.

Substitute products that offer a price advantage and/or performance improvement to the
consumers, can drastically alter the competitive character of an industry. Surprisingly,
they can bring it about all of a sudden.

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As per Michael Porter, a final force that can influence an industry’s profitability, is the
availability of substitutes for that industry’s products. To predict profit pressure from this
source of competition, firms must search for products that can perform the same, or
nearly the same, functionalities as their own products.

For E.g., Real estate, insurance, bonds and bank deposits for example are clear substitutes
for common stocks, because they represent alternate ways to invest funds.

For E.g., the threat of substitutes is great in many high-tech industries as well.
Introduction of digital film-less cameras virtually replaces the film cameras and
threatened the existence of Eastman Kodak and Fuji Film.

Further, the introduction of smart phones has replaced cameras to a great extent.
For E.g., the rapidly changing education landscape, with the emergence of online
courses and degrees, is a perfect example of a substitute to the existing educational
system, with better approachability and access.
*Study Note: Write any 1 out of 3 examples illustrated above in exam.

Conclusion: The above discussed five forces together determine an industry’s


attractiveness/profitability. This is so because these forces influence the causes, that
underlie industry attractiveness/profitability.

9.1 Steps to implementing Porter’s Five Forces Model


1. Identify the specific competitive pressures associated with each of the five (5)
forces.
2. Evaluate how strong the pressures comprising each of the five (5) forces (it could
be intense, strong, moderate to normal, or weak). and
3. Determine whether the collective strength of the five (5) competitive forces is
conducive beneficial to earning attractive profits.

9.2 Barriers to Entry


A firm’s profitability tends to be higher when other firms are blocked from entering
into the industry. This achieved through barriers to entry.

New entrants can reduce industry profitability because they add new production
capacity leading to increase supply of the product even at a lower price and can

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substantially destroy existing firm’s market share position.

Porter’s five forces model considers new entrants as a powerful source of competition.

To discourage new entrants, existing firms can try to raise barriers to entry. Barriers
(restrictions) to entry represent economic forces (or ‘hurdles’) that slow down or
delay or prevent entry by other firms.

Common barriers to entry include:


1. Capital Requirements: When a large amount of capital is required to enter an
industry, firms lacking funds are effectively barred from the industry, thus enhancing
the profitability of existing firms in the industry. This makes the entry of new
companies into this sector very difficult.

For E.g., huge investments are required to build production facilities and
establish brand awareness amongst people for entry into the pharmaceutical
industry. This makes entry of new companies into this sector very difficult.

2. Economies of Scale: Many industries are characterized by economic activities


driven by economies of scale. Economies of scale refer to the decline in the per-
unit cost of production as volume grows. A large firm that enjoys economies of
scale can produce high volumes of goods at successively lower costs. This tends
to discourage new entrants. This acts as a barrier for new entrants.

For E.g., in the semiconductor industry, large companies, such as IBM, Intel, and
Samsung enjoy substantial economies of scale in the production of advanced
microprocessors, communication chips and integrated circuits that power most
consumer electronics, personal computers (PCs) and cellular phones. This acts
as a barrier for new entrants.

3. Product Differentiation: Product differentiation refers to the physical or perceptual


differences, or enhancements, that make a product special or unique in the eyes of
customers.

For E.g., Firms in the personal care products and cosmetics industries actively engage
in product differentiation to enhance their products’ features. Differentiation

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works to reinforce (i.e., prevent) entry barriers because the cost of creating genuine
product differences may be too high for the new entrants.

4. Switching Costs: To succeed in an industry, new entrant must be able to persuade


(i.e., influence) existing customers of other companies to switch to its products.

To make a switch, buyers may need to test a new firm’s product, negotiate
new purchase contracts, and train personnel to use the equipment, or modify
facilities for product use. Buyers often incur substantial financial costs in
switching between firms. When such switching costs are high, buyers are often
reluctant to change.

For E.g., high switching costs in moving away from Microsoft’s Windows
operating systems used in personal computers and corporate servers powered
the company’s stunning growth over the past decade in the software industry.
In other words, Microsoft has marketed its operating system in such a manner
that it almost impossible for companies to sell a new operating system and
break into the customer loyalty of Microsoft.

5. Brand Identity: The brand identity of products or services offered by existing firms
can serve as another entry barrier. Brand identity is particularly important for
infrequently purchased products (i.e., non FMCG products) that carry a high unit
cost to the buyer. New entrants often encounter significant difficulties in building
up the brand identity, because to do so they must commit substantial resources
over a long period of time. The gestation (i.e., development) period of customer
loyalty is quite high, when customers identify themselves with existing brands.

For E.g., During the 1970s, Japanese companies such as Toyota, Nissan, and
Honda had to spend huge sums on new product development and promotional
activities to overcome the American consumer’s preference for domestic cars.

In India, it was a huge challenge for foreign car makers to break into the
customer base of Maruti Suzuki in the affordable family car segment, because
people identified Maruti Suzuki as India’s own family car company.

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6. Access to Distribution Channels: The unavailability of distribution channels for new


entrants poses (i.e., create) another significant entry barrier. Despite the growing
power of the internet, many firms may continue to rely on their control of
physical distribution channels to create a barrier to entry to rivals.

Often, existing firms have significant influence over the distribution channels and can
delay or restrict their use by new firms.

For E.g., Because of control over distribution channels in India by HUL, Godrej and P&G
etc., small entrepreneurs find it very difficult to sell their products through the existing
channels. Similarly, with advent (i.e., emergence) of Patanjali and its strong nation-wide
distribution channel, new Ayurvedic FMCG companies are facing a challenge.

7. Possibility of Aggressive Retaliation (counter-attack): Sometimes the mere threat


of aggressive retaliation (counter-attack) by existing firm can discourage entry by
other firms into an existing industry.

For E.g., Introduction of products by a new firm may lead existing firms to reduce
their product prices and increase their advertising budgets. The same way Hindustan
Unilever and Colgate Palmolive spent huge sums of money in advertisement to
fight Patanjali’s Dant Kanti Toothpaste.

9.3 The intensity of rivalry, its impact on industry profitability


The rivalry among existing players is quite obvious. This is what is normally understood
as competition. For any player, the competitors influence strategic decisions at different
strategic levels.
“The more intensive the rivalry, the less attractive is the industry”. Rivalry among
competitors tends to be cutthroat and industry profitability low when;
1. Industry Leader:
A strong industry leader can discourage price wars by disciplining initiators of
such activity. Because of its greater financial resources, a leader can generally
withstand in a price war. Knowing this, smaller rivals often avoid initiating such
a contest.

For E.g., India’s domestic air travel industry has no definite leader, and hence,
we often see cut throat price wars.

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2. Number of Competitors:
Even when an industry leader exists, the leader’s ability to apply pricing discipline
diminishes with the increased number of rivals in the industry as communicating
expectations to players becomes more difficult.

For E.g., majorly in unorganised sectors like handicrafts, due to huge number of
producers, the internal rivalry is immense.

3. Fixed Costs:
When organisations operate with high fixed costs, they feel strong motivation
to utilize their capacity and therefore are inclined (i.e., ready) to cut prices when
they have excess capacity. Price cutting causes profitability to fall for all firms
in the industry as firms attempt to produce more to cover costs that must be
paid regardless of industry demand. For this reason, profitability tends to be
lower in industries.

For E.g., Airline, Telecommunications, etc... characterized by high fixed costs.

4. Exit Barriers:
Rivalry among competitors declines, if some competitors leave an industry.
Profitability therefore tends to be higher in industries with few exit barriers.
When barriers to exit are powerful, competitors desiring exit may refrain from
leaving. Their continued presence in an industry exerts downward pressure on
the profitability of all competitors. The crux is, if an organisation cannot exit, it
would fight for its survival, and thus, intensify competition.

For E.g., Assets of a firm considering exit may be highly specialized and therefore
of little value to any other firm. Therefore, such firm may not be able to find a
buyer for its assets. This discourages exit.

5. Product Differentiation:
Firms can sometimes insulate (i.e., isolate or separate) themselves from price wars
by differentiating their products from those of rivals. As a consequence, profitability
tends to be higher in industries that offer opportunity for differentiation.

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Profitability tends to be lower in industries involving undifferentiated


commodities such as, memory chips, natural resources, processed metals and
railroads.

For E.g., ONGC and Indian Oil, cannot offer major product differentiation in their
products. Hence, the level of competition would always be high.

6. Slow Growth:
Industries whose growth is slowing down tend to face more intense rivalry. As industry
growth slows, rivals must often fight harder to grow or even to keep their existing
market share. The resulting intensive rivalry tends to reduce profitability for all.

Concept 10: Experience Curve

Introduction;
Experience curve is an important concept
applying a portfolio approach.

The concept is akin (similar) to a learning curve which explains


the efficiency increase gained by workers through repetitive
productive work.
Experience curve is based on the commonly observed phenomenon (i.e., situation) that
unit costs decline as a firm accumulates experience in terms of a cumulative volume of
production. It is based on the concept, “we learn as we grow”.

The implication (i.e., assumption) is that larger firms in an industry would tend to have lower
unit costs as compared to those for smaller companies, thereby gaining a competitive cost
advantage.

Experience curve results from a variety of factors such as learning effects, economies
of scale, product redesign and technological improvements in production. For example,
in the contemporary (i.e., present) Indian automobile industry, the experience curve
phenomenon (i.e., situation) seems to be working in Maruti Suzuki.

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The concept of experience curve is relevant for a number of areas in strategic management.
• Considered a barrier for new firms,
• Used to build market share,
• Discourage competition.

Experience Curve has following features:


• As business organisation grow, they gain experience.
• Experience may provide an advantage over the competition.
• Experience is a key barrier to entry.
• Large and successful organisation possess stronger “experience effect”.

Concept 11: Value Creation

Introduction;
The concept of value creation was introduced primarily for providing products and services
to the customers with more worth.

Value is measured by a product’s, features, quality, availability, durability, performance,


by its services for which customers are willing to pay. Further, the concept took more
space in the business and organizations started discussing about the value creation for
stakeholders.

Many businesses now focus on value creation both in the context of creating better value for
customers purchasing its products and services, as well as for stakeholders in the business
who want to see their investment in business appreciate in value.

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Ultimately, this concept gives business a competitive advantage in the industry and helps
them earn above average profits/returns.

Competitive advantage leads to superior profitability. At the most basic level, how
profitable a company becomes depends on three factors:
(i) The value customers place on the company’s products;
(ii) The price that a company charges for its products; and
(iii) The costs of creating those products.

The value customers place on a product reflects the utility they get from a product the
happiness or satisfaction gained from consuming or owning the product.

Utility must be distinguished from price. Utility is something that customers get from a
product. It is a function of the attributes of the product, such as its performance, design,
quality, and point-of-sale and after-sale service.

Thus, we can say that the value creation is an activity or performance by the firm to
create value that increases the worth of goods, services, business processes or even the
whole business system.

Ultimately, this concept gives business a competitive advantage in the industry and helps
them earn above average profits or returns.
For E.g.,

Concept 12: Market and Customer

A market is a place for interested parties, buyers and sellers, where items and services
can be exchanged for a price. The market might be physical, such as a departmental
store where people engage in person. They may also be virtual, such as an online market
where buyers and sellers do not meet in person but tools of technology to strike a deal. In
addition to this broad definition, the term market can apply to a wide range of contexts.

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For example, it might be used to describe the stock exchange, where securities are traded.
It may also refer to a group of individuals trying to buy a specific commodity or service
in a specific place, such as grain or vegetable market where farmers come to sell their
produce. It may also be used to define a business or industry, such as the global oil
market.
While the market is a place, business strategist work on marketing to improve the chances
of success. The term "marketing" encompasses a wide range of operations, including
research, designing, pricing, promotion, transportation, and distribution. Often market
activities are categorised and explained in terms of four Ps of marketing – product, place,
pricing, and promotion. These four kinds of marketing activities help marketers identify
customer needs so they may meet their demands and deliver satisfaction. Delivering the
best customer experience and establishing, maintaining, and growing relationships with
customers are the main goals of marketing.

The orientation of product marketing has evolved and acquired different dimensions
centred around product, production, sales and customers. Businesses that have product
orientation think that buyers will choose those products that have the best quality,
performance, design, or features. Next, there are production- oriented businesses that
believe that customers choose low price products. Sales- oriented businesses believe
that if they spend enough money on advertisement, sales and promotion, customers can
be persuaded to make a purchase.

In a customer or market-oriented approach strategists prioritise efforts on their customers.


In order to create better value propositions for customers, businesses gather, disseminate,
and use customer and competitive information. A customer- centric business is one that
continuously learn from its customers' needs and market dynamics. In the present times
success, many business lies in customer centric approaches.

12.1 Customer
A customer is a person or business that buys products or services from another
organisation. Customers are important because they provide revenue and
organisations cannot exist without them. All businesses vie for customers, either
by aggressively marketing their products or by lowering their pricing to boost their
customer bases. The terms customer and consumer are practically synonymous and
are frequently used interchangeably. There is, however, a thin distinction. Individuals
or businesses that consume or utilise products and services are referred to as

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consumers. Customers are the purchasers of products and services in the economy,
and they might exist as consumers or only as customers. In homes groceries are
often bought by a parent and consume by all the members of family.
Businesses routinely research the characteristics of their consumers in order to
fine- tune their marketing strategies and adjust their inventory to attract the most
customers. Customers are frequently categorised based on demographics like as
age, race, gender, ethnicity, economic level, and geographic region, which may all
assist businesses in developing a profile of a perfect customer.

12.2 Customer Analysis


Customer analysis is an essential marketing component of any strategic business
plan. It identifies target clients, determines their wants, and then defines how the
product meets those needs. Thus, it involves the examination and evaluation of
consumer needs, desires, and wants.

Customer analysis includes the administration of customer surveys, the study of


consumer data, the evaluation of market positioning strategies, development of
customer profiles, and the selection of the best market segmentation techniques.
Using the facts generated by customer analysis, an effective profiling of customers
may be established. Customer profiles can reveal demographic information about
customers. A number of parties, including buyers, sellers, distributors, salespeople,
managers, wholesalers, retailers, suppliers, and creditors, can assist in gathering
information to effectively assess the needs and desires of consumers. Successful
businesses constantly monitor the behaviour of existing and prospective customers.

12.3 Customer Behaviour


Customer behaviour moves beyond the identification of customers to explain how
they purchase products. It examines elements like shopping frequency, product
preferences, and the perception of your marketing, sales, and service offerings.
Understanding these details allows businesses to communicate with customers in
an effective manner. Understanding the behaviours of customers enables businesses
to establish effective marketing and advertising campaigns, provide products and
services that meet their needs, and retain customers for repeat sales.

Consumer behaviour may be influenced by a number of things. These elements can


be categorised into the following three conceptual domains:

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 External Influences: External influences, like advertisement, peer


recommendations or social norms, have a direct impact on the psychological
and internal processes that influence various consumer decisions. The focus of
external effects is on the numerous elements that have an impact on customers
as they choose which needs to satisfy and which products to use to do so.
These aspects are divided into two groups – the company's marketing efforts
and the numerous environmental elements.
 Internal Influences: Internal processes are psychological factors internal
to customer and affect consumer decision making. Consumer behaviour is
influenced by a combination of internal and external influences, including
motivation and attitudes.

External Factors Market


Stimuli Environmental
Factors Purchase and
Decision
Post Purchase
Making
Internal Factors Actions

Figure: Process of consumer behaviour


 Decision Making: A rational consumer, as decision maker would seek information
about potential decisions and carefully integrate this with the existing knowledge
about the product. After weighing the advantages and disadvantages of each
option, they would make a decision. The stages of decision making process can
be described as:
 Problem recognition, i.e., identify an existing need or desire that is
unfulfilled
 Search for desirable alternative and list them
 Seeking information on available alternatives and weighing their pros and
cons.
 Make a final choice

This behaviour of making decisions happens very frequently. However, it mostly


applies when the purchase is one that is significant to the customer, such as
when the product could have a significant influence on their health or self-
image. The process is extremely valid when purchasing a car, television or a
refrigerator in contrast to purchase of ice creams or soft drinks.

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 Post-decision Processes: After making a decision and purchasing a product, the final
phase in the decision-making process is evaluating the outcome. The consumer's
reaction may vary depending upon the satisfaction. While a happy customer may
make repeat purchase and recommend to others, customer with dissonance will
neither purchase the product again nor recommend it to others.

Concept 13: Competitive Strategy:

Strategy is formed and developed by organisational managers for achieving basic objectives
of management i.e., survival, stability, efficiency, growth, profitability and prosperity. But
along with above mentioned business objectives one of the most important objectives of
framing strategies is to fight competition.

In simple words, strategies formed for fighting and sustaining external competition is known
as Competitive strategies.

Competitive strategy of a firm evolves out of consideration of several factors that are external
to it. The external environment affects the internal environment of the firm.

A continuous change in this environment provides new opportunities and creates new
challenges in terms of threats for the organisation.
The objectives of a competitive strategy are;
• Generate competitive advantage,
• Increase market share, and
• Beat competition.

A competitive strategy consists of moves (steps) to…


 Attract customers.
 Withstand competitive pressures.
 Strengthen market position.

Having a competitive advantage is necessary for a firm to compete in the market. Competitive
advantage comes from a firm’s ability to perform activities more effectively than its rivals. But
what is more important is whether the competitive advantage is sustainable? By knowing if it
is a leader, challenger, or follower, it can adopt appropriate competitive strategy.

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13.1 Competitive Landscape


Introduction;
Competitive landscape is a business analysis which identifies competitors, either direct or
indirect.

Competitive landscape is about identifying and understanding the competitors and at the
same time, it permits the comprehension (i.e., knowledge) of their vision, mission,
core values, niche market, strengths and weaknesses.
Understanding of competitive landscape requires an application of “competitive
intelligence”.

An in-depth investigation and analysis of a firm’s competition allows it to assess


the competitor’s strengths and weaknesses in the marketplace and helps it to choose
and implement effective strategies that will improve its competitive advantage.
Competitive advantage comes from a firm’s ability to perform activities more
effectively than its rivals.

Thus, understanding the competitive landscape is important to build upon a


competitive advantage.

Steps to understand the Competitive Landscape;


1. Identify the competitor,
2. Understand the competitors,
3. Determine the strengths of the competitors,
4. Determine the weaknesses of the competitors,
5. Put all of the information together.

1. Identify the competitor:


The first step to understand the competitive landscape is to identify the
competitors in the firm’s industry and have actual data about their respective
market share.
This answers the question:
• Who are the competitors?

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2. Understand the competitors:


Once the competitors have been identified, the strategist can use market
research report, internet, newspapers, social media, industry reports, and
various other sources to understand the products and services offered by them
in different markets.
This answers the question:
• What are their product and services?

3. Determine the strengths of the competitors:


What is the strength of the competitors? What do they do well? Do they offer
great products? Do they utilize marketing in a way that comparatively reaches
out to more consumers? Why do customers give them their business?
This answers the questions:
• What are their financial positions?
• What gives them cost and price advantage?
• What are they likely to do next?
• How strong is their distribution network?
• What are their human resource strengths?

4. Determine the weaknesses of the competitors:


Weaknesses can be identified by going through consumer reports and reviews
appearing in various media. After all, consumers are often willing to give their
opinions, especially when the products or services are either great or very poor.
This answers the question:
• Where are they lacking?

5. Put all of the information together:


At this stage, the strategist should put together all information about competitors
and draw inference (i.e., conclusion) about what they are not offering and what
the firm can do to fill in the gaps. The strategist can also know the areas which
need to be strengthen by the firm.
This answers the questions:
• What will the business do with this information?
• What improvements does the firm need to make?
• How can the firm exploit the weaknesses of competitors?

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Concept 14:Key Success Factors; (KSF’s)

Introduction;
These are the key elements that affect the ability of a firm or industry to prosper in the
market. KSFs are those things that most affect industry members’ ability to prosper in the
marketplace between competitive success or failure.
For E.g., JIO Cost efficient i.e., Economical for customers is a KSF’s in telecom industry at
present.
Some of the successful key factors are;
• Core competitions,
• Business outcome (Result),
• Competitive capabilities,
• Internal & External recourses,
• Strategy in production, marketing, etc...

KSFs by their very nature are so important that all firms in the industry must pay close
attention to them. They are the prerequisites for industry success and they form (i.e., create)
the rule that figure whether a company will be financially or competitively successful.

Misdiagnosing the industry factors critical to long-term competitive success greatly


raises the risk of a misdirected strategy. In contrast, an organisation with perceptive
understanding of industry KSFs can gain sustainable competitive advantage by training
its strategy on industry KSFs and devoting its energies to being distinctively better than
rivals on one or more of these factors. Indeed, business organisations that stand out
on a particular KSF enjoy a stronger market position for their, efforts-being distinctively
better than rivals on one or more key success factors presents a golden opportunity for gaining
competitive advantage.

How to find out or identify the KSF’s of an industry?


1. On what basis do customer select between the competing brands of sellers? What
product attributes are crucial? Such as quality, durability, etc...
2. What competitive capabilities does a seller need to have to be competitively successful,
better human capital, quality of product or quantity of product, cost of service,
etc...?
3. What does it take for seller to achieve a sustainable competitive advantage, something
that can be sustained for long term?

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For E.g., in apparel i.e., outfit manufacturing, the KSFs are;


• Appealing designs and colour combinations (to create buyer interest)
and
• Low-cost manufacturing efficiency (to permit attractive retail pricing and ample profit
margins).

Conclusion;
Key success factors vary from industry to industry and even from time to time within
the same industry as driving forces and competitive conditions change.

The purpose of identifying KSFs is to make judgments about what things are more
important to competitive success and what things are less important.

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STRATEGIC ANALYSIS INTERNAL


ENVIRONMENT
3
Concept 1: Introduction

Introduction
Strategic Analysis is equally important when it comes to internal environment assessment.
Internal environment refers to the sum total of people – individuals and groups,
stakeholders, processes- input-throughput-output, physical infrastructure- space,
equipment and physical conditions of work, administrative apparatus- lines of authority
& power, responsibility, accountability and organizational culture- intangible aspects of
working- relationships, philosophy, values, ethics- that shape an organization’s identity.

In other words, the internal environment is specific to each organisation. It is based on


its structure and business model and includes all stakeholders like top management,
investors, employees, board of directors, investors, etc.

Internal environment also involves understanding of the ethics, principles, work


environment, employee friendliness, confidence of investors and other philosophical and
cultural aspects of business, which aim for the success of the organisation.

Thus, it is even more important to understand the internal environment from a strategic
analysis perspective.

Concept 2: Understanding Key Stakeholders

Who are Stakeholders and how do we identify them?


A firm may be viewed as a coalition of stakeholders- all those individuals and entities
that have a stake in its success and can impact it as well. They may be the employees,
shareholders, investors, suppliers, customers, regulators and so on. This view of the firm
is in contrast to the earlier view of the firm that was considered to be an extension of the
owners and shareholders alone.

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Thus, it may be reiterated that the stakeholders can be defined as any person/group of
individuals, internal or external, that has an interest in, or impact on the business or
corporate strategy of the organisation. They have the power to influence the strategy or
performance of that organisation.

Generally, stakeholders include management, employees, shareholders, customers and


vendors. Additionally, other individuals and groups, such as governments, labour unions
and local groups, which are often considered as stakeholders depending on their impact
on the particular organisation. Each stakeholder or stakeholder group will be affected by
the business strategy that the organisation chooses and implements.

It is important to first identify the key stakeholders. Each stakeholder exerts a different
level of influence and can have differing levels of interest in the organisation. For example,
an organisation involved in healthcare innovation needs to have a long-term perspective
about its return on investment (ROI) as there may be a long time between investment into
research timelines and a commercial outcome. While, shareholders, whose main concern
is quick profits, may be more hesitant to support the organisation spending funds on
something that they may not see the return in the near future.

Since the expectations of key stakeholders can influence the organisation’s strategy, a
clash of objectives may have unfavourable consequences for the organisation.

Example of Key Stakeholders and their requirements for an OTT Platform


Stakeholders Requirements
Shareholders  Innovation and continuous creative content
 Total shareholder return (RoI)
 Corporate social responsibility
 Top rankings of the organisation
 Highest market share
CEO and Board of Directors  Prestige
 Market share
 Revenue and profit growth
 Market rankings
Major Vendors (Production Houses)  Growth
 Stability of ordering
 Stable margins

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Consumers (Viewers)  New content - Innovation


 Better deals - Pricing Benefits
 Value for money
 Continuous supply
Employees  Wages and benefits
 Stability of employment
 Pride of working for a reputed organisation

2.1 Mendelow Matrix
The Mendelow Stakeholder matrix (also known as the Stakeholder Analysis matrix and
the Power-Interest matrix) is a simple framework to help manage key stakeholders.

Managing a project is extremely complicated as it involves managing the competing


interests of various stakeholders. Who needs to know what and when, who needs
to give their feedback and who has the final approval can be confusing. However,
managing stakeholders is critical to the success of a project. This is where a
stakeholder analysis matrix i.e. Mendelow’s Matrix can help.

Mendelow suggests that one should analyse stakeholder groups based on Power (the
ability to influence organisation strategy or resources) and Interest (how interested
they are in the organisation succeeding). A thing to remember is that all stakeholders
may seem to have lots of power and organisation may hope they would have lots
of interest too. But in reality, some stakeholders will hold more Power than others,
and some stakeholders will have more Interest than others.
For example, a big shareholder is likely to have high power and high interest in the
organisation, whereas a big competitor would have high power to impact strategy,
but potentially less Interest in success of rival organisation.

Developing a Grid of Stakeholders


Mendelow’s Matrix is based on Power and Interest. It suggests to identify which
stakeholders are incredibly important. Metrics to define the importance being High
Power and High Interest which management would need to manage closely, while
investing a lot of time and resources.
For example, the CEO is likely to have more Power to influence the work and also
high interest in it being successful. Keeping them informed almost daily should be a
priority.

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However, those stakeholders with low power and low interest like research institutes
seeking an organisation data should be monitored rarely and minimum effort
expended on them in terms of time and money.
High

KEEP SATISFIED KEY PLAYER


Consult often Increase their Manage Closely
interest Involve in decision making
Can be hindrance to new Engage regularly and build
Power / Influence

ideas or strategic choices strong relationship

LOW PRIORITY KEEP INFORMED


Monitor only, no engagement Utilise the high interest by
engaging in decisions
General occasional
Consult in their areas of
communication expertise and interest

Low Interest in the Organisation High

In the above figure, we see categorisation of stakeholders into four groups by


Mendelow’s;
• KEEP SATISFIED Stakeholders: High power, less interested people - Organisation
should put in enough work with these people to keep them satisfied with their
intended information on a regular basis. For example, banks, government,
customers, etc.

• KEY PLAYERS Stakeholders: High power, highly interested people - Organisation’s


aim should be to fully engage this group of stakeholders, making the greatest
efforts to satisfy them, take their advice, build actions and keep them informed
with all information on a regular basis. For example, Shareholders, CEO, Board of
Directors, etc.

• LOW PRIORITY Stakeholders: Low power, less interested people - Organisation


should only monitor them with no actions to satisfy their expectations.
Strategically, minimal efforts should be spent on this group of stakeholders
while keeping an eye to check if their levels of interest or power change. For
example, business magazines, media houses, etc.

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• KEEP INFORMED Stakeholders: Low power, highly interested people - Organisation


should adequately inform this group of people and communicate with them
to ensure that no major issues arise. This audiences can also help with real
time feedbacks and areas of improvement for an organisation. For example,
employees, vendors, suppliers, legal experts, etc.

An important thing that strategists should be aware of, is the importance to


remember that environment is highly dynamic and certain things might happen
that can cause stakeholders to suddenly move between quadrants.

For example, an organisation might inadvertently contravene a regulation, say


GST compliance which would cause the regulatory body i.e. the Indirect Taxes
Department to move from High Power, Low Interest to High Power, High Interest.
This would then require a different way of managing and communicating with
this stakeholder. Equally, the media houses would also move from Low Power,
Low interest, to Low Power, High Interest. So, it’s always worth re-analysing
the Mendelow’s grid for one’s organisation in the event of a change in the
environment
Activity
Identify and group the below stakeholders in the 4 groups as suggested by Mendelow for
an Ecommerce startup.
Ms. Suhasini (CEO), Mango Partners and TRIK Group (Investors), MSME Ministry,
Customers from NorthEast India, Sellers from Rajasthan, Jandhan Bank (Lender),
and Kumar S and Sharma T (Sr. Managers in the Co.)
Keep Satisfied Key Players
Low Priority Keep Informed

Concept 3: STRATEGIC DRIVERS

An important aspect of internal analysis is assessing the current performance of the


business. And in assessing current performance, the strategic drivers consider what
differentiates an organisation from its competitors.
It involves analysis of the key markets in which the organisation operates, as well as its
key customers, the products and services it provides, the channels in which the products
or services are delivered, and the organisation’s competitive advantage. Some of these
components are interlinked, such as markets and products/services, and channels and

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key customers in each channel.


There can be varied ways to assess the current performance of a business and it is highly
subjective based on the managements metrics and ways of doing business. It can either
be profit driven, purpose driven or any other metrics that the management seems to fit
in. But in general, the key strategic drivers of an organisation include:
• industry and markets
• customers
• products/services
• channels

3.1 Industry and Markets


In terms of the internal environment, it is very important for an organisation
to understand it’s relative position in the industry and in the market in which it
operates. There are many ways to do this but require analysis and understanding of
the environment.

Similar companies are grouped together into industries. Basically, industry grouping
is based on the primary product that a company makes or sells. For example, Maruti,
Mahindra, Tata Motors, TVS, Bajaj Auto, are all selling automotives as their primary
product and thus categorised into Automotive Industry. Similarly, Zara, H&M, Marks
& Spencer, Pantaloons, Westside, Uniqlo, are all selling apparels and accessories for
the youth, and thus categorised under apparels industry.

A market is defined as the sum total of all the buyers and sellers in the area or
region under consideration. The value, cost and price of items traded are as per
forces of supply and demand in a market. The market may be a physical entity or
may be virtual like e-commerce websites and applications. It may further be local
or global, depending on which all countries the business sells its products in

Is market the same for all businesses?


Market refers to all the buyers and sellers of a particular product/service and so it
would be incorrect to say that market is the same for all businesses. Each business has
its own set of customers i.e. market and more so, each product within a business has its
own market. For example, for a FMCG brand selling Shampoos, Dairy Products, Flours,
Washing Powder, etc. - each product line will have a separate market to cater to and
therefore build strategies specific to the market of concern.

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3.1.1 Strategic Group Mapping


Introduction;
The next step in examining the industry’s competitive structure is to study the market
positions of rival companies. Identifying the strongest and weakest companies help
understand what techniques can be implemented and which ones are to be avoided.
One technique for revealing the competitive positions of industry participants is
strategic group mapping, which is 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.

For example, Smart Phone industry has numerous options to select from. Thus,
grouping them into categories based on various parameters can be really insightful
and time saving

A strategic group consists of those rival firms which have similar competitive
approaches and positions in the market.

Companies in the same strategic group can resemble one another in any of the several
ways:
• They may have comparable product-line breadth,
• Sell in the same price or quality range,
• Emphasize the same distribution channels,
• Depend on identical technological approaches,
• Use essentially the same product attributes to appeal to similar types of buyers,
or
• Offer buyers similar services and technical assistance.

An industry may contain only one strategic group when all sellers pursue
essentially identical strategies and have comparable market positions. At the
other extreme, there are as many strategic groups as there are competitors
when each rival pursues a distinctively different competitive approach and
occupies a substantially different competitive position in the marketplace.

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The procedure for constructing a Strategic Group Mapping;


1. Identify the competitive characteristics that differentiate firms in the industry.
Typical variables are (mean competitive characteristics can be based on)
• price or/and quality range (high, medium, low),
• geographic coverage (local, regional, national, global),
• degree of vertical integration (none, partial, full),
• product-line breadth (wide, narrow),
• use of distribution channels (one, some, all), and
• degree of service offered (no-frills, limited, full).
2. Plot the firms on a two-variable map using pairs of these differentiating
characteristics.
3. Assign 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 revenues.

3.2. Customers
Understanding the different types of customers to whom the organisation’s products/
services are sold or provided, is not only important but also the first step in deciding
the product/service. Different customers may have different needs and require
different sales models or distribution channels.

Consider the example of a headphones brand - the customers can be grouped under
high value buyers, medium value buyers and low value buyers based on the amount
they are willing to spend on a product, thus helping the business understand their
key customers and focus areas of improvement.
# of Customers in thousands

80

60

40

20

0
High Value (INR 3,500 -5,500) Medium Value (INR 1,500 - 3,500) Low Value (< INR 1,500)

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As customers are often responsible for the generation of profits obtained by an


organisation, it is important to be able to collect and display data in order to show
customer trends and profitability. Issues with customers can be identified, and target
areas for growth can be pursued based on the findings.

Another interesting concept is the difference between Customer and Consumer -


while a customer is the one buys a product/service, the consumer is the one who
finally uses/consumes the bought product or service. For example - A parent buying
stationery products for their kids might be the customers, but consumers of stationery
are the kids who would actually use it. Thus, understanding both is important for
the marketers.

From a pricing perspective - the customer is of more importance and from value
creation and design/usability, consumer needs to be the kept at the center of decision
making.
Customer versus Consumer
A simple bifurcation yet extremely important for strategy build up. Consumers are the
ones who finally use a product/service, while customers are the buyers of that product. A
customer can be a consumer and vice versa. But for strategy teams especially marketing
teams it is important to understand the customer and consumer separately.
For example, baby diapers are bought by parents (customers) who are willing to pay higher
price for higher quality, while the real consumers are the babies, who are more concerned
about the comfort and easiness of the diaper. If babies do not accept the product i.e. if
consumers aren’t satisfied, it is difficult to retain the buyer i.e. customers as well.

3.3 Product
Products and services are closely linked and interrelated with the markets that the
organisation wants to serve. In this component of the strategic drivers’ analysis,
business identifies the key products/ services that the organisation offers and how
those products/services are performing. It attempts to answer the general question:
What business are we in and what should be done to win over competition in each
product/service we serve.
Product stands for the combination of “goods-and-services” that the company offers
to the target market. Strategies are needed for managing existing product over time,
adding new ones and dropping failed products. Strategic decisions must also be
made regarding branding, packaging and other product features such as warranties.

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The products can also be classified on the basis of industrial or consumer products,
essentials or luxury products, durables or perishables.
There are products that have wide range of quality and workmanship and these also
change over time since products and markets are infinitely dynamic. An organization
has to capture such dynamics through a set of policies and strategies. Some products
have consistent customer demand over long period of time while others have short
life spans.

Products can also be differentiated on the basis of size, shape, colour, packaging,
brand names, after-sales service and so on. Organizations seek to hammer into
customers’ minds that their products are different from others. It does not matter
whether the differentiation is real or imaginary. Quite often the differentiation
is psychological rather than physical. It is enough if customers are persuaded to
believe that the marketer’s product is different from others. For example, Shampoos
with different branding namely Head & Shoulders, Olay, Old Spice, Pantene are all
produced by the same company P&G.

Organizations formalize product differentiation through designating ‘brand names’


to their respective products. These are generally reinforced with legal sanction and
protection. Brands enable customers to identify the product and the organization
behind it. The products and even firms’ image is built around brands through
advertising and other promotional strategies. Customers tend to develop strong
brand loyalty for a particular product over a period of time.

For a new product, pricing strategies for entering a market need to be designed and
for that matter at least three objectives must be kept in mind:
• Have customer-centric approach while making a product.
• Produce sufficient returns through a reasonable margin over cost.
• Increasing market share.

Products and services need heavy investment in reaching out to customers. Over
the years, a number of marketing strategies have been evolved, which are given to
handle marketing strategically and fight the competition in the market.

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3.4 Strategic Marketing Techniques


• Social Marketing;
It refers to the design, implementation, and control of programs seeking to
increase the acceptability of a social ideas, cause, or practice among a target
group.
For E.g., the publicity campaign for prohibition of smoking in Delhi explained the place
where one can and can’t smoke.

• Augmented Marketing;
It is provision of additional customer services and benefits built around the core and
actual products that is being offered. It can be in the form of introduction of hi-tech
services like movies on demand, online computer repair services, secretarial services, etc...

Such innovative offerings provide a set of benefits that promise to elevate (i.e., to
improve) customer service to unprecedented (i.e., exceptional) levels.

For E.g.,

• Services Marketing;
It is applying the concepts, tools, and techniques, of marketing to services. Services is
any activity or benefit that one party can offer to another that is essentially intangible
and does not result in the ownership of anything. This marketing requires different
marketing strategies since it has peculiar (i.e., specific or unique) characteristics of
its own such as intangibility, inseparability, variability and perishability.

For E.g., Hair Styling, Counselling, Advice from a lawyer, etc...

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Note: Just for conceptually clarity


Intangibility; Service cannot be seen, tasted, felt, heard or smelled before purchase.
Inseparability; Service cannot be separated from their providers.
Variability; Quality of services depends on who provides them and when, where
and how?
Perishability; Service cannot be stored for later sale or use.
*Not covered in our syllabus

• Direct Marketing;
Marketing through various advertising media that interact directly with consumers,
generally calling (i.e., influence) for the consumer to make a direct response.
Direct marketing includes catalogue selling, e-mail, telecomputing, electronic
marketing, shopping, and TV shopping.
For E.g., Sugar free green tea for calorie-conscious consumer.

• Person Marketing;
People are also marketed. Person marketing consists of activities undertaken to
create, maintain or change attitudes and behaviour towards particular person.

For E.g., politicians, sports stars, film stars, etc...


Market themselves to get votes, or to promote their careers.

• Place Marketing;
Place marketing involves activities undertaken to create, maintain or change attitudes
and behaviour towards particular places say.
For E.g.,
 Business sites marketing,
 Tourism marketing.

• Organization Marketing;
It consists of activities undertaken to create, maintain or change attitudes and behaviour
of target audiences towards an organization. Both profit and non-profit organizations
practice organization marketing.

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For E.g.,

• Relationship Marketing;
The process of creating, maintaining, and enhancing strong, value-laden (i.e., value
based) relationships with customers and other stakeholders.
For E.g., Airlines offer special lounges at major airports for frequent flyers.

Thus, providing special benefits to select customers to strengthen bonds. It will go a


long way in building relationships.

• Enlightened Marketing;
It is a marketing philosophy holding that a company’s marketing should support the
best long-run performance of the marketing system; its five principles include;
1. Customer-oriented Marketing,
2. Innovative Marketing,
3. Value Marketing,
4. Sense-of-mission Marketing, And
5. Societal (relating to society) Marketing.

• Concentrated Marketing;
It is a market-coverage strategy in which a firm goes after a large share of one or few
sub-markets.
For E.g., Patanjali Ayurveda, Kent, etc...

• Differential Marketing;
It is a market-coverage strategy in which a firm decides to target several market
segments and designs separate offer for each.

For E.g., Hindustan Unilever Limited has;


Popular Segment Premium Segment

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• Lifebuoy • Dove
• Lux • Pears
• Rexona

• Synchro Marketing;
When the demand for a product is irregular due to season, some parts of the day, or
on hour basis, causing idle capacity or overworked capacities, synchro-marketing can
be used to find ways to alter the pattern of demand through flexible pricing, promotion,
and other incentives.
For E.g., Products such as movie tickets can be sold at lower price over week days to
generate demand.

• De–Marketing;
It includes marketing strategies to reduce demand temporarily or permanently. The aim
is not to destroy demand, but only to reduce or shift it.
This happens when there is overfull demand. Here demarketing can be applied to
regulate demand.

For E.g., buses are overloaded in the morning and evening, roads are busy for most
of times, zoological parks are overcrowded on Saturdays, Sundays and holidays.

3.5 Channels
Channels are the distribution system by which an organisation distributes its product
or provides its service. To understand the concept of channels let us see some
examples of how the following companies distribute their products and services;
• Lakme - sells its products via retail stores, intermediary stores (like Nykaa,
Westside, Reliance Trends), as well as online mode like amazon, flipkart, nykaa
online and its own website.
• Boat Headphones - only online via e-commerce platforms like flipkart and
amazon
• Coca Cola - retail shops across the nation, in each district, each town as well
as online mode via dunzo, blinkit, etc.

All the above are the channels via which companies sell their products and services
to the customers. The wider and stronger the channel the better position a business
has to fight and win over competition. Also, having robust channels of business

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distribution help keep new players away from entering the industry, thus acting as
barriers to entry.
There are typically three channels that should be considered: sales channel, product
channel and service channel.

• The sales channel - These are the intermediaries involved in selling the product
through each channel and ultimately to the end user. The key question is: Who needs
to sell to whom for your product to be sold to your end user? For example, many
fashion designers use agencies to sell their products to retail organisations, so that
consumers can access them.

• The product channel - The product channel focuses on the series of intermediaries
who physically handle the product on its path from its producer to the end user.
This is true of Australia Post, who delivers and distributes many online purchases
between the seller and purchaser when using eBay and other online stores.

• The service channel - The service channel refers to the entities that provide necessary
services to support the product, as it moves through the sales channel and after
purchase by the end user. The service channel is an important consideration for
products that are complex in terms of installation or customer assistance. For
example, a Bosch dishwasher may be sold in a Bosch showroom, and then once sold
it is installed by a Bosch contracted plumber.

Channel analysis is important when the business strategy is to scale up and expand
beyond the current geographies and markets. When a business plans to grow to
newer markets, they need to develop or leverage existing channels to get to new
customers. Thus, analysis of channels that suit one’s products and customers is of
utmost importance.

For example - if a healthcare brand wants to reach out to elderly customers - they
need to be more focused on offline mode of business where agents reach out
physically to the elderly as most of their potential customers (i.e. the old aged) are
not active on smartphones.

Another example being - if a new drink brand wants to acquire customers - they
need to place their products via every channel possible to get more attraction from

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customers like placing their drinks in stores, and shops alike, offering competitive
campaigns to create awareness via online modes (social media) and so and so forth.
Thus, channels, the partners in growth, play a crucial role in internal strategic
alignment.
Ever been to a hill station or a desert or a far-off location on vacation, and still
had access to bottled water and cold drinks?
This is possible because of strong channels of distribution. Some of the most
renowned brands who have created competitive advantage in channels are Coca
Cola, HUL, Patanjali, Asian Paints, Ola, to name a few.

Concept 4: Core Competence

Introduction;
Core competencies are capabilities that serve as a source of competitive advantage for a
firm over its rivals.

An organization’s combination of technological and managerial know-how, wisdom and


experience are a complex set of capabilities and resources that can lead to a competitive
advantage compared to a competitor.

C.K. Prahalad and Gary Hamel have advocated a concept of core competency, which is a
widely-used concept in management theories.

Competency is defined as a;
“Combination of skills and techniques rather than individual skill or separate technique.”

Core Competency is defined as a;


“The collective learning in the organization, especially coordinating diverse production
skills and integrating multiple streams of technologies.”

For core competencies, it is characteristic to have a combination of skills and techniques,


which makes the whole organization utilize these several separate individual capabilities.

The optimal way to define core competence is to consider it as sum of 5 – 15 areas of


developed expertise.

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Therefore, core competencies cannot be built on one capability or single technological knowhow,
instead, it has to be the integration of many resources.
4.1 According to C.K. Prahalad and Gary Hamel, Major core competencies are identified in
three (3) areas;
(i) Competitor differentiation,
(ii) Customer value, and
(iii) Application to other markets (i.e., Application of competencies within the
organisation).

(i) Competitor Differentiation,


The company can consider having a core competence if the competence is unique
and it is difficult for competitors to imitate (i.e., Copy or Follow). This can provide
a company an edge (i.e., advantage) compared to competitors. It allows the
company to provide better products or services to market with no fear that
competitors can copy it.

The company has to keep on improving these skills in order to sustain its competitive
position. Companies operating in the same market would have the equal skills
and resources, if one company can perform this significantly better; the company
has obtained a core competence.

(ii) Customer Value,


When purchasing a product or service it has to deliver a fundamental benefit for
the end customer in order to be a core competence. It will include all the skills
needed to provide fundamental benefits. The service or the product must have
real impact on the customer as the reason to choose to purchase them.

(iii) Application to other markets (i.e., Application of competencies within the organisation).
Core competence must be applicable to the whole organization; it cannot be only
one particular skill or specified area of expertise.

Therefore, although some special capability would be essential or crucial for


the success of business activity, it will not be considered as core competence, if it is
not fundamental from the whole organization’s point of view.

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Thus, a core competence is a unique set of skills and expertise, which will be
used throughout the organisation to open up potential markets to be exploited.

Examples
Hindustan Unilever Limited (HUL)
Marketing and Sales is a core competence.

Wal-Mart
Focused on lowering its operating costs.

Conclusion;
If the three above-mentioned conditions are achieved, then the company can
regard it competence as core competency.
Core competencies are the knowledge, skills, and facilities necessary to design
and produce core products. Core competencies are created by superior integration
of technological, physical and human resources. They represent distinctive skills as
well as intangible, invisible, intellectual assets and cultural capabilities.

Core Competence-based diversification reduces risk and investment and increases


the opportunities for transferring learning and best practice across business
units.

4.2 Why to identify and develop a core competency? (Core competency fulfils three criteria);
Introduction;
Core competencies are capabilities that serve as a source of competitive advantage for
a firm over its rivals.

Core competencies distinguish a company competitively and reflect its personality. These
competencies emerge over time through an organizational process of accumulating
and learning how to deploy different resources and capabilities.

It is important to identify core competencies because it is difficult to retain those


competencies in a price war and cost-cutting environment.

Failing to identify core competencies is a kind of opportunity loss for a company. That
failure is due to the inability of management to conceive of a company as other than a

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mere collection of discrete businesses.


A Core competency fulfils three criteria:
(i) It should provide potential access to a wide variety of markets.
(ii) It should make a significant contribution to the perceived (i.e., to see) customer
benefits of the end product.
(iii) It should be difficult to imitate for competitors i.e., rivals.

For E.g., *Note; Only for understanding purpose.

Small retail shops Big retail stores Supermarkets


Core Competencies

Extended working Securing supplies at lower cost, Locational advantage,


as to;

hours, Easy credit, In-house activity management, Quality assurance,


Free home deliveries, Computerized stock ordering, Customer ease in
Amicable style of the Computerized billing systems, shopping, Etc...
owner, Etc... Own brand labels, Etc...

4.3 How to build Core Competencies?


Introduction;
Core competencies are capabilities that serve as a source of competitive advantage for
a firm over its rivals.
Four specific criteria of sustainable competitive advantage that firms can use to determine
those capabilities that are core competencies. Capabilities that are;
(i) Valuable,
(ii) Rare,
(iii) Costly to Imitate (i.e., copy or follow), and
(iv) Non – Substitutable

(i) Valuable,
Valuable capabilities are the ones that allow the firm to exploit opportunities or
avert i.e., prevent the threats in its external environment. A firm created value
for customers by effectively using capabilities to exploit opportunities.

For E.g., Finance companies build a valuable competence in financial services.


In addition, to make such competencies as financial services highly successful
require placing the right people in the right jobs. Human capital is important in
creating value for customers.

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(ii) Rare,
Core competencies are very rare capabilities and very few of the competitors
possess this.

Capabilities possessed by many rivals are unlikely to be sources of competitive


advantage for any one of them. Competitive advantage results only when firms
develop and exploit valuable capabilities that differ from those shared with
competitors.

(iii) Costly to imitate (copy or follow),


Costly to imitate means such capabilities that competing firms are unable to
develop easily.

For E.g., intel has enjoyed a first mover advantage more than once because
of its rare fast R&D cycle time capability that brought SRAM (Static Random-
Access Memory) and DRAM (Dynamic Random-Access Memory) integrated
circuit technology, and brought microprocessors to market well ahead of the
competitor. The product could be imitated in due course of time, but it was
much more difficult to imitate the R&D cycle time capability.

(iv) Non – Substitutable,


Capabilities that do not have strategic equivalents are called non-substitutable
capabilities.
This final criterion for a capability to be a source of competitive advantage
is that there must be no strategically equivalent valuable resources that are
themselves either not rare or imitable.
For E.g., Tata and Apple,

Firms tried to imitate Tata’s low-cost strategy but most have been unable to
duplicate Tata’s success. The culture and excellent human capital worked
together in implementing Tata’s strategy and are the basis for its competitive
advantage.

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Competitors are deeply aware about Apple’s operating system’s (iOS) successful
model. However, to date, no competitor has been able to imitate Apple’s
capabilities. These are also protected through copyrights.

Conclusion;
To sum up, we can say that only when a capability is valuable, rare, costly to
imitate, and non-substitutable, it is a core competence and a source of competitive
advantage. Over a time, core competencies must be supported. Core competencies
are a source of competitive advantage only when they allow the firm to create value
by exploiting opportunities in its external environment.

4.4 A core competence is identified by the following tests;


(i) Leverage Test: Does it provide potential access to a wide variety of markets?
(ii) Value Enhancement Test: Does it make a significant contribution to the perceived
(i.e., to see) customer benefits of the end product?
(iii) Imitability Test: can it be imitated? Does it reduce the threat of imitation by
competitors?

4.5 Advantages of identifying core competencies;


• Provide competitive advantage,
• Ensure profits,
• Helps firm stretches into new opportunities,
• Help in maintaining progress, etc...

Conclusion;
Thus, a core competence is a unique set of skills and expertise, which will be used
throughout the organisation to open up potential markets to be exploited.
If the three above-mentioned conditions are met, then the company can regard it
competence as core competency.
It is important to identify core competencies because it is difficult to retain those
competencies in a price war and cost-cutting environment.

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Concept 5: SWOT Analysis

Introduction;
The identification and analysis of strengths, weaknesses, opportunities, and threats is
normally referred to as SWOT analysis. SWOT Analysis is quite helpful in formulating a
company’s strategy” Concept of SWOT identify by Kurt Levin in 1950’s.

For the generation of a series of strategic alternatives or choices, it is necessary to analyse


the firm’s internal strengths and weaknesses and its external opportunities and threats.

The major purpose of SWOT analysis is to enable the management to create a firm–
specific business model that will best align, fit, or match an organisational resources and
capabilities to the demands of the environment in which it operates.

 Strength: Strength is an inherent capability of the organization which it can use to gain
strategic advantage over its competitors.

 Weakness: A weakness is an inherent limitation or constraint of the organization which


creates strategic disadvantage to it.

 Opportunity: An opportunity is a favourable condition in the organisation’s environment


which enables it to strengthen its position.

 Threat: A threat is an unfavourable condition in the organisation’s environment which


causes a risk for, or damage to, the organisation’s position.

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The organization’s performance in the marketplace is significantly influenced by the three factors:
(i) The organization’s correct market position.
(ii) The nature of environmental opportunities and threat.
(iii) The organization’s resource capability to capitalize the opportunities and to protect
against the threats.

The significance of SWOT analysis lies in the following points:


 It provides a logical framework of analysis.
 It guides the strategist in strategy identification.
 It presents a comparative account.

Conclusion;
SWOT analysis helps managers to craft a business model that will allow a company to
gain a competitive advantage in its industry.
Competitive advantage leads to increased profitability, and this maximizes a company’s
chances of surviving in the fast-changing, global competitive environment that
characterizes most industries today.

Concept 6: Competitive Advantage

(i) Durability: The period over which a competitive advantage is sustained depends in
part on the rate at which a firm’s resources and capabilities deteriorate (i.e., decline). For
example, in industries where the rate of product innovation is fast, product patents
are quite likely to become obsolete.

(ii) Transferability: Even if the resources and capabilities on which a competitive advantage
is based are durable, it is likely to be eroded by competition from rivals.
The ability of rivals to attack position of competitive advantage relies on their gaining
access to the necessary resources and capabilities. The easier it is to transfer resources
and capabilities between companies, the less sustainable will be the competitive
advantage which is based on them.

(iii) Imitability: If resources and capabilities cannot be purchased by a would-be imitator,


then they must be built from scratch. How easily and quickly can the competitors
build the resources and capabilities on which a firm’s competitive advantage is
based? This is the true test of imitability.

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For Example, in financial services, innovations lack legal protection and are easily
copied.

(iv) Appropriability: It refers to the ability of the firm’s owners to appropriate the returns
on its resource base. Even where resources and capabilities are capable of offering
sustainable advantage, there is an issue as to who receives the returns on these
resources. This means, that rewards are directed to from where the funds were
invested, rather than creating an advantage with no actual reward to people to
invested capital.

Concept 7: Michael Porter’s Generic Strategies;

Introduction
According to Porter, strategies allow organizations to gain competitive advantage from three
different bases: Focus, Differentiation, and Cost leadership Porter called these base
generic strategies.

These strategies have been termed generic because they can be pursued by any type or size
of business firm and even by not-for-profit organisations.

Cost leadership
It emphasizes producing standardized products at a very low per-unit cost for consumers who
are price-sensitive.
For E.g., Air Asia, the low cost in airline industry.

Differentiation
It is a strategy aimed at producing products and services considered unique industry wide

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and directed at consumers who are relatively price-insensitive.


For E.g., Apple Inc. (iPhone, iMac, etc.)

Focus;
It means producing products and services that fulfil the needs of small groups of consumers
with very specific requirements.
For E.g., Rolls-Royce sells limited number of high-end, custom-built cars.

Porter’s strategies imply different organizational arrangements, control procedures, and


incentive systems. Larger firms with greater access to resources typically compete on a
cost leadership and/or differentiation basis, whereas smaller firms often compete on a
focus basis.

7.1 Cost Leadership Strategy;


Meaning;
It is emphasizes producing standardized products at a very low per-unit cost for
consumers who are price-sensitive. It is a low-cost competitive strategy that aims at
broad mass market.
It requires aggressive attempt of cost reduction in the areas of procurement, production,
storage and distribution of product or service and also economies in overhead costs.

Because of its lower costs, the cost leader is able to charge a lower price for its
products than its competitors and still make satisfactory profits.

A primary reason for pursuing forward, backward, and horizontal integration strategies
is to gain cost leadership benefits.

A number of cost elements affect the relative attractiveness of generic strategies,


including economies or diseconomies of scale achieved, learning and experience
curve effects, the percentage of capacity utilization achieved, and linkages with
suppliers and distributors. Other cost elements such as R&D costs associated with
new product development or modification of existing products, labour costs, tax
rates, energy costs, and shipping costs.

Striving to be a low-cost producer in an industry can especially be effective,


• when the market is composed of many price-sensitive buyers,

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• when there are few ways to achieve product differentiation,


• when buyers do not care much about differences from brand to brand,
• when there are a large number of buyers with significant bargaining power.
The basic idea is to under-price competitors and thereby gain market share driving
some of the competitors out of the market.

A successful cost leadership strategy usually permeates the entire firm, as evidenced by
high efficiency, low overhead, limited perks, intolerance of waste, intensive screening
of budget requests, wide spans of control, rewards linked to cost containment, and
broad employee participation in cost control efforts.
For E.g., McDonald’s fast-food restaurants have successfully followed low-cost
leadership strategy.

7.1.1 Achieving Cost Leadership Strategy;


To achieve cost leadership, following are the actions that could be taken:
• Prompt forecasting of demand of a product or service.
• Optimum utilization of the resources to get cost advantages.
• Achieving economies of scale; leads to lower per unit cost of product/service.
• Standardisation of products for mass production to yield lower cost per unit.
• Invest in cost saving technologies and try using advance technology for smart
working.
• Resistance to differentiation till it becomes essential.

7.1.2. Advantages of Cost Leadership Strategy;


• Entrants – Low-cost leaders create barriers to market entry through its
continuous focus on efficiency and reducing costs.

• Buyers – Powerful buyers/customers would not be able to exploit the cost leader
firm and will continue to buy its product.

• Suppliers – Cost leaders are able to absorb greater price increases before it must
raise price to customers.

• Rivalry - Competitors are likely to avoid a price war, since the low-cost firm will
continue to earn profits after competitors compete away their profits.

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• Substitutes – Low-cost leaders are more likely to lower costs to induce customers
to stay with their product, invest to develop substitutes, purchase patents.

7.1.3. Disadvantages of Cost Leadership Strategy;


• Cost advantage may not last long as competitors may imitate (i.e., follow) cost
reduction techniques.

• Cost leadership can succeed only if the firm can achieve higher sales volume.

• Cost leaders tend to keep their costs low by minimizing advertising, market
research, and research & development, but this approach can prove to be
expensive in the long run.
• Technological advancement is a great threat to the cost leader.

7.2 Differentiation Strategy;


Meaning;
It is a strategy aimed at producing products and services considered unique industry
wide and directed at consumers who are relatively price-insensitive.

This strategy is aimed at broad mass market and involves the creation of a product or
service that is perceived (i.e., recognised) by the customers as unique. The uniqueness
can be associated with product design, brand image, features, technology, and dealer
network or customer service. Because of differentiation, the business can charge a
premium for its product.

Differentiation does not guarantee competitive advantage, especially if standard


products sufficiently meet customer needs or if rapid imitation (i.e., copy) by
competitors is possible.

Differentiation strategy should be pursued only after a careful study of buyers’ needs
and preferences to determine the feasibility of incorporating one or more differentiating
features into a unique product that features the customers’ desired attributes. A
successful differentiation strategy allows a firm to charge a higher price for its product
and to gain customer loyalty, because consumers may become strongly attached to the
differentiated features.
For E.g., Lexus, the luxury vehicle division of the Japanese automaker Toyota.

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 Basis of Differentiation
• Product; Innovative products that meet customer needs can be an area
where a company has an advantage over competitors. For E.g., Motorola
Razr (2019, Folding device).

• Pricing; It can fluctuate based on its supply and demand, and also be
influence by the customer’s ideal value for the product. For E.g., Movie
ticket during weekends or of premier show.

• Organization; Maximizing the power of a brand, or using the specific


advantages that an organization possesses can be instrumental to a
company’s success. For E.g., Apple Inc.

7.2.1 Achieving Differentiation Strategy;


To achieve differentiation, following are the measures that could be adopted by an
organization to incorporate:
• Offer utility to the customers and match the products with their tastes and
preferences.
• Elevate (i.e., improve) the performance of the product.
• Offer the high-quality product/service for buyer satisfaction.
• Rapid product innovation to keep up with dynamic environment.
• Taking steps for enhancing brand image and its brand value.
• Fixing product prices based on the unique features of the product and buying
capacity of the customer.

7.2.2 Advantages of Differentiation Strategy;


• Entrants – Innovative features are an expensive offer. So, new entrants generally
avoid these features because it is tough for them to provide the same product
with special features at a comparable price.

• Buyers – They do not negotiate for price as they get special features and also,
they have fewer options in the market.

• Suppliers – Because differentiators charge a premium price, they can afford to


absorb higher costs of supplies and customers are willing to pay extra too.

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• Rivalry - Brand loyalty acts as a safeguard against competitors. It means that


customers will be less sensitive to price increases, as long as the firm can satisfy
the needs of its customers.

• Substitutes – Substitute products can’t replace differentiated products which have


high brand value and enjoy customer loyalty.

7.2.3 Disadvantages of Differentiation Strategy;


• In long term, uniqueness is difficult to sustain.
• Charging too high a price for differentiated features may cause the customer to
switch-off to another alternative.
For E.g., As we see a shift of iPhone users to other android flagship smart
phones.
• Differentiation fails to work if its basis is something that is not valued by the
customers.
For E.g., Home delivery of packed snacks in 30 minutes would not even be a
differentiator as the consumer wouldn’t value such an offer.

7.3 Focus Strategy;


Meaning;
It means producing products and services that fulfil the needs of small groups of
consumers.
A successful focus strategy depends on an industry segment that is of sufficient size, has
good growth potential, and is not crucial to the success of other major competitors.
Strategies such as market penetration and market development offer substantial
focusing advantages.
Focus strategies are most effective when consumers have distinctive preferences or
requirements and when rival firms are not attempting to specialize in the same target
segment.
An organization using a focus strategy may concentrate on a particular group of
customers, geographic markets, or on particular product-line segments in order
to serve a well-defined but narrow market better than competitors who serve a
broader market.

For E.g., within the market for women’s shoes are many different segments such as
shoes for vegan women would be a niche market.

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 Focused cost leadership;


A focused cost leadership strategy requires competing based on price to target a
narrow market. A firm that follows this strategy does not necessarily charge the
lowest prices in the industry. Instead, it charges low prices relative to other firms
that compete within the target market.

 Focused differentiation;
A focused differentiation strategy requires offering unique features that fulfil the
demands of a narrow market. Some firms using a focused differentiation strategy
concentrate their efforts on a particular sales channel, such as selling over the
internet only. Firms that compete based on uniqueness and target a narrow
market are following a focused differentiations strategy.
For E.g., Rolls-Royce sells limited number of high-end, custom-built cars.

7.3.1 Achieving Focused Strategy;


To achieve focused cost leadership/differentiation, following are the measures that
could be adopted by an organization:
• Selecting specific niches (slot) which are not covered by cost leaders and
differentiators.
• Creating superior skills for catering to such niche markets.
• Generating high efficiencies for serving such niche markets.
• Developing innovative ways in managing the value chain.

7.3.2 Advantages of Focused Strategy;


• Premium prices can be charged by the organisations for their focused product/
services.
• Due to the tremendous expertise about the goods and services that organisations
following focus strategy offer, rivals and new entrants may find it difficult to
compete.

7.3.3 Disadvantages of Focused Strategy;


• The firms lacking in distinctive competencies may not be able to pursue focus strategy.
• Due to the limited demand of product/services, costs are high which can cause
problems.
• In long run, the niche (slot) could disappear or be taken over by larger competitors
by acquiring the same distinctive competencies.

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Concept 8: Best-Cost Provider Strategy

Introduction;
The new model of best cost provider strategy is a further development of three generic
strategies. It is directed towards giving customers more value for the money by emphasizing
both low cost and upscale differences.
The objective is to keep costs and prices lower than those of other sellers of comparable
products.

Best-cost provider strategy involves providing customers more value for the money by
emphasizing low cost and better-quality difference. It can be done through:
 Offering products at lower price than what is being offered by rivals for products with
comparable quality and features.
or
 Charging similar price as by the rivals for products with much higher quality and better
features.

For E.g., android flagship phones from OnePlus, Xiaomi, Oppo, Vivo, etc, are all
rooting for giving better quality at lowest prices to the customers. They are following
the best-cost provider strategy to penetrate market.

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STRATEGIES CHOICES
4
Concept 1: Typologies of Strategies:

Introduction;
Businesses follow different types of strategies; to enter the market and to stay and grow in
the market.

A large number of strategies with different nomenclatures (i.e., combination) have been
employed by different businesses and also suggested by different authors on strategy.

William F Glueck and Lawrence R Jauch discussed four generic strategies


1. Stability,
2. Expansion (Growth),
3. Retrenchment and
4. Combination.

These strategies have also been called Grand Strategies, Directional Strategies and Corporate
Strategies by many other authors.

Michael E. Porter suggested competitive strategies (which is also known as Porter’s Three
Generic strategies) including; Cost Leadership, Differentiation, Focus Cost Leadership and
Focus Differentiation which could be used by the corporates for their different business units.
(We’ll learn in chapter 5)

Besides these, we come across Functional Strategies are meant for strategic management
of distinct functions such as Marketing, Financial, Human Resource, Logistics, Production
etc. (We’ll learn in chapter 6)

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In fact, big corporates follow an elaborate system of strategy formulation, implementation


and control at different levels in the company to survive and grow in the turbulent business
environment.

For E.g., a start-ups or a new enterprise might follow either a competitive strategy i.e.,
entering the market where a number of rivals are already operating, or a collaborative
strategy, i.e., enter into a joint venture with an established company. However, majority
of start-ups are launched on a small scale and their main strategy is to penetrate the
market and to reach the breakeven stage at the earliest and later pursue growth strategy.

While a going concern can continue with the competitive strategy or resort to collaborative
strategy to ensure business growth.

Concept 2: Overview of Corporate Strategies;

Strategy Basic Feature

Stability The firm stays with its current businesses and product markets;
maintains the existing level of effort; and is satisfied with incremental
growth.

Expansion Here, the firm seeks (attempt) significant growth-maybe within the
current businesses; maybe by entering new business that are related to
existing businesses; or by entering new businesses that are unrelated
to existing businesses.

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Retrenchment The firm retrenches some of the activities in some business(es), or drops
the business as such through sell-out or liquidation.

Combination The firm combines the above (Stability, Growth and Retrenchment)
strategic alternatives in some permutation or combination so as to
suit the specific requirements of the firm.

Concept 3: Stability Strategy:


Introduction;
A firm opting for stability strategy stays with the same business, same product market posture
and functions, maintaining same level of effort as at present.
One of the important goals of a business enterprise is stability, strategy is to stabilise - it
may be opted to safeguard its existing interests and strengths, to pursue well established
and tested objectives, to continue in the chosen business path, to maintain operational
efficiency on a sustained basis, to consolidate the commanding position already reached,
and to optimise returns on the resources committed in the business.

Stability strategy applied when?


• This strategy is typical for those firms whose product has reached the maturity stage
of product life cycle.
• Those firms who have a sufficient market share but need to retain that.
• Small organizations may also follow stability strategy to consolidate their market
position and prepare for the launch of growth strategies.
• After rapid expansion, a firm might want to stabilize and consolidate itself.
Stability strategy should not be confused with ‘do nothing’ strategy (it mean “do-nothing
new strategy”). It involves keeping track of new developments to ensure that the strategy
continues to make sense.

3.1 Characteristics of Stability Strategy;


• A firm opting for stability strategy stays with the same business, same product-
market posture and functions, maintaining same level of effort as at present.
• The attempt is to enhance functional efficiencies in an incremental way, through
better deployment and utilization of resources.

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• Stability strategy does not involve a redefinition of the business of the corporation.
• It is basically a safety-oriented, status quo (i.e., to maintain same state of affairs)
oriented strategy.
• The risk is also less and It does not warrant much of fresh investments
• It involves minor improvements in the product and its packaging.
• The firms with modest (i.e., limited) growth objective choose stability strategy.
• While opting for stability strategy, the organization can concentrate on its
resources and existing businesses or products and markets, thus leading to
building of core competencies.

3.2 Major Reasons for Stability Strategy;


• A product has reached the maturity stage of the product life cycle.
• The environment faced is relatively stable.
• Where it is not advisable to expand as it may be perceived as threatening.
• The staff feels comfortable with the status quo as it involves less changes and
less risks.
• After rapid expansion, a firm might want to stabilize and consolidate itself.

Concept 4: Growth/ Expansion Strategy:

Introduction;
The firm attempt significant growth-maybe within the current businesses; maybe by entering
new business that are related to existing businesses; or by entering new businesses that
are unrelated to existing businesses.
Growth/ Expansion strategy is implemented by redefining the business by enlarging the scope
of business and substantially increasing investment in the business.
It is often characterised by significant reformulation of goals and directions, major
initiatives and moves involving investments, exploration and onslaught (i.e., attack)
into new products, new technology and new markets, innovative decisions and action
programmes and so on.
Expansion also includes diversifying, acquiring and merging businesses. This strategy may
take the enterprise along relatively unknown and risky paths, full of promises and pitfalls.

4.1 Characteristics of Growth/Expansion Strategy;


• Expansion strategy involves a redefinition of the business of the corporation.

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• Expansion strategy is the opposite of stability strategy. While in stability strategy,


rewards are limited, in expansion strategy they are very high. In the matter of
risks, too, the two are the opposites of each other.
• Expansion strategy leads to business growth. A firm with a huge growth ambition
can meet its objective only through the expansion strategy.
• The process of renewal of the firm through fresh investments and new businesses/
products/markets is facilitated only by expansion strategy.
• Expansion strategy is a highly versatile strategy; it offers several permutations
and combinations for growth. A firm opting for the expansion strategy can
generate many alternatives within the strategy by altering its propositions
regarding products, markets and functions and pick the one that suits it most.
• Expansion strategy holds within its fold two major strategy routes: Meaning
There are two routes for expansion strategy;
1. Intensification,
2. Diversification.

4.2 Major Reasons for Growth/Expansion:


• It may become essential when environment demands increase in pace of activity.
• Expansion may lead to greater control over the market vis-a-vis (w.r.t.) competitors.
• Advantages from the experience curve and scale of operations may accrue.
• Psychologically, Strategists may feel more satisfied with the prospects of growth
from expansion; Chief executives may take pride in presiding over organizations
perceived to be growth-oriented.

A. Internal Growth Strategies

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Concept 5: Expansion through Intensification;


Introduction;
Expansion or growth through intensification means that the organisation tries to grow
internally by intensifying its operations either by market penetration or by market development
or by product development are emphasised to develop new products, enter new markets
and embracing new technology.
In other words, an internal growth strategy involves re-defining of business definition by
substantially scaling the level of operations through internal development. Firm tries to
cash on its internal capabilities and internal resources. The firm can intensify by adopting any
of the following strategies
 Market Penetration: Highly common expansion strategy is market penetration/
concentration on the current business. The firm directs its resources to the profitable
growth of its existing product in the existing market.
 Market Development: It consists of marketing present products, to customers in related
market areas by adding different channels of distribution or by changing the content
of advertising or the promotional media.
 Product Development: Product development involves substantial modification of existing
products or creation of new but related items that can be marketed to current customers
through establish channels.

Concept 6: Expansion through Diversification;


Introduction;
Diversification is defined as entry into new products or product lines, new services or new
markets, involving substantially different skills, technology and knowledge. This is also an
internal growth strategy.
Innovative and creative firms always look for opportunities and challenges to grow, to venture into
new areas of activity and to break new frontiers with the zeal of entrepreneurship. Entrepreneur
feel that diversification offers greater prospects of growth and profitability than expansion.
For some firms, diversification is a means of utilising their existing facilities and capabilities in a
more effective and efficient manner. They may have excess capacity in manufacturing facilities,
investible funds, marketing channels, competitive standing, market prestige, managerial and
other manpower, research and development, raw material sources and so forth.
Another reason for diversification lies in its synergistic advantage. It may be possible to
improve the sales and profits of existing products by adding suitably related or new
products, because of linkages in technology and/or in markets.
Diversification can be related or unrelated to existing businesses of the firm. Based on the
nature and extent of their relationship to existing businesses, diversifications have been
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classified into four broad categories:


(i) Vertically integrated diversification,
a. Forward Integration, and
b. Backward Integration.
(ii) Horizontally integrated diversification,
(iii) Concentric diversification, and
(iv) Conglomerate diversification.

(i) Vertically Integrated Diversification:


In vertically integrated diversification, firms opt to engage in businesses that are related
to the existing business of the firm. The firm remains vertically within the same process
sequence moves forward or backward in the chain and enters specific product/process
steps with the intention of making them into new businesses for the firm.
The characteristic feature of vertically integrated diversification is that here, the firm
does not jump outside the vertically linked product-process chain.

Forward and Backward Integration:


Forward and backward integration forms part of vertically integrated diversification.
In vertically integrated diversification, firms opt to engage in businesses that are
vertically related to the existing business of the firm. The firm remains vertically
within the same process. While diversifying, firms opt to engage in businesses that
are linked forward or backward in the chain.

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 BACKWARD INTEGRATION;
• It is a step towards, creation of effective supply by entering business of input
providers.
• Strategy employed to expand profits and gain greater control over production
of a product.
• Whereby a company will purchase or build a business that will increase its own
supply capability or lessen its cost of production.
• For E.g., a large supermarket chain considers to purchase a number of
farms that would provide it a significant amount of fresh produce.

 FORWARD INTEGRATION:
• It is moving forward in the value chain and entering business lines that use
existing products.
• Forward integration will also take place where organizations enter into
businesses of distribution channels.
• For E.g., a coffee bean manufacture may choose to collaborate with a
coffee cafe.

(ii) Horizontal Integrated Diversification:


It is a type of integration strategies pursued by a company in order to strengthen its
position in the industry. A corporate that implements this type of strategy usually
collaborate with another company that is in the same production stage.
A firm gets horizontally diversified by integrating through the acquisition of one or
more similar business operating at the same stage of the production-marketing chain.
They can also integrate with the firms producing or manufacturing complementary
products, by-products or taking over competitors’ products.
In other words, Horizontal integration is the process of a company increasing
production of goods or services at the same part of the supply chain.

For E.g., offering ‘AKG’ earphone (complementary product) with Samsung premium device.

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(iii) Concentric Diversification:


Concentric diversification too amounts to related diversification. In concentric
diversification, the new business is linked to the existing businesses through process,
technology or marketing.
The new product is a spin-off from the existing facilities and products/processes.
This means that in concentric diversification too, there are benefits of synergy with the
current operations.
However, concentric diversification differs from vertically integrated diversification
in the nature of the linkage the new product has with the existing ones. While in
vertically integrated diversification, the new product falls within the firm’s current
process-product chain, in concentric diversification, there is a departure from this
vertical linkage. The new product is only connected in a loop-like manner at one or more
points in the firm’s existing process/technology/ product chain.
For E.g., One Plus, Nokia, Xiaomi, other cell phone manufacturing companies have
started manufacturing Smart TV, Android TV.

(iv) Conglomerate Diversification:


In conglomerate diversification, no linkages related to product, market or technology
exist; the new businesses/products are disjointed from the existing businesses/
products in every way; it is a totally unrelated diversification.
In process/technology/function, there is no connection between the new products and
the existing ones. Conglomerate diversification has no common thread at all with the
firm’s present position.
For E.g., a cement manufacturer diversifies into the manufacture of steel and rubber
products.

B. External Growth Strategies

Concept 7: Expansion through Mergers and Acquisitions;


Introduction;
Acquisition or merger with an existing concern is an instant means of
achieving the expansion.
Merger and acquisition in simple words are defined as a process of combining
two or more organizations together.
It is an attractive and tempting proposition in the sense that it circumvents (i.e., bypass
or avoid) the time, risks and skills involved in screening internal growth opportunities,

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seizing them and building up the necessary resource base required to materialise growth.
Organizations consider merger and acquisition proposals in a systematic manner, so that
the marriage will be mutually beneficial, a happy and lasting affair.
Apart from the urge (i.e., wish) to grow, acquisitions and mergers are resorted (i.e., opted) to
for purposes of achieving a measure of synergy between the parent and the acquired enterprises.
Synergy may result from such bases as physical facilities, technical and managerial skills,
distribution channels, general administration, research and development and so on. Only
positive synergistic effects are relevant in this connection which denotes that the positive
effects of the merged resources are greater than the effects of the individual resources
before merger or acquisition.
There is a thin line of difference between these terms but the impact of combination is
completely different in all the cases. Some organizations prefer to grow through;
• Mergers,
• Acquisition, or
• Takeover.

Merger is considered to be a process when two or more


companies come together to expand their business operations.

In such a case the deal gets finalized on friendly terms and both
the organizations share profits in the newly created entity.
For Instance, Formation of Brook Bond Lipton India Ltd. through
the merger of Brook Bond and Lipton India.

Acquisition, when one organization takes over the other organization


and controls all its business operations, it is known as acquisitions.

In this process of acquisition, one financially strong organization


overpowers the weaker one.

For Instance, WalMart acquired Flipkart of India.

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Takeover, A deal in case of an acquisition is often done in an


unfriendly manner, it is more or less a forced association where the
powerful organization either consumes the operation or a company
in a weaker position is forced to sell its entity.
For Instance, in 2000, Tata Tea took over Tetley Tea.

7.1 Types of Mergers;


1. Horizontal Merger;
Horizontal merger is a combination of firms engaged in the same industry. It is a
merger with a direct competitor.
The principal objective behind this type of merger is to achieve economies of scale in
the production process by shedding (i.e., removing) duplication of installations
and functions, widening the line of products, decrease in working capital and
fixed assets investment, getting rid of competition and so on.
For Instance, formation of Brook Bond Lipton India Ltd. through the merger of
Brook Bond and Lipton India.

2. Vertical Merger:
It is a merger of two organizations that are operating in the same industry but
at different stages of production or distribution system. This often leads to increased
synergies with the merging firms.
If an organization takes over its supplier/producers of raw material, then it
leads to backward integration.
On the other hand, forward integration happens when an organization decides
to take over its buyer organizations or distribution channels.
Vertical merger results in many operating and financial economies. Vertical
mergers help to create an advantageous position by restricting the supply of
inputs to other players, or by providing the inputs at a higher cost.
For Instance, Disney acquired Pixar for approximately $7.4 billion in 2006.

3. Co-generic Merger:
In Co-generic merger two or more merging organizations are associated in some
way or the other related to the production processes, business markets, or basic
required technologies.
Such merger includes the extension of the product line or acquiring components
that are required in the daily operations.

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It offers great opportunities to businesses to diversify around a common set of


resources and strategic requirements.
For Instance, an organization in the white goods category such as refrigerators
can diversify by merging with another organization having business in kitchen
appliances.

4. Conglomerate Merger:
A conglomerate merger is the combination of firm’s operating in different
industries". Conglomerate mergers can serve various purposes, including
extending corporate portfolio and extending a product range.
Conglomerate mergers are the combination of organizations that are unrelated
to each other. There are no linkages with respect to customer groups, customer
functions and technologies being used.
There are no important common factors between the organizations in production,
marketing, research and development and technology. In practice, however,
there is some degree of overlap in one or more of these factors.
For Instance, Reliance Brands a subsidiary of RIL acquires Hamleys Toys of UK
for `620 crore.

Concept 8: Expansion through Strategic Alliance;


Introduction;
A strategic alliance is a relationship between two or more businesses
that enables each to achieve certain strategic objectives which
neither would be able to achieve on its own.
The strategic partners maintain their status as independent and separate entities, share the
benefits and control over the partnership, and continue to make contributions to the alliance
until it is terminated.
Strategic alliances are often formed in the global marketplace between businesses that are
based in different regions of the world.

8.1 Advantages of Strategic Alliance;


Strategic alliances usually are only formed if they provide an advantage to all the
parties in the alliance. These advantages can be broadly categorised as follows:
1. Organizational:
Strategic alliance helps to learn necessary skills and obtain certain capabilities from
strategic partners.

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Strategic partners may also help to enhance productive capacity, provide a


distribution system, or extend supply chain.
Strategic partners may provide a goods or service that complements thereby
creating a synergy.
Having a strategic partner who is well-known and respected also helps add
legitimacy (i.e., sincerity) and creditability (i.e., trustworthiness) to a new venture.

2. Economic:
There can be reduction in costs and risks by distributing them across the members
of the alliance.
Greater economies of scale can be obtained in an alliance, as production volume
can increase, causing the cost per unit to decline.
Partners can take advantage of co-specialization, creating additional value, such
as when a leading computer manufacturer bundles its desktop with a leading
monitor manufacturer’s monitor.

3. Strategic:
Rivals can join together to cooperate instead of compete. Vertical integration can
be created where partners are part of supply chain.
Strategic alliances may also be useful to create a competitive advantage by the
pooling of resources and skills.
This may also help with future business opportunities and the development of
new products and technologies.

4. Political:
Sometimes strategic alliances are formed with a local foreign business to gain
entry into a foreign market either because of legal barriers to entry.
Forming strategic alliances with politically-influential partners may also help
improve your own influence and position.

8.2 Disadvantages of Strategic Alliance;


Strategic alliances do come with some disadvantages and risks;
• The major disadvantage is sharing.
 sharing of resources and profits,
 sharing of knowledge and skills.

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• Strategic alliances may also create a potential competitor.


1. The major disadvantage is sharing.
Strategic alliances require sharing of resources & profits and also sharing
knowledge & skills that otherwise organisations may not like to share.
Sharing knowledge and skills can be problematic if they involve trade secrets.
Agreements can be executed to protect trade secrets, but they are only as
good as the willingness of parties to abide by the agreements or the courts
willingness to enforce them.
2. Strategic alliances may also create a potential competitor.
An ally (i.e., group) may become a competitor in future when it decides to
separate out.

Concept 9: Retrenchment Strategy:

Introduction;
It is followed when an organization substantially reduces the scope of its activity. In other
words, the strategy followed, when a firm decides to eliminate its activities through a
considerable reduction in its business operations.
This is done through an attempt to find out the problem areas and diagnose the causes of the
problems. Next, steps are taken to solve the problems. These steps result in different kinds
of retrenchment strategies.

Retrenchment Strategy can be;


Turnaround Strategy; If the organization chooses to focus on ways and means to reverse the
process of decline, it adopts at turnaround strategy.
For E.g., Idea Cellular decided to merged with Vodafone in order to stay in the market.

Divestment Strategy; If it cuts off the loss - making units, divisions, or SBUs, curtails its product
line, or reduces the functions performed, it adopts a divestment (or divestiture) strategy.
For E.g., In 2013, BSNL decided to discontinue the Telegram Service.

Liquidation Strategy; If none of these actions work (i.e., turnaround or divestment), then it
may choose to abandon the activities totally, resulting in a liquidation strategy.
For E.g., Subhiksha was an Indian retail chain with 1600 outlets selling groceries, fruits,
vegetables, medicines and mobile phones. It began operations in 1997, and was closed
down in 2009 owing to financial mismanagement and a severe cash crunch.

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9.1 Characteristics of Retrenchment Strategy:


• The management no longer wishes to remain in business either partly or wholly due
to continuous losses and unviability.
• The management feels that business could be made viable by divesting some of the
activities or liquidation of unprofitable activities.
• A business that had been acquired proves to be a mismatch and cannot be integrated
within the company.
• Persistent (i.e., constant) negative cash flows from a particular business create
financial problems for the whole company, creating the need for divestment of
that business.
• Severity (i.e., intensity) of competition and the inability of a firm to cope with it may
cause it to divest.
• Technological upgradation is required if the business is to survive but where it is
not possible for the firm to invest in it, a preferable option would be to divest.
• A better alternative may be available for investment, causing a firm to divest a
part of its unprofitable businesses.

Concept 10: Turnaround Strategy;

Introduction;
If the organization chooses to focus on ways and means to reverse the process of decline, it
adopts at turnaround strategy.
Retrenchment may be done either internally or externally. For internal retrenchment to
take place, emphasis is laid on improving internal efficiency, known as turnaround strategy.
There are certain conditions or indicators which point out that a turnaround is needed if
the company has to survive.
These danger signals are:
• Persistent (i.e., constant) negative cash flow from business(es),
• Uncompetitive products or services,
• Declining market share,
• Deterioration in physical facilities,
• Over-staffing, high turnover of employees, and low morale,
• Mismanagement, etc.

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10.1 Action Plan for Turnaround;


For turnaround strategies to be successful, it is important to focus on the short and
long-term financing needs as well as on strategic issues. A workable action plan for
turnaround would involve the following stages.

1. Assessment of current problems:


 The first step is to assess the current problems and get to the root causes
and the extent of damage the problem has caused.
 Once the problems are identified, the resources should be focused toward
those areas essential to efficiently work on correcting and repairing any
immediate issues.

2. Analyze the situation and develop a strategic plan:


 Before you make any major changes; determine the chances of the business’s
survival. Identify appropriate strategies and develop a preliminary action
plan. For this one should look for the viable core businesses, adequate
bridge financing and available organizational resources.
 Analyze the strengths and weaknesses in the areas of competitive position.
Once major problems (i.e., threats) and opportunities are identified, develop
a strategic plan with specific goals and detailed functional actions.

3. Implementing an emergency action plan:


 If the organization is in a critical stage, an appropriate action plan must be
developed to stop the bleeding and enable the organization to survive.
 The plan typically includes human resource, financial, marketing and
operations actions to restructure debts, improve working capital, reduce
costs, improve budgeting practices, prune (i.e., to cut) product lines and
accelerate high potential products.
 A positive operating cash flow must be established as quickly as possible and
enough funds to implement the turnaround strategies must be raised.

4. Restructuring the business:


 The financial state (i.e., condition) of the organization’s core business is
particularly important. If the core business is irreparably damaged, then
the outlook for the entire organization may be bleak (i.e., unprotected).

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 Prepare cash forecasts, analyze assets and debts, review profits and
analyze other key financial functions to position the organization for rapid
improvement.
 During the turnaround, the ‘product mix’ may be changed, requiring the
organization to do some repositioning. Core products neglected over time
may require immediate attention to remain competitive.
 Some facilities might be closed; the organization may even withdraw from
certain markets to make organization leaner or target its products toward
a different niche.
 The ‘people mix’ or morale building is another important ingredient in the
organization’s competitive effectiveness. Reward and compensation
systems that encourage dedication and creativity encourage employees to
think profits and return on investments.

5. Returning to normal:
 In the final stage of turnaround strategy process, the organization should
begin to show signs of profitability, return on investments and enhancing
economic value-added.
 Emphasis is placed on a number of strategic efforts such as carefully adding
new products and improving customer service, creating alliances with
other organizations, increasing the market share, etc.

10.2 The important elements of turnaround strategy are as follows:


• Identifying quick payoff activities,
• Revenue generation,
• Quick cost reductions,
• Neutralising external pressures,
• Asset liquidation for generating cash,
• Better internal coordination,
• Initial credibility-building actions,
• Changes in the top management.

10.3 Major Reasons for Turnaround Strategy; (MTP May 2020)


 Turnaround is needed when an enterprise's performance decline to a point that it
needs a radical change of direction in strategy, and possibly in structure and
culture as well.

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 It requires a highly targeted effort to return an organization to profitability and


increase positive cash flows to a sufficient level.
 It is used when both threats and weaknesses adversely affect the health of an
organization so much that its basic survival is difficult.
 The overall goal of turnaround strategy is to return an underperforming or
distressed company to normalcy in terms of acceptable levels of profitability,
solvency, liquidity and cash flow.
 To achieve its objectives, turnaround strategy must reverse causes of distress, resolve
the financial crisis, achieve a rapid improvement in financial performance, regain
stakeholder support, and overcome internal constraints and unfavourable industry
characteristics.

Concept 11: Divestment Strategy;

Introduction;
Divestment strategy involves the sale or liquidation of a portion of business, or a major
division, profit centre or SBU. It cuts off the loss-making units, divisions, or SBUs, curtails
its product line, or reduces the functions performed, it adopts a divestment (or divestiture)
strategy.
Divestment is usually a part of rehabilitation or restructuring plan and is adopted when
a turnaround has been attempted but has proved to be unsuccessful. The option of a
turnaround may even be ignored if it is obvious that divestment is the only answer.

11.1 A divestment strategy may be adopted due to various reasons:


• A business that had been acquired proves to be a mismatch and cannot be
integrated within the company.
• Persistent (i.e., constant) negative cash flows from a particular business create
financial problems for the whole company, creating the need for divestment of
that business.
• Severity (i.e., intensity) of competition and the inability of a firm to cope with it
may cause it to divest.
• It is not possible for the business to do Technological upgradation that is
required for the business to survive, a preferable option would be to divest.
• A better alternative may be available for investment, causing a firm to divest a
part of its unprofitable business.

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11.2 Characteristics of Divestment Strategy;


• This strategy involves divestment of some of the activities in a given business of
the firm or sell-out of some of the businesses as such.
• Divestment is to be viewed as an integral part of corporate strategy without
any stigma attached.
• Like expansion strategy, divestment strategy, too, involves a redefinition of the
business of the corporation.
• Compulsions for divestment can be many and varied, such as;
a) Obsolescence of product/process
b) Business becoming unprofitable and unviable
c) Inability to cope up with cut throat competition
d) Industry overcapacity
e) Failure of existing strategy.

Concept 12: Liquidation Strategy;


Introduction;
A retrenchment strategy considered the most extreme and unattractive is liquidation strategy,
which involves closing down a firm and selling its assets.
If none of these actions work i.e., turnaround or divestment, then it may choose to
abandon the activities totally, resulting in a liquidation strategy.
It is considered as the last resort because it leads to serious consequences such as loss of
employment for workers and other employees, termination of opportunities, etc...
Many small-scale units, proprietorship firms, and partnership ventures liquidate frequently
but medium-and large-sized companies rarely liquidate in India. The company management,
government, banks and financial institutions, trade unions, suppliers and creditors, and
other agencies are extremely reluctant to take a decision, or ask, for liquidation.
Selling assets for implementing a liquidation strategy may also be difficult as buyers are
difficult to find. Moreover, the firm cannot expect adequate compensation as most assets,
being unusable, are considered as scrap.
Liquidation strategy may be unpleasant as a strategic alternative but when a “dead
business is worth more than alive”, it is a good proposition.
For instance, the real estate owned by a firm may fetch it more money than the actual
returns of doing business.
When liquidation is evident an abandonment plan is desirable. Planned liquidation would
involve a systematic plan to reap (i.e., to obtain or realize) the maximum benefits for the
firm and its shareholders through the process of liquidation.

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12.1 Major Reasons for Liquidation Strategy;


• The management no longer wishes to remain in business wholly due to continuous
losses and unviability.
• The management feels that business could be made viable by liquidation of
unprofitable activities.
• A business that had been acquired proves to be a mismatch and cannot be
integrated within the company.
• Intensity of competition and the inability of a firm to cope with it may cause it to
liquidate.
• A better alternative may be available for investment.
• Technological up-gradation is required if the business is to survive but where it is not
possible for the firm to invest in it, a preferable option would be to liquidate.
• Constant negative cash flow from business(es),

Concept 13: Igor Ansoff’s Product Market Growth Matrix:

Introduction;
The Ansoff’s product market growth matrix (proposed by Igor Ansoff) is a useful tool that
helps businesses decide their product and market growth strategy. With the use of this
matrix a business can get a fair idea about how its growth depends upon it markets (i.e.,
offers) in new or existing products in both new and existing markets.
Companies should always be looking to the future. One useful device for identifying growth
opportunities for the future is the product/market expansion grid. The product/market
growth matrix is a portfolio-planning tool for identifying growth opportunities for the company.

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Market Penetration:
 Market penetration refers to a growth strategy where the business focuses on
selling existing products into existing markets.
 It is achieved by making more sales to present customers without changing
products in any major way.
 Penetration might require greater spending on advertising or personal selling.
 Risk involved in this strategy is less as compared to other strategies.
 For E.g. A leading producer of tooth paste, advises its customers to brush teeth
twice a day to keep breath fresh.

Market Development:
 Market development refers to a growth strategy where the business seeks (i.e.,
attempts) to sell its existing products into new markets.
 It is a strategy for company growth by identifying and developing new markets for
current company products.
 This strategy may be achieved through new geographical markets, new product
dimensions or packaging, new distribution channels or different pricing policies
to attract different customers or create new market segments.
 Risk involved in this strategy is moderate as compared to other strategies.
 For E.g. One of India’s premier utility vehicles manufacturing company ventures
to foray (i.e., attempt to enter) into foreign markets.

Product Development:
 Product development refers to a growth strategy where business aims to introduce
new products into existing markets.
 It is a strategy for company growth by offering modified or new products to current
markets.
 This strategy may require the development of new competencies and requires the
business to develop modified products which can appeal to existing markets.
 Risk involved in this strategy is moderate as compared to other strategies.
 For E.g. A renowned geared scooters manufacturing company launches ungeared
scooters in the market.

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Diversification:
 Diversification refers to a growth strategy where a business markets new product
in new markets.
 It is a strategy by starting up or acquiring businesses outside the company’s
current products and markets.
 Typically, the business is moving into markets in which it has little or no experience.
 Risk involved in this strategy is high as compared to other strategies.
 For E.g. A business giant in hotel industry decides to enter into dairy business.

Concept 14: ADL Matrix:

Introduction;
The ADL matrix (derived its name from Arthur D. Little) is a portfolio analysis technique
that is based on product life cycle.

The approach forms a two-dimensional matrix;


• Where on ‘X’ Axis it represents life cycle of the industry. (Environmental assessment)
Stage of industry maturity is an environmental measure that represents a position in
industry’s life cycle.
• Where on ‘Y’ Axis it represents competitive position of the firm. (Business strength
assessment)
Competitive position is a measure of business strengths that helps in categorization of
products or SBU’s into one of five competitive positions.

The competitive position of a firm is based on an assessment of the following criteria:

1. Dominant:
This is a comparatively rare position and in many cases is attributable either to
a monopoly or a strong and protected technological leadership.

2. Strong:
By virtue of this position, the firm has a considerable degree of freedom over its
choice of strategies and is often able to act without its market position being
unduly threatened by its competitions.

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3. Favourable:
This position, which generally comes about when the industry is fragmented
(break into pieces) and no one competitor stand out clearly, results in the market
leaders a reasonable degree of freedom.

4. Tenable:
Although the firms within this category are able to perform satisfactorily and can
justify staying in the industry, they are generally helpless (vulnerable) in the
face of increased competition from stronger and more proactive companies in
the market.

5. Weak:
The performance of firms in this category is generally unsatisfactory although the
opportunities for improvement do exist.

 Limitations of ADL Matrix;


• There is no standard life cycle length.
• Determining the current industry life cycle phase is difficult.
• Competitors may influence the length of the life cycle.

It is four by five matrix as follows;

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Concept 15: BCG Growth-Share Matrix:

Introduction;
The BCG Growth-Share Matrix is a portfolio planning model developed by Bruce Henderson
of the Boston Consulting Group in the early 1970's.
Using the BCG approach, a company classifies its different businesses on a two-dimensional
growth - share matrix;

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• The Vertical Axis (‘y’ Axis) represents market growth rate and provides a measure of
market attractiveness.
• The Horizontal Axis (‘x’ Axis) represents relative market share and serves as a measure
of company strength in the market.


Growth share matrix also known for its cow and dog metaphors is popularly used for resource
allocation in a diversified company.

Using the matrix, organisations can identify four different types of products or SBU as follows:
Stars; (high growth, high market share businesses or products)
• They are products or SBUs that are growing rapidly.
• They also need heavy investment to maintain their position and need finance their
rapid growth potential.
• They represent best opportunities for expansion.

Cash Cows; (low growth, high market share businesses or products)


• Cash Cows are products which give high returns at low investment. Excess revenue
generated by such products, will be milked (i.e., invested) into another product or business.
• They generate cash and have low costs.
• They are established, successful, and need less investment to maintain their market
share.
• In long run when the growth rate slows down, stars become cash cows.

Question Marks; (high growth potential, low market share businesses or products)
• Question marks are products which may give high returns but at the same time
may also flop and may have to be taken out of the market. This uncertainty gives the
quadrant the name “Question Mark”.

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• Sometimes called problem children or wildcats.


• They require a lot of cash to hold their share. They need heavy investments with low
potential to generate cash.
• Question marks if left unattended are capable of becoming cash traps.
• Since growth rate is high, increasing it should be relatively easier.
• It is for business organisations to turn them stars and then to cash cows when the
growth rate reduces.

Dogs; (low growth, low market share businesses or products)


• They may generate enough cash to maintain themselves, but do not have much future.
• Sometimes they may need cash to survive. Dogs should be minimised by means of
divestment or liquidation.

15.1 After a firm, has classified its products or SBUs, it must determine what role each
will play in the future. The four strategies that can be pursued are:
1. Build: (Suitable for turning a "question mark" into a star)
Here the objective is to increase market share, even by forgoing short-term
earnings in favour of building a strong future with large market share.
2. Hold: (Suitable for Star)
Here the objective is to preserve market share. In other words, here the company
invests just enough to keep the SBU in its present position.
3. Harvest: (Suitable for Cash Cow)
Here the objective is to increase short-term cash flow regardless of long-term
effect.
4. Divest: (Suitable for Dog’s)
Here the objective is to sell or liquidate the business because resources can be
better used elsewhere.

15.2 Limitations of BCG Matrix;


The growth-share matrix has done much to help strategic planning; however, there
are some problems and limitations with the technique.
• BCG matrix can be difficult, time-consuming, and costly to implement.
• Management may find it difficult to define SBUs and measure market share and
growth.
• BCG matrix focuses on classifying current businesses but provide little advice
for future planning.

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• BCG matrix led the company to placing too much emphasis on market-share
growth or growth through entry into attractive new markets. This can cause
unwise (i.e., faulty) expansion into hot, new, risky ventures or divesting established
units too quickly.

Concept 16: General Electric Matrix [“Stop – Light” Strategy Model];

Introduction;
This model has been used by General Electric Company (developed by GE with the assistance
of the consulting firm McKinsey & Company). This model is also known as Business Planning
Matrix. GE Nine-Cell Matrix and GE Model.
The strategic planning approach in this model has been inspired from traffic control lights.

The lights that are used at crossings to manage traffic are:


Green Go
Yellow Caution
Red Stop

This model is similar to the BCG growth-share matrix. However, there are differences.
Firstly, market attractiveness replaces market growth as the dimension of industry
attractiveness, and includes a broader range of factors other than just the market growth
rate. Secondly, competitive strength replaces market share as the dimension by which the
competitive position of each SBU is assessed.

This model uses two factors while taking strategic decisions:


Axis’s Factors
‘x’ axis Business Strength
‘y’ axis Market Attractiveness

The Market attractiveness is measured by a number of factors like:


 Size of the market,  Competitive intensity,
 Market growth rate,  Availability of Technology,
 Industry profitability,  Pricing trends,
 Overall risk of returns in the industry,  Distribution structure,
Etc...

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The Business strength is measured by a number of factors like:


 Market share,  Distribution efficiency,
 Market share growth rate,  Brand image,
 Profit margin,  Customer loyalty,
 Production capacity,  Technological capability,
Etc...

Strategy to be opt;
 If a product falls in the green section, the business is at advantageous position. To
reap (i.e., acquire) the benefits, the strategic decision can be to expand, to invest and
grow.
 If a product is in the amber or yellow zone, it needs caution and managerial discretion
(i.e., preference) is called (meaning required) for making the strategic choices.
In other words, Firm will look forward to protect existing business or product. Here,
no fresh investment is willing to have, rather firm is willing to have the security of
the given investment. So that does not result in losses.
 If a product is in the red zone, it will eventually lead to losses that would make
things difficult for organisations. In such cases, the appropriate strategy should be
retrenchment, divestment or liquidation.

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STRATEGY IMPLEMENTATION
& EVALUATION
5
Concept 1: Strategic Management Model:

Introduction;
Identifying an organization’s vision, mission, goals and objectives, is the starting point for
strategic management process.
The strategic management process is dynamic and continuous. A change in any one of the
major components in the model can necessitate a change in any or all of the other components.
Therefore, strategy formulation, implementation, and evaluation activities should be
performed on a continual basis, not just at the end of the year or semi-annually. The
strategic management process never really ends.
The strategic management process can best be studied and applied using a model. Every
model represents some kind of process. Strategic Management Model (Fred R David) is a
widely accepted, comprehensive.
This model like any other model of management does not guarantee sure-shot success, but it does
represent a clear and practical approach for formulating, implementing, and evaluating
strategies. Relationships among major components of the strategic management process
are shown in the model.

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Strategists do not go through the process in lockstep fashion. Generally, there is give-and-take
among hierarchical levels of an organization.
Many organizations conduct formal meetings semi-annually to discuss and update the
firm’s vision & mission, opportunities & threats, strengths & weaknesses, strategies, objectives,
policies, and performance.
Creativity (i.e., response) from participants is encouraged in meeting. Good communication
and feedback are needed throughout the strategic management process.

1.1 Stages in Strategic Management;


Crafting and executing strategy are the heart and soul of managing a business enterprise.
1. Developing a strategic vision and formulation of statement of mission, goals and
objectives,
First a company must determine what directional path the company should take
and what changes in the company’s product – market – customer – technology
– focus would improve its current market position and its future prospect.

2. Environmental and organizational analysis,


This stage is the diagnostic phase of strategic analysis. It entails two types of
analysis:
i. Environmental scanning;
External environment of a firm consists of economic, social, technological,
market and other forces which affect its functioning. The firm’s external
environment is dynamic and uncertain.

ii. Organisational analysis;


Organisational analysis involved a review of financial resources,
technological resources, productive capacity, marketing and distribution
effectiveness, research and development, human resource skills and so on.

3. Formulation of strategy,
The strategic alternatives may be designated as stability strategy, growth/
expansion strategy and retrenchment strategy. A company may also follow a
combination these alternatives called combination strategy.

Note: The above all are corporate level strategies will be covered in chapter no. 4.

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4. Implementation of strategy,
Implementation and execution are an operations-oriented, activity aimed at
shaping the performance of core business activities in a strategy-supportive
manner. It is the most demanding and time-consuming part of the strategy-
management process.

5. Strategic evaluation and control.


The final stage of strategic management process – evaluating the company’s
progress, assessing the impact of new external developments, and making
corrective adjustments – is the trigger point for deciding whether to continue or
change the company’s vision, objectives, strategy, and/or strategy-execution
methods.

1.2 Principal aspects of strategy-execution process;


Introduction;
Good strategy execution involves creating strong “fits” between strategy and
organizational capabilities, between strategy and the reward structure, between strategy
and internal operating systems, and between strategy and the organization’s work climate
and culture.
In most situations, strategy–execution process includes the following principal aspects;
 Developing budgets that steer (i.e., direct) ample (i.e., adequate) resources into
those activities critical (i.e., important) to strategic success.
 Staffing the organization with the needed skills and expertise, carefully building
and strengthening strategy-supportive competencies and competitive
capabilities, and organizing the work effort.
 Ensuring that policies and operating procedures facilitate rather than restrain or
slowdown effective execution.
 Using the best-known practices to perform core business activities and pushing
for continuous improvement.
 Installing information and operating systems that enable company personnel to
better carry out their strategic roles day in and day out.
 Motivating people to pursue the target objectives energetically.
 Creating a company culture and work climate helpful to successful strategy
implementation and execution.
 Exerting (i.e., look for) the internal leadership needed to drive implementation
forward and keep improving strategy execution.

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 When the organization encounters barrier or weaknesses, management has to


see that they are addressed and rectified quickly.

Concept 2: Strategy Formulation and Implementation:

2.1 Corporate Strategy


Planning entails choosing what has to be done in the future (today, next week, next month,
next year, over the next couple of years, etc.) and creating action plans. An essential
element of effective management is adequate planning. Choosing a path of action to
achieve defined goals is a part of planning.
The game plan that really directs the company towards success is called “corporate strategy”.
Planning may be operational or strategic. Senior management develops strategic plans for
the entire organisation after evaluating the organization's strengths and weaknesses in
light of potential possibilities and dangers in the outside world. They involve gathering and
allocating resources in order to achieve organisational goals. But operational plans on the
other hand are made at the middle and lower-level management. They provide specifics
on how the resources are to be used effectively to achieve the goals.

Corporate Strategy

Strategic Planning: Operational planning

Characteristics of Strategic planning Characteristics of Operational planning


Shapes the organisation and its Deals with current deployment of
resources. resources.
Assesses the impact of Develops tactics rather than
environmental variables. strategy.
Takes a holistic view of the Projects current operations into the
organisation. future.
Develops overall objectives and Makes modifications to the business
strategies. functions but fundamental changes.
Is concerned with the long-term Is the responsibility functional
success of the organisation. managers.
Is a senior management
responsibility.

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Strategic Planning: The game plan that really directs the company towards success is
called “corporate strategy”. The success of the company depends on how well this game
plan works. Because of this, the core of the process of strategic planning is the formation
of corporate strategy. The formation of corporate strategy is the result of a process known
as strategic planning.

 Strategic planning is the process of determining the objectives of the firm, resources
required to attain these objectives and formulation of policies to govern the
acquisition, use and disposition of resources.
 Strategic planning involves a fact of interactive and overlapping decisions leading to
the development of an effective strategy for the firm.
 Strategic planning determines where an organisation is going over the next year or
more and the ways for going there.
 The process is organisation-wide or focused on a major function such as a division
or other major function.

Strategic uncertainty and how to deal with it?


Strategic uncertainty refers to the unpredictability and unpredictability of future events
and circumstances that can impact an organization's strategy and goals. It can be driven
by factors such as changes in the market, technology, competition, regulation, and other
external factors. Dealing with strategic uncertainty can be challenging and organizations
need to have the flexibility, resilience, and agility to quickly respond to changes in the
environment and minimize its impact. To be manageable, they need to be grouped into
logical clusters or themes. It is then useful to assess the importance of each cluster in
order to set priorities with respect to Information gathering and analysis.

 Flexibility: Organizations can build flexibility into their strategies to quickly adapt to
changes in the environment.
 Diversification: Diversifying the organization's product portfolio, markets, and
customer base can reduce the impact of strategic uncertainty.
 Monitoring and Scenario Planning: Organizations can regularly monitor key indicators of
change and conduct scenario planning to understand how different future scenarios
might impact their strategies.
 Building Resilience: Organizations can invest in building internal resilience, such as
strengthening their operational processes, increasing their financial flexibility, and
improving their risk management capabilities.

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 Collaboration and Partnerships: Collaborating with other organizations, suppliers,


customers, and partners can help organizations pool resources, share risk, and gain
access to new markets and technologies.

Impact of uncertainty: Each element of strategic uncertainty involves potential trends or


events that could have an impact on present, proposed, and even potential businesses.,
a trend toward natural foods may present opportunities for juices for a firm producing
aerated drinks on the basis of a strategic uncertainty. The impact of a strategic uncertainty
will depend on the importance of the impacted SBU to a firm. Some SBUs are more
important than others. The importance of established SBUs may be indicated by their
associated sales, profits, or costs. However, such measures might need to be supplemented
for potential growth as present sales, profits, or costs may not reflect the true value.

2.2 Strategic Planning:


Planning means deciding what needs to done in the future (today, next week, next month,
next year, over the next couple of years, etc...) and generating blueprints for action. Good
planning is an important constituent of good management. Planning involves determination
of the course of action to attain the predetermined objectives. It bridges the gap between
where we are to where we want to go. Thus, planning is future oriented in nature.

2.2.1 Types of Planning’s;


1. Strategic Planning,
2. Operational Planning.

1. Strategic Planning;
Strategic plans are made by the senior management for the entire organization
after taking into account the organization’s strength and weaknesses in the
light of opportunities and threats in the external environment.
Strategic planning is the game plan that actually steers (i.e., drive) the firm
towards success. The degree of aptness (i.e., correctness) of this game plan
decides the extent of the firm’s success. That is why formulation of corporate
strategy forms the crux of the strategic planning process.
Strategic planning determines where an organization is going over the next
year or more and the ways for going there.
It is the process of determining the objectives of the firm, resources required to
attain these objectives and formulation of policies to govern the acquisition, use

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of resources. In other words, they involve acquisition and allocation of resources


for the attainment of organisational objectives.

2. Operational Planning;
Operational plans on the other hand are made at the middle and lower-level
management. They specify details on how the resources are to be utilized
efficiently for the attainment of objectives.
Conversion of virtual goals in to actual are the prime responsibility of the
operational level managers.
Operational level managers should be efficient enough to understand the
overall vision of the organisation and work accordingly to fulfil it within the
allocated time.

2.2.2 A major functions (task) of planning’s;


1. Dealing with uncertainty;
• Through scenario analysis.

2. Impact of uncertainty;
• Positive → represent opportunity,
• Negative → represent threat.

1. Dealing with uncertainty;


Uncertainty in business is been developed because of continuous changes in the
business environment. These changes force business organisation to change their
strategies and to create a fit between newly happened change and its new plan
to achieve the same objective.
As discussed above these changes in the business environment develops
uncertainty and connected risk associated with it.
Strategic uncertainty, which has far reaching implications, is a key construct in strategy
formulation.
A typical external analysis will emerge with dozens of strategic uncertainties.
To be manageable, they need to be grouped into logical clusters or themes. It is then
useful to assess the importance of each cluster in order to set priorities with
respect to Information gathering and analysis.
Sometimes, Strategic uncertainty is represented by a future trend or event that has
inherent unpredictability. Information gathering and additional analysis will not

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be able to reduce the uncertainty.


In that case, scenario analysis can be employed. Scenario analysis basically
accepts the uncertainty as given and uses it to drive a description of two or
more future scenarios. Strategies are then developed for each. One outcome could
be a decision to create organisational and strategic flexibility so that as the
business context changes the strategy will adapt.

2. Impact with uncertainty;


Each element of strategic uncertainty involves potential trends or events that
could have an impact on present, proposed, and even potential businesses.
For E.g., a trend toward Aayurvedic Products may present opportunities for a firm
producing or manufacturing herbal product on the basis of a strategic uncertainty.
Similarly, a trend toward natural foods may present opportunities for a firm
producing or manufacturing juices on the basis of a strategic uncertainty.
The impact of a strategic uncertainty will depend on the importance of the impacted
SBU to a firm. Some SBUs are more important than others. The importance of
established SBUs may be indicated by their associated sales, profits, or costs.
However, such measures might need to be supplemented for potential growth as
present sales, profits, or costs may not reflect the true value.

2.2.3 Characteristics of corporate planning


1. Characteristics of Strategic planning;
• Shapes the organisation and its resources.
• Assesses the impact of environmental variables.
• Takes a holistic view of the organisation.
• Develops overall objectives and strategies.
• Is concerned with the long-term success of the organisation.
• Is a senior management responsibility.

2. Characteristics of Operational planning;


• Deals with current deployment (i.e., utilisation) of resources.
• Develops tactics rather than strategy.
• Projects current operations into the future.
• Makes modifications to the business functions but not fundamental changes.
• Operational planning is the responsibility of functional managers.

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2.3 Strategy Implementation:


Introduction;
Strategy implementation concerns the managerial exercise of putting a freshly chosen
(i.e., selected) strategy into action.
Strategy implementation deals with the managerial exercise of supervising the ongoing
pursuit of strategy, making it work, improving the competence with which it is
executed and showing measurable progress in achieving the targeted results.
Strategic implementation is concerned with translating a strategic decision into action.
The allocation of resources to new courses of action will need to be undertaken, and
there may be a need for adapting the organization’s structure to handle new activities as
well as training personnel and devising appropriate systems.

2.3.1 Relationship with strategy formulation;


Introduction;
Many managers fail to distinguish between strategy formulation and strategy
implementation. Yet, it is crucial to realize the difference between the two because
they both require very different skills. Also, a company will be successful only when
the Strategy formulation is sound and implementation is excellent. There is no such
thing as successful strategic design.
Often people, blame the strategy model for the failure of a company while the main
flaw might lie in failed implementation.
Thus, Organization success is a function of good strategy and proper implementation.

Square A;
It is the situation where a company apparently has formulated a very competitive
strategy, but is showing difficulties in implementing it successfully.
This can be due to various factors, such as the lack of experience, lack of resources,
missing leadership and so on.

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In such a situation the company will aim at moving from square A to square B, given
they realize their implementation difficulties.

Square B;
It is the ideal situation where a company has succeeded in designing a sound and
competitive strategy and has been successful in implementing it.
This can be achieved with the help various factors, such as the availability of resources,
excellent leadership, strategy supportive structure, and so on.

Square C;
It is denoting for companies that haven’t succeeded in coming up with a sound strategy
formulation and in addition are bad at implementing their flawed strategic model.
Their path to success also goes through business model redesign and implementation
readjustment.

Square D;
It is the situation where the strategy formulation is flawed, but the company is showing
excellent implementation skills.
When a company finds itself in square D the first thing, they have to do is to redesign
their strategy before readjusting their implementation skills.

Conclusion;
It needs to be emphasized that ‘strategy’ is not synonymous with ‘long-term plan’
but rather consists of an enterprise’s attempts to reach some preferred future state by
adapting its competitive position as circumstances change.
While a series of strategic moves may be planned, competitors’ actions will mean that
the actual moves will have to be modified to take account of those actions.

2.3.2 Distinguish between Strategy Formulation vs Strategy Implementation;


 Successful strategy formulation does not guarantee successful strategy
implementation. It is always more difficult to do something (strategy
implementation) than to say you are going to do it (strategy formulation).
 Although inseparably linked, strategy implementation is fundamentally
different from strategy formulation.
 Strategy formulation and implementation can be contrasted in the following ways:

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Strategy Formulation Strategy Implementation

Focus on;
Strategy formulation focuses on Strategy implementation focuses on
effectiveness. efficiency.

Process;
Strategy formulation is preliminary an Strategy implementation is preliminary an
intellectual process. operational process.
Required;
Strategy formulation requires conceptual, Strategy implementation requires special
Integrating and analytical skills. skills in motivating and leadership skills.
Co-ordination;
Strategy formulation requires co-ordination It requires co-ordination among the
among the executives at the top level. executives at the middle and lower level.
Decision-making;
Strategy formulation is primarily an Strategy implementation is mainly an
entrepreneurial activity, based on strategic administrative task based on strategic as
decision-making. well as operational decision-making.

2.3.3 Relationships of Effectiveness and Efficiency;


Introduction;
In contrast to this view of strategy there is another approach to management practice,

which has been followed in many organizations. In organizations that lack strategic
direction there has been a tendency to look inwards in times of stress, and for
management to devote their attention to cost cutting and to shedding unprofitable
divisions.

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In other words, the focus has been on efficiency (i.e., the relationship between inputs
and outputs, usually with a short time horizon) rather than on effectiveness (which
is concerned with the attainment of organisational goals - including that of desired
competitive position).

• Cell 1 (Thrive);
It is well placed and thrives i.e., succeed, since it is achieving what it aspires to
achieve with an efficient output–input ratio.

• Cell 2 (Die Slowly);


It is a worse place to be than is cell 3. Due to ineffective strategy formulation.

• Cell 3 (Survive);
It is a better place to be than is cell 2. As strategy formulation is effective, organisation
need to improve operational efficiency.

• Cell 4 (Die Quickly);


It is doomed i.e., unfortunate, unless it can establish some strategic direction.

Conclusion;
Even the most technically perfect strategic plan will serve little purpose if it is not
implemented effectively. Change comes through implementation and evaluation, not
through the plan. A technically imperfect plan that is implemented well will achieve
more than the perfect plan that never gets off the paper on which it is typed.

2.3.4 Distinguish between Effectiveness vs Efficiency;


Effectiveness Efficiency

Nature;
Strategic in nature. Operational in nature.

Viewpoint;
From strategy formulation viewpoint. From strategy implementation viewpoint.

Concerned with;
Concerned with “to do the right thing”. Concerned with “to do the thing right”.
i.e., act correctly i.e., act orderly

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Focus on;
Focus on linkage between firm and Focus within the firm.
environment.

2.4 Linkages
Introduction;
It is to be noted that the division of strategic management into different phases
(i.e., steps) is only for the purpose of orderly study. In real life, the formulation and
implementation processes are intertwined (i.e., interconnected).

Two types of linkages exist between these two phases of strategic management.
• The forward linkages deal with the impact of strategy formulation on strategy
implementation,
• While the backward linkages are concerned with the impact in the opposite
direction.

1. Forward linkages;
The different elements in strategy formulation starting with objective setting
through external and internal environmental analysis, determines the course
that an organization adopts for itself.
With the formulation of new strategies, or reformulation of existing strategies, many
changes have to be affected within the organization.
For instance, the organizational structure has to undergo (i.e., face) a change
in the light of the requirements of the modified or new strategy. The style of
leadership has to be adapted to the needs of the modified or new strategies.
In this way, the formulation of strategies has forward linkages with their
implementation.

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2. Backward linkages;
Just as implementation is determined by the formulation of strategies, the
formulation process is also affected by factors related with implementation.
While dealing with strategic choice, remember that past strategic actions also
determine the choice of strategy.
Organizations tend to adopt those strategies which can be implemented with the
help of the present structure of resources combined with some additional efforts.
Such incremental changes, over a period of time, take the organization from
where it is to where it wishes to be.

2.5 Issies in Strategy Implementation


Introduction;
The different issues involved in strategy implementation cover practically everything
that is included in the discipline (i.e., aspect) of management studies.
A strategist, therefore, has to bring a wide range of knowledge, skills, attitudes, and
abilities. The implementation tasks put to test the strategists’ abilities to allocate
resources, design organisational structure, formulate functional policies, and to
provide strategic leadership.
• Strategies, have to be activated through implementation;
The strategic plan developed by the organization proposes the manner in which
the strategies could be put into action. Strategies, by themselves, do not lead
to action. They are, in a sense, a statement of intent. Implementation tasks are
meant to realise the intent. Strategies, therefore, have to be activated through
implementation.
• Strategies should lead to formulation of different kinds of programmes;
A programme is a broad term, which includes goals, policies, procedures, rules,
and steps to be taken in putting a plan into action. Programmes are usually
supported by funds allocated for plan implementation.
• Programmes lead to the formulation of projects;
A project is a highly specific programme for which the time schedule and costs
are predetermined. It requires allocation of funds based on capital budgeting
by organizations. Thus, research and development programme may consist of
several projects, each of which is intended to achieve a specific and limited
objective, requires separate allocation of funds, and is to be completed within
a set time schedule.

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Implementation of strategies is not limited to formulation of plans, programmes,


and projects. Projects would also require resources. After resources have been
provided, it would be essential to see that a proper organizational structure is
designed, systems are installed, functional policies are developed, and various
behavioural inputs are provided so that plans may work.

Given below in sequential manner the issues in strategy implementation which are
to be considered:
 Project implementation,
 Procedural implementation,
 Resource allocation,
 Structural implementation,
 Functional implementation,
 Behavioural implementation, etc...
It should be noted that the sequence does not mean that each of the above activities
are necessarily performed one after another.
Many activities can be performed simultaneously, certain other activities may be
repeated over time; and there are activities, which are performed only once.
Thus, there can be overlapping and changes in the order in which these activities
are performed.

2.5.1 Management issues in strategy implementation;


Introduction;
Implementation problems can arise because of this shift in responsibility, especially if
strategic decisions come as a surprise to middle and lower-level managers.
Managers and employees are motivated more by perceived (i.e., by recognizing) self-
interests than by organizational interests.

Management issues in strategy implementation includes:


 Establishing annual objectives,
 Devising policies,
 Allocating resources,
 Altering an existing organizational structure,
 Restructuring and reengineering,
 Revising reward and incentive plans,

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 Minimizing resistance to change,


 Developing a strategy – supportive culture,
 Adapting production (i.e., operations) processes, and
 Developing an effective human resource system.

Conclusion;
Managers and employees throughout an organization should participate early and
directly in strategy – implementation activities.
Their role in strategy implementation should build upon prior involvement in strategy –
formulation activities.
Firms should provide training for both managers and employees to ensure that they
have and maintain the skills necessary to be world-class performers.

Concept 3: Strategic Change;

Introduction;
The changes in the environmental forces often require businesses to make modifications in
their existing strategies and bring out new strategies.
Strategic change is a complex process that involves a corporate strategy focused on new
markets, products, services and new ways of doing business.

3.1 Specify the steps that are needed to introduce strategic change in an organization;
For initiating strategic change, three steps can be identified as under:
1. Recognize the need for change;
• The first step is to diagnose which aspects of the corporate culture that are
strategy supportive or not.
• This basically means going for environmental scanning involving appraisal
of both internal and external capabilities may be through SWOT analysis.
The idea (i.e., purpose) is to determine where the gap lies and scope for
change exists.

2. Create a shared vision to manage the change;


• Objectives and vision of both individuals and organization should match.
There should be no conflict between them.
• This is possible only if the management and the organization members
follow a shared vision.

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• Senior managers need to constantly and consistently communicate the vision


not only to inform but also to overcome resistance.

3. Institutionalize the change;


• This is basically an action stage which requires implementation of changed
strategy.
• Creating and sustaining a different attitude towards change is essential to
ensure that the firm does not slip back into old ways of thinking or doing things.
• All these changes should be set up as a practice to be followed by the
organization and be able to transfer from one level to another as a well
settled practice.
• Any discrepancy or deviation should be brought to the notice of persons
concerned so that the necessary corrective actions are taken. It takes time
for the changed culture to prevail.

3.2 Kurt Lewin’s Model of Change;


To make the change lasting, Kurt Lewin proposed three phases of the change
process for moving the organization from the present to the future. These stages are
unfreezing, changing and refreezing.

1. Unfreezing the situation;


• Unfreezing is the process of breaking down the old attitudes and behaviours,
customs and traditions, so that they start with a clean slate.
• This can be achieved by making announcements, holding meetings and
promoting the new ideas throughout the organization.
• The process of unfreezing simply makes the individuals aware of the necessity
for change and prepares them for such a change.
• Lewin proposes that the changes should not come as a surprise to the
members of the organization. Sudden and unannounced change would be
socially destructive and morale lowering.

2. Changing to the new situation;


• Once the unfreezing process has been completed and the members of the
organization recognise the need for change and have been fully prepared
to accept such change, their behaviour patterns need to be redefined.

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• H.C. Kellman has proposed three methods for reassigning new patterns of
behaviour.
 Compliance,
 Identification, and
 Internalisation.

3. Refreezing;
• Refreezing occurs when the new behaviour becomes a normal way of life. The
new behaviour must replace the former behaviour completely for successful
and permanent change to take place.
• In order for the new behaviour to become permanent, it must be continuously
reinforced so that this new acquired behaviour does not diminish.

Conclusion;
Change process is not a one–time application but a continuous process due to dynamism and
ever-changing environment.
The process of unfreezing, changing and refreezing is a cyclical one and remains continuously
in action.

Study note;
When specifically, question asked about steps and does not mention for Kurt Lewin’s
Model of Change then answer as per 4.1 and when Kurt Lewin’s Model of Change asked
then answer as per 4.2.

3.3 Methods for reassigning new patterns of behavior as proposed by H.C. Kellman;
Introduction;
In order to accept such change, organization members behaviour patterns need to
be redefined.
H.C. Kellman has proposed three methods for reassigning new patterns of behaviour. These
are compliance, identification and internalisation.
1. Compliance;
It is achieved by strictly enforcing the reward and punishment strategy for good or
bad behaviour. Fear of punishment, actual punishment or actual reward seems
to change behaviour for the better.

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2. Identification;
Identification occurs when members are psychologically impressed upon to
identify themselves with some given role models whose behaviour they would like
to adopt and try to become like them.

3. Internalization;
Internalization involves some internal changing of the individual’s thought processes
in order to adjust to the changes introduced. They have given freedom to learn
and adopt new behaviour in order to succeed in the new set of circumstances.

3.4 How does digital transformation work?


The use of digital technologies to develop fresh, improved, or entirely new company
procedures, goods, or services is known as "digital transformation." It's a fundamental
adjustment that can be challenging to identify and even more challenging to
implement.
Change management enters into the picture here. Organizations can plan, prepare
for, and carry out changes to their operations, including digital transformations,
with the aid of the discipline of change management. When implemented correctly,
change management may assist firms in overcoming the obstacles posed by the
digital transition and reaping the full rewards of their investment.

But how does change management appear when applied to digital transformation?
Change management in the digital transition consists of four essential elements:
1. Defining the goals and objectives of the transformation
2. Assessing the current state of the organization and identifying gaps
3. Creating a roadmap for change that outlines the steps needed to reach the
desired state
4. Implementing and managing the change at every level of the organization

To navigate a digital transformation successfully, each of these elements is necessary.


But what matters most is how they collaborate to support organisations in achieving
their goals.

How does change management work?


Change management is a process or set of tools and best practices used to manage
changes in an organization. It assists in making changes in a safe and regulated

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manner, reducing the possibility of detrimental effects on the company. Any sort of
organisation, including enterprises, organisations, governmental bodies, and even
families, can utilise change management to manage changes.
Change management models and methods come in a wide variety, but they all
have key things in common. These include creating a clear vision for the change,
involving stakeholders in the process, coming up with a plan for putting the change
into action, and keeping an eye on the results. Although change management is
frequently viewed as a difficult and complicated process, it is vital for ensuring that
digital transformation projects are successful.

The role of change management in digital transformation


Digital transformation is a process of organizational change that enables an
organization to use technology to create new value for customers, employees,
and other stakeholders. A good change management strategy is necessary for a
successful digital transformation.
Change management is the process of planning, implementing, and monitoring
changes in an organization. It provides organizations in achieving their objectives
while reducing risks and disruptions. For any organisation undergoing a digital
transition, change management is crucial.
A properly implemented change management strategy can help an organization to:
 Specify the parameters and goals of the digital transformation
 Determine which procedures and tools need to be modified.
 Make a plan for implementing the improvements.
 Involve staff members and parties involved in the transformation process.
 Track progress and make required course corrections
A crucial component of any digital transition is change management. Why it gains
more importance in the current times is because organizations can improve their
chances of success by approaching change in a proactive and organized manner.

3.5 Change Management Strategies for Digital Transformation


One of the most important area of focus for guaranteeing a successful transformation is
change management. Businesses nowadays increasingly find themselves responsible
for managing more than simply their staff, clients, and products. Additionally, they
are handling the introduction of new technology, the unexpected emergence of new
market opportunities, and changes in customer preferences regarding the brands
they choose, interact with, and hold to. In essence, modern firms must be able

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to manage change. They must modify their management techniques in order to


achieve this. The five best practices for managing change in small and medium-
sized businesses are:
1. Begin at the top: A focused, invested, united leadership that is on the same page
about the company's future is reflected in change that begins at the top. The
culture that will motivate the rest of the organisation to accept change can
only be generated and promoted in this way.

2. Ensure that the change is both necessary and desired: The fact that decision-
makers are unaware of how to properly handle a digital transformation and
the effects it will have on their firm is one of the main causes of this. If a
corporation doesn’t have a sound strategy in place, introducing too much too
fast can frequently become a major issue down the road.
3. Reduce disruption: Employee perceptions of what is required or desirable change
can differ by department, rank, or performance history. It's crucial to lessen how
changes affect staff. The introduction of new tactics or technologies intended
to improve management and corporate operations causes employee concern
about change. It is possible to reduce workplace disruption by:
a. Getting the word out early and preparing for some interruption.
b. Giving staff members the knowledge and tools, they need to adjust to change.
c. Creating an environment that encourages transformation or change.
d. Empowering change agents to provide context and clarity for changes,
such as project managers or team leaders.
e. Ensuring that IT department is informed of changes in technology or
infrastructure and is prepared to support them.

4. Encourage communication: Create channels so that workers may contact you with
queries or complaints. Encourage departmental collaboration to propagate
ideas and innovations as new procedures take root. Communication promotes
efficiency and has the power to influence culture, just like your vision. The
people who will be affected the most by these changes are reassured that they
are not in danger through effective communication, which keeps everyone on
the same page.

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5. Recognize that change is the norm, not the exception: Change readiness may be
defined as “the ability to continuously initiate and respond to change in ways
that create advantage, minimize risk, and sustain performance.” In order to
keep up with the customers, businesses must also adapt their operations. They
must prepare for change in advance and expect them. It may run into difficulties
because change is not a project but rather an ongoing process.

3.6 How to manage change during digital transformation?


Any organisation may find the work of digital transformation challenging and
overwhelming. To ensure that a digital transition is effective, change management
is essential. Here are some pointers for navigating change during the digital
transformation:
1. Specify the digital transformation’s aims and objectives: What is the intended
outcome? What are the precise objectives that must be accomplished? It will be
easier to make sure that everyone is on the same page and pursuing the same
aims if everyone has a clear grasp of the goals.
2. Always, always, always communicate: It might be challenging for people to accept
change and adjust to it. Ensure that you routinely and honestly discuss the
objectives of the digital transformation and how they will affect stakeholders,
including employees, clients, and other parties.
3. Be ready for resistance: Even when a change is for the better, it can be challenging
for people to embrace it. Have a strategy in place for dealing with any resistance
that may arise.
4. Implement changes gradually: Changes should ideally be implemented gradually
rather than all at once. In order to avoid overwhelming individuals with too
much change at once, this will give people time to become used to the new way
of doing things.
5. Offer assistance and training: Workers will need guidance in the new procedures,
software applications, etc.
In conclusion, effective completion of the massive project known as digital
transformation depends on meticulous planning and change management.
Digital transformation efforts are more likely to fail without change management.
Organizations can successfully integrate a new digital system by planning for
and managing the changes that must take place. Any project involving digital
transformation must include it.

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Concept 4: Orgranisational Framework;

The McKinsey 7S Model refers to a tool that analyzes a company’s “organizational design.”
The goal of the model is to depict how effectiveness can be achieved in an organization
through the interactions of hard and soft elements. The McKinsey 7s Model focuses on how
the "Soft Ss" and "Hard Ss" elements are interrelated, suggesting that modifying one aspect
might have a ripple effect on the other elements in order to maintain an effective balance.
Hard elements are:
Strategy: What steps does the company
intend to take to address current and
futures challenges?
Structure: How is work divided, how do
different departments work and collaborate?
Systems: Which formal and informal
processes is the company’s structure based
on?
Soft elements are:
Shared Values: What is the idea the
organization subscribes to? Is this idea
communicated credibly to others?
Staff: This elements refers to employees
development and relevant processes,
performances and feedback programs etc.
Skill: What is the company’s base of skills
and competencies?
Style: This depicts the leadership style and
how it influences the strategic decisions of
the organization.

The Hard elements are directly controlled by the management. The following elements
are the hard elements in an organization.
 Strategy: the direction of the organization, a blueprint to build on a core competency
and achieve competitive advantage to drive margins and lead the industry
 Structure: depending on the availability of resources and the degree of centralisation
or decentralization that the management desires, it choses from the available
alternatives of organizational structures.

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 Systems: the development of daily tasks, operations and teams to execute the goals
and objectives in the most efficient and effective manner.

The Soft elements are difficult to define as they are more governed by the culture. But
these soft elements are equally important in determining an organization’s success as
well as growth in the industry. The following are the soft elements in this model;
 Shared Values: The core values which get reflected within the organizational culture
or influence the code of ethics of the management.
 Style: This depicts the leadership style and how it influences the strategic decisions
of the organisation. It also revolves around people motivation and organizational
delivery of goals.
 Staff: The talent pool of the organisation.
 Skills: The core competencies or the key skills of the employees play a vital role in
defining the organizational success.

But like any other strategic model, this model has its limitations as well;
 It ignores the importance of the external environment and depicts only the most
crucial elements within the organization.
 The model does not clearly explain the concept of organizational effectivness or
performance.
 The model is considered to be more static and less flexible for deicion making.
 It is generally criticized for missing out the reals gaps in conceptualization and
execution of strategy.

Concept 5: Organization Structure:


Introduction;
A competitive advantage is created when there is a proper match between Strategy and
structure.

Selecting the organizational structure and controls that result in effective implementation
of chosen strategies is a fundamental challenge for managers, especially top-level managers.
Changes in corporate strategy often require changes in the way an organization is
structured for two major reasons.

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Structure largely dictates;


1. How operational objectives and policies will be established to achieve the strategic
objectives?
2. How resources will be allocated to achieve strategic objectives?

Every firm is influence by numerous external and internal forces. But no firm could change its
structure in response to each of these forces, because to do so would lead to disorder
(i.e., chaos).
However, when a firm changes its strategy, the existing organizational structure may become
ineffective. Symptoms of an ineffective organizational structure include;
 Too many levels of management,
 Too many meetings attended by too many people,
 Too much attention being directed toward solving interdepartmental conflicts,
 Too large a span of control, and
 Too many unachieved objectives.
 Changes in organisational structure can facilitate strategy implementation efforts,
but changes in structure should not be expected to make a bad strategy good, to
make bad managers good, or to make bad products sell.
Structure can also influence strategy. If a proposed strategy required massive structural
changes, it would not be an attractive choice. In this way, structure can shape the choice
of strategy. (#Forward & Backward Linkages Chapter 8)
But a more important concern is determining what types of structural changes are needed
to implement new strategies and how these changes can best be accomplished.

Concept 6: Chandler's - Strategy Structure Relationship:

According to Chandler, Changes in strategy lead to changes in organizational structure.

 Structure should be designed or redesigned


to facilitate the strategic pursuit of a firm and,
therefore, structure should follow strategy.

Chandler’s Strategy – Structure Relationship;

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Chandler found a particular structure sequence to be often repeated as organizations grow


and change strategy over time. There is no one optimal organizational design or structure
for a given strategy. What is appropriate for one organization may not be appropriate for a
similar firm, although successful firms in a given industry do tend to organize themselves
in a similar way

Concept 7: Simple Structure;

Introduction;
Simple organizational structure is most appropriate for companies that follow a single
– business strategy and offer a line of products in a single geographic market. The simple
structure also is appropriate for companies implementing focused cost leadership or
focused differentiation strategies.

 A simple structure is an organizational form in


which the owner-manager makes all major
decisions directly and monitors all activities,
while the company’s staff merely serves as an
executor.

Characteristics of Simple Structure;


• Little specialization of tasks, (As staff merely serves as an executor)
• Few rules,
• Little formalization,
• Unsophisticated information systems, and
• Direct involvement of owner-manager in all phases of day-to-day operations.

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Advantages of Simple Structure;


 Communication is frequent and direct,
 New products tend to be introduced to the market quickly,
 Few of the coordination problems that are common in larger organizations exist. (mean
less coordination problems compare to other form of organisation structure)
 Greater structural flexibility.
 A broad-based openness to innovation.
 An ability to respond more rapidly to environmental changes.

Issues in Simple Structure;


When small companies grow larger. As a result of this growth, the company outgrows the
simple structure. Generally, there are significant increases in the amount of competitively
relevant information that requires processing. More extensive and complicated information
processing requirements place significant pressures on owner – managers. (Often due to a
lack of organizational skills or experience or simply due to lack of time).
• Thus, it is necessary on the company’s managers to recognise the inadequacies or
inefficiencies of the simple structure and change it to one that is more consistent
with company’s strategy.
• To coordinate more complex organizational functions, companies should abandon
the simple structure in favour of the functional structure. The functional structure is
used by larger companies and by companies with low levels of diversification.

Concept 8: Functional Structure;


Introduction;
A widely used structure in business organisations is functional type because of its
simplicity and low cost. A functional structure groups tasks and activities by business function,
such as production (operations), marketing, finance, accounting, R&D, and management
information systems.

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The functional structure consists of a chief executive officer or a managing director and
supported by corporate staff with functional line managers in dominant functions such
as production, financial accounting, marketing, R&D, engineering, and human resources.
The functional structure enables the company to overcome the growth-related constraints
of the simple structure, enabling or facilitating communication and coordination.

Advantages of Functional Structure;


 Promotes specialization of labour
 Encourages efficiency,
 Minimizes the need for an elaborate control system, and
 Allows rapid decision making.

There also are some potential problems.


Differences in functional specialization and orientation may delay communications
and coordination.
 Thus, the chief executive officer must integrate functional decision- making and
coordinate actions of the overall business across functions.

Functional specialists often may develop a narrow perspective, and losing sight of the
company’s strategic vision and mission.
 When this happens, this problem can be overcome by implementing the
multidivisional structure

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Concept 9: Divisional Structure;

Introduction;
As a firm, grows year after year it faces difficulty in managing different products and services
in different markets. Some form of divisional structure generally becomes necessary to
motivate employees, control operations, and compete successfully in diverse locations.

The divisional structure can be organized in one of the four ways;


1. By Geographic Area,
2. By Product or Service,
3. By Customer, or
4. By Process.

With a divisional structure, functional activities are performed both centrally and, in each
division, separately.

Advantages of Divisional Structure;


 Accountability is clear. Mean divisional managers can be held responsible for sales
and profit levels.
 Employee morale is generally higher in a divisional structure than it is in centralized
structure as managers and employees can easily see the results of their good or bad
performances.

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 It creates career development opportunities for managers.


 Allows local control of local situations, leads to a competitive climate within an
organization.
 Allows new businesses and products in be added easily.

Disadvantages of Divisional Structure;


 Divisional structure is costly,
• Each division requires functional specialists who must be paid.
• Second, there exists some duplication of staff services, facilities, and personnel;
for instance, functional specialists are also needed centrally (at headquarters)
to coordinate divisional activities.
• Third, managers must be well qualified because the divisional design forces
delegation of authority better-qualified individuals requires higher salaries.

 Difficult to maintain consistency,


• It requires an elaborate, headquarters-driven control system.
• Certain regions, products, or customers may sometimes receive special treatment,
and it may be difficult to maintain consistent, companywide practices.

1. By geographic area; (For E.g., UL)


It is appropriate for organizations whose strategies are formulated to fit the particular
needs and characteristics of customers in different geographic areas.
This type of structure can be most appropriate for organizations that have similar
branch facilities located in widely dispersed areas.

 Advantage of divisional structure by geographic area;


It allows local participation in decision making and improved coordination
within a region.

2. By product or services; (For E.g., P&G, General Motors)


It is most effective for implementing strategies when specific products or services need
special emphasis.
Also, this type of structure is widely used when an organization offers only a few
products or services, when an organization’s products or services differ substantially.

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 Advantage of divisional structure by product or services;


It allows strict control over and attention to product lines.

 Limitation of divisional structure by product or services;


It may also require a more skilled management force and reduced top
management control.

3. By customers; (For E.g., Airlines, Banks)


When a few major customers are of prime importance and many different services
are provided to these customers, then a divisional structure by customer can be the
most effective way to implement strategies.
Like; Airline companies have two major customer divisions: passengers and freight or
cargo services.
Like; Banks are often organised in divisions such as personal banking corporate
banking.
 Advantage of divisional structure by customers;
This structure allows an organization to cater effectively to the requirements of
clearly defined customer groups.

4. By process;
It is similar to a functional structure, because activities are organised according to
the way work is actually performed. However, a key difference between these two
designs is that functional departments are not accountable for profits or revenues,
whereas divisional process departments are evaluated on these criteria.

 Advantage of divisional structure by process;


Is accountable for profits or revenues.

Concept 10: Multi – Divisional Structure; (M Form Structure);


Introduction;
Multidivisional or M-form structure was developed in the 1920s, in response to coordination
and control related problems in large firms. Functional departments often had difficulty
dealing with distinct product lines and markets, especially in coordinating conflicting
priorities among the products. Such as, costs were not allocated to individual products, so it
was not possible to assess an individual product’s profit contribution. Loss of control meant
that optimal allocation of firm resources between products was difficult. Top managers

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became overinvolved in solving short-run problems (such as coordination, communications,


conflict resolution) and neglected long-term strategic issues.

Multidivisional (M-form) structure is composed of operating divisions where each division


represents a separate business to which the top corporate officer delegates responsibility for
day-to-day operations and business unit strategy to division managers. By such delegation,
the corporate office is responsible for formulating and implementing overall corporate
strategy and manages divisions through strategic and financial controls.

Study Note: Organisational structure is same as Divisional structure only key difference is
here divisional head responsible for day-to-day operations and business unit strategy.

Multidivisional structure calls (ask) for:


• Creating separate divisions, each representing a distinct business,
• Each division would house its functional hierarchy,
• Division managers would be given responsibility for managing day-to-day operations,
• A small corporate office that would determine the long-term strategic direction of
the firm and exercise overall financial control over the semi-autonomous divisions.

Advantages of Multi – Divisional Structure;


 Enable the firm to more accurately monitor the performance of individual businesses,
 Simplifying control problems,
 Facilitate comparisons between divisions,
 Improving the allocation of resources and
 Stimulate (i.e., encourage) managers of poorly performing divisions to seek ways to
improve performance.

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Issues in Multi – Divisional Structure;


 Multi – Divisional structure is costly due to duplication of specialists and functions.
 Inconsistent decision making, each division may take its own decision.

Concept 11: Strategic Business Unit Structure; (SBU Structure)

Introduction;
The concept is relevant to multi-product, multi-business enterprises. It is impractical for an
enterprise to provide separate strategic planning treatment to each one of its products or
businesses. It has to necessarily group the products or businesses into a manageable number
of strategically related business units and then take them up for strategic planning.
An SBU is a grouping of related businesses, which is willing to respond to composite planning
treatment.
As per this concept, a multi-business enterprise groups its multitude of businesses into
a few distinct business units in a scientific way. The purpose is to provide effective strategic
planning treatment to each one of its businesses or products.

The three most important Characteristics of SBU’s;


• SBU is a single business or collection of related businesses that can be planned for separately,
• SBU has its own set of competitors.
E.g., Realme, Vivo and Oppo, etc...
• SBU has a manager who is responsible for strategic planning and profit.

The SBU structure is 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.
By such delegation, the corporate office is responsible for formulating and implementing
overall corporate strategy and manages SBU’s through strategic and financial controls.

A strategic business unit (SBU) structure consists of at least three levels, with a corporate
headquarters at the top, SBU groups at the second level, and divisions grouped by relatedness
within each SBU at the third level.

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Individual SBUs are treated as profit centres and controlled by corporate headquarters.

Advantages of SBU Structure;


 Establishing coordination between divisions having common strategic interests.
 Facilitates strategic management and control on large and diverse organizations.
 Fixes accountabilities at the level of distinct business units.
 Allows strategic planning to be done at the most relevant level within the total enterprise.
 Makes the task of strategic review by top executives more objective and more effective.
 Helps allocate corporate resources to areas with greatest growth opportunities.

Concept 12: Matrix Structure;


Introduction;
Most organizations find that organising around either functions (in the functional structure)
or around products and geography (in the divisional structure) provides an appropriate
organizational structure. The matrix structure, in contrast, may be very appropriate when
organizations conclude that neither functional nor divisional forms, even when combined
with horizontal linking mechanisms.

 A matrix structure is the most complex of all designs


because it depends upon both vertical and horizontal
flows of authority and communication (hence the term
matrix).

In contrast, functional and divisional structures depend primarily on vertical flows of authority
and communication.
In matrix structures, functional and product forms are combined simultaneously at the same
level of the organization. Employees have two superiors;

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1. A functional manager. (Home department, reasonably permanent).


2. A product or project manager (usually temporary).

Matrix structure combines the stability of the functional structure with the flexibility of the
division by product form. People from these functional units are often assigned temporarily
to one or more product units or projects. The product units or project are usually temporary
and act like divisions.

Despite its complexity, the matrix structure is widely used in many industries, including;
• Construction,
• Healthcare,
• Research, and
• Defence.

The matrix structure is often found in an organization or within an SBU when the following
3 conditions exists;
1. Ideas need to be cross – fertilized across projects or products,
2. Resources are scarce, and
3. Abilities to process information and to make decisions need to be improved.

Advantages of Matrix Structure;


 Project objectives are clear.
 Workers can see the visible results of their work.
 Shutting down a project is accomplished relatively easily.
 It is very useful when the external environment is very complex and changeable.
 It reflects the benefit of both functional and divisional structure.
 Employee can adopt best practice from one division in another division.

Disadvantages of Matrix Structure;


 A matrix structure can result in higher overhead because it has more management
positions.
 It contributes to overall complexity include dual lines of budget authority.
 Dual reporting channels i.e., a violation of the unity command principle.
 Dual sources of reward and punishment, shared authority.
 A need for an extensive and effective communication system. and
 Might be a continuous battle for power between product and functional manger.

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12.1 For development of matrix structure Davis and Lawrence, have proposed 3 distinct phases:
1. Cross-functional task forces;
Initially it involves people from different functions forming a temporary task force
under charge of project manager.
Temporary cross-functional task forces are initially used when a new product line
is being introduced. A project manager is in charge as the key horizontal link.

2. Product (brand) management;


If the cross-functional task forces become more permanent, the project manager
becomes a product or brand manager and a second phase begins.
In this arrangement, function is still the primary organizational structure, but
product or brand managers act as the integrators of semi-permanent products or
brands.

3. Mature matrix;
The third and final phase of matrix development involves a true dual-authority
structure. Both the functional and product structures are permanent.
All employees are connected to both a vertical functional superior and a horizontal
product manager. Both (functional and product managers) have equal authority
and must work well together to resolve disagreements over resources and priorities.

Concept 13: Network Structure;

Introduction;
The network organization is a series of independent firms or business units linked together by
a common system that designs, produces, and markets (i.e., offers) a product or service.
Network structure could be termed as “non-structure” by its virtual elimination of in-house
business function. Many activities are outsourced. A corporation organized in this manner
is often called a virtual organization because it is composed of a series of project groups or
collaborations linked by constantly changing non-hierarchical, cobweblike networks.
The network structure becomes most useful when the environment of a firm is unstable and
is expected to remain so (i.e., unstable). Under such conditions, there is usually a strong
need for innovation and quick response. 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 through vertical
integration.

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Electronic markets and sophisticated (i.e., advanced) information systems reduce the
transaction costs of the marketplace, thus justifying a “buy” over a “make” decision.
Rather than being 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
(i.e., cover), with a small headquarters acting as a “broker”, electronically connected to
some completely owned divisions, partially owned subsidiaries, and other independent

Companies like Airtel use the network structure in their operations function by
subcontracting manufacturing to other companies in low-cost.

Other E.g.,

Advantages of Network Structure;


Network structure provides an organization with increased flexibility and adaptability to cope
with rapid technological change and shifting patterns of international trade and competition.
It allows a company to concentrate on its distinctive competencies, while gathering efficiencies
from other firms who are concentrating their efforts in their areas of expertise.

Disadvantages of Network Structure;


The availability of numerous potential partners can be a source of trouble.
Contracting out functions to separate suppliers (distributors) may keep the firm from
discovering any synergies by combining activities.
It a particular firm overspecializes on only a few functions; it runs the risk of choosing the
wrong functions and thus becoming non-competitive.

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Concept 14: Hourglass Structure;

Introduction;
In the recent year’s information technology and communications have significantly altered
the functioning of organizations. The role played by middle management is diminishing as the
tasks performed by them are increasingly being replaced by the technological tools.
Hourglass organization structure consists of three layers with constricted middle layer. The
structure has a short and narrow middle management level. Information technology links the
top and bottom levels in the organization taking away many tasks that are performed by
the middle level managers.

A shrunken (i.e., narrow) middle layer coordinates diverse lower-level activities. Contrary to
traditional middle level managers who are often specialist, the managers in the hourglass
structure are generalists and perform wide variety of tasks. They would be handling cross-
functional (i.e., multi-functional) issues emerging such as those from marketing, finance or
production.

Advantages of Hourglass Structure;


Reduced costs.
Helps in enhancing responsiveness by simplifying decision making.
Decision making authority is shifted close to the source of information so that it is faster.

Disadvantages of Hourglass Structure;


The promotion opportunities for the lower levels diminish significantly.
Continuity at same level may bring monotony and lack of interest and it becomes difficult to
keep the motivation levels high.

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• Organisations try to overcome these problems by assigning challenging tasks,


transferring laterally (i.e., horizontally) and having a system of proper rewards
for performance.

Concept 15: Strategy Supportive Culture;

Introduction;
Every organisation has a unique organizational culture. It has its own philosophy and
principles, its own history, values, and rituals, its own ways of approaching problems,
making decisions, and its own work climate. Its own established beliefs and thought
patterns, and practices that define its corporate culture.

15.1 How is it both strength and weakness of an organisation?


Introduction;
The situation which often distinguishes good organizations from bad ones could be
summed up as ‘corporate culture’. Corporate culture refers to a company’s values,
beliefs, business principles, traditions, ways of operating and internal work
environment. Every corporation has a culture that exerts powerful influences on the
behaviour of managers.
Culture affects not only the way managers behave within an organization but also
the decisions they make about the organization’s relationships with its environment
and its strategy.
“Culture is a strength that can also be a weakness”. This statement can be explained by
splitting it in to two parts.

Culture as a strength:
As a strength, culture can facilitate communication, decision - making & control and
create cooperation & commitment. An organization’s culture could be strong and
cohesive (act of togetherness) when it conducts its business according to a clear and
explicit set of principles and values, which the management devotes considerable
time to communicating to employees and which values are shared widely across the
organization.

Culture as a weakness:
As a weakness, culture may obstruct the smooth implementation of strategy by
creating resistance to change. An organization’s culture could be characterized as

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weak when many subcultures exist, few values and behavioural norms are shared and
traditions are rare. In such organizations, employees do not have a sense of commitment
and loyalty with the organisation.

15.2 Role of culture in promoting better strategy execution?


Introduction;
The situation which often distinguishes good organizations from bad ones could be
summed up as ‘corporate culture’. Corporate culture refers to a company’s values,
beliefs, business principles, traditions, ways of operating and internal work
environment. Every corporation has a culture that exerts powerful influences on the
behaviour of managers.
Culture affects not only the way managers behave within an organization but also
the decisions they make about the organization’s relationships with its environment
and its strategy.
Strong culture promotes good strategy execution when there’s fit and impedes (i.e.,
constrain) execution when there’s negligible fit.

Role of culture in promoting better strategy execution:


• A culture grounded in values, practices, and behavioural norms that match what
is needed for good strategy execution helps energize people throughout the
company to do their jobs in a strategy supportive manner, adding significantly
to the power and effectiveness of strategy execution.
• A culture built around such business principles as listening to customers, encouraging
employees to take pride in their work, and giving employees a high degree
of decision-making authority is very conducive (i.e., helpful) to successful
execution of a strategy of delivering superior customer value.
• Strategy-supportive cultures shape the mood, temperament, and motivation
the workforce, positively affecting organizational energy, work habits and
operating practices, the degree to which organizational units cooperate, and
how customers are treated.
• A strong strategy-supportive culture nurtures and motivates people to do their jobs
in ways conducive (i.e., helpful) to effective strategy execution; it provides structure,
standards, and a value system in which to operate; and it promotes strong
employee identification with the company’s vision, performance targets, and
strategy. All this makes employees feel genuinely better about their jobs and
work environment and the merits of what the company is trying to accomplish.

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• Employees are stimulated (i.e., motivated) to take on the challenge of realizing


the company’s vision, do their jobs competently and with enthusiasm, and
collaborate with others as needed to bring the strategy to fruition.

15.3 Steps to change a company’s problem culture;


Introduction;
Changing a company’s culture to align it with strategy is among the toughest
management tasks--easier to talk about than do.
Changing problem cultures is very difficult because of the heavy anchor of deeply
held values and habits. It takes concerted management action over a period of time
to replace an unhealthy culture with a healthy culture or to root out certain unwanted
cultural obstacles and introduce ones that are more strategy supportive.

Steps to change a company’s problem culture;


1. The first step is to diagnose which aspect of the present culture is strategy
supportive and which are not.
2. Then, managers have to talk openly and directly to all concerned about those
aspects of the culture that have to be changed.
3. The talk has to be followed swiftly by visible, aggressive actions to modify the culture
actions that everyone will understand are intended to establish a new culture
more in tune with the strategy.
4. The menu (i.e., plan) of culture changing actions includes revising policies and
procedures, altering incentive compensation, recruiting and hiring new managers
and employees, replacing key executives, communication on need and benefit
to employees and so on.

Conclusion;
The task of making culture supportive of strategy is not a short-term exercise. It takes
time for a new culture to emerge and prevail; it’s unrealistic to expect an overnight
transformation. The bigger the organization and the greater the cultural shift needed
to produce a culture-strategy fit, the longer it takes. In large companies, changing the
corporate culture in significant ways can take two to five years. In fact, it is usually
tougher to reshape a deeply ingrained culture that is not strategy-supportive than it is to
instil (i.e., inject) a strategy-supportive culture from scratch in a brand-new organization.

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Concept 16: Strategic Leadership;


Introduction;
Strategic leadership sets the firms direction by developing and communicating vision of future,
formulate strategies in the light of internal and external environment, brings about changes
required to implement strategies and inspire the staff to contribute to strategy execution.
A manager as a strategic leader has to play many leadership roles to play; Visionary, Policy
Maker, Motivator, Culture Builder, Crisis Manager, Resource Acquirer and Allocator, etc...

A Strategic leader has several responsibilities, including the following:


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

Thus, the strategic leadership skills of a company’s managers represent resources that
affect company performance. And these resources must be developed for the company’s
future benefit.

16.1 Managers have five leadership roles to play in pushing for good strategy execution;
Introduction;
A strategic leader is a change agent to initiates strategic changes in the organisations
and ensure that the changes successfully implemented. For the most part, major change
efforts have to be top-down and vision-driven. Leading change has to start with
diagnosing the situation and then deciding which of several ways to handle it.
Managers have five leadership roles to play in pushing for good strategy execution.

1. Staying on top of what is happening, closely monitoring progress, solving out


issues, and learning what obstacles lie in the path of good execution.

2. Promoting a culture of esprit de corps (a sense of unity and of common interests


and responsibilities shared by organisational members) that mobilizes and
energizes organizational members to execute strategy in a competent fashion
and perform at a high level.

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3. Keeping the organization responsive to changing conditions, alert for new


opportunities, creating with innovative ideas, and ahead of rivals in developing
competitively valuable competencies and capabilities.

4. Ethical leadership and insisting that the company conduct its affairs like a model
corporate citizen.

5. Pushing corrective actions to improve strategy execution and overall strategic


performance.

16.2 Approaches to leadership style;


Introduction;
Strategic leadership is the ability of influencing others to voluntarily make decisions
that enhance prospects for the organisation’s long-term success while maintaining
short-term financial stability.
It includes determining the firm’s strategic direction, aligning the firm’s strategy with
its culture, modelling and communicating high ethical standards, and initiating changes
in the firm’s strategy, when necessary.
Strategic leadership sets the firm’s direction by developing and communicating a vision
of future and inspire organization members to move in that direction.
Unlike strategic leadership, managerial leadership is generally concerned with the
short-term, day-to-day activities. Two basic approaches to leadership can be
transformational leadership style and transactional leadership style.

1. Transformational Leadership style;


Such a leadership motivates followers to do more than originally affected to do by
stretching their abilities and increasing their self-confidence, and also promote innovation
throughout the organization.
Transformational leaders offer excitement, vision, intellectual stimulation and
personal satisfaction. They inspire involvement in a mission, giving followers a
‘dream’ or ‘vision’ of a higher calling so as to elicit (i.e., obtain) more dramatic
changes in organizational performance.
 Uses charisma and enthusiasm to inspire people to exert them for the good of the
organization.
 Transformational leadership style may be appropriate in turbulent environments.
 In industries at the very start or end of their life-cycles.

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 In poorly performing organizations when there is a need to inspire a company to


embrace (i.e., to accept, include) major changes.

2. Transactional Leadership style;


Focuses more on designing systems and controlling the organization’s activities
and are more likely to be associated with improving the current situation. Transactional
leaders try to build on the existing culture and enhance current practices.
Transactional leadership style prefers a more formalized approach to motivation,
setting clear goals with explicit rewards or penalties for achievement or non-
achievement.
The style is better suited in persuading people to work efficiently and run operations
smoothly.
 Transactional leadership style uses the authority of its office to exchange
rewards, such as pay and status.
 Transactional leadership style may be appropriate in static environment.
 In mature industries, and in organizations that are performing well.
 It is suitable for well performed organizations.

Concept 17: Strategic Organisation Control;

Introduction;
Controlling is one of the important functions of management, and is often regarded as the
core of the management process. It is a function intended to ensure and make possible
the performance of planned activities and to achieve the pre-determined goals and results.
Control is intended to regulate and check. It is also to ensure that what is planned is translated
into results, to keep a watch on proper use of resources, on safeguarding of assets and so on.
The controlling function involves;
• Monitoring the activity and measuring results against pre-established standards,
• Analysing and correcting deviations as necessary and maintaining or adapting the system.
It is intended to enable the organisation to continuously learn from its experience and to
improve its capability to cope with the demands of organisational growth and development.

The process of control has the following elements:


 Objectives of the business system which could be operationalized into measurable
and controllable standards.

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 A mechanism for monitoring and measuring the performance of the system.


 A mechanism;
• for comparing the actual results with reference to the standards.
• for detecting deviations from standards. and
• for learning new insights on standards, themselves.
 A mechanism for feeding back corrective, adaptive information and instructions to the
system, for effecting the desired changes to set right the system to keep it on course.

Primarily there are 3 types of organizational control;


1. Operational control, (5.1)
2. Management control (5.2) and
3. Strategic control. (5.3)

17.1 Operational Control;


Introduction;
Operational control systems are designed to ensure that day-to-day actions are
consistent with established plans and objectives. It focuses on events in a recent
period. Operational control systems are derived from the requirements of the
management control system.
The thrust (i.e., impact) of operational control is on individual tasks or transactions as
against total or more aggregative management functions. For example, procuring
specific items for inventory is a matter of operational control, in contrast to inventory
management as a whole.
Many of the control systems in organisations are operational and mechanistic
in nature. A set of standards, plans and instructions are formulated. Some of the
examples of operational controls can be;
• Stock control, (maintaining stocks between set limits)
• Production control, (manufacturing to set programs)
• Quality control, (keeping product quality between agreed limits)
• Cost control, (maintaining expenditure as per standards)
• Budgetary control. (keeping performance to budget)

17.2 Management Control;


Introduction;
When compared with operational control, management control is more inclusive

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and more aggregative, in the sense of embracing the integrated activities of a


complete department, division or even entire organisation. For example, inventory
management, marketing, etc..
The basic purpose of management control is the achievement of enterprise goals –
short range and long range – in a most effective and efficient manner.
It is defined by Robert Anthony; as ‘the process by which managers assure the
resources are obtained and used effectively and efficiently in the accomplishment of the
organisation’s objectives.

17.3 Strategic Control;


Introduction;
According to Schendel and Hofer “Strategic control focuses on the dual questions of
whether:
(i) the strategy is being implemented as planned; and
(ii) the results produced by the strategy are those intended.”
There is often a time gap between the stages of strategy formulation and its
implementation. A strategy might be affected on account of changes in internal and
external environments of organisation. There is a need for warning systems to track a
strategy as it is being implemented.

Strategic control is defined;


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.

1. Premise Control;
The premise control is focussed. A strategy is formed on the basis of certain assumptions
or premises (i.e., theories) about the complex and turbulent organizational
environment. Over a period of time these premises may not remain valid.
Premise control is a tool for systematic and continuous monitoring of the
environment to verify the validity and accuracy of the premises on which the
strategy has been built.
It primarily involves monitoring two types of factors:
(i) Environmental factors (Micro and Macro factors) and
(ii) Industry factors. (i.e., Five forces)

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It is neither feasible nor desirable to control all types of premises in the same manner.
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.

2. Strategic Surveillance;
Contrary (i.e., opposed) to the premise control, the strategic surveillance is
unfocussed. It involves general monitoring of various sources of information
to uncover unanticipated information having an impact on the organizational
strategy.
Strategic surveillance may be loose form of strategic control, but is capable of
uncovering information relevant to the strategy. It involves casual environmental
browsing; reading financial and other newspapers, business magazines, attending
meetings, conferences, discussions and so on can help in strategic surveillance.

3. Special alert control;


At times, unexpected events may force organizations to reconsider their
strategy. Sudden changes in government, natural calamities, unexpected merger
(acquisition) by competitors, industrial disasters and other such events may
trigger an immediate and intense review of strategy.
To cope up with such eventualities, the organisations form crisis management
teams to handle the situation.

4. Implementation control;
Managers implement strategy by converting major plans into concrete, sequential
actions that form incremental steps. Implementation control is directed towards
assessing the need for changes in the overall strategy in light of unfolding events
and results.
Strategic implementation control is not a replacement to operational control.
Unlike operational control, it continuously monitors the basic direction of the
strategy. The two basic forms of implementation control are:
(i) Monitoring strategic thrusts,
Monitoring strategic thrusts (i.e., impact) helps managers to determine
whether the overall strategy is progressing as desired or whether there is
need for readjustments.

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(ii) Milestone reviews.


All key activities necessary to implement strategy are segregated in
terms of time, events or major resource allocation. It normally involves
a complete reassessment of the strategy. It also assesses the need to
continue or refocus the direction of an organization.

Concept 18: Strategic Performance Measures

A company's performance depends heavily on execution of strategy. Companies that


continuously outperform their competitors are those who execute well. Executives in a
variety of businesses should explore about utilizing strategic performance measurement
(SPM). SPM is a method that increases line executives' understanding of an organization's
strategic goals and offers a continuous system for tracking progress towards these
objectives using clear-cut performance measurements. SPM helps to eliminate silos by
establishing a common language among all divisions of the organisation so they may
communicate openly and productively.
Strategic performance measures are key indicators that organizations use to track the
effectiveness of their strategies and make informed decisions about resource allocation.
The measures provide a snapshot of the organization's performance, enabling leaders to
assess whether their strategies are aligned with their goals and objectives and to make
necessary adjustments to improve their performance.
Key performance measures and indicators must be created, selected, combined into
reports and acted upon so that strategy implementation can have tangible outcomes.
Firstly, there needs to be a clear cause and effect relationship between the indicators
and strategic outcomes. Secondly, KPIs need to be carefully chosen because they will
influence the behaviour of people within the organisation. However, managers should be
aware of paralysis by over analysis.

Managing the political aspects of implementing a strategy


People involved in the planning process for the implementation of a strategy may be
affected by two sets of forces. The "rational" forces of openness, communication, and
self-analysis can exist on the one hand. On the other hand, there could be political forces
concerned with preserving empires and fostering internal rivalry that urge knowledge
retention, selective communication, and caution. When these two techniques conflict,
the politically acceptable aspects may end up in the explicit strategy while the sensitive
elements may form an unspoken plan that contains the implicit strategy.

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Types of Strategic Performance Measures


There are various types of strategic performance measures, including:
 Financial Measures: Financial measures, such as revenue growth, return on investment
(ROI), and profit margins, provide an understanding of the organization's financial
performance and its ability to generate profit.
 Customer Satisfaction Measures: Customer measures, such as customer satisfaction,
customer retention, and customer loyalty, provide insight into the organization's
ability to meet customer needs and provide high-quality products and services.
 Market Measures: Market measures, such as market share, customer acquisition, and
customer referrals, provide information about the organization's competitiveness in
the marketplace and its ability to attract and retain customers.
 Employee Measures: Employee measures, such as employee satisfaction, turnover
rate, and employee engagement, provide insight into the organization's ability to
attract and retain talented employees and create a positive work environment.
 Innovation Measures: Innovation measures, such as research and development (R&D)
spending, patent applications, and new product launches, provide insight into the
organization's ability to innovate and create new products and services that meet
customer needs.
 Environmental Measures: Environmental measures, such as energy consumption,
waste reduction, and carbon emissions, provide insight into the organization's impact
on the environment and its efforts to operate in a sustainable manner.

Study note;
Toward More Holistic Measures of Strategic Performance
Development of management thought and practice has persistently pushed the
frontier of strategic performance beyond financial metrics. Thus, the Triple Bottom Line
framework (TBL) emphasises People and Planetary Concerns besides profitability or
Economic Prosperity alone. The Quadruple Bottomline adds the 4th P to add a spiritual
dimension named ‘Purpose.’

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