Strategic Management
Strategic Management
Strategic Management
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.
Best of Luck
Prof. J. K. Shah
Chartered Accountant
INDEX
INTRODUCTION TO
01 STRATEGIC MANAGEMENT
Page No.
1-21
STRATEGIC ANALYSIS:
03 INTERNAL ENVIRONMENT
Page No.
62-92
Page No.
04 STRATEGIC CHOICES
93-120
INTRODUCTION TO STRATEGIC
1 MANAGEMENT
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.
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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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).
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”.
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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• Forward looking:
Strategy is forward looking it defines in broad terms the action which an organisation
proposes to take in future.
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• 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.
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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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.
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.
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• 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.
• 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.
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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.
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
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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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 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.
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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.
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.”
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?”
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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.”
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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.
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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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.
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, 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.
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.
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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.
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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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...
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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Role’s;
To translate the general statements (i.e., general strategies) into concrete
strategies of their individual businesses.
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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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;
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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.
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.
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.
Time
Short Term Long Term
An error in Changes in the
External
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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.
(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.
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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.
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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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
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.
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.
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.
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.
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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.
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.
Legal factors affect how a company operates, its costs, and the demand for its
products, ease of business.
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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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• 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.
• 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 trade tariffs and custom barriers are getting lowered, resulting in increased
flow of business.
• 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.
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:
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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.
Conclusion;
In this way, a balanced portfolio of businesses may be built up by exercising a
strategic choice based on the PLC concept.
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).
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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.
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.
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It is the management of these linkages which provides ‘leverage’ and levels of performance
which are difficult to match by the competitors.
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.
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.
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.
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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“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
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.
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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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.
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.
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.
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.
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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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.
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.
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.
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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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.
Introduction;
Experience curve is an important concept
applying a portfolio approach.
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.
Introduction;
The concept of value creation was introduced primarily for providing products and services
to the customers with more worth.
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.,
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.
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.
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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.
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.
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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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”.
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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.
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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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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.
Thus, it is even more important to understand the internal environment from a strategic
analysis perspective.
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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.
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.
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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.
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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
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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
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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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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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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.
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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• 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.
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• 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.
• 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.
• 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.
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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.
Introduction;
Core competencies are capabilities that serve as a source of competitive advantage for a
firm over its rivals.
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.”
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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).
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.
(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.
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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.
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.
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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(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.
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(ii) Rare,
Core competencies are very rare capabilities and very few of the competitors
possess this.
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.
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.
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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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.
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.
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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.
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.
(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.
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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.
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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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.
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.
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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.
• 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.
• 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.
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 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.
• Buyers – They do not negotiate for price as they get special features and also,
they have fewer options in the market.
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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 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.
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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.
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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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.
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.
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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.
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.
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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.
For E.g., offering ‘AKG’ earphone (complementary product) with Samsung premium device.
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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.
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.
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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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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.
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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.
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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.
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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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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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.
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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.
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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.
Introduction;
The ADL matrix (derived its name from Arthur D. Little) is a portfolio analysis technique
that is based on product life cycle.
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.
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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.
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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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.
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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.
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.
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.
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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.
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.
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Corporate Strategy
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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.
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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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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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. Impact of uncertainty;
• Positive → represent opportunity,
• Negative → represent threat.
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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.
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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.
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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 3 (Survive);
It is a better place to be than is cell 2. As strategy formulation is effective, organisation
need to improve operational efficiency.
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.
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.
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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.
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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.
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.
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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.
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
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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.
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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.
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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.
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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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.
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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.
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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.
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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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.
With a divisional structure, functional activities are performed both centrally and, in each
division, separately.
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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.
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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.
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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 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.
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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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.
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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.
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.
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.,
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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.
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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.
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.
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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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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.
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4. Ethical leadership and insisting that the company conduct its affairs like a model
corporate citizen.
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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.
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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.
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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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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