Chapter-1:

Introduction to
Strategic
Management.
Meaning and
Importance of
SM.

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Business: A
business is
defined as an
organization
or enterprising
entity
engaged in
commercial,
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industrial, or
professional
activities. ...
The term
"business"
also refers to
the organized

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efforts and
activities of
individuals to
produce and
sell goods and
services for
profit.

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Strategy: a
plan of action
designed to
achieve a
long-term or
overall aim.
BUSINESS STRAEGY NOTES
TOPIC 1: INTRODUCTION
What Is Business Strategy?
The word strategy comes from the Greek word strategos, meaning, “the art of the
general.” In other words, the origin of strategy comes from the art of war, and,
specifically, the role of a general in a war. In fact, there is a famous treatise titled The
Art of War that is said to have been authored by Sun Tzu, a legendary Chinese general.
In the art of war, the goal is to win—but that is not the strategy. Can you imagine the
great general Hannibal saying something like, “Our strategy is to beat Rome!” No,
Hannibal’s goal was to defeat Rome. His strategy was to bring hidden strengths against
the weaknesses of his enemy at the point of attack—which when he crossed the Alps to

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attack in a way that his enemies did not believe he could. He achieved an advantage
through his strategy.
Business: A business is defined as an organization or enterprising entity engaged in
commercial, industrial, or professional activities in order to attain a return. The term
"business" also refers to the organized efforts and activities of individuals to produce
and sell goods and services for profit.
Strategy: a plan of action designed to achieve a long-term or overall aim. Ex: A plan to
win
A business strategy refers to the actions and decisions that a company takes to reach
its business goals and be competitive in its industry. It defines what the business needs
to do to reach its goals, which can help guide the decision-making process for hiring
and resource allocation
TERMINOLOGIES
Business Policy: Business policies are the guidelines developed by an organization to
govern its actions
Business Aim: An aim is where the business wants to go in the future, its goals. It is a
statement of purpose, e.g. we want to grow the business into Europe.
Business goals: Business goals are goals that a business anticipates accomplishing in
a set period of time.
Business Objectives: Business objectives are the specific and measurable results
companies hope to maintain as their organization grows.
Business target: A target market refers to a group of potential customers to whom a
company wants to sell its products and services.
Ethics: moral principles that govern a person's behavior or the conducting of an activity.
Business Ethics: Business ethics is the study of appropriate business policies and
practices regarding potentially controversial subjects including corporate governance,
insider trading, bribery, discrimination, corporate social responsibility, and fiduciary
responsibilities.
Morals: standards of behavior; principles of right and wrong.
Core Values: Core values are the fundamental beliefs of a person or organization.
These guiding principles dictate behavior and can help people understand the
difference between right and wrong. Core values also help companies to determine if
they are on the right path and fulfilling their goals by creating an unwavering guide.
Business Organization: The term business organization describes how businesses
are structured and how their structure helps them meet their goals. In general,

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businesses are designed to focus on either generating profit or improving society. The
basic categories of business organization are sole proprietorship, partnership, and
corporation.
Organizational Culture: Organizational culture is defined as the underlying beliefs,
assumptions, values and ways of interacting that contribute to the unique social and
psychological environment of an organization.
Organizational Structure: An organizational structure is a system that outlines how
certain activities are directed in order to achieve the goals of an organization. These
activities can include rules, roles, and responsibilities. The organizational structure also
determines how information flows between levels within the company.
Stake holders: A stakeholder is any person, organization, social group, or society at
large that has a stake in the business. Thus, stakeholders can be internal or external to
the business. A stake is a vital interest in the business or its activities. ... Be both
affected by a business and affect a business
Business Model: a plan for the successful operation of a business, identifying sources
of revenue, the intended customer base, products, and details of financing
Business model canvas: The Business Model Canvas is a business tool used to
visualize all the building blocks when you want to start a business, including customers,
route to market, value proposition and finance.
TOPIC 2
STRATEGIC MANAGEMENT
Definition: Strategic management is the ongoing planning, monitoring, analysis and
assessment of all necessities an organization needs to meet its goals and objectives.
Changes in business environments will require organizations to constantly assess their
strategies for success. Strategic management can also be defined as the art and
science of formulating, implementing, and evaluating cross-functional decisions that
enable an organization to achieve its objectives. As this definition implies, strategic
management focuses on integrating management, marketing, finance/accounting
production/operations, research and development, and information systems to achieve
organizational success.
Strategic Management: Strategic management is the ongoing planning, monitoring,
analysis and assessment of all necessities an organization needs to meet its goals and
objectives. Changes in business environments will require organizations to constantly
assess their strategies for success.
Need and Importance of SM.

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Strategic management is an essential component of businesses. Strategic
management entails evaluating business goals, the organization’s vision and objectives
as well as the future plans. In addition, a strategic management process is employed to
ensure that the business runs effectively and efficiently.

Components of SM
Important Components of strategic management:
•Establishment of Vision, Mission, and Goals.
•SWOT (strengths, weaknesses, opportunities, and threats), TOWS (Threats,
Opportunities, Weaknesses, Strengths), PESTEL (Political, Economic,
Sociological, Technological, Legal and Environmental) analysis.
•Strategy Formulation.
•Strategy Implementation.
•Strategy Evaluation
Strategy Formulation:
Strategy formulation is the process by which an organization chooses the most
appropriate courses of action to achieve its defined goals. This process is essential to
an organization's success, because it provides a framework for the actions that will lead
to the anticipated results.
•Here are 10 steps which guide you in deciding the strategy of your company.
Steps 1 to 5 mainly involve internal or external research as well as very long term
strategy making (Strategies made in the first 5 steps affect the whole life cycle
of the company)
•Step 6 to 10 involve decision making based on the research as well as the
decisions taken for the company in the previous steps. The last steps are more
inclined towards implementation.
1) A vision statement (crisp and to the point) is a must for developing a strategy.
Exploring and deciding on the vision of the company gives you clarity on the main
objectives of the company. A vision statement is a company's road map, indicating
what the company wants to become by setting a defined direction for the company's
growth. Vision statements undergo minimal revisions during the life of a business, unlike
operational goals which may be updated from year-to-year.
2) Mission Statement: This mission statement would actually determine the
methodology of the company in reaching its vision, its purposes and its philosophy
behind its goals. A mission statement is a short statement of why an organization

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exists, what its overall goal is, identifying the goal of its operations: what kind of product
or service it provides, its primary customers or market, and its geographical region of
operation
3) Define the company profile: The company profile needs to be comprehensive
which further clears the goals/objectives of the organization. What would be the
strengths of the company, capabilities, management. In essence mention everything
you can about the company. This helps in transparency while deciding the strategy.
4) Study the Internal & External environment: SWOT analysis and PESTEL analysis:
Political, Economical, Sociological, Technical, Environmental and Legal. i.e. an in depth
study on internal & external environment is necessary and the same should be
mentioned in the strategy report.
5) The 5th step involves matching all three – Mission statement, Company profile and
the internal and external environment such that they are in sync to achieve the vision of
the company.
6) Deciding the actions for accomplishing the mission of the organization
7) Selecting long term strategies which will be most effective
8) Deciding on short term strategies arising from the long- term ones such that these
short- term strategies too are in sync with the mission and vision statement
9) Deciding the budget and resource allocation according to the short -term strategy
10) Implementation of the strategies along with pre decided review system along with
measures to maintain control

Following these 10 steps of deciding on a strategy, you get – A vision statement, a

mission statement, long term strategies, short term strategies, budget and resource
allocation and finally implementation along with review plans.
Strategy Implementation: Strategy implementation is a process that puts plans and
strategies into action to reach desired goals. The strategic plan itself is a written
document that details the steps and processes needed to reach planned goals, and
includes feedback and progress reports to ensure that the plan is on track.
Process of Strategy Implementation

•Building an organization, that possess the capability to put the strategies into
action successfully.
•Supplying resources, in sufficient quantity, to strategy-essential activities

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 •Developing policies which encourage strategy.
•Such policies and programs are employed which helps in continuous
improvement.
•Combining the reward structure, for achieving the results
•Using strategic leadership.
•The process of strategy implementation has an important role to play in the
company’s success. The process takes places after environmental scanning,
SWOT analyses and ascertaining the strategic issues.
Strategy Evaluation:
Strategy evaluation means collecting information about how well the strategic plan is
progressing. Strategic Evaluation is defined as the process of determining the
effectiveness of a given strategy in achieving the organizational objectives and taking
corrective action wherever required.
The process of Strategy Evaluation consists of following steps-
•Fixing benchmark of performance
•Measurement of performance:
•Analyzing Variance/Gap analysis:
•Taking Corrective Action:
Evaluation of Strategic Management
Strategic Evaluation is defined as the process of determining the effectiveness of a
given strategy in achieving the organizational objectives and taking corrective action
wherever required. Strategy evaluation is the final step of strategy management
process.
Strategic evaluation is an important tool for assessing how well your business has
performed, relative to its goals. It's an important way to reflect on achievements and
shortcomings, and is also useful for re-examining the goals themselves, which may
have been set at a different time, under different circumstances.
Steps in Strategic Evaluation:
• Determine what to evaluate and control.
•Set standards.
•Measure performance.
•Compare performance.

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 •Analyze deviations-gap analysis.
•Decide if corrective action is needed.
Advantages of SM Model:
1. Financial benefits:
2. Guide to organizational activities:
3. Competitive advantage:
4. Minimize risk:
5. Beneficial for companies with long gestation gap:
6. Promotes motivation and innovation:
7. Optimum utilization of resources:
Limitations of SM Model
1. Lack of knowledge:
2. Interdependence of units:
3. Managerial perception:
4. Financial considerations:
These limitations are by and large, conceptual and can be overcome through rational,
systematic and scientific planning. Researchers have proved that companies which
make strategic plans outperform those which do not do so.

Key terms of Strategic Management

Before we further discuss strategic management, we should define nine key terms:
competitive advantage, strategists, vision and mission statements, external
opportunities and threats, internal strengths and weaknesses, long-term objectives,
strategies, annual objectives, and policies.
a) Competitive Advantage: Strategic management is all about gaining and
maintaining competitive advantage. This term can be defined as “anything
that a firm does especially well compared to rival firms.” When a firm can do
something that rival firms cannot do, or owns something that rival firms
desire, that can represent a competitive advantage. For example, in a global

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 economic recession, simply having ample cash on the firm’s balance sheet
can provide a major competitive advantage. Some cash-rich firms are buying
distressed rivals. For example, BHP Billiton, the world’s largest miner, is
seeking to buy rival firms in Australia and South America.
b) Strategists. Strategists are the individuals who are most responsible for the
success or failure of an organization. Strategists have various job titles, such
as chief executive officer, president, owner, chair of the board, executive
director, chancellor, dean, or entrepreneur. Jay Conger, professor of
organizational behavior at the London Business School and author of Building
Leaders, says, “All strategists have to be chief learning officers. We are in an
extended period of change. If our leaders aren’t highly adaptive and great
models during this period, then our companies won’t adapt either, because
ultimately leadership is about being a role model.” Strategists help an
organization gather, analyze, and organize information. They track industry
and competitive trends, develop forecasting models and scenario analyses,
evaluate corporate and divisional performance, spot emerging market
opportunities, identify business threats, and develop creative action plans.
c) Vision and Mission Statements: Many organizations today develop a vision
statement that answers the question “What do we want to become?”
Developing a vision statement is often considered the first step in strategic
planning, preceding even development of a mission statement. Many vision
statements are a single sentence. For example, the vision statement of
Stokes Eye Clinic in Florence, South Carolina, is “Our vision is to take care of
your vision.”

Vision
Definition
A vision statement is a written declaration clarifying your business’s
meaning and purpose for stakeholders, especially employees. It describes
the desired long-term results of your company’s efforts. For example, an
early Microsoft vision statement was “a computer on every desk and in
every home.”
A vision gives a sense of direction, enables flexibility to exist in the context
of the guiding idea. It is an orientation that guides a manager in specific
direction. A vision should be clear. A strategy draws on the vision. It will
provide boundaries for the firm’s direction. It involves answering the
questions:
• What the business is now?
• What it could be in an ideal world?

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• What the ideal world would be like?
Characteristic of good Vision
• It should be feasible - Aim high but not impossible targets
• It should be precise – not be so narrow as to restrict some opportunities.
• It should be Clear – clear enough to lead to action.
• It should be motivating.
• It should be distinctive.
• It should indicate major components of strategy
• It should indicate how objectives are to be accomplished.
Benefits of a vision
• Good vision is inspiring and exhilarating.
• Visions represent a discontinuity, a step function and a jump ahead so
that the company knows what it is to be.
• Good vision helps in the creation of a common identity and a shared
sense in the market place as they are practical.
• Good vision foster risk taking and experimentation.
• Good vision foster long- term thinking.
• Good vision represent integrity they are truly genuine and can be used
for the benefit of people
Mission
Definition
A Mission Statement is a definition of the company's business, who it
serves, what it does, its objectives, and its approach to reaching those
objectives. A Vision Statement is a description of the desired future state
of the company. An effective vision inspires the team, showing them how
success will look and feel.
Mission statements are “enduring statements of purpose that distinguish
one business from other similar firms. A mission statement identifies the
scope of a firm’s operations in product and market terms.” It addresses the
basic question that faces all strategists: “What is our business?”
Purposes of a mission statement

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Mission and vision statements play three critical roles:
(1) communicate the purpose of the organization to stakeholders,
(2) inform strategy development, and
(3) develop the measurable goals and objectives by which to gauge the
success of the organization's strategy
Characteristics of a Mission Statement
 Broad in scope; do not include monetary amounts, numbers,
percentages, ratios, or objectives
 Less than 250 words in length
 Inspiring
 Identify the utility of a firm’s products
 Reveal that the firm is socially responsible
 Reveal that the firm is environmentally responsible

Four Elements of a Strong Mission Statement

 Purpose. Think through the reasons why you started your promo
business or why your company exists. ...
 Value. People want to do business with you or join your team because
they feel you can add value to them in some way. ...
 Inspiration. ...
 Plausibility.
Concepts of mission statement.
1. Customers—Who are the firm’s customers?
2. Products or services—What are the firm’s major products or services?
3. Markets—Geographically, where does the firm compete?
4. Technology—Is the firm technologically current?
5. Concern for survival, growth, and profitability—Is the firm committed to
growth and financial soundness?
6. Philosophy—What are the basic beliefs, values, aspirations, and ethical
priorities of the firm?

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 7. Self-concept—What is the firm’s distinctive competence or major
competitive advantage?
8. Concern for public image—Is the firm responsive to social, community,
and environmental concerns?
9. Concern for employees—Are employees a valuable asset of the firm?
Importance (Benefits) of Vision and Mission Statements.
Written vision/mission statement in order to reap the following benefits:
1. To ensure unanimity of purpose within the organization
2. To provide a basis, or standard, for allocating organizational
resources
3. To establish a general tone or organizational climate
4. To serve as a focal point for individuals to identify with the
organization’s purpose and direction, and to deter those who
cannot from participating further in the organization’s activities
5. To facilitate the translation of objectives into a work structure
involving the assignment of tasks to responsible elements within
the organization
6. To specify organizational purposes and then to translate these
purposes into objectives in such a way that cost, time, and
performance parameters can be assessed and controlled.

d) External Opportunities and Threats:

External opportunities and external threats refer to economic, social, cultural,
demographic, environmental, political, legal, governmental, technological, and
competitive trends and events that could significantly benefit or harm an
organization in the future. Opportunities and threats are largely beyond the
control of a single organization—thus the word external. In a global economic
recession, a few opportunities and threats that face many firms are listed here:
• Availability of capital can no longer be taken for granted.
• Consumers expect green operations and products.
• Marketing has moving rapidly to the Internet.
• Consumers must see value in all that they consume.
• Global markets offer the highest growth in revenues.

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c) Internal Strengths and Weaknesses:
Internal strengths and internal weaknesses are an organization’s controllable
activities that are performed especially well or poorly. They arise in the
management, marketing, finance/accounting, production/operations, research
and development, and management information systems activities of a business.
Identifying and evaluating organizational strengths and weaknesses in the
functional areas of a business is an essential strategic management activity.
Organizations strive to pursue strategies that capitalize on internal strengths and
eliminate internal weaknesses. Strengths and weaknesses are determined
relative to competitors. Relative deficiency or superiority is important information.
Also, strengths and weaknesses can be determined by elements of being rather
than performance. For example, a strength may involve ownership of natural
resources or a historic reputation for quality. Strengths and weaknesses may be
determined relative to a firm’s own objectives. For example, high levels of
inventory turnover may not be a strength to a firm that seeks never to stock-out.
d)Long-Term Objectives: Objectives can be defined as specific results that an
organization seeks to achieve in pursuing its basic mission. Long-term means
more than one year. Objectives are essential for organizational success because
they state direction; aid in evaluation; create synergy; reveal priorities; focus
coordination; and provide a basis for effective planning, organizing, motivating,
and controlling activities. Objectives should be challenging, measurable,
consistent, reasonable, and clear. In a multidimensional firm, objectives should
be established for the overall company and for each division
e) Strategies: Strategies are the means by which long-term objectives will be
achieved. Business strategies may include geographic expansion, diversification,
acquisition, product development, market penetration, retrenchment, divestiture,
liquidation, and joint ventures. Strategies are potential actions that require top
management decisions and large amounts of the firm’s resources. In addition,
strategies affect an organization’s long-term prosperity, typically for at least five
years, and thus are future-oriented. Strategies have multifunctional or
multidivisional consequences and require consideration of both the external and
internal factors facing the firm.
f) Annual Objectives; Annual objectives are short-term milestones that
organizations must achieve to reach long-term objectives. Like long-term
objectives, annual objectives should be measurable, quantitative, challenging,
realistic, consistent, and prioritized. They should be established at the corporate,
divisional, and functional levels in a large organization. Annual objectives should
be stated in terms of management, marketing, finance/accounting,
production/operations, research and development, and management information
systems (MIS) accomplishments. A set of annual objectives is needed for each
long-term objective. Annual objectives are especially important in strategy
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 implementation, whereas long-term objectives are particularly important in
strategy formulation. Annual objectives represent the basis for allocating
resources.
g) Policies: Policies are the means by which annual objectives will be achieved.
Policies include guidelines, rules, and procedures established to support efforts
to achieve stated objectives. Policies are guides to decision making and address
repetitive or recurring situations. Policies are most often stated in terms of
management, marketing, finance/accounting, production/operations, research
and development, and computer information systems activities. Policies can be
established at the corporate level and apply to an entire organization at the
divisional level and apply to a single division, or at the functional level and apply
to particular operational activities or departments. Policies, like annual objectives,
are especially important in strategy implementation because they outline an
organization’s expectations of its employees and managers. Policies allow
consistency and coordination within and between organizational departments.
Substantial research suggests that a healthier workforce can more effectively
and efficiently implement strategies. Smoking has become a heavy burden for
Europe’s state-run social welfare systems, with smoking-related diseases costing
well over $100 billion a year. Smoking also is a huge burden on companies
worldwide, so firms are continually implementing policies to curtail smoking.

Benefits of Strategic Management

Strategic management allows an organization to be more proactive than reactive in
shaping its own future; it allows an organization to initiate and influence (rather than just
respond to activities—and thus to exert control over its own destiny.
Small business owners, chief executive officers, presidents, and managers of many for-
profit and nonprofit organizations have recognized and realized the benefits of strategic
management. Historically, the principal benefit of strategic management has been to
help organizations formulate better strategies through the use of a more systematic,
logical, and rational approach to strategic choice. This certainly continues to be a major
benefit of strategic management, but research studies now indicate that the process,
rather than the decision or document, is the more important contribution of strategic
management.
Financial Benefits:
Research indicates that organizations using strategic-management concepts are more
profitable and successful than those that do not. Businesses using strategic-
management concepts show significant improvement in sales, profitability, and
productivity compared to firms without systematic planning activities. In contrast, firms
that perform poorly often engage in activities that are shortsighted and do not reflect

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good forecasting of future conditions. Strategists of low-performing organizations are
often preoccupied with solving internal problems and meeting paperwork deadlines.
Non-financial Benefits:
Besides helping firms avoid financial demise, strategic management offers other
tangible benefits, such as an enhanced awareness of external threats, an improved
understanding of competitors’ strategies, increased employee productivity, reduced
resistance to change, and a clearer understanding of performance–reward
relationships. Strategic management enhances the problem-prevention capabilities of
organizations because it promotes interaction among managers at all divisional and
functional levels. Firms that have nurtured their managers and employees, shared
organizational objectives with them, empowered them to help improve the product or
service, and recognized their contributions can turn to them for help in a pinch because
of this interaction. In addition to empowering managers and employees, strategic
management often brings order and discipline to an otherwise floundering firm. It can be
the beginning of an efficient and effective managerial system. Strategic management
may renew confidence in the current business strategy or point to the need for
corrective actions. The strategic-management process provides a basis for identifying
and rationalizing the need for change to all managers and employees of a firm; it helps
them view change as an opportunity rather than as a threat.
Greenley stated that strategic management offers the following benefits:
1. It allows for identification, prioritization, and exploitation of opportunities.
2. It provides an objective view of management problems.
3. It represents a framework for improved coordination and control of activities.
4. It minimizes the effects of adverse conditions and changes.
5. It allows major decisions to better support established objectives.
6. It allows more effective allocation of time and resources to identified opportunities.
7. It allows fewer resources and less time to be devoted to correcting erroneous or ad
hoc decisions.
8. It creates a framework for internal communication among personnel.
9. It helps integrate the behavior of individuals into a total effort.
10. It provides a basis for clarifying individual responsibilities.
11. It encourages forward thinking.
12. It provides a cooperative, integrated, and enthusiastic approach to tackling problems
and opportunities.

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13. It encourages a favorable attitude toward change.
14. It gives a degree of discipline and formality to the management of a business.

TOPIC 3
COMPETITIVE ANALYSIS: PORTER’S FIVE-FORCES MODEL
Porter’s Five-Forces Model of competitive analysis is a widely used approach for
developing strategies in many industries. The intensity of competition among firms
varies widely across industries. Note the substantial variation among industries. For
example, the range in profit margin goes from 0 to 18 for food production to computer
software, respectively. Intensity of competition is highest in lower return industries. The
collective impact of competitive forces is so brutal in some industries that the market is
clearly “unattractive” from a profit-making standpoint. Rivalry among existing firms is
severe, new rivals can enter the industry with relative ease, and both suppliers and
customers can exercise considerable bargaining leverage.
Steps of using Porter’s model
The following three steps for using Porter’s Five-Forces Model can indicate whether
competition in a given industry is such that the firm can make an acceptable profit:
1. Identify key aspects or elements of each competitive force that impact the firm.
2. Evaluate how strong and important each element is for the firm.
3. Decide whether the collective strength of the elements is worth the firm entering or
staying in the industry.
According to Porter, the nature of competitiveness in a given industry can be viewed as
a composite of five forces:
1. Rivalry among competing firms
2. Potent
3. Potential development of substitute products
4. Bargaining power of suppliers
5. Bargaining power of consumers.

Rivalry Among Competing

Firms Rivalry among competing firms is usually the most powerful of the five
competitive forces. The strategies pursued by one firm can be successful only to
the extent that they provide competitive advantage over the strategies pursued
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by rival firms. Changes in strategy by one firm may be met with retaliatory
countermoves, such as lowering prices, enhancing quality, adding features,
providing services, extending warranties, and increasing advertising. Free-
flowing information on the Internet is driving down prices and inflation worldwide.
The Internet, coupled with the common currency in Europe, enables consumers
to make price comparisons easily across countries
Potential Entry of New Competitors
Whenever new firms can easily enter a particular industry, the intensity of
competitiveness among firm’s increases. Barriers to entry, however, can include
the need to gain economies of scale quickly, the need to gain technology and
specialized know-how, the lack of experience, strong customer loyalty, strong
brand preferences, large capital requirements, lack of adequate distribution
channels, government regulatory policies, tariffs, lack of access to raw materials,
possession of patents, undesirable locations, counterattack by entrenched firms,
and potential saturation of the market. Despite numerous barriers to entry, new
firms sometimes enter industries with higher-quality products, lower prices, and
substantial marketing resources. The strategist’s job, therefore, is to identify
potential new firms entering the market, to monitor the new rival firms’ strategies,
to counterattack as needed, and to capitalize on existing strengths and
opportunities. When the threat of new firms entering the market is strong,
incumbent firms generally fortify their positions and take actions to deter new
entrants, such as lowering prices, extending warranties, adding features, or
offering financing specials.
Potential Development of Substitute Products.
In many industries, firms are in close competition with producers of substitute
products in other industries. Examples are plastic container producers competing
with glass, paperboard, and aluminum can producers, and acetaminophen
manufacturers competing with other manufacturers of pain and headache
remedies. The presence of substitute products puts a ceiling on the price that
can be charged before consumers will switch to the substitute product. Price
ceilings equate to profit ceilings and more intense competition among rivals.
Bargaining Power of Suppliers
The bargaining power of suppliers affects the intensity of competition in an
industry, especially when there is a large number of suppliers, when there are
only a few good substitute raw materials, or when the cost of switching raw
materials is especially costly. It is often in the best interest of both suppliers and
producers to assist each other with reasonable prices, improved quality,
development of new services, just-in-time deliveries, and reduced inventory
costs, thus enhancing long-term profitability for all concerned. Firms may pursue
a backward integration strategy to gain control or ownership of suppliers. This
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 strategy is especially effective when suppliers are unreliable, too costly, or not
capable of meeting a firm’s needs on a consistent basis. Firms generally can
negotiate more favorable terms with suppliers when backward integration is a
commonly used strategy among rival firms in an industry. However, in many
industries it is more economical to use outside suppliers of component parts than
to self-manufacture the items.
Bargaining Power of Consumers
When customers are concentrated or large or buy in volume, their bargaining
power represents a major force affecting the intensity of competition in an
industry. Rival firms may offer extended warranties or special services to gain
customer loyalty whenever the bargaining power of consumers is substantial.
Bargaining power of consumers also is higher when the products being
purchased are standard or undifferentiated. When this is the case, consumers
often can negotiate selling price, warranty coverage, and accessory packages to
a greater extent. The bargaining power of consumers can be the most important
force affecting competitive advantage. Consumers gain increasing bargaining
power under the following circumstances:
1. If they can inexpensively switch to competing brands or substitutes
2. If they are particularly important to the seller
3. If sellers are struggling in the face of falling consumer demand
4. If they are informed about sellers’ products, prices, and costs
5. If they have discretion in whether and when they purchase the product

TOPIC 4
The Resource-Based View (RBV)
Some researchers emphasize the importance of the internal audit part of the strategic
management process by comparing it to the external audit. Robert Grant concluded that
the internal audit is more important, saying: In a world where customer preferences are
volatile, the identity of customers is changing, and the technologies for serving customer
requirements are continually evolving, an externally focused orientation does not
provide a secure foundation for formulating long-term strategy. When the external
environment is in a state of flux, the firm’s own resources and capabilities may be a
much more stable basis on which to define its identity. Hence, a definition of a business
in terms of what it is capable of doing may offer a more durable basis for strategy than a
definition based upon the needs which the business seeks to satisfy

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The Resource-Based View (RBV) approach to competitive advantage contends that
internal resources are more important for a firm than external factors in achieving and
sustaining competitive advantage. In contrast to the I/O theory (The industrial
organization (I/O) view of strategy assumes that the external environment determines
the actions a firm can deploy. Industry and market structures are likely to determine a
firm's strategic conduct and performance.), proponents of the RBV view contend that
organizational performance will primarily be determined by internal resources that can
be grouped into three all-encompassing categories: physical resources, human
resources, and organizational resources.5 Physical resources include all plant and
equipment, location, technology, raw materials, machines; human resources include all
employees, training, experience, intelligence, knowledge, skills, abilities; and
organizational resources include firm structure, planning processes, information
systems, patents, trademarks, copyrights, databases, and so on. RBV theory asserts
that resources are actually what helps a firm exploit opportunities and neutralize threats.
The basic premise of the RBV is that the mix, type, amount, and nature of a firm’s
internal resources should be considered first and foremost in devising strategies that
can lead to sustainable competitive advantage. Managing strategically according to the
RBV involves developing and exploiting a firm’s unique resources and capabilities, and
continually maintaining and strengthening those resources. The theory asserts that it is
advantageous for a firm to pursue a strategy that is not currently being implemented by
any competing firm. When other firms are unable to duplicate a particular strategy, then
the focal firm has a sustainable competitive advantage, according to RBV theorists.
For a resource to be valuable, it must be either (1) rare, (2) hard to imitate, or (3) not
easily substitutable. Often called empirical indicators, these three characteristics of
resources enable a firm to implement strategies that improve its efficiency and
effectiveness and lead to a sustainable competitive advantage. The more a resource(s)
is rare, non imitable, and non substitutable, the stronger a firm’s competitive advantage
will be and the longer it will last.
Rare resources are resources that other competing firms do not possess. If many firms
have the same resource, then those firms will likely implement similar strategies, thus
giving no one firm a sustainable competitive advantage. This is not to say that
resources that are common are not valuable; they do indeed aid the firm in its chance
for economic prosperity. However, to sustain a competitive advantage, it is more
advantageous if the resource(s) is also rare.
It is also important that these same resources be difficult to imitate. If firms cannot easily
gain the resources, say RBV theorists, then those resources will lead to a competitive
advantage more so than resources easily imitable. Even if a firm employs resources
that are rare, a sustainable competitive advantage may be achieved only if other firms
cannot easily obtain these resources.

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TOPIC 5
STAGES OF STRATEGIC MANAGEMENT
The strategic-management process consists of three stages:
 strategy formulation,
 strategy implementation, and
 strategy evaluation.
Strategy formulation includes developing a vision and mission, identifying an
organization’s external opportunities and threats, determining internal strengths and
weaknesses, establishing long-term objectives, generating alternative strategies, and
choosing particular strategies to pursue. Strategy-formulation issues include deciding
what new businesses to enter, what businesses to abandon, how to allocate resources,
whether to expand operations or diversify, whether to enter international markets,
whether to merge or form a joint venture, and how to avoid a hostile takeover
Steps of strategic management:
i) Establishment of Vision, Mission, and Goals.
ii) SWOT (strengths, weaknesses, opportunities, and threats), TOWS
(Threats, Opportunities, Weaknesses, Strengths), PESTEL (Political,
Economic, Sociological, Technological, Legal and Environmental)
analysis.
iii) Strategy Formulation.
iv) Strategy Implementation.
v) Strategy Evaluation

Strategy Formulation:
Strategy formulation is the process by which an organization chooses the most
appropriate courses of action to achieve its defined goals. This process is essential to
an organization's success, because it provides a framework for the actions that will lead
to the anticipated results.
•Here are 10 steps which guide you in deciding the strategy of your company.
Steps 1 to 5 mainly involve internal or external research as well as very long term
strategy making (Strategies made in the first 5 steps affect the whole life cycle
of the company)
•Step 6 to 10 involve decision making based on the research as well as the
decisions taken for the company in the previous steps. The last steps are more
inclined towards implementation.

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1) A vision statement (crisp and to the point) is a must for developing a strategy.
Exploring and deciding on the vision of the company gives you clarity on the main
objectives of the company. A vision statement is a company's road map, indicating
what the company wants to become by setting a defined direction for the company's
growth. Vision statements undergo minimal revisions during the life of a business, unlike
operational goals which may be updated from year-to-year.
2) Mission Statement: This mission statement would actually determine the
methodology of the company in reaching its vision, its purposes and its philosophy
behind its goals. A mission statement is a short statement of why an organization
exists, what its overall goal is, identifying the goal of its operations: what kind of product
or service it provides, its primary customers or market, and its geographical region of
operation
3) Define the company profile: The company profile needs to be comprehensive
which further clears the goals/objectives of the organization. What would be the
strengths of the company, capabilities, management. In essence mention everything
you can about the company. This helps in transparency while deciding the strategy.
4) Study the Internal & External environment: SWOT analysis and PESTEL analysis:
Political, Economical, Sociological, Technical, Environmental and Legal. i.e. an in depth
study on internal & external environment is necessary and the same should be
mentioned in the strategy report.
5) The 5th step involves matching all three – Mission statement, Company profile and
the internal and external environment such that they are in sync to achieve the vision of
the company.
6) Deciding the actions for accomplishing the mission of the organization
7) Selecting long term strategies which will be most effective
8) Deciding on short term strategies arising from the long- term ones such that these
short- term strategies too are in sync with the mission and vision statement
9) Deciding the budget and resource allocation according to the short -term strategy
10) Implementation of the strategies along with pre decided review system along with
measures to maintain control

Following these 10 steps of deciding on a strategy, you get – A vision statement, a

mission statement, long term strategies, short term strategies, budget and resource
allocation and finally implementation along with review plans.
Strategy Implementation:

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Strategy implementation is a process that puts plans and strategies into action to reach
desired goals. The strategic plan itself is a written document that details the steps and
processes needed to reach planned goals, and includes feedback and progress reports
to ensure that the plan is on track.
Process of Strategy Implementation
•Building an organization, that possess the capability to put the strategies
into action successfully.
•Supplying resources, in sufficient quantity, to strategy-essential activities
•Developing policies which encourage strategy.
•Such policies and programs are employed which helps in continuous
improvement.
•Combining the reward structure, for achieving the results
•Using strategic leadership.
•The process of strategy implementation has an important role to play in
the company’s success. The process takes places after environmental
scanning, SWOT analyses and ascertaining the strategic issues.
Strategy Evaluation:
Strategy evaluation means collecting information about how well the strategic plan is
progressing. Strategic Evaluation is defined as the process of determining the
effectiveness of a given strategy in achieving the organizational objectives and taking
corrective action wherever required.
The process of Strategy Evaluation consists of following steps-
•Fixing benchmark of performance
•Measurement of performance:
•Analyzing Variance/Gap analysis:
•Taking Corrective Action:
Evaluation of Strategic Management
Strategic Evaluation is defined as the process of determining the effectiveness of a
given strategy in achieving the organizational objectives and taking corrective action
wherever required. Strategy evaluation is the final step of strategy management
process.
Strategic evaluation is an important tool for assessing how well your business has
performed, relative to its goals. It's an important way to reflect on achievements and

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shortcomings, and is also useful for re-examining the goals themselves, which may
have been set at a different time, under different circumstances.
Steps in Strategic Evaluation:
i) Determine what to evaluate and control.
ii) Set standards.
iii) Measure performance.
iv) Compare performance.
v) Analyze deviations-gap analysis.
vi) Decide if corrective action is needed.
Advantages of SM Model:
1. Financial benefits:
2. Guide to organizational activities:
3. Competitive advantage:
4. Minimize risk:
5. Beneficial for companies with long gestation gap:
6. Promotes motivation and innovation:
7. Optimum utilization of resources:
Limitations of SM Model
1. Lack of knowledge:
2. Interdependence of units:
3. Managerial perception:
4. Financial considerations:
These limitations are by and large, conceptual and can be overcome through rational,
systematic and scientific planning. Researchers have proved that companies which
make strategic plans outperform those who don’t have.
TOPIC 6
SWOT Matrix: Definition, Benefits and Uses
A SWOT matrix is a powerful analytical tool that organizations and leaders use to guide
their decision-making process. It helps companies identify their strengths and mitigate
risks to more effectively plan for the future. Knowing how to use the SWOT matrix
effectively can help the organization you work for identify opportunities and protect its
advantages.

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  A SWOT matrix is a tool that allows businesses or individuals to identify their
strengths, weaknesses, opportunities and threats.
 SWOT matrices help organizations complete an honest assessment of a
business to understand its competitive advantages and determine where it can
improve.
 Creating a SWOT matrix is a simple process that enables employees to
collaborate and offer valuable insight to increase a company's success.
Elements of a SWOT matrix
"SWOT" stands for strengths, weaknesses, opportunities and threats. Below is an
explanation of each element:
Strengths
Strengths are the qualities that give a business, organization or individual a comparative
advantage over others. They're the factors that enable a company to achieve its
objectives. Strengths can be tangible resources, such as a strong balance sheet,
buildings, machinery, employees and a market. Intangible strengths may include strong
customer loyalty, a talented staff, patents and an excellent reputation.
Weaknesses
Weaknesses are factors that reduce an organization's ability to accomplish its goals.
They can include a lack of funds, low production capacity, unmotivated employees and
a small market share. A SWOT analysis can help a business identify its weaknesses
and turn them into strengths.
Opportunities
Opportunities are unexplored factors that can provide rewards for a business, project or
individual. Opportunities can take the form of experience, new technology, new markets
or even a poorly performing competitor. Identifying opportunities can help a business
use its strengths to its advantage.
Threats
Threats are events or factors beyond a company's or person's control that can affect
them negatively. Also known as risks, threats are external factors that a SWOT analysis
can help businesses identify and take proactive measures. This can help reduce or
eliminate the threat's effects.
SWOT MATRIX See File
TOPIC 7
TYPES OF STRATEGIES

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FUNCTIONAL STRATEGIES
Functional strategies are defined as those strategies that achieve goals and objectives
in a specified functional area and allot different resources among various processes
within that functional area so as to achieve the business and corporate objectives in
whole. Functional strategies are a part of the business and corporate strategies. Let’s
take an example to understand this in a better manner. Suppose a company opts for the
cost leadership business strategy for one of its businesses. So now all actions and
procedures should be focused on how to achieve a low-cost structure and decrease the
overall cost. Now all the functional areas of marketing, finance, operations, human
resource and information technology will contribute in achieving the objective of
lowering the cost in their own specialized manner. This will make the overall cost
leadership strategy successful for the company.
IMPORTANCE OF FUNCTIONAL PLANS AND POLICIES
Glueck suggested that there are five reasons why a company needs functional plans
and policies. The reason for developing functional plans and policies are:
1) The strategic decisions are implemented throughout the organization
uniformly. 2) All activities of the organization can be controlled easily as
strategies are sub divided in smaller plans and policies.
3) The time taken by the functional mangers in decision making is reduced as
plans make everyone clear of what is to be done and in what manner. 4) Similar
situations that occur in different functional areas are handled in a consistent
manner.
5) Coordination within various functional areas can be achieved easily.
NATURE OF FUNCTIONAL PLANS AND POLICIES
To achieve effectiveness, it is very important for the strategic management to choose
the right way in which the strategies are implemented. As functional strategies are a
part of corporate and business strategies, thus it is very critical for the company to
design these strategies in a proper manner and within the framework of the strategies
and plans set at the higher level. Functional strategies constitute various sub-functional
plans and policies which are equally important namely: a) Marketing plan and policies b)
Financial plan and policies c) Operations plan and policies d) Human resource
management plan and policies e) Information Technology plan and policies
COMPETIVE STRATEGY
Competitive strategy is common in many economic structures, including capitalism.
Companies can use competitive strategies to continue to generate and increase their
profits and expand their operations.

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A competitive strategy is a set of policies and procedures that a business uses to gain a
competitive advantage in the market. It's the process of identifying and executing
actions that allow a business to improve its competitive position. Businesses may use
various competitive strategies to raise the value of their products and services for
consumers, investors and employees. They also implement these strategies to gain
sustainable revenue streams.
IMPORTANCE OF COMPETITIVE STRATEGIES
Competitive strategy is important because it affects the overall strategies of a business.
If a business doesn't have a competitive strategy, it may not find a unique advantage
against its competitors. A competitive strategy is crucial in finding and developing new
ideas for products and services that the company can offer. Other advantages of
implementing a competitive strategy include:
 The exploration of new opportunities
 The retainment of customer loyalty with better products and services
 Innovation to stay current on technological changes in the market
TYPES OF COMPETITIVE STRATEGIES
There are four types of competitive strategy and an example for each:

1. Cost leadership strategy

A cost leadership strategy keeps prices for products and services lower than
competitors to encourage customers to purchase the lower-priced products to
save money. Businesses use a cost leadership strategy in industries with high
price elasticity, such as energy and transportation. This strategy is most effective
for companies that can produce a large volume of products for low costs. These
businesses often have large-scale production methods, high-capacity utilization
and various distribution channels with which to work.

2. Differentiation leadership strategy

Businesses may use the differentiation leadership strategy to differentiate their
products from competitors by emphasizing specific features of their products.
This strategy might involve the design or function of a product. A company that's
been in operation for a while may use this strategy to show that an original
offering is better than newer products. Alternatively, a newer company may use
this strategy to show that a new invention is more beneficial than existing
offerings. The goal is to appeal to more customers through unique features and
quality while keeping competitors from obtaining a larger market share for
products.

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 3. Cost focus strategy
The cost focus strategy is similar to the cost leadership strategy, but the cost
focus strategy involves catering to a specific market. This strategy still involves
trying to offer the lowest price, but it attempts to target a unique market segment
with specific preferences and needs. When a company implements a cost focus
strategy, it can establish brand awareness more easily within a specific
geographic market.
4. Differentiation focus strategy
The differentiation focus strategy is similar to the differentiation leadership
strategy in that both attempt to highlight unique product attributes and features.
The difference between them is that while the differentiation leadership strategy
may involve appealing to a broader market, the differentiation focus strategy
involves appealing to a specific market segment. This strategy typically doesn't
prioritize the price of a company's offerings, as it attempts to highlight how a
company's offerings are unique compared to those of its competitors

GROWTH STRATEGY
Definition
A growth strategy is a plan that companies make to expand their business in a specific
aspect, such as yearly revenue, number of customers, or number of products. Specific
growth strategies can include adding new locations, investing in customer acquisition, or
expanding a product line.
TYPES OF GROWTH STRATEGY
There are four strategies: market penetration, product development, market
development, and diversification.
1. Market penetration strategy
Market penetration is an intensive growth strategy that emphasizes more
intensive marketing of existing products. This strategy has two goals: sell more to
existing customers and sell to new customers in existing markets. Both goals
require extensive, and expensive, marketing (advertising, promotions, and so
on). However, market penetration is a way for a business to increase its profits
by taking advantage of its existing skills, experience, and knowledge about its
target markets. It is a popular growth strategy for small businesses. Existing
customers may be convinced to buy more of a product if the business advertises
new uses for that product. The makers of dry soup mixes could, for example,
publish recipes for party dips made from their products. Businesses can also try
to convince existing customers to buy a product more often.

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To successfully penetrate a market, one should have the detailed knowledge of
the market and the competitor intelligence and strategies used by them. Market
penetration to some extent is dependent on the organization that how well they
know about the existing product. Market penetration strategy can be
implemented during following stages:
 When the product offers economies of scale, therefore helps in gaining
competitive advantages.
 When the relationship between the sale and marketing expenditure is
high.
 When there is scope of significantly increasing the usage rate of the
product among the existing customers.
 When there is large potential in the industry but the share of the existing
customers is declining.
 When the markets are not matured with the existing products or
services.
2. Market Development strategy
Market development strategy involves introducing the existing products and
services into the new markets. It is a two-step process. It starts with the market
segmentation. Segment is a small section of the overall market and one need to
identify the market segment which is worth pursuing with the help of market
research.
Once the market segment is known, then next step is of developing a
promotional strategy to penetrate in the market. It is somewhere similar to market
penetration but in market development more focus is given to establishing
presence in the new markets. Market development strategy can be achieved in
following ways:
 New Geographical markets: This involves selling the existing
product or service to the new region, country or continent. Risk is
involved in this strategy if one could not use its well-known sales
channels in the new market.
 New product dimensions or packaging: This strategy includes
repacking the product so as to open up in the new market. For
example: a company that sold bottle of the Shampoo could make it
available in smaller packaging and could develop a suitable brand
image in the domestic market. One should consider the cost
involved in the packaging and the requirements of the new markets
so that changes can be made according to the new market.

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  New Distribution channels: This involves identifying new
distribution channels in order to be in more reach to the customers.
 New market segment created by different pricing: This strategy
incorporates different pricing policies to create a new market
segment. Although the strategies of market development are
similar, but market development involves uncertainty, financial
commitment and risk. One of the greater disadvantages of this
strategy is the risk of pushing away the customers by offering the
products to a wider network of customers.
Market Development strategy can be implemented during following
stages:
 When new unexploited and unstructured markets exist.
 When com When there is availability of new channels of
distribution that are inexpensive and reliable.
 When the company has the surplus production capacity.
 When the company’s product scope is large and is global.
 When the company is having surplus capital and human
resources to manage the total operations When the company is
having surplus capital and human resources to manage the total
operations.
3. Product Development strategy
Product development strategy includes improving or modifying the existing
products so as to increase the sale of the existing products and services. In
simple terms, this strategy deals with improving the quality of the products
and therefore, increasing the sales and revenues of the products. The quality
of the existing products can be improved by modifying the existing products.
This strategy includes intensive research and development costs. Product
development involves following strategies:
 Research and Development: This strategy requires the use of the
new technology, process and material to modify the existing
product and service and to offer something new to the customers.
For example: Mobile manufacturing companies offer new models in
every three months or modify the existing models with the help of
the technology so to add newness to the products.
 Assessing customer needs: To modify the existing product and
service, company need to assess the customer needs, so that
accordingly they can make the change. Customer needs can be
assessed by data collection by using various qualitative and
quantitative tools such as questionnaire, observation method etc

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 because successfully understanding and interpreting the customer
needs are important for the company.
 Brand extension: Brand Extension strategy incorporates the
launch of a new product with the existing brand name i.e. to use the
established brand name for the new products so as to quickly
capture the market share. In this strategy, the existing brand
leverages its customer and brand image to the new product. There
is a high risk associated with this strategy because if the new
product becomes unsuccessful, it will also tarnish the image of the
existing product. To make this strategy a success, one should use
the extension when there is a logical association between the
original product and the new product but still it is hard to predict that
brand extension will be a success or not.

4. Diversification
Definition
Diversification is a corporate strategy to enter into or start new products or
product lines, new services or new markets, involving substantially
different skills, technology and knowledge. Diversification is defined as
“the entry of a firm or a business, either by processes of internal business
development or acquisition, which entails changes in administrative
structure, systems and other management processes. As the saying goes,
“Don’t put all your eggs in one basket”, a company is diversified when it is
in two or more lines of business.
When the firm develops new products for new markets, this strategy is
known as diversification. There is a need to switch internal focus and the
company creates new business units, buy subsidiaries, get engaged in
technology share or build consortiums. For example, McDonalds started
its coffee-house-style food and beverage chain under the brand name
McCafe.

Types of Diversification Strategy.

Though there are various ways in which the diversification strategy can
be looked upon, but at the initial level, we classify this at two levels. These
include:
 Related Diversification - This strategy is based on
transferring and leveraging competencies, sharing
resources, and bundling products. The value chain
possesses competitively valuable cross business strategic
fits. In this case, a firm enters into a new business activity in
a different industry that has common features with the
existing value chain of the business. In other words, the new

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 business is related to the company’s existing business
activities. This strategy of growth and expansion is based on
transferring and leveraging competencies. There has to be a
strategic fit between the existing business and the new
business that the firm intends to diversify.
 Unrelated Diversification – This strategy is based on using
the general organizational competencies to increase
profitability of each business unit. The new business wherein
the firm intends to diversify has no connection with the
existing value chain of the company. In fact the value chains
are so dissimilar that no competitively valuable cross-
business relationship exists. This strategy involves
diversifying into business that has no strategic fit, no
meaningful value chain relationships and no unifying
strategic theme. The firms which pursue unrelated
diversifications are generally known as conglomerates.
Firms can build shareholder value through unrelated
diversification through astute corporate parenting by
management, cross business allocation of financial
resources; and acquiring and restructuring undervalued
companies. The basic approach is to diversify into any
industry where potential exists and through diversification
the firm can realize higher profits. For example, Samsung
operates in electronic, shipbuilding, insurance etc. Similarly,
Tata Group is in multiple business like airlines, telecom,
steel etc.
 Concentric Diversification – This is similar to related
diversification where the company seeks new products that
have technologically or marketing synergy with the existing
product lines. In terms of the business definition, the firm
takes up an activity in such a manner that is related to
customer group, customer function or alternative
technologies. For example, Philips which is strong in lighting
and electronics business entered into communication
systems, telecommunication equipment and other
businesses. Similarly, if a sewing machine manufacturer
starts manufacturing kitchen appliances considering women
as their target customers. In this grand strategy, the new
business has a high degree of compatibility with the firm’s
current business. The underlying objective behind adopting
the concentric diversification strategy is to benefit from
synergy effects by attracting new groups of customers. The
synergy happens because of the interactions and the

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 interrelatness of the combined operations and the sharing of
resources, capabilities and distinctive competencies. This
strategy is useful under the conditions when adding new and
related products increases overall sales, current products
are at decline of product life cycle. The concentric
diversification can be of further three types. These are o
Marketing Related Concentric Diversification – When a
similar product is offered with the help of unrelated
technology.
For example, a printer manufacturing company starts selling
stationery products o Technology Related Concentric
Diversification – When a new type of product is provided with
the help of related technology. For example, electronic major
diversifies into telecommunication equipment o Marketing
and Technology related Concentric Diversification – When a
similar type of product is provided with the help of related
technology. For example, books, maps and calendars are
sold in same shop. The advantage of concentric
diversification strategy is that it brings in synergy by
exchange of resources and skills. Further this strategy also
helps in achieving economies of scale. The disadvantage is
risk and commitment of resources and reduction in flexibility
to carry out the operations.

 Horizontal Diversification – When new products are

introduced to current markets it is known as horizontal
diversification. In other words, adding new unrelated
products or services for present customers is known as
horizontal diversification strategy. In the present era of high
competition, this strategy often results in desirable
outcomes. As compared to other strategy, this is less risky
as the firm is familiar with its present customers. This
strategy is desirable when the overall revenues from the
current products will significantly increase by adding new
products. Further under conditions where the existing
product is seasonal / cyclical in nature and the new product
have counter cyclical patterns. The advantage of horizontal
diversification is opportunities to achieve economies of scale
and scope. Further there shall be opportunities to expand
product offering or expand into new geographical areas. One
of the major disadvantage of this strategy is the difficulty and
complexity of managing different businesses which require
different competencies and skill sets.

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  Conglomerate Diversification - Adding new, unrelated
products or services is called conglomerate diversification.
This is similar to unrelated diversification as this strategy
takes the organization beyond both its existing markets and
products. For example, ITC which is basically a tobacco
company is also into hotel industry which is totally unrelated
in terms of products, customers and markets. Infact there is
no technological or commercial synergy with the existing
business of the firm in terms of customer groups, customer
functions and alternate technology. The underlying motive
behind adopting this strategy is to improve the overall
profitability of the firm as well as develop its ability to get
access to capital. Though this is a high risk strategy, yet if
properly implemented can yield higher shareholder value in
the long run. For example Tata Group is India largest
conglomerate with its presence in chemicals, consumer
products, energy, engineering, information systems, steel
and services.
Levels of Diversification
The extent to which a firm diversifies can be understood by looking into
the revenue that flows in from the dominant business. The following are
the various levels at which the diversification can take place
 Low Diversification (Single Business) – When more than
95% of the revenue comes from single business unit. In this
the firm could be either in single business or single vertical.
 Low Diversification (Dominant Business) – When70 – 95%
of the revenue comes from a single business unit. The firm
could be in either of these options – dominant vertical,
dominant constrained, dominant linked, dominant unrelated
 Moderate Diversification – When all business share
product, technology linkages and less than 70% of the
revenue comes from the dominant business.
 High Diversification – With limited linkages between
various business, less than 70 percent of revenue comes
from dominant business.
 Very High Diversification – When the firm adopts unrelated
diversification strategy and none of the business have
interlinkages. The firm could choose either multi business or
unrelated portfolio.

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8. Diversification Decisions
The decision whether to diversify or not to diversify largely depends on the
following two major issues
 Is the existing industry less attractive as compared to the new
industry where the firm intends to enter?
 Will the firm able to establish competitive advantage in the new
industry where the firm intends to enter? As the superior profit
derives from the two sources – industry attractiveness and
competitive advantage, it is important for any firm to find answers to
these questions before making decision to diversify. Diversification
decisions include the scope of the industries and markets in which
the firm competes. In addition to this it is also important to
understand how managers buy, create and sell different businesses
to match skills and strengths. In other words, we say that the
diversification decision has to pass through three tests
 The industry-attractiveness test
 The cost-of-entry test
 The better-off test
There are various drivers of diversification including exploiting economies of
scope, stretching corporate management competencies, exploiting superior
internal processes and increasing market power.
9. Mode of Diversification
The following are the mode of diversification
 Internal Development – Also known as Corporate venturing, under
this strategy the firm always goes for organic growth model by
investing its own resources for building up new business.
 Acquisition – Under this mode as discussed in previous module,
the firm acquires an existing established business and enters into
new business.
 Joint Venture – Under this mode, the firm enters into an alliance
with the partner and both share each other expertise to enter into
new business.
 Licensing – It is a strategy for technology transfer wherein two
firms enter into contractual arrangement whereby the licensor
(selling firm) allows the use of its technology, patents, designs,

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 processes etc. The sharing of its tangible and intangible assets is
done for a fee or royalty.
Advantages and Disadvantages of Diversification
There are various advantages and motivation to use the diversification
strategy. Most companies use diversification strategies in order to capitalize
on synergies. Some of them are as follows
 Risk Reduction
 To move out of unattractive and undesirable industries
 To ensure stability of cash flows
 To use surplus cash
To avoid hostile takeovers
 To build shareholder value
 To create synergies among the business of firms
 Exploit better and additional opportunities
 Efficient capital allocation
 Builds corporate brand equity
 Facilitates cross selling and gives access to more markets.
 Increased flexibility
 Increased profitability
 Ability to grow quickly
 Better access to capital markets
 Diversification of Risk
While diversifying the major objective of firms is to look for synergistic effects. These
synergies are obtained by exploiting economies of scale, economies of scope and
efficient allocation of capital. Though the lists of benefits are enormous, this strategy
has also some limitations and disadvantages. These are:
 Shareholders have no say in capital allocation process.
 It is easier to hide poorly performing business.
 Risk of inferior investment in new businesses
 Overextension of company’s resources
 Lack of expertise in running the diversified business as different
business require different skill sets
 May result in reduced innovation because of increased
bureaucratic procedures and ability to quickly respond to market changes
 As the firm diversifies there is a risk of decreased commitment on
the core business.

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  Increases the overall administrative costs and often result in
losses.  There are limits to diversification as the firm should ensure
that the extent of diversification must be balanced with its
bureaucratic costs.  As the scope of diversification widens, control
and bureaucratic costs increases there is difficulty in coordination
among various businesses.
 As the scope of diversification widens, information overload can
lead to poor resource allocation decisions and create inefficiencies.
Importance of growth strategy
1.To stay relevant and thrive in their respective industries,
companies need to optimize their strategies to the changing
business environment and evolving customer needs. Our Growth
Strategy can
2. To help you address key business questions, such as:
• How to unlock new revenue and profit potential?
• How to profitably enter new markets and segments?
• How to develop and commercialize new products or
services?
• How to leverage digital technology to enhance your
business?
• How to attract new customers and enhance loyalty?
TOPIC 8
STRATEGY IMPLEMENTATION AND CONTROL
What is strategy implementation and why is it important?
 From a marketing perspective strategy implementation can
be
considered to be the process of executing the marketing
strategy by creating and performing specific actions that will
ensure the achievement of the businesses marketing
objectives.
 Many organizations are weak at implementing strategies and
channel all their efforts and energies into strategic planning
which in itself does not lead to change within or for the
organization.

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Five approaches for strategy implementation have been identified:
1. Implementation by command – strategies are developed by top level
management and filtered down for lower-level employees to implement
2. Implementation through change – current organizational systems and
structured are adapted and modified in order to ensure successful
implementation of the strategy
3. Implementation through consensus – managers from different departments
join together to develop a collective strategy and all work towards
implementing the strategy
4. Implementation through organizational culture – the strategy becomes part
of the overall mission and vision of the organization and the strategy becomes
embedded in the organizational culture
5. Implementation through coercive – this approach emphasizes the bottom up
approach to strategy development, coercive means to ‘increase’ or ‘grow’ thus
in this approach managers encourage employees to contribute to strategy
development and implementation
Major barriers to strategy implementation can arise in the form of:
• Managers are not trained properly in strategy implementation
• The strategy planning and implementation process are done by different parties
• The inability of managers to adapt to current issues or strategies for that matter
• Strategies that are poorly planned may result in poor execution
• Employees may not understand the strategy
• There is poor or inadequate sharing of info regarding the strategy
• Accountable parties for the implementation are not clearly assigned
• Employees are not motivated to implement the strategy or perhaps not clearly
affiliated with it
The strategy evaluation and control process consists of 5 steps:
1. Establish performance criteria
2. Do performance projections
3. Measure actual strategy performance
4. Evaluate strategy performance

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 5. Take Action
Evaluation/control techniques.
1) The marketing audit - an investigation into the businesses
marketing environment and activities
2) Sales analysis – the collection, classification, comparison and
evaluation of a business’s sales figures
3) Cost analysis – a comprehensive investigation of the businesses
costs
4) Efficiency analysis – examines the standards that are expressed in
terms of the relationship between input and output
5) Qualitative observation – managers or employees look, listen,
learn, ask, ponder and record their observations.
Strategy and control is important for the following reasons:
• It determines whether the strategy is valid and realistic
• It guarantees that responsible parties work together
• It is important in negotiating problems between different divisions
• It identifies areas of concern that need attention by top management
• It assists in delivering feedback on current performance in order for good
performance to be assessed and rewarded
• It provides businesses with information and experience to plan effective
strategies from the start
• There are a lack of resources to implement the strategy
• There is poor vertical communication or inadequate leadership skills in the
organization
• There are ineffective evaluation and control feedback devices
Finally, strategy evaluation and control has 3 broad benefits:
1) It ensures management that they are heading in the right direction and
corrective action is taken when needed

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2) It provides guidance to everyone in the organization and allows them to
assess whether desired and actual performance line up
3) It inspires confidence and motivates employees and management to perform
well.

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