CONTENTS

Unit Contents Page No.

1 Introduction to Business Policy and Strategic Management 1-20

2 Internal and Environmental Analysis 21-33

3 Strategic Analysis and Choice 34-43

4 Corporate and Business Strategies 44-57

5 Strategic Implementation and Control 58-74

 Introduction to Strategic
UNIT - 1 Management

INTRODUCTION TO BUSINESS POLICY

AND STRATEGIC MANAGEMENT
Structure:
1.1 Introduction to the chapter
1.2 Business Policy as a Discipline
1.2.1 Features of Business Policy
1.2.2 Difference between Policy and Strategy
1.3 Concept of Strategy
1.3.1 Definition of Strategic Management
1.3.2 Nature of Strategic Management
1.3.3 Importance of Strategic Management
1.3.4 Objectives of Strategic Management
1.3.5 Benefits of Strategic Management
1.4 Process of Strategic Management
1.5 Strategic Intent
1.5.1 Vision
1.5.2 Mission
1.5.3 Goals
1.5.4 Objectives
1.6 Levels of Strategy
1.7 Summary
1.8 Self Assessment Questions

Course Objectives
To understand the concept of strategy formulation and business policies for
effective business functioning in an environment of change.
To identify the opportunities and threads in environment critical internal appraisal
of resources within an organization, so as to develop corporate and business
strategies.
Learning Outcomes
The students will learn various concepts and thought processes in strategic
management. This will help in developing strategically clear thinking rather than
Introduction To Business
blindly using other people’s concepts. Policy And Strategic
Management 1
 Introduction to Strategic Objectives of this Chapter
Management
After going through this unit, you will be able to:
ü Explain the concept Business Policy as a discipline
ü Explain the concept of strategic management
ü Describe the nature, Importance and Objectives of strategic management
ü Benefits of Strategic Management
ü Identify the different levels at which strategy operates
ü Discuss the strategic management process
ü Understanding the role of Vision, Mission, Objectives and Goals in an
organization

1.1 INTRODUCTION TO THE CHAPTER

This chapter introduces the concept of business policy and strategic
management. This concept is said to provide an understanding of interrelatedness
between the business as whole and its different aspects. Attaining strategic
dimensions has become a core aspect for management in this competitive world.
Any business without a strategy is said to be a ship without a rudder going around
in circle without any direction. Business policy and Strategy are highly
interwined.

1.2 BUSINESS POLICY AS A DISCIPLINE

In Management studies the origin of Business Policy as a field of study was
evolved in 1911, when Harward Business School introduced an integrative course
in management. The aim of this course was creation of general management
capabilities based on the experience of corporate enterprises and the history of
success and failure of business over a period of time. Numerous expert studies on
business education and therefore the Business policy course were made obligatory
for all Business Schools in USA. Since then, Business Policy was commenced as a
vital course in the management program in many nations including India.
Thus business policy integrates knowledge and methods learnt in
functional courses such as production, finance, marketing, HR. It develops
analytical skills and deciding capabilities of scholars through extensive case
studies, research reports, industry specific studies and data. Business policy
promotes positive attitude, ethical value and healthy way of thinking to require
holistic view of the interior also as external stakeholders of a corporation. (Appa
Rao, 2009).
However, there are been changes focused of the Business Policy course
since the 1980s. The modern approach is focused on Strategic Management. The
generic term business policy denotes to all or any of an organization's processes
Introduction To Business and procedures. This can range from human resources policies to the company's
Policy And Strategic marketing schedule and its plans for expansion and development. Business policy
2 Management
is strongly related to strategic management because the policies are basically the Introduction to Strategic
strategies put into action. Management

1.2.1 FEATURES OF BUSINESS POLICY

An effective business policy must have following features-
1. Specific- Policy should be specific / definite. If it’s uncertain, then the
implementation will become difficult.
2. Clear- Policy must be unambiguous. It should avoid use of jargons and
connotations. There should be no misunderstandings in following the
policy.
3. Reliable/Uniform- Policy must be uniform enough in order that they are
often efficiently followed by the subordinates.
4. Appropriate- Policy should be appropriate to this present organizational
goal.
5. Simple- A policy should be simple and simply understood by all in the
organization.
6. Inclusive/Comprehensive- So as to possess a good scope, a policy must be
comprehensive.
7. Flexible- Policy should be flexible in operation/application. This doesn’t
imply that a policy should be altered always, but it should be wide in scope
so as to make sure that the road managers use them in repetitive/routine
scenarios.
8. Stable- Policy should be stable else it’ll cause to indecisiveness and
uncertainty in minds of these who check out for guidance.

1.2.2 DIFFERENCE BETWEEN POLICY AND STRATEGY

The term “policy” shouldn’t be considered as synonymous to the term “strategy”.
The difference between policy and strategy are often summarized as follows-
1. Policy is a blueprint of the organizational activities which are repetitive in
nature. While strategy cares with those organizational decisions which
haven’t been dealt/faced before in same form.
2. Policy formulation is responsibility of top level management. While
strategy formulation is essentially done by middle level management.
3. Policy deals with routine/daily activities essential for effective and efficient
running of a corporation. While strategy deals with strategic decisions.
4. Policy cares with both thought and actions. While strategy is concerned
mostly with action.
5. A policy is what’s, or what’s not done. While a strategy is the methodology
used to achieve a target as prescribed by a policy. Introduction To Business
Policy And Strategic
Management 3
 Introduction to Strategic 1.3 CONCEPT OF STRATEGY
Management
Strategy in general is the way to perform war or ways to win over enemies.
In business context, strategy is the way a business responds to the dynamic and
often hostile external forces for achieving their dream. Strategy relates to the goals
of the organization to the means of achieving them. So it is said to be the “Game
Plan of Management”. It is an action plan built to achieve a specific goal or set of
goals within a definite time, while operating in an organizational framework. It is
all about identification and description of the strategies that can be carried out so
as to achieve better performance and have competitive advantage for their
organization. They must have a thorough knowledge and analysis of the general
and competitive organizational environment so as to take right decisions. A
strategy is all about integrating organizational activities and utilizing and
allocating the scarce resources within the organizational environment so on to
meet these objectives. While planning a technique it’s essential to think about that
decisions aren’t taken during a vacuum which any act taken by a firm is probably
going to be met by a reaction from those affected, competitors, customers,
employees or suppliers.
Strategic management not only relates to single specialization but covers
cross-functional or overall organization.
• Strategic management is a comprehensive area that covers almost all the
functional areas of the organization. It is an umbrella concept of
management that comprises all such functional areas as marketing, finance
and account, human resource, and production and operation into a top level
management discipline. Therefore, strategic management has an
importance within the organizational success and failure than any specific
functional areas.
• Strategic management deals with organizational level and top level issues
whereas functional or operational level management deals with the precise
areas of the business.
• Top-level managers like Chairman, director, and corporate level planners
involve more in strategic management process.
• Strategic management relates to setting vision, mission, objectives, and
strategies that can be the guideline to design functional strategies in other
functional areas
Therefore, it is top-level management that paves the way for other
functional or operational management in an organization

1.3.1 DEFINITION OF STRATEGIC MANAGEMENT

The word “strategy” is derived from the Greek word “stratçgos”; stratus
(meaning army) and “ago” (meaning leading/moving). According to Chandler
strategic management is about the determination of the basic long-term goals and
objectives of an enterprise and the adoption of the course of action and the
Introduction To Business
Policy And Strategic allocation of resources necessary for carrying out these goals.
4 Management
“Strategic management is concerned with the determination of the basic long- Introduction to Strategic
term goals and the objectives of an enterprise and the adoption of courses of Management
action and allocation of resources necessary for carrying out these goals”.
– Alfred Chandler
“Strategic management is a stream of decisions and actions which lead to the
development of an effective strategy or strategies to help achieve corporate
objectives”.
– Glueck and Jauch
“Strategic management is the process of managing the pursuit of organizational
mission while managing the relationship of the organization to its environment”
-James M. Higgins
“Strategic management is a process of formulating, implementing and evaluating
cross-functional decisions that enable an organization to achieve its objective”.
– Fed R David
“Strategic management is the set of decisions and actions resulting in the
formulation and implementation of plans designed to achieve a company’s
objectives.”
– Pearce and Robinson
“Strategic management is the process of building capabilities that allow a firm to
create value for customers, shareholders, and society while operating in
competitive markets.”
-Rajiv Nag, Donald Hambrick and Ming-Jer Chen
“Strategic management is defined as the set of decisions and actions resulting in
the formulation and implementation of strategies designed to achieve the
objectives of the organization”
-John A. Pearce II and Richard B. Robinson, Jr
“Strategic management is the process of examining both present and future
environments, formulating the organization's objectives, and making,
implementing, and controlling decisions focused on achieving these objectives in
the present and future environments”
-Garry D. Smith, Danny R. Arnold, Bobby G. Bizzell
“Strategic management is a continuous process that involves attempts to match
or fit the organization with its changing environment in the most advantageous
way possible”
-Lester A. Digman
Strategy also can be defined as knowledge of the goals, the uncertainty of events
and therefore the need to take into consideration the likely or actual behaviour of
others. Strategy is that the blueprint of selections in a corporation that shows its
objectives and goals, reduces the key policies, and plans for achieving these
goals, and defines the business the company is to hold on, the sort of economic Introduction To Business
Policy And Strategic
Management 5
 Introduction to Strategic and human organization it wants to be, and therefore the contribution it plans to
Management form to its shareholders, customers and society at large.

1.3.2 NATURE OF STRATEGIC MANAGEMENT

Strategic management is an Art and science of formulating, implementing,
and evaluating, cross-functional decisions that facilitate a corporation to
accomplish its objectives. The nature of strategic management is to create new
opportunities for future. It demands different actions for different situations to
solve a problem and achieve desirable goals. Strategy is future oriented. It deals
with new situations which have not arisen in past to deal in as a new revised
strategic format. It is dissimilar from other facets of management as it demands
awareness to the “big picture” and a rational approach towards upcoming
situations. It also provides direction to the organization in the form of vision
statement. It also provides clarity towards structure for governance at different
levels, method for accountability, logical framework to handle risk in order to
guarantee continuity in business, the capability to exploit opportunities and react
to external change by taking ongoing strategic decisions.
According Professor Ellen Earle-Chaffee, the Core elements of strategic
management are:
• Involves adapting the organization to its business environment
• Affects the entire organization by providing direction
• Involves strategy formulation processes and implementation of the content
of the strategy
• May be planned and unplanned
• Is done at levels: overall corporate strategy and individual business
strategies
• Involves both conceptual and analytical thought processes.

1.3.3 IMPORTANCE OF STRATEGIC MANAGEMENT

• Strategy involves a great deal of risk and resource assessment in planning or
designing, ways to counter the risks, and effective utilization of resources
while trying to achieve a significant purpose.
• An organization is generally established with a goal in mind, and this goal
defines the purpose for its existence. All of the work carried out by the
organization revolves around this particular goal, and it has to align its
internal resources and external environment in a way that the goal is
achieved in rational expected time.
• Undoubtedly, since an organization is a big entity with probably a huge
underlying investment, strategizing becomes a necessary factor for
successful working internally, as well as to get feasible returns on the
Introduction To Business expended money.
Policy And Strategic
6 Management
• Strategic Management at a corporate level normally incorporates Introduction to Strategic
preparation for future opportunities, risks and market trends. This makes Management
way for the firms to analyze, examine and execute administration in a
manner that is most likely to achieve the set aims. As such, strategizing or
planning must be covered as the deciding administration factor.
• Strategic Management and the role it plays in the accomplishments of firms
has been a subject of thorough research and study for an extensive period of
time. Strategic Management in an organization ensures that goals are set,
primary issues are outlined, time and resources are pivoted, functioning is
consolidated, internal environment is set towards achieving the objectives,
consequences and results are concurred upon, and the organization remains
flexible towards any external changes.
• As more and more organizations have started to realize that strategic
planning is the fundamental aspect in successfully assisting them through
any sudden contingencies, either internally or externally, they have started
to absorb strategy management starting from the most basic administration
levels. In actuality, strategy management is the essence of an absolute
administration plan. For large organizations, with a complex organizational
structure and extreme regimentation, strategizing is embedded at every tier.
• Apart from faster and effective decision making, pursuing opportunities
and directing work, strategic management assists with cutting back costs,
employee motivation and gratification, counteracting threats or better,
converting these threats into opportunities, predicting probable market
trends, and improving overall performance.
• Keeping in mind the long-term benefits to organizations, strategic planning
drives them to focus on the internal environment, through encouraging and
setting challenges for employees, helping them achieve personal as well as
organizational objectives. At the same time, it is also ensured that external
challenges are taken care of, adverse situations are tackled and threats are
analyzed to turn them into probable opportunities.

1.3.4 OBJECTIVES OF STRATEGIC MANAGEMENT

§ Strategy provides direction to the organization as an entire and to the
employee especially.
§ It evaluates the performance of varied departments and therefore the
employees.
§ It prioritizes the allocation of resources for what the organization wants to
achieve within the near future.
§ Strategy provides a framework for effective planning with the organization;
§ Strategy helps in controlling the activities within organization.

Introduction To Business
Policy And Strategic
Management 7
 Introduction to Strategic
Management

Short term objectives are the road map that shows where the organization
wants to travel. It’s the foremost difficult to line short term objectives as it must be
clear, practical, and easily understandable for every levels to implement. As short
term objectives are framed keeping in mind the future objectives in mind.
Otherwise the organization will stray in and around the decided goals apart from
having a day to day impactful work performance. Some examples of short term
objectives are research and improving the customer satisfaction, improve internal
employee engagement, increasing the monthly revenues, increasing monthly
personal production levels or increasing weekly personal sales, increasing
monthly production levels, decreasing daily error rates and increasing quarterly
production efficiency, to extend sales etc.
A long term objective differs from one organization to another. In some
business “Intermediate term objective” is additionally considered which is taken
into account for the time period of time from quite one to three years. In such
situation the above stated long term objectives are considered for a period more
than three years. Some examples for long term objectives are profitability,
productivity, competitive position, employee involvement, employee relations,
technological leadership, and public responsibility.
In order to make sure attainability, the long-term objectives got to be
acceptable, flexible and measurable over a period of time, motivating, suitable,
understandable, and achievable.

Introduction To Business
Policy And Strategic
8 Management
 Introduction to Strategic
Management

Based on the business-structure of a corporation, there could also be

corporate objectives, business-unit objectives, functional objectives, and
operating objectives. These objectives cascade from the corporate top to the rock
bottom levels of the organization.
Corporate objectives are set at the highest level organization by board of
directors and therefore the senior level officials. The business level objectives are
formulated on the basis of corporate level objectives.
Based on the business-unit objectives the functional objectives are set by the mid-
level managers. Departmental level managers achieve the operating objectives i.e.
achieving objectives of the short run.

1.3.5 BENEFITS OF STRATEGIC MANAGEMENT

Strategic Management has numerous benefits.
• It helps in identifying, prioritizing and exploiting the opportunities.
• It enhances coordination among the entire task performed in the
organization.
• It helps in environmental scanning.
• It provides appropriate data for taking decisions.
• It serves as a road map for an organization.
• The understanding about the competitor’s strategies is enhanced.
• The management of the organization becomes more formal and disciplined. Introduction To Business
Policy And Strategic
Management 09
 Introduction to Strategic • There is an objective view about the problems of the management with the
Management application of strategic management concepts.
• The individual responsibilities are clarified with the help of application of
strategic management in the organization.
• The forward thinking is encouraged in the organization.
• The coordination is improved in the organization along with the control of
activities.
• The consequences of adverse conditions and change are minimized with the
strategic management.
• The internal communication among the employees is made better.
• The individual behaviour of employee is integrated with the overall total
effort of the organization.
• The individual responsibilities are clarified with the help of application of
strategic management in the organization.
• The forward thinking is encouraged in the organization.
• The problems and opportunities are tackled with enthusiastic, integrated
and cooperative approach.
• The favourable attitude towards change is encouraged in the organization.

1.4 PROCESS OF STRATEGIC MANAGEMENT

In today's highly competitive business environment, budget-oriented
planning or forecast-based planning methods are insufficient for a large
corporation to survive and prosper. Strategic management process consists of a
number of elements which are discrete and identifiable activities performed in
logical and sequential steps. The firm must engage in Strategic planning that
clearly defines objectives and assesses both the internal and external situation to
formulate strategy, implement the strategy, evaluate the progress, and make
adjustments as necessary to stay on track.

According to Training Associates “ TTA”

Research on Strategic Management and planning states the following
results,
95% of a typical workforce doesn’t understand its organization’s strategy
90% of organizations fail to execute their strategies successfully
86% of executive teams spend less than one hour per month discussing strategy
60% of organizations don’t link strategy to budget

A simplified view of the strategic planning process is shown by the following

Introduction To Business diagram:
Policy And Strategic
10 Management
 Introduction to Strategic
Management

https://www.mbaskool.com/business-concepts/marketing-and-strategy-
t e r m s / 7 2 4 7 - s t r a t e g i c - m a n a g e m e n t -
process.html#:~:text=1.%20Goal%20Setting:

a) Goal Setting:
Goal setting is termed as Strategic Intent that clearly states the vision,
mission and goals of the organization. It is in the form of a number of
corporate challenges and opportunities, specified as short term projects. It
provides a significant stretch for the company, a sense of direction, which
can be communicated to all employees. It should not focus so much on
today's problems, but rather on tomorrow's opportunities. Goal setting
helps in setting the competitive factors, which are critical for success in the
long run. Goal Setting provides a clear picture about what an organization
must get into immediately in order to use the opportunity. It helps
management to emphasize and concentrate on the priorities. It is nothing
but, influencing the organization’s resource potential and creating a core
competency to achieve what at first may seem to be unachievable goals in
the competitive environment.
b) Analysis
During the analysis phase all the data relevant to achieve the set goals of the
organization is gathered, potential internal and external factors that can
affect the growth of the organization is identified.
The analysis includes the following components:
• Analysis of the firm (Internal environment)
• Analysis of the firm's industry (micro or task environment)
• Analysis of the external macro environment (PEST analysis)
The internal analysis can identify the firm's strengths and weaknesses and
the external analysis reveals opportunities and threats. A profile of the strengths,
weaknesses, opportunities, and threats is generated by means of a SWOT
analysis.
An industry analysis can be performed using a framework developed by
Michael Porter known as Porter's five force model. This framework evaluates
entry barriers, suppliers, customers, substitute products, and industry rivalry.
Introduction To Business
Policy And Strategic
Management 11
 Introduction to Strategic c) Strategy Formulation
Management
After the goal setting and analysis of internal and external environment the
organization moves towards formulation of strategy phase where the plan to
acquire the required resources is designed, prioritization of the issues facing
the business is done and finally the strategy is formulated accordingly. It is
the development of long-range plans for the effective management of
environmental opportunities and threats, in light of corporate strengths and
weakness. It includes defining the corporate mission, specifying achievable
objectives, developing strategy and setting policy guidelines.
d) Strategy Implementation
After formulating a strategy, the employees of the organization are clearly
made aware of their roles and responsibilities. It is the process by which
strategy and policies are put into actions through the development of
programs, budgets and procedures. This process might involve changes
within the overall culture, structure and/or management system of the entire
organization.
e) Evaluation and Control
After the strategy is implemented it is vital to continually measure and
evaluates the progress so that changes can be made if needed to keep the
overall plan on track. This is known as the control phase of the strategic
planning process. While it may be necessary to develop systems to allow for
monitoring progress, it is well worth the effort. This is also where
performance standards should be set so that performance may be measured
and leadership can make adjustments as needed to ensure success.

1.5 STRATEGIC INTENT

Strategic Intent can be understood as the philosophical base of strategic
management process. It implies the purpose, which an organization endeavours of
achieving. It is a statement that provides a perspective of the means, which will
lead the organization, reach the vision in the long run. Strategic intent gives an
idea of what the organization desires to attain in future. It answers the question
what the organization strives or stands for? It indicates the long-term market
position, which the organization desires to create or occupy and the opportunity
for exploring new possibilities.

Introduction To Business
Policy And Strategic
12 Management
1.5.1 VISION Introduction to Strategic
Management
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

The three elements of a strategic vision are:

1. Coming up with a mission statement that defines what business the
company is presently in and conveys the essence of “Who we are and where
we are now?”
2. Using the mission statement as basis for deciding on a long-term course
making choices about “Where we are going?”
3. Communicating the strategic vision in clear, exciting terms that arouse
organization wide commitment.

Vision statement provides direction and inspiration for organizational goal

setting. It is where the organization sees off itself at the end of the horizon or the
milestone therein. It is a dream stated in a single statement or aspiration. Typically
a vision has the flavors of 'Being Most admired', 'Among the top league', 'Being
known for innovation', 'being largest and greatest' and so on. Typically 'most
profitable', 'Cheapest' etc. don’t figure in vision statement.
Ø Vision is a symbol, and a cause to bond the employees and share-holders. As
the people work best, when they are working for a cause, than for a goal.
Vision provides an individual with a cause.
Ø Vision is long-term statement and typically generic and grand. Therefore a
vision statement does not change unless the company is getting into a totally
different kind of business.
Ø Vision should never carry the 'how' part. The reason for not including 'how'
that ‘how’ is may keep on changing with time.

• Challenges related to Vision Statement:

Putting-up a vision is not a challenge. The problem is to make employees
engaged with it. Many a time, terms like vision, mission and strategy
become more a subject of scorn than being looked up-to. This is primarily
because leaders may not be able to make a connect between the
vision/mission and people’s every day work. Too often, employees see a
gap between the vision, mission and their goals and priorities. Even if there
is a valid/tactical reason for this mis-match, it is not explained.
• Horizon of Vision:
Vision should be the horizon of 5-10 years. If it is less than that, it becomes Introduction To Business
tactical. If it is of a horizon of 20+ years, it becomes difficult for the strategy Policy And Strategic
to relate to the vision. Management 13
 Introduction to Strategic Features of a good vision statement
Management
• Easy to read and understand.
• Compact and Crisp to leave something to people’s imagination.
• Gives the destination and not the road-map.
• Is meaningful and not too open ended and far-fetched.
• Excite people and make them get goose-bumps.
• Provides a motivating force, even in hard times.
• Is perceived as achievable and at the same time is challenging and
compelling, stretching us beyond what is comfortable.

Vision is a dream/aspiration, fine-tuned to reality:

The Entire process starting from Vision down to the business objectives is
highly iterative. Vision and mission statement should be made first without being
judged by constraints, capabilities and environment. This can said akin to the
vision of armed forces, that’s 'Safe and Secure country from external threats'. This
vision is a non-negotiable and it drives the organization to find ways and means to
achieve their vision, by overcoming constraints on capabilities and resources.
Vision should be a stake in the ground, a position, a dream, which should be
prudent, but should be non-negotiable barring few rare circumstances.

1.5.2 MISSION STATEMENT

Mission of an organization is the purpose for which the organization is.
Mission is again a single statement, and carries the statement in verb. Mission in
one way is the road to achieve the vision. For example, for a luxury products
company, the vision could be 'To be among most admired luxury brands in the
world' and mission could be 'To add style to the lives'
According to Glueck & Jauch mission is answer to the question ‘what
business are we in’ that is faced by corporate-level strategist
A company’s Mission statement is typically focused on its present business
scope – “who we are and what we do”; mission statements broadly describe an
organizations present capabilities, customer focus, activities, and business
makeup.

Now the question arises, Why organization should have a mission statement?
• It ensures unanimity of purpose within the organization.
• It provides a basis for motivating the use of the organization’s resources.
• It helps in development of basis on which resources are allocated.
• It serves as a focal point for those who can identify with the organization’s
Introduction To Business
Policy And Strategic purpose and direction.
14 Management
 • It facilitates the translation of objectives and goals into work structure Introduction to Strategic
involving the assignment of tasks to responsible elements within the Management
organization.
• It translates organizational purposes into goals in such a way that cost, time,
and performance parameters can be assessed and controlled.
A good mission statement is always:
• Clear and Crisp: While there are different views, It is strongly recommend
that mission should only provide what, and not 'how and when'. A mission
statement without 'how and when' element leaves a creative space with the
organization to enable them take-up wider strategic choices.
• Mission provides a visible linkage to the business goals and strategy: For
example one cannot have a mission for a home furnishing company of
‘Bringing Style to People’s lives’ whiles the strategy demands for mass
production and selling. It’s better that either sell high-end products to high
value customers, or change the mission statement to 'Help people build
homes'.
• Should not be same as the mission of a competing organization. It should
touch upon how its purpose is unique.

Mission follows the Vision:

The entire process starting from vision down to the business objectives is
highly iterative. The question is from where to start. It’s strongly recommended
that mission should follow the vision. This is because the purpose of the
organization could change to achieve their vision.
For example, to achieve the vision of an Insurance company 'To be the most
trusted Insurance Company', the mission could be first 'making people financially
secure' as their emphasis is on Traditional Insurance product. At a later stage the
company can make its mission as 'Making money work for the people' when they
also include the non-traditional unit linked investment products.

TOYOTA

Vision
-Toyota aims to achieve long -term, stable growth economy, the local communities it serves,
and its stakeholders.

Mission
-Toyota seeks to create a more prosperous society through automotive manufacturing.

Introduction To Business
Policy And Strategic
Management 15
 Introduction to Strategic AMAZON
Management
Vision

To be Earth’s most customer -centric company, where customers can find and discover
anything they might want to buy online, and endeavors to offer its customers the lowest
possible prices.

Mission

Serve consumers through online and physical stores and focus on selection, price, and
convenience.

1.5.3 GOALS
It is where the business wants to go in the future, its aim. It is a general
statement of purpose of what you want to achieve. More specifically, it is a
milestone in the process of implementation of a strategy.
Examples of business goals are:
• Increase profit margin.
• Increase efficiency.
• Capture a bigger market share.
• Provide better customer service.
• Improve employee training.
• Reduce carbon emissions.
Goals are mainly focused on the important aspects of implementing the
strategy. Too many goals set at the same time may lose the focus of the
organization, so it has to be framed in such a way that they do not contradict and
interfere with each other.
• Understandable: Is it stated simply and easy to understand?
• Suitable: Does it assist in implementing a strategy of how the mission will
achieve the vision?
• Acceptable: Does it fit with the values of the organization and its
members/employees?
• Flexible: Can it be adapted and changed as needed?
Organization ensures three types of aims in which the first is vision set for
aspiring for the future. A Mission which reflects the organization past and present
by stating why the organization exists and what role it plays in society. Goals are
more specific aims that organizations pursue to reach their vision and mission. The
best goals are SMART: it means they are Specific, Measurable, Aggressive,
Realistic and Time-bound.
Introduction To Business
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16 Management
1.5.4 OBJECTIVES Introduction to Strategic
Management
Objectives are organizations performance targets – the results and
outcomes it wants to achieve. They function as yardstick for tracking an
organizations performance and progress. It is an open-ended attributes that
denote the future states or outcomes. Goals are close-ended attributes which are
precise and expressed in specific terms.
Objectives with strategic focus relate to outcomes that strengthen an
organizations overall business position and competitive vitality. They give the
business a clearly defined target. Plans can then be made to achieve these targets.
This can motivate the employees. It also enables the business to measure the
progress towards to its stated aims.
Examples of business objectives are:
• Earn at least a 20 percent after-tax rate of return on our investment during
the next fiscal year
• Increase market share by 10 percent over the next three years.
• Lower operating costs by 15 percent over the next two years through
improvement in the efficiency of the manufacturing process.
• Reduce the call-back time of customer inquiries and questions to no more
than four hours.

Objective to be meaningful to serve the intended role must possess following

characteristics:
• Objectives should define the organization’s relationship with its
environment.
• They should be facilitative towards achievement of mission and purpose.
• They should provide the basis for strategic decision-making.
• They should provide standards for performance appraisal.
• Objectives should be understandable.
• Objectives should be concrete and specific.
• Objectives should be related to a time frame.
• Objectives should be measurable and controllable.
• Objectives should be challenging.
• Different objectives should correlate with each other.
• Objectives should be set within constraints.

The Difference between goals and objectives

• Goals are broad; objectives are narrow.
Introduction To Business
• Goals are general intentions; objectives are precise. Policy And Strategic
Management 17
 Introduction to Strategic • Goals are intangible; objectives are tangible.
Management
• Goals are abstract; objectives are concrete.
• Goals can't be validated as is; objectives can be validated.

1.6 LEVELS OF STRATEGY

Strategy can be framed at three levels
• Corporate level
• Business unit level
• Functional or departmental level

The hierarchy in levels of strategy is corporate level strategy at the top, business
level strategy in the middle and functional level strategy at the bottom. Business
level strategy is being formulated based on the corporate level strategy, and the
functional level strategies are being formulated out of business level strategy.

Ø Corporate Level Strategy

Corporate level strategy is concerned with the decisions related to various
businesses in which the company competes. These strategies are usually
developed by the company’s top level management considering the
company’s overall growth opportunities in future. It describes the
orientation and direction of the enterprise in the long run and the overall
boundaries which acts as the basis for formulating the company’s business
and functional level strategies. At this level of strategy formulation, actions
are taken to gain competitive advantage through competing in various
industries or product markets. It gives a clear picture of:
v What businesses should the firm be in?
v How should the corporate office manage its group of businesses?
Introduction To Business Strategies at this level are responsible for creating value through their
Policy And Strategic businesses. They do so by managing their portfolio of businesses, ensuring
18 Management
 that the businesses are successful over the long-term, developing business Introduction to Strategic
units, and sometimes ensuring that each business is compatible with others Management
in the portfolio. It enables a company or its business units, to perform one or
more of the value creation functions at a lower cost, or in a way that
supports differentiation advantage. It is the way an organization creates
value through the configuration and coordination of multiple market
activities.
While considering the corporate-level strategies it deals with taking
decisions like diversification, forward or backward integration, horizontal
integration, profit, turnaround, divestment, market penetration,
liquidation, concentration, investigation, stability, expansion etc.
Ø Business Level Strategy
At business level strategy, the strategic issues are less about the
coordination of operating units and more about developing and sustaining a
competitive advantage for the goods and services that are produced. It
incorporates the company’s policies, goals and actions with a focus of
creating value to the customers while maintaining the competitive
advantage. Overall it outlines how business should be carried out to reach
the desired ends.
At the business level, the strategy formulation phase deals with:
v Positioning the business against rivals
v Anticipating changes in demand and technologies and adjusting the
strategy to accommodate them
v Influencing the nature of competition through strategic actions such as
vertical integration and through political actions such as lobbying.
Michael Porter identified three generic strategies (cost leadership, differentiation,
and focus) that can be implemented at the business unit level to create a
competitive advantage and defend against the adverse effects of the five forces.
Business level strategies are usually developed by the general managers, who
convert mission and vision into concrete strategies. It is like a blueprint of the
entire business.

Ø Functional Level Strategy

Functional level strategies are the day today strategies that keep the
organization moving in the specified direction. This level of strategy is
perhaps the most important of all, as without a daily plan the organization is
stuck in neutral whereas the completion continues to drive forward. The
strategic issues at the functional level are related to business processes and
the value chain. Functional level strategies in marketing, finance,
operations, human resources, and Research and development involve the
development and coordination of resources through which business unit
level strategies can be executed efficiently and effectively. Introduction To Business
Policy And Strategic
Management 19
 Introduction to Strategic Functional units of an organization are involved in higher level strategies by
Management providing input into the business unit level and corporate level strategy, such as
providing information on resources and capabilities on which the higher level
strategies can be based. Once the higher-level strategy is developed, the functional
units translate it into discrete action-plans that each department or division
accomplishes the strategy to succeed.

1.7 SUMMARY
v A strategy is all about integrating organizational activities and utilizing and
allocating the scarce resources within the organizational environment so as
to meet the present objectives.
v Strategic management process consists of a number of elements which are
discrete and identifiable activities performed in logical and sequential
steps.
v The process of strategic management has four main phases of establishing
the hierarchy of strategic intent, formulation of strategies, implementation
of strategies and performance of strategic evaluation and control.
v It depends on the vision / mission of the company, where it would like to
reach from its current position.
v Vision – Big picture of what you want to achieve.
v Mission – General statement of how you will achieve the vision.
v Goals – These are general statements of what needs to be accomplished to
implement a strategy.
v Objectives – Objectives provide specific milestones with a specific
timeline for achieving a goal.
v Strategy can be formulated on three different levels: a) Corporate level b)
Business unit level c) Functional or departmental level.

1.8 SELF ASSESSMENT QUESTIONS

1) Define the term “Strategic Management”. Discuss its importance.
2) What are the benefits of the Strategic Management study?
3) What are the various levels of strategy?
4) What are the elements of the strategic management process?
5) What is a mission Statement? What are the uses of Mission statement?
6) What is the importance of goal setting?

Introduction To Business
Policy And Strategic
20 Management
 Introduction to Strategic
UNIT 2 Management

INTERNAL AND ENVIRONMENTAL ANALYSIS

Structure:
2.1 Introduction to the Chapter
2.2 Environmental Analysis
2.3 Competitive Analysis
2.4 Michael Porters – Five forces model.
2.5 SWOT Analysis
2.6 Identification of Distinct Competencies
2.7 Summary
2.8 Self Assessment Questions

Objective of Chapter-2
After going through this unit, you will be able to:
ü Explain what is Environmental Analysis
ü Understand the role of Competitive Analysis
ü Application of Michael Porters-Five forces model
ü How SWOT analysis helps the Organization
ü Identification of Distinct Competencies

2.1 INTRODUCTION TO THE CHAPTER

This chapter will help you in understanding the concept of environment in
which organization strives to sustain its current position, achieve the desired state
in the face of difficulties. This chapter will also help you in understanding
challenges posed by the activities of competitors and environmental forces.
Environmental analysis plays a crucial role in bringing the organization from a
given state to a desired success in the future period of time by understanding its
internal strengths and weakness and the external opportunities and threats.

2.2 ENVIRONMENTAL ANALYSIS

Environmental analysis has a vital role in business as it indicates the current
environmental condition and potential opportunities and threats prevalent in the
external environment. The external environment includes political, economic,
social and technological trends that can affect the business directly or indirectly.
An environmental analysis is usually conducted as part of an analysis of strengths,
Internal and
weaknesses, opportunities, and threats (SWOT) when a strategic plan is being Environmental Analysis 21
 Introduction to Strategic developed. Practice of applying strategic management can be conducted every
Management quarterly, half yearly, annually depending on the nature of the industry.
Organization that identifies the events or conditions in the external environments
has the potential to achieve competitive advantage and decrease its risk of not
being ready when faced with threats (Alok Goyal, Mridula Goyal, 2009).

Environmental analysis keeps the decision makers well informed about the
external environment which in turn helps the timely development of strategy.
Environmental analysis includes changing of political parties, increasing
regulations to decrease pollution, technological expansions, and shifting
demographics. If a new technology is developed and is being used in a different
industry, a strategic manager would understand how this technology could also be
used to improve processes within his business. An analysis allows businesses to
gain an outline of their environment to discover opportunities or threats. It
facilitates strategic thinking in the organization.

2.3 COMPETITIVE ANALYSIS

It is always said that “Keep your friends close, but keep your enemies even
closer”. Organization does not exist in vacuum they operate within a competitive
industry environment. Understanding the competitors help the organization to
discover its strengths and weakness, it also helps in analyzing the opportunities
and threats from the external environment. Before formulation of any strategy, a
manager must consider the strategies adopted by the competitors. Competitive
analysis helps in building organization’s strategy and its effects on how firms act
or react in their field. The organization does a competitive analysis to measure its
position among the competitors. A well formulated competitive analysis helps the
organization to get the cutting edge in strategizing a course of action against the
competitor’s strategy.
The objectives of doing competitor analysis can be summarized as:
• To study the market;
• To predict and forecast organization’s demand and supply;
• To formulate strategy;
• To increase the market share;
Internal and
22 Environmental Analysis • To study the market trend and pattern;
 • To develop strategy for organizational growth; Introduction to Strategic
Management
• When the organization is planning for the diversification and
expansion plan;
• To study forthcoming trends in the industry;
• Understanding the current strategy strengths and weaknesses of a
competitor can suggest opportunities and threats that will merit a
response;
• Insight into future competitor strategies may help in predicting
upcoming threats and opportunities.
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Competitors should be analyzed along various dimensions such as their

size, growth and profitability, reputation, objectives, culture, cost structure,
strengths and weaknesses, business strategies, exit barriers, etc.

2.4 MICHAEL PORTERS – FIVE FORCES MODEL

The model of the Five Competitive Forces was developed by Michael E.
Porter which was published in Harward Business Review in 1979. Porter’s model
is based on the insight that a corporate strategy should meet the opportunities and
threats in the organizations external environment. Especially, competitive
strategy should base on and understanding of industry structures and the way they
change. Porter has identified five competitive forces that shape every industry and
every market. These forces determine the intensity of competition and hence the
profitability and attractiveness of an industry. The objective of corporate strategy
should be to modify these competitive forces in a way that improves the position
of the organization. Porter’s model supports analysis of the driving forces in an
industry. Based on the information derived from the Five Forces Analysis,
management can decide how to influence or to exploit particular characteristics of
their industry.
Porter argues that there are five forces that determine the profitability of an
industry which includes three forces from 'horizontal' competition--the threat of
substitute products or services, the threat of established rivals, and the threat of
new entrants--and two others from 'vertical' competition--the bargaining power of
suppliers and the bargaining power of customers.

Micheal Porters 5 Force Model

Ø Threat of new entrants,
Ø Threat of substitute products
Ø Bargaining power of suppliers,
Ø Bargaining power of buyers,
Internal and
Ø Rivalry among existing players and Environmental Analysis 23
 Introduction to Strategic "The collective strengths of these forces determine the ultimate profit potential in
Management the industry, where profit potential is measured in terms of long run return on
investment capital".

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Ø Threat of New Entrants

The market share of an existing firm starts decreasing as more and more
new entrants are attracted towards that business. Profitable industries
attract new firms, which in turn brings new capacity and the desire to gain
market share. This results in decrease the profitability of the existing firm.
The seriousness of the threat depends on the barriers to enter a certain
industry. The higher these barriers to entry, the smaller the threat for the
existing players.

The following factors can have an effect on how much of a threat new entrants may
pose:
• The existence of barriers to entry (patents, rights, etc.). The most attractive
segment is one in which entry barriers are high and exit barriers are low. It's
worth noting, however, that high barriers to entry almost make exit more
difficult.
• Government policy such as sanctioned monopolies or legal franchise
requirements.
• Capital requirements - clearly the Internet has influenced this factor
dramatically. Web sites and apps can be launched cheaply and easily as
opposed to the brick and mortar industries of the past.
• Absolute cost
• Cost disadvantages independent of size
• Economies of scale
Internal and
24 Environmental Analysis • Product differentiation
• Brand equity Introduction to Strategic
Management
• Switching costs are well illustrated by structural market characteristics
such as supply chain integration but also can be created by firms. Airline
frequent flyer programs are an example.
• Expected retaliation - For example, specific characteristics of oligopoly
markets is that prices generally settle at equilibrium because any price rises
or cuts are easily matched by the competition.
• Access to distribution channels
• Customer loyalty to established brands. This can be accompanied by large
brand advertising expenditures or similar mechanisms of maintained brand
equity.
• Industry profitability (the more profitable the industry, the more attractive
it will be to new competitors)
• Network effect which is particularly influential in internet based social
networks such as Facebook

Ø Threat of Substitute Products

A substitute product uses a different technology to try to solve the same
economic need. It is the existence of products outside the boundary whose
tendency pushes the customers to switch to alternative product. This type
of products can be easily identified with the help of similarity of the
product or differently branded by the competitors. Examples of substitutes
are meat, poultry, and fish; landlines and cellular telephones; airlines,
automobiles, trains, and ships and so on. For example, tap water is a
substitute for Coke, but Pepsi is a product that uses the same technology to
compete head-to-head with Coke, so it is not a substitute. Increased
marketing for drinking tap water might "shrink the pie" for both Coke and
Pepsi, whereas increased Pepsi advertising would likely "grow the pie"
(increase consumption of all soft drinks), while giving Pepsi a larger
market share at Coke's expense.
The following factors can have an effect on how much of a threat of
substitute products may pose:
• Buyer propensity to substitute. This aspect incorporated both
tangible and intangible factors. Brand loyalty can be very important
as in the Coke and Pepsi example above; however contractual and
legal barriers are also effective.
• Relative price performance of substitute
• Buyer's switching costs. This factor is well illustrated by the
mobility industry. Uber and its many competitors took advantage of
the incumbent taxi industry's dependence on legal barriers to entry
and when those fell away, it was trivial for customers to switch.
There were no costs as every transaction was atomic, with no Internal and
incentive for customers not to try another product. Environmental Analysis 25
 Introduction to Strategic • Perceived level of product differentiation which is classic Michael
Management Porter in the sense that there are only two basic mechanisms for
competition - lowest price or differentiation. Developing multiple
products for niche markets is one way to mitigate this factor.
• Number of substitute products available in the market
• Ease of substitution
• Availability of close substitute

Ø Bargaining Power of Suppliers

The concentration of suppliers and the availability of substitute suppliers
are important factors in determining supplier power. The bargaining power
of suppliers identifies the power and controls the company’s supplier, has
over the potential raise in price or quality etc. It is also described as the
market of inputs. The fewer the suppliers are, the more power they possess.
Businesses are in a better position when there is multitude of suppliers.
Sources of supplier power also includes the switching cost of companies in
the industry, the presence of available substitutes, the strength of their
distribution channels and the uniqueness or level of differentiation in the
product or service the supplier is delivering. Suppliers of raw materials,
components, labour, and services to the firm can be a source of power over
the firm when there are few substitutes. If one is making biscuits and there is
only one person who sells flour, there is no alternative available but to buy it
from that one seller. Suppliers may refuse to work with the firm or charge
excessively high prices for unique resources.
The following factors can have an effect on how much of a bargaining
power a supplier may pose:
• Supplier switching costs relative to firm switching costs
• Degree of differentiation of inputs
• Impact of inputs on cost and differentiation
• Presence of substitute inputs
• Strength of distribution channel
• Supplier concentration to firm concentration ratio
• Employee solidarity (e.g. labor unions)
• Supplier competition: the ability to forward vertically integrate and
cut out the buyer.

Ø Bargaining Power of Buyers

The customers have a lot of power when they are less in number and when
they have many alternatives to buy from. The bargaining power of
Internal and customers is also described as the market of outputs: the ability of
26 Environmental Analysis customers to put the firm under pressure, which also affects the customer's
 sensitivity to price changes. Moreover, it should be easy for them to switch Introduction to Strategic
from one company to another. The internet has allowed customers to Management
become more informed and therefore more empowered. Customers can
easily compare prices online, get information about a wide variety of
products and get access to offers from other companies instantly.
Companies can take measures to reduce buyer power for example
implementing loyalty programs or by differentiating their products and
services.
The following factors can have an effect on how much of a bargaining
power a buyer may pose:
• Buyer concentration to firm concentration ratio
• Degree of dependency upon existing channels of distribution
• Bargaining leverage, particularly in industries with high fixed costs
• Buyer switching costs
• Buyer information availability
• Availability of existing substitute products
• Buyer price sensitivity
• Differential advantage (uniqueness) of industry products
• RFM (customer value) Analysis

Ø Rivalry among Existing Players

Having an understanding of industry rivals it becomes vital to successfully
market a product. It is the intense current competition which examines the
number of existing competitors and their capacity to create a change.
Positioning pertains to how the public perceives a product and distinguishes
it from its competitors. A business must be aware of its competitors'
marketing strategies and pricing and also be reactive to any changes made.
Rivalry is high when there are a lot of competitors that are roughly equal in
size and power, when the industry is growing slowly and when consumers
can easily switch to a competitors offering for little cost. When rivalry is
high, competitors are likely to actively engage in advertising and price wars,
which can hurt a business’s bottom line. In addition, rivalry will be more
intense when barriers to exit are high, forcing companies to remain in the
industry even though profit margins are declining. These barriers to exit can
for example be long-term loan agreements and high fixed costs.
The following factors can have an effect on how much of a rivalry exist
among the competitors may pose:
• Sustainable competitive advantage through innovation
• Competition between online and offline companies
• Level of advertising expense
Internal and
Environmental Analysis 27
 Introduction to Strategic
• Powerful competitive strategy which could potentially be realized by
Management
adhering to Porter‘s work on low cost versus differentiation.
• Firm concentration ratio.

2.5 SWOT ANALYSIS

It is a strategic business tool that enables the organization to scan its internal
and external environment. It is an important part of the strategic planning process.
Environmental factors internal to the firm usually can be classified as strength (S)
or Weakness (W) and those external to the firm can be classified as Opportunities
(O) or Threats (T). This analysis of the strategic environment is referred to as a
SWOT analysis.
The SWOT analysis provides information that is helpful in matching the
firm’s resources and capabilities to the competitive environment in which it
operates. As such, it is instrumental in strategy formulation and selection. Existing
business uses SWOT analysis, at any time, to assess a changing environment and
respond proactively. New businesses use SWOT analysis as a part of their
planning process. There is no “one size fits all” based on the uniqueness of the firm
SWOT analysis can be applied to understand the need of the business at that point
of time.

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analysis/
• Strength
Strengths are the positive attributes, tangible and intangible aspects of the
company, which are used to overcome weakness and capitalize to take
advantage of the external opportunities available in the industry. Strength is
an inherent capacity which an organization can use to gain strategic
Internal and advantage over its competitors. Internal resources like employee,
28 Environmental Analysis knowledge, education, credentials, network, reputation, skills are some
 positive attributes of strength and tangible assets like capital, credit, Introduction to Strategic
customer, distribution channel, patents and technology become the Management
strength of the organization.
• What advantages does your organization have?
• What do you do better than anyone else?
• What unique or lowest-cost resources can you draw upon that others
can't?
• What do people in your market see as your strengths?
• What factors mean that you "get the sale"?
• What is your organization's Unique Selling Proposition (USP)?

Examples of such Strengths include:

· Patents
· Strong brand names
· Good reputation among customers
· Cost advantages from proprietary know-how
· Exclusive access to high grade natural resources
· Favorable access to distribution networks

• Weaknesses
Weakness is the negative factors that take away the strength of the firm. The
weakness need be tackled appropriately to improve the incapability,
limitation and deficiency in resources such as technical, financial,
manpower, skills, brand image and distribution pattern. Thus it refers to the
constraints an organization face.
• What could you improve?
• What should you avoid?
• What are people in your market likely to see as weaknesses?
• What factors lose you sales?

Examples of such Weakness include:

· Lack of patent protection

· A weak brand name
· Poor reputation among customers
· High cost structure
· Lack of access to the best natural resources
· Lack of access to key distribution channels
Internal and
Environmental Analysis 29
 Introduction to Strategic • Opportunities
Management
Opportunities are external factors in a business environment that are likely
to contribute to the success. An opportunity is a major favorable advantage
to a company. Proper analysis of the environment and identification of new
market, new and improved customer group with better product substitutes
or supplier’s relationship could represent opportunities for the company.
• What good opportunities can you spot?
• What interesting trends are you aware of?
• Useful opportunities can come from such things as:
• Changes in technology and markets on both a broad and narrow
scale.
• Changes in government policy related to your field.
• Changes in social patterns, population profiles, lifestyle changes, and
so on.
• Local events.

Examples of such Opportunities include:

· An unfulfilled customer need

· Arrival of new technologies
· Loosening of regulations
· Removal of international trade barriers

• Threats
Threats are the external factors that are beyond one’s control. These are the
challenges posed by the unavoidable trend or development that would lead,
in the absence of purposeful action to the erosion of the company’s position.
Slow market growth, entry of resourceful multinational companies,
increase bargaining power of the buyers or sellers because of a large number
of options, quick rate of obsolescence due to major technological change
and adverse situation because of change of government policy rules and
regulation is disadvantageous to any company and may pose a serious threat
to business operation.
• What obstacles do you face?
• What are your competitors doing?
• Are quality standards or specifications for your job, products or
services changing?
• Is changing technology threatening your position?
• Do you have bad debt or cash-flow problems?
Internal and
30 Environmental Analysis • Could any of your weaknesses seriously threaten your business?
 Introduction to Strategic
Examples of such Threats include: Management

· Shifts in consumer tastes away from the firm's products

· Emergence of substitute products
· New regulations
· Increased trade barriers

INTERNAL
ENVIRONMENTAL
FACTORS
Strengths Weaknesses
EXTERNAL

Opportunities S-O strategies W-O strategies

Threats S-T strategies W-T strategies

• S-O strategies pursue opportunities that are a good fit to the company's
strengths.
• W-O strategies overcome weaknesses to pursue opportunities.
• S-T strategies identify ways that the firm can use its strengths to reduce its
vulnerability to external threats.
• W-T strategies establish a defensive plan to prevent the firm's weaknesses
from making it highly susceptible to external threats.

SWOT analysis of McDonalds

Internal and
Environmental Analysis 31
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 Introduction to Strategic
2.6 IDENTIFICATION OF DISTINCT COMPETENCIES
Management
Distinctive competence is a unique strength that allows a company to
achieve superior efficiency, quality, innovation and customer responsiveness. It
allows the firm to charge premium price and achieve low costs compared to
rivals, which results in a profit rate above the industry average. It refers to the
core skills and practices that increase the competitiveness of an organization and
make it different from its competitors. An organization's competitors cannot
imitate this competence (at least in the short term), allowing an organization to
gain an advantage over others. An organization must protect its distinctive
competence to retain its competitive edge.
To determine its distinctive competence, an organization should conduct
an internal and external review and find those areas of skill and technology that
are in demand in the marketplace. If these skills are not in demand, they are not
areas of competence. An organization must also consistently change its
distinctive competence in a changing business environment to keep its
competitive edge, and its competence must become part of its corporate strategy.
Examples of distinctive competence are fast delivery and the extremely high
quality of an organization's product.
Distinctive competence refers to some characteristic of a business that it
does better than its competitors. Because the business is able to do something
better than other businesses, that business has a competitive advantage over
other businesses. Distinctive competence can occur in various areas, including
technology, manufacturing, consumer relations, marketing, or the people that
work for the business.
Example: Toyota with world class manufacturing process.
In order to call anything a distinctive competency it should satisfy 3 conditions,
namely:
• Value – disproportionate contribution to customer perceived value;
• Unique – unique compared to competitors;
• Extendibility – capable of developing new products.

Distinctive Competencies are built around all functional areas, namely:

• Technology related
• Manufacturing related
• Distribution related
• Marketing related
• Skills related
• Organizational capability
• Other types.
Internal and
30 Environmental Analysis
Distinctive Competencies arise from two sources namely, Introduction to Strategic
Management
Ø Resources – A resource in an asset, competency, process, skill or
knowledge. Resources may be tangible – land, buildings, P&M or
intangible – brand names, reputation, patens, know-how and R&D. A
resource is a strength which provides competitive advantage and it has the
potential of well performing in front of its competitors.
Ø Capabilities – are skills, which bring together resource and put them to
purposeful use. The organizations structure and control system gives rise
to capabilities which are intangible. A company should have both unique
valuable resources and capabilities to exploit resources and a unique
capability to manage common resources.

2.7 SUMMARY
v Environment means the surrounding, circumstances under which the firm
exists.
v Company’s internal or micro-environment: are the forces within the
organization i.e. its functional areas of management, competencies,
capabilities, resource strengths, weaknesses and competitiveness.
v Company’s external or macro-environment: pertains to the external forces
that affect the firm’s decision. Political environment, remote,
industry/competitive conditions and working environment etc.
v SWOT is classified as strength (S) or Weakness (W) Opportunities (O) or
Threats (T).
v Micheal Porters five force model is a tool used for analysing competition
in a business.
v Micheal Porters 5 Force Model consists of a)Threat of new entrants
b)Threat of substitute products c) Bargaining power of suppliers d)
Bargaining power of buyers e) Rivalry among existing players
v Distinctive competence is a unique strength that allows a company to
achieve superior efficiency, quality, innovation and customer
responsiveness.

2.8 SELF- ASSESSMENT QUESTIONS

1) Explain the concept of environment. What is internal and external
environment?
2) “SWOT analysis portrays the essence of strategy formulation”. Comment.
3) Explain Micheal Porters Five Force Model.
4) What is Distinctive Competencies?

Internal and
Environmental Analysis 33
 Introduction to Strategic
Management UNIT - 3
STRATEGIC ANALYSIS AND CHOICE

Structure
3.1 Introduction to the Chapter
3.2 Strategic Analysis and Choice
3.3 BCG Matrix
3.4 Ansoff Matrix
3.5 GE 9 Cell Matrix
3.6 Summary
3.7 Self Assessment Questions

Objective of Chapter-3
After going through this unit, you will be able to:
ü How Strategic Analysis and Choice is made
ü How Business Strategy is Evaluated and Chosen
ü Understanding BCG Matrix and its application
ü Application of Ansoff matrix in evaluating a strategy
ü Analysis GE9 Cell in strategic analysis and choice

3.1 INTRODUCTION TO THE CHAPTER

This chapter deals with the strategic analysis and choice which focus on
evaluating alternate strategies that the firm wants to pursue. It seeks to determine
alternative courses of action that could best enable the firm to achieve its long term
goals. These alternative strategies are analyzed based on the firm’s objectives and
mission to move the organization from its current position to its desired future
position. Various methods are used to better understand the choices that would
help the firm to achieve needed objectives. This chapter will help you in
understanding the methods applied and strategic choice is made.

3.2 STRATEGIC ANALYSIS AND CHOICE

Strategy analysis and choice focuses on generating and evaluating
alternative strategies, as well as on selecting strategies to pursue. Strategic
analysis and choice seeks to determine alternative courses of action that could best
enable the firm to achieve its mission and objectives.
The firm’s present strategies, objectives, and mission together with the
Strategic Analysis
34 and Choice external and internal audit information, provide a basis for generating and
evaluating feasible alternative strategies. The alternative strategies represent Introduction to Strategic
incremental steps that move the firm from its current position to a desired future Management
state.
Alternative strategies are derived from the firm’s vision, mission,
objectives, external audit, and internal audit and are consistent with past
strategies that have worked well. The strategic analysis discusses the analytical
techniques in two stages i.e. techniques applicable at corporate level and then
techniques used for business-level strategies.
The techniques that have been discussed for the corporate level include
BCG matrix, GE nine-cell planning grid, Hofer’s matrix and Shell Directional
Policy Matrix and the techniques for business-level include SWOT analysis,
experience curve analysis, grand strategy selection matrix, grand strategy
clusters.
The judgmental factors constitute the other aspect on the basis of which
strategic choice is made. We discuss the several factors that guide the strategists
in strategic choice. The selection of strategies is done in three ways i.e. a)
selection against objectives, b) referral to a higher authority and c) by partial
implementation are contingency strategies in order to face various situations that
may arise in the course of strategic implementation.

3.3 BCG MATRIX

BCG Matrix or growth-share matrix is a corporate planning tool, which is
used to portray firm’s brand portfolio or SBUs on a quadrant along relative
market share axis (horizontal axis) and speed of market growth (vertical axis)
axis.

Strategic Analysis
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 Introduction to Strategic Ø Growth-share matrix is a business tool, which uses relative market share
Management and industry growth rate factors to evaluate the potential of business brand
portfolio and suggest further investment strategies.BCG matrix is a
framework created by Boston Consulting Group to evaluate the strategic
position of the business brand portfolio and it’s potential. It classifies
business portfolio into four categories based on industry attractiveness
(growth rate of that industry) and competitive position (relative market
share). These two dimensions reveal likely profitability of the business
portfolio in terms of cash needed to support that unit and cash generated by
it. The general purpose of the analysis is to help understand, which brands
the firm should invest in and which ones should be divested.
Ø Relative market share. One of the dimensions used to evaluate business
portfolio is relative market share. Higher corporate market share results in
higher cash returns. This is because a firm that produces more, benefits
from higher economies of scale and experience curve, which results in
higher profits. Nonetheless, it is worth to note that some firms may
experience the same benefits with lower production outputs and lower
market share.
Ø Market growth rate. High market growth rate means higher earnings and
sometimes profits but it also consumes lots of cash, which is used as
investment to stimulate further growth. Therefore, business units that
operate in rapid growth industries are cash users and are worth investing in
only when they are expected to grow or maintain market share in the future.
There are four quadrants into which firms brands are classified:
Dogs. Dogs hold low market share compared to competitors and operate in a
slowly growing market. In general, they are not worth investing in because they
generate low or negative cash returns. But this is not always the truth. Some dogs
may be profitable for long period of time, they may provide synergies for other
brands or SBUs or simple act as a defence to counter competitors moves.
Therefore, it is always important to perform deeper analysis of each brand or SBU
to make sure they are not worth investing in or have to be divested.

Strategic choices: Retrenchment, divestiture, liquidation.

Cash cows. Cash cows are the most profitable brands and should be
“milked” to provide as much cash as possible. The cash gained from “cows”
should be invested into stars to support their further growth. According to growth-
share matrix, corporate should not invest into cash cows to induce growth but only
to support them so they can maintain their current market share. Again, this is not
always the truth. Cash cows are usually large corporations or SBUs that are
capable of innovating new products or processes, which may become new stars. If
there would be no support for cash cows, they would not be capable of such
innovations.
Strategic choices: Product development, diversification, divestiture,
Strategic Analysis retrenchment.
36 and Choice
 Stars. Stars operate in high growth industries and maintain high market Introduction to Strategic
share. Stars are both cash generators and cash users. They are the primary units in Management
which the company should invest its money, because stars are expected to become
cash cows and generate positive cash flows. Yet, not all stars become cash flows.
This is especially true in rapidly changing industries, where new innovative
products can soon be outcompeted by new technological advancements, so a star
instead of becoming a cash cow, becomes a dog.
Strategic choices: Vertical integration, horizontal integration, market
penetration, market development, product development.
Question marks. Question marks are the brands that require much closer
consideration. They hold low market share in fast growing markets consuming
large amount of cash and incurring losses. It has potential to gain market share and
become a star, which would later become cash cow. Question marks do not always
succeed and even after large amount of investments they struggle to gain market
share and eventually become dogs. Therefore, they require very close
consideration to decide if they are worth investing in or not.
Strategic choices: Market penetration, market development, product
development, divestiture.

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matrix.png

3.4 ANSOFF MATRIX

The Ansoff Matrix was developed by H. Igor Ansoff and first published in
the Harvard Business Review in 1957, in an article titled "Strategies for
Diversification". It has given generations of marketers and business leaders a
quick and simple way to think about the risks of growth. Sometimes called the
Product/Market Expansion Grid, the Matrix shows four strategies you can use to
grow. It also helps you analyze the risks associated with each one. The idea is that
each time you move into a new quadrant (horizontally or vertically), risk
increases.
Strategic Analysis
and Choice 37
 Introduction to Strategic
Management

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Ø About the Ansoff Matrix

The Ansoff Matrix also known as the Ansoff product and market growth
matrix is a marketing planning tool which usually aids a business in
determining its product and market growth. This is usually determined by
focusing on whether the products are new or existing and whether the
market is new or existing.
The model was invented by H. Igor Ansoff. Ansoff was primarily a
mathematician with an expert insight into business management. It is
believed that the concept of strategic management is widely attributed to
the great man.
The Ansoff Matrix has four alternatives of marketing strategies; Market
Penetration, product development, market development and
diversification.

• Market Penetration
When we look at market penetration, it usually covers products that are
existence and that are also existent in an existing market. In this strategy,
there can be further exploitation of the products without necessarily
changing the product or the outlook of the product. This will be possible
through the use of promotional methods, putting various pricing policies
that may attract more clientele, or one can make the distribution more
extensive.
In Market Penetration, the risk involved in its marketing strategies is
usually the least since the products are already familiar to the consumers
and so is the established market. Another way in which market penetration
can be increased is by coming up with various initiatives that will encourage
increased usage of the product. A good example is the usage of toothpaste.
Strategic Analysis
38 and Choice Research has shown that the toothbrush head influences the amount of
 toothpaste that one will use. Thus if the head of the toothbrush is bigger it Introduction to Strategic
will mean that more toothpaste will be used thus promoting the usage of the Management
toothpaste and eventually leading to more purchase of the toothpaste.
In product development growth strategy, new products are introduced into
existing markets. Product development can differ from the introduction of
a new product in an existing market or it can involve the modification of an
existing product. By modifying the product one would probably change its
outlook or presentation, increase the products performance or quality. By
doing so, it can appeal more to the already existing market. A good example
is car manufacturers who offer a range of car parts so as to target the car
owners in purchasing a replica of the models, clothing and pens.

• Market Development
The third marketing strategy is Market Development. It may also be
known as market extension. In this strategy, the business sells its existing
products to new markets. This can be made possible through further market
segmentation to aid in identifying a new clientele base. This strategy
assumes that the existing markets have been fully exploited thus the need
to venture into new markets. There are various approaches to this strategy,
which include: New geographical markets, new distribution channels, new
product packaging, and different pricing policies. In New geographical
markets, the business can expound by exporting their products to other
new countries. It would also mean setting up other branches of the business
in other areas that the business had not ventured yet. Various businesses
have adopted the franchise method as a way of setting up other branches in
new markets.
A good example is Guinness. This beer had originally been made to be sold
in countries that have a colder climate, but now it is also being sold in
African countries. The other method is via new distribution channels. This
would entail selling the products via e-commerce or mail order. Selling
through e-commerce will capture a larger clientele base since we are in a
digital era where most people access the internet often. In New Product
packaging, it means repacking the product in another method or
dimension. That way it may attract a different customer base. In Different
pricing policies, the business could change its prices so as to attract a
different customer base or so create a new market segment. Market
Development is a far much risky strategy as compared to Market
Penetration. This is so as it is targeting a new market and one may not quit
tell how the outcome may be.

• Diversification
The last strategy is Diversification. This growth strategy involves an
organization marketing or selling new products to new markets at the same
time. It is the most risky strategy among the others as it involves two Strategic Analysis
and Choice 39
 Introduction to Strategic unknowns, new products being created and the business does not know the
Management development problems that may occur in the process. There is also the fact
that there is a new market being targeted, which will bring the problem of
having unknown characteristics. For a business to take a step into
diversification, they need to have their facts right regarding what it expects
to gain from the strategy and have a clear assessment of the risks
involved.
There are two types of diversification. There is related diversification and
unrelated diversification. In related diversification, this means that the
business remains in the same industry in which it is familiar with. For
example, a cake manufacturer diversifies into a fresh juice manufacturer.
This diversification is in the same industry which is the food industry. In
unrelated diversification, there are usually no previous industry relations or
market experiences. One can diversify from a food industry to a mechanical
industry for instance.
A good example of the unrelated diversification is Richard Branson. He
took advantage of the virgin brand and diversified into various fields such as
entertainment, air and rail travel foods etc. Another example is the easy jet
which has diversified into car rentals, gyms, fast foods and hotels. Though
diversification may be risky, with an equal balance between risk and
reward, then the strategy can be highly rewarding. Another advantage of
diversification is that in case one business suffers from adverse
circumstances the other line of businesses may not be affected.
Analysis Paralysis
Some schools of thought believe that the use of strategic management tools
such as the Ansoff Matrix can result in an overuse of analysis. In fact, Ansoff
himself thought about this and it was he who first mentioned the now
famous phrase “paralysis by analysis”. Make sure that you do not fall victim
to procrastination caused by excessive planning.

3.5 GE 9 CELL MATRIX

The GE matrix was developed by Mckinsey and Company consultancy
group in the 1970s. The nine cell grid measures business unit strength against
industry attractiveness and this is the key difference. Whereas BCG is limited to
products, business units can be products, whole product lines, a service or even a
brand. You can plot these chosen units on the grid and this will help you to
determine which strategy to apply.

Strategic Analysis
40 and Choice
 Introduction to Strategic
Management

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ge-matrix

Ø Industry Attractiveness
Industry attractiveness indicates how hard or easy it will be for a company
to compete in the market and earn profits. The more profitable the industry
is the more attractive it becomes. When evaluating the industry
attractiveness, analysts should look how an industry will change in the long
run rather than in the near future, because the investments needed for the
product usually require long lasting commitment.
Industry attractiveness consists of many factors that collectively determine
the competition level in it. There’s no definite list of which factors should be
included to determine industry attractiveness, but the following are the
most common: [1]
• Long run growth rate
• Industry size
• Industry profitability: entry barriers, exit barriers, supplier power,
buyer power, threat of substitutes and available complements (use
Porter’s Five Forces analysis to determine this)
• Industry structure (use Structure-Conduct-Performance framework
to determine this)
• Product life cycle changes Strategic Analysis
and Choice 41
 Introduction to Strategic • Changes in demand
Management
• Trend of prices
• Macro environment factors (use PEST or PESTEL for this)
• Seasonality
• Availability of labour
• Market segmentation

Competitive strength of a business unit or a product

Along the X axis, the matrix measures how strong, in terms of competition,
a particular business unit is against its rivals. In other words, managers try to
determine whether a business unit has a sustainable competitive advantage (or at
least temporary competitive advantage) or not. If the company has a sustainable
competitive advantage, the next question is: “For how long it will be sustained?”
The following factors determine the competitive strength of a business unit:
• Total market share
• Market share growth compared to rivals
• Brand strength (use brand value for this)
• Profitability of the company
• Customer loyalty
• VRIO resources or capabilities (use VRIO framework to determine this)
• Your business unit strength in meeting industry’s critical success factors
(use Competitive Profile Matrix to determine this)
• Strength of a value chain (use Value Chain Analysis and Benchmarking to
determine this)
• Level of product differentiation
• Production flexibility

Advantages
• Helps to prioritize the limited resources in order to achieve the best returns.
• Managers become more aware of how their products or business units
perform.
• It’s more sophisticated business portfolio framework than the BCG matrix.
• Identifies the strategic steps the company needs to make to improve the
performance of its business portfolio.
Disadvantages
• Requires a consultant or a highly experienced person to determine
Strategic Analysis industry’s attractiveness and business unit strength as accurately as
42 and Choice possible.
• It is costly to conduct. Introduction to Strategic
Management
• It doesn’t take into account the synergies that could exist between two or
more business units.

Difference between GE McKinsey and BCG Matrices

GE McKinsey matrix is a very similar portfolio evaluation framework to
BCG matrix. Both matrices are used to analyze company’s product or business
unit portfolio and facilitate the investment decisions.

The main differences:

Visual difference: BCG is only a four cell matrix, while GE McKinsey is a
nine cell matrix. Nine cells provide better visual portrait of where business units
stand in the matrix. It also separates the invest/grow cells from harvest/divest cells
that are much closer to each other in the BCG matrix and may confuse others of
what investment decisions to make.

3.6 SUMMARY
v Strategic analysis and choice is all about making subjective decisions based
on objective Information.
v It is all about generating alternatives, evaluating these alternatives and
select specific course of action.
v BCG matrix is a framework created by Boston Consulting Group to
evaluate the strategic position of the business brand portfolio and its
potential.
v BCG focuses on relative market share position and industry growth rate.
v The GE nine cell matrix performs business portfolio analysis as a step in
strategic planning process.
v GE nine-box matrix is a strategy tool that offers a systematic approach for
the multi business enterprises to prioritize their investments among the
various business units.

3.7 SELF ASSESSMENT QUESTIONS

1. Explain BCG matrix in detail.
2. Explain GE 9 cell matrix in detail.
3. Suppose you are the head of a chocolate making firm that has just started its
operations in India. Discuss the process of strategic choice that you are most
likely to follow.

Strategic Analysis
and Choice 43
 Introduction to Strategic
Management UNIT – 4
CORPORATE AND BUSINESS STRATEGIES

Structure
4.1 Introduction to the Chapter
4.2 Levels of strategies
4.3 Foundations of Business Strategies
4.4 Business Strategy
4.5 Various Corporate Strategy
4.6 Summary
4.7 Self Assessment Questions

Objective of Chapter-4
After going through this unit, you will be able to:
ü Understand the foundations of Business Strategies
ü Types of Business Strategies
ü Various Corporate level Strategies

4.1 INTRODUCTION TO THE CHAPTER

Strategy becomes important to a firm success and it is concerned with the
making choices among alternatives available that best suits for its business. The
choices are dictated by its internal resources and capabilities and its core
competencies.

4.2 LEVELS OF STRATEGIES

Strategy can be formulated on three different levels:

Many companies make strategies at three different levels. These three different
and distinct levels of strategy are corporate, business, and functional:
Corporate and
44 Business Strategies
4.3 FOUNDATIONS OF BUSINESS STRATEGIES Introduction to Strategic
Management
• To reduce the no. of alternatives to a manageable no. of feasible strategies.
• It can be done with help of GAP ANALYSIS.
• It is done by visualising the future state and working backwards.
• Narrow the gap – stability strategy is feasible.
• If gap is large due to expected opportunities then expansion strategy
otherwise retrenchment.
• When the scenario is complex go for combination.
• In case of business level strategy firm need to define CUSTOMER
GROUPS, CUSTOMER FUNCTIONS and TECHNOLOGIES, which will
enable the decision maker to find out their feasible alternatives

4 steps
• Focusing on alternatives
• Considering the selection factors
• Evaluation of strategic alternatives
• Making the strategic choice
• Strategic choice “ the decision to select from among the grand strategies
considered, the strategy which will best meet the enterprise objective”

• The selected feasible alternatives have to undergo thorough analysis and

such an analysis rely on certain factors
• Objective Factor
• Subjective Factor
• It basically involves bringing together the analysis done on the basis of
selection factors.
• There is no set procedure and strategist may use any approach according to
circumstances.
• We usually follow strategic decision making process
Corporate and
Business Strategies 45
 Introduction to Strategic 1. Setting up of objectives to be achieved
Management
2. Identify the alternative ways
3. Each alternative is evaluated in terms of objectives
4. Best is chosen

4.4 BUSINESS STRATEGY

The actions and commitments taken by the firm used to gain competitive
advantages by exploiting its core competencies in its specific product or services
that its offers to its consumers.
The main purpose of using business level strategy is to create a difference
position of the firm and its competitors.
The plans and actions that firms devise to compete in a given
product/market scope or setting and asks the question “How do we compete
within an industry?” is a business strategy. It focuses on improving the
competitive position of a company’s business unit’s products or services within
the specific industry or market segment that the company or business unit serves.

COMPETITIVE BUSINESS STRATEGY (PORTER’S GENERIC

STRATEGY)
Generic strategies were first presented in two books by Professor Michael
Porter of the Harvard Business School (Porter, 1980). Porter suggested that some
of the most basic choices done by companies are essentially the scope of the
markets that the company would serve and how the company would compete in
the selected markets. Competitive strategies focus on ways in which a company
can achieve the most advantageous position in their respective industry . The
profit of a company is essentially the difference between its revenues and costs.
Therefore high profitability can be achieved through achieving the lowest costs or
the highest prices facing the competition. Porter used the terms ‘cost leadership'
and ‘differentiation', wherein the latter is the way in which companies can earn a
price premium.

Main aspects of Porter's Generic Strategies Analysis

According to Porter, there are three generic strategies that a company can
undertake to attain competitive advantage: cost leadership, differentiation, and
focus.
It can be:
A) Competitive – battling against all competitors for advantage which includes
Low-cost leadership, Differentiation and Focus strategies; and/or
B) Cooperative – working with one or more competitors to gain advantage
against other competitors which is also known as strategic alliances.
Corporate and
46 Business Strategies
The firm has to make choices like whether it has to Introduction to Strategic
Management
Perform activities differently.
Perform different activities.
The firm must choose between the two types of ‘competitive scope’
–Broad target
–Narrow target

i) Low-Cost Strategy: It is the ability of a company or a business unit to

design produce and market a comparable product more efficiently than its
competitors. An action taken to produce goods and services with features
that are acceptable by wider audience at the lowest cost compared to the
competitors available in the market. It is formulated to acquire a substantial
cost advantage over other competitors that can be passed on to consumers to
gain a large market share. As a result the firm can earn a higher profit margin
that result from selling products at current market prices.
THE low-cost leader operates with profits that are greater than its rivals.
No-frill, it has very standardized goods.
–It tries to reduce cost continuously by improving its set of value chain activities.
–Low-cost position is a valuable defence against its competitors.

They are in the position to absorb supplier price increase and relationship
demands.
It can force its suppliers to hold down the prices.
It can be very difficult to replicate.
It serves as a significant entry to barriers to potential rivals firm.

Eg: Parle G, Dmart, big bazaar, Tata Nano, Whirlpool have successfully used a
low-cost leadership strategy to build competitive advantage.
ii) Differentiation Strategy: An action taken to create differentiating features Corporate and
Business Strategies 47
 Introduction to Strategic in products or services which are not available in the market and are which
Management are not easy for competitors to copy and which attracts the buyers to buy the
product or services and a certain uniqueness is achieved in them is called as
differentiation strategy . It is the ability to provide unique and superior
value to the buyer in terms of product quality, special features or after-sale
service. Thus it is a competitive strategy based on providing buyers with
something special or unique that makes the firm’s product or service
distinctive. The customers are willing to pay a higher price for a product
that is distinct in some special way. Superior value is created because the
product is of higher quality and technically superior which builds
competitive advantage by making customers more loyal and less-price
sensitive to a given firm’s product or service
The actions designed by a firm to produce or deliver goods or services at an
acceptable cost that customers perceive as being different in ways that are
important to them.
–the targeted customers perceive product value or services.
– customized products.
– differentiating on as many features as possible and services.

Eg: Toyota, Mercedes and BMW have successfully pursued differentiation

strategies. Wet grinder companies like Shantha and Sowbhagya seeks
differentiation strategy in a targeted market segment.

iii) Focus Strategy: It has a very concentrated attention on a narrow piece of

the whole market. It act as a niche among its competitors. It is designed to
help a firm target a specific niche within an industry. Unlike both low-cost
leadership and differentiation strategies that are designed to target a broader
or industry-wide market, focus strategies aim at a specific and typically
small niche. These niches could be a particular buyer group, a narrow
segment of a given product line, a geographic or regional market, or a niche
with distinctive special tastes and preferences.
Eg: DOCOMO, Aircel, Tanishq, Fast Track and Solectron which is a highly
specialized manufacturer of circuit boards used in PCs and other electronic
devices which has adopted a well-defined focus strategy.

Combination (Stuck in the middle)

Integrated cost leadership differential strategy According to Porter, a
company's failure to make a choice between cost leadership and differentiation
essentially implies that the company is stuck in the middle. There is no
competitive advantage for a company that is stuck in the middle and the result is
often poor financial performance. However, there is disagreement between
Corporate and scholars on this aspect of the analysis. Kay (1993) and Miller (1992) have cited
48 Business Strategies empirical examples of successful companies like Toyota and Benetton, which
 Introduction to Strategic
have adopted more than one generic strategy. Both these companies used the
Management
generic strategies of differentiation and low cost simultaneously, which led to the
success of the companies.
Any firm which is able to use the integrated cost leadership differential strategy
will in a good system
To adapt to the environmental challenges
It will be able to learn a new technology quickly
It will have effective leverage on its core competencies while competing with its
rivals
Example: Dell, Toyota and Benetton.

4.5 VARIOUS CORPORATE STRATEGIES

Corporate strategy tells us primarily about the choice of direction for the
firm as a whole. In a large multi business company, however, corporate strategy is
also about managing various product lines and business units for maximum
value. Even though each product line or business unit has its own competitive or
cooperative strategy that it uses to obtain its own competitive advantage in the
market place, the corporation must coordinate these difference business
strategies so that the corporation as a whole succeeds.
Corporate strategy includes decision regarding the flow of financial and
other resources to and from a company’s product line and business units. Through
a series of coordinating devices, a company transfers skills and capabilities
developed in one unit to other units that need such resources.
A corporation’s strategy is composed of three general orientations (also
called grand strategies):
A) Growth strategies expand the company’s activities.
B) Stability strategies make no change to the company’s current activities.
C) Retrenchment strategies reduce the company’s level of activities.
D) Combination strategies is the combination of the above three strategies.
Having chosen the general orientation a company’s managers can select
from more specific corporate strategies such as concentration within one product
line/industry or diversification into other products/industries. These strategies
are useful both to corporations operating in only one product line and to those
operating in many industries with many product lines.
By far the most widely pursued corporate directional strategies are those
designed to achieve growth in sales, assets, profits or some combination.
Companies that do business in expanding industries must grow to survive.
Continuing growth means increasing sales and a chance to take advantage of the
experience curve to reduce per unit cost of products sold, thereby increasing
profits. This cost reduction becomes extremely important if a corporation’s
industry is growing quickly and competitors are engaging in price wars in Corporate and
Business Strategies 49
 Introduction to Strategic attempts to increase their shares of the market. Firms that have not reached
Management “critical mass” (that is, gained the necessary economy of large scale productions)
will face large losses unless they can find and fill a small, but profitable, niche
where higher prices can be offset by special product or service features. That is
why Motorola Inc. continues to spend large sum on the product development of
cellular phones, pagers, and two-way radios, despite a serious drop in market
share and profits. According to Motorola’s Chairman George Fisher, “What’s at
stake here is leadership”. Even though the industry was changing quickly, the
company was working to avoid the erosion of its market share by jumping into
new wireless markets as quickly as possible. Being one of the market leaders in
this industry would almost guarantee Motorola enormous future returns.
A Corporation can grow internally by expanding its operations both
globally and domestically, or it can grow externally through mergers, acquisition
and strategic alliances. A merger is a transaction involving two or more
corporations in which stock is exchanged, but from which only one corporation
survives. Mergers usually occur between firms of somewhat similar size and are
usually “friendly”. The resulting firm is likely to have a name derived from its
composite firms. One example in the Pharma Industry is the merging of Glaxo
and Smithkline Williams to form Glaxo Smithkline. An Acquisition is the
purchase of a company that is completely absorbed as an operating subsidiary or
division of the acquiring corporation. Examples are Procter & Gamble’s
acquisition of Richardson-Vicks, known for its Oil of Olay and Vicks Brands,
and Gillette, known for shaving products.
The Corporate Directional Strategies are:
A) Stability
(i) Pause/Proceed with Caution
(ii) No Change
(iii) Profit

B) Expansion
(i) Concentration
Ø Horizontal growth
Ø Vertical growth
- Forward integration
- Backward integration
(ii) Diversification
Ø Concentric
Ø Conglomerate
C) Retrenchment

Corporate and
(i) Turnaround
50 Business Strategies
(ii) Captive Company Introduction to Strategic
Management
(iii) Sell-out / Divestment
(iv) Bankruptcy / Liquidation
D) Combination
(i) Simultaneous
(ii) Sequential
(iii) Simultaneous and Sequential

A) STABILITY STRATEGIES
A corporation may choose stability over growth by continuing its current
activities without any significant change in direction. Although sometimes
viewed as lack of strategy, the stability family of corporate strategies can be
appropriate for a successful corporation operating in a reasonably predictable
environment.
(i) Pause/Proceed with Caution Strategy – In effect, a time out or an
opportunity to rest before continuing a growth or retrenchment strategy. It
is a very deliberate attempt to make only incremental improvements until
a particular environmental situation changes. It is typically conceived as a
temporary strategy to be used until the environmental becomes more
hospitable or to enable a company to consolidate its resources after
prolonged rapid growth.
(ii) No Change Strategy – Is a decision to do nothing new (a choice to
continue current operation and policies for the foreseeable future). Rarely
articulated as a definite strategy, a no change strategy’s success depends
on a lack of significant change in a corporation’s situation. The relative
stability created by the firm’s modest competitive position in an industry
facing little or no growth encourages the company to continue on its
current course. Making only small adjustments for inflation in the sales
and profit objectives, there are no obvious opportunities or threats nor
much in the way of significant strengths of weaknesses. Few aggressive
new competitors are likely to enter such an industry.
(iii) Profit Strategy – Is a decision to do nothing new in worsening situation
but instead to act as though the company’s problems are only temporary. Corporate and
Business Strategies 51
 Introduction to Strategic The profit strategy is an attempt to artificially support profits when a
Management company’s sales are declining by reducing investment and short term
discretionary expenditures. Rather than announcing the company’s poor
position to shareholders and the investment community at large, top
management may be tempted to follow this very seductive strategy.
Blaming the company’s problems on a hostile environment (such as anti-
business government policies) management defers investments and / or
buts expenses to stabilize profit during this period.

B) EXPANSION STRATEGY
Acquisition usually occurs between firms of different sizes and can be
either friendly or hostile. Hostile acquisitions are often called takeovers. A
Strategic Alliances is a partnership of two or more corporations or business units
to achieve strategically significant objectives that are mutually beneficial. Growth
is a very attractive strategy for two key reasons.
Growth is based on increasing market demand may mask flaws in a
company (flaws that would be immediately evident in a stable or declining
market). A growing flow of revenue into a highly leveraged corporation can create
a large amount of organization slack. (Unused resources) that can be used to
quickly resolve problems and conflicts between departments and divisions.
Growth also provides a big cushion for a turnaround in case a strategic error is
made. Larger firms also have more bargaining power than do small firms and are
more likely to obtain support from key stake holders in case of difficulty.
A growing firm offers more opportunities for advancement, promotions,
and interesting jobs, growth itself is exciting and ego enhancing for CEO’s. The
marketplace and potential investors tend to view a growing corporation as a
winner or on the move. Executive compensation tends to get bigger as an
organization increases in size. Large firms also more difficult to acquire than are
smaller ones; thus an executive’s job is more secure.

(i) CONCENTRATION STRATEGY: If a company’s current product lines

have real growth potential, concentration of resources on those product
lines makes sense as a strategy for growth. The two basic concentration
strategies are vertical growth and horizontal growth. Growing firms in a
growing industry tend to choose these strategies before they try
diversifications.
Ø Vertical growth can be achieved by taking over a function previously
provided by a supplier or by a distributor. The company, in effect,
grows by making its own supplies and/or by distributing its own
products. This may be done in order to reduce costs, gain control over
a scarce resource, guarantee quality of key input, or obtain access to
potential customers.

Corporate and
52 Business Strategies
Eg: Henry Ford used internal company resources to build his River Rouge Plant Introduction to Strategic
outside Detroit. The manufacturing process was integrated to the point that iron Management
ore entered one end of the long plant and finished automobiles rolled out the other
end into a huge parking lot.
Cisco Systems, the maker of Internet Hardware, chose the external route to
vertical growth by purchasing Radiata, Inc., a maker of chips sets for wireless
networks. This acquisition gave Cisco access to technology permitting wireless
communications at speeds, previously possible only with wired connections.
Vertical growth results in vertical integration, the degree to which a firm
operates vertically in multiple locations on an industry’s value chain from
extracting raw materials to manufacturing to retailing.
More specifically, assuming a function previously provided by a supplier is
called backward integration (going backward on an industry’s value chain). The
purchase of Pentasia Chemicals by Asian Paints Limited for the chemicals
required for the manufacturing of paints is an example of backward integration.
Assuming a function previously provided by a distributor is labeled forward
integration (going forward an industry’s value chain). Arvind mills, Egample,
used forward integration when it expanded out of its successful fabric
manufacturing business to make and market its own branded shirts and pants.
Ø Horizontal Growth can be achieved by expanding the firm’s products into
other geographic locations and/or by increasing the range of products and
services offered to current market. In this case, the company expands
sideways at the same location on the industry’s value chain.

Eg: Ranbaxy Labs followed a horizontal growth strategy when it extended its
pharmaceuticals business to Europe and to USE company can grow horizontally
through internal development or externally through acquisitions or strategic
alliances with another firm in the same industry.
Horizontal growth results in horizontal integrations – the degree to which a firm
operates in multiple geographic locations at the same point in an industry’s value
chain. Horizontal integration for a firm may range from full to partial ownership to
long term contract.

(ii) DIVERSIFCATION STRATEGY: When an industry consolidates and

becomes mature, most of the surviving firms have reached the limits of
growth using vertical and horizontal growth strategies. Unless the
competitors are able to expand internationally into less mature markets,
they may have no choice but to diversify into different industries if they
want to continue growing. The two basic diversification strategies are
concentric and conglomerate.
Ø Concentric Diversification (Related) into a related industry may be a
very appropriate corporate strategy when a firm has a strong
Corporate and
competitive position but industry attractiveness is low. By focusing Business Strategies 53
 Introduction to Strategic on the characteristics that have given the company its distinctive
Management competence, the company uses those very strengths as its means of
diversification. The firm attempts to secure strategic fit in a new
industry where the firm’s product knowledge, its manufacturing
capabilities, and the marketing skills it used so effectively in the
original industry can be put to good use.
Ø Conglomerate Diversification (Unrelated) takes place when
management realizes that the current industry is unattractive and that
the firms lacks outstanding abilities or skills that it could easily
transfer to related products, or services in other industries, the most
likely strategy is conglomerate diversification – diversifying into an
industry unrelated to its current one. Rather than maintaining a
common threat throughout their organization, strategic managers
who adopt this strategy are primarily concerned with financials
considerations of cash flow or risk reductions.

C) RETRENCHMENT STRATEGIES
A company may pursue retrenchment strategies when it has a weak
competitive position in some or all of its product lines resulting in poor
performance-sales are down and profits are becoming losses. These strategies
impose a great deal of pressure to improve performance.
(i) Turnaround Strategy – Emphasizes the improvement of operational
efficiency and is probably most appropriate when a corporation’s problems
are pervasive but not yet critical. Analogous to a weight reduction diet, the
two basic phases of a turnaround strategy are CONTRACTION and
CONSOLIDATION.
Ø Contraction is the initial effort to quickly “stop the bleeding” with a
general across the board cutback in size and costs.
Ø Consolidation, implements a program to stabilize the now-leaner
corporation. To streamline the company, plans are developed to
reduce unnecessary overhead and to make functional activities cost
justified. This is a crucial time for the organization. If the
consolidation phase is not conducted in a positive manner, many of
the best people leave the organization.
(ii) Captive Strategy – Is the giving up of independence in exchange for
security. A company with a weak competitive position may not be able to
engage in a full blown turnaround strategy. The industry may not be
sufficiently attractive to justify such an effort from either the current
management or from investors. Nevertheless a company in this situation
faces poor sales and increasing losses unless it takes some action.
Management desperately searches for an “angel” by offering to be a captive
company to one of its larger customers in order to guarantee the company’s
continued existence with a long term contract. In this way, the corporation
Corporate and
54 Business Strategies
 may be able to reduce the scope of some of its functional activities, such as Introduction to Strategic
marketing, thus reducing costs significantly. Management

(iii) Sell Out / Divestment Strategy – If a corporation with a weak competitive

position in its industry is unable either to pull itself by its bootstraps or to
find a customer to which it can become a captive company, it may have no
choice to Sell Out. The sell out strategy makes sense if managements can
still obtain a good price for its shareholders and the employees can keep
their jobs by selling the entire company to another firm.
(iv) Bankruptcy/ Liquidation Strategy – When a company finds itself in the
worst possible situation with a poor competitive position in an industry with
few prospects, management has only a few alternatives– all of them
distasteful. Because no one is interested in buying a weak company in an
unattractive industry, the firm must pursue a bankruptcy or liquidation
strategy.
Ø Bankruptcy: It involves giving up management of the firm to the
courts in return for some settlement of the corporation’s obligations.
Top management hopes that once the court decides the claims on the
company, the company will be stronger and better able to compete in
a more attractive industry.
Eg: GTB (Global Trust Bank) was promoted as a private sector bank
in 1993, and was running successfully and setting records. In 2004, it
became bankrupt under the pressure of bad loans and merged with a
public sector bank, Oriental Bank of Commerce.
Ø Liquidation: It is the termination of the firm. Because the industry is
unattractive and the company too weak to be sold as a going concern,
management may choose to convert as many saleable assets as
possible to cash, which is then distributed to the shareholders after all
obligations are paid.
Eg: Small businesses and partnership firms liquidate when one or
more partners want to withdraw from the business.
Liquidation may be done in the following ways:
• Voluntary winding up.
• Compulsory winding up under the supervision of the court.
• Voluntary winding up under the supervision of the court.
[Note: The benefit of liquidation over bankruptcy is that the board of directors, as
representatives of the shareholders, together with top management makes the
decisions instead of turning them over to the court, which may choose to ignore
shareholders completely.]

Corporate and
Business Strategies 55
 Introduction to Strategic D) COMBINATION STRATEGIES
Management
It is the combination of stability, growth and retrenchment strategies
adopted by an organization, either at the same time in its different businesses, or at
different times in the same business with the aim of improving its performance.
For example, it is certainly feasible for an organization to follow a retrenchment
strategy for a short period of time due to general economic conditions and then
pursue a growth strategy once the economy strengthens.
The obvious combination strategies include (a) retrench, then stability; (b)
retrench, then growth; (c) stability, then retrench; (d) stability, then growth; (e)
growth then retrench, and (f) growth, then stability.
Reasons for adopting combination strategies are given below
• Rapid Environment change
• Liquidate one unit, develop another
• Involves both divestment and acquisition (take over)
It is commonly followed by organizations with multiple unit diversified
product and National or Global market in which a single strategy does not fit all
businesses at a particular point of time.

4.6 SUMMARY
• According to Porter, there are three generic strategies that a company can
undertake to attain competitive advantage: cost leadership, differentiation, and
focus.
• Corporate Level Strategy:
o It defines the business in which the company will operate.
o It also involves in integrating and managing its various businesses
and tries to realize what synergy they have in between at the
corporate level.
o Top management team is responsible for making these decisions
• Business Level Strategy:
o It involves around defining the competitive position of a strategic
business unit.
o The decisions are made by the head of the department and their
teams.
• Functional Level Strategy:
o Formulated by the functional heads along with their teams.
o Involve setting up functional goals.
• A corporate strategy is composed of three general orientations which are
also called grand strategies.
Corporate and o Growth strategies expand the company’s activities.
56 Business Strategies
 o Stability strategies make no change to the company’s current Introduction to Strategic
activities. Management

o Retrenchment strategies reduce the company’s level of activities.

o Combination strategies is the combination of the above three
strategies.
According to Porter, there are three generic business strategies that a
company can undertake to attain competitive advantage: cost leadership,
differentiation, and focus.

4.7 SELF ASSESSMENT QUESTIONS

1) Explain different types of diversification strategy.
2) Explain Business level strategy in detail.

Corporate and
Business Strategies 57
 Introduction to Strategic
Management
UNIT - 5
STRATEGIC IMPLEMENTATION AND CONTROL

Structure
5.1 Introduction to the Chapter
5.2 Designing Organization Structure
5.3 Understanding Strategic Evaluation and Control.
5.4 Levels of Strategic Control
5.5 Types of Control Systems
5.6 Techniques of Strategic Evaluation and Control
5.7 Summary
5.8 Self Assessment Questions

Objectives of Chapter-5
After going through this unit, you will be able to:
ü Understanding how Strategic Implementation is performed
ü Various Organizational structure for better implementation of strategy
ü How Strategic Evaluation is done in the organization
ü Understanding various types of Control
ü Understanding the Techniques of Strategic evaluation and Control.

5.1 INTRODUCTION TO THE CHAPTER

This chapter deals with strategic control mechanism. It is process by which
all the activities are monitored in the organization. Its members evaluate whether
activities are being performed efficiently and effectively and to take corrective
action to improve performance if they are not as per the requirement.

5.2 DESIGNING ORGANIZATION STRUCTURE

An organizational structure is the pattern or arrangement of jobs and groups
of jobs within an organization. Organizational Design is the process of creating or
reshaping an organizational structure optimized to support strategic decisions.
The elements of organization structure and design are
a) Division of labor
b) Departmentalization
Strategic
Implementation c) Delegation of authority
58 and Control
d) Span of control
A) DIVISION OF LABOR: Introduction to Strategic
Management
It is the process of dividing work into relatively specialized jobs to achieve
advantages of specialization
Division of Labor Occurs in Three Different Ways:
i) Personal specialties
e.g., accountants, software engineers, graphic designers, scientists, etc.
ii) Natural sequence of work
e.g., dividing work in a manufacturing plant into fabricating and assembly
(horizontal specialization)
iii) Vertical plane
e.g., hierarchy of authority from lowest-level manager to highest-level
manager

B) DEPARTMENTALIZATION:
Departmentalization is the process of grouping of work activities into
departments, divisions, and other homogenous units. It takes place in various
patterns like departmentalization by functions, products, customers, geographic
location, process, and its combinations.
i) Functional Departmentalization

Functional Departmentalization is the process of grouping activities by functions

performed. Activities can be grouped according to function (work being done) to
pursue economies of scale by placing employees with shared skills and
knowledge into departments for example human resources, finance, production,
and marketing. Functional Departmentalization can be used in all types of
organizations.
Advantages:
• Advantage of specialization
• Easy control over functions
• Pinpointing training needs of manager
• It is very simple process of grouping activities.

Disadvantages:
• Lack of responsibility for the end result Strategic
Implementation
• Overspecialization or lack of general management and Control 59
 Introduction to Strategic • It leads to increase conflicts and coordination problems among
Management departments.

ii) Product Departmentalization

Product Departmentalization is the process of grouping activities by

product line. Tasks can also be grouped according to a specific product or service,
thus placing all activities related to the product or the service under one manager.
Each major product area in the corporation is under the authority of a senior
manager who is specialist in, and is responsible for, everything related to the
product line. Dabur India Limited is the India’s largest Ayurvedic medicine
manufacturer is an example of company that uses product Departmentalization.
Its structure is based on its varied product lines which include Home care, Health
care, Personal care and Foods.
Advantages
• It ensures better customer service.
• Unprofitable products may be easily determined.
• It assists in development of all around managerial talent.
• Makes control effective.
• It is flexible and new product line can be added easily.
•
Disadvantages
• It is expensive as duplication of service functions occurs in various product
divisions.
• Customers and dealers have to deal with different persons for complaint and
information of different products.

iii) Customer Departmentalization

Strategic
Implementation
60 and Control
 Customer Departmentalization is the process of grouping activities on the Introduction to Strategic
basis of common customers or types of customers. Jobs may be grouped according Management
to the type of customer served by the organization. The assumption is that
customers in each department have a common set of problems and needs that can
best be met by specialists. UCO is the one of the largest commercial banks of India
is an example of company that uses customer Departmentalization. Its structure is
based on various services which includes Home loans, Business loans, Vehicle
loans and Educational loans.
Advantages
• It focused on customers who are ultimate suppliers of money.
• Better service to customer having different needs and tastes.
• Development in general managerial skills.
Disadvantages
• Sales being the exclusive field of its application, co-ordination may appear
difficult between sales function and other enterprise functions.
• Specialized sales staff may become idle with the downward movement of
sales to any specified group of customers.

iv) Geographic Departmentalization

Geographic Departmentalization is the process of grouping activities on the basis

of territory. If an organization's customers are geographically dispersed, it can
group jobs based on geography. For example, the organization structure of Coca-
Cola Ltd has reflected the company’s operation in various geographic areas such
as Central North American group, Western North American group, Eastern North
American group and European group
Advantages
• Help to cater to the needs of local people more satisfactorily.
• It facilitates effective control
• Assists in development of all-round managerial skills
Disadvantages
• Communication problem between head office and regional office due to
lack of means of communication at some location
• Coordination between various divisions may become difficult. Strategic
Implementation
and Control 61
 Introduction to Strategic • Distance between policy framers and executors
Management
• It leads to duplication of activities which may cost higher.

v) Process Departmentalization

Geographic Departmentalization is the process of grouping activities on the basis

of product or service or customer flow. Because each process requires different
skills, process Departmentalization allows homogenous activities to be
categorized. For example, Bowater Thunder Bay, a Canadian company that
harvests trees and processes wood into newsprint and pulp. Bowater has three
divisions namely tree cutting, chemical processing, and finishing (which makes
newsprint).
Advantages
• Oriented towards end result.
• Professional identification is maintained.
• Pinpoints product-profit responsibility.

Disadvantage
• Conflict in organization authority exists.
• Possibility of disunity of command.
• Requires managers effective in human relation

vi) Matrix Departmentalization

Strategic
Implementation In actual practice, no single pattern of grouping activities is applied in the
62 and Control
organization structure with all its levels. Different bases are used in different Introduction to Strategic
segments of the enterprise. Composite or hybrid method forms the common basis Management
for classifying activities rather than one particular method, one of the mixed forms
of organization is referred to as matrix or grid’s organization According to the
situations, the patterns of Organizing varies from case to case. The form of
structure must reflect the tasks, goals and technology if the originations the type of
people employed and the environmental conditions that it faces. It is not unusual
to see firms that utilize the function and project organization combination. The
same is true for process and project as well as other combinations. For instance, a
large hospital could have an accounting department, surgery department,
marketing department, and a satellite center project team that make up its
organizational structure.
Advantages
• Efficiently manage large, complex tasks
• Effectively carry out large, complex tasks
Disadvantages
• Requires high levels of coordination
• Conflict between bosses
• Requires high levels of management skills

5.3 UNDERSTANDING STRATEGIC EVALUATION AND CONTROL

Strategic control systems provide managers with required information to
find out whether strategy and structure move in the same direction. It includes
target setting, monitoring, evaluation and feedback system.

The importance of strategic control

• Achieving operational efficiency
• Maintaining focus on quality
• Fostering innovation
• Ensuring responsiveness to customers

Strategic
Implementation
and Control 63
 Introduction to Strategic
Management

Strategic Control Process

Fig Control Process

a) The Establishment of Standards:

Since plans are the standards against which controls must be revised, it
follows logically that the first step in the control process would be to accomplish
plans. Plans can be considered as the criterion or the standards against which we
compare the actual performance in order to figure out the deviations.

Examples for the standards

• Profitability standards: In general, these standards indicate how much the
company would like to make as profit over a given time period- that is, its
return on investment.
• Market position standards: These standards indicate the share of total
sales in a particular market that the company would like to have relative to
its competitors.
• Productivity standards: How much that various segments of the
organization should produce is the focus of these standards.
• Product leadership standards: These indicate what must be done to attain
such a position.
• Employee attitude standards: These standards indicate what types of
attitudes the company managers should strive to indicate in the company’s
employees.
Strategic
Implementation • Social responsibility standards: Such as making contribution to the
64 and Control society.
• Standards reflecting the relative balance between short and long range Introduction to Strategic
goals. Management

b) Measurement of Performance:
The measurement of performance against standards should be on a forward
looking basis so that deviations may be detected in advance by appropriate
actions. The degree of difficulty in measuring various types of
organizational performance, of course, is determined primarily by the
activity being measured. For example, it is far more difficult to measure the
performance of highway maintenance worker than to measure the
performance of a student enrolled in a college level management course.
c) Comparing Measured Performance to Stated Standards:
When managers have taken a measure of organizational performance, their
next step in controlling is to compare this measure against some standard. A
standard is the level of activity established to serve as a model for evaluating
organizational performance. The performance evaluated can be for the
organization as a whole or for some individuals working within the
organization. In essence, standards are the yardsticks that determine
whether organizational performance is adequate or inadequate.
d) Taking Corrective Actions:
After actual performance has been measured compared with established
performance standards, the next step in the controlling process is to take
corrective action, if necessary. Corrective action is managerial activity
aimed at bringing organizational performance up to the level of
performance standards. In other words, corrective action focuses on
correcting organizational mistakes that hinder organizational performance.
Before taking any corrective action, however, managers should make sure
that the standards they are using were properly established and that their
measurements of organizational performance are valid and reliable. At first
glance, it seems a fairly simple proposition that managers should take
corrective action to eliminate problems - the factors within an organization
that are barriers to organizational goal attainment. In practice, however, it is
often difficult to pinpoint the problem causing some undesirable
organizational effect.

Strategic
Implementation
and Control 65
 Introduction to Strategic 5.4 LEVELS OF STRATEGIC CONTROL
Management

The various levels of strategic control are

a) Corporate level control:
The corporate level control is done by the top level management. They set
controls which provide context for the divisional level managers.
b) Divisional level control:
The divisional level control is done by the managers of the division. They
set controls which provide context for the functional managers.
c) Functional level control:
The functional level control is done by the managers of each department.
They set controls which provide context for the first level managers.
d) First level control:
The first level control is done by the first line managers. They set controls
which provide context for the workers.

5.5 TYPES OF CONTROL SYSTEMS

The various types of the control systems are
a) Financial Controls

Strategic
Since one of the primary purposes of every business firm is to earn a profit,
Implementation managers need financial controls. Two specific financial controls include
66 and Control budgets and financial ratio analysis.
 i) Budgets act as a planning tool and control tools as well. They provide Introduction to Strategic
managers with quantitative standards against which to measure and Management
compare resource consumption.
ii) Financial ratios are calculated by taking numbers from the
organization's primary financial statements the income statement
and the balance sheet.

b) Operations Controls
Operations control techniques are designed to assess how efficiently and
effectively an organization's transformation processes are working. Many
of these techniques were covered in Chapter 19 as we discussed operations
management. However, two operations control tools deserve elaboration:
TQM control charts and EOQ model.
i) Control charts show results of measurements over a period of time
with statistically determined upper and lower limits. They provide a
visual means of determining whether a specific process is staying
within predefined limits
ii) The EOQ model helps managers know how much inventory to order
and how often to order. The EOQ model seeks to balance four costs
associated with ordering and carrying inventory.

c) Behavioral Controls
Managers accomplish organizational goals by working with other people.
It's important for managers to ensure that employees are performing as
they're supposed to. We'll be looking at three explicit ways that managers
control employee behavior: direct supervision, performance appraisals,
and discipline.
i) Direct supervision is the daily overseeing of employees' work
performance and correcting problems as they occur. It is also known
as MBWA (management by walking around).
ii) Performance appraisal is the evaluation of an individual's work
performance in order to arrive at objective personnel decisions.
iii) Discipline includes actions taken by a manager to enforce the
organization's standards and regulations. The most common types of
discipline problems involve attendance, on-the-job behaviors,
dishonesty, and outside activities.

5.6 TECHNIQUES OF STRATEGIC EVALUATION AND CONTROL

The importance of strategic evaluation lies in its ability to coordinate the
tasks performed by individual managers, and also groups, division or SBUs,
Strategic
through the control of performance. In the absence of coordinating and controlling Implementation
and Control 67
 Introduction to Strategic mechanisms, individual managers may pursue goals, which are inconsistent with
Management the overall objectives of the department, division, SBU or the whole organization.
We will now discuss evaluation and control in detailed way.

https://slideplayer.com/slide/9579154

1. Determine What to Control: The first step in the strategic control process
is determining the major areas to control. Managers usually base their major
controls on the organizational mission, goals and objectives developed
during the planning process. Managers must make choices because it is
expensive and virtually impossible to control every aspect of the
organizations.
2. Set Control Standards: The second step in the strategic control process is
establishing standards. A control standard is a target against which
subsequent performance will be compared. Standards are the criteria that
enable managers to evaluate future, current, or past actions. They are
measured in a variety of ways, including physical, quantitative, and
qualitative terms. Five aspects of the performance can be managed and
controlled are quantity, quality, time cost and behaviour.
Standards reflect specific activities or behaviours that are necessary to
achieve organizational goals. Goals are translated into performance standards by
making them measurable. An organizational goal to increase market share, for
example, may be translated into a top-management performance standard to
increase market share by 10 percent within a twelve-month period. Helpful
measures of strategic performance include: sales (total, and by division, product
category, and region), sales growth, net profits, return on sales, assets, equity, and
investment cost of sales, cash flow, market share, product quality, valued added,
and employees productivity.
Quantification of the objective standard is sometimes difficult. For
example, consider the goal of product leadership. An organization compares its
Strategic product with those of competitors and determines the extent to which it pioneers in
Implementation the introduction of basis product and product improvements. Such standards may
68 and Control exist even though they are not formally and explicitly stated.
 Setting the timing associated with the standards is also a problem for many Introduction to Strategic
organizations. It is not unusual for short-term objectives to be met at the expense Management
of long-term objectives. Management must develop standards in all performance
areas touched on by established organizational goals. These standards depend on
what is being measured and on the managerial level responsible for taking
corrective action.
3. Measure Performance: Once standards are determined, the next step is
measuring performance. The actual performance must be compared to the
standards. Many types of measurements taken for control purposes are
based on some form of historical standard. These standards can be based on
data derived from the PIMS (profit impact of market strategy) program,
published information that is publicly available, ratings of product / service
quality, innovation rates, and relative market shares standings.
Strategic control standards are based on the practice of competitive
benchmarking – the process of measuring a firm’s performance against that
of the top performance in its industry. The proliferation of computers tied
into networks has made it possible for managers to obtain up-to-minute
status reports on a variety of quantitative performance measures. Managers
should be careful to observe and measure in accurately before taking
corrective action.
4. Compare Performance to Standards: The comparing step determines the
degree of variation between actual performance and standard. If the first
two phases have been done well, the third phase of the controlling process
comparing performance with standards should be straightforward.
However, sometimes it is difficult to make the required comparisons (e.g.,
behavioural standards). Some deviations from the standard may be justified
because of changes in environmental conditions, or other reasons.
5. Determine the Reasons for the Deviations: The fifth step of the strategic
control process involves finding out: “why performance has deviated from
the standards?” Causes of deviation can range from selected achieve
organizational objectives. Particularly, the organization needs to ask if the
deviations are due to internal shortcomings or external changes beyond the
control of the organization. A general checklist such as following can be
helpful:
• Are the standards appropriate for the stated objective and strategies?
• Are the objectives and corresponding still appropriate in light of the
current environmental situation?
• Are the strategies for achieving the objectives still appropriate in
light of the current environmental situation?
• Are the firm’s organizational structure, systems (e.g., information),
and resource support adequate for successfully implementing the
strategies and therefore achieving the objectives?
• Are the activities being executed appropriate for achieving standard? Strategic
Implementation
and Control 69
 Introduction to Strategic 6. Take Corrective Action: The final step in the strategic control process is
Management determining the need for corrective action. Managers can choose among
three courses of action:
(1) Do nothing
(2) Correct the actual performance
(3) Revise the standard
When standards are not met, managers must carefully assess the reasons
why and take corrective action. Moreover, the need to check standards
periodically to ensure that the standards and the associated performance measures
are still relevant for the future.
The final phase of controlling process occurs when managers must decide
action to take to correct performance when deviations occur. Corrective action
depends on the discovery of deviations and the ability to take necessary action.
Often the real cause of deviation must be found before corrective action can be
taken. Causes of deviations can range from unrealistic objectives to the wrong
strategy being selected achieve organizational objectives. Each cause requires a
different corrective action. Not all deviations from external environmental threats
or opportunities have progressed to the point a particular outcome is likely,
corrective action may be necessary.
To conclude, strategic control is an integral part of strategy. Without
properly placed controls the strategy of the company is bound to fail. Strategic
control is a tool by which companies check their internal business process and
environment and ascertain their progress towards their goal.

5.6 TECHNIQUES OF STRATEGIC EVALUATION AND CONTROL

https://www.clearpointstrategy.com/strategic-control-process/
Strategic
Implementation
70 and Control
The different types of strategic controls are discussed in brief here. Introduction to Strategic
Management
a) Premise control: A company may base its strategy on important
assumptions related to environmental factors (e.g., government policies),
industrial factors (e.g. nature of competition), and organizational factors
(e.g. breakthrough in R&D). Premise control continually verifies whether
such assumptions are right or wrong. If they are not valid corrective action
is initiated and strategy is made right. The responsibility for premise control
can be assigned to the corporate planning staff that can identify for
assumptions and keep a regular check on their validity.
b) Implementation control: Implementation control can be done using
milestone review. This is similar to the identification-albeit on a smaller
scale-of events and activities in PERT/CPM networks. After the
identification of milestones, a comprehensive review of implementation is
made to reassess its continued relevance to the achievement of objectives.
c) Strategic Surveillance: This is aimed at a more generalized and
overarching control. Strategic surveillance can be done through a broad
based, general monitoring on the basis of selected information sources to
uncover events that are likely to affect the strategy of an organization.
d) Special Alert Control: This is based on a trigger mechanism for rapid
response and immediate reassessment of strategy in the light of sudden and
unexpected events. Special alert control can be exercised through the
formulation of contingency strategies and assigning the responsibility of
handling unforeseen events to crisis management teams. Examples of such
events can be the sudden fall of a government at the central or state level,
instant change in a competitor’s posture, an unfortunate industrial disaster,
or a natural catastrophe.
e) Strategic momentum control: These types of evaluation techniques are
aimed at finding out what needs to be done in order to allow the organization
to maintain its existing strategic momentum.
f) Strategic leap control: where the environment is relatively unstable,
organizations are required to make strategic leaps in order to make
significant changes. Strategic leap control can assist such organizations by
helping to define the new strategic requirements and to cope with emerging
environmental realities.

5.7 SUMMARY
v Strategic controls take into account the changing assumptions that
determine a strategy.
v It continuously evaluates the strategy as it is being implemented.
v Strategic controls are early warning systems and differ from post-action
controls which evaluate only after the implementation has been completed.
Strategic
v Strategic evaluation and control process basically deals with four steps Implementation
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 Introduction to Strategic o Setting standards of performance-Standards refer to performance
Management expectations.
o Measurement of performance-Measurement of actual performance
or results requires appraisal based on standards.
o Analyzing variances- The comparison between standards and results
gives variances.
o Taking corrective action-The identifications of undesirable
variances prompt managers to think about ways of corrective them.

5.8 SELF ASSESSMENT QUESTIONS

1) Comment on the nature of strategic control and evaluation.
2) Suggest some corrective actions that you would undertake if the
performance is being affected adversely by inadequate resource allocation
and ineffective systems.
3) List down various Organizational structure by stating it advantages and
disadvantages.
4) If you were a strategist making evaluation, what would you do if you find
something wrong though nothing is wrong with the performance?

Answer the following

1) Who is closer to customers?
a) Corporate level manager b) Business level manager
c) Functional Level Manager d) None of the Above

2) What is a unified, comprehensive & integrated plan designed to assure that

basic objectives of enterprise are achieved
a) Strategy b) Execution
c) Monitoring d) Management

3) Which is not the element of strategic intent?

a) Business Definition b) Vision
c) Goals & Objectives d) None of these

4) Why an organization need mission statement ?

a) To have its own special identity b) To Reduce Rivalry in industry
Strategic
Implementation c) To guide resources in proper way d) To change Ethical environment
72 and Control
5) Strategy formulation, implementation, & evaluation activities should be Introduction to Strategic
performed _________? Management

a) At end of year b) Semi Annually

c) At beginning of year d) Continual Basis

6) What does Stars symbolize in BCG matrix?

a) Introduction b) Growth c) Maturity d) Decline

7) Which strategy has greater control over market as well as competitor?

a) Stability Strategy b) Expansion Strategy
c) Retrenchment strategy d) Combination Strategy

8) When a coffee bean manufacturer may choose to merge with a coffee bean.
a) Forward Integration b) Backward Integration
c) Concentric d) Conglomerate

9) Which is not the strategy to be followed at startup?

a) Competitive Strategy b) Collaborative Strategy
c) Expansion Strategy d) None of these
10) It is designed to monitor a broad range of events inside and outside the
company that are likely to threaten a firm’s strategy
a) Strategic surveillance b) Strategic planning
c) both ‘A’ and ‘B’ d) None of the above

Answers: 1- c, 2 - a, 3 - d, 4 - a, 5 - d, 6 - b, 7 - b, 8 - a, 9 - c, 10 - a

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Implementation
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