[Strategic Management]

New Millennium University College

Compiled by: Yahya I.

Email: [email protected]

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CHAPTER ONE
OVERVIEW OF STRATEGIC MANAGEMENT
1.1. The Definitions and Concept of strategy
• The term ‘strategy’ is derived from the Greek word strategos, which means generalship
• first used around 360 BC, when the Chinese military strategist Sun Tzu wrote a book The Art of War
• Strategy is about the purpose of a business, why it exists and what it exists to do.
• There is no one universally agreed definition of strategy and the following definitions can be taken only
as examples
 Strategy is ‘the determination of the basic long-term goals and objectives of an enterprise and the
adoption of the courses of action and the allocation of resources necessary for carrying out these goals’
 Strategy is ‘a unified, comprehensive, integrated plan… designed to ensure that the basic objectives of
the enterprise are achieved’
 Strategy is: ‘a specific pattern of decisions and actions that managers take to achieve superior
organizational performance’
 Strategy is ‘the pattern of actions and business approaches managers employ to please customers, build
an attractive market position, and achieve organizational objectives; a company’s actual strategy is
partly planned and partly reactive to changing circumstances’ (Thompson and Strickland)
 Strategy is “the study of the functions and responsibilities of senior management, the crucial problems
that affect success in the total enterprises, and the decisions that determine the direction of the
organization and shape its future.” (Christensen and others)
Looking at the above definitions we can say that strategy is about:
• A game plan or course of action or pattern of actions or competitive moves or business approaches that
manager’s employ in running a company
• A strategy is the means used to achieve the ends (objectives)
• Strategy is both proactive (intended) and reactive (adaptive)
• Strategies are partly visible and partly hidden to outside view
1.2:Strategy as an Emergent Process:
Henry Minitzberg has incorporated the above ideas into a model of strategy development that has five elements
as depicted in figure below:
Deliberate
Intended Strategy Realized

Strategy Strategy

Unrealized Emergent
Strategy Strategy
Figure 1.5: Minitzberg’s Model of Strategy Development
• Intended strategy is the strategy that managers talk about and say they want to see
• Deliberate strategy is part of the strategy managers attempt to put into effect.
• Unrealized strategy is parts of the intended strategy that are not made deliberate
• Emergent strategies are parts of the realized strategy the unplanned responses to unforeseen
circumstances,
1.3. Characteristics of Strategic Management
• Different writers describe the elements of strategic management in slightly different ways. However,
they normally tend to cover:
• Analyzing the environment
• Making choices about direction
• Implementation.

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1.4. Levels at Which Strategy Operates

This ordering of business activity suggests a hierarchical ordering of strategy as illustrated in figure below:

Corporate MNC

Business Unit SBU 1 SBU 2 SBU 3 SBU 4 SBU 5

Functional Finance Marketing R&D HRM

&Sales

Figure 1.5: Levels at which strategy operates

Corporate Strategy
• Encompasses the aims and objectives of the organization with the means to achieve them.
• Embraces all of the company’s different businesses and functions
• The pattern of major ends and essential policies or plans
• Business strategy or competitive strategy
• current and future strategy within the framework of the overall corporate strategy
• determines how an organization should compete in each of its businesses
• defines the products or services it will offer, the customers it wants to reach
• The essence is achieving sustainable competitive advantage
Functional Strategy
• seeks to determine how to support the business-level strategy
• A functional strategy for every competitively relevant business activity and organizational unit
• narrower in scope than business strategies, but add relevant detail to the overall business game plan by
setting actions, approaches, and practices
• aims at establishing or strengthening specific competencies and competitive capabilities
1.5. Issues in Strategic Decision making
• Mintzberg says that the key managerial processes are enormously complex and mysterious, drawing on
the vaguest of information and using the least articulated of mental processes
• These processes seem to be more relational and holistic than ordered and sequential, and more intuitive
than intellectual
• strategy formulation rests on the strategic decision making
– What is our business?
– What will it be?
– What should it be?
– What environmental threats and opportunities do we expect
– What company strengths and weaknesses do we have
Dimensions of the strategic decision-making
1. Criteria for decision-making in setting Goals and Objectives
– maximization-setting objectives at the highest point
– Satisfying-setting realistic objectives
– Instrumentalism-objectives setting on a continually evolving political consensus building
2. Rationality in decision-making
– may lead to the achievement of the objectives
3. Creativity in decision-making.
– A decision must be original and different and adopted

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4. Variability in decision-making.
– every situation is unique
5. Person-related factors in decision-making - these are age,
– education,
– intelligence,
– personal values,
– cognitive styles,
– risk-taking ability,
– and creativity
6. Individual vs. group decision-making
– Owing to person-related factors, there are individual differences among decision-makers
– A firm, has special characteristics, and operates in a unique environment
1.6. Strategic Management Process
The strategic management process, as illustrated in figure below, is a five-step process that encompasses
Strategic Planning, Implementation, and Control

Strategic Planning
Strategic Intent

Strategic Analysis

Strategy Formulation

Strategy Implementation

Strategic Control & Evaluation

Figure 1.7: Strategic Management Process
STRATEGIC MANAGEMENT PROCESS
 Strategic Intent--Deciding a firm’s goals
 Strategic Analysis--Knowing one’s surroundings
 Strategy Formulation--Crafting strategies
 Strategy Implementation--putting plans into action
 Strategic Control & Evaluation--monitoring progress

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CHAPTER TWO
STAKEHOLDERS IN BUSINESS AND STRATEGIC INTENT
2.1 Introduction
A corporate stakeholder is a party that can affect or be affected by the actions of the business as a whole.
Stakeholder groups vary both in terms of their interest in the business activities and also their power to
influence business decisions.  Here is the summary:
The stake holders of a company are as follows
 Shareholders
 Creditors
 Directors and managers
 Employees
 Suppliers
 Customers
 Community
 Government

2.2 VISION, MISSION AND PURPOSE

VISION STATEMENT
 Vision statement provides direction and inspiration for organizational goal setting.
 Vision is where you see yourself at the end of the horizon OR milestone therein.
 It is a single statement dream OR aspiration.
 Unlike goals, vision is not SMART.
 It does not have mathematics OR timelines attached to it.
 Vision is long-term statement and typically generic & grand.
 Vision should never carry the 'how' part.
Challenges related to Vision Statement:
 Putting-up a vision is not a challenge. The problem is to make employees engaged with it.
Horizon of Vision:
 Vision should be the horizon of 5-10 years. If it is less than that, it becomes tactical. If it is of a horizon
of 20+ years (say), it becomes difficult for the strategy to relate to the vision.
Features of a good vision statement:
 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.
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.
A good mission statement will be:
 Clear and Crisp: While there are different views, its strongly recommend that mission should only
provide what, and not 'how and when'.
 Have to have a very visible linkage to the business goals and strategy
 Should not be same as the mission of a competing organization. It should touch upon how its purpose
it unique.
Mission follows the Vision:
 The Entire process starting from Vision down to the business objectives is highly iterative.
 The question is from where should be start.
 It is strongly recommend that mission should follow the vision.
 This is because the purpose of the organization could change to achieve their vision.

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BUSINESS, OBJECTIVES AND GOALS

Goals: It is where the business wants to go in the future, its aim. It is a statement of purpose, e.g. we want to
grow the business into Europe.
Objectives: Objectives 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.
The Difference between goals and objectives
 Goals are broad; objectives are narrow.
 Goals are general intentions; objectives are precise.
 Goals are intangible; objectives are tangible. 
 Goals are abstract; objectives are concrete.
 Goals can't be validated as is; objectives can be validated. 
2.3 CORPORATE GOVERNANCE
 Corporate governance generally refers to the set of mechanisms that influence the decisions made by
managers when there is a separation of ownership and control.
Share holders
 A shareholder or stockholder is an individual or institution (including a corporation) that legally owns
one or more shares of stock in a public or private corporation.
 Shareholders own the stock, but not the corporation itself.
Therights of Stockholders may include:
 The right to sell their shares,
 The right to vote on the directors nominated by the board,
 The right to nominate directors and propose shareholder resolutions,
 The right to dividends if they are declared,
 The right to purchase new shares issued by the company, and
Board of Directors
 Elected by the shareholders.
 The board of directors is made up of two types of representatives.
o The first type involves individuals chosen from within the company.
o The other type of representative is chosen externally.
 The role of the board is to monitor the managers of a corporation, acting as an advocate for
stockholders.
 In essence, the board of directors tries to make sure that shareholders' interests are well served.
Board members can be divided into three categories:
 Chairman– Technically the leader of the corporation,
o Responsible for running the board smoothly and effectively.
o Duties typically include
 maintaining strong communication with the chief executive officer and high-level
executives,
 formulating the company's business strategy, representing management and the board
to the general public and shareholders, and
 Maintaining corporate integrity.
o A chairman is elected from the board of directors.
 Inside Directors –
o Responsible for
 Approving high-level budgets prepared by upper management,
 Implementing and monitoring business strategy, and
 Approving core corporate initiatives and projects.
o Inside directors are either shareholders or high-level management from within the company.
o Inside directors help provide internal perspectives for other board members.

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o These individuals are also referred to as executive directors if they are part of company's
management team.
 Outside Directors –
o While having the same responsibilities as the inside directors in determining strategic direction
and corporate policy, outside directors are different in that they are not directly part of the
management team.
o The purpose of having outside directors is to provide unbiased and impartial perspectives on
issues brought to the board.
Management Team
 The management team is directly responsible for the day-to-day operations of the company.
 Chief Executive Officer (CEO) –
o As the top manager, the CEO is typically responsible for the entire operations of the
corporation and reports directly to the chairman and board of directors.
o It is the CEO's responsibility to implement board decisions and initiatives and to maintain the
smooth operation of the firm, with the assistance of senior management.
o The CEO is designated as the company's president and therefore also be one of the inside
directors on the board (if not the chairman).
 Chief Operations Officer (COO) –
o Responsible for the corporation's operations, the COO looks after issues related to marketing,
sales, production and personnel.
o The COO looks after day-to-day activities while providing feedback to the CEO.
o The COO is often referred to as a senior vice president.
 Chief Finance Officer (CFO)–
o Also reporting directly to the CEO,
o The CFO is responsible for analyzing and reviewing financial data, reporting financial
performance, preparing budgets and monitoring expenditures and costs.
o The CFO is required to present this information to the board of directors at regular intervals and
provide this information to shareholders and regulatory bodies such as the Securities and
Exchange Commission (SEC).
o Also usually referred to as a senior vice president, the CFO routinely checks the corporation's
financial health and integrity.

CHAPTER THREE
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ENVIRONMENTAL ANALYSIS
3.1. Concept and Characteristics of Environment
 The environment of any organization is “the aggregate of all conditions, factors, events and influences
that surround and affect it”.
Characteristics of Environment
 Complex - The factors, events, conditions, and influences arising from different sources that may have
incompatible expectations and interests.
- Complex to understand in totality but relatively easier to understand in parts.
 Dynamic - constantly changing in nature, causing it to change its character continuously.
 Multifaceted - may be viewed based on the perception of the observer
 Has far-reaching impact - the growth of a firm depends critically on the environment
3.2 Environment can be external or internal
The external environment includes all the factors outside the organization which provide opportunities or
pose threats to the organization.
The internal environment refers to all the factors within an organization which impart strengths or cause
weaknesses of a strategic nature.
The four environmental influences could be described as follows:
Opportunity is a favorable condition in the organization’s environment which enables it to consolidate and
strengthen its position.
Threat is an unfavorable condition in the organization’s environment which creates a risk for, or causes
damage to, the organization.
Strength is an inherent capacity which an organization can use to gain strategic disadvantage.
Weakness is an inherent limitation or constraint which creates strategic disadvantages. Example: over
dependence on a single product line, which is potentially risky
Situation analysis is crucial for the existence, growth, and profitability of any organization.
SWOT Analysis
Business firms undertake SWOT analysis to understand their external and internal environments.
The process of strategy formulation starts with, and critically depends on, the appraisal of the external and
internal environment of an organization.
3.2.1 The External Environment
Provides opportunities or pose threats to an organization.
In a wider sense, the environment could be designated as the general environment or the macro
environment or the societal environment and the relevant or task or micro-environment.
A. The General or Societal or Macro Environmental factors
The elements of the general or societal environment may exert a major impact on the operations of the
organization but may have a distant interaction with the firm.
These factors may include political and legal environment, economic environment, socio-cultural
environment, technological environment, and international environment.
Political and Legal Environment
The political environment consists of factors related to the management of public affairs and their
impact on the business of an organization.
Some of the important factors and influences operating in the political environment are:
1. Political system and its features, like the nature of the political system, ideological forces, political
parties and centers of power
2. Political structure, its goals and stability
3. Political processes, like the operation of the party system, elections, funding of elections, and legislation
with respect to economic and industrial promotion, and regulation.
The relationship between industry and the political and legal environment exists as a two-way process.

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The government lays down the constitutional framework, the policies, procedure and rules according to
which the industry functions.
Occasionally, the industry also tries to influence the government through lobbying, creating public
awareness and opinion by issuing press advertisements, and through influencing the parliamentary
legislative process to create a favorable policy framework for the benefit of its constituent business and
companies.
The government acts through its various ministries and agencies, both at the central and state levels, to
regulate the activities of business.
Economic Environment
The economic environment consists of macro-level factors related to the means of production and
distribution of wealth which have an impact on the business of as organization.
Some of the important factors and influences operating in the economic environment are:
1. The economic stage at which a country exists at a given point of time
2. the economic structure adopted, such as, a capitalistic, socialistic or mixed economy
3. Economic policies, such as, industrial monetary and fiscal policies
Socio-cultural Environment
The socio-cultural environment consists of factors related to human relationship within a society; the
development, forms and functions of such a relationship; and the learnt and shared behavior of groups
of human beings which have a bearing on the business of an organization.
Some of the important factors and influences operating in the social environment are:
1. Demographic characteristics, such as population, its density and distributions change in population and
age composition, inter-state migration and rural urban mobility, and income distribution.
2. Socio-cultural concerns such as environmental pollution, corruption, use of mass media, the role of
business in society, and consumerism.
3. socio-cultural attitudes and values, such as expectation of society form business, social customs,
beliefs, rituals and practices, changing lifestyle patterns and materialism
Technological Environment
The technological environment consists of those factors that are related to the knowledge applied and
the materials and machines used in the production of goods and services which have an impact on the
business of an organization.
Some of the important factors and influences operating in the technological environment are as follows:
1. Sources of technology, like company sources, external sources, and foreign sources; cost of technology
acquisition; collaboration in and transfer of technology.
2. Technological development, stages of development, changes and rate of change of technology, and
research and development.
3. impact of technology on human beings, the man-machines system, and the environmental effects of
technology
According to Boris Petrov, there are three strategic implications of technological change: it can change
relative competitive cost position within a business, it can create new marketsandnew business
segments, and it can collapse or merge previously independent businesses by reducing or eliminating
their segment cost barriers.
B. International Environment
The international (or global) environment consists of all those factors that operate at the transnational,
cross-cultural, and across-the-border level which have an impact on the business of an organization.
Some of the important factors and influences operating in the international environment are as below:
1. Globalization, its process, content, and direction.
2. Global economic forces, organizations, blocs, and forums
3. Global trade and commerce, its process and trends
The international environment constitutes a special class of the environmental sector, While the
preceding seven sectors are largely limited and exclusive in nature, the which encompasses all the
sectors, albeit in the global context.
3.2.2. The Task or Microenvironment
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The micro environment refers to the different institutions that have a direct and close impact on the
operations of the organization.
From the task environment market and supplier environments, which are more important are described
below.
Market Environment
The market environment consists of the factors related to the groups and other organizations that
compete with and have an impact on an organization’s markets and business.
Some of the important factors and influences operating in the market environment are as follows:
1. Customer or client factors, such as, the needs, preferences, perceptions, attitudes, values, bargaining
power, buying behaviour and satisfaction of customers.
2. Product factors, such as, the demand, image, features, utility, function, design, life cycle, price
promotion, distribution, differentiation, and the availability of substitutes of products or services.
3. Marketing intermediary factors such as, levels and quality of customer service, middlemen, distribution
channels, logistics, costs, delivery systems, and financial intermediaries.
The market environment depends largely on the type of the industrial structure.
In monopolies and oligopolies, the concern for the market environment is lesser than what it is in the
face of pure competition.
Supplier Environment
The supplier environment consists of factors related to the cost, reliability, and availability of the
factors of production or service that have an impact on the business of an organization.
Some of the important factors and influences operating in the supplier environment are as follows:
1. Cost availability and continuity of supply of raw materials, subassemblies, parts and components.
2. Cost and availability of finance for implementing plans and projects.
3. Cost, reliability and availability of energy used in production.
The supplier environment occupies a dominant position in strategy formulation because of the fact that
Ethiopia is a developing country with problems of scarcity of capital and appropriate raw material
resources.
3.2.3. Environmental Scanning
Environmental scanning is process by which organizations monitor their relevant environment to
identify opportunities and threats affecting their business.
Environmental scanning employs different techniques to gather data about the opportunities and threats
and monitor their environment.
The external environment in which an organization exists consists of a bewildering variety of factors
described below:
 Events are important and specific occurrences taking place in different environmental sectors.
 Trends are the general tendencies or the courses of action along which events take place.
 Issues are the current concerns that arise in response to events and trends
 Expectations are the demands made by interested groups in the light of their concern for issues
3.2.4. Appraising the Environment
Environmental appraisal involves identifying the environmental factors, and structuring the results.
Given the same environmental conditions no two strategists or two organizations would appraise the
environment in a similar fashion due to many factors, which are classified into three categories:
strategist-related, organization-related and environment-related factors.
1. Strategist-related factors
Age, education, experience, motivation level, cognitive styles, ability to withstand time pressures and
strain, and so on.
Group characteristics, like the interpersonal relations between the different strategists involved in the
appraisal, team spirit, and the power equations operating between them could also be significant.
2. Organization-related factors.
Nature of business the organization is in, its age, size and complexity, the nature of its markets, and the
products or services that it provides.

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3. Environment-related factors.
These include complexity, volatility or turbulence, hostility, and diversity of an environment.
Evaluating Environmental Factors
Environmental factors are the events, trends, issues, and expectations of different interested groups as,
described in the previous section.
Environment factors are complex, difficult to predict, and with greater impact on the operations of the
organization.
The following steps can be undertaken in environmental appraisal.
Identification of major environmental factors
Assessment of the probability of occurrence and time of impact
Analyzing the significance of the impact
Identifying environmental factors that are critical and with high priority
A feasible approach in identifying the important environmental factors is to test each factor with regard
to its impact on the business of the organization, and the probability of such an impact.
3.3. Analyzing the Industry Environment (Inter-industry Analysis)
 A strategy links a firm's internal with its external environment. Strategy formulation depends on an
analysis of the firm's situations (SWOT).
Why an industry analysis?
An industry analysis is important to the formulation of both corporate-level and business level strategy.
 Industry analysis is important for corporate strategy concerned with deciding which industries the
firm should be involved in and allocating resources between them.
o This requires evaluating the attractiveness of different industries to determine industry
profitability.
 Industry analysis is also important for the formulation of business strategy. Understanding the
profitability, and the competitive nature of an industry to determine what business strategy a firm
should employ. Understanding the needs of customers will help identify opportunities for competitive
advantage within an industry (that is, the available "critical success factors").

A MODEL FOR INDUSTRY ANALYSIS

(Porter's Five Forces)
 The model of pure competition implies that risk-adjusted rates of return should be constant
across firms and industries.
 However, numerous economic studies have affirmed that different industries can sustain
different levels of profitability; part of this difference is explained by industry structure.
 Michael Porter provided a framework that models an industry as being influenced by five
forces.
 The strategic business manager seeking to develop an edge over rival firms can use this model
to better understand the industry context in which the firm operates.

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Figure3.3: Porter's 5 Forces Model

SUPPLIER POWER
Supplier concentration
Importance of volume to supplier
Differentiation of inputs
  Impact of inputs on cost or differentiation  
Switching costs of firms in the industry
Presence of substitute inputs
Threat of forward integration
Cost relative to total purchases in industry
ENTRYBARRIERS THREAT OF
Absolute cost advantages DEGREE OF RIVALRY UBSTITUTES
Proprietary learning curve Exit barriers
Switching costs
Access to inputs Industry concentration
Buyer inclination to
Government policy Fixed costs/Value added
  substitute
Economies of scale Industry growth
Price-performance
Capital requirements Intermittent overcapacity
trade-off of substitutes
Brand identity Product differences
Switching costs Switching costs
Access to distribution Brand identity
Expected retaliation Corporate stakes
Proprietary products
BUYER POWER
Bargaining leverage
Buyer volume
Buyer information
Brand identity
  Price sensitivity
Threat of backward integration
Product differentiation
Buyer concentration vs. industry
Substitutes available
Buyers' incentives
 I. Rivalry
Firms strive for a competitive advantage over their rivals.
The intensity of rivalry among firms varies across industries
Economists measure rivalry by indicators ofindustry concentration.
The Concentration Ratio (CR) is one such measure
The CR indicates the percent of market share held by the 4 , 8, 25, and 50 largest firms
A high concentration ratio indicates that less competitiveness (closer to a monopoly).
In pursuing an advantage over its rivals, a firm can choose from several competitive moves:
 Changing prices - raising or lowering prices to gain a temporary advantage.
 Improving product differentiation - improving features, implementing innovations in the
manufacturing process and in the product itself.
The intensity of rivalry is influenced by the following industry characteristics:
1. A larger number of firms and similar market
2. Slow market growthcauses firms to fight for market share.
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3. High fixed costs result in an economy of scale effect that increases rivalry.
4. High storage costs or highly perishable products
5. Low switching costsincreases rivalry.
II. Threat of Substitutes
A threat of substitutes exists when a product's demand is affected by the price change of a
substitute product.
The competition engendered by a Threat of Substitute comes from products outside the industry
through price competition.
III. Buyer Power
The power of buyers is the impact that customers have on a producing industry.
In general, when buyer power is strong, the relationship to the producing industry is near to what
an economist terms a monopsony - a market in which there are many suppliers and one buyer.
The following tables outline some factors that determine buyer power.
Buyers are Powerful if: Example
Buyers are concentrated - there are a few buyers with DOD purchases from defense contractors
significant market share
Buyers purchase a significant proportion of output - Circuit City and Sears' large retail market provides power
distribution of purchases or if the product is standardized over appliance manufacturers
Buyers possess a credible backward integration threat - Large auto manufacturers' purchases of tires
can threaten to buy producing firm or rival

Buyers are Weak if: Example

Producers threaten forward integration - producer can Movie-producing companies have integrated forward to
take over own distribution/retailing acquire theaters
Significant buyer switching costs - products not IBM's 360 system strategy in the 1960's
standardized and buyer cannot easily switch to another
product
Buyers are fragmented (many, different) - no buyer has Most consumer products
any particular influence on product or price
Producers supply critical portions of buyers' input - Intel's relationship with PC manufacturers
distribution of purchases
IV. Supplier Power
Suppliers, if powerful, can exert an influence on the producing industry, such as selling raw materials at a
high price to capture some of the industry's profits.
The following tables outline some factors that determine supplier power.
Suppliers are Powerful if: Example
Credible forward integration threat by suppliers Baxter International, manufacturer of hospital supplies,
acquired American Hospital Supply, a distributor
Suppliers concentrated Drug industry's relationship to hospitals
Significant cost to switch suppliers Microsoft's relationship with PC manufacturers
Customers Powerful  Boycott of grocery stores selling non-union picked grapes
Suppliers are Weak if: Example
Many competitive suppliers - product is standardized Tire industry relationship to automobile manufacturers
Purchase commodity products Grocery store brand label products
Credible backward integration threat by purchasers Timber producers relationship to paper companies
Concentrated purchasers Garment industry relationship to major department stores
Customers Weak Travel agents' relationship to airlines
V. Barriers to Entry / Threat of Entry

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In theory, any firm should be able to enter and exit a market, and if free entry and exit exists, then
profits always should be nominal.
In reality, however, industries possess characteristics that protect the high profit levels of firms in
the market and inhibit additional rivals from entering the market. These arebarriers to entry.
Barriers to entry are unique industry characteristics that define the industry.
Barriers to entry arise from several sources:
1. Government creates barriers for protection purposes.
2. Patents and proprietary knowledge serve to restrict entry into an industry.
3. Asset specificity inhibits entry into an industry.
4. Organizational (Internal) Economies of Scale.
Barriers to exit work similarly to barriers to entry.
Some of an industry's entry and exit barriers can be summarized as follows:
Easy to Enter if there is: Difficult to Enter if there is:
 Common technology  Patented or proprietary know-how
 Little brand franchise  Difficulty in brand switching
 Access to distribution channels  Restricted distribution channels
 Low scale threshold  High scale threshold
Easy to Exit if there are: Difficult to Exit if there are:
 Salable assets  Specialized assets
 Low exit costs  High exit costs
 Independent businesses  Interrelated businesses
3.4. Intra-Industry Analysis: Segmentation, Strategic Groups, and Competitor Appraisal
i) Segmentation Analysis
Segmentation analysis is useful whenever the nature and intensity of competition varies within an
industry. It benefits:
o The new entrant by indicating the attractiveness of the different segments, and
o The existing firm by assisting in the decision of which segments to maintain a presence in and
where to allocate resources between them.
ii) Strategic Group Analysis:
Segmentation analysis uses differences in product/markets as the basis for dividing industries.
Strategic groupanalysis divides an industry on the basis of the differences between firms.
A strategic group is "the group of firms in an industry following the same or a similar strategy along the
strategic dimensions."
Examples of strategic dimension include:
 Product range  Level of product quality
 Geographical scope  Level of vertical integration
 Distribution channel choice  Choice of technology
iii) Competitor Analysis:
 Analysis of Individual and group competitors
 Extent of data varies by industry and determines what analysis is possible
 May be possible to analyze competitors using same techniques as for ourselves
The strengths and weakness can be analyzed through organizational appraisal, which will be discussed next.
3.5. Organizational Appraisal
The appraisal of the external environment of a firm helps it to think of what it might choose to do.
The appraisal of the internal environment, on the other hand, enables a firm to decide about what it can
do.
Organizational capability could be understood in terms of the strengths and weaknesses existing in the
different functional areas of an organization: finance, marketing, operations, personnel, information
management and general management.

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The results of organizational appraisal are structured through the preparation of an organizational capability profile
and a strategic advantage profile (or dynamics of the internal environment).
 Dynamics of internal environment
 Organizational capability factors
3.5.1. Dynamics of Internal Environment
The internal environment provides an organization with the capability to capitalize on the opportunities or
protect itself from the threats.
The internal environment of an organization can be explained in terms of resources and behavior.
Organizational capability rests on an organization’s capacity and ability to use its competencies to excel in a
particular field.
The resources, behavior, strengths and weaknesses, synergistic effects and competencies of an organization
determine the nature of its internal environment.
Organizational Resources
The dynamics of the internal environment of an organization can be best understood in the context of the
resource-based view of strategy.
According to Barney (1991), a firm is a bundle of resources that can be classified as: physical, human, and
organizational resources.
The physical resources are:
o The technology,
o Plant and equipment,
o Geographic location
o Access to raw materials, etc.
The human resources are:
o Training,
o Experience,
o Judgment,
o Intelligence,
o Relationships and so on.
The organizational resources are:
o The formal systems and structures
o Informal relations among groups.
Barney forwarded that the resources of an organization can ultimately lead to a strategic advantage for it if
the resources possess four characteristics that is, if the resources are:
o Valuable,
o Rare,
o Costly to imitate, and
o Non-substitutable.
The cost and availability of resources are the most important factors on which the success of an
organization depends.
Organizational Behavior
Organizational behavior refers to various forces and influences that create the ability for, or place
constraints in the usage of resources.
Organizational behavior is unique in the sense that it leads to the development of a special identity and
character of an organization.
Some of the important forces and influences that affect organizational behavior are:
o The quality of leadership,
o Management philosophy,
o Shared values and culture,
The resources and behavior thus collectively produce are the strengths and weaknesses.
Strengths and Weaknesses
Organizational resources and behavior do not exist in isolation.
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They combine in a complex fashion within a functional area, and also across different functional areas, to
create synergistic effects to create strengths and weaknesses within the internal environment of an
organization.

Synergistic Effects
Synergy is the idea that the whole is greater or lesser than the sum of its parts. It is also expressed as “the
two-plus-two-is-equal-to-five-or-three effect’.
Synergistic effect is the cumulative positive effect of the combined strengths within or across the functional
areas
Synergistic effects are an important determinant of the quality and type of the internal environment existing
within an organization and may lead to the development of competencies.
Dysergy (or negative synergy) is the cumulative negative effect of weaknesses within or across the
functional areas, for example, marketing inefficiency reduces production efficiency.
Competencies
Competencies are special qualities possessed by an organization that make them withstand pressures of
competition in the marketplace.
The net results of the strategic advantages and disadvantages that exist for an organization determine its
ability to compete with its rivals.
Other terms frequently used are unique resources, invisible assets, embedded knowledge, and so on.
Competencies can be:
o core competency or
o distinctive competencies
Core competencies are the competencies that a firm has, which may not be necessarily unique, they show
the main resource strength of the firm, which is often a combination of resources and behaviors.
A distinctive competence is “any advantage a company has over its competitors because it can do
something which they cannot or it can do something better than they can”.
It is not necessary, of course, for all organizations to possess a distinctive competency.
Recall the CSFs are those factors which are crucial for organizational success A few examples of distinctive
competencies are given below.
 Superior product quality in a particular attributes, say, a two-wheeler, which is more fuel-efficient than
its competitor products.
 Creation of a market niche by supplying highly-specialized products to a particular market segment.
 Differential advantages based on the superior R & D skills of an organization not possessed by its
competitors.
Distinctive or core competencies can easily lead to strategic advantage when they have the following
characteristics.
1. Value--the resource allows the firm to conceive of and implement strategies that effectively deal with
opportunities and threats.
2. Rarity--the resource is generally unavailable to large numbers of current or potential competitors.
3. Not imitable--the resource cannot be easily obtained by competitors.
4. Non-substitutability--there are no strategically equivalent valuable resources available to competitors.
Organizational Capability
Organizational capability is the inherent capacity or potential of an organization to use its strengths and
overcome its weaknesses in order to exploit opportunities and face threats in its external environment.
It is a measurable and organizational capability can be compared.
Strategic Advantage
Strategic advantages are measurable results of organizational activities leading to rewards in terms of
financial parameters, such as, profit or shareholder value, and/or non-financial parameters, such as, market
share or reputation.

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Strategic disadvantages are penalties in the form of financial loss or damage to market share. Clearly, such
advantages or disadvantages are the outcome of the presence or absence of organizational capabilities.
3.5.2. Organizational Capability Factors
Capabilities are most often developed in specific functional areas
Organizational capability factors (or, simply, capability factors) are the strategic strengths and weaknesses
of different functional areas.
Synonymous with organizational capability factors are: strategic factors strategic advantage factors,
corporate competence factors, and so on.
Financial Capability
Financial capability factors relate to the availability, usage, and management of funds, and all allied aspects.
Factors which influence the financial capability of any organization include:
1. Factors related to sources of funds. Capital structure, procurement of capital controllership, financing
pattern, working capital availability, borrowings, capital and credit availability, reserves and surplus,
and relationship with lenders, bank and financial institutions.
2. Factors related to the usage of funds. Capital investment, fixed asset acquisition, current assets, loans
and advance, dividend distribution, and relationship with shareholders.
3. Factors related to the management of funds. Financial, accounting, and budgeting systems:
management control systems; state of financial health, cash, inflation, credit, return and risk
management; cost reduction and control; and tax planning and advantages.
Marketing Capability
Marketing capability factors relate to the pricing, promotion, and distribution of products or services, and
all the allied aspects.
Factors which influence the marketing capability of an organization include:
1. Product related factors. Variety, differentiation, mix quality, positioning, packaging and others.
2. Price-related factors. Pricing objectives, policies, changes, protection, advantages, among others.
3. Place-related factors. Distribution, transportation and logistics, marketing channels, marketing
intermediaries, and so on.
4. Promotion-related factors. Promotional tools, sales promotion, advertising, public relations, and so on.
5. Integrative and systemic factors. Marketing mix, market standing, company image, marketing
organization, marketing system, marketing management information system, and so on.
Operations Capability
Operations capability factors related to the production of products or services, the use of material resources,
and all allied aspects.
Factors which influence the operations capability of a firm include:
1. Factors related to the production system. Capacity, location, layout, product or service design, work
systems, degree of automation, extent of vertical integration, and others.
2. Factors related to the operations and control system. Aggregate production planning, material supply;
inventory, cost and quality control; maintenance systems and procedures, and so on.
3. Factors related to the R & D system. Personnel, facilities, product development, patent rights, level of
technology used, technical collaboration and support, land so on.
Personnel or human Resource Capability
Personnel capability factors related to the existence and use of human resources and skills, and all allied
aspects.
Factors which influence the personnel capability of an organization are as follows:
1. Factors related to the personnel system. System for manpower planning, selection, development
compensation, communication, and appraisal; position of the personnel department within the
organization; procedures and standards, and so on.
2. Factors related to organizational and employees’ characteristics. Corporate image, quality of
mangers, staff and workers; perception about and image of the organization as an employer; availability
of development opportunities for employees; working conditions; and so on.
3. Factors related to industrial relations. Union-management relationship, collective bargaining, safety,
welfare and security; employee satisfaction and moral; among others.
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Information Management Capability

Information management capability factors relate to the design and management of the flow of information
from outside into, and within, an organization for the purpose of decision-making and all allied aspects.
Factors which influence the information capability of an organization are as follows:
1. Factors related to acquisition and retention of information. Sources, quantity, quality, and timelines
of information, retention capacity, and security of information.
2. Factors related to the processing and synthesis of information. Database management, computer
systems, software capability, and ability to synthesize information.
3. Factors related to the retrieval and usage of information. Availability and appropriateness of
information formats, and capacity to assimilate and use information.
4. Factors related to transmission and dissemination. Speed, scope width, and depth of coverage of
information, and willingness to accept information.
5. Integrative, systemic and supportive factors. Availability of IT infrastructure, its relevance and
compatibility to organizational needs, upgradation of facilities, willingness to invest in state-of-the-are
systems, availability of compute professionals, and top management support.
General Management Capability
General management capability relates to the integration, coordination, and direction of the functional
capabilities towards common goals, and all the allied aspects.
Factors which influence the general management capability of an organization are as follows:
1. Factors related to the general management system – Systems and processes related to setting strategic
intent, strategy formulation and implementation machinery, strategy evaluation system, management
information system, corporate planning system, rewards and incentives system for top managers, etc.
2. Factors related to general managers. Orientation, risk-propensity, values, norms, personal goals,
competence, capacity for work, track record, balance of functional experience, and so forth.
3. Factors related to external relationships. Influence on and rapport with the government, regulatory
agencies and financial institutions; public relations; sense of social responsibility, philanthropy, public
image as corporate citizen, and so on.
4. Factors related to organizational climate. Organizational culture, use of power, political processes,
balance of vested interests; introduction, acceptance and management of change; nature of
organizational structure and controls, and so on.
3.5.3. Methods and Techniques Used for Organizational Appraisal
Organizational appraisal, unlike performance appraisal that focuses on current behavior, focuses not only on
current behaviour but also on what the organization needs to do in order to gain the capability to compete in
the market, take advantages of the available opportunities, and overcome the threats operating in its relevant
environment.
The methods and techniques used organizational appraisal can be classified broadly in three:
Internal analysis
a. Value chain analysis
b. Quantitative analysis
i) Financial analysis
ii) Non-financial quantitative analysis
c. Qualitative analysis
Comparative analysis
a. Historical analysis
b. Industry norms
c. Benchmarking
Comprehensive analysis
a. Balanced scorecard
b. Key factor rating
However our discussion in this module will focus on three commonly used techniques of appraisal
Value chain analysis
Benchmarking
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Key factor rating

Value chain analysis
According to Porter (1985) a value chain is a set of interlinked value-creating activities performed by an
organization.
These activities may begin with the procurement of basic raw materials, go through its processing in various
states, and continue right up to the end products finally marketed to the ultimate consumer.
Porter divided the value chain of a manufacturing organization into primary and support activities.
Primary activities are directly related to the flow of the product to the customer and include five sub-
activities: inbound logistics (receiving, storing, etc.), operations (or transformation of raw materials to
finished products), outbound logistics (order processing, physical distribution, etc.)
Benchmarking
A benchmark is a reference point for the purpose of measuring.
The process of benchmarking is aimed at finding the best practices within and outside the industry to which
an organization belongs.
The American Productivity and Quality Centre (APQC) gives an interesting interpretation of the term
benchmarking by saying that it is "the practice of being humble enough to admit that someone else is
better at something, and being wise enough to learn how to match and even surpass them at it".
Based on what is to be compared then there are three types of benchmarking:
o Performance,
o Process, and
o Strategic benchmarking.
Performance benchmarking is to compare one's own performance with that of some other organization for
the purpose of determining how good one's own organization is.
Key Factors Rating
A comprehensive method, which can be used in association with financial analysis, is that of key factor
rating.
Many systems have been evolved by consultants to assess organizational strengths and weaknesses.
Essentially, these systems are based on rating, depending on a number of key factors, each of which is
analyzed on the basis of a series of thoughtful and penetrating questions.
A detailed study of the areas covered by these questions leads to a reliable appraisal of an organization.
Preparing the Organizational Capability Profile
The organizational capability profile (OCP) is drawn in the form of a chart as depicted in Exhibit 3.6
The strategists are required to systematically assess the various functional areas and subjectively assign
values to the different functional capability factors and sub factors along a scale ranging from the values of
-5 to +5.
A detailed OCP may run into several pages where each of the sub factors constituting the different
capability factors can be assessed for the six functional areas
Finally, the strategists assess the relative strengths and weaknesses of an organization in each of the six
functional areas and identify the gaps that need to be filled or the opportunities that could be used.

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CHAPTER FOUR
THE GENERIC STRATEGIC ALTERNATIVES
4.1 HIERARCHICAL LEVELS OF STRATEGY
Strategy can be formulated on three different levels:
4.1.1 CORPORATE LEVEL
4.1.2 CORPORATE PORTFOLIO ANALYSIS
4.1.3 BUSINESS UNIT LEVEL
4.1.4 FUNCTIONAL LEVEL
4.1.1 CORPORATE STRATEGY
 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
 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.
 A Corporation can grow internally by expanding its operations both globally and domestically.
 A Corporation can grow externally through mergers, acquisition and strategic alliances.
The Corporate Directional Strategies are:
A) Growth B) Stability
(i) Concentration (i) Pause/Proceed with Caution
 Horizontal growth (ii) No Change
 Vertical growth (iii) Profit
- Forward integration C) Retrenchment
- Backward integration (i) Turnaround
(ii) Diversification (ii) Captive Company
 Concentric (iii) Sell-out / Divestment
 Conglomerate (iv)Bankruptcy / Liquidation

A)GROWTH 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
 A growing firm offers more opportunities for advancement, promotions, and interesting jobs.
(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.
 Vertical growth
o Can be achieved by taking over a function previously provided by a supplier or by a distributor.
o 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.
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o More specifically, assuming a function previously provided by a supplier is called backward

integration (going backward on an industry’s value chain).
o Assuming a function previously provided by a distributor is labeled forward integration
(going forward an industry’s value chain).
Forward Integration
 Forward integration involves gaining ownership or increased control over distributors or retailers.
 Six guidelines when forward integration may be an especially effective strategy:
a. When an organization’s present distributors are especially expensive or unreliable, or incapable
of meeting firm’s distribution needs.
b. When the availability of quality distributors is so limited as to offer a competitive advantage to
those firms that integrate forward.
c. When an organization competes in an industry that is growing and expected to continue to grow
markedly.
Example: An agricultural company purchases a regional bakery chain.
Backward Integration
 Backward integration is a strategy of seeking ownership or increased control of a firm’s suppliers.
 This strategy can be especially appropriate when a firm’s current suppliers are:-
a. Unreliable,
b. Too costly, or
c. Cannot meet the firm’s needs.
 Example: When a hotel purchases a furniture producer.
N.B: Outsourcing, whereby companies use outside suppliers, shop around, play one seller against another,
and go with the best deal is becoming widely practiced.
 Horizontal Growth
o 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.
o In this case, the company expands sideways at the same location on the industry’s value chain.
o 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.
o Horizontal integration for a firm may range from full to partial ownership to long term contract.
 Horizontal integration has become the most-favored growth strategy in many industries. For example,
explosive growth in e-commerce has telecommunications firms worldwide frantically merging and pursuing
horizontal integration to gain competitiveness.
 There are five guidelines for when horizontal integration may be an especially effective strategy:
a. When an organization can gain monopolistic characteristics.
b. When an organization competes in a growing industry.
c. When increased economies of scale provide major competitive advantages.
 Example: One department store acquired another department store.
(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.
 The two basic diversification strategies are concentric and conglomerate.
 Concentric Diversification (Related)
 Adding new, but related, products or services for present customers is widely called concentric diversification.
 Six guidelines for when to use concentric diversification:
a. When an organization competes in a no-growth or slow growth industry.
b. When adding new, but related products would enhance sales of current products.
c. When new, but related products could be offered at competitive prices.
 Example: Dell computer Inc. turned to produce flat-panel televisions and MP3 players, and
opened an online music-downloading store.

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 Conglomerate Diversification (Unrelated)

 Adding new, unrelated products or services for present customers is called horizontal diversification. This
strategy is not as risky as conglomerate diversification because a firm already should be familiar with its
present customers.
 Four guidelines for when to use horizontal diversification:
a. When revenues derived from an organization’s current products or services would increase
significantly by adding the new, unrelated products.
b. When an organization competes in a highly competitive and/or no-growth industry.
c. When an organization’s present channels of distribution can be used to market the new products
to current customers.
 Example: Hospitals are creating small malls by offering banks, bookstores, coffee shops,
restaurants, drugstores and other retail stores within their buildings
Summary of the concentration and diversification strategies
Name Current markets New markets
Current products Market penetration Market Development
New products Product Development Unrelated diversification
Related diversification
B) STABILITY STRATEGIES
 A corporation may choose stability over growth by continuing its current activities without any
significant change in direction.
(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.
(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.
(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.
 The profit strategy is an attempt to artificially support profits when a company’s sales are
declining by reducing investment and short term discretionary expenditures.
C) RETRENCHMENT STRATEGIES
 Retrenchment occurs when an organization regroups through cost and asset reduction to reverse declining
sales and profits.
 Sometimes called a turnaround or reorganizational strategy, retrenchment is designed to fortify an
organization’s basic distinctive competence.
 Five guidelines when retrenchment may be an especially effective strategy to pursue:
a. When an organization has a clearly distinctive competence but has failed to meet objectives
consistently.
b. When an organization is one of the weaker competitors in a given industry.
c. When an organization is plagued by inefficiency, low profitability, poor employee morale, and
pressure from stockholders 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.
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 Analogous to a weight reduction diet, the two basic phases of a turnaround strategy are contraction and
consolidation.
 Contraction is the initial effort to quickly “stop the bleeding” with a general across the board
cutback in size and costs.
 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.
(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.
 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.
(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 sellout 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.
 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.
 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.
 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.
D) COMBINATION STRATEGIES
 It is the combination of stability, growth & 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.
 The obvious combination strategies include
a) Retrench, then stability; d) Stability, then growth;
b) Retrench, then growth; e) Growth then retrench, and
c) Stability, then retrench; f) Growth, then stability.
Reasons for adopting combination strategies are given below
 Rapid Environment change
 Liquidate one unit, develop another
 Involves both divestment & acquisition (take over)
4.1.2. Corporate Portfolio Analysis
The corporate or business portfolio is the collection of businesses and products that make up the company.
The best business portfolio is one that fits the company's strengths and helps exploit the most attractive
opportunities.
The company must:

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 Analyze its current business portfolio and decide which businesses should receive more or less
investment, and

Methods of Portfolio Planning

The two best-known portfolio-planning methods:
o the Boston Consulting Group and
o The McKinsey General Electric/Shell.
An SBU is a unit of the company that has a separate mission and objectives and that can be planned
independently from the other businesses.
The Boston Consulting Group Matrix
Using the BCG Box (an example is illustrated below) a company classifies all its SBU's according to two
dimensions:
Relative market share serves as a measure of SBU strength in the market.
Market growth rate provides a measure of market attractiveness
Figure 4.1: The Boston Consulting Group Box ("BCG Box")

Stars
Stars are high growth businesses or products competing in markets where they are relatively strong
Often they need heavy investment to sustain their growth.
Cash Cows
Low-growth businesses or products with a relatively high market share.
Mature, successful businesses with relatively little need for investment.
Question marks
Businesses or products with low market share but which operate in higher growth markets.
They have potential, but may require substantial investment in order to grow
Dogs
Businesses or products that have low relative share in unattractive, low-growth markets.
Dogs may generate enough cash to break-even, but they are rarely, if ever, worth investing in.
Using the BCG Box to determine strategy
Once a company has classified its SBU's, it must decide what to do with them.
Conventional strategic thinking suggests there are four possible strategies for each SBU:
 Build Share: increasing market share (for example turning a "question mark" into a star)
 Hold: investing just enough to keep the SBU in its present position
 Harvest: reducing the amount of investment in order to maximise the short-term cash flows and profits
from the SBU. This may have the effect of turning Stars into Cash Cows.
 Divest: divesting the SBU by phasing it out or selling it - in order to use the resources elsewhere (e.g.
investing in the more promising "question marks").
The McKinsey / General Electric Matrix
Overcomes a number of the disadvantages of the BCG Box.
Market attractiveness replaces market growth as the dimension of industry attractiveness, and includes a
broader range of factors other than just the market growth rate.
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Competitive strength replaces market share as the dimension by which the competitive position of each
SBU is assessed.

Figure 4.2: The Mckinsey Matrix

Determinants of market attractiveness

 Market Size  Opportunity to differentiate products
 Market growth and services
 Market profitability  Segmentation
 Pricing trends  Distribution structure (e.g. retail, direct,
 Competitive intensity / rivalry wholesale)
 Overall risk of returns in the industry
Determinants Factors Competitive Strength
 Strength of assets and competencies  Distribution strength
 Relative brand strength  Record of technological or other
 Market share innovation
 Customer loyalty  Access to financial and other
 Relative cost position (cost structure investment resources
compared with competitors)
4.1.3 BUSINESS STRATEGY
 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 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.
A) COMPETITIVE BUSINESS STRATEGY (PORTER’S GENERIC STRATEGY)
 Competitive strategies focus on ways in which a company can achieve the most advantageous position
that it possibly can in its industry .
 The profit of a company is essentially the difference between its revenues and costs.
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.

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i) Low-Cost Strategy:
 An integrated set of actions designed to produce or deliver goods or services at the lowest cost,
relative to competitors with features that are acceptable to customers
 Firms using this strategy commonly sell
o relatively standardized products with
o features acceptable to many customers, and
o lowest competitive price
ii) Differentiation Strategy:
 An integrated set of 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
o A product’s unique attribute, rather than price, provides the value for which customers are willing to
pay
o Non-standardized products
o customers value differentiated features more than they value low cost
iii) Focus Strategy:
 Firms choose a focus strategy when they intend to use their core competencies to serve the needs of a
particular industry segment or niche to the exclusion of others.
 Examples of specific market segments that can be targeted by a focus strategy include:
o A particular buyer group (e.g. youths or senior citizens)
o A different segment of a product line (e.g. professional painters versus do-it-yourself group), or
o A different geographic market (e.g. the East or the West coast)
Combination (Stuck in the middle)
 A number of firms engage in primary and support activities that allow them to simultaneously pursue
low cost and differentiation.
 Firms with this type of activity map use the integrated cost leadership/ differentiation strategy.
 The objective of using this strategy is to efficiently produce products with differentiated attributes.
 Efficient production is the source of maintaining low costs while differentiation is the source of unique
value.
B) COOPERATIVE BUSINESS STRATEGY (STRATEGIC ALLIANCE)
 A Strategic Alliance is a cooperative agreement between companies who are competitors from
different companies.
 Strategic alliances are linkages between companies designed to achieve an objective faster or more
efficiently than if either firm attempted to do so on its own.
FACTORS PROMOTING THE RISE OF STRATEGIC ALLIANCES (OR) REASONS
FOR FORMING STRATEGIC ALLIANCES
1. To gain access to foreign markets– in the pharmaceutical industry, Pharmacia and Pfizer have formed
an alliance for smooth market entry to accelerate the acceptance of a new drug.
2. To reduce financial risks – IBM, Toshiba and Siemens have entered into an alliance to share the fixed
costs of developing new microprocessors.

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3. To bring complementary skills – Intel formed an alliance with Hewlett- Packard (HP) to use HP’s
capability to develop Pentium microprocessors.
4. To reduce political risks – Maytag, a U.S company entered into alliance with Chinese appliance maker
RSD to gain access to China.
5. To achieve competitive advantage – GM and Toyota established joint venture by name Nummi
Corporation.
6. To set technological standards – Philips entered into an alliance with Matsushita to manufacture and
market the digital compact cassette.
7. To shape industry evolution – Lucent Technologies and Motorola entered into an alliance to develop a
new generation of Digital signal processing chips that is designed to power next- generation cellular
phones and other consumer electronics.
TYPES OF STRATEGIC ALLIANCES
a) Mutual Service Consortia: A Mutual Service Consortium is a partnership of similar companies in similar
industries who pool their resources to gain a benefit that is too expensive to develop alone.
b) Joint Venture: A joint venture is a cooperative business activity, formed by two or more separate
organizations for strategic purposes, that creates an independent business identity and allocates ownership,
operational responsibilities and financial risks and rewards to each member, while preserving their separate
identity or autonomy.
c) Licensing Arrangement: A licensing agreement is an agreement in which the licensing firm grants rights to
another firm in another country or market to produce and/ or sell a product.
d) Value-Chain Partnership: The value- chain partnership is a strong and close alliance in which one company
or unit forms a long- term arrangement with a key supplier or distributor for mutual advantage.
4.1.4 FUNCTIONAL STRATEGY
 Functional strategy is the approach; a functional area takes to achieve corporate and business unit
objectives and strategies by maximizing resource productivity.
A) OUTSOURCING:
 Is purchasing from someone else a product or service that had been previously provided internally.
 The key to outsourcing is to purchase from outside only those activities that are not key to the
company’s distinctive competencies.
 In determining functional strategy, the strategist must.
 Identify the company’s or business unit’s core competencies
 Ensure that the competencies are continually being strengthened and
 Manage the competencies in such a way that best preserves the competitive advantage they
create.
B) MARKETING STRATEGY
 Marketing strategy deals with pricing, selling and distributing a product.
 Using a market development strategy, a company or business unit can:
 Capture a larger share of an existing market for current products through market saturation and
market penetration or
 Develop new market for current products.
o Using Product development Strategy, a company or business unit can
 Develop new products Existing markets or
 Develop new products for new markets.
o Using Advertising and promotion strategy, a company or business unit can use
 Push Strategy – Spending a large amount of money on trade promotion in order to gain or hold
shelf space in retail outlets.
 Pull Strategy – spending a large amount of money on consumer advertising designed to build
awareness so that shoppers will ask for the products.
o Using Distribution strategy, a company or business unit can choose any method of distribution,
namely
 Using distributors and dealers to sell the products
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 Selling directly to the consumers

o Using pricing strategy, a company or business unit can choose,
 Skim pricing means high price, when the product is novel and competitors are few or
 Penetration pricing is aimed at gaining high market share with a low price.
C) FINANCIAL STRATEGY
 Financial Strategy examines the financial implications of corporate and business level strategies options and
identifies the best financial course of action.
 It attempts usually to maximize the financial strategies adopted by a company or a business unit. The
Financial strategies may be:
 Achieving the desired debt to equity ratio and relying on internal long term financing (via) cash flow,
(Equity financing is preferred for related diversification and debt financing for unrelated diversification)
 Leveraged buyout (LBO) - a company is acquired in a transaction, which is namely financed by funds
arranged from a third party such as a bank of financial institutions.
D) RESEARCH & DEVELOPMENT STRATEGY
 R&DStrategy deals with product and process innovation and improvement.
 The R & D choices may be:
 Technology leadership in which one pioneers an innovation,
E) OPERATIONS STRATEGY
 Operation Strategy determines how and where a product or service is to be manufactured, the level
of vertical integration in the production process and the deployment of physical resources.
 The strategies are:
o Advances manufacturing Technology (AMT) is revolutionizing operations worldwide and
should continue to have a major impact as corporations strive to integrate diverse business
activities using Computer integrated design and manufacturing (CAD / CAM)
F) PURCHASING STRATEGY
 Purchasing Strategy deals with obtaining the raw materials, parts and suppliers needed to perform
the operations functions.
 The basic purchasing choices are
o Multiple Sourcing
o Sole Sourcing
o Parallel Sourcing
G) LOGISTICS STRATEGY
 Logistics strategy deals with the flow of products into and out of the manufacturing process. Three
trends are evident, namely:
 Centralization – Refers to the centralized logistics group usually contains specialists with expertise
in different transportation modes such as rail or trucking or
 Outsourcing – of logistics reduces cost and improves delivery time or
 Use of internet – simplifies logistical system and created an online system for its retailers and
suppliers.
H) HRM STRATEGY
 HRM Strategy addresses the issue whether a company or business unit should try to:
 Hire a large no. of low skilled employees who receives low pay, perform repetitive jobs, and most
likely quit after a short time
 Business firms are experimenting with different category of workers
(a) Part time workers
(b) Temporary workers
(c) Leasing of employees
I) INFORMATION SYSTEM STRATEGY
 Corporations are turning to IS strategies to provide business units with competitive advantage. The IS
strategies are:

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 IS enables workers to have online communication with co-workers in other countries who use, a
different language.

CHAPTER FIVE
STRATEGY IMPLEMENTATION
5.1. Factors Causing Unsuccessful Implementation of Strategy
 Unsatisfactory coupling of strategy and operational actions.
 Insufficient attention to the negotiation of outcomes in decision situations, and
 Defective strategy.
Unsatisfactory Coupling/Decoupling of Strategy and Actions
 Unsatisfactory coupling of the new strategy may be due to
 Lack of explicit decoupling from previous strategy
 Lack of commitment within the organization itself.
 The belief by many people that the new strategy is not practical and that the previous ways and
activities are best.
 Thus it is necessary to ensure that the strategy is accepted and implemented than to prepare it in the first
instance.
Insufficient Attention to the negotiation of outcomes in the external decision situations
 It is a tendency to assume that all that is necessary for the success of the organization is the aggressive
pursuit of the strategy.
 However, this assumption holds well only as long as there is no change in the decision situations
Defective Strategy
 Defective strategy is which cannot be implemented within the context of present and future
organizational resources.
 The classical illustration of defective strategy the story of ‘who will bell the cat’
 Perturbed with the sudden attack of a cat, a community of rats called a meeting to overcome this problem.
In the meeting,
 An elder rat suggested, “Bell the cat so that whenever she comes, we shall escape on hearing
the sound of the bell.”
 A younger rat asked, “Who will bell the cat?
 Pat came the reply from the elder rat,
o “Strategic decision making is my role
o Implementation is yours”.
 Therefore strategic choice should always be related with the organizational capability to implement it.
5.2. Activating Strategy
 Activation is the process of stimulating an activity so that it is undertaken effectively.
 It is required because only a very small group of people is involved in strategy formulation while its
implementation involves a large number of people in the organization.
 So long as a strategy is not activated, it remains in the mind of strategists.
 Activation of a strategy requires the performance of following activities:
 Institutionalization of strategy,
 Formulation of derivative-plans and programs,
5.2.1. Institutionalization of Strategy
 Strategy does not become neither acceptable nor effective by virtue of being well designed and clearly
announced
Institutionalization of strategy involves the following elements:
 Communication of strategy to organizational members,
 Getting acceptance of strategy by these members,
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o Recognize the Change Process

o Help People Through the change Process

i)Strategy Communication
 The role of a strategist is not only to make the fundamental analytical and entrepreneurial decisions, but
also to present these to the members of the organization to win their support.
 Key actions for successfully communicating the strategic plan and actions that lead to failure.Keys to
Success Facts of Failure
 Assign roles and responsibilities  No accountability
 Communicate the plan constantly  Never talk about the plan
and consistently  Never talk about the plan
 Recognize the change process  Ignore the emotional impact of
 Help people through the change Change
Process  Focus only on task accomplishment
Assign roles and responsibilities to Different Participants
Who does what to communicate the strategic plan?
Suggested roles andresponsibilities for a senior leader:
 Provides overall leadership and guidance to the organizationregarding the strategic plan
 Formally and informally communicates the published strategicplan to the workforce, customers, and
stakeholders
 Champions the change that the plan represents
 Works with the budget officer to plan for resource allocation toimplement the strategic plan
Suggested roles andresponsibilities for a senior leadership Team:
 Develops the best method for formally communicating the plan
 Champions the strategic plan within own area of responsibilities
 Communicates with employees about progress, lessons learned
 Aligns own department, division, etc., with the strategic plan
Suggested roles andresponsibilities for Middle level Managers:
 Support the plan
 Present employee briefings or hold Question &Answer sessions on the plan
 Translate strategies and objectives into action implications for employees
 Align current work activities with the strategic plan
Should the plan be shared outside the organization?
There are external people with whom the senior leadership team may choose to share the plan - a parent
organization, customers, suppliers, stakeholders.
Reasons to share the plan with various external organizations to bring desired outcomes
 To improve relations with customers by demonstrating a focus on their needs
 To gain support of other organizations who may be able to help your organization save resources and
achieve common goals
 To gain the parent organization’s support and to justify additional resources or the redirection of
resources
External communication tools include brochures, letter and copy of the plan, personal meetings, press releases,
etc.
ii) Strategy Acceptance
 Successful strategy implementation requires ensuring acceptance of implementing bodies
o Helps to develop a positive attitude of members towards the strategy.
o Helps to win their commitment to the strategy by reducing resistance
 Resistance is likely when a strategy makes significant departure from the old-established practices.
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 Reasons for resistance:

o The feeling that the new way of doing things will put them in some trouble such as additional
work load and job cuts – e.g divestment
 Strategy acceptance can be enhanced by:
 Recognizing the change process
 Helping People through the Change Process
Recognize the change process
 As soon as the plan is formally deployed, leaders must be prepared to answer questions and face
skepticism and challenges.
 The old work must still be done while new work processes, methods, etc., are being developed.
 When people are faced with change in strategy implementation they may go through these four stages of
change at their own pace:
o Denial o Exploration
o Resistance o Commitment
 Some may never accept new roles and methods; often these people leave organizations. The senior
leadership team needs to acknowledge and legitimize these stages.
Denial - Senior leaders need to focus on the need for change and repeatedly provide the reasons for the change.
Resistance - Senior leaders need to listen, empathize, and assist in setting priorities during the resistance stage.
Exploration - It is important to keep the effort energized, keep people focused, and encourage them not to leap
to action before the ideas have been fully explored.
Commitment - Once commitment is obtained from the organization, the senior leaders should acknowledge and
share the success and prepare the organization for changes to come.
Help People through the Change Process
How can the senior leadership team help people through the change process?
 Leaders need to focus people on what they can control and how they can affect the change.
 They must give employees information to ease the transition so they can feel some ownership in the
change.
 It is important to recognize that people need stability during change.
 Emphasizing to everyone what has not changed can help maintain stability and leadership confidence.
Mid-level managers should:
 Explain why change is imperative
 Be active participants in the communication process
 Listen and bring suggestions to top leaders
 Help set goals, define plans, and choose
How should the senior leadership team communicate change?
 The senior leadership might use these questions to help structure the information communicated to
employees.
 What is the change?  Is it good for me?
 Is it real?  Can I effectively contribute to
 Is it good for the organization? change?
 Is it possible to do in this  What is my new role?
organization?  What happens if I don’t help?
 What happens if the  What happens if we’re
organization doesn’t do it? successful?
 The senior leader needs to emphasize that this is the new direction of the organization, and everyone is
expected to do his/her share.
How are the new guiding principles parts of the deployment process?
 The guiding principles are those organizational values that the senior leadership consciously chose and
developed to shape the organization’s culture to achieve the vision.
 The guiding principles are a crucial aspect of the newly developed plan.
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How can the senior leaders show the importance of the guiding principles?
 Leaders should display new forms of behavior from the senior leadership team members toward
o Each other,
o The rest of the organization, and
o Their customers, suppliers, and other stakeholders.

How should senior leaders help each other ‘live’ the guiding principles?
 A very effective way to help each other model the organizational values is to practice open and candid
feedback in both individual and group interactions focusing on both ‘positive’ and ‘Negative’ feedback
2. Formulation of Derivative Plans and Programs
 The action plans and programs are derived from the strategic plan and are called derivative plans and
programs.
Action Plans
 Action plans may be like plan for procuring a new plant, developing a new product, etc
 Action plans may depend on the nature of its strategy under implementation, for example, action plans
in a takeover strategy would be different from expansion
 In formulating action plans, following questions should be answered contribute positively in strategy
implementation:
 How does the particular action plan contribute to the objectives of the strategy?
 When will the activities devised under an action plan be undertaken?
Programs
 A program is a single-use plan that covers relatively a large set of activities and specifies major steps,
their order and timing, and responsibility for each step.
 For example, in the case of a takeover strategy, two types of costs are involved:
 Price to be paid for takeover and
 Operating cost involved in takeover process.
 The activities of takeover are identified, sequenced and timed
 All programs of the implementation of a strategy should be well coordinated
3. Translating General Objectives into Specific Objectives
 Organizational objectives are broad guides or directions for action on continuous basis.
 Thus managers determine specific objectives(SMART) for each functional unit within the framework of
general objectives
Management by Objectives
 Management by objectives (MBO) is a tool for defining objectives at individual level in an
organization.
 According to Weihrich and Koontz,
“MBO is a comprehensive managerial system that integrates many key managerial activities in
a systematic manner, consciously directed towards the effective and efficient achievement of
organizational objectives.”
4.Implementation plan
‘It’s been rather easy for us to decide where we wanted to go. The hard part is to get the organization to act
on the new priorities.’(Floyd and Woolridge, 1992)
 Implementation is taking the actions necessary to accomplish the goals, strategies, and objectives.
 It requires:
o Action planning,
o Senior leadership involvement,
o Commitment to the plan,
o Resourcing (people, time, and money), and
o Involvement from the entire organization.
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 An organization should have a formal implementation plan with actions assigned to either teams or
individuals who are responsible for their accomplishment.
Key actions for successfully implementing the strategic plan and actions that guarantees failure.
Keys to Success Facts of Failure
 Assign roles and responsibilities  No accountability
 Involve senior leaders  Disengagement from process
 Define an infrastructure  Unmanaged activity
 Link goal groups  Fragmented accomplishment of
objectives leads to sub-optimization
 Phase integration of implementation actions  Force people to choose between
with workload implementation and daily work; too
 Involve everyone within the many teams
Organization Allocate resources for  No alignment of strategies
implementation  Focus only on short term need
for resources
 Manage the change process  Ignore or avoid change
Evaluate results  No measurement system
 Hide mistakes/lay blame;
 Share lessons learned; acknowledge successes  limited/no communication
through open and

Assign Roles and Responsibilities

Who does what to successfully implement the strategic plan?
Suggestedroles and responsibilities for senior Leaders:
 Leads the implementation effort
 Establishes clear roles and responsibilities
 Allocates resources for action items
 Holds monthly strategic plan meetings with the senior leadership
 team to monitor the status of the plan Leads by consensus, but makes key decisions when necessary
Suggestedroles and responsibilities for senior Leadership Team Members:
 Support the strategic plan and incorporate in to day-to-day businessand processes
 Prioritize objectives
 Allocate resources for action items
 Define measures for progress and mission performance
 Sponsor assessment surveys (e.g., internal employee climatesurveys, customer surveys, etc.)
 Provide training resources
 Attend monthly strategic plan meetings
Suggested roles and responsibilities for Implementation by Team Members:
 Create plan of action and milestones  Develop data collection plan
 Attend meetings  Collect data
 Implement tasks  Identify implementation problem areas
 Define measures
Involve everyone within the organization in moving the current business towards a more strategic future
business
4. Resource mobilization and allocation
 For implementing a strategy resources should be committed and allocated to various units and functions
where these have optimum use.
 The success of the organization depends on the quality of its resources and their utilization.
 Resources can result in core competencies, which may lead to a competitive advantage

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What if resources are not available to implement an important strategy in the plan?
 Eliminating redundancies in assignments or organizations can free up the use of resources, making
them available for strategic actions.
Suggested actions for successfully obtaining needed resources:
 Redirect current resources
 Reprioritize implementation actions
Manage the Change Process
 The plan needs to be owned by the leadership team, not dependent on a single leader.
 Getting acceptance and input to the plan from new members of the senior leadership team is crucial to
the plan’s success.
Strategic Value of Tangible and Intangible Resources
 Because they cannot be quantified, touched, or seen, and are more difficult to explain, intangible
resources are more likely to be sources of sustainable competitive advantage.
 There are three major areas of strategy implementation
 Structural implementation  Operational
 Functional Implementation implementation
 Behavioral implementation
5.3 Structural implementation
 Structural implementation of strategy involves:
 Designing of organization structure and
 Interlinking various units and subunits
Organization structure shows interrelationships and interconnections and assignment of responsibilities.
 There are two aspects of organizational design:
 differentiation and
 integration
 Differentiation refers to ‘the differences in cognitive and emotional orientations among managers
 Integration refers to ‘the quality of the state of collaboration that are required to achieve unity of
efforts in the organization..
Matching Structure & Strategy
 Successful implementation exists when its structure matches its strategy.
 Structure shows:
o How groups compete for resources, where responsibilities for profits and other performance
measures lie,
o How information is transmitted, and how decisions are made.
 The structure of the organization can either facilitate or inhibit strategy implementation.
 The process of matching structure to strategy is complex and should be undertaken with:
o A thorough understanding of the historical development of the current structure,
o The requirements of the organization’s environment and technology, and
o The political relationships that might be affected.
Mechanism for Relating Structure to Strategy
1. The primary aspect of structure-strategy fit relates to the type of functions that the organization
structure should facilitate to perform.
 Implement the strategy properly by performing certain functions.
 Ensure that all the necessary activities are performed and there is no duplication
 An activity’s contribution to strategy should determine its rank and hierarchy.
 Key activities should never be subordinated to non-key activities.
2. The other aspect of structure-strategy fit relates to the adaptive -character of the environmental pressure on
the organization.
 Organization has to interact continuously with its environment to make necessary adjustments
 If the change is minor it will be absorbed within the system;
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 Major or rapid changes throw the organization out of equilibrium seriously affecting its
functioning.
Strategic principles of organizingin relating the structure to the strategy
 To the extent duplication and expense can be avoided it is highly desirable to relate significant areas of
authority and responsibility to results desired with given markets, industries, or sets of customers.
 It is better to delegate authority and decentralize strategic planning and operations for businesses, which
are relatively, mature, predictable, and stable.
Emphasis should be on result-centered rather than profit centered decentralization.
 Decentralization can be confined to those key operating and support areas
 Neither centralization nor decentralization are cut and dried propositions.
Structural Change may be caused by:
 Rapid growth leading to problems of manageable size and communication;
 Excessive diversification of product lines;
 Increasing competition and environmental changes;
Questions to ensure whether the firm can function efficiently without the reorganization:
 Has firm clarified its mission and responsibilities to all concerned under- the existing structure?
 Are there significant opportunities for improved direction and motivation in day-to-day operations?
5.4 Functional/Operational implementation
 Functional implementation deals with the development of policies and plans in different functional areas
 Every organization is built around two basic functions: production and marketing
Functional Policies and Plans
 The integration of various functions, their plans and efforts leads to effective implementation of
strategy.
 The functional plans are prepared by almost at any level of the organization derived directly from the
strategic plan.
Difference between Policy and Procedure
Policies
 Policies are guides to thinking or decision making.
 They are in the form of specific statements or general understanding which, provide guidance in
decision making
 They indicate how the task assigned to the organization might be accomplished and provide a basis for
lower level managers
Procedures
 A procedure is a series of related tasks that make up the chronological sequence and the established
way of performing the work to be accomplished.
 A procedure provides guidelines to organizational members about how to accomplish a work.
 The major difference between the two can be identified as follows:
 Policy provides guidance for managerial thinking as well as decision making.
 A procedure simply provides guidelines to the action by prescribing how an action can be performed step
by step.
 A policy is more flexible as compared to a procedure.
 Policy is more pronounced at higher levels while procedures are more prevalent at lower levels.
Role of Functional Policies and Plans
 A functional policy is formulated basically to control and reinforce implementation of functional
strategies and corporate strategy in the following ways:
o Top management can ensure that strategy is implemented by all units
o Policies specify the manner in which things can be done and limit discretion for managerial
action.
o Policies provide guidelines for managerial decisions in two ways:

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 Securing uniformity throughout the organization and considerable time savings in

decision making
 provide basis for control in respective areas as policies lead to consistent pattern of
behaviors
o Policies provide coordination across different functions. Coordination among different
functions is very important for strategy implementation.
 All functions of an organization are interdependent and interrelated.

Development of Functional Policies and Plans

 Requires analytical ability to factor the grand strategy into policies that are:
o Compatible,
o workable and
o Theoretically sound.
 After deciding to change the strategy the next is:
o How do we get there?
o When? and
o How efficiently?
 A manager answers these questions by preparing policies to implement the strategy.
o For example if an organization chooses to go for diversification,
o What to diversify into,
o Where to diversify,
o How much money will be needed,
o From where the money will come and
o What changes are needed in various functions of the organization.
 The amount of policy making varies with the size and complexity of the organization.
Criteria for judging policy making:
 Do they exist in the areas critical to the success of the organization?
 Do they reflect present or desired organizational practices and behavior?
 Are they clear, definite, and explicit leaving no scope for misinterpretation?
Integration of Functional Policies
 Policies should be integrated because they are interconnected and interdependent
Considerations for functional integration of policies
 need for internal consistency;
 relevance to developing organizational capabilities;
 making trade-off decisions;
Internal Consistency:
 Considering the impact of one policy on the other to avoid sub-optimization
o Long-range sales forecast and the structure of distribution channel (marketing
function), cost of capital and sources of funds (finance function) and
o Availability of relevant human resources (personnel function).
Relevance to Organizational Capabilities
 Developing organizational capabilities to implement the strategy effectively.
 synergistic effects
 This can be observed in companies, which intend to be:
o a market leader,
o low cost producer, or
o Technologically superior competitor, or
o The largest organization.
Making Trade-off Decisions

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 The demand for optimizing a particular function may be in one way or another conflicting to each other.
 Deals with contradictory issues among functional units.
Intensity of Linkages
 Types of linkage determine the level of integration of various functions that varies with the strategy
o In new products between R&D and production function;
o In low-cost mass consumption items, there would be close linkage between production and
marketing.
Timing of Implementation of Policies
 There should be integration in timing in putting different policies into action, eg resource prioritization.
5.5 Behavioral Implementation
 Behavioral Implementation deals with:
 Strategic Leadership,
 Organizational Culture and
 Organizational Values.
Strategic Leadership
 Strategic leadership involves transforming an organization with the help of its people to secure a unique
position.
 There are two aspects:
o Transforming all facets of the organization including size, managementpractices, culture
and values
o Focusing on people because they transform all other resources
 Thus, strategic leadership proceeds as follows:
 Vision-keeping the mission in sight-and with effectiveness and results- less oriented to efficiency in-
terms of cost-benefit analysis.
 Emphasizes transformational aspect – essentially change management.
Organizational Culture
 Provides a framework within, which the behavior of the members takes place.
 It is a set of assumptions the members of an organization share in common.
o “Organizational culture is the set of assumptions, beliefs, values and norms that are shared by
an organization’s members.’
 Two elements of organization culture :
o Abstract elements and
o Material elements.
 Abstract - elements are internally oriented and include values, beliefs, attitudes, and feelings.
 Material elements are externally focused and include building, personnel dresses, products, etc.
• Shared things (e.g.. the way people dress)
• Shared saying (e.g.., let’s go down to work)
• Shared actions (e.g., a service-oriented approach)
• Shared feelings (e.g., hard work is not rewarded here)
Impact of Organizational Culture
 Organizational culture affects the different organizational processes including implementation of strategy;
 corporate culture affects the following aspects of the organization:
 Objective setting  Motivational pattern
 Work Ethics  Organizational Processes
Objective Setting
 Culture molds people and people are the basic building blocks of the organization
 The objectives of the organization must reflect the objectives of its key members
Work Ethics
 Ethics relates to conformity to the principles of human conduct.
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 Work ethics in an organization is derived from its ‘culture.

 Thus, corporate culture - determines the ethical standards for the organization’ as a whole and its
individual members.
Motivational Pattern
 Culture determines the way people approach their jobs and even life in general.
 Therefore for implementing strategies, particularly growth strategies organizational culture should be
achievement-oriented.
Organizational Processes
 Planning, decision making, controlling, etc. are determined by the organizational culture because these
processes are carried out by the people
Relating Culture and Strategy
 Strategy and culture are interlinked
 Culture affects how-a strategy may be implemented though it has a role in strategy formulation too.
 How organizational culture can be made a facilitating factor in ‘strategy implementation.
 In relating strategy and culture strategists have four alternatives:
 To ignore corporate culture;
 To adapt’ strategy implementation to suit corporate culture;
 To change corporate culture to suit strategic requirements; and
 To change the’ strategy to ‘fit the corporate culture.
Ignoring Corporate Culture
 Strategists can simply ignore the corporate culture while implementing a strategy specially when it is
not possible to change corporate culture.
 Cultural change is a slow process and is managerial capability to imbibe changes, arid exhibiting a
strong and assertive leadership.
Adapting’ Strategy Implementation to Suit Corporate Culture
 Strategists may have flexibility in organizational design, organizational systems and processes for
strategy implementation.
 These variables can be manipulated to serve the interests of ‘corporate culture.
Changing Corporate Culture to Suit Strategic Requirements;
 Corporate culture should -be considered as a determinant of strategic choice.
 This is the optimum choice in the present business environment, which is becoming moreand more
competitive day-by-day necessitating change in old methods.
Changing the Strategy to ‘Fit the Corporate Culture
 The last alternative is to change Strategy to suit Cultural requirements.
Values and Strategy
 Values of individuals, particularly those of key strategists, have major impact on strategy of the,
organization.
 Terminal values shape organizational strategies
 Instrumental values indicate how these strategies are to be implemented.
Values and Strategy Implementation
 Strategy implementation is mostly affected by instrumental values of people in the organization.
 Who- are- these - People in the organization?
- Board of directors,
- Chief executives,
- Other managers, and
- Corporate planning staff.
 Out of these groups, chief executive and managers under him are mostly responsible for strategy
implementation.
 Two sets of values-organizational and personal show following relationships ‘and reconciling or
modifying process:
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Common Values
 organizational values represent the collective values of its members
 These common values do not require any reconciliation or modification because both have already been
integrated.
Different Weak Values
 A weak value has low priority in the hierarchy of values whether organizational or personal.
 In fact, every individual has a set of values arranged in hierarchy.
 Because of hierarchical nature of values, they differ in terms of importance
 Hierarchy of values also differs.
 Therefore, weak and strong values are relative and person-oriented.
Different-Strong Values
 Problems in ‘strategy implementation emerge when there is divergence of values which are strong for
the organization or individual.
 If values are strong to the organization any divergence may lead to separation of individuals whose
values are at divergence.
 Another alternative available to the’ organization is to design its structure and processes in such a way
that these match with the values of an individual whose values are at divergence.
 In such a situation, the organization will retain its core values while allowing change in others when
the individuals are quite critical to the success of the strategy under implementation.
Corporate Governance
 Corporate governance is a newly introduced ‘system for managing a company in the best interest of all
its stakeholders
 The concept of governance is quite old where it is referred to as the system of directing and controlling
the activities of a state particularly in princely states and empires.
Contents of Corporate-Governance Code
 Constitution of Board of director’s role of non-executive directors, its meeting, key matters that must be
brought before the board, etc.
 Disclosure of Information of financial and other information in the company’s annual accounts and
reports as well as periodical disclosure.
 Management Practices to protect the interests of shareholders, consumers, financiers, creditors,
distributors, government and society
The Seven-S Model
 Based on discussions with consultants, academics, and business leaders, McKinsey & Co. has proposed
the Seven-S Model for successful strategy implementation.
 The model starts on the premise that an organization is not just Structure, but consists of seven
elements:

Figure 6.3: The 7s Analysis framework

 The 3Ss across the top of the model are described as 'Hard Ss', which are feasible and easy to identify.
 They can be found in strategy statements, corporate plans, organizational charts and other
documentations.
The four soft S’s however, are hardly feasible.

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 They are difficult to describe since capabilities, values and elements of corporate culture are
continuously developing and changing.
 They are highly determined by the people at work in the organization.
 The soft factors can have a great impact of the hard Structures, Strategies and Systems of the
organization.
 Effective organizations achieve a fit between these seven elements.
 The soft factors can make or break a successful change process, since new structures and strategies are
difficult to build upon inappropriate cultures and values. 

 The 7-S Model is a valuable tool to initiate change processes and to give them direction. Figure
7.4:Description of the 7Ss

 The Hard S’s  

Strategy Actions a company plans in response to or anticipation of changes in its
external environment.
Structure Basis for specialization and co-ordination influenced primarily by
strategy and by organization size and diversity.
Systems Formal and informal procedures that support the strategy and structure.
(Systems are more powerful than they are given credit)

The Soft S’s  

Style / Culture The culture of the organization, consisting of two components:
       Organizational Culture: the dominant values and beliefs, and
norms, which develop over time and become relatively enduring features
of organizational life.
       Management Style: more a matter of what managers do than what
they say; How do a company’s managers spend their time? What are they
focusing attention on? Symbolism – the creation and maintenance (or
sometimes deconstruction) of meaning is a fundamental responsibility of
managers.
Staff The people/human resource management – processes used to develop
managers, socialization processes, ways of shaping basic values of
management cadre, ways of introducing young recruits to the company,
ways of helping to manage the careers of employees
Skills The distinctive competences – what the company does best, ways of
expanding or shifting competences
Shared Values / Guiding concepts, fundamental ideas around which a business is built –
Superordinate Goals must be simple, usually stated at abstract level, have great meaning
inside the organization even though outsiders may not see or understand
them.
 

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CHAPTER SIX
STRATEGIC EVALUATION AND CONTROL
 Strategy can neither be formulated nor adjusted to changing circumstances without a process of strategy
evaluation.
6.1. The Challenges of Evaluation
 the products of a business strategy evaluation are answers to these three questions:
• Are the objectives of the business appropriate?
• Are the major policies and plans appropriate?
• Do the results obtained to date confirm or refute critical assumptions on which the strategy rests?
 Devising adequate answers to these questions is neither simple nor straightforward.
 It requires a reasonable store of situation-based knowledge and more than the usual degree of insight.
The major issues which make evaluation difficult
 Each business strategy is unique-neither strategy is "wrong" nor "right" in any absolute sense
 Strategy is centrally concerned with the selection of goals and objectives rather than trying to achieve
goals and evaluate them.
 Formal systems of strategic review, while appealing in principal, can create explosive conflict
situations.
6.2. The General Principles of Strategy Evaluation
 Consistency: The strategy must not present mutually inconsistent goals and policies.
 Consonance: The strategy must represent an adaptive response to the external environment and to
the critical changes occurring within it.
 Advantage: The strategy. Must provide for the creation and/or maintenance of a competitive
advantage in the selected area of activity.
 Feasibility: The strategy must neither overtax available resources nor create unsolvable sub
problems.
 A strategy that fails to meet one or more of these criteria fails to perform at least one of the key
functions that are necessary for the survival of the business.
 Experience within a particular industry or other setting will permit the analyst to sharpen these criteria
and add others that are appropriate to the situation at hand.
6.3. Concepts and Roles of Strategic Evaluation and Control
6.3.1. Concept of Strategic Evaluation and Control
 Strategic evaluation and control is related to ensuring whether it is achieving its objectives
 Glueck and Jauch have defined strategic evaluation as follows:
“Evaluation of strategy is that phase of the strategic management process in which the top managers
determine whether their strategic choice as implemented is meeting the objectives of the enterprise.
 There are two aspects in this phase of strategic management: evaluation and control
 Evaluation emphasizes measurement of results
Strategic and Operational Control: a Comparison
 Strategic control is the process of taking into accounts the changing assumptions both external and
internal to the organization on which a strategy is based, continually evaluating the strategy as it is

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being implemented and taking corrective actions to adjust strategy according to changing conditions or
taking necessary actions to realign strategy implementation.
 For strategic evaluation and control following questions are relevant:
 Are the premises made during the strategy formulation process proving to be correct?
 Is the strategy being implemented proper?
 Operational control focuses on the results of strategic action and is aimed at evaluating the performance
of different SBUs and other units.
 The relevant questions for operational control are:
 How is the organization performing?
 Are the organizational resources being utilized properly?
 What are the actions required to ensure the proper utilization of resources in order to meet
organizational objectives?
 There are two types of operational control
 post-action and
 Steering
Types of Control
Depending on the stages at which control is exercised, it may be of three types:
 Control of inputs that are required in an action, known as feed forward control
 Control at different stages of action process, known as concurrent, real-time, or steering control; and
 Post action control based on feedback from the completed action, known as feedback control.
Feed Forward Control
To be effective, feed forward control should meet the following requirements:
 Thorough and careful analysis of the planning and control system must be made, and the more
important input variables identified.
 A model of the system should be developed.
 The model should be reviewed regularly to see whether the input variables identified and their
relationship still represent realities.
 Data on input variables must be regularly collected and put into the system.
Concurrent Control
 Provides measures for taking corrective action or making adjustments while the program is still in
operation and before any major damage is done and the focus is on the process itself.
Feedback Control
 It is based on the measurement of the and aims at future action of the similar nature so that there is
conformity between standards and actual.
6.3.2. Role of Strategic Evaluation and Control
 When strategic evaluation and control is undertaken properly, it contributes in three specific areas:

 The linkage of strategic planningandcontrol to performance and reward

6.4. Participants in Strategic Evaluation and Control
 All those persons who participate in strategy formulation and implementation should also participate in
strategic evaluation except those who act in advisory capacity
Board of directors,
chief executive,
other managers,
corporate planning staff, consultants as advisors
6.5. Role of Organizational Systems in Evaluation
 An organization develops various systems which help in integrating various parts of the organization.
 The major organizational systems are:
information system,
planning system,
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motivation system,
appraisal system, and
development system.
Information System
 Evaluation and control action is guided by adequate information from the beginning to the end.
 Every manager in the organization must have adequate information about his performance, standards,
and how he is contributing to the achievement of organizational objectives in terms of adequacy and
timeliness.
Planning System
 Planning is the basis for control
 It emphasizes that there is a plan, which directs the behaviour and activities in the organization.
 Control measures these behaviour and activities and suggests measures to remove deviation
 The planning process provides these goals.
Control is the result of particular plans, goals, or policies.
Motivation System
 Lack of motivation on the part of managers is a significant barrier in the process of evaluation and
control.
 It energizes managers and other employees in the organization to perform better which is the key for
organizational success.
Appraisal System
Appraisal or performance appraisal system involves systematic evaluation of the individual with regard to his
performance on the job and his potential for development.
Development System
 Concerned with developing personnel to perform better in their present positions and likely future
positions that they are expected to occupy.
 Aims at increasing organizational capability through people to achieve better results.
6.6. General Guidelines for Practical Strategic Evaluation and Control
‘Unless you know how you are doing as you move along,
You’ll never know when you’ve done or if you have succeeded.’
(Crosby, 1979)
 Strategic measurement is the identification, development, communication, collection, and assessment of
selected outcome measures that are directly linked to the organization’s performance of its mission and
attainment of its vision.
 These measures should be outcome-focused (i.e., end-user measures in the case of products and services
and mission effectiveness in all others), to assess the impact of the organization’s strategic efforts.
Who does what in strategic measurement?
Suggested rolesand responsibilities for a senior Leader:
 Leads development of strategic measurement plan
 Incorporates measurement plan into deployment and implementation
of the strategic plan
 Monitors and evaluates strategic measures
 Communicates measurement results to workforce
Suggested roles and responsibilities for a senior Leadership Team Members:
 Support the strategic measurement plan
 Champion the need for strategic measures
 Define strategic measures and performance indicators
 Charter measurement team and identify members
 Provide guidance to measurement team
 Approve final strategic measurement plan
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 Monitor and evaluate strategic measures

Suggested rolesand responsibilities for a Measurement Team Members:
 Develops baselines, data collection and evaluation process, andfeedback system
 Develops resourcing plan
 Develops a plan of action and milestones for implementation
Why do we need a measurement team?
 The senior leadership team charters a measurement team to complete the development of the measurement
plan.
 The measurement team:
 Defines measurement administration responsibilities:
o who will collect, gather, store, and analyze the data needed to support
the performance indicators.
 Gathers data to develop baselines for each performance indicator
 Develops a feedback system if firm is progressing toward the vision.
 Identifies resource requirements
 Develops a plan of action and milestones to implement the strategicmeasurement plan
 Creates a deployment strategy for the measurement plan that needs to be integrated with the overall
strategic plan deployment.
Use measurement to provide a consistent viewpoint from which to gauge performance
What principles should be used to create strategic measures?
 The selected measures must meet the needs of the organization’s leadershipfor assessing the progress of the
organization and still provide meaningful policy guidance to the lower echelons.
There are eight basic measurement principles:
1. Measures, to be useful, must be linked.
 Ackoff (1981) writes that there are two types of link-coordination and integration.
 Coordination means that ‘no part of an organization can be planned for effectively if it is planned for
independently of any other unit at the same level
 ’ Integration means that ‘effective planning needs to be carried out interdependently at all levels.’
 Links to address both these issues must be addressed by the team structure and measures used to tie
them together.
2. Measures are experimental.
 It may be necessary to modify the measurement if a relationship between what is measured and the goal
to be achieved cannot be established.
3. Measures may be incomplete.
 Measurements may provide only a partial picture of what is being measured
 Operational definitions of measures are critical to understanding whether a measure is adequate.
4. People at the appropriate level need to be involved in developing the measurement.
 The senior leadership team defines the strategic measures to be used and others will define supporting
measures, such as process measures and output, for the strategic measures.
5. A family of measures is necessary to adequately describe the organization, process, or system.
 Multiple measures, describing different aspects of the organization, are better than singular measures
for providing a comprehensive picture of the organization.
 Link measures and to ensure that the data collected are necessary and sufficient to support the family of
measures.
6. Measures over time show trends
 Information is required to determine the causes of success or failure.
7. Measure only what is important.
8. The measures selected must support decision making.
 Measurement data requires analysis to provide information to be useful to decision makers.
How do we develop strategic measures?
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 Strategic measures focus on vision attainment.

 Steps followed to develop a strategic measurement system:
1. Operationally define the strategic measures
 Strategic measures are operational definitions of the outcomes of mission effectiveness now and into the
future from which performance indicators or outcomes may be derived
2. Define performance indicators
 Performance indicators with which to measure performance are derived from the strategic measures..
2. Charter a strategic measurement team
 The strategic measures are the foundation of a strategic measurement plan, given to a measurement
team who completes the measurement plan.
3. Establish baselines
 Baselines are the current performance levels for the performance indicators selected by collecting data
over a short period of time to provide an approximate
baseline as a starting point.
4. Approve the strategic measurement plan
 The senior leadership team will review the recommendations made by the measurement team, including
the baselines and the data collection methodology, and approve them when agreement is reached.
5. Inform the workforce
 Communicate to the workforce the new strategic measurement system that will be put into place and
how they can contribute to the success of that system.
6. Implement the measurement plan
 Take the actions necessary to put the strategic measurement system into place
 Clarify important roles in measurement development and data collection and analysis.
6.7. Barriers in Strategic Evaluation and Control
 In strategic evaluation and control there are barriers and problems around two factors:
o Motivational and
o Operational.
6.7.1. Motivational Problems
 Often two problems are involved in motivation to evaluate the strategy:
o Psychological problem and
o Lack of direct relationship between performance and rewards.
1. Psychological Barriers
 .Top management hardly appreciates any mistake it may commit at the level of strategy formulation.
 Even if something goes wrong at the level of strategy formulation, it may put the blame on the
operating management on strategy implementation.
 Managers are seldom motivated to evaluate their strategies because of the psychological barriers of
accepting their mistakes
2. Lack of Direct Relationship between Performance and Rewards
 This results from ’ the lack of direct relationship between performance achievement and incentives.
 Thus, what is required for motivating the top and lower level managers to evaluate their performance
and strategy is the right type of motivational climate in the organization.
6.7.2. Operational Problems
 Even if managers agree to evaluate the strategy, the problem of strategic evaluation is not over because
strategic evaluation is a nebulous process; many factors are not as clear as the managers would like
these to be.
 These factors are in the areas of determination of
o evaluative criteria,
o performance measurement,
o Measurement of organizational progress,
o Feedback for future actions, and

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o Linking performance and rewards.

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