INTERNATIONAL STRATEGIC

MANAGEMENT

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INTERNATIONAL STRATEGIC MANAGEMENT

OBJECTIVE: On successful completion of this course ,the students should have

understood international strategic management, types of strategies, analysis ,strategy
implementation etc.

Unit – I

International strategic management – distinguishing characteristics of international

strategic management – difference between international strategic management and
domestic strategic management

Unit – II

Corporate strategies – mission – vision – analyzing industry and competition – internal

appraisal of the firm – competitive advantage – core competence – internal analysis –
turnaround.

Unit – III

Portfolio Analysis – process of strategic choice – focusing in strategic alternatives – GAP

analysis – selection factors – corporate portfolio analysis - BCG Matrix – limitations of
BCG Matrix – BE nine cell matrix – SWOT analysis.

Unit – IV

Strategic implementation – concept of strategic implementation- steps in strategy

implementation – factors causing unsuccessful implementation of strategic – organization
structure for strategy implementation – forms of organizational structure – relating
structure to strategy.

Unit – V

Strategy evaluation and control – requirements for effective evaluation – strategic control –
types of strategic control – process of evaluation – setting performance standard –
evaluation techniques for strategic control.
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 Table of Contents

Chapte Chapter Name Page No

r
UNIT I
1 Introduction of strategy & process 6
2 Attitudes of strategic plan 24
3 Strategy &culture 33
4 Distinguishing characteristics of international strategic 47
management

5 Difference between domestic and international strategic 62

management
UNIT II
6 Corporate strategies 72
7 Analyzing industry and competition 79
8 Competitive advantage 90
9 The business vision and mission statement 106
10 Corporate governance 124
UNIT III
11 Portfolio analysis 131
12 Process of strategic choice 142
13 Corporate portfolio analysis 153
14 GAP analysis 166
15 SWOT analysis 174
UNIT IV
16 Strategic implementation 182
17 Implementation process of strategic plan 188
18 Role of BSC for strategic implementation 192
19 Forms of organization structure 199
20 Relating structure to strategy 207
UNIT V
21 Strategic evaluation & control 224
22 Techniques of strategic evaluation & control 231
23 Requirement for effective evaluation 239
24 Strategic audits 254
25 International investment theories 273

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UNIT-1

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5
INTERNATIONAL STRATEGIC MANAGEMENT
CHAPTER-1:. STRATEGY AND PROCESS
What is Strategy?
‘Strategy’, narrowly defined, means “the art of the General”. The term first
gained prominence at the end of the 18 th century, and had to do with stratagems by
which a general sought to deceive an enemy, with plans the general made for a
campaign, and with the way the general moved and disposed his forces in war. The
term strategy is derived from the Greek word “strategic” which means ‘generalship’. In
the military, strategy often refers to the branch of military science dealing with military
command and planning the conduct of a war. According to this strategy refers to
deployment of troops. Once the enemy has been engaged attention shifts to tactics
Clausewitz (1780-1831), a Russian, was the first great student of strategy
and the father of modern study of strategy. The contributions of Clausewitz to
strategic thoughts are many and diverse. He was the first to explain the role of war
both as an instrument of social development and battles as a means to gain the
objectives of war.” He also was the first to focus on the fact that strategy of war
was a means to enforce policy and not an end in itself.
The term ‘Strategy’ has expanded far beyond its original military meaning.
Strategy is now used in all areas where the horizon is long term, there is a
competition for the use of resources, and the objective is to realize some goals.
With the evolving importance of strategy as a theoretical discipline, scholars have
tried to identify the principles of strategy that have traditionally guided military
strategists in war. These studies found, though there is no complete agreement on
the number of principles, that most lists include the following:
 The objective
 The offensive
 Co-operation (unity of command)
 Mass (concentration)
 Economy of force
 Maneuver
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 Surprises
 Security
 Simplicity

Strategy is a set of key decisions made to meet objectives. It refers to a

complex web of thoughts, ideas, insights, experiences, goals, expertise,
memories, perceptions and expectations that provides general guidance for
specific actions in pursuit of particular ends. Nations have, in the management
of their national policies, found it necessary to evolve strategies that adjust and
correlate political, economic, technological, and psychological factors, along
with military elements. Be it management of national policies, international
relations, or even of a game on the playfield, it provides us with the preferred
path that we should take for the journey that we actually make.
Every firm competing in an industry has a strategy, because strategy refers
to how a given objective will be achieved. ‘Strategy’ defines what it is we want
to achieve and charts our course in the marketplace; it is the basis for the
establishment of a business firm; and it is a basic requirement for a firm t
survive and to sustain itself today’s changing environment.
An organization cannot operate effectively without a strategy. The strategy
may have been developed explicitly through a planning process or it may have
evolved implicitly through the operations of the various functional departments
– but in order to function effectively in the marketplace, the organization must
have answers to these questions:

 What business are we in? What products and services will we offer?
 To whom?
 At what prices? On what terms?
 Who are the competitors?
 On what basis will we compete?

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If the organization asks any of these key questions and it has the answers then there is a
strategy in place..

CHARACTERISTICS OF STRATEGY:
Listed below are the important strategy characteristics. They are:
1. Strategies are specific actions suggested to achieve the objectives.
2. Strategies are action oriented.
3. Everyone is empowered to implement the strategy.
4. Strategies are means to an end.
5. Strategies are connected with uncertainties with competitive situations like risk etc.,
which are likely to take place at a future date.
6. Strategy is deployed to mobilize the available resources in the best interest of the
company.

THE MANY FACES OF STRATEGY

This question would seem to be a reasonable starting point for our quest into the
nature of strategic thinking and action. However, no sooner have we raised the question
than are we conformed to a bewildering array of answers. Nowadays strategy is in, and
every one Corporations, Consultants, Hospitals, Schools, Self help groups, seems to want a
piece of the action. No one wants to be left out of what is now considered an essential
planning tool for any self – respecting organization.
This might be fine, if only everyone could agree on what we are talking about: but
we can’t. Read any collection of annual reports, and you will see what we mean. Strategy is
defined in a wide variety of ways as an aspiration (“. . . to earn 15 percent return on
investment”), as an operating principle (“. . . to leverage our technological strengths in the
development of cutting – edge products”), as an organizational arrangement (“. . . to build
a global network of strategic alliances to serve the XYZ market”).
But the problem is not only of corporations, making. For a wide variety of motives
__ from a bona fide effort to clarify the picture to a less commendable desire to develop a
distinctive signature theory __ educators and consultants have contributed to a bewildering

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proliferation of definitions. In their book, strategy safari: A guided Tour through the wilds
Ahlstrand and joseph Lampel, identified no fewer than 10 major schools of thought, from
the design school, to the planning school and the learning school, to the configuration
school. We are like blind men, they assert, and strategy is our elephant: everyone has seized
some part or other of the animal and ignored the rest.
As an alternative, we might turn a dictionary for a resolution of our problem.
Unfortunately, however, these definitions, while logical and commendably precise, are still
shaded by the military connotations that have historically been associated with strategy.
This is a useful starting point and, with a little imagination, we might adapt this
terminology to the corporate setting while keeping as close as possible to the original
wordings: “strategy is the science (or art?) of planning and managing a corporation’s

operations, specifically of positioning a corporation in its chosen markets to

achieve maximum sustainable advantage over its competitors.”
However, this definition also underscores some of the ways in which strategy in the
military arena differs significantly from its corporate counterpart. Then too, there are
differences in the territory that each covers __ the stable, physical topography, in the case
of military operations, and the changing flux of markets and competition, in corporate
strategy. Further, military strategy has to deal with multiple enemies (i.e., competitors)
with widely differing interests, territories, and capabilities. Finally, there is a deep seated
cultural difference: the primary qualities sought in the military are order and discipline,
while in the corporate sphere they are innovation and entrepreneurial flexibility. These and
other differences lead us to the inexorable conclusion that the military has only limited
value as a model for designing strategy in a corporate setting.
However, the dictionary definition _ or something close to it __ does begin to
capture, in a few words, something of the essence, of strategy. Indeed, if we amplify it with
the phrasing the Jack Welch once used to convey his own sense of what is meant by the
term ‘strategy”. We come close to our goal. Speaking informally to a group of MBA
students at the Harvard Business School, Welch explained:
Strategy is trying to understand where you sit today in today’s world. Not where
you wish you were and where you hoped you would be, but where you are. And (it’s trying
to understand) where you want to be . . . [it’s] assessing with everything in your head the

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competitive changes that you can capitalize on or ward off to go from here to there. It’s
assessing the realistic chances of getting from here to there.
This is clearly a definition – in – use rather than a dictionary definition, but it
conveys graphically both the activities and the state of mind that are involved in strategic
thinking. The thought and the phrasing are pure Welch, combining passion and logic,
eliminating the professional gobbledygook, and reducing the abstract to down – to – earth
terms that any manager could understand.
However, at the risk of sounding like Humpty Dumpty, we want to offer our own
briefer, but (we believe) still accurate, definition of strategy that can then be unfolded into
an elaboration of its ramifications and ramifications. In our view:
Strategy is the deriving force that shapes the future and direction of the business. It
defines the corporate vision and the means that will be employed to achieve that vision.
By “means,” I intend to include the whole panoply of resources
available to the business and the sub strategies it employs in pursuit
of its goals__ for instance, the business’s positioning in its markets,
the basis on which it will compete, its technology thrusts,
organization and human resources strategy, and alliances and joint
ventures.
Before proceeding any further, I should point out that this matter of definition is no
mere semantic quibble. It is important, for several reasons, not least to distinguish strategy
from statements of mission, values, and vision __ all of which have a valuable, but differing,
role to play. Mission, for example, sets out the basic purpose of the business, defines the
arena in which it will operate and the customers it will serve, and sets broad objectives for
the business. A values statement, on the other hand, articulate the corporate values that
will be the guiding principles for corporate actions and ethical behavior, defines the
character of its relations with stakeholder, and establishes management style and corporate
culture. And strategic vision describes the shape of the future business, sets specific goals,
and derives strategy. Each of these statements has an essential role play in defining
corporate direction, culture, and actions. Each, therefore, needs to be widely

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communicated and understood, creating a shared sense of purpose throughout the
organization. But that will occur only if we are clear about the meaning of the terms and
are persuaded that they are to be taken seriously rather than viewed as public relations
trappings.
ATTRIBUTES OF STRATEGIC THINKING
Thinking, rather than fact finding, is the critical dynamic of strategy both in its
conception and in its execution. Facts are, of course, a necessity, but no amount of fact
gathering and analyzing alone can take the place of intuition, insight, or the
entrepreneurial hunch. What is needed for truly strategic thinking is a blending of unusual
qualities. It is thinking that is holistic, focused, visionary, inquisitive, flexible, and decisive.

HOLISTIC
Strategic thinking is holistic in the sense that it takes a comprehensive view of the
business – the totality of its functions, interests, and operations in the context of its total
environment [markets, competitive, economic, technological, and sociopolitical]. Only by
taking this broad perspective is it possible to determine the strategic moves required to
adjust to –or, better yet, to help shape –the dynamic forces that are reshaping this
environment.
Consider, for example Dell computers new business model strategy. This is the truly a
holistic approach to business strategy involving as it does a combination of the following;
A customer relations strategy of dealing, directly with customers, rather than through a
distribution chain.
A manufacturing strategy, of custom manufacturing to order, rather than for inventory.
A supplier relations strategy of integrating suppliers and Dells own processes into
virtually seamless just-in-time throughout process.
A technology strategy that enables the close integration of customers, manufacturer,
suppliers, and dispatcher.

FOCUSED

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 Although strategic thinking is holistic in its scope, it is also, from another perspective,
intensely focused, in two senses. First, it is focused on identifying and than resolving the
key strategic issues arising out of the impact of the changing environment on the business.
There are typically only a handful say, four to six – of such issues at any given time.
Second, the thinking is focused on a single product: the development and elaboration of a
business strategy. It is only by being focused, rather than letting itself be diverted into
resolving a multitude of operational issues, that strategic thinking can become the true
driver of the business

VISIONARY
In this context, vision is not the soft, indefinable, intangible term that most of us think of
when we hear this world. As I argue in chapter 5[The POWER of strategy vision ‘], it is
hard , specific, practical, and indeed essential , in a strategic context . Vision is ‘a coherent
and powerful statement of what the business can , and should , be [10] years hence’, [the
time frame varies with the nature of the business]. It is an embodiment and expression of
the strategy and the results that pursuing that strategy can achieve. At its best, therefore it
is a vital element in communicating the strategy, an expression of shared purpose, and a
powerful motivator of individual and group performance

PRATICAL
Along with its visionary quality, strategic thinking must also have a highly practical bent.
This is so because the ultimate goal is, of course, not just a strategic plan, but strategic
action to achieve the vision. Strategic thinking is, therefore, inexorably bound up with
implementation, the rock on which early attempts at strategic planning foundered. It must,
therefore, always ask at every stage of strategy development, Is it realistic/? Is it doable?
Does it fit with our capabilities/?Is it Rational ?

INQUISITIVE/ PROBING
Strategic thinking should also be profoundly questioning of just about everything –about
the corporation’s self- assessment [its true strengths and weakness], about market forecasts
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and the reasoning behind them, about the adequacy of its own strategy. Too often a
company will adopt the first strategy that [to use the old Scottish term] ‘satisfies’, that is,
meets certain minimal conditions. More often than not ,this is a business as usual strategy
or some slight modification of the current course, because that is what suits the comport
level of management practice ,it is almost certain to fall far short of meeting new challenges
or adopting new approaches.

It is not too much to say that true strategic thinking requires a range of strategic options to
be developed and evaluated before one is finally selected. Development of these strategic
options can make the difference between mediocrity and excellence in strategic thinking.
Some of these options should be constructed to push the envelope of possibilities so that, by
the time the final selection is made , the full range of options open to the business will have
been canvassed and evaluated.

FLEXIBLE
In conditions of extreme uncertainly, strategy must, of necessity, be flexible, capable of
adapting rapidly to the unforeseen. This flies in the face of traditional management
thinking with its emphasis on hierarchical decision making, fixed planning schedules, the
lock step adherence to the so called plan. These qualities might have been appropriate in an
era of greater predictability then we now enjoy; but they are the kiss of death in the age of
uncertainty. We know now that we cannot predict even the limited future with any degree
of accuracy, but we also know that we cannot meet the future unprepared. So planning is
still necessary, but it is planning of a different order. It is planning on a virtually
continuous basis, not part of a fixed calendar; planning that is inextricably interwoven with
implementation, assessment and adjustment; planning that is flexible in its execution but
still operating with in a set of coals and prescribed guidelines. \

1. INTERNATIONAL STRATEGY AND GLOBAL STRATEGY - WHAT IS

THEDIFFERENCE?

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 An international strategy means that internationally scattered subsidiaries act
independently andoperate as if they were local companies, with minimum coordination
from the parent company.
Global strategy leads to a wide variety of business strategies, and a high level of
adaptation to thelocal business environment. The challenge here is to develop one single
strategy that can be appliedthroughout the world while at the same time maintaining the
flexibility to adapt that strategy to the localbusiness environment when necessary (Yip G.
2002). A global strategy involves a carefully craftedsingle strategy for the entire network of
subsidiaries and partners, encompassing many countriessimultaneously and leveraging
synergies across many countries.
What differences are there between the global strategy and international strategy?
There are three keydifferences.
The first relates to the degree of involvement and coordination from the centre.
Coordination ofstrategic activities is the extent to which a firm’s strategic activities in
different country locations are planned and executed interdependently on a global scale to
exploit the synergies that exist across different countries. An international strategy does not
require strong coordination from the centre. Aglobal strategy, on the other hand, requires
significant coordination between the activities of the centreand those of subsidiaries.
The second difference relates to the degree of product standardization and
responsiveness to localbusiness environment. Product standardization is the degree to
which a product, service, or process isstandardized across countries. An international
strategy assumes that the subsidiary should respondto local business needs unless there is a
good reason for not doing so. In contrast, the global strategy
assumes that the centre should standardize its operations and products in all the different
countries,unless there is a compelling reason for not doing so (Zou S., Cavusgil S.T. 2002).
The third difference has to do with strategy integration and competitive moves.
‘Integration’ and‘competitive move’ refer to the extent to which a firm’s competitive moves
in major markets areinterdependent. For example, a multinational firm subsidizes
operations or subsidiaries in countrieswhere the market is growing with resources gained
from other subsidiaries where the market isdeclining, or responds to competitive moves by
rivals in one market by counter-attacking in others.The international strategy gives

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subsidiaries the independence to plan and execute competitive moves independently—that
is, competitive moves are based solely on the analysis of local rivals . In contrast, the global
strategy plans and executes competitive battles on a global scale. Firms adopting a global
strategy, however, compete as a collection of a globally integrated single firms.
An international strategy treats competition in each country on a ‘stand-alone basis’, while
a global strategy takes ‘an integrated approach’ across different countries (Yip G. 2002).
2. WHY DO COMPANIES GO INTERNATIONAL?
Companies go international for a variety of reasons but the typical goal is company
growth or expansion. When a company hires international employees or searches for new
markets abroad, aninternational strategy can help diversify and expand a business.
Economic globalization is the process during which businesses rapidly expand their
markets to include global clients. Such expansion is possible in part because technological
breakthroughs throughout the 20th century rendered global communication easier. Air
travel and email networks mean it is possibleto manage a business from a remote location.
Now businesses often have the option of going global, they assess a range of considerations
before beginning such expansion.
Overseas operations are often attractive to executives seeking to reduce their
budgets in order to increase profit. For example, it is possible to cut business overhead
costs in countries with relatively deflated currencies and lower costs of living. U.S.-based
businesses can further reduce overhead by operating in countries that have free trade
arrangements with the United States. It is often cheaper to employ a workforce in these
countries since the cost of living is lower. When companies experience financial crises,
executives sometimes attempt to save what remains of the company by reformulating
the budget and moving overseas (Elmuti D., Kathawala Y. 2001).
Expanded markets entice many executives into going global. William Edwards of
All Business explainsthat going global can reduce a company's reliance on local and
national markets. That is, downturns in consumer demand at home are offset by upturns in
consumer demand in international markets. Largermarkets also mean the potential for
greater profit, so companies go global to seek new business opportunities and even to
expand the range of goods and services that they offer. Sometimesbusinesses expand to

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under-exploited regions to gain market dominance before an industrycompetitor expands
into the region (Retrieved from http://www.ehow.com/list_7581425_reasonscompanies-
go-global.html).
Change is an ever present facet of business development. Businesses transfer
ownership, forexample, and end up reformulating their entire business structures.
Companies hire outsideconsultants to advise restructuring during financial crises.
Sometimes the fact that businesses go global is the product of the inevitable ebb and flow of
commerce. An overseas buyer may transferoperations to the home country. The majority
of an industry's business may shift overseas, makingglobal expansion all the moredesirable.
Competition may develop in regions such that it is unwise foryour company not to follow.

3. HOW DO FIRMS GO INTERNATIONAL? – ENTRY STRATEGIES

Foreign market entry strategies differ in degree of risk they present, the control and
commitment ofresources they require and the return on investment they promise. There
are two major types of entrymodes:
1) non-equity mode, which includes export and contractual agreements,
2) equity mode, which includes joint venture and wholly owned subsidiaries.
The market-entry technique that offers the lowest level of risk and the least market control
is exportand import. The highest risk, but also the highest market control and expected
return on investmentare connected with direct investments that can be made as an
acquisition (sometimes calledBrownfield) and Greenfield investments (Terpstra V., Sarathy
R. 2001).

3.1. Exporting and importing

The first and the most common strategy to be an international company is: import
and export of goods,materials and services. Exporting is the process of selling goods or
services produced in one countryto other countries. There are two types of exporting:
direct and indirect. Indirect export means thatproducts are carried abroad by other agents
and the firm doesn’t have special activity connected withinternational market, because the
sale abroad is treated like the domestic one. For these reasons it isdifficult to say that it is

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an internationalization strategy. In the case of direct exporting, the firmbecomes directly
involved in marketing its products in foreign markets.

3.2. Licensing
Licensing is another way to enter a foreign market with a limited degree of risk. The
internationallicensing firm gives the licensee patent rights, trademark rights, copyrights or
know-how on productsand processes. In return, the licensee will: produce the licensor’s
products, market these products inhis assigned territory and pay the licensor fees and
royalties usually related to the sales volume of theproducts. This type of agreement is
generally welcomed by foreign public authorities because it bringstechnology into the
country.

3.3. Franchising
Franchising is similar to licensing except that the franchising organisation tends to
be more directlyinvolved in the development and control of the marketing programme.
The franchising system can be defined as a system in which semi-independent
business owners(franchisees) pay fees and royalties to a parent company (franchiser) in
return for the right to becomeidentified with its trademark, to sell its products or services,
and often to use its business format andsystem.
Compared to licensing, franchising agreements tends to be longer and the
franchisor offers a broaderpackage of rights and resources which usually includes:
equipments, managerial systems, operationmanual, initial trainings, site approval and all
the support necessary for the franchisee to run itsbusiness in the same way it is done by the
franchisor. In addition to that, while a licensing agreementinvolves things such as
intellectual property, trade secrets and others in franchising it is limited to
trademarks and operating know-how of the business.

Advantages of the international franchising mode are as follows:

− low political risk
− low cost
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− allows simultaneous expansion into different regions of the world
− well selected partners bring financial investment as well as managerial capabilities to the
operation.

There are also disadvantages of the international franchising mode:

− franchisees may turn into future competitors
− demand of franchisees may be scarce when starting to franchise a company, which can
leadto making agreements with the wrong candidates
− a wrong franchisee may ruin the company’s name and reputation in the market
− comparing to other modes such as exporting and even licensing, international franchising
requires a greater financial investment to attract prospects and support and manage
franchisees.

3.4. Joint Ventures

Foreign joint ventures have much in common with licensing. The major difference is
that in jointventures, the international firm has an equity position and a management voice
in the foreign firm. Apartnership between host- and home-country firms is formed, usually
resulting in the creation of a thirdfirm (Byrne S., Popoff L. 2008).
This type of agreement gives the international firm better control over operations
and also access to local market knowledge. The international firm has access to the
network of relationships of the franchisee and is less exposed to the risk expropriation
thanks to the partnership with the local firm (Geringer J.M., Hebert L. 1989).
This type of agreement is very popular in international management. Its popularity
stems from the fact that it permits the avoidance of control problems of the other types of
foreign market entry strategies. In addition, the presence of the local firm facilitates the
integration of the international firm in a foreignenvironment (Killing J.P. 1982).

3.5. Strategic alliances

A strategic alliance is a term used to describe a variety of cooperative agreements between
differentfirms, such as shared research, formal joint ventures, or minority equity
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participation (Campbell E.,Reuer J.J. 2001). The modern form of strategic alliances is
becoming increasingly popular and hasthree distinguishing characteristics:
− they are usually between firms in high - industrialized nations
− the focus is often on creating new products and technologies rather than distributing
existingones
− they are often only created for short term durations.
Technology exchange - this is a major objective for many strategic alliances. The reason for
this is thattechnological innovations are based on interdisciplinary advances and it is
difficult for a single firm topossess the necessary resources or capabilities to conduct its
own effective R&D efforts. This is alsosupported by shorter product life cycles and the
need for many companies to stay competitive through
innovation (Jagersma P.K. 2005).
The greatest disadvantage of strategic alliances is the risk of competitive
collaboration – somestrategic alliances involve firms that are in fierce competition outside
the specific scope of the alliance.This creates the risk that one or both partners will try to
use the alliance to create an advantage overthe other (Grant R.M., Baden – Fuller Ch2004).

3.6. Direct investments

In this arrangement, the international firm makes a direct investment in a
production unit in a foreignmarket. It is the greatest commitment since there is a 100%
ownership. There are two primary waysfor direct investments: firms can make a direct
acquisition in the host market or they can develop itsown facilities from the ground up and
this form is called Greenfield investment. Acquisition hasbecome a popular mode of
entering foreign markets mainly due to its quick access. Acquisition is lower risk than
Greenfield investment because the outcomes of an acquisition can be estimated more
easily and precisely. Greenfield investment is the establishment of a new wholly owned
subsidiary. It isoften complex and potentially costly, but it is able to full control to the firm
and has the most potentialto provide above average return. Greenfield investment is high
risk due to the costs of establishing anew business in a new country. This entry strategy
takes much time due to the need of establishingnew operations, distribution networks, and

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the necessity to learn and implement appropriate marketingstrategies to compete with
rivals in a new market.
Foreign market entry strategies are numerous and imply a varying degree of risk
and of commitmentfrom an international firm. In general, the implementation of an
international development strategy is aprocess achieved in several steps. Indirect exporting
is often used as the starting point; if the resultsare satisfactory, more committing
agreements are made by associating local firms.

4. IKEA’S INTERNATIONALIZATION STRATEGY - ADAPTATION AND

STANDARDISATION PROBLEM
The furniture industry is an example of an industry that did not lend itself to
globalization before the1960s. The reasons for that are its features. Furniture has a huge
volume compared to its value,relatively high transport costs and is easily damaged in
shipping. Government trade barriers also wereunfavorable. But IKEA – company
established in the 1940s in a small village in Sweden, has becomeone of the world’s leading
retailers of home furnishings. In 2002 it was ranked 44th out of the top 100brands by
Interbrand, topping other known brands such as Pepsi. In 2002, it had more than 160
storesin 30 countries. How did IKEA achieve it? The IKEA business idea is: ‘We shall offer
a wide range ofwell-designed, functional home furnishing products at prices so low that as
many people as possiblewill be able to afford them.’ By the early 1960s the Swedish market
was saturated and IKEA decidedto expand its business formula outside Sweden. They
noted: ‘Sweden is a very small country. It’spretty logical: in a country like this, if you have a
very strong and successful business, you’re bound togo international at some point. The
reason is simple—you cannot grow any more’ (Retrieved fromhttp://www.ikea.com).
IKEA’s internationalization strategy in Scandinavian countries and the rest ofEurope has
not paid significant attention to local tastes and preferences in the different
Europeancountries. Only necessary changes were allowed, to keep costs under control and
IKEA’s lowresponsiveness to local needs strategy seems to work well in Europe (Kling K.,
Gofeman I. 2003).

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 The first challenge came in 1985 when IKEA entered the US market and faced
several problemsthere. The root of most of these problems was the company’s lack of
attention to local needs andwants. US customers preferred large furniture kits and
household items. As a result of initial poorperformance in the US market, IKEA’s
management realized that a standardized product strategyshould be flexible enough to
respond to local markets. In the early 1990s IKEA redesigned its strategyand adapted its
products to the US market. Thanks to it IKEA’s sales in the US increased significantand by
2002 the US market accounted for 19% of IKEA’s revenue. As the case study illustrates,
inseveral industries firms with effective strategy do not have to change their core strategy
significantlywhen they move beyond their home market. IKEA does not significantly
change its corporate strategyand operations to adapt to local markets unless there is a
compelling reason for doing so. IKEA’sstrategy in the US during the 1980s demonstrates
that even the most successful formula in the homemarket can fail if multinational
companies do not respond effectively to local business realities(Carnegy H. 1995).

EXAMPLES. WHY DO WE NEED COLLABORATION?

This section shows an example of international alliance and collaboration between
companies from one sector. In the 1960s US companies, particularly Boeing and
McDonnell-Douglas, had become the dominant players in the increasingly capital-intensive
airplane industry.
The smaller Europeanmanufacturers competed with one another as well as with
their international rivals, but the lack ofcapital and production scale did not allow them to
compete effectively against their US counterparts inbuilding big, modern passenger jets.
By the end of the 1960s, the Europeans’ combined share of theglobal aircraft
market had decreased to just 10%. Then, in 1970, four of the leading European
manufacturers – from France, Germany, Spain and the UK – did something radical. They
decided tocollaborate rather than compete. They formed the joint venture Airbus, pooling
their resources to design, produce and sell jet aircraft (Slywotzky A., Hoban Ch. 2007).
The collaboration did not just provide temporary life support for the aircraft
makers, it has allowedthem to develop themselves. Although Airbus’s first customers were

21
European airlines, the venturebegan penetrating the American market by 1980. European
aircraft manufacturing survived and Airbushad become the only rival to Boeing.
Why form a cross-border alliance? Do we need to collaborate to compete?
According to the survey,cross-border alliances are appropriate for four broad purposes
(many cross-border alliances involvemultiple objectives):
1. To combine partner resources to develop new businesses or reduce investment.
Typical
examples include new business start-ups with parents contributing specific complementary
capabilities that constitute the basis for a new business. For instance, ten leading drug
companies, including Smith Kline Beecham, created a $ 45 million joint research
consortium tostudy variations in human DNA. Airbus was a joint venture between French,
German, Britishand Spanish manufacturers that eventually became a single company.
Each national partnerhas specialized in one bit of aircraft manufacturing. The French
became experts in aircraftelectronics and cockpit design, the British became world leaders
in wing manufacturing, theGermans concentrated on making fuselages and the Spanish
focused on aircraft tails.Separate ventures or parent-to-parent collaboration? One of the
most important decisions iswhether to establish a separate equity venture or to establish a
direct parent-to-parentalliance. Cross-border ventures are appropriate when: it is possible
to establish a stand-alonebusiness with dedicated resources provided by all parents. A high
degree of integration of specific parent resources is required to achieve goals and it is
desirable to create loyalty to a new business distinct from the parents because their
interests might otherwise prevent the success of a collaboration (Kale P, Singh H. 2009).
Toshiba and Motorola, for example,created a semiconductor manufacturing alliance, even
though the two parents compete indownstream product areas. Direct parent-to-parent
collaboration (often including licensing or long-term contractual agreements) is
appropriate when assets or resources are best kept in separate parent organizations.
Parent interests are competitive close parent control isrequired, and success cannot be
measured in terms of performance measures that apply tostand-alone businesses (for
instance, the main purpose is to learn).
2. To eliminate risks. During the past few years, Renault, General Motors and
DaimlerChryslerhave bought stakes in Nissan, Fuji Heavy Industries (which makes Subaru

22
brand cars), andMitsubishi Motors, respectively. The idea is that a stake in a Japanese
carmaker, with anetwork of factories and dealerships in Asia, is a less risky way to expand
into the world’sfastest-growing automotive market than a full merger. Pilkington, the UK
glass manufacturer,has joint ventures with Saint-Gobain of France, one of its fiercest
rivals, in Brazil. The twocompanies take turns to build glass-making plants. Each side
manages its own plants but theyshare the profits. Building a glass plant is hugely expensive.
Through their cross-border jointventures, they reduce the risk of having too much capacity
for the local market.
3. To learn.
Learning may entail improving skills through working with a partner or gaining accessto
countries. Turner Broadcasting, which is part of Time Warner, has completed a deal
withPhilips, a Dutch electronics company, where Philips will get the right to name a new
sports arena that TBS is building in Atlanta. But TBS’s main motive is to find out more
about European consumers and about the digital communications hardware that is
Philips’s stock-intrade.
British Rover improved its manufacturing through the Honda alliance.

GM learned aboutquality control, work teams, flexible assembly lines from Suzuki and
from Nummi (i.e. theGM/Toyota global alliance),

then transferred these capabilities to Saturn. Mazda has helpedFord to improve its
emissions testing – critically important as global regulations tighten. Fordhas also gained
access to Japanese manufacturing practices, including kaizen (constantimprovement).
Having watched several of its peers make expensive mistakes trying to buystores or go it
alone,
Britain’s Tesco wanted to penetrate South Korean markets withoutmaking the same
mistakes. It formed an alliance with Samsung and began many jointventures in the 1990s
with foreign firms because they couldn’t do a cross-border acquisition.

4. To change the name of the competitive game.

23
To manage industry rivalry, Star Alliance, whichincludes Lufthansa and United Airlines,
began as a series of loose arrangements to sharecodes and direct passengers to partners’
flights; now it is beginning to look more like a quasimerger,with shared executive lounges
and pooled maintenance facilities (Slywotzky A.,Hoban Ch. 2007).

6. SUMMARY
In the international competitive environment, the ability to develop a transnational
organizationalcapability is the key factor that can help the firm adapt to the changes in the
dynamic environment.
Asthe fast rate of globalization renders the traditional ways of doing business
irrelevant, it is vital for managers to have a global mindset to be effective.
Globalization of business has led to the emergenceof global strategic management.
A combination of strategic management and international businesswill result in strategies
for global cooperation. However, there are obstacles to progress along the way.
The problems caused by these obstacles can be solved by cooperative ventures based
on mutual advantages of the parties involved. Proper effective communication will be a key
element for global strategies because what is proper and effective in one culture may be
ineffective and improper in another. Marketing products globally is complex and difficult
because of several factors including:
International Strategic Alliances,
coordination and control of international marketing,
communication,
regional trade blocks,
and choice of global strategy.
The firm with the choice of an effective globalstrategy that takes into consideration
its strengths and weaknesses in the face of the opportunities and
threats in the environment, will survive.

24
CHAPTER-2:ATTRIBUTES OF THE STRATEGIC PLAN
It is often said that planning [the act of thinking through the basis on which we will
compete] is more important than the plan. I would agree, but that is not say that the

plan
itself is important role as an encapsulation of our thinking,

a sketch map of our future moves

, and a communications tool.
It is important,
therefore,
that we get it right.

Strategic planning can occur on at least two levels—

corporate or
SBU.

At the corporate level, the focus is on managing a balanced portfolio of profitable, growing
businesses that adds value to shareowner investment. Here the primary aspects include the
following;
1) Identifying and acting on companywide strategic issues
2) Deploying and redeploying assets within the company’s portfolio
3) Exploiting synergies across business units
4) Entering major new areas [outside the chapter of existing business units]
5) Reshaping and renewing the corporation [structure and culture]
6) Increasing the value of shareowner investment
7) Providing guidelines to help business units develop their strategies.

At the business unit level, the focus is on developing and executing an integrated business
being concerns include the following;

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 1) Anticipating and meeting the changing needs of customers in selected market areas.
2) Determining the key success factors for the business and the strategic basis on which
it will Developing new products and services and seeking to compress the ‘time to
market’
3) Improving the productive use of all resources [personnel management, materials,
capital, technology, and time]
4) Seeking to extend the profitable reach of the business unit through strategic
alliances, joint ventures, cross—licensing, and other measures.

The principle mistake that many strategic plans make is overkill, that is, including in their
analyses and conclusions just about every thing that could be said about the business, its
markets and competition and than overlaying that with endless pages of financial
projections [the dollar sign being taken as evidence of certainty] In the process any vestige
of strategic thinking that may have been present is lost in this traditional labyrinth of
corporate planning.

Let us now try to understand the view of Former CEO of GE Jack Welch.By1986, five
years after taking over as CEO, hebr had radically changed the business planning preview
processes by asking each business to prepare one-page answers to five key questions:
1. What are your market dynamics globally today and where are they going over the next
several years?
2. What actions have your competitors taken in the last three years to upset those global
dynamics?
3. What have you done in the last three years to affect those dynamics?
4. What are the most dangerous things your competitors could do in the next three years
to upset hose dynamics?
5. What are the most effective things you could do to bring your desired impact and
these dynamics?
Most companies, we know, would not be comfortable with such a curtailed and
focused process,

26
 the written word and detailed analyses and financial projections are still the essence of
most planning systems
and most CEOs rely too much on staff work to be able to wing it on their own in
strategy review sessions or

are too reluctant to challenge the ideas served up to them by subordinates who were
once their peers and colleagues.
All of this not to deny the usefulness, indeed the necessity, of having a formal planning
document. It is, rather, to suggest that the best way of developing a
dynamic and resilient strategy is through greater reliance on thinking and the interplay of
ideas and view points
rather than on sterile analyses.

It is also to suggest that, in developing the actual planning document, less is best ; keep the
emphasis on the truly strategic leave the operational details and the financial projections to
a separate documents.
While the exact format ant content of such a document should be tailored to the
particular needs and management style of each organization, the following outline shows
how a typical planning document might build upon three main components;
 Summary of the strategy
 Rationale for the strategy
 Translating the strategy into action.

1 Summary of the strategy

The first three sections of the strategic plan are intended to highlight the essentials of the
strategy. For instance;
A. Strategic vision
A. summary of the long- term [e.g., more than 5 years] aspirations and objectives of the
organization.
B. Proposed strategy

27
 Highlights of the strategy for achieving the vision, including
details of the business’s market
and competitive positioning moves,
proposed portfolio changes,
acquisitions/alliances, and so forth
C .Near-term goals
Specific goals, both quantitative and qualitative, that should be achieved over the next
one to three years as steps toward longer term objectives.

2. Rationale for the strategy

Two sections present the rationale for the proposed strategy;
A .Environmental assumptions
The major assumptions underlying the vision / strategy with respect to
 Macro trends/events[domestic and international]—developments in the broad
social, political, economic and technological environment likely to affect the
business
 Macro trends/ events—critical dynamics of the business’s key markets and
competition
 Critical uncertainties in these assumptions/forecasts

B. Strategic issues and options

Discussion of the key strategic issues confronting the business,
arising from the impact of environmental forces on the organization’s current position
[including its strengths and weaknesses] Review of the strategy options considered and
selected/rejected[including the pros and cons of each option]

2 .Translating the strategy into action

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 Three sections detail the action/resources/financial implications involved in translating
the proposed strategy into action;
A .Implementation plans
Specific plans/projects for the next one to three years designed to translate the
strategic into action
(Marketing, production, distribution, R&D, licensing, human resources, organization
etc.)
Specifying, for each project, responsibilities, schedules, resource requirements( capital,
human resources, technology, etc.)
B. Financial implications
Forecast financial results of implementing the strategy (sales, costs, profit, market
shares, etc.), year by year for the next three years
.Capital budget required, year by year for the next three years

C .Contingency plans
Summary of plans‘(responsibilities, proposed actions, trigger points, impacts) to deal
with major contingencies

ATTRIBUTES OF STRATEGIC MANAGEMENT

There are substantial differences, beyond that of nomenclature between strategic
management as it has emerged since the early 1990s or so.
To begin with, strategic management has more to do with actually running the business
and less to do with developing a pro forma plan.
strategic management can best be defined as running the business on the basis of a
coherent vision of what the business can and should be guided by two key principles;
(1) Positioning the business for long term competitive advantage in a continuously
changing business environment; and
(2) using strategy (and a strategic management process) to drive decision making at all
levels of the organization.

29
  Thus the term is intended to describe a system that integratesthinking planning
and management;
links planning to operational implementation;
integrates functional strategies into coherent strategy for the business as a
whole embraces both long- term and short- term perspectives.

 The system is strategic because it focuses attention on the critical issues that
must be resolved to ensureoptimum competitive and market positioning; it uses
strategy to drive decision making at all levels of the organization;
 And finally , the term “management” is intended to emphasize that this process
aims to run the business as a continuous iteration of planning, decision making,
resource allocation, and execution; and it underscores the central role of
executives(versus staff) in the process.
Although the details and sequence of the strategic management process varies (as it
should) from company, the following steps illustrate

1. Conceptually at least, the process starts with a strategic assessment of the current
and future situation in which the business finds itself. This covers trends in the
economic, social and political environment; market developments and changing
customer needs and developments in old and emerging technologies.
Typically, this assessment culminates in what is known as a SWOT analysis—the
critical strengths and weakness of the business in dealing with the opportunities and
threats of the business environment.

2. As we have already mentioned, these are the truly critical make-or-break issues that
the business must resolve if it is to succeed and prosper in the new environment.

3. The actual strategy development process starts with identification of the fullest
possible range of plausible options that the business might pursue. At this stage, the
emphasis should be on pushing the envelope of proactive ideas as to how the company

30
 might best respond to the challenges posedby the strategic issues, including (most
especially) those options that challenges conventional wisdom, for its there that the
greatest competitive advantage may reside. Strategy should be, as I have said, a matter
of choice, and the choice, and the choice will be limited unless novel, unconventional
ideas are advanced and considered seriously, not viewed simply as straw men or token
options.

4. Assessment of these options follows next. It helps executives to develop out-of-the-

box ideas for strategy options if they know that the options will be subject to a rigorous
assessment process.
For example, to project the relative market size and growth rate

, the degree of competition

and profit potential for each option.

Assessment cycle to provide an opportunity for second thoughts and additional ideas

5. This assessment then leads to strategy selection—the moment of truth in this whole
process. More often a matter of judgment, whether of the executive team or of the
CEO .The selected strategy should then be played against the strategic vision

6. The strategic vision (if it already exists; if not, a vision statement should be developed)
should be examined to ensure consistency
with the selected strategy.(see chapter 5 for a detailed description of the nature and
role of strategic vision.

7. At this point the strategy can be translated into

31
 specific implementation plans for the various components and functions of the
company

. It is the critical juncture between strategy and operations, the point at which detailed
goals, action plans, responsibilities and financial projections can be developed.

In addition to the functional strategies, this planning should also cover organization
design,
capital investment
and resource allocation,
and – critical in these uncertain times
– contingency planning.

8. Moving from strategy to planning and implementation – one of the fatal flaws of
strategic planning in the 1970s – focuses on the execution are driven down deep into
the organization,
emphasizing once again the need for persistent communication of the strategy so that
those charged with its execution are thoroughly conversant with its details, are
committed to it, and can execute it as their own.

9. Finally, the strategy loop is closed with measurement of results, continuous feedback
into the planning system, and adjustments to the strategy as required by corporate
performance or as changes in the external business environment dictate.
First, it is more than design convenience that places the elements that set the
overall strategic direction of an organization – mission, goals, objectives, and vision –
on an upper level in the schematic. They are, indeed, the overarching principles that
shape both the process and the strategy. They are, too, the clearest expression of
management values in a process that tends, otherwise, to emphasize analysis and
objectivity. Unfortunately, most executives are comfortable dealing explicitly with

32
 value – laden statements and so tend to curtail, or even trivialize action on these
elements, particularly on mission and vision.
The second noteworthy feature is the centrality, and circularity, of the option phase.
As we have emphasized, strategy should be a matter of choice, selecting from a range
of possible options.
So generating and assessing the alternative strategies among which executives must
choose is the creative heart of the system.
This phase is also iterative, because the right choice is seldom apparent immediately.
More frequently, the initial alternatives fail to satisfy the selection criteria fully but do
help to generate new options for examination,
elaboration, and
assessment.
The process takes time, but the time is well spent if it generates a drive toward a new
competitive strategy.
Third, this strategic management process is closed – loop system. The schematic
suggests, correctly, that strategic management is a continuous learning experience, a
cybernetic system with built – in feedback and constant adjustment.
In this respect, it differs from the model of the 1970s which had more in common with
1)a linear throughput system:
2)Planning led to strategy,
3)which led to action,

in a series of discrete steps. As in technology development, continuous incremental

improvement in strategy can sometimes achieve gains as great as those that result
from major breakthroughs.
With all that said, however, we strongly believe, with Michal Porter, that the need
for strategic thinking has never been greater. And the respondents to my survey seemed
to agree, feeling that there is much to be gained from having a good strategic
management system,

33
 most notably a clearer sense of vision
, a sharper focus in strategy and operations,
and improved understanding of the business environment.
Elaborating somewhat on their responses, we would argue, that properly
conceived and executed, such System can develop through the following:
 Understanding of the dynamics of the company’s business environment,
preparation for change, and reduced vulnerability to surprises.
 Imaginative and profitable market/competitive positioning of the
business.
 Focused attention – and action – on the resolution of key strategy make
or – break issues.
 Treatment of strategy as informed and creative choice rather than sheer
momentum.
 Strategy that is flexible and resilient enough to succeed in diverse
conditions.
 A clear and driving sense of corporate purpose and direction.
 Commitment to implementing the strategy and close integration of
strategy and operations.

 Widespread diffusion of strategic thinking throughout the organization.

In sum, there are four quintessential qualities – the “four I’s”- that are
the hallmark of good strategic management thinking:
insight,
intent, innovation, and implementation. Relating these qualities to the
10 – step process that I have just outlined, we can see the following:
 Insight derives from focused strategic analyses and the identification of
key issues that the strategy must address. These exercise aim for a

34
 qualitative breakthrough in strategic insight – achieving the “Aha”
experience that leads to an innovative strategy.
 Intent – the clarification and communication of the organization’s
direction and vision – develops out of statements of mission, goals and
objectives, and vision that are sufficiently clear and well communicated to
engage the commitment of executives, managers, and employees – and,
indeed, other stakeholders.
 Innovation is the product of a constant emphasis on creativity in thinking
through the implications of strategic issues, generating a challenging set of
options, and changing a designing plans, programs, organization structure
, and culture to give expression to the strategic vision.
 Implementation – made up execution, measurement, feedback, and
adjustment – forges consistent links between planning and action and
ensures that strategy drives operational decision making throughout the
organization.

CHAPTER-3:STRATEGY AND CULTURE:

Every organization has a culture; a system of shared assumptions, values norms and
practices that determine the character of that organization and the behavior of its
members. Culture,
Mark young blood has written, affects every aspect of an organization: “… how it is
designed, how people related to one another ,what is considered to be true, what is deemed

35
important, the criteria to use for decisions, how to treat customers, and a myriad of other
factors,”
Culture impacts strategy in at least two ways. It can be an essential element of the
strategy itself, and it determines the organization climate that is required for strategic
planning and management to take root and flourish.
It is the second aspects of this relationship that we want to explore here. But a brief
word about the first aspect is appropriate before passing on. There is a sense in which
culture change can be said, in many cases, to be the strategy – or at least an important
element of it. This was certainly the case with
Jack Welch’s approach to GE’s future. In a very real sense we could say that a
critical element of his strategy was to change the culture of the company, as we have
already noted – to make it more flexible, entrepreneurial, boundary less, and responsive to
external change.
Aligning culture with strategy was also an issue for the German software company
SAP, which recognized that, in order to change its strategy, it needed first to change its
culture. In its efforts to expand its core business of building the enterprise resource
planning [ ERP] systems that run customer’. “back- office’ functions into newer E-
business application.
In 2000 the company had an internally focused organization built around its core
ERP product,
with an engineering-driven culture focused on building a single, integrated product
that could than be shipped to any customer

.Wolfgang Kemna, who was appointed to be the new SAP America head about this
time, was under no illusion about the scale of the needed change when he made the move to
the United States,
Changing its internal focus and engineering culture was particularly critical in the
United States, where the nature of the market makes the changes even more important. So

36
in response, SAP located its goal marketing not in Germany, but in New York city’s
Greenwich Village, and heightened its emphasis on marketing and creativity in branding.

However, there is a broader point to be made here. Regardless of whether culture

change is or is not part of the strategy, companies have to recognize that the very
introduction of strategic management in to a company requires change in that
organization’s culture. Strategy begins in the minds of managers, and it is in the mind that
this culture shift must begin.

CREATING A STRATEGIC CULTURE

In his book, The corporate Culture Survival Book, Edgar Schein makes the
important point that any major change in an organization’s culture involves a process of
destruction as well as creation. The old way of doing things –
in this case, the values and procedures of traditional long- range planning – is normally so
well entrenched, and its additional long – range planning is normally so well entrenched,
and its advocates have such a vested interest in its continuation, that its inertia will defy
any but the most determined assault to displace it. The transition has, therefore, to be
ought on two fronts simultaneously.
LEADERSHIP

I know of no instance of an organization being transformed into a strategic culture

without the active participation – indeed, the drive and insistence – of its leader. This is
scarcely surprising since culture is a critical part of strategy, and strategy is a prime
responsibility of leadership. This is true even though, as I have argued, strategic thinking
and action should be a distributed capability throughout the organization. It is the leader –
the CEO or SBU general manager – who should articulate the vision, communicate the
strategy, set the tone for the organization, and, by personal involvement of the whole
management team. Merely announcing an intention to engage in strategic planning and
delegating responsibility to a newly appointed planning executive will not suffice.
The personal example set by the leader is critical because let’s face it –
37
what the CEO wants,
the CEO gets.
And the signals
as to what the CEO wants to come from actions more than from words.

Protestations about a new beginning that emphasizes a strategic outlook fade into
insignificance
if,
for example, the questioning at planning review sessions focuses on what might be termed
short – term
incrementalism rather than vision,
on internal requirements rather than external needs.

Emerson said it most eloquently: “What you are stands over you the while, and thunders
so I cannot hear you say to the contrary.”
That essentially translates into “actions speak louder than words”. What you say doesn't
matter, it's what you do that makes all the difference.

So, if an organization is truly serious about culture change, its leaders must embody
this change in the way they conduct themselves. They must embrace the values of the new
culture so thoroughly, so convincingly, that others will come to see that it is not only an
acceptable way to behave: it is the right and necessary way.

COMMUNICATION
This does not mean, however, that communication is important. On the contrary, it
has a vital role to play as a change mechanism. Leadership behavior alone will not suffice:

38
without explanation, it would, at best, lead only to mimetic behavior (“Monkey see,
Monkey do”) rather than to understanding.
The greater the change, the greater the need for communication – for clarifying as well as
announcing;
for discussion as well as formal,
written documents;
and for repetition
as well as elaboration.
Jack Welch was not only the embodiment of the culture shift that he propounded:
he was its prime communicator. Throughout his 20 – year tenure as CEO of GE, he
never let up on his efforts to drive home not only the corporate strategy, but also the
culture change that it required. He never missed an audience or an opportunity to
communicate the need for – and the nature of – the changes that he was trying to
drive into the organization. Inside or outside the company, whether with employees,
general managers, or his board of Directors, with share owners or financial analysis,

with his fellow CEO’s or a Harvard Business school class, he hammered away not only on
his strategy but on the changes in culture that would be needed to make it succeed.

Globalization would require a more open and inclusive international mindset: service and
six – sigma, a keener sensitivity and flexibility to serve customers and ensure
quality: E – Business or digitization, a new perspective on relationships with both
suppliers and customers along the whole value chain and a new perspective on
“learning” as the key source of competitive advantage. And always, of course, there
was the need for speed, simplicity, and self – confidence.

To get a better feeling for the range and sensitivity of Welch’s communication skills,
read his chairman’s messages in20 years of annual reports. These articulate and
remarkable documents, so different from the sterile numbers – only reports from

39
 most CEO’s, are enlightening communiqués from the battle front, documenting the
evolution of Welch’s thinking, values, strategy, and initiatives.
In a truly strategic culture, communication must be two – way – bottom – up
and, education top-down – if we are to achieve the full measure of learning and
flexibility that such a culture requires. Despite his hard- driving, assertive nature,
Welch recognized this fact and, whether in planning sessions or informal meetings,
encouraged a free exchange of ideas, a “wallowing” (his word) in information and
ideas before arriving at a decision, “It was, “he said, “all about breaking down the
concept of hierarchy.”

EDUCATION
Although there is a conventional belief that adults learn more effectively and
more quickly by doing than by classroom learning, there is a limited, but important
place for formal education in facilitating this culture shift. This learning experience
has to cover not only new procedures and new methodologies for planning, but – far
more difficult – new ways of thinking, new priorities, even new values. It must not
be merely a matter of rote learning, but of exploration, with one’s peers, of new
concepts and the intellectual foundation on which they are built. Only then can the
validation and elaboration of this learning take place in the work environment.
One company with a long record of building educational bridges to span the
culture gaps caused by major changes in organizational structure or theory is GE.
Back in the 1950s, the company acquired the estate of Harry Arthur Hopf and
established its renewed manager Development Institute was to teach the principles
of professional management to the hundreds of managers on whom GE’s
decentralization program was placing broader and more demanding
responsibilities. Then in the early 1970s, when Reginald (“Reg”) Jones, then CEO,
introduced strategic planning and reorganized the company around SBU’s, the
changes were accompanied by a sweeping educational program, including two –
week courses for soon-to-be strategic planners, shorter courses for all corporate

40
 officers and general managers, and half- day on – site briefings for virtually all
white – collar staff.
Finally, with the accession of Welch to the top spot, crotonville was renovated
and reoriented to leadership development. The Institute became, in effect, the
incubator of reform, a place to spread new ideas in an open give – and – take
environment. At the time Welch was severely criticized for spending more than $25
million on building a new guest house and conference center at the same time he was
engaged in drastic cost cutting elsewhere. In his autobiographical Jack: Straight
from the Gut, in a chapter entitled, “Remaking Crotonville to Remake GE,” he
explained that he wanted to create a place with the right atmosphere where he could
instill the values that he wanted spread around the whole company.

MEASUREMENT
If there is a golden rule for achieving culture change in an organization, it is
surely, “What you would change, measure.” Managers, particularly those in
corporate settings, are, on the whole, rational beings who will respond to the signals
emanating from the organization’s nervous system. I wrote earlier that “what the
CEO wants. The CEO gets:” and the clearest signal as to what the CEO wants
comes from the management measurement and reward system.
So if you want to develop a strategic culture, as I describe it here, you must
first make clear
what the values, norms, and practices of strategic behavior are and then ensure that
managerial performance is measured,
in part – and then rewarded – against the standards and traits that this culture entails.
In one company that I worked with, the CEO decided that one way to help
ensure that strategy was taken seriously and became the new norm for his managers
was to reward strategic behavior. Accordingly, when the next bonuses were
allocated, he made a point of ensuring that one of the higher allotments went to an
BU manager who had admirably executed a strategy, not of growth, but of exiting

41
that business. Why? Quite simply because that had been the strategy decided upon,
so the manager’s performanceshould be measured against that standard.
This title anecdote underscores an important point: When we measure, we
tend to measure behavior and performance. In many ways, this is right and
understandable, for we need more than just lip service to the norms and practices of
the strategic planning culture: We need results. However, in truth, this should be yet
another example of both/and: our aim should be to change both theculture and
theperformance of the organization. The two objectives should be interlinked and
related to one another.
However, this is no easy task. Jack Welch, in his message to shareowners in
GE’s 1991 Annual Report, highlighted both the extent of this problem and the
importance of resolving it:
Over the past several years we’ve wrestled at all levels of this company with
the question of what we are and what we want to be . . . we’ve agreed upon a set of
values we believe we will need to take this company forward rapidly through the
1990s and beyond.
In our view, leaders . . . can be characterized in at least four ways. And share
the values of our company. His or future is an easy call. Onward and upward.
The second type of leader is one who does not meet commitments and does
not share our values. Not as pleasant a call, but equally easy.
The third is one who misses commitments but share the values. He or she
usually gets a second chance, preferably in a different environment.
Then there’s the fourth type – the most difficult for many of us to deal with.
That leader delivers on commitment, makes all the numbers, but doesn’t share the
values we must have . . . the autocrat, the big shot, the tyrant. Too often all of us
have looked the other way – tolerated these “Type 4” managers because “they
always deliver” – at least in the short term.
If, therefore, we want to develop a strategic culture, it is clear that we must
identify, and reward, type 1 leader – those who will embody, in thought and action,

42
 the principles, values, and practices of the new culture we seek to instill in the
organization. For, make no mistake about it, it takes leader to change a culture.

Management skills and commitment

For nearly half the respondents, the quality and role for top management emerged
as significant challenges. The management problem, which firms see as antithetical to the
broad strategic view necessary for success in today’s competitive battles evidently stems
from the narrow focus and operational background of top managers.

In a surprisingly frank appraisal of the limitation of today’s senior management,

respondents made frequent references to a lack of vision and leadership, an nuclear (or
excommunicated)sense of strategic direction, and reactive (rather than the desired
proactive) response to change.
In a few cases respondents were concerned about senior managers role in the strategic
management processs: their willingness to participating in the development of strateg
Y
, n executive is going to have more than a lukewarm commitment to its executing.

Fortunately, evidence suggests that these problems are diminishing in their incidence and
intensity as responsibility for strategic management shifts from staff to line managers.

Financial challenges
In this age of intensifying competitions, traditional financial concerns rank high on
the corporate agenda. More than one-third of the companies in the survey, citing these
concerns among the most critical challenges they face, recognized the need to

 Reduce and control costs (both direct and overhead)

 Improve productivity and profitability
 Sharpen investment focus
43
  Improve portfolio managementPortfolio management is the art and

science of selecting and overseeing a group of investments that

meet the long-term financial objectives ...
These responses are not surprising. However, the careful attention that both company
executives and the financial community pay to the placement of new chief financial
officers-at IBM, Kodak and Chrysler, for instance, illustrates the importance of financial
acumen and controls to a company’s strategy.
the ability to make good judgements and take quick decisions.

Operational problems
The appearance of operational problems on a list of strategic concerns serves as a
solid reminder that strategic managements is or should be, concerned with both strategy
and tactics. Indeed, five respondents expressed concern abut the lack of coordination
between operations and strategy, indicating that these two systems still operate separately
rather than as meshes cogs in an integrated system. Other linkage problems that were
mentioned by respondents were these between production and, marketing and between
R&D and operations. All to-gather such problems revealed a growing dissatisfaction with
the traditional organization structure based on function (and the problems of
interventional coordination) and a slow movement toward organizing instead around
processes (i.e., business process redesign-see table A.3)

The innovation challenges:

Along with seed and flexibility, innovation is perhaps the most desire quality in
completive performance today. Most respondents mentioned technological innovating and
recognized that, given the pace and global reach of technological development, a need exist
to.
 Improve the monitoring of R&D on a worldwide basis
 Increase external technology acquiring, recognizing that not even the largest
correcting can be world classing every aspect of needed technology

44
  Speed new product development
 Improve management of R&D portfolio.
An R&D project portfolio is very similar and projects need to be considered
investments. ... Many engineers, research scientists, system integrators, and others tend
to be focused on the knowledge generation and not always on the short and long term
cash generation aspects of R&D

Strategic planning process

Companies no longer have the same obsessing with process and methodology that
they did 20 years ago, but there is still some lingering concern about some aspects of the
process.
Particular challenges include maintaining the credibility of the planning staff;

the time commitment needed for a quality job;

clarifying the respective roles of corporate and SBU strategy’
improving the scanning and monitoring systems,
especially lint has domain of competitive intelligence and as always,
tightening the link
between strategic and operational planning.

The benefits of strategic management

Clearly the ultimate measures of
successful management are
stake hold satisfaction
and corporate profitability vitality
, and competitive positioning.
However, short of these benchmarks, a sound approach to strategic management can
achieve gains organizational clarity, derive and efficiency. The responses to this survey
make clear that companies have for strategic management. However, they also recognize
that they still have a far to go before realizing these benefits to the fullest.

45
Glossary of termsmused in strategic planning:
Business environment: the complex interaction of dynamic forces and trends in the macro
environments and the microenvironment that directly influence a business goal, s
strategies, policies and action.
Businesses unit: a coherent component of a company responsible for managing all aspects
of clearly defined line of products and/or services in a given market and with profit and
loss responsibility for integrating both long term strategy and short term operations also
called strategic business unit or line of business.
Goals: specific, usually quantifiable land measurable steps toward achieving the business’s
strategic objectives.
Mission: a statement that identify the basic purpose of the businesses, defines the arena in
which it will create and the customers it will serve and sets brad objectives.
Objective: broad aims, both financial and no financial, defining that the businesses seeks to
achieve in implementing its mission
Options: a range of structurally different strategies among which executives must choose to
address key strategic issues and achieve desired goal and objectives. Also called strangely
options or strategy alternatives.
Scenarios: framework for storing management perceptions about alternative future
environment in which executive design might be layed out or similarly strives of different
plausible futures that might evolve from uncertainties in key forces in the business
environment.
Strategy: the driving force that states the future nature and direction of the business; it
defines the means that will not employed to achieve the corporate vision.
SWOTs: an acronym for strength and weakness and the opportunities and threats that
becomes apparent in strategic planning analyses.
Values statement: an articulating of the corporate vale us that serves as the guiding
principle for corporate action and ethical behavior, defines the character of its relations
with stakeholders, and establishes management style and rate culture.

46
Vision: a coherent and dynamic statement of what a company can and should become in
the future a fairly detailed picture of business’s future scope and market competitive focus,
image and stakeholder relationships among organization structure and culture.

STRATEGIC MANAGEMENT

Strategic management is the art and science of formulating, implementing and evaluating
cross-functional decisions that will enable an organization to achieve its objectives . It is the
process of specifying the organization's objectives, developing policies and plans to achieve
these objectives, and allocating resources to implement the policies and plans to achieve the
organization's objectives. Strategic management, therefore, combines the activities of the
various functional areas of a business to achieve organizational objectives. It is the highest
level of managerial activity, usually formulated by the Board of directors and performed
by the organization's Chief Executive Officer (CEO) and executive team. Strategic

47
management provides overall direction to the enterprise and is closely related to the field of
Organization Studies

STRATEGIC MANAGEMENT
Management literature of the last decade or two is dominated by the
prominence of two terms,
‘strategic management’ and
‘strategy’.
The two, although not synonymous, are often considered as such. In its
broadest sense,
Strategic Management is about taking ‘strategic decisions’. It starts where
strategic thinking ends.
It applies strategic thinking to lead the organization to its vision. In a
Postmodern society, where failures and disasters are magnified globally,
strategic management is a system with a focus on continues change. The process
is Iterative and ongoing.
It is an evolution of the strategic planning process.

“Strategic management is an ongoing process that assesses the business and the industries
in which the company is involved;
assesses its competitors and sets goals and strategies to meet all existing and potential
competitors;
and then reassesses each strategy annually or quarterly [i.e. regularly] to determine how it
has been implemented and whether it has succeeded or needs replacement by a new
strategy to meet changed circumstances, new technology, new competitors, a new economic
environment., or a new social, financial, or political environment.” (Lamb 1984:ix)

48
Historical development:

Origins:

The strategic management discipline originated in the 1950s and 1960s. Among the
numerous early contributors, the most influential were Peter Drucker, Philip Selznick,
Alfred Chandler, Igor Ansoff, and Bruce Henderson. The discipline draws from earlier
thinking and texts on 'strategy' dating back thousands of years. Prior to 1960, the term
"strategy" was primarily used regarding war and politics, not business. Many companies
built strategic planning functions to develop and execute the formulation and
implementation processes during the 1960s.

Peter Drucker was a prolific management theorist and author of dozens of

management books, with a career spanning five decades. He addressed fundamental
strategic questions in a 1954 book The Practice of Management writing: "...

the first responsibility of top management is to ask the question 'what is our
business?' and to make sure it is carefully studied and correctly answered." He
wrote that the answer was determined by the customer. He recommended eight
areas where objectives should be set

, such as market standing

, innovation, productivity, physical and financial resources, worker performance

and attitude, profitability, manager performance and development, and public
responsibility.

In 1957, Philip Selznick initially used the term

"distinctive competence" in referring to how the Navy was attempting to differentiate itself
from the other services. He also formalized the idea of matching the organization's internal
factors with external environmental circumstances. This core idea was developed further
by Kenneth R. Andrews in 1963 into what we now call SWOT analysis, in which the
49
strengths and weaknesses of the firm are assessed in light of the opportunities and threats
in the business environment.

Alfred Chandler recognized the importance of

coordinating management activity under an all-encompassing strategy.

Interactions between functions were typically handled by managers who relayed

information back and forth between departments.

Chandler stressed the importance of taking a long term perspective when looking to the
future. In his 1962 ground breaking work Strategy and Structure, Chandler showed that a
long-term coordinated strategy was necessary to give a company structure, direction and
focus. He says it concisely, “structure follows strategy.” Chandler wrote that:

"Strategy is the determination of the basic long-term goals of an enterprise, and the
adoption of courses of action and the allocation of resources necessary for carrying out
these goals."

Igor Ansoff built on Chandler's work by adding concepts and inventing a vocabulary. He
developed a grid that compared strategies for market penetration, product development,
market development and horizontal and vertical integration and diversification.

He felt that management could use the grid to systematically prepare for the future. In his
1965 classic Corporate Strategy, he developed gap analysis to clarify the gap between the
current reality and the goals and to develop what he called “gap reducing actions”

. Ansoff wrote that strategic management had three parts: strategic planning; the skill of a
firm in converting its plans into reality; and the skill of a firm in managing its own internal
resistance to change.

50
Bruce Henderson, founder of the Boston Consulting Group, wrote about the concept of the
experience curve in 1968, following initial work begun in 1965. The experience curve refers
to a hypothesis that unit production costs decline by 20-30% every time cumulative
production doubles. This supported the argument for achieving higher market share and
economies of scale.

Porter wrote in 1980 that companies have to make choices about their scope and the type of
competitive advantage they seek to achieve, whether lower cost or differentiation. The idea
of strategy targeting particular industries and customers (i.e., competitive positions) with a
differentiated offering was a departure from the experience-curve influenced strategy
paradigm, which was focused on larger scale and lower cost. Porter revised the strategy
paradigm again in 1985, writing that superior performance of the processes and activities
performed by organizations as part of their value chain is the foundation of competitive
advantage, thereby outlining a process view of strategy.

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 CHAPTER-4 : DISTINGUISHING CHARACTERISTICS OF
INTERNATIONAL STRATEGIC MANAGEMENT

International and Global Strategy

The essence of global strategy is an expansive world vision that considers the possibilities of
every location as a market and as a source of competitive advantage, both alone and when
integrated with the rest of the firm.

Global enterprises must craft strategies for international expansion, diversification, and
integration to develop, protect, and exploit their resources and capabilities

Determinations of geographical scope and degree of coordination must be taken with

respect to a world-wide competitive environment.

Concerns for both strategy processes and strategic goals and objectives are deepened in the
transnational setting.

How has global strategy co-evolved with an emerging global marketplace?

To what extent have the drivers of global growth and diversification changed in today’s
“new normal” of increased uncertainty and rapid change?

How are multinational sourcing strategies driving ongoing internationalization and

globalization?

Assembling the Global Enterprise

52
In order to pursue their strategic objectives, global enterprises must access a wide range of
resources, capabilities, brands, markets, and technologies from world-wide locations.

This process of building a resource base for the enterprise may involve cross-border
mergers and acquisitions, international alliances and joint ventures, formal and informal
networking, internal development, and offshored/outsourced value-adding activities.

Determinations of the breadth of international dispersion and the degree of global

integration of resources and activities are increasingly essential to competitive success, but
standard models of transactional governance seem to have limits in an interactive,
integrated environment.

How do multinational firms identify and access location-specific resources in a diverse

global environment? How have the roles of assembly strategies such as acquisitions,
alliances, or licensing changed in response to global sourcing opportunities and market
demands?

How do dynamic capabilities for organizational assembly both drive and delimit the
structure and performance of global firms?

How can global “rightsourcing” be used to create a sustainably innovative organization?

How is developing information technology changing the basic drivers of decisions about the
need for internalizing control of valuable resources and capabilities in global enterprises?

Strategic Management of the Global Enterprise

An important aspect of international strategic management involves selecting and

developing the governance structures and functions of global firms and their component
organizations

, including organizational architecture, management systems, managing resources and

capabilities, networking of subsidiary organizations, and managing operational strategies

53
and information sharing in organizations engaged in substantial operations across national
borders or located in multiple national environments.

Managing the internationally dispersed and often deeply integrated activities of global
multi-business enterprises is a complex, evolving, but essential capability of such firms.

Non-market strategies of pursuing corporate social responsibilities and working with

critical stakeholders in host nations or on a global basis are increasingly important to
pursuing competitive advantage and reducing environmental and competitive risks for
global organizations.

What strategic imperatives will drive new forms of global organization in the 21st
Century?

Global enterprises are described as network organizations – what does this mean for
internal management processes, innovation, and collaboration across borders?

How will the sources of stability and growth of global organizations be redefined in a
hyper-competitive global market?

How do non-market strategies best complement market strategies?

Has the balance of concerns for asset protection and asset development changed?

As organizational structure is so apparent in global enterprises, what can we learn from

these firms about theories of strategic management of organizations in general?

Global Strategy and Inter-Organizational Networks

While multinational enterprises may be network organizations, they are also widely seen as
entities functioning within larger networks of affiliated, but not internalized, firms,
institutions, and activities. Collaboration at all stages of the value chain across
organizational as well as national boundaries has become a essential feature of global
strategic management, as has cooperation with partners on a smaller scale within many
54
local host settings. The global firm may function as the leader or flagship of its network,
but it must do so through communication and collaboration mechanisms rather than the
command and control relationships of internalized hierarchy.

Does ownership matter, or is access to resources and capabilities a more efficient position
in a changing world? How can inter-organizational supply and distribution network
relationships be managed to generate competitive advantage for global enterprises? How
and when should global businesses pursue collaborative relationships with nonprofits and
other non-economic actors in both global and host country settings?

Performance and Global Strategy

Consistently relating the activities of the organization to its performance is essential to a

strategic perspective. Performance is a broad concept with many manifestations, made
even more complex by operations in multiple markets with varying degrees of global
integration. Defining and measuring the many aspects of performance for global
organizations, and establishing their limits, are constant and evolving challenges. Strategic
performance must consider the risks and uncertainties involved in most actions,
considerations that again are more complicated in the global environment.

Are the drivers of performance for global organizations in a rapidly evolving world
strategic or managerial in nature? How is performance best defined, measured, and
delimited for different actions in the international setting? How do widely dispersed
organizations balance local and global performance levels? How do enterprise-level global
strategy and strategic management affect the levels of different performance measures in
the global multi-business firm? How have the ties between vertical and horizontal
internalization and enterprise-level performance changed in the ever more interconnected
global environment?

55
Global Strategy and the Global Business Environment

All organizations interact with their environments; the complexity of the global business
environment makes this interaction particularly critical to crafting strategies for the global
firm.

Global strategy must incorporate aspects and effects of the GBE, to include concern for the
status of the global economy and international capital markets, the effect of political
agreements or strife, cultural and institutional differences, levels of technological
development, and other global and regional issues as they affect strategy, strategic
management, or performance of organizations.

A notable characteristic of international markets is the presence of multiple sovereign

nation-states as economic actors.

Global strategies must be tied to political and other non-market strategies to capture the
value that they create. How do enterprise-level strategies and organizational characteristics
co-evolve with exogenous global conditions when equilibrium seems to be an obsolescing
concept?

Is sustainable competitive advantage a useful construct under constantly changing political,

economic, institutional, or cultural conditions?

When and how can the actions of global firms change the global business environment?

How can global enterprises use nonmarket strategies to manage exposure to the inherent
uncertainty of the GBE?

How does the interaction of political theory and strategic management theory inform our
study of global enterprises?

56
Strategy and Location

The overall global business environment affects enterprise-level strategies, but the specific
characteristics of local environments are equally important to choosing locations for
expanding markets or resource bases, setting up offshore operations, and diversifying
operating risks.

Concerns about cultural, institutional, geographical, economic, technological, and

development distance affect decisions about where and how to sell products, source inputs
and resources, and establish operations. Avoiding the hazards and exploiting the benefits of
differences between locations is the essence of global strategy.

How are sovereign risk factors manifested and managed in an integrated global
environment? How do distance effects and the liabilities of foreignness impact entry
strategies, subsidiary governance, and performance outcomes? When and how do
locational differences limit integration strategies? How do global enterprises best access the
benefits and limit the risks of locating in industry clusters? How is offshoring of production
and services best managed for strategic advantage?

Comparative Strategies

Even when firms function individually within the boundaries of their domestic markets, the
differences between their strategies can offer insights for the global strategist.

Strategy is not managed in the same way everywhere, but responds to differences in local
context.

The comparative study of strategic management in two or more countries with the explicit
or implicit objective of understanding the moderating effects of varying national
environments on strategic management can provide great insight on the practice and
theory of strategy.
57
What aspects of strategy and strategic management are universal?

How do contextual differences drive strategic and organizational differences?

How do strategic concepts and strategic management practices diffuse across national
boundaries?

When can practices from one location be transplanted to another successfully?

Global Innovation and Knowledge Strategies

Managing innovation and knowledge transfer is clearly an aspect of strategic management

in any setting, but the importance of these activities to the modern multinational,
transnational, metanational, or global multibusiness firm suggests that such strategies
merit specific emphasis.

Current models see the global enterprise primarily as an arbitrageur and combiner of
knowledge derived from multiple sites and brought together in some centralized process.
Concerns for intellectual property development and protection, multinational and global
R&D, moving knowledge across borders and distance, and the global architecture of
innovation and application of knowledge are core concerns.

How do global firms access knowledge held in multiple locations? How can unique
knowledge be moved effectively and efficiently through intra- and extra-organizational
networks of alliances?

What is the function of the headquarters in a global knowledge-driven strategy?

Innovation is often tied to the “born global” concept – is this justified and economically
advantageous?

Globally networked research and development is coming to be seen as a major source of

potential competitive advantage, but also as a complex and costly activity – how are such
activities best managed for sustained competitive advantage?
58
Global Strategy and Emerging Economies

The importance of the global environment and of specific locations to global and
international strategies has been established. However, the rapid emergence of new market
economies has profound implications for the world economy and for the practice and study
of global strategy. Doubling the size of global consumer markets has begun a fundamental
revision of the “relevant global market” far beyond the concept of the Industrial Triad,
whether looking at emerging middle classes or the “bottom of the pyramid”.

Offshore production of goods and services in emerging nations has energized international
political discussion, brought new focus to the non-governmental social welfare sector, and
redefined the concept of relevant stakeholders as well as expanding the scope of global
sourcing strategies.

Multinational enterprises from emerging economies are absorbing established firms in

industrial nations and may well dominate international merger and acquisition activities in
the near future while traditional global enterprises are facing fundamental changes in their
non-market strategies.

STRATEGIC DECISIONS - DEFINITION AND CHARACTERISTICS

Strategic decisions are the decisions that are concerned with whole environment in which
the firm operates, the entire resources and the people who form the company and the
interface between the two.

Characteristics/Features of Strategic Decisions

a. Strategic decisions have major resource propositions for an organization. These

decisions may be concerned with possessing new resources, organizing others or
reallocating others.
b. Strategic decisions deal with harmonizing organizational resource capabilities with
59
 the threats and opportunities.
c. Strategic decisions deal with the range of organizational activities. It is all about
what they want the organization to be like and to be about.
d. Strategic decisions involve a change of major kind since an organization operates in
ever-changing environment.
e. Strategic decisions are complex in nature.

f. Strategic decisions are at the top most level, are uncertain as they deal with the
future, and involve a lot of risk.
g. Strategic decisions are different from administrative and operational decisions.
Administrative decisions are routine decisions which help or rather facilitate
strategic decisions or operational decisions. Operational decisions are technical
decisions which help execution of strategic decisions.
h. To reduce cost is a strategic decision which is achieved through operational decision
of reducing the number of employees and how we carry out these reductions will be
administrative decision.

The differences between Strategic, Administrative and Operational decisions can be

summarized as follows-

Strategic Decisions Administrative Operational Decisions

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 Decisions

Strategic decisions are long- Administrative decisions are Operational decisions are not
term decisions. taken daily. frequently taken.

These are considered where These are short-term based These are medium-period
The future planning is Decisions. based decisions.
concerned.

Strategic decisions are taken in These are taken according to These are taken in
Accordance with strategic and operational accordance with strategic and
organizational mission and Decisions. administrative decision.
vision.

These are related to overall These are related to working These are related to
Counter planning of all of employees in an production.
Organization. Organization.

These deal with organizational These are in welfare of These are related to
Growth. employees working in an production and factory
organization. growth.

COMPONENTS OF STRATEGIC MANAGEMENT:

61
Strategic management components are listed below;
 Company mission/profile
 Environment analysis
 Strategic analysis and choice
 Long-term objectives
 Grand strategies
 Annual objectives
 Functional objectives
 Policies
 Institutional strategy and
 Control and evaluation strategy.

The Strategic Management Model :

Strategic management has a unique place in management. The nature of
strategic management is difference from other aspects of management, as it
demands attention t the ‘big picture’ and a rational assessment of the future
options. Strategic Management demands a clear analysis of the situation facing the
organization, which has to have:
 A strategic direction endorsed by the team and stakeholders
 A clear business strategy and vision for the future
 A mechanism for accountability
 A framework for governance at the various levels that provide the
course of action even when there are competing priorities and
different goals
 The ability to exploit opportunities and respond t external change by
taking ongoing strategic decisions

62
  A coherent framework for managing risk – whether it is balancing the
risks and rewards of a business direction coping with the uncertainties
of project risk r ensuring business continuity.

The decisions taken have serious impacts in all areas and the working of the
organization. The firm has to continuously interact with the market, the business and
technological environments and keep re-evaluating its options in terms f the prevalent
or changing conditions.

Characteristics of Strategic Management:

Strategic Management has to think strategically about the firm’s makeup and
envision what the firm should look like 5 to 10 years hence. Its function is to inject
a sense of purpose in the firm’s activities, provide it a long term direction, give the
firm a strong identity, and provide answers to:
 Who am I?
 What do I do?
 Where am I headed?
In order to answer this question effectively and efficiently, there are many
special characteristics of strategic management. These specific characteristics are
described in this section.
Strategic Management co-ordinates and integrates business activities :
1) Strategic management co-ordinate and integrates business activities,
2)emphasizing the focus on continues change.
3)It addresses the needs of the consumer, and provides great efficiency and value
for money to the stakeholders.
4)It also provides mechanisms to improve and deliver innovative service, frame
sound policies,
5)increase communication with customers
and partners, and enhance the performance and vision of the organization.
6)Strategic Management strengthens the competitive position:

63
 In addition, strategic management also requires the organization to envelop
and maintain meaningful assets and skills such that the assets and skills form a
sustainable competitive advantage for the organization.
In order to be successful in doing things, indicators of the development and
strength of these assets and skills are required. These indicators will guide the
programs needed to improve the assets and skills.
It must be continuous proven and must be formulated such that, it is flexible
enough to accommodate the demands of continuous change.

Strategic Management satisfies customers:

Management requires seeing how best it can satisfy the needs of the people that will
use its services and products

. What are the trends that are changing the needs and demands of the customers? It
is finally, the satisfaction of the customers that will guarantee the survival of the firm. In
order to do so, the views of customers, focus groups, and stakeholders are essential in
firming a balanced view of where the organization has been, and will be, to keep its
customers satisfied.

Strategic Management works toward achieving Performance Targets:

Knowing where we want to go is only half the challenge ,we must not only decide
how to get there, but also make sure we get there. Executing and evaluating the activities of
the strategic plan – in most cases – is as important as identifying strategic issues and goals.
Strategic Management should ensure that the organization is following the direction
established during strategic planning .

Strategic management is adaptive:

64
 It is this adaptive quality of strategic management, which keeps an organization
relevant. In order to be successful, strategy must be maintained continually, in line with
changes in the business and its environment;
it should be formally reviewed at least annually as part of the business planning.
The business strategy must always show regress against plans to date, to enable planners
determine the current business environment and the impact that specific change programs
and projects will have on the organization as a whole.

Scope of Strategic Management:

Strategic management as a process is concerned with directing the
efforts of human activities at all levels and all types of establishment – whether they are
profit making or service rendering organisation, whether they are big or small, whether
government or private sectors. The scope of strategic management is quite broad and
includes within its fold almost all aspects of business operations.

Functional Areas of Strategic Management:

Functional Areas of Strategic Management are listed below;
Strategic and business policy - it includes strategy, concepts, characteristics, functions,
business policy and types of business policies.
Strategic management overview- it includes strategic management nature and scope,
characteristics, process, components and limitations.
Strategic Environment – It includes micro, internal and external environment political,
social, cultural, technological, legal, demography and demand and competitive
environment.
Types of strategy – it includes Grand strategy, Stability strategy, Expansion strategy,
Retrenchment strategy and Combination strategy.
Value chain concept and analysis – It includes Organisational analysis, process of
Organisational analysis, Company profile analysis, Industry analysis, Strategic analysis
and choice.

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Integration, Diversification, Mergers and Acquisitions – it includes Horizontal integration,
Vertical integration, factors influence on Diversification, Horizontal and Vertical merger
strategy.
Strategic change management – it includes Strategic change, Power and Conflict.
Training strategy – it includes strategic use of Marketing variables, predict development
strategy, Marketing mix strategy, Customer and Channel strategy.
Implementation and control – it includes Corporate culture, Leadership, Culture ,Guiding
and Evaluating strategy.

BENEFITS OF STRATEGIC MANAGEMENT

 Establish the mission – deciding on the business or businesses that the company or
division should engage in and other fundamentals that will guide and characterize
the business, such as continuous growth. The company’s mission is usually timeless.
In other words, it should not be changed every year. It should, however, guide the
changes in the company’s objectives and strategies.
 Formulate philosophy – establish the beliefs, values, attitudes, and unwritten
guidelines that add up to “the way we do things around here.” This is what makes
one company different from other companies.
 Establish policies – deciding on the plans of action to guide the performance of
major activities in carrying out strategy in accordance with company philosophy
 Setting objectives – deciding on achievement targets within a defined time range.
Objectives are narrower in scope than the mission, and are designed to aid in
making operational plans for carrying out strategy.
 Develop strategy – developing concepts, ideas, and plans for achieving objectives
successfully and meeting and beating the competition. Strategic planning is part of
the total planning process that includes management, marketing, and operational
planning.
 Planning the organizational structure – developing the plan of organization and the
activities that help people work together to perform activities in accordance with
strategy, philosophy, and policies.
66
  Provide personnel – recruiting, selecting, and developing people to fill the positions
in the organizational plan.
 Establish procedures – determining and prescribing how all important and current
activities will be carried out.
 Provide facilities – providing the plant, equipment, and other physical facilities
required to carry on the business.
 Provide capital – making sure the business has the money and credit needed for
working capital (money to operate on) and physical facilities.
 Set standards – establishing measures of performance that will enable business to
best achieve its long-term objectives successfully.
 Establish management programs and operational plans – developing programs and
plans governing activities and the use of resources that, when carried out with
accordance with established strategy, policies, procedures, and standards, will
enable people to achieve particular objectives. These are phases of the total
planning process, which includes strategic planning.
 Provide control information – supplying facts and figures to help people follow the
strategies, policies, procedures, and programs; to keep alert to forces at work inside
and outside the business; to measure overall company performance against
established plans and standards.
 Activate people – commanding and motivating people to act in accordance with
philosophy, policies, procedures, and standards in carrying out the plans of the
company.

STRATEGIC MANAGEMENT PROCESS / STEPS:

 Define organisation or company mission

 Analysis of business environment

 Identifying the present strategies and objectives

67
  Evaluating the present strategy

 Analysis strategic choice

 Development of Strategy

 Formulation strategy

 Implementation of the strategy

 Control monitor, guide and evaluate the strategy.

INTERNATIONAL STRATEGIC MANAGEMENT:

International Strategic Management is a planning process of developing
international strategy in the direction of achieving strategic-fit between the organization’s
competence & resources and the global environment under which it tends to operate.
It is an ongoing process that adhere an organization to compete in an international
scenario. International Strategic Management (ISM) is an ongoing management planning
process aimed at developing strategies to allow an organization to expand abroad and
compete internationally.
Strategic planning is used in the process of developing a particular international
strategy. An organization must be able to determine what products or services they intend
to sell, where and how the organization will make these products or services, where they
will sell them, and how the organization will acquire the necessary resources for these
tasks. Even more importantly an organization must have a strategy on how it expects to
outperform its competitors. 2.00The Course of Strategic Decision Making, the Types
processes and Implication for the Managers

68
 CHAPTER-5: DIFFERENCE BETWEEN DOMESTIC AND
INTERNATIONAL STRATEGIC MANAGEMENT
International strategy is important because it will establish the product or service as a
competitive product among other products of the international country and could garner
major profits for the company releasing the product or service. It can also establish the
company as an international competitor and it may be a first step to setting up bases in
other countries in order to support potential international operations which will give
growth to the company and increase profits on the bottom line. Strategy is important
overall because it is the only way to effectively use the resources the company has in order
to increase profits and use the least amount of resources possible.

Domestic strategic planning only includes the product and strategy that has to do with that
product and target markets. International strategic planning includes different cultures so
for each culture the product may have to be modified. Some countries may also allow
bribes and expect it in order to allow the product into their country. All these factors have
to account for when introducing the product while domestically, these issues do not exist.
Certain legal issues also need to be looked at and analyzed in order to make sure that
everything is done legally and all the proper paperwork is done in order to ensure that in

69
the end the product or its marketing is not breaking any laws. A market study needs to also
be done to make sure the product doesn't offend the people in that market.

Cultures

No two cultures are the same and understanding both the social and business culture in
another country is the first key to success. Culture defines everything a society does, from
its business practices, to its response to advertising and marketing, to negotiating sales. It is
important to include research on the culture of the country(s) that you intend to sell to
prior to entering their market. Understanding these, often sensitive, areas will mean that
you are better prepared when first entering the market. Although the people that you will
deal with will not expect you to be completely in tune with the culture, respect and
politeness will go a long way.

Level of Competition

The level of competition you will experience in foreign markets is likely to be more
dynamic and complex than you experience in domestic markets.

A good strategic tool to use to determine if you are able to compete in a particular
international market is the Porters 5 Forces analysis. This tool will assess your supplier
power, buyer power, threat of competitor products and the threat of new entrants to the
market.

Market Intelligence

The key points to determine when gathering market intelligence on the market you intend
to enter are:

 Understanding how the market works

 Who your direct competition is, and
 The best market entry strategy.

70
It may be difficult to find reliable information and data for some markets, particularly less-
developed economies as their statistical agencies may not be as sophisticated as developed
market economies. However it is important to gather as much information as you can to
successful enter the market.

Politics/Government/Legal Systems

No two countries have the same political and legal systems. Each government has its own
policies relating to foreign firms and products. The key is to understand that once you are
in a foreign market you must abide by the rules and laws of that country, not the ones in
your own market. These laws and regulations can severely impact the potential long term
success of your business and it is wise to consult with legal counsel, based in that country,
to ensure you reduce the risk of these laws and regulations effect on your firm.

International Law

Countries determine their laws based on the needs of their citizens not the concerns of
foreign companies. By and large, international law is a gentlemen's agreement which is
honoured, but not always. For example in areas such as intellectual property, although
there are many agreements in place, protecting intellectual property can be time
consuming and costly.

Logistics

Like technology, business infrastructure in foreign markets will be at different levels of

development. This may well have an impact on your ability to get your products to that
market. It is important to research your new target market and understand how goods are
moved within the country before you commit to that market.

A strategic business plan is a step-by-step document that a business writes in order to

ensure operational success. Depending on the type of business these plans will differ dramatically.
Including international or global considerations in a strategic business plan is a major element that
impacts all dimensions of the plan. A basic strategic business plan involves a vision for the company
71
entailing a mission statement, a well-thought-out financial plan, human resources strategies and a
situational analysis.

MISSION STATEMENT:

The mission statement is a short two to three sentences that clearly explains the
company’s goals, products and mission. In a domestic market this statement can be more
specific, focusing on the problems and/or concerns of the local populations. When a
company is operating internationally this statement must take into consideration the
values, beliefs and concerns of all international populations that the company operates
within or must be regionalized.

FINANCIAL PLANNING:

When creating a financial plan in a domestic market one must consider the cost of
operations, cost of new facilities and the profit margin within the area of operations. This is
all expanded in an international market. Cost of operations, facilities and profit margins
must still be considered, however, there is now the added concern of foreign currency. The
exchange rates from U.S. dollars to any other foreign currency changes every day; some
countries have such a high exchange rate that it would be uneconomical to consider doing
business there. This introduces a margin of risk that is not present within a domestic
market.

HUMAN RESOURCE STRATEGIES:

HR strategies include management strategies, employee recruitment and legal

issues. Domestically one organizational structure can be set up and followed by all future
locations in the same manner. This makes it easier for HR to examine performance and
potential risk factors within the company. In an international setting foreign outsourcing
becomes HR’s major concern, managing many different organizational management
structures and diverse employee recruitment. Legal issues become more complex because
laws in each country are different. Not only must the company follow all laws in their home

72
country, HR must make sure all laws in all foreign countries of operation are being
followed.

SITUATIONAL ANALYSIS

A situational analysis is a company’s look at the current market, strengths and

weaknesses. A common way that companies do this is with a SWOT analysis, determining
strengths, weaknesses, opportunities and threats. Domestic companies only have to do this
for one national market whereas multinational companies must look at each national
market as an individual unit, as well as the company in its entirety. In international
companies, weaknesses, strengths, opportunities and threats must be considered for each
country separately. In an international business plan each country is analyzed and added
into the company’s plan as a whole.

Doing business internationally is not the same as doing business at home. There are
new skills to learn and new knowledge to acquire about the country you will be going into.
You will need to learn about the different laws and regulations, the different customer
buying habits, and change your marketing strategies and materials to appeal to the new
country you are entering. It is important to remember that the way you operate your
business will be determined by culture of the market you are entering, not yours.

It is important to understand the differences between domestic and international

business but they should not inhibit your interest or drive for success internationally.
Rather they should whet your appetite for success.

CULTURES:

No two cultures are the same and understanding both the social and business
culture in another country is the first key to success. Culture defines everything a society
does, from its business practices, to its response to advertising and marketing, to
negotiating sales.

73
 It is important to include research on the culture of the country(s) that you intend
to sell to prior to entering their market. Understanding these, often sensitive, areas will
mean that you are better prepared when first entering the market. Although the people
that you will deal with will not expect you to be completely in tune with the culture, respect
and politeness will go a long way.

LEVEL OF COMPETITION

The level of competition you will experience in foreign markets is likely to be more
dynamic and complex than you experience in domestic markets.

A good strategic tool to use to determine if you are able to compete in a particular
international market is the Porters 5 Forces analysis. This tool will assess your supplier
power, buyer power, threat of competitor products and the threat of new entrants to the
market.

MARKET INTELLIGENCE

The key points to determine when gathering market intelligence on the market you
intend to enter are:

 Understanding how the market works

 Who your direct competition is, and
 The best market entry strategy.

It may be difficult to find reliable information and data for some markets, particularly less-
developed economies as their statistical agencies may not be as sophisticated as developed
market economies. However it is important to gather as much information as you can to
successful enter the market.

POLITICS/GOVERNMENT/LEGAL SYSTEMS

No two countries have the same political and legal systems. Each government has its
own policies relating to foreign firms and products. The key is to understand that once you

74
are in a foreign market you must abide by the rules and laws of that country, not the ones
in your own market. These laws and regulations can severely impact the potential long
term success of your business and it is wise to consult with legal counsel, based in that
country, to ensure you reduce the risk of these laws and regulations effect on your firm.

INTERNATIONAL LAW

Countries determine their laws based on the needs of their citizens not the concerns
of foreign companies. By and large, international law is a gentlemen's agreement which is
honoured, but not always. For example in areas such as intellectual property, although
there are many agreements in place, protecting intellectual property can be time
consuming and costly.

TECHNOLOGY

The degree of technology can vary substantially in foreign markets. If your product
or service requires a high degree of technology sophistication to use or implement, then
markets with low levels of technology will not be suitable for your business.

LOGISTICS

Like technology, business infrastructure in foreign markets will be at different levels

of development. This may well have an impact on your ability to get your products to that
market. It is important to research your new target market and understand how goods are
moved within the country before you commit to that market.

MEDIA

Advertising your product and service will of course be an important component of

your marketing strategy. It is important to be aware of the types of media available and the
kind of media your target market uses to gain information about products and services
they wish to buy. Not everyone is connected to the internet nor is every customer able to
read and write. This does not mean those markets should be ignored. It does mean that
how you advertise and market your products will require an examination of the most
appropriate media for your target market.

75
TYPES OF INTERNATIONAL STRATEGY: MULTI-DOMESTIC VS.
GLOBAL

Multi-domestic Strategy

 Product customized for each market

 Decentralized control - local decision making
 Effective when large differences exist between countries
 Advantages: product differentiation, local responsiveness, minimized political risk,
minimized exchange rate risk

Global Strategy

 Product is the same in all countries.

 Centralized control - little decision-making authority on the local level
 Effective when differences between countries are small
 Advantages: cost, coordinated activities, faster product development

A fully multi-local value chain will have every function from R&D to distribution and
service performed entirely at the local level in each country. At the other extreme, a fully
global value chain will source each activity in a different country.

Philips is a good example of a company that followed a multi domestic strategy. This
strategy resulted in:
 Innovation from local R&D
 Entrepreneurial spirit
 Products tailored to individual countries
 High quality due to backward integration

The multi-domestic strategy also presented Philips with many challenges:

 High costs due to tailored products and duplication across countries
 The innovation from the local R&D groups resulted in products that were R&D
driven instead of market driven.
 Decentralized control meant that national buy-in was required before introducing a
product - time to market was slow.
76
Matsushita is a good example of a company that followed a global strategy. This strategy
resulted in:
 Strong global distribution network
 Company-wide mission statement that was followed closely
 Financial control
 More applied R&D
 Ability to get to market quickly and force standards since individual country buy-in
was not necessary.

The global strategy presented Matsushita with the following challenges:

 Problem of strong yen
 Too much dependency on one product - the VCR
 Loss of non-Asian employees because of glass ceilings
A third strategy, which was appropriate to Whirlpool is one of mass customization,
discussed below.

77
UNIT-2

78
 UNIT - 2

CHAPTER-1 :CORPORATE STRATEGIES:

The organization has to have a grand strategy. The corporate level strategies or
grand strategies are the general plan by which the organization intends to achieve its
purpose and long-term objectives.

Grand strategies are concerned with the type of business the organization is in, it
overall competitive position and how the resources of the organization have to be deployed.
They set the overall direction the organs tin will follow.

At the corporate level, the firm faces several strategic questions: what business
should we compete in, given our strengths and weakness? Which new product markets
79
should we enter? Which should we exit? This is the “domain choice” question. It delineates
the products-markets domain of the firm and describes the firm’s scope of operations

Depending on the nature and purpose of the organization, there are three approaches to
strategy formulation. The organization can adopt any of the approaches described below or
it can combine the approaches in the options it exercise. We will study all three broad
approaches to corporate strategies:

Growth strategies: long-term strategies

Corporate parenting: resource allocation and centralized

management of business units.

Portfolio analysis: products and business units.

Corporate revival short-term strategies

The strategic intent gives a broad direction to strategic choice. Within this broad
direction, depending on the approach that is taken by the organization there are a number
of specific options concerning the direction of developing the organizations strategies. We
will start by looking at growth strategies.

EVALUATION OF STRATEGY:

Strategy selection is a complex process. Strategy will be driven by the perception of

the challenges and opportunities facing the organization, and our strategic response to
them. Choice of strategies will depend on the relationship between the company and its
competitive environment; allocation of resource among competing investment
opportunities; and committing resource-often long-term-needed to realize these
opportunities.

80
 Notwithstanding the complexity of the process of strategic choice, the organization
cannot live in a vacuum; it has t choose its strategies so that it can survive in the
marketplace. Once strategy formulation is undertaken by the organization, it needs to
evaluate the strategic tins it can exercise. In assessing strategies, here are three types of
evaluation criteria that can be used.

 Suitability
 Acceptability and
 Feasibility

SOURCES OF COMPETITIVE ADVANTAGE FROM A GLOBAL

STRATEGY

A well-designed global strategy can help a firm to gain a competitive advantage. This
advantage can arise from the following sources:

 Efficiency
o Economies of scale from access to more customers and markets
o Exploit another country's resources - labor, raw materials
o Extend the product life cycle - older products can be sold in lesser developed
countries
o Operational flexibility - shift production as costs, exchange rates, etc. change
over time

 Strategic
o First mover advantage and only provider of a product to a market
o Cross subsidization between countries
o Transfer price

 Risk
o Diversify macroeconomic risks (business cycles not perfectly correlated
among countries)
81
 o Diversify operational risks (labor problems, earthquakes, wars)

 Learning
o Broaden learning opportunities due to diversity of operating environments

 Reputation
o Crossover customers between markets - reputation and brand identification

SumantraGhoshal of INSEAD proposed a framework comprising three categories of

strategic objectives and three sources of advantage that can be used to achieve them.
Assembling these into a matrix results in the following framework:

Sources of Competitive Advantage

Strategic
Objectives
National Differences Scale Economies Scope Economies

Efficiency in Exploit factor cost Sharing investments

Scale in each activity
Operations differences and costs

82
 Balancing scale with
Market or policy-induced Portfolio
Flexibility strategic & operational
changes diversification
risks

Societal differences in Experience - cost

Innovation and Shared learning
management and reduction and
Learning across activities
organization innovation

THE NATURE OF COMPETITIVE ADVANTAGE IN GLOBAL

INDUSTRIES:

A global industry can be defined as:

 An industry in which firms must compete in all world markets of that product in
order to survive.
 An industry in which a firm's competitive advantage depends on economies of scale
and economies of scope gained across markets.

Some industries are more suited for globalization than are others. The following drivers
determine an industry's globalization potential.

1. Cost Drivers
o Location of strategic resources
o Differences in country costs
o Potential for economies of scale (production, R&D, etc.) Flat experience
curves in an industry inhibits globalization. One reason that the facsimile
industry had more global potential than the furniture industry is that for fax

83
 machines, the production costs drop 30%-40% with each doubling of
volume; the curve is much flatter for the furniture industry and many service
industries. Industries for which the larger expenses are in R&D, such as the
aircraft industry, exhibit more economies of scale than those industries for
which the larger expenses are rent and labor, such as the dry cleaning
industry. Industries in which costs drop by at least 20% for each doubling of
volume tend to be good candidates for globalization.
o Transportation costs (value/bulk or value/weight ratio) => Diamonds and
semiconductors are more global than ice.
2. Customer Drivers
o Common customer needs favor globalization. For example, the facsimile
industry's customers have more homogeneous needs than those of the
furniture industry, whose needs are defined by local tastes, culture, etc.
o Global customers: if a firm's customers are other global businesses,
globalization may be required to reach these customers in all their markets.
Furthermore, global customers often require globally standardized products.
o Global channels require a globally coordinated marketing program. Strong
established local distribution channels inhibit globalization.
o Transferable marketing: whether marketing elements such as brand names
and advertising require little local adaptation. World brands with non-
dictionary names may be developed in order to benefit from a single global
advertising campaign.
3. Competitive Drivers
o Global competitors: The existence of many global competitors indicates that
an industry is ripe for globalization. Global competitors will have a cost
advantage over local competitors.
o When competitors begin leveraging their global positions through cross-
subsidization, an industry is ripe for globalization.

84
 4. Government Drivers
o Trade policies

o Technical standards

o Regulations

The furniture industry is an example of an industry that did not lend itself to globalization
before the 1960's. Because furniture has a high bulk compared to its value, and because
furniture is easily damaged in shipping, transport costs traditionally were high.
Government trade barriers also were unfavorable. The Swedish furniture company IKEA
pioneered a move towards globalization in the furniture industry. IKEA's furniture was
unassembled and therefore could be shipped more economically. IKEA also lowered costs
by involving the customer in the value chain; the customer carried the furniture home and
assembled it himself. IKEA also had a frugal culture that gave it cost advantages. IKEA
successfully expanded in Europe since customers in different countries were willing to
purchase similar designs. However, after successfully expanding to several countries, IKEA
ran into difficulties in the U.S. market for several reasons:

 Different tastes in furniture and a requirement for more customized furniture.

 Difficult to transfer IKEA's frugal culture to the U.S.
 The Swedish Krona increased in value, increasing the cost of furniture made in
Sweden and sold in the U.S.
 Stock-outs due to the one to two month shipping time from Europe
 More competition in the U.S. than in Europe

85
COUNTRY COMPARATIVE ADVANTAGES

Competitive advantage is a firm's ability to transform inputs into goods and services
at a maximum profit on a sustained basis, better than competitors. Comparative advantage
resides in the factor endowments and created endowments of particular regions. Factor
endowments include land, natural resources, labor, and the size of the local population.

In the 1920's, Swedish economists Eli Hecksher and Bertil Ohlin developed the factor-
proportions theory, according to which a country enjoys a comparative advantage in those
goods that make intensive use of factors that the country has in relative abundance.

Michael E. Porter argued that a nation can create its own endowments to gain a
comparative advantage. Created endowments include skilled labor, the technology and
knowledge base, government support, and culture. Porter's Diamond of National
Advantage is a framework that illustrates the determinants of national advantage. This
diamond represents the national playing field that countries establish for their industries.

CHAPTER-2: ANALYSING INDUSTRY AND COMPETITION

The model of the Five Competitive Forces was developed by Michael E. Porter in the
1980s. Since that time it has become an important tool for analysing an organisation's
industry structure in strategic processes. Porter's model is based on the insight that a
corporate strategy should meet the opportunities and threats in the organisation's external
environment. Especially, competitive strategy should be based on an understanding of
industry structures and the way they change. Porter has identified five competitive forces
that shape every industry and every market. These forces determine the intensity of
competition and hence, the profitability and attractiveness of an industry. The objective of
corporate strategy should be to modify these competitive forces in a way that improves the
position of the organisation. Porter's model supports analysis of the driving forces in an
industry. Based on the information derived from the Five Forces Analysis, management

86
can decide how to influence or to exploit particular characteristics of their industry. The
Five Competitive Forces are typically described as follows.

Use of the Information from the Five Forces Analysis

The Five Forces Analysis provides insights on profitability. Thus, it supports decisions
about entry to, or exit from, an industry or a market segment. It can also be used to
compare the impact of competitive forces on your own organisation, with the impact on
competitors. Remember that competitors may have different options to react to changes in
competitive forces from their different resources and competencies. This may influence the
structure of the whole industry. When used in conjunction with a macro environmental
analysis (external factors), which reveals drivers for change in an industry, Five Forces
Analysis can reveal insights about the potential future attractiveness of the industry.

He identified that high or low industry profits (e.g. soft drinks v airlines) are associated
with the following characteristics:

87
Let’s look at each one of the five forces in a little more detail to explain how they work.

Threat of new entrants to an industry

 If new entrants move into an industry they will gain market share & rivalry will
intensify
 The position of existing firms is stronger if there are barriers to entering the market
 If barriers to entry are low then the threat of new entrants will be high, and vice
versa

Barriers to entry are, therefore, very important in determining the threat of new entrants.
An industry can have one or more barriers. The following are common examples of
successful barriers:

Barrier Notes

Investment cost High cost will deter entry High capital requirements might
mean that only large businesses can compete

Economies of scale available Lower unit costs make it difficult for smaller newcomers to

88
 to existing firms break into the market and compete effectively

Regulatory and legal Each restriction can act as a barrier to entryE.g. patents
restrictions provide the patent holder with protection, at least in the short
run

Product differentiation Existing products with strong USPs and/or brand increase
(including branding) customer loyalty and make it difficult for newcomers to gain
market share

Access to suppliers and A lack of access will make it difficult for newcomers to enter
distribution channels the market

Retaliation by established E.g. the threat of price war will act to discourage new entrants
products But note that competition law outlaws actions like predatory
pricing

Options available from the Analysis

With the knowledge about intensity and power of competitive forces, organizations can
develop options to influence them in a way that improves their own competitive position.
The result could be a new strategic direction; eg, a new positioning, differentiation for
competitive products of strategic partnerships. The Five Forces Model is based on
microeconomics. It takes into account supply and demand, complementary products and
substitutes, the relationship between volume of production and cost of production, and
market structures like monopoly, oligopoly or perfect competition. After the analysis of
current and potential future state of the five competitive forces, managers can search for
options to influence these forces in their organisation’s interest. The objective is to reduce
the power of competitive forces. The following figure provides some examples. They are of
general nature. Hence, they have to be adjusted to each organization’s specific situation.
The options of an organization are determined not only by the external environment, but
also by its own internal resources, competencies and objectives.
89
Competition Analysis

Now that you've looked at the competitive nature of your industry /market, its time to focus
on the actual competitors themselves. This subsection of your analysis will require some
research about various aspects of your competitor's business such as:

 description of key competitors and their market positioning

 size of key competitors in units/dollars
 market shares of key competitors
 sales trends of key competitors
 strengths and weaknesses of key competitors compared to your organisation's goods
or services
 perceived marketing strategies of key competitors and their probable impact on
your organisation

Competitive Analysis Summary - Example

90
The dual product/service nature of JavaNet's business faces competition on two levels.
JavaNet competes not only with coffee retailers, but also with Internet service providers.
JavaNet does not currently face any direct competition from other cyber caf�s in the
New South Wales market. There is a total of three cyber caf�s in the state: one located
in Orange, one in Bathurst and one in Tamworth. Heavy competition between coffee
retailers creates an industry where all firms face the same costs. There is a positive
relationship between price and quality of coffee. Some coffees retail at $8/kilo, while other
more exotic beans may sell for as high as $16/kilo. Wholesalers sell beans to retailers at an
average 50% discount. As in most industries, price decreases as volume increases.

Competitor Comparison Chart

You can build competitor profile by using a spreadsheet such as this or even using a
template such as those provided by the links that follow. This tool can be viewed as
Competitor Comparison Rating Charts. It allows you to systematically rate your
performance against those others identified as key real or potential competitors. Base
your comparisons on those characteristics that best reflect the wants of your own industry
and targeted market or segment. The results can provide insights into their weaknesses
and strengths allowing you to make decisions about how best to deal with them. In
conjunction with a closer examination of the major change drivers, strategies can be
developed and agreed to that are aligned with the organization’s mission and vision.

91
INTEGRATION

It refers to company diversifying its business into a number of different business

areas. Diversification into a new production line to produce goods and service required as
inputs for other main products of the same company. For instance a company diversifies its
business into number of main products of the same company. For instance a company
diversifies its business into number of different business areas like banking and finance
services, energy and utility, health care and insurance, manufacturing retail, telecom. It
may be undertaken by a company with the purpose of either maintaining continuous flow
of products and service to customer. Vertical Integration Company offer numerous
products and service for satisfying customers. A company is opening its own sales and
marketing division and showrooms for selling product and service to customer instead of
selling through agents and distributors. It can be controlled over the input supply and
output distribution also.

Vertical integration further classified into two broad categories. They are listed below;

92
  Backward or upstream integration
 Forward or downstream integration

Backward or upstream integration – it refers to company is diversifying the business

operation towards some of the raw materials or input supply. Backward integration
involves moving into intermediate manufacturing and raw material production.

Forward or downstream integration- it refers to company is diversifying business

operations for marketing sales distribution of products and services and taking up these
activities to bring the organisation closer to the ultimate customer.

The degree to which a firm owns its upstream suppliers and its downstream buyers is
referred to as vertical integration. Because it can have a significant impact on a business
unit's position in its industry with respect to cost, differentiation, and other strategic issues,
the vertical scope of the firm is an important consideration in corporate strategy.

Expansion of activities downstream is referred to as forward integration, and expansion

upstream is referred to as backward integration.

The concept of vertical integration can be visualized using the value chain. Consider a firm
whose products are made via an assembly process. Such a firm may consider backward
integrating into intermediate manufacturing or forward integrating into distribution, as
illustrated below:

Example of Backward and Forward Integration

No Integration Backward Integration Forward Integration

Raw Materials Raw Materials Raw Materials

93
 Intermediate Intermediate Intermediate
Manufacturing Manufacturing Manufacturing

Assembly
Assembly Assembly

Distribution Distribution
Distribution

End Customer End Customer

End Customer

Two issues that should be considered when deciding to vertically integrate is cost and
control. The cost aspect depends on the cost of market transactions between firms versus
the cost of administering the same activities internally within a single firm. The second
issue is the impact of asset control, which can impact barriers to entry and which can
assure cooperation of key value-adding players.

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Benefits of Vertical Integration

Vertical integration potentially offers the following advantages:

 Reduce transportation costs if common ownership results in closer geographic

proximity.
 Improve supply chain coordination.
 Provide more opportunities to differentiate by means of increased control over
inputs.
 Capture upstream or downstream profit margins.
 Increase entry barriers to potential competitors, for example, if the firm can gain
sole access to a scarce resource.
 Gain access to downstream distribution channels that otherwise would be
inaccessible.
 Facilitate investment in highly specialized assets in which upstream or downstream
players may be reluctant to invest.
 Lead to expansion of core competencies.

Drawbacks of Vertical Integration

While some of the benefits of vertical integration can be quite attractive to the firm, the
drawbacks may negate any potential gains. Vertical integration potentially has the
following disadvantages:

 Capacity balancing issues. For example, the firm may need to build excess upstream
capacity to ensure that its downstream operations have sufficient supply under all
demand conditions.
 Potentially higher costs due to low efficiencies resulting from lack of supplier
competition.
 Decreased flexibility due to previous upstream or downstream investments. (Note
however, that flexibility to coordinate vertically-related activities may increase.)
 Decreased ability to increase product variety if significant in-house development is
required.

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  Developing new core competencies may compromise existing competencies.
 Increased bureaucratic costs.

Factors Favoring Vertical Integration

The following situational factors tend to favor vertical integration:

 Taxes and regulations on market transactions

 Obstacles to the formulation and monitoring of contracts.
 Strategic similarity between the vertically-related activities.
 Sufficiently large production quantities so that the firm can benefit from economies
of scale.
 Reluctance of other firms to make investments specific to the transaction.

Factors against Vertical Integration

The following situational factors tend to make vertical integration less attractive:

 The quantity required from a supplier is much less than the minimum efficient scale
for producing the product.
 The product is a widely available commodity and its production cost decreases
significantly as cumulative quantity increases.
 The core competencies between the activities are very different.
 The vertically adjacent activities are in very different types of industries. For
example, manufacturing is very different from retailing.
 The addition of the new activity places the firm in competition with another player
with which it needs to cooperate. The firm then may be viewed as a competitor
rather than a partner

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Alternatives to Vertical Integration

There are alternatives to vertical integration that may provide some of the same benefits
with fewer drawbacks. The following are a few of these alternatives for relationships
between vertically-related organizations:

 long-term explicit contracts

 franchise agreements
 joint ventures
 co-location of facilities
 implicit contracts (relying on firms' reputation)

CHAPTER-3COMPETITIVE ADVANTAGE

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 How a company can achieve it?

An organization can achieve an edge over its competitors in the following two ways:

 Through external changes. When PEST factors change, many opportunities can appear
that, if seized upon, could provide many benefits for an organization. A company can also
gain an upper hand over its competitors when its capable to respond to external changes
faster than other organizations.
 By developing them inside the company. A firm can achieve cost or differentiation
advantage when it develops VRIO resources, unique competences or through innovative
processes and products.

EXTERNAL CHANGES

Changes in PEST factors. PEST stands for political, economic, socio-cultural and
technological factors that affect firm’s external environment. When these factors change
many opportunities arise that can be exploited by an organization to achieve superiority
over its rivals. For example, new superior machinery, which is manufactured and sold only
in South Korea, would result in lower production costs for Korean companies and they
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 would gain cost advantage against competitors in a global environment. Changes in
consumer demand, such as trend for eating more healthy food, can be used to gain at least
temporary differentiation advantage if a company would opt to sell mainly healthy food
products while competitors wouldn’t. For example, Subway and KFC.

If opportunities appear due to changes in external environment why not all companies are
able to profit from that? It’s simple, companies have different resources, competences and
capabilities and are differently affected by industry or macro environment changes.

Company’s ability to respond fast to changes. The advantage can also be gained when a
company is the first one to exploit the external change. Otherwise, if a company is slow to
respond to changes it may never benefit from the arising opportunities.

INTERNAL ENVIRONMENT

VRIO resources. A company that possesses VRIO (valuable, rare, hard to imitate and
organized) resources has an edge over its competitors due to superiority of such resources.
If one company has gained VRIO resource, no other company can acquire it (at least
temporarily). The following resources have VRIO attributes:

 Intellectual property (patents, copyrights, trademarks)

 Brand equity
 Culture
 Know-how
 Reputation

Unique competences. Competence is an ability to perform tasks successfully and is a cluster

of related skills, knowledge, capabilities and processes. A company that has developed a
competence in producing miniaturized electronics would get at least temporary advantage
as other companies would find it very hard to replicate the processes, skills, knowledge and
capabilities needed for that competence.
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Innovative capabilities. Most often, a company gains superiority through innovation.
Innovative products, processes or new business models provide strong competitive edge due
to the first mover advantage. For example, Apple’s introduction of tablets or its business
model combining mp3 device and iTunes online music store.

TWO BASIC TYPES

M. Porter has identified 2 basic types of competitive advantage: cost and differentiation
advantage.

Cost advantage. Porter argued that a company could achieve superior performance by
producing similar quality products or services but at lower costs. In this case, company
sells products at the same price as competitors but reaps higher profit margins because of
lower production costs. The company that tries to achieve cost advantage is pursuing cost
leadership strategy. Higher profit margins lead to further price reductions, more
investments in process innovation and ultimately greater value for customers.

Differentiation advantage. Differentiation advantage is achieved by offering unique

products and services and charging premium price for that. Differentiation strategy is used
in this situation and company positions itself more on branding, advertising, design, quality
and new product development rather than efficiency, outsourcing or process innovation.
Customers are willing to pay higher price only for unique features and the best quality.

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The cost leadership and differentiation strategies are not the only strategies used to gain
competitive advantage. Innovation strategy is used to develop new or better products,
processes or business models that grant competitive edge over competitors.

CORE COMPETENCE

A core competency results from a specific set of skills or production techniques that deliver
additional value to the customer. These enable an organization to access a wide variety of
markets.

In an article from 1990 titled "The Core Competence of the Corporation", Prahalad and
Hamel illustrate that core competencies lead to the development of core products which
further can be used to build many products for end users. Core competencies are
developed through the process of continuous improvements over the period of time rather
than a single large change. To succeed in an emerging global market, it is more important
and required to build core competencies rather than vertical integration. NEC utilized its
portfolio of core competencies to dominate the semiconductor, telecommunications and
consumer electronics market. It is important to identify core competencies because it is
difficult to retain those competencies in a price war and cost-cutting environment. The
author used the example of how to integrate core competences using strategic architecture
in view of changing market requirements and evolving technologies. Management must
realize that stakeholders to core competences are an asset which can be utilized to integrate
and build the competenciesCompetence building is an outcome of strategic architecture
which must be enforced by top management in order to exploit its full capacity.

Please note: according to Prahalad and Hamel's (1990) definition, core competencies are
the "collective learning across the corporation". They can therefore not be applied to the
SBU and represent resource combination steered from the corporate level. Because the
term "core competence" is often confused with "something a company is particularly good
at", some caution should be taken not to dilute the original meaning.
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In Competing for the Future, the authors Prahalad and Hamel show how executives can
develop the industry foresight necessary to adapt to industry changes and discover ways of
controlling resources that will enable the company to attain goals despite any constraints.
Executives should develop a point of view on which core competencies can be built for the
future to revitalize the process of new business creation. Developing an independent point
of view of tomorrow's opportunities and building capabilities that exploit them is the key to
future industry leadership

For an organization to be competitive, it needs not only tangible resources but intangible
resources like core competences that are difficult and challenging to achieve. It is critical to
manage and enhance the competences in response to industry changes in the future. For
example, Microsoft has expertise in many IT based innovations where, for a variety of
reasons, it is difficult for competitors to replicate or compete with Microsoft's core
competences.

In a race to achieve cost cutting, quality and productivity, most executives do not spend
their time developing a corporate view of the future because this exercise demands high
intellectual energy and commitment. The difficult questions may challenge their own
ability to view the future opportunities but an attempt to find their answers will lead
towards organizational benefits.

Core competencies and product development

Core competencies are related to a firm's product portfolio via core products. Core
products contribute "to the competitiveness of a wide range of end products. They are the
physical embodiment of core competencies."Approaches for identifying product portfolios
with respect to core competencies and vice versa have been developed in recent years. One
approach for identifying core compencies with respect to a product portfolio has been
proposed by Danilovic & Leisner (2007). They use design structure matrices for mapping
competencies to specific products in the product portfolio. Using their approach, clusters of
competencies can be aggregated to core competencies. Bonjour & Micaelli (2010)
introduced a similar method for assessing how far a company has achieved its development
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of core competencies. More recently Hein et al. link core competencies to Christensen's
concept of capabilities, which is defined as resources, processes, and priorities.
Furthermore, they present a method to evaluate different product architectures with
respect to their contribution to the development of core competencies.

INTERANAL ANALYSIS AND TURN AROUND MANAGEMENT

Turnaround management is a process dedicated to corporate renewal. It uses analysis and

planning to save troubled companies and returns them to solvency, and to identify the
reasons for failing performance (or decreasing presence and position) in the market, and
rectify them. Turnaround management involves management review, activity based
costing, root failure causes analysis, and SWOT analysis to determine why the company is
failing. Once analysis is completed, a long term strategic plan and restructuring plan are
created. These plans may or may not involve a bankruptcy filing. Once approved,
turnaround professionals begin to implement the plan, continually reviewing its progress
and make changes to the plan as needed to ensure the company returns to solvency.

Turnaround Managers

Turnaround Managers are also called Turnaround Practitioners in the UK, and often are
interim managers who only stay as long as it takes to achieve the turnaround. Assignments
can take anything from 3 to 24 months depending on the size of the organization and the
complexity of the job. Turnaround management does not only apply to distressed
companies, it in fact can help in any situation where direction, strategy or a general change
of the ways of working needs to be implemented. Therefore turnaround management is
closely related to change management, transformation management and post-merger-
integration management. High growth situation for example are one typical scenario where
turnaround experts also help. More and more turnaround managers are becoming a one-
stop-shop and provide help with corporate funding (working closely with banks and the
Private Equity community) and with professional services firms (such as lawyers and
insolvency practitioners) to have access to a full range of services that are typically needed
in a turnaround process. Most turnaround managers are freelancers and work on day
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rates, but there are a few very high profile individuals who work for very large
corporations on an employed basis and usually get 5 year contracts.

STAGES

Stages in repositioning of an organization

1. The evaluation and assessment stage

2. The acute needs stage

3. The restructuring stage

4. The stabilization stage

5. The revitalization stage

The first stage is delineated as onset of decline (1). Factors that cause this circumstance are
new innovations by competitors or a downturn in demand, which leads to a loss of market
share and revenue. But also stable companies may find themselves in this stage, because of
maladministration or the production of goods that are not interesting for customers. In
public organisations are external shocks, like political or economical, reasons that could
cause a destabilization of a performance.

Sometimes an onset of decline can be temporary and through a corrective action and
recovery (2) been fixed.

The reposition situation (3) is the point in the process, where the minimally accepted
performance is long-lasting below its limits. In empirical studies a performance of
turnaround is measured through financial success indicators. These measures ignore other
performance indicators such as impact on environment, welfare of staff, and corporate
social responsibility. The organizational leaders need to decide, if a strategy change should
happen or the current strategy be kept, which could lead on the other hand to a company

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takeover or an insolvency. In the public sector performances are characterized by multiple
aims that are political contested and constructed. Nevertheless, are different criteria of
performances used by different stakeholders and even if its use results in the same criteria,
it is likely that different weights apply to them. So if a public organization is situated in a
turnaround situation, it is subject to the dimensions of a performance (e.g. equity,
efficiency, effectiveness) as well as its approach of their relative importance. This political
point of view suggests that a miscarriage in a public service may happen when key
stakeholders are ongoing dissatisfied by a performance and therefore the existence of an
organisation might be unclear. In the public sector success and failure is judged by the
higher bodies that bestow financial, legal, or other different resources on service providers.

If decision maker choose to take a new course, because of the realization that actions are
required to prevent an ongoing decline, they need at first to search for new strategies (4).
Question that need to be asked here are, if the search for a reposition strategy should be
participative and decentralized or secretive and centralized or intuitive and incremental or
analytic and rational. Here, the selection must be made quickly, since a second turnaround
may not be possible after a new or existing poor performance. This means, that a
compressed strategy process is necessary and therefore an extensive participation and
analysis may be precluded. The same applies to the public sector, because the public
authorities are highly visible and politically under pressure to rapidly implement a
recovery plan.

Is the fifth stage reached, the selection of a new strategy (5a) has been made by the
company. Especially researcher typically concentrates on this one of the reposition process.
Most of them focus on the structure and its impact on the performance of the strategy that
was implemented. It is even stated by the scientist, that a commercial success is again
possible after a failing of the company. But different risk-averse groups, like suppliers,
customers or staff may be against a change or are sceptical about the implementation of the
strategy. These circumstances could result in a blockade of the realization. Also the
conclusion is conceivable, that no escape strategy is found (5b), as a result that some targets
can’t be achieved. In the public sector it is difficult to find a recoverable strategy, which

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therefore could lead to a permanent failure. The case may also be, that though a recovery
plan is technically feasible, it might not be political executable.

The implication of the new strategy (6) ensues in the following sixth stage. It is a necessary
determinant of organizational success and has to be a fundamental element of a valid
turnaround model. Nevertheless, it is important to note, that no empirical study sets a
certain turnaround strategy.

The outcomes of the turnaround strategies can result in three different ways. First of all a
terminal decline (7a) may occur. This is possible for situations, where a bad strategy was
chosen or a good strategy might have been implemented poorly. Another conceivable
outcome is a continued failure (7b). Here is the restructuring plan failed, but dominant
members within the company and the environment still believe that a repositioning is
possible. If that’s the case, they need to restart at stage four and look for a new strategy.
Does an outcome of the new strategy turns out to be good, a turnaround (7c) is called
successful. This is achieved, when its appropriate benchmark reaches the level of
commercial success, like it was the case before the onset of decline. This is commonly
measured in a timeframe between two and four year.

TECHNIQUES

There are different techniques that can be applied to cause a repositioning. The four main
techniques are known as Retrenchment, Repositioning, Replacement and Renewal:

RETRENCHMENT

The Retrenchment strategy of the turnaround management describes wide-ranging short-

term actions, to reduce financial losses, to stabilize the company and to work against the
problems, that caused the poor performance. The essential content of the Retrenchment
strategy is therefore to reduce scope and the size of a business through Shrinking Selective
Strategy. This can be done by selling assets, abandoning difficult markets, stopping
unprofitable production lines, downsizing and outsourcing. These procedures are used to

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generate resources, with the intention to utilize those for more productive activities, and
prevent financial losses. Retrenchment is therefore all about an efficient orientation and a
refocus on the core business.] Despite that many companies are inhibited to perform
cutbacks, some of them manage to overcome the resistance. As a result they are able get a
better market position in spite of the reductions they made and increase productivity and
efficiency. Most practitioners even mention, that a successful turnaround without a
planned retrenchment is rarely feasible.

REPOSITIONING

The repositioning strategy, also known as "entrepreneurial strategy", attempts to generate

revenue with new innovations and change in product portfolio and market position. This
includes development of new products, entering new markets, exploring alternative sources
of revenue and modifying the image or the mission of a company.

REPLACEMENT

Replacement is a strategy, where top managers or the Chief Executive Officer (CEO) are
replaced by new ones. This turnaround strategy is used, because it is theorized that new
managers bring recovery and a strategic change, as a result of their different experience
and backgrounds from their previous work. It is also indispensable to be aware, that new
CEO’s can cause problems, which are obstructive to achieve a turnaround. For an
example, if they change effective organized routines or introduce new administrative
overheads and guidelines. Replacement is especially qualified for situations with
opinionated CEO’s, which are not able to think impartial about certain problems. Instead
they rely on their past experience for running the business or belittle the situation as short-
termed. The established leaders fail therefore to recognize that a change in the business
strategy is necessary to keep the company viable. There are also situations, where CEO’s
do notice that a current strategy isn’t successful as it should be. But this hasn’t to imply,
that they are capable or even qualified enough to accomplish a turnaround. Is a company
against a Replacement of a leader, could this end in a situation, where the declining process

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will be continued. As result qualified employees resign, the organization discredits and the
resources left will run out as time goes by.

RENEWAL

With a Renewal a company pursues long-term actions, which are supposed to end in a
successful managerial performance. The first step here is to analyze the existing structures
within the organization. This examination may end with a closure of some divisions, a
development of new markets/ projects or an expansion in other business areas. A Renewal
may also lead to consequences within a company, like the removal of efficient routines or
resources. On the other hand are innovative core competencies implemented, which
conclude in an increase of knowledge and a stabilization of the company value.

FOREIGN MARKET ENTRY MODES

The decision of how to enter a foreign market can have a significant impact on the results.
Expansion into foreign markets can be achieved via the following four mechanisms:

 Exporting
 Licensing
 Joint Venture
 Direct Investment
 Franchising strategies
 A multicountry strategy or global strategy
 Pursuing competitive advantage by competing multinationally
 Strategic alliance.

Exporting

Exporting is the marketing and direct sale of domestically-produced goods in another

country. Exporting is a traditional and well-established method of reaching foreign
markets. Since exporting does not require that the goods be produced in the target country,

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no investment in foreign production facilities is required. Most of the costs associated with
exporting take the form of marketing expenses.

Exporting commonly requires coordination among four players:

 Exporter
 Importer
 Transport provider
 Government

Licensing

Licensing essentially permits a company in the target country to use the property of the
licensor. Such property usually is intangible, such as trademarks, patents, and production
techniques. The licensee pays a fee in exchange for the rights to use the intangible property
and possibly for technical assistance.

Because little investment on the part of the licensor is required, licensing has the potential
to provide a very large ROI. However, because the licensee produces and markets the
product, potential returns from manufacturing and marketing activities may be lost.

Joint Venture

There are five common objectives in a joint venture: market entry, risk/reward sharing,
technology sharing and joint product development, and conforming to government
regulations. Other benefits include political connections and distribution channel access
that may depend on relationships.

Such alliances often are favorable when:

 the partners' strategic goals converge while their competitive goals diverge;
 the partners' size, market power, and resources are small compared to the industry
leaders; and
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  partners' are able to learn from one another while limiting access to their own
proprietary skills.

The key issues to consider in a joint venture are ownership, control, length of agreement,
pricing, technology transfer, local firm capabilities and resources, and government
intentions.

Potential problems include:

 conflict over asymmetric new investments

 mistrust over proprietary knowledge
 performance ambiguity - how to split the pie
 lack of parent firm support
 cultural clashes
 if, how, and when to terminate the relationship

Joint ventures have conflicting pressures to cooperate and compete:

 Strategic imperative: the partners want to maximize the advantage gained for the
joint venture, but they also want to maximize their own competitive position.
 The joint venture attempts to develop shared resources, but each firm wants to
develop and protect its own proprietary resources.
 The joint venture is controlled through negotiations and coordination processes,
while each firm would like to have hierarchical control.

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FOREIGN DIRECT INVESTMENT

Foreign direct investment (FDI) is the direct ownership of facilities in the target country. It
involves the transfer of resources including capital, technology, and personnel. Direct
foreign investment may be made through the acquisition of an existing entity or the
establishment of a new enterprise.

Direct ownership provides a high degree of control in the operations and the ability to
better know the consumers and competitive environment. However, it requires a high level
of resources and a high degree of commitment.

Comparison of Foreign Market Entry Modes

Conditions Favoring this

Mode Advantages Disadvantages
Mode

Limited sales potential in

target country; little
Trade barriers &
product adaptation required Minimizes risk and
tariffs add to costs.
investment.
Distribution channels close
Transport costs
to plants Speed of entry
Exporting
Limits access to local
High target country Maximizes scale; information
production costs uses existing
facilities. Company viewed as
Liberal import policies
an outsider

High political risk

Licensing Import and investment Minimizes risk and Lack of control over
barriers investment. use of assets.

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 Legal protection possible in
target environment.
Licensee may become
Speed of entry
competitor.
Low sales potential in target
country. Able to circumvent
Knowledge spillovers
trade barriers
Large cultural distance
License period is
High ROI
limited
Licensee lacks ability to
become a competitor.

Joint Import barriers Overcomes Difficult to manage

Ventures ownership
Large cultural distance Dilution of control
restrictions and

Assets cannot be fairly cultural distance Greater risk than

priced exporting a &
Combines resources
licensing
High sales potential of 2 companies.

Knowledge spillovers
Some political risk Potential for learning

Partner may become

Government restrictions on Viewed as insider
a competitor.
foreign ownership
Less investment

Local company can provide required

skills, resources,
distribution network, brand
name, etc.

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 Greater knowledge
Higher risk than
Import barriers
of local market
other modes
Small cultural distance
Can better apply
Requires more
Direct specialized skills
Assets cannot be fairly resources and
Investment priced commitment
Minimizes
knowledge spillover
High sales potential May be difficult to
manage the local
Can be viewed as an
Low political risk
resources.
insider

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CHAPTER-4THE BUSINESS VISION AND COMPANY MISSION
STATEMENT:

While a business must continually adapt to its competitive environment, there are
certain core ideals that remain relatively steady and provide guidance in the process of
strategic decision-making. These unchanging ideals form the business vision and are
expressed in the company mission statement.

In their 1996 article entitled Building Your Company's Vision, James Collins and
Jerry Porras provided a framework for understanding business vision and articulating it in
a mission statement.

The mission statement communicates the firm's core ideology and visionary goals,
generally consisting of the following three components:

1. Core values to which the firm is committed

2. Core purpose of the firm
3. Visionary goals the firm will pursue to fulfill its mission

The firm's core values and purpose constitute its core ideology and remain relatively
constant. They are independent of industry structure and the product life cycle.

The core ideology is not created in a mission statement; rather, the mission
statement is simply an expression of what already exists. The specific phrasing of the
ideology may change with the times, but the underlying ideology remains constant.

The three components of the business vision can be portrayed as follows:

Core Core
Values Purpose

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 Business
Vision

Visionary
Goals

CORE VALUES

The core values are a few values (no more than five or so) that are central to the
firm. Core values reflect the deeply held values of the organization and are independent of
the current industry environment and management fads.

One way to determine whether a value is a core value to ask whether it would
continue to be supported if circumstances changed and caused it to be seen as a liability. If
the answer is that it would be kept, then it is core value. Another way to determine which
values are core is to imagine the firm moving into a totally different industry. The values
that would be carried with it into the new industry are the core values of the firm.

Core values will not change even if the industry in which the company operates
changes. If the industry changes such that the core values are not appreciated, then the
firm should seek new markets where its core values are viewed as an asset.

For example, if innovation is a core value but then 10 years down the road innovation is no
longer valued by the current customers, rather than change its values the firm should seek
new markets where innovation is advantageous.

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The following are a few examples of values that some firms has chosen to be in their core:

 excellent customer service

 pioneering technology
 creativity
 integrity
 social responsibility

CORE PURPOSE

The core purpose is the reason that the firm exists. This core purpose is expressed in
a carefully formulated mission statement. Like the core values, the core purpose is
relatively unchanging and for many firms endures for decades or even centuries. This
purpose sets the firm apart from other firms in its industry and sets the direction in which
the firm will proceed.

The core purpose is an idealistic reason for being. While firms exist to earn a profit,
the profit motive should not be highlighted in the mission statement since it provides little
direction to the firm's employees. What is more important is how the firm will earn its
profit since the "how" is what defines the firm.

Initial attempts at stating a core purpose often result in too specific of a statement
that focuses on a product or service. To isolate the core purpose, it is useful to ask "why" in
response to first-pass, product-oriented mission statements. For example, if a market
research firm initially states that its purpose is to provide market research data to its
customers, asking "why" leads to the fact that the data is to help customers better
understand their markets. Continuing to ask "why" may lead to the revelation that the
firm's core purpose is to assist its clients in reaching their objectives by helping them to
better understand their markets.

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 The core purpose and values of the firm are not selected - they are discovered. The
stated ideology should not be a goal or aspiration but rather, it should portray the firm as
it really is. Any attempt to state a value that is not already held by the firm's employees is
likely to not be taken seriously.

VISIONARY GOALS

The visionary goals are the lofty objectives that the firm's management decides to
pursue. This vision describes some milestone that the firm will reach in the future and may
require a decade or more to achieve. In contrast to the core ideology that the firm
discovers, visionary goals are selected.

These visionary goals are longer term and more challenging than strategic or
tactical goals. There may be only a 50% chance of realizing the vision, but the firm must
believe that it can do so. Collins and Porras describe these lofty objectives as "Big, Hairy,
Audacious Goals." These goals should be challenging enough so that people nearly gasp
when they learn of them and realize the effort that will be required to reach them.

A big hairy audacious goal, or BHAG, is a clear and compelling target for an organization to strive for. ...
A BHAG—pronounced “bee hag”—is a long-term goal that everyone in a company can understand and rally behind

Most visionary goals fall into one of the following categories:

 Target - quantitative or qualitative goals such as a sales target or Ford's goal to

"democratize the automobile."
 Common enemy - centered on overtaking a specific firm such as the 1950's goal of
Philip-Morris to displace RJR.
 Role model - to become like another firm in a different industry or market. For
example, a cycling accessories firm might strive to become "the Nike of the cycling
industry."
 Internal transformation - especially appropriate for very large corporations. For
example, GE set the goal of becoming number one or number two in every market it
serves.
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While visionary goals may require significant stretching to achieve, many visionary
companies have succeeded in reaching them. Once such a goal is reached, it needs to be
replaced; otherwise, it is unlikely that the organization will continue to be successful. For
example, Ford succeeded in placing the automobile within the reach of everyday people,
but did not replace this goal with a better one and General Motors overtook Ford in the
1930's.

VISION (THE DREAM):

Your vision communicates what your organization believes are the ideal conditions
for your community – how things would look if the issue important to you were perfectly
addressed. This utopian dream is generally described by one or more phrases or vision
statements, which are brief proclamations that convey the community's dreams for the
future. By developing a vision statement, your organization makes the beliefs and
governing principles of your organization clear to the greater community (as well as to
your own staff, participants, and volunteers).

There are certain characteristics that most vision statements have in common. In general,
vision statements should be:

 Understood and shared by members of the community

 Broad enough to encompass a variety of local perspectives
 Inspiring and uplifting to everyone involved in your effort
 Easy to communicate - for example, they should be short enough to fit on a T-shirt

Here are a few vision statements which meet the above criteria:

 Healthy children
 Safe streets, safe neighborhoods
 Every house a home
 Education for all
 Peace on earth

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MISSION (THE WHAT AND WHY):

Developing mission statements are the next step in the action planning process. An
organization's mission statement describes what the group is going to do, and why it's going
to do that. Mission statements are similar to vision statements, but they're more concrete,
and they are definitely more "action-oriented" than vision statements. The mission might
refer to a problem, such as an inadequate housing, or a goal, such as providing access to
health care for everyone. And, while they don't go into a lot of detail, they start to hint -
very broadly - at how your organization might go about fixing the problems it has noted.
Some general guiding principles about mission statements are that they are:

 Concise. Although not as short a phrase as a vision statement, a mission statement should
still get its point across in one sentence.
 Outcome-oriented. Mission statements explain the overarching outcomes your organization
is working to achieve.
 Inclusive. While mission statements do make statements about your group's overarching
goals, it's very important that they do so very broadly. Good mission statements are not
limiting in the strategies or sectors of the community that may become involved in the
project.

The following mission statements are examples that meet the above criteria.

 "To promote child health and development through a comprehensive family and
community initiative."
 "To create a thriving African American community through development of jobs,
education, housing, and cultural pride.
 "To develop a safe and healthy neighborhood through collaborative planning, community
action, and policy advocacy."

“While vision and mission statements themselves should be short, it often makes sense for
an organization to include its deeply held beliefs or philosophy, which may in fact define
both its work and the organization itself. One way to do this without sacrificing the
directness of the vision and mission statements is to include guiding principles as an
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addition to the statements. These can lay out the beliefs of the organization while keeping
its vision and mission statements short and to the point.”

INTERNAL APPRAISAL:

The next task is internal appraisal. The basic purpose of internal appraisal has
already been dealt with while discussing strategic planning process at the corporate level.
We are not repeating it here.

The main tasks in internal appraisal:

1. Assessing the strengths and weakness of the business unit.

2. Assessing the health and status of the different product lines, products and brands.

3. Assessing the competitive advantages available to the unit.

ASSESSING STRENGTHS AND WEAKNESSES OF THE BUSINESS

UNIT:

As an illustration, let us take Modi Xerox and see what they have identified as their
strengths and weakness. The details are provided in above chart.

With this understanding of how a strength-weakness appraisal would basically look

like, let us go into the details of how the task of strength–weakness analysis is actually
carried out.

Aspects to be covered in S-W analysis

The strengths and weakness of the unit have to be assessed in each of the functions / areas
such as:

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* Marketing.
* Finance.
* Manufacturing / operations.
* R&D
* Human resources.
* General factors: Image of the unit, its relative priority, etc.

Actually, the strength “weakness is appraised in several aspects in each of the

functions/areas listed above. Both qualitative and quantitative evaluations form parts of
this appraisal. The intention is to make a very detailed as well as reliable estimate of the
capabilities of the business unit.

Strength-Weakness in Marketing

To assess the strength-weakness in the marketing area, a large number of issues

have to be covered. These include:

(i) Overall market growth.

(ii) Firms market share.
(iii) Competitors shares
(iv) Firms production capacity in relation to market potential.
(v) The lifecycle stage of the various products
(vi) Brand equity
(vii) Product quality/sophistication/technology
(viii) Synergy in the product-mix
(ix) Customer perception/customer satisfaction level.
(x) Profitability, prices and margins competition.
(xi) Marketing capability overall.

In this appraisal each product line, product and brand of the firm gets evaluated
individually.

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The typical questions that are raised include the following

Market growth:

How does the market behave? What are the recent growth trends? Is the overall
growth rate satisfactory? Is there any indication of some stagnation setting in? Or, is it
poised for a buoyant growth? If so, what are the underlying causes?

Market share:

What share of the market (s) has the firm been holding for the last four to five years
and how consistent is the position? Is this share spread out or concentrated with regard to
the number of customers? Does the firm find a place in the fist three positions? How does
the market share compare with that of the competition? Is the relative market share
satisfactory?

Production capacity:

Is the production capacity of the unit sufficient in relation to the overall market
growth, the firm’s potential and its market share position? Considering the extent of
contribution expected of the unit towards total corporate growth, should it plan for an
expansion of capacity?

PLC stage of the products:

In what phase of their lifecycles are the products placed? What is the position with
respect to each of them? Composite plotting of the life cycle positions of products can
indicate emerging gaps. A business unit, which is currently very profitable but has not
provided for new products for the future, will show virtually all of its products at or near
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the period of peak profitability. Though from the standpoint of current cash flow, it is a
strength, there is an inherent weakness in the situation as the slide would begin son. The
question to be considered is: If there are indications of decline for some of the products, are
there enough new products ready t substitute them?

Brand equity and product quality:

These issues are dealt with more elaborately in the next section on assessment of the
health of each product line and brands.

Customer perception and customer satisfaction level:

How do current customers and potential customers rate the products of the firm?
How are marketing practices received by the major parties involved, i.e. the consumers and
the trade?

The aforesaid analysis may involve in house as well as external specialists to have a
clear picture of the intended purpose for which it is undertaken. It may initially look
cumbersome but its worth all the trouble to have better results for use of the Company.

Vision, Mission and Values:

The first task of strategic management formulating the organization’s vision,

mission, and value statement. These statements are primarily based on internal recessed
within the organist. They have the greatest impact on the identity and the future of the
organization and reflect the strategic intent of the organization. Vision, mission, and values
have their distinct characteristics and play distinctions characteristics and play distinct
roles in the subsistence of the organization:

 VISION is what keeps the organization moving forward. Vision is the

motivator in an organization. It needs to be meaningful with a long-term

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 perspective so that to can motivate people even when the organization is
facing discouraging odds.
 MISSION is the founders’ intentions at the outset of the organization – what
they wanted to achieve. In the dynamic environment of today, it must be re-
examined and refreshed periodically.
 VALUES manifest in what the organization does as a group and how it
operates. An explicit depiction of values is a guide to ways of choosing among
competing priorities and about how to work together.

The time to articulate vision, mission and values is at the outset of an

organization’s life, if possible and at the first opportunity of the organization is
already under way.

The process and outcomes of visioning is to develop an effective basis for

business strategy. The foresight of the organization is to fit the strengths of the
organization with the market demands, t make the organization highly competitive
with growth and profits as the rewards The long-term benefits are substantial,
because visioning:

 Breaks you out of boundary thinking

 Provides continuity and avoids the stutter effect of planning fits and
starts
 Identifies directing and purpose
 Alerts stakeholders to needed change
 Promotes interest and commitment
 Promotes laser-like focus
 Encourages openness to unique and creative solutions
 Encourages and builds confidence
 Builds loyalty through involvement (ownership)
 Results in efficiency and productivity

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 Whatever the eventual architecture of the organization, the vision statement
encompasses the organization in all its forms. The vision statement identifies
activities the organization intends to pursue, sets forth long-term direction and
rides a big perspective of:

 Who are we?

 What are we trying t d?
 How d we want to go about it?

 Where are we headed?

Successful organizations have a vision that is executable – not an is-in-the-
sky blanket statement a realistic goal, according to
Sunil Alagh, former Managing Director and CEO of Britannia Industries. “It’s all
about how you define the market, or how you redefine it for yourself. We can
always raise the bar, but the vision stays with the company.” When he was the
CEO of Britannia, he decided to come up with a one-ling vision for the company.
How came u with the following vision statement:

‘Every third Indian must be a Britannia consumer by 2004’

It is this vision of the organization that has made Britannia a leading

manufacturer of bakery and dairy products.

Jack Welch redefined GE’s approach to its business when he announced t all
GE managers, “T me, quality and excellence means being better than the best… if
we aren’t better than the best, we should ask ourselves ‘what will it take?’ then
quantify the energy and resources to get there”.

Y.C. Devseshwar, chairman f ITC, had a vision?? ITC reminiscent of Jack

Welch. He said that in a mature econmy, with developed market institutions, ITC
was unlikely t be successful unless it was focused n a new theme vision:

‘Either we become world-class r we leave the business’

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 It is this quality of vision that makes organizations excel. Therefore, it is not
surprising that this vision statement comes from ITC, which has remained, over the
last five decades, one of the leading consumer products conglomerates in the
country, with its annual revenues reaching $2 billion in 2002.

The ‘dream’ of martin Luther king Jr. was communicated so effectively, that
it changed that curse of the American nation. Well-crafted visions statements
should be:

 Realistic and credible

 Well articulated and easily understood
 Appropriate ambitious and responsive to change
Given below are vision statements of tata iron & steel co.ltd, Hindustan lever
ltd., Dupont, Burger king and reliance industries. These are a representative cross-
section of vision statements.

Tata Iron & steel Co.Ltd.

To seize the opportunities of tomorrow and create a future that will make us
an economic value added positive company.

To continue to improve the quality of life of our employees and the

communities we serve.

Revitalizes the core business for a sustainable future.

Venture into new business that will own a share of our future.

Uphold the sprit and values of TATAs towards nation building.

Hindustan lever Ltd.

Ur vision is to meet the everyday needs of people everywhere.

Dupont

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 We, the people of Dupont, dedicate ourselves daily t the work of improving
life on our planet.

We gave the curiosity to go farther. The imagination to think bigger... the

determination to try harder…. and the conscience to care more.

Our solutions will be bold. We will answer the fundamental needs of the
people we live with to ensure harmony, health and prosperity in the world.

Our methods will be our obsession. Our singular focus will be to service
humanity with the power of all the sciences available to us.

Our tools are our minds. We will encourage unconventional ideas, be daring
in our thinking, and courageous in our actions. By sharing our knowledge and
learning from each there and the markets we serve, we will solve problems in
surprising and magnificent ways.

Our success will be ensuring. We will be demanding of work and ourselves

relentlessly to complete our tasks. Ur achievements will create superior profit for
our shareholders and ourselves.

Our principles are sacred. We will respect nature and living things, work
safely, be gracious to one anther and our partners, and each day we will leave for
home with consciences clear and spirits soaring.

Burger king
We take pride m serving our guests the best burgers and a variety of other
great tasting, healthy; foods cooked over an open fire. That’s all we’re all about.

The ultimate success of the vision statement is the extent t which leadership
and key stakeholders actually begin living the vision day-to-day. Sometimes, there
is an unwritten vision statement, understood by the stakeholders and the
leadership.

Reliance industries

Reliance believes that any business conduct can be ethical only when it rests
n the nine core values of honesty, integrity, respect, fairness, purposefulness, trust,
resnsibility, citizenship and caring.
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 We are committed t an ethical treatment of all our stakeholder – our
employees, our customer, our environment, our shareholders, our lenders and their
investors, our suppliers and the government. A firm belief that every reliance team
member holds is that the their persons’ interests cunt as much as their own.

The essence of these commitments is that each employee conducts the

company’s business with integrity, in compliance with applicable laws, and in a
manner that excludes considerations of personal advantage.

We do not lose sight of these values under any circumstances, regardless of

the goals we have to achieve. To us, the means are as important as the ends.

In the 1980s, reliance grew a staggering 1110 percent with sales moving from
Rs.200 cores to Rs.1840 cores. It has continued to maintain its growth projectory.
Today, reliance industries limited is India’s largest private sector company with
total revenues of over Rs.99, 000 cores ($ 22.6 billion), and cash profit of Rs.12,
5000 corer. Reliance industries’ activities span exploration and reduction of oil and
gas, refining and marketing, petrochemicals, textiles, financial services and
insurance, power, telecom and infocom initiative . This is due to the vision and
ambition of its founder, DhirubhaiAmbani.

Though the vision statement des not reflect the staggering ambition of
DhirubhaiAmbani, these phenomena’s is reflected in the unwritten philosophy of
reliance industries. According to one of its employees,” Defying conventional
thinking. That is what reliance stands for”. Anther employee says that its vision
can be summed u as. “Dhikhaanahai!”

To get reliance to do something is to say that it is impossible – reliance then

goes on to prove that the impossible is possible.

This vision is an unwritten rallying cry of reliance.

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 The visioning process is meant to encourage initiative and enthusiasm at all
levels in the organsiation. Therefore, be alert to the following vision killers:

 Tradition
 Fear of ridicule
 Stereotypes of people, conditions, roles and governing councils
 Complacency of some stakehlders
 Fatigued leaders
 Short-term thinking
 “Nay Sayers”

Mission statements

Vision is the critical focal point and beginning to high performance. But
obviously a vision alone won’t make it happen. Even the most exciting vision will
remain only a dream unless it is followed up with striving, building, and
improving.

Why does the organization exist? What is its value addition? What’s its
function? How does it want to be positioned in the market and minds of customers?
What business is it in? These are all questions of purpose. They deal with the
deeper motivations and assumptions underlying the values and purpose that forms
the context and focus of the organisation. your mission statement is a statement of
purpose and function.

 Your mission statement draws on your belief statements.

 Your mission statement must be future oriented and portray your

organization as it will be, as if it already exists.
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  Your mission statement must focus on one common purpose.

 Your mission statement must be specific to the organization, not generic

The smart formula

The SMART formula is a useful method of examining objectives. Many
business schools use this model to illustrate how to build up and create roper
business objectives. Each letter in SMART stands for a characteristic associated
with business objective. That is:

Specific: clearly state what it is we want to do/achieve by way of a factual

description

Measurable: ensure that the success of your business objective can be measured
against concrete criteria.

Achievable: Is the objective achievable given your current operational resources

and/or competence/capacity

Realistic: Is the scope of the objective within the bounds of what is recognizable as
a proper ‘business fit’?

Timely: include a time scale within which the objectives should be achieved.

STRENGTH AND WEAKNESS APPRAISAL OF A BUSINESS UNIT:

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 In order to discuss Strength-weakness Analysis we have taken Modi-Xerox as a
case. Given below is a chart showing strength-Weakness appraisal of Modi-Xerox.

Strengths:

1. Strong brand name.

2. Value engineering skills.
3. A solid base of 40,000saisfied customers.
4. Excellent market coverage.
5. A well-motivated sales force.
6. Access to the Xerox product range.

Weakness:
1. Higher price compared to competition
2. Narrow product range
3. Lower productivity compared to international standards.
4. Inadequate Investments on information software, systems and databases.
5. High personnel attrition rates.

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CHAPTER-5CORPORATE GOVERNANCE
Definitions

1. "Corporate governance is a field in economics that investigates how to secure/motivate

efficient management of corporations by the use of incentive mechanisms, such as
contracts, organizational designs and legislation. This is often limited to the question of
improving financial performance, for example, how the corporate owners can
secure/motivate that the corporate managers will deliver a competitive rate of return",
www.encycogov.com, Mathiesen [2002].

2. “Corporate governance deals with the ways in which suppliers of finance to

corporations assure themselves of getting a return on their investment”, The Journal of
Finance, Shleifer and Vishny [1997, page 737].

3. "Corporate governance is the system by which business corporations are directed and
controlled. The corporate governance structure specifies the distribution of rights and
responsibilities among different participants in the corporation, such as, the board,
managers, shareholders and other stakeholders, and spells out the rules and procedures for
making decisions on corporate affairs. By doing this, it also provides the structure through
which the company objectives are set, and the means of attaining those objectives and
monitoring performance", OECD April 1999. OECD's definition is consistent with the one
presented by Cadbury.

Nature of corporate governance

Corporate governance is the overall control of activities in a Corporation. It is

concerned with the formulation of long-term objectives and plans and the proper
management structure (organization, systems and people) to achieve them. At the same
time, it involves making sure that the structure functions in a way, which helps to maintain
the corporation's reputation and responsibility towards various groups. The structure to
ensure corporate governance, for our understanding, includes the board of directors, top
management, shareholders, creditors and others. The role of each of these stakeholders is
crucial in guaranteeing responsible corporate performance. Before examining the role of
each of these groups, it is useful to understand the relevance of corporate governance in the
present perspective.

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Factors influencing corporate governance

The ownership structure

The structure of ownership of a company determines, to a considerable extent, how

a Corporation is managed and controlled. The ownership structure can be dispersed
among individual and institutional shareholders as in the US and UK or can be
concentrated in the hands of a few large shareholders as in Germany and Japan. But the
pattern of shareholding is not as simple as the above statement seeks to convey. The pattern
varies the across the globe. According to a study on corporate ownership conducted in
1998, 36 percent of the firms in the world are widely held,30 percent are family controlled,
18 percent are state-controlled and the remaining 15 percent are in miscellaneous category.

Our corporate sector is characterized by the co-existence of state owned, private

and multinational Enterprises. The shares of these enterprises (except those belonging to a
public sector) are held by institutional as well as small investors. Specifically, the shares are
held by (1) the term-lending institutions (2) institutional investors, comprising
government-owned mutual funds, Unit Trust of India and the government owned
insurance corporations (3) corporate bodies (4) directors and their relatives and (5)
foreign investors. Apart from these block holdings, there is a sizable equity holding by
small investors.

Which patterns of share holding, dispersed or concentrated, is ideal for good

corporate performance? Large shareholders tend to be active in corporate governance
either through their representative's on the company boards or through a their active
participation in annual general body meetings. This has been demonstrated by reliance
Industries Limited. Which has the highest number of equity shareholders spread across the
country. The block holding too has not proved to be a failure either. Dominant
shareholders are better informed than the dispersed shareholders. Under the concentrated
ownership structure, as has been demonstrated through the Bajaj group, corporate
performance tends to be better.

SOCIAL RESPONSIBILITY

Social responsibility of business refers to what the business does, over and above the
statutory requirement, for the benefit of the society. The word responsibility connotes that
the business has some moral obligations to the society.

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 The term corporate citizenship is also commonly used to refer to the moral
obligations of business toward the society. This implies that, just as individuals, corporate
are also integral part of the society and that their behavior shall be guided by certain social
norms.

Why does a business have to be responsible towards the society?

The activities carried out by any business effect the society to a great extent.
Resources being utilized by the business is not only of the proprietors but mainly drawn
from the society, and when we talk of resources we are not Just taking into consideration
the material and financial factors but also the Human resources which though are available
in large numbers but its quality may ma all the difference. The operations of the business
do have an impact on people who in no way may are connected with the enterprises. Take
for example factory close to your house, though it may not belong to you or you in no way
involved in its operations or profit and loss, but the noise it creates, or if it lets off polluting
air in to the environment does it not affect you?

Remember there was a hue and cry about pesticides being their in soft drinks and worms
in chocolate bars?

Let us take another example; if you have invested money in a company, then why
don’t you be concerned about its activities and reputation being tarnished?

Further we may classify the social responsibility of business into two

categories:

1) The manner in which a business carries out its own business activity

2) The welfare activity that it takes upon itself as an additional function

Social orientations of business:

The extent of social orientation varies very widely. Moreover, it may change overtime due
to various factors, as we shall see.

Social responsibility models:

There are some models, which try to describe the evolution and extent of social orientation
of companies. Notable include Carroll’s model, Halal’s model and Ackerman’s model.

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Archie B. Carroll, who defines corporate responsibility as the entire range of obligations
business has to society, has proposed a three dimensional conceptual model of corporate
performance. According to Carroll, a firm has the following four categories of obligations
of corporate performance.

 Economic
 Legal
 Ethical
 Discretionary

The firm being an economic entity, its primary responsibility is economic i.e. efficient
operations to satisfy economic needs of the society and generation of surplus for rewarding
the investors and further development.
Legal responsibilities are also fundamental in nature because a company is bound to obey
the law of the land.
Ethical responsibilities are certain norms, which the society expects the business to observe
though they are not mandated by law. For example, a company shall not resort to bribing
or unethical practices, unfair competition.
Discretionary responsibilities refer to the voluntary contribution of the business to the
social cause, like involvement in community development or other social programmes for
example adult or poor children education etc.
According to the Ackerman’s model, there are three phases in the development of the
social responsiveness of a company.
The first phase is one when the top management recognizes the existence of a social
problem, which deserves the company’s attention and acknowledges the company’s policy
towards it by making an oral or written statement.
The company appoints staff specialists or external consultants to study the problem and
suggest ways of dealing with it characterizes the second phase.
The third phase involves the implementation of the social responsibility programmes.
Factors Affecting social Involvement
Promoters and top management:
The values and vision of promoters and top management is one of the very important
factors, which influence the corporate social responsibility.
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Board of directors:
Since it is the board of directors, which decides the major policies and resource allocation
of company, the attitude towards social responsibility of the members, make all the
difference.

Stakeholders and internal power relationship:

The attitude of various stakeholders viz shareholders, creditors, employees etc and the
internal power relationships also effect the social orientation of a company.

Societal factors:
There are certain characteristics and the general attitude and expectation of the society
regarding the social responsibility of business does tend to have an impact. For example, a
resourceful firm in a poor community may be expected to contribute to the development of
the overall development of the locality, which may start with expectation for jobs for the
people of that areas to the development of educational and health facility which may not be
required in a community, which is well developed.

Industry and trade associations:

Industry and trade association also influence the behaviour of firms by establishing
professional and ethical codes and norms and collective decisions.

Government laws:
Legislation to curb corruption, unfair practices etc. are ways through which the
Government tends to play its role in forcing businesses to adopt social responsibility.
Through legislations govt. tend to enforce pollution control measures or guidelines to
ensure quality, persuasion incentives such as tax exemptions.

Other influences:
NGOs may stress the need for an industrial unit to plant trees and such things.

Competitors:
Competitive behaviour can also influence social orientation. When one or some companies
become socially involved, others may be encouraged or provoked to do something.
Sometimes, there may be competition between companies to outperform each other, since
this may be linked to the public image formation of these companies.

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UNIT-3

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138
CHAPTER-1PORTFOLIO ANALYSIS:

Portfolio analysis is a systematic way to analyze the products and services that make up an
association's business portfolio. All associations (except the simplest and the smallest) are
involved in more than one business. Some of these include publishing, meetings and
conventions, education and training, government representation, research, standards
setting, public relations, etc. Each of these is one of the association's strategic business units
(SBUs). Each business consists of a portfolio of products and services. For example, an
association's publishing business might include a professional journal, a lay magazine,
specialized newsletters geared to different member segments, CDs, a website, social
networking sites, etc.

[email protected]

Portfolio analysis helps you decide which of these products and services should be
emphasized and which should be phased out, based on objective criteria. Portfolio analysis
consists of subjecting each of the association's products and services through a progression
of finer screens. During a time of cutbacks and scarce resources, it is essential to screen out
programs and services that are not essential to most members. Those that appeal to a more
limited segment can be funded by those desiring the product or service rather than by
dues.

THE ADVANTAGES OF PORTFOLIO ANALYSIS:

Portfolio analysis is a financial process whereby a financial portfolio

composed of a number of different types of assets, such as stocks, bonds,
and futures contracts, is examined for strengths and weaknesses. This
process varies depending on who is conducting the analysis, but it has a
number of advantages for investors.

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 Identify Lagging Assets

 One of the main benefits of analysis is showing an investor how his assets
stack up. By dividing his assets into certain categories, such as asset class, and
subdividing these categories further into groups such as industry, the investor
can identify which of his holdings are performing better and which are
lagging behind. This allows him to prune his portfolio appropriately.

Provide Historical Context

 A portfolio analysis will generally break down the investor's holdings over
time, showing how the assets have performed over the course of various years.
This is most often demonstrated graphically. The advantage of this method is
to allow the investor to match his portfolio against changes in the broader
economy. For example, if his assets performed well during a boom, but fell
during a recession, he may want to purchase assets less affected by economic
ups and downs.

Benchmark Performance

 It's difficult to measure the performance of a portfolio without knowing the

performance of other comparable groups of assets, with which the portfolio
can be compared. For this reasons, a portfolio analysis will generally include a
comparison of the performance of the portfolio with a number of different
indexes over time, such as the Dow Jones Industrial Average, the S & P 500,
or a well-regarded mutual fund or ETF.

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 Calculate Risk:

 A good portfolio analysis will also attempt to identify the relative risk of any
investor's portfolio. For example, if a large amount of an investor's holdings
are tied up in low-rated bonds, a portfolio analysis may identify his as
susceptible to a severe depreciation of his assets. By turns, if the investor has
concentrated most of his holdings in conservative mutual funds, the analysis
may show that he could stand to take on some more risk, so as to improve his
potential upside.

Identify Exposure

 Finally, a portfolio analysis will generally identify areas in which he has

concentrated his holdings, giving him an idea of where he is financially
exposed. For example, if a large percentage of the portfolio is composed of
assets that hinge upon a high interest rate for performance, such as certain
types of interest rate derivatives or variable-rate bonds, he could be exposed if
the interest rate were to experience a severe drop.

LIMITATIONS OF PORTFOLIO ANALYSIS:

Small businesses sometimes start out offering only one product or service. But
as businesses grow, they typically expand their product offerings and tap into new
markets. Portfolio analysis is a process where managers study the profitability of
the various products and services a business offers. It is designed to help optimize
the allocation of resources between those products and services. While portfolio
analysis can be a useful tool for thinking about how to optimize return on
investment, it does have a few limitations.

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Defining and Categorizing Products:
Portfolio analysis involves separating a company's products and services into
different categories that represent its business portfolio. But it is not always easy to
define and categorize products. This can lead to subjective decisions about how to
categories products and services. For example, the owners of a grocery store might
decide that candy and fruit are two of its product categories. If the store sells
candied fruit, the owners might have difficulty placing the product in an
appropriate category.

Forecasting:
Portfolio analysis relies upon estimates or forecasts about the future.
Forecasting often involves looking at financial data, such as the sales history of
different products, and using that data to extrapolate about the future. For example,
if a small grocery store's candy sales have increased 5 percent a year for the past
two years, it might forecast that annual sales will continue to increase at a 5 percent
rate. Forecasting can help managers form expectations about the future. But they
can also turn out to be inaccurate, meaning a portfolio analysis does not guarantee
optimal return on investment.

Complex Product Interactions:

Portfolio analysis typically focuses on the profit potential of individual
products and product categories, which can ignore complex underlying
relationships between different types of products. It is possible for the sales of one
product to influence the sales of another, even if they are not in the same product
category. For example, suppose a restaurant loses money on malts because it doesn't
charge a high enough price for them, but it makes a lot of profit on burgers. The
owners might decide to raise the price of malts. But it might be missing a very
important point -- that many customers visit the restaurant because its malts are so
inexpensive. While they are there, they decide to order a burger as well. Higher malt
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prices could lead to fewer customers, which would result in lower burger sales and,
ultimately, lower profits.

Alternative Investments:
Since portfolio analysis focuses on the products and services that a business
offers, it ignores possible alternative investments that could be better than investing
more in current product offerings. A company might be better off investing in a new
technology, for example, than allocating more resources to its current products and
services.

ADVANTAGES AND DISADVANTAGES OF PORTFOLIO ANALYSIS

Portfolio analysis offers the following advantages:

1. It encourages management to evaluate each of the organization's

businesses individually and to set objectives and allocate resources for
each.

2. It stimulates the use of externally oriented data to supplement

management's intuitive judgment.

3. It raises the issue of cash flow availability for use in expansion and
growth.

Portfolio analysis does, however, have some limitations.

1. It is not easy to define product/market segments.

2. It provides an illusion of scientific rigor when some subjective judgments

are involved.
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 Considering both its advantages and disadvantages, portfolio analysis
should be regarded as a disciplined and organized way of thinking about asset
allocation. It is only a subjective tool, however, and is not a substitute for the
ultimate professional judgment of the responsible decision-makers.

Step 1: Identify Lines of Business

The first step in portfolio analysis is to identify the lines of businesses

(SBUs) that make up the association's portfolio. The guideline to keep in
mind is this: if we were a corporation instead of a professional society, which
groups of programs would be logical candidates to be grouped together as
independent businesses?

Step 2: Group Lines of Business

There are three lines of businesses an association typically engages in.

The first is core businesses that are of vital importance to your broad
membership. These are the businesses that directly support the objectives in
the strategic plan and have a priority claim on resources.

The second line of business is support functions that make it possible to

deliver the core business benefits to members. Examples of support functions
are administrative, accounting, legal, governance support, etc. These do not
have a priority claim on resources. Rather, the objective is to minimize the
cost of these functions and transfer resources to support the core business.

The third line of business is money-makers that provide low-priority

member benefits but are the source of revenues that support the association’s
core businesses. Ideally, the association’s core businesses should be self-

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supporting and perhaps even contribute to reserves. Often, this is not the case
and activities must be subsidized with other income. Money-makers provide
this income. Examples of money-makers are rental car discounts, affinity
cards, insurance programs.

Step 3: Compare Core Businesses with Mission Statement

Once you have separated out your core businesses, compare them with
the association's mission statement. To pass this screen, a business must
directly support the goals that are defined in the mission statement. Support
should be direct and not peripheral. If a line of business does not support the
strategic plan, it should be discontinued or phased out and its resources
transferred to support the association's other core businesses.

Step 4: Define Products and Services in Each Line of Business

Once lines of business have been tested for relevance to the mission
statement, the next step is to subdivide those that are relevant into their
component products and services. For example, the publishing business
would be subdivided into each of its products. Each product or service would
then be compared to the Program Evaluation Matrix.

Step 5: Apply the Program Evaluation Matrix

The Program Evaluation Matrix is a graphic device that simplifies the
process of analyzing all the products and services in the association's portfolio
of products and services. In running its programs through the Program
Evaluation Matrix, the association makes several assumptions.

Assumptions
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1. Since the need for resources is competitive, the association must view
the problem of securing resources in a competitive context.

2. It is preferable to provide good service to a focused market than to

provide mediocre or poor service to too large a market.

3. It is pragmatic to surrender mediocre programs to better competitors

and wrest away promising programs from weaker competitors.

Evaluating Program Characteristics

The Program Evaluation Matrix helps an association determine the

answers to the following questions about each product or service in its
portfolio:

1. Is it a good fit with our other programs?

2. Is it easy to implement?

3. Is there poor alternative coverage in the marketplace?

4. Is our competitive position strong?

For a program to survive the competition for the association's resources, there
should be a positive response to all these questions. No program is in a strong
position unless it is superior to all programs in that category. If it is not, it
should be classified as being in a weak position.

The effect of these generic strategies is to serve the client base with a small
number of strong, excellent providers rather than with a larger number of
fragmented providers competing for limited dollars.

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Step 6: Determine Product Fit

Using the Program Evaluation Matrix, the first step is to determine whether
the product or service under review fits the association's mission and
priorities. The screens for good product fit are:

1. Congruence with mission and purpose of the association.

2. Focus on core concerns that are of vital interest to the association's

members/customers.

Step 7: Determine Ease of Funding and Implementation (Is this an

easy business?)

The criteria for determining whether a program or service has the prospect of
relatively easy funding and implementation are:

1. High appeal to groups capable of providing current and future support.

2. Stable source of funding.

3. Market demand from a large, concentrated, growing client base.

4. Appeals to volunteer leadership.

5. Measurable, reportable program results.

Step 8: Determine Availability of Alternative Coverage

This is the first step in a competitive analysis. Even nonprofits operate in

a competitive environment, which has a strong impact on the ability to
successfully deliver member products and services. Alternative coverage
means is anyone else offering similar programs. Programs should be
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classified according to two alternatives:

1. Low coverage: If there are few comparable programs offered elsewhere.

2. High coverage: If many similar programs are offered elsewhere.

Step 9: Assess Competitive Position of Product or Service

The following criteria should be considered in determining whether an

association product or service is in a strong competitive position. Competition
is not limited to other nonprofits. For-profit companies can and do compete
directly with the association in the delivery of many products and services.
Publications are a good example of this. Criteria for a strong competitive
position are:

1. Dominant market share or strong prospects for achieving market

dominance.

2. Better quality/value/service than competitors.

3. Superior ability to produce and market this program.

4. Cost-effective program delivery.

5. Strong match between the program and the future needs of

members/customers.

Step 10: Determine Program Fit

Ideally, the association will have two types of programs:

1. Well-fitting, easy programs where the association has a strong position and
competes aggressively for a dominant position.
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2. Well-fitting, difficult programs with low coverage that the association has
the unique, strong capability to provide to important stakeholders.

Applying these steps will reveal the association's current portfolio

situation. The ideal would be to have a portfolio that has primarily winners,
and contains enough winners and profit producers to finance the growth of
potential winners. In reality, however, there will probably be a few question
marks and even perhaps a small loser. Then, of course, there are those
untouchable

programs that, although marginal or even losers, are considered to be of

fundamental importance to members and must be subsidized.

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CHAPTER-2PROCESS OF STRATEGIC CHOICE:

Focusing on strategic alternatives:

It involves identification of all alternatives. The strategist examines what the

organization wants to achieve (desired performance) and what it has really achieved
(actual performance). The gap between the two positions constitutes the background for
various alternatives and diagnosis. This is gap analysis. The gap between what is desired
and what is achieved widens as the time passes if no strategy is adopted.

Evaluating strategic alternatives:

The next step is to assess the pros and cons of various alternatives and their
suitability. The tools which may be used are portfolio analysis, GE business screen and
corporate Parenting. [Describe each of these]

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Considering decision factors:

(i) Objective factors:-

¨ Environmental factors

- Volatility of environment

- Input supply from environment

- Powerful stakeholders

¨ Organizational factors

- Organization’s mission

- Strategic intent

- Business definition

- Strengths and weaknesses

(ii) Subjective factors:-

- Strategies adopted in the previous period;

- Personal preferences of decision- makers;

- Management’s attitude toward risk;

- Pressure from stakeholders;

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- Pressure from corporate culture; and

- Needs and desires of key managers.

Constructing Corporate scenario:

Corporate scenario consists of proforma balance sheets and income statement which
forecasts the strategic alternative’s impact on various divisions.

First: 3 sets of estimated figures for optimistic, pessimistic and most likely conditions are
manipulated for all economic factors and key external strategic factors.

Second: Common size financial statements with projections are drawn.

Third: Based on historical data from previous years balance sheet projection for next 5
years for Optimistic (O), Pessimistic (P), and Most likely (M) are developed.

Corporate scenario is constructed for every strategic alternative considering both

environmental factors and market conditions. It provides sufficient information for a
strategist to make final decision.

Process of Strategic Choice:

Two techniques are used in the process of selection of a strategy, namely:

(i) Devil’s Advocate – in strategic decision- making is responsible for identifying

potential pitfalls and problems in a proposed strategic alternative by making a formal
presentation.

(ii) Dialectical inquiry – involves making two proposals with contrasting assumptions
for each strategic alternative. The merits and demerits of the proposal will be argued by
advocates before the key decision-makers. Finally one alternative will emerge viable for
implementation.

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GENERIC STRATEGIES TO COUNTER THE FIVE FORCES

Strategy can be formulated on three levels:

 corporate level
 business unit level
 Functional or departmental level.

The business unit level is the primary context of industry rivalry. Michael Porter identified
three generic strategies (cost leadership, differentiation, and focus) that can be implemented
at the business unit level to create a competitive advantage. The proper generic strategy
will position the firm to leverage its strengths and defend against the adverse effects of the
five forces.

In their 1990 article entitled, The Core Competence of the Corporation, C.K. Prahalad and
Gary Hamel coined the term core competencies, or the collective learning and coordination
skills behind the firm's product lines. They made the case that core competencies are the source
of competitive advantage and enable the firm to introduce an array of new products and
services. According to Prahalad and Hamel, core competencies lead to the development of core
products. Core products are not directly sold to end users; rather, they are used to build a larger
number of end-user products. For example, motors are a core product that can be used in wide
array of end products. The business units of the corporation each tap into the relatively few
core products to develop a larger number of end user products based on the core product
technology. This flow from core competencies to end products is shown in the following
diagram:

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Core Competencies to End Products

1 2 3 4 5 6 7 8 9 10 11 12

Business Business Business Business

1 2 3 4

Core Product
1

Core
Product 2

Competence Competence Competence Competence

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 1 2 3 4

The intersection of market opportunities with core competencies forms the basis for launching new
businesses. By combining a set of core competencies in different ways and matching them to market
opportunities, a corporation can launch a vast array of businesses.

Without core competencies, a large corporation is just a collection of discrete businesses.

Core competencies serve as the glue that bonds the business units together into a coherent
portfolio.

Organizational competencies - fit concept:

Identification of organizational competencies is essential in determining how to use

them. Organizational competencies are these competencies that result in long-term
competitive success of the organizations.

The first step in determines the organizational competences beings by defining

market boundaries of our competitive arena. Closely linked t that is to understand where
the potential markets may arise.

The next step is an analysis to identify and classify their competencies of the
organization. This tells us abut we have the necessary skills, processes or knowledge for
sustainable competitive advantage. This will improve our chance of success and reduce
risks in executing our strategy.

The analysis involves four stages:

1. Making a list of the organizational competencies needed to provide the

products/services to the users.
2. Listing the organizational competencies in which we must excel t provide the
quality and service demanded by the users of our products or services.

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 3. Listing the organizational competencies that enable our organization to
provide the product characteristic or services attribute that cause the
customer to decide to purchase our product rather than a competitors.
4. Listing any other competencies our organization possesses that create
customer value through out product line give us a significant test advantage
over our compatriots. These are as core competencies.
After the identification has been completed, examine the basis f the assumptions used in
identifying the competencies. This is accentual to this stage. Each assumption should
complete the phrase, ”we assume that…”identifying assumption can be difficult. Approach
that could make this simpler is t ask for each skill set,” what must be true for us t be
successful?” evaluate these assumptions against the current realities we face t determine if
they are valid and what is their impact on operators business expectation and decisions.

 What are the capabilities in each of the functional areas? What are we best at?
What are we worst at?
 How do we measure up to the tests of consistency in strategy?
 Are these any changes in these capabilities? Will they increase or diminish with
time?
 In what activities or skills d we add value better than competitors? Are we better at
research? Distribution? Marketing or selling? Or perhaps manufacturing?
 In what functional disciplines do we add value for the customer?

Organizational competencies analysis provides a framework in which the core

competencies of the organization can be integrated and used as critical success factors in
our competitive strategy. It is a way to assess the value of the core competencies to the
organization.

Developing Core Competencies

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 According to Prahalad and Hamel, core competencies arise from the integration of
multiple technologies and the coordination of diverse production skills. Some examples
include Philip's expertise in optical media and Sony's ability to miniaturize electronics.

There are three tests useful for identifying a core competence. A core competence should:

1. Provide access to a wide variety of markets, and

2. Contribute significantly to the end-product benefits, and
3. Be difficult for competitors to imitate.

Core competencies tend to be rooted in the ability to integrate and coordinate various
groups in the organization. While a company may be able to hire a team of brilliant
scientists in a particular technology, in doing so it does not automatically gain a core
competence in that technology. It is the effective coordination among all the groups
involved in bringing a product to market those results in a core competence.

It is not necessarily an expensive undertaking to develop core competencies. The

missing pieces of a core competency often can be acquired at a low cost through alliances
and licensing agreements. In many cases an organizational design that facilitates sharing of
competencies can result in much more effective utilization of those competencies for little
or no additional cost.

To better understand how to develop core competencies, it is worthwhile to understand

what they do not entail. According to Prahalad and Hamel, core competencies are not
necessarily about:

 outspending rivals on R&D

 sharing costs among business units
 integrating vertically

While the building of core competencies may be facilitated by some of these actions, by
themselves they are insufficient.

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The Loss of Core Competencies

Cost-cutting moves sometimes destroy the ability to build core competencies. For
example, decentralization makes it more difficult to build core competencies because
autonomous groups rely on outsourcing of critical tasks, and this outsourcing prevents the
firm from developing core competencies in those tasks since it no longer consolidates the
know-how that is spread throughout the company.

Failure to recognize core competencies may lead to decisions that result in their loss.
For example, in the 1970's many U.S. manufacturers divested themselves of their television
manufacturing businesses, reasoning that the industry was mature and that high quality,
low cost models were available from Far East manufacturers. In the process, they lost their
core competence in video, and this loss resulted in a handicap in the newer digital television
industry.

Similarly, Motorola divested itself of its semiconductor DRAM business at 256Kb

level, and then was unable to enter the 1Mb market on its own. By recognizing its core
competencies and understanding the time required building them or regaining them, a
company can make better divestment decisions.

Core Products

Core competencies manifest themselves in core products that serve as a link between
the competencies and end products. Core products enable value creation in the end
products. Examples of firms and some of their core products include:

 3M - substrates, coatings, and adhesives

 Black & Decker - small electric motors
 Canon - laser printer subsystems
 Matsushita - VCR subsystems, compressors
 NEC - semiconductors
 Honda - gasoline powered engines

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 The core products are used to launch a variety of end products. For example, Honda
uses its engines in automobiles, motorcycles, lawn mowers, and portable generators.

Because firms may sell their core products to other firms that use them as the basis for
end user products, traditional measures of brand market share are insufficient for
evaluating the success of core competencies. Prahalad and Hamel suggest that core product
share is the appropriate metric. While a company may have a low brand share, it may have
high core product share and it is this share that is important from a core competency
standpoint.

Once a firm has successful core products, it can expand the number of uses in order to
gain a cost advantage via economies of scale and economies of scope.

Implications for Corporate Management

Prahalad and Hamel suggest that a corporation should be organized into a portfolio
of core competencies rather than a portfolio of independent business units. Business unit
managers tend to focus on getting immediate end-products to market rapidly and usually
do not feel responsible for developing company-wide core competencies. Consequently,
without the incentive and direction from corporate management to do otherwise, strategic
business units are inclined to under invest in the building of core competencies.

If a business unit does manage to develop its own core competencies over time, due
to its autonomy it may not share them with other business units. As a solution to this
problem, Prahalad and Hamel suggest that corporate managers should have the ability to
allocate not only cash but also core competencies among business units. Business units that
lose key employees for the sake of a corporate core competency should be recognized for
their contribution.

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.LOW COST AND DIFFERENTIATION:

A company has a competitive advantage when its profit rate is higher than the
average for its industry. Profit rate defined as some ratio such as Return On Sales (ROS)
or Return On Assets (ROA).

The most basic determinant of a company’s profit rate is its Gross Profit Margin
(GPM). GPM is simply the difference between total revenues and total costs divided by
total costs.

(Unit Price x Unit Sale) – (Unit Cost x Unit Sales)

GPM = __________________________________________

(Unit Cost x Unit Sales)

GPM is to be higher than the average for the industry, one of the following issues must be
occurring;

a) The company’s unit price must be higher than that of the average company
and its unit cost must be equivalent to that of the average company.
b) The company’s unit must be lower than that of the average company and its
uit price must be equivalent to that of the average company.
c) The company must have both a lower unit and ha higher unit price than the
average company.

When a company charges a higher unit price than the industry average, it is engaging in
premium pricing. From the consumer s prospective, consumer is to pay a premium price,
the company must add value to the product, in a way that competitor’s added value
requires differentiating the product from those offered by competitors along one or more
dimensions like quality, delivery time and after-sales services and support.

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Building on these basic ideas, Michael Porter has referred to low cost and differentiation as
generic business level strategies. i.e., the two fundamental ways of trying to obtain a
competitive e advantage in an industry.

CHAPTER-3CORPORATE PORTFOLIO ANALYSIS

A corporate portfolio analysis takes a close look at a company’s services and products.
Each segment of a company’s product line is evaluated including sales, market share, cost
of production and potential market strength. The analysis categorizes the company’s
products and looks at the competition. The goal is to identify business opportunities,
strategize for the future and direct business resources towards that growth potential

Portfolio analysis can be performed by an outside firm or by company management. There

are various tools used for a portfolio analysis with some that look at market share and
others that evaluate a company’s product line against the competition. While the process
typically points the way for spending for future growth, it can also be used to identify
products or services which short-term may become obsolete, suggesting that part of the
portfolio be retired and the funds used for areas with more promising growth potential.

PORTER’S GENERIC STRATEGIES

If the primary determinant of a firm’s profitability is the attractiveness of the

industry in which it operates, an important secondary determinant is its position within
that industry. Even though an industry may have below-average profitability, a firm that is
optimally positioned can generate superior returns.
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 A firm positions itself by leveraging its strengths. Michael Porter has argued that a
firm’s strengths ultimately fall into one of two headings: cost advantage and
differentiation. By applying these strengths in either a broad or narrow scope, three
generic strategies result: cost leadership, differentiation, and focus. These strategies are
applied at the business unit level. They are called generic strategies because they are not
firm or industry dependent. The following table illustrates Porter’s generic strategies:

Porter’s Generic Strategies

Advantage

Target Scope

Low Cost Product Uniqueness

Cost Leadership Differentiation

Broad
Strategy Strategy
(Industry Wide)

Focus Focus
Narrow Strategy Strategy
(Market Segment) (low cost) (differentiation)

COST LEADERSHIP STRATEGY:

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 This generic strategy calls for being the low cost producer in an industry for a given
level of quality. The firm sells its products either at average industry prices to earn a profit
higher than that of rivals, or below the average industry prices to gain market share. In the
event of a price war, the firm can maintain some profitability while the competition suffers
losses. Even without a price war, as the industry matures and prices decline, the firms that
can produce more cheaply will remain profitable for a longer period of time. The cost
leadership strategy usually targets a broad market.

Some of the ways that firms acquire cost advantages are by improving process
efficiencies, gaining unique access to a large source of lower cost materials, making optimal
outsourcing and vertical integration decisions, or avoiding some costs altogether. If
competing firms are unable to lower their costs by a similar amount, the firm may be able
to sustain a competitive advantage based on cost leadership.

Firms that succeed in cost leadership often have the following internal
strengths:

 Access to the capital required to make a significant investment in production assets;

this investment represents a barrier to entry that many firms may not overcome.
 Skill in designing products for efficient manufacturing, for example, having a small
component count to shorten the assembly process.
 High level of expertise in manufacturing process engineering.
 Efficient distribution channels.

Each generic strategy has its risks, including the low-cost strategy. For example, other
firms may be able to lower their costs as well. As technology improves, the competition may
be able to leapfrog the production capabilities, thus eliminating the competitive advantage.
Additionally, several firms following a focus strategy and targeting various narrow
markets may be able to achieve an even lower cost within their segments and as a group
gain significant market share.

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DIFFERENTIATION STRATEGY:

A differentiation strategy calls for the development of a product or service that

offers unique attributes that are valued by customers and that customers perceive to be
better than or different from the products of the competition. The value added by the
uniqueness of the product may allow the firm to charge a premium price for it. The firm
hopes that the higher price will more than cover the extra costs incurred in offering the
unique product. Because of the product’s unique attributes, if suppliers increase their
prices the firm may be able to pass along the costs to its customers who cannot find
substitute products easily.

Firms that succeed in a differentiation strategy often have the following

internal strengths:

 Access to leading scientific research.

 Highly skilled and creative product development team.
 Strong sales team with the ability to successfully communicate the perceived
strengths of the product.
 Corporate reputation for quality and innovation.

The risks associated with a differentiation strategy include imitation by competitors and
changes in customer tastes. Additionally, various firms pursuing focus strategies may be
able to achieve even greater differentiation in their market segments.

FOCUS STRATEGY:

The focus strategy concentrates on a narrow segment and within that segment
attempts to achieve either a cost advantage or differentiation. The premise is that the needs
of the group can be better serviced by focusing entirely on it. A firm using a focus strategy
often enjoys a high degree of customer loyalty, and this entrenched loyalty discourages
other firms from competing directly.
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 Because of their narrow market focus, firms pursuing a focus strategy have lower
volumes and therefore less bargaining power with their suppliers. However, firms pursuing
a differentiation-focused strategy may be able to pass higher costs on to customers since
close substitute products do not exist.

Firms that succeed in a focus strategy are able to tailor a broad range of product
development strengths to a relatively narrow market segment that they know very well.

Some risks of focus strategies include imitation and changes in the target segments.
Furthermore, it may be fairly easy for a broad-market cost leader to adapt its product in
order to compete directly. Finally, other focusers may be able to carve out sub-segments
that they can serve even better.

A COMBINATION OF GENERIC STRATEGIES – STUCK IN THE MIDDLE?

These generic strategies are not necessarily compatible with one another. If a firm
attempts to achieve an advantage on all fronts, in this attempt it may achieve no advantage
at all. For example, if a firm differentiates itself by supplying very high quality products, it
risks undermining that quality if it seeks to become a cost leader. Even if the quality did
not suffer, the firm would risk projecting a confusing image. For this reason, Michael
Porter argued that to be successful over the long-term, a firm must select only one of these
three generic strategies. Otherwise, with more than one single generic strategy the firm will
be “stuck in the middle” and will not achieve a competitive advantage.

Porter argued that firms that are able to succeed at multiple strategies often do so
by creating separate business units for each strategy. By separating the strategies into
different units having different policies and even different cultures, a corporation is less
likely to become “stuck in the middle.”

However, there exists a viewpoint that a single generic strategy is not always best
because within the same product customers often seek multi-dimensional satisfactions such
as a combination of quality, style, convenience, and price. There have been cases in which
high quality producers faithfully followed a single strategy and then suffered greatly when

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another firm entered the market with a lower-quality product that better met the overall
needsofthecustomers.

PORTER’S FIVE FORCES

A MODEL FOR INDUSTRY ANALYSIS

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.

Diagram of Porter's 5 Forces

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

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BARRIERS
TO ENTRY
Absolute cost advantages THREAT OF
Proprietary learning curve SUBSTITUTES
-Switching costs
Access to inputs -Buyer inclination
Government policy to
Economies of scale substitute
Capital requirements -Price-
Brand identity performance
Switching costs trade-off of
Access to distribution substitutes
Expected retaliation
Proprietary products

BUYER POWER DEGREE OF

Bargaining leverage RIVALRY
Buyer volume -Exit barriers
Buyer information -Industry
Brand identity concentration
Price sensitivity -Fixed
Threat of backward integration costs/Value added
Product differentiation
Buyer concentration vs. industry -Industry growth
Substitutes available -Intermittent
Buyers' incentives overcapacity
-Product
differences
-Switching costs
-Brand identity
-Diversity of
rivals

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 -Corporate stakes

I. Rivalry

In the traditional economic model, competition among rival firms drives

profits to zero. But competition is not perfect and firms are not
unsophisticated passive price takers. Rather, firms strive for a competitive
advantage over their rivals. The intensity of rivalry among firms varies across
industries, and strategic analysts are interested in these differences.

Economists measure rivalry by indicators of industry concentration.

The Concentration Ratio (CR) is one such measure. The Bureau of Census
periodically reports the CR for major Standard Industrial Classifications
(SIC's). The CR indicates the percent of market share held by the four largest
firms (CR's for the largest 8, 25, and 50 firms in an industry also are
available). A high concentration ratio indicates that a high concentration of
market share is held by the largest firms - the industry is concentrated. With
only a few firms holding a large market share, the competitive landscape is
less competitive (closer to a monopoly). A low concentration ratio indicates
that the industry is characterized by many rivals, none of which has a
significant market share. These fragmented markets are said to be
competitive.

The concentration ratio is not the only available measure; the trend is to
define industries in terms that convey more information than distribution of
market share.

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 If rivalry among firms in an industry is low, the industry is considered
to be disciplined. This discipline may result from the industry's history of
competition, the role of a leading firm, or informal compliance with a
generally understood code of conduct. Explicit collusion generally is illegal
and not an option; in low-rivalry industries competitive moves must be
constrained informally. However, a maverick firm seeking a competitive
advantage can displace the otherwise disciplined market.

When a rival acts in a way that elicits a counter-response by other

firms, rivalry intensifies. The intensity of rivalry commonly is referred to as
being cutthroat, intense, moderate, or weak, based on the firms'
aggressiveness in attempting to gain an advantage.

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.
 Creatively using channels of distribution - using vertical integration or
using a distribution channel that is novel to the industry. For example,
with high-end jewelry stores reluctant to carry its watches, Timex
moved into drugstores and other non-traditional outlets and cornered
the low to mid-price watch market.
 Exploiting relationships with suppliers - for example, from the 1950's to
the 1970's Sears, Roebuck and Co. dominated the retail household

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 appliance market. Sears set high quality standards and required
suppliers to meet its demands for product specifications and price.

The intensity of rivalry is influenced by the following industry characteristics:

1. A larger number of firmsincreases rivalry because more firms must

compete for the same customers and resources. The rivalry intensifies if
the firms have similar market share, leading to a struggle for market
leadership.
2. Slow market growth causes firms to fight for market share. In a
growing market, firms are able to improve revenues simply because of
the expanding market.
3. High fixed costs result in an economy of scale effect that increases
rivalry. When total costs are mostly fixed costs, the firm must produce
near capacity to attain the lowest unit costs. Since the firm must sell this
large quantity of product, high levels of production lead to a fight for
market share and results in increased rivalry.
4. High storage costs or highly perishable products cause a producer to
sell goods as soon as possible. If other producers are attempting to
unload at the same time, competition for customers intensifies.
5. Low switching costs increases rivalry. When a customer can freely
switch from one product to another there is a greater struggle to
capture customers.
6. Low levels of product differentiation are associated with higher levels of
rivalry. Brand identification, on the other hand, tends to constrain
rivalry.

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7. Strategic stakes are high when a firm is losing market position or has
potential for great gains. This intensifies rivalry.
8. High exit barriers place a high cost on abandoning the product. The
firm must compete. High exit barriers cause a firm to remain in an
industry, even when the venture is not profitable. A common exit
barrier is asset specificity. When the plant and equipment required for
manufacturing a product is highly specialized, these assets cannot easily
be sold to other buyers in another industry. Litton Industries'
acquisition of Ingalls Shipbuilding facilities illustrates this concept.
Litton was successful in the 1960's with its contracts to build Navy
ships. But when the Vietnam war ended, defense spending declined and
Litton saw a sudden decline in its earnings. As the firm restructured,
divesting from the shipbuilding plant was not feasible since such a large
and highly specialized investment could not be sold easily, and Litton
was forced to stay in a declining shipbuilding market.
9. A diversity of rivals with different cultures, histories, and philosophies
make an industry unstable. There is greater possibility for mavericks
and for misjudging rival's moves. Rivalry is volatile and can be intense.
The hospital industry, for example, is populated by hospitals that
historically are community or charitable institutions, by hospitals that
are associated with religious organizations or universities, and by
hospitals that are for-profit enterprises. This mix of philosophies about
mission has lead occasionally to fierce local struggles by hospitals over
who will get expensive diagnostic and therapeutic services. At other
times, local hospitals are highly cooperative with one another on issues
such as community disaster planning.
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10.Industry Shakeout. A growing market and the potential for high profits
induces new firms to enter a market and incumbent firms to increase
production. A point is reached where the industry becomes crowded
with competitors, and demand cannot support the new entrants and the
resulting increased supply. The industry may become crowded if its
growth rate slows and the market becomes saturated, creating a
situation of excess capacity with too many goods chasing too few buyers.
A shakeout ensues, with intense competition, price wars, and company
failures.

BCG founder Bruce Henderson generalized this observation as the Rule

of Three and Four: a stable market will not have more than three
significant competitors, and the largest competitor will have no more
than four times the market share of the smallest. If this rule is true, it
implies that:

o If there is a larger number of competitors, a shakeout is inevitable

o Surviving rivals will have to grow faster than the market
o Eventual losers will have a negative cash flow if they attempt to
grow
o All except the two largest rivals will be losers
o The definition of what constitutes the "market" is strategically
important.

Whatever the merits of this rule for stable markets, it is clear that
market stability and changes in supply and demand affect rivalry.

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 Cyclical demand tends to create cutthroat competition. This is true in
the disposable diaper industry in which demand fluctuates with birth
rates, and in the greeting card industry in which there are more
predictable business cycles.

GENERIC STRATEGIES AND INDUSTRY FORCES:

These generic strategies each have attributes that can serve to defend against
competitive forces. The following table compares some characteristics of the generic
strategies in the context of the Porter’s five forces.

GENERIC STRATEGIES AND INDUSTRY FORCES

Generic Strategies
Industry
Force
Cost Leadership Differentiation Focus

Ability to cut price Focusing develops core

Entry Customer loyalty can
in retaliation deters competencies that can act as an
Barriers discourage potential entrants.
potential entrants. entry barrier.

Ability to offer lower Large buyers have less power Large buyers have less power to
Buyer
price to powerful to negotiate because of few negotiate because of few
Power
buyers. close alternatives. alternatives.

Suppliers have power because of low

Better insulated Better able to pass on
Supplier volumes, but a differentiation-
from powerful supplier price increases to
Power focused firm is better able to pass on
suppliers. customers.
supplier price increases.

Threat of Can use low price to Customer’s become attached Specialized products & core
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 defend against to differentiating attributes, competency protect against
Substitutes
substitutes. reducing threat of substitutes. substitutes.

Better able to Brand loyalty to keep Rivals cannot meet differentiation-

Rivalry
compete on price. customers from rivals. focused customer needs.

CHAPTER-4GAP ANALYSIS:

The evaluation of the difference between a desired outcome and an actual outcome.
This difference is called a gap. Strategic gap analysis attempts to determine what a
company should do differently to achieve a particular goal by looking at the time frame,
management, budget and other factors to determine where shortcomings lie. After
conducting this analysis, the company should develop an implementation plan to eliminate
the gaps.

Gap analysis is a tool that organizational managers can use to work out the size, and
sometimes the shape, of the strategic tasks to be undertaken in order to move from its
current state to a desired, future state.

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BCG Growth-Share Matrix:

Companies that are large enough to be organized into strategic business units face
the challenge of allocating resources among those units. In the early 1970's the Boston
Consulting Group developed a model for managing a portfolio of different business units
(or major product lines). The BCG growth-share matrix displays the various business units
on a graph of the market growth rate vs. market share relative to competitors:

BCG GROWTH-SHARE MATRIX

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Resources are allocated to business units according to where they are situated on the grid
as follows:

 Cash Cow - a business unit that has a large market share in a mature, slow growing
industry. Cash cows require little investment and generate cash that can be used to
invest in other business units.
 Star - a business unit that has a large market share in a fast growing industry. Stars
may generate cash, but because the market is growing rapidly they require
investment to maintain their lead. If successful, a star will become a cash cow when
its industry matures.
 Question Mark (or Problem Child) - a business unit that has a small market share
in a high growth market. These business units require resources to grow market
share, but whether they will succeed and become stars is unknown.
 Dog - a business unit that has a small market share in a mature industry. A dog may
not require substantial cash, but it ties up capital that could better be deployed
elsewhere. Unless a dog has some other strategic purpose, it should be liquidated if
there is little prospect for it to gain market share.

The BCG matrix provides a framework for allocating resources among different business
units and allows one to compare many business units at a glance. However, the approach
has received some negative criticism for the following reasons:

 The link between market share and profitability is questionable since increasing
market share can be very expensive.
 The approach may overemphasize high growth, since it ignores the potential of
declining markets.
 The model considers market growth rate to be a given. In practice the firm may be
able to grow the market.

These issues are addressed by the GE / McKinsey Matrix, which considers market growth
rate to be only one of many factors that make an industry attractive, and which considers

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relative market share to be only one of many factors describing the competitive strength of
the business unit.

BENEFITS AND LIMITATIONS OF THE BCG-MATRIX

BENEFITS OF THE BCG-MATRIX:

 The BCG-Matrix is helpful for managers to evaluate balance in the companies’s current
portfolio of Stars, Cash Cows, Question Marks and Dogs.
 BCG-Matrix is applicable to large companies that seek volume and experience effects.
 The model is simple and easy to understand.
 It provides a base for management to decide and prepare for future actions.
 If a company is able to use the experience curve to its advantage, it should be able to
manufacture and sell new products at a price that is low enough to get early market share
leadership. Once it becomes a star, it is destined to be profitable.

LIMITATIONS OF THE BCG-MATRIX:

 It neglects the effects of synergies between business units.

 High market share is not the only success factor.
 Market growth is not the only indicator for attractiveness of a market.
 Sometimes Dogs can earn even more cash as Cash Cows.
 The problems of getting data on the market share and market growth.
 There is no clear definition of what constitutes a “market”.
 A high market share does not necessarily lead to profitability all the time.
 The model uses only two dimensions – market share and growth rate. This may tempt
management to emphasize a particular product, or to divest prematurely.
 A business with a low market share can be profitable too.
 The model neglects small competitors that have fast growing market shares.

GE / McKinsey Matrix:

In consulting engagements with General Electric in the 1970's, McKinsey &

Company developed a nine-cell portfolio matrix as a tool for screening GE's large portfolio
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of strategic business units (SBU). This business screen became known as the GE/McKinsey
Matrix and is shown below:

GE / McKinsey Matrix

Business Unit Strength

High Medium Low

High

Medium

Low

The GE / McKinsey matrix is similar to the BCG growth-share matrix in that it maps
strategic business units on a grid of the industry and the SBU's position in the industry.
The GE matrix however, attempts to improve upon the BCG matrix in the following two
ways:

 The GE matrix generalizes the axes as "Industry Attractiveness" and "Business

Unit Strength" whereas the BCG matrix uses the market growth rate as a proxy for
industry attractiveness and relative market share as a proxy for the strength of the
business unit.
 The GE matrix has nine cells vs. four cells in the BCG matrix.

Industry attractiveness and business unit strength are calculated by first identifying
criteria for each, determining the value of each parameter in the criteria, and multiplying

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that value by a weighting factor. The result is a quantitative measure of industry
attractiveness and the business unit's relative performance in that industry.

INDUSTRY ATTRACTIVENESS

The vertical axis of the GE / McKinsey matrix is industry attractiveness, which is

determined by factors such as the following:

 Market growth rate

 Market size
 Demand variability
 Industry profitability
 Industry rivalry
 Global opportunities
 Macro environmental factors (PEST)

Each factor is assigned a weighting that is appropriate for the industry. The industry
attractiveness then is calculated as follows:

Industry attractiveness
factor value1 x factor weighting1
=

+ factor value2 x factor weighting2

.
.
.

+ factor valueN x factor weightingN

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BUSINESS UNIT STRENGTH

The horizontal axis of the GE / McKinsey matrix is the strength of the business unit.
Some factors that can be used to determine business unit strength include:

 Market share
 Growth in market share
 Brand equity
 Distribution channel access
 Production capacity
 Profit margins relative to competitors

The business unit strength index can be calculated by multiplying the estimated value of
each factor by the factor's weighting, as done for industry attractiveness.

PLOTTING THE INFORMATION

Each business unit can be portrayed as a circle plotted on the matrix, with the information
conveyed as follows:

 Market size is represented by the size of the circle.

 Market share is shown by using the circle as a pie chart.
 The expected future position of the circle is portrayed by means of an arrow.

The following is an example of such a representation:

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The shading of the above circle indicates a 38% market share for the strategic business
unit. The arrow in the upward left direction indicates that the business unit is projected to
gain strength relative to competitors, and that the business unit is in an industry that is
projected to become more attractive. The tip of the arrow indicates the future position of
the center point of the circle.

STRATEGIC IMPLICATIONS

Resource allocation recommendations can be made to grow, hold, or harvest a strategic

business unit based on its position on the matrix as follows:

 Grow strong business units in attractive industries, average business units in

attractive industries, and strong business units in average industries.
 Hold average businesses in average industries, strong businesses in weak industries,
and weak business in attractive industies.
 Harvest weak business units in unattractive industries, average business units in
unattractive industries, and weak business units in average industries.

There are strategy variations within these three groups. For example, within the harvest
group the firm would be inclined to quickly divest itself of a weak business in an
unattractive industry, whereas it might perform a phased harvest of an average business
unit in the same industry.

While the GE business screen represents an improvement over the more simple BCG
growth-share matrix, it still presents a somewhat limited view by not considering
interactions among the business units and by neglecting to address the core competencies
leading to value creation. Rather than serving as the primary tool for resource allocation,
portfolio matrices are better suited to displaying a quick synopsis of the strategic business
units.
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CHAPTER-5 SWOT ANALYSIS:

A scan of the internal and external environment is an important part of the strategic
planning process. Environmental factors internal to the firm usually can be classified as
strengths (S) or weaknesses (W), and those external to the firm can be classified as
opportunities (O) or threats (T). Such an analysis of the strategic environment is referred
to as a SWOT analysis.

The SWOT analysis provides information that is helpful in matching the firm's
resources and capabilities to the competitive environment in which it operates. As such, it is

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instrumental in strategy formulation and selection. The following diagram shows how a
SWOT analysis fits into an environmental scan:

SWOT Analysis Framework

Environmental Scan

/ \

Internal Analysis External Analysis

/\ /\

Strengths Weaknesses Opportunities Threats

SWOT Matrix

Strengths

A firm's strengths are its resources and capabilities that can be used as a basis for
developing a competitive advantage. Examples of such strengths include:

 patents
 strong brand names
 good reputation among customers
 cost advantages from proprietary know-how
 exclusive access to high grade natural resources
 favorable access to distribution networks

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Weaknesses

The absence of certain strengths may be viewed as a weakness. For example, each of the
following may be considered weaknesses:

 lack of patent protection

 a weak brand name
 poor reputation among customers
 high cost structure
 lack of access to the best natural resources
 lack of access to key distribution channels

In some cases, a weakness may be the flip side of a strength. Take the case in which a
firm has a large amount of manufacturing capacity. While this capacity may be considered
a strength that competitors do not share, it also may be a considered a weakness if the large
investment in manufacturing capacity prevents the firm from reacting quickly to changes
in the strategic environment.

Opportunities

The external environmental analysis may reveal certain new opportunities for profit and
growth. Some examples of such opportunities include:

 an unfulfilled customer need

 arrival of new technologies
 loosening of regulations
 removal of international trade barriers

Threats
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Changes in the external environmental also may present threats to the firm. Some
examples of such threats include:

 shifts in consumer tastes away from the firm's products

 emergence of substitute products
 new regulations
 increased trade barriers

THE SWOT MATRIX

A firm should not necessarily pursue the more lucrative opportunities. Rather, it
may have a better chance at developing a competitive advantage by identifying a fit
between the firm's strengths and upcoming opportunities. In some cases, the firm can
overcome a weakness in order to prepare itself to pursue a compelling opportunity.

To develop strategies that take into account the SWOT profile, a matrix of these
factors can be constructed. The SWOT matrix (also known as a TOWS Matrix) is shown
below:

SWOT / TOWS Matrix

Strengths Weaknesses

S-O strategies W-O strategies

Opportunities

S-T strategies W-T strategies

Threats

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

ANSOFF MATRIX

To portray alternative corporate growth strategies, Igor Ansoff presented a matrix

that focused on the firm's present and potential products and markets (customers). By
considering ways to grow via existing products and new products, and in existing markets
and new markets, there are four possible product-market combinations.:

Ansoff Matrix

Existing Products New Products

Existing
Markets Market Penetration Product Development

New
Markets Market Development Diversification

Ansoff's matrix provides four different growth strategies:

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  Market Penetration - the firm seeks to achieve growth with existing products in
their current market segments, aiming to increase its market share.
 Market Development - the firm seeks growth by targeting its existing products to
new market segments.
 Product Development - the firms develops new products targeted to its existing
market segments.
 Diversification - the firm grows by diversifying into new businesses by developing
new products for new markets.

Selecting a Product-Market Growth Strategy

The market penetration strategy is the least risky since it leverages many of the
firm's existing resources and capabilities. In a growing market, simply maintaining market
share will result in growth, and there may exist opportunities to increase market share if
competitors reach capacity limits. However, market penetration has limits, and once the
market approaches saturation another strategy must be pursued if the firm is to continue
to grow.

Market development options include the pursuit of additional market segments or

geographical regions. The development of new markets for the product may be a good
strategy if the firm's core competencies are related more to the specific product than to its
experience with a specific market segment. Because the firm is expanding into a new
market, a market development strategy typically has more risk than a market penetration
strategy.

A product development strategy may be appropriate if the firm's strengths are

related to its specific customers rather than to the specific product itself. In this situation, it
can leverage its strengths by developing a new product targeted to its existing customers.
Similar to the case of new market development, new product development carries more
risk than simply attempting to increase market share.
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 Diversification is the most risky of the four growth strategies since it requires both
product and market development and may be outside the core competencies of the firm. In
fact, this quadrant of the matrix has been referred to by some as the "suicide cell".
However, diversification may be a reasonable choice if the high risk is compensated by the
chance of a high rate of return. Other advantages of diversification include the potential to
gain a foothold in an attractive industry and the reduction of overall business portfolio
risk.

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UNIT-4

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UNIT - 4

CHAPTER-1STRATEGIC IMPLEMENTATION

Implementation of strategy is the process through which a chosen strategy is put

into action. It involves the design and management of systems to achieve the best
integration of people, structure, processes and resources in achieving organizational
objectives.
Once the creative and analytical aspects of strategy formulation have been settled,
the managerial priority is one of converting the strategy into operationally effective action.
Indeed a strategy is never complete, even as formulation until it gains a commitment of the
organization’s resources and becomes embodied in organizational activities. Therefore, to
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bring the result, the strategy should be put to action because the choice of even the
soundest strategy will not affect organizational activities and achievement of its objectives.
Therefore, effective implementation of strategy is a must for the organization.
Implementation of strategy can be defined as follows:
Judging from this definition, it can be observed that the scope of managerial
activities associated with strategy implementation is virtually coexistence with the entire
management process. This is because the entire management process is geared up
according to the needs of the strategy. In particular, following factors are important in
strategy implementation:

Institutionalization of Strategy
The first basic action that is required for putting a strategy into operation is its
institutionalization. Since strategy does not become either acceptable or effective by virtue
of being well designed and clearly announced, the successful implementation of strategy
requires that the strategy framer acts as its promoter and defender. Often strategy choice
becomes a personal choice of the strategist because his personality variables become an
influential factor in strategy formulation. Thus, it becomes a personal strategy of the
strategist. Therefore, there is an urgent need for the institutionalization of strategy because
without it, the strategy is subject to being undermined. Therefore, it is the role of the
strategist to present the strategy to the members of the organization in a way that appeals
to them and brings their support. This will put organizational people to feel that it is their
own strategy rather than the strategy imposed on them. Such a feeling creates commitment
so essential for making strategy successful.

Setting Proper Organizational Climate

Setting organizational climate relevant for strategy implementation is important for
making strategy to work. Organizational climate refers to the characteristics of internal
environment that conditions the co-operation, the development of the individuals, the
extent of commitment and dedication of people in the organization, and the efficiency with
which the purpose is translated into results. Organizations whose strategy is implemented

191
with conducive climate are more effective than those whose are not. People are the
instruments in implementing a particular strategy and organizational climate is basically a
people-oriented attempt. A top manager can play an important role in shaping the
organizational climate not only by providing standards for what others do but also what he
does because organizational climate is a matter of practice rather than the precept.

Developing Appropriate Operating Plans

Operating plans are the action plans, operational program and decisions that take
place in various parts of the organization. If they are made to reflect desired strategic
results, they contribute to the achievement, of organizational objectives by focusing
attention on those factors, which are important. For example, in budgeting, more resources
will be allocated on those factors, which are critical to the success of the organization as
spelled out during the strategy formulation process. There are various ways of making sure
that operating plans contribute. If every manager understands strategy, he can certainly
review the program recommendations of staff advisers and line subordinates to see that
they are consistent with the requirements of the strategy. Appropriate committees to see if
they contribute positively can review major program. This lends an aura of formality to the
program decisions and their influences on strategy may become clear.
Developing Appropriate Organization Structure.
Organization structure is the pattern in which the various parts of the organization are
interrelated or interconnected. It prescribes relationships among various positions and
activities. For implementing strategy, the organization structure should be designed
according to the needs of the strategy. The relationship between strategy and structure can
be thought of in terms of utilizing structure for strategy implementation because structure
is a means to an end, that is, to provide facilities for implementing strategy. Therefore, both
should be integrated. In the absence of such integration, outcome may be confusion,
misdirection and splintered effort within the organization. There can be various ways of
designing an organization structure. However, the major issues involved in designing the
structure to fit the strategy involve the answers of following questions.

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 1. What should be the different units of the organization?
2. What components should join together and what components should be kept apart?
3. What is the appropriate placement and relationship of different units?

Periodic Review of Strategy

There should be periodic review of strategy to find out whether the given strategy is
relevant. This is required because even the care-fully developed strategies might cease to be
suitable if events change, knowledge becomes more clear, or it appears that the
environment will not be as originally thought. Thus, strategies should be reviewed from
time to time. What should be the frequency for such a review is not universal but major
strategies should be reviewed at least once a year. In fact this is done by most of the
organizations who believe in relating themselves with the environment.

Strategic implementation put simply is the process that puts plans and strategies
into action to reach goals. A strategic plan is a written document that lays out the plans of
the business to reach goals, but will sit forgotten without strategic implementation. The
implementation makes the company’s plans happen.

Facts

Strategic implementation is critical to a company’s success, addressing the who,

where, when, and how of reaching the desired goals and objectives. It focuses on the entire
organization. Implementation occurs after environmental scans, SWOT analyses, and
identifying strategic issues and goals. Implementation involves assigning individuals to
tasks and timelines that will help an organization reach its goals.

Features

A successful implementation plan will have a very visible leader, such as the CEO,
as he communicates the vision, excitement and behaviors necessary for achievement.
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Everyone in the organization should be engaged in the plan. Performance measurement
tools are helpful to provide motivation and allow for followup. Implementation often
includes a strategic map, which identifies and maps the key ingredients that will direct
performance. Such ingredients include finances, market, work environment, operations,
people and partners.

Common Mistakes

A very common mistake in strategic implementation is not developing ownership in

the process. Also, a lack of communication and a plan that involves too much are common
pitfalls. Often a strategic implementation is too fluffy, with little concrete meaning and
potential, or it is offered with no way of tracking its progress. Companies will often only
address the implementation annually, allowing management and employees to become
caught up in the day-to-day operations and neglecting the long-term goals. Another pitfall
is not making employees accountable for various aspects of the plan or powerful enough to
authoritatively make changes.

Needs

To successfully implement your strategy, several items must be in place. The right
people must be ready to assist you with their unique skills and abilities. You need to have
the resources, which include time and money, to successfully implement the strategy. The
structure of management must be communicative and open, with scheduled meetings for
updates. Management and technology systems must be in place to track the
implementation, and the environment in the workplace must be such that everyone feels
comfortable and motivated.

The Plan
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 My Strategic Plan website offers a step-by-step plan for implementation. It includes
finalizing the strategic plan with all necessary personnel, aligning the budget and
producing various versions of the plan for individual groups. Next you will establish a
system for tracking the plan and managing the system with rewards. The entire
implementation plan is then presented to the entire organization, rolling it into annual
company plans. Finally, you will schedule monthly meetings to keep everyone on track and
annual review dates for reporting progress, and adding new assessments.

CONCEPT OF STRATEGY IMPLEMENTATION:

Strategy implementation is "the process of allocating resources to support the

chosen strategies". This process includes the various management activities that are
necessary to put strategy in motion, institute strategic controls that monitor progress, and
ultimately achieve organizational goals.

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196
CHAPTERE-2

THE IMPLEMENTATION PROCESS OF STRATEGIC PLANS:

A strategic plan is of little use to an organization without a means of putting it into

place. In fact, implementation is an essential part of the strategic planning process, and
organizations that develop strategic plans must expect to include a process for applying the
plan. The specific implementation process can vary from organization to organization,
dependent largely on the details of the actual strategic plan, but some basic steps can assist
in the process and ensure that implementation is successful and the strategic plan is
effective.

Step 1
Evaluate the strategic plan. The first step in the implementation process is to step
back and make sure that you know what the strategic plan is. Review it carefully, and
highlight any elements of the plan that might be especially challenging. Recognize any
parts of the plan that might be unrealistic or excessive in cost, either of time or money.
Highlight these, and be sure to keep them in mind as you begin implementing the strategic
plan. Keep back-up ideas in mind in case the original plan fails.

Step 2
Create a vision for implementing the strategic plan. This vision might be a series of
goals to be reached, step by step, or an outline of items that need to be completed. Be sure
to let everyone know what the end result should be and why it is important. Establish a
clear image of what the strategic plan is intended to accomplish.

Step 3
Select team members to help you implement the strategic plan. Make sure you have
a team that “has your back,” so to speak, and understands the purpose of the plan and the
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steps involved in implementing it. Establish a team leader, if other than yourself, who can
encourage the team and field questions or address problems as they arise.

Step 4
Schedule meetings to discuss progress reports. Present the list of goals or objectives,
and let the strategic planning team know what has been accomplished. Whether the
implementation is on schedule, ahead of schedule, or behind schedule, assess the current
schedule regularly to discuss any changes that need to be made. Establish a rewards system
that recognizes success throughout the process of implementation.

Step 5
Involve the upper management where appropriate. Keep the organization’s
executives informed on what is happening, and provide progress reports on the
implementation of the plan. Letting an organization’s management know about the
progress of implementation makes them a part of the process, and, should problems arise,
the management will be better able to address concerns or potential changes.

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THE BASIC CHARACTERISTIC OF STRATEGIC MANAGEMENT
PROCESS

Describe the basic characteristic of strategic management process?

Answer: In strategic management long-term and integrated planning producing and

implementation have to be done. The characteristics and features of the long term strategic
are as followed:-

1. Flexibility: It is one of the important features in strategic management. In the case

of determining long term strategies, several intricate problems and hazards can be visible,
on that case, the management can take hurried decision adapting to changed environment.

2. Integration: To take planning under the strategic management, it is essential to

integrate goals objects alongside the internal and external sides of the institution.

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3. Speed: To bring the dynamism under the strategic management, it is inevitable to

access the important affairs so that it may be possible to speed up the pace of action at
present and future.

4. Innovation: Innovation or creativity is an important feature in the case of strategic

management. We know, environment is ever changing, that is way demand, taste, and
behavioural patterns of employers and employees are to be changed. Strategic management
controls and takes things forward by producing new strategic planning and framing newer
strategies.

5. Long-term plan: Long-term planning is very essential to bring good result. There is

no way to adopt long-term planning if anybody intends to compete in the field of industry.

6. Guide-line of plan: Guide-line of planning pin-points to implement any planning

under the strategic management.

7. Determination of alternatives: It is a very urgent affair to implement goals of any

institution. Under the strategic management, determination of alternatives can face

obstacles standing on the way easily.

8. Consideration of environment: This tool which can move anybody to achieve goals

ignoring all unfavorable environments consideration of environment directs to take

decision cautiously.

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CHAPTER-3

Role of the BSC for Strategic implementation –

BSC introduces four new management processes that contribute in linking long
term strategic objectives with short term activities. The processes are translating the vision,
communication and linking, business planning and feedback and learning. It seeks to link
these measures into a model that accurately reflects cause and effect relations among
categories and individual measures. Such a model could support operational decisions,
make predictions of outcomes given decisions and environmental conditions and provide
reliable feedback for learning and performance evaluation.

Building a Scorecard – It is unique and can follow its own path for building a
scorecard. However, a procedure that can be used with modifications by different
organisations. The process is as follows;

 First Round – Formulation

 Second Round – Implementation
 Third Round – Consensus

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  Implementation
 Periodic Reviews

BSC is regarded as a significant development in management accounting. It has

been offered as a superior combination of non-financial and financial measures of
performance. It focuses on links among business decisions and outcomes; it is intended to
guide strategy development, implementation and communication. It measures should be
accurate, objectives and verifiable.

Strategy Maps – Organisations need tools to communicate their strategy and the
processes and systems that help them implement that strategy. Strategy maps provide such
a tool. They give a clear picture into how jobs are linked to the overall objective of the
organisation – how employees can work in a collaborative fashion toward the company’s
desired goals. The maps provide a visual representation of a company’s critical objectives
and the crucial relationship among them and identify drivers that drive the organisation
performance.

It is an extension to the BSC. It captures the perspective of the internal process into
the four core processes. These critical organisational activities are the financial perspective,
the customer perspective, the internal perspective and learning and innovation perspective.

For an example, the goals of the organisation may be presented as;

a) Building the franchise by innovating with new products and services and by
penetrating new markets and customer segments.

b) Increasing customer value by deepening relationships with existing

customers

c) Achieving operational excellence by improving supply chain management,

the cost quality and cycle time of internal processes

d) Becoming goodcorporte citizens by establishing effective relationship with

external stakeholders.

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How to construct Strategy Maps –

To build strategy maps is from the top down starting with the destination and then
charting the routes that will lead there. It process appropriate for the strategy map is
similar to that described for the balanced scorecard. The organisations can develop a
strategic vision of what it wants to become. This vision should create a clear picture of the
company’s overall goal. It provides a common framework and language that can be used to
describe any strategy, much like financial statements provide a generally accepted
structure for describing financial performance. A strategy map enables an organisation to
describe and illustrate in clear and general language its objectives initiatives and targets
the measures used to asses its performance and the linkages that are the foundation for
strategic direction.

Strategy Audit – It is one of the methods for evaluating the performance of the
chosen strategy. It provides a checklist of questions, by area or issue which enables a
systematic analysis of various organisational functions or activities. This type of
management audit is an extremely useful diagnostic tool to pinpoint problem areas and
highlight organisational strengths and weaknesses.

One of the audit is to develop benchmarks – the process involves the following steps;

Identification of function or process, usually an activity which can give a business unit
competitive advantage, that has to be audited.

a) Determination of measures of performance of the function or process

b) Decide bases for benchmarking – if they are competitors they generally have to be the
best among the industry.

c) Difference in performance measurement of the organisation and the benchmark.

d) Develop tactical program for bridging performance gap.

e) Implementation of programs and comparing the new results.

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East India Hotels :

After 58 years of peddling hospitality through its chain of luxury hotels, the famous
Oberoi name is about to be transformed into a consumer products brand. East India Hotels
has drawn up plans to become a multi-product, multi-divisional empire through a series of
diversification moves.

The expansion will see the high profile hotel group venture into unfamiliar terrain-
food processing, edible oils, tissue paper and health care. These will be in addition to the
existing software division.

The management has been restructured over the past year. More professionals have
been brought in to take charge of operational responsibilities. Certain directors were also
relieved of their operational duties in order to permit them to pay full attention to
diversification.

The first move will see the launch of a variety of processed foods covering every
meal from breakfast to dinner as well as chocolates, spices and mineral water. But can a
service name be used to sell food products? The plan is to target only the up market
segment by feeding on as well as nourishing the brand’s reputation. Edible oil, for instance,
will be positioned as a product of specialty cooking. The Oberoi brand name is also to be
extended to international quality tissue paper. The Oberois, after the experience of
managing the catering division of a major hospital in Saudi Arabia, now plan to set up a
250 bed, Rs.40 crore hospital in Delhi with US or Australian collaboration. The Oberoi
software division has already started selling its hotel management packages in the domestic
market and is planning to enter the international market using an international tie-up.

What links these projects together is the fact that each of them will have the
expertise of a foreign collaboration with an equity stake in joint ventures.

Meanwhile, the hotel business is still part of the main blueprint and three-star hotels
are coming up at 18 locations across the country with a joint venture through ACCER of

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France. The international presence is also being strengthened through hotels coming up at
Budapest, Indonesia and Saudi Arabia.

Discussion:

1. Has East India Hotels capitalized on its strengths in its growth plan?
If So, how?

2. What are the internal and external weaknesses the company has
attempted to overcome in its growth plan, and how?

Price of Cigarettes

Many states are experiencing budget shortfalls. Recently on Doordarshan there was
a segment on how the Delhi Government was considering raising its tax on cigarettes to
increase its tax receipts. The average tax per pack of cigarettes in Delhi is Rs.1.50. Delhi is
considering raising its tax from Rs.1.5. to Rs.3.00, which is predicted to increase tax
revenue by Rs.570 million.

We know that cigarette industry is not perfectly competitive. The manufactures are not
price-takers but price –makers. The industry is dominated by two large firms: ITC and
Godfrey Phillips India.

 If ITC raises its price, how will Godfrey Phillips India respond?

 Is there any way ITC and Godfrey Phillips India can keep prices high?

 Is it credible for ITC to threaten a price war with Godfrey Phillips India if Godfrey
Phillips India lowers its price?

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Discussion:

Here is a situation that game theory can shed light on. If states can increase tax
revenue by raising the price on cigarettes, then why haven’t the cigarette manufactures
raised the price already?

FACTORS CAUSING UNSUCCESSFUL IMPLEMENTATION OF

STRATEGIES:

1. Having a plan simply for plans sake. Some organizations go through the motions of
developing a plan simply because common sense says every good organization must have a
plan. Don’t do this. Just like most everything in life, you get out of a plan what you put in.
If you’re going to take the time to do it, do it right.

2. Not understanding the environment or focusing on results. Planning teams must pay
attention to changes in the business environment, set meaningful priorities, and understand
the need to pursue results.

3. Partial commitment.Business owners/CEOs/presidents must be fully committed and fully

understand how a strategic plan can improve their enterprise. Without this knowledge, it’s
tough to stay committed to the process.

4. Not having the right people involved. Those charged with executing the plan should be
involved from the onset. Those involved in creating the plan will be committed to seeing it
through execution.

5. Writing the plan and putting it on the shelf. This is as bad as not writing a plan at all. If
a plan is to be an effective management tool, it must be used and reviewed continually.
Unlike Twinkies or a fine vino, strategic plans don’t have a good shelf life.
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6. Unwillingness or inability to change. Your company and your strategic plan must be
nimble and able to adapt as market conditions change.

7. Having the wrong people in leadership positions.Management must be willing to make

the tough decisions to ensure the right individuals are in the right leadership positions. The
“right” individuals include those who will advocate for and champion the strategic plan
and keep the company on track.

8. Ignoring marketplace reality, facts, and assumptions. Don’t bury your head in the sand
when it comes to marketplace realities, and don’t discount potential problems because they
have not had an immediate impact on your business yet. Plan in advance and you’ll be
ready when the tide comes in.

9. No accountability or follow through. Be tough once the plan is developed and resources
are committed and ensure there are consequences for not delivering on the strategy.

10. Unrealistic goals or lack of focus and resources. Strategic plans must be focused and
include a manageable number of goals, objectives, and programs. Fewer and focused is
better than numerous and nebulous. Also be prepared to assign adequate resources to
accomplish those goals and objectives outlined in the plan.

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 CHAPTER-4FORMS OF ORGANIZATIONAL STRUCTURE

An organization’s goals and the plan selected to reach these goals depends on its form of
organizational structure. BusinessDictionary.com defines organizational structure as “the
framework, typically hierarchical, within which an organization arranges its lines of
authority and communications, and allocates rights and duties.” Whether an organization
is a small business or an international corporation, its form of organizational structure
must match its needs to achieve success.

SimpleStructure

Simple structure is the most commonly used structure in small businesses. This includes
organizations with fewer than 100 employees. This structure places the majority of the
power and decision-making with the business owner or manager. The strengths of an
organization using simple structure include quick decisions, owner awareness of the
organization's day-to-day operations and judgments made on what is best suited for
organization. A big weakness of simple structure is lost opportunities when the owner is not
available to make decisions. This structure does not work well for bigger organizations.

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FunctionalStructure

Functionalstructure divides the workers into groups based on their job function, such as
personnel, marketing, production and finance. Groups might be based on product or
service, by process or equipment or by types of customers. These groups work together and
exchange information. Strengths of a functional structure include specialists prepared to
make decisions within their groups and that the CEO can run the entire organization with
no concern about routine problems. Weaknesses include area managers often
concentrating on local, as opposed to overall company strategic, matters, and
interdepartmental conflicts from lack of communication among groups.

DivisionalStructure

Divisional structures are also referred to as multidivisional, M-form or geographic area

structures. This organizational structure splits into self-reliant units or divisions based on
location. Each works separately from the main or parent company. The strengths of
divisional structure include allowing corporate officers to more precisely examine each
division’s performance and encouraging division managers with poor showings to work on
methods to improve performance. Weaknesses include divisions competing for company
resources and lack of coordination between divisions.

Matrix Structure

The matrix structure combines functional and divisional structures. This form brings
numerous skilled workers from various parts of the organization together as a team. They
focus on a specific project that is to be completed within a set time frame and often have
more than one manager. This organizational structure form is often used in multinational
companies. Strengths weaknesses of this structure are similar to those encountered with
functional and divisional structures.

HIERARCHICAL LEVELS OF STRATEGY:

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Strategy can be formulated on three different levels:

 corporate level
 business unit level
 functional or departmental level.

While strategy may be about competing and surviving as a firm, one can argue that
products, not corporations compete, and products are developed by business units. The
role of the corporation then is to manage its business units and products so that each is
competitive and so that each contributes to corporate purposes.

Consider Textron, Inc., a successful conglomerate corporation that pursues profits

through a range of businesses in unrelated industries. Textron has four core business
segments:

 Aircraft - 32% of revenues

 Automotive - 25% of revenues
 Industrial - 39% of revenues
 Finance - 4% of revenues.

While the corporation must manage its portfolio of businesses to grow and survive, the
success of a diversified firm depends upon its ability to manage each of its product lines.
While there is no single competitor to Textron, we can talk about the competitors and
strategy of each of its business units. In the finance business segment, for example, the chief
rivals are major banks providing commercial financing. Many managers consider the
business level to be the proper focus for strategic planning.

CORPORATE LEVEL STRATEGY

Corporate level strategy fundamentally is concerned with the selection of businesses

in which the company should compete and with the development and coordination of that
portfolio of businesses.

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Corporate level strategy is concerned with:

 Reach - defining the issues that are corporate responsibilities; these might include
identifying the overall goals of the corporation, the types of businesses in which the
corporation should be involved, and the way in which businesses will be integrated
and managed.
 Competitive Contact - defining where in the corporation competition is to be
localized. Take the case of insurance: In the mid-1990's, Aetna as a corporation was
clearly identified with its commercial and property casualty insurance products.
The conglomerate Textron was not. For Textron, competition in the insurance
markets took place specifically at the business unit level, through its subsidiary,
Paul Revere. (Textron divested itself of The Paul Revere Corporation in 1997.)
 Managing Activities and Business Interrelationships - Corporate strategy seeks to
develop synergies by sharing and coordinating staff and other resources across
business units, investing financial resources across business units, and using
business units to complement other corporate business activities. Igor Ansoff
introduced the concept of synergy to corporate strategy.
 Management Practices - Corporations decide how business units are to be governed:
through direct corporate intervention (centralization) or through more or less
autonomous government (decentralization) that relies on persuasion and rewards.

Corporations are responsible for creating value through their businesses. They do so by
managing their portfolio of businesses, ensuring that the businesses are successful over the
long-term, developing business units, and sometimes ensuring that each business is
compatible with others in the portfolio.

BUSINESS UNIT LEVEL STRATEGY

A strategic business unit may be a division, product line, or other profit center that
can be planned independently from the other business units of the firm.

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At the business unit level, the strategic issues are less about the coordination of operating
units and more about developing and sustaining a competitive advantage for the goods and
services that are produced. At the business level, the strategy formulation phase deals with:

 positioning the business against rivals

 anticipating changes in demand and technologies and adjusting the strategy to
accommodate them
 influencing the nature of competition through strategic actions such as vertical
integration and through political actions such as lobbying.

Michael Porter identified three generic strategies (cost leadership, differentiation, and
focus) that can be implemented at the business unit level to create a competitive advantage
and defend against the adverse effects of the five forces.

FUNCTIONAL LEVEL STRATEGY

The functional level of the organization is the level of the operating divisions and
departments. The strategic issues at the functional level are related to business processes
and the value chain. Functional level strategies in marketing, finance, operations, human
resources, and R&D involve the development and coordination of resources through which
business unit level strategies can be executed efficiently and effectively.

Functional units of an organization are involved in higher level strategies by

providing input into the business unit level and corporate level strategy, such as providing
information on resources and capabilities on which the higher level strategies can be based.
Once the higher-level strategy is developed, the functional units translate it into discrete
action-plans that each department or division must accomplish for the strategy to succeed.

PERFORMANCE MEASUREMENT IN STRATEGY IMPLEMENTATION

Since the early 1990s, organisations have invested increasing amounts of

money and resources in measuring their performance. At the Centre for Business

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Performance, we have seen numerous examples of business performance
management projects that fail: sometimes from the outset, due to a flawed or poorly
designed strategy, but more often through poor implementation or execution. At
Cranfield we have devoted a lot of time and effort to trying to understand the
problems in ensuring that performance is effectively delivered within the
organisation; our research spans developing strategy, to setting up measurements,
to decision making and review.
A number of organisations have introduced performance management
systems which have been very successful: well-designed systems can form a valuable
framework to embed strategy, using objectives, targets, indicators and incentives,
with an information system to support them. Strategic performance management
(SPM) can help organisations define and achieve their strategic objectives, align
behaviours and attitudes and, ultimately, have a positive impact on organisational
performance.

What makes the difference?

Strategic formulation and implementation can easily become disconnected,
with a common misconception that we can set out a plan and then somehow that
plan will be put into practice. It is all too easy to fail to pay sufficient attention to the
effort and resources needed to put change into practice and so companies often
invest too few resources in its application. Failure to do this properly can lead to the
wrong measures and targets that can hold back, not promote change. We now know
the best ways to develop effective targets, set clear indicators and how best to phrase
objectives and communicate them. For example, it is important that performance
indicators are linked with strategy and that they are considered in strategic reviews.
The use of powerful tools, in isolation cannot guarantee business performance. Also
- and especially - it is the type of behaviours that these generate. Attention must be
given to the impact of performance management on the behaviours of people.
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The important people dimension
The introduction of new performance targets and indicators can kick-start
the implementation of new strategic objectives and promote different ways of
working. Individuals throughout the organisation - not only top management, but
everyone in the organisation - has to understand why they are there, what type of
results will they bring, what type of use will be made of the data that we collect and
also how the organisation is going to learn and improve from using the system. This
means insight into not only how a performance management system can be used as a
control system, but mostly how to generate the necessary improvements and the
essential learning that organisations need to put plans into effect.
By involving people from the very beginning, successful performance change
can take place, with involvement throughout the first stages of the execution of the
change, but also in reviewing that change and the implementation of a measurement
system. The result is that commitment and understanding is much more likely to
develop and employee commitment and clarity really makes a difference. Given the
right set-up, strategic performance management can aid motivation of employees at
all levels, promotion of a performance improvement culture, and fostering of
organisational learning.

The leadership factor

A lot of measurement systems-typically scorecards and dashboards- have also
failed because organisations have mistakenly viewed leadership and performance
management as self-contained opposites, whereas actually they are complementary
and closely linked. For performance management success, we need organisations
that are well led and well managed, but also that there is a performance
management system which is well embedded to deliver results.

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 Ultimately, there can be no substitute for sound leadership and management
to steer an organisation forward. It is essentially displaying the type of behaviour
necessary throughout the organisation. It means leaders walking the talk, not just
talking convincingly about it. It is at this stage that company statements come alive
and when the priorities for the change of an organisation become real and familiar.

Making performance management and measurement stick:

The design of an SPM system and the definition of its roles are fundamental
factors determining its success. Significantly, companies don’t stop there: they
implement strategic performance management by also focusing in on the essential
behavioural component. Strategic implementation is driven by people and therefore
people’s behaviours must be a focus of considerable attention. When
organisationsreally get to grips with how technical systems and people come
together, then they will have the capability to make strategic performance
improvement stick. Some important conclusions can be made:
First, organisations should explicitly decide whether their measurement
system is strategic or solely operational. This choice is likely to determine the link
between strategy and performance measurement, and the relevance of the PMS
within the organisation.
Second, the design of the SPMS should depend on the roles the organisation
assigns to the SPM. These roles should therefore inform decisions over the types of
performance indicators to introduce (financial and non-financial; leading and
lagging) and the use of performance information as a means to generate learning
and review.
Third, the balance between 'diagnostic' and 'interactive' uses of SPM has
relevant consequences on the possibility of SPM playing an active role in the
introduction of change initiatives and innovation strategies. SPM can also
contribute to the creation of capabilities and the establishment of an organisational
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culture. Only by doing so will the organisation make the system flexible and use it as
a lever for change.

CHAPTER-5

RELATING ORGANIZATIONAL STRUCTURE TO STRATEGIES

Business strategy is a practical plan for achieving an organization's mission and objectives.
Organizational structure is the formal layout of a company's hierarchy. Both strategy and
structure are crucial elements of doing business, and even companies that do not have
formal strategies and structures likely still have both in one form or another.

The Facts

Business strategy is generally created at the upper levels of an organization. Grand

corporate strategies can be broken down into objectives and tactics to ensure that the
strategy is relevant all the way down the organizational hierarchy. Organizational
structure is put into place relatively early in the life of a business, but it can be changed
over time as the company evolves. Business strategy and organizational structure may seem
like very different concepts at first glance, but there is a number of important correlations
between the two.

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Process

Business owners generate strategies using a number of managerial tools. Qualitative tools,
such as SWOT analysis -- a tool that identifies internal strengths and weaknesses, as well as
external opportunities and threats -- can help managers to identify strategic opportunities.
Quantitative tools, such as the reports generated by a Total Quality Management software
package, can help to provide insight into a company's strengths and uncover hidden issues
using statistical models.

Structure

A company's organizational structure must support its strategy. Employees at all levels of
the company must be empowered to effectively complete the tasks necessary to achieve
organizational objectives, and company structure can aid or hinder employees in their
roles. Structure can also dictate the means by which strategies are formed. Bureaucratic
companies tend to generate a majority of strategic ideas at the top levels of management.
Companies with flatter structures, on the other hand, often involve a range of employees in
strategy sessions.

Strategy

A business owner's initial strategy can often dictate the form of the company's structure.
An entrepreneur with dreams of employing a highly educated and trained workforce with
large leeway to innovate and try new ideas, for example, is likely to structure his
organization to be as flat as possible. The opposite would be true of an entrepreneur who
wishes to enter a line of business with a traditionally high employee turnover rate, such as
telemarketing, since it can be difficult to retain highly skilled labor in high turnover
industries.

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Considerations

Both strategy and structure need to be refined and adapted over time. No matter how your
strategy and structure evolves, however, ensure that these two crucial elements always fully
support each other, never hindering or impeding the effectiveness of the other.

THE BENEFITS OF A SUCCESSFUL STRATEGIC I IMPLEMENTATION

1. Quickly Identify and Respond to Business Trends

Whether tracking customer buying habits, inventory turns, or other sales and/or
operational parameters, any and all of these areas are more readily evaluated and
employed in the business decision-making process when coherent and consistent BI tools
are available.

As it turns out, the graphical nature of most BI toolkits consistently and dramatically
provide for easy access and demand attention to the most useful trends. Indeed, the very
nature of the BI toolkit gives rise to a dynamic and readily identified representation of the
most pertinent trend data.

2. Empowered Staff Using Timely, Meaningful Information and Trend

Reports
The dynamic nature of the BI toolkit propagates a more highly informed
management staff, making more highly informed and empowered decisions. If proper care
is taken during the design and deployment phase, these valuable decision-making tools will
be available to all levels of the organization.

Put succinctly, the very nature of strategic BI toolkits will empower managers at all
levels to focus on only the most timely and critical data.

3. Easily Create In-Depth Financial, Operations, Customer, and Vendor

Reports
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 One of the most useful inherent characteristics of a strategic BI implementation is
the purposeful aggregation of company data. Because of this focused compendium of
functional area information, the generation of meaningful and powerful reporting is almost
automatic. In those cases where manual and specific report generation is required, the
presentation of data and simple connectivity to useful tools makes report generation
simplicity itself.

On-demand reporting has never been so effortless or useful.

4. Efficiently View, Manipulate, Analyze, and Distribute Reports Using Many

Familiar Third-Party Tools
Strategic BI systems do not require linkage or association with advanced and
expensive computer software and hardware systems. Since many organizations do not have
at their disposal multimillion-dollar budgets, already existing tools such as Microsoft
Office, Crystal Reports, and other third-party software offerings can be readily employed,
in most cases paying for the BI implementation itself.

5. Extract Up-to-the-Minute High-Level Summaries, Account Groupings, or

Detail Transactions
Because of the inherent, organizational features of any well-executed BI
deployment, users end up with access to pertinent, focused information exactly suited to
their specific needs. Additionally, the information available is custom fit to those decisions
that need to be made and on a most timely basis.

6. Consolidate Data from Multiple Companies, Divisions, and Databases

Consolidation and aggregation are the dual capstones of BI. They refer to the most
promising and powerful aspects of BI.

As one of our most valuable customers related, "We were tired of doing our
budgeting and planning the old way. Before we implemented our BI strategy, our fiscal
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budget took about nine months. We really needed to find other options to address the
multiple spreadsheets that we had that were not consolidated and not updated. With BI in
place, we did the first pass on our budget in about seven weeks."

7. Minimize Manual and Repetitive Work

This becomes especially true of the administrative tasks made necessary in non-BI
environments due to data disparity and nonaligned data systems.

Once in place, the BI toolkit and the synchronistic nature of the BI environment will
facilitate a very different orientation to the everyday tasks of data accumulation and
processing.

Today thousands of businesses in all sizes, in all industries, all around the world are
implementing and utilizing Strategic Business Intelligence. We are at the beginning, a time
when the business and technological advances promised by BI are still being developed,
explored, and enhanced

BARRIERS TO IMPLEMENTING STRATEGIES:

Why are barriers important?

A barrier is an obstacle which prevents a given policy instrument being

implemented, or limits the way in which it can be implemented. In the extreme, such
barriers may lead to certain policy instruments being overlooked, and the resulting
strategies being much less effective. For example, demand management measures are likely
to be important in larger cities as ways of controlling the growth of congestion and
improving the environment. But at the same time they are often unpopular, and cities may
be tempted to reject them simply because they will be unpopular. If that decision leads in
turn to greater congestion and a worse environment, the strategy will be less successful.
The emphasis should therefore be on how to overcome these barriers, rather than simply
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how to avoid them. ECOCITY provides a useful illustration of the ways in which such
barriers arise, and of how obstacles have been overcome, in case study cities.

What are the principal barriers?

In our work in PROSPECTS, we grouped barriers into the four categories

listed below. More recent work in TIPP has demonstrated that failure to adopt a
logical approach to the process of strategy development can also impose a barrier to
effective planning. This Guidebook is designed to help cities avoid this happening.
TIPP also provides a set of recommended

1) Legal and institutional barriers

These include lack of legal powers to implement a particular instrument, and legal
responsibilities which are split between agencies, limiting the ability of the city
authority to implement the affected instrument .

2) Financial barriers

These include budget restrictions limiting the overall expenditure on the strategy,
financial restrictions on specific instruments, and limitations on the flexibility with which
revenues can be used to finance the full range of instruments. PROSPECTS found that
road building and public transport infrastructure are the two policy areas which are most
commonly subject to financial constraints, with 80% of European cities stating that finance
was a major barrier. Information provision is the least affected.

3) Political and cultural barriers

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 These involve lack of political or public acceptance of an instrument, restrictions
imposed by pressure groups, and cultural attributes, such as attitudes to enforcement,
which influence the effectiveness of instruments. The surveys in PROSPECTS show that
road building and pricing are the two policy areas which are most commonly subject to
constraints on political acceptability. Public transport operations and information
provision are generally the least affected by acceptability constraints.

4) Practical and technological barriers

While cities view legal, financial and political barriers as the most serious which they
face in implementing land use and transport policy instruments, there may also be practical
limitations. For land use and infrastructure these may well include land acquisition. For
management and pricing, enforcement and administration are key issues. For infrastructure,
management and information systems, engineering design and availability of technology may
limit progress. Generally, lack of key skills and expertise can be a significant barrier to
progress, and is aggravated by the rapid changes in the types of policy being considered

APPROACHES TO THE EVALUATION ORGANIZATIONAL

EFFECTIVENESS

An organization's effectiveness is in major part a measure of the effectiveness of its

master strategy. Selection of the appropriate basis for assessing organizational effectiveness
presents a challenging problem for managers and researchers.

There are no generally accepted conceptualizations prescribing the best criteria.

Different organizational situations - pertaining to the performance of the organization's
structure, the performance of the organization's human resources, and the impact of the
organization's activities -require different criteria.

J. Barton Cunningham, after reviewing the relevant literature, concluded that seven
major ways of evaluating organizational effectiveness existed: rational goal model, systems
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resource model, managerial process model, organizational development model, the bargaining
model.

THE RATIONAL GOAL MODEL

The rational goal approach focuses on the organization's ability to achieve its goals.
An organization's goals are identified by establishing the general goal, discovering means
or objectives for its accomplishment, and defining a set of activities for each objectives.

The organization is evaluated by comparing the activities accomplished with those

planned for. These criteria are determined by various factors.

THE SYSTEMS RESOURCE MODEL

The systems resource model analyzes the decision-makers's capability to efficiently

distribute resources among various subsystem's needs. The systems resources model
defines the organization as a network of interrelated subsystems.

These subsystems needs may be classified as:

 bargaining position -ability of the organization to exploit its environment in

acquisition of scarce and valued resources;
 ability of the systems' decision-makers to perceive, and correctly interpret, the real
properties of the external environment;
 ability of the system to produce a certain specified output;
 maintenance of internal day-to-day activities;
 ability of the organization to co-ordinate relationships among the various
subsystems;
 ability of the organization to respond to feedback regarding its effectiveness in the
environment.
 ability of the organization to evaluate the effect of its decisions;
 ability of the organization' system to accomplish its goals.

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THE BARGAINING MODEL

Each organizational problem requires a specific allocation of resources. The

bargaining model presumes that an organization is a cooperative, sometimes competitive,
resource distributing system.

Decisions, problems and goals are more useful when shared by a greater number of
people. Each decision-maker bargains with other groups for scarce resources which are
vital in solving problems and meeting goals.

The overall outcome is a function of the particular strategies selected by the various
decision-makers in their bargaining relationships. This model measures the ability of
decision-makers to obtain and use resources for responding to problems important to
them.

Each of the subsystems' needs should be evaluated from two focal points: efficiency
and stress. Efficiency is an indication of the organization's ability to use its resources in
responding to the most subsystems' needs. Stress is the tension produced by the system in
fulfilling or not fulfilling its needs.

THE MANAGERIAL PROCESS MODEL

The managerial process model assesses the capability an productivity of various

managerial processes -decision making, planning, budgeting, and the like -for performing
goals.

The managerial process model is based on the intuitive concept of substantial

rationality, which interrelates the drives, impulses, wishes, feelings, needs, and values of the
individuals to the functional goals of the organization.

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THE ORGANIZATIONAL DEVELOPMENT MODEL

This model appraises the organization's ability to work as a team and to fit the needs of
its members. The model focuses on developing practices to foster:

1. supervisory behavior manifesting interest and concern for workers;

2. team spirit, group loyalty, and teamwork among workers and between workers and
management;
3. confidence, trust and communication among workers and between workers and
management;
4. more freedom to set their own objectives.

The model's procedure attempts to answer four main questions:

1. Where are we?;

2. Where do we want to go?;
3. How will we get there?;
4. How will we know when we do get there?

These questions can be divided into four areas: question one is concerned with
diagnosis, question two with the setting of goals and plans, question three with the
implementation of goals, and question four with evaluation.

This model is concerned with changing beliefs, attitudes, values, and organizational
structures so that individuals can be better adopt to new technologies and challenges. It is a
process of management by objectives in contrast to management by control.

THE STRUCTURAL FUNCTIONAL MODEL

The structural functional approach tests the durability and flexibility of the
organization's structure for responding to a diversity of situations and events.

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 According to this model, all systems need maintenance and continuity. The
following aspects define this:

 security of the organization as whole in relation to the social forces in its

environment (this relates to ability to forestall threatened aggressions or deleterious
consequences from the actions of others);
 stability of lines of authority and communication (this refers to the continued
capacity of leadership to control and have access to individuals in the system);
 stability of informal relations within the organization;
 continuity of policy making (this refers to the ability to reexamine policy an a
continuing basis);
 homogeneity of outlook (this refers the ability to effectively orient members to
organization norms and beliefs).

THE FUNCTIONAL MODEL

In the functional approach an organization's effectiveness is determined by the

social consequences of its activities.

The crucial question to be answered is: how well do the organization's activities
serve the needs of its client groups?

The appraisal of an organization's effectiveness should consider whether these

activities are function or dysfunctions in fulling the organization's goals.

These seven models have their strengths and shortcomings depending upon the
organizational situation being evaluated. The choice of evaluation approach usually hinges
on the organizational situation that needs to be addressed.

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 ORGANIZATIONAL STRUCTURE & CONTROLS

DEFINITIONS:
Organizational Structure – A firm’s formal role configuration, procedures,
governance, and control mechanisms, and authority and decision-making processes.

Simple Structure – An organizational form in which the owner-manager makes

all major decisions directly and monitors all activities, while the staff serves as an extension
of the manager’s supervisory authority.

Functional Structure – Consists of a chief executi9ve officer and limited

corporate staff, with functional line managers in dominant organizational areas such as
production, accounting, marketing, R&D, engineering, and human resources.

Multidivisional (M-Form) – Structure – Composed of operating divisions where

each division represents a separate business or profit center and the top corporate officer
delegates responsibility for day-to-day operations and business-unit strategy to division
managers.

Strategic Business Unit (SBU) Form – A form of the multidivisional structure

consists of at least three levels, with the top level being the corporate headquarters; the
next level, SBU groups; and the final level, divisions group by relatedness (either product
or geographical market) within each SBU.

Strategic Control – The use of long-term and strategically relevant criteria by

corporate-level managers to evaluate the performance of division managers and their units.

Financial Control – Objective criteria (e.g., return on investment) that

corporate-level managers use to evaluate the returns being earned by individual business
units and the managers responsible for their performance.

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 Centralization – The degree to which decision-making authority is retained at
higher managerial levels.
There are basic types of structures organizations can use: simple, functional and multi-
divisional. Organizations sometimes find that that they have outgrown one structure and
must adapt a new form in order to effective handle more complexity and growth.

Simple Structure:
May be the most widely used structure, since most organizations are small (less than
100 employees). This structure is utilized where an owner-manager makes most of the
decisions. While this structure is relatively efficient from the standpoint of its flatness, it is
difficult to maintain as the organization grows in both complexity and size.

Strengths:

 Decisions are made quickly

 Owner-manager is aware of what is going on in the organization
 Owner-manager makes decisions based on what is best for overall organization

Weaknesses:

 If owner-manager is unavailable decisions may not be able to be made, thus

opportunities maybe lost.
 Not good for larger more complex organizations.

Functional Structure:
In a functional structure jobs become differentiated around areas of specialty. For
example, accounting and human resource specialists are hired to handle these specialized
tasks. These specialists (functional line managers) report to the CEO, but usually have
autonomy for day-to-day decision-making, e.g., hiring and firing personnel.

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Strengths:

 Organization has specialists who may be better equipped to make decisions in their
area of specialty
 CEO can manager overall interest of the organization without having to worry
about mundane problems
 If the CEO is unavailable problems can still be solved and opportunities can be
exploited

Weaknesses:

 Functional-area managers tend to focus on local versus overall company strategic

issues
 CEO may not be informed of potential problems or difficulties, thereby catching
them by surprise when it may be too late to reverse course.
 Vertical communication may be difficult, thereby, causing duplication or rivalry
between departments.

Multidivisional Structure:
The multidivisional structure centers on the use of separate businesses or profit
centers. The M-Form is used by many organizations that compete in the global economy.
General Electric is an example of a company that uses this structure. Each unit is operated
as a separate business with its own corporate staff including President. Some parent
companies do little more than provide capital and guide units to an organizational-wide
strategy. The overall goal is to maximize the overall organization’s performance. In order
to accomplish this, managers at the “parent” use a combination of strategic and financial
controls.

Example:
To handle the problems that General Motors was experience in the early part of the
1900s, CEO Alfred Sloan, Jr., reorganized GM round separate divisions. Each division
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represented a distinct business that would be self-contained and have its own functional
hierarchy. Sloan’s new structure delegated day-to-day operating responsibilities to
division managers. The small corporate level was responsible for determining the firm’s
long-term strategic direction and for exercising overall financial control of
semiautonomous divisions. Each division was to make its own business-level strategic
decisions that would feed into the overall corporate strategy. Sloan's structural innovation
had three important outcomes:

1. It Enabled corporate officers to more accurately monitor the performance of each

business (simplified the problem of control)
2. It facilitate comparisons between divisions, which improved the resource allocation
process
3. It stimulated managers of poor performing divisions to look for ways of improving
performance.

Strengths:

 Allows organizations to greatly expand their operations

 Units can work together thus benefiting for synergies
 Has the potential to positively influence the firm’s diversification strategy by
encouraging managers to pursue additional market-place opportunities

Weaknesses:

 Units may have to compete for scarce resources, e.g. financing

 Separate units may not coordinate, therefore duplicating the wasting resources

Strategic Controls:

Strategic controls entail the use of long-term and strategically relevant criteria.
They are behavioral in nature, meaning that they require high levels of cognitive diversity
among top-level managers. Cognitive diversity captures the differences in beliefs about
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cause-effect relationships and desired outcomes among top-level managers’ preferences.
Corporate-level managers rely on strategic control to gain an operational understanding of
the organization’s different operating units. The use of strategic controls requires access to
in depth information. Information is often gathered by formal (reading reports, meeting
etc.) and informal (brief phone calls and discussions over lunch or unplanned face-to-face
meetings) means.

Financial Control:

Entails corporate-level managers using objective criteria (ROI) to evaluate the

returns being earned by the individual business units. Since these performance measures
are largely independent, divisions often do not collaborate with other divisions unless there
is a mutual benefit where each division will realize cost savings. However, when the
corporate-level managers implement strategies that require interdependence the ability to
access is reduced thereby reducing the ability of financial control process to add value.

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UNIT-5

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CHAPTER-1

STRATEGY EVALUATION AND CONTROL:

The final stage in strategic management is strategy evaluation and control. All
strategies are subject to future modification because internal and external factors are
constantly changing. In the strategy evaluation and control process managers determine
whether the chosen strategy is achieving the organization's objectives. The fundamental
strategy evaluation and control activities are: reviewing internal and external factors that
are the bases for current strategies, measuring performance, and taking corrective actions.

CONCEPT OF STRATEGIC EVALUATION AND CONTROL:

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 Strategic evaluation and control is related to that aspect of strategic management
through which an organisation ensures whether it is achieving its objectives Contemplated
in the strategic action. If not, what corrective actions are required for strategic
effectiveness.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 which emphasizes measurement of results of a strategic action and control
which emphasizes on taking necessary actions in the light of gap that exists between
intended results and actual results in the strategic action. However, because of on-going
nature of strategic evaluation and control process both these are intertwined. In practice,
the term control is used in a broad sense which includes evaluative aspect too because
unless the results of an action are known, control actions cannot be taken.

STRATEGIC CONTROL SYSTEM:

Strategic control systems are vital aspect of implementing strategy of an

organization. The primary function of strategic control systems is to provide information
for management. Information needs to control its strategy and structure. Strategic control
systems are the formal target setting, monitoring, and evaluation and feedback systems. It
provides information to management about the organisation’s strategy and structure. Both
are meeting strategic performance and mission and vision of an organisation.

CHARACTERISTICS OF STRATEGIC CONTROL SYSTEMS:

 It should provide accurate information and is giving a true picture of organisational

performance.
 It should be flexible enough to allow mangers to respond as necessary to undexpeted
events in organisation.
 It should supply information to managers in a timely sense.
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STEPS IN CONTROL SYSTEM:

There are four steps for designing an effective control system of an organisation. They are
as follows:

 Establish standards and targets

 Create measuring and monitoring system
 Compare actual performance against the established targets
 Evaluate result and take action if necessary

TYPES OF STRATEGIC CONTROL:

There are 6 steps of strategic control. They are as listed below:

 Premise control
 Implementation control
 Strategic surveillance
 Special alert control
 Market / output control strategy

Premise control –

It is based on assumed or predicted conditions. It can be designed to check

systematically and continuously. Premise can be recognized and revised for the better
changes and acceptable.

Premises are primarily concerned with 2 factors listed below:

 Environmental factors

 Industry factors.

Implementation control –

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 It is an important phase of strategic management. It locates in the serious of steps,
programmes, investments and moves undertaken over a period to implement strategy. It
can be designed to assess whether the overall strategy should be changed in light of
unfolding events and results associated with incremental steps and actions. There are two
basic factors involved for implementation control. They are listed below;

 Monitoring strategic thrusts/projects

 Milestone review

Monitoring strategic thrusts (new or key strategic programs):

Two approaches are useful in enacting implementation controls focused on

monitoring strategic thrusts: (1) one way is to agree early in the planning process on which
thrusts are critical factors in the success of the strategy or of that thrust; (2) the second
approach is to use stop/go assessments linked to a series of meaningful thresholds (time,
costs, research and development, success, etc.) associated with particular thrusts.

Milestone Reviews:

Milestones are significant points in the development of a programme, such as points

where large commitments of resources must be made. A milestone review usually involves a
full-scale reassessment of the strategy and the advisability of continuing or refocusing the
direction of the company. In order to control the current strategy, must be provided in
strategic plans.

Market control:

It is an important objective of output control. It is helpful to strategist to analyse

and monitor the marketing performance of organisation. Market control focuses on the
performance of one company compare as to another company in terms of stock-market

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price and return of investment. These things help to appraise financial performance of the
company or organisation.

Output control:

It concentrates on output like divisional goals, functional goals, individual goals

which are monitored, evaluated and guided by the strategic managers. Strategic manager
aims to establish projects with execution of different types of control systems for measuring
and improving efficiency of the organisational strategic objectives.

MATCHING STRUCTURE AND CONTROL SYSTEMS:

We discuss how strategic choices to match different forms of structure and control to
strategy.

a) Functional –level strategy – influences the choice of structure and

control for implementing.

b) How company’s choice of generic business level strategy.

c) We focus on the implementation of a global strategy and discuss how

to match different global strategies with different global structure.

d) The special problems that different kinds of corporate level strategy

pose for strategic mangers in designing a structure.

At Business Level –

a) Generic business level strategies

b) Cost leadership strategy and structure

c) Differentiation strategy and structure

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 d) Implementing a combined differentiation and cost-leadership
strategy.

e) Focus strategy and structure.

Designing a Global Structure:

a) Multi domestic strategy and structure

b) International strategy and structure

c) Global strategy and structure

d) Transactional strategy and structure.

STRATEGY EVALUATION PROCESS AND ITS SIGNIFICANCE

1. Fixing benchmark of performance –

While fixing the benchmark, strategists encounter questions such as - what

benchmarks to set, how to set them and how to express them. In order to determine
the benchmark performance to be set, it is essential to discover the special
requirements for performing the main task. The performance indicator that best
identify and express the special requirements might then be determined to be used
for evaluation. The organization can use both quantitative and qualitative criteria
for comprehensive assessment of performance. Quantitative criteria includes
determination of net profit, ROI, earning per share, cost of production, rate of
employee turnover etc. Among the Qualitative factors are subjective evaluation of
factors such as - skills and competencies, risk taking potential, flexibility etc.

2. Measurement of performance –

The standard performance is a bench mark with which the actual

performance is to be compared. The reporting and communication system help in
measuring the performance. If appropriate means are available for measuring the
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 performance and if the standards are set in the right manner, strategy evaluation
becomes easier. But various factors such as managers contribution are difficult to
measure. Similarly divisional performance is sometimes difficult to measure as
compared to individual performance. Thus, variable objectives must be created
against which measurement of performance can be done. The measurement must be
done at right time else evaluation will not meet its purpose. For measuring the
performance, financial statements like - balance sheet, profit and loss account must
be prepared on an annual basis.

3. Analyzing Variance –

While measuring the actual performance and comparing it with standard

performance there may be variances which must be analyzed. The strategists must
mention the degree of tolerance limits between which the variance between actual
and standard performance may be accepted. The positive deviation indicates a
better performance but it is quite unusual exceeding the target always. The negative
deviation is an issue of concern because it indicates a shortfall in performance. Thus
in this case the strategists must discover the causes of deviation and must take
corrective action to overcome it.

4. Taking Corrective Action –

Once the deviation in performance is identified, it is essential to plan for a

corrective action. If the performance is consistently less than the desired
performance, the strategists must carry a detailed analysis of the factors responsible
for such performance. If the strategists discover that the organizational potential
does not match with the performance requirements, then the standards must be
lowered. Another rare and drastic corrective action is reformulating the strategy

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 which requires going back to the process of strategic management, reframing of
plans according to new resource allocation trend and consequent means going to the
beginning point of strategic management process.

CHAPTER-2

TECHNIQUES OF STRATEGY EVALUATION & CONTROL

financial performance control

Financial performance control, or simply referred to as financial control, is relevant

for those aspects of business operations whose outcomes are expressed in monetary terms.
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Financial control is exercised at operative level as well as at overall organisation level
though techniques involved are different. Financial control techniques are grouped into
three categories from strategic management point of view:

1. Budgetary control,

2. Financial ratio analysis, and

3. Return on investment.

Budgetary Control:

Budgetary control is derived from the concept and use of budgets. We have
seen in chapter 6 that a budget is the financial expression of various organisational
operations and the way in which budgets are prepared as tools for planning. Thus,
budgetary control is a system which uses budgets as a means for planning and controlling
entire aspects of organisational activities or parts thereof. Terry has defined budgetary
control as follows:

“Budgetary control is a process of comparing the actual results with the corresponding
budget data in order to approve accomplishments or to remedy differences by either
adjusting the budget estimates or correcting the cause of the difference.”Some people treat
budgetary control only as a technique of cost control. For example, Brown and Howard
have defined budgetary control as follows: “Budgetary control is a system of controlling
costs which includes the preparation of budgets, coordinating the departments and
establishing responsibility, comparing actual performance with budgeted and acting upon
results to achieve maximum profitability.”However, the scope of budgetary control extends
beyond cost control with the introduction of several types of budgeting.

Financial Ratio Analysis:

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 Financial ratio analysis identifies the relationship between two financial
variables in order to derive meaningful conclusion about their behaviour. Metcalf and
Titard have defined financial

ratio analysis as “a process of evaluating relationship between component

parts of financial statements to obtain a better understanding of a firm’s position and
performance. The type of relationship to be investigated depends on the objective and
purpose of evaluation. In the case of measurement of overall performance, generally, four
groups of ratios are considered: liquidity ratios, activity ratios, leverage ratios, and
profitability ratios. A brief description of these ratios is presented here.

Liquidity Ratios:

Liquidity ratios indicate the organisation’s ability to pay its short term debts.
These ratios are generally expressed in two forms: current ratio and quick ratio. Current
ratio shows the relationship between current assets and current liabilities. This indicates
the extent to which current assets are adequate to pay current liabilities. Quick ratio
indicates the relationship between liquid assets (cash in hand and with bank and short-
term debtors) and current liabilities. It helps in identifying the organisation’s ability to pay
its current liabilities without considering inventory in hand.

Activity Ratios:

Activity ratios show how funds of the organisation are being used. These
ratios are in the form of inventory turnover ratio, receivable turnover ratio, and assets
turnover ratio. Inventory turnover ratio indicates the number of times inventory is
replaced during the year and shows how effectively inventory has been managed.
Receivable turnover ratio shows how promptly the organisation is able to collect dues from
its debtors. Assets turnover ratio indicates how effectively assets have been used to generate
sales.

Leverage Ratios:

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 Leverage ratios indicate the relative amount of funds in the business supplied by
creditors/financiers and shareholders owners. These ratios are in the form of debt-equity
ratio, debt- total capital ratio, and interest coverage ratio. Debt-equity ratio indicates the
proportion of debt in relation to equity and indicates the financial strength of the
organization. Debt-total capital ratio shows the proportion of debt to total capital
employed. This also indicates the financial strength. Interest coverage ratio shows the
interest burden being borne by the organisation in relation to its profit.

Profitability Ratios:

Profitability ratios show the ability of an organisation to earn profit in relation to its
sales and/or investment. Profitability ratios are expressed in terms of profit margin as well
as return on investment. Profit margin, either net profit or gross profit, is expressed in the
form of relationship between profit and sales and indicates the degree of profitability of the
business. Return on investment is measured by relating profit to investment. Return on
investment is the most comprehensive technique for controlling overall performance.

Return on Investment:

The efficiency of an organisation is judged by the amount of profit it earns in

relation to the size of its investment, popularly known as ‘return on investment’ (ROI).
This approach has been an important part of the control system of Du Pont Company,
U.S.A., since 1919, though it was actually devised by Donaldson Brown in 1914. Since its
successful operation in Du Pont, a larger number of companies have adopted it as their key
measure of overall performance.

THE IMPORTANCE OF STRATEGIC EVALUATION

Strategy is a plan of action developed to achieve a specific goal or objective.
Strategic business planning isn't just for large companies. It's also required for small and
mid-sized companies competing in markets that have become smaller due to technological
advances that have increased the interconnection of markets. Strategic evaluation is the
assessment process that provide executives and managers performance information about
programs, projects and activities designed to meet business goals and objectives.
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Strategic Planning
Corporate-level strategies are developed to ensure that value is created
in excess of its cost. The best business strategies will add more value than
those of your competitors. This requires business leaders to identify where the
opportunity for improvement exists and assess the company's current
capability to seize them using existing human and capital resources.

Nuts and Bolts

Look to the company's business goals and objectives when evaluating
business strategies that have already been implemented. Projects, tasks and
activities are developed to move these goals and objectives forward, which is
best achieved by what "Management Review" calls the SMART criteria:
specific, measurable, achievable, relevant and time-limited. This gives
management the opportunity to set milestones and assess the progress toward
strategic business goals and objectives.

Business Performance
Henry Mintzberg states in "The Rise and Fall of Strategic Planning"
that the main failings in strategic planning relates to elaborate processes,
detached management and an over-reliance on hard data. Regarding the
latter, Mintzberg made an argument for "soft data," such as contacts,
networks and communications with customers, employees and suppliers.
While these more intuitive and qualitative assessments are important, hard
data about the company's performance -- such as industry and competitors'
performance data -- is at least equally important in evaluating the
effectiveness of strategies.

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Reassessing Goals
An organization's performance data might be the key indication that
business goals and objectives need to be reviewed and re-evaluated. For
example, under-performing program and project outcomes might result from
several factors. For example, this might include inefficient team performance,
changes in the needs of the targeted market or ineffective or flawed strategies.

Significance
Strategic evaluations provide an objective method for testing the efficiency and
effectiveness of business strategies, as well as a way to determine whether the strategy
being implemented is moving the business toward its intended strategic objectives.
Evaluations also can help identify when and what corrective actions are necessary to bring
performance back in line with business objectives.

Performance Measurement
Strategic evaluations start by defining a performance ideal according to business
objectives. This performance ideal includes both qualitative and quantitative performance
benchmarks to which actual performance of the business as a whole and the performance
of individual employees can be compared. Qualitative benchmarks are subjective factors
such as skills, competencies and flexibility. Quantitative benchmarks include “hard facts”
such as net profit, earnings per share of stock or staff turnover rates.

Analysis
Strategic evaluations work under the assumption that because the business
environment is fluid and constantly changing, variances will commonly exist between ideal
and actual performance. Regular strategic evaluations provide an objective, effective way
for a business to evaluate, analyze and modify performance expectations. A positive
variance can tell a business what it’s doing right and confirm it’s on the right track while a
negative variance can be a signal that the performance of management and staff needs to
change.
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Corrective Actions
When strategic evaluations pinpoint areas where the business is not meeting
strategic objectives, corrective actions can attempt to solve the problem. For example, if a
business discovers strategic technical objectives are not being met because employees do
not have up-to-date qualifications, the business can design training programs that bring
skillsets in line with technical objectives. If a business discovers the business objective itself
is out of line – such as overly aggressive sales expectations – it can take steps to modify the
objective and bring it line with real-life potential.

EXAMINING EFFECTIVE STRATEGIC EVALUATION AND CONTROL

ACCOUNTING:

Strategic evaluation and control is defined as the process of determining

the effectiveness of a given strategy in achieving the organisational objectives and
taking corrective action whenever required. The nature strategic evaluation and
control process is to test the effectiveness of the strategy.

The fact that a manager individually performs a set of functions, which are
interrelated to other tasks that managers elsewhere in the organisation are
performing, makes it clear that the tasks have to be correlated. The importance
of strategic evaluation lies in its ability to coordinate the tasks performed by
individual managers, and also groups, division, or SBUs, through the control of
performance. In the absence of coordinating and controlling mechanisms,
individual managers may pursue goals which are inconsistent with the overall
objectives of the department, division, SBU, or the whole organisation.

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 Besides this reason, there could be several other factors like: the need for
feedback, appraisal and reward; check on the validity of strategic choice;
congruence between decisions and intended strategy; successful culmination of
strategic management process; and creating inputs for new strategic plan.
The various participants in strategic evaluation and control are: the stakeholders
of the organisation; the board of directors; the chief executives; the SBU or
profit centre heads; the financial controllers; company secretaries, and external
and internal auditors; auditors and executive committees; and middle level
managers.

The five major types of barriers in evaluation are: the limits of control;
difficulties in measurement; resistance to evaluation; short termism; and relying
on the efficiency versus effectiveness.

STRATEGIC CONTROL

A strategy is formulated on the basis of several assumptions.

These relate to environmental and organisational factors, which are dynamic and
eventful. There is considerable gap between the time when a strategy is
formulated and the time when it is implemented. The process of implementation
is itself time consuming. During this intervening period, there is a possibility that
the assumptions made while formulating a strategy will not remain valid, or at
least, are no longer so relevant. Strategic controls take into account the changing
assumptions that determine a strategy, continually evaluate the strategy as it is
being implemented, and take the necessary steps to adjust the strategy to the new
requirements. Thus the strategic controls are early warning systems and differ
from the post control systems which evaluate only after the implementation has
been completed.
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PREMISE CONTROL

Every strategy is based on certain assumptions about environmental and

organisational factors. Some of these factors are highly significant and any
change in them can affect the strategy to a large extent. Premise control is
necessary to identify the key assumptions, keep track of any change in them so as
to assess their impact on strategy and its implementation. Premise control serves
the purpose of continually testing the assumptions to find out whether they are
still valid or not. This enables the strategists to take corrective action at the right
time rather than continuing with a strategy which is based on erroneous
assumptions. The responsibility for premise control can be assigned to the
corporate planning staff that can identify key assumptions and keep a regular
check on their validity.

CHAPTER-3REQUIREMENT FOR EFFECTIVE EVALUATION

Everyone evaluates. But why, when I walk into a room full of clients and suggest that we
need to evaluate what they are doing, oxygen is sucked through the vents, my clients begin
to sweat and many times, they shut down. Simply asking people about the outcome or
impact of their work causes distress for three main reasons:

 There is a fear that evaluation is really an evaluation of them.

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  If evaluation is truly an evaluation of them, then their job might be in jeopardy.
 Evaluation demonstrates a failure of their ideas.

There is an element of truth in these beliefs because evaluation is used to measure a

person’s job performance.

In my line of work, as a health educator, I use evaluation as a way to see how ideas and
concepts impact the lives of the people they are meant to help. This may contrast what
evaluation purists believe, but I am going to gamble that most of us are not out to
implement complicated and large evaluations. When large-scale, complicated evaluations
are conducted, you may be confused with all the information that comes back. This may
cause you to lose the general focus of what you were seeking to find out in the first place.
When this happens, the data loses it value and you have no plan for it. Eventually what you
spent a great deal of time and money on ends up in some file stored away, in a dark office
or under an old pile of books. Instead of having useful information you have nothing.

In this article, I want to take a few moments to spell out some simple ways to implement an
evaluation. I will provide illustrations of evaluation planning that will maximize your time
and deliver results you will value and use. Keep in mind, this article is focused on those
who need to evaluate simple community based programs, classes or activities.

Step One – Plan for evaluation

More often than not, clients will call me in to evaluate the program they have just
implemented. When I ask them what their objectives are for this program, I usually get an
answer similar to, “What do you mean by objectives?”

I respond, “What is the reason for creating and delivering this program?” After spending a
bit of time determining what they expected to have come from their program, we have
created their set of program evaluations. But this is a classic case of putting the cart-before-
the-horse evaluation. The best way to do evaluation is to first plan for it while you are

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designing your program. Remember that you also need to consider how you will share your
findings.

Step Two – Decide how much information you are going to need

How do you intend to learn about your program? Do you want to learn about changes in
behavior, knowledge or attitudes of your program participants? Will you need to have a
control group or can you simply sample from the individuals attending your program?
Will you need to conduct a pretest to gather baseline data? Is it your intent to measure
changes over time?

In planning this stage of your evaluation, you must have an idea about your target
audience and how accessible they are to you as well. If you have one shot to survey your
participants, this will influence how much information you can gather for your evaluation.
Conversely, if you have access to this same group for a long period of time, over multiple
occasions, you may be able to measure changes over time and determine, to a greater
degree, how your program has impacted their lives.

Knowing the accessibility of your target audience is a critical first step in deciding how
much information you can gather. But there are other important issues to consider when
determining how much information to gather, which leads to step three.

Step Three – Developing your methods of evaluation

Some major issues that influence how you design your evaluation tools include expense and
labor intensity. There are other issues that you need to consider when developing your
tools, which include literacy level, age, cultural, educational and language factors.

How useful will your evaluation results be if all your surveys are returned with no
responses on them? How different would your evaluation be if you were delivering it to an
audience of third graders? Obviously, you will need to design a method that is child
sensitive. Conversely, if you are working with a group of seniors who are averse to filling

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out another form, you will need to consider evaluation techniques that will more
appropriately determine program outcomes.

Methods of evaluation incorporate elements of time and type. They can take place before,
during and after a program is implemented. Once you have determined your program
outcomes and how much information you are going to need, you will need to decide the best
way to gather your data. The types of data fall into four categories: formative, process,
impact and outcomes. For each of these categories there are specific places and ways to
gather data.

Formative

Formative evaluation, including pretesting, is a way to determine where your target

audience is prior to implementing your program. When you are able to see where your
audience is prior to delivering your program, you can better develop content and styles for
educating them.

Tools for use in formative evaluation: readability tests, surveys, focus groups and
individual, in-depth interviews

Process

Process evaluation examines the journey involved in implementing a program or activity. It

helps you look at how the implementation process is working and where you may have to
adjust the program to better suit participant or situational needs.

Methods to use in process evaluation: recordkeeping (monitoring timelines, budgets, staff

reports), program checklist (review to be sure you are on sticking to the program plans)
and Interviews of participants or staff.

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Impact

When you want to find out if what you made a difference in someone’s life, you would need
to gather impact data. This type of information will let you know whether or not
participants:

1. Gained any knowledge because of what you taught them.

2. Changed a behavior because of what you taught them.
3. Had an attitude or belief shift because of what you taught them.

Impact evaluation describes the outputs of your inputs. It can also describe other things
that color in an otherwise black and white picture. Besides the gains in knowledge or shift
in attitudes, impact data can measure expressed intentions of the target audience, short-
term or intermediate behavior shifts (purchasing sunscreen) and policies initiated or other
institutional changes made.

Tools for use in impact evaluation: pretests and posttests, baseline surveys prior to
attending an event, class or activity, follow-up surveys after attending an event, class or
activity, clinical data (especially if you are using a class to influence a health condition, you
will want to measure physical changes in your participants).

Outcome

Because the focus of this article is more about common sense evaluation, you will not
necessarily need to conduct outcome evaluation. However, outcome evaluation is important
to know about because it is the most comprehensive of the four evaluation types and
focuses on the long-range results of the program and changes or improvements in health
status as a result. In everyday type of program evaluation, these types of evaluations are
rare because you don’t have the ability to keep track of the participants in the program;
the program lacks staff for the intensive follow-up and generally a lack of funds to
implement this type of evaluation.

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Information obtained from an impact study may include changes in morbidity and
mortality, changes in absenteeism from work or school, long-term maintenance of desired
behavior or rates of those who might leave the “study.”

Tools for use Outcome Evaluation: print media review, public surveys (telephone surveys
of self-reported behavior), studies of public behavior or health change (i.e. data on
physician visits or changes in public's health status) and death and hospitalization data.

Step Four – Putting evaluation to work

Once all the planning for evaluation has been completed, the next step is to put it to work.
From my experience, it is best if you implement your evaluation plan using the following
processes:

 Involve stakeholders in the evaluation planning process - Many times, I have

experienced lack of interest or compliance with the evaluation because staff were not
involved in the planning stages. Bring all important stakeholders into the process so
that they can be supportive rather than saboteurs.

 Staff Training - If evaluation is not something you or your team is familiar with, you
will need to train those involved in the process. When your staff or stakeholders
understand how and why certain steps are followed and why certain tools are
needed, they are more likely to be helpful in implementing the evaluation plan.
 Implement the evaluation and data collection - Remember to check in with those
involved in the implementation to make sure the process is going smoothly. You can
also use this time to identify possible barriers. Keeping open communication with
those responsible for making sure surveys are filled out or participants followed up
can beneficial in the long term.
 Analyze the data and share the results – There is nothing worse than finding out all
your hard work is hiding away in someone’s hard drive or an old stack of files.
When the data is analyzed, you need to move directly into a report of your findings.
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 Do this by planning for a meeting of all vested stakeholders. You are now forced to
create a plan to share what you have learned about your program with others. It is
an exciting moment that will not only help to illustrate the successes of your
program but also help to uncover your challenges. With an audience of stakeholders,
you are in a position to solicit input on strategies for overcoming barriers. With their
input, you will be able to further enhance the program or decide to end the program

IMPLEMENTATION CONTROL
The implementation of a strategy results in a series of plans, programmes,
and projects. Resource allocation is done to implement these. Implementation
control is aimed at evaluating whether the plans, programmes, and projects are
actually guiding the organisation towards its predetermined objectives or not. If,
at any time, it is felt that the commitment of resources to a plan, programme or
project would not benefit the organisation as envisaged, they have to be revised.
Thus implementation control may lead to strategic rethinking.

Implementation control may be put into practice through the identification

and monitoring of strategic thrusts such as an assessment of the marketing
success of a new product after per testing, or checking the feasibility of a
diversification programme after making initial attempts at seeking technological
collaboration. Another method of implementation control is milestone review,
through which critical points in strategy implementation are identified in terms
of events, substantial resource allocation, or significant end time. This is similar
to the identification of events/ activities in PERT/ CPM networks. After the
identification of milestones, a comprehensive review of implementation is made
to reassess its continued relevance to the achievement of objectives.

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STRATEGIC SURVEILLANCE

Strategic surveillance is aimed at a generalised and overarching control

that is designed to monitor a broad range of events inside and outside the
company that are likely to threaten the course of a firm’s strategy. Strategic
surveillance can be done through a broad based, general monitoring in the basis
of selected information sources to uncover events that are likely to affect eh
strategy of an organisation. Organisational learning and knowledge management
systems can capture much of the information that is otherwise lost in an
organisation. This information can be used for strategic surveillance.

SPECIAL ALERT CONTROL

Special alert control system is based on a trigger mechanism for rapid

response and immediate reassessment of strategy in the light of sudden and
unexpected events. Special alert control can be exercised through the formation
of contingency strategies and assigning the responsibility of handling unforeseen
events to crisis management teams. Crises are critical situations that occur
unexpectedly and threaten the course of a strategy. Steps followed in crisis
management include signal detection, preparation/ prevention, containment/
damage limitation, and recovery leading to organisational learning. Special
control systems help in performing the signal detection step in crisis
management.

OPERATIONAL CONTROL

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 Operational control is aimed at the allocation and use of the organisational
units, such as, divisions and SBUs, to asses their contribution to the achievement
of organisational objectives. Operational control is concerned with action or
performance, and that is probably the reason why it is used so extensively in
organisations.

Process evaluation
The process of evaluation consists of four steps: setting of standards,
measurement of performance, analysing variances, and taking corrective action.
 Check performance
 Check standards
 Strategy/ plan/ objectives
 Setting standards of performance
 Analysing variance
 Measurement of performance
 Actual performance
 Reformulate
 Feedback

SETTING OF STANDARDS

DETERMINE WHAT TO CONTROL

The first step in the control process is determining the major areas to control.
Managers usually base their major controls on the organizational mission, goals and
objectives developed during the planning process.

Managers must make choices because it is expensive and virtually impossible to

control every aspect of the organization's activities. In deciding what to control, the

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organization must communicate through the actions of its executives that strategic control
is a needed activity. Without top management's commitment to controlling activities, the
control system could be useless.

SET CONTROL STANDARDS:

The second step in the control process is establishing standards. A control standards
is a target against which subsequent performance will be compared.

Standards are the criteria that enable managers to evaluate future, current, or past
actions. They are measured in a variety of ways, including physical, quantitative, and
qualitative terms. Five aspects of the performance can be managed and controlled:
quantity, quality, time cost, and behavior. Each aspect of control may need additional
categorizing.

An organization must identify the targets, determine the tolerances those targets,
and specify the timing of consistent with the organization's goals defined in the first step of
determining what to control. For example, standards might indicate how well a product is
made or how effectively a service is to be delivered.

Standards may also reflect specific activities or behaviors that are necessary to
achieve organizational goals. Goals are translated into performance standards by making
them measurable. An organizational goal to increase market share, for example, may be
translated into a top-management performance standard to increase market share by 10
percent within a twelve-month period. Helpful measures of strategic performance include:
sales (total, and by division, product category, and region), sales growth, net profits, return
on sales, assets, equity, and investment cost of sales, cash flow, market share, product
quality, valued added, and employees productivity.

Quantification of the objective standard is sometimes difficult. For example,

consider the goal of product leadership. An organization compares its product with those
of competitors and determines the extent to which it pioneers in the introduction of basis

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product and product improvements. Such standards may exist even though they are not
formally and explicitly stated.

Setting the timing associated with the standards is also a problem for many
organizations. It is not unusual for short-term objectives to be met at the expense of long-
term objectives.

Management must develop standards in all performance areas touched on by

established organizational goals. The various forms standards are depend on what is being
measured and on the managerial level responsible for taking corrective action.

Commonly uses as an example, the following eight types of standards have been set by

General Electric :

 Profitability standards : These standards indicate how much profit General

Electric would like to make in a given time period.
 Market position standards : These standards indicate the percentage of total
product market that company would like to win from competitors.
 Productivity standards : These production-oriented standards indicate various
acceptable rates which final products should be generated within the organization.

 Product leadership standards : Product leadership standards indicate what

levels of product innovation would make people view General Electric products as
leaders in the market.

 Personnel development standards : Personnel development standards list

acceptable of progress in this area.

 Employee attitude standards : These standards indicate attitudes that General

Electric employees should adopt.

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  Public responsibility standards : All organizations have certain obligations to
society. General Electric's standards in this area indicate acceptable levels of
activity within the organization directed toward living up to social responsibilities.

 Standards reflecting balance between short-range and long-range

goals:Standards in this area indicate what the acceptable long- and short - range
goals are and the relationship among them.

Critical Control Points and Standards.The principle of critical point control, one of
the more important control principles, states: "Effective control requires attention against
plans". There are, however, no specific catalog of controls available to all managers
because of the peculiarities of various enterprises and departments, the variety of products
and services to be measured, and the innumerable planning programs to be followed.

MEASURE PERFORMANCE

Once standards are determined, the next step is measuring performance. The actual
performance must be compared to the standards. In some work places, this phase may
require only visual observation. In other situations, more precise determinations are
needed. Many types of measurements taken for control purposes are based on some form
of historical standard. These standards can be based on data derived from the PIMS (profit
impact of market strategy) program, published information that is publicly available,
ratings of product / service quality, innovation rates, and relative market shares standings.
PIMS was developed by Professor Sidney Shoeffler of Harvard University in the 1960s.

Strategic control standards are based on the practice of competitive benchmarking -

the process of measuring a firm's performance against that of the top performance in its
industry. (see last part of this Chapter)

The proliferation of computers tied into networks has made it possible for managers
to obtain up-to-minute status reports on a variety of quantitative performance measures.

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Managers should be careful to observe and measure in accurately before taking corrective
action.

COMPARE PERFORMANCE TO STANDARDS

The comparing step determines the degree of variation between actual performance
and standard. If the first two phases have been done well, the third phase of the controlling
process - comparing performance with standards - should be straightforward. However,
sometimes it is difficult to make the required comparisons (e.g., behavioral standards).

Some deviations from the standard may be justified because of changes in

environmental conditions, or other reasons.

DETERMINE THE REASONS FOR THE DEVIATIONS

The fight step of the control process involves finding out: "why performance has
deviated from the standards?" Causes of deviation can range from selected achieve
organizational objectives. Particularly, the organization needs to ask if the deviations are
due to internal shortcomings or external changes beyond the control of the organization.

A general checklist such as following can be helpful:

 Are the standards appropriate for the stated objective and strategies?
 Are the objectives and corresponding still appropriate in light of the current
environmental situation?

 Are the strategies for achieving the objectives still appropriate in light of the current
environmental situation?

 Are the firm's organizational structure, systems (e.g., information), and resource
support adequate for successfully implementing the strategies and therefore
achieving the objectives?

 Are the activities being executed appropriate for achieving standard?

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The locus of the cause, either internal or external, has different implications for the kinds
of corrective action.

TAKE CORRECTIVE ACTION

The final step in the control process is determining the need for corrective action.
Managers can choose among three courses of action:

1. they can do nothing

2. they can correct the actual performance; or
3. they can revise the standard.

Maintaining the status quo if preferable when performance essentially matches the
standards. When standards are not met, managers must carefully assess the reasons why
and take corrective action. Moreover, the need to check standards periodically to ensure
that the standards and the associated performance measures are still relevant for the
future.

The final phase of controlling process occurs when managers must decide action to take
to correct performance when deviations occur. Corrective action depends on the discovery
of deviations and the ability to take necessary action. Often the real cause of deviation must
be found before corrective action can be taken. Causes of deviations can range from
unrealistic objectives to the wrong strategy being selected achieve organizational
objectives. Each cause requires a different corrective action. Not all deviations from
external environmental threats or opportunities have progressed to the point a particular
outcome is likely, corrective action may be necessary.

There are three choices of corrective action:

1. Normal mode - follow a routine, no crisis approach; this take more time
2. As hoc crash mode - saves time by speeding up the response process, geared to the
problem ad hand.

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 3. Preplanned crisis mode - specifies a planned response in advance; this approach
lowers the response time and increases the capacity for handling strategic surprises.

The below checklist suggest the following five general areas for corrective actions:

 Revise the Standards. It is entirely possible that the standards are not in line with
objectives and strategies selected. Changing an established standard usually is
necessary if the standards were set too high or to low are the outset. In such cases
it's the standard that needs corrective attention not the performance.
 Revise the Objective. Some deviations from the standard may by justified because of
changes in environmental conditions, or other reasons. In these circumstances,
adjusting the objectives can y much more logical and sensible then adjusting
performance.

 Revise the Strategies. Deciding on internal changes and taking corrective action may
involve changes in strategy. A strategy that was originally appropriate can become
inappropriate during a period because of environmental shifts.

 Revise the Structure, System or Support. The performance deviation may by caused
by an inadequate organizational structure, systems, or resource support. Each of
these factors is discussed elsewhere in this chapter, or other part of this thesis.

 Revise Activity. The most common adjustment involves additional coaching by

management, additional training, more positive incentives, more negative incentives,
improved scheduling, compensation practices, training programs, the redesign of
jobs or the replacement of personnel.

Managers can also attempt to influence events or trends external to itself through
advertising or other public awareness programs. In such case, the changes should be made
only after the most intense scrutiny.

Management must remember that adjustments in any of the above areas may require
adjustments in one or more of the other factors. For example, adjusting the objectives is

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likely to require different strategies, standards, resources, activities, and perhaps
organizational structure and systems.

CHAPTER-4STRATEGY AUDITS

In order to better understand what strategic control performance measures are and
how a manager can take such measurements, we need to introduce two important topics:
(1) strategic audits and (2) strategic audit measurement methods.

Strategic Audits

A strategic audit is an examination and evaluation of areas affected by the operation of

a strategic management process within an organization. A strategy audit may be needed
under the following conditions:

 Performance indicators show that a strategy is not working or is producing negative

side effects.
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  High-priority items in the strategic plan are not being accomplished.
 A shift or change occurs in the external environment.
 Management wishes: (1) to fine-tune a successful strategy and (2) to ensure that a
strategy that has worked in the past continues to be in tune with subtle internal or
external changes that may have occurred.

Assessing The Firm's Operational And Strategic Health

To aid in control, firms will occasionally perform audits to ensure that certain
aspects of their operations are in order. Such audit may include operational audits
(assessing the firm's operating health) and strategic audits (assessing the firm's strategic
health).

Measures Of Organizational Health

Measures or indicators of a firm's current operating and strategic health are shown
in Table 6-5 and 6-6. As the tables show, to assess a firm's current operating health, short-
term financial, market, technological, and production position are used, while current
strategic health is based on strategic market position, technological position, production
capabilities, and financial health.

Strategic Audit Measurement Methods

There are several generally accepted methods for measuring organizational

performance. One way for categorizing these methods divides into the distinct types:
qualitative and quantitative. However, a few methods do not fall neatly into one or other of
these categories but rather are a combination of both types.

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Qualitative Organizational Measurements

There is no universally endorsed list of critical questions designed to reflect

important facets of organizational operations. However, several that might be useful to the
practicing managers are presented below.

Sample Questions to be asked for Qualitative Organizational Measurement

 Are the financial policies with respect to investment… dividends and financing
consistent with opportunities likely to be available?
 Has the company defined the market segments in which it intends to operate
sufficiently specifically with respect to both product lines and market segments?
Has it clearly defined the key capabilities needed for success?
 Does the company have a viable plan for developing a significant and defensible
superiority over competition with respect to these capabilities?
 Will the business segments in which the company operates provide adequate
opportunities for achieving corporate objectives? Do they appear as attractive as to
make it likely that an excessive amount of investment will be drawn to the market
from other companies? Is adequate provision being made to develop attractive new
investment opportunities?
 Are the management, financial, technical and other resources of the company really
adequate to justify an expectation of maintaining superiority over competition in the
key areas of capability?
 Does the company have operations in which it is not reasonable to expect to be more
capable than competition? If so, can the board expect them to generate adequate
returns on invested capital? Is there any justification for investing further in such
operations, even just to maintain them?
 Has the company selected business that can reinforce each other by contributing
jointly to the development of key capabilities? Or are there competitors that have
combinations of operations which provide them with an opportunity to gain

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 superiority in the key resource areas? Can the company's scope of operations be
revised so as to improve its position vis-à-vis competition?
 To the extent that operations are diversified, has the company recognized and
provided for the special management and control systems required?

The Evaluation Of Corporate Strategy

Each organization has its own approach to evaluation. There are not absolute answers
as to the proper evaluation standards. However, there are three basic questions to ask in
strategy evaluation:

1. Is the existing strategy any good?

2. Will the existing strategy be good in the future?
3. Is there a need to change a strategy?

The first question may need additional detailing to indicate whether the current
strategy is useful and beneficial to the organization.

Seymour Tilles has written a classic article on the qualitative assessment of

organizational performance. This article serves several particular questions to be asked for
evaluation. These questions are:

1. Is the strategy internally consistent? Internal consistency refers to the cumulative

impact of various strategies on the organizations. According to Tilles, a strategy
must be judged not only in relationships to other strategies.
2. Is organizations strategy consistent with its environment? An important test of
strategy is whether the chosen strategy in consistent with environment (constituent
demands, competition, economy, product / industry life cycle, suppliers, customers)
- whether the really make sense with respect to what is going on outside.
3. Is the strategy appropriate in view of available resources? Resources are those
things that company is or has and that help it to achieve its corporate objectives.

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 Included are money, competence, facilities and other. Without appropriate
resources, organization simply cannot make strategic work.
4. Does the strategy involve an acceptable degree of risk? Strategy and resources,
taken together, determine the degree of risk which the company is undertaken. Each
company must determine the amount of risk it wishes to incur. This is a critical
managerial choice. In attempting to assess the degree of risk associated with a
particular strategy, management must assess such issues as the total amount of
resources a strategy requires, the proportion of the organization's resources that a
strategy will consume, and the amount of time that must be committed.
5. Does the strategy have an appropriate time horizon? A significant part of every
strategy is the time horizon on which it is based. For example, a new product
developed, a plant put on stream, a degree of market penetration, become
significant strategic objectives only if accomplished by a certain time. Management
must ensure that the time necessary to implement the strategy is consistent.
Inconsistency between these two variables can make it impossible to reach goals in a
satisfactory way.
6. Is the strategy workable?

E. P. Learned and others, building on the Tilles model, suggest that the following
are also proper evaluative questions:

7. Is the strategy identifiable? Has it been clearly and consistently identified and are
people aware of it?
8. Is the strategy appropriate to the personal values and aspirations of key managers?
9. Does strategy constitute a clear stimulus to organizational effort and commitment?
10. Is the strategy socially responsible?
11. Are there early indications of the responsiveness of markets and market segments to
the strategy?

J. Argenti adds:

12. Does the strategy rely on weakness or do anything to reduce them?

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 13. Does the strategy exploit major opportunities?
14. Does it avoid, reduce, or mitigate the major threats? If not, are there adequate
contingency plans?

All these questions can by applied as the strategy progresses through its various stages,
including implementation. The answers can provide guidelines as to how the strategy
should be altered or changed.

The second basic question "Will the existing strategy be good in the future?" seeks
to ascertain if the strategy would continue to satisfy the firm's objective in the future. The
answer to this is based upon unforeseeable changes in the organization's environment or
resources, or changes in its mission, goals, or objectives.

The answer to the third question "Is there a need to change the strategy?" will
provide direction toward a strategy formation task.

Qualitative measurements methods can be very useful, but their application involves
significant amounts of human judgment. Thus, conclusions based on such methods must be
drawn carefully.

Quantitative Organizational Measurements

Quantitative measurements provide information and insight as to how well an

organization is accomplishing its goods and objectives. In attempting to evaluate the
effectiveness of corporate strategy quantitatively, we can see how the firm has done
compared wit its own history, or compared with its competitors.

Many quantitative measures may be developed to determine performance results.

These standards expressed in quantitative terms include:

1. Sales (growth of sales)

2. Net profit
3. Dividend returns
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 4. Return on equity
5. Return on investment
6. Return on capital
7. Marker share
8. Earnings per share

The list is long and many other factors could be included. The objective of all of
these endeavors is financial control.

But financial control is only part of the total strategic management control process.
Much of the activity affects financial performance in non financial nature. This include
consideration of labor efficiency and productivity; production quantity turnover, and
tardiness; on a very limited basis, human resources accounting and personnel satisfaction
measures; more commonly, management by objectives systems; social analysis; operational
audits of any functional, divisional, or staff component, distribution cost and efficiency;
management audits modeling; and so forth.

The list is almost endless and there is no time to discuss each item here.

Which factors should be used? Establishing the standards and tolerance limit is not
as easy as we might expect. Managers need to first define the critical success factors - the
factors which are most important to the strategy and being successful in the business. Most
of these measures are internal. But objective assessments can also be made by comparing
the firm's results of similar firms (see section Benchmarking)

Below we present a set of worthwhile guidelines that managers might follow in

designing and implementing more comprehensive strategic audits.

A strategic audit is conducted in three phases: diagnosis to identify how, where, and
in what priority in-depth analyses need to be made; focused analysis; and generation and
testing recommendation. Objectivity and the ability to ask critical, probing questions are
key requirements for conducting a strategic audit.

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Phase one: Diagnosis

The diagnostic phase includes the flowing tasks:

1. Review key document such as:

o Strategic plan
o Business or operational plans
o Organizational arrangements
o Major policies governing matters such as resource allocation and
performance measurement.
2. Review financial, market, and operational performance against benchmarks and
industry norms to identify jet variances and emerging trends.
3. Gain an understanding of:
o Principal roles, responsibilities, and reporting relationships.
o Decision - making processes and major decisions made.
o Resources, including physical facilities, capital, management, technology.
o Interrelationships between functional staffs and business or operating units.
4. Identify strategic implications of strategy for organization structure, behavior
patterns, systems, and processes.
o Define interrelationships and linkages to strategy.
5. Determine internal and external perspectives.
o Survey the attitudes and perceptions of senior and middle managers and
other key employees to assess the extent to which these are consistent with
the strategic direction of the firm. One way to accomplish this task is through
carefully focused interviews and / or questionnaires, wherein employees are
asked to identify and make trade-offs among the objectives and variables
they consider most important.
o Interview a carefully selected sample of customers and prospective customers
and other key external sources to gain understanding of how the company is
viewed.
6. Identify aspects of the strategy that are working well. Formulate hypotheses
regarding problems and opportunities for improvement based on the findings
above. Define how and in what order each should be pursued.
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Phase two: Focused analysis

1. Test the hypotheses concerning problems and opportunities for improvement

through analysis of specific issues.
o Identify interrelationships and dependencies among components of the
strategic system.
2. Formulate conclusions as to weaknesses in strategy formulation, implementation
deficiencies, or interactions between the two.

Phase three: Recommendations

1. Develop alternative solutions to problems and ways of capitalizing on opportunities.

o Test [these alternatives] in light of their resource requirements, risk,
rewards, priorities, and other applicable measures.
2. Develop specific recommendations.
o Develop an integrated, measurable, and time - phased action plan to improve
strategic results.

A RESEARCH PROPOSAL: HOW TO DEVELOP A BUSINESS

STRATEGY TO EXPAND A BUSINESS IN AN INTERNATIONAL
MARKET

1. Introduction

The globalization of the economy, internationalization of businesses and emergence

of new markets are all key themes in contemporary business. Whereas international
business may once have been the province of organisations with sufficient scale and reach,
these types of companies – typically multi-national corporations - no longer have a
monopoly on this kind of business. Increasing numbers of firms, of varying scale, are
confronted with compelling reasons for expanding their activities across multiple national
boundaries. In some cases, such motivation includes the knowledge that success in
international markets is a pre-requisite for survival; if competitor organisations succeed in
international markets, they may achieve the scale and liquidity which affords them

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sustainable competitive advantage. However, scrutiny of the empirical experience of
international expansion suggests that the apparent potential is by no means
straightforward to achieve in practice. This raises questions about whether or not it is
realistic to envisage a ‘best practice’ in terms of international expansion strategy. Can the
latter be conceived of as a specific and transferable management skill, or is it instead
reliant upon expertise in a particular sector of business, a market, or a national culture?
After all, if proven strategists are found wanting, where can the organisation go in terms of
its future practice?

Large, successful and sophisticated businesses have often found that international
ventures do not fulfill their promise. Moreover, these failures do not feature in only one
sector of the economy; retailers, manufacturers, transport and energy companies have all
found that expansion in contemporary markets is easier to plan than to achieve. The
relevant strategies were often developed by otherwise successful managers and executives,
appointed because of proven track records in similar or parallel enterprises. The retail
sector alone furnishes numerous examples of this problem. The previously ascendant US
Wal – Mart group eventually abandoned its expansion into the buoyant German consumer
market, selling up to domestic rivals Metro (Felsted and Jopson 2011). Sir Terry Leahy of
the UK’s Tesco PLC saw his flagship Fresh n’ Easy store venture in the United States
rapidly turn into a loss making enterprise (Felsted 2011). The point here is that these large,
well-resourced businesses have been in the vanguard of market research techniques which
employ benchmark digital data capture to measure consumer behaviour – yet they still
failed. It may be that, as the statistics obtained by as Guler and Guillen show, (Appendix
Three), firms prefer to target what they perceive as legally secure, politically stable hosts
(2005, p.2) A number of empirical questions are raised by these developments. For
example, how best can organisations secure and maintain the right kind of strategy
formation capacity within their capabilities? Should strategic planning ever be thought of
as a continuing capability, or should it instead be seen as a reflexive capacity, more likely to
be brought into being by the specific conjunction of factors, i.e. a one-off development?

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2. Purpose

The purpose of the proposed study will be to ascertain answers to the following types of
question, i.e.,

Is there a ‘best practice’ of international business strategy formation which is transferable

between business sectors?

Are some elements of strategy formation indispensable?

If so, what are the indispensable elements of strategy formation?

Do the business models of particular sectors render them more or less scaleable in terms of
international expansion?

What constitutes the best practice in the development of business strategy for international
markets? Such a question will obviously be subject to enormous variables across different
sectors of the economy, or types and sizes of business. However, it may be argued that there
will be a continued demand for this kind of business expertise, both in terms of strategy
development and knowledge management.

3. Conceptual and Theoretical Foundations.

As Czinkota et al indicate, strategy formation should not be conceived as a generic

activity or process, since it will to a certain extent be informed by the specific stimulus for
the expansion itself, i.e. whether the perceived competitive advantage is based on
technological or other kind of advantage (2009, p.228) This is an important consideration,
since each organisation has its own motivation for wanting to expand into international
markets, as well as varying levels of capability, resources, and preparedness. De Burca,
Fletcher and Brown argue, there are numerous reasons for pursuing international
expansion, the first of which lays in orthodox competitive strategy, i.e. ‘…in many
industries, competitors can access customers almost anywhere…many customers that are
going global want their key suppliers to be there to service them. Secondly, technology
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evolves at different speeds in different countries…if a business is located close to leading-
edge technology development, it is likely to be closer to the early adopters phase of new
markets…Third, economies of doing business are changing in terms of cost of funds, cost of
labour, availability of specialised skills and opportunities for specialisation.’ (2004: p.560).

Some strategic factors are generic, in as much as no firm can realistically overlook
them in international expansion. These consist of considerations such as control of the
value chain, control of personnel resources, the securing of the necessary financial
resources, and a realistic assessment of the associated risks (Muhlbacher et al 2006, p.405).
Other factors will arise from the nature of the target markets themselves: emerging
economies, for example, will not necessarily feature the ‘embeddedness’ of mature Western
markets (Doole and Lowe 2008, p.4). As Muhlbacher et al point out, ‘…many international
marketing efforts fail not because research was not conducted, but because the issue of
comparability was not adequately addressed in defining the marketing research
problem…’ (2006, p.123). It is also important to consider the ‘…unconscious reference to
our own cultural values when defining the problem we are attempting to research in
international markets…’ (2006, p.123). For example, many studies of global expansion
have as their focus the strategies of Western multinationals; however, given the flow of
globalization, there is no logical reason why they should be restricted to this area. If
anything, the strategies of Chinese, Middle Eastern and other corporations may become
even more relevant. As Berger argues, globalization may be deemed the single greatest
factor in contemporary business, and yet virtually all the assumptions made about it come
‘…either from opinions…or…general economic theories. Analyses based on hard evidence
from the experience of societies dealing with these pressures are few and far between.’
(Berger 2006: p.7).

4. Methodology

i. Research Design and Research Strategy.

As Marshall and Rossman argue, a research design should be able to ‘….generate

data appropriate and adequate for responding to the research questions and will conform
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to ethical standards.’ (2011, p.56). In this instance there are several levels of design options
to be acknowledged in the overall form of the research. In paradigmatic terms, this is a
predominantly qualitative study, which nevertheless acknowledges the points made by
Collis and Hussey regarding the relationship between the phenomenological and the
positivist positions. As they point out, the distinction between them can rarely be
maintained in the context of practical research processes (Collis and Hussey 2003, p.48).
This is a point also made by Jupp, who concedes that research paradigms may need to be
reconsidered during the process itself (2006, p.213).

At the preparatory stage, it is obviously important to demonstrate that there is a

justification for this research, i.e. a ‘gap’ in the relevant knowledge as presented in the
relevant secondary literature (Longnecker 2009, p.134). An exhaustive survey of all the
relevant secondary literature may be an ambitious objective given the resources available
to this study; however, this must be pursued until it becomes clear that the same or similar
points are constantly being re-discovered. As Winkler and Metherell point out, the cautious
researcher should see a ‘…consensus of opinion among experts that can be used to judge
the reputation of an author or source.’ (2011, p.62). By this means, as Patzer points out, a
viable context for the study may be established (1995, p.6). It is anticipated that the gaps in
the literature will mostly be those arising from new developments in the dynamic of
globalization; as Stevens et al argue, ‘old’ information ‘…is not necessarily bad
information; however, in many dynamic markets, up-to-date information is an absolute
necessity.’ (2006, p.98). As Saunders et al (2009) acknowledge, any generalization based on
secondary data should acknowledge that it has been influenced by the culture,
predisposition and ideals of those who originally compiled it (p.272).

The study will take account of the major theorists in the relevant areas of
scholarship, such as Porter on competitive advantage and national competitive advantage,
and Mintzberg et al on strategy. Work such as that of Jones in Multinationals and Global
Capitalism: From the Nineteenth to the Twenty-first Century (2005) will be consulted in
order to orientate the study empirically. Detailed studies of niche areas such as De Burca et
al’s work on SME strategy (2004), and Phan et al (2008) on entrepreneurship in emerging

275
economies will also be important. It will also acknowledge anti-globalisation theorists such
as Lynn, through the arguments he presented in his End of the Line, the Rise and Coming
Fall of the Global Corporation, (2005).

Conducted on a qualitative basis, this will be an inductive rather than deductive

study, since it cannot realistically proceed on highly defined questions or areas of enquiry.
Rather, its purpose is to make the initial foray into a new and under-research area which
will inform a more deductive approach in the future. Consequently, the questioning will be
exploratory rather than descriptive in nature, allowing participants the maximum scope to
relay their reflections. As Rubin et al (2010) point out, when engaged in descriptive
research, ‘…we try to identify or describe events or conditions…When doing explanatory
research, we look for underlying causes and explanations of events. Exploratory research
encompasses what is referred to as interpretative research, as a way of making sense of
events.’ (198).

Strategy formation, whatever its focus, represents an important aspect of

competitive practice in commercial markets. For this reason, there may be finite limits to
the extent to which contemporary practice will be meaningfully discussed or shared for the
purposes of an academic study. However, participants may be more likely to share
worthwhile observations where past practice is concerned, or where they are no longer
involved with the business or organisation in question. Participation will be sought from
twenty individuals in relevant organisations, and the interviews will be conducted by e-
communication as far as is possible due to the budgetary limit of £1500 (excluding labour).
The survey(s) themselves will be conducted within a two week period as far as is possible,
to retain the cross-sectional format. It is anticipated that some of this budget will be
absorbed by travel and associated expenses where online research is not possible.

ii. Sampling

The representative nature of any research depends to a significant degree on the

sampling methods on which it was based. As McGivern points out, the most representative
samples are those based on random or probability sampling, in which all elements of a
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particular population have an equal or proportionate chance of being included (2006,
p.277). However, this approach has obvious implications in terms of both resources and
outcomes. A genuinely random sample would involve a wide initial recruitment process
and a lengthy period of filtering, during which the most relevant participants could be
identified. This in itself would require significant resources and time, and would not
necessarily produce the most suitable cohort for a specialist research project. The value of
focused business research must be linked to the insights provided by the participants, and
only those with the requisite experience and knowledge can provide this. Consequently, a
non-probability or purposive sampling approach was deemed most appropriate, with
practitioners from both past and present international businesses invited to participate.

The responses obtained will most likely involve insights from past as well as present
strategy, so that the study may be said to have a wide chronological focus. However, this
study should be seen as a cross-sectional rather than a longitudinal one, since its resources
do not permit a longer research process. It may be, however, that further study is possible
later, is the research objectives and questions are refined. As Yin cautions, despite the care
taken to ensure that a sample is representative of some larger group, the number in a
qualitative study ‘….will likely be too small to warrant any statistical generalisation….’.
However, the findings may be sufficiently replicated in similar situations, allowing them to
be ‘…generalized to other similar situations.’ (2010, 226).

The questions will be ordered into three sections, i.e. a binary or closed question
Yes/No section, a Likert-scale multiple choice section, and an ‘open’ section of discursive
enquiries. Each section in the sequence will be developmental and complimentary, allowing
the juxtaposition of positivist and phenomenological findings, as in Appendices One and
Two.

iii. Data Analysis

As Wolcott (2001) has argued, ‘…good qualitative research ought to confound

issues, revealing them in their complexity rather than reducing them to simple
explanation.’ (p.36). Whilst it is not envisaged that this limited research will uncover any
277
conceptually original points, it is planned that a balance of positivist and phenomenological
data will reveal contextual clues in the contemporary environment which may contribute to
further investigation. This will be pursued according to the schema of analysis set out in
Appendices One and Two.

5. Ethical Considerations

There are two levels of ethical responsibility involved in this proposal, i.e. that owed
to the respondents, and that inherent in the conduct and evaluation of the work itself.
This research will be conducted on the basis that the participants themselves should have
the maximum control over the conduct and outcome of the research process. This implies
that they should be informed, prior to participation, of the possible uses and availability of
the published research results (Tracy and Millar 2009, p.102).

This proposal also acknowledges the ethical responsibilities which arise from the
interpretation of the research results themselves. As Gill et al point out, the researcher, ‘…
through developing his/her research design, is usually trying to test hypotheses generated
from a theory, through data collection, in order to see whether or not the theory survives
those attempts at falsifying or disproving it.’ (2010, p.72) As an inductive study, this
research will not be aiming to prove or disprove a particular idea. It will, however, rely for
its value upon the originality or otherwise of the information uncovered. Responsible
assessment of this should avoid inflating its significance or originality when drawing up the
conclusions; where similar findings have appeared earlier or elsewhere, this will be drawn
to the attention of the reader. The research findings should be closely linked to the evidence
which supports them, and where some of this does not support the argument, this should
also be acknowledged (Gray 2009, p.192).

6. Conclusion

Overall, the background issue may be said to fall into two areas; firstly, what kinds
of expertise are necessary to assure the development of successful international strategy,
and secondly, how may this be effectively researched? As Gravetter and Forzano have
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cautioned, it is all but impossible for a single research study to eliminate all threats to
validity, therefore, ‘…each researcher must decide which threats are most important for
the specific study.’ (2011, p.171). The single greatest problem in this research is the choice
between a study which looks at the issue as it occurs across all sectors, or one which
concentrates on a single business sector. As will be discussed further, this dilemma also has
to be solved in a manner which takes account of the resources available for the work itself.
As Patton advises, ‘…deductive hypothesis testing or outcome measurement aimed at
confirming and/or generalizing exploratory findings, then back again to inductive analysis
to look for rival hypotheses and unanticipated or unmeasured factors.’ (2002, p.57).

References

Berger, S., (2006), How We Compete, What Companies around the World are doing to
make it in today’s global economy, Doubleday, New York.

Czinkota, M., Ronkainen, I., and Moffett, M. (2009), Fundamentals of International

Business, Wessex, NY.

De Burca, S., Fletcher, R., and Brown, L., (2004), International Marketing: An SME
perspective, FT Prentice Hall, Harlow.

Doole, I., and Lowe, R., (2008), International marketing strategy; analysis, development
and implementation, 5th Edn., Cengage, London.

Felsted, A., ‘New Tesco chief faces world of tough challenges’, Financial Times, 25th
February 2011, [online], (last updated 25.2.11), available at
http://www.ft.com/cms/s/0/4024ff4a-4115-11e0-bf62-00144feabdc0.html#axzz1HyxsG9Nc
[Accessed 17th March 2012].

Felsted, A., and Jopson, B., ‘Bridging the pond is a stern test for retailers’, Financial
Times, 5th September 2011, [online], (last updated 5.9.11), available at
http://www.ft.com/cms/s/0/fae9dba2-cf45-11e0-b6d4-00144feabdc0.html#axzz1pZpjylMt
[Accessed 17th March 2012].
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Gill, J., Johnson, P., and Clark, M., (2010), Research methods for managers, 4th Edition,
Sage, London.

Gravetter, F. J., and Forzano, L. B., (2011), Research methods for the behavioural sciences,
Wadsworth, Bellment CA.

Gray, D. E., (2009), Doing research in the real world, Sage, London.

Guler, I., and Guillen, M. F., ‘Knowledge Institutions and Foreign Entry: the
internationalisation of U.S. venture capital firms’, [online], available at http://www-
management.wharton.upenn.edu/guillen/NewFolder/IntVC18.pdf, [Accessed 17th March
2012].

Jansson, H., (2007), International business strategy in emerging country markets: the
institutional market approach, Edward Elgar. Cheltenham.

Jones, G., (2005), Multinationals and Global Capitalism: From the Nineteenth to the
Twenty-first Century, Oxford University Press, Oxford.

Jupp, V., (2006), The Sage dictionary of social research methods, Sage, London.

Li, J., (1995), ‘Foreign entry and survival: effects of strategic choices on performance in
international markets’, Strategic Management Journal, Vol.16, pp.333-351.

Longnecker, J. L., (2009), Small business management,: launching and managing new
ventures, Cengage, US.

Lynn, B.C., (2005), End of the Line, the Rise and Coming Fall of the Global Corporation,
Doubleday, New York.

McGivern, Y., (2006), The Practice of Market and Social Research, An Introduction, 2nd
Edition, FT Prentice Hall, Harlow.

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Marshall, C., and Rossman, G. B., (2011), Designing qualitative research, Sage, Thousand
Oaks, CA.

Muhlbacher, H., Leihs, H., Dahringer, L., (2006), International marketing: a global
perspective, 3rd Edition, Thomson, Cengage, London.

Patton, M. Q., (2002), Qualitative research methods, Sage, Thousand Oaks, CA.

Patzer, G. M., (1995), Using secondary data in marketing research; United States and
Worldwide, Quorum, Westport.

Rubin, R. B., and Rubin, A. M., Haridakis, P. M., and Piele, L. M., (2010), Communication
research: strategies and sources, Cengage/Wadsworth, Boston.

Stevens, R. E., Wrenn, B., Sherwood, P. K., and Rudd, M. E., (2006), The marketing
research guide, Haworth, New York.

Tracey, A., and Millar, R., ‘The interview approach’, in Hargie, O., and Tourish, D., (eds),
(2009), Auditing Organisational Communication; A Handbook of Research Theory and
Practice, Routledge, New York, pp.78-102.

Winkler, A. C., Metherell, J. R., (2011), Writing the research paper: a handbook, Cengage,
New York.

Wolcott, H. F., (2001), Writing up qualitative research, Sage, Thousand Oaks, London.

Yin, R. K., (2010), Qualitative research from start to finish, Guildford Press, New York.

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CHAPTER-5INTERNATIONAL INVESTMENT THEORIES

International investment theories attempt to explain why foreign direct investment takes
place.

Monopolistic Advantage Theory

Stefan Hymer saw the role of firm-specific advantages as a way of marrying the
study of direct foreign investment with classic models of imperfect competition in product
markets. He argued that a direct foreign investor possesses some kind of proprietary or
monopolistic advantage not available to local firms.

These advantages must be economies of scale, superior technology, or superior

knowledge in marketing, management, or finance. Foreign direct investment took place
because of the product and factor market imperfections.

The direct investor is a monopolist or, more often, an oligopolist in product markets.
Humer implied, that governments should be ready to impose controls on it.

Product And Factor Market Imperfection

Caves (1971) expanded Hymer's theory and hypothesized that the ability of firms to
differentiate their products - particularly high income consumer goods and services - may
be a key ownership advantages of firms leading to foreign production.

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 The consumers would prefer to similar locally made goods and thus would give the
firm some control over the selling price and an advantage over indigenous firms. To
support these contentions, Caves noted that companies investing overseas were in industries
that typically engaged in heavy product research and marketing effort.

International Product Life Cycle

I have already examined this theory, but there is a close relationship between
international trade and international investment. The international product life cycle
theory explains that foreign direct investment is a natural stage in the life of a product.

Other Theories

The Knickerbocker'sfollow-the-leader theory argued that, as risk minimizers,

oligopolist, wishing to avoid destructive competition, would normally follow each other into
(e.g., foreign) markets, to safeguard their own commercial interests.

This theory is considered defensive because competitors are investing to avoid losing
the markets served by exports when their initial investor begins local production. They
may also fear that the initiator will achieve some advantage of risk diversification that they
will have unless they also enter the market.

Cross Investment Theory

(E. M. Graham). Graham noted a tendency for cross investment by European and
American firms in certain oligopolistic industries; that is, European firms tended to invest
in the United States when American companies had gone to Europe.

He postulated that such investments would permit the American subsidiaries of

European firms to retaliate in the home market of U.S. companies if the European
subsidiaries of these companies initiated some aggressive tactic, such as price cutting, in the
European market.

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The Internalization Theory

Is an extension of the market imperfection theory. By investing in a foreign

subsidiary rather than licensing, the company is able to sent the knowledge across borders
while maintaining it within the firm, where it presumably yields a better return on the
investment made to produce it.

Other theories relate to financial factors. Robert Aliber believes the imperfections in
the foreign exchange markets may be responsible for foreign investment. He explained this
in terms of the ability of firms from countries with strong currencies to borrow or raise
capital in domestic or foreign markets with weak currencies, which, in turn, enabled them
to capitalize their expected income streams at different rates of interest.

Structural imperfection in the foreign exchange market allow firms to make foreign
exchange gains through the purchase or sales of assets in an undervalued or overvalued
currency.

One other financially based theory (portfolio theory) was put by Rugman, Agmon
and Lessard. These researchers argued that international operations allow for a
diversification of risk and therefore tend to maximize the expected return on investment.

Rugman and Lessard have further argued that the location of the foreign direct
investment would be a function of both the firm's perception of the uncertainties involved
and the geographical distribution of its existing assets.

The Eclectic Paradigm

The eclectic paradigm is developed by John Dunning seeks to offer a general

framework for determining the extent and pattern of both foreign-owned production
undertaken by a country's own enterprises and also that of domestic production owned by
foreign enterprises.

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 Table 1-3identifies some of the more important configurations of the ownership,
location and internalization (OLI) advantages. Some of these can best explains the initial of
foreign direct investment (FDI). Others are more helpful in explaining sequential acts of
foreign production.

Industrial Organization Theory

Mainly explains the nature of the ownership (O) advantages that arise: (1) from the
possession of particular intangible assets - assets advantages (Oa); (2) from the ability of
the firm to coordinate multiple and geographically dispersed value-added activities and to
capture the gains of risk diversification- transaction cost minimizing advantages (Ot).

The theory of property rights and the nternalization paradigm explain why firms
engage in foreign activity to exploit or acquire these advantages.

Theories of location and tradeexplain the factors determining the siting of

production.

Theories of oligopoly and business strategy explain the likely reaction of firms to
particular OLI configurations.

The eclectic paradigm suggests that all forms of foreign production by all countries
can be explained by reference to the above conditions.

Dunning further argued that the eclectic paradigm offers the basis for a general
explanation of international production.

The propensity of enterprises of a particular nationality to engage in foreign direct

investment will vary according to the economic et al. specific characteristics of their home
country and the country(ies) in which they propose to invest, the range and types of
products they intend to produce, and their underlying management and organizational
strategies.

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 Combining the data in Tables 1-3 and4 we have the core of eclectic paradigm which,
according to Dunning, offers a rich conceptual framework for explaining not only the level,
form and growth of MNE activity, but the way which such activity is organized.

Furthermore, this paradigm offers a robust tool for analyzing the role FDI; for
predicting the economic consequences of MNE activity, and for evaluating the extent to
which the policies of home and host governments are likely both to affect and be effected by
that activity.

INTERNATIONAL ENVIRONMENTAL ANALYSIS

As a organization's environment expands from domestic to international,

managements face not only a larger number of environmental elements but also far greater
environmental complexity.

The international environment is the interaction between (1) the domestic

environmental forces and the foreign environmental forces and (2) the foreign
environmental forces of one country and those of another country.

According to Richard D. Robinson, the international business differs from the purely
domestic usiness because it involves operating effectively:

 within different national sovereignties;

 under widely disparate economic conditions;
 with peoples living within different value systems and institutions;
 in places experiencing the industrial revolution at different times;
 often over greater geographical distance;
 in national markets varying greatly in population and area.

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 Michael Porter has discussed several changing currents in international competition
that have become quite strong since World War II. These changing currents serve as a
background to an understanding of international competitive strategy.

According to Porter, the international environment is characterized by the following

trends:

* Reduction in the differences among countries. The economic differences among

developed and newly developed countries sees to be narrowing in areas like income, factor
costs, energy costs, marketing practices, and distribution channels.

*More aggressive industrial policies. Governments like Japan, South Korea, and
West Germany are taking aggressive postures to stimulate industry in carefully selected
sectors. This policy is giving firms in such countries the support to make bold moves into
new markets.

*National recognition and protecting distinctive assets. The proactive exploitation of

such distinctive assets as natural resources (e.g., oil, copper, tin, rubber) by governments is
a reflection of changing philosophy toward industrial policy. This trend has potentially
fundamental implications for world competition.

* Freer flow of technology. The increased flow of technology from country to

country tends to promote more global competition.

*Gradual emergence of new large-scale markets. China, Russia, and possibly India
may ultimately emerge as huge markets in the future. Thus, gaining access to these markets
may well become a crucial strategic variable in the future.

*Competition from newly developing countries. Developing countries are

increasingly well prepared to make major capital investments in large-scale facilities,
aggressively to seek to buy or licence the latest technology, aggressively to take enormous
risk.

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 The net result of these changing currents has been to make the international arena a
fiercely competitive marketplace in which the standards of competitive success have risen
dramatically in the last few decades. There have been some cross-currents that have made
the pattern of international competition very complex and different from earlier
competitive strategies of the 1950s.

These cross-currents are:

 Slowing rates of economic growth

 Eroding types of comparative advantage
 New forms of protectionism
 New types of government inducement
 roliferating coalitions among firms from different countries
 rowing ability to tailor to local conditions.

Because of the currents and cross-currents, many more firms have become
international in their strategies and operations. The recent strategies revolve around
several themes described by Porter:

 There is no one pattern of international competition nor one type of global strategy.
 The globalization of competition has become the rule rather than the exception by
1986.
 The nature of international competition has changed markedly in the last two
decades.
 Implementing a global approach to strategy requires a difficult organizational
reorientation for many firms.

INDUSTRY DRIVERS OF GLOBALIZATION

An industry's potential for globalization is driven by market, economic,

environmental, and competitive factors. Market forces determine the customers'
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receptivity to a global product; economic factors determine whether pursuing a global
strategy can provide a cost advantage; environmental factors show whether the necessary
supporting infrastructure is there; and competitive factors provide a spur to action.

Drivers of globalization

Globalization (globalisation)

describes an ongoing process by which regional economies, societies, and cultures

have become integrated through a globe-spanning network of communication and
trade.

The term is sometimes used to refer specifically to economic globalization: the

integration of national economies into the international economy through trade,
foreign direct investment, capital flows, migration, and the spread of technology.

1. Technological drivers of globalization

2. Political drivers of globalization
3. Market drivers of globalization
4. Cost Drivers of globalization
5. Competitive drivers of globalization

Organizational Factors In Globalization

Organizational factors can support or undercut a business's attempt to globalize.

Four factors affect the ability of an organization to develop and implement global strategy:
organization structure, management processes, people, and culture. Each of these aspects of
organization operates powerfully in different ways.

Conclusions

An analysis of a company's competitive position against the five dimensions of

globalization: major market participation, product standardization, activity specialization,
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uniform market positioning, integrated competitive strategy, and the ability of the
organization to implement the different elements of global strategies - helps define the
appropriate approach for a globalization strategy.

SELECTED CASE STUDIES

6.0 Analysing a Strategic Management Case Study - Some Tips

Give yourself time to assimilate a case

The longer that a case study is given to “sink in” to your subconscious, the deeper the
understanding you will get and the better your answers will be. Read the case material for
the first time as soon as you have been allocated it as an assignment or seminar example. Get
a general impression:

 Which organisations and industries does it relate to?

 Is the organisation doing well or badly now, and how has it performed in the past?
Is it a company that has an unbroken record of success? Or a successful company
that has fallen on hard times?
 What are the main issues and choices confronting the company? Is it in an
expanding industry, or a maturing one? Are customer needs changing? Does the
firm confront a variety of opportunities? Or is there a particular business decision
which the case is oriented towards?
 What information is there in the case, as tables and annexes?

Analyse thoroughly, and use what you have been learning

Put the case aside for a few days before reading it a second time. Then, start to analyse it
seriously:

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  Look at the development of the organisation over time. What strategies has it
pursued? Which have succeeded and which have failed? Which are the types of
environment where it has been able to succeed, and in which types has it had
problems?
 Use the tools and techniques of strategic management theory, to see what insights
they give you. What is the nature of the competitive environment? What kind of
strategic resources does the organisation have – and which does it lack? How
successful has the organisation been – and how do you know?
 Look carefully at all the tables, annexes and appendices. Why are they there? What
information is the case writer trying to get you to get out of them?
 If there are numerical data in the case – analyse them. What trends over time do
they show? What ratios can you use to analyse performance in areas that are
important to the organisation?

Then, if you have time, put the case aside again for a day or two, and let all this sink in.
You may at this stage like to use SWOT analysis as a framework for a preliminary analysis
of your thinking. But beware – SWOT analysis is not sufficiently precise to feature in a
good final report.

Relate your analysis to the question

Now start to relate the analysis to the task or question you have been set.

 What elements of the strategic analysis do you require to carry out the task, and
how do they relate to it?
 Is there further information or analysis that you need?

Be logical and critical

Think hard about your conclusions and recommendations.

 Have you really demonstrated them, backing up your reasoning with hard evidence
(events and results) from the case study?

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  Have you allowed yourself to be swayed by the opinions of the organisation’s own
managers? They have a vested interest in showing their actions in the best possible
light. You do not have to agree. Do the facts support their claims of success, or their
excuses for failure?
 Beware of being taken in by the rhetoric of the case writer. Sometimes they may
genuinely believe that this is a wonderful company, sometimes they may just be
trying to mislead you.

We can read what they think – we want to know what you think! Dare to be
different – if you can marshal the evidence to support what you say.

Make sure it is clear what you are recommending...

If you are asked for a particular decision or recommendation, make sure that it is clearly
stated (i.e. not just implied) in the report. You may have come up with fifteen good reasons
why the company should enter the market in Utopia, but unless you clearly state that that
is what you recommend, you will lose marks.

...and why
Make sure that, in developing recommendations:

 You have considered the alternatives. There is hardly ever just one, single “obvious”
response to a strategic problem. And bear in mind that, if there is, all the company’s
competitors will have thought of it, too!
 You have made it clear why the recommendation you have chosen is the best of the
available alternatives. That means showing what is wrong with the others!
 You have looked at the downside of your proposals. Try to avoid proposals that
would bankrupt the company if they failed, or which can be easily copied by the
competition.

Selected Case Studies

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CASE 6.1.Blue Ocean Strategy: A Small Business Case Study

WE read "Blue Ocean Strategy" by Kim &Mauborgne recently and thought it was
compelling. WE thought we give you some excerpts. We are hoping it will spur thinking
and feedback from you.

Blue Ocean Strategy Synopsis

"The only way to beat the competition is to stop trying to beat the competition. In red
oceans, the industry boundaries are defined and accepted, and the competitive rules of the
game are known. In blue oceans, competition is irrelevant because the rules of the game are
waiting to be set. ...The companies caught in the red ocean followed a conventional
approach, racing to beat the competition by building a defensible position within the
existing industry order. The creators of blue oceans, surprisingly, didn't use the competition
as their benchmark. ...Instead of focusing on beating the competition, they focus on making
the competition irrelevant by creating a leap in value for buyers and your company,
thereby opening up new and uncontested market space. …Value innovation is based on the
view that market boundaries and industry structure are not 'given' and can be
reconstructed by the actions and beliefs of industry players. …To fundamentally shift the
strategy canvas of an industry, you must begin by reorienting your strategic focus from
competitors to alternatives, and from customers to non-customers of an industry. As you shift
your strategic focus from current competition to alternatives and non-consumers, you gain
insight into how to redefine the problem the industry focuses on and thereby reconstruct
buyer value elements that reside across industry boundaries"

The first example in "Blue Ocean Strategy" is Cirque de Soleil. The

criteria/boundaries/rules for the circus industry that were "taken for granted" for decades
included: animal shows, star/famous performers, multiple shows at the same time (i.e. 3
rings), and pushing concession sales. Rather than keeping a high emphasis on all the

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existing rules and then creating new ones, they either eliminated or reduced many of those
rules and created a bunch of new ones. In the process, they increased value for their target
market while lowering their own costs.

A key thing they did at Cirque de Soleil was that they looked across market boundaries to
alternatives to the circus. It ended up being part circus and part theatre. Rather than focus
on the market boundaries, they focused on the job the customer was hiring for -- in this
case, it was adults looking for sophisticated entertainment. Another key thing they did was
not targeting the existing market (i.e. children), rather they targeted non-consuming adults.
Blue ocean strategy is all about creating and capturing net new demand by ignoring
boundaries defined by traditional competitors.

The authors are big on stressing that new technology rarely turns into a great company.
They state that unless the technology makes buyers lives dramatically simpler, more
convenient, more productive, less risky, or more fun/fashionable, it will not attract the
masses.

Blue Ocean Strategy Framework

The Blue Ocean Strategy authors propose a graphical framework for helping readers
understand the book and for helping businesses create blue oceans of their own. Here's an
example of the tool applied to Southwest Airlines, who are an interesting case. Southwest
entered a terrible marketplace that a Porter five forces analysis would have said was a
blood bath. The criteria/rules/boundaries of the airline industry are listed along the x-axis.
Most of the major airlines played the same game with only the slightest of nuances.
Southwest eliminated many of the rules/criteria in the industry, reduced focus on some of
the rules below industry standard, raised focus on some of the rules above industry
standard, and createda new rules of their own. The way they were able to do that was they
targeted non-consumers (family/shorter trips v. business trips) and they looked across
industry boundaries at alternatives (cars v. planes) as their competition v. looking at
traditional airlines. Only by de-emphasizing some of the existing rules were they able to

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lower costs enough to compete in this new market.

They encourage the reader to come up with their industry's "standards." They then give
the reader four questions to which you can start thinking about your company/market
from a blue ocean perspective:

Which of the factors that the industry takes for granted should be eliminated?
Which factors should be reduced well below the industry's standard?
Which factors should be raised well above the industry's standard?
Which factors should be created that the industry has never offered?

The book suggests that an ideal strategy has 3 qualities: focus (not too many criteria),
divergence (from the alternatives in the framework), and a compelling tagline.

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HubSpot Blue Ocean Strategy Case Study

I used their framework/4-questions to create a draft of how we think about the Customer
Managed Relationships (as opposed to CRM) marketplace. HubSpot, an Internet
Marketing company, is targeting a non-consuming market (small businesses only) vs.
targeting companies who already have information technology tools in place. The
jobHubSpot is focused on being hired for is not "tracking" customers, but helping these
very small businesses (VSBs) grow revenue. In our target customer's mind, the competition
for HubSpot probably isn't Salesforce.com, but rather is alternatives like hiring an SEO
consulting firm, hiring an outsourced lead generation firm, hiring a new VP of Sales, etc. In
fact, _____ is hiring a new VP of Sales, hired an outsourced lead generation company,
hired me as a consultant, and implemented Salesforce.com.

Putting our CMR money where our mouth is, we will eliminate the large sales force to push
this type of thing as is used by much of the industry. Rather, we should spend the same
amount of cycles a traditional software company would on building a "sales force" to
creating an innovative "referral force" which provides rich incentives for our customers to
refer us to other small businesses as that is the way small businesses tend to make decisions.

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Our target market has not moved over to running their businesses on the internet because
they simply don't know how to do it and do not have anyone to help them. The existing
tools are just too hard.

Therefore, I think we should reduce emphasis relative to the industry on feature

richness/depth and on platform/add-ons (small companies do not have resources to deal
with the complexity of multiple vendors products). For the same reasons, I think we should
increase emphasis ease of use, help (video, audio, searchable via most frequently asked or
tag cloud), integration (key features from several apps selected by HubSpot and provided
to small businesses), and familiar user interface (i.e. like Office). We should also think
about increasing emphasis on "handholding" and "advice" which is apart from traditional
support and consulting.

We should look across industry boundaries and provide some of what our target market
gets when they hire a consultant or a new employee -- good advice and hard to obtain
knowledge. Our blog should not drone on about web2.0 and whatever else pops into our
head like others' do, rather it should be "how to" advise on growing revenue by leveraging
easy-to-use technology. Since we are passionate about strategy, we should weave some of
that stuff in there as well as it is directly relevant to how to grow revenues.

We might steal a page from other types of service companies and provide our customers
with a monthly email on their progress on the top of their sales funnel relative to when we
first came across them (pagerank, visitors, RSS subscribers, avg pages/visitor, etc.), metrics
relative to their peer group, some standardized advice based on how well/poorly they are
doing like the way realage.com does it, potentially a grade (maybe a red, yellow, green
would suffice), and we might give them an hour a year for a "how we doin'" checkup with
one of our MIT-trained consultants.

We have talked a few times about creating an eBay for small service companies. This idea

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reaches across market boundaries and helps our customers with the job they are hiring us
for: growing revenues. When you think about HubSpot itself, we are a very small business
and we have spent money with several other very small businesses: outside accountant,
outside law firm, a video producer, several designers, freelance developers, etc. About half
of these services are examples of long-tail services where we found the vendor over the
internet. Why not create a section on our website that helps remove friction from the
process of connecting long-tail service firms with each other using the internet. We could
start with it being just a simple external facing tracker application where companies can
enter information on service firms they do business with, share comments, and rate them
just like they would do a movie or restaurant (1-5 stars), with the ratings simply doing a
moving average.

One other aspect of this CMR angle that I like is that there are shifts happening in the
marketplace that companies are starting to become aware of that they will need to take
action on. For example, in two years, the Google PageRank will become a common topic of
conversation at the operations committee meeting of almost every company in our target
market. It reminds me a bit of selling software to manufacturing companies in the mid-
90's. All of them knew they needed to get their product catalogues on the web, but didn't
have any idea how to do it.

CASE6. 2.HotJobs Case Study: Vertical market entry strategy the key

Why profiled on Startup Review

HotJobs is a consumer facing online job search engine and back-end system that provides
tools for employers to post, track, and manage job openings. Founded in 1996, the site grew
to become the #2 job board when it was acquired by Yahoo! for $460M in 2001. By that
time it was generating $120M in revenue per year.

Interviews conducted: DimitriBoylan, founder and CEO; Rob Jevon, Partner at Boston
Millennia Partners and investor in HotJobs.

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Key success factors

Leveraged network of their prior business

HotJobs was founded by DimitriBoylan and Richard Johnson in 1996. The two realized the
Internet could provide a direct line of communication between job seeker and employer
and this vision morphed into a product while they were working at RBL Agency, an
employment agency for technologists. They were in the business of spotting talent and
cherry-picked the best programmers they knew for HotJobs product development.

HotJobs initially targeted the high-tech industry since the team had first-hand experience
staffing various high-tech companies. HotJobs knew what the customer needed, and they
combined this with a customer-first attitude that enabled them to continually innovate on
their product. They took a deliberate, tiered approach to building trust with early
customers (both job seekers and employers) before they spread themselves too thin by
trying to solve everyone’s recruiting needs.

Created superior product and pricing model for job posters

The initial HotJobs team lacked significant experience building enterprise or mass market
product, but this turned out to be an advantage because they approached product
development with a customer (job poster) centric mindset obtained from years of working
in the recruiting industry.

HotJobs did not simply recreate processes or copy features of its predecessors; it pioneered
a new way of doing recruiting online that was differentiated from the competition. Online
job boards provided employers benefits over newspaper job listings that had bureaucratic
approval processes/intermediaries and tedious formatting that varied per job listing.
Before HotJobs even the top online job boards only accepted information by fax, resulting
in at least a 48 hour cycle time for posting resumes and jobs to their database. There was

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no automated or bulk process for employers to list jobs, and it was equally painful for
employees to apply to multiple jobs.

Unlike some of its competitors, HotJobs did not re-create traditional and manual processes
within the online environment. While competitors suffered from many manual errors due
to back office faxing and data re-entry, HotJobs offered instantaneous posting of data
through the Internet. They also continuously innovated with other products such as an
applicant tracking system, an in-house recruitment tool, and a B2B exchange (with which
employers could manage recruiting agency selection).

At its introduction, HotJobs pricing was a first mover advantage. The site priced per
corporate seat, per month, providing companies a certain capacity of listings. This was in
contrast to the traditional pricing of per listing, and meant jobs filled before 60 days (the
industry norm) could be swapped for other listings at no extra charge. This improved
economics to the employer and increased visibility for employer’s listings by reducing the
clutter created by old job listings. It also offered less stale listings to job seekers.

Launched with a vertical focus on high-tech jobs to solve chicken and egg problem

Before the site could expect to get the attention of job seekers, HotJobs needed to build a
large database of jobs. The listings were technology-only until 1997, when HotJobs
introduced finance and sales/marketing jobs. They focused on the high-tech industry and
investment banks, which tend to have more first adopters and technology evangelists than
other industries. Additionally, resumes for programming jobs are more suited for online
sourcing as they require less screening for soft skills.

Most of HotJobs’s customers were new to the concept of job sourcing online, but were open
to new channels as the boom in Internet startups was fueling intense competition for talent.
The high demand for programmers played right into HotJobs’s corner, as the site
specialized in this type of hire.

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Their first customer was SGI, who was equally excited about a new recruiting solution, and
the fact that HotJobs was using SGI machines to run the HotJobs site.

Built consumer awareness by optimizing high advertising spend across multiple channels

HotJobs had great success using banner advertising in 1997, but significantly decreased
their spending in this channel for a few years when advertising prices began to skyrocket in
1998. A year later, they had great success advertising in the Super Bowl. Their ad cost
$400K to produce and $1.6M to air – in a year where the company generated $2.5M in
revenue. The ad drew a huge number of visitors to the site even during the game, which
came as a surprise to the executive team. HotJobs also achieved great press after the Super
Bowl as they were the only advertiser to make their creative available to the press, who
used it in news stories reviewing Super Bowl advertising.

Launch strategy and marketing

In order to ensure a sufficiently large supply of listings, HotJobs gave the product
away for free to the first 100 corporate customers. Many corporate recruiters would then
refer consumers to HotJobs.

Until 1999, HotJobs had a “no headhunter” policy in order to promote the direct
communication between employer and job seeker. This was a large part of their marketing
message. This helped steal market share from the other job boards where job seekers had
become tired of dealing with headhunters. By the time of the acquisition by Yahoo! 85% of
spending was in the area of consumer marketing.

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Exit analysis

In May 1999, HotJobs raised $16M from Generation Partners and Boston Millennia
Partners. At the time of the investment, the company had $8M in annual revenue run rate.
These investors were instrumental in further building the senior management team. Three
months later the company completed an IPO of $24M, and raised $121.5M more in
November. The initial acquisition interest came from Monster, but Yahoo! outbid them by
$80M. It is probable that a Monster acquisition would have been a more considerable
threat to the newspaper industries. The company sold for a multiple of ~4x revenue. What
is more, the sale was completed during a tough time for the US economy.

The market has continued to grow rapidly and according to Borrell Associates, 2006 was
the first year online recruitment advertising ($5.9B) surpassed newspaper job ads ($5.4B).
HotJobs has approximately 9% of today’s market. Monster is valued at $6.7B, having
grown 2001 sales from $536M to a TTM of $1.1B in revenue. Monster had 60% of the
market share in 2001, but fell to approximately 30% in 2007 largely due to the fantastic
growth of Careerbuilder.

Food for thought

HotJobs launched with a vertical market entry strategy, both in terms of industry (high-
tech customers) and for type of job (programmers), but after a couple of years expanded
horizontally. We are now seeing a number of new sites (and some existing sites) following a
similar path of vertical focus. Large job sites offer some efficiencies for recruiters, but the
search experience, relevancy of results and data quality can be lacking for both employer
and job seeker. These sites can promote an impersonal and less thoughtful process for
finding your next job.

According to CareerXroads, 28.4% of Internet hires in 2005 were attributed to three online
job listing sites (Monster.com, Careerbuilder and Yahoo) and other web sites accounted for
22.4%. The remaining 50% of hires are attributed to a company website, but this number
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is questionable as the company web site is usually the destination and not the source. This
growth in small web sites is especially impressive given that the large sites can win any type
of SEM bidding wars. I believe the decentralization of attention will continue to erode
market share for the larger sites as well as for sites that only offer job related content.
Yahoo! has obtained additional job seeker audience by converting traffic from its other
web properties, and Careerbuilder has gained audience through partnerships with
newspapers. I believe the long tail should continue to outpace larger sites due to the
increase in blog readership, syndication services (e.g. job networks which are equivalent to
the co-op model of blog networks) and community-building tools. These sites are in a better
position to screen for chemistry, culture, and validity of information. Additionally, 27% of
all external hires are from employee referrals that partly reflect the networking and
community aspects of sites such as LinkedIn. Finally, jobs listed as secondary content on
sites (e.g. a blog) or solutions catering to getting a job later versus now will attract passive
hires. Targeting passive hires versus those out of work leads to a greater audience for the
technology vendor and also leads to more desirable candidates for the employer.

HotJobs was/is a leading company evangelizing job sourcing through technology. While
online jobs was one of the Internet’s first successful industries, technology is still a small
portion of the $90B that will be spent on recruiting services in 2007. Continued innovation
should lead to further dramatic shifts and improvements in recruiting processes.

CASE 6.3.Adidas Reebok Merger Case Study

The sporting goods industry has seen many mergers and acquisitions (M&A) driven by
rising competition and industrial growth. In 1997, Adidas acquired the Salomon Group for
$1.4 billion. In 2003, Nike acquired Converse for $305 million and in 2004 Reebok acquired
The Hockey Company for $330 million.

Adidas and Reebok - Two mega brands, with great strengths

In August 2005, German adidas-Salomon AG announced plans to acquire Reebok at an

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estimated value of € 3.1 billion ($3.78 billion). At the time, Adidas had a market
capitalization of about $8.4 billion, and reported net income of $423 million a year earlier
on sales of $8.1 billion. Reebok reported net income of $209 million on sales of about $4
billion. While analysts opined that the merger made sense, the purpose of the merger was
very clear. Both companies competed for No. 2 and No. 3 positions following Nike (NKE).

Competition with Nike and Puma

Nike was the leader in U.S. and had made giant strides in Europe even surpassing Adidas
in the soccer shoe segment for the first time. According to 2004 figures by the Sporting
Goods Manufacturers Association International, Nike had about 36%, Adidas 8.9% and
Reebok 12.2% market share in the athletic-footwear market in the U.S. Adidas was the No.
2 sporting goods manufacturer globally, but it struggled in the U.S. – the world’s biggest
athletic-shoe market with half the $33 billion spent globally each year on athletic shoes.
Adidas was perceived to have good quality products that offered comfort whereas Reebok
was seen as a stylish or hip brand. Nike had both and was a favorite brand because of its
fashion status, colors, and combinations. Adidas focused on sport and Reebok on lifestyle.
Clearly the chances of competing against Nike were far better together than separately.
Besides Adidas was facing stiff competition from Puma, the No. 4 sporting-goods brand.
Puma had then recently disclosed expansion plans through acquisitions and entry into new
sportswear categories. For a successful merger, the challenge was to integrate Adidas's
German culture of control, engineering, and production and Reebok's U.S. marketing-
driven culture.

The ADDYY and RBK Merger – Impossible is Nothing

On January 31, 2006, adidas closed its acquisition of Reebok International Ltd. The
combination provided the new adidas Group with a footprint of around €9.5 billion ($11.8
billion) in the global athletic footwear, apparel and hardware markets.

Adidas-Salomon AG Chairman and CEO Herbert Hainer said, "We are delighted with the
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closing of the Reebok transaction, which marks a new chapter in the history of our Group.
By combining two of the most respected and well-known brands in the worldwide sporting
goods industry, the new Group will benefit from a more competitive worldwide platform,
well-defined and complementary brand identities, a wider range of products, and a
stronger presence across teams, athletes, events and leagues.”
Hainer also said, "The brands will be kept separate because each brand has a lot of value
and it would be stupid to bring them together. The companies would continue selling
products under respective brand names and labels.

CASE 6.4. HP and Compaq Merger-The Merger of the Giants

The failure of the merger between two leading competitors in the global computer industry,
Hewlett-Packard Company (HP) and Compaq Computer Corporation (Compaq) failed as
the synergies identified prior to the merger did not materialize.

HP bought Compaq for US$ 24 billion in stock. This was the largest ever deal in the history
of the computer industry. The deal meant combined operations in more than 160 countries
and more than 145,000 employees. HP-Compaq would offer the most complete set of
products and services in the computer industry.
The motivation behind a HP-Compaq merger (whether it made economic sense) and the
problems encountered in merging operations is an interesting discussion as the stock prices
of both HP and Compaq fell within two days of the merger announcement. An estimated 13
billion dollars was lost (in terms of market capitalization) in this time frame.

Shares fell further as industry analysts failed to understand the benefits HP would derive
by acquiring Compaq. HP was a market leader in the high margin printer’s business and
Compaq, a low-margin personal computer (PC) manufacturer. Moreover, established
players like direct marketer, Dell and leading IT service consulting company like IBM
would give fierce competition even if economies of scale were to be achieved.

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With the stock price of HP’s shares stabilising at a level much below than before the
merger and the PC & other hardware businesses not making much profits, the merger was
ruled a failure. Industry experts felt that HP’s printer business should be spun off into a
separate entity.

Merger Challenges:

Product line integration: This requires discontinuing some products (some loss in revenue)
thereby rationalizing the product line.

Reorganization: In the computer industry this has always been a failure.

Cultural change challenges: HP’s culture is largely based on engineering and compromise,
while Compaq had a hard-charging sales culture.

Some Facts: HP was founded by Stanford engineers Bill Hewlett and David Packard

HP was started in California in 1938 as an electronic instruments company.

According to 2003 figures, HP revenues from imaging and printing systems accounted for
31% which was more than seventy percent of total operating profits.

Case 6.5: IT overhaul, root and branch

It's not hard to see that the UK financial services landscape is changing in quite
fundamental ways. While the specialised insurance market isn't suffering the privations of
the mortgage industry, City-based insurance company Kiln is undergoing fundamental
corporate changes underpinned by a no-less sizeable IT upgrade.

Cheat Sheets

♦ Faster Payments
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♦ Basel II
♦ MiFID
♦ Sarbanes-Oxley

Five years ago, the family-owned insurance and reinsurance company decided to move
away from its reliance on Lloyds of London and expand globally. Along with this shift in
business strategy was a move away from the 'old school tie' approach to insurance, opening
the company up to a wider talent pool in terms of recruitment and career progression and
to new ideas in terms of how the business will be shaped in the future.

Two years ago, the company decided to embark on a tech overhaul to support the change
in direction.

While underwriters at the company were used to a spreadsheet-based approach, the

decision was taken to build an in-house underwriting application and bring in risk
assessment modelling techniques, all of which necessitated a new storage architecture.

Kiln IT director Chris Locke told silicon.com the commercial landscape has made it
difficult to raise premiums on the sorts of products the company deals with, including
airline, marine and property insurance. As a result, the company must find other ways of
maximising profit.

"There was a need to be smarter about what we chose to insure. We underwrite £1bn of
premium: in a downturn it may be difficult to increase premiums, which means we needed
more powerful modelling tools, so that we can decide where we need to cover the risks to
maximise profit," he said.

The other prong of the company's attack is in an aggressive acquisition strategy that has
seen it move into six countries. Kiln was itself acquired by Tokyo Marine in February this
year, opening up opportunities in the US.

Kiln is already two-thirds the way through upgrading to an in-house underwriting system
which is being developed to be distributed throughout Kiln's international offices.
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Locke added that a basic SOA platform will support custom bolt-on applications as they
are written for the processes of each company, while generic processes will be absorbed
into the common platform.

It's a Kiln office out there... Each office has the same hardware, the same desktop, the same
standards.

Locke said: "We've just about done London and now we are starting Europe but we
already have 80 per cent of what we need completed. It means we can get apps out to
support our international offices within weeks. It also means that it's a Kiln office out
there. People do business with us because they know who we are. Each office has the same
hardware, the same desktop, the same standards."

The changes meant the company also required a powerful SAN storage architecture. Locke
considered incumbent supplier HP but decided the storage offering from Hitachi was
better able to support the sort of data throughput Kiln demanded and was better optimised
for the company's back-up and disaster recovery needs.

Locke said: "We have a requirement to completely rebuild all systems within 48 hours.
With the amount of data we are using, it would be physically impossible to restore systems
from a tape back-up in that time."

Alongside many other financial institutions, insurance is increasingly under the glare of
regulators. Locke said the industry as a whole has been put on alert by the FSA to review
its data security protocols.

"Some of our products require us to hold personal data, including health records, for a
specified amount of time. Hitachi's SAN provides the technologies we need to identify
where we are holding data. Plus, as we move into the US, we will start being hit by some of
the SOX [Sarbanes-Oxley] regulations," he added.

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Locke believes Kiln's IT strategy will set it up as a nimble player in the future global
specialised insurance market although he concedes that not putting these initiatives in
place would not stop the business.

"There are other ways of achieving our goals but they would be more expensive," he
concluded.

CASE 6.6 A Corus line: Did Tata do the right thing?

The markets hammered Tata Steel's stock on concerns that it overpaid for Corus, but the
jury is still out on whether the acquisition was overall a wise thing. Based on the bare
numbers alone, it does appear that Tata was bruised by the bidding war and did pay about
20% more than Corus was really worth (and which was close to their original offer).

It turns out that Tata is paying 68% more than the average of Corus' stock price over the
year ending October 4, 2006, which does seem high. Pyrrhic victory?Winner's curse?

There are many layers of irony in the whole episode: first, Corus includes British Steel,
once an exemplar of that country's industrial might and thus of its dominance over India;
second, considering Arcelor-Mittal's Indian connections, and the new domestic projects
expected in Orissa and Bengal, India may now be a bigger factor in the metal now than at
any time since its predominance of world steel production in the 1000-1500 CE timeframe
when high-carbon wootz -- known as damascene to Christian crusaders who felt its bite in
Mohammedan scimitars -- was the best steel in the world.

 The Tata-Corus Saga: Complete Coverage

Third, Tata Steel, once written off as an also-ran because of its high costs a few decades
ago, has reinvented itself as one of the lowest-cost steelmakers in the world, partly through
new technology, but as case studies from the IIMs show, also significantly because they
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were able to hammer out a pact with their workers, transforming the company and the way
they made steel.

The old-fashioned commitment by the Tata to their workers and their communities -- as
seen most vividly in the remarkably well-maintained flagship company town of
Jamshedpur -- has paid huge dividends in an era of robber-baron management.

Clearly, these things go in cycles -- long or short, as the case may be. I was reminded of
another, extremely short cycle, when Motorola recently took a hit on their earnings:
apparently, their big hit product of two years ago, the RAZR, is now such a commodity
item that it is dragging down profits! The cell-phone has now become a fashion accessory,
and like all fashion items, it needs constant revision.

In the larger picture, We not a fan of heavy industry, as We a firm believer in India's core
competence being in agriculture, intellectual property and light manufacturing. However,
this doesn't mean -- as allowed by Adam Smith and David Ricardo under comparative
advantage -- that India should completely abjure heavy industry, either, especially in areas
where it has strengths.

For instance, exporting millions of tons of Kudremukh iron ore to China, as India has done
for years, is as brain-dead as the old export of cotton to British mills: the value-added stuff
was then re-exported to India. But at least then it was extortion, now there is no excuse in
freely allowing a foe to use our resources.

The Tatas have earned enormous goodwill in India, and their image is that of a benign,
ethical entity: there is some danger of this image being dented by their alliance with the
Marxists of West Bengal. Nevertheless, the value of their goodwill, and of their brand value
-- I read somewhere that Tata now is roughly in the top 100 brands worldwide -- continue
to be enormous.

There are both threats and opportunities with the Corus purchase. The main rationale for
the purchase have been a) synergy, b) access to markets, c) access to technology, and d)

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economies of scale. On the other hand, steel is at a cyclic peak in demand and price right
now, and it is likely that with a cooling predicted for China this year that commodity
demand will slow.

There is serious competition, too: Arcelor-Mittal, the consolidating Japanese, and

increasingly muscular Chinese firms. New capacity is coming online in both China and
India in 2007, as well.

The synergy issue is interesting, although it is best to be a little wary of this expectation
after disastrous M&A deals in the 1990s (for example, AOL Time-Warner) wherein the
anticipated benefits did not materialize. However, there might be value for Tata if this
acquisition is intended for the Tata Group, not just Tata Steel, to expand itself.

For instance, Tata Motors may be keen to enter European markets (after its aborted deal
with a British auto company), and acquiring Corus may well be the first step towards a
vertical integration by acquiring a local auto plant as well: design in India at low cost, and
produce in Europe for local markets.

The distribution angle, and the access to Corus's existing customer list, may not be a great
advantage, given that growth in demand for steel is likely to come not in Europe but in
Asia. This is diametrically opposed to the approach Tata Sons took with the acquisition of
Tetley Tea and access to OECD markets.

The issue of technology and plant is unclear. Apparently Corus has a number of patents,
but I doubt that their technology is unique and advanced enough to make a difference.
Otherwise, it would not be on the auction block.

Besides, along with the technology come obsolete plants, and, worryingly, unionised British
labour: the kind of problem US Steel had. This is possibly the most dicey part of the deal,
because these are poor-quality organised workers; and this is the real reason Corus had
such low valuation -- Britain's militant union labour is comparable to its football hooligans:
unruly, difficult to manage. Tata's vaunted HR skills will be tested sorely.

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The scale argument has some merit. After all, Arcelor-Mittal's merger rationale was that it
would be able to distance between itself from the next smaller firms in the industry. There
is value in creating seller power in an otherwise fragmented industry.

There are plenty of pluses and minuses in the deal, and we shall have to wait and see how it
pans out. However, the only people who have clearly benefited are Corus' shareholders. A
skeptic wondered whether the losing bidder, CSN, was in cahoots with Corus management.

They certainly managed to hand over to Corus owners a huge windfall at the expense of
Tata Steel (a premium of 49% over the closing price on October 4, 2006).

There are lessons from this exercise for India's other corporate giants who are on the prowl
for acquisitions. IT services firms have concentrated on buying customer lists; pharma
companies have looked at technology and market access. But it is necessary to focus on the
true value of the acquired firm, and not get caught up in the emotions of a bidding war.

"Buy low, sell high" should be the mantra, as the 'synergy' often ballyhooed by the M&A
specialists may or may not materialise.

CASE 6.7 .Historic Day For Indian Business – Tata’s Jaguar, Land Rover Saga

March 26, 2008 will forever be a historic day for India Inc., India, and the Indian Business.

Tata today acquired two of the most celebrated, royal and revered auto brands in the
history of automobiles - Jaguar and Land Rover - for $2.3 billion from Ford Motor

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company.

Tata Sons and Tata Motors chairman Ratan Tata, said, "We are very pleased at the
prospect of Jaguar and Land Rover being a significant part of our automotive business. We
have enormous respect for the two brands and will endeavour to preserve and build on
their heritage and competitiveness, keeping their identities intact. We aim to support their
growth, while holding true to our principles of allowing the management and employees to
bring their experience and expertise to bear on the growth of the business."

Just hours after Tata issued a low-key announcement to confirm it had "entered into a
definitive agreement with the Ford Motor Company for the purchase of Jaguar Land
Rover, comprising brands, plants and Intellectual Property Rights", the top bosses of
Unite, the UK's largest trades union, said the deal "is really good news for the UK
automotive industry".

The UK India Business Council, (UKIBC) the lead organization supporting the promotion
of bilateral trade, business and investment opportunities between the two countries, said
the deal was an outstanding example of the UK's open economy. Its Chief Executive
Sharon Bamford said the purchase was in line with "many significant (cross-border) deals
in recent years (namely) Vodafone's acquisition of Hutch and Tata's previous acquisition of
Tetley and more recently Corus, are leading examples of this".

UKIBC Chairman Lord Karan Bilimoria said, "Tata's purchase of Jaguar and Land
Rover is only the latest example of the newfound confidence of Indian companies. Less than
two months ago I sat in the new Tata Nano, and I witnessed history in the making. Indian
companies are growing more confident in the global economy, and with this deal the
country is on the move like never before."

Tata is poised to become a global brand with this acquisition of Jaguar and Land Rover.
India Inc. will now enter the world of autos besides the world of software and steel.

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CASE 6.8.Diversification key to survival in fashion world: RaghavendraRathore

Forget the recession. Even in good times the key to survival in the fashion world lies in
designers diversifying, says veteran stylist RaghavendraRathore, who himself has spread
his wings to areas likeRaghavendraRathorehas also tied up with a leading fabric
manufacturer.

"Designers should focus on different avenues. They should move beyond fashion and think
of utilizing their creativity in the best possible manner," Rathore told IANS in an
interview.

"We (designers) should break away from the cliche of stereotype designing and think of
reaching to the common man," added the designer, whose collection was well received at
the ongoing Wills Lifestyle India Fashion Week (WLFW) here.

But Rathore also sounded a word of caution.

"At the same time only those designers who have an aptitude for diversification should go
for it," he said.

Rathore launched his Rathore Jodhpur label in 1994. After establishing himself as a
designer whose roots lie in the royal forts of Jodhpur, he started to expand his portfolio by
designing for jewellery brand Tanshiq and has also collaborated with suiting brand S
Kumar.

His latest venture is creating the 'Lifestyle' software for the iPhone.

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"I have moved beyond fashion. It took me seven years to learn the basics of the trade. But
the effort has paid off because the future of Indian fashion calls for diversification. There
are many designers who have understood the fact and are moving out of their shells,"
Rathore said.

For example, designer ManavGangwani is to introduce his eyewear collection in the Indian
market, while bridal wear design diva Ritu Kumar is launching her own perfume line
called The Tree of Life. Young designer Amit GT, who started with a focus on menswear,
chose to branch out into designing for women and now also dabbles in home furnishings
and accessory designing.

This apart, Sabyasachi Mukherjee had earlier tied up with home linen brand Bombay
Dyeing for a bedsheet collection, while Manish Arora tied up with sports brand Reebok for
its lifestyle shoe collection that was called Fish Fry.

Rathore said, "I am a businessman now as the first thing that comes to my mind is to
utilize resources. I have learnt this from father and I feel that the design fraternity should
know how to utilize resources because it gives value to the product."

Ever the diversifier, Rathore earlier this year also donned the cap of vice president of the
newly formed government body - Fashion and Design Promotion Council (FDPC).

"It is very important for designers to understand that we all have to come to a meeting
point and think beyond fashion weeks. With so many fashion designers graduating every
year, we have to make sure that they find suitable jobs and use their creative skills,"
Rathore explained.

"Our aim is to empower youth and provide them various platforms that they can use to
establish themselves in the business. The best part is that the government is very supportive
this time and the body just needs the right directions to achieve its goals," he added.

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CASE 6.9.Diversification brings success for ITC

For ITC Ltd, 2007-08 continued to be year of quiet growth. Just more launches in its
relatively new segment of non-cigarettes fast-moving consumer goods, and solid growth. As
in the past few years, ITC’s non-cigarettes businesses continued to grow at a scorching
pace, accounting for a bigger share of overall revenues. “The non-cigarette portfolio grew
by 37.6% during 2006-07 and accounted during that year for 52.3% of the company’s net
turnover,” an ITC spokesman said. In fact, over the first three quarters of 2007-08, ITC’s
non-cigarette FMCG businesses have grown by 48% on the same period last year,
“Indicating that its plans for increasing market share and standing are succeeding”.

The branded packaged foods business continued to expand rapidly, with the focus on
snacks range Bingo. The biscuit category continued its growth momentum with the
‘Sunfeast’ range of biscuits launching ‘Coconut’ and ‘Nice’ variants and the addition of
‘SunfeastBenneVita Flaxseed’ biscuits. Aashirvaadatta and kitchen ingredients retained
their top slots at the national level, with the spices category adding an organic range. In the
confectionery category, which grew by 38% in the third quarter, ITC cited AC Nielsen
data to claim market leader status in throat lozenges. Instant mixes and pasta powered the
sales of its ready-to-eat foods under the Kitchens of India and Aashirvaad brands.

In Lifestyle apparel, ITC launched Miss Players’ fashion wear for young women to
complement its range for men.

Overall, the biscuit category grew by 58% during the last quarter, ready-to-eat foods
under the Kitchens of India and Aashirvaad brands by 63%, and the lifestyle business by
26%.

For the industry, the most significant initiative to watch was ITC’s foray into premium
personal care products with its Fiama Di Wills range of shampoos, conditioners, shower

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gels, and soaps. In the popular segment, ITC has launched a range of soaps and shampoos
under the brand name Superia.

Ravi Naware, chief executive of ITC’s foods business, was quoted recently as saying that
the business will make a positive contribution to ITC’s bottomline in the next two to three
years.

In hotels, ITC’s Fortune Park brand was making the news during the year, with a rapid
rollout of first class business hotels.

In the agri-business segment, the e-choupal network is trying out a pilot in retailing fresh
fruits and vegetables. The e-choupals have already specialised in feeding ITC high quality
wheat and potato, among other commodities, grown by farmers with help from the e-
choupal information system. In rural retail, ITC plans to grow its network of rural malls
branded ChoupalSagars to form the backbone of a distribution strategy.

In the paper business, ITC had already pioneered the production of paperboard using ECF
or elemental chlorine-free technology, and has now begun marketing paper cups branded
Spectra. With the huge growth in out-of-home eating and the entry of multinational brands
and standards, ITC expects this business to grow strongly.

The paper business reported an 11% increase in revenues in the third quarter, backed by
better volumes in the value-added portfolio of paper and paperboards and robust
performance of the packaging business. As the new fiscal begins, ITC will have added a
pulp mill to the business, together with a new paper machine that will increase capacity by
100,000 tonne per annum in 2008-09 and feed its stationary business.

Case 6.10 – TirumalaTirupathiDevasthanams –

PanditSitaraman was confused. As head priest of the famed

TirumalaTirupatiDevasthanams, a post that he had held for a long time, for the first time

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he was up against an ethical dilemma. The night before, a visiting Sikh priest had looked at
the different lines that were formed for the darshan and remarked, “At the Golden
Temple, people who come, come with devotion in their hearts. Everybody’s devotion is
equal, be they rich or poor. At Amritsar, we don’t have separate queues for the rich and
poor. All come equally, all re treated equally”.

Tirumala, the abode of Lord Venkateshwara, is reputed as the most ancient temple in
India. Ancient religious texts all decvlare that in the age of kali yuga, one can attain mukti
only through the worship of Lord Venkateshwara. Tirupathi, in the chittoor district of
Andhra Pradesh, is situated at the foot of the Tirumala hills. The two townships and their
temples are under the religious trust of TTD.

The TTD today is one of the richest temple trusts in India. Its revenue comes from two
sources. First, from donations. The rich and the poor, on fulfillment of their wishes, donate
their chosen amount in cash or gold to the temple coffers. This is purely voluntary, the
amount being determined solely by the person’s wishes. On any given day, an average of
30,000 devotees visit the temple. In addition, TTD has also set up branches all over India
where the donation can be deposited, the prayer performed at each requested time and
they undertake the journey. A second source of income comes from the ‘darshan’. The
“darshans” are timed throughout the day and the entry fee can vayt form Rs.200 to
Rs.2500. In addition, there are also weekly sevas at special rates, in order to control the
crowds that turn up, for the general ‘darshans’ the management of TTD had thought it
best to have different queues, for different rates. Thus, on any given day, there will be fast
moving Rs.100 line, a somewhat slower moving line of Rs.50, and may be a third extremely
slo line for Rs.10. the number of lines would vary, depending on the seasonality factor.
There would also be a mandatory ‘ free’ line. Sitaraman as the COO has the power to
decide on both the number of lines and the per visitor rate for each queue.

The decision to have several queues was taken any centuries ago when royalty, through the
system of patronage, demanded exclusive treatment. Sitaraman had never felt the need to
revise this decision although the ethical question troubled him. Religion, he strongly felt,
should not be based on class distinctions. The only consolation was that the exclusively
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ended at the gates of the sanctum sanctorum. Once inside, in the presence of the Lord
Venkateshwara, all were treated equally. Sitaraman could identify several merits to the
existing system but then again he was very conscious of the class system that was being
perpetuated.

The queue system also presented its own share of problems. It was possible to control the
crowds today through differential pricing. With the natural growth in population, entry
rates would have to be pushed higher and higher. Sitaraman was not convinced of it’s the
moral validity of such decision. There was yet another dimension to sitaraman’s problems.
Although there had been no quantitative demonstration yet, sitaraman was visibly
perturbed by the onslaught of foreign media through the cable network. If this continued,
there could welcome a time when declining number of devotees could becomes a serious
problem and a threat to the very existence of TTD. Sitaraman shrugged his shoulders;
there was precious little he could do. Moral degradation was one are for which he had no
strategy.

Temple trusts are subject to very strict audit. Most of the expenditure of the trust is on
social welfare activities. As of date, TTD runs five schools, three old-age homes, one
conventional college, a university and several clinics. Within the temple area, TTD also
runs several free kitchens where food is given on the production of a token that can be got
only after the ‘darshan’ has taken place. TTD has also instituted several scholarships at
leading technical colleges in India and abroad. Recently, TTD has also diversified into
transportations and run regular buses from Chennai and Bangalore to Tirupati.

The organisation structure of TTD is very simple. There is a Board of Trustees comprising
some retired priests, the local elected representatives, some predominant businessmen and
panditsitaramanhimself. Sitaraman’s election as the head priest was based on a unanimous
agreement among all the temple priests, and is for life. The board meets once every month
to consider the expenses of the following month and review the volume of donations that
had been collected in the previous month. Sitaraman’s is responsible for the day-to-day
administration of the TTD, in which he is assisted by BhaskarRao who sees to the logistics.
Inside the sanctum sanctorum, Prabhakar is responsible for the “langar” for the poor
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people. Rumali is responsible of the accommodation, chandrashekhar for the university
and schools and Raghunandan V Raghavan, who has always had a flair for the mechanical,
it the sole coordinator for the transport buses. The collection method by itself is foolproof.
All donations are dropped in a large cauldron. At the end of the day, this cauldron is
emptied in public and the donations totaled. This is deposited with the local branch of the
State Bank of India next morning. On special occasions when the crowds are swelling.
Several cauldrons are pressed into service.

TTD has always been an autonomous body. The state government had, at one point of time,
considered nationalizing the trust so that the money so collected could be added to the
resources of the state government. Happily, Sitaraman remembered, public reaction was so
violent that N T Ramarao, the then chief minister had to reverse his stand.

While there were no immediate problems, Sitaraman could not help feeling uneasy. There
were several issues that he was uncomfortable with. Sitaraman doubted whether he alone
could come up with the answer to the problems. As the conch shells sounded below for the
evening prayer, Sitaraman headed toward the temple, determined that he would discuss
this problem with the District Collector at the earliest.

Discussion

1. Draw out an issue tree, discuss the problem based, and suggest a solution.

2. What are the strengths and weaknesses of TTD?

SUMMARY

This chapter focuses on strategic management for organizations that are involved in
international business. The strategic-management process in international corporations is
conceptually the same as in purely domestic firms. However, managers performing
management functions across national borders face special problems because many more
variables and relationships exists.

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 The economical, political, social, technological, and competitive opportunities and
threats increase with the number of products produced and the number of geographic
areas served. Such factors as different national sovereignties (governments), cultural and
national differences, variations in business practices, values make environmental analysis
for such organizations very complex. Strategy implementation can be more difficult
because different cultures have different norms, values, and work ethic.

Moreover, international economic competition has increased dramatically in the

past few decades. New pressures have transformed the global competitive game, forcing
these companies to rethink their traditional worldwide strategic approaches. The new
strategies, have raised questions about the adequacy of the issues of formulation and
organization of effective strategy.

The chapter has revealed the conditions under which a global strategy is required,
how is required, how it is formed, and when it is implemented by multinational in a
competitive environment.

Even within particular industries, international companies have developed very

different strategic and organizational responses to changes in their environment. The
different international strategic decision alternatives are also associated with varying
degrees of international operations.

The internationalization process typically proceeds through a gradual commitment

to a local business presence. The operations range form importer to foreign investor. The
cost and risk such activities are high, thus a multinational companies should be clear about
the objectives and strategy thrust it will pursue, and make sure that internationalization is
the best way to pursue them.

When a company reaches the multinational status, it should begin to optimize it

strategy through a tradeoff between global economies and local responsiveness. Their
mission, goals, and objectives should be closely intertwined with international operations.

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 The special organizational strategies that have been formulated for multinational
corporations include direct investment, licence agreements, joint venture, and
importing/exporting.

International structural implementation decision alternatives are function of

corporate resources and corporate orientation. The alternatives include export division,
international division, matrix organization, and global business units.

The diversity and volatility of international finance have increased due to the
growth on foreign financial markets, international mergers and acquisitions, floating
exchange rates, and variable government regulations.

However, a major obstacle to successful internationalization is frequently the lack of

an appropriate management capability.

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