1

MOD II: Strategy Management

Mission and Business Definition

▪ Mission
o Purpose or Reason for organization’s existence , its
fundamental purpose
o It tells what the company is giving to the society as a service or
a product
o Defines the fundamental, unique purpose that sets a company
apart from other firms of its type and identifies the scope or
domain of the company’s operation in terms of products
offered and markets served.
o May also include a firms values and philosophy about how it
does business and treats its employees.
o It includes what the company is now, and also the
management’s strategic vision of the firm’s future.
o E.g.: Google 🡪 To organize the world’s information and make it
universally accessible and useful.
o Mission should focus on long range economic potentials,
attitude towards customers, product and service quality,
employee relations, and attitude towards owners
o Mission statement should cover
▪ Precisely why the organization exists, its purpose in
terms of basic products or services, its primary markets,
and its major production technology
▪ The moral and ethical principles that will shape the
philosophy and character of the organization
▪ The ethical climate within the organization
o Mission statement
▪ Serves as a basis for consolidation around the
organization’s purpose
▪ Provides impetus to and guidelines for resource
allocation
▪ Defines the internal atmosphere of the organization, its
climate
▪ Serves as a set of guidelines for the assignment of job
responsibilities
 2

▪ Facilitates the design of key variables for control

▪ Vision
o Vision articulates the position that an org would like to attain in
the distant future
o Vision is future aspirations that lead to an inspiration to be the
best in one’s field of activity

Infosys
Vision
'We will be a globally respected corporation.'
Mission
'Strategic partnerships for building tomorrow's enterprise.'
 3

Vision Mission

Purpose

Tells what an organization aims to achieve. States what a company

is currently doing.

Answers the question

What do we want to become? What do we do?

Includes

● Objectives ● Customers
● Values ● Products/Services
● Markets
● Technology
● Concern for survival
● Philosophy
● Self-Concept
● Concern for public
image
● Concern for employees

Future or present time?

Talks about the future Talks about the present

To whom it is developed?

Employees of the company Employees, customers,

suppliers, distributors,
partners and
communities

Which one is created first?

Developed first Developed only when

vision is available
 4

How often does it change?

Rarely changes because it takes years to achieve Product-oriented

most of the objectives missions change every
time when a company
decides to venture into
a new product market.

Environmental Scanning
▪ Is the monitoring, evaluation and dissemination of information from the
external and internal environments to key people within the
corporation
▪ First identify external environmental variables
o Natural environment
▪ Physical resources, wildlife and climate that are an
inherent part of existence on earth
▪ These factors form an ecological system of interrelated
life
o Societal Environment
▪ Social systems that influence long-term decisions
[PESTLE/STEEP]
● Economic forces - that regulate the exchange of
materials, money, energy and information
● Technological forces – That generate problem
solving inventions
● Political-legal forces – that allocate power and
provide constraining and protecting laws and
regulations
● Sociocultural forces- that regulate the values,
mores and customs of the society
o Task Environment – Those elements of groups that directly
affect a corporation and in turn are affected by it.
▪ Government
▪ Local communities
▪ Suppliers
▪ Competitors
▪ Customers
 5

▪ Creditors
▪ Unions
▪ Special interest groups/trade associations
▪

Scanning the Natural Environment

▪ Includes physical resources, wildlife and climate
▪ Orgs should focus on sustainability
▪ Orgs must thus scan the natural environment for factors that might
previously been taken for granted, such as availability of water and
clean air, its carbon footprint etc.
▪ Helps to identify opportunities to fulfill future market demand based
upon environmentally friendly products or processes

Scanning the Societal Environment

▪ PESTLE/STEEP Analysis
 6

Companies must create a scanning system to monitor and keep track of the
trends and factors in the worldwide societal environment.
Scanning the Task Environment
▪ All factors in task environment has to be analyzed in order to identify the
opportunities and threats to the organization
 7

▪ One method to scan and analyze development in task environment is

Porter’s five forces model

[Strategic myopia : the willingness to reject unfamiliar as well as

negative information]

Scanning & Analyzing External Environment

1. PESTLE /STEEP Analysis 🡪 To analyze societal environment
2. Issues Priority Matrix 🡪 To identify external strategic factors
3. Porter’s 5 forces Model 🡪 Industry Analysis - Task Environment
4. Industry Matrix
5. Competitive Intelligence
6. External Factor Analysis (EFAS)

Issues Priority Matrix

▪ To identify the firm’s external strategic factors
▪ Steps
o Identify a number of likely trends emerging in the natural,
societal, and task environments. These are strategic
environmental issues—those important trends that, if they
occur, determine what the industry or the world will look like in
the near future.
o Assess the probability of these trends actually occurring, from
low to medium to high.
 8

o Attempt to ascertain the likely impact (from low to high) of each

of these trends on the corporation being examined.
▪ Those environmental trends judged to be a corporation’s strategic
factors are then categorized as opportunities and threats and are
included in strategy formulation

Industry Analysis: Analysis of Task Environment

▪ Micheal Porter’s 5 Forces Model
o A corporation is most concerned with the intensity of
competition within its industry
o The level of competitive intensity is determined by basic
competitive forces such as
▪ Threat of new entrants
▪ Threat of substitutes
▪ Bargaining power of suppliers
▪ Bargaining power of buyers
▪ Competitive Rivalry/Industry competition
o Threat of new entrants
▪ New entrants to an industry typically bring to it new
capacity, a desire to gain market share and substantial
resources. They are threats to an established corporation
▪ Threat of entry depends on the entry barriers
▪ Entry barrier is an obstruction that makes it difficult for a
company to enter an industry
▪ Possible barriers include:
 9

● Economies of scale : cost advantages in

increasing in scale of production
● Product differentiation
● Capital requirements: Need for high investments
● Switching costs: High switching costs due to
infrastructural changes or training needs
● Access to distribution channel: Small
entrepreneurs often have difficulty obtaining
supermarket shelf space
● Cost advantages independent of size: Once a new
product earns sufficient market share to be
accepted as the standard for that type of product,
the maker has a key advantage.
● Government Policy: Govt. can limit entry to certain
industries through licensing requirements,
restricting access to raw materials etc.
o Threat of substitutes
▪ Substitute product is a product that appears to be
different but can satisfy the same need as another
product.
▪ Substitutes can limit the potential returns of an industry
by placing a ceiling on the prices, firms in the industry
can profitably charge
▪ Factors
● Switching costs are low, people may go to
substitutes
● Prices
● Alternate uses
● Access
o Bargaining power of suppliers
▪ Suppliers can affect an industry through their ability to
raise prices or reduce the quality of purchased goods
and services
▪ A supplier or supplier group is powerful if some of the
following factors apply
● The supplier industry is dominated by a few
companies, but it sells to many
● Its product or service is unique and/or it has built
up switching costs
● Substitutes are not readily available
 10

● Suppliers are able to integrate forward and

compete directly with their present customers
● A purchasing industry buys only a small portion of
the supplier’s group’s goods and services and is
thus unimportant to the supplier
▪ Factors
● Number of supplier companies
● Uniqueness of supplied products
● Availability of substitutes
● Threat of backward integration
● Purchasing industries purchase behavior
o Bargaining power of buyers
▪ Buyers affect an industry through their ability to force
down prices, bargain for higher quality or more services
and play competitors against each other.

▪ A buyer or group of buyers is powerful if

● A buyer purchases a larger portion of the sellers
product or service
● A buyer has the potential to integrate backward by
producing the product itself
● Alternative suppliers are plentiful because the
product is standard or undifferentiated
● Changing suppliers costs very little
● The purchased product represents a high
percentage of a buyers cost, thus providing an
incentive to shop around for a lower price
● A buyer earns low profits and is thus very sensitive
to costs and services differences
● The purchased product is unimportant to the final
quality or price of a buyers product or services
and thus can be easily substituted without
affecting the final product adversely
▪
▪ Factors
● Number of buyer companies
● Uniqueness of products
● Availability of substitutes
● Threat of backward integration
● Purchasing industries purchase behavior
 11

▪
o Competitive Rivalry/Industry competition
▪ A competitive move by one firm can be expected to have
a noticeable effect on its competitors and thus may
cause retaliation
▪ Factors
● Number of competitors : When competitors are
few and equal in size, they watch each other to
make sure that they match any move by another
firm with an equivalent countermove
● Rate of industry growth : As industry grow,
competition become intense
● Product or service characteristics
● Amount of fixed costs
● Capacity
● Height of exit barriers: Exit barriers keep a
company from leaving an industry
● Diversity of rivals : Rivals that have very different
ideas of how to compete are likely to cross paths
often and unknowingly challenge each others
position
 12

Relative power of other stakeholders – Is another force added to

Porter’s list 🡪 includes Govt, trade associations, special interest
groups, unions, shareholders etc.

[Strategic Groups : A strategic group is a set of business units or firms

that pursue similar strategies with similar resources. Useful to
understand the competitive environment]

Industry Matrix
▪ An industry matrix summarizes the key success factors (KSF)
within a particular industry
▪ It captures the KSF , weightage, rating and a weighted score for
all competitors in an industry
▪ Key success factors are variables that can significantly affect
the overall competitive positions of companies within any
particular industry
▪ The matrix gives a weight for each factor based on how
important that factor is for success within the industry
▪ The matrix also specifies how well various competitors in the
industry are responding toe ach other

Competitive Intelligence (CI)

 13

▪ CI is a formal program of gathering information on a company’s

competitors.
▪ Primary activity of competitive intelligence is to monitor competitors
▪ Competitors organizations that offer same, similar, or substitute
products or services in the business areas in which a particular
company operates
▪ Some questions that CI considers
o Why do your competitors exist? Do they exist to make profits?
o Where do they add customer value – higher quality, lower price
or better service
o What is their cost basis and liquidity
o What do they intend to do in the future
o How will their activity affect your strategies
o Will new competitors of new ways of doing things appear over
the next few years
▪ In some companies CI is housed it its own unit, with remainder being
housed within marketing, strategic planning, information services,
business development, product development or other unit
▪ Sources of CI
o Information brokers
o Internet
o Industrial espionage
o Investigatory services
▪ Tools
o SWOT
o Porters five forces analysis
o Strategic group analysis
o Porter’s four corner exercise
o Treacy & Wiersema’s value disciplines
o Gilad’s blind spot analysis
o War gaming
14
 15

External Factor Analysis Summary – EFAS

▪ Using EFAS is one way of categorizing the external factors into
opportunities and threats, and also analyze how well a particular
company’s management is responding to these specific factors in light
of the perceived importance of these factors to the company.
▪
 16

Internal Analysis
▪ Internal analysis to identify core strengths & weakness
▪ Also known as organizational analysis, is concerned with identifying
and developing an org’s resources and competencies

1. Resource based approach to Org analysis

2. Business Models
3. Value Chain Analysis
a. Industry value chain analysis
b. Corporate value chain analysis
4. Internal Factor Analysis Summary – IFAS

Resource Based Approach to Organizational Analysis

▪ Resources
o Are an organization’s assets and are the basic building blocks
of the Org
o Includes
▪ Tangible assets – Plant, machinery, land, building,
human assets
▪ Intangible assets – technology (patents & copyrights),
culture and reputation
▪ Capabilities
o Refer to the organization’s ability to exploit resources
o They consist of business processes routines that manage the
interaction among resources to turn inputs into outputs
o Manufacturing capability, marketing capability and human
resources capability
▪ Competency
o Is a cross-functional integration and co-ordination of
capabilities
o Eg: new product development
o Company will have core competencies and distinctive
competencies
o Distinctive competencies – When core competencies are
superior to competitors
o Barney’s VRIO framework to evaluate firm’s competencies
▪ Value – does it provide customer value and competitive
 17

advantage
▪ Rareness – Do no other competitors possess it
▪ Imitability – Is it costly for others to imitate
▪ Organization – Is the firm organized to exploit the
resources
▪ It is important to evaluate the importance of company’s resources,
capabilities and competencies to ascertain whether they are internal
strategic factors – that is , particular strength & weakness that
determine the future of the company
▪ Done by comparing measures of these factors with the company’s
past performance, the company’s key competitors and the industry as
a whole
▪ Grant’s 5 step resource based approach to strategy analysis
o Identify and classify resources in terms of strengths and
weaknesses
o Combine the firm’s strengths into specific capabilities and core
competencies
o Appraise profit potential- Are there any distinctive
competencies?
o Select the strategy that best exploits the firm’s capabilities and
competencies relative to external opportunities
o Identify resource gaps and invest in upgrading weaknesses
▪ A corporation can gain access to distinctive competencies in 4 ways
o Asset endowment – such as a key patent
o Acquired from someone else – Whirlpool bought a worldwide
distribution system when they purchased Philip’s appliance
division
o Shared with another business unit or alliance partner – Apple
worked with a design firm to create the special appeal for its
PCs and iPods
o Carefully built and accumulated over time within the company
▪ Two factors determine the sustainability of a firm’s distinctive
competencies
o Durability- the rate at which a firm’s underlying resources,
capabilities, or core competencies depreciate or become
obsolete
o Imitability- the rate at which a firm’s underlying resources,
capabilities, or core competencies can be duplicated by others
▪ A core competency can be easily imitated to the extent that it is
transparent, transferable and replicable
 18

o Transparency- the speed at which other firms under the

relationship of resources and capabilities support a successful
strategy
o Transferability- the ability of competitors to gather the
resources and capabilities necessary to support a competitive
challenge
o Replicability- the ability of competitors to use duplicated
resources and capabilities to imitate the other firm’s success

Business Models
▪ Its important to analyze a company’s business model
▪ Business model is a company’s method for making money in
the current business environment; Includes the key structural
and operational characteristics of the firm, how it earns
revenue and makes a profit
▪ Comprised of 5 elements
o Who the company serves
o What the company provides
o How the company makes money
o How the company differentiates and sustains
competitive advantage
o How the company provides its product/service
▪ Possible business Models
o Customer solutions model – by
o Profit pyramid model
o Multi-component system/installed model
o Advertising model
o Switchboard model
o Efficiency model
o Blockbuster model
 19

o Profit multiplier model

o Entrepreneurial model
o De Facto industry standard model

Value Chain Analysis

▪ A value chain is a linked set of value creating activities that begin with
basic raw materials coming from suppliers, moving on to a series of
value added activities involved in producing and marketing a product
or service and ending with distributors getting the final goods into the
hands of the ultimate consumer
▪ Two parts
o Industry value chain analysis
o Corporate value chain analysis
▪ Industry value chain analysis
o Two parts – upstream and downstream segments
o Industry can be analyzed in terms of the profit margin available
at any point along the value chain
▪ Corporate Value Chain Analysis
o Porter’s model – with primary activities & supporting activities

▪ Involves 3 steps
o Examine each product line’s value chain in terms of various
activities involved in producing that product or service
o Examine the linkages within each product line’s value chain
o Examine the potential synergies among the value chains of
different product lines or business unit.
20
 21

Internal Factor Analysis Summary (IFAS)

▪ IFAS is a way to categorize the internal factors into strengths and
weakness, and to analyze how well a particular company’s management is
responding to these specific factors in light of the perceived importance of
these factors to the company.