SM-Module 2

Hierarchy of Strategic Intent - vision – Mission – Business Definition- Goals – Objectives-

Environmental Appraisal- Organizational Appraisal- SWOT-Strategic Decision Making.

Strategic intent refers to the pre-defined future state that the organisation is planning to
reach within a stipulated period of time.

The term strategic intent was popularised by Gary Hamel and C.K Prahalad.
They defined strategic intent as the reason of existence of an organisation and the ends it
wants to achieve. It shows the beliefs and values of an organisation.
According to Lovas and Ghoshal :
"Strategic intent is long-term goals that reflect the preferred future position of the firm, as
articulated by its top management".
Strategic intent has the following attributes :
1) Sense of Direction :
The sense of direction defines where the organisation wants to go in the future and why.
Every organisation requires a significant, steady, and common end. These ends should be
valuable and necessary for the organisation. A proper set direction helps organisation to
achieve its long-term strategic intent.

2) Sense of Discovery :
The sense of discovery refers to the ability of inspiring the employees for innovation and
creativity. This is necessary because the employees feel less enthusiastic when the strategic
intent is not inspiring.
3) Sense of Destiny :
The sense of density refers to the ability of the strategic intent to provide meaning to the
existence of the organisation. It should be able to create a sense of respect among the
organisational members. Strategic intent should be meaningful and significant so that it can
direct the organisation and motivate its employees.

Hierarchy of Strategic Intent

The Strategic Intent Elements (Strategic intent vision, mission and
objectives) serve to unify the ideas and resources towards a certain direction.
These elements are not only beginning points but also the milestones at various
levels. These elements act as a foundation for planning and directing activities
1. VISION :
Vision statement can be referred as the statement defining company's long term goals. A
vision statement can exceed from one line to a few paragraphs highlighting what the
organisation want to achieve in future.
An effective vision statement motivate the employees and provide them a sense of direction
for carrying out day to day business activities and also help in taking strategic decisions.
FEATURES OF A GOOD VISION :
An effective vision statement must have following features-
1. Vision statement must be unambiguous.
2. It must be clear.
3. It must harmonize with organization’s culture and values.
4. The dreams and aspirations must be rational/realistic
5. .Vision statements should be shorter so that they are easier to memorize
6. Should be realistic and idealistic.
7. Clarifies direction for the organization.
8. Inspires organization members and encourages commitment.
9. Reflects the uniqueness of the organization, its distinctive competence.
10. Appropriate for the organization, consistent with its values and culture.
11. Well articulated and easily understood.

2. MISSION
Mission Statement:-Mission statement embodies an organization’s purpose of existence.
Mission statement is the statement of the role by which an organization intends to serve it’s
stakeholders.
It describes why an organization is operating and thus provides a framework within which
strategies are formulated.
It highlights the current position and future scenario of an organisation in terms of product,
market, pricing, customer service etc.
Features of a Mission
1. Mission must be feasible and attainable. It should be possible to achieve it.
2. Mission should be clear enough so that any action can be taken.
3. It should be inspiring for the management, staff and society at large.
4. It should be precise enough, i.e., it should be neither too broad nor too narrow.
5. It should be unique and distinctive to leave an impact in everyone’s mind.
6. It should be analytical, .ie., it should analyze the key components of the
strategy.
7. It should be credible, i.e., all stakeholders should be able to believe it.
8. It indicates major components of strategy.
Contribution of Mission to Strategic Management
1. It provides direction to corporate planning.
2. It clarifies the firm’s aspirations.
3. It communicates to employees at various levels the direction in which they should move.
4. It focuses on business purpose and long-term objective of the firm.
5. Mission defined as the fundamental, unique purpose that sets a business apart from other
firms of its type and identifies the scope of its operations in product and market terms.
6. It is a statement of attitude, outlook and orientation.
7. It communicates what the firm wants to be.
8. It indicates the businesses the firm will pursue and the customer needs it will seek to satisfy.
9. Shaped by the vision of the corporation's leaders.

3.Business Definition
Business definition refers to the description of products, services, activities, functions, and markets in
which an organisation deals. It is a component of mission statement which forms the foundation for
all the strategic planning processes and shows the organisation a way to achieve success. It also helps
the organisation in estimating the changes as well as their effects.

4.Goals :
Organisational goals refer to the ideal situations to be achieved in undefined time-duration in future.
These goals direct the daily activities and decisions.
Goals can be followed for day-to-day operational activities and decisions, not essentially tied up with
quantifiable results.
Organisational goals provide the standards to measure the performances for achieving the wide-
ranging objectives. These are the targets that convert the vision and mission into reality. Goals help in
portraying a positive image of the organisation in the industry. It plays an important role in
maintaining public relations and encourages support from various groups.

Features of Goals :
The goals of an organisation are characterised as follows :
1) Specific :
The goals should clearly specify targets to be achieved and the tasks to be fulfilled. This
would help the managers in evaluating the performance at regular intervals. An ideal goal
should address major issues that are critical for success of the organisation.
2) Realistic and Challenging :
An organisational goal should be realistic as well as challenging. If the goal is unrealistic, the
employees may find it unachievable and may get demotivated. But, the goal should also not
be too easy. It should be challenging enough so that it can encourage the employees to
improve their performances by searching new and creative ways of carrying-out the
organisational activities.
3) Time Constraint :
Another important characteristic of an organisational goal is that there should be a time-
period associated within which it has to be completed. It provides a deadline to the employees
and managers so that they are motivated to improve performance for achieving success
within the time constraint.
4) Measurable :
The goals should be quantifiable. It implies that the goals should be measurable so that the
outcome could be evaluated and the progress can be estimated. Measurable goals act as a
yardstick for the managers and their team members to evaluate their performance.
5) Level-Oriented Goals :
A goal should be set to address important issues only. The top and middle level managers are
accountable for such long-term goals. On the other hand, the short-term goals should be
addressed by lower-level managers.
6) Commitment :
The members of the organisation should be committed for the achievement of set goals.

5. OBJECTIVE
Objective is the end, which the organisation tries to achieve through its operations.
Objectives indicate the organisational performance to be realized and expected over a period
of time.
Strategic objectives are those aims that are formulated to bring major changes in response to
the changes, competition, and issues in the environment. These objectives are formulated to
address various internal and external issues such as target customers, target markets, product,
and changes in technology, etc.
Precisely, these objectives are the ultimate aim that an organisation needs to attain to remain
competitive in the market and for its long-term survival.
Features of Objectives
Objective setting a complex process. M well-formulated objective possess
certain characteristics like:
1. Specific
2. Time bound
3. Measurable
4. Challenging
5. Verifiable
SMART objective is an acronym that stands for:
• S – Specific
• M – Measurable
• A – Achievable
• R – Relevant
• T- Time-based
One of the most widely used words today, in this modern, technology-driven world is
“SMART”.

Environmental Analysis
The environmental analysis is a strategic tool that helps you to recognize the internal and
external factors that could impact the performance of your business. The analysis helps you
to evaluate potential opportunities and threats present in the market. These indicators would
further help you in the decision-making process. The analysis helps the company to align its
strategies relevant to the business environment.

Environmental analysis is the process of monitoring an organisational environment to

identify both present and future threats and opportunities that may influence the firm’s ability
to reach its goals.

Purpose of environmental analysis/ environmental scanning

Environmental Analysis can help ensure organisational success in many ways:

1. It helps firms to adjust to environmental change at a right time, that is, encashing
opportunities as they arise and eliminating the negative impacts of environmental
threats through proactive planning.
2. It helps an organisation to come out with an early warning system to ward off threats
from competitive forces and develop suitable strategies to turn problems into
opportunities.
3. It tries to improve organizational performance by making managers and divisional
managers aware of issues that arise in the firm’s environment, by having a direct
 impact on planning and by linking corporate and divisional planning (Certo and
Peter).
4. It helps strategists to focus on alternatives that help achieve predetermined goals and
eliminate those options that are not in line with anticipated opportunities or threats.
5. The basic purpose of environmental scanning/diagnosis is to help a firm decide its
strategic direction in future.

Environmental Scanning simply involves reviewing and evaluating whatever information

about internal and external environments can be gleaned from several distinct sources.

Formal environmental scanning process:

1. “Identify the environmental scanning needs of the organization.” Before launching the
scanning process, a few items must be determined – purpose of scanning, participants, and
time and resources allocation.

2. “Gather the information.” Translate the needs of the organization into specific
information and a list of questions, select the information sources and collect the information.

3. “Analyze the information.” Information gathered should be analyzed for trends and
issues that may affect the organization.

4. “Communicate the results.” Potential effects should be communicated to decision-

makers in a concise format and manner that fit their preference.

5. “Make informed decisions.” Based on the information provided, decision-makers can

take corresponding steps to equip the organization to be responsive to potential opportunities
or threats.

Benefits of Environmental Analysis

1- Helps in Forecasting

Environmental analysis helps businesses understand where they stand and where they can be.
This helps in forecasting future trends and market conditions. By doing this, businesses can
make decisions that benefit them in the long term.

2- Enables Achieving Business Objectives

When a business adjusts its strategies based on environmental analysis, it moves closer to
success. They can attain their goals by formulating strategies based on the analysis.

3- Makes Business Aware of the Market

With environmental analysis, businesses are in constant touch with the market. This helps
businesses understand what is happening in the industry, allowing them to react and adjust to
market demands and achieve corporate objectives. Additionally, businesses change their
stages based on market requirements.
4- Anticipate Opportunities and Threats

The environmental analysis makes organizations aware of business opportunities and threats.
Companies can then respond to the opportunities and manage threats. This helps the firms
gain a competitive advantage in the market.

5- Understand the Causes of Disequilibrium

With the fast-changing environment and dynamic industry, a business can witness
disequilibrium. Environmental analysis helps firms to identify the reasons behind this
disequilibrium. Thereof, analysts can devise solutions to bring the business back into
equilibrium.

Limitations of Environmental Analysis

1- Does Not Warn Against Unforeseen Events

The environmental analysis does not warn businesses against unforeseen or adverse events. It
does help businesses forecast future trends. However, it does not help eliminate the
uncertainty. Through this analysis, businesses cannot avoid unexpected events that occur
during analysis. Though, it does decrease the frequency of such shocks to occur.

2- Does Not Follow a Strategic Approach

Businesses can build strategies based on environmental analysis. However, the analysis itself
does not follow a strategic risk-taking approach. This means it leads the businesses to operate
cautiously and has no rigid strategy.

3- Not Independently Reliable

The environmental analysis provides businesses with solutions but is not independently
reliable. This means that businesses must conduct other analyses as well to confirm solutions.
If an analyst only decides based on environmental analysis, it may or may not work in the
business’s favor. However, when an environmental analysis is combined with other strategic
approaches and analyses, the results are more reliable.

4- Does Not Guarantee Effectiveness

Environmental analysis is conducted to improve business effectiveness and operations.

However, it does not guarantee the same. The analysis acts as an input in the strategy to
develop an output. Hence, it is not advised to trust a single study to build organizational
effectiveness critically. The data’s verifiability and accuracy must be confirmed to ensure
ideal outcomes. If the data is not accurate, reliable, and verified, it may lead businesses to
make wrong decisions.

5- Creates Confusion

The environmental analysis focuses on too much business information at once. It considers
both the advantages and disadvantages of a business. This may lead to confusion amongst
analysts. The more information on hand, the more challenging to derive a solution. Hence,
the abundance of information acts as a hindrance to solving issues.

Techniques of Environmental Scanning

1.PESTLE Analysis

2.PEST Analysis
Pestle’s analysis studies the macro factor that could possibly impact the company from
operating its business. The company’s management used a pestle to know the overall market,
and where the company would be in the future. However, pestle analysis consists of various
macro factors like political, economic, social, technological, legal, and environmental. The
details of every element of the pestle are as follows;

Political Factors

Political factors deal with the political environment of the country in which the company
operates its business. It also studies international relations and global politics of different
countries and how it impacts the country in which the company is operating its business.
Therefore, it’s significant to study the regulation and government policies relevant to the
industry. The political environment studies the following elements;

▪ Entry Mode Regulations

▪ Government Stability

▪ Tariff & Tax Laws

▪ Government Policies

When you’re launching or expanding your business in a certain country, then you should
study the political factors of the country. The association and attachment of politicians to the
company could be risky because their one political statement would push people away from
the company.

Economical Factors

Economical factors are critical to the business of the company because they give direction to
the businesses wherever the economy leads them. Companies should carefully analyze the
economic factors of the country where they launching or expanding their business. It would
help them to align their strategies relevant to the economic changes. Some of the economic
factors that you should study are as follows;

▪ Foreign Currency Exchange Rate

 ▪ Fiscal and Monetary Policies

▪ Unemployment Rate

▪ Credit Accessibility

▪ Disposable Income of Potential Customers

▪ Interest Rate

▪ Inflation Rate

It’s important to mention it here that powerful economies promote business with flexible
policies, and the weak economies discourage them with stiff regulations.

Social Factors

Countries and their geographies and people are different because of many social factors like
norms, beliefs, values, culture, tradition, and mindset of the people. They have got a great
impact on the businesses that are running their operations in a specific society. Ultimately, it
would impact the sale of the product or services. Some of the main social factors are as
follows;

▪ Wealth Distribution

▪ Education Level of Customers

▪ Domestic Structure

▪ Social Lifestyle of People

▪ Demographics

▪ Gender

▪ Cultural Implications

The social factor would have a great impact in terms of the popularity of the product and how
it aligns itself with the country’s cultural norms and social setup. The company should keep
in mind such factors while marketing and promoting its product and service.

Technological Factors

The development in technology is excellent and the rate at which things are changing is great.
The advancement in technology is also influencing businesses greatly, and they have to keep
up with the changing technology. They should integrate with the latest technology to
improve the efficiency of their operations. Some of the technological factors are as follows;
 ▪ Innovative tech platform

▪ Tech development rate

▪ Tech obsolescence rate

▪ Latest Discoveries

Companies should conduct a tech environment analysis before implementing any technology
into their operations.

Legal Factors

Country’s regulations and legalities keep on changing over time, and their changes would
impact the business environment. If the government regulation sets boundaries for the
businesses and companies have to operate within the limits of those boundaries. However,
some of the legal factors are as follows;

▪ Safety and health regulations

▪ Patent infringements

▪ Regulations for competition

▪ Employment Regulations

▪ Regulations of Product/services

The country’s laws and regulations have the power to shut down the business temporarily or
permanently if the company isn’t following it.

Environmental Factors

The environmental factors comprise climate change and usage of scarce natural. Often,
impacts the agricultural businesses, and how the company is conducting its operations. If the
side effect of using a certain product or operation is impacting the environment, the
company’s stakeholders would be in question. Some of the main environmental factors are as
follows;

▪ The attitude and reaction of people towards the environment

▪ Regulations on Energy Consumption

▪ Waste Disposal Laws

▪ Weather and Climate

▪ Geographical Location
Caring and protecting the environment should be an essential part of every business plan and
organization. Companies should limit the production of emissions of toxic waste that could
jeopardize the natural environment.

2. SWOT Analysis
SWOT is an acronym for the internal Strengths and Weaknesses of a firm and the
external Opportunities and Threats facing that firm. SWOT analysis helps managers
to have a quick overview of the firm’s strategic situation and assess whether there is a
sound fit between internal resources, values and external environment.

Strength is the inherent capability of the organisationwhich it can use to gain strategic
advantage.
Weakness is the inherent incapability or constraints of the organisation which creates
strategic disadvantage.
Opportunity is the favourable conditions in the organisation’s environment which
enabl3s it to strengthen its position.
Threat is the unfavourable conditions in the organisation’s environment which causes
risk or damage to the organisation’s position.

Key reasons for SWOT ana;ysis are.

1. It provides a legal framework.
2. It prsents a comparative market.
3. It guides the strategists in strategic identifications.

3. TOWS Matrix
The TOWS matrix is used for strategic planning and helps marketers identify
opportunities and threats and measure them against internal strengths and weaknesses.
It is actually a variant of the SWOT analysis which focuses attention on external
 opportunities and threats and compares them to a company’s internal strengths and
weaknesses.
TOWS matrix was developed by Heinz Weihrich.
The incremental benefit of TOWS matrix lies in systematically identify relationship
between the factors and selecting strategies on their basis.

TOWS, basically, tries to answer the following four questions:

1. Strengths and Opportunities (SO)- How can your current strengths help you to
capitalize on your opportunities?
2. Strengths and Threats (ST)- How can your current strengths help you identify and
avoid current and potential threats?
3. Weaknesses and Opportunities (WO)- How can you overcome your current
weaknesses by using your opportunities?
4. Weaknesses and Threats (WT)- How can you best diminish your weaknesses and
avoid current and potential threats?

Internal Organisational Strength(S) Organisational Weakness(W)

element
External element
Environmental Maxi-Max (SO) Mini-Max (WO)
Opportunities(O) Strength can be used to The strategies develop need to
capitalize or build upon existing overcome organizational
or emerging opportunities. weakness if existing or emerging
opportunities are to be explored.
(Aggressive Strategies) (Competitive Strategies)
Environmental Maxi-Min (ST) Mini-Min (WT)
Threats(T) Strengths in the organisation The strategies pursued must
can be used to minimize minimize or overcome weakness
existing or emerging threats. and as fast as possible, cope with
threats existing or emerging
threats.
(Conservative Strategies)
(Defensive Strategies)

4. QUEST Analysis

ORGANISATIONAL ANALYSIS

1.Value Chain Analysis

The concept of value chain analysis has been polarized by Michael Porter (his most
popular five forces model). He has termed it a useful tool for analyzing a business unit and
assessing the unit’s competencies.

Michael Porter’s Value chain analysis is a methodical way of inspecting the sequence of
activities a firm performs to provide a product to its customers. It helps to understand the
roles played by different functionsin order to achieve superior efficiency, quality, innovation
and customer responsiveness.

The value chain of a firm consists of the firm’s primary and support activities. A firm’s value
chain identities the primary activities that create value for customers and the related support
activities that enhance primary activities’ performance.

Primary Activities in Value Chain Analysis:

The value chain analysis’s primary activities are involved in the physical creation of a
product, its distribution and marketing, and the after-sales service related to the product. The
primary activities are inbound logistics, operations/production, outbound logistics, marketing,
and services. Such as:-

• Inbound logistics are those that are associated with receiving, storing, and handling
inputs to the production process. These include material handling, storing products in
the warehouse, scheduling vehicles for the transport of materials/products, and returns
to suppliers.

• Operations comprise packaging, machining, testing, equipment maintenance,

assembly, and other activities associated with transforming inputs into the ultimate
products. This is the physical process of making, testing, and packaging the product.
 • Outbound logistics are those performed to collect, store, and physically distribute
products to customers. Material handling, delivery vehicles, order processing, and
scheduling are included in outbound logistics.

• Marketing is an element of primary activities in value chain analysis. It is concerned

with providing the buyer with information, inducement, and opportunities to buy the
product. It includes promotional activities such as advertising, sales promotion, public
relations, personal selling, salesforce, selection of distribution channel, pricing of
products, and other activities related to providing a means by which customers can
buy the products.

• Service concerns itself with activities associated with enhancing and maintaining the
products’ value to customers, such as repair of machines, installation of machinery,
training to customer’s supply of parts, prompt response to customer’s query, etc. All
these primary activities are present in varying degrees in each firm and, therefore,
deserve attention in the firm’s internal analysis.

Supportive Activities in Value Chain Analysis:

The support activities in the value chain analysis are necessary for supporting the primary
activities to take place. The support activities in the value chain analysis have indicators.
Such as:-

• Firm’s infrastructure

• Human resource management

• Technological development

• Procurement of resources, finance, inventory, etc.

Collectively, all these support activities and primary activities create the value chain. The
chain comprises an earnings margin because a markup over the cost of perming value-
creating activities is customarily part of the price borne by buyers.

BCG Matrix
The BCG Matrix was developed by The Boston Consulting Group, a strategic management
consulting firm, to analyze the performance of products. The BCG Matrix compares various
businesses in an organization’s portfolio on the basis of relative market share and market
growth rate.
It is a two-by-two graph, with market growth shown on the vertical axis and market share
charted on the horizontal axis. The quadrants are then labelled as four business categories:
cash cows, dogs, question marks and stars.
i. Stars:
(High share, high growth) SBU that are stars have a high share of a high-growth market and
typically require large amounts of cash to support their rapid and significant growth. They
have additional growth potential and so profits should be ploughed back into this business for
future growth and profits.
For example software, entertainment, electronics and telecommunications are some of the
industries which have a very high growth rate. The appropriate strategy for stars is to
maintain the market share through large closes of investment (both internal as well as
external).
ii. Cash Cows:
(High share, low growth) SBUs that are ‘cash cows’ (provide lot of cash for the firm) have a
high market share in a slowly growing market. As a result, they tend to generate more cash
than is necessary to maintain their market position. Cash cows are often former stars and can
be valuable in a portfolio because they can be ‘milked’ to provide cash for other riskier and
struggling businesses.
iii. Question Marks:
(Problem child or wild cat—low share, high growth) SBUs that are ‘question marks’ have a
small share of a high growth market. The question mark business is risky, since there is
already a leader in that business.
As such it requires lot of funds to invest in plant, equipment and personnel in order to keep
pace with the fast-growing market. The term question mark is well conceived, because at
every stage the organization has to think hard about whether to keep investing funds in the
business (to turn it into a star) or to get out.
iv. Dogs:
(Low share, low growth) SBUs that are ‘dogs’ have a relatively small share of a low-growth
market. They may barely support themselves, or they may even drain cash resources that
other SBUs have generated. Usually dogs are harvested, divested or liquidated (if turnaround
is not possible).

After the SBUs of an organization are plotted on the growth-share matrix, the next step is to
evaluate whether the portfolio is healthy and well-balanced. A balanced portfolio; obviously,
has a number of stars and cash cows and not too many question marks or dogs.
Depending on the position of each SBU, four basic strategies can be formulated while
building a balanced portfolio:
1. Build- Heavily invest in Stars. High market share and high industry growth mean higher
probability of future success.
2. Hold- Maintain cash cows because they provide resources for future growth-investment in
wild cats and stars. Here the company invests just enough to keep the SUB in its present
condition.
3. Harvest- Here the company reduces the amount of investment with a view to maximize the
short terms cash flows and profits from the SBU. It is a strategy best suited to cash cows that
are weak or which are in a market with bleak prospects.
It also used on occasions when the first in need of cash and is willing to forgo the future of
the product in the interest of short term requirements. Harvesting is also used for question
marks when there seem to be few real opportunities to turn them into stars and for dogs.
4. Divest- Here the attempt is to get rid of the dogs and use the capital the firm gets to invest
in stars and question marks.
As time passes, SBUs change their position in the growth-share matrix. Successful SBUs
have a life cycle. They start as question marks, become stars, then cash cows, and finally
dogs towards the end of their life cycle. Therefore, companies should keep on eye not only on
the current positions of their businesses but also on their moving positions.
Each business should be examined as to where it was in past years and where it will probably
move in the years ahead. If the expected journey of a business is going to be a tough one,
alternative plans must be kept ready.
The growth-share matrix, thus, becomes a useful planning framework for strategists. They
can use it to try to assess each SBU and assign the most reasonable objective in the light of
past experiences, current situation and future trends.

PORTER'S FIVE FORCES MODEL

Porter's Five Forces is a model that identifies and analyzes five competitive forces that shape
every industry and helps determine an industry's weaknesses and strengths. Five Forces
analysis is frequently used to identify an industry's structure to determine corporate strategy.
Porter's model can be applied to any segment of the economy to understand the level of
competition within the industry and enhance a company's long-term profitability. The Five
Forces model is named after Harvard Business School professor, Michael E. Porter.
Porter's 5 forces are:
1. Competition in the industry
2. Potential of new entrants into the industry
3. Power of suppliers
4. Power of customers
5. Threat of substitute products•

1. Competition in the Industry

The first of the Five Forces refers to the number of competitors and their ability to undercut a
company.
• The larger the number of competitors, along with the number of equivalent products
and services they offer, the lesser is the power of a company, and lesser will be their
profit margin.
• Conversely, when competitive rivalry is low, a company has greater power to charge
higher prices and set the terms of deals to achieve higher sales and profits.
• The intensity of rivalry among established players is mainly due to,
o Competitive structure
o Demand conditions
o The height of exit barriers in the industry.

2. Potential Threat of New Entrants Into an Industry

The power and profitability of established players is also affected by the force of new
entrants into its market. The new entrants may bring in new capacities, substantial resources
and aggressiveness to gain market share.
An industry with strong barriers to entry is ideal for existing companies within that industry.
The established companies try to discourage potential new competitors from entering into the
industry by raising the heights of barriers and this obstruction makes it difficult for the new
companies to enter the industry.
The possible barriers include;
• Maintaining economies of scale
• Bringing product differentiation
• Acquire cost advantage due to their access to raw materials, cheaper funds,
superior technology, etc.
• Massive capital investments.
• Access to distribution channels.
• Government policy with strict licensing requirements.
• Buiding brand identity.
3. Bargaining Power of Suppliers
The bargaining power of suppliers is considered a threat to new entrants.
Suppliers enjoy bargaining power by increasing the the price or reducing the quality of
purchased goods and services.
The threat from suppliers affects when:
• The supplier industry is dominated by few companies.
• The product or service is unique and switching over is possible.
• Conditions where substitutes are not easily available
• Suppliers can threaten with forward integration.
4. Bargaining Power of Buyers
Buyers are viewed as a threat when they force the companies to charge low prices or demand
higher quality and better service with their bargaining power.
According to Porter, the buyers are powerful under following circumstances.
• When the suppliers are more in number but buyers are few.
• The buyers buy in large quantity.
• More number of alternative suppliers and their products are not standardized and
undifferentiated.
• The cost of changing suppliers is not much.
• More dependence of suppliers on the buyers.
• The buyer has the power to integrate backward by producing itself.
• The buyer can use the threat of vertical interation as amewasure for forcing down
prices.
5. Threat of Substitutes
The last of the Five Forces focuses on the treat of substitute products.. Substitute goods or
services are those which satisfy similar needs though they appear to be different. They can be
used in place of a company's products or services which pose a threat. Tea is a substitute for
coffee,
According to Porter, substitute products limit the potential returns of any industry by placing
a ceiling on price, the firms in industry can charge. The existence of close substitutes can
pose threat by limiting their price.
Availability of few substitutes provides opportunity for the ompany to raise the price and get
higher profit.

Understanding Porter's Five Forces and how they apply to an industry, can enable a company
to adjust its business strategy to better use its resources to generate higher earnings for its
investors.

Ansoff’s Growth Matrix

The Ansoff Matrix, often called the Product/Market Expansion Grid, is a two-by-two
framework used by management teams and the analyst community to help plan and evaluate
growth initiatives.
The matrix was developed by applied mathematician and business manager H. Igor Ansoff
and was published in the Harvard Business Review in 1957. The Ansoff Matrix is often used
in conjunction with other business and industry analysis tools, such as the PESTEL, SWOT,
and Porter’s 5 Forces frameworks, to support more robust assessments of drivers of business
growth.
It features Products on the X-axis and Markets on the Y-axis.
The Matrix is used to evaluate the relative attractiveness of growth strategies that leverage
both existing products and markets vs. new ones, as well as the level of risk associated with
each.
Each box of the Matrix corresponds to a specific growth strategy. They are:
• Market Penetration – The concept of increasing sales of existing products into an
existing market
• Market Development – Focuses on selling existing products into new markets
• Product Development – Focuses on introducing new products to an existing market
• Diversification – The concept of entering a new market with altogether new products
1.Market Penetration
Market penetration refers to the growth strategy where the business focusses on selling the
existing products into existing market. Market penetration requires greater spending on
promotional activities.
When employing a market penetration strategy, management seeks to sell more of its
existing products into markets that they’re familiar with and where they have existing
relationships.
Typical execution strategies include:
• Increasing marketing efforts or streamlining distribution processes
• Decreasing prices to attract new customers within the market segment
• Acquiring a competitor in the same market
2.Market Development
Market development refers to the growth strategy where the business seeks to sell its existing
product into new market. A market development strategy is the next least risky because it
does not require significant investment in R&D or product development. Rather, it allows a
management team to leverage existing products and take them to a different market.
Approaches include:
• Catering to a different customer segment/target demographic/new geographical areas
• Entering a new domestic market (regional expansion)
• Entering into a foreign market (international expansion)
3.Product Development
Product development refers to the growth strategy whre business aims to introduce new
product into the existing market. The company brings out modified products or new products
or new variants which appeals to the existing market. Product development strategies may be
achieved in a variety of ways, including:
• Investing in R&D to develop an altogether new product(s).
• Acquiring the rights to produce and sell another firm’s product(s).
• Creating a new offering by branding a white-label product that’s actually produced by
a third party.
4.Diversification
Diversification refers to the growth strategy where a business markets new product in a new
market. It is a strategy by starting up or acquiring businesses outside the company’s current
product and market.
While it is the highest risk strategy, it can reap huge rewards – either by achieving altogether
new revenue opportunities or by reducing a firm’s reliance on a single product/market fit (for
whatever reason).
There are generally two types of diversification strategies that a management team might
consider:
1. Related Diversification – Where there are potential synergies that can be realized between
the existing business and the new product/market.
2. Unrelated Diversification – Where it’s unlikely that any real synergies will be realized
between the existing business and the new product/market.

Strategic Decision Making

Strategic Management – Strategic Decision Making
Strategic decision making, or strategic planning, describes the process of creating a
company’s mission and objectives and choosing the course of action a company should
pursue to achieve those goals. Strategic decisions are different in nature from all other
decisions which are taken at various levels of the organization during their day-to-day
working.
The major dimensions of strategic decisions are given below:
i. Strategic issues require top-management decisions.
ii. Strategic issues involve the allocation of large amounts of company resources.
iii. Strategic issues are likely to have a significant impact on the long term prosperity of
the firm.
iv. Strategic issues are future-oriented.
v. Strategic issues usually have major multi-functional or multi-business consequences.
vi. Strategic issues necessitate consideration of factors in the firm’s external
environment.

Strategic Decision Making Process

Strategic decision making process requires you to work through five stages.
1. Define the problem
2. Gather information
3. Develop options.
4. Evaluate the options
5. Choose the best option
6. Take action
7. Review the action.