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BUSINESS STRATEGIES

[FOR LIMITED CIRCULATION]

Editorial Board

Dr. Kamala Kannan Dinesh

Jindal Global Business School,
OP Jindal Global University, Haryana
Dr. Abhilasha Meena
Content Writer

Dr. Abhilasha Meena

Academic Coordinator

Deekshant Awasthi

Department of Distance and Continuing Education

E-mail: [email protected]
[email protected]

Published by:
Department of Distance and Continuing Education
Campus of Open Learning, School of Open Learning,
University of Delhi, Delhi-110007

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School of Open Learning, University of Delhi
 BUSINESS STRATEGIES

Reviewer
Dr. Aniruddh Vijay
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 Syllabus
Business Strategies

Syllabus Mapping
Unit - I: Introduction to Business Policy and Strategy Lesson 1: Introduction
Nature & importance of business policy & strategy; Introduction to the to Business Policy and
strategic management process and related concepts; Characteristics of Strategy
corporate, business & functional level strategic management decisions; (Pages 1–31)
Company’s vision and mission.
Unit - II: Environmental Analysis & Diagnosis Lesson 2: Environmental
Analysis of company’s external environment; Michael E. Porter’s 5 Forces Analysis and Diagnosis
model; Internal analysis, Importance of organisation capabilities, competitive (Pages 32–82)
advantage and core competence; Michael E. Porter’s Value Chain Analysis,
Porter’s Diamond Theory of National Advantage.
Unit - III: Formulation of Competitive Strategies Lesson 3: Formulation of
Porter’s generic competitive strategies, implementing competitive strategies – Competitive Strategies
offensive & defensive moves; formulating Corporate Strategies – Introduction (Pages 83–124)
to strategies of growth, stability and renewal, types of growth strategies –
concentrated growth, product development, integration, diversification,
international expansion (multi domestic approach, franchising, licensing and
joint ventures), CAGE distance framework, Types of renewal strategies –
retrenchment and turnaround. Introduction to Merger & Acquisitions.
Unit - IV: Strategic Analysis and Choice Lesson 4: Strategic
Strategic gap analyses; portfolio analyses – BCG, GE, product market evo- Analysis and Choice
lution matrix, experience curve, life cycle portfolio matrix, grand strategy (Pages 125–171)
selection matrix; behavioural considerations affecting choice of strategy;
impact of structure, culture & leadership on strategy implementation; func-
tional strategies & their link with business level strategies; introduction to
strategic control & evaluation.

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 Contents

PAGE
Lesson 1: Introduction to Business Policy and Strategy 1–31

Lesson 2: Environmental Analysis and Diagnosis 32–82

Lesson 3: Formulation of Competitive Strategies 83–124

Lesson 4: Strategic Analysis and Choice 125–171

Glossary 173–177

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 L E S S O N

1
Introduction to Business
Policy and Strategy
Dr. Abhilasha Meena
Assistant Professor
Management Studies
School of Open Learning
University of Delhi
Email-Id: [email protected]

STRUCTURE
1.1 Learning Objectives
1.2 Introduction
1.3 Nature and Importance of Business Policy and Strategy
1.4 Introduction to the Strategic Management Process and Related Concepts
1.5 Characteristics of Corporate, Business and Functional Level Strategic
Management Decisions
1.6 Company’s Vision and Mission
1.7 Summary
1.8 Answers to In-Text Questions
1.9 Self-Assessment Questions
1.10 References
1.11 Suggested Readings

1.1 Learning Objectives

By the conclusion of this lesson, you will be able to:
‹ Grasp the essence and significance of business policy and strategy.
‹ Define the scope of business policy and strategy.
‹ Explore the historical background and development of strategic management.
‹ Understand the impact of business policy and strategy on business success.
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 BUSINESS STRATEGIES

Notes ‹ Learn about the strategic management process and essential concepts.
‹ Distinguish between different strategic approaches.
‹ Understand the importance of a company’s vision and mission
statements and learn how to craft them effectively.

1.2 Introduction
Modern success in business requires having a well-developed and clear-
cut strategy. Every successful company is built on its business policy
and strategy which provides for all decisions and actions in relation to
a business plan. Strategy, in this case, is of great importance because
it includes the definition of objectives, the allocation of resources and
the assessment of results. This is a necessary element for maintenance
of competitiveness of the firm and for obtaining long-term survivability.
You will learn about basic concepts such as business policy and strategy
in this lesson. You will come to know what these particular terms mean
why they matter and their impact on the organisation. The lesson also
considers the historical development of this area and the time frames in
which the development took place. In addition, the strategic management
process such as strategic vision, mission, objectives, strategy formulation,
strategy implementation, and strategy evaluation are some of the key
concepts that will be discussed.
It is important to understand the role played by different levels of strategic
planning in the organization, as it forms the basis of understanding how
such a complex process as decision making is managed across various
levels. This understanding is crucial in assessing the impact that these
different levels have on the formulation of the overall strategic orienta-
tion. With the help of practical examples and case studies, this lesson
will show how these strategies can be differentiated.
Additionally, the lesson stresses the importance of a vision and mission for
the organization. These positions are more than just statements as they are
effective tools that provide organizational direction and focus, informing
the organization’s objectives, strategies, planning, and decision-making
processes. You will acquire strategies on how to develop effective vision
and mission statements and look at case studies of successful firms and
the impact they have had.

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 Introduction to Business Policy and Strategy

At the end of this lesson, you should be able to understand the essential Notes
elements of business policy and strategy so as to prepare you for advanced
topics in the field of strategic management.

1.3 Nature and Importance of Business Policy and Strategy

In order to appreciate the way business organizations, operate in the
current complex and competitive environment, it is essential to compre-
hend the basic nature and significance of business policy and strategy.
The policy and strategy of a firm are the guidelines within which all
activities and decisions within the firm are worked out with the view of
the desired future aspirations of the firm. Understanding these concepts
is crucial as it will help you explore how businesses strategize, decide
and respond to shifts in the market which is essential for them to thrive
in a competitive landscape.

Nature of Business Policy and Strategy

Policies and strategies for business include sets of plans such as guidelines,
rules and procedures that determine the operations of an organization.
They assure a more rational and systematic way of achieving the objec-
tives of an organization or a company and gain competitive edge. Such
a comprehensive framework involves a plethora of activities including
but not limited to market exploration, distribution of resources, and the
setting of the organization to the competitive environment, all aimed at
ensuring the achievement of the organization’s goals and its existence
for a prolonged duration.

Importance of Business Policy and Strategy

Business goals and strategies are important; they affect many key areas
including:
1. Target and Concentration: Business policies and strategies offer
direction and united efforts in the attainment of set aims and
objectives by the organization. In this way, all units and sub-units
have a specific purpose and are able to operate within pre-determined
limits thereby reducing incidences of chaos and disorder.
2. Decision-Making Framework: Through their business policy and
strategies, the level of risk and ambiguity is made low as these

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 BUSINESS STRATEGIES

Notes provide a pre-planned business processes. They set forth a structure

that assists managers in executing their functions in a comprehensive
manner and in a systematic way even if the circumstances are
intricate and fluid.
3. Competitive Advantage: Well formulated strategies enable organizations
to explore and take advantage of market opportunities while at the
same time managing potential threats. They are instrumental in
creating and raising the level of competitiveness of the organization
through differentiation from other organizations in the same industry.

1.3.1 Definition and Scope of Business Policy

Business policy comprises the rules and regulations, and the procedures
that an organization adopts for purposes of managing its strategy formu-
lation and implementation processes with the focus on achieving strategic
purposes. These policies, regulations, and rules ensure unity, integration,
and coherence in the organization’s activities and structures. They provide
basis for setting expectations and standards and for making decisions at
the operational level.

Definition of Strategy
Strategy includes a comprehensive framework of steps that are taken
to accomplish particular goals over long period of time. This involves
setting goals, looking at the competition, checking what is available in
the organization, and deciding on the best actions that would help in
achieving the organization’s goals. Strategy is fluid and requires that
constant assessment and modifications are made so that the factors in
the environment do not change the position and the competitive edge the
organization already has.
Scope of Business Policy and Strategy: The scope of business policy
and strategy covers various levels within an organization which are dis-
tinct but nonetheless interrelated:
1. Corporate-Level Strategy:
‹ Establishes the broad direction and the scope of the organization.
‹ Encompasses decisions related to mergers, acquisitions, and
diversification, and entering new markets.

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 Introduction to Business Policy and Strategy

‹ Aims to improve the value of the firm and assure it’s continuity Notes
in business.
2. Business-Level Strategy:
‹ Deals with the competitive strategy of a particular business within
an industry or market.
‹ Relates to decisions concerning competitive positioning, such as
cost leadership, differentiation, or focused strategies.
‹ Aims at getting and sustaining a competitive position in selected
markets.
3. Functional-Level Strategy:
‹ Aims at specific functions or departments within the organization
such as HR, Marketing, Operations and Finance.
‹ Makes sure that every function is aligned to the business strategy
and helps to achieve the organizational objectives.
‹ Incorporates the consolidation of departmental and resource
activities to improve efficiency and effectiveness.
Table 1.1 below provides a clear and concise illustration of business policy
and strategy at different organizational levels: corporate, business, and
functional. By examining real-world examples, the table highlights how
strategic decisions vary depending on the scope and objectives at each
level. This approach provides insight into how strategies are developed
and executed across different areas of an organization, highlighting the
interconnectedness of strategic planning and implementation. The exam-
ples chosen are from well-known companies, making it easier to grasp
the concepts and see their application in real business scenarios.

Table 1.1: Examples of Business Policy and Strategy

at Different Levels
Levels Definition Example
Corporate- Focuses on the overall direc- A multinational conglomer-
Level Strategy tion and scope of the organi- ate like Tata Group deciding
zation as a whole. Involves to enter the electric vehicle
decisions related to mergers, market by acquiring a lead-
acquisitions, diversification, ing EV manufacturer.
and entering new markets.

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 BUSINESS STRATEGIES

Notes Levels Definition Example

Business-Level Pertains to how a business A smartphone manufacturer
Strategy competes within a particular like Apple focusing on dif-
industry or market. Involves ferentiation by offering pre-
decisions on competitive mium products with unique
positioning, such as cost features and superior design.
leadership, differentiation,
or focus strategies.
Functional-Lev- Focuses on specific functions The marketing department
el Strategy or departments within the of a retail company like
organization, ensuring they Amazon implementing a
support the overall business digital marketing strategy
strategy. Involves optimizing to increase online sales and
departmental activities and customer engagement.
resources.

1.3.2 Historical Context and Evolution

Early Concepts of Strategy from Military Origins
The idea of strategy originates from military history. The term ‘strategy’
comes from the Greek word ‘strategos,’ which refers to ‘generalship’ or
the skills of a general. Even in ancient times military thinkers like Sun
Tzu in China and Carl von Clausewitz in Europe advocated the impor-
tance of devising a plan, gathering intelligence, and resource allocation
and their distribution for effective war fighting. Sun Tzu’s “The Art of
War,” penned around 500 BC, stands as one of the initial treatises on
strategy, promoting adaptability, understanding of the adversary, and the
use of surprise.

Evolution of Strategic Management as a Discipline

However, the modern use of strategic management came in after World
War II when businesses started becoming larger and more complex in
their operations. A clear need for a more coherent way to manage orga-
nizations emerged, which led to the recognition of strategic management
being a single area. This development can be observed through some key
transformative events:

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 Introduction to Business Policy and Strategy

‹ 1950s-1960s: Foundations of Strategic Management Notes

‹ Alfred Chandler’s 1962 work, “Strategy and Structure”, recommended
that a firm’s structure follow its strategy, placing importance
on both the structure of an organization and its strategic goals.
‹ According to Igor Ansoff activity regarding “Corporate Strategy”
in 1965 opened the doors in the development of strategic
management processes and also the product-market expansion
grid which enabled firms to review diversification objectives.
‹ 1970s: Growth of Strategic Planning
‹ Boston Consulting Group (BCG) unveiled the BCG Matrix, an
analytical tool designed for portfolio assessment and resource
distribution, which considers market growth and relative market
share.
‹ Michael E. Porter developed the Five Force Model, on how
the competitive environment of an industry functions; this was
integrated into the competitive strategy as one of its building
blocks.
‹ 1980s-1990s: Emphasis on Competitive Advantage
‹ Porter further postulated that focus moves to obtaining and
sustaining competitive advantage, he defined these in his work
‘Competitive Strategy’ in 1980 as Differentiation, Cost leadership
and Focus strategies.
‹ This Resource-Based View (RBV) emerged with the increasing
importance of distinctive firm resources and capabilities as the
source of competitive advantage by academic leaders such as
Jay Barney and Birger Wernerfelt.
‹ 2000s-Present: Strategic Flexibility and Innovation
‹ The 21st century brought new challenges and opportunities,
such as globalization, technological advancements, and increased
market volatility. Emphasis shifted towards strategic flexibility
and innovation.
‹ Concepts such as dynamic capabilities, strategic agility, and
disruptive innovation became prominent, highlighting the need
for organizations to continuously adapt and innovate to remain
competitive.
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Notes This historical context highlights the evolution of strategic management

from its military origins to a sophisticated discipline that integrates various
theoretical perspectives and practical tools. Understanding this evolution
provides a foundation for appreciating the complexities and nuances of
modern strategic management.

1.3.3 Role in Business Success

Understanding the role of business policies and strategies is crucial for
comprehending how organizations achieve and sustain success. Effec-
tive business policies and strategies provide a roadmap for companies
to navigate the complexities of the business environment. They offer a
clear direction, support informed decision-making, and help organizations
build competitive advantages. Moreover, they ensure that resources are
utilized optimally, enhance adaptability and resilience in the face of
change, and focus on long-term sustainability. Understanding the criti-
cal role of business policies and strategies is essential for grasping how
organizations achieve and sustain their success. Here are the key aspects
through which effective business policies and strategies contribute to
organizational success:
‹ Direction and Focus: Business policies and strategies set a definitive
path and focus, aligning all organizational segments toward unified
objectives. This coordination is key in minimizing confusion and
optimizing the use of resources.
‹ Decision-Making Framework: By establishing a structured approach
to decision-making, business policies and strategies reduce uncertainty
and ambiguity. They provide a framework within which managers
can make informed and consistent decisions, even in complex and
dynamic environments.
‹ Competitive Advantage: Effective strategies enable organizations
to identify and capitalize on opportunities while mitigating threats.
They assist in creating and maintaining a competitive advantage by
setting the organization apart from its competitors.
‹ Adaptability and Resilience: In a rapidly changing business
environment, having a well-defined strategy allows organizations
to be more adaptable and resilient. It equips them with the tools
to respond proactively to external changes and internal challenges.

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 Introduction to Business Policy and Strategy

‹ Resource Optimization: Business policies and strategies ensure Notes

the optimal allocation and utilization of resources. By giving
precedence to strategic initiatives and optimizing resource management,
organizations can attain their objectives more effectively and with
greater efficiency.
‹ Long-term Success: Strategic planning and execution are centered
on achieving long-term success, rather than pursuing short-term
gains. This helps organizations to establish a sustainable competitive
position and achieve lasting growth and profitability.

1.3.3.1 Examples of How Effective Business Policies and Strategies

Have Led to Business Success
Apple Inc.: The world revolutionized in 2007 when Apple launched the
iPhone, as this set new standards in the functionality of a mobile phone.
Ever since the firm has operated in a seamlessly integrated ecosystem
wherein design innovation is of the utmost priority. And despite being
reliant on effective system integration, Apple Inc. was able to establish
a distinctly loyal consumer base which subsequently has allowed them
to dominate the technology sector.

Amazon: Investing in technology and focus on logistics has allowed

Amazon to effectively reduce their costs while enhancing their services
simultaneously. The firm certainly achieved their goal of dominating
the e-commerce sector, in which the company incentivized customers
to become more loyal to it by providing features such as fast shipping
along with exclusive content. Furthermore, the technology advanced
supply chain provided them the ability to implement the strategy of a
cost leader in exchange for a customer focused approach.

Toyota: Toyota has ensured that they remain competitive by maintaining

a strong focus on quality and continuous improvement in every facet
of the firm. The firm’s ideation of a lean manufacturing structure along
with hybrid technology contributed in leading the automotive industry.
The company equally engaged in environmental sustainability with the
launch of the Toyota Prius in 1997 which enjoyed being one of the first
mass produced hybrid vehicles.

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 BUSINESS STRATEGIES

Notes Table 1.2 illustrates how strategic decisions and well-crafted business pol-
icies contribute to organizational success. They highlight the importance
of strategic planning in navigating challenges, leveraging opportunities,
and achieving sustainable growth.

Table 1.2: Case Studies of Successful Companies

and Their Strategic Decisions
Strategic
Company Decision Description Outcome
Apple Inc. Differentiation through Focused on creating Established a market
innovation and design premium products with leader position in the
unique features and su- technology sector, with
perior design. strong brand loyalty and
significant market share.
Amazon Cost leadership and Invested heavily in Became the dominant
customer-centricity technology and logis- player in e-commerce,
tics to reduce costs and with rapid revenue growth
improve customer ex- and expanded market
perience. presence.
Toyota Lean manufacturing Implemented lean man- Achieved superior prod-
and hybrid technology ufacturing techniques uct quality, operational
and focused on devel- efficiency, and became
oping hybrid vehicles. a leader in sustainable
automotive technology.
Netflix Transition from DVD Shifted business mod- Revolutionized the enter-
rentals to streaming el from physical DVD tainment industry, leading
services rentals to online stream- to global expansion and a
ing. massive subscriber base.
Google Diversification into Expanded from search Sustained growth and di-
various tech sectors engine services to var- versification, becoming a
ious technology sectors dominant player in mul-
like mobile OS, cloud tiple technology markets.
computing, and hard-
ware.

1.4 Introduction to the Strategic Management Process

and Related Concepts
Strategic management is an organized process through which organiza-
tions visualize their future and craft strategies to meet their long-term
objectives. It consists of a series of clearly defined steps that direct the
formulation, execution, and assessment of these strategies. This process

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is crucial for organizations to navigate the complexities of the business Notes

environment, respond to internal and external challenges, and capitalize
on opportunities. By understanding the strategic management process
and its key concepts, such as strategic vision, mission, and objectives,
organizations can ensure that their actions are aligned with their goals
and are well-equipped to sustain competitive advantage and drive suc-
cess. This section explores the definition of strategic management, the
phases involved, and the critical concepts that underpin effective strategic
planning and execution.

1.4.1 Definition of Strategic Management

The method of formulating goals, planning tactics, and executing plans
in order to evaluate the progress of an organization effectively utilizes
strategic management approach which further helps to improve its perfor-
mance. Similar to how a strategic plan is in motion, this process involves
planning, monitoring, analyzing, and evaluating relevant activities aimed
at helping an organization meet and compete within certain targets.

Comprehensive Approach:
Strategic management enables formulating multiple strategies, for instance
for management of an entire corporation, business units and the functions
of the corporation. It integrates diverse functions of production, marketing,
finance and human resource management towards achieving a common
purpose of the organization.

Continuous Process:
‹ Planning: Formulating strategies which include deciding on objectives,
matching resources with the objectives and devising possible means
to reach the objectives.
‹ Monitoring: Following up the implementation of the strategic plan
and evaluating targets that have been achieved.
‹ Analysis: Researching different scopes that will include the strengths,
threats, opportunities and weaknesses of the organization.
‹ Assessment: Critically evaluating whether strategies adopted have
been achieved and what measures would enhance strategy compliance
to goals.

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Notes Indeed, through effective strategic management, an organization will keep

changing internally or externally, grab the opportunities, neutralize the
threats, and retain the competitive position. It brings about a methodical
approach to strategic choices, optimizing resource allocation and improv-
ing results in the operations of an organization.

1.4.2 Phases of Strategic Management: Strategy Formulation,

Implementation, and Evaluation
There are three fundamental steps in the strategic management process
which are strategy formulation, strategy implementation, and measurement
of strategy performance. These three phases are quite crucial so as to
determine whether an organization’s strategic goals are carefully planned,
efficiently performed and properly assessed. Each of these phases is
elaborated upon in the following sections:
1. Strategy Formulation
Environmental Scanning: This step focuses on evaluating the internal
and external factors of the organization with the aim of formulating and
devising strategies, plans, missions, goals, and objectives.
‹ Tools and Techniques:
‹ SWOT Analysis: It identifies an organization’s internal strengths
and weaknesses and external opportunities and threats.
‹ PESTEL Analysis: Evaluates external political, economic, social,
technological, environmental and legal factors and how they
affect the organization.
‹ Porter’s Five Forces Model: It examines the industry and the
intensity of competition in order to assess the attractiveness of
an industry and its potential profitability.
‹ Outcome: A comprehensive understanding of the strategic landscape,
enabling the organization to perceive the areas which can be
developed and the areas which require concentration.
Setting Objectives: Determining the primary long-term targets which the
organization plans to achieve. These goals direct the organization and are
a measure of how successful it is.
‹ Characteristics of Effective Objectives: In order to be effective,
objectives have to be SMART: Specific, Measurable, Attainable,
Relevant, and Time-bound.
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‹ Outcome: Clear and explicit goals which shape how the resources Notes
of the organization are applied or focus the direction of the
organization’s strategy and can be used as a basis of measuring
achievement.
Strategy Development: At every level of the organisation, strategies are
fashioned in order to realise the objectives that have been set.
‹ Levels of Strategy:
‹ Corporate Strategy: This incorporates strategies formulated to
respond to decisions regarding the scope and direction of the firm
as an institution, as well as implementation of joint ventures,
takeovers and other diversification strategies. It determines in what
business the company will engage in and how the investments
will be made across the businesses.
‹ Business Strategy: Outlines the steps required for the organisation
to survive in certain markets or in some industries. They include
the decision as to the competitive strategy and the design of
the business model. Strategies might include cost leadership,
differentiation or focus.
‹ Functional Strategy: This subunit of business strategy consists of
strategies that are devised for every department or functional area
(such as marketing, finance, operations, etc.) that are consistent
and help the other business strategy. These strategies ensure
that every functional area does its work efficiently towards the
attainment of wider corporate and business goals.
‹ Outcome: The operative target describing how the organisation is
going to achieve its goals on multiple layers.
2. Strategy Implementation
Resource Allocation: This is the process of allocating, human, financial and
technological resources in a manner which supports the selected strategies.
‹ Considerations: Making sure the resources are matching the strategic
requirements and that there is enough capacity to implement the
strategies. These involve budgeting, staffing, and technological input.
‹ Outcome: Resources of adequate proportions are provided to enable
effective continuation of strategic plans taking into account strategic

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Notes alternatives since the organization will have been able to achieve
its strategic objectives.
Organizational Structure: How the organizational structure aids in the
implementation of strategies. It must help in effective communication,
coordination, and control.
‹ Types of Structures:
‹ Functional Structure: Groups the employees according to specific
functions or roles such as marketing or finance.
‹ Divisional Structure: Groups the people according to product
lines, services or regions.
‹ Matrix Structure: Combines the functional structure with the
divisional structure to take advantage of both structures.
‹ Flat Structure: Less hierarchical levels to improve the speed
of decision making and enhance flexibility.
‹ Outcome: An organizational structure which improves efficiency,
communication and coordination in the organization and assists in
achieving the strategic goals of the organization.
Management and Leadership: The key purpose of management is to
mobilize people working in the organization towards achievement of
strategic goals.
‹ Key Aspects:
‹ Change Management: Managing change and ensuring that the
stakeholders are supportive for the strategies being developed.
This incorporates barriers to change and communicating the new
strategies.
‹ Leadership: Planning, encouraging, and supporting the activities
of teams. It is the duty of leaders to motivate and direct the
employees to achieve the goals of the strategies.
‹ Communication: Making certain that all levels of the organization
understand the plan and its objectives and goals to ensure that
the strategy is achieved.
‹ Outcome: Good leadership and management practices as a result
lead the organization to the achievement of set strategic objectives
thereby effective strategy implementation.

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3. Strategy Evaluation Notes

Performance Measurement: Evaluation of the results of strategic action
that have been taken and measures in terms of its aimed objectives.
‹ Tools and Techniques:
‹ Balanced Scorecard: Evaluates strategic performance in a broader
dimension such as financial, customers, internal processes and
learning and growth.
‹ Key Performance Indicators (KPIs): Specific measures that are
used to check the advancement of strategic aspirations.
‹ Benchmarking: Surveys how well one performs by gauging
against the industry goals or rivals in order to find chances for
enhancement.
‹ Outcome: Both quantitative and qualitative data that provide
information on the performance level of the strategies being pursued,
how well some areas are doing and what require improvement.
Review and Feedback: Controlling the work performance towards the
set objectives and review and revise the activities where appropriate to
comply with the strategic focus.
‹ Process:
‹ Regular Review Meetings: Meetings arranged to evaluate the
achieved results against the set goals in okay of strategy regarding
performance and its outcome.
‹ Performance Appraisals: It is the official assessment undertaken
by each individual or unit in the group in terms of performance
and strategic goals set.
‹ Feedback Mechanisms: The method of feedback collection from
employees, customers and other stakeholders for necessary changes.
‹ Outcome: The gaps and areas for improvement are identified so
that objectives and strategies remain congruent, and the organization
is on the right track.
Continuous Improvement: Adjustment of strategies in line with the com-
ments received and other environmental factors to improve performance
and ensure competitiveness.

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 BUSINESS STRATEGIES

Notes ‹ Approach:
‹ Fostering a Mindset of Ongoing Improvement: The cultivation
of continuous improvement, new ideas, and adjustments to all
members of the organization.
‹ Learning from Past Experiences: Using previous achievements
and failures to assist practices in making strategic decisions.
‹ Agility in Response: Awareness and sheer wit to respond to
environmental changes.
‹ Outcome: Therefore, it will become one to hope for an undertaking
which incorporates endless improvement. Within this essence, one
ensures effective and competitive undertaking in an environment
that is constantly changing.
These phases of strategic management enable the business organizations
to be focused for long run strategies and for planning, deploying, and
evaluating their strategies in such a way that will help them evolve and
develop within a turbulent business environment.

1.5 Characteristics of Corporate, Business and Functional

Level Strategic Management Decisions
Strategic management decisions are made at different levels within an
organization, each with its distinct focus and scope. These levels are
corporate, business, and functional. Understanding the characteristics of
decisions at each level is crucial for ensuring that the organization’s stra-
tegic direction is coherent and aligned across all departments and units.
Corporate-level strategies determine the organization’s overall direction
and scope, business-level strategies concentrate on how the organization
competes in particular markets, and functional-level strategies focus on
particular roles or departments within the organization. This section explores
the differences between these levels of strategy and provides examples
and case studies to illustrate their unique characteristics and importance.

1.5.1 Differences between Corporate, Business, and Functional

Strategies
The importance of knowing the differences between corporate, business,
and functional strategies are such that strategies are formulated and exe-

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cuted at three levels in organizations. Each level of strategy is defined by Notes

its depth, its centers, its major elements or decisions and aims that make
it possible to achieve particular measures of success for the organization.

Corporate-Level Strategy:
‹ Broad Direction and Scope: Helping the entire organization steer
its vision, the entire approach and focus is encompassed by the
corporate framework level strategy. It has to do with the issues that
concern the organization and its array of business units.
‹ Strategically Important Decisions: These decisions relate to the
selecting the industries or markets to enter or exit, engaging in
mergers and acquisitions, expanding business diversification and
assigning resources among the business units.
‹ Goals: Maximization of corporate value, ideal growth in long term
and the continuity of the organization are the basic goals.
‹ Example: Oligopolies/Concentrate firms such as Tata Group entering
the market space of powered vehicles by purchasing a firm already
into EV manufacturing.

Business-Level Strategy:
‹ Scope and Focus: Business level strategy sets out the strategies that
guide the operation of factors of an individual business unit in the
markets and industries they exist. It concerns those strategic choices
that influence competition and performance of a business unit.
‹ Key Decisions: These decisions involve the firm’s competitive position
such as types of cost leadership, differentiation, focus, market scope,
segmentation and the range of products or services sold.
‹ Goals: To retain a competitive advantage, increase market sockets
and increase profitability in the targeted market.
‹ Example: Apple concentrating on differentiation by providing new
and best quality devices like iPhone and MacBook.

Functional-Level Strategy:
‹ Scope and Focus: A functional level strategy deals with one or
more specific functions or departments of a business unit. They
include operations, marketing, finance, human resources among

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 BUSINESS STRATEGIES

Notes others. The rational here is that there is a need to enhance the
effectiveness of these functional units so as to be in conjunction
with the corporate strategy.
‹ Key Decisions: In general, these activities include selection of specific
strategies and activities of market campaigns and contests, strategies
for funds and finances management, strategies and advertisements,
and the management of human resources and skills.
‹ Goals: The essential goals are making certain that any each level
function in the organization is supporting business level strategy and
strategies of the organization in IT overall functional performance.
‹ Example: The marketing department of Amazon implementing
e-marketing as an approach to increase online sales and interaction
with customers.
Understanding the distinctions between corporate, business, and func-
tional strategies is critical for comprehending how organizations navigate
complex environments and achieve their goals. The following Table 1.3
provides concrete examples to illustrate how strategic decisions at each
level contribute to an organization’s overall success. Each example
highlights the scope and focus, key decisions, objectives, and outcomes
of the strategies implemented at the corporate, business, and functional
levels. This comprehensive view underscores the interconnected nature
of strategic management across different levels of an organization.

Table 1.3: Examples of Corporate, Business,

and Functional-Level Strategies
Level of Example/ Scope and Key Deci-
Strategy Case Study Focus sions Objectives Outcome
Corpo- Tata Group’s Expanding � Acquiring � Maximize Established
rate-Level Acquisition automotive Jaguar Land corporate a strong
Strategy of Jaguar portfolio by Rover value foothold in
Land Rover entering the � Diversify- � Achieve the luxury
luxury car ing product long-term automotive
market. sector, lever-
offerings growth
aging Jaguar
� Ensure
Land Rover’s
sustainability brand and
expertise.

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Level of Example/ Scope and Key Deci- Notes

Strategy Case Study Focus sions Objectives Outcome
Corpo- Alphabet Inc. Diversify- � Investment � Create Became a
rate-Level (Google) ing beyond in self-driv- new revenue major player
Strategy core search ing technolo- streams in multiple
engine gy (Waymo � Mitigate high-growth
business. � Advance- risks industries,
ments in reducing de-
� Foster in-
life sciences pendency on
novation advertising
(Verily)
� Develop- revenue.
ment of smart
home devices
(Nest)
Business- Apple’s Dif- Differ- � Emphasiz- � Achieve Built a ded-
Level ferentiation entiating ing innova- and sustain icated cus-
Strategy Strategy products tion, quality, competitive tomer follow-
within the and unique advantage ing, achieved
technology design in � Capture strong brand
market. market share recogni-
products like
� Improve tion, and
the iPhone
profitability maintained
and MacBook consistently
high profit
margins.
Busi- Starbucks’ Targeting � Introduc- � Attract a Catered to a
ness-Lev- Market Seg- different ing a range broader cus- wide array
el Strat- mentation customer of products tomer base of customer
egy groups with for diverse � Enhance preferenc-
tailored of- preferences customer ex- es, driving
ferings. perience customer
(premium
� Increase loyalty and
beverages,
market share expanding
health-con- global foot-
scious op- print.
tions, season-
al specials)
Function- Amazon’s Optimizing � Imple- � Drive on- Significantly
al-Level Digital Mar- online sales menting line sales boosted on-
Strategy keting Strat- and cus- SEO, PPC � Increase line traffic
egy tomer en- advertising, customer en- and sales,
gagement. and targeted gagement reinforcing
social media � Enhance Amazon’s
campaigns brand visi- position in
bility the e-com-
merce mar-
ket.

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Notes Level of Example/ Scope and Key Deci-

Strategy Case Study Focus sions Objectives Outcome
Function- Toyota’s Implement- � Adopting � Boost Achieved
al-Level Lean Manu- ing lean Toyota Pro- operational superior
Strategy facturing manufac- duction Sys- efficiency operational
turing prin- tem (TPS) � Lower efficiency,
ciples in � Empha- production reduced de-
operations. sizing waste fects, and
expenses
reduction and maintained
� Elevate
continuous high-quality
product qual-
improvement standards.
ity
(Kaizen)

1.6 Company’s Vision and Mission

A company’s vision and mission statements are crucial in shaping its
strategy and guiding operational decisions. They clarify purpose and
direction, aligning everyone in the organization toward common goals.

Vision Statement:
‹ Purpose: A vision statement outlines the organization’s aspirations
for the future, representing a forward-thinking declaration of its
purpose and ambitions.
‹ Importance:
‹ Inspiration: It inspires employees by offering clear direction
and purpose.
‹ Guidance: It acts as a framework for strategic planning and
decision-making, ensuring actions align with the organization’s
long-term goals.
‹ Alignment: It ensures that various departments and teams work
together towards a shared future vision.

Mission Statement:
‹ Purpose: A mission statement defines the organization’s core purpose
and primary objectives, answering the question, ‘Why do we exist?’
‹ Importance:
‹ Clarity: It gives stakeholders a clear view of what the organization
does and why it does it.
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‹ Focus: It directs the organization’s efforts toward its key goals Notes
and objectives.
‹ Communication: It communicates the organization’s purpose
and direction to stakeholders, building trust and understanding.
A mission and vision statement is extremely critical for any organization
as it locks in its reason for existence and steers its espoused strategies.
These statements provide the basis from which strategic planning and
operational decisions are made and carried out. A vision statement helps
in bringing forth a crystal-clear concept of what the organization will
accomplish in the future whereas, the mission statement provides a clear
understanding of key roles and objectives of the firm. Together, they
ensure that the entire organization is geared to the same direction, ease
of understanding and communication of the organization’s intentions to
stakeholders, and most importantly provide a framework for achieving
long-term goals. This section presents the key factors and major activities
in developing satisfactory vision and mission statements.

Crafting an Effective Vision Statement:

‹ Clarity and Brevity: The vision statement must be succinct and
clear in meaning and portrayal such that it can easily be extricated
from one’s memory.
‹ Inspiration: It must instill enthusiasm in the workers and the other
concerned parties.
‹ Being Visionary: It needs to be written in a perspective where the
organization sees itself ‘somewhere’ in the future.
‹ Enunciate the Core Beliefs: It should state the uncompromising
values and dreams that the organization stands for.
‹ Example: “To provide access to the world’s information in one
click” – Google.

Crafting an Effective Mission Statement:

‹ Be Clear: It may be necessary for the organisation to make it very
clear what they do, for whom they do it, and why they do it.
‹ Be Succinct: The total amount of content in the statement should
be specific enough that only key points are hinted and the message
is delivered.
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Notes ‹ Be Concise: The restating of the text should not deviate from the
organization’s core objectives and focus.
‹ Be Consistent: The business should encompass the mission statement’s
vision, outlining the strategic paths for realising the vision.
‹ Example: “To organize the world’s information and make it
universally accessible and useful” – Google.

IN-TEXT QUESTIONS
1. What is the primary purpose of a vision statement?
(a) To outline the company’s short-term objectives
(b) To describe the organization’s future aspirations
(c) To detail the company’s daily operations
(d) To provide financial forecasts
2. Which of the following best describes a mission statement?
(a) A statement that outlines the company’s future goals
(b) A description of the organization’s core purpose and
primary objectives
(c) A financial plan for the next fiscal year
(d) A list of the company’s products and services
3. What is the first phase of the strategic management process?
(a) Strategy Implementation
(b) Strategy Evaluation
(c) Strategy Formulation
(d) Performance Measurement
4. Which analysis is used to identify internal strengths and
weaknesses, as well as external opportunities and threats?
(a) PESTEL Analysis
(b) SWOT Analysis
(c) Porter’s Five Forces
(d) Value Chain Analysis

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5. What does the acronym SMART stand for in the context of Notes
setting objectives?
(a) Simple, Measurable, Achievable, Realistic, Time-bound
(b) Specific, Measurable, Achievable, Relevant, Time-bound
(c) Strategic, Measurable, Attainable, Relevant, Timely
(d) Specific, Manageable, Achievable, Relevant, Time-based
6. Which level of strategy focuses on decisions related to mergers
and acquisitions?
(a) Corporate-Level Strategy
(b) Business-Level Strategy
(c) Functional-Level Strategy
(d) Operational-Level Strategy
7. Apple’s focus on innovation and high-quality products is an
example of which type of strategy?
(a) Cost Leadership
(b) Differentiation
(c) Focus
(d) Diversification
8. Which strategy level involves optimizing specific functions
such as marketing and finance?
(a) Corporate-Level Strategy
(b) Business-Level Strategy
(c) Functional-Level Strategy
(d) International-Level Strategy
9. What is the primary objective of business-level strategy?
(a) To maximize shareholder value
(b) To achieve and sustain competitive advantage
(c) To optimize functional performance
(d) To allocate resources among business units

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Notes 10. Which phase of the strategic management process includes

performance measurement?
(a) Strategy Formulation
(b) Strategy Implementation
(c) Strategy Evaluation
(d) Environmental Scanning
11. What is the main purpose of environmental scanning in strategic
management?
(a) To set long-term objectives
(b) To allocate resources
(c) To analyze external opportunities and threats
(d) To implement strategies
12. Which tool is commonly used for analyzing the competitive
forces within an industry?
(a) SWOT Analysis
(b) PESTEL Analysis
(c) Porter’s Five Forces
(d) Value Chain Analysis
13. How often should an organization review and update its strategic
plan?
(a) Annually
(b) Bi-annually
(c) Quarterly
(d) Monthly
14. In which level of strategy would decisions about market segmentation
typically be made?
(a) Corporate-Level Strategy
(b) Business-Level Strategy
(c) Functional-Level Strategy
(d) Operational-Level Strategy

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15. Which of the following is NOT typically included in a vision Notes

statement?
(a) Future aspirations (b) Core purpose
(c) Inspirational goals (d) Long-term direction

CASE STUDY
Strategic Management at ABC Ltd.
Introduction
ABC Ltd. company operates at the pinnacle of the technological
world. It is quite evident that there is a need for proper strategic
management in an organization such as ABC Ltd. There also seems
to be links between ABC Ltd.’s style of business policy and strategy,
vision and mission statements, strategic management process, and
corporate, business and functional strategy.

Vision and Mission Statements

Vision Statement: “To make the best products on earth, and to leave
the world better than we found it.” Mission Statement: “To bring the
best user experience to its customers through its innovative hardware,
software, and services.”
Vision and mission statements for most organizations including ABC
Ltd. revolve around their goals and objectives. For example, ABC
Ltd.’s vision emphasizes the value of excellence in terms of both
production and environmental protection while the mission informs
the world on an optimum user experience brought about via new
developments n innovation.

Strategic Management Process

Strategy Formulation: Environmental scanning is what informs ABC
Ltd.’s strategy formulation. From there they look at changes in the
technology market that have potential for growth and evaluate what
potential threats could come from different companies. From there
they set SMART goals, like 10% increase in the premium smartphone
market share within 3 years. To achieve these goals, they then create
strategies on different levels.

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 BUSINESS STRATEGIES

Notes Strategy Implementation: In ABC Ltd. device intends every deploy-

ment of its resources including organization structuring and leadership
at the very particular instance. For example, research and development
is heavily invested i.e. R&D investment. The firm’s structural orga-
nizational model is kept flat to improve communication and decision
making. In addition, management is no less important especially top
management members like John Cook whose contribution is more
directed on the build-up functions of the firm.
Strategy Evaluation: The regular assessment of ABC Ltd. clinical
auditing done includes the clinical auditing and the committee perfor-
mance operating through such clinical auditing parameters as market
share, satisfaction and finance. Periodic review meetings and means
to provide feedback facilitate more implementation of the strategies
towards the objectives and create room for changes where necessary.
Corporate-Level Strategy
On the corporate level, ABC Ltd. ramps up its focus on diversifica-
tion as well as vertical integration. Apart from its main product line,
ABC Ltd. does not rely too much by penetrating new segments like
wearable device and digital services. Vertical expansion through the
purchase of companies, among others, Beats Electronics improves
its products and technology.
Example: Amid the major contracts concluded for the purchase of
Beats Electronics Company’s audio equipment the two most essen-
tial were the earphones and headphones which were included in the
NotePad and other new beats audio devices around 2014.
Business-Level Strategy
With regard to business strategy, ABC Ltd. tries to outdo competition
by specializing in technologically unique and aesthetically appeals for
their customers. Such an approach makes it possible for ABC Ltd.
to charge high prices and enhance customer loyalty.
Example: The launch of the M-Phone changed the way smart phones
looked and how they operated because it had a simplistic design
and was integrated with multiple applications and services. Such a
differentiation on their products has enabled ABC Ltd. to attain a
competitive edge and a solid customer retention rate.
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Functional-Level Strategy Notes

ABC Ltd.’s functional-level strategies seek to perfect specific func-

tions in relation to the business strategy. The marketing department,
for example, targets people with tenders who pinch up hype prior to
the launch. Operating department on the other hand concentrates on
the efficiency on its supply chain and the products offered.
Example: ABC Ltd.’s marketing means the big events around launching
new products(s), attractive advertising of products and presence in
mass sale channels. All these strategies ensure that every new product
becomes the talk of potential consumers and of the media as well.

Conclusion
The success of ABC Ltd. demonstrates the results that can be obtained
with the proper strategic management. ABC Ltd. has dominance in the
technology sector due to its clear vision and mission, and its focused
strategy formulation, strategy implementation and strategy evaluation
processes at the corporate, business and functional level. This case
study highlights the importance of strategic management in obtaining
and maintaining competitiveness and success in the long term.

Discussion Questions:
1. In your opinion, how do ABC Ltd.’s vision and mission statements
guide them in their strategic decisions and organizational culture?
2. How does ABC Ltd.’s differentiation strategy create a competitive
edge for the company in the technology sector?
3. What would the major challenges be and how would you rate
them in terms of their importance to ABC Ltd. in sustaining its
strategic advantages? How can it be managed in the strategic
management processes of the firm?
4. In what way does the approach to implementation of strategy of
ABC Ltd. lead to congruence at the corporate, business, and
functional levels?

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 BUSINESS STRATEGIES

Notes
1.7 Summary
This lesson provides a comprehensive understanding of business policy
and strategy, enhancing the ability to develop and execute effective strat-
egies for organizational success. Exploring the nature and importance of
business strategy offers insight into how strategic direction and informed
decision-making contribute to long-term achievements. The historical con-
text and evolution of strategic management highlight its multidisciplinary
roots, integrating various theoretical perspectives and practical tools.
Understanding the strategic management process—comprising strategy
formulation, implementation, and evaluation—equips with the skills to
systematically plan, execute, and assess strategies. Key concepts like en-
vironmental scanning, setting SMART objectives, and continuous improve-
ment cycles are crucial for effective strategy development and execution.
The differentiation between corporate-level, business-level, and function-
al-level strategies, illustrated with real-world examples, demonstrates how
strategic decisions at each level contribute to overall organizational success.
This knowledge helps in aligning strategies across different levels of the
organization to achieve competitive advantages and market leadership.
The significance of vision and mission statements is highlighted, demon-
strating how they offer clear direction, motivate stakeholders, and syn-
chronize organizational efforts. Examples from successful companies
highlight how well-crafted statements guide strategic initiatives and
operational decisions.
Mastering these concepts enhances business strategy knowledge, enabling
navigation through complex environments, achieving competitive advan-
tages, and ensuring sustainable growth and success for the organization.

1.8 Answers to In-Text Questions

1. (b) To describe the organization’s future aspirations
2. (b) A description of the organization’s core purpose and primary
objectives
3. (c) Strategy Formulation
4. (b) SWOT Analysis

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Notes
5. (b) Specific, Measurable, Achievable, Relevant, Time-bound
6. (a) Corporate-Level Strategy
7. (b) Differentiation
8. (c) Functional-Level Strategy
9. (b) To achieve and sustain competitive advantage
10. (c) Strategy Evaluation
11. (c) To analyze external opportunities and threats
12. (c) Porter’s Five Forces
13. (a) Annually
14. (b) Business-Level Strategy
15. (b) Core purpose

1.9 Self-Assessment Questions

1. What is the primary aim of a vision statement, and what about it
is important for the organization in the long term?
2. Differentiate corporate versus business versus functional strategies
with an example for all three.
3. How do vision and mission statements impact the strategic measures
and operational tactics of a firm? Provide examples from successful
firms.
4. What is the relevance of environmental scanning in the strategy
formulation stage? What are the steps that are followed in conducting
an environmental scan?
5. Explain how the use of a digital marketing concept similar to that
of Amazon can assist in the functional level strategy and in the
success of the organization as a whole.

1.10 References
‹ Barney, J. B. (1991). Firm resources and sustained competitive
advantage. Journal of Management, 17(1), 99-120.

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 BUSINESS STRATEGIES

Notes ‹ Grant, R. M. (2016). Contemporary strategy analysis: Text and

cases (9th ed.). Chichester, England: Wiley.
‹ Kaplan, R. S., & Norton, D. P. (1996). The balanced scorecard:
Translating strategy into action. Boston, MA: Harvard Business
School Press.
‹ Mintzberg, H., Ahlstrand, B., & Lampel, J. (1998). Strategy safari:
A guided tour through the wilds of strategic management. New
York, NY: Free Press.
‹ Prahalad, C. K., & Hamel, G. (1990). The core competence of the
corporation. Harvard Business Review, 68(3), 79-91.
‹ Wernerfelt, B. (1984). A resource-based view of the firm. Strategic
management journal, 5(2), 171-180.
‹ Porter, M. E. (1980). Competitive strategy: Techniques for analyzing
industries and competitors. Free Press.

1.11 Suggested Readings

‹ Ansoff, H. I. (1965). Corporate strategy: An analytic approach to
business policy for growth and expansion. New York, NY: McGraw-
Hill.
‹ Chandler, A. D. (1962). Strategy and structure: Chapters in
the history of the industrial enterprise. Cambridge, MA: MIT
Press.
‹ Porter, M. E. (1980). Competitive strategy: Techniques for analyzing
industries and competitors. New York, NY: Free Press.
‹ Thompson, A. A., Peteraf, M. A., Gamble, J. E., & Strickland, A. J.
(2020). Crafting and executing strategy: The quest for competitive
advantage: Concepts and cases (22nd ed.). New York, NY: McGraw
Hill Education.
‹ Wheelen, T. L., Hunger, J. D., Hoffman, A. N., & Bamford, C. E.
(2018). Strategic management and business policy: Globalization,
innovation, and sustainability (15th ed.). Harlow, England:
Pearson.

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‹ Boston Consulting Group (BCG). (1970). The product portfolio. Notes

Retrieved from https://www.bcg.com/publications/1970/strategy-
the-product-portfolio
‹ Teece, D. J., Pisano, G., & Shuen, A. (1997). Dynamic capabilities
and strategic management. Strategic Management Journal, 18(7),
509-533.
‹ Christensen, C. M. (1997). The innovator’s dilemma: When new
technologies cause great firms to fail. Harvard Business Review Press.

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 L E S S O N

2
Environmental Analysis
and Diagnosis
Dr. Abhilasha Meena
Assistant Professor
Management Studies
School of Open Learning
University of Delhi
Email-Id: [email protected]

STRUCTURE
2.1 Learning Objectives
2.2 Introduction
2.3 Introduction to Environmental Analysis
2.4 Analysis of Company’s External Environment
2.5 Michael E. Porter’s 5 Forces Model
2.6 Internal Analysis
2.7 Organizational Capabilities, Competitive Advantage, and Core Competence
2.8 Michael E. Porter’s Value Chain Analysis
2.9 Porter’s Diamond Theory of National Advantage
2.10 Summary
2.11 Answers to In-Text Questions
2.12 Self-Assessment Questions
2.13 References
2.14 Suggested Readings

2.1 Learning Objectives

By the end of this lesson, you will be able to:
‹ Explain the significance of conducting thorough environmental analyses for strategic
planning and decision-making in businesses.
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 Environmental Analysis and Diagnosis

‹ Apply analytical tools like PESTEL and Porter’s Five Forces Notes
to evaluate and understand the external elements that impact a
company’s environment.
‹ Perform internal evaluations using tools like SWOT Analysis,
Resource-Based View (RBV), and VRIO Framework to recognize
a company’s strengths, weaknesses, opportunities, and threats.
‹ Evaluate and determine the organizational strengths that enhance a
company’s competitive edge and core competencies.
‹ Examine and outline the key and supporting activities within a
company’s value chain to pinpoint value-generating processes and
potential areas for enhancement.
‹ Understand and apply the components of Porter’s Diamond Theory
to evaluate the competitive advantage of nations and industries in
a global context.

2.2 Introduction
In the context of the contemporary and volatile business realm, the
capacity to comprehend the dynamics of the environment and to take
up relevant actions is necessary for achieving competitive edge and for
survival. This lesson titled ‘Environmental Analysis & Diagnosis’ seeks
to help you understand how to evaluate and diagnose the external and
internal environments of the firm. It seeks to provide you with the skills
and understanding to evaluate the critical factors that affect the operations
and strategies of any business.
Environmental analysis refers to the systematic assessment of a compa-
ny’s external and internal setting in order to determine its opportunities,
threats, strengths, and weaknesses. By identifying these aspects, you will
learn how companies develop strategies that exploit strengths, overcome
weaknesses, utilize opportunities and avoid threats. Such an approach is
essential for formulating strategies that enhance the responsiveness and
competitiveness of an organization in the changing business environment.
There are standards and models that assist in the environmental analysis.
For example, the 5 Forces Model by Michael E. Porter explains the com-
petitive conditions of an industry while his Value Chain Analysis deter-
mines the functions in a business organization that add value. Moreover,
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 BUSINESS STRATEGIES

Notes Porter’s Diamond Theory of National Advantage presents the factors that
foster national and industry competitiveness internationally.
An internal analysis aims to review a company’s resources, core capabilities,
and core competencies. Such internal factors are critical for understanding
competitive strengths and for formulating strategies which are consistent
with the company’s strengths. Identification of such factors can be aided
through the use of several analytical tools such as the SWOT analysis,
the Resource-Based View (RBV) and VRIO framework.
By the end of this lesson, you will already be able to conduct a prop-
er environmental analysis, examine environmental strategic issues, and
suggest strategies that will enhance the performance of an organization
and its competitive advantage.
It is also evident that in order to make sense of the strategic theory as a
whole, it is useful to know why environmental analysis and evaluation
is deemed essential. Thus, this introduction has set an outline for a more
elaborate presentation of the issues of this lesson.

2.3 Introduction to Environmental Analysis

Environmental analysis is a systematic method of recognizing, evalu-
ating, and explaining both internal and external elements that have the
potential to influence the effectiveness of an organization. It consists of
several dimensions such as Political, Economic, Social, Technological,
Environmental, and Legal (PESTEL) as well as internal appraisal of the
resources, capabilities and unique competencies of the firm. The impor-
tance of environmental analysis stems from the fact that it provides a
systematic method of comprehending the interrelationships between these
elements. A proper evaluation of such issue can help the organization to
predict changes, search for opportunities and consider risks. This proac-
tive stance also allows the firms to alter their plans in accordance with
outside changes and inside strengths, thus enhancing their chances to
be effective and durable in a fast-changing environment. Environmental
analysis corresponds with all processes that pertain to satisfactory decision
making, strategy formulation and dealing with environmental dynamics.

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 Environmental Analysis and Diagnosis

2.3.1 Purpose of Environmental Analysis Notes

Understanding the external environment makes it possible to examine
numerous factors which could impact the success and even the survival
of any entity’s business. It is important for students of management to
note that this analysis has the following major functions:
1. Identifying Opportunities and Threats: Environmental Analysis
helps in identifying and ascertaining growth opportunities outside
the organization and threats which could hamper progress. Such
knowledge facilitates organizations in devising methods that exploit
the opportunities while working around the threats.
2. Driving the Integrative Planning Process: A firm can determine its
strategic direction by considering the market factors together with
domestic factors. This strategy for example ensures that company
strategy is appropriate for the resources available and the environment
in which it finds itself at any point in time and so increases the
chances of success.
3. Finding Opportunities in the External Environment: The comprehension
of the external environment provides businesses with insight into
future changes within the market and evolution of customer needs
and demands. With this knowledge, businesses can effectively
reposition their goods, services, and strategies to the marketplace
more favorable than their competition.
4. Use of Resources: Environmental analysis enables organizations to
meet their objectives while achieving maximum efficiency in resource
use. By spotting areas of potential growth or problems, the business
can focus investment on the most promising or critical areas.
5. Strengthening Decision-Making: The elaborated environmental assessment
serves as a great starting point for decision making. It gives the
managers the necessary information that lets them know the factors
that are present and their impacts for the decision to be made.
6. Ascertaining that the Company remains Competitive: Companies
are able to study and keep track of shifts in the environment which
ensures that they remain relevant. This, in the long term, forms
and builds a competitive edge for the company and also ensures
continuity of operations.

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 BUSINESS STRATEGIES

Notes In general, the aim of environmental analysis is to help business organi-

zations comprehend and address the dynamics of their environment during
the strategy-making process and ensure that they prosper in the long run.

2.3.2 Types of Environments: Internal and External

In environmental analysis, it is crucial to distinguish between internal
and external environments, as both play significant roles in shaping an
organization’s strategy and operations.
Internal Environment: The internal environment encompasses elements
within the organization that can impact its ability to meet its objectives.
These elements are in most cases the variables in which the organization
has control over them and these are:
1. Resources: This encompasses the financial, human, and physical
assets that the organization possesses. Effective management and
utilization of these resources are essential for operational efficiency
and competitive advantage.
2. Capabilities: Such skills and competencies which an organization
can bank on in order to be effective in carrying out its activities.
This includes technical expertise, managerial skills and innovative
capabilities.
3. Organizational Culture: The principles, beliefs, and norms that
guide employees and their behaviors and attitudes while in the
organization. If organizational culture of a company is strong and
positive, then it is highly likely, that staff members are motivated,
productive, and contribute to team effectiveness.
4. Structure: Elements relating to organization of hierarchy including
distribution of duties, functions and flow of information. Structural
arrangement enhances culture of quick decision, procedures and
people coordination.
External Environment: This contains elements which are located outside
any organization but are capable of determining the level of performance
of that organization, in most instances with the organization not being
able to exercise any direct control over those elements. PESTEL is one
of the frameworks that are used to analyze these aspects. These are some
of the major external surrounding factors:

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 Environmental Analysis and Diagnosis

1. Political Factors: Policies, laws, and government regulations which Notes

bear on the business. This covers taxation with respect to policies
on tax, restrictions on trading and the political environment itself.
2. Economic Factors: A situation or a factor that relates to the growth
and development of the economy and the manner in which its citizens
are able to spend the money and how much spending there is per
citizen. Main indicators include economic inflation rates, levels of
employment opportunities and that of growth in economy.
3. Social Factors: Elements related to peoples’ or consumers’ buying
tendencies because of the various changes in society including
fashions, customs and traditions. This includes alteration in the
population composition and distribution of various segments in the
market, changes in lifestyle of people, and some trends in social
values that are changing or being replaced by others.
4. Technological Factors: Technological development can create potential
or problems for the current goods or the services. These cover
innovation, new product and service designs, and the development
time or rate itself.
5. Environmental Factors: Environmental aspects like global warming,
sustainable development, and other ecological constraints which affect
business’s activities and encourage corporate social responsibility
matters.
6. Legal Factors: The legal aspects of conducting business which
includes aspects such as laws on employment, safeguarding the
consumer, as well as health and safety legislation.
In order to create sufficient strategy involved in the business, both inter-
nal and external factors must be taken into account. Internal assessment
determines what the strengths of an organization are and what areas
require improvement. External assessment finds the chances available in
the market and possible risks. Folding these assessments together enables
organizations to adjust their strategies to their internal resources and the
external environment, enhancing their performance and competitive edge.

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Notes
2.4 Analysis of Company’s External Environment
Assessing the external environment and how it affects the company is vital
for assessing the company’s success and the direction in which it wants to
pursue. External environment refers to all the outside forces and conditions
that can have an impact on the performance of the company but are not
within its domain or the control of the organization. These contribute to
the Political, Economic, Social, Technological, Environmental and Legal
(PESTEL) factors. By integrating and by evaluating the systematic external
factors, companies can also find ways to expand and discern risks that need
to be dealt with. This assessment assists organizations in being ahead of
change and in evolving, selecting suitable changes alongside the external
environment and in restructuring the planned processes. Finally, the thorough
external environment examination provides ways in which the organizations
can build viable strategies that will give them competitive advantage and
also help them maintain the competitiveness for a lengthy period of time.

2.4.1 Tools for External Analysis

Analyzing a company’s external environment necessitates the application
of various tools and frameworks to systematically assess the factors that
can impact its performance. These tools help organizations identify op-
portunities and challenges present in the external environment, enabling
them to make informed strategic decisions. Table 2.1 summarizes the key
tools for external analysis, their definitions, purposes, and applications.

Table 2.1: Primary Tools for External Analysis

S. No. Tool Definition Purpose Application
1 PESTEL A strategic tool used Enables organizations Companies can use
Analysis to identify and analyze to understand mac- PESTEL analysis
the Political, Econom- ro-environmental fac- to monitor external
ic, Social, Technolog- tors that could impact shifts and adjust their
ical, Environmental, operations and strategy. strategies accordingly.
and Legal factors af-
fecting an organization.
2 Porter’s A framework for ana- Helps organizations Businesses can apply
5 Forces lyzing competitive forc- understand the com- Porter’s 5 Forces to
Model es within an industry petitive landscape and evaluate industry dy-
and assessing the in- factors influencing in- namics and develop
tensity of competition. dustry profitability. strategies to enhance
profitability.

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S. No. Tool Definition Purpose Application Notes

3 SWOT A strategic tool used Provides a holistic Organizations can uti-
Analysis to identify an orga- view of internal and lize SWOT analysis to
nization’s Strengths, external factors influ- align their strategies
Weaknesses, Oppor- encing strategic deci- with both internal ca-
tunities, and Threats. sion-making. pabilities and external
conditions.
4 Scenario Involves creating sce- Helps organizations Companies can use
Planning narios based on possi- prepare for various scenario planning to
ble future shifts in the potential futures, en- test the robustness of
external environment hancing their ability their strategies against
and assessing their to respond to uncer- different external con-
impact. tainties. ditions.
5 Bench- The practice of evalu- Highlights areas need- Businesses can em-
marking ating an organization’s ing improvement and ploy benchmarking
performance and meth- assists organizations to set performance
ods by measuring them in implementing best standards and identify
against competitors or practices to boost per- strategies for compet-
top industry players. formance. itive advantage.
6 Competitor Involves assessing the Helps organizations Organizations can use
Analysis strengths and weak- understand their com- competitor analysis to
nesses of current and petitive position and identify key compet-
prospective compet- develop strategies to itors, analyze their
itors. outperform rivals. strategies, and antic-
ipate their actions.

Utilizing these tools enables organizations to thoroughly grasp the exter-

nal factors impacting their operations. This knowledge enables them to
develop strategic responses that leverage opportunities, mitigate threats,
and enhance their competitive advantage in the marketplace.

2.4.2 PESTEL Analysis (Political, Economic, Social, Technological,

Environmental, Legal)
PESTEL Analysis is a strategic tool used to identify and analyze the key
external factors that can influence an organization. It represents for Political,
Economic, Social, Technological, Environmental, and Legal factors. This
framework assists businesses in understanding the broader environment in
which they operate and anticipate changes that could impact their strategies
and operations. Refer to Figure 2.1 for PESTEL Analysis framework. Table
2.2 provides a structured overview of the main components within each
PESTEL category, offering definitions and key considerations.

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 BUSINESS STRATEGIES

Notes

Economic

Political Social

PESTEL

Legal Technological

Environmental

Figure 2.1: PESTEL Analysis Framework

(Source: https://www.edrawmax.com/pestel-analysis/)

Table 2.2: Key Components of PESTEL Analysis

Key Components of
PESTEL Analysis Description
Economic Factors Economic conditions that influence organizational performance.
Key aspects include:
Key Aspects to Economic Growth Rates: Growth rates impact consumer
� 
Consider spending, investment opportunities, and business expansion.
Inflation Rates: High inflation reduces purchasing power,
� 

whereas low inflation helps stabilize prices and consumer

spending.
Interest Rates: Affects borrowing costs, investment deci-
� 

sions, and consumer spending.

Exchange Rates: Changes in exchange rates impact inter-
� 

national trade, costs of exports/imports, and profitability

for global companies.
Unemployment Levels: High unemployment reduces con-
� 

sumer spending, while low unemployment may lead to labor

shortages and higher wages.

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 Environmental Analysis and Diagnosis

Social Factors Societal trends and cultural norms influencing consumer be- Notes
havior and business practices. Key aspects include:
Key Aspects to Demographic Changes: Age distribution, population growth,
� 
Consider and migration patterns impact demand and workforce availability.
Cultural Norms and Values: Societal beliefs and values
� 

shape consumer preferences and product acceptance.

Lifestyle Changes: Shifts in lifestyle, such as health awareness
� 

or digital adoption, create new opportunities and challenges.

Education Levels: Higher education can lead to a skilled
� 

workforce and influence consumer sophistication.

Health and Safety Awareness: Rising awareness impacts
� 

product development and workplace practices.

Technological Innovations and advancements that shape operations and com-
Factors petitive positioning. Key aspects include:
Key Aspects to Technological Advancements: New technologies drive
� 
Consider product creation, operational improvements, and efficiency.
R esearch and Development (R&D): Investing in R&D
� 

fosters innovation and differentiation.

Automation and Digital Transformation: Boosts produc-
� 

tivity, reduces costs, and streamlines processes.

Technological Infrastructure: Quality of infrastructure, like
� 

internet and mobile networks, supports business activities.

Pace of Technological Change: Rapid changes present both
� 

opportunities and challenges for innovation.

Environmental Ecological and environmental elements impacting operations
Factors and sustainability commitments. Key aspects include:
Key Aspects to Climate Change: Affects resource availability, operational
� 
Consider costs, and regulatory compliance.
Sustainability Practices: Emphasis on environmental respon-
� 

sibility shapes consumer preferences and business practices.

Natural Disasters: Events like earthquakes and floods can
� 

disrupt supply chains and operations.

Environmental Regulations: Compliance affects operational
� 

practices and costs.

Resource Availability: Availability of resources, like water
� 

and minerals, influences production processes.

Legal Factors Legal and regulatory requirements that guide ethical and legal
business operations. Key aspects include:
Key Aspects to Consumer Protection Laws: Safeguards consumer rights,
� 
Consider such as product safety and fair-trading practices.
Employment Laws: Governs employment rights, discrim-
� 

ination, and workplace safety.

Health and Safety Regulations: Ensures safety for em-
� 

ployees and customers.

Intellectual Property Laws: Protects patents, trademarks,
� 

copyrights, and trade secrets.

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 BUSINESS STRATEGIES

Notes Through PESTEL analysis, businesses can thoroughly comprehend the

external factors that might impact their operations and strategic choices.
This proactive method enables organizations to foresee changes, adjust
their strategies, and sustain a competitive advantage in the market.

2.5 Michael E. Porter’s 5 Forces Model

Porter’s Five Forces Model, created by Michael E. Porter, offers a
structured approach to examine the competitive forces at play within an
industry. This model is crucial for understanding the factors that define
the competitive landscape and affect a company’s capacity to maintain
profitability. By evaluating the five key forces outlined by Porter, busi-
nesses can gain a thorough insight into their industry’s framework, identify
potential opportunities, and anticipate possible threats.

2.5.1 Components of the 5 Forces Model

The main objective of Porter’s 5 Forces Model is to assist businesses
in evaluating the level of competition and the potential for profitability
within an industry (Refer to Figure 2.2). Each of the five forces high-
lights a distinct aspect of competition, and collectively, they shape the
competitive landscape. By examining these forces, companies can pin-
point areas where they can achieve a competitive advantage and devise
strategies to minimize potential risks. Table 2.3 summarizes the core
elements of Porter’s Five Forces framework, highlighting how each force
can influence industry competitiveness and profitability.

Figure 2.2: Porter’s 5 Forces Model

(Source: https://consulterce.com/wp-content/uploads/2021/01/5-forces-framework-detail.png)
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 Environmental Analysis and Diagnosis

Table 2.3: Core Elements of Porter’s Five Forces Framework Notes

Implications for
Force Description Profitability
Threat of New The probability of new companies en- High barriers protect estab-
Entrants tering an industry depends on several lished firms, while low barri-
factors, such as significant capital re- ers increase competition and
quirements, economies of scale, strong reduce profitability.
brand loyalty, availability of distribution
networks, and regulatory hurdles.
Bargaining Power Suppliers’ ability to impact the cost and Strong supplier power can
of Suppliers quality of inputs is greater when there lead to higher input costs,
are few suppliers, when the supplier’s reducing profitability.
product is unique or essential, or when
switching costs are high.
Bargaining Power Customers’ influence over pricing and Strong buyer power can pres-
of Buyers terms is stronger when there are few sure companies to reduce
buyers, they purchase in large volumes, prices or enhance product
alternatives are available, or switching quality, which can affect
costs are low. profitability.
Threat of Substi- The likelihood that customers might The availability of substitutes
tute Products or choose alternative products or services can reduce pricing flexibility,
Services that meet similar needs depends on driving consumers toward more
the availability of substitutes and their affordable or superior options,
balance of price and performance. which impacts profitability.
Industry Rivalry The level of competition among existing High rivalry can result in price
firms is affected by factors like the wars, increased marketing
number of competitors, slow indus- costs, and lower profitability.
try growth, high fixed costs, minimal
product differentiation, and significant
exit barriers.

Understanding these forces helps businesses not only to identify the

strength and weaknesses in their industry but also to formulate strategies
that capitalize on opportunities and defend against threats. For instance,
a company may concentrate on strengthening customer relationships to
lessen buyers’ bargaining power or invest in innovation to diminish the
threat of substitutes.
In summary, Porter’s 5 Forces Model is a vital tool for strategic man-
agement. By providing a clear picture of the competitive pressures in an
industry, it enables businesses to develop strategies that enhance their
competitive position and ensure long-term profitability. This comprehensive
analysis is crucial for making informed strategic decisions in a dynamic
and constantly evolving business environment.
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Notes 2.5.2 Application of Porter’s 5 Forces Model

Applying Porter’s 5 Forces Model involves systematically evaluating
each of the five competitive forces to comprehend their influence on an
industry and a company’s standing within it. This analysis offers valuable
insights that assist businesses in crafting strategies to strengthen their
competitive edge and achieve sustained profitability. Table 2.4 summarizes
the evaluation and strategy development for each force:

Table 2.4: Application of Porter’s 5 Forces Model

S. No. Force Evaluation Strategy Development
1 Threat of New Assess barriers to entry, con- Strengthen brand loyalty,
Entrants sidering factors like capital leverage economies of scale,
needs, regulatory hurdles, and create high switching
brand loyalty, economies of costs to deter new entrants.
scale, and distribution access. Invest in technology and in-
novation to build barriers.
2 Bargaining Pow- Examine the number and Diversify the supplier base,
er of Suppliers concentration of suppliers, develop long-term supplier
product/service distinctive- relationships, and explore
ness, their significance to the backward integration. Ne-
business, and switching costs. gotiate long-term contracts
with multiple suppliers.
3 Bargaining Pow- Analyze buyer concentra- Increase customer loyalty,
er of Buyers tion, their significance to differentiate products, and
the business, availability of reduce switching costs. Im-
substitutes, and switching plement superior customer
costs for buyers. service, loyalty programs,
and unique product features.
4 Threat of Sub- Identify potential substi- Focus on innovation, en-
stitutes tutes, considering compara- hance product quality, and
tive price, performance, and boost customer satisfaction.
the likelihood of customer Allocate resources to R&D
switching. to stay ahead of potential
substitutes.
5 Industry Rivalry Evaluate competition by an- Create a strong brand iden-
alyzing the number of com- tity, differentiate products,
petitors, the industry’s growth and optimize cost structures.
rate, product uniqueness, and Consider strategic alliances,
the barriers to exiting the mergers, acquisitions, or joint
market. ventures.

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Implementing the Analysis: Notes

Step-by-Step Process:
1. Demographic Information: Conduct survey and domestic markets
studies, market and industry research, as well as competitive
intelligence to secure the five forces data in particular.
2. Force Assessment: Examine each of these forces in terms of how
critical it is to the industry and the company and also determine
the key drivers for the industry or the company.
3. Analytical Findings: Derive the findings from the analysis. Analyze
in particular what the company should do well to take advantage
of its strengths and opportunities to offset threats and weaknesses.
4. Business Strategy: Conclusion based on the findings and develop
guideline strategies. These strategies will seek to enhance competitive
advantage and favorably position the company within the industry.
5. Implementation: The strategies are evaluated and implemented with
respect to the organizational action plans, timelines and resource
allocation methods.
6. Monitoring Evaluation: Continuously monitor the industry dynamics
and the effectiveness of the strategies. Adjust the strategies as needed
to respond to changes in the competitive landscape.
When businesses strategically apply Porter’s 5 Forces Model, they can
better understand the competitive forces that are at play within the in-
dustry which would form a basis when they are crafting strategies that
will enable them to be more competitive within the market.

2.6 Internal Analysis

Internal analysis deals with analyzing the internal structure of the entity in
identifying its strengths and weaknesses including resources, capabilities
and core competencies. Through a thorough internal analysis, firms are
able to isolate their strengths, weaknesses and come up with strategies
that fit their resources and capabilities.
Definition: Internal analysis is an integral part of an organisation’s strategy
formulation because it helps in examining the internal environment of the

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Notes organisation to identify those resources, capabilities and core competen-

cies that are strategically important. This analysis allows organizations
to know their internal strengths and weaknesses and how these variables
would interface in achieving strategic objective.
Importance: Internal analysis is critical for a number of reasons:
‹ Resource Allocation: Helps organizations to identify critically the
strong and weak areas for appropriate resources to be allocated.
‹ Strategic Alignment: Aligns the strategies that the organization
has to its internal resources and strengths.
‹ Competitive Advantage: Identifies the unique advantages and
specific core competencies that can be leveraged to gain an edge
over the competition.
‹ Performance Enhancement: Highlight specific weaknesses that
require attention to improve the level of performance.

2.6.1 Tools for Internal Analysis

Conducting an internal analysis is vital for knowing a firm’s strengths,
weaknesses, and the capabilities they possess. In order to conduct an ex-
haustive internal analysis, a firm employs various tools and frameworks
aimed at assessing its resource bases capabilities and processes. These
tools assist organizations in recognizing their investment strengths and
weaknesses, which gives a solid basis for strategic planning. Through the
application of these tools, businesses will comprehend their competitive
advantages, measure their competitiveness, and plan strategies to exploit
their strengths and minimize weaknesses. The next part addresses some
common frameworks that are most popular in carrying out internal ap-
praisals with particular emphasis on their diverse approaches towards the
improvement of the internal environment.

2.6.1.1 SWOT Analysis (Strengths, Weaknesses, Opportunities, Threats)

The SWOT Analysis is one of the most popular operational tools in
strategic planning. This instrument helps assess internal strengths and
weaknesses of the firm in conjunction with external opportunities and
threats. This method gives an organization a better view of the factors that

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would enhance or constrain its performance. Recognizing these elements Notes

allows firms to create plans that utilize their strengths and resources,
improve weaknesses, pursue advantageous situations, and defend against
any threats. These cases are well illustrated in Figure 2.3 where detailed
explanations of an SWOT Analysis are presented.

Figure 2.3: SWOT Analysis Examples

(Source: https://assets.asana.biz/m/455e5a7ab2f7e0c/original/inline-project-
management-SWOT-analysis-4-2x.png)
1. Strengths: These are the resources owned by the firm which provide
the competitive edge over the other organization Example These are
the positive factors which could be utilized by the firm in order to
achieve its goals and objectives as well as beat the competitors.
Key Aspects to Consider:
‹ Core Competencies: In what areas does the Organization outperform
its rivals? It may be in the ability to employ technology, a
competent labor force, or producing creative products.

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Notes ‹ Resources: What is that an organization has which is distinct?

For instance, it may include adequate financial resources, brand
recognition, or patents and trademarks.
‹ Market Position: How strong is the organization’s market
strength? Some important strengths may include a good brand,
existing customers, or good channels of distribution.
‹ Operational Efficiency: Are there any activities which increase
the volume of production and decrease the cost of producing?
For instance, Efficient supply chains, Improved Manufacturing
Processes or Lean Management.
Examples:
‹ A company offering distinguished goods, which are well known
and are reputable in the market.
‹ New technologies and owned products the company holds, which
cannot be made by competitors.
‹ A company is cash rich and owing minimal debts.
‹ A company having proficient management of logistics and supply
chain, which minimizes the costs and enhances delivery of goods.
2. Weaknesses: The internal attributes of an organization that at the
same time impede its competitive advantage over its peers in the
industry are termed weakness. These are elements or components
of the organization that require development or diminishes capacity
of the organization to compete favourably.
Key Aspects to Consider:
‹ Operational Inefficiencies: Such Areas exist in Organization
where productivity or control of costs is a problem. Considerable
production costs as well as obsolete technology may rank as
considerable weaknesses.
‹ Resource Gaps: Does the organization in question have very
important resources or capabilities It could be low level of capital,
poor R&D capability, or no skilled personnel.

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‹ Market Perception: Are there any blemishes on the organization Notes

standing in the market place or customer retention rate that need
to be addressed?
‹ Product or Service Limitations: Are the organization’s products
or services in terms of quality or features or innovation advanced
or more sophisticated than those available from the competition.
Examples:
‹ A weak brand that lacks recognition and loyalty among customers.
‹ High employee turnover, leading to increased training costs and
loss of expertise.
‹ Dependence on a limited number of suppliers, creating vulnerability
in the supply chain.
‹ Outdated technology or lack of innovation in product development.
3. Opportunities: Opportunities are setting attributes that an organization
may utilize in its advantage. Those positive situations in the environment
can greatly support the organization in achieving the set goals.
Key Aspects to Consider:
‹ Market Trends: Are there emerging market trends that the
organization can take advantage of? These members may include
changing consumer, new technologies, or regulatory changes.
‹ Expansion Possibilities: Is it possible for the organization
to increase its number of the firm’s products, open up new
geographical areas of markets, or establish joint ventures?
‹ Economic Conditions: Are there economic conditions the organization
can use to its advantages for instance low interests rates, increased
consumer expenditures, or electron tariff rate quotas?
‹ Competitive Landscape: Are there any areas where the company
can take advantage of in the strategic analysis of the competition?
This could involve a competitor exiting the market or a decline
in a competitor’s product quality.

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Notes Examples:
‹ Increased requirement for green offerings, that the company can
satisfy with its environmentally sustainable product range.
‹ Prospects of expanding in new geographical areas with better
growth rate.
‹ The opportunity to purchase smaller industry players to gain control
of the markets and increase levels of competition in the industry.
‹ New technological developments allowing to create new products/
services.
4. Threats: Threats are outside factors that can adversely affect the
organization’s operations or market position. These are challenges
in the environment within which the company operates that the
organization has to address or mitigate.’
Key Aspects to Consider:
‹ Competitive Pressures: Are there potential replacements or
market entrants who are such a threat that it poses a major risk?
This can involve low pricing strategies, new product offerings
or patents of a new technology.
‹ Economic Challenges: Is the organization able to withstand a
recession or increased inflationary pressures that can reduce the
company’s sales or profit.
‹ Regulatory Changes: Are there new or revised laws which are
expected to emerge that might bear significantly on company’s
overheads or not allow the company to be viable in the market?
‹ Technological Disruptions: Are there substitutes that are around
the corners, which could possibly replace or reduce competitiveness
of the organizations offering?
Examples:
‹ Competitive edge of low-cost producers from Asia and other
emerging markets.
‹ An economic recession will mean that consumers have less
money to spend which will result in a decreased supply for the
organization’s products.

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‹ New laws or changes in existing laws that make it more costly Notes
to conduct business or may limit the level of participation in the
marketplace.
‹ Business enterprise are not able to cope with the changes in
technology because such changes take place more speedily than
the pace at which the enterprise is able to undergo innovation.
Application of SWOT Analysis
Strategic Planning:
‹ Leverage Strengths: Identify the strengths and use these to exploit
the opportunities. In other words, a strong brand could be used to
launch new products in a growing market.
‹ Address Weaknesses: Formulate programs, strategies or plans to
reduce or improve the weaknesses identified. This may concern
provision of modern machines, efficiency in operations, or training
programs for employees.
‹ Capitalize on Opportunities: Identify and rank opportunities which
are congruent or consistent with the strengths of the organization
as well as goals of the organization. This can include expansion
into new regions, building of new relations on existing markets, or
creating of new products.
‹ Mitigate Threats: Estimate and develop practical measures to
minimize the risk posed by the threats. In this case it can mean
expanding the number of suppliers, increasing investments into new
inventions, and lobbying appropriate bills in Parliament.
Looking at such four aspects methodically enables the business to make
good judgment, set priorities as to where to succeed and in which areas
to assign resources. Similarly, SWOT analysis facilitates a proactive
style of managing strategy, helps organizations to foresee problems and
be ready to compete.

2.6.1.2 Resource-Based View (RBV)

The Resource-Based View (RBV) is a strategic management framework
that highlights a firm’s internal resources and capabilities as the primary
source of competitive advantage. This is unlike the models that are cen-
tered on the influence of external aspects. According to RBV, resources

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Notes and capabilities are firm’s distinctive features, which help the firm in a
competition and in retaining long-term market position. According to the
Resource-Based View, resources which are valuable, rare, inimitable and
non-substitutable (VRIN), provide a sustainable competitive advantage.
The concept of resource-based view theory is first brought forward by
Jay Barney in his article titled “Firm Resources and Sustained Compet-
itive Advantage” in 1991 Journal of Management. It was in this work
that Barney began to articulate finer details of advantages resources can
provide, notably the internal resources and capabilities of a firm. In the
hierarchical structure of priorities, the theory of VRIN resources was quite
important to Barney, and today it is one of the key stresses in studies of
strategic management.

Key Concepts of RBV

1. Resources: Resources include the assets, capabilities, processes,
information and knowledge that an organization controls. These
resources can be either tangible such as assets in the form of
machinery and technology, or intangible for instance, brand reputation,
patents and culture.
‹ Types of Resources:
‹ Tangible Resources: These Assets include buildings, equipment,
inventories, and cash, which are physical in nature, such as
funds held in a bank.
‹ Intangible Resources: These assets include similar things
such as the company’s reputation, Intellectual property, the
customer’s trust in the business, and the brand equity.
2. Capabilities: Having the skill to use the resources at hand rationally
to help the organization reach its targets according to what the firm
is compatible with is in itself a capability. These are over-arching
processes and routines of how resources are put into action and
evidence of the organization’s experience, knowledge and skills.
‹ Example: A company is said to have the capability to innovate,
because of its R&D processes, coupled with its human (engineers
and scientists) and technological resources.

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3. VRIN Framework Notes

‹ Valuable: Valuable Resources and capabilities are useful if they
help the organization utilize available opportunities or reduce
threats against it.
‹ Rare: There should be a scarcity of these resources as the
availability of these resources will be high in demand and most
of the competitors won’t have access to those resources.
‹ Inimitable: This is the level that argues that unique historical
circumstances or complex social relations, or causal ambiguity
mean that resources cannot be replicated by the competitors.
‹ Non-substitutable: Strategic management of a resource or a
capability should not have second best substitutes.
Example of RBV Application
Let us consider Tanishq, it is an example of a strong Indian jewelry brand.
The brand equity of the company, design innovations and high concentra-
tion on retail business operations are the resources of the firm. Using the
above defined RBV framework, these resources are appraised as follows:
‹ Valuable: Strong brand equity cannot be independent of Tanishq’s
trusted name which in turn helps to employ high pricing and sustain
many customers hence providing a lot of value.
‹ Rare: The fact that there are not a number of jewel brands that
consumers in India are so conversant with and trust makes this
resource rare.
‹ Inimitable: The brand’s perspective about Indian art forms blended
with their successful models and great designs which are well
implemented by craftsmen of the company makes it impossible to
others to imitate.
‹ Non-substitutable: No other resource can supersede the power that
Tanishq’s brand has over customer and market term on the brand
loyalty.
Taking in consideration the above resources, Tanishq brand ensures its
competitive advantage over other brands in jewelry in India.

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Notes 2.6.1.3 Examples of Applying the Resource-Based View (RBV) Framework

across Various Industries
Here are a few more examples of applying the Resource-Based View
(RBV) framework across different industries. Table 2.5 serves as a clear
summary of how the Resource-Based View (RBV) framework can be
applied in various industries to gain a competitive edge.

Table 2.5: Application of the Resource-Based View (RBV)

Framework across Various Industries
Key Resources and Competitive Advan-
Example Capabilities VRIN Analysis tage
Google (Technol- Search Algorithm: Valuable: Dominates Maintains leadership
ogy Industry) Proprietary, valuable, the search engine mar- in online search and
rare, and inimitable. ket, generating signif- advertising.
Brand Equity: Rec- icant revenue.
ognized and trusted Rare: Few companies
globally. possess similar tech-
Data Centers and In- nology.
frastructure: Techno- Inimitable: Complex
logical advantage. and continuously re-
Human Capital: Top fined.
talent in engineering, Non-substitutable: No
data science, and AI. equivalent technology
for accuracy and speed.
Coca-Cola (Bev- Brand Reputation: Valuable: Drives cus- Dominates the glob-
erage Industry) Globally recognized, tomer loyalty, supports al soft drink market,
associated with quality premium pricing. ensuring long-term
and tradition. Rare: Few brands have profitability and lead-
S e c re t F o r m u l a : similar global recog- ership.
Closely guarded trade nition.
secret. Inimitable: Brand eq-
Distribution Net- uity and secret for-
work: Extensive glob- mula are difficult to
al reach. replicate.
Marketing Expertise: Non-substitutable:
Iconic campaigns with No other brand fully
deep emotional con- substitutes its market
nections. position and loyalty.

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Key Resources and Competitive Advan- Notes

Example Capabilities VRIN Analysis tage
Apple Inc. (Con- Product Design: Dif- Valuable: Unique Commands significant
sumer Electronics ferentiates products. customer experience market share in the
Industry) Brand Loyalty: driving sales and prof- premium segment,
Strong customer base. itability. maintaining strong
Ecosystem: Integrated Rare: Few companies profitability and cus-
products and services. match Apple’s design, tomer retention.
Retail Stores: Enhanc- loyalty, and ecosystem.
es customer experience Inimitable: Brand loy-
and direct sales. alty and ecosystem,
built over years, are
hard to replicate.
Non-substitutable:
Competitors offer simi-
lar products, but not the
integrated experience.
Toyota (Automo- Lean Manufacturing Valuable: Reduces Maintains position as
tive Industry) System: TPS known costs, improves prod- a leading automotive
for efficiency and uct quality, providing manufacturer, recog-
quality. a competitive edge. nized for quality, inno-
Brand Reputation: Rare: Toyota’s TPS re- vation, and reliability.
Reliable and durable mains the benchmark
vehicles. for efficiency.
R&D Capabilities: Inimitable: TPS is
Investment in hybrid deeply embedded in
and electric vehicles. Toyota’s culture and
Global Supply Chain: processes.
Robust, supporting Non-substitutable:
global operations. Efficiency, quality, and
reliability provided by
TPS are unmatched by
other systems.

The VRIO Framework is another strategy tool that falls within the Resource
Based View (RBV) of strategic management regarding the evaluation of
the internal resources and capabilities of an organization. Satisfactory
resources that are considered important will be assessed on the frame-
work’s ability to provide a sustained competitive advantage. The VRIO
model’s four criteria include Value, Rarity, Imitability, and Organization
which are used to assess the different forms of resources and capabilities.
(Refer to Figure 2.4 for VRIO Framework)

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Notes Value: A resource or capability is said to be valuable if it assists the

organization in harnessing external opportunities or minimizes the effect
of threats. It is necessary to emphasize that such valuable resources are
crucial in enhancing the efficiency and the effectiveness of the organization
and thereby assist the organization to improve its competitive position in
the market, or lower the costs incurred.
Example: An example in this case would be a very effective supply
chain such that it increases delivery speed and reduces cost estimates in
production.
Rarity: A resource is rare if it is not widely possessed by current or
potential competitors. If a resource is indeed common, it might assist
the firm to attain competitive parity but collaborates with no competitive
advantage. A rare resource is a type of the resource that has not only
been used but is only very few of it in the industry.
Example: Would be classified as scarce if a technology is patented such
that it’s possible for a firm to develop a distinctive product which cannot
be reproduced by rivals.

Figure 2.4: VRIO Framework

(Source: https://www.qualitygurus.com/vrio-analysis-a-tool-for-strategic-
business-planning/)

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Imitability: A resource is considered inimitable if it is challenging or Notes

expensive for competitors to replicate. Imitability can be affected by
factors such as unique historical circumstances and social complexity
(resources linked to the company culture or human relationships).
Example: It is not easy for competitors to steal a well-built brand with
loyal customers for so many years.
Organization: Organization refers to a company’s capacity to efficiently
arrange and utilize its resources and capabilities to maximize their value.
Even when a resource is valuable, rare and inimitable the firm should be
configured to make the best use of it, and this means having the right
processes, systems and culture in place.
Example: An effective firm would be one with a well-defined architectural
structure on innovation and procedures on how new products would be
developed in an ideal setting so that its R&D assets are effectively utilized.

Application of the VRIO Framework

To apply the VRIO framework, a company should analyze its key re-
sources and capabilities by asking the following questions:
1. Is the Resource Valuable?
‹ Does the resource allow the firm to capitalize on opportunities
or protect against threats?
‹ Does it contribute to improving efficiency, reducing costs, or
enhancing customer value?
2. Is the Resource Rare?
‹ Is the resource controlled by a few or no other competitors?
‹ Does it provide the firm with a unique position in the market?
3. Is the Resource Inimitable?
‹ Is the resource difficult or costly for competitors to imitate?
‹ Are there barriers that prevent other firms from acquiring or
developing this resource?
4. Can the Organization Effectively Utilize the Resource?
‹ Does the firm have the necessary processes, systems, and culture
to fully utilize the resource?
‹ Is the firm structured in a way that maximizes the potential of
its valuable, rare, and inimitable resources?
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Notes Nevertheless, if any particular resources or capabilities fail to meet any of

these standards, the firm in question might need to intensify its existing
resources or look for new resources in order to achieve and sustain an
edge over its competitors.

2.7 Organizational Capabilities, Competitive Advantage,

and Core Competence
A firm’s ability to understand its internal core competencies and leverage
them in order to be successful is crucial in strategic management. Three
closely related terms – organizational capabilities, competitive advantage,
core competencies – are critical to any firm’s ability to outperform its
competitors and sustain the success over time.
Organizational capabilities are the several resources the company brings
to the overall organizational goal. They include processes, skills, and
know-how that allow the firm to strategize on how to make and offer
customers greater value.
In a competitive market, a competitive advantage differentiates a firm
such that it adds greater value than its rivals, it can be in the form of
various competitive edge factors such as marketing, sales strategies, or
being a first mover in a market. Having a competitive edge is highly
important since it facilitates profit accumulation as well as the retention
of a company’s standing in the marketplace.
Core competencies are central unifying factors which binds together the
various elements of the strategy and which are critical for a firm’s ability
to leverage on value creation. Such competencies are highly embedded
into the company, thus the rivals are unable to compete on them. They
tend to form the basis of the firm’s competitive advantage and are usu-
ally integrated with expansion strategies into new markets, new product
developments and maintaining the competitive advantage.
This section studies the relationship between organizational capabilities,
competitive advantage and core competencies, especially in relation to
the strategic success of the firm. The comprehension of these concepts
helps companies in identifying and utilizing their internal strengths in
developing and maintaining the market competitiveness.

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2.7.1 Identifying and Developing Organizational Capabilities Notes

Organizational capabilities are joint abilities that consist of people’s
skills, expertise and knowledge which enables an organization to deploy
its resources in pursuit of its strategic goals. These capabilities allow an
organization to provide more value for the customer, encourage creative
thinking, and be responsive to current market conditions. These capabil-
ities are of great importance as they form the basis of the competitive
advantage. Moreover, this activity of recognizing and development of
such organizational capabilities is a continuous process and requires time
and resources on a regular basis. By periodically deploying such factors
and capabilities to improvement, a company is in a better position of
building a lasting competitive edge in the marketplace and thriving in a
fast-paced business environment. Table 2.6 assists develop a framework
for diagnosing and testing organizational capabilities. Table 2.7 presents
steps to review and strengthen and improve organizational capabilities.

Table 2.6: Steps for Identifying Organizational Capabilities

Step Description
Assessing Core Analyze core activities crucial to product or service
Activities delivery, such as product development, marketing, cus-
tomer service, and supply chain management. Identify
activities performed exceptionally well compared to
competitors.
Evaluating Re- Examine tangible (e.g., technology, financial assets) and
sources intangible resources (e.g., brand reputation, intellectual
property). Assess how effectively these resources are
utilized and their impact on performance.
Analyzing Pro- Review key processes and systems that facilitate
cesses and Sys- resource use, including supply chain and customer
tems relationship management. Identify unique or highly
efficient processes that are hard for competitors to
replicate.
Employee Skills Assess the skills, knowledge, and expertise of the
and Knowledge workforce. Evaluate how well the organization lever-
ages human capital for innovation, problem-solving,
and adaptation.

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Notes Step Description

B e n c h m a r k i n g Compare the organization’s capabilities with key com-
Against Com- petitors. Identify areas of excellence and opportunities
petitors for improvement. Use benchmarking to highlight unique
or superior capabilities.

Table 2.7: Steps for Developing Organizational Capabilities

Step Description
Investing in Training Enhance employee skills through targeted training programs
and Development and continuous learning. Encourage cross-functional training
for a versatile workforce.
Fostering Innovation Promote a culture of innovation by encouraging creative
problem-solving, investing in R&D, and supporting new
ideas. Establish processes for experimentation and learning
from outcomes.
Strengthening Process- Improve key processes and systems to boost efficiency and
es and Systems responsiveness. Implement advanced technologies for better
decision-making and process automation.
Building Strong Lead- Develop leadership at all levels to guide change, set strategic
ership direction, and motivate employees. Align leadership efforts
with organizational core capabilities and objectives.
Collaborating and Net- Form strategic partnerships and networks to access new re-
working sources, knowledge, and capabilities. Use external relationships
to gain industry insights and best practices.
Continuous Improve- Foster a culture of continuous improvement through regular
ment evaluations and refinements. Utilize feedback loops, performance
metrics, and adaptability to remain resilient and responsive.

2.7.2 Competitive Advantage: Definition and Sources

Competitive advantage is defined as the factors or attributes that enable
an organization to surpass its competitors. Such edges have the capability
to ensure the company provides more value to customers while making
more profits than competition. There are many factors of competitive ad-
vantage, that enables the organization to dominate the market in the long
run. However, it is dynamic in nature and involves the use of creativity
and proper planning. Companies need to rethink their position, strength-
en their competitive advantage elements and adjust to new conditions,
providing them with edge over competitors in the industry.
Table 2.8 summarizes the sources of competitive advantage with their
definitions, sources, and examples:
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Table 2.8: Various Sources of Competitive Advantage Notes

Source of Compet-
itive Advantage Definition Sources Example
Cost Leadership Achieving the lowest Economies of scale, Walmart leverages
production or oper- process innovations, low overhead costs
ational costs in the efficient supply chain and an efficient sup-
industry while main- management, access ply chain to offer
taining acceptable to low-cost inputs or competitive prices.
quality standards. resources.
Differentiation Providing products or Unique product fea- Apple Inc. differ-
services that are per- tures, superior qual- entiates itself with
ceived as distinctive ity, exceptional cus- innovative product
or superior compared tomer service, brand design, a seamless
to competitors. reputation, innovative user experience, and
technology. a strong brand.
Innovation Creating new prod- Investment in Re- Tesla’s advance-
ucts, services, or search and Devel- ments in electric
processes that pro- opment (R&D), a vehicles and energy
vide significant value culture of creativity storage systems es-
and differentiate the and experimentation, tablish it as a leader
company from com- strong intellectual in both the automo-
petitors. property protection. tive and clean energy
sectors.
Customer Focus Developing a deep Superior customer Amazon’s focus on
understanding of service, personalized customer service,
customer needs and marketing, Customer fast delivery, and
tailoring products, Relationship Manage- personalized shop-
services, and expe- ment (CRM) systems, ping experiences has
riences to meet those consumer insights. made it a leader in
needs better than com- e-commerce.
petitors.
Brand Equity Building a strong Consistent brand mes- Coca-Cola’s strong
brand that is recog- saging, quality prod- brand equity allows it
nized and trusted by ucts, strong marketing to maintain customer
customers. campaigns, positive loyalty and command
customer experiences. premium prices.
Operational Excel- Excelling in opera- Lean manufacturing To y o t a ’s To y o t a
lence tional efficiency to practices, continu- P r o d u c t i o n S y s-
deliver products and ous improvement tem (TPS) enables
services more effec- programs, advanced high-quality, reliable
tively and at a lower technology, efficient vehicles and cost ef-
cost. supply chain man- ficiencies.
agement.

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Notes 2.7.3 Core Competence: Definition and Importance

Core competence is a unique blend of skills, expertise, and resources
that an organization holds, which is essential to its competitive strength
and success within its industry. These competencies are fundamental to
the company’s operations and strategic approach, forming the basis of its
competitive effectiveness in the marketplace. Often challenging for com-
petitors to replicate, core competencies are key to the company’s ability
to deliver distinctive products or services that fulfill customer needs.
Core Competencies are Typically:
‹ Unique: They differentiate the organization from its competitors
and are not easily replicated.
‹ Valuable: They make a substantial contribution to the customer’s
perceived value of the product or service.
‹ Broadly Applicable: They can be leveraged across different products,
markets, and geographies.
‹ Sustainable: They are built over time and are difficult for competitors
to copy or substitute.
Table 2.9 outlines the key aspects of core competence and its importance
in strategic management.

Table 2.9: Importance of Core Competence

Aspect Description
Foundation for Com- Core competencies are the building blocks of competitive ad-
petitive Advantage vantage, enabling organizations to create standout products and
services that attract and retain customers, command premium
prices, and achieve long-term profitability.
Drives Innovation Core competencies allow organizations to innovate by leverag-
and Growth ing their unique skills and knowledge, leading to new products,
services, and markets, and driving growth while adapting to
market changes.
Enhances Customer By excelling in areas critical to customers, such as quality or
Value service, core competencies directly contribute to perceived cus-
tomer value, fostering loyalty and repeat business.
Supports Strategic Well-developed core competencies provide the flexibility needed
Flexibility to respond to external changes, including new markets, techno-
logical advancements, and shifting customer preferences.
Enables Sustainable Core competencies are challenging for competitors to imitate,
Success providing a lasting source of competitive advantage when con-
sistently nurtured and enhanced.

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Aspect Description Notes

Facilitates Synergy In diversified companies, core competencies can be shared across
Across Business business units to create synergies, leveraging strengths to achieve
Units cost efficiencies and enhance overall performance.

Example of Core Competence: Reliance Industries’

Core Competence: Reliance Core Competence lies in integration and
management of large-scale operations of various industries, extensive
capabilities in refining and petrochemicals oil and innovative solutions
in telecom and retail business expansion.
Importance:
‹ Vertical Integration: One of the key advantages that Reliance
Industries has is that they have built a vertically integrated business
model especially in its petrochemicals and refining. Because of this,
the business is able to attain high levels of efficiency, manage supply
chains, and have an edge over local and international competition.
‹ Refining and Petrochemical Expertise: Reliance operates one of
the largest and most complex refining facilities in Jamnagar, Gujarat
in the world. This capacity not only satisfies a reasonable share
of Indian energy requirements but enables Reliance to sell refined
products around the world due to uniform costs.
‹ Innovation in Telecom and Retail: The entry of Reliance Jio into
the Indian telecom space greatly shifted the focus of the sector
by offering data services at a much lower cost and that increase
internet penetration across the country. This form of innovation
has empowered Reliance Jio to become a dominant player in the
Indian telecom space. Also, Reliance’s retail business expansion
has occurred quite aggressively, ranking it amongst the largest and
fastest growing retail chains in India.
These competencies allow Reliance Industries to sustain its leadership
across various sectors, propel substantial growth, and consistently innovate
to remain ahead of its competitors. The core of competitiveness and su-
premacy of the company in the Indian market revolves around the ability
to integrate the functional operations, innovate and execute large projects.

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Notes
2.8 Michael E. Porter’s Value Chain Analysis
Value Chain Analysis was developed by Michael E. Porter in his book
Competitive Advantage: Creating and Sustaining Superior Performance,
published in 1985 takes into account the value-adding activities of a busi-
ness. This analysis distinguishes between primary activities and support
activities and helps organizations to locate where improvements in cost,
efficiency, and competitive advantage can be made. In pursuance of this
orderly approach, organizations are able to improve their value-adding
activities in order to strengthen their competitive position.
The value chain concept assists firms in doing business by providing a
framework that helps to decompose its activities into several clusters,
each of which defines the processes of value addition (Refer to Figure
2.5) at the firm. The end goal is targeting the optimization of these ac-
tivities and therefore, the firm should be able to offer customers a better
deal than its competitors in terms of lower cost or higher value at any
one point in time.

Figure 2.5: Porter’s Value Chain

(Source: https://www.business-to-you.com/value-chain/)

Value Chain Analysis is crucial for identifying the areas where a company
can achieve cost advantages, improve product differentiation, or enhance
customer satisfaction. By focusing on these activities, businesses can
create more value for customers, leading to increased competitiveness
and profitability.

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2.8.1 Components of Value Chain Notes

The Value Chain formulated by Michael Porter is formed by two broad
categories of activities. These are Primary Activities and Support Ac-
tivities. All of these components are instrumental in the creation of value
to the customer and together they aid a firm in achieving competitive
advantage. Table 2.10 outlines how each type of activity contributes to
a company’s value chain, enabling organizations to optimize operations
and achieve a competitive advantage.

Table 2.10: Primary and Support Activities in Value Chain Analysis

Category Activity Description
Primary Activities
Inbound Logistics Receiving and Storing Activities focused on receiving, storing,
and distributing inputs for the production
process.
Operations Transformation of In- Activities responsible for transforming
puts inputs into the final product.
Outbound Logistics Distribution to Cus- Activities focused on distributing the
tomers finished product to customers.
Marketing and Sales Promotion and Per- Activities aimed at encouraging customers
suasion to purchase the product or service.
Service Post-Sale Support Activities that preserve and improve the
product’s value post-sale, including cus-
tomer support and maintenance.
Support Activities
Firm Infrastructure Organizational Systems Activities concerning the organizational
structure, management, and overall com-
pany systems.
Human Resource Recruitment and Train- Activities related to training, recruiting
Management ing and managing employees.
Technology Devel- R&D and Innovation Research and development, technology
opment innovation, and process improvement.
Procurement Purchasing Inputs Activities related to acquiring raw mate-
rials, supplies, and services.

2.8.2 Application of Value Chain Analysis

Applying Value Chain Analysis entails systematically evaluating each
activity within an organization to uncover opportunities for adding value,
reducing costs, or enhancing differentiation. The ultimate goal is to opti-
mize these activities to improve the organization’s competitive advantage.

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Notes Table 2.11 outlines a systematic approach to applying Value Chain Anal-
ysis for enhancing organizational efficiency and competitive advantage.

Table 2.11: Steps to Apply Value Chain Analysis

Step Description Example
1 Identify the Primary and Support In a manufacturing company, primary
Activities: Map out all primary and activities may include receiving raw
support activities within the organi- materials, producing products, ware-
zation, breaking down operations into housing, and distributing finished goods.
specific processes. Support activities would include HR,
R&D, and financial management.
2 Analyze the Cost Structure: Examine A company might find high costs in
the cost associated with each activity inbound logistics due to inefficient
in the value chain. Determine where supplier relationships or poor inventory
costs are highest and where efficiencies management.
could be introduced.
3 Assess the Value Added by Each A company known for exceptional
Activity: Evaluate how each activity customer service might find significant
contributes to the value recognized by value in after-sales service, suggesting
the customer and determines whether it further investment in customer support
enhances differentiation or satisfaction. systems.
4 Identify Competitive Advantages and A retail company might find a competi-
Weaknesses: Use the analysis to identify tive edge in efficient outbound logistics
activities that support the company’s but weaker marketing activities.
competitive advantage and areas of
weakness or vulnerability.
5 Develop Strategies for Improve- Strategies might include renegotiating
ment: Based on insights, develop with suppliers to reduce costs, invest-
strategies to optimize each activity, ing in new technology, or launching
which might involve reducing costs, targeted marketing campaigns.
improving efficiency, or increasing
differentiation.
6 Integrate Value Chain Activities: En- A company focusing on eco-friend-
sure all activities are well-integrated ly products might align procurement,
and aligned with the company’s overall operations, and marketing to empha-
strategy to enhance the company’s value size sustainability, enhancing brand
proposition. consistency.

Example of Value Chain Analysis Application

Case: Starbucks
Figure 2.6 illustrates the value chain analysis of Starbucks. This analysis
categorizes the company’s operations into primary and support activities,
demonstrating how each segment contributes to the firm’s overall com-
petitive advantage.
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Notes

Figure 2.6: Starbucks Value Chain Analysis

(Source: https://boardmix.com/analysis/starbucks-value-chain/)

‹ Primary Activities:
‹ Inbound Logistics: Starbucks focuses on customer service,
providing a welcoming atmosphere in its stores and offering
customization options for beverages.
‹ Inbound Logistics: Starbucks buys beans from various mallet
suppliers throughout the world. Starbucks develops good relations
with suppliers to receive top quality coffee beans during all time
periods.
‹ Operations: Starbucks has a competitive advantage when it
comes to its coffee Products by ensuring that the coffee beans
are first roasted in their premises.
‹ Outbound Logistics: Starbucks operates a number of outlets
across the world but what is most important is the strategy which
is applied to these retail outlets.
‹ Marketing and Sales: It is possible for a customer to see the
Starbucks banner in a number of new outlets because they are
expanding their market.

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Notes ‹ Service: Starbucks focus on customer values and want them to

have an unforgettable experience from their first visit to one of
our stores.
‹ Support Activities:
‹ Firm Infrastructure: Starbucks has a sound corporate governance
structure providing a solid backbone to its worldwide activities
and guiding all the strategic decisions of the company in an
effective manner.
‹ Human Resource Management: Starbucks also puts aside funds
for training its personnel and even more importantly developing
staff, for skilled personnel are crucial in providing a high standard
of customer service.
‹ Technology Development: One of the primary goals for Starbucks
and a strategy intended to be implemented is to funnel marketing
through its technology such as the mobile app and various loyalty
offerings.
‹ Procurement: The procurement function of Starbucks confirms
the buying of the required materials and other resources that have
a quality and are consistent with the brand promise.
Outcome: Within its analysis of the value chain, Starbucks understands
that its integrated sourcing and in-house roasting practices are particular
areas of strength for the firm. Also, its emphasis upon the customers and
the brand experience is another advantage. In these ways, the company
is able to continuously maintain these functions and remain dominant in
premium coffee market share.

2.9 Porter’s Diamond Theory of National Advantage

The Porter diamond model of national advantage is a framework that
explains the success of certain firms in particular countries in a com-
petitive global marketplace. Michael E. Porter, the theorist outlines four
main elements that interact to form a competitive environment—factor
conditions, demand conditions, related and supporting industries, as well
as firm strategy, structure and rivalry. These elements assist in the un-
derstanding why certain nations emerge as dominant in certain industries,

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creating and improving borders of efficiency which translate to competitive Notes

advantage across the world.
According to the diamond framework countries determine the success of
Porter’s five forces Houston, within a nation not only the resources that
are available or the cost of labor, but also the interaction of different
forces that create a competitive environment. These forces compel and
induce companies to come up with new and better ideas, reduce costs,
and improve the standard and quality of services they offer, which gives
these companies a competitive edge in the international market.

2.9.1 Components of the Diamond Model

Michael Porter’s Diamond Model, also known as the Diamond Theory of
National Advantage, outlines four interrelated components that determine the
competitive advantage of nations in specific industries (refer to Figure 2.7).
These components create an environment that can either enhance or hinder
the competitiveness of industries within a country. Understanding these
components help in explaining why certain nations are leaders in particular
industries and how they maintain their competitive edge.

Figure 2.7: Michael Porter’s Diamond Model

(Source: https://www.business-to-you.com/porter-diamond-model/)

1. Factor Conditions
Definition: Firm strategy, structure, and rivalry encompass the conditions
under which companies are established, organized, and managed,
including the nature of domestic competition. This component

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Notes explores how firms are structured, their strategic approaches, and
the level of competition they encounter within their home market.
Types of Factor Conditions:
‹ Basic Factors: Natural resources (e.g., land, minerals, climate),
unskilled labor, and physical infrastructure (e.g., roads, ports).
‹ Advanced Factors: Specialized assets such as skilled labor,
advanced technology, research facilities, and modern infrastructure
that are developed through investment and innovation.
2. Demand Conditions
Definition: Demand conditions pertain to the characteristics and
nature of domestic demand for products and services within a
country. The level of sophistication and the scale of home market
demand significantly influence the competitiveness of industries.
Key Aspects:
‹ Sophisticated Buyers: Domestic consumers who are demanding
and knowledgeable push companies to innovate and improve
their products.
‹ Market Size: A substantial and expanding domestic market
enables firms to achieve scale, driving efficiencies and encouraging
investment in innovation.
3. Related and Supporting Industries
Definition: Related and supporting industries pertain to the existence
of competitive supplier industries and related sectors that offer
inputs, support, or complementary products and services to the
primary industry.
Key Aspects:
‹ Competitive Suppliers: Proximity to efficient and innovative
suppliers enhances a firm’s ability to obtain high-quality inputs,
adopt new technologies, and improve its production processes.
‹ Industry Clusters: The concentration of related industries within
the same geographic region promotes collaboration, innovation, and
knowledge sharing, which can enhance overall competitiveness.

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4. Firm Strategy, Structure, and Rivalry Notes

Definition: Firm strategy, structure, and rivalry encompass the conditions
under which companies are established, organized, and managed,
including the nature of domestic competition. This component
explores how firms are structured, their strategic approaches, and
the level of competition they encounter within their home market.
Key Aspects:
‹ Domestic Competition: Intense rivalry among domestic firms
drives innovation, efficiency, and continuous improvement.
‹ Corporate Governance: The way firms are managed and
governed affects their ability to adapt to changes, innovate, and
compete globally.
‹ Strategic Focus: Firms that align their strategies with the needs
of the market and leverage their strengths are more likely to
succeed internationally.
Additional Influences
While the four components above are central to Porter’s Diamond Model,
two additional factors can influence the competitive advantage of nations:
1. Government:
‹ Role: Government policies, regulations, and incentives can
either facilitate or impede the growth of competitive industries.
Effective government intervention can promote innovation, improve
infrastructure, and enhance education and training.
‹ Example: A government that invests in advanced education and
research facilities can help develop the skilled workforce needed
for high-tech industries.
2. Chance:
‹ Role: Unforeseen events, such as technological advancements,
natural disasters, or geopolitical shifts, can affect the competitive
standing of industries. These events are outside the control of
firms and governments but can create opportunities or challenges.
‹ Example: The discovery of new natural resources or a sudden
shift in consumer preferences can create unexpected competitive
advantages for certain industries.

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Notes By examining these components, nations can gain insights into the factors
that drive the success of their industries and devise strategies to strengthen
their competitive advantage in the global market.

2.9.2 Application of Diamond Theory in Global Strategy

Applying Porter’s Diamond Theory to global strategy involves using the
framework to understand how a nation’s competitive advantages can in-
fluence the success of its industries on the international stage. Businesses
can leverage insights from the Diamond Theory to formulate strategies
that capitalize on the strengths of their home country while addressing
the challenges posed by global competition. Table 2.12 outlines a strategic
approach using Porter’s Diamond Theory to optimize a company’s global
strategy by exploiting national competitive advantages and addressing in-
ternational market challenges.

Table 2.12: Steps to Apply Diamond Theory in Global Strategy

Step Description Example
1 Analyze National Competitive Ad- A company in Germany’s automotive
vantages: Assess the four elements of sector might benefit from advanced en-
Porter’s Diamond within the domestic gineering, robust infrastructure, and a
market to enhance the competitive strong network of related industries like
strengths of the industry. high-tech materials.
2 Leverage Home Country Strengths Japanese electronics firms use their
in International Markets: Identify technological expertise and innovation
and utilize unique advantages from capabilities to lead globally in consumer
the home country in foreign markets. electronics.
3 Adapt to Local Market Condi- A U.S. software company expanding into
tions: Adapt home country advantages Europe may tailor products to meet local
to the specific conditions of the tar- privacy laws and customer preferences
get market, including local demand, while leveraging American strengths in
regulations, and competition. innovation.
4 Enhance Competitiveness Through A multinational corporation might locate
Global Integration: Build a globally R&D centers in countries with advanced
integrated strategy that combines the educational systems and manufacturing in
advantages of multiple locations. regions with cost and logistical advantages.
5 Address Weaknesses in the Home If lacking in advanced technological
Country: Develop strategies to mit- infrastructure, a company might partner
igate any weaknesses in the home with firms in technologically advanced
country’s Diamond that could limit countries to boost competitiveness.
international competitiveness.

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Step Description Example Notes

6 Influence Government Policy: En- A high-tech company might lobby for
gage with government to advocate increased government R&D funding to
for policies that strengthen the home enhance innovation and competitive po-
country’s competitive factors. sition internationally.

Case Example: South Korea’s Electronics Industry

‹ Factor Conditions: South Korea›s emphasis on education and
technology has cultivated a highly skilled workforce and advanced
manufacturing capabilities, allowing companies like Samsung to
attain global leadership in the electronics industry.
‹ Demand Conditions: The sophisticated and technology-savvy
domestic market in South Korea pushes companies to continuously
innovate, giving them an edge in global markets.
‹ Related and Supporting Industries: The availability of competitive
suppliers and related sectors, such as semiconductors and display
technology, supports the electronics industry’s global competitiveness.
‹ Firm Strategy, Structure, and Rivalry: Intense domestic competition
among firms like Samsung and LG drives innovation and efficiency,
preparing these companies to compete effectively on the global stage.
Using Porter’s Diamond Theory, companies can gain insights into their
home country’s competitive dynamics and strategically position themselves
in the global market. This approach allows businesses to leverage national
strengths, address weaknesses, and adapt to international environments,
ultimately achieving sustained success in the global economy.

IN-TEXT QUESTIONS
1. Which of the following is NOT a component of Michael E.
Porter’s Value Chain Analysis?
(a) Inbound Logistics
(b) Operations
(c) Marketing and Sales
(d) Financial Accounting

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Notes 2. In Porter’s Diamond Theory, which component refers to the

nation’s conditions in factors of production?
(a) Demand Conditions
(b) Factor Conditions
(c) Related and Supporting Industries
(d) Firm Strategy, Structure, and Rivalry
3. Which of the following activities is considered a Primary
Activity in the Value Chain?
(a) Technology Development
(b) Procurement
(c) Operations
(d) Human Resource Management
4. The component of Porter’s Diamond Model that involves the
nature and intensity of domestic competition is known as:
(a) Factor Conditions
(b) Firm Strategy, Structure, and Rivalry
(c) Related and Supporting Industries
(d) Demand Conditions
5. What is the main purpose of conducting a Value Chain Analysis?
(a) To reduce employee turnover
(b) To identify activities that create value and competitive
advantage
(c) To determine pricing strategies
(d) To analyze customer satisfaction
6. Which factor in Porter’s Diamond Model refers to the sophistication
of domestic customers?
(a) Factor Conditions
(b) Firm Strategy, Structure, and Rivalry
(c) Demand Conditions
(d) Related and Supporting Industries

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7. Which of the following is a Support Activity in the Value Chain? Notes

(a) Inbound Logistics

(b) Outbound Logistics
(c) Marketing and Sales
(d) Human Resource Management
8. In Porter’s Diamond Model, what is the role of Related and
Supporting Industries?
(a) To provide direct competition to firms
(b) To offer government support for industries
(c) To enhance the competitive advantage through efficient
supply chains
(d) To create labor laws and regulations
9. Which of the following best describes ‘Firm Infrastructure’ as
a Support Activity in the Value Chain?
(a) The physical facilities used in production
(b) The systems and processes that manage the organization
(c) The transportation of goods to the customer
(d) The marketing strategies used to promote products
10. According to Porter’s Diamond Model, a nation with advanced
Factor Conditions is likely to have:
(a) Access to a large amount of unskilled labor
(b) Natural resources such as minerals and forests
(c) Specialized skills, technology, and research facilities
(d) A large domestic market with low consumer expectations
11. Which of the following best explains why a strong domestic
market benefits companies according to Porter’s Diamond Theory?
(a) It reduces the need for exports
(b) It leads to lower production costs
(c) It forces companies to innovate and improve their products
(d) It allows companies to focus solely on cost leadership

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Notes 12. The final step in applying Value Chain Analysis is:
(a) Identifying the primary activities
(b) Assessing the cost structure
(c) Developing strategies for improvement
(d) Analyzing firm strategy
13. In the context of Porter’s Value Chain, ‘Operations’ refers to:
(a) Activities related to the marketing and sales of products
(b) Activities that transform inputs into finished products
(c) Activities that involve the delivery of products to customers
(d) Activities that maintain and enhance product value after
sales
14. Which of the following is NOT a determinant of national
advantage according to Porter’s Diamond Model?
(a) Chance
(b) Government
(c) Firm Strategy, Structure, and Rivalry
(d) Technological Forces
15. Which activity in the Value Chain is directly responsible for
maintaining the product’s value after the sale?
(a) Inbound Logistics
(b) Marketing and Sales
(c) Service
(d) Procurement

CASE STUDY
Strategic Analysis of Tata Motors
Background: Tata Motors is an automotive arm of the Tata Group where
Tata is one of the major automotive companies in India. Tata Motors
is known for such a diverse type of products as trucks, cars, buses,
and defense vehicles and is quite strong on both domestic and foreign
markets. But increasing competition from global automotive leaders, the
pace of new technology and the change of consumer behavior toward
Electric Vehicles (EV) create new challenges for the company.

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Environmental Analysis: Tata Motors seemed to be expanding the Notes

business with a clear understanding of the environment through
PESTEL and SWOT analysis. Looking at the external environment,
PESTEL analyses indicated that on one hand the push for electric
mobility by the Indian government and the economic situation are
advantages but on the other hand there are issues like pressure from
environmentalists, rising oil prices and foreign policies.
The Tata group’s weaknesses were its relatively poor position within
the luxury segment nor was it able to compete globally when it came
to emissions standards. An expanded scope was driven by the surging
demand for EVs and the entry into new and emerging markets. The
strengths that Tata had were its strong brand name and franchise
dealer network as well as a strong lineup of commercial, passenger,
and EV cars. Threats included competition from multi-national auto-
mobile companies and even more threats from disruptive technologies.
Porter’s Five Forces Analysis of Tata Motors: Tata Motors did
a competitive analysis of the automotive industry with a help of
Porter’s 5 Forces Model. The analysis pointed to a significant con-
cern about substitutes, particularly about electric vehicles as well
as other forms of transportation like riding services. According to
Tata Motors’ suppliers’ bargaining power was assessed as moderate,
taking into consideration the fact that the company was dependent
on some crucial components sourced from the world market. On the
other hand, buyers’ bargaining power was assessed to be very active
due to a large number of choices in the marketplace. The threat of
new entrants still remained low as the amount of money needed to
venture into the automotive industry is quite high. While domestic
and international manufacturers posed stiff competition, the company
rivalry within the industry was also marked with quite a heightened
level of competition.
Value Chain Analysis: With the help of Value Chain Analysis Tata
Motors was able to pinpoint some of the shortcomings which it could
improve upon in order to increase its value adding activities. The
analysis noted that the company has a strong performance of produc-
tion and operation, however, it noted that the company has sufficient
room for development in the field of R&D and marketing, especially

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Notes concerning electric vehicles. Increasing customer service and better

after-sales service were also pointed out as important factors that
will enhance satisfaction and differentiation of the brand.
Porter’s Diamond Analysis: In deciding its competitive position
in India and vision for international operations, Tata Motors relied
on Porter’s Diamond Theory. The analysis emphasized the growing
market for low-priced cars in India and a government push towards
electric mobility as the sources of competitive advantage. However,
lack of advanced charging and servicing infrastructure for EVs and
the need to invest heavily in R&D were cited as threats to global
competitiveness, even for the domestic market.
Strategic Decisions: As per these analyses, Tata Motors resolved to
give priority to increasing their range of electric vehicles, as well as
devote sufficient resources to R&D in order to be able to develop new
vehicles. The firm also intended to boost its activities in new markets
and look for strategic alliances that would improve its supply chain
and marketing and technological resources. In addition, the company
sought to enhance its marketing and after sales strategies, emphasizing
the creation of the company’s image and strong customer retention.

Discussion Questions
1. How can Tata Motors capitalize on the growing demand for
electric vehicles due to its robust manufacturing and operations
capabilities?
2. From the perspective of the Value Chain Analysis, which processes
could Tata Motors focus on in order to optimally enhance its
value, especially with regard to the EVs?
3. With the challenges that were pointed out in Porter’s Diamond
Analysis, what measures or actions should Tata Motors pursue
in order to address the technology and infrastructure deficiencies
and be able to compete globally?

2.10 Summary
Lesson 2 examines the strategic tools and frameworks that are needed
to analyze and assess both the firm’s internal and external environment

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indicating how the firms manage their internal and external strengths Notes
and weaknesses.
In this lesson, we start with the basics as they relate to Environmental
Analysis which stresses the need to consider both internal and external
factors affecting a business. Tools like PESTEL analysis are employed
when examining the outside environment of the business by looking at
the political, economic, social, technological, environmental and legal
dimensions. On the other hand, SWOT analysis is applied internally
in determining the strengths, weaknesses, opportunities and threats, en-
abling the businesses to match their strategies with their resources and
environmental demands.
The topic also includes Porter’s 5 Forces Model where an analysis of
the competitive forces that drive competition within an industry is very
crucial. This model analyzes the level of competition by looking at the
extent of the threat of entry of competitors into the business, the degree
of the bargaining power of suppliers and buyers, the threat of products
or services that can be used in place of the existing ones and the degree
of competition already existing in the market. It helps to know the forces
that allow the companies to design their strategies on how best to get
out of the market and become profitable.
Besides, Value Chain Analysis is claimed to be helpful in defining
the structure of the company’s primary and support activities. From the
analysis of these activities, companies are able to determine the factors
that increase the overall value, the factors that increase cost, and those
that differentiate their products and hence improve the company’s com-
petitiveness. The lesson emphasizes the importance of turning the focus
to optimizing every element of value chain in order to increase overall
business effectiveness.
Also, Porter’s Diamond Theory of National Advantage explains why
certain industries in a country are able to compete internationally. The
theory focuses on four primary elements: factor conditions, demand con-
ditions, related and supporting industries, and firm strategy, structure, and
rivalry. Achieving a broader perspective, these factors should be analyzed
to enable a business and a policy maker to establish the sources of the
competitive advantage of a certain nation and specific measures designed
to improve its international industry performance.

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Notes Lastly, the lesson argues that business Organizational capabilities and
core competencies should be harnessed and developed further. These are
the unique and specialized skills and resources that make one organization
different from the other and are important for competitive advantage in
the long run. Core competencies are inherently difficult to duplicate and
serve the purpose of providing the basis of competitive advantage of the
firm in the context of its broad global environment, helps the firm to
create, learn and grow in an evolving competitive environment.
Therefore, Lesson 2 provides an exploration of the tools and frameworks
necessary for businesses to analyze their strategic environment, enhance
their operations, and develop strategies that ensure long-term competitive
advantage.

2.11 Answers to In-Text Questions

1. (d) Financial Accounting
2. (b) Factor Conditions
3. (c) Operations
4. (b) Firm Strategy, Structure, and Rivalry
5. (b) To identify activities that create value and competitive advantage
6. (c) Demand Conditions
7. (d) Human Resource Management
8. (c) To enhance the competitive advantage through efficient supply
chains
9. (b) The systems and processes that manage the organization
10. (c) Specialized skills, technology, and research facilities
11. (c) It forces companies to innovate and improve their products
12. (c) Developing strategies for improvement
13. (b) Activities that transform inputs into finished products
14. (d) Technological Forces
15. (c) Service

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Notes
2.12 Self-Assessment Questions
1. What are the central core aspects of Porter’s 5 Forces Model and
how are they relevant in the assessment of the economic environment
of a given industry?
2. In what other ways can Value Chain Analysis benefit a company in
order to improve its operations and increase its market competitiveness?
3. Explain the relevance of Factor Conditions in use in Porter’s Diamond
Model. What Makes Certain Countries More Competitive in Certain
Industries Due to these Factors?
4. What is the rationale of SWOT analysis with respect to strategic
decision making at times when alignment between a company’s
internal and external environment is necessary?
5. How do Related and Supporting Industries affect the ability of the
firm to compete in the international market as per the arguments
developed under Porter’s Diamond Theory?

2.13 References
‹ Porter, M. E. (1985). Competitive advantage: Creating and sustaining
superior performance. Free Press.
‹ Johnson, G., Scholes, K., & Whittington, R. (2008). Exploring
corporate strategy (8th ed.). Prentice Hall.
‹ Grant, R. M. (2016). Contemporary strategy analysis (9th ed.). Wiley.
‹ Barney, J. B. (1991). Firm resources and sustained competitive
advantage. Journal of Management, 17(1), 99-120.
‹ Porter, M. E. (1990). The competitive advantage of nations. Free
Press.
‹ Porter, M. E. (1980). Competitive strategy: Techniques for analyzing
industries and competitors. Free Press.

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Notes
2.14 Suggested Readings
‹ Porter, M. E. (1998). On competition. Harvard Business School Press.
‹ Hill, C. W. L., & Jones, G. R. (2012). Strategic management: An
integrated approach (10th ed.). Cengage Learning.
‹ Lynch, R. (2018). Strategic management (8th ed.). Pearson.
‹ Ghemawat, P. (2016). The laws of globalization and business
applications. Cambridge University Press.
‹ Prahalad, C. K., & Hamel, G. (1990). The core competence of the
corporation. Harvard Business Review, 68(3), 79-91.
‹ Chandler, A. D. (1962). Strategy and structure: Chapters in the
history of the industrial enterprise. MIT Press.
‹ Ansoff, H. I. (1965). Corporate strategy: An analytic approach to
business policy for growth and expansion. McGraw-Hill.
‹ Boston Consulting Group (BCG). (1970). The product portfolio.
Retrieved from https://www.bcg.com/publications/1970/strategy-
the-product-portfolio
‹ Wernerfelt, B. (1984). A resource-based view of the firm. Strategic
management journal, 5(2), 171-180.
‹ Teece, D. J., Pisano, G., & Shuen, A. (1997). Dynamic capabilities
and strategic management. Strategic Management Journal, 18(7),
509-533.
‹ Christensen, C. M. (1997). The innovator’s dilemma: When new
technologies cause great firms to fail. Harvard Business Review Press.

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 L E S S O N

3
Formulation of
Competitive Strategies
Dr. Abhilasha Meena
Assistant Professor
Management Studies
School of Open Learning
University of Delhi
Email-Id: [email protected]

STRUCTURE
3.1 Learning Objectives
3.2 Introduction
3.3 Introduction to Competitive Strategies
3.4 Porter’s Generic Competitive Strategies
3.5 Implementing Competitive Strategies
3.6 Formulating Corporate Strategies
3.7 The CAGE Distance Framework
3.8 Types of Renewal Strategies
3.9 Introduction to Mergers & Acquisitions (M&A)
3.10 Summary
3.11 Answers to In-Text Questions
3.12 Self-Assessment Questions
3.13 References
3.14 Suggested Readings

3.1 Learning Objectives

By the end of this lesson, you will be able to:
‹ Identify and explain Porter’s generic competitive strategies, including cost leadership,
differentiation, and focus, and understand their application in various business contexts.

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Notes ‹ Analyze the effectiveness of offensive and defensive competitive

strategies and develop strategic moves to enhance competitive
positioning.
‹ Understand the different types of corporate strategies, including
growth, stability, and renewal strategies, and be able to formulate
appropriate strategies for various business scenarios.
‹ Use the CAGE Distance Framework to assess the challenges and
opportunities of international expansion and make informed decisions
on global strategy formulation.
‹ Distinguish between various growth strategies such as concentrated
growth, product development, integration, diversification, and
international expansion, and understand their implications for
business growth.
‹ Recognize the need for and apply different types of renewal
strategies, including retrenchment and turnaround, to revitalize a
struggling business.
‹ Understand the strategic motives behind mergers and acquisitions,
the different types, and the challenges involved in successfully
executing M&A activities.
‹ Apply the concepts learned to real-world case studies, demonstrating
the ability to analyze and formulate competitive strategies in practical
business contexts.

3.2 Introduction
In this lesson, the focus will be on competitive strategy formulation.
This is important in every business whether one is in a very competitive
industry or one in a primary market. Building along this idea, one should
understand what and how to implement such strategies effectively.
You will investigate Porter’s generic competitive strategies, which help in
the formulation of strong and effective strategies for gaining and retaining
market competitiveness. Moreover, you will comprehend how to apply
such strategies through the use of offensive as well as defensive strategies
in order to allow the firm to tackle issues presented by the marketplace.

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In this lesson, various corporate strategies for growth and stability as Notes
well as for renewal will be analyzed as well. You will get ideas on the
different growth strategies –product development, concentrated growth,
diversification, integration, expansion into international markets. Addition-
ally, the CAGE Distance Framework will be discussed which will give you
the structure to evaluate the difficulties of doing business internationally.
As a final point, this lesson will show you the detailed aspects of re-
newal practices such as retrenchment and turnaround, as well as the key
principles of M&As. By the end of this lesson, you will know how to
design, put into practice and modify competitive strategies so that your
business does not only survive but thrive within such a competitive and
fast changing business environment as today’s one.

3.3 Introduction to Competitive Strategies

In this section, you will learn the concept of competitive strategies which
are critical in determining the success and the continuity of the firm in
the current competitive business environment. Competitive strategies are
important as they set the rules of the game in terms of how the company
should enter into the market, react towards its competitors, and grow in
the long term. If the aim is to win more market share, increase profit or
simply be part of a competitive environment then the understanding of
competitive strategies and use of them is important.

3.3.1 Definition and Importance of Competitive Strategies

Competitive strategies designate the number of plans and actions em-
ployed by a business in order to outdo its competitors. These strategies
aim at establishing a favorable condition in the market by resorting to
targeting lowest cost products, product mix or some selected markets.
The selection of a particular competitive approach is important because
it has an impact on almost all business functions including product and
market development, supply chain and customer relations management.
Why are Competitive Strategies Important?
1. Competitive strategies help the firm reinforce its market position
with respect to its peers. These strategies, whether by means of cost
leadership, product differentiation or market concentration, help a

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Notes company forge a distinctive image that brings customer patronage

and builds loyalty.
2. There is a direct engagement with the audience through a competitive
strategy. For instance, a differentiation strategy aims at adding value
to certain products and services which are expected to command a
higher price tag and hence bring about high value satisfaction for
customers.
3. Competitive strategies strive to achieve long-term benefits that
seem difficult to the competitors to copy. For instance, one that
manages to achieve cost leadership by re-engineered supply chain
and production processes would be able to charge much lower
rates than competitors with an unfavorable cost structure and make
competition on price almost impossible.
4. Competitive strategies are profit growth strategies. On the contrary,
if competitive strategies are designed successfully, they enhance the
financial performance of the firm and lead to high growth. Based
on the right strategy, a firm can grow its market share, enhance
the profitability of each market or expand into hitherto uncharted
markets and product categories.
5. Market change adapt why do competitive strategies of the firm change
with the environment - When the business environment changes
rapidly, it is inevitable that competitive strategies evolve to address
the external forces of new entrants into the market, changing tastes
of consumers, and changing technology. With adequate strategies in
place, a firm is able to adjust to these adversities and opportunities
and even prosper under such conditions.

3.3.2 Overview of Strategic Formulation Process

The strategic formulation process is a structured approach that companies
use to develop their competitive strategies. It involves a series of critical
steps that help ensure the selected strategy is not only aligned with the
company’s goals but also responsive to the external environment. Each
step plays a vital role in shaping a strategy that leverages the company’s
strengths, addresses its weaknesses, and positions it effectively in the
marketplace. Table 3.1 provides an overview of the strategic formulation
process, outlining the essential steps that companies follow to develop,
implement, and monitor effective competitive strategies.
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Table 3.1: Strategic Formulation Process Notes

S. No. Step Description
1 Environmental Internal Analysis: Evaluating the company’s
Analysis strengths and weaknesses using tools like
SWOT and Value Chain Analysis. Identifying
what the company does well and areas that
need improvement.
External Analysis: Analyzing market op-
portunities and threats through tools such as
PESTEL analysis and Porter’s Five Forces
Model. Understanding industry trends, com-
petitor behavior, and market dynamics.
2 Defining Stra- Setting SMART objectives (Specific, Mea-
tegic Objectives surable, Achievable, Relevant, Time-bound)
that guide the selection of the appropriate
competitive strategy. For example, focusing
on cost leadership or marketing to increase
market share.
3 Strategy For- Evaluating and selecting the strategic option
mulation that best aligns with the company’s objectives
and capabilities. The chosen strategy should
provide a clear path to achieving goals and
offer a sustainable competitive advantage.
4 Strategy Imple- Aligning the company’s resources, processes,
mentation and workforce with the strategic plan. Effective
implementation requires clear communication,
strong leadership, and commitment at all or-
ganizational levels.
5 Monitoring and Tracking Key Performance Indicators (KPIs)
Evaluation and assessing progress towards strategic ob-
jectives. Regular evaluation ensures that the
strategy remains relevant and continues to de-
liver desired results in a changing environment.
By grasping and adhering to the strategic formulation process, companies
can create and execute competitive strategies that address current market
conditions while also preparing them for future success. This process is

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Notes dynamic and ongoing, requiring continuous assessment and adaptation to

maintain a competitive edge in the marketplace.

3.4 Porter’s Generic Competitive Strategies

Michael E. Porter, a renowned expert on competitive strategy, introduced
the concept of Generic Competitive Strategies in his book “Competitive
Strategy: Techniques for Analyzing Industries and Competitors” (1980).
Porter identified three primary strategies that businesses can use to achieve
a competitive advantage: Cost Leadership, Differentiation, and Focus.
Each of these strategies offers a distinct path to gaining and sustaining
market leadership, depending on the company’s resources, capabilities,
and the nature of the competitive environment.

3.4.1 Cost Leadership Strategy

The Cost Leadership Strategy is one of the three generic strategies
identified by Michael Porter, and it centers on achieving the lowest op-
erational costs within an industry. Companies that adopt this strategy aim
to become the lowest-cost producer, enabling them to offer their products
or services at prices lower than their competitors, while still maintaining
profitability. The primary goal of a cost leadership strategy is to attract
a broad customer base by offering products at competitive prices, which
is particularly effective in price-sensitive markets.
Table 3.2 outlines the key approaches to achieving cost leadership,
highlighting how companies can leverage economies of scale, process
innovation, and efficient supply chain management to reduce costs and
gain a competitive advantage.

Table 3.2: Key Approaches to Cost Leadership

Cost Leadership
Approach Definition Application
Economies of Scale Economies of scale refer to the Achieving economies of scale
cost benefits a company gains through large-scale production
by increasing production levels. facilities, bulk purchasing of raw
As production increases, the materials, and mass distribution
average cost per unit decreases. networks.

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Cost Leadership Notes

Approach Definition Application
Process Innovation Process innovation involves Investing in R&D to reduce
introducing new or improved waste, optimize workflows, or
production processes, methods, increase productivity through
or technologies to enhance effi- automation, lean manufactur-
ciency and reduce costs. ing, or the adoption of new
technologies.
E ff i c i e n t S u p p l y Efficient supply chain manage- Companies can negotiate better
Chain Management ment optimizes procurement, terms with suppliers, reduce
production, and distribution inventory levels, and optimize
processes to lower costs and logistics to minimize costs and
improve operational efficiency. offer lower prices to customers.
In the Indian context, several companies have successfully implemented
the cost leadership strategy, positioning themselves as market leaders
by offering competitively priced products and services. Table 3.3 below
provides an overview of Indian companies that have effectively employed
the cost leadership strategy, along with the specific approaches they have
taken to achieve this position.
Table 3.3: Indian Examples of Cost Leadership Strategy
Approach to Cost
Company Industry Leadership Details
Dabur India FMCG (Fast-Moving Economies of Scale, Dabur leverages economies
Consumer Goods) Efficient Supply of scale in production and a
Chain Management highly efficient distribution
network to keep costs low,
allowing it to offer affordable
products across India.
IndiGo Air- Aviation Process Innovation, IndiGo Airlines is known for
lines Efficient Operations its low-cost model, focusing
on quick turnaround times, fu-
el-efficient aircraft, and point-
to-point services, making it
India’s leading budget airline.
Maruti Suzuki Automotive Economies of Scale, Maruti Suzuki, India’s largest
Local Sourcing car manufacturer, benefits
from economies of scale, local
sourcing of components, and
highly efficient production
processes to offer affordable
vehicles.

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 BUSINESS STRATEGIES

Notes Approach to Cost

Company Industry Leadership Details
Reliance Jio Telecommunications Economies of Scale, Reliance Jio transformed the
Process Innovation Indian telecom market by
providing affordable data ser-
vices, supported by significant
infrastructure investments and
innovative technology use.
Big Bazaar Retail Bulk Purchasing, Ef- Big Bazaar, a retail chain
ficient Supply Chain owned by the Future Group,
Management achieves cost leadership
through bulk purchasing,
strategic location of stores,
and efficient logistics, offering
low-priced products.
In conclusion, the Cost Leadership Strategy is a powerful approach for
companies operating in highly competitive and price-sensitive industries.
By focusing on reducing costs and optimizing efficiency, companies can
offer lower prices than their competitors, attract a broad customer base,
and achieve market dominance. However, this strategy also comes with
risks, particularly in terms of quality perception and innovation. Therefore,
it is essential for companies to carefully balance cost reduction efforts
with maintaining product quality and investing in future growth.

3.4.2 Differentiation Strategy

The Differentiation Strategy is an integral competitive approach that
can help businesses gain a competitive advantage over their rivals in the
long run. This strategical approach, in contrast to cost leadership which
relies on cutting down costs, is based on the creation of such goods or
services that the clients believe to be special and useful. This uniqueness
makes it possible for the firm to set higher prices, since customers are
willing to pay more for what they regard as offerings of higher order.
In respect of the above, the ability to differentiate a product or service
may also include: product design, branding, and the customer experience.
This enables the distinguishing of the companies from one another as
well as the building of the clients’ loyalty towards the company due to
the unique offers the company provides. The strategies for differentiating
and the sources of competitive advantages are addressed in Table 3.4,
which shows the relationships of innovation, branding, and customer

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 Formulation of Competitive Strategies

experience strategies with the patterns of competition and sustainable Notes

advantage of the firm.

Table 3.4: Key Approaches to Differentiation

Differentiation Definition Application
Approach
Product Innovation Product innovation involves cre- Companies invest in R&D to
ating new or significantly en- develop innovative products
hanced products that meet unmet that stand out, attracting cus-
customer needs or offer unique tomers seeking the latest and
features and benefits not provided most advanced options.
by competitors.
Branding Branding is the process of estab- Through consistent messaging,
lishing a strong, recognizable brand advertising, and customer en-
that symbolizes quality, reliability, gagement, companies build a
and desirability, differentiating a brand identity that resonates
company’s products from those with their target audience.
of competitors.
Customer Experience Customer experience refers to Companies enhance the cus-
the overall quality of interactions tomer experience by focusing
customers have with a company, on personalized service, ex-
from the purchase process to af- ceptional customer support, or
ter-sales support. Superior service creating a memorable shopping
or unique experiences can create environment.
a competitive advantage.
Table 3.5 below provides examples of Indian companies that have suc-
cessfully implemented a differentiation strategy. These companies have
leveraged product innovation, branding, and superior customer experience
to create unique value propositions that set them apart in their respective
industries.
Table 3.5: Indian Examples of Differentiation Strategy
Approach to
Company Industry Differentiation Details
Titan Watches and Product Innovation, Titan differentiates itself by of-
Jewelry Branding fering a wide range of innovative
watch designs and leveraging its
strong brand image to appeal to
diverse customer segments.
Tata Tea Beverages Product Innovation, Tata Tea has differentiated itself
Branding through product innovation, such
as introducing wellness teas and
leveraging the Tata brand for pre-
mium positioning in the market.

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 BUSINESS STRATEGIES

Notes Approach to
Company Industry Differentiation Details
Asian Paints and Product Innovation, Cus- Asian Paints differentiates it-
Paints Coatings tomer Experience self by offering innovative paint
solutions, such as washable and
eco-friendly paints, combined
with superior customer service
and home painting solutions.
Amul Dairy Products Branding, Product In- Amul has built a strong brand
novation identity with its diverse product
offerings and innovative mar-
keting campaigns, making it a
household name in India.

These companies have successfully implemented differentiation strategies

by focusing on innovation, building strong brands, and enhancing customer
experiences. As a result, they have been able to charge premium prices,
attract loyal customers, and achieve significant market differentiation in
their industries. By continuously innovating and delivering unique value,
these companies maintain their competitive edge in a crowded marketplace.

3.4.3 Focus Strategy (Cost Focus and Differentiation Focus)

A company employing Focus Strategy will be interested in a particular
segment or a niche market leaving the rest of the market unattended. It
is a strategy in which specific consumers, products, and areas receive a
lot of attention. The focus strategy includes two broad approaches namely
Cost Focus and Differentiation Focus.

Key Approaches to Focus Strategy

Cost Focus: It consists of striving to be the lowest cost provider within
a particular niche or segment. This strategy works well in cases where
the customers are sensitive to a price, this allows the company to take
advantage of costs and offer prices lower to competitors within the niche.
In order to cost focus, businesses could cut down on the costs of oper-
ations, cost of supply chain etc. or they could use economies of scale
within the niche market. To target the audience by lowering the cost price
of the goods and services offered by them.
Differentiation Focus: It entails offering personalized goods or services
which are tailored towards serving a special segment of the market. Under

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this strategy, firms not only focus on quality or cutting-edge innovation Notes
but also other features that a targeted customer highly appreciates.
In order to appeal to the requirements and preferences of such a well-de-
fined niche market, the firms can also spend resources towards R&D to
develop unique products, effective brand strategies, and high levels of
customer support services.
Table 3.6 below highlights Indian companies that have successfully im-
plemented a Focus Strategy, either through cost focus or differentiation
focus. These companies have identified specific market segments and
tailored their products or services to meet the distinct needs of those
segments, allowing them to achieve competitive advantage in their niches.

Table 3.6: Indian Examples of Focus Strategy

Approach to
Company Industry Focus Strategy Details
Big Bazaar Retail Cost Focus Big Bazaar focuses on providing
affordable products to middle-class
families across India, particularly
in Tier-2 and Tier-3 cities, where
customers are highly price-sen-
sitive.
Parle Products FMCG (Biscuits) Cost Focus Parle Products, with its Parle-G
biscuits, focuses on providing
low-cost, high-quality biscuits
to rural and small-town markets,
where affordability is key.
Haldiram’s Packaged Foods Differentiation Haldiram’s focuses on traditional
Focus Indian snacks, offering a wide
variety of authentic flavors that
appeal to customers looking for
premium, culturally relevant
products.
FabIndia Apparel and Home Differentiation FabIndia targets consumers inter-
Goods Focus ested in ethically sourced, hand-
woven, and artisanal products,
emphasizing traditional Indian
crafts and sustainability.
Eicher Motors Automotive Differentiation Royal Enfield focuses on the niche
(Royal Enfield) Focus market of retro-styled motorcycles,
offering a unique blend of classic
design and modern performance
that appeals to motorcycle en-
thusiasts.

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Notes These companies have effectively implemented focus strategies by concen-

trating on specific market segments and tailoring their products or services
to meet the needs of those segments. Whether through cost leadership
in a niche or through specialized differentiation, these companies have
carved out strong positions in their respective industries by focusing on
what their target customers value most. This focused approach allows
them to compete effectively and maintain a loyal customer base within
their chosen markets.

3.4.4 Advantages and Disadvantages of Each Strategy

In selecting a competitive strategy, businesses must carefully consider
both the potential benefits and the associated risks. Three basic corporate
strategies that a firm may consider are Cost Leadership, Differentiation
and Focus Strategies, it may seem that there are other strategies for
achieving the same goal. For instance, market penetration and product
development are part of generic strategies. Nevertheless, every strategy
comes with its challenges which may impact the corporate’s stability in
the long run if risk management measures are not implemented. Finally
acquiring both cost advantage and differentiation advantage in a firm’s
marketing strategy is a competitive edge that many businesses strive to
attain in the market. This section presents detailed aspects regarding
competitive advantage of each strategy and potential limitations. Which
would help you to comprehend better the nature of trade-offs in making
strategic management decisions.
Table 3.7 outlines the advantages and disadvantages of each competitive
strategy: Cost Leadership, Differentiation, and Focus (including both Cost
Focus and Differentiation Focus).
Table 3.7: Advantages and Disadvantages of Each Strategy
Strategy Advantages Disadvantages
Cost Leadership Market Dominance: Attracts a Perception of Lower Quality:
large customer base in price-sen- Lower prices might be associated
sitive markets. with lower quality.
Price Competitiveness: Offers Innovation Limitations: Focus on
lower prices than competitors, ap- cost-cutting may limit investment
pealing to cost-conscious customers. in innovation.
High Market Share: Can lead to Vulnerability to Price Wars:
increased sales volumes and higher Continuous price reductions can
market share. erode profit margins.

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 Formulation of Competitive Strategies

Strategy Advantages Disadvantages Notes

Protection against Price Wars: Reduced Flexibility: May struggle
Can sustain lower prices for longer to adapt to changes in market prefer-
periods, outlasting competitors. ences or technological advancements.
Differentiation Premium Pricing: Ability to charge Higher Costs: Innovation, branding,
higher prices due to perceived and superior service often involve
added value. significant investment.
Brand Loyalty: Strong differen- Risk of Imitation: Competitors
tiation can lead to brand loyalty may try to copy unique features or
and reduced-price sensitivity. services, reducing differentiation.
Barriers to Entry: Unique prod- Niche Focus: May not appeal
ucts or services create barriers for to the broader market, limiting
new entrants. potential customer base.
Competitive Edge: Sets the compa- Market Saturation: If the market
ny apart from competitors through becomes saturated with differ-
innovation, quality, or brand image. entiated products, the perceived
uniqueness may diminish.
Focus (Cost Fo- Niche Dominance: Targets specific Limited Market Size: Focusing
cus) market segments, leading to strong on a niche may limit growth op-
customer loyalty within the niche. portunities.
Cost Advantage: Can achieve cost Vulnerability to Changes in Niche:
leadership within a niche, appeal- Changes in customer preferences
ing to price-sensitive customers in or market conditions within the
that segment. niche can have a significant impact.
Reduced Competition: Fewer com- Scale Limitations: Limited scale may
petitors within the niche can lead to prevent the company from achieving
higher market share and profitability. broader economies of scale.
Focus (Differ- Tailored Offerings: Provides spe- High Costs: Customization and
entiation Focus) cialized products or services that specialization can be expensive,
meet the unique needs of a specific potentially reducing profit margins.
market segment.
Customer Loyalty: High customer Niche Vulnerability: Like cost
loyalty within the niche due to focus, changes within the niche
tailored products or services. market can have a significant im-
pact on the company’s success.
Ability to Command Premium Risk of Over-Specialization:
Prices: Can charge higher prices Over-reliance on a niche can make
within the niche due to perceived the company vulnerable if the niche
uniqueness and added value. market declines or if customer
needs shift.
Competitive Insulation: Niche Difficulty in Expanding beyond
focus often insulates the company the Niche: Once established in
from broader market competition. a niche, expanding to a broader
market can be challenging and
may dilute the brand.

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Notes
3.5 Implementing Competitive Strategies
Once you have decided on the most appropriate competitive strategy for
your organization, the next step is to implement it. This is the most crit-
ical phase as it defines the effectiveness of the strategy being put across.
This section will help put the task of implementing the chosen strategy
into practice. You will gain an understanding of strategic information
through offensive and defensive strategies, strategic moves and counter
moves and case studies of some firms that have managed to implement
their strategies.

3.5.1 Offensive Strategies

Offensive strategies are considered moves or actions that clients consider
rational because they are intended to increase the target firm’s compet-
itiveness vis-a-vis the rival. These strategies are acknowledgment to the
likely internal or external state of the firm and are designed to enhance
penetration, expansion or acquisition of the target market. Additionally,
offensive strategies could further assist if the intention is to dominate
the entire market or compete heavily with the major market competitors.
Corporations like Coca-Cola, Apple and Starbucks have used offensive
strategies to increase their market share; new product introduction and
expansion of business into new locations as explained in Table 3.8.

Table 3.8: Examples of Offensive Strategies

Offensive Strategy Definition Example
Market Penetration Involves increasing market share Coca-Cola: Coca-Cola often uses
by attracting more customers market penetration strategies by
through better pricing, improved offering promotions and discounts
product quality, or enhanced to increase sales and market share
marketing efforts. in competitive markets.
Product Innovation Involves introducing new prod- Apple: Apple frequently
ucts or significantly improving introduces new iPhone models
existing ones to attract customers with cutting-edge technology to
seeking the latest features or maintain its competitive edge
superior quality. and attract tech-savvy customers.
Expanding to New Involves entering new geographic Starbucks: Starbucks expanded
Markets regions or targeting new customer its presence by entering the
segments where competitors are Chinese market, opening
less active, allowing the company numerous stores to tap into a
to grow its market share. growing consumer base.

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These offensive strategies are useful tools for businesses that want to Notes
strengthen their position in the market and outmaneuver their competi-
tors. By carefully planning and executing these strategies, companies can
achieve significant growth and success.

3.5.2 Defensive Strategies

Defensive strategies are undertakings of firms that are aimed at defending
their existing market position from competitors. The strategies are mostly
important for the market leaders or firms that have to deal with aggressive
moves from competitors. The essence of the defensive strategies is to
ensure your market share is intact, the customers are loyal to the firm,
and that rivals do not get an advantage. By following such strategies, you
can make your business active and healthy in a competition. Companies
like Samsung, Pepsi, and Pfizer have used some of their resources in legal
offensive contests while at the same time pursuing defensive strategies,
as shown in Table 3.9.
Table 3.9: Examples of Defensive Strategies
Defensive Strategy Definition Example
Fortifying Your Market Involves strengthening brand Samsung: Samsung focuses on
Position loyalty, improving customer improving customer service
service, or enhancing product and offering loyalty programs
quality to make it harder for to retain its customer base and
competitors to attract your reduce the likelihood of custom-
customers. ers switching to competitors.
Counter-Attacks Responses to competitors’ Pepsi: If Coca-Cola launches
aggressive actions, such as a new promotion, Pepsi might
launching promotions, reducing respond with its own discounts
prices, or improving products or a marketing campaign high-
to neutralize the competitor’s lighting the unique features of
advantage. its products.
Legal Protections Utilizing patents, trademarks, Pfizer: Pfizer patents its new
copyrights, and other legal pharmaceutical drugs to ensure
tools to protect innovations exclusivity, preventing other
and maintain market position companies from producing the
by preventing competitors from same medication for a set period.
copying ideas.
These defensive strategies are crucial for maintaining a strong market po-
sition, especially in competitive industries. By reinforcing your strengths,
responding effectively to competitors, and using legal protections, you

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 BUSINESS STRATEGIES

Notes can ensure that your business remains resilient and continues to thrive
despite the challenges posed by rivals.

3.5.3 Strategic Moves and Counter Moves

Strategic moves are crucial factors for any business to gain competitive
advantage in achieving the defined goals. These moves are also basic
elements in the strategies made for offensive or defensive purposes.
Conceptualizing these well-planned strategic moves, appropriately en-
hances the firm’s standing in the market and assist in outwitting their
competitors and venturing into new areas. Equally important are counter
moves—responses to competitors’ actions that help you maintain your
competitive edge and prevent rivals from gaining an advantage. Learn-
ing how to perform strategic moves and how to resist the competitors’
moves is crucial to success in a highly competitive environment. The
examples are being shown in Table 3.10 of moves and counter moves
one can use. Apple, Jio and Coca-Cola are benefiting from first mover
advantage, waging price and publicity wars and engaging into strategic
moves against their competitors.

Table 3.10: Examples of Strategic Moves and Counter Moves

Strategic Move Definition Example
First-Mover Ad- Describes the advantages a company Apple: Apple’s early entry into
vantage obtains by being the initial entrant the smartphone market with the
in a new market or by launching iPhone gave it a significant lead
a new product. This can lead to over competitors, establishing it
early brand recognition, securing as a market leader.
market share, and setting industry
standards ahead of competitors.
Price Wars Involves reducing prices to match Jio vs. Airtel: The entry of Reli-
or undercut competitors. This move ance Jio into the Indian telecom
can attract price-sensitive custom- market led to a price war, with Jio
ers and increase market share but offering extremely low data and
may also decrease profits for all voice rates, forcing competitors
competitors involved. like Airtel and Vodafone to reduce
their prices, significantly impacting
profit margins across the industry.
Innovative Mar- Launching creative and innovative Coca-Cola: Coca-Cola’s “Share
keting Campaigns marketing campaigns to attract cus- a Coke” campaign personalized
tomers, build brand loyalty, and bottles with names, leading to
outshine competitors. These cam- a viral marketing success that
paigns can include viral social media significantly boosted brand en-
promotions or unique advertising. gagement.

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By strategically planning and executing your moves, you can attain business Notes
goals and secure a strong market position. Additionally, being prepared with
effective counter moves ensures that you can respond swiftly to competitors’
actions, protecting your market share and maintaining your competitive ad-
vantage. Whether you’re aiming to be the first in a new market, engage in
price competition, or captivate customers with innovative marketing, strategic
moves and counter moves are essential tools in your business strategy arsenal.

3.5.4 Case Examples of Successful Implementation

Learning from real-world examples can help you understand how to ef-
fectively implement competitive strategies. In this section, you will ex-
amine case studies of companies that have effectively implemented their
strategies. By reviewing these examples, you can gain valuable insights
into the challenges and best practices of strategy execution.
Table 3.11 provides a snapshot of how different Indian companies have
implemented competitive strategies in various industries. By studying these
examples, you can gain insights into how offensive and defensive strate-
gies, as well as strategic moves, are effectively applied in the real world.

Table 3.11: Indian Company Examples of Implementing

Competitive Strategies
Company Industry Strategy Type Strategy Description
Tata Motors Automotive Offensive Strategy Tata Motors launched the Tata Nano,
positioning it as the world’s most
affordable car. This move targeted
a new market segment, allowing
Tata Motors to capture a large
share of the budget car market.
Reliance Jio Telecommuni- Offensive Strategy Reliance Jio shook up the Indian
cations telecom market by providing free
voice calls and highly affordable
data, quickly capturing market
share and compelling competitors
to rethink their pricing strategies.
Amul Dairy Products Defensive Strategy Amul used its strong brand identity
and wide distribution network to
defend its market leadership. It
continuously innovated with new
product lines like Amul Kool and
Amul Butter Milk to stay ahead of
competitors.

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 BUSINESS STRATEGIES

Notes Company Industry Strategy Type Strategy Description

Maruti Suzuki Automotive S t r a t e g i c M o v e Maruti Suzuki was the first to launch
(First-Mover Ad- a small car in India (Maruti 800),
vantage) which captured the imagination of
the Indian middle class, establishing
Maruti as a household name.
Flipkart E-commerce Counter Move Flipkart responded to Amazon’s
entry into India by launching ag-
gressive discount campaigns during
its “Big Billion Day” sales, helping
it retain market share against the
global giant.
Asian Paints Paints and Coat- Strategic Move (In- Asian Paints invested in technology
ings novation) to create personalized color-match-
ing tools and home painting services,
differentiating itself and gaining a
competitive edge in the market.

3.6 Formulating Corporate Strategies

Formulating corporate strategies involves making high-level decisions
that guide a company’s overall direction and long-term success. Corpo-
rate strategies determine how a business will achieve its goals, compete
in the market, and create value for its stakeholders. These strategies are
essential for navigating complex business environments and ensuring
sustainable growth. In this section, you will learn about various corpo-
rate strategies, including growth strategies, and their implementation to
achieve business objectives.

3.6.1 Introduction to Corporate Strategies

Strategies of the firm shape the boundaries as well as the targets of the
firm. Such strategies are formulated by senior management and concern
the long-term aspects of the firm. Unlike business strategies, which are
concerned with how to compete in individual markets, corporate strategies
are concerned with what businesses or markets the company should be
in. Such strategies are critical for:
‹ Vision And Mission Clearly Stated: Corporate strategies assist in
defining the vision of a company, where do they want to go, and
what is their mission, why do they exist. This creates clarity of
purpose and direction for the whole organization.

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‹ Growth Related Decisions: Corporate strategies incorporate how the Notes

company will grow, whether by enlarging existing ones, sometimes,
going to other markets or buying others.
‹ Resource Allocation: These strategies prescribe where all the different
types of resources such as capital, personnel and equipment are to
be spread in different components of the organization. Thus, the
efficient allocation of resources is vital for effective performance
and realization of strategic goals.
‹ Managing Risks: Every organization needs to be prepared to face
the uncertainties and challenges by having a plan in place that seeks
to manage any risks that may occur which is then adapted into the
corporate strategies. Reporting compliance coupled with a clear target
and timeline needs robust processes supported by integrated systems,
defining roles, responsibilities and accountability in all processes.
Corporate strategy can be classified in several ways, depending on the
target of the company and its context. Some organizations pursue three
main types of corporate strategies namely, growth strategies, stability
strategies, and retrenchment strategies. Each business strategy has its
own arsenal of tools and methods, which we will be considering in the
next sections.
In the next part of this lesson, we are able to gain insights on the dif-
ferent growth strategies that companies employ to grow their businesses
and increase their market share and profitability. The strategies in such
companies are crucial to enhance growth and be competitive within the
marketplace.

3.6.1.1 Concentrated Growth

Concentrated Growth is a strategy where a company focuses on in-
creasing sales of its existing products or services in its current markets.
This approach is typically used when a company believes there is still
significant potential for growth within its existing market segments.

Key Characteristics:
‹ Market Penetration: Concentrated growth often involves increasing
market penetration through aggressive marketing, improving customer
service, or offering competitive pricing.

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Notes ‹ Focus on Core Competencies: Companies employing this strategy

leverage their core strengths and expertise in their current markets
to drive growth.
The examples in Table 3.12 showcase how leading Indian companies have
successfully implemented concentrated growth strategies to enhance their
market dominance and drive business growth.

Table 3.12: Examples of Concentrated Growth Strategy

Company Industry Strategy Details
Hindustan Uni- FMCG Expanding market Focused on increasing market
lever share of existing prod- share of brands like Lux and
ucts Lifebuoy through intensive
marketing.
Maruti Suzuki Automotive Strengthening market Concentrated on expanding
dominance in the small sales of its popular small car
car segment models like Alto in the Indian
market.
ICICI Bank Banking Increasing customer Focused on acquiring more
base with existing customers for its existing bank-
banking products ing services through aggressive
marketing.
Britannia Indus- FMCG Deepening penetration Aimed at increasing sales of
tries in biscuits and dairy its existing product lines like
segments biscuits and dairy through
promotions.

3.6.1.2 Product Development

Product Development involves creating new products or significantly
improving existing ones to meet the evolving needs of the market. This
strategy is crucial for companies that want to maintain a competitive
edge by offering innovative solutions that attract and retain customers.

Key Characteristics:
‹ Innovation: Product development requires a strong focus on Research
and Development (R&D) to create innovative products that satisfy
customer needs better than those of competitors.
‹ Market Differentiation: New products often help differentiate the
company from competitors, providing unique value propositions that
appeal to specific customer segments.

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The companies listed in Table 3.13 exemplify how Indian firms have Notes
successfully utilized product development strategies to stay ahead in their
industries, attract new customers, and retain existing ones.

Table 3.13: Examples of Product Development Strategy

Company Industry Strategy Details
Tata Motors Automotive Developing new Introduced the Tata Nexon EV
models to meet to cater to the growing demand
consumer demand for electric vehicles in India.
Amul Dairy Innovating new Launched a range of flavored
Products product lines milk and probiotic products to
expand its dairy portfolio.
Infosys IT Services Creating new digital Developed AI and cloud-based
solutions services to meet the changing
needs of global clients.
Godrej Consumer FMCG Launching innova- Introduced new variants of Cinthol
Products tive personal care soaps with added skin benefits
products to appeal to health-conscious
consumers.

3.6.1.3 Integration (Vertical and Horizontal)

Integration is a strategy that involves acquiring or merging with other
companies to strengthen the company›s market position. Integration can
be either vertical or horizontal:
1. Vertical Integration: This involves acquiring companies that are
part of the supply chain, either upstream (suppliers) or downstream
(distributors), allowing the company to control more of the production
and distribution process.
2. Horizontal Integration: This involves acquiring or merging with
companies that operate in the same industry at the same level of
the supply chain, allowing the company to expand its market share
and reduce competition.
Key Characteristics:
‹ Increased Control: Vertical integration allows a company to have
more control over its supply chain, reducing dependency on external
suppliers or distributors.
‹ Market Expansion: Horizontal integration can lead to a larger
market share, economies of scale, and reduced competition.

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Notes Table 3.14 provides examples of Indian companies that have effectively
used vertical and horizontal integration to strengthen their market posi-
tions and achieve sustainable growth.

Table 3.14: Examples of Integration Strategy

(Vertical and Horizontal)
Type of
Integration Company Industry Strategy Details
Vertical Reliance Oil and Gas Acquiring Acquired upstream and
Integration Industries supply downstream companies
chain com- involved in oil explora-
panies tion, refining, and retailing.
Vertical Tata Steel Steel Securing Acquired coal and iron ore
Integration raw materi-mines to ensure a consistent
al supply supply of raw materials for
steel production.
Horizontal Flipkart E-commerce Acquiring Acquired Myntra to
Integration competitors strengthen its position in
the Indian e-commerce
fashion segment.
Horizontal Zomato Food Delivery Acquiring Acquired Uber Eats India
Integration competitors to consolidate its market
share in the food delivery
industry.

3.6.1.4 Diversification
Diversification involves a company branching out into new markets or
creating new products that differ from its existing offerings. It can be
pursued in two main ways: Related Diversification, which involves ex-
panding into areas related to the company’s current business activities,
and Unrelated Diversification, where the new ventures are in entirely
different sectors. This strategy enables companies to minimize risk by
diversifying their investments and not relying solely on one revenue source.

Key Characteristics:
‹ Risk Reduction: Diversification spreads risk by entering new markets
or industries, which can protect the company from downturns in
its core business.
‹ Revenue Growth: By entering new markets, companies can tap
into new revenue streams and opportunities for growth.

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Again, in Table 3.15 we can see how the leading Indian companies have Notes
successfully carried out the implementation of diversification strategies.
Some of these companies have grown and diversified their operations by
penetrating new sectors, while others have moved into various related
industries.
Table 3.15: Examples of Diversification Strategy
Type of
Diversification Company Industry Strategy Details
Related Diversifi- Mahindra & Conglomerate E x p a n d i n g Diversified from
cation Mahindra into related automotive into
industries agribusiness, IT
services, and
hospitality to
leverage existing
strengths.
Related Diversifi- Godrej Group Conglomerate E x p a n d i n g Diversified into
cation into related real estate, con-
industries sumer products,
and agribusiness,
all linked by a
focus on quality
and innovation.
Unrelated Diversi- Tata Group Conglomerate E x p a n d i n g Expanded from
fication into unrelated steel and au-
industries tomobiles into
telecommunica-
tions, IT, and
hospitality.
Unrelated Diversi- ITC Limited FMCG, Hos- Diversifying Moved from to-
fication pitality, Paper- across unre- bacco products
boards lated sectors i n t o F M C G ,
hospitality, and
paperboards, cre-
ating multiple
revenue streams.

3.6.1.5 International Expansion

International expansion is a growth strategy that allows companies to enter
new markets beyond their home country. This strategy can provide access
to new customer bases, diversify revenue streams, and reduce reliance
on domestic markets. There are several methods for expanding interna-
tionally, each with unique benefits and challenges. Below are detailed

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Notes explanations and examples for the four primary methods: Multi-Domestic
Approach, Franchising, Licensing, and Joint Ventures. Table 3.16 provides
a structured overview of international expansion methods, describing each
approach along with relevant examples.

Table 3.16: International Expansion Methods

Method Description Example
Multi-Domestic Involves tailoring products, McDonald’s India: Adapts its menu
Approach services, and marketing strat- to cater to local tastes with vegetarian
egies to the specific needs options like the McAloo Tikki burger
and preferences of each for- and Paneer Wrap, and does not serve
eign market, acknowledging beef or pork, respecting local religious
different cultural, legal, and practices.
economic conditions. Effective
in markets where local tastes
significantly differ from the
home market.
Franchising A strategy where a company Domino’s Pizza India: Expanded
allows independent operators through franchising with Jubilant
to use its brand, products, and FoodWorks as the master franchisee,
business model in exchange for tailoring its menu to include local
a fee. Enables rapid expansion favorites like Paneer Pizza and Peppy
with lower capital investment Paneer.
as franchisees bear the setup
and operational costs. Useful
for companies with strong
brand recognition and stan-
dardized operations.
Licensing Involves granting a foreign Bajaj Auto’s Licensing Agree-
company the rights to produce ments: Entered into agreements with
and sell the licensor’s products. manufacturers in Africa and Southeast
Allows entry into new markets Asia to produce and sell Bajaj-branded
with minimal investment and motorcycles, expanding brand presence
risk, with the licensee paying with minimal direct investment.
royalty fees for intellectual
property use.
Joint Ventures Forming a partnership between Maruti Suzuki: A joint venture
a domestic and a foreign com- between Maruti Udyog (India) and
pany to share resources, risks, Suzuki Motors (Japan) that transformed
and profits in a new market. India’s automotive industry. Suzuki
Both partners contribute assets, provided technology and expertise,
capital, and expertise, useful while Maruti offered local market
in markets with complex reg- knowledge and distribution networks,
ulatory environments or where making it a market leader.
local knowledge is crucial.

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Notes
3.7 The CAGE Distance Framework
The CAGE Distance Framework is a strategic tool that helps compa-
nies assess and understand the challenges of entering foreign markets by
analyzing the differences between countries across four dimensions: Cul-
tural, Administrative, Geographic, and Economic distances. Developed by
Pankaj Ghemawat, this framework emphasizes that “distance” is not just
a physical measurement but includes other factors that can significantly
impact international business operations. Each dimension of the CAGE
Framework provides insights into potential barriers and opportunities for
businesses considering international expansion.
Figure 3.1 illustrates the four dimensions of the CAGE Distance Frame-
work—Cultural, Administrative, Geographic, and Economic—highlighting
the various factors that impact international business strategies and market
entry decisions.

Figure 3.1: CAGE Distance Framework

(Source: Saville, A., Macleod, I., & Onaji-Benson, T. (2021). Platforms of prosperity:
The Africa edition.)

3.7.1 Introduction to CAGE Framework

The CAGE Distance Framework assists enterprises in determining factors
that may complicate their international market entry. It aids in identifying
and evaluating the various types of distance between the country of origin

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Notes and the international countries of interest to comprehend the difficulties

that they may be required to confront. This is helpful in formulating mar-
ket penetration and product modification, as well as determining the risk
avoidance measures. It provides strong advantages whenever a number
of potential markets are being studied by narrow warranting a choice of
the least cost one with respect to the distance.

3.7.2 Cultural Distance

Cultural Distance is the term used to describe national cultures distance
which would differ in terms of language, social customs, values, and
religion, as well as consumer behavior. The distance of cultural nature
between two nations may influence how goods or services are marketed
and the way business transactions are carried out.
Key Considerations:
‹ Language Barriers: Variations in the language can create
communication barriers which in turn creates misconceptions in
marketing communication, in marking, or labeling of products. This
may also require translation of some documents and changing the
strategy of communication.
‹ Consumer Preferences: Cultural variation can result in some
diversity or even drastic differences in tastes and preferences across
countries. For example, something that is enjoyed in one culture
may not appeal to those in another culture due to differences in
food, preferences, or way of life.
‹ Business Practices: Different concepts or approaches such as
negotiating, how decisions are made, how hierarchy and formalism
are perceived and utilized, are practiced in distinct ways depending
on various cultures.
Example:
An American fast-food chain entering the Indian market faces significant
cultural distance related to dietary preferences and religious practices.
India has a large vegetarian population, and many consumers avoid beef
and pork for religious reasons. To succeed in this market, the company
would need to adapt its menu to include more vegetarian options and
avoid using ingredients that are culturally sensitive.

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3.7.3 Administrative Distance Notes

Administrative Distance pertains to the variation between the countries
in terms of politics, legal set ups and institutions. This attitude of the
Cage framework concentrates primarily on the problems that arise out
of the differences between policies and the legal framework of different
governments.
Key Considerations:
‹ Regulatory Environment: Set of policies and structures such as
employment acts, environmental regulations or even rules of a
given industry can determine how easy it is for any given company
to invest and operate in a given market. They are bound to work
within these regulations and ensure that they are compliant.
‹ Political Stability: Investment risks share a direct correlation with
political stability level. The greater the instability of a government
or the number of shifts in policies, the higher risks international
investors face.
‹ Legal Systems: Companies with international operations face several
challenges owing to the differences in contracting, enforcement of
contracts, legal rights and protection of assets, and legal systems
resolving disputes.
Example:
A technology company from the United States wishing to enter the Chinese
marketplace may encounter an administrative distance due to the Chinese
government’s control of internet content, data privacy, and restrictions
on foreign investment. Realistically, one has to devise legal means of
working around the rules or carry out joint ventures with local firms.

3.7.4 Geographic Distance

Geographic distance refers to the relative location of two countries with
distance, time zone, climatic conditions, transport facilities, and accessi-
bility of the country. After all, geographic distance affects the logistics,
communication of the company and the efficiency of its operations in total.

Key Considerations:
‹ Physical Distance: As the home country and the target country are far
apart from each other, the arrangement increases transportation costs
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Notes and duration. This can be detrimental to supply chain management

and service delivery parameters.
‹ Time Zones: Geographic dispersion of time zones might pose an
obstacle to effective communication which may require rescheduling
of work hours and even service operating hours.
‹ Climate and Terrain: Geographic dispersal of climate and terrain may
affect the range of marketable products as well as the configuration
of sourcing and logistical systems.
Example:
A European manufacturer exporting goods to Australia must account
for the significant geographic distance, which can lead to high shipping
costs and longer delivery times. This distance might also necessitate es-
tablishing local warehousing or production facilities to reduce costs and
improve service levels.

3.7.5 Economic Distance

Economic distance centers around the differences between two countries
relative to economic growth, income levels, economic spending power
of a consumer, and sizes of the particular markets. Economic distance
also determines the price of products and services, which consumers are
willing to pay and the overall likelihood of the market being fruitful.
Key Considerations:
‹ Income Levels: Disparity in the average income levels of a nation’s
responsibility grossly affects the types and nature of goods and
services being transacted with the lower and the upper levels of
the market. In low-income markets, basic goods would be more
prevalent, whereas in high-end markets clothing would be popular.
‹ Market Size: The scale of activities and profitability that an
organization anticipates to achieve is measured against the size of
the intended market which encompasses the number of demand and
potential customers.
‹ Economic Stability: Economies that are characterized by a stable
economy provide lower level of uncertainty in terms of businesses
operating within such an economy in Contrasts, Economies that are
characterized by inflation rates, currency instability and economic
instability are deemed high risk.
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Example: Notes
An India based luxury car manufacturer would have a cost disadvantage
because average income levels are very low. In order to enter the Indian
market, the company would have to come up with new models which
are affordable for the Indian consumers.

3.7.6 Application of CAGE Framework in International Strategy

The CAGE Distance Framework is a useful model for organizations that
are looking to expand internationally. By trying to understand the cultur-
al, administrative, geographic, and economic distances that lie between
the home country and the potential foreign markets, the business will
be able to develop marketing strategies, adapt products and manage the
risks associated with the foreign market entry.
Applications:
‹ Market Selection: A company can use the CAGE Framework to
identify a market with the least distance in every dimension compared
to others being analyzed. In this case, a company’s market dimension
will be interpreted as a combination of economic, administrative,
cultural and geographical distance.
‹ Entry Strategy: Depending on the distance, companies may establish
a joint venture, wholly owned subsidiary or export which may be
satisfactory or favorable.
‹ Product Adaptation: The framework aids in estimating or measuring
the extent to which a company’s products need to be modified to
suit the local culture and economy.
‹ Risk Management: By understanding possible risks that come with
vast distances in many aspects of the business, a business will be
able to develop strategies to lessen these risks, for instance, entering
into joint ventures or focusing on that area.
Example:
When thinking about entering Japan, a US consumer electronics provider
would look to adopt the CAGE framework to understand the cultural
distance regarding consumer behaviour and preferences, the adminis-
trative distance in terms of regulatory requirements, the geographic
distance covering supply chain operations and the economic distance,

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Notes which looked at the income level. This thorough analysis would enable
the firm to formulate the most appropriate entry, marketing and product
strategies that would be relevant to the Japanese context facilitating the
likelihood of success.

3.8 Types of Renewal Strategies

Renewal strategies are critical for companies that are facing difficulties,
declining performance, or significant challenges in the market. These
strategies are designed to help businesses regain their competitive edge,
stabilize operations, and restore profitability. Renewal strategies may
vary, reflecting the specific challenges a company encounters and the
outcomes it aims to achieve. In this section, we will explore two prima-
ry types of renewal strategies: Retrenchment Strategies and Turnaround
Strategies. We will also examine examples of successful implementation
of these strategies.

3.8.1 Retrenchment Strategies

Retrenchment Strategies are intended to limit the scope of the services
or the activities of a firm in order to reduce operational costs in order
to strengthen the financial position of the company. This is often the
case when a firm is in the state of financial distress, low sales or unfa-
vorable growth conditions. Retrenchment strategies encompass reducing
the scale of operations through staff layoffs, selling off non-performing
assets, cutting costs and rationalising core business operations. The goal
is to restructure the business, reduce costs, and redirect the remaining
resources into the most profitable areas of the business.
Key Aspects of Retrenchment Strategies:
‹ Downsizing: Cutting down on staff numbers in order to reduce
wage expenses and enhance operational effectiveness.
‹ Divestment: Selling off non-core or underperforming business units
or assets to free up capital and focus on core operations.
‹ Cost-Cutting: Costing policies should be implemented at all levels to
effectively control overhead costs and thereby enhance profitability.
Example: A manufacturing company facing declining profits might im-
plement a retrenchment strategy by closing underperforming factories,

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laying off workers, and selling non-essential assets. This approach would Notes
enable the company to cut fixed expenses and focus its resources on the
most profitable product lines.

3.8.2 Turnaround Strategies

Turnaround Strategies are comprehensive plans designed to reverse a
company’s decline and restore it to a healthy, profitable state. Unlike
retrenchment, which focuses primarily on cost reduction, turnaround strat-
egies often involve a broader restructuring of the company’s operations,
management, and market strategy. The goal is not just to stabilize the
business but to position it for renewed growth and success.
Key Components of Turnaround Strategies:
‹ Restructuring: Complements the nature of the firm’s business
strategy by realignment of its structure, management and operations
towards its goals of efficiency and perception.
‹ Revamping Product Lines: Devising new products that will increase
customer bases or updating existing ones so they can be of use to
the market more effectively.
‹ Strategic Repositioning: Adjusting according to where the company
stands or the business model they employ due to the dynamic nature
of markets or the existing situation with the consumers.
Example: A retail chain experiencing declining sales may embark on a
turnaround strategy first by increasing the variety of its products, im-
plementing a better online shopping system, and reorganizing the store’s
working procedures to assist clients and enhance sales.

3.8.3 Examples of Successful Renewal Strategies

In the face of financial challenges and declining market performance,
companies often turn to renewal strategies such as retrenchment and
turnaround to restore stability and achieve long-term sustainability. These
approaches entail substantial alterations in operational processes, cost
configurations, and strategic orientation, enabling companies to adjust to
changing market dynamics and reclaim their competitive advantage. The
following examples highlight how prominent companies have successfully
implemented these strategies, demonstrating the practical application of
retrenchment and turnaround approaches across various industries.

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Notes Table 3.17 illustrates how companies like Apple, General Motors, Star-
bucks, and Tata Motors have effectively used these strategies to navigate
difficult periods, stabilize their operations, and secure a path to profit-
ability and growth.

Table 3.17: Examples of Successful Implementation

of Renewal Strategies
Company Strategy Type Background Strategy Outcome
Apple Inc. Turnaround In the late 1990s, Restructured A p p l e ’s t u r n -
Strategy Apple was near- t h e c o m p a n y, around was
ing bankruptcy streamlined the highly success-
due to declining product line, and ful, leading to its
market share and launched inno- resurgence as a
poor product per- vative products global leader in
formance. like the iMac and technology and
iPod under Steve innovation.
Jobs’ leadership.
General Retrenchment GM faced severe Closed unprofit- These measures
Motors Strategy financial diffi- able plants, re- helped GM re-
culties during duced workforce, duce costs, re-
the 2008 fi- and discontinued structure opera-
nancial crisis, underperforming tions, and return
leading to a gov- brands like Pon- to profitability.
ernment-backed tiac and Saturn.
bailout.
Starbucks Turnaround In the mid-2000s, Closed underper- The strategy
Strategy Starbucks expe- forming stores, revitalized the
rienced declining improved prod- brand, leading
sales and profits uct quality, and to a strong re-
due to over-ex- refocused on the covery in sales
pansion and loss customer experi- and profitability.
of brand focus. ence.
Tata Motors Retrenchment Ta t a M o t o r s Cut costs, re- The company sta-
Strategy faced challeng- duced workforce, bilized its finan-
es in its domes- and focused on cial performance
tic market with core models and refocused on
declining sales while divesting its core business
of passenger ve- non-core assets. segments.
hicles.

3.9 Introduction to Mergers & Acquisitions (M&A)

Mergers and Acquisitions (M&A) serve as key business strategies for
firms pursuing their varied aims such as expansion, diversification and

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acquisition of competitive edge. Mergers and Acquisitions (M&A) assist Notes

companies not only in expanding their reach into new markets but also
in acquiring new technology and entering new markets or achieving low-
ered production costs. However, achieving these said goals is a complex
undertaking that also involves certain challenges and risks associated
with M&A. This section considers the phenomenon of M&A: definition,
types, strategic objectives and problems associated with it.

3.9.1 Definition and Importance of M&A

Mergers and Acquisitions (M&A) is the joining of companies and other
assets through various financial transactions. Mergers imply that two
companies come together to form a new company while one company
purchases the other entirely in an acquisition. Both cases target increasing
the value of the firm by combining resources, skills and market positions.
M&As are crucial elements that help a company that has the ambitions of
increasing growth rate, exploring new arenas, improving its product range
or even reduce costs. By merging or taking over other firms, businesses
can increase the size of their organization, diversify their business and
increase their competitive edge almost immediately. Through Mergers and
Acquisitions, companies can also access new markets, new cutting-edge
technologies, and create economies of scale which will translate into
more savings.

3.9.2 Types of Mergers and Acquisitions

Mergers and Acquisitions (M&A) represent intricate deals that vary in
form based on the dynamics between the entities involved and the strategic
objectives of the transaction. Comprehending the various types of M&A
is essential for evaluating their potential to generate value, the difficulties
they may introduce, and the motivations driving companies to engage in
these activities. The four main types of M&A are Horizontal Mergers,
Vertical Mergers, Conglomerate Mergers, and Acquisitions. Table 3.18
provides a comprehensive overview of different types of mergers and
acquisitions, highlighting how companies like Vodafone, Reliance, Tata
Steel, and Facebook have successfully implemented these strategies to
achieve strategic goals and enhance their market positions.

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Notes Table 3.18: Types of Mergers and Acquisitions

Type of Merger/
Acquisition Definition Strategic Motive Example
Horizontal Merger Takes place when two Expand custom- Vodafone India and
businesses in the same er base, leverage Idea Cellular (2018):
industry and at identical synergies, enhance The merger resulted
stages of production join market power, and in the formation of
together. This strategy achieve cost sav- Vodafone Idea, which
is commonly aimed at ings through elimi- became India’s larg-
boosting market share, nation of redundant est telecom operator by
diminishing competi- operations. market share, with goals
tion, and realizing econ- to decrease competition
omies of scale. and enhance operational
efficiencies.
Vertical Merger Entails merging two Secure stable sup- Reliance Industries:
companies that function ply of inputs, re- Integration from raw
at distinct stages of the duce production material extraction
supply chain in the same and transaction to retail distribution
industry. This strategy costs, and improve enhanced operational
is adopted to enhance coordination along efficiency and reduced
supply chain efficiency, the supply chain. costs.
minimize reliance on
external suppliers or
distributors, and secure
greater control over the
manufacturing process.
Conglomerate Occurs between compa- Expand revenue Ta t a S t e e l a n d
Merger nies in unrelated indus- sources, mitigate Corus (2007): Tata
tries. Typically pursued risks, and lever- Steel acquired Corus
to diversify business op- age opportunities to expand into the
erations, reduce overall across diverse, un- European steel
business risk, and enter related industries. market, diversifying
new markets. its operations beyond
India.
Acquisition Happens when one com- Access new tech- Facebook and
pany fully buys another nologies, broaden WhatsApp (2014):
and integrates it into product offerings, Facebook’s acquisition
its operations. Acqui- penetrate new mar- of WhatsApp expanded
sitions can be friendly kets, and realize its ecosystem and
or hostile and are typi- economies of scale. strengthened its
cally pursued to quickly presence in mobile
expand market share, communications and
acquire new technolo- messaging.
gies, or breaking into
new markets.

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 Formulation of Competitive Strategies

IN-TEXT QUESTIONS Notes

1. Which of the following is a key characteristic of a cost leadership

strategy?
(a) Offering unique products at premium prices
(b) Targeting a specific market segment
(c) Becoming the lowest-cost producer in the industry
(d) Providing the highest level of customer service
2. The CAGE Distance Framework is primarily used to assess
which of the following?
(a) Financial performance of a company
(b) The cultural, administrative, geographic, and economic
differences between countries
(c) The effectiveness of a company’s marketing strategy
(d) The efficiency of a company’s supply chain
3. In a horizontal merger, companies typically:
(a) Merge with companies in unrelated industries
(b) Merge with companies at different stages of the supply chain
(c) Merge with competitors in the same industry and at the
same stage of production
(d) Merge with foreign companies to expand internationally
4. Which of the following strategies focuses on tailoring products
to meet the needs of a specific market segment?
(a) Cost leadership
(b) Differentiation
(c) Focus
(d) Diversification
5. A vertical merger is best described as a merger between:
(a) Two companies in unrelated industries
(b) Two companies at the same stage of production
(c) Two companies at different stages of the supply chain
(d) Two companies in different geographical locations
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Notes 6. The primary goal of a retrenchment strategy is to:

(a) Enter new markets
(b) Expand product offerings
(c) Reduce the scale of operations to cut costs
(d) Increase market share
7. Which of the following is an example of an offensive strategy?
(a) Increasing prices to match competitors
(b) Launching a new product to capture market share
(c) Reducing costs by downsizing
(d) Forming a joint venture with a competitor
8. Conglomerate mergers typically occur between companies that:
(a) Operate in the same industry
(b) Are at different stages of the supply chain
(c) Are in unrelated industries
(d) Are in direct competition with each other
9. Which of the following best describes the focus strategy?
(a) Competing by being the lowest-cost producer across all
markets
(b) Offering a unique product that appeals to the mass market
(c) Targeting a specific niche market with tailored products
or services
(d) Expanding into multiple unrelated industries
10. Which of the following is NOT a component of the CAGE
Distance Framework?
(a) Cultural distance
(b) Administrative distance
(c) Geographic distance
(d) Technological distance

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11. The primary motive behind a company’s acquisition of another Notes

company is typically to:
(a) Reduce market share
(b) Achieve economies of scale and gain access to new markets
(c) Increase operational costs
(d) Limit the company’s product offerings
12. Which strategy involves selling off non-core assets to focus on
core business areas?
(a) Turnaround strategy
(b) Diversification strategy
(c) Retrenchment strategy
(d) Differentiation strategy
13. What is a significant challenge often faced in mergers and
acquisitions?
(a) Immediate increase in revenue
(b) Cultural integration between merging companies
(c) Enhanced brand loyalty
(d) Reduction in market competition
14. Which of the following is an example of a differentiation
strategy?
(a) A budget airline offering no-frills services
(b) A luxury car brand offering custom design options
(c) A discount retailer offering the lowest prices
(d) A manufacturer reducing production costs
15. A key benefit of vertical mergers is:
(a) Increased competition in the market
(b) Better control over the supply chain and production process
(c) Diversification into unrelated industries
(d) Entering new geographic

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Notes CASE STUDY

Strategic Transformation at AlphaTech
Background: AlphaTech is a mid-sized Indian technology compa-
ny which has been strong in the domestic market, specializing in
software products for Small Medium Enterprises (SME). During the
years AlphaTech did well as it concentrated on the strategy of cost
leadership by providing inexpensive and dependable software offer-
ings based on the requirements of Indian small and medium corpo-
rations. But until the year 2020, the conditions in the market began
to change completely. New players targeting the Indian market with
unique product features and low market prices sought AlphaTech’s
customers. Additionally, the rapid speed of technological development
affected AlphaTech’s ability to develop products which are responsive
to customer needs.
Challenges: AlphaTech’s management acknowledged that maintaining
a focus on a cost leadership strategy alone was not going to be a good
approach for future growth in this fast-growing era. Consideration
had to be given to such measures that would enable the company
to maintain its standing in the market, grow in other markets and
develop its product line.
Strategic Shift: To these concerns, AlphaTech, as a measure, resolved
to adopt an all-round strategy that would incorporate differentiation,
new product measures and international growth as part of its plan.
Their strategy was built around several key components:
1. Differentiation Strategy: AlphaTech took a deliberate decision
to change its focus from pure cost competition to one based on
differentiation. The firm centralized its funds in research and
development activities with a view to coming up with high tech
developed software products with Artificial Intelligence (AI)
and Machine Learning (ML) capabilities. The goal of designing
these new products was to increase software assistance and
personalization which made AlphaTech stand out.
2. Product Development: AlphaTech was able to increase its products’
inventory by developing cloud solutions and mobile applications to

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meet the needs of the market which embraced more versatile Notes
and more easily accessible software instruments. This change
enabled the company to reach new segments since this allowed
it to serve much bigger customers like large companies that
needed more complex solutions.
3. International Expansion: AlphaTech also began looking for ways
to expand its operations internationally. The company employed
the CAGE Distance Framework to identify countries that could
be their target. After careful consideration, AlphaTech opted for
the Southeast Asian region after confirming the cultural and
economic distances to be reasonable and the market for SME
software solutions to be promising. The company adopted a
multi-domestic strategy, adjusting its products to the demands
of different markets within the region.
4. Acquisition: Internally, AlphaTech used a strategy of gradually
penetrating the global market by first acquiring a small yet
established software firm in Indonesia. It emerged on the
international market with an existing consumer base alongside
a firm understanding of the local markets’ forces and a foothold
for further development in Southeast Asia.
Outcomes: The strategic transformation at AlphaTech yielded pos-
itive results. The company’s differentiated products gained traction
in both domestic and international markets, allowing it to regain lost
market share and establish a presence in new regions. The acquisi-
tion in Indonesian enabled AlphaTech to rapidly extend their pres-
ence throughout Southeast Asia, while its innovativeness made the
company a dominant participant in the SME software market, With
new products and sales in other markets especially outside America,
Alpha Technologies expects high revenue in 2023.

Discussion Questions
1. What were the key factors that led AlphaTech to reconsider
its initial cost leadership strategy, and how did these factors
influence the company’s decision to pursue differentiation and
product development?

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Notes 2. How did AlphaTech use the CAGE Distance Framework to

identify suitable international markets, and why was Southeast
Asia chosen as the target region for expansion?
3. What problems or challenges would AlphaTech have confronted
in the process of the acquisition of the Indonesian based software
company that would affect the success of its internationalisation
strategy?
4. What strategic advantage did the continued diffusion of an
internationally competitive positioning strategy vis a vis domestic
and international competition provide AlphaTech Technologies
Incorporated?

3.10 Summary
In Lesson 3, we analyzed formulation of competitive strategies, a fun-
damental component of strategic management that enables companies to
secure and sustain a competitive edge in the marketplace. This lesson is
aimed at enabling you with hands-on knowledge and strategic concepts
which you can easily use in your profession and business activities.
In this lesson, we dealt with the development of competitive strategies,
one of the most important elements in the planning of strategy that
gives a firm an ability to compete and survive in the market. The lesson
started with the description of competitive strategies in the context of
their importance in the effective positioning of firms against competitors.
Subsequently, we examined Michael Porter’s framework of generic strat-
egies which comprise cost leadership, differentiation, and focus. These
strategies have distinct ways through which a company can excel, such
as being the cost leader or penetrating a certain market niche.
Implementation issues that were dealt with were also the practical aspects
of the competitive strategies. We examined how firms can implement
such strategies through several tactical moves to include offensives and
defenses tactics which reinforce or improve the competitive position.
The lesson also discussed several strategies pursued at the corporate
level, more particularly, strategies aimed at expansion, such as market
penetration, product growth, merger and acquisition, and diversification.

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Such strategies enable firms to increase their activities, enter into new Notes
territories, and ensure a sustainable growth.
Likewise, we spoke about the making and effects of the CAGE Distance
Framework. This model helps companies explain the differences between
various countries on cultural, administrative, geographic, and economic
dimensions. This model is especially helpful to companies that are em-
barking on an internationalization process as it helps them to comprehend
the intricacies of foreign markets.
Lastly, Lesson 3 was also valuable as it provided practical knowledge on
how firms should plan and engage in competitive and growth strategies in
response to market changes. In this regard, the lesson provided a number
of frameworks and practical examples showcasing how strategic planning
and its implementation facilitate business growth over the long term.

3.11 Answers to In-Text Questions

1. (c) Becoming the lowest-cost producer in the industry
2. (b) The cultural, administrative, geographic, and economic differences
between countries
3. (c) Merge with competitors in the same industry and at the same
stage of production
4. (c) Focus
5. (c) Two companies at different stages of the supply chain
6. (c) Reduce the scale of operations to cut costs
7. (b) Launching a new product to capture market share
8. (c) Are in unrelated industries
9. (c) Targeting a specific niche market with tailored products or services
10. (d) Technological distance
11. (b) Achieve economies of scale and gain access to new markets
12. (c) Retrenchment strategy
13. (b) Cultural integration between merging companies
14. (b) A luxury car brand offering custom design options
15. (b) Better control over the supply chain and production process

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 BUSINESS STRATEGIES

Notes
3.12 Self-Assessment Questions
1. What distinguishes the three generic strategies proposed by Porter:
Cost leadership, Differentiation, and Focus?
2. How can a company effectively implement an offensive strategy to
increase its market share? Provide an example.
3. Explain the CAGE Distance Framework and its relevance in international
business strategy.
4. What are the possible risks involved in mergers and acquisitions,
and how can companies manage or reduce these risks?
5. Describe the differences between horizontal and vertical mergers.
Provide an example of each.

3.13 References
‹ Barney, J. B. (1991). Firm resources and sustained competitive
advantage. Journal of Management, 17(1), 99-120.
‹ Ghemawat, P. (2001). Distance still matters: The hard reality of
global expansion. Harvard Business Review, 79(8), 137-147.
‹ Porter, M. E. (1980). Competitive strategy: Techniques for analyzing
industries and competitors. Free Press.
‹ Porter, M. E. (1985). Competitive advantage: Creating and sustaining
superior performance. Free Press.
‹ Rumelt, R. P. (2011). Good strategy bad strategy: The difference
and why it matters. Crown Business.

3.14 Suggested Readings

‹ Grant, R. M. (2016). Contemporary strategy analysis (9th ed.). Wiley.
‹ Hill, C. W. L., & Jones, G. R. (2019). Strategic management: Theory
& cases: An integrated approach (12th ed.). Cengage Learning.
‹ Johnson, G., Scholes, K., & Whittington, R. (2017). Exploring
strategy: Text and cases (11th ed.). Pearson.
‹ Hitt, M. A., Ireland, R. D., & Hoskisson, R. E. (2016). Strategic
management: Competitiveness and globalization(12th ed.). Cengage
Learning.
‹ Peng, M. W. (2021). Global strategy (4th ed.). Cengage Learning.
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 L E S S O N

4
Strategic Analysis
and Choice
Dr. Abhilasha Meena
Assistant Professor
Management Studies
School of Open Learning
University of Delhi
Email-Id: [email protected]

STRUCTURE
4.1 Learning Objectives
4.2 Introduction
4.3 Strategic Gap Analysis
4.4 Portfolio Analysis
4.5 Behavioral Considerations in Strategic Choice
4.6 Impact of Structure, Culture, and Leadership on Strategy Implementation
4.7 Functional Strategies and Their Link with Business-Level Strategies
4.8 Introduction to Strategic Control and Evaluation
4.9 Summary
4.10 Answers to In-Text Questions
4.11 Self-Assessment Questions
4.12 References
4.13 Suggested Readings

4.1 Learning Objectives

By the end of this lesson, you will be able to:
‹ Understand the significance of strategic analysis and choice in the overall strategic
management process, and how these steps contribute to achieving long-term
organizational goals.
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Notes ‹ Apply various portfolio analysis tools such as the BCG Matrix, GE/
McKinsey Matrix, and Life Cycle Portfolio Matrix to assess the
strategic position of business units and make informed decisions
about resource allocation.
‹ Conduct a strategic gap analysis to identify discrepancies between
an organization’s current performance and its strategic goals and
develop strategies to bridge these gaps.
‹ Evaluate the impact of behavioral considerations—including cognitive
biases, managerial perceptions, and organizational politics—on the
strategic decision-making process.
‹ Analyze how organizational structure, culture, and leadership influence
the successful implementation of strategies, and understand the
critical role these factors play in strategy execution.
‹ Gain an understanding of strategic control and evaluation
processes, including how to monitor and modify strategies to
maintain alignment with the organization’s goals and adapt to
evolving external circumstances.

4.2 Introduction
The heart of effective strategic management encompasses strategic choice
and analysis. Each organization is faced with a constantly changing set of
internal and external factors. For an organization to succeed in such an
environment, it has to demonstrate a continuous evaluation of its current
standing, indicate available growth chances, and make rational choices
on the best possible methods of attaining the set goals. This is where
strategic analysis and choice are required.
Strategic analysis involves analyzing the internal capabilities as well
as the external environment of the firm. With such analysis, an entity
is able to identify its strengths, weaknesses, opportunities, and threats,
often analyzed in a SWOT analysis. Armed with such information, firms
are in a better position to operate in the market environment, using their
strengths to take advantage of opportunities while trying to gain even
more strength to overcome weaknesses and avoid risk exposure.
Still, analytical perspective alone will not suffice. The next important step
is strategic choice. This is the process of selection of the best strategies in
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consideration of the organization’s objectives and its resources. This stage Notes
requires the highest level of decision making where all the alternatives
are directed strategically and the best in terms of success possibilities
is selected. Such strategic alternatives could be venturing new markets,
creating new product lines, or even redesigning the organization in order
to become more efficient or effective.
In this lesson, you will be exposed to a number of frameworks that are
necessary for proper strategic appraisal and formulation. These frameworks
include portfolio analyses, such as the BCG Matrix and GE/McKinsey
Matrix, that enable organizations evaluate the various units of a business
and determine the crucial points for investment. You will also study the
concept of strategic gap analysis which refers to the difference between
the current status and the strategic objectives that have been set and how
to formulate plans to achieve these objectives.
Let’s also look at scenarios that revolve around decision-making tenden-
cy, for instance how managerial perceptions and organizational structure
affect the choices made by leaders. Mastering these behavioral aspects is
important because they can sometimes turn out to be the deciding factor
that make or break a strategy.
To end with, you will also assess the effects of the structure, culture and
leadership of the organization on the effectiveness of strategies. After
all, even the most promising strategies can be compromised if they are
not backed up by the appropriate structures within the organization. You
will also understand how these aspects should be integrated within the
selected strategies to ensure their attainment and to help the organization
to achieve its objectives.

4.3 Strategic Gap Analysis

Strategic gap analysis for any organization is of utmost importance
because it allows the managers to analyze the existing standing of the
organization with respect to the strategies it wants to achieve. It can be
said that this is a picture capturing the current photograph of an active
organization and placing it alongside the one that displays the desired
outlook of the said organization at a future date. From this analysis the
differences are easily identified, that is, the areas where one’s performance
and expectations of that performance are not quite a perfect match.
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Notes Filling in these gaps is crucial as it gives you a precise insight on what
needs to be done in order for an organization to meet its objectives.
Once the gaps are identified, you will be able to isolate these objectives
and create focused strategies that are aimed specifically on closing these
objectives to ensure that the organization is headed in the right direction
in order to achieve its strategic goals.
Strategic gap analysis is not only about determining what is missing but
what resources are available to make up for these gaps. Take for example,
if the organization has an R&D department but innovation in product is
high, the gap analysis may indicate under R&D to strengthen the design
process. Likewise, if a company is losing market share whereas they have
a strong customer service department, then the analysis may suggest ways
to improve that competitive advantage.
In this section, the definition and purpose behind strategic gap analysis
will be discussed further. A gap analysis requires a step-by-step analysis
in tandem with the strategic objectives and understanding the current state.
Table 4.1 outlines the key steps involved in conducting a strategic gap
analysis and provides examples to illustrate each step.
Table 4.1: Key Steps for Conducting a Strategic Gap Analysis
Step Description Example
1. Set Clear Stra- Establish Specific, Measurable, Achiev- Increase market share by 10%
tegic Goals able, Relevant, and Time-Bound within the next fiscal year.
(SMART) objectives for your orga-
nization. This provides a benchmark
for evaluating performance.
2. Assess Current Evaluate current performance against Assess current market share
Performance the established goals by analyzing and growth rate to measure
Key Performance Indicators (KPIs). against the 10% increase goal.
This assessment creates a baseline to
measure progress and identify gaps.
3. Identify Gaps Compare current performance with Identify a 5% shortfall if the
desired goals to identify discrepancies. current market share increase
These gaps highlight areas needing is only 5% instead of the
improvement. 10% goal.
4. Analyze Causes Understand the underlying reasons for Analyze factors like inade-
the identified gaps, such as internal quate marketing, strong com-
issues or external factors. This helps petition, or shifts in consumer
in developing targeted strategies to preferences.
address the problems.

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Step Description Example Notes

5. Develop Action Create specific action plans to address Increase marketing budget,
Plans the gaps, outlining steps to improve launch a new campaign, or
performance, allocate resources, and hire additional marketing staff
assign responsibilities. to address the gap.
6. Monitor Prog- Continuously track progress after Regularly review progress
ress implementing action plans to ensure towards the market share
they are effective. Regular reviews goal and adjust strategies
help in making necessary adjustments if needed.
and ensuring alignment with strategic
objectives.

4.3.1 Identifying Gaps between Current and Desired Performance

To conduct a strategic gap analysis, one needs to first understand the
difference between the present level of any organization and level that the
organization wants to reach in future. This stage requires that a thorough
examination of different aspects particularly those that are expected to
meet the organizational goals across the business is undertaken. Table 4.2
outlines the key aspects of strategic gap analysis, providing a clear ap-
proach to identifying and addressing performance gaps.

Table 4.2: Key Aspects of Strategic Gap Analysis

Aspect Description Example

Performance Evalu- Assess current operations, pro- If the goal is a 20% improvement
ation cesses, and outputs against stra- in customer satisfaction scores
tegic goals. Identify areas where but current scores show only a
performance falls short. 10% improvement, this indicates
a performance gap.
Resource Assessment Determine if the organization has If a new product launch is
the necessary resources (skills, planned but the R&D department
technology, finances, infrastruc- lacks sufficient skilled personnel,
ture) to achieve strategic goals. this represents a resource gap.
Capability Analysis Evaluate if current capabilities If aiming to lead in digital inno-
(skills, knowledge, processes, vation but lacking technological
technologies) align with stra- capabilities, this highlights a
tegic goals. Identify any gaps capability gap that needs ad-
in capabilities. dressing.
Market and Compet- Compare performance with com- If a competitor gains market
itive Analysis petitors and market expectations. share with a new product feature
Identify gaps in performance that your organization lacks,
relative to competitors and mar- this competitive gap needs to
ket trends. be closed.

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Notes
4.4 Portfolio Analysis
Portfolio analysis is part of the strategic management of an organization
that enables them to integrate and control a bundle of businesses or
products in a systematic manner. This is rather advantageous process for
organisations which span multiple markets or have a long range of prod-
ucts and services. In fact, with the help of portfolio analysis, one is able
to evaluate the performance of each business unit or a specific product
line, establish its relevance with regard to the overall strategic objectives,
and extract effective decisions on resource allocation to achieve targeted
results. It suggests a systematic framework for the assessment and control
of the various business, products or services units in an organization.
This aspect is important for firms operating in diverse markets or firms
dealing in several product items as they are in a position to appreciate
the strengths and weaknesses of each component of the portfolio.
The ultimate objective of portfolio analysis is to provide insights to
managers as far as resource allocation, which products or business units
are to be developed or abandoned, and what the risk-return ratio of the
portfolio should be. In turn, this helps in making sure that the organiza-
tion’s resource is employed in the best possible manner that is consistent
with the overriding strategic goals of the organization.
Portfolio analysis has a number of tools and frameworks such as BCG Matrix,
GE/McKinsey Matrix, and Product Market Evolution Matrix among others.
These matrices provide different perspectives with regard to the performance
and potential of your business units or products, thus assisting in the deci-
sion-making process. These tools are useful in the process of subdividing
your portfolio into various categories based on the level of market devel-
opment, market share, competition, and profitability. For instance, the BCG
Matrix divides products or business units into four categories: low growth
and low market share (dogs), low growth and high market share (cash cows),
high growth and low market share (question marks), high growth and high
market share (stars). This helps the management to assess the products or
business units which will need additional funds for development, which
will need support, and those that may have to be sold out.

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In the following sections, you will explore these tools in more detail, Notes
learning how to apply them to the organization’s portfolio. By the end of
this section, you will have a clear understanding of how portfolio analysis
can guide your strategic decisions and help you optimize the organization’s
performance across its various business units or product lines.

4.4.1 BCG Matrix

The BCG Matrix, developed by the Boston Consulting Group, stands as
a prominent tool in portfolio analysis. It offers a straightforward, visual
method for classifying an organization’s products or business units ac-
cording to their market growth rate and relative market share. Table 4.3
encapsulates the BCG Matrix along with its four quadrants. This matrix
facilitates resource allocation and strategic planning by highlighting the
market position and growth potential of each product or business unit.

Table 4.3: BCG Matrix and its Four Quadrants

Quadrant Description Characteristics Strategy
Stars High market growth and Dominant players that Invest to sustain dom-
high market share need substantial invest- inance and stimulate
ment growth
Cash Cows Low market growth but Produce substantial cash Reinvest earnings to
high market share flow with little invest- support other business
ment sectors
Question High market growth but Have growth potential Assess whether to en-
Marks low market share but need heavy invest- hance investment or
ment divest
Dogs Low market growth and Limited profitability and Consider divestiture or
low market share may deplete resources restructuring

A figure illustrating the BCG Matrix (Figure 4.1) will aid in visualizing
these categories and enhance understanding of how various products or
business units align within this framework. The matrix provides a clear,
at-a-glance view of where each unit stands and what strategic actions
might be appropriate.

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 BUSINESS STRATEGIES

Notes

Figure 4.1: BCG Matrix

(Source: https://courses.lumenlearning.com/suny-marketing-spring2016/chapter/
reading-the-bcg-matrix/)

4.4.1.1 Application of the BCG Matrix

Using the BCG Matrix requires mapping your organization’s products
or business units onto the matrix according to their market growth rate
and relative market share. Once plotted, you can analyze each quadrant
to determine the appropriate strategic actions:
‹ For Stars: Continue investing to support their dominant position
and drive further growth.
‹ For Cash Cows: Maintain their position with minimal investment,
using the cash they generate to fund other areas.
‹ For Question Marks: Decide whether to invest heavily to grow
market share or consider divestiture if the potential returns do not
justify the investment.
‹ For Dogs: Consider divesting or restructuring, as these units are
unlikely to contribute significantly to the organization›s future success.
Using the BCG Matrix as part of your portfolio analysis helps you allocate
resources more effectively, ensuring that your organization invests in the
areas with the highest potential for growth and profitability.

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 Strategic Analysis and Choice

By the conclusion of this section, you will learn how to apply the BCG Notes
Matrix to assess your portfolio, formulate strategic decisions, and enhance
your organization’s performance.
Table 4.4 helps visualize how different products or business units can be
strategically managed using the BCG Matrix, making it easier to under-
stand the best course of action for each category.

Table 4.4: Examples of Business Units in the BCG Matrix

Example
Example Business Unit/
Quadrant Description Company Product Strategic Action
Stars High m a r k e t Apple iPhone Continue investing
growth, high mar- in innovation and
ket share. Requires marketing to main-
significant invest- tain leadership and
ment to maintain drive further growth.
and grow.
Cash Low m a r k e t Microsoft Microsoft Office Maintain position,
Cows growth, high mar- Suite use cash flow to
ket share. Generates fund other ventures
strong cash flow such as new product
with little need for development.
investment.
Question High m a r k e t Tesla Solar Roof Invest in market-
Marks growth, low market ing and technology
share. Potential for to increase market
growth but requires share, or re-evaluate
heavy investment. investment if returns
are not promising.
Dogs Low m a r k e t IBM I B M P e r s o n a l Consider divest-
growth, low mar- Computers ing or reallocating
ket share. Minimal resources to more
returns, may drain promising areas, as
resources. this unit is unlikely
to contribute sig-
nificantly to future
growth.

4.4.2 GE/McKinsey Matrix

The GE/McKinsey Matrix serves as a crucial resource in strategic man-
agement, particularly for organizations active in diverse industries or with
multiple product offerings. This matrix enables a comprehensive evaluation
of each business unit or product line, utilizing a wider range of factors
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 BUSINESS STRATEGIES

Notes compared to simpler tools like the BCG Matrix. Employing the GE/McK-
insey Matrix allows for more informed decision-making regarding invest-
ment allocations, areas to sustain, and sectors to divest or deemphasize.
The GE/McKinsey Matrix, also referred to as the GE Nine-Box Matrix, is
a strategic framework developed in the 1970s by McKinsey & Company
specifically for General Electric (GE). This matrix goes beyond simpler
tools by assessing business units or products across two critical dimensions:
1. Industry Attractiveness: This dimension evaluates the appeal of the
market or industry where the business unit operates. Influential factors
like market size, growth rate, profitability, level of competition, and
technological developments play a role. Understanding these elements
helps assess whether the industry holds promising opportunities for
growth and profit.
2. Competitive Strength: This dimension assesses the robustness of
your business unit within its industry. It considers aspects such as
market share, brand recognition, customer loyalty, cost effectiveness,
and innovation capacity. This evaluation aids in determining how
your business unit stacks up against competitors in the same sector.
The matrix is organized as a 3 × 3 grid consisting of nine cells. The
vertical axis measures industry attractiveness, while the horizontal
axis assesses competitive strength. Business units are plotted on the
matrix based on their scores in these two dimensions. The matrix
categorizes business units into three main strategies:
‹ Grow: This category is for units that are situated in highly
attractive industries and possess strong competitive strength.
These units are prime candidates for substantial investment to
further increase their market presence.
‹ Hold: For units with medium attractiveness and competitive
strength. These should be maintained with moderate investment
to protect their current market position.
‹ Harvest/Divest: For units with low attractiveness and weak
competitive strength. These units may be candidates for reducing
investment, divestment, or restructuring to focus resources elsewhere.
Figure 4.2 illustrates the GE/McKinsey Matrix, showing how different
business units or products are placed within the grid based on their

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 Strategic Analysis and Choice

industry attractiveness and competitive strength. This visual helps you Notes
quickly identify which units should be prioritized for growth, maintained,
or possibly divested.

Figure 4.2: GE/McKinsey Matrix

(Source: https://productmindset.substack.com/p/mckinsey-ge-stoplight-matrix)

4.4.2.1 Application of the GE/McKinsey Matrix

The GE/McKinsey Matrix provides a wide range of capabilities in terms
of taking strategic decisions related to a company’s portfolio. The fol-
lowing steps are required to properly implement the framework across
the organization:
1. List Business Units or Products: Start with a generic approach
targeting various segregations within the products offered by the
company. These could be different divisions of your company,
product lines, or even services offered.
2. Evaluate Industry Attractiveness: For each unit, judge the general
attractiveness of the industry by assessing its market size, growth,
profitability, and competition level. Each factor is assigned a score, and
cumulative score also known as an attractiveness score is calculated.
3. Assess Competitive Strength: In this viewpoint, rating will be defined
for each business unit focusing on their market position. Brand
strength, operational excellence, target market, and diversification
strategies could be explored. Each factor must also be rated, and a
cumulative competitive strength score must be derived.

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Notes 4. Place Units on the Matrix: Finally, once you have the scores for
industry attractiveness and competitive strength for all the units,
place each unit within the GE/McKinsey Matrix. Each unit cell will
define the strategic actions in the definitional cells in the grid.
5. Strategic Decision-Making: Analyze the respective strategic approaches
regarding given positions of each unit within the matrix:
‹ Grow: Increase the investment in those units, which are in
favorable industries and holds strong competitive advantage.
Such units present the best growth opportunities.
‹ Hold: Do not alter the investment in units that operate in
industries with at least some attractiveness or possess at least
some competitive strength. These units are fairly stable but may
not provide much growth opportunities.
‹ Harvest/Divest: Cut back on the units that operate in unattractive
industries and do not have effective competition by considering
lowering or completely divesting these units. Such units may not
be worth investing which can provide growth in the long run.
Table 4.5 provides concrete examples of how real-world business units
or products might be evaluated using the GE/McKinsey Matrix. By cat-
egorizing business units based on industry attractiveness and competitive
strength, companies can make informed decisions about where to invest,
where to maintain stability, or where to divest, ensuring optimal allocation
of resources for maximum strategic impact.

Table 4.5: Example of GE/McKinsey Matrix Application

with Real-World Examples
Business Unit/ Industry Competitive Strategic Ac-
Product Company Attractiveness Strength tion
Cloud Computing Amazon (AWS) High High Grow
Services
Grocery Retail Walmart Medium High Selective Growth
Smartphone Divi- LG Electronics Low Medium Harvest/Divest
sion
Electric Vehicles Tesla High Medium Selective Growth
(EVs)
Desktop PCs HP Inc. Low Low Harvest/Divest

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 Strategic Analysis and Choice

4.4.3 Product Market Evolution Matrix Notes

Product Market Evolution Matrix provides a strategic framework for under-
standing the lifecycle stages of a market or product category. This matrix
is particularly useful in strategic planning, helping businesses identify and
implement appropriate strategies based on the maturity of the product or
market. The matrix outlines four key stages: Growth, Shakeout, Maturity,
and Decline, each of which requires distinct strategic approaches.
Table 4.6 summarizes the Product Market Evolution Matrix, detailing
each stage of the product or market life cycle and the associated strate-
gic actions:

Table 4.6: Stages of Hofer’s Product Market Evolution

Matrix with Examples
Stage Description Strategic Objectives Real-World Example
Growth This stage is marked by Maximize market share Netflix in the early
rapid market expansion through aggressive mar- 2010s as it expanded into
and increasing sales. keting and rapid expan- streaming and rapidly
Companies focus on sion. grew its subscriber base
capturing market share globally.
and expanding their cus-
tomer base.
Shakeout The market experiences Enhance operational Smartphone market: As
intensified competition efficiency, strengthen it matured, many smaller
and saturation, leading product differentiation, players either exited the
to a consolidation phase and potentially engage market or were acquired,
where weaker competi- in strategic mergers or leaving major players
tors may exit the market. acquisitions. like Apple and Samsung
dominating.
Maturity Growth stabilizes as the Optimize cost struc- Microsoft Windows: As
market becomes saturat- tures, innovate within the operating system mar-
ed. Companies focus on existing product lines, ket matured, Microsoft
maintaining market share and strengthen customer focused on integrating
and optimizing profits loyalty programs. new services, improving
in a competitive envi- security features, and ex-
ronment. panding into cloud com-
puting with Azure.
Decline The market or product Diversify into new mar- Blockbuster Video:
begins to lose relevance kets or revamp product Faced a decline with the
due to new technologies offerings to rejuvenate rise of digital stream-
or shifting consumer the brand or manage the ing services. Initially
preferences, leading to decline strategically by struggled to adapt before
a decrease in demand. minimizing costs and max- eventually going out of
imizing residual value. business.

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Notes Figure 4.3 illustrates the lifecycle stages, showing how market dynamics
change from Growth to Decline. This visual representation helps you
quickly understand the life cycle stage of each product or market, en-
abling you to make more informed strategic decisions.

Figure 4.3: Product Market Evolution Matrix

(Source: https://www.thekeepitsimple.com/portfolio-analysis/)

4.4.3.1 Application of the Product Market Evolution Matrix

The Product Market Evolution Matrix, also known as Product/Market Evolu-
tion Matrix, is one of the most important strategic analysis tools because it
facilitates the timely formulation of appropriate strategies for the business’s
product and its market’s different life cycle stages. The evolution of a product
through the various stages is much more complex than it appears.
This matrix can be applied through a set of steps. These steps can help the
companies that are involved or plan to join an industry to grow and be able
to do business profitably. Here’s how they can make use of this matrix.
Step-by-Step Application:
1. Identify Product Stage: Determine the current lifecycle stage of
each product or market. This may be done by using market research,
sales and benchmark information on results of competing companies.
Strategies can be formulated knowing whether a product is at Growth
or Shakeout or Maturity or Decline stage.
2. Align Strategies with Lifecycle Stage:
‹ Growth Stage: Focus on the expansion of all active distributions,
try to scale production and emphasize aside marketing on the
most possible growth all and in possible.
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 Strategic Analysis and Choice

‹ Shakeout Stage: Seek for ways to make the product operationally Notes
more efficient, start improving it and perhaps improve your market
share through or acquisition or strategic alliances.
‹ Maturity Stage: Optimize costs, innovate within existing product
lines, and focus on customer retention strategies to maximize
profitability.
‹ Decline Stage: Consider divestiture, cost reduction, and if feasible,
reinvention of the product to prolong its lifecycle.
3. Implement Tactical Actions: A different set of tactics must be
adopted based on the current life cycle stage. For example, during
the Growth stage, tactics could include undertaking promotional
activities, e.g. entering into new geographical areas. At Maturity, it
could include loyalty program and redefinition of the value focus.
4. Monitor and Adjust: Continuously evaluate how effective the
strategies are and whether the product continues to be competitive
in the market. Employ the use of Key Performance Indicators
(KPIs) so that the vision is achieved and the strategy is revised
when changes in the external environment are observed including
the entry of new firms into the market or changes in buyer tastes.
5. Prepare for Transitions: Predict the time when a product is expected
to shift into another stage of its life cycle and then act accordingly
to determine the strategies that would be suitable at that point. For
example, when a product nears maturity stage, the product and R&D
may be increased to provide or create advance products.

4.4.4 Experience Curve

The Experience Curve is a strategic concept that illustrates how a com-
pany’s costs decrease as it gains experience in producing a product or
delivering a service. This is also referred to as the learning curve, which
is founded on the observation that as a company increases production
of a specific product or service, its production costs tend to decrease.
Understanding the Experience Curve allows assessing the prospects for
cost reductions, forecasting the pricing policy, and developing decisions
concerning investments. Cost reduction can be attributed to multiple fac-
tors including, but not limited to, learning effects, economies of scale,
process improvements and technological changes.

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Notes ‹ Learning Effects: As workers and managers gain experience, they

become more skilled and efficient, reducing the time and effort
required to produce each unit.
‹ Economies of Scale: When more units are produced, fixed costs
are spread over a larger number of units, thus reducing the cost
per unit in average.
‹ Process Improvements: Over time, companies find ways to streamline
their production processes, reduce waste, and increase productivity,
further lowering costs.
‹ Technological Advancements: Technological innovations that
increase efficiency and cut down cost can result from continued
investment in technology.
The Experience Curve is typically represented as a downward-sloping curve
on a graph, where the horizontal axis represents cumulative production
(the total number of units produced) and the vertical axis represents cost
per unit. As cumulative production increases, the cost per unit decreases.
By understanding and applying the Experience Curve, companies can develop
strategies that capitalize on cost reductions achieved through experience,
enabling them to compete more effectively in their industries. Figure 4.4
will further illustrate how the Experience Curve impacts cost reduction
over time, reinforcing the importance of experience in strategic planning.

Figure 4.4: Experience Curve

(Source: https://ceopedia.org/index.php/File:Experience_curve.png)
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 Strategic Analysis and Choice

4.4.4.1 Strategic Implications of the Experience Curve Notes

Understanding the Experience Curve enables companies to not only opti-
mize their operational efficiencies but also to craft strategies that leverage
these efficiencies for sustainable competitive advantage.
Table 4.7 depicts a comprehensive outline of various strategic implications
and how they may be usefully employed through the illustrated examples
provided. Each aspect highlights how firms can utilize their production
experience to outmaneuver competitors and achieve long-term success in
their respective markets.
Table 4.7: Strategic Implications of the Experience Curve
Implication Description Example Application
Cost Leadership Companies that leverage the A manufacturing firm increases
Experience Curve can achieve its output over time, decreasing
cost leadership by reducing pro- unit costs through refined pro-
duction costs and improving duction techniques, thus offering
efficiencies. lower prices than competitors.
Pricing Strategy Understanding cost reductions A tech company might initially
related to increased experience price a new gadget lower than
allows firms to set aggressive the competition to build market
pricing strategies to capture and share quickly, expecting that
expand market share. production costs will drop as
they scale up.
Investment in Process Continuous improvement in pro- An automotive company invests
Improvement cesses is crucial to ascend the in advanced robotics for assembly
Experience Curve and reduce lines to enhance precision and
costs faster than the industry speed, reducing labor costs and
average. errors over time.
Barriers to Entry Well-established companies with A large-scale solar panel pro-
advanced placement on the Ex- ducer uses its advanced manu-
perience Curve can deter new facturing techniques to produce
entrants through significantly at low cost, discouraging new
lower cost structures. companies from entering the
market due to high initial cost
requirements.
Resource Allocation Firms can strategically invest A pharmaceutical company
in areas where they have the might focus its R&D efforts on
most experience to maximize a specific class of drugs where
the benefits of the Experience they have extensive production
Curve. experience and can apply past
learnings to reduce costs and
accelerate development.

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Notes Table 4.8 provides concrete examples of how the Experience Curve con-
cept is applied in different industries. It highlights companies that have
successfully leveraged their accumulated experience to achieve significant
cost reductions, which in turn have provided them with strategic advantages
such as cost leadership, competitive pricing, and market share growth.

Table 4.8: Example of Experience Curve Application

Experience Curve Im-
Industry Company pact Strategic Implications
Semiconductor Man- Intel Significant cost reductions Achieved cost leadership,
ufacturing through process improve- allowing competitive pric-
ments and economies of ing and high market share.
scale.
Automotive Toyota Continuous improvement Maintained cost leader-
and innovation in produc- ship and high profitability
tion processes. through efficient produc-
tion.
Consumer Electron- Samsung Rapid learning and econ- Lowered prices to cap-
ics omies of scale in smart- ture market share while
phone production. maintaining profitability.
Airline Industry S o u t h w e s t Gained efficiency through Used cost advantages to
Airlines experience in low-cost offer lower fares, gaining
operations. market share and profit-
ability.

4.4.5 Life Cycle Portfolio Matrix

The Life Cycle Portfolio Matrix is essentially a strategic management
which assists businesses to analyze and manage their products or their
business units according to the life cycles of their products or business
units, which are: Introduction, Growth, Maturity, Decline. This classifi-
cation enhances the decision making on resource allocation, strategical
focus and multi-year planning. The Life Cycle Portfolio Matrix defines
itself as an integrating tool that complements the concepts of product life
cycle with portfolio management by providing a template for analysis
in tandem with the stages of the products or business units within the
portfolio of a firm.

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Table 4.9 depicts the major features of the development process of the Notes
new product and the major strategies that must be incorporated during the
different stages of the advanced product lifecycle. Every stage which is
preceded by one has specific strategies in terms of what actions should
be taken so that the product can withstand competitive forces to create
further value for the firm.

Table 4.9: Product Life Cycle Stages and Strategic Implications

Stage Description Strategic Focus
Introduction Products in this stage are new- Substantial investment in mar-
ly launched and gaining market keting, distribution, and product
acceptance. Initial sales are low, development is required to establish
and efforts are concentrated on a market presence.
building awareness and securing
early adopters.
Growth Characterized by rapidly increasing Scaling operations, expanding dis-
sales and market share as products tribution, and optimizing production
gain acceptance. to capitalize on growing demand.
High investment is necessary to
secure market share.
Maturity Sales growth slows as the market Defending market share and im-
saturates. This stage sees intense proving operational efficiency are
competition, often leading to price crucial. Strategies may include
cuts and a heightened focus on product differentiation and en-
cost efficiency. hancements to extend the product’s
life cycle.
Decline Sales decline as products become Decisions on whether to rejuve-
outdated or replaced by new in- nate the product, harvest profits
novations. by cutting costs, or phase out the
product are critical for managing
resources effectively in this stage.

Figure 4.5 illustrates the Life Cycle Portfolio Matrix, showing how prod-
ucts or business units are categorized based on their life cycle stages.
This visual tool helps managers quickly identify where each product
stands in its life cycle and what strategic actions are needed to optimize
the portfolio.

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 BUSINESS STRATEGIES

Notes

Figure 4.5: Life Cycle Portfolio Matrix

(Source: https://medium.com/@kriwin/ansoff-matrix-and-product-life-cycle-
a-comparison-35f0ffa049e1)

4.4.5.1 Application of the Life Cycle Portfolio Matrix

The final aspect of building the Life Cycle Portfolio Matrix is a consis-
tent approach which consists of a set of steps that aid organizations in
better management of their portfolio.
1. Identify Products or Business Units: Begin by identifying the products
or business units that you want to review and record them. Each
product or business unit will be considered for analysis depending
on their present position in the life cycle.
2. Assess Life Cycle Stage: For each product or business unit, determine
its current stage in this life cycle dynamics: introduction, growth,
maturity or decline. Such assessment is based on sales, market,
competition, and the profit levels.
3. Plot on the Matrix: After you determine the product or business
unit’s life cycle stage you can plot them on the Life Cycle Portfolio
Matrix. Figure 4.5 offers a depiction of the positioning of each
product or business unit, simplifying the process of viewing the
overall balance of the portfolio and identifying potential strategic
actions.
4. Strategic Decision-Making: Taking into account the location of
the mentioned products or business units in the matrix outline the
appropriate strategic actions to be taken:

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‹ Introduction Stage: Prioritize substantial investment towards Notes

product development, marketing, and its distribution to create
market penetration.
‹ Growth Stage: Invest heavily in scaling operations and capturing
market share. Emphasize expanding distribution and optimizing
production.
‹ Maturity Stage: Optimize operations, minimize costs, and protect
market share. Consider enhancing products or venturing into new
market segments to prolong the product’s life cycle.
‹ Decline Stage: Decide whether to rejuvenate the product through
innovation, harvest profits by cutting costs, or exit the market.
Strategic decisions should aim to manage declining resources
effectively.
Table 4.10 reveals that the Life Cycle Portfolio Matrix can assist the
top management in strategic decision making by coordinating different
actions with the requirements and possibilities of products or business
units at their different phases of life cycles. It ensures that resources are
effectively allocated to maximize growth and profitability while managing
the challenges associated with products in decline.

Table 4.10: Example of Life Cycle Portfolio Matrix Application

Product/Business Life Cycle Strategic Action
Unit Stage
Electric Vehicles (EVs) Introduction High investment in R&D, mar-
keting, and expanding production
capacity.
Cloud Storage Services Growth Scale operations, expand infrastruc-
ture, increase marketing efforts.
Desktop PCs Maturity Optimize production, reduce costs,
defend market share, explore niche
markets.
DVD Players Decline Harvest profits, reduce costs, con-
sider product discontinuation or
exit strategy.

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Notes 4.4.6 Grand Strategy Selection Matrix

The Grand Strategy Selection Matrix is a strategic tool used by orga-
nizations to determine the most appropriate strategic direction based on
their market position and the state of their industry. By using this matrix,
companies can identify whether they should pursue growth, stability, or
retrenchment strategies depending on their competitive strength and the
level of market attractiveness.
The Grand Strategy Selection Matrix organizes strategic options into four
primary categories, based on two crucial dimensions: market growth rate
(high or low) and competitive position (strong or weak). This matrix helps
organizations to assess their current situation and select the most suitable
grand strategy to pursue. The four quadrants of the matrix include:
1. Quadrant I: Market Growth Strategies (Strong Competitive
Position, High Market Growth)
‹ Strategies: Market development, product development, innovation,
and diversification.
‹ This quadrant is ideal for companies with a strong market position
in a rapidly growing industry. The focus is on expanding market
share and capitalizing on growth opportunities.
2. Quadrant II: Stability Strategies (Strong Competitive Position,
Low Market Growth)
‹ Strategies: Market penetration, product enhancement, and
maintaining current market positions.
‹ Companies in this quadrant should focus on maintaining their
strong position in a stable or mature market. The focus is on
streamlining operations, enhancing efficiency, and maintaining
profitability.
3. Quadrant III: Turnaround or Retrenchment Strategies (Weak
Competitive Position, Low Market Growth)
‹ Strategies: Cost-cutting, asset reduction, and restructuring.
‹ This quadrant is for companies facing difficulties in a declining
or low-growth market. The focus is on reducing costs, stabilizing
the business, and possibly exiting unprofitable segments.

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4. Quadrant IV: Defensive or Harvest Strategies (Weak Competitive Notes

Position, High Market Growth)
‹ Strategies: Joint ventures, alliances, or divestitures.
‹ Companies in this quadrant may struggle to compete in a high-
growth market due to a weak position. Strategies may include
forming alliances to strengthen the market position or divesting
from the market.
Figure 4.6 will illustrate the Grand Strategy Selection Matrix, showing
how companies can be positioned in one of these four quadrants based
on their competitive strength and market growth rate. This visual repre-
sentation will help in understanding the strategic options available based
on the organization’s current situation.

Figure 4.6: Grand Strategy Selection Matrix

(Source: Based on Roland Christensen, Norman Berg, and Malcolm Salter, Policy
Formulation and Administration (Homewood, IL: Richard D. Irwin, 1976), 16-18)

4.4.6.1 Application of the Grand Strategy Selection Matrix

Applying the Grand Strategy Selection Matrix involves the following steps:
1. Assess Competitive Position: Begin by examining your company’s
standing within the industry. This includes evaluating key factors
like market share, brand equity, operational efficiency, and customer
loyalty.
2. Evaluate Market Growth Rate: Next, determine the growth rate
of your market or industry. Is the market expanding rapidly, or is
it stable or declining? This assessment helps in positioning your
company within the matrix.
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Notes 3. Position on the Matrix: Based on the competitive position and

market growth rate, plot your company in one of the four quadrants
of the Grand Strategy Selection Matrix. Figure 4.6 will provide a
visual representation to guide this process.
4. Select Strategic Options: Once positioned on the matrix, you can
identify the strategic options that are most suitable for your situation.
For example:
‹ Quadrant I (Market Growth Strategies): Focus on aggressive
growth strategies such as market expansion, product innovation,
and diversification.
‹ Quadrant II (Stability Strategies): Emphasize maintaining and
optimizing current operations while sustaining profitability.
‹ Quadrant III (Turnaround or Retrenchment Strategies): Implement
cost-cutting measures, restructure operations, or consider exiting
unprofitable markets.
‹ Quadrant IV (Defensive or Harvest Strategies): Explore
partnerships or alliances to strengthen your position or consider
divesting from the market.
Table 4.11 provides real-world examples of how companies can be posi-
tioned within the Grand Strategy Selection Matrix, classified according to
their market growth rate and competitive position. This table illustrates
the strategic options available to these companies, depending on their
specific circumstances.

Table 4.11: Example of Grand Strategy Selection Matrix Application

Market Competitive
Company Growth Rate Position Strategic Options
Amazon (E-com- High Strong Market expansion, product diversifi-
merce) cation, global growth.
IBM (Mainframe Low Strong Maintain operations, focus on high-mar-
Computers) gin services, efficiency improvements.
Kodak (Tradi- Low Weak Cost-cutting, asset reduction, explore
tional Cameras) digital transformation, or exit.
Zomato (Food High Weak Strategic alliances, joint ventures for
Delivery) market expansion, diversification into
related services.

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 Strategic Analysis and Choice

Notes
4.5 Behavioral Considerations in Strategic Choice
Behavioral considerations are integral to the process of strategic choice
within organizations. While analytical tools and frameworks such as
SWOT analysis, Porter’s Five Forces, and financial modeling provide a
structured approach to formulating strategies, they do not operate in a
vacuum. The human element—how managers perceive situations, make
decisions, and navigate organizational dynamics—plays a critical role
in shaping the final strategic decisions. These behavioral factors, which
include managerial perception, cognitive biases, and organizational pol-
itics, can significantly influence the direction an organization takes and
its subsequent success or failure.

4.5.1 Impact of Managerial Perception on Strategic Choice

Managerial perception is the perception of managers in relation to both the
internal and external environments of an organization. This perception is
highly subjective; indeed, it also reaches the personal level, for instance,
a manager’s past experience, values, knowledge, and the situations he or
she is put into. For example, a manager who has experience in dealing
with past economic difficulties might see such challenges in the future as
manageable, or at least exploitable for the business. On the other hand, a
manager who has less experience or has different values will regard the
same challenges as endangering the very existence of the company. The
way managers perceive their environment is crucial because it shapes
how they identify and evaluate opportunities and threats. For example, a
manager that appreciates the importance of change would regard the rapid
growth of technological advancement as an avenue for the expansion of
the organization thus advocating use of advanced technologies and new
products. On the contrary, a manager with a more traditional outlook may
feel the same changes could lead to confusion hence promoting strategies
to protect the current market rather than search for new ones.
It’s plausible to believe that risk tolerant managers are able to better iden-
tify opportunities and are willing to take risks in regard to their growth
strategies and thus are aggressive growth straddlers. However, for those
who do not share the same aggressive perception of the market may tend
to skew the growth strategy towards stability focusing on mitigating risks.

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Notes 4.5.2 Cognitive Biases and Their Influence on Decision-Making

Cognitive biases are systematic tendencies that cause deviations from
rational judgment and decision-making. These biases can profoundly
affect strategic decisions by skewing how information is processed and
interpreted. Understanding these biases is essential for mitigating their
effects and ensuring more objective and effective strategic decisions.
‹ Common Cognitive Biases:
‹ Confirmation Bias: A tendency to look for and interpret or
remember information in a way that supports one’s existing views
or beliefs. This can lead to managers employing strategies that
are congruent with their held beliefs instead of bearing other
alternatives that are more promising.
‹ Overconfidence Bias: The attitude to overestimate one’s abilities
or the accuracy of one’s predictions. This can lead to overly
ambitious strategies that are away from realistic assessments of
market conditions.
‹ Anchoring Bias: The decision maker has the tendency to regard the
first piece of information that he or she receives, the ‘anchor’ too
highly. Consequently, managers may end up using poorly articulated
and vague information that is located in their permanent files to
access during strategy making instead of data in all its forms.

4.5.3 Role of Organizational Politics in Strategy Selection

Political behavior in organizations encompasses the actions within an or-
ganization like acquisition, development and use of power and resources
directed towards certain preferred goals. Politics will play a crucial role
in strategic decision making, as the top management of an organization
may have many competing interest groups with different opinions re-
garding the best strategy.
‹ Influence on Strategic Decisions: Organizational politics often
influence strategic decisions, with powerful individuals or groups
shaping choices that align with their own interests rather than what
may be best for the organization overall. This kind of political
influence can lead to strategies that prioritize personal or group
agendas, sometimes compromising the achievement of broader
organizational objectives.

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‹ Examples: Notes
‹ Because of the influence that a division leader has, it is likely
a that a strategy which is more suitable for that division leader
will be sought after than a more favorable option.
‹ Sometimes, strategic initiatives that rely on majority support lose
their relevance because the focus shifts toward addressing the
needs of key stakeholders. This shift can ultimately impact the
effectiveness of the strategy.
‹ Mitigating the Impact of Politics: To combat the adverse effects
of organizational politics, it is critical to work towards a coherent
and horizontal strategic decision-making architecture. It is crucial
in such scenarios to allow a free flow of discussion, prevent one
person from being entitled with the power to make decisions and
orient the decision to be based on facts.
Table 4.12 provides practical examples of how behavioral factors can
influence strategic decision-making within organizations. It highlights the
potential impacts of managerial perception, cognitive biases, and orga-
nizational politics on strategic choices, as well as strategies to mitigate
these influences.
Table 4.12: Examples of Behavioral Considerations in Strategic Choice
Behavioral Impact on Strategic Mitigation
Factor Example Scenario Choice Strategies
Managerial Per- A CEO perceives the The company may Conduct thorough
ception market as saturated choose not to enter a market research and
and highly competi- potentially profitable consider diverse per-
tive, viewing entry as market due to risk spectives before mak-
highly risky. aversion. ing decisions.
Cognitive Bias: A manager believes The company may pro- Encourage critical
Confirmation that a new product will ceed with the product thinking and review
Bias be successful and only launch despite warning processes that chal-
seeks data that supports signs from other data lenge initial assump-
this view. sources. tions.
Cognitive Bias: A business leader over- The company may Use scenario planning
Overconfidence estimates their team’s commit to an overly and stress-testing to
ability to execute a ambitious strategy, evaluate the feasibility
complex international leading to resource of ambitious plans.
expansion. strain and failure.

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 BUSINESS STRATEGIES

Notes Behavioral Impact on Strategic Mitigation

Factor Example Scenario Choice Strategies
Cognitive Bias: A manager bases the The company may set Regularly update and
Anchoring Bias sales forecast on ear- unrealistic targets and adjust assumptions
ly, overly optimistic overcommit resources based on the latest, most
data from a small test based on skewed ex- comprehensive data.
market. pectations.
Organizational A powerful depart- The company adopts Foster a culture of
Politics ment head pushes for a strategy that favors transparency and in-
a strategy that benefits one department at the clusivity in strategic
their department but expense of overall per- decision-making pro-
is suboptimal overall. formance. cesses.
Behavioral considerations are a crucial aspect of strategic choice. Man-
agerial perception, cognitive biases, and organizational politics can all
significantly influence the strategies that are selected. By recognizing
these factors and proactively addressing their negative effects, organiza-
tions can make more informed and effective strategic decisions that align
with their long-term objectives and competitive landscape.

4.6 Impact of Structure, Culture, and Leadership on

Strategy Implementation
Strategy implementation is as crucial as strategy formulation. Even the
most well-crafted strategies can fail without effective implementation, and
the success of this process is heavily influenced by three critical organi-
zational elements: structure, culture, and leadership. Understanding how
these factors interplay can help organizations ensure that their strategies
are not only well-conceived but also successfully executed.

4.6.1 The Role of Organizational Structure in Strategy Implementation

Organizational structure refers to the way companies are organized, in-
cluding their sense of order and authority, roles and functions, and the
internal communication systems. The structure decides how tasks are
shared and carried out, who has the jurisdiction to make certain decisions,
who can control communications in different levels of the organization,
and what kind of messages and meanings can be communicated at those
levels. The extent to which the structural aspect of the organization ap-
propriates the strategic objectives of the organization determines the level
of effectiveness in the implementation of the strategy.

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Impact on Strategy Implementation: Notes

‹ Alignment with Strategy: For the strategy to be implemented
in practice, the staffing structure needs to be congruent with the
strategic goals. For instance, firms that have a strategy to go global
may have to use a geographic divisional strategy which enables each
segment to have its own decision-making or responding to market
dynamics. On the other hand, firms that concentrate on innovation
may be better served if they have a matrix organizational system
which promotes interaction across different functions and departments.
‹ Coordination and Communication: The way an organization is
organized and structured determines level of communication and
coordination among the various components of the organization.
If a firm has strong centralization, this can be efficient in some
situations but can also make one rather slow in responding to
immediate challenges. In contrast, a more decentralized form of
organization can allow for decision making at more levels and be
more responsive, but on the other hand this form of organisation
can be harder to control, which can lead to conflict.
‹ Flexibility and Adaptability: An organization’s structure should also
be flexible enough to adapt to changes in the external environment.
A rigid structure may hinder the organization’s ability to respond
to new opportunities or threats, whereas a more fluid structure can
allow for quicker adjustments to strategy as needed.

4.6.2 The Influence of Organizational Culture on Strategy

Developing the organization goes hand in hand with organizational culture
and its expansion. Organizational culture is the aggregate of attitudes,
values, goals, and practices that define the character of a particular orga-
nization or its work teams. Often people say culture is “the way we do
things around here”, but in fact culture embodies and underlies how and
when employees will even choose to take part and how actively they will
support and get engaged into the strategic initiatives. A strong culture or
positive culture could be a strong asset in strategic implementation doing
the job while an unaligned or negative culture could be a huge setback.

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Notes Impact on Strategy Implementation:

‹ Alignment with Strategic Goals: The success of a strategy often
depends on whether the organizational culture supports the strategic
goals. For example, if a company’s strategy emphasizes customer-
centricity, the culture should value customer service, innovation, and
responsiveness. A culture that prioritizes these values will naturally
drive behaviors that align with the strategic objectives.
‹ Employee Engagement and Commitment: A supportive culture
fosters high levels of employee engagement and commitment, which
are critical for the successful implementation of strategies. When
employees believe in the company’s mission and feel connected to
its goals, they are more likely to go above and beyond in their roles,
contributing to the strategy’s success. Conversely, if the culture is
toxic or misaligned with the strategy, employees may resist change,
leading to poor execution and potential failure.
‹ Change Management: The launching of strategies in most cases
means bringing the change and the culture of the organization affects
how that change is going to be implemented. On the contrary, cultures
that are resistant to change are unable to be a helpful facilitator.
Proper change management techniques that are backed by trust and
teamwork also aid in overcoming the challenges of implementing
any stage of the strategy.

4.6.3 Leadership’s Role in Strategy Execution

Leadership is the driving force behind strategy execution. They define
targets, inspire and bring the company together and make sure that all
the required means for the strategy to work are available and ready to
support it. It is the efficient leadership by which the intricacies of the
strategy implementation phases are tackled, roadblocks are successfully
dealt with, and the progress towards the objectives of the organization
is maintained.
Impact on Strategy Implementation:
‹ Vision and Communication: Leaders are responsible for clearly
articulating the strategy and communicating it across all levels of
the organization. A compelling vision helps employees understand
the strategic objectives and their role in achieving them. Consistent

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and transparent communication from leadership fosters alignment, Notes

ensuring that everyone is working towards the same goals.
‹ Motivation and Inspiration: Leadership plays a crucial role in
motivating and inspiring employees to commit to the strategy.
This involves not only providing direction but also recognizing
and rewarding contributions to strategic goals. Leaders who are
passionate and committed to the strategy can inspire the same level
of dedication in their teams, driving the organization towards success.
‹ Overcoming Resistance: Any new strategy often requires change,
and this change is not usually welcomed by the employees whose
lives are changed and altered by its implementation. Leaders are
change management specialists, they can help deal with concerns,
conflicts management and provide help in transitions.
‹ Resource Allocation and Support: Leaders are also responsible
for ensuring that the necessary resources—whether human, financial
or technological—are allocated to support the strategy. It does not
only include decision making about where to invest but also making
sure that units are properly equipped and trained to achieve the
strategic objectives.

4.7 Functional Strategies and Their Link with Business-

Level Strategies
Functional strategies are the specific approaches and actions taken by
different departments within an organization—such as marketing, opera-
tions, finance and human resources (HR)—to support the overall business
strategy. These strategies are essential because they translate broad busi-
ness-level objectives into concrete actions within each functional area.
Understanding the role of functional strategies and how they align with
business-level strategies is crucial for ensuring cohesive and effective
execution of an organization’s goals.

4.7.1 Definition and Importance of Functional Strategies

Functional strategies refer to the detailed, short-term, and department-spe-
cific plans that outline how each functional area will support the organi-
zation in achieving its overarching business-level strategy. This includes

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Notes policies necessary for the day-to-day subsistence of the business as well
as those that are more tactical. For instance, the marketing team could
be concerned with a plan to expand the market share of a certain product
such as detergent or the operations team could be mandated with the task
of increasing the efficiency of production processes.
Importance: Functional strategies are vital for several reasons:
‹ Execution of Business-Level Strategies: Functional strategies bridge
the gap between high-level strategic objectives and the specific
actions required to achieve them. Without well-defined functional
strategies, business-level strategies remain abstract and difficult to
implement. Functional strategies ensure that every department is
working towards the same organizational goals, but in a manner
that leverages their specific expertise and capabilities.
‹ Coordination Across Departments: Functional strategies assist
in the coordination of various functions in order to put together
concerted efforts towards common goals effectively and efficiently.
For example, in a new product introduction scenario, a comprehensive
marketing strategy may include the cooperation of operations and
supply chain management to ensure the planned supply is achieved
meeting the marketing requirements.
‹ Focus and Specialization: In the absence of such strategies,
departments can only concentrate on those areas where they gain
the most value and have the greatest degree of skills. Specialization
enables every department to enhance its performance and practice
its usefulness to the organization.
‹ Responsiveness to Change: Functional strategies are typically
more flexible and can be adjusted swiftly to respond to shifts in
the market or changes in the business environment. This agility is
crucial for maintaining alignment with business-level strategies,
especially in fast-paced industries where strategic priorities might
shift frequently.
Examples: Similarly, the R&D department of a company that is engaged
in heavy capital investment may have strategies that are focused on the
creation of state-of-the-art products whereas the marketing department
is focused on increasing and sustaining customer and brand engagement
and awareness via online platforms.
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4.7.2 Aligning Functional Strategies with Business-Level Strategies Notes

Aligning functional strategies with business-level strategies is essential
to ensure that the entire organization is working cohesively towards the
same objective. Business-level strategies define the overall direction of
the company—such as pursuing cost leadership, differentiation, or market
expansion—while functional strategies detail how each department will
support these overarching goals. Misalignment between these levels can
lead to inefficiencies, wasted resources, and failure to achieve strategic
objectives.
Key Aspects of Alignment:
‹ Business Level Policies: This includes the inclination of the various
initiatives that have been undertaken by different departments at
all levels towards effective achievement of the overall strategies.
‹ Marketing team, Production team, and Logistics unit work: For
the effective alignment, the initiatives are not created in silos, they
are required to complement each other’s efforts.
‹ Top-Down and Bottom-Up Communication: Alignment is facilitated
by clear communication both from the top-down (where business-
level strategies are communicated to departments) and from the
bottom-up (where functional insights inform the development of
business-level strategies).
‹ Ongoing Reassessment and Re-alignment: Functional strategies
should be reviewed and updated within the broader business strategy
whenever there are new developments regarding the business
objectives or market features. Such an approach makes it possible
for the company to remain flexible and adaptable to changes.

4.7.3 Examples of Functional Strategies in Key Areas (Marketing,

Finance, Operations, HR)
Functional strategies are the actionable plans developed by different de-
partments to support the overall business-level strategy of the organization.
These strategies ensure that every part of the organization is contributing
effectively to the achievement of strategic goals. The alignment of func-
tional strategies with business-level strategies is crucial for maintaining
coherence and achieving the desired outcomes. By understanding and
applying functional strategies across departments like marketing, finance,

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Notes operations, and HR, organizations can optimize their performance and
stay competitive in their respective industries.
Table 4.13 provides examples of how different functional departments
within an organization can develop and implement strategies that align
with the company’s overall business-level strategies.
Table 4.13: Examples of Functional Strategies and Their Alignment
with Business-Level Strategies
Functional Link to Business-Level
Department Functional Strategy Strategy
Marketing Increase brand awareness and Supports a market expansion busi-
market penetration through ness-level strategy by focusing on
targeted digital marketing entering new markets with tailored
campaigns. messaging and leveraging digital plat-
forms.
Finance Implement strict cost control Aligns with a cost leadership busi-
measures and optimize capital ness-level strategy by focusing on
structure to reduce debt. reducing costs to maintain low prices
and stay competitive.
Operations Streamline production pro- Supports a cost leadership busi-
cesses and adopt lean man- ness-level strategy by minimizing
ufacturing to reduce waste production costs, thus enabling com-
and improve efficiency. petitive pricing.
Human Resources Develop a comprehensive Supports a differentiation business-level
(HR) talent management program strategy by building a team capable of
to attract, retain, and develop delivering superior customer service
top talent. or driving innovation.

4.8 Introduction to Strategic Control and Evaluation

One of the most important stages in the strategic management process is
strategic control and evaluation. Once a strategy has been formulated and
operationalized, it is vital to monitor its implementation, its impact, and
the extent to which it is achieving its purpose in the organization. These
processes allow firms to be responsive to external business environment,
evaluate results against set objectives and goals achievement, and modify
their strategic action plans and initiatives for improved performance.

4.8.1 The Need for Strategic Control and Evaluation

Strategic control and evaluation are necessary to ensure that an organi-
zation’s strategies are being implemented effectively and are yielding the

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desired results. Without proper control and evaluation mechanisms, even Notes
the most well-formulated strategies can fail due to unforeseen challenges,
misalignment with organizational capabilities, or changes in the external
environment.
Key Reasons for Strategic Control and Evaluation:
‹ Monitoring Progress: The organization’s structure and governance
system must allow effective use of control systems so that at the
end the concerned strategies or activities are indeed completed.
Monitoring performance regularly enables timely corrective action
and ensures that all business activities go according to the timetable.
‹ Ensuring Alignment: As organizations grow and evolve, there
is a risk that different parts of the organization might drift away
from the overall strategic objectives. Strategic control ensures that
all departments and functions remain aligned with the company’s
goals, maintaining coherence in execution.
‹ Adapting to Change: Since the business environment is constantly
evolving, strategies that worked originally may not be applicable
anymore. Strategic control and evaluation allow a business to change
their strategy to fulfill their purpose in any circumstance.
‹ Performance Measurement: It may help in determining the need to
formulate changes on certain strategies, whether it is to continue them,
improve them, or completely eliminate such strategies from being used.
‹ Resource Optimization: Resource allocation would also be based
on the analysis of potential impact of several envisaged strategic
initiatives in an organization.

4.8.2 Types of Strategic Control

Strategic control can be categorized into several types, each serving a
different purpose in the overall management of strategy:
1. Premise Control: It is the monitoring of the assumptions made
while formulating a strategy. These assumptions can be concerned
with market, technology, competition and other factors which are
of significance to the formulated strategy.
2. Implementation Control: It is the direction in which performance
in respect of a formulated strategy is controlled and supervised. It

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Notes assesses whether an initiative and the planned strategies are being
employed and if so, if objectives are being achieved through those
efforts.
3. Strategic Surveillance: Strategic surveillance is a broad-based form
of control that involves scanning the external environment to detect
any unforeseen changes or trends that could impact the strategy.
4. Special Alert Control: Special alert control is an advanced level
of management which is of the nature of exception, and which is
resorted to when unforeseen events, such as financial crises, natural
disasters are faced by an organization.
Example: A technology company might use premise control to monitor
assumptions about customer demand for a new product. If market research
indicates a shift in customer preferences, the company can revise its
strategy to align with the new trends. Similarly, implementation control
could be used to track the rollout of the product across different regions,
ensuring that each stage of the launch is executed smoothly.

4.8.3 Process of Strategic Evaluation and Control

The process of strategic evaluation and control is considered to be sys-
tematic and can be achieved through some steps:
Establishing Performance Standards: First and foremost, develop the
performance standards or the benchmarks that the strategy is supposed
to achieve. Financial indicators, targeted market shares, expected levels
of customer satisfaction, and other pertinent factors may define these
standards.
Actual Performance Assessment: The next step entails estimating the
performance with respect to the benchmarks that were set previously. This
can be done through compilation of reports, surveys, market perceptions,
and other such through the review of operating statistics.
Evaluation of Performance against Standards: When actual recording of
performance has taken place, this data is offset with the benchmarks that
were laid. With this evaluation, it becomes clearer whether the strategy is
producing the desired results or if there are areas which require changes.

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Further Investigation of Deviations: Where the difference between the Notes

expected performance and the actual standard turns out to be large, the
organization needs to investigate the reason for the variance. Based on
this analysis, the analysis is likely to encompass both internal causes,
like resource allocation or operational inefficiencies and external factors
like market changes or competition.
Implement the Corrective Measures: In light of the analysis of devia-
tions, the organization must decide what corrective measures are indis-
pensable to realign the strategy. Such responses could include changes
to the strategy, resource distribution, enhancement of processes or even
analysing external factors.
Strategy Implementation Evaluation: This step comprises of regular
evaluation of the strategy’s implementation and also assess the impact
of the corrective actions that were undertaken. This approach of constant
evaluation assists to ascertain that the strategy is evolutionary and is
capable of changing course with emerging challenges and possibilities.
Example: A manufacturing company may set certain targets regarding
production levels and delivery of goods to the customers. By regularly
comparing performance to targets and providing an analysis of the perfor-
mance shortfalls, the company can take measures such as reorganization
of production or improvement of the supply chain so that the goals set
are achieved.
Strategic control and evaluation are one of the most critical actions in
the achievement of every strategy. Through constant monitoring, assess-
ment of progress made, and adjustments where necessary, the strategy is
assured a higher degree of effectiveness, which is in line with the vision
of the organization.
IN-TEXT QUESTIONS
1. What is the primary purpose of strategic gap analysis?
(a) To monitor external threats
(b) To identify discrepancies between current performance
and strategic goals
(c) To evaluate financial performance
(d) To assess employee satisfaction

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Notes 2. Which of the following is NOT a category in the BCG Matrix?

(a) Stars
(b) Cash Cows
(c) Question Marks
(d) Leaders
3. In the GE/McKinsey Matrix, what are the two dimensions used
to evaluate business units?
(a) Market share and profitability
(b) Industry attractiveness and business strength
(c) Market growth and competitive advantage
(d) Customer loyalty and revenue growth
4. Which stage in the Product Market Evolution Matrix represents
the highest growth potential?
(a) Introduction
(b) Growth
(c) Maturity
(d) Decline
5. What does the Experience Curve illustrate?
(a) The relationship between production cost and product
price
(b) How production costs decline as cumulative output increases
(c) The stages of product development
(d) The impact of market competition on pricing
6. Which of the following best describes the role of managerial
perception in strategic decision-making?
(a) It has no impact on decision-making
(b) It only influences operational decisions
(c) It shapes how managers interpret the environment and
assess strategic options
(d) It is only relevant for financial planning

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7. Which cognitive bias involves the tendency to seek information Notes

that confirms one’s preconceptions?
(a) Anchoring bias (b) Overconfidence bias
(c) Confirmation bias (d) Status quo bias
8. What is the main focus of implementation control in strategic
management?
(a) Monitoring the validity of strategic assumptions
(b) Tracking the execution of strategic initiatives
(c) Scanning the external environment for threats
(d) Responding to emergency situations
9. In strategic control, what is premise control primarily concerned
with?
(a) Monitoring the implementation of strategies
(b) Ensuring the organization’s structure supports the strategy
(c) Checking the validity of the assumptions underlying the
strategy
(d) Assessing employee engagement
10. What role does organizational culture play in strategy
implementation?
(a) It has no significant impact on implementation
(b) It shapes employee behavior and influences how strategies
are executed
(c) It only affects marketing strategies
(d) It is only relevant during the planning phase
11. Which organizational structure is likely to be most effective
for a company pursuing a global expansion strategy?
(a) Functional structure
(b) Divisional structure based on geographic regions
(c) Flat structure
(d) Matrix structure

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Notes 12. How does a decentralized organizational structure typically impact

strategy implementation?
(a) It slows down decision-making
(b) It enhances agility and responsiveness
(c) It reduces the need for strategic control
(d) It centralizes authority at the top
13. What is the purpose of strategic surveillance?
(a) To monitor financial performance
(b) To scan the external environment for unforeseen changes
(c) To ensure that all departments are aligned with the strategy
(d) To evaluate employee satisfaction
14. Which of the following best describes the role of leadership in
strategy execution?
(a) Leaders set the strategy but do not influence its execution
(b) Leaders ensure that resources are allocated and motivate
teams to achieve strategic goals
(c) Leaders focus solely on financial performance
(d) Leaders are only involved in crisis management
15. What does the term “Stars” refer to in the BCG Matrix?
(a) Products with high market share in a low-growth market
(b) Products with low market share in a high-growth market
(c) Products with high market share in a high-growth market
(d) Products with low market share in a low-growth market
16. How does the GE/McKinsey Matrix differ from the BCG Matrix?
(a) It uses more complex criteria and considers multiple factors
for each dimension
(b) It is only used for evaluating financial performance
(c) It focuses exclusively on market share and growth rate
(d) It does not categorize business units or products

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17. Which of the following is a key factor in the Product Market Notes
Evolution Matrix?
(a) The product’s price elasticity
(b) The stage of the product’s life cycle
(c) The product’s brand value
(d) The level of customer satisfaction
18. Why is strategic control important for organizations?
(a) It reduces the need for leadership
(b) It ensures strategies are on track and adapt to changes in
the environment
(c) It eliminates the need for strategic planning
(d) It focuses solely on reducing costs
19. Which type of strategic control is activated in response to
sudden and unexpected events?
(a) Premise control
(b) Implementation control
(c) Strategic surveillance
(d) Special alert control
20. How can cognitive biases negatively impact strategic decision-
making?
(a) By improving decision accuracy
(b) By leading to objective and rational choices
(c) By distorting judgment and leading to flawed decisions
(d) By enhancing creative thinking

CASE STUDY
Strategic Analysis and Implementation at Zenith Electronics
Zenith Electronics, a mid-sized consumer electronics company, has
been a strong player in the market for over two decades. The company
has a reputation for producing reliable, mid-range electronic devices,
including laptops, smartphones and home appliances. However, in

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Notes recent years, Zenith Electronics has faced increasing competition from
both high-end brands offering premium products and low-cost man-
ufacturers entering the market with aggressively priced alternatives.
To maintain its market position and drive growth, Zenith Electronics
decided to undertake a comprehensive strategic analysis. The company
aimed to identify gaps between its current performance and desired
objectives, reevaluate its product portfolio, and adjust its strategies
to better align with market demands and internal capabilities.
Zenith Electronics began by conducting a strategic gap analysis to
assess its current market position versus its strategic goals. The
analysis revealed that while the company maintained strong market
share in the mid-range segment, it was losing ground to competitors
in both the high-end and budget segments. Additionally, customer
feedback indicated that Zenith’s products, while reliable, lacked the
innovation and features found in competitors’ offerings.
The gap analysis from the past suggested improvement in the fol-
lowing areas:
1. Innovation: The need to develop more innovative products to
compete in the high-end market.
2. Cost Efficiency: There is a need to reduce cost of manufacturing
in order to effectively compete with the low cost of global
manufacturers.
3. Brand Perception: There is also an opportunity to improve brand
perception through marketing and other customer engagement

Portfolio Analysis
Zenith Electronics used the BCG Matrix to determine the composi-
tion of its product lines. This analysis classified product types into
four categories:
‹ Stars: These were Zenith’s core smartphones with high market
share in a fast-growing market.
‹ Cash Cows: This was the home appliances line which earned
consistent revenue but also a mature line with low growth rate.

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 Strategic Analysis and Choice

‹ Question Marks: These were new entries into the market for Notes
smart home devices. There was rapid growth in the market but
the product types had minimal market share.
‹ Dogs: These were older models of laptops which were already
in a declining market with a low profitability index.
Using the BCG Matrix, Zenith Electronics then made decisions such
as the following:
‹ Provide strong funding support to ensure that the company’s
flagship smartphones remain the market leaders.
‹ Use cash generated from the home appliances division to push
for innovations in the smart home devices market.
‹ Discontinue the older models of laptops and shift the potential
towards more promising areas.
Behavioral Considerations
During the strategic analysis, it became clear that managerial percep-
tion had a substantial impact on shaping the company’s strategies.
The CEO, who had been with the company since its inception, had
a strong attachment to the laptop division, which had been the com-
pany’s flagship product in the early years. This attachment initially
led to resistance against phasing out the laptop models, despite clear
market indicators suggesting the decline of this segment.
Additionally, the leadership team recognized the influence of cognitive
biases, particularly overconfidence, in underestimating the competition
in the smart home market. This realization prompted a more cautious
approach, involving greater market research and customer feedback
before making significant investments in new product development.
Implementation and Strategic Control
Once strategies were formulated, Zenith Electronics set out to review
its organizational structure so as to match its new strategic objectives.
The company pursued a more decentralized structure that increased
the number of divisional units for smartphone and smart home prod-
ucts structure. This enhanced the speed in decision-making and made
them more responsive to the market changes.

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 BUSINESS STRATEGIES

Notes To ensure that newly adopted strategies were progressing as antici-

pated, strategic control mechanisms were put in place. Tracking the
progress and execution of newly developed products, on the other
hand, was carried out using implementation control, while strategic
surveillance ensured the company’s attention to external factors such
as new actions by competitors and changes in consumer style.
Discussion Questions
1. How did the strategic gap analysis assist Zenith Electronics in
strategizing marketing activities in areas identified for enabling
growth?
2. In which ways did Zenith Electronics utilize the BCG Matrix to
make strategic decisions regarding the distribution of resources
within its various product lines?
3. How did the factors of managerial perception and cognitive biases
affect the initial strategic decision making at Zenith Electronics,
and what measures were taken to alleviate such problems?
4. How did the strategic control mechanisms help Zenith Electronics
to successfully implement its new strategies and to what extent
will such mechanisms need to be modified in the future in
relation to changing market conditions?

4.9 Summary
In lesson 4, we explored the important elements of strategic analysis and
choice which are critical for organizations in dealing with competition.
The lesson began with an attempt to do strategic gap analysis which is
intended to assist organizations in determining their actual performance
and their target strategic performance. This approach enables organiza-
tions to narrow down the aspects that require strengthening and develop
specific strategies to close such gaps.
We then proceeded to portfolio analysis and explained crucial tools such
as the BCG Matrix, GE/McKinsey Matrix, Product Market Evolution Ma-
trix, and the Experience Curve. These frameworks assist organizations in
assessing their portfolio of products or business units, thus enabling them
to utilize their resources more effectively and similarly, make appropriate

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strategic choices with respect to further development or investment or Notes

the sale of some of the businesses.
The lesson also highlighted the consideration of behavioral factors in the
processes of making strategic decisions. Managerial perceptions, cognitive
biases, and organizational politics were identified in this regard as im-
portant determinants for the selection and execution of strategies. These
behavioral aspects are therefore essential for achieving better and more
realistic strategic decisions.
Also, the lesson highlighted that the factors like organizational structure,
culture and leadership have a lot of bearing on successful strategy imple-
mentation. The details of these aspects in relation to the organization’s
strategy are of great importance in the performance. Organization that
has clear structures supported by strong culture and effective leaders can
also enhance the implementation of strategic plans.
The lesson also highlighted the importance of strategic control and eval-
uation, pointing out that strategic actions need to be evaluated regularly.
Various forms of strategic control, which included premise control, imple-
mentation control, strategic surveillance controls and the evaluation and
adjustment of strategies were indeed touched on. This ensures that the
strategies stay relevant to the organization’s aims and objectives while
taking advantage of emerging opportunities.
Overall, Lesson 4 provided a comprehensive understanding of the tools and
concepts necessary for effective strategic analysis and choice, equipping
you with the knowledge to develop, implement, and evaluate strategies
that drive organizational success.

4.10 Answers to In-Text Questions

1. (b) To identify discrepancies between current performance and
strategic goals
2. (d) Leaders
3. (b) Industry attractiveness and business strength
4. (b) Growth
5. (b) How production costs decline as cumulative output increases

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 BUSINESS STRATEGIES

Notes
6. (c) It shapes how managers interpret the environment and assess
strategic options
7. (c) Confirmation bias
8. (b) Tracking the execution of strategic initiatives
9. (c) Checking the validity of the assumptions underlying the strategy
10. (b) It shapes employee behavior and influences how strategies are
executed
11. (b) Divisional structure based on geographic regions
12. (b) It enhances agility and responsiveness
13. (b) To scan the external environment for unforeseen changes
14. (b) Leaders ensure that resources are allocated and motivate teams
to achieve strategic goals
15. (c) Products with high market share in a high-growth market
16. (a) It uses more complex criteria and considers multiple factors
for each dimension
17. (b) The stage of the product’s life cycle
18. (b) It ensures strategies are on track and adapt to changes in the
environment
19. (d) Special alert control
20. (c) By distorting judgment and leading to flawed decisions

4.11 Self-Assessment Questions

1. What are the main elements of a strategic gap analysis, and what is
the importance of such a process to an organization’s performance?
2. Explain the purpose of the BCG Matrix, and how can it assist in the
development of strategies regarding a corporation’s product range.
3. How do managerial perceptions and cognitive biases influence strategic
decision-making? Provide examples of how these factors can lead
to different strategic outcomes.
4. What role does organizational culture play during strategy execution?
What would happen if the culture were not appropriate for the strategy?

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 Strategic Analysis and Choice

5. Explain the various forms of strategic control including premise Notes

control and its application for having overall effectiveness of the
strategy.

4.12 References
‹ Barney, J. B. (1991). Firm resources and sustained competitive
advantage. Journal of Management, 17(1), 99-120.
‹ Henderson, B. (1970). The product portfolio. The Boston Consulting
Group. Retrieved from https://www.bcg.com/publications/1970/
strategy-the-product-portfolio
‹ Hofer, C. W., & Schendel, D. (1978). Strategy formulation: Analytical
concepts. West Publishing.
‹ Kaplan, R. S., & Norton, D. P. (1996). The balanced scorecard:
Translating strategy into action. Harvard Business Review Press.
‹ Porter, M. E. (1980). Competitive strategy: Techniques for analyzing
industries and competitors. Free Press.

4.13 Suggested Readings

‹ Ansoff, H. I. (1965). Corporate strategy: An analytic approach to
business policy for growth and expansion. McGraw Hill.
‹ Hamel, G., & Prahalad, C. K. (1994). Competing for the future. Harvard
Business Review Press.
‹ Mintzberg, H., Ahlstrand, B., & Lampel, J. (1998). Strategy safari: A
guided tour through the wilds of strategic management. Free Press.
‹ Rumelt, R. P. (2011). Good strategy bad strategy: The difference
and why it matters. Crown Business.
‹ Thompson, A. A., Peteraf, M. A., Gamble, J. E., & Strickland, A. J.
(2020). Crafting and executing strategy: Concepts and readings. McGraw
Hill Education.

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Business Strategies.indd 172 12-Jan-25 7:15:45 PM
 Glossary

Acquisition: The acquisition of one company by another, in which the acquired company
is integrated into the operations of the acquiring company.
BCG Matrix: A portfolio management tool that categorizes a company’s product lines or
business units into four categories: Stars, Cash Cows, Question Marks, and Dogs, based
on market growth rate and market share.
Behavioral Considerations: Factors such as managerial perceptions, cognitive biases, and
organizational politics that influence strategic decision-making.
Business-Level Strategy: Decisions that focus on how a business unit competes within
a specific market or industry, including strategies for competitive positioning and market
segmentation.
CAGE Distance Framework: A tool for evaluating the cultural, administrative, geographic,
and economic disparities between countries, assisting companies in planning their inter-
national expansion strategies.
Cognitive Biases: Systematic patterns of deviation from rationality in judgment, affecting
decision-making processes.
Competitive Advantage: The term which is used in business when a company has some-
thing its competitors do not, thus enabling the company to add more value or less cost to
its offerings than the preceding company.
Core Competence: A company’s competitive core competencies which sets the firm apart
from competition, which though easy for competitive companies to acquire, takes time.
Corporate-Level Strategy: Strategic decisions that affect the entire organization and its
portfolio of businesses. It includes decisions about market entry/exit, mergers and acqui-
sitions, and diversification.
Cost Leadership: A broad strategy where a company achieves the lowest production costs
in its industry, enabling it to offer products at more competitive prices.
Defensive Strategy: Actions taken by a company to protect its market position from com-
petitors, such as fortifying market share or responding to competitors’ moves.
Demand Conditions: Attributes of the local market demand that motivate firms to enhance
the quality of their goods and services.

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Notes Differentiation: A strategy in which a company delivers distinctive

products or services that offer additional value to customers, enabling it
to command premium prices
Economies of Scale: The cost advantage a business gains through ex-
pansion, resulting in lower average costs as production scales up.
Environmental Analysis: The evaluation of both the external and inter-
nal factors which would to a great extent have impact on the strategic
decisions of an organization.
Environmental Scanning: The process of examining the external envi-
ronment to spot opportunities and threats, along with the internal envi-
ronment to identify strengths and weaknesses.
Experience Curve: A concept that illustrates how production costs decline
as the cumulative output increases due to gained efficiencies and learning.
Factor Conditions: Resources and conditions available in a country that
enhance the global competitiveness of its industries - the workforce, in-
frastructures, and modern technologies.
Firm Strategy, Structure, and Rivalry: These cover the firm organi-
zation, management of the firms and the degree of competition among
them in the domestic market.
Focus Strategy: A strategy aimed at a particular market segment or niche,
focusing on either cost efficiency or differentiation.
Functional-Level Strategy: Decisions that target specific departments or
functions within a business unit, aiming to enhance performance in areas
such as marketing, finance, and operations.
GE/McKinsey Matrix: A portfolio analysis tool that assesses business units
or product lines based on industry attractiveness and business strength.
Horizontal Merger: A merger between companies operating in the same
industry and at the same production stage, intended to boost market share
and decrease competition.
Implementation Control: A strategic control mechanism focused on
tracking the execution of a strategy to ensure it is carried out effectively.
Leadership: The act of guiding and motivating a team to achieve orga-
nizational goals, playing a crucial role in strategy execution.

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 Glossary

Managerial Perception: The way managers interpret and understand the Notes
environment, influencing strategic decisions and actions.
Merger: The merger of two companies to create a new entity, usually
intended to boost market share, reduce competition, or realize synergies.
Mission Statement: This is a clear and precise statement which describes
the organization’s reason for being and its prime objectives. The key
question answered is: ‘What do we exist for?’
Offensive Strategy: Proactive and aggressive actions taken by a com-
pany to gain a competitive edge, such as market penetration or product
innovation.
Organizational Capabilities: Different companies claim to be utilizing
various Organizational Skills in executing their strategic directions.
Organizational Culture: The shared values, beliefs, and norms that shape
how employees interact and work within an organization.
Organizational Politics: Activities within an organization aimed at ac-
quiring power and influence to achieve preferred outcomes in strategic
decisions.
Organizational Structure: The arrangement of roles, responsibilities,
and communication within an organization that influences strategy im-
plementation.
PESTEL Analysis: A business analysis framework that considers Politi-
cal, Economic, Social, Technological, Environmental, and Legal aspects
of a business.
Porter’s 5 Forces: The model that describes the intensity of competition
in the industry, as stated by Michael Porter, has five determinants: threat
of new entrants, supplier power, buyer power, threat of substitutes and
competitive rivalry.
Porter’s Diamond Theory: A model that has been developed to explain
why certain nations are able to become more competitive than others in
some selected industries and is based on four broad factors: factor con-
ditions, demand conditions, related industries, and firm strategy.
Premise Control: A type of strategic control that monitors the assump-
tions underlying a strategy to ensure they remain valid.

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Notes Primary Activities: Business processes or core functions of the business

that are used for the provision of a product or service such as delivery,
operations, advertising, etc.
Product Market Evolution Matrix: A tool that maps the stages of prod-
uct development—Introduction, Growth, Maturity, and Decline—helping
organizations manage their product portfolios effectively.
Related and Supporting Industries: Sectors within a nation that are
interrelated and add value by cooperating with each other in competi-
tiveness and innovativeness.
Retrenchment Strategy: A renewal strategy focused on reducing the scale
of a company’s operations to cut costs and improve financial stability.
SMART Objectives: This is a method for defining objectives that are
specific, measurable, attainable, relevant, and time-related.
Strategic Control: The process of monitoring and adjusting strategies to
ensure they align with organizational goals and adapt to changes.
Strategic Gap Analysis: A tool used to identify the differences between
an organization’s current performance and its strategic objectives.
Strategy Evaluation: Organizational objectives are defined and strategy
evaluation is undertaken based on the focus to some achievements
Strategy Formulation: The method through which organized creativity
and actions are planned and directed in order to achieve the objectives
of the enterprise. Defines the goal, along with approach, resources, and
timeline.
Strategy Implementation: Resources are received and an organizational
structure is employed; leadership is exercised. At this point the objectives
are completed.
Support Activities: Activities that are performed to help primary activities
which are human assets, management structure, purchasing and technology.
SWOT Analysis: A technique employed to appraise how an organiza-
tion’s internal strengths and weaknesses are positioned towards external
opportunities and threats.
Synergies: The potential financial benefits achieved through the combi-
nation of companies, such as cost savings or increased revenue.

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 Glossary

Turnaround Strategy: A holistic strategy designed to turn around a Notes

company’s decline and return it to a stable, profitable condition.
Value Chain Analysis: A method for examining organizational activities
to assess their contribution to competitive advantage. This includes core
activities like logistics, operations, sales, and service, as well as support
functions such as procurement, technology, HR, and infrastructure.
Value Chain: A concept that classifies company’s activities into primary
and support activities in order to assess the points at which value might
be added to products or services.
Vertical Merger: A merger involving companies at various stages of the
same industry’s supply chain, designed to enhance supply chain efficiency
and increase control.
Vision Statement: In this case the focus is on the future indeed. This
is a statement that aspires to what the organization will achieve in the
course of time, and subsequently guides and motivates its ambitions far
into the future.

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