Strategic management BY VARUN CHANDOK

Strategic Management
VARUN
CHANDOK

A MAN WHO CANNOT SIT STILL……AND
CANNOT SAY NO………IS NOT FIT FOR
BUSINESS
Thought of the Day

Strategy
 In business, strategy means an overall plan of an
organisation which uses its resources to establish
a favourable position and compete successfully
against it‟s rivals.
 According to Willam F.Glueck, “ Strategy is a
comprehensive and integrated plan designed to
assure that the basic objectives of the enterprise
are achieved”
 According to Alfred Chandler, “ Strategy is the
determination of the long term goals of an
enterprise, and the adoption of courses of action
and the allocation of resources necessary for
carrying out these goals”

Nature
 Strategy is a major course of action through which an
organization relates itself to its environment particularly the external factors.
 Strategy is the blend of internal and external factors. To meet the opportunities and
threats provided by the external factors, internal factors are matched with them.
 Strategy is the combination of actions aimed to meet a particular condition, to solve
certain problems or to achieve a desirable end.
 Due to its dependence on environmental variables, strategy may
involve a contradictory action. An organization may take contradictory actions. For
example, a firm is engaged in closing down of some of its business and at the same
time expanding some
 Strategy is future oriented. Strategic actions are required for new situations which
have not arisen before
 Strategy requires some systems and norms for its efficient adoption in any
organization
 Strategy provides overall framework for guiding enterprise.
http://www.scribd.com/doc/23775560/2/Nature-of-Strategy-%E2%80%93

P&G Strategies
 Products-Delight the consumer with sustainable
innovations that improve the environmental profile of
our products.
 Operations-Improve the profile of P&G’s own
operations.
 Social Responsibility-Improve children’s lives through
P&G’s social responsibility programs.
 Stakeholders- Shape the future by working
transparently with our stakeholders to enable continued
freedom to innovate in a responsible way.
 http://www.pg.com/en_US/sustainability/strategy_goal
s_progress.shtml

In summary, A Strategy is:---
A strategy could be:
* A plan or course of action or set of decision rules
making a pattern………….
* The pattern related to the organization's activities
which are derived from the policies, objectives and
goals,
* related to pursuing those activities which move an
organization from its current position to the desired
future state,
* Concerned with the resources necessary for
implementing a plan or following a course of action,
* Connected to the Strategic positioning (desired
future position of the organization) of a firm
* a planned coordination of the firm‟s major goals and
actions, in time and space that continuously co-align
the firm with its environment.

Business Policy
 According to Christensen, “ It is the study of the
functions and responsibilities of senior
management, the crucial problems that affect
success in the total enterprise, and the decisions
that determine the direction of the organisation
and shape its future. The problems of policy in
business have to do with the choice of
purposes, the moulding of orgnaisational identity
and character, the continuous definition of what
needs to be done and the mobilisation of
resources for the attainment of goals in the face
of competition”

Policy and strategy
 Difference between Policy and Strategy
The term “policy” should not be considered as synonymous to the term
“strategy”. The difference between policy and strategy can be
summarized as follows-
 Policy is a blueprint of the organizational activities which are
repetitive/routine in nature. While strategy is concerned with those
organizational decisions which have not been dealt/faced before in
same form.
 Policy deals with routine/daily activities essential for effective and
efficient running of an organization. While strategy deals with strategic
decisions.
 Policy is concerned with both thought and actions. While strategy is
concerned mostly with action.

What is Strategic Management
 According to Jauch and Glueck, “ Strategic
management is a stream of decisions and actions
which lead to the development of an effective
strategy or strategies to help in achieving the
corporate objective.
 According to Robinson, “Strategic Management is
the set of decisions and actions resulting in
formulation and implementation of strategies
designed to achieve the objectives of an
organisations”

Importance of strategy
 Better and effective control of uncertainty
 Enhancing organisational effectiveness
 Framework For Operational Planning
 Clarity in Direction of Activities
 Personnel Satisfaction
http://www.marketing91.com/role-of-strategy/

SBI STRATEGY
SBI eyes home loans of state govt employees
Mumbai May 05, 2006The State Bank of India
(SBI) has adopted an innovative strategy to
expand its home loan portfolio and at the same
time ensure good credit quality. The country‟s
largest bank is in talks to buy home loans given
by state governments to their
employees. Banking sources said SBI is close in
signing an agreement with the Kerala government
for purchasing home loans of its staff.

Difference Between SBU and
SBA
 According to Sharplin, “ SBU is any part of a
business organisation which is treated separately
for strategic management purpose”.
 Strategic business area- A distinctive segment of
the environment in which the firm does or may
want to do business”

Strategic decision making
 Strategic decision making is the task of senior
management.
 It is one of the most important function of a senior
management
 Conventional Decision making
Defining objectives
Searching for alternatives
Evaluation of alternatives
Selection of alternative

 Strategic decision making
1. Strategic decisions are highly complex
2. The basic thrust of strategic decision making is to
make a choice regarding the courses of action to
adopt
3. The fundamental strategic decisions relates to the
choice of mission i.e. WHAT IS OUR BUSINESS?
WHAT IT WILL BE? AND WHAT SHOULD IT BE?
4. Also here senior management is faced with
problem of selecting the best alternative
5. Apart from this senior management has to make
important strategic decisions related with the
environmental threats and the available
opportunities.

Issues in Strategic Decision
making
 Criteria for decision making- Focus on objectives
Concept of maximisation- Objectives are set at the
highest point
Concept of satisfying- Objectives are set in such a
manner that the firm can achieve them realistically
Concept of incrementalism- Process of decision making
is complex. Adoption of small, logical and incremental
steps
 Rationality in decision making
 Creativity in decision making- Help of Brainstorming
 Variability in decision making- Depending on situation
 Person related factors in decision making

Process of Strategic
Management

 Establishing the hierarchy of strategic intent:-
Creating and communicating a vision- What organisation
whishes to achieve in long run
Designing a mission statement- Relates organisation to
society
Defining the business- In terms of Customer needs, customer
groups and alternatives technologies
Setting objectives
 Formulation of strategies
Performing environmental appraisal
Doing organisational appraisal
Considering corporate level strategies
Considering business level strategies
Undertaking strategic analysis
Exercising strategic choice
Formulating strategies
Preparing strategic plan

 Implementation of strategies
Project
Procedural
Resource allocation
Structural
Behavioural
Functional and operational
 Performing strategic evaluation and control
Performing strategic evaluation
Exercising strategic control
Reformulating strategies

Models of the strategic management process
 Project implementation- Setting
up the organisation
 Procedural implementation-
Different aspects of the
regulatory framework
 Resource allocation
 Structural-Designing
appropriate organisational
structural
 Behavioural aspect consider
the leadership style and
culture, personal value,
business ethics and social
responsibility
 Functional aspect relates to the
policies to be formulated in
different functional areas and
operational implementation

Working model of strategic
management process

Levels at which strategy operates

 Societal strategies-
Strategies plan above corporate strategies
How the corporation relates itself to society in terms of a
need that it strives to fulfill.
Corporate level strategies could be based on societal
strategies
 Operational level strategies
Set below the functional level strategies
e.g. A functional strategy at the marketing level could be
subdivided into sales, distribution, pricing, product and
advertising strategies

Who are strategist
 These are individuals who are primarily
involved in the formulation,
implementation and evaluation of
strategy.
 In limited sense, all managers are
strategist
 There are also persons outside the
organisation who are also involved in
various aspect of strategic management.

Role of strategist
 Role of BOD
1. The ultimate authority of an organisation rest with
the BOD
2. These are appointed by the owners of the
organisation, Govt, shareholders or even by the
parent company.
3. These are responsible for providing guidance and
establishing the directives according to which the
managers of the organisation operate.
4. The board has to act according to the rules,
procedure of an organisation
5. The board is required to direct but many operational
matters like technology collaboration, new product
development may be brought to them.
6. Their role is to guide senior management and

Role of CEO
 One of the most important strategist
 Involved in formation and evaluation of strategy
 He can be MD, President or GM of an organisation
 CEO performs the strategic task-action which are
necessary to provide a direction to the organisation so
that it achieve the purpose
 He plays an important role in setting mission, objectives
of the organisation
Role modeling approach
Chief architect of organisational purpose, strategist or planner
Organisational leader, organiser or organisational builder
Chief administrator, coordinator, motivator, mentor

Role of CEO
 Other approach- Directly or indirectly describe the
role of a CEO in terms of:-
1. How time is spent
2. Qualities and personality
3. Communication style
4. Demographic characteristic- age, education,
intelligence, experience and so on………
5. Managerial style

Role of entrepreneurs
 The entrepreneur always searches for change, respond
to it and exploits it as an opportunity
 An entrepreneur is a person who start a new business
and is having a high level of achievement
 They can be found in small as well as in large
organisations
 They are proactive and provide a direction to the
organisation, set objectives and formulate a strategy
 Strategic decision making is quick and the entrepreneur
generate a sense of purpose among their subordinates.

Role of senior management
 Chief executive and various functional heads can
be included in it.
 Some of the members of the senior management
act as a directors on the board.
 They are responsible for implementing of strategies
and their evaluation.
 They may be included in Adhoc committees for
some special projects.
 When assigned specific responsibilities, senior
managers look after modernisation, technology
upgradation, diversification, expansion, plan
implementation and new product development

Role of SBU Executives
 Help in managing diversified company
 Each business is having a clearly defined product
market segment and adopt a unique strategy
 They are considered as a chief executive of that
particular business unit.
 They are responsible for formulation and
implementation of strategies of their business unit.
 There can be separate management board in order to
review the performance of each profit center.

Role of corporate planning staff
 Corporate planning staff play a supportive role in
strategic management
 It helps the management in formulating, implementing
and evaluation of strategies.
 They also communicate the strategy plan and conduct
special studies or research pertaining to strategic
management.
 It is important to note that corporate planning staff is
not responsible for strategic management and usually
does not initiate the process on its own.

Role of consultants
 Many small organisation which do not have corporate
planning staff look for external help for formulating the
startegies.
 These consultants may be individuals, academicians
or consultancy companies.
 According to Management Consultants Association of
India, management consultancy is a professional
service performed by trained persons to advice and
assist managers to improve their performance.
 These people will give unbiased, objective opinion.
 McKinsey, BCG, KPMG

Role of a middle level managers
 These people rarely play an active role in
strategic management.
 They are the implementors of decisions taken
above, followers of policy.
 They implement all the functional strategies.
 Sometime they can also contribute to the
generations of ideas, development of strategic
alternative, refinement of business, functional and
development plans etc.

Role of Executive Assistant
 An executive assistant is a person who assist the chief
executive in the performance of his duties in various
ways.
 They can help the chief executive in collection of data,
its analysis, suggesting alternatives, projects and
report etc.
 These people also act as a filter for the information
coming from different sources.
 It is the function of executive assistant to monitor the
changes taking place.
 But in a company where corporate planning
department exist, this function is not assigned to the

Strategic Intent
 By strategic intent, we refer to the purpose the
organisation strives for.
 Strategic intent could be in the form of vision,
mission statement.
 At the business level, these could be expressed as
the business definition.
 When stated in exact term, its an expression of aims
to be achieved operationally, these may be goals
and objectives.
 Strategic intent encompasses an active
management process that includes: focusing the
organisation‟s attention on the essence of winning….

Concept of stretch, leverage and
fit
 Stretch- The company need to Stretch. As of
today there is a misfit between resources and
aspirations.
 Leverage- It refers to concentrating,
accumulating, complementing (balancing),
conserving and recovering resources in such a
manner that the meager resource base is
stretched to meet the aspirations.
 Fit- Positioning the firm my matching its
organisational resources to its
environment.(SWOT)

Vision
 Aspirations expressed as strategic intent should lead to
results.
 It is what the firm would like to become
 It is a mental perception of the kind of environment an
individual, or an organisation, aspires to create within a
broad time horizon.
Benefits:-
 Good visions are aspiring
 Company knows what it want to be……
 Good visions help in the creating of a common identity and
a shared sense of purpose.
 Good visions are competitive, original and unique
 Good Vision foster risk taking and experimentation
 Good vision foster long term thinking

Process of envisioning
 According to Collins, a well conceived vision consists
of two major components: core ideology and
envisioned future.
 The core ideology defined the character of an
organisation that remains unchangeable as it passes
through technology, competition.(Core values and core
purpose)
 Envisioned future consists of two components i.e.
Long term audacious goal
Vivid description of what it will be like to achieve that
goal

Mission
 Mission is what an organisation is and why it exists.
 Organisation relate their existence to satisfy a need of
the society.
 Mission is a statement which defined the role that an
organisation plays in the society
 According to Thompson, “ It is an essential purpose of
the organisation, concerning particularly why it is in
existence, the nature of the business it is in and the
customers it seeks to serve and satisfy”.

Mission statements of various
companies
 Companies often list their vision and their mission
statements on their sites. The difference between a mission
statement and a vision statement is that a mission
statement focuses on a company‟s present state while a
vision statement focuses on a company‟s future. However,
some companies tend to blend these statements. The
following are some of the top technology-based company
mission statements:
 Amazon: Amazon‟s vision is to be earth‟s most customer
centric company; to build a place where people can come to
find and discover anything they might want to buy
online. (They list this as their mission as a combination
mission/vision on their site).
 Apple: Apple is committed to bringing the best personal
computing experience to students, educators, creative
professionals and consumers around the world through its
innovative hardware, software and Internet offerings.

 Dell: Dell‟s mission is to be the most successful
computer company in the world at delivering the best
customer experience in markets we serve.
 Facebook: Facebook‟s mission is to give people the
power to share and make the world more open and
connected.
 Google: Google‟s mission is to organize the world„s
information and make it universally accessible and
useful.
 Microsoft: Microsoft‟s mission is to enable people and
businesses throughout the world to realize their full
potential.
 Skype: Skype‟s mission is to be the fabric of real-time
communication on the web.
 Yahoo!: Yahoo!‟s mission is to be the most essential
global Internet service for consumers and businesses
 http://drdianehamilton.wordpress.com/2011/01/13/top-

How mission statements are
formulated and communicated?????
 An entrepreneur has a perception of the type of
organisation that he wants his company to be.
Mission statements could be formulated on the basis
of the vision that the entrepreneur decided in the
initial stages of an organisation‟s growth.
 Major strategists could also contribute to the
development of a mission statement like CEO……
 One can also take the help of various consultants…..
 Mission example:--- TO BE A VIBRANT
ORGANISATION, KEEPING ITS CUSTOMERS AND
EMPLOYEES SATISFIED IN TERMS OF SERVICES
AND WORK REWARD;GIVING ADEQUATE
RETURNS ON INVESTMENT TO THE

 Communicating the mission statement is as important
as formulating it.
 High visibility of the mission statements posted on
multiple locations is an effective tactic to aid mission
familiarity and recognition by employees.
 Methods of communicating Mission statement-
ANNUAL REPORTS, POSTERS, EMPLOYEE
MANNUALS, COMPANY INFORMATION KITS, WORD
OF MOUTH PUBLICITY, SEMINARS, WORKSHOPS,
NEWSLETTERS, ADVERTISEMENT.
 A mission statement is generally formulated for long
span of time but it may become unclear as the
organisation grows and add new products, market and
technologies. In such a case Mission statement has to
be reconsidered and re-examined.

Features of Mission Statement
 It should be feasible- Should not be an impossible
statement
 It should be precise- Hero Cycles mission statement,
“Its our mission to strive for synergy between
technology, systems and human resources, to
produce products and services that meet the
quality, performance and price aspirations of our
customers. While doing so, we maintain the
highest standards of ethics and societal
responsibilities”
 It should be clear
 It should be motivating- Bank of Baroda‟s strategic
vision 2010, includes the mission of „pursuing best

 It should be distinctive
 It should indicate the major components of strategy-
The mission of HCL Infosystems is: “To provide world
class information technology solutions and services to
enable our customers to serve their customers better”.
 It should indicate how objectives are to be
accomplished- LG electronics has its mission of
becoming „2 by 10‟.

Business Definition
 What is our business??????
 According to Derek Bell, “ A Business can be defined
along the three dimensions i.e. customer group i.e. who
is being satisfied (children, men, women), customer
need (what is being satisfied) and Alternative
technologies(how the need will be satisfied).
 A business definition can indicate the choice of
objectives, helps in exercising a choice among
different strategic alternatives, facilitate functional
policy implementation and suggest an appropriate
organisational structure.

Levels at which business could be
defined
 It can be defined at SBU or corporate level.
 A single business firm is active in only one area so its
business definition is simple.
 At the corporate level, the business definition will
concern itself with the wider meaning of customer
groups, customer function and alternative technologies.
On the other hand a highly diversified company
organised on a divisional basis could benefit by having
a business definition at the SBU level.
 Business definition offer unique insights to companies
operating in competitive markets where the customer is
an important external stakeholder of the firm.

Product/Service concept
 A product/service concept is the manner in which a
company assesses the user‟s perception of its product
or service.
 Such a perception is based on how the product or
service provides functions that satisfy customer needs.
 For e.g. Motorola wished to make the mobile phone not
just a device for making a phone call but offering
SEAMLESS MOBILITY making it possible to perform a
variety of functions such as pay bills, buy tickets or use
mobile phone for personal identification.
 NIIT saw itself not as a computer training institution but
as a service- providing organisation, seeking to
understand and implement the concept of knowledge
transfer across the gamut of IT led human activity.

Business Model
 Business model are often expressed in the form of a
question: HOW DOES THE ORGANISATION MAKE
MONEY????
 Business model has an important relationship with the
strategy of the organisation.
 Strategies result in choices and a business model can
be used to help ,analyse and communicate these
strategic choices.
 The success of WAL MART as a retailer, GOOGLE as
a search engine, DELL COMPUTERS as an internet
based marketer is attributed to their respective
business models.

Goals and objectives
 Goals denote what an organisation hopes to
accomplish in a future period of time
 Objectives are the ends that state specifically how the
goals shall be achieved.
 Objectives are concrete and specific in contrast to
goals that are generalised.
 Objectives makes the goal operational.
 Goals may be qualitative while objectives tend to be
quantitative.

Role of objectives
 Objectives defines the organisation‟s relationship with
its environment
 Objective help an organisation pursue its vision and
mission
 Objectives provide the basis for strategic decision
making
 Objectives provide the standard for performance
appraisal
Characteristics of objectives
 It should be understandable
 It should be specific
 It should be related to time frame
 It should be measurable
 It should be challenging

Issues in Objective Setting
 Specificity
1.Objectives may be stated at a different levels of
specificity
2Objectives might be broadly stated as goals or they
might be stated as targets. 3Specificity is related to the
organisational level for which a set of objectives has
been stated(Corporate, functional and operational)
 Multiplicity
1.Objectives deals with a number of performance areas, a
variety of them have to be formulated to cover all
aspects of the functioning of an organisation.
2.The issue of multiplicity deals with different types of
objectives with respect to organisational levels (Higher

Issues in Objective Setting
 Verifiability- Quantitative objectives and Qualitative
objectives
 Reality-
official objectives- Objectives which the organisation
prefer to attain
operative objectives- Objectives which they seek to
attain in reality
E.g. Many organisation state one of their official
objectives as the development of human resource. But
whether it is also an operative objective depends on the
amount of resources allocated to HRD.
 Quality- It can be good or bad
Bad objective- To be market leader in our

What objectives are set???????
 Objectives have to be set in all those performance
areas which are of strategic importance to an
organisation.
 According to Drucker, objectives need to be set in the
eight areas:-
Market standing
Innovation
Productivity
Physical and financial resources
Profitability
Manager performance and development
Worker performance
Attitude

How objectives are formulated
 The forces in the environment
Different Stakeholders
 Realities of enterprise resources and internal power
relationship
1.Objectives are set keeping in mind the available
resources (material and human) of a company
2.It also depend upon the decisional power hold by
different group of strategist
 The value system of the top executive
Values are beliefs, perceptions about WHAT IS GOOD
AND BAD, DESIRABLE AND UNDESIRABLE.
 Awareness by the management
Awareness of past objectives

Balanced Scorecard approach to objective-setting
 It was developed by Robert S. Kaplan and David Norton
 “The Balanced Scorecard translates an organization‟s
mission and strategy into a comprehensive set of
performance measures that provides the framework for a
strategic measurement and management system”

 Financial perspective- This perspective consider the
financial measures arising from the strategic intent of
the organisation for e.g. measuring revenues, earning,
return on capital and cash flow.
 Customer perspective- It consider the ability of the
organisation to provide quality of goods and services,
effective delivery and overall customer satisfaction.
 Internal Business perspective- It measures the “critical
internal processes in which the organization must
excel” for e.g. productivity indicators, quality measures
and efficiency.
 Learning and growth perspective-
1. Focus on the ability of the organisation to manage its
businesses and adapt to change
2. Focus on the development of employees in terms of

Development of scorecard
1. The development of scorecard begins with the
establishment of the organisation‟s strategic intent
including vision and mission
2. The design of balance scorecard is determined by
identifying the specific measures related to the four
perspectives. The specific strategies should be
formulated and implemented,
3. The following step involves mapping the strategy
through the indentification of organisational activities
that are derived from the strategies.
4. In the final stage, metrics that can be used to
accurately measure the performance of the
organisation in a specific areas are established

CSF- Critical Success Factors
 These are the important factors which lead the
organisation to success.
 CSF are sometimes referred to strategic factors that
are crucial to the organisation success.
 For a shoe manufacturing company a CSF can be
quality, cost efficiency, sophisticated retailing, flexible
product mix and creation of product image.
 For a toothpaste company, CSF can be flavour,
freshness, form.
 For a courier service, CSF can be speed, despatch,
reliability and price.

KPI- Key performance indicators
 KPI are the measures in terms of which the CSF are
evaluated
 For e.g. A shoe manufacturing company has a high
manufacturing quality as a critical success factor and he
can compare this factor with recall rate after delivery,
product reject rate, on-time delivery etc. This form the
KPI.
 KPI depend upon the vision set by an organisation. For
e.g.
For a profitable company in industry- Its KPI will be pre-
tax profit
For a responsible corporate citizen- Its KPI will be the
per cent of profit contributed to community
 KPI give everyone in the organisation a clear picture of

Environmental Appraisal
 Organisation grow in the business environment.
 Environment literally means the surroundings, external
objects, influences or circumstances under which
someone or something exists.
 The environment of an organisation is the aggregate of
all conditions, events and influences that surround and
affect the organisation.
Characteristics of Environment
 Environment is complex
 Environment is dynamic
 Environment is multi faceted- Some development is
welcomed as an opportunity by one company while
another company perceives it as threat.
 Environment has far reaching impact

Internal and External Environment
 Internal environment- Factors within the organisation (strengths
and weaknesses)
 External Environment- Factors outside the organisation
(opportunity and threat).
 Strengths
Good reputation
Resources
People
Experience
Knowledge
Capabilities
 Weakness
Gaps in capabilities
Financial deadlines
Low morale

 Opportunity
Economic boom
Favorable demographics shifts
Arrival of new technologies
Favorable global influences
Unfulfilled customer needs
 Threat
Economic downturn
Demanding new regulations
Unfavourable political
New technology

SWOT ANALYSIS
 SWOT Analysis evolved during 1960s at Stanford Research
Institute
 SWOT analysis process
1.Setting the objectives of the organisation or its unit
2.Identifying its strength, weaknesses, opportunity and threats
3.ASKING FOUR QUESTIONS
Q1 HOW DO WE MAXIMISE OUR STRENGTH
Q2 HOW DO WE MINIMISE OUR WEAKNESSES
Q3 HOW DO WE CAPITALISE ON THE OPPORTUNITIES IN
OUR EXTERNAL ENVIRONMENT
Q4 HOW DO WE PROTECT OURSELVES FROM THREATS
IN OUR EXTERNAL ENVIRONMENT
4. Recommending strategies

Benefits
 Simple to use
 Low cost
 Flexible and can be adapted to varying situations
 Leads to clarification of issues
 Development of goal oriented alternatives
 Useful as a starting point for strategic analysis

General versus relevant environment
 General Environment
International
National
Social changes
Demographic variables
Political system
Technology
Attitude towards business
Energy source
Raw material
 Relevant Environment-
Include factors which are
related with mission,
purpose and strategies.
General Environment
Relevant
environment
Organisatio
n

Classification of environmental
sectors
 Economic Environment
 International Environment
 Market Environment
 Political Environment
 Regulatory Environment
 Socio- cultural Environment
 Supplier Environment
 Technological Environment

Economic Environment
 Economic Environment consist of macro level factors
related to the means of production and distribution of wealth
that have an impact on the business of an organisation.
WHAT ARE FACTORS:-
 The economic stage in which a country exists at a given
point of time
 The economic structure adopted, such as capitalistic,
socialistic or mixed economy.
 Economic policies such as industrial, monetary policies
 Economic planning such as five years plans
 National Income, Disposable income, rate of saving and
investment.
 Infrastructure factors such as financial institutions, banks,
modes of transportation.

International Environment
 Important factors and influences operating in the
international environment are as follows:-
1. Globalisation
2. Global economic forces
3. Global trade and commerce
4. Global financial system
5. Geopolitical situation
6. Global demographic patterns
7. Global human resources
8. Global information system
9. Global technological and quality systems

Market Environment
market environment are as follows:-
1. Customer needs, preferences, perceptions,
attitudes
2. Product factors such as demand, image, features,
utility, function, design, life cycle, price, promotion,
distribution etc
3. Marketing intermediary factors such as levels and
quality of customer service, middleman etc.
4. Different types of competitors, entry and exit of
major competitors

Political Environment
political environment are as follows:-
1. Nature of political system
2. The political structure
3. Political philosophy, government‟s role in business, its
policies.
Regulatory Environment
 Constitutional framework, fundamental rights
 Policies related to licensing, monopolies, foreign
investment
 Policies related to pricing and their control
 Policies related to import and export

Supplier environment
 Some of the important factors and influences operating
in the supplier environment are as follows:-
1. Cost, availability and continuity of supply of raw
material, parts and components
2. Cost and availability of finance
3. Cost, reliability and dependability of human resource
4. Cost, availability and the existence of sources and
means for supply of machinery, spare parts and after
sale service
5. Infrastructural support and ease of availability of the
different factors of production, bargaining power of
suppliers.

Technological environment
1. Sources of technology like company sources,
external sources, foreign sources, cost of
technology acquisition.
2. Technological development, stages of
development, change of technology
3. Impact of technology on human beings and its
environmental effects.

Environmental scanning
 Environment scanning can be defined as the process
by which organisation monitor their relevant
environment to identify opportunities, threats affecting
their business for the purpose of taking strategic
decisions.
Factors to be considered for environment scanning:--
1. Events are important and specific occurrences taking
place in different environmental sectors
2. Trends are the general tendencies or the courses of
action along which events take place
3. Issues are current concerns that arise in response to
events and trends
4. Expectations are the demands made by interested
groups in the light of their concern for issues

Approaches to environmental
scanning
 Systematic approach- Information is collected in a
systematic way
 Ad hoc approach- Organisation conduct special
surveys and studies to deal with specific
environment issues time to time
 Processed form approach- Organisation uses
information in a processed form, available from
different sources both inside and outside the
organisation. (secondary sources)

Sources of information for environment scanning
 Secondary sources of information- newspaper,
magazine, journals, books.
 Mass media- TV, Radio, Internet
 Internal sources – Internal report, MIS, database
 External agencies like customers, suppliers etc
 Formal studies done by employees, market research
agencies, consultant

ETOP- Environmental Threat and opportunity profile
(Glueck)
1. The preparation of ETOP involves dividing the
environment into different sectors and then analysing
the impact of each sector on the organisation.
2. A comprehensive ETOP requires subdividing each
environmental sector into subfactors and then the
impact of each subfactor on the organisation is
described in the form of a statement.
3. The preparation of ETOP provides clear picture to the
strategists about which sectors and the different
factors in each sector have a favourable impact on
the organisation.
4. By the means of ETOP, the organisation knows where
it stands with respect to its environment.

ETOP of Motor Bike company
Environmental Sectors Impact of each sector
 Social ( ) Customer preference for motorbike, which are
fashionable, easy to ride…
 Political ( ) No significant factor
 Economic( ) Growing affluence among urban
consumers
 Regulatory( ) Two wheeler industry a thrust area for
export
 Market ( ) Industry growth rate is up…..
 Supplier ( ) Mostly associated companies supply parts
and components, Licenses for imported
raw material is also available
 Technological( ) Technological up gradation of industry is in
progress.
(UP ARROW INDICATE FAVORABLE IMPACT, DOWN ARROWS INDICATE

Points to remember while preparing
ETOP
 Issue selection- Focus on the issue which have been
selected. Some of the important issues may be those
related to market share, competitive pricing, customer
preference, technological changes, economic policies,
competitive trends etc.
 Accuracy of data- Data should be collected from good
sources. The relevance, importance, manageability and low
cost of data are some of the important factors.
 Impact studies- Impact studies should be conducted
focusing on the various opportunities and threats and the
critical issues selected. It may include study of probable
effect on the company‟s strengths and weaknesses,
competitive position, accomplishment of vision and mission.
 Before the formulation of strategies can be undertaken, the

Internal Environment
 Internal analysis is the process of reviewing organisational
resources, scanning organisational activities and identifying
strengths and capabilities.
 Internal analysis stands for resource audit, value chain
analysis and core competence.
 Internal diagnosis is the process by which strategist
determine how to exploit the opportunities and meet the
threats.
 In other words Corporate appraisal is the process through
which managers analyse the various factors of their
organisation to evaluate their relative strengths and
weaknesses in order to meet the opportunities and threats of
environment.
 The appraisal of the external environment of a firm helps it to
think of what it might choose to do and the appraisal of

Dynamics of Internal
Environment
 Organisation uses different types of resources and
positive interplay of these resources can produces
synergy within an organisation.
 These interplay leads to the development of
strengths and weaknesses over a period of time.
 Some of these strengths make an organisation
especially competent in a particular area of its
activity causing it to develop competencies.

Process of development of strategic
advantage …..
Strategic advantage
Organisational capability
Competencies
Synergistic effect
Strengths and weaknesses
Organisational resources + Organisational Behaviour

Organisational Resources
 A firm is a bundle of bundle of resources- tangible and
intangible and include all assests, capabilities,
organisational process, information, knowledge etc.
 PHYSICAL RESOURCES- Technology, plant, equipment,
geographical location, access to raw material….
 HUMAN RESOURCES- Training, experiences, intelligence,
relationships etc.
 ORGANISATIONAL RESOURCES- Formal systems,
structures as well as informal relations among groups.
 Resources can lead the organisation to the ultimate
strategic advantage.
 According to Barney (Developer of resource based theory)-
“Firms possess resources of which those that are valuable
and rare enable them to achieve strategic advantage.

Organisational Behaviour
 Organisational behaviour is unique in the sense that it
leads to the development of a special identity and
character of an organisation.
 Some of the important forces that affect organisational
behaviour are the quality of leadership, management
philosophy, values and culture, quality of work
environment, organisation climate etc…
 The resources and the behaviour of the organisation
can provide a synergy effect in the development of an
organisation. They can collectively produce strengths
and weaknesses.

Strengths and weaknesses
 Strength is an inherent capability which an
organisation can use to gain strategic advantage.
 A weakness is an inherent limitation which creates a
strategic disadvantage for an organisation.
 Strengths and weaknesses do not exist in isolation but
combine within a functional area and also across
different functional area.

Synergistic Effect
 Synergy is an idea that the whole is greater or lesser
than the sum of its parts. It can be expressed as „the
two plus two is equal to five or three effect‟
 It is the inherent nature of organisation that strengths
and weaknesses, like resources and behaviour, do
not exist indivudally but combine in a variety of ways.
 Two strong points in a functional area add up to
something more than double the strengths. Likewise
two weaknesses acting in tandem result in more than
double the damage.

Competencies
 Competencies are special qualities possessed by an
organisation that make them withstand the pressures
of competition in the marketplace
 Unique resources, core capabilities, knowledge
 When a specific ability is possessed by a particular
organisation exclusively or relatively in large measure,
it is called a distinctive competence
 A firm should build its competencies around the CSF

Organisational Capability
 Organisational capability is the inherent capacity or
potential of an organisation to use its strengths and
weaknesses in order to exploit the opportunities and
face the threats in its external environment.
 It is the skill of the organisation to coordinate
resources and putting them to productive use.
 Organisational capability is the capacity or potential of
an organisationa and it means that it is a mesurable
attribute( total resources and behaviour, strengths and
weaknessess etc)

Strategic and competitive advantage
 Strategic advantage are the outcomes of organisational
capabilities.
 Strategic disadvantage are penalties in the form of
financial loss or damage to market share.
 Strategic advantages are measurable in absolute terms
using the parameters in which they are expressed for
e.g. profitability could be used to measure strategic
advantage..

Organisational Capability factors
 Capabilities are most often developed in specific
functional areas such as marketing or operations or
even in R&D.
 Organisational capability factors are the strategic
strengths and weaknesses existing in different
functional areas within an organisation, which are of
crucial importance to strategy formulation and
implementation.
 It is feasible to measure and compare capabilities in
different functional areas.

Financial capability
 Financial capability factors relate to the availability,
usages and management of funds.
 Factors related to sources of funds- Capital structure,
procurement of capital, controllership, financing pattern,
working capital availability, borrowings, capital and
credit availability, reserves, surplus, relationship with
lenders, banks and financial institutions.
 Factors related to usage of funds- Capital investment,
current assets, loans and advances, relationship with
shareholders.
 Factors related to management of funds- Financial
accounting and budgeting systems, state of financial
health, cash, credit, return and risk management, cost
reduction.

Marketing capability
 These factors related with pricing, promotion and
distribution of products or services
 Product related factors- Variety, differentiation, mix
quality, positioning, packaging
 Price related factors- Pricing policies and objectives
 Place related factors- Distribution, transportation,
marketing channels, marketing intermediaries
 Promotion related factors- Sales promotion,
advertising, public relation

Operations capability
 These factors are related with production of products
and use of material resources.
 Factors related to the production system- capacity,
location, layout, work system, degree of automation.
 Factors related to the operations and control system-
Production planning, material supply, inventory, cost
and quality control, maintenance systems.
 Factors related to R&D system- Personnel facilities,
product development, level of technology used,
technical collaborations and support.

Personnel capability
 Factors related to personnel system- Systems for
manpower planning, selection, development,
compensation, communication and appraisal.
 Factors related to organisational and employee
characteristics- Corporate image, quality of managers,
staff and workers perception about the organisation
and organisational employer, ,opportunities for
employees to grow, working conditions etc.
 Factors related to industrial relations- Union
management relationship, safety, welfare and security,
employee satisfaction and morale etc.

Information management capability
 Factors related to acquisition and retention of
information- Sources, quantity, quality and security of
information.
 Factors related to processing of information- Database
management, computer systems, software capability
 Factors related to retrieval and usage of information
 Factors related to transmission and dissemination-
Speed, scope of coverage

General Management Capability
 Factors related to the general management system
Strategic management system, Strategic intent, strategy
formulation and implementation, strategy evaluation
system, Corporate planning system
 Factors related to general managers
Values, Personal goals, capacity to work, risk propensity
 Factors related to external relationship
Rapport with government, regulatory agencies, financial
institutions, PR, sense of social responsibility
 Factors related to organisational climate
Culture, balance of vested interest

example----HUL Vs P&G
MUMBAI: It was quick and it was smart.
It was an ambush in the skies that Hindustan
Unilever
launched against archrival Procter & Gamble.
The story starts on July 23, when Mumbai woke
up to hoardings that screamed: „A Mystery
Shampoo!! 80% women say is better than
anything else‟. P&G, it was later found, was
planning to unveil the new Pantene on August
1.
HUL saw an opportunity to score a point.
They ambushed P&G. On July 28, even as
the P&G hoardings stood tall on its skyline,
Mumbai woke up to another hoarding that
was upfront, and suggestive of its source of
inspiration. It said: „There is no mystery. Dove
is the No.1 shampoo‟. Dove is one of the four
brands in HUL‟s shampoo portfolio.
For instance, when Coke bagged the official
sponsorship rights to the 1996 cricket world
cup in the subcontinent, Pepsi came up with

Methods and techniques used for
organisational appraisal
 Organisational appraisal is different from performance
evaluation as earlier is more comprehensive and is for
long term and also tells what organisation needs to do
in order to grow.
 The emphasis of performance evaluation is on
assessing current behaviour with respect to efficiency
and effectiveness of the organisation.
 Internal Analysis
 Comparative analysis
 Comprehensive analysis

Internal analysis
 VRIO framework
 Value chain analysis
 Quantitative analysis
Financial analysis
Non-financial analysis
 Qualitative analysis

VRIO framework
 Contributed by Barney also known as the founder of
resource based theory.
 V- VALUABLE, R-RARE, I-INIMITABLE, O-
ORGANISED FOR USAGE
 Valuable
The organisational capabilities that help to generate
revenues by capitalising opportunities and reducing
cost
For e.g. Amicable relationship with Government or after
sale service
 Rare
The organisational capabilities exclusively possessed by
firms

 Inimitable
Organisational capabilities that are impossible or very
difficult or not worthwhile to duplicate by the
competitors.
E.g.- A favorable corporate image
 Organised for usage
Organisational capabilities that could be used through
appropriate organisational structure, business
processes, control system and reward system.
E.g.- Availability of competent R&D personnel and
research laboratories to innovate new and improved
products or the availability of potential business
partners who are competent and willing to integrate
their information systems with that of the firm.

Value chain analysis
 Strengths and weaknesses are determined by
understanding the series of activities.
 Porter is credited for this framework.
 A value chain is a set of interlinked value creating
activities performed by an organisation
 These activities may begin with purchase of raw
material till the finished or end product.
 Here, activities are divided into two parts i.e. Primary
activities and supportive activities

Primary activities
 Inbound logistics- Receiving, storing and transporting
inputs going into production process
 Operations- Transformation of raw material into finished
products
 Outbound logistics- Activities including
receiving, storing and transporting outputs going out of
production process.(material handling, order
processing, physical distribution etc)
 Marketing and sales- Activities that an organisation
uses to market or sell its products.
 Service- Activities used for enhancing and maintaining
product‟s value. (installation, repair, customer training
etc)

Support activities
 Firm infrastructure- Accounting, finance, planning,
general management, legal support and managing
government relations.
 HRM- Recruitment, selection, training, development,
appraising and compensating
 Technology development- R&D, product design,
process design, equipment design.
 Procurement- Procuring inputs needed to produce
products or product services. (Machinery,
equipments, raw material etc)

Value chain analysis
 Identifying the activities that make up the organisation‟s
value chain and classifying them into primary and
secondary activities
 Identifying the things done in those activities that
contribute in providing value for the customer
 Identifying how the value contribution can be increased
so that it costs less to provide the same or more value.
 Identifying how the value configuration could be
improved by innovatively reconfiguring or recombining
activities.
 The main purpose of value chain analysis is to promote
those activities that create more value to the customer
at less cost and reducing those activities that provide
less value and cost more or the organisation can
outsource these activities to external party who can

Limitations of Value chain
analysis
 This technique looks simple but difficult to implement
 It applies to the industrial organisation and needs to be
adapted for application to service organisation.
 The concept of value is hazy. It is difficult to say what
constitute value for the customer.
 This analysis requires collecting data from various
sources and it may increase the cost.

Quantitative analysis
 Numbers in the form of financial figures can give us
more accurate data and which helps the organisation in
assessing the strengths and weaknesses.
 FINANCIAL ANALYSIS
 NON-FINANCIAL ANALYSIS

Financial analysis
 Ratio analysis-
1. This analysis helps the organisation in assessing liquidity,
profitability.
2. Ratio analysis is used on the basis of the reasonable
assumptions that ratios cover all the important aspects of an
organisation‟s activities.
3. Ratios tell the whole story of changes in the financial condition
of the business
 EVA (Economic value added analysis)
1. It is used to determine wealth of the company
2. EVA is defined as the system of corporate management that
defines profitability in terms of return on capital above the cost
of servicing the capital employed
3. EVA is the representation of the simple idea that an
organisation needs to earn more from business than the cost of

 Activity based costing
1. Activity based costing is an accounting theory that
involves assigning all the costs of the business to
each individual product or service provided.
2. ABC identifies the major activities in the value chain
within a firm and keeps a tab on the costs within each
activity
3. This helps in identifying the factors that determine cost
and the areas where costs are actually incurred.
4. The purpose of this type of costing is to have a
method for evaluating the total cost to create and sell
a specific product.
NON- FINANCIAL ANALYSIS
1. Non-Financial analysis helps in analysis the
intangibles such as goodwill, employee morale

Qualitative analysis
 Most of the Strengths and weaknesses of an
organisation cannot be expressed in quantitative terms
and for this reason, organisation can go in for qualitative
analysis.
 Comparative analysis- From competitor point of view
Historical analysis
Industry Norms
Benchmarking
 Historical analysis
1.Go to the history of the organisation
2.Frequently, the performance of companies is shown in
terms of comparative figures over the last year

 Industry Norms
1.The industry to which a business belongs is the most
obvious choice for comparison .
2.A company might check whether its cost structure is
comparable to that of its competitors.
3.A firm may follow similar strategies building strategic
groups.
4.Strategic groups are the clusters of competitors that
share similar strategies and therefore compete more
directly with one another.
 Benchmarking
1. It is a reference point for taking measures
2. The purpose of benchmarking is to find the best
performers in an area so that one could match one‟s
own performance with them and even surpass them.

WHAT TO BE COMPARED
 Performance benchmarking- Comparing performance
 Process benchmarking- Comparing process
(methods/practices)
 Strategic benchmarking- Comparing long term, significant
decisions and actions undertaken by other organisation
__________________________________________________
_
 Internal benchmarking- Comparison between departments of
the same organisation.
 Competitive benchmarking- Direct comparison of own
performance against the best competitors.
 Functional benchmarking- It is the comparison of functions
against non-competitive organisation within the same sector.
 Generic benchmarking- It is the comparison of own
processes against the best practice anywhere, in any type of
organisation. (For example, an insurance company may
Benchmark a bank loan application process against its

Comprehensive analysis
 KEY FACTOR RATING
 BUSINESS INTELLIGENCE SYSTEM
 BALANCE SCORECARD

Key Factor Rating
 This method is used with financial analysis
 This system is based on rating, depending on the
number of key factors and each factor is properly
analysed.
For Financial capability factors
1. Questions related to sources of funds
2. Questions related to usage of funds
3. Questions related to management of funds
For marketing capability factors
1. Questions related to products or services
2. Questions related to price
3. Questions related to promotion

 For operational capability factors
1. Questions related to the production system
2. Questions related to operations and control
3. Questions related to the R&D system
 For personnel capability factors
1. Questions related to the personnel system
2. Questions related to organisational and employee
characteristics
3. Questions related to industrial relations

 For Information management capability factors
1. Questions related to acquisition and retention of
information
2. Questions related to processing of information
3. Questions related to retrieval and usage of information
4. Questions related to transmission and dissemination
 For general management capability factors
1. Questions related to general management system
2. Questions related to general managers
3. Questions related to external relationship
4. Questions related to organisational climate

Business intelligence systems
 Business intelligence is used for discovering
knowledge from various internal and external
repositories available to an organisation to support
effective decision making
 This system was developed by Horward J. Dresner of
the Gartner Group and according to him “BI is a broad
category of applications and technologies for
gathering, storing, analysing and providing access to
data to help enterprise users make better business
decisions.”
 Gartner ranked the strategic use of BI in the following
order
1. Corporate performance management
2. Optimising customer relations, monitoring business

 Financial perspective- This perspective consider the
financial measures arising from the strategic intent of
the organisation for e.g. measuring revenues, return on
capital and cash flow.
 Customer perspective- It consider the ability of the
organisation to provide quality of goods and services,
effective delivery and overall customer satisfaction.
 Internal Business perspective- It measures the “critical
internal processes in which the organization must
excel” for e.g. productivity indicators, quality measures
and efficiency.
 Learning and growth perspective-
1. Focus on the ability of the organisation to manage its
businesses and adapt to change
2. Focus on the development of employees in terms of

 Balance scorecard is considered as a set of measures
that give top managers a fast and comprehensive view
of the business and it includes financial measures that
tell the results of actions already taken
 Balance scorecard can be used as a means to identify
the strengths and weaknesses in an organisation by
keeping the score of strengths and weaknesses in
critical areas of performance.
 It enables quantitative as well as qualitative analysis of
the organisation.

Structuring organisational appraisal
 SAP (strategic advantage profile)- Here the
results of the organisational appraisal are
presented in a summarised form.
 Organisational capability profile-
1. Assessing company‟s strengths and
weakness in dealing with the opportunities
and threats in the external environment.
2. Here the strategists assess the various
functional areas or capability factors and its
sub factors along a scale ranging from
values -5 to +5.

Strategic advantage profile
 On the basis of Organisational Capability Profile,
the organisation can go in for strategic advantage
profile
 SAP provides a picture of more critical areas
which can have a relationship with the strategic
posture of the firm in the future.

SAP for a bicycle company
Capability factor Competitive strengths or weaknesses
 Finance ( ) High cost of capital, reserve and
surplus position unsatisfactory
 Marketing( ) High competition in industry;
company’s position secure at present
 Operations ( ) Plant and machinery is in excellent condition
 Personnel( ) Quality of managers and workers comparable
with that in competitor companies
 Information ( ) Advanced management information system in
place, mostly traditional functions are now
computerised
 General Management( ) High quality and experienced top
management, proactive
(up arrow indicate strengths, down arrows indicate
weakness, horizontal arrows indicate neutral position)

Identification of CSF
 CSF are the factors unique to a company that
influence the success of that company.
 These factors differ from industry to industry.
 These can be also called core competencies(
Core competencies refers unique strengths of the
company that competition can not easily match or
imitate.
 Core competencies is a bundle of skills and
techniques that help the company to provide a
particular benefit to customers.

Attributes of CSF
 Core competencies is base for all products
 Core competencies makes or mars the success
 Core competencies is bundle of skills and
technologies
 Core competencies cannot be copies easily.

Corporate level strategies
 Organisational Appraisal and Environmental appraisal will
lead to the generation of these strategies.
 The choice of strategy is wide as it will depend on the
strengths, weakness along with the opportunity and threat to
the organisation
 Corporate level strategy involve:-
Allocating resources among the different businesses of a firm
Transferring resources from one set of businesses to others
Managing and nurturing portfolio of businesses
 Corporate strategy will exercise the choice of direction that
an organisation adopts.
 After doing the business analysis, the firm is having a wide
options available to them in terms of strategic alternatives.(
Strategic alternatives revolve around the question of whether
to continue or change the business, the enterprise is
currently in or improve the efficiency and effectiveness with

Four strategic alternatives:---
 Expansion strategies
 Stability strategies
 Retrenchment strategies
 Combination strategies
 All the above strategies cover customer group,
customer function and alternative technologies

Expansion strategy
 This strategy is adopted when organisation aims high
growth and wants to improve overall performance.
Reasons for adopting expansion strategies:--
1.It may become essential when the environment demands
increase in pace of activity
2.Chief executives may take pride in presiding over
organisational perceived to be growth-oriented
3. Increasing size may lead to more control over the market
along with the competitors
Expansion strategy in the form of customer group, function
and alternative technology (Customer groups relate to „who‟
is being satisfied, customer
needs describe „what‟ is being satisfied, and alternative

Expansion strategies
 Expansion through concentration
 Expansion through integration
 Expansion through diversification
 Expansion through cooperation
 Expansion through internationalization
 Expansion through digitalisation

Concentration strategies
 It involves converging resources in one or more of a
firm‟s business in terms of their respective customer
group, customer function and alternative technologies.
 A strategic approach in which a business focuses on
a single market or product. This allows the company to
invest more resources in production and marketing in
that one area, but carries the risk of significant losses in
the event of a drop in demand or increase in the level
of competition.
 Ansoff‟ Product- Market Matrix
Product
Market
Present New
Present Market
Penetration
Product
development

Market penetration
 It means selling more products to the same market.
 Helps in increasing market share of present product.
 For e.g. Budget airlines in India went into aggressive
marketing with low pricing, adopting a market penetration
type of concentration strategy. Eg. : ITC has captured
substantial marketshare in cigarettes, Lifeboy soap…
Market development
 It involves selling the same product in new market and
attract new users for existing product.
 Here new market can be in the form of geographical,
demographic.
 Some of the companies which have made keen attempt to
develop rural market are HUL (personal products), ITC.
Product development-

Integration strategies
 It means combining activities related to the present
activity of a firm.
 One can take the help of value chain analysis
 Here integration strategies are designed on the basis
of present set of customer functions and customer
group.
 Integration strategy is also a subset of diversification
strategy.
 Reasons for adopting this strategy-Transaction cost
economics
 Here the company may go in for MAKE OR BUY
decision.

 Horizontal integration
1. Here the organisation moves beyond its boundaries
into the domain of the industry it is operating in.
2. When an organisation takes up the same type of
products at the same level of production or marketing
process, it is said to follow a strategy of horizontal
integration (acquisition or merger).
3. It may involves buying a competitor‟s business in
order to increase the market share and remain in the
same industry.
Benefits
1. Product differentiation
2. Increased market power
3. Reduction in industrial rivalry

 Vertical integration
1. Here the orgsniation starts making new products that
serve its own needs.
2. Any activity undertaken with the purpose of either
supplying inputs (raw material) or serving new
customer for output (marketing of firm‟s product) is
vertical integration.
3. It can be backward or forward integration.
4. Backward integration means moving back to the
source of raw materials while forward integration
moves the organization nearer to the ultimate
customer.
5. Taper integration strategies requires firms to make
part of their own requirements and to buy the rest
from outsiders.

Stability strategy
 It is less risky, involves less changes and people feel
comfortable with things as they are.
 The environment faced is relatively stable
 Expansion may be perceived as being threatening.
 Consolidation is sought through stabilising after a
period of rapid expansion.
 Here the company serves the same markets with the
present product.
 The essence of stability strategies is not doing
anything but sustaining moderate growth in line

 No change strategy- No change strategy is a
decision to do nothing new i.e continue
current operations and policies for the future.
 Pause/proceed with caution strategy- Some
organizations pursue stability strategy for a
temporary period of time until the particular
environmental situation changes, especially if
they have been growing too fast in the
previous period.
 Profit strategies- The profit strategy is an
attempt to artificially maintain profits by
reducing investments and short-term
expenditures.

Retrenchment strategy
 Here the organisation contracts its activities
 The management no longer wishes to remain in
business due to continuous losses.
 The environment faced is threatening.
 Stability can be ensured by reallocation of resources
from unprofitable to profitable businesses.

 Turnaround strategies- If your company is steadily
losing profit or market share, a turnaround strategy may
be needed. There are two forms of turnarounds: First,
one may choose contractions (cutting labor costs and
Marketing). Second, they may decide to consolidate
 Divestment strategies- This is a form of retrenchment
strategy used by businesses when they downsize the
scope of their business activities. Divestment usually
involves eliminating a portion of a business. Firms may
elect to sell, close a strategic business unit, major
operating division, or product line. This move often is
the final decision to eliminate unrelated, unprofitable, or
unmanageable operations.
 Liquidation strategies- sell the business

Combination strategy
 Mixture of stability, expansion and
retrenchment strategies.
 The organisation is large and faces
complex environment.
 The organisation is composed of
different businesses, each of which lies
in a different industry, requiring a
different response.

Expansion Strategy- Diversification
strategy
 When new products are made for the new market the
diversification takes place.
 By adopting diversification, an organisation does
something in terms of newness of products or markets.
 It can be of Concentric (Related) and Conglomerate
(Unrelated) diversification.
 Related or concentric diversification- Here, an
organisation takes up an activity in such a manner that it
is related to the existing business definition or if the new
business is related with the existing business definition.
Marketing related concentric diversification- Common
distribution channels
Technology related concentric diversification
Marketing and technology related concentric
diversification

 Conglomerate or unrelated diversification-
1.When an organisation adopts a strategy which
requires taking up those activities which are unrelated
to the existing business definition of any of its
businesses either in terms of their respective customer
groups, customer function or alternative technologies, it
is conglomerate diversification.
2.Can go for this strategy if the company has excess
capital

Expansion through
Internationalization
 Here the firm goes beyond the national market.
 A firm should assess the international environment.
 Porter‟s Model of competitive advantage of Nations-
Four national characteristics create an environment
that is conducive to create globally competitive firm in a
particular industry.
1. Factor conditions- Special factors of production such
a s natural resources, raw materials, labour etc.
2. Demand conditions- The nature and size of the
buyer‟s need in the domestic market.
3. Related and supporting industries- The existence of
related and supporting industries to the ones in which
a nation excels.
4. Firm strategy, structure and rivalry- The conditions in
the nation determining how firms are created,

Types of International strategies
 Focus on the cost pressures and pressures for local
responsiveness
 International strategy- Transferring the products and
services to the foreign market. Here the firm offers
standardised products and services in different countries
with little or no differentiation.
 Multidomestic strategy- Focus is on high level of local
responsiveness and on customization
 Global strategy- Here the company focuses on standard
products and services and the focus is on to reduce the
cost. It selects few favorable locations around the world.
 Transnational strategy- Focus is on low cost and high
local responsiveness. It is difficult to adopt this strategy
and it calls for creative approach to manage the
production and marketing of products and services.

International entry modes
 Export entry modes- Here the firm produces in the
home country and market in the overseas market.
 Contractual entry modes
Licensing- Here the international company transfers
knowledge, technology for a limited period of time in
return for some form of payment.
Franchising- It is the right to use a business format or a
brand name
Investment entry modes- Joint ventures or independent
ventures

Strategic decisions in
Internationalisation
 Which International markets to enter???
 Timing of entry into international market.
 Scale of entry into international markets….
ADVANTAGES
 Economies of scale
 Expansion
 Access to resources overseas
DISADVANTAGES
 High risk
 Difficulty in managing cultural diversity
 Higher distribution cost
 Trade barriers

Cooperative strategies
Mergers and acquisitions
Joint ventures
Strategic alliances

Merger and acquisition strategies
 Mergers- It takes place when the objectives of the
buyer firm and the seller firms are matched.
 A merger is a combination of two or more
organisations in which one acquires the assets and
liabilities of the other in exchange for shares or cash
or both the organisations are dissolved and assets
and liabilities are combined and new stock is issued.
 Acquisition or takeover- These are based on the
strong motivation of the buyer firm to acquire.
 Takeover can be in the form of hostile takeovers and
friendly takeovers.

Types of mergers and
acquisitions
 Horizontal mergers- Mergers between two or
more organisations in the same business
 Concentric mergers- It take place when there is a
combination of two or more organisations related
to each other either in terms of customer
functions, customer groups or alternative
technologies.
 Vertical mergers- Not necessary the same
business
 Conglomerate mergers- For e.g. footwear
company combine with pharmaceutical firm.

Important issues in mergers and
acquisitions
 Strategic issues- Synergistic effects, strategic
advantages and distinctive competencies….
 Financial issues- Sources of finance for
acquisition, share price of target firm, growths
prospects of target firm, quality and integrity of
top management….
 Managerial issues
 Legal issues

 Tata Chemicals buys British salt
 Reliance Power and Reliance Natural Resources
merger
 Airtel‟s acquisition of Zain in Africa
 ICICI Bank buys Bank of Rajasthan
 The Reliance – BP deal
 Mahindra & Mahindra acquires Ssangyong

Joint Venture strategies
 A Joint venture could be considered as
an entity resulting from a long term
contractual agreement between two or
more parties, to undertake mutually
beneficial economic activities, exercise
joint control.

Conditions for joint venture
 When an activity is uneconomical for an
organisation to do alone.
 When the risk of the business has to be shared.
 When the distinctive competencies of two or more
organisations can be brought together.

Types of joint ventures
 Between two organisations in one industry.
 Between two organisations across different
industries.
 Between an Indian organisation and a foreign
organisation in India.
organisation in that foreign country.
organisation in third foreign country.

Strategic alliances
 Two or more firms unite to pursue a set of
agreed upon goals but remain independent
subsequent to the formation of the alliance.
 The partner firm share the benefits of the
alliance and control over the performance of
assigned tasks.
 The partner firms contribute on a continuing
basis in one or more strategic areas.

Digitalisation strategies
 Computerisation
 Electronisation
 Digitalisation
 E Channel pattern
 Click and brick pattern
 E Portal pattern
 E market

Stability strategy
 This strategy is followed by small and medium sized
enterprise.
 These strategies can be used for short term and
when such organisations are satisfied with their
current performance.
 No change strategy
To continue with present business business definition
Here taking no decision sometimes, is a decision too….
Useful in predictable and certain external environment
There is no significant opportunity or threat in the
market
Useful for a niche market

 Profit strategy
Focus on only profit
Useful for a short period of time
Firm can go in for reducing investment, cut costs, raise
price oin order to face temporary difficulties
Sustain profitability by whatever means.
 Pause/Proceed with caution strategy
Useful for firm that wish to test the ground before moving
ahead with a full fledged corporate strategy.
Can apply before going in for consolidation
It is a temporary strategy just like profit strategy
Following this strategy is a conscious attempt to adjourn
major strategic changes or when the organisation is
ready to move on with rapid force again

 Retrenchment strategies
Here the organisation reduces the scope of its activities
Major external factors leading to decline:-
1. New organisation form
2. New technologies
3. New business models
4. Demand saturation
5. Changing customer needs and preferences
6. Emergence of substitute products
Major internal factors leading to decline:-
1. Ineffective top management
2. Inappropriate strategies
3. High cost
4. Ineffective sales and marketing
5. Wrong organisation design

 Turnaround strategies
o This can be Internal(focus on improving internal efficiency)
or external
Managing turnaround
o CEO and management handles the entire turnaround
strategy with the support of external consultant. CEO must
have a good credibility with the banks and financial
institutions.
o Can go in for a person deputed by the banks and financial
institutions
o Replace the existing team and CEO or merge the sick
organisation with a healthy one.
Approaches to Turnaround
Issue order for change
Change product mix
Focus on R&D
Remove obsolete machinery

 Divestment strategy
o Sale or liquidation of a portion of business
o It can be SBU or a major division
o This strategy is followed if the organisation failed in
implementing turnaround strategy.
Reasons for Divestment
o Business which was earlier acquired proves to be a
mismatch and cannot be integrated within the company.
o Persistent negative cash flow from a particular business
o Intense competition
o Not able to adopt new technology
o Better alternative may be available for the firm

 Liquidation strategy
o Close down the organisation and sell its assets
o Should be considered as a last solution
o It may lead to serious consequences such as loss of
employment, termination of opportunities where an
organisation could pursue
o Small scale units can be easily liquidated but its is very
difficult to liquidate medium or large size organisation in
Indian for several following reasons:----
1. Govt. may not allow for liquidation
2. Pressure of trade union
3. Company management, banks, financial institutions,
creditors
 Combination strategy
o Mixture of stability, expansion and retrenchment
strategy

Corporate restructuring
 Synonyms of restructuring are
revamping, regrouping…..
 It can take place at the macro level( reduction
of subsidies, dismantling of price control) and
micro level ( Business level
restructuring, financial
restructuring, organisational restructuring).
 Business level restructuring- Changes in the
organisation‟s set of businesses in order to
create more profitable enterprise.
 Financial restructuring

Reasons for corporate
restructuring
 At business level
An organisation may go in for
restructuring in its business portfolio.
Business portfolio changes could lead to
the organisational acquiring new
businesses and divesting some others.
It may go in for combination strategy

Business level strategies
 Companies operate through their
business.
 Business level strategies are based on
corporate level strategies.
 Business definition
What- Customer needs
Who- Customer groups
How- Alternative technologies
 Business definition lays down the
framework within which a business

Business level strategies
 Business level strategies are the course
of action adopted by an organisation for
each of its business separately, to serve
identified customer groups and provide
value to the customer by satisfying their
needs.
 According to Porter, “ Competition
includes a group of competitors
producing products and services that
compete directly with each other. It is
the industry where competitive

Industry structure
 According to Porter, industry structure is
determined by the competitive forces.

Threat of new entrants
 The most attractive segment is one in which
entry barriers are high and exit barriers are
low i.e. few new firms can enter the industry
and poor performing firms can easily exit.
 If the entry and exit barriers are low, firms
easily enter and leave the industry and the
returns are stable or low.
 The worst case is when the entry barriers
are low and exit barriers are high. Here firms
enter during good times but hard to leave
during bad times.For e.g. aviation sector.

Threat of substitute products
 A substitute product is a product that
appears to be different but can satisfy the
same need as another product.
 A segment is unattractive when there are
actual or potential substitutes for the
product.
 Substitutes place a limit on price and profits.

Bargaining Power of Buyers
 A segment is unattractive if buyers possess
strong or growing bargaining power.
 Buyers bargaining power grows when they
become more aware, when the buyer
switching costs are low, when buyers are
price sensitive.
 To protect themselves, sellers might select
buyers who have the least power to
negotiate or to switch to other suppliers.

Suppliers growing bargaining
power
 Suppliers affect an industry through their ability to
raise prices or reduce the quality of purchasing
goods and services.
 A supplier or supplier group is powerful if some of
the following factors are apply:
 The supplier industry is dominated by a few
companies, but it sells to many(petroleum
industry)
 Its product or service is unique and/or it has built
up switching costs( word processing software)
 Suppliers are able to integrate forward and
compete directly with their present customers.

Positioning of firm in industry
 Positioning of firm depends upon the two variables:-
(Competitive advantage)
1. One type of positioning approach may be of
offering mass produced products, distributed
through mass marketing and resulting in lower cost
per unit.
2. Other type of positioning approach could be
marketing higher prices products of a limited
variety and focusing on customer groups who are
willing to pay higher price.
3. The business need to differentiate its products and
services on some tangibles basis from what its
rivals have to offer so that customer purchases the

(Competitive scope)
1.It is the range of products, distribution
channels, types of buyers, geographical
area served.
2. Competitive scope is important as industry is
segmented, have different needs and
require different sets of competencies and
strategies to satisfy the needs of customers

Generic Business Strategy
 Business strategy is dependent upon industry structure
and the positioning of the firm in the industry.
 Competitive advantage is derived from two approached
i.e. lower cost and differentiation.

Cost leadership business
strategy
 Competitive advantage of an organisation lies in its
lower cost of products and services.
 This is referred to as cost leadership.
 Customer always prefer a lower cost product
particularly if it offers the same utility to them as
comparable products available in the market.
Achieving cost leadership
 Accurate demand forecasting
 Attaining economies of scale
 High level of standardization of products
 Aiming at the average customers
 Investment in cost saving technologies

Differentiation business strategy
 Adding special features in the product or
service.
 Competitors are not able to offer the same
features of product or service.
 Customer always prefer differentiated
product or service.
 A differentiator may charge premium price
for its product and service.
 Should be able to grab the attention of the
customer towards differentiation…..

 Achieving differentiation
1. Adding features that offer utility for the
customer and match her tastes and
preferences
2. Organisation can add features that lower
overall cost of the buyer
3. Organisation can add features that raises
the performance of the product
4. Organisation can incorporate features that
increase the buyer satisfaction
5. Organisation can add features that enhance
the prestige among the buyer community

Conditions under which differentiation is
used
1. Market is too large and organisations
are offering standardised products and
services
2. Customer needs and preferences are
too diversified to be satisfied by
standardised product
3. It is possible for the organisation to
charge premium price
4. The nature of product/service is such

Focus business strategy
 Focus business strategy may rely on either
cost leadership or differentiation but cater to
a narrow segment of the total market
 Focus strategies can be called niche
strategies
 The most commonly used bases for
identifying customer groups are the
demographic characteristics (age, gender,
income, occupation etc), geographic
segmentation (rural/urban or northern

Achieving focus
1. Choosing niches by identifying gaps
not covered by cost leaders and
differentiators
2. Creating superior skills for catering to
such niche markets
3. Creating superior efficiency for
serving such niche markets
4. Achieving lower cost/differentiation as
compared to competitors in serving
niche markets

Conditions under which focus strategies are
used
1. Uniqueness in the segment which could
either be geographical, demographic or
based on lifestyle
2. Potential of growth in niche market
3. Major players are not interested in the
niche market
4. Focusing organisation has necessary skill
and expertise to serve the niche segment

Tactics for business strategies
 A tactic is a sub strategy
 It is a specific operating plan detailing
how a strategy is to be implemented in
terms of when and where it is to be put
into action.
 Two types of tactics:-
Timing tactic
Location tactic

Timing tactic
 When to make a business strategy move is often as
important as what move to make.
 Timing of the application of a business strategy is
also important.
 A business strategy of low cost, differentiation or
focus may be a right move but only if it is made at
the right time.
First Movers and Late movers
 First movers- First company to manufacture and sell
a new product or service is called the pioneer or the
first mover organisation.(eBay was the first company
to take the auction process online, Coca-Cola was
the first cola producer, and began selling its product
to the public in 1886)

Advantages of first movers:-
 Can establish position as market leader
 Moving first in the industry results in commitments to
suppliers of raw material, new technology, distribution
channels.
 Develop an image of being a pioneer.
 First time customers are likely to remain loyal
Disadvantages:-
 Being a pioneer is often costlier than being a follower
 Late movers can imitate technology
 Technology change is often rapid creating obsolescence
for the first movers
 Customer loyalty may be at risk

Market location tactics
 Where to compete
 Market location could be classified according to the role
that organisations play in the target market and the
types of business tactics they adopt.
 Market leaders
 Market challenger
 Market follower
 Market nichers

Competitive strategies for market leaders- Expanding the total
market
• New customers
1. A company can search for new users among three groups:
-----those who might use it but do not (market penetration
strategy), those who have never used it (new market
segment strategy) or those who live elsewhere
(geographical-expansion strategy).
• Various strategies to increase more usage
1. Usage can be increased by increasing the level or quantity
of consumption or increase the frequency of consumption,
through packaging or product design, identifying additional
opportunities to use the brand.
2. Help of advertisement for communicating the advantages
of using brand.
• Defending market share
1. While trying to expand total market size, the dominant firm

Market challenger strategy
 Focus on increase market share and attack
the market leader.
• It can attack firms of its own size that are
not doing the job and are underfinanced.
• It can attack small local and regional firms.
• Choosing a general attack strategy
1. Frontal attack- Here the attacker matches
its opponent‟s product, advertising, price
and distribution.
2. Flank attack- An enemy‟s weak spots are
targeted.
e.g segmental- Japanese automaker put

3 Encirclement attack- The
encirclement attack is an attempt to
capture a wide slice of enemy‟s
territory.
4 By pass attack- It means bypassing
the enemy and attacking easier
markets to broaden one‟s resource
base. For e.g. Pepsi used a bypass
strategy against coke by purchasing
orange juice giant Tropicana.
5 Guerrilla attack- Small attacks to
harass and demoralise the opponent

Market Follower Strategies
 A strategy of product imitation………….
 A innovator bears the expense of developing
the new product , getting it into distribution
and informing and educating the market.
Another firm can come along and copy or
improve market leadership.
 As there is a risk to be attacked by the
market challengers, the market follower
should keep its manufacturing cost low and
quality high.
 E.g. Friendster –> Facebook

Market Follower Strategies
• Counterfeiter
1. The counterfeiter duplicates the leader‟s product
and packages and sells it. Music record firms,
apple computers and Rolex have been facing a
counterfeiter problem, especially in Asia.
2. Cloner- The cloner copy the leader‟s products,
name and packaging with slight variations.
3. Imitator- The imitator copies some things from the
leader but maintains differentiation in terms of
packaging, advertising, pricing.
4. Adapter- The adapter takes the leader‟s products
and adapts or improves them. The adapter may
chose to sell to different markets

Market Nicher startegies
 An alternative to being a follower in a large market
is to be a leader in a small market, or niche.
 Nichers have three tasks: creating niches,
expanding niches and protecting niches.
 For e.g. Computer mouse maker Logitech is only a
fraction the size of giant microsoft, yet through
skillful niching, it dominates the PC mouse market
with microsoft as its runner up.
 e.g. Restaurants offering all food are example of
Mass Marketing. White Pizza Hut has targeted
Pizza Market out of thousands of food products. It
is called Niche Marketing.

Strategic analysis and choice
 Strategic choice is a part of decision making
process.
 Decision making process consists of setting
objectives, generating alternatives, choosing one or
more alternative and implementation.
 The choice is based on certain criteria.
 Strategic choice is the decision to select from
among the grand strategies considered, the
strategy which will best meet the enterprise‟s
objectives. The decision involves focusing on a few
alternatives, considering the selection factors,
evaluating the alternatives against these criteria
and making actual choice.

Strategic analysis
 Strategic analysis helps in solving
following questions:---
Q Which industry to enter and to leave?
Q Which business to
create/acquire/divest?
Q Which products and markets to retain,
grow, divest?

Steps in strategic analysis:-
Focusing on strategic
alternatives
Analysing the strategic
alternatives
Evaluating the strategic
alternatives
Choosing from among the
strategic alternatives

Focusing on strategic alternatives
 Narrow down the choice
 Considering too many alternatives would
make the process unproductive.
 Decision maker should focus on a reasonable
number of alternatives.
 Focusing on alternatives could be done by
visualizing the future state and working
backwards and this can be done through gap
analysis.
Future state- Set the objective for future period
of time

Performance gap- At corporate level
 Gap can be wide or narrow
 Choice of alternatives will depend upon
this gap.
 When the gap is narrow stability
strategies would seem to be a feasible
alternative but if the gap is large due to
expected environmental opportunities, a
firm can go in for expansion strategy.
 A firm can go in for combination
strategies if the environment is complex.

Performance gap- At business
level
 Choice between low cost or
differentiation or focussed.
 Organisation should go in for proper
analysis of industry before going in for
any choice.
 An organisation can also go in for
business definition i.e. customer group,
customer function and alternative
technologies and it enables the decision

alternatives
 Thorough analysis of strategic alternatives
 A strategist should analyse the strategic
alternatives on the basis of certain factors and that
can be called selection factors.
 Selection factors can be divided into objective and
subjective factors.Evaluating the strategic
alternatives
 Narrowing the choice leads to few alternatives
 Evaluation of strategic alternatives involves
bringing together the analysis done on the basis of
objective and subjective factors..
Choosing from among the strategic alternatives

 BOSTON CONSULTING GROUP (BCG) MATRIX is developed by
BRUCE HENDERSON of the BOSTON CONSULTING GROUP IN
THE EARLY 1970’s.
According to this technique, businesses or
products are classified as low or high
performers depending upon their market
growth rate and relative market share.
It is widely used method of portfolio
management and helps businesses evaluate
their business portfolios to estimate their
profitability. The matrix provides diversified
organisations with an effective framework for
evaluating the relative performance of their
various businesses.
BOSTON CONSULTING GROUP
MATRIX

THE BCG GROWTH-SHARE
MATRIX
 It is a portfolio planning model
which is based on the observation
that a company‟s business units
can be classified in to four
categories:
 Stars
 Question marks
 Cash cows
 Dogs

STARS
High growth, High market share
 High market share in
a rapidly growing
market.
 Profitable position
 This requires a huge
investment and
working capital in
order to keep
growing.
 Profits generated by
stars are used to
finance their growth.

CASH COWS
Low growth,High marketshare
 Cash Cows are businesses that
have a high market share in a
market which is growing slowly.
They can be the stars of yesterday.
 They generate more cash than
required.
 As the growth of the market is low,
the business need not invest huge
sums of money to maintain its
position in the market.
 High profits that a cash cow
generates can be used to support
question marks and stars.

DOGS
Low growth, Low market share
 BCG matrix suggest that
organisations should
either not invest in them
or should consider
selling them as soon as
possible.
 Dogs do not have
potential to bring in
much cash.
 Number of dogs in the
company should be
minimized.

QUESTION MARKS
High growth , Low market share
 The business unit in the
question mark category
has a low market share in
a rapidly growing market.
 The future of such a
business unit is
uncertain.
 But on the other positive
side, a rapidly growing
market may compel the
business unit to invest
heavily in its operations.
 If the unit want to
increase its share, it call
for a huge investment.

Porter‟s five force model
 Threat of potential entrants
 Threat of potential substitutes
 Bargaining power of buyers
 Bargaining power of suppliers
 Rivalry among existing firms in the industry

Industry Competitors
 Rivalries naturally develop between companies
competing in the same market.
 Various tools for e.g. advertising, introducing new
products, more services and warranties.
Pressure from substitute
products
• Substitute products are the natural result of industry
competition and they place a limit on profitability within
the industry.
• A substitute product involves the search for a product
that can do the same function as the product the
industry already produces.

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