this is the notes of mba 3rd semester the compulsory subject strategic management the unified syllabus of aktu university

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Strategic Management Code: RMB 301 Niraj Dubey (SRM Business School, Lucknow)
STUDY NOTES ON
RMB 301 : STRATEGIC MANAGEMENT
(M.B.A. –III SEMESTER 2017-18)
COMPILED BY:
NIRAJ DUBEY
(HOD-MBA )
SRM BUSINESS SCHOOL
MOB NO:7617000043
UNIT 1 Introduction: meaning nature, scope, and importance of strategy; and strategic management,
Introduction to Business policy, Strategic decision-making , Process of strategic management and levels at which
strategy operates , strategic intent: Vision, Mission, Business definition, Goals and Objectives
UNIT 2
Environmental Scanning : Factors considered, approaches, External environment analysis: PESTEL Analysis,
EFE matrix (External Factor Evaluation): Porter’s Five
Forces Model methods and techniques used , Internal Appraisal – The internal environment, Organizational
Capability Factors, organizational appraisal- factors affecting, approaches, methods & techniques Resource Based
View (RBW) Analysis, VRIO Framework, Value Chain Analysis, IFE matrix (Internal Factor Evaluation).
UNIT 3
Strategy Formulation: Corporate, Business, Functional strategy Corporate Level Strategies: -- Stability,
Expansion, Retrenchment and Combination strategies.
Concentration Strategies, Integration Strategies: Horizontal & Vertical, Diversification: Related & Unrelated,
Internationalization , Porters Model of competitive advantage of nations, Cooperative: Mergers & acquisition
Strategies, Joint Venture, Strategic Alliance , Digitalization Strategies.
Unit 4
Strategy Analysis : Process, Analysing Strategic alternative, Evaluating and Choosing Among Strategic
Alternative, Tools & Techniques of strategic Analysis,
Strategic Choice. BCG Matrix, Ansoff Grid, GE Nine Cell Planning Grid, Hofer’s Product market evolution.
McKinsey’s 7’S framework
Strategy implementation: Resource allocation, Projects and Procedural issues. Organistion structure and
systems in strategy implementation. Leadership and corporate culture, Values, Ethics and Social responsibility.
Operational and derived functional plans to implement strategy. Integration of functional plans.
Unit 5
Strategy Evaluation & Control : Nature, Importance, Organistional systems and Techniques of strategic
evaluation & control.

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UNIT 1 Introduction –Strategic Management
What is strategy?
• Strategy is a tactical course of action which is designed to achieve long term objectives. It is an art and
science of planning and marshalling resources for their most efficient and effective use in a changing
environment.
• Strategy of a business enterprise consists of what management decides about the future direction and
scope of the business. It entails managerial choice among alternative action programmes, competitive
moves and different business approaches to achieve enterprise objectives.
• Strategy once formulated has long term implications. It is framed by top management in an organization.
In short, it may be called as the ‘game plan of management’.
Definition of Strategy
1. Clausewitz 1820): Strategy is “the art of the employment of battles as a means to gain the objects of
WAR”.
2. Chandler (1962): Strategy is “a comprehensive master plan” that determinates the long term goals of an
enterprise.
3. Mintzberg: Strategy is a mediating force between the organization and its environment:
consistent patterns in streams of organizational decisions to deal with the environment; 1979.
4. Norman: Strategy is the art of creating value; 1993.
5. Porter: Strategy deliberately choosing a different set of activities to deliver a unique mix of value;1996.
Thus, Strategy is a comprehensive master plan stating how the corporation will achieve its mission and long
term objectives by Setting the decisions – what business are they in, what products and services they will
offer, to whom , at what prices, on what terms, against which competitors, on what basis will they compete
Policy:
Broad Guideline for decision making that links the formulation of Strategy with its implementation. It is a general
course of action with no defined time limits. Companies use policies to make sure that employees throughout the
firm make decisions and take actions that support the corporation’s mission, its objectives, and its strategies.
Strategy:
A Strategy of a corporation is a comprehensive master plan stating how the corporation will achieve its mission
and long term Objectives. Deals with strategic decisions that decide the long term health of an enterprise. It
maximizes competitive advantage and minimizes competitive disadvantages
Example:
Policy: General Electric must be number one or two where ever it competes (this supports GE’s objective to be
number one in market capitalization.)
Strategy: After TATA group of companies realized that it could no longer achieve its objectives by continuing
with its strategy of diversification into multiple line of businesses, it sold its companies like Tomco, Lakme etc. to
Hindustan Levers Ltd. TATA’s instead choose to concentrate on basic industries like steel, automobiles, etc. an
area that management felt had greater opportunities for growth.
Features of Strategy
• Top management responsibility
• Allocation of large amount of resources
• Impact on long term prosperity of the firm
• Future oriented
• Multi-functional or multi-business consequences
• Consideration of factors in the external environment

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Introduction to Business Policy
• The study of the function and responsibilities of senior management , the crucial problems that
effect success in the total enterprise and the decisions that determine the directions of
organization and shape its future.
• Policy is the study of functions and responsibilities of senior management related to those
organizational problems which effect the success of total organization
• It deals with the future course of action that an organization has to adopt.
• It is concerned with mobilization of resources so the organization can achieve its goals
• Choosing between different alternatives available.
Importance of Business Policy
1. For Learning
 Integrate the knowledge and experience gained in various functional areas of
management
 Deals with constraints and complexities of real life business.
 Can be applied to various fields of management
2. Understanding Business Environment
 Internal Environment
 External Environment
 Adapting internally to external environment
3. For understanding the organization
 Provides the basic framework for understanding strategic decision making
 Understanding of business policy leads to improvement of job performance
4. For Personal Development
 It is beneficial for an executive to understand the impact of policy shifts on the status of
one department and on the position one occupies
 Offers unique perspective to executives for understanding the macro factors and their
impact on micro level
 Offers unique perspective to executives for understand the senior management view.
Levels of Strategy:
• Today the environment in which companies operate is full of complexities. one strategy may not
work this situation .
• The need is for multiple strategy at different levels .
• In order to segregate different segments, each performing a common set of activities.
• Many companies are organized on the basis of operating divisions or simply divisions

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Strategic Management
• Strategic management is a set of management decisions and actions that determines the long-run
performance of a corporation. It includes environmental scanning, strategy formulation, strategy
implementation and evaluation and control to achieve the objectives of an organization.
• The study of strategic management therefore, emphasizes the monitoring and evaluating of external
opportunities and threats in light of a corporation’s strengths and weaknesses in order to generate
and implement a new strategic direction for an organization.
• Therefore, we may conclude, SM is the process by which an organization try to determine what needs to
be done to achieve LONG TERM or corporate objectives and more importantly, how these objectives are
to be met.
• Ideally, it is a process by which senior management examines the ‘organization’ and the ‘ environment’ in
which it operates and attempt to establish an appropriate and optional ‘fit’ between the two to ensure the
organization’s success.
• As per Fred R. David, strategic management is an art and science of formulating, implementing and
evaluating cross functional decisions that enable an organization to achieve its objectives.
• As per Channon, strategic management is defined as that set of decisions and actions that result in
formulating of strategy an its implementation to achieve the objectives of the corporation.
Step 1: Strategic Intent
• Vision- Vision is the statement that expresses organization’s ultimate long-run objectives. It is what the
firm ultimately like to become. Eg- Microsoft- ’A computer software on every desk and in every home’.
• Mission- It tells who we are and what we do as well as what we’d like to become. Eg- Microsoft-
‘Empower every person and every organization on the planet to achieve more’.
• Objectives- These are the end results of planned activity that state what is to be accomplished by when
and should be quantified if possible and their achievement should result in the fulfillment of a
corporation’s mission. Objectives state specifically how the goals shall be achieved..
Step 2: Strategy Formulation
Strategy formulation refers to the process of choosing the most appropriate course of action for the
realization of organizational goals and objectives and thereby achieving the organizational vision.

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Environmental Appraisal- The environment of any organization is "the aggregate of all conditions,
events and influences that surround and affect it". It is dynamic and consists of External & Internal
Environment .
 The external environment includes all the factors outside the organization which provide
opportunities or pose threats to the organization.
 The internal environment refers to all the factors within an organization which impart
strengths or cause weaknesses of a strategic nature.
Organizational Appraisal- It is the process of observing an organizational internal environment to
identify the strengths and weaknesses that may influence the organization's ability to achieve goals. The
analysis of corporate capabilities and weaknesses becomes a pre-requisite for successful formulation and
reformulation of corporate strategies. This analysis can be done at various levels: functional, divisional
and corporate.
Step 3: Strategy Implementation
Strategy implementation is the action stage of strategic management. It refers to decisions that are made
to install new strategy or reinforce existing strategy.
• Designing structure, process & system- Strategy implementation includes the making of decisions with
regard to organizational structure, developing budgets, programs and procedures in order to accomplish
certain activities.
• Functional Implementation- Functional implementation is carried out through functional plan and
policies in five different areas- marketing, finance, operation, personnel and Information management.
• Behavioral Implementation- It denotes mobilizing employees and managers to put and formulate
strategies into action and require personal discipline, commitment and sacrifice. It depends upon
manager’s ability to motivate employees.
• Operationalizing strategy- It includes establishing annual objectives, devising policies, and allocating
resources.
Step 4: Strategy Evaluation & Control
• Strategy evaluation- It is the primary means to know when and why particular strategies are not
working well.
• Strategic control- In this step, organizations Determine what to control i.e., which objectives the
organization hopes to accomplish, set control standards, measure performance, Compare the actual with
the standard, determine the reasons for the deviations and finally taking corrective actions and review
the policies and activities if needed.
How do objectives contribute to strategic management?
1. Objectives state what is to be accomplished by when & should be quantified if possible.
2. It helps to define the organization in its environment
3. It helps in coordinating decisions & decision – maker
4. It helps in formulating strategies
5. It provide standards for assessing organizational performance
Explain the importance and limitations of strategic management?.
Strategic management is defined as the set of decisions & actions in formulation and implementation of strategies
designed to achieve the objectives of an organization.
Importance:
1. Financial Benefits: It results into financial benefits to the organizations in the form of increased profit
even in the face of environmental threats.
2. Offsetting Uncertainty: By prescribing the future course of action.

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3. Clarity in Objectives & Directions: It is used for achieving those objectives; they focus on clarity of
objectives.
4. Increased Organizational Effectiveness: Its concept is that the organization is able to achieve its
objectives within the given resources.
5. Personnel Satisfaction: If the decisions are systematized in the organization everyone knows how to
proceed, how to contribute towards objectives this clarity brings satisfaction.
Limitations:
1. Complex & Dynamic Environment: We require knowledge of the trend in the environment, increase in
complexity leads in difficult to predict the future outcome
2. Rigidity: There is a need for concept of moving balance among the consideration on which the strategy is
based.
3. Inadequate Appreciation of Strategic Management: Managers are inadequately aware about its
contribution to the success & the way in which Strategic Management (SM) can be undertaken
4. Limitations in Implementation: Many problems cannot be solved by SM alone but require the use of
other aspects of management
Strategic decision making: The act of choosing one alternative from among a set of alternatives
Dimensions of StrategicDecisions
1. Top management Decisions
2. Are future oriented
3. Require Large amount of resources
4. Affect long term prosperity of the firm
5. Usually have multifunctional consequences
Characteristics of Strategic Decisions:
1. They are elusive problems that are difficult to define precisely.
2. They require an understanding of the problem to find a viable solution.
3. They rarely have one best solution, but often a series of possible solutions.
4. Strategic decisions have competing interests that prompt key players to use political pressure to ensure
that a choice aligns with their preferences.
Types of Decision Making
1. Programmed decision : A decision that is fairly structured or Recurs with some frequency (or
both)
2. Non programmed decision : A decision that is relatively unstructured and occurs much less often
than a programmed decision
Decision Making Conditions: The decision maker faces conditions of….
1. Certainty Risk
2. Uncertainty Level of ambiguity and
3. chances of making a bad decision

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UNIT II Environmental Scanning
Environmental scanning: The process of collecting, analyzing, and distributing information for tactical and
strategic purposes
Purpose of an environmental scan:
1. To provide strategic intelligence by evaluating potentially significant environmental changes
2. Conveys both current environmental status and how it is changing  trends
3. Alerts planners to trends that are converging, diverging, interacting, accelerating, or decelerating
4. Ideal end-goal: allows for adaptive planning before these trends occur or fully develop
Factors to be considered for scanning: The external environment in which an organization exists
consists of a bewildering variety of factors. These are as below:
1. Events are important and specific occurrence staking place in different environmental sectors
2. Trends are general tendencies or the courses action along which events take place.
3. Issues are current concerns that arise inresponse to events and trends.
4. Expectations are demands made by interested groups in light of their concern for issues.
Approaches Used for Environmental Scanning:
The experts have suggested three approaches, which could be adopted for, sort out information for
environmental scanning.
1. Systematic Approach:
Under this approach, information for environmental scanning is collected systematically. Information related to
markets and customers, changes in legislation and regulations that have a direct impact on an organization’s
activities, government policy statements pertaining the organization’s business and industry, etc, could be
collected continuous updating such information is necessary not only for strategic management but also for
operational activities.
2. Ad hoc Approach:
Using this approach, an organization may conduct special surveys and studies to deal with specific environmental
issues from time to time. Such studies may be conducted, for instance, when organization has to undertake
special projects, evaluate existing strategy or devise new strategies. Changes and unforeseen developments may
be investigated with regard to their impact on the organization.
3. Processed-form Approach:
For adopting this approach, the organization uses information in a processed form available from different
sources both inside and outside the organization. When an organization uses information supplied by
government agencies or private institutions, it uses secondary sources of data and the information is available in
processed form.
Sources of Information:
A company can obtain information from different sources, but it should be ensured that the information is
correct. The correct source should be tapped for specific information for more accuracy. Information received
form secondary sources may sometimes even misguide strategy managers.

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Hence it is important that information should be verified for correctness before it is processed and decisions are
taken based on it.
The various sources from where information can be gathered include:
1. An internal document viz, files, records, management information system, employees, standards,
drawings, charts, etc.
2. Trade directories, journals, magazines, newspapers, books, newsletters, government publications, annual
reports of companies, case studies, etc.
3. Internet, television, radio news etc.
4. External agencies like customers, suppliers, inspection agencies, marketing intermediaries, dealers,
advertisers, associations, unions, government agencies, share holders, competitors, etc.
5. Market research reports, consultants, educational institutions, testing laboratories etc.
6. Spying considered as a powerful way of extracting information from other companies.
It is found that chronological order of information is also quite important for strategy managers. Usually
information received from government agencies is quite complex since processing takes more time. The
information received from competitors is quite expensive but it is usually fresh and is quite useful.
Techniques Used for Environmental Scanning:
The techniques used for environmental scanning may be either very systematic to intuitive. Selection of a
technique depends on data required, source of data, timelines of information, relevance, cost of information,
quantity, quality and availability of information, etc.
Some of the methods widely used can be categorized as follows: Scenario Writing, Simulation, Single Variable
Extrapolation, Morphological Analysis, Cross Impact Analysis, Field Force Analysis, Game Theory, etc. The
techniques are either statistical or mathematical in nature. However, judgmental and institutive techniques are
also widely used.
The entire process consists of following steps:
1. Major events and trends in environment are studied.
2. A cause and effect relationship established with regard to events and trends for long and short term. This
is done through brain storming in a group.
3. Diagrams showing interrelationships amongst various factors are prepared and an attempt is made to
quantify the results.
4. The study is reviewed by a group of experts who deliberate on each aspect and on the possible strategies
that may be decided.
Environmental analysis is a strategic tool. It is a process to identify all the external and internal elements,
which can affect the organization's performance. The analysis entails assessing the level of threat or
opportunity the factors might present. ... The analysis helps align strategies with the firm's environment.
A PESTEL analysis is a framework or tool used by marketers to analyse and monitor the macro-environmental
(external marketing environment) factors that have an impact on an organisation. The result of which is used to
identify threats and weaknesses which is used in a SWOT analysis.
PESTEL stands for:
 P – Political
 E – Economic
 S – Social
 T – Technological
 E – Environmental
 L – Legal

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All the external environmental factors (PESTEL factors)
Political Factors:
These are all about how and to what degree a government intervenes in the economy. This can include –
government policy, political stability or instability in overseas markets, foreign trade policy, tax policy, labour
law, environmental law, trade restrictions and so on.
Economic Factors
Economic factors have a significant impact on how an organisation does business and also how profitable they
are. Factors include – economic growth, interest rates, exchange rates, inflation, disposable income of consumers
and businesses and so on. These factors can be further broken down into macro-economical and micro-
economical factors.
Social Factors
Also known as socio-cultural factors are the areas that involve the shared belief and attitudes of the population.
These factors include – population growth, age distribution, health consciousness, career attitudes and so on.
These factors are of particular interest as they have a direct effect on how marketers understand customers and
what drives them.
Technological Factors
We all know how fast the technological landscape changes and how this impacts the way we market our
products. Technological factors affect marketing and the management thereof in three distinct ways:
 New ways of producing goods and services
 New ways of distributing goods and services
 New ways of communicating with target markets
Environmental Factors
These factors have only really come to the forefront in the last fifteen years or so. They have become important
due to the increasing scarcity of raw materials, pollution targets, doing business as an ethical and sustainable
company, carbon footprint targets set by governments.
Legal Factors
Legal factors include - health and safety, equal opportunities, advertising standards, consumer rights and laws,
product labelling and product safety. It is clear that companies need to know what is and what is not legal in
order to trade successfully.

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External Factor Evaluation (EFE) matrix method is a strategic-management tool often used for assessment
of current business conditions. The EFE matrix is a good tool to visualize and prioritize the opportunities and threats
that a business is facing.
The EFE matrix is very similar to the IFE matrix. The major difference between the EFE matrix and the IFE matrix is the
type of factors that are included in the model. While the IFE matrix deals with internal factors, the EFE matrix is
concerned solely with external factors.
External factors assessed in the EFE matrix are the ones that are subjected to the will of social, economic,
political, legal, and other external forces.
How to create the EFE matrix?
Developing an EFE matrix is an intuitive process which works conceptually very much the same way like creating
the IFE matrix. The EFE matrix process uses the same five steps as the IFE matrix.
List factors: The first step is to gather a list of external factors. Divide factors into two groups: opportunities and
threats.
Assign weights: Assign a weight to each factor. The value of each weight should be between 0 and 1. Zero means
the factor is not important. One means that the factor is the most influential and critical one. The total value of all
weights together should be equal to 1.
Rate factors: Assign a rating to each factor. Rating should be between 1 and 4. Rating indicates how effective the
firm’s current strategies respond to the factor.
 1 = the response is poor.
 2 = the response is below average.
 3 = above average.
 4 = superior.
Weights are industry-specific. Ratings are company-specific.
 Multiply weights by ratings: Multiply each factor weight with its rating. This will calculate the weighted
score for each factor.
 Total all weighted scores: Add all weighted scores for each factor. This will calculate the total weighted
score for the company.
EFE matrix example

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Total weighted score of 2.46 indicates that the business has slightly less than average ability to respond to
external factors.
What should be included in the EFE matrix?
Now that we know how to construct or create the EFE matrix, let's focus on factors. External factors can be
grouped into the following groups:
 Social, cultural, demographic, and environmental variables:
 Economic variables
 Political, government, business trends, and legal variables
Porter's Five Forces of Competitive Position Analysis were developed in 1979 by Michael E Porter
of Harvard Business School as a simple framework for assessing and evaluating the competitive strength and
position of a business organisation.
Porter’s five forces of competitive position analysis:
The five forces are:
1. Supplier power. An assessment of how easy it is for suppliers to drive up prices. This is driven by the: number
of suppliers of each essential input; uniqueness of their product or service; relative size and strength of the
supplier; and cost of switching from one supplier to another.
2. Buyer power. An assessment of how easy it is for buyers to drive prices down. This is driven by the: number
of buyers in the market; importance of each individual buyer to the organisation; and cost to the buyer of
switching from one supplier to another. If a business has just a few powerful buyers, they are often able to dictate
terms.
3. Competitive rivalry. The main driver is the number and capability of competitors in the market. Many
competitors, offering undifferentiated products and services, will reduce market attractiveness.
4. Threat of substitution. Where close substitute products exist in a market, it increases the likelihood of
customers switching to alternatives in response to price increases. This reduces both the power of suppliers and
the attractiveness of the market.

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5. Threat of new entry. Profitable markets attract new entrants, which erodes profitability. Unless incumbents
have strong and durable barriers to entry, for example, patents, economies of scale, capital requirements or
government policies, then profitability will decline to a competitive rate.
Arguably, regulation, taxation and trade policies make government a sixth force for many industries.
What benefits does Porter’s Five Forces analysis provide?
Five forces analysis helps organisations to understand the factors affecting profitability in a specific industry, and
can help to inform decisions relating to: whether to enter a specific industry; whether to increase capacity in a
specific industry; and developing competitive strategies.
Organization appraisal (Internal Environmental Analysis)
Organizational appraisal is the process of monitoring an organization’s internal environment to identify
strengths and weaknesses that may influence the firm’s ability to achieve goals.
• Identifying Strengths and Weaknesses
• Distinctive/Core Competencies
• Identifying Opportunities and Threats
• Strategic Cost Analysis
Organization appraisal (Internal Environmental Analysis)
Internal environment provides an organization with the capability to capitalize on the opportunities or protect
itself from the threats that are present in the external environment. “Internal Environment analysis provide the
information about the strengths and weaknesses of the organization”
Factors to be Analyzed in Organizational Appraisal
Strategic Advantage, Organizational Capability, Competencies, Synergistic Effect, Strengths, Weaknesses,
Organizational Resources, Organizational Behavior
1. Organizational Resources
Tangible(physical) resources, Technology, plant and equipment, raw material, financial resources,
infrastructure , etc Intangible(Human)resources Knowledge, skill, innovative capacity, experience,
training of Human resource
2. Organizational Behavior
Organizational behaviour creates ability for, or place constraint in the usage of resources. It includes
quality of leadership, management philosophy, shared values and culture, quality of work environment
and organizational climate, organizational politics and policies, use of power, relationship and group
norms etc.
3. Strengths and Weaknesses
Organizational resources and behaviour combine in complex fashion to create strengths and weaknesses
within internal environment of an organization
4. Competencies: Competencies are special qualities possessed by an organization that make them
withstand pressure of competition in the marketplace,Example: Superior product quality in a particular
attribute, say, a two wheeler. Which is more fuel efficient than its competitor products
5. Organizational capability
It is the inherent capacity or potential of an organization to use its strengths and overcome weaknesses in
order to exploit opportunities and face threats in its external environment. Types of capabilities Financial
capability Marketing Capability Operations Capability Personnel Capability General Management
Capability
Consideration in Organizational Appraisal
1. Factors affecting Organizational Appraisal
2. Approaches to Organizational Appraisal Factors affecting Organizational Appraisal Approaches to
Organizational Appraisal

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Resource-based view. The Resource-Based View (RBV) is an economic tool used to determine the strategic
resources available to a firm. These resources can be exploited by the firm in order to achieve sustainable
competitive advantage.
Definition:An organization’s resources & capabilities, not external environmental conditions, should be basis for
strategic decisions
 Competitive advantage is gained through acquisition & value of organizational resources
 Organizations can identify, locate & acquire key valuable resources
 Resources are not highly mobile across organizations & once acquired are retained
 Valuable resources are costly to imitate & non-substitutable
Jay Barney : The resource-based view (RBV) argues that firms possess resources, a subset of which
enable them to achieve competitive advantage, and a subset of those that lead to superior long-term
performance. Resources that are valuable and rare can lead to the creation of competitive
advantage.
Two Critical Assumptions of the RBV
1. Resource Heterogeneity: different firms may have different resources
2. Resource Immobility: »
 it may be costly for firms without certain resources to acquire or develop them
 some resources may not spread from firm to firm easily
Hofer and Schendel, 1978, Grant, R., 1991, Mahoney, J. and Pandian, R., 1992
1. Physical resources
2. Financial resources
3. Human Resources
4. Organizational resources
5. Technological resources
6. Legal resources
7. Experience
8. Intangible resources
The VRIO Framework

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If a firm has resources that are:
1. Valuable,
2. Rare
3. Costly to Imitate
4. The firm is Organised to exploit these resources
Then the firm can expect to enjoy a sustained competitive advantage.
 First, the resource must be valuable in the sense that it exploits opportunities and/or neutralizes
threats in the firm’s environment.
 Second, it must be rare among the firm’s current and potential competitors.
 Third, the resource must be difficult for competitors to imitate.
 Fourth, the resource must have no strategically equivalent substitutes.
Internal (factor) evaluation matrix
• The IEM is a summary of the internal audit
• Summaries internal strength and weaknesses within the functional area’s of the business.
• Identifies and evaluates cross-functional relationships; e.g. marketing and finance.
Procedure:
1. List key internal factors as identified in the internal-audit process. Use a total from ten to twenty
internal factors including both strengths and weaknesses.
2. Assign a weight ranging from 0 (not important) to 1.0 (very important). The weight indicates the
relative importance of the factor to being successful in the firm’s industry. The sum of all the
weights must equal 1.0.
3. Assign a 1-4 rating to each factor to indicate whether that factor represents a major weakness
(1), minor weakness (2), minor strength (3), or major strength (4).
4. Multiply each factor’s weight by its rating to determine a weighted score for each variable.
5. Sum the weighted scores for each variable to determine the total weighted score for the
organization.
6. Total weighted scores of below 2.5 indicate an internally weak organization.

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Michel Porter’s Value chain Analysis
1. Determines cost associated with organisation activities
2. Can help a firm to Identify strengths and weaknesses.
• All firms should use value chain analysis to develop and nurture a core competence and
develop this competence into a distinctive competence.

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• Firms determine whether its value chain activities are competitive compared to rivals.
– This entails measuring the costs of value chain activities, if possible, across an industry to
determine “best practices” among competing firms for the purpose of duplicating or
improving upon those best practices.
– VCA (really a business process model), firms achieve competitive advantages by being
more efficient.
UNIT 3 Strategy Formulation
Levels of strategy
A typical business firm should consider three types of strategies
Corporate strategy – Which describes a company’s overall direction towards growth by managing business and
product lines? These include stability, growth and retrenchment.
For example, Coco cola, Inc., has followed the growth strategy by acquisition. It has acquired local bottling units
to emerge as the market leader.
Business strategy - Usually occurs at business unit or product level emphasizing the improvement of
competitive position of a firm’s products or services in an industry or market segment served by that business
unit. Business strategy falls in the in the realm of corporate strategy.
For example, Apple Computers uses a differentiation competitive strategy that emphasizes innovative product
with creative design. In contrast, ANZ Grindlays merged with Standard Chartered Bank to emerge competitively.
Functional strategy – It is the approach taken by a functional area to achieve corporate and business unit
objectives and strategies by maximizing resource productivity. It is concerned with developing and nurturing a
distinctive competence to provide the firm with a competitive advantage.
For example, Procter and Gamble spends huge amounts on advertising to create customer demand.
Operating strategy - These are concerned with how the component parts of an organization
deliver effectively the corporate, business and functional -level strategies in terms of resources,
processes and people. They are at departmental level and set periodic short-term targets for
accomplishment.]
CORPORATE STRATEGIES. Growth is essential for an organization. ... The broad corporate strategy
alternatives, sometimes referred to as grand strategies, are: stability/consolidation, expansion/growth,
divestment/ retrenchment and combination strategies.
Levels of Strategies
Corporate level
Business level
Functional level

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Corporate Level Strategic Alternatives
Stability Strategies
A firm pursues stability strategy when
1. It continues to serve the public in the same product or service, market, and function sectors as
defined in its business definition.
2. Its main strategic decisions focus on incremental improvement of functional performance.
Why Stability Strategies?
 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 stabilizing after a period of rapid expansion
Types of Stability Strategies
1. No change strategies
2. Pause/proceed with caution strategies
3. Profit strategies
No Change Strategies
 Taking no decision sometimes, is a decision too!
 This strategy is relevant in predictable and certain external environment and stable organizational
environment.
 Small and medium sized firms rely on this strategy

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Pause/Proceed With Caution Strategies
 It is employed to test the ground before moving ahead with a full-fledged corporate strategy
 The purpose is to let the system adapt to the new strategies
 It is deliberate and conscious attempt
Profit Strategies
 Things do change
 It is assumed that the problem is short lived
 Only motive is sustaining profitability for a temporary phase
 It works only if the problems are really short lived
Expansion Strategies
1. Concentration strategies
2. Integration strategies
3. Diversification strategies
4. Cooperation strategies
5. Internationalization strategies
6. Digitalization strategies
The corporate strategy of expansion is followed when an organization aims at high growth by substantially
broadening the scope of one or more of its business in terms of their respective customer groups, customer
functions and alternative technologies-singly or jointly-in order to improve its overall performance.
 It may become imperative when the environment demands increase in pace of activity.
 Increasing size may lead to more control over the market vis-à-vis competitors.
 Advantage from the experience curve and scale of operation may accrue.
Expansion Strategies
1. Expansion through concentration
2. Expansion through integration
3. Expansion through diversification
4. Expansion through cooperation
5. Expansion through internationalisation
6. Expansion through digitation
Expansion Through Concentration:Concentration Strategies
Concentration is a simple, first-level type of expansion strategy. It involves converging resources in one or
more of a firm businesses in terms of their respective customer needs, customer functions, or alternative
technologies-either singly or jointly- in such a manner that expansion results.
Concentration strategies involve an investment of resources in a product line for an identified market, with
the help of proven technology.
Types of Concentration Strategies
1. Market penetration
2. Market development
3. Product development
4. Diversification

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Ansoff Matrix:
Ignor Ansoff presented a matrix that focused on firm‟s present and potential products and markets. This matrix
was first published in Harvard Business School in 1957 and has given simple solution about growth of business
for organization. It is also called Product / Market Expansion Grid. The matrix shows four ways the business can
grow and also helps executives to ascertain the risk associated with each option.
Market risk is involved in all strategies whether company introducing a new product or going for market
expansion of existing product portfolio. Diversification is high-risk business proposition where as to stay in
existing market is of lower risk. Aim is always to have a lower risk for business but it is very difficult to expect
same level of market potential for life of the product. Radical changes in product development and subsequent
market will be always there. The firm has to understand the impact of these changes and prepare strategic
approach to face the situation.
Ansoff presents four different market growth strategies
I. Market Penetration: Firm can achieve growth in the current market with existing product portfolio through
penetration. This strategy is having least potential risk. This strategy is used to expand customer base by using
various product promotion tools.
II. Market Development: Introduction of existing product portfolio in new market. This strategy has higher
risk. This is market expansion strategy and has a focus on creating different market segment, new geographical
markets and different consumer groups.
III. Product development: New product portfolio for existing market. This strategy has moderate risk. Efforts
are made to enhance existing product portfolio by upgrading the products, adding more quality features, better
services etc.
IV. Diversification: New business with new product portfolio with new market. This strategy has very high
risk. This strategy is used to reduce overall risk for business in down turn or slow down of economy. Efforts are
made to ensure one of the product line is always a revenue machine for organization
Expansion through Integration: Integration Strategies
 Integration (from the Latin integer, meaning whole or entire) generally means combining parts so
that they work together or form a whole. Informational technology , there are several common
usages.
 Integration during product development process in which separately produced components or sub
system s are combined and problems in their interactions are addressed.

20. 20
Horizontal Integration
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.
Vertical Integration
 When an organization starts making new products that serve its own needs, vertical
integration takes place.
 Any new activity undertaken with the purpose of either supplying inputs (such as raw
materials) or serving as a customer for outputs (such as marketing of firm”s product) is
vertical integration.
Expansion Through Diversification: Diversification Strategies
 When new products are made for new markets then diversification take place. The notion of
diversifying is therefore related to the newness of products or markets or both.
 By adopting diversification, an organisation does something novel in terms of making new
products or serving new markets or doing both simultaneously.
Concentric Diversification
• If the new business is in any way related to the original business in terms of the customer groups served,
customer functions performed or alternative technologies employed, then it is concentric diversification.
Types of Concentric Diversification
 Marketing-related concentric diversification-: A similar type of product is offered with
the help of unrelated technology.
 Technology-related concentric diversification-: A new type of product or service is
provided with the help of related technology.
 Marketing-and technology-related concentric diversification-: A similar type of product
or service is provided with the help of a related technology.
Conglomerate Diversification
• 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, it is conglomerate diversification.
Why are Diversification Strategies adopted?
 Diversification strategies are adopted to minimize risk by spreading it over several
businesses.
 Diversification may be used to capabilities and business model so as to maximize
organizational strength or minimize weakness.
 Diversification may be the only way out if growth in existing business is blocked due to
environmental and regulatory factors.
Expansion Through Internationalization: Internationalization Strategies
International strategies are type of expansion strategies that require organizations to market their
products or services beyond the domestic or national market. For doing so, an organization would have to
assess the international environment, evaluate its own capabilities and devise strategies to enter foreign
markets.
Types Of Internationalization Strategies

21. 21
• International strategy-: Firms adopt an international strategy when they create value by transferring
products and services to foreign markets where these products and services are not available.
• Multidomestic strategy-: Firms adopt a multidomestic strategy when they try to achieve a high level of
local responsiveness by matching their products and service offerings to the national conditions operating in
the countries they operate in.
Types of Internationalization strategies
• Global strategy-: Firms adopt a global strategy when they rely on a low-cost approach based on
reaping the benefits of experience-curve effects and location economies and offering standardised products
and services across different countries.
• Transnational strategy-: Firms adopt a transnational strategy when they adopt a combined approach
of low-cost and high local responsiveness simultaneously, for their products and services.
Advantages Of Expansion Through Internationalization
1. Realizing economies scale-: By expanding sales volume through international expansion,
firms can realise cost economies of scale.
2. Realizing economies of scope-: Firms develop valuable competencies and skills when they
operate in home markets and implement particular business models.
3. Expansion and extension of markets-: Economies of scale and scope enable firms to
expand their markets from local to global markets, in a two-way beneficial relationship
where the expanded markets enable the firms to realise lower costs and attain economies of
scale.
4. Access to resources overseas-: by expanding internationally, firms gain access to resources
overseas that they do not get when they operate in domestic markets only.
Disadvantages Of Expansion Through Internationalization
1. Higher risks-: International expansion often entails a higher risk as compared to a situation
where a firm operate only domestically.
2. Difficulty in managing cultural diversity-: International firms face challenges of managing
cultural diversity within and outside.
3. High bureaucratic costs-: Operating internationally require an extensive coordination
between the home office and the foreign operations and subsidiaries.
4. Trade barriers-: Despite liberalization of trade between countries, substantial trade
barriers in the form of tariffs, pricing restrictions, differing standards or local content
requirements exist.
Expansion through Cooperative Strategies: Cooperative Strategies
 Corporate strategy is basically the growth design of the firm: it spells out the growth
objective of the firm-the direction, extent, pace and timing of the firm’s growth.
 Corporate strategy is basically concerned with the choice of businesses, product and markets.
Scope Of Corporate Strategy
1. It can also be viewed as the objective-strategy design of the firm.
2. It is the design for filling the firm’s strategic planning gap.
3. It is concerned with the choice of the firm’s products and markets.
4. It ensure that the right fit is achieved between the firm and its environment.
5. It helps built the relevant competitive advantages for the firm.
Types Of Corporate Strategies

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1. Mergers and acquisitions
2. Joint Ventures
3. Strategic Alliances
Merger and Acquisition
• Mergers and acquisitions -: refers to the aspect of corporate strategy, corporate finance and
management dealing with the buying, selling, dividing and combining of different companies and similar
entities that can help an enterprise grow rapidly in its sector or location of origin, or a new field or new
location, without creating a subsidiary, other child entity or using a joint venture.
Types of Mergers and Acquisitions
1. Horizontal mergers
2. Vertical mergers
3. Concentric mergers
4. Conglomerate mergers
Reasons for Mergers and Acquisitions
1. To increase the value of the organizations stock.
2. To increase the growth rate and make a good investment.
3. To reduce competition.
4. To improve the stability of its earnings and sales.
5. To avail tax concessions and benefits.
How Mergers and Acquisitions take place?
1. Spell out the objective.
2. Assess managerial quality.
3. Indicate how the objective would be achieved.
4. Check the compatibility of business styles.
5. Treat people with dignity and concern.
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 and contribute equity and share in the profit or losses of the entity.
Conditions for joint ventures
1. When an activity is uneconomical for an organization to do alone.
2. When the risk of business has to be shared and, therefore, is reduced for the participating
firms.
3. When the distinctive competence of two or more organisations can be brought together.
Types of joint venture
1. Between two Indian organizations in one industry.
2. Between two Indian organizations across different industries.
3. Between an Indian organization and a foreign organization in India.
4. Between an Indian organization and a foreign organization in that foreign country.
5. Between an Indian organization and a foreign organization in a third country.
Benefits in joint venture
1. Minimizing risk

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2. Reducing an individual company’s investment
3. Creating access to foreign technology
4. Broad- based equity participation
5. Access to government and political support and entering new fields of business and
synergistic advantages
Disadvantages in joint ventures
1. Problems in equity participation
2. Foreign exchange regulations
3. Lack of proper coordination among participating firms
4. Cultural and behavioural differences and the possibility of conflict among the parteners
Strategic Alliances
1. Yoshino and Rangan define strategic alliances in terms of three necessary and sufficient
characteristics:
2. Two or more firms unite to pursue a set of agreed upon goals, but remain independent
subsequent to the information of the alliances
3. The partners firms contribute on a continuing basis, in one or more key strategic area, for ex.
Technology
Reasons For Strategic Alliances
1. Entering new markets
2. Reducing manufacturing costs
3. Developing and diffusing technology
Types Of Strategic Alliances
1. Precompetitive alliances (low interaction/low conflict).
2. Noncompetitive alliances (high interaction/low conflict).
3. Competitive alliance (high interaction/high conflict).
4. Precompetitive alliance (low interaction/high conflict).
Managing Strategic Alliances
1. Clearly define a strategy and assign responsibilities.
2. Phase in the relationship between the partners.
3. Blend the culture of the partners
4. Provide for an exist strategy
Pitfalls In Strategic Alliances
1. Lack of trust and commitment
2. Perceived misunderstandings among partners
3. Conflicting goals and interests
4. Inadequate preparation for entering into partnership
5. Hasty implementation of plans and focussing on controlling the relationship rather than on
managing it for mutual benefits
Digitalization Strategies: Digitalisation is defined as digital coding of information and the growing
productivity gains in processing and transmission it enable.The versatility and economy of digitalisation
makes information available efficiently, widely and cheaply within outside organisations
Principles Underpinning Digitalisation Strategies

24. 24
1. Outsourcing to the customer by letting them perform many of the service functions on their
own
2. Cannibalizing their markets before their competitors do it
3. Treating each customer as a market segment through mass customisation
4. Structuring every transaction as a joint venture with the customer
5. Managing innovation as a portfolio of options so that risk is minimised
6. Destroying one’s value chain
7. Replacing rude (human) interfaces with learning interfaces through customer-operated
facilities
Digitisation, Value Chain and Value System
• Value chains and value systems have worked in well-understood ways, where input the form of raw
materials provided through inbound logistics to the organisation where value- addition takes place
through operations . The finished products are then supplied through marketing and sales to the
customer. After- sales services support the value chain process wherever needed.
Digitalisation transforms the value chain and value system in several different ways
1. Deconstruction- Digitalization changes the way that value chains and value systems might
work.
2. Disintermediation- when some process in the value chain are eliminated
3. Re-intermediation- When processes in the value chain are supplemented by one or more
intermediaries.
4. Industry morphing-Digitalization has created a situation where traditional industries are
transforming into entirely new types of industries.
5. Cannibalization-A set of activities performed in the value chain are being replaced by anew
set of activities, thus eating away that part of value chain
6. Techno-intensification- Digitalization of the value chain and value system results in a
situation where there is more intensive use of technology and a decreased use of human
resources.
7. Re-channeling
Retrenchment Strategies
A retrenchment strategy is pursued by a firm when:
 It sees the desirability of or necessity for reducing its product or service lines, markets, or
functions
 It focuses its strategic decisions on functional improvement through the reduction of
activities in units with negative cash flows.
Why Retrenchment strategies?
 The management no longer wishes to remain in business either partly or wholly, due to continuous
losses and the organization becoming viable
 Stability can be ensured by reallocation of resources from unprofitable to profitable businesses
 The environment faced is threatening
Types of Retrenchment strategies
1. Turnaround strategies
2. Divestment strategies
3. Liquidation strategies
Combination Strategies

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Combination strategies are used by a firm when:
 Its main strategic decisions focus on the conscious use of several grand strategies
(expansion, stability, retrenchment) at the same time(simultaneously) in several SBUs of the
company.
 It plans to use several grand strategies at different future times (sequentially)
Why Combination Strategies?
 If the organization is large and faces complex environment
 The organization is composed of different businesses, each of which lies in a different
industry, requiring a different response
Combination Strategies
1. Simultaneous combination strategies
2. Sequential combination strategies
3. Combination of simultaneous and sequential strategies
Porters Model of competitive advantage of nations
Michael Porter introduced a model that allows analyzing why some nations are more competitive than
others are, and why some industries within nations are more competitive than others are, in his book
The Competitive Advantage of Nations. This model of determining factors of national advantage has
become known as Porters Diamond Model.
Factor endowments: A nation’s position in factors of production such as skilled labor or infrastructure
necessary to compete in a given industry
 Basic factor endowments
 Advanced factor endowments
 Basic factors: Factors present in a country
 Natural resources
 Climate
 Geographic location
 Demographics
 While basic factors can provide an initial advantage they must be supported by advanced factors to
maintain success(Advanced Factors enable a speedier transformation of Basic Factors??)
 Advanced factors: The result of investment by people, companies, and government are more likely to
lead to competitive advantage
If a country has no basic factors, it must invest in advanced factors
 Communications

26. 26
 Skilled labor
 Research
 Technology
 Education
Demand Conditions
 Demand:
 creates capabilities
 creates sophisticated and demanding consumers
 Demand impacts quality and innovation
Related and Supporting Industries
 Creates clusters of supporting industries that are internationally competitive
 Must also meet requirements of other parts of the Diamond
Firm Strategy, Structure and Rivalry
 Long term corporate vision is a determinant of success
 Management ‘ideology’ and structure of the firm can either help or hurt you
 Presence of domestic rivalry improves a company’s competitiveness
Porter’s Theory-Predictions
 Porter’s theory should predict the pattern of international trade that we observe in the real world
 Countries should be exporting products from those industries where all four components of the diamond
are favorable, while importing in those areas where the components are not favorable
Implications for Business
 Location implications:Disperse production activities to countries where they can be performed
most efficiently
 First-mover implications:Invest substantial financial resources in building a first-mover, or early-
mover advantage
 Policy implications: Promoting free trade is in the best interests of the home country, not always
in the best interests of the firm, even though many firms promote open markets
UNIT 4 Strategy Analysis
 Strategic Analysis: The process of conducting research on the business environment within which an
organization operates and on the organization itself, in order to formulate strategy.
 Why use it? To take advantage of the path of least resistance to achieve your goal.
 When to use it?When you are planning to make a change in your organization, and you need to
determine the best path to take.
Strategic analysis is a key step within the strategic planning process:
 strategic analysis (examination of the current strategic position)
 strategic choice
 strategic implementation (or strategy into action).

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The strategic position / strategic analysis
Assessing the strategic position consists of analysing:
 the environment (competitors, markets, regulations, discoveries etc). Key factors are often summarised
as opportunities and threats.
 the strategic capability of the organisation (resources, competences). Key factors are often summarised
as strengths and weaknesses)
 the culture, beliefs and assumptions of the organisation
 the expectation and power of stakeholders (what do the shareholders want? Will employees co-
operate?).
Analysing Strategic alternative
Strategic alternatives evolve out of assessments from a market analysis, which is the prelude to creating your
marketing plan. The market analysis usually includes some form of SWOT evaluation — strengths, weaknesses,
opportunities and threats — to determine a firm's competitive advantages relative to market opportunities and
the ability of competitors to blunt your marketing initiatives. Thus, a completed market analysis equips you to
develop a strategy that best aligns with your business and marketing goals.
Making an Evaluation
Is your strategy right for you? There are six criteria on which to base an answer. These are:
1. Internal consistency.
2. Consistency with the environment.
3. Appropriateness in the light of available resources.
4. Satisfactory degree of risk.
5. Appropriate time horizon.
6. Workability.
The decision to select from among the grand strategies considered, the strategy which will best meet the
enterprise’s objective. The decision involves focusing on a few alternatives considering the selection factors,
evaluating the alternatives against these criteria and making the actual choice.”

28. 28
Process of selecting Strategies
Focusing on Strategic Alternatives
• It involves identification of all alternatives.
• The strategist examines what the organization wants to achieve (desired performance) and what
it has really achieved (actual performance).
• This done through gap analysis.
• GAP ANALYSIS = Actual Performance – Desired Performance
Result of GAP analysis Strategy
Large gap due to expected environmental
opportunities
Expansion Strategy
Narrow Stability Strategy
Large due to bad performance Retrenchment Strategy
Multiple reasons Combination Strategy
Evaluating the Strategic Alternatives:
• The next step is to assess the pros and cons of various alternatives and their suitability.
• The tools which may be used are portfolio analysis, GE business screen and corporate Parenting.
• Analysis done on the basis of the objective and subjective factors
• The Objective Factors- Based on analytical techniques and hard facts or data.
• The Subjective Factors- Based on one’s personal judgment, collective or descriptive factors.

29. 29
The Objective Factors-
Environmental factors
• Volatility of environment
• Input supply from environment
• Powerful stakeholders
Organizational factors
• Organization’s mission
• Strategic intent
• Business definition
• Strengths and weaknesses
The Subjective Factors-
• Strategies adopted in the previous period;
• Personal preferences of decision- makers;
• Management’s attitude toward risk;
• Pressure from stakeholders;
• Pressure from corporate culture; and
• Needs and desires of key managers.
Evaluating and Selecting Criteria
• Suitability
• Feasibility
• Acceptability (SFA)
Suitability: It analyzes an organization’s position first and then changes in the environment and assesses
the fit between these keeping in view the organizational goal (expectation of stakeholders).It evaluates the
rationale of the strategic option
• Then needs to define suitability criteria for assessing the strategy e.g. it could be environmental
suitability, capability suitability and expectation suitability.
• The next thing is to have a selection criterion. This could be based on
 ranking (score cards)
 decision trees
 scenario matching
Acceptability: Here an outcome based view of strategy is taken and strategy performance expectation is
judged. The performance of strategy in this case is measured in terms of return, risk and stakeholder
reactions. Returns are calculated based on the benefits stakeholders are expected to get by pursuing the
particular strategy. The risk of a strategy in this area concerns the probability of its failure and possible
consequences thereafter
Feasibility: It considers whether an organization has the required resources, capabilities and competences
to implement the strategy in practice.
• Financial feasibility is established by forecasting and analyzing cash-flows and/or break-even analysis,
among others.
• Assessment of the availability of other resources, as deemed necessary to carry out activities involved in
the strategy implementation is also done
Some other Factors:
• Cultural Factors
• Political Factors
• Organizational Factors
• Competitive Advantages

30. 30
The list of strategic management tools and techniques
1. SWOT analysis
2. Cost-benefit analysis
3. Customer satisfaction analysis
4. Analysis of customers complaints
5. Analysis of employee satisfaction (views and employee attitudes)
6. Market segmentation based on customer needs and wishes
7. Price analysis
8. Market share analysis
9. Customer profitability analysis
10. Benchmarking
11. Level of service analysis
12. Life cycle analysis
13. Porter’s 5 forces
14. PEST analysis
15. Portfolio methods
16. Balanced scorecard
17. Value chain analysis
18. Activity based costring
19. Critical success factors
GE-Mckinsey Matrix (9 Cell Model)
GE Matrix is a derivation of BCG Matrix. It was developed by Mckinsey & Co. for General Electric Company.
BCG Matrix is not flexible where as GE 9 cell model consider all the factors related to market attractiveness.
A large corporation may have many SBU‟s, which are distinctive and individual. Overall strategy decision about
development of Market and further investment decisions is based on GE 9 cell Model.
GE Matrix refers to Market attractiveness Vs Business position in terms of strength and weakness and further
this is divided into three categories Low, Medium and High, forming 9 cells.
Each of the nine cells is indicative of decisions regarding market and investment.
This model is used to manage crisis related with external business environment especially for crisis related with
the market for products and services offered by company. In automobile industry and subsequently for auto
component manufacturing companies, these market force play a dominating role and can create a severe crisis.
Growth of market is a function of industry attractiveness, i.e. possibility of generating higher revenues.
Industry attractiveness depends upon the response of customer for specific products. Determinants of industry
attractiveness are, Market Growth rate, Market size, Demand Variability, Industry Profitability, Industry Rivalry,
Global Opportunities, Macro environment factors [PEST]

31. 31
Ansoff Matrix:
Ignor Ansoff presented a matrix that focused on firm‟s present and potential products and markets. This
matrix was first published in Harvard Business School in 1957 and has given simple solution about
growth of business for organization. It is also called Product / Market Expansion Grid. The matrix
shows four ways the business can grow and also helps executives to ascertain the risk associated with
each option.
Market risk is involved in all strategies whether company introducing a new product or going for market
expansion of existing product portfolio. Diversification is high-risk business proposition where as to stay in
existing market is of lower risk. Aim is always to have a lower risk for business but it is very difficult to expect
same level of market potential for life of the product. Radical changes in product development and subsequent
market will be always there. The firm has to understand the impact of these changes and prepare strategic
approach to face the situation.
Ansoff presents four different market growth strategies
I. Market Penetration: Firm can achieve growth in the current market with existing product portfolio through
penetration. This strategy is having least potential risk. This strategy is used to expand customer base by using
various product promotion tools.

32. 32
II. Market Development: Introduction of existing product portfolio in new market. This strategy has higher
risk. This is market expansion strategy and has a focus on creating different market segment, new geographical
markets and different consumer groups.
III. Product development: New product portfolio for existing market. This strategy has moderate risk. Efforts
are made to enhance existing product portfolio by upgrading the products, adding more quality features, better
services etc.
IV. Diversification: New business with new product portfolio with new market. This strategy has very high
risk. This strategy is used to reduce overall risk for business in down turn or slow down of economy. Efforts are
made to ensure one of the product line is always a revenue machine for organization
Mckinsey ‘7S ' Model
7S model was developed at Mckinsey & Co Consulting Firm in 1980. This model describes how efficiently one can
organize a company. This model is based on the theory that, for an organization to perform well and achieve its
objectives, all seven elements must be aligned mutually. 7S model can be used to analyze the current situation
and prepare for future goals, and then identify the gaps and inconsistencies between them. It is then action of
adjusting and tuning the individual elements to ensure organization works efficiently.
Definition: A model of organization effectiveness that postulates that there are seven internal factors, that needs
to be aligned and reinforced in order to be successful.
7S model specifies seven factors that are classified into hard and soft elements. Hard elements are easily
identified and influenced by management while soft elements are more intangible and are influenced
by corporate culture.
Hard elements are Strategy, Structure, and System
Soft elements are Shared Values, Style, Skill and Staff
In crisis management related to internal business environment, 7S model can be used effectively to create a
balance between various internal subsystems. This model is methodological approach to design strong internal
balanced and supportive systems.
Getting the balance right in this model means getting culture right. In addition to central value alignment, each of
the seven elements has definite role in the designing correct organization.

33. 33
1. Strategy- A corporate plan to create competitive advantage.
2. Structure – Line of reporting, task allocation coordination and supervisory levels.
3. System – The supporting system and processes of organization like information system, financial reporting,
payment systems, resource allocation etc.
4. Shared Values – These are core values of the company and form underpinning culture and how the business
behaves in wider context of the community.
5. Style – The style of leadership adopted by the organization.
6. Staff – The number and types of employees with the organization.
7. Skills - Skills and competency available with the company.
Balanced Scorecard Concept
Boston Consulting Group (BCG) Matrix is a four celled matrix (a 2 * 2 matrix) developed by BCG, USA. It is the
most renowned corporate portfolio analysis tool. It provides a graphic representation for an organization to
examine different businesses in it’s portfolio on the basis of their related market share and industry growth rates.
It is a two dimensional analysis on management of SBU’s (Strategic Business Units). In other words, it is a
comparative analysis of business potential and the evaluation of environment.
According to this matrix, business could be classified as high or low according to their industry growth rate and
relative market share.
Relative Market Share = SBU Sales this year leading competitors sales this year.
Market Growth Rate = Industry sales this year - Industry Sales last year.
The analysis requires that both measures be calculated for each SBU. The dimension of business strength,
relative market share, will measure comparative advantage indicated by market dominance. The key theory
underlying this is existence of an experience curve and that market share is achieved due to overall cost
leadership.
BCG matrix has four cells, with the horizontal axis representing relative market share and the vertical axis
denoting market growth rate. The mid-point of relative market share is set at 1.0. if all the SBU’s are in same
industry, the average growth rate of the industry is used. While, if all the SBU’s are located in different industries,
then the mid-point is set at the growth rate for the economy.

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Resources are allocated to the business units according to their situation on the grid. The four cells of this matrix
have been called as stars, cash cows, question marks and dogs. Each of these cells represents a particular type of
business.
10 x 1 x 0.1 x
Figure: BCG Matrix
1. Stars- Stars represent business units having large market share in a fast growing industry. They may
generate cash but because of fast growing market, stars require huge investments to maintain their lead.
2. Cash Cows- Cash Cows represents business units having a large market share in a mature, slow growing
industry.
3. Question Marks- Question marks represent business units having low relative market share and located
in a high growth industry. They require huge amount of cash to maintain or gain market share.
4. Dogs- Dogs represent businesses having weak market shares in low-growth markets. They neither
generate cash nor require huge amount of cash.
Hofer’s Product market evolution
Hofer matrix
Hofer’s product market evolution matrix adds an additional dimension to the display of market evolution and
business position and uses a finer grid. The competitive position is plotted on the horizontal axis and the stage of
product or market evolution on the vertical axis. The competitive position, which is similar to the business
position in the directional policy matrix, can be calculated in the same way as for that matrix. The market
evolution axis is similar to the product life cycle, where development equates to the introduction stage, growth to
the accelerating growth stage and shake-out to the decelerating growth stage. The products are shown as circles
and, unlike in other matrixes, the area of the circle represents total product turnover. Within the circle the share
of a firm’s product is shown as a slice of the circle
Hofer matrix is one of the tools used to determine the assessment of the Competitive position of the company, as
determined by its internal and external factors.
15 squares matrix was created by Ch.W. Hofer. It is a development of the ADL and McKinsey matrices and is
especially useful when analysing strategically diversified entity.
Rules of design
Matrix is created on the basis of two criteria: the maturity of the sector, divided into 5 phases and the competitive
position of companies in the sector. In this way circles are created, which represent different areas of activity in
the company, and the size of the circle is proportional to size of the sector. Sometimes segments could be added
to the circle, which reflect the market share of company in the sector.

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.
The Hofer matrix includes more information, but is also more difficult to construct and
exceeds the capabilities of Excel. However, there are specialist software tools (see below) to
facilitate the creation of matrixes such as this.Below is a sample matrix constructed according to the principles
set out by Hofer. In its interpretation attention should be paid to possible strategies for products, their life cycle
phases and the markets in different sectors.
Hofer matrix example
Interpretation of fields
In Hofer matrix, we can characterize groups of products:
 Products A - Dilemmas that have chance of success with appropriate marketing strategies and financial
aid
 Products B - Winners, require appropriate marketing strategies and financial aid, if company has limited
resources for advertising managers must make a choice between products A and B
 Products C - Potential losers, the weak position, the sector in the growth phase - managers should make
additional analyses to rule out the possibility of going through the shock phase
 Products D - despite the current difficulties can become market leaders or profitable producers
 Products E and F are profitable, so it is possible to introduce other products in the phase of shock and
generate considerable profits
 Products G and H are the losers are in the exit phase of the market, ahead of the full withdrawal managers
should use strategies for "gathering the harvest"
Strategy implementation means putting chosen strategic decision into action (strategic choice).
Allocation of resources to new course of action needs to be undertaken besides need to adapt
organization’s structure to the chose strategy.
Strategic implementation is critical to a company's success, addressing the who, where, when, and how of
reaching the desired goals and objectives. It focuses on the entire organization. Implementation occurs after
environmental scans, SWOT analyses, and identifying strategic issues and goals.
Strategy formulation and Strategy Implementation are different and it needs to be sound and excellent.
Strategy fails because of failed implementation and not because of strategy model. The matrix shows various
combination of strategy formulation and implementation.

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Issues in Strategy Implementation
• Management issues central to strategy implementation includes establishing annual objectives, devising
policies, allocating resources, altering an existing organizational structure, restructuring, reengineering,
revising rewards and incentive plans, minimizing resistance to change, matching manager with strategy,
developing strategy supportive culture, adapting production and operation processes, developing
effective human resource function and even downsizing to give firm a new direction.
• Strategy implementation is key, top down communication must be clear for developing bottom up
support, competitions intelligence gathering and benchmarking effort of employees is very important and
challenge for a strategist. Provide training to all to be world class performers.
Organistion structure and systems in strategy implementation
• Strategic change requires change in structure of organization.
• Structure largely dictates how objectives and policies will be established and can significantly
impact all other strategy implementation activities.
• Structure dictates how major resources will be allocated.
• There is no optimal organizational design or structure for a given strategy or the type of organization and
what is appropriate for one organization may not work for other organization even though industry is
organized in same way.
• For example consumer good companies tend to emulate the divisional structure by product form
or organization.
• Small firms are functionally structured (centralized)
• Medium sized firms are divisionally structured (decentralized)
• Large firms are structured on basis of SBU (Strategic Business Unit / Matrix Structure).
• With growth of organization structure usually changes from simple to complex as a result of linking of
several basic strategies.
• Structural change is not affected by change in external and internal factors.
• With change in firms strategy organizational structure becomes ineffective. For example – Too many
levels of management, too many meetings attended by too many people, interdepartmental conflict
resolution, large span of control, and too many unachieved objectives.
• Sometimes structure can shape the choice of strategy and to know what type of structural change is
needed to implement new strategies and how these changes can be best accomplished.
• The organizational structures studied are : Division by
• Functional, Geographic, Product, Customer, Divisional process, Strategic business unit (SBU),
matrix
Strategy – Structure Relationship: Chandler’s
New Administrative
Problem Emerges
Organizational
Performance Declines
A New Organizational
Structure is
Established
Organizational
Performance
Improves
New Strategy is
Formed

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There are a number of approaches to solving resource allocation problems e.g. resources can be allocated using a
manual approach,[2] an algorithmic approach (see below),[3] or a combination of both.[4]
There may be contingency mechanisms such as a priority ranking of items excluded from the plan, showing
which items to fund if more resources should become available and a priority ranking of some items included in
the plan, showing which items should be sacrificed if total funding must be reduced
Analysis of how scarce resources ('factors of production') are distributed among producers, and how scarce
goods and services are apportioned among consumers. This analysis takes into consideration the accounting cost,
economic cost, opportunity cost, and other costs of resources and goods and services.
Leadership and Strategic Implementation
• Businesses today face change on all fronts– economic, regulatory, competitive, customer, and access to
resources. Consequently, every company is adjusting its strategy and that implies change. The success of
your strategy depends on your people – will they be able to implement the strategy and achieve the
goals?
• Strategic leadership provides the vision, direction, the purpose for growth, and context for the success of
the corporation. It also initiates "outside-the-box" thinking to generate future growth. Strategic
leadership is not about micromanaging business strategies. Rather, it provides the umbrella under which
businesses devise appropriate strategies and create value.
• If you are a leader at any level, your people look to you for guidance on what needs to be done, and how.
• The key requirements of leaders are to:
• Set the strategy
• Communicate the strategy
• Implement the strategy through people
• Get results
• Strategic leadership entails the ability to anticipate, envision, maintain flexibility, and empower others to
create strategic change as necessary.
A manager with strategic leadership skills exhibits the ability to guide the company through the new
competitive landscape by influencing the behavior, thoughts, and feelings of co-workers, managing thought of
others and successfully dealing with rapid, complex change and uncertainty.
• Strategic leaders are CEO, Board of Directors, Top Management Teams, Divisional General Managers.
They must be able to deal with the diverse and cognitive complex competitive situations that are
characteristic of today’s competitive situation.
Building A Strategy Supportive Corporate Culture
• “An organization’s capacity to execute its strategy depends on its “hard” infrastructure--its organization
structure and systems--and on its “soft” infrastructure--its culture and norms.”
• Building a Strategy-Supportive Corporate Culture
• Where Does Corporate Culture Come From?
• Culture and Strategy Execution
• Types of Cultures
• Creating a Fit Between Strategy and Culture
• Establishing Ethical Standards
• Building a Spirit of High Performance
• Exerting Strategic Leadership
• Staying on Top of How Well Things are Going
• Establishing a Strategy-Supportive Culture
• Keeping Internal Organization Innovative
• Exercising Ethics Leadership
• Making Corrective Adjustments
What Makes Up a Company’s Culture?

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• Beliefs about how business ought to be conducted
• Values and principles of management
• Work climate and atmosphere
• Patterns of “how we do things around here”
• Oft-told stories illustrating company’s values
• Taboos and political don’ts
• Traditions and Ethical standards
Where Does Corporate Culture Come From?
• Founder or early leader
• Influential individual or work group
• Policies, vision, or strategies
• Traditions, supervisory practices, employee attitudes
• Organizational politics
• Relationships with stakeholders and Internal sociological forces
The Functional Structure
The most widely used structure is the functional or centralized type because this structure is the simplest and
least expansive of the seven alternatives. A functional structure groups tasks and activities by business
function, such as production/operation, marketing, finance/accounting, research and development, and
management information systems.
Some disadvantages of a functional structure are that it forces accountability to the top, minimizes career
development opportunities, and is sometimes characterized by low employee morale, line/staff conflicts,
poor delegation of authority, and inadequate planning for products and markets.
The Divisional Structure
The divisional or decentralized structure is the second-most common type used by businesses. As a small
organization grows, it has more difficultly managing different products and services in different markets.
Some form of divisional structure generally becomes necessary to motivate employees, control operations,
and compete successfully in diverse locations.
The divisional structure can be organized in one of four ways: by geographic area, by product or service, by
customer, or by process. With a divisional structure, functional activities are performed both centrally and in
each separate division.
Functional Planning: The planning that is made to ensure smooth working of the organisation taking into
account the needs of each and every department. The purpose of functional planning is to promote standardised
management practices for corporate functions in the department’s decentralised corporate management
structure.
The following three basic activities have to be carried out in functional planning:
(1) Functional Guidance: Managers must be told and guided what they should be doing to properly manage
corporate functions within the enterprise.
(2) Goal Setting: Certain quantifiable goals need to be set that would measure the effectiveness of the
functional planning. Goals should be meaningful, achievable and measureable.
(3) Functional Assessments: Functional assessment wraps up the functional planning process. Here the
Comparison is made between the goal setting and the goal achievement. The functional assessment should
have the following characteristics:
Operational Plan :An Operational Plan is a detailed plan used to provide a clear picture of how a team,
section or department will contribute to the achievement of the organisation's strategic goals.
The strategic goals of an organisation are outlined in the Strategic or Business Plan, which highlights the

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organisation's intended direction.
Strategic plans identify:
 The organisation's strengths and weaknesses
 The organisation's position in the marketplace
 Potential growth areas
 Areas of vulnerability
The Operational Plan should align with the organisation's overall objectives as detailed in the Strategic Plan. This
alignment can be achieved by ensuring that the team, section or department purpose aligns with the objectives of
the Strategic Plan. In turn, the Operating Plan of the team, section or department should align with the purpose.
Operational plans are used to identify:
 The goals of the team, section or department
 How the goals will be achieved
 What resources are required to meet the goals
Although there are no strict rules as to the format of an Operational Plan they normally contain the following
information:
 Specific goals
 Actions required to achieve goals
 Human resources required
 Physical resources required
 Budget required
An indication of how long goals will take to achieve
The key requirement for IBP (Integrated Business Planning) is that two or more functional process areas
must be involved and maximizing (optimizing) of financial value should be done. ... Bridging Corporate
Performance Management and S&OP There has been a lot of focus on Integrated Business Planning in the
context of Sales and Operations Planning.
UNIT 5 Strategy Evaluation & Control
Strategic Management Process
Strategic Evaluation is defined as the process of determining the effectiveness of a given strategy in achieving
the organizational objectives and taking corrective action wherever required.

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Strategy evaluation is the final step of strategy management process. The key strategy evaluation activities
are: appraising internal and external factors that are the root of present strategies, measuring performance,
and taking remedial / corrective actions. Evaluation makes sure that the organizational strategy as well as it’s
implementation meets the organizational objectives.
Nature of Strategic Evaluation
1. Nature of the strategic evaluation and control process is to test the effectiveness of strategy.
2. During the strategic management process, the strategists formulate the strategy to achieve a set of
objectives and then implement the strategy.
3. There has to be a way of finding out whether the strategy being implemented will guide the organisation
towards its intended objectives. Strategic evaluation and control, therefore, performs the crucial task of
keeping the organisation on the right track.
4. In the absence of such a mechanism, there would be no means for strategists to find out whether or not
the strategy is producing the desired effect.
Through the process of strategic evaluation and control, the strategists attempt to answer set
of questions, as below.
1. Are the premises made during strategy formulation proving to be correct?
2. Is the strategy guiding the organization towards its intended objectives?
3. Are the organization and its managers doing things which ought to be done?
4. Is there a need to change and reformulate the strategy?
5. How is the organization performing?
6. Are the time schedules being adhered to?
7. Are the resources being utilized properly?
8. What needs to be done to ensure that resources are utilized properly and objectives met?
Importance of Strategic Evaluation
1. Strategic evaluation can help to assess whether the decisions match the intended strategy requirements.
2. Strategic evaluation, through its process of control, feedback, rewards, and review, helps in a successful
culmination of the strategic management process.
3. The process of strategic evaluation provides a considerable amount of information and experience to
strategists that can be useful in new strategic planning.
Participants in Strategic Evaluation
1. Shareholders
2. Board of Directors
3. Chief executives
4. Profit-centre heads
5. Financial controllers
6. Company secretaries
7. External and Internal Auditors
8. Audit and Executive Committees
9. Corporate Planning Staff or Department
10. Middle-level managers
Process of Strategic Evaluation
1) Fixing benchmark of performance
 While fixing the benchmark, strategists encounter questions such as - what benchmarks to set, how to set
them and how to express them.
 In order to determine the benchmark performance to be set, it is essential to discover the special
requirements for performing the main task.

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2) Measurement of performance
 The standard performance is a bench mark with which the actual performance is to be compared.
 The reporting and communication system help in measuring the performance.
 For measuring the performance, financial statements like - balance sheet, profit and loss account must be
prepared on an annual basis.
3) Analyzing Variance
 While measuring the actual performance and comparing it with standard performance there may be
variances which must be analyzed.
 The strategists must mention the degree of tolerance limits between which the variance between actual
and standard performance may be accepted.
4)Taking Corrective Action
 Once the deviation in performance is identified, it is essential to plan for a corrective action.
 If the performance is consistently less than the desired performance, the strategists must carry a detailed
analysis of the factors responsible for such performance.
Techniques of Strategic Evaluation
1. GAP Analysis
2. SWOT Analysis
3. PEST Analysis
4. Benchmarking
Types of Strategic Control
The types of strategic controls are:
 Premise control
 Implementation control
 Strategic surveillance
 Special alert control
Strategic Control
Strategic controls take into account the changing assumptions that determine a strategy, continually
evaluate the strategy as it is being implemented, and take the necessary steps to adjust the strategy to the
new requirements. Most commentators would agree with the definition of strategic control offered by
Schendel and Hofer:
"Strategic control focuses on the dual questions of whether: (1) the strategy is being implemented
as planned; and (2) the results produced by the strategy are those intended.“
1) Premise Control
 Every strategy is based on certain planning premises or predictions.
 Premise control has been designed to check systematically and continuously whether or not the premises
set during the planning and implementation process are still valid.
 It involves the checking of environmental conditions. Premises are primarily concerned with two types of
factors:
a. Environmental factors (for example, inflation, technology, interest rates, regulation, and
demographic/social changes).

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b. Industry factors (for example, competitors, suppliers, substitutes, and barriers to entry)
2) Implementation Control
 Implementing a strategy takes place as a series of steps, activities, investments and acts that occur over a
lengthy period.
 The two basis types of implementation control are:
a. Monitoring strategic thrusts (new or key strategic programs): Two approaches are useful in enacting
implementation controls focused on monitoring strategic thrusts:
(1) one way is to agree early in the planning process on which thrusts are critical factors in the success of
the strategy or of that thrust;
(2) the second approach is to use stop/go assessments linked to a series of meaningful thresholds (time,
costs, research and development, success, etc.) associated with particular thrusts.
b. Milestone Reviews: Milestones are significant points in the development of a programme, such as
points where large commitments of resources must be made. A milestone review usually involves a
full-scale reassessment of the strategy and the advisability of continuing or refocusing the direction of
the company.
3) Strategic Surveillance
 Strategic surveillance is designed to monitor a broad range of events inside and outside the company that
are likely to threaten the course of the firm's strategy.
 The basic idea behind strategic surveillance is that some form of general monitoring of multiple
information sources should be encouraged, with the specific intent being the opportunity to uncover
important yet unanticipated information.
 Strategic surveillance appears to be similar in some way to "environmental scanning." Strategic
surveillance is designed to safeguard the established strategy on a continuous basis.
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