Course Lecture Notes

Strategic ManagementThe Competitive Edge
Prof. R.Srinivasan
Dept of Management Studies
Indian Institute of Science
Bangalore
Topics
1.Introduction to Strategic Management
Concept of Corporate Strategy
Strategic Management Process
The 7-S Framework
Corporate Policy and Planning in India
2.Board of Directors-Role and Functions
Top Management-Role and skills
Board Functioning-Indian Context
3.Environment Scanning
Industry Analysis
Synthesis of External Factors
External factors Analysis Summary (EFAS)
Internal Scanning
Value Chain Analysis
Synthesis of Internal Factors
External factors Analysis Summary (IFAS)
Case Study 1
Sessions*
1-5
6-8
9-14
15
CONTINUED
4.Strategy Formulation
Strategic factors Analysis Summary (SFAS)
Business Strategy
Corporate Strategy
Functional Strategy
Strategic Choice
Case Study 2
5.Strategy Implementation
Organization Structure
Corporate Culture
Diversification
Mergers and Acquisition
Case Study 3
6.Evaluation and Control
Strategic Information Systems
16-19
20
16-19
24
25-26
CONTINUED
7.Other Strategic Issues
Small and Medium Enterprises
Non-Profit Organizations
* Each session is approximately for 1.5 hours
27-28
Books and References

R.Srinivasan, Strategic Management -The Indian Context,
4th Edition, Prentice Hall of India, 2012
R.Srinivasan, Case Studies in Marketing The Indian
Context,5th Edition, Prentice Hall of India, 2012
STRATEGIC MANAGEMENT
LONG RANGE PLG / STRATEGIC PLANNING:
STRATEGY:
MGT PROCESSES IN ORGNS THRO WHICH THE FUTURE

IMPACT OF CHANGE IS DETD AND CURRENT DECISIONS TO
REACH A DESIGNED FUTURE ARE MADE
INCLUDE ENTIRE PROCESS OF MAJ OUTSIDE INTEREST GRPS
AND THEIR STAKES; EXPECTATIONS OF DOMINANT INSIDE
STOCK HOLDERS INFN - PAST, PRESENT & PROJD PERF;
EVALN OF CO. STRENGTHS & WEAKNESSES; FORMLN OF
ORGNL PURPOSE, MISSION, OBJS, POLICIES AND
STRATEGIES
LONG - TERM DECISIONS - INCLUDES OBJS, GOALS &
COURSES OF ACTION
Ex: (ANSOFF: CORP. STRATEGY., 65)
OBJS: ROI: THRESHOLD 10%, GOALS 15%
SALES
GROWTH : THRESHOLD 5%, GOALS 10%
RATE
STRATEGY:
COURSES
OF
ACTION
PROD-MKT: BASIC CHEMICALS &

SCOPE
PHARMACEUTICALS
GROWTH : PROD DEVPT & CONCENTRIC DIVSFN
VECTOR
COMPETITIVE: PATENT PROTECTN, SUPERIOR
ADVANTAGE RES COMPETENCE
SYNERGY
PURPOSE & MISSION:
USED INTERCHANGEABLY
: USE OF FIRM S RES CAPABILITIES

& PRODN TECHNOLOGY
Mission statement
!
A strategically revealing mission

statement incorporates three elements
!
!
!
What customer need is being satisfied

Who is being satisfied
How value is created and delivered to
customers satisfying their needs
Mission statement to strategic

vision
!
Questions that must be answered

!
What changes are occurring in markets and what are the

implications for the direction we need to move
What new or different customer needs should we move
satisfy
What new or different buyer segments should we
concentrate on
What new geographic or product markets should we be
pursuing
What should the companys business makeup look like in
five years
What kind of company should we be trying to become
GOALS: LEGITIMISE ORGN; IDENTIFY INTER ORGNL RELNSHIPS;

HAVE PR VALUE;IMAGE BLDG WITH SUPPLIERS, CUST, PUBLIC POLICY
MAKERS AND THE GOVT; COORDN OF MULTIPLICITY
OF TASKS, MANAGING OF CONFLICTS; STDS OF PERF;
MOTIVATORS
GOALS: OFFICIAL (DESCRIBED IN MOA, CHARTER, ANN. REPORT)
OPERATIVE - WHAT ORGN IS REALLY ATTEMPTING TO DO CAN BE
INFERRED FROM ORGNL POLICIES; HELP FOCUS ATTN,
REDUCE UNCERTAINTY, CHOOSE ORGNL DESIGN ALTVES
OPERATIONAL - USED BY SUP. PERSONNEL OR MGRS TO INFLUENCE
THE BEHVR OF SUBORDINATES AND MEASURE THEIR
PERFORMANCE
OFFICIAL - ABSTRACT, IDEALISTIC; OPERATIVE ACTUAL GOALS BUT NOT ARTICULATED;
OPERATIONAL - DETAILED, MEASURABLE
POLICIES: GUIDE TO ACTION
MAJ POLICY
(LINE OF BUS)
(CODE OF ETHICS)
SECY POLICIES
(GEOGR. AREA, MAJ
COST, PROD)
FNL POLICIES
(MKTG,PRODN,RES,FIN,..)
PROCEDURES & STD OPTG
PLANS (CUST ORDERS,
SERVICING,.)
RULES (DELAY OF PAYMENT
OF CHEQUES, SECURITY,.)
PYRAMID OF BUSINESS POLICIES (FROM STEINER, TOP MGT PLG, P.268)
STRATEGIES:
GROWTH STRATEGIES
I. HOLD RELATIVE POSN IN HIGH GROWTH PROD/MKT AREA
II. MKT SHARE IN HIGH GROWTH MKT
III. MKT SHARE IN MATURE MKTS
IV. HOLD STRONG RELATIVE POSITION IN MATURE MKT, USE
EXCESS CASH FLOW, FUNDS, TO EFFECT PENTN WITH
EXISTING PRODUCT LINE - MULTI NATL MKT
V. AS IN (IV) -WRT NEW PROD/MKTS DOMESTICALLY
VI. HOLD STRONG RELATIVE POSN IN DIVERSIFIED PROD. LINE
DOMESTICALLY, AND USE EXCESS CASH FLOW, FUNDS
CAPABILITY AND OTHER RESOURCES TO DIVERSIFY MKTS
DEPENDANCY REDN STRATEGIES
I.
MAINTAINING ALTERNATIVES
II. BLDG POSITIVE IMAGE
III. DIRECT CONFRONTATION
IV. CONTRACTING - TO REDUCE UNCERTAINTIES
V. CO-OPTATION - TO INVOLVE REPS OF OTHER ORGNS INTO POLICYMAKING POSITIONS TO ACHIEVE CERTAINTY OF FUTURE
VI. COALITIONS - TO ACHIEVE COMMON GOALS LIKE OPPOSING A
COMMON ENEMY
VERTL. INTEGN. STRATEGIES - BACKWARD; FORWARD RISK: LOSS OF FLEXIBILITY

GENERIC: I. OVERALL COST LEADERSHIP
II. DIFFERENTIATION
III. FOCUS
MERGERS AND JOINT VENTURES
TURNAROUND STRATEGIES - ENTREPRENEURIAL AND EFFICIENCY
BUS. UNIT STRATEGY AND CORP. STRATEGY
Tests of a winning strategy

!
Goodness of fit test

Match to industry and
competitive condition,
opportunities and threat
!
Tailored to companys
strengths and weakness,
competencies, and
capabilities
!
Competitive advantage test

Leads to sustainable
competitive advantage
!
Performance test
Boosts profitability and
competitive strength and
long term position
!
MGT. DECISIONS
STRATEGIC - INTERFACE BETWEEN OPEN & EXTL. ENVNT OPERATING

ALLOCATION OF TOT. RES- INFREQUENT.
- RES. CONVN
ADMNVE - FACILITATIVE
ORGN S SUCCESS OR FAILURE IN THE LONG-RUN DEPENDS UPON STRATEGIC

DECISION MAKING i.e. UPON DOING THE RIGHT THINGS THAN UPON DOING THINGS RIGHT
Table 1.1: Comparison Of Operating and Strategic Decisions
How
What
O
P
E
R
A
T
I
N
G
E
f
f
e
c
t
i
v
e
D
E
C
I
S
I
O
N
S
I
n
e
f
f
e
c
t
i
v
e
STRATEGIC DECISIONS
Unclear
Clear
I
II
Clear strategy and effective

operations have contributed
to success in the past and will
contribute to success in the
future.
Unclear strategy but effective

operations have contributed
to success in the past but
success in the future is
doubtful.
III
IV
Clear strategy but ineffective

operations have sometimes
worked in the past in the
short-run, but increasing
competition makes success
doubtful in the future.
Unclear strategy and

ineffective operations have
meant failure in the past and
will be so in the future.
Source: Tragoe B. and J Zimmerman ,1980, Top Management Strategy, John Martin:
London, pp.20
Important Definitions
The full set of commitments, decisions,

and actions required for a firm to achieve
strategic competitiveness and earn
above-average returns
Strategic Competitiveness
Achieved when a firm successfully formulates
and implements a value-creating strategy
Above-Average Returns
Occurs when a firm develops a strategy that
competitors are not simultaneously
implementing
Provides benefits which current and potential
competitors are unable to duplicate
Important Definitions
Risk
An investors uncertainty about the
economic gains or losses that will result
from a particular investment
Average Returns
Returns that are equal to those an investor
expects to earn from other investments with
a similar amount of risk
Strategic Flexibility
A set of capabilities used to respond to
various demands and opportunities
existing in a dynamic and uncertain
competitive environment
It involves coping with uncertainty and the
accompanying risks
Strategic Management Decision Making Process

3
ORGANISATIONAL
ANALYSIS
(STRENGTHS &
WEAKNESSES)
1
DETERMINATION OF
MISSION OR
PURPOSE
2
ENVIRONMENTAL
ASSESSMENT
(THREATS &
OPPORTUNITIES)
REDETERMINE AS
NEEDED
REDEFINE & REVISE

AS NEEDED
4
SPECIFICATION OF
OBJECTIVES
REFORMULATE AS
NEEDED
5
FORMULATION OF STRATEGY OR
STRATEGIC PLAN (TO ACHIEVE OBJECTIVES
AND GOALS)
REWORK AS
NEEDED
6
IMPLEMENTATION OR EXECUTION OF
STRATEGIC PLAN
RECYCLE TO PHASES
1,4,5 & 6 AS
NEEDED
7
MONITORING, REVIEWING &
EVALUATION
FIG.2

Environmental
Analysis
EXTERNAL
Social
Environment
Task
Environment
(Opportunities &
Threats)
Strategy Formulation
Implementation of
Strategy
Evaluation
& Control
Mission
Objectives
Strategies
Policies
INTERNAL
Programs
Structure
Budgets
Culture
Resources
Procedures
(Strengths &
Weaknesses)
Performance
Feedback & Control
LEARNING ORGANISATION
FOUR MAIN ACTIVITIES
Solving Problems Systematically

Experimenting with New Approaches
Learning from their own past experiences and past history
as well as from the experiences of others
Transferring knowledge quickly and efficiently

throughout the Organisation
Mintzberg s Modes of Strategic Decision Making

* Entrepreneurial Mode: by one powerful individual. Focus is on
Opportunities ; problems are secondary; guided by founder s
own vision of direction; exemplified by large, bold decisions.
Ex. AOL (founder STEVE CASE) (though clear growth strategy
is an advantage of the entrepreneurial mode, tendency to mkt
products before being able to support them is certainly
a disadvantage)
* Adaptive Mode: Muddling through ; characterised by reactive
solutions to existing problems - Much bargaining goes on
concerning priorities of objectives - Strategy is fragmented and
is developed to move the company forward incrementally.
Ex. Typical of our Universities, Edn System, Govt agencies
(Encyclopedia Britannica Inc. has moved away from this approach to
Telvn Advtg & Internet mktg from 1996 after acquisition by the dual
career couples)
* Planning Mode: Systematic gathering of appropriate information

for situation analysis, generation of feasible alternative strategies
and rational selection of the most appropriate strategy - includes
proactive search for new opportunities and relative solutions of
existing problems.
Ex. J.C. Penny Co. - after careful study of shopping trends in
1980 s moved out of hardware, appliances, automotive items &
electronics to apparel and home furnishings . Lower personal
incomes in 1990 s led J.C. Penny to emphasise private brands;
could offer high quality of goods at lower prices in dept stores.
* Logical Incrementalization- syntheses of planning, adaptive and to a
lesser extent entrepreneurial mode of decision making. Organisation
learns through an interactive process of probing into the future,
experimenting and learning from a series of incremental commitments
rather than through global formulations of total strategies. Useful
when the environment is changing rapidly and it is important to build
consensus and develop needed resources before committing the
organisation to a specific strategy.
CORP. PLAN-
CHANGES IN THE OVERALL SHAPE OF AN ORGN - TAKES YRS TO

FRUCTIFY i.e. LONG-RANGE
HOWEVER CORP. PLAN & LRP DO NOT MEAN THE SAME.
LRP ASSUMES CURRENT ENVNT TO REMAIN INFUTURE AS WELL - BUILT
FROM LOWER LEVELS IN ORGN. STRATEGY MAKING STARTS AT THE TOP
MGT
- DENOTES PLG. FOR FUTURE OF THE ORGN AS A WHOLE; CONSIDERS
ALL ASPECTS OF ORGN ACTIVITIES
- INTEGRATES STRATEGIC PLG WITH SHORT RANGE OPNL PLANS
CORP PLG & SYSTEMS APPROACH - COMPUTER MODELS CAN BE USED AS AN ADJUNCT OF
SYSTEMS APPROACH; USEFUL FOR LARGE ENTERPRISES
FOR FINL EVALN - HOWEVER, SH. NOT CREATE MGRL PBLMS;
DATA HAS TO BE REGULARLY UPDATED
BENEFITS OF C.P. -
ANTICIPATE TECHGL. CHANGES & ACHIEVE STRATEGIC OBJS & GOALS

RATIONAL RES. ALLOCATION
IMPROVED COORDINATION
EMPHASIS ON MANPOWER DEVPT
NEW PROD. DEVPT & LONG TERM NVESTMENTS
NEW SENSE OF DIRECTION
STUDIES IN US -
38 TO 40% IN SALES
64% IN EPS
56% IN SHARE PRICES WITH C.P.
Figure 3.1A Conceptual Model of Corporate Planning

STRATEGIC PLANNING
INFORMATION
FLOWS
EXPECTATIONS OF MAJOR
OUTSIDE INTERESTS
Society
Community (local)
Stockholders
TECHNICAL
PLANNING
Customers
Suppliers
Creditors
EXPECTATIONS OF MAJOR
INSIDE INTERESTS
THE
PLAN
TO
PLAN
Top Managers
MASTER
STRATEGIES
Other Managers
Mission
Workers/Staff
Purposes
Objectives
THE DATA BASE
Policies
Past Performance
PROGRAM
STRATEGIES
Current situation
MEDIUM-RANGE
PROGRAMMING
& PROGRAMS
SHORTRANGE
PLANNING &
PLANS
IMPLEMENTATION OF
PLANS
REVIEW &
EVALUATION OF
PLANS
Forecasts
EVALUATIONS OF
Environment:
Opportunities
Threats
Company:
Strengths
Weakness
DECISION &
EVALUATION RULES
Source: 1. George A. Steiner, et. Al:, Management Policy and Strategy: Text, Readings and Cases, p.18
2. John D.C. Roach and Michael G. Allen, Strengthening the Strategic Planning Process in The Strategic Management Handbook, Kenneth J. Albert (ed.), pp.7-10
ORGNL CHANGE - COMPLEX RELATIONSHIP BETWEEN STRATEGY, STRUCTURE,

SYSTEMS, STYLE, SKILL, STAFF AND SUPER ORDINATE GOALS
- SHOWN BY McKINSEY 7S FRAMEWORK IN FIG. 3
STRUCTURE
SYSTEMS
STRATEGY
SUPER
ORDINATE
GOALS
FIG. 3
STYLE
SKILLS
STAFF
SUPER ORDINATE GOALS: SET OF VALUES AND ASPIRATIONS THAT GOES BEYOND THE
THE CONVENTIONAL FORMAL STATEMENT OF CORP. OBJECTIVES;
ARE FUNDAMENTAL IDEAS AROUND WHICH A BUSINESS IS
BUILT - ITS MAIN VALUES
E.g.: IBM's MKTG: CUSTOMER SERVICE
GE's: PROGRESS IS OUR MOST IMPORTANT MOTTO
HEWLETT - PACKARD: INNOVATIVE PEOPLE AT ALL
LEVELS IN ORGN
ASCI: WE TRAIN OUR MANAGERS
MAY NOT MEAN MUCH TO OUTSIDERS BUT HAVE TREMENDOUS
SIGNIFICANCE FOR THOSE INSIDE
STRUCTURE:
PRESCRIBES FORMAL RELNSHIPS AMONG VARIOUS POSITIONS

AND ACTIVITIES
- REDUCES EXTERNAL UNCERTAINTY THRO FORECASTING,
RES & PLG IN THE ORGN
- REDUCES INTL UNCERTAINTY ARISING OUT OF VARIABLE,
UNPREDICTABLE, RANDOM HUM. BEHAVR WITHIN THE ORGN.
THRO CONTROL MECHANISM
- UNDERTAKES WIDE VARIETY OF ACTIVITIES THRO DEVICES
SUCH AS DEPARTMENTALISATION, SPECLN, DIVN. OF LABR,
AND DELEGATION OF AUTHORITY
- ENABLES COORDN OF ORGN S ACTIVITIES & TO HAVE FOCUS
ACCING TO McKINSEY (7S FRAMEWORK) - RELNSHIP BETWEEN STRATEGY AND

STRUCTURE RARELY PROVIDES UNIQUE STRUCTURAL SOLNS - EXECUTION PROBLEMS
SYSTEMS-
RULES, REGLNS AND PROCEDURES - FORMAL & INFORMAL THAT

COMPLEMENT THE ORGN STRUCTURE (INFRASTRUCTURE)
STYLE-
LEVER TO BRING ABOUT ORGNL CHANGE - PATTERN OF ACTION

TAKEN BY TOP MGT TEAM OVER A PERIOD OF TIME
STAFFING-
SELECTION, PLACEMENT, TRG & DEVPT OF APPROPRIATELY

QUALIFIED EMPLOYEES
EG: HIND. LEVER
SKILLS-
ONE OF THE MOST CRUCIAL ATTRIBUTES OR CAPABILITIES OF AN

ORGN - DISTINCTIVE COMPETENCE
EG: HIND. LEVER - MKTG SKILLS
TELCO - ENGG. SKILLS
7-S FRAMEWORK-
THE REAL TASK OF IMPLEMENTING STRATEGY IS ONE OF BRINGING

ALL 7-Ss INTO HARMONY - HELPS BY PROVIDING A CHECKLIST FOR
JUDGING WHETHER ORGN IS RIPE FOR IMPLEMENTING STRATEGY POWERFUL EXPOSITORY TOOL
*
*
Global Issues for the 21st Century

Nations are forming Trading Associations - makes trading within
regions easy but between regions difficult Ex. EU, NAFTA,
Mercosur (Argentina, Brazil, Paraguay, Uruguay), ASEAN. Firms
have to decide if they will do better as a regional or a global
competitor.
World: 3 dominant trading blocks : Europe, Asia, Americas - firms
will need to have meaningful manufacturing and trading activities
in every trading block.
Globalisaton: Creates opportunities but also threats to Cos. not able
to adapt quickly
More people at all levels in an organisation are involved in
Strategic Decision making - greater need for more access to info,
but greater difficulty in dealing with it
Increasing pressure on organisations for quick response to
changing conditions may make it difficult to engage in planning
mode; even with its faults, may have to go in for entrepreneurial
mode.
BOD
- Oversees the running of the enterprise by C.E.
DIRECTORS
- Individually have no power; collective body of directors has superior total

power over C.E.
BODs
- Make calls on shareholders in respect of money unpaid on their shares
(powers-Sec.292)
- Issue debentures
- Borrow money otherwise than Thro debentures
- Invest funds of the Co.
- To make loans
BODs
- Expected to meet once in a quarter;

(Quorum 1/3 of total strength or 2 directors whichever is higher)
BODs
- Marginally derived expectations

- To remain effective on technology
- Market growth
- Divestment and diversification on sound lines
- Long-term productivity & quality not sacrificed for short-term profitability
- Judicious earnings retention policy
- Sound human values and exalted corporate culture
Strategic Management
- Role of BODs
- To initiate and determine
- To evaluate and influence
- To Monitor
BODs
- 2 or 3 in small private companies to 20 in large public companies

- Structure
: Ratio of WTDs to TDs is high in multinational companies like

Hindusthan Lever, ITC, IEL
: When PTDs Proportion of WTDs to TDs; in case of L&T & TISCO ratio is 1:1
: One MD, few WTDs, besides PTDs MD managed company
: WTDs & PTDs have complementary roles to play
- Two tier BDs (Policy BD and Executive BD) not favoured by Sachar Committee (1978)
- Japanese Cos: Most directors are whole time employees

- Part-time outside Chairman Plus WT MD; whole time-inside Chairman, plus whole
time inside MD; WT inside C-cum-MD
Remuneration:
<=5% of net profits if onlyh on WTD

10% ofnet profits for all (more than 1)
Top Management
- CEO (Responsible to BOD for overall management of organisation)
CEO
- Strategist, organisation builder & leader Flag Flying & Transmitting to and
receives signals from external environment
Top Management
- Providing direction
Setting vision
Setting standards
Behavioural Roles
- Interpersonal
: Figurehead (for ceremonial duties)

Leader (to provide direction)
Liaison agent (for outside contracts)
- Informational
: Monitor (of information)

Disseminator (within the organisation)
Spokesman (to external organisation)
- Decisional
: Entrepreneur
Disturbance handler
Resource allocator
Negotiator
Planning for succession encouraging creative thinking

Skills required
- Dynamism
Decisiveness
Humane approach
Conscientiousness
Ability to understand worker s needs
Appealing personality
Objectivity
Communication ability
Corporate Values- Reflect values of managers, especially at the top

Strategic management styles
Degree of
involvement
by top
management
High
Entrepreneurship
management
Partnership
management
Low
Chaos management
Stipendiary
management
Low
High
Degree of involvement by BODs
Enhancing BODs effectiveness:

- Corporate shareholding should be dispersed
- Part-time non-exec. Chairman should not be ornamental
- Role of Director should be internalised different from heading profit centre
- BODs should be for two days
- Outside director fees should be not less than Rs.2500- No. of directorships by a person should be not too many
- should refrain from actual operations and policy implementation
Beer s 5 step system model for organisation s viability
System 1
: Various operational units or division of firm
System 2
: Various common service departments to co-ordinate and create orderliness in operational units
functioning accounting, purchase,
System 3
: Various specialist directors for synergy of operational units marketing, production, finance,
cutting across operational divisions (inside & now of firm s operations)
System 4
: Outside & then for the firm corporate, planning, R&D, management development
(development directorate)
System 5
: Monitor integrate System 3 and System 4
FOUR RESPONSIBILITIES OF BUSINESS

!Economic
- Must do
!Legal
- Have to do
!Ethical
- Should do
!Discretionary - Might do
Social Responsibility includes Ethical & Discretionary
Ethical Responsibility:
!Utility: does it optimise the satisfaction of the stake holders? (Should behave in such a
a way that it produces the greatest benefit to the society and least harm the lowest cost)
!Rights: does it respect the rights of the individuals involved?
!Justice: is it consistent with the cannons of justice (decision makers should be
equitable, fair and impartial in the distribution of costs and benefits to individuals and
society
Social Audit
IPCL Dec 1987
Focus Groups for Social Audit

(Weightage of 25 for each group)
(weightage measured in percentage)
Employees
Customers
Government
Society
Employees factors and sub factors

Hygiene,
50
Hygiene
Satisfaction
Satisfact
ion, 50
60
Salary and
other benefits
50
organisational
policies
40
working
conditions
30
growth
20
job satisfaction
10
0
Hygiene
Satisfaction
employeeemployer
relationship
Customers
Promotion, 20
Product
Development, 30
Product
Development
Product attributes
Service Attributes
Service
Attributes, 20
Promotion
Product
attributes, 30
Government
Tax Payments
and Dividends,
30
Tax Payments
and Dividends
Adherence to
rules and
regulation
Other
conditions to
economy, 50
Other conditions
to economy
Adherence to
rules and
regulation, 20
Society
1st Qtr, 40
Charities and relief

measures, 20
Rural
development, 20
Community
welfare, 20
1st Qtr
Community
welfare
Rural
development
Charities and
relief measures
Overall Corporate responsibility of IPCL

Group
Weight
Score
Product
Employees
.25
5.1
1.275
Customers
.25
5.8
1.45
Govt
.25
7.0
1.750
Society
.25
6.6
1.650
1.00
6.125
ETHICS AND CORPORATE

GOVERNANCE
Business Ethics is primarily concerned with the
Relationship of Business Goals and Techniques to
specifically Human ends. It studies the impact of
Acts {Decisions} on the good of the Individual,
the Business Community and Society as a whole.
Corporate Governance relates to the set of
Incentives, Safeguards and Dispute Resolution
process that is used to control and coordinate the
actions of the agents on behalf of Shareholders by
Board of Directors
Reports on Corporate Governance
Cadbury Committee Report

CII Committee Report
Kumara Mangalam Birla Report
Narayana Murthy Committee Report
Cadbury Committee Report

The Committee was set up in 1991 by the
Financial Reporting Council of London Stock
Exchange.
It was set up to address the Financial Aspects of
Corporate Performance
Some of the Major Recommendations are:
" A single Person should not be vested with the decision
making power i.e., the roles of Chairman and Chief
Executive should be separated clearly.
" A majority of Directors should be independent NonExecutive directors, they should act independently and
should not have any Financial Interests in the company.
CII Committee Report

The Confederation of Indian Industry (CII) drafted some
codes of Corporate Governance in 1996.
Growing International Competition, Growth in the Economy
as well as Scams and Frauds brought forth the Importance
Of Corporate Governance and the CII Report.
" Listed Companies with a turnover of at least 100 Crores and a
paid up capital of at least Rs 20 Crores must appoint Audit
Committees of the board within 2 years.
" Non-Executive Directors should actively participate in Board
Affairs and they should be adequately compensated through
Commissions and Stock options
" No person should hold Directorships in more than 10 Companies
Kumara Mangalam Birla Report

The Committee on Corporate Governance was set up in 1999,
by the Securities and Exchange Board of India (SEBI).
It was set up to address the Safeguards which are to be
instituted within the Company to deal with Insider
Information and Insider Trading.
" The Board should have an optimum combination of Executive and
Non-Executive Directors and at least 50% should be NonExecutive Directors.
" Board should set up a Remuneration Committee to determine the
Remuneration Packages for the Executives.
" Management should assist the Board in its decision-making
process in respect of Company s Strategy, Policy, Code of
Conduct and Performance Targets.
Narayana Murthy Committee Report

SEBI instituted a Committee under Mr. Narayana Murthy
which submitted its final report in the year 2003.
It was established to raise the Ethical Standards for Good
Corporate Governance.
" Board Members should be informed about Risk Assessment and
Minimization Procedures.
" All Audit Committee should be Financially Literate and at least
one Member should have Accounting or related Financial
Management Expertise.
" Mere Explanation as to why a Company has followed a different
Accounting Standards from the Prescribed standards will not be
sufficient.

As firms become increasingly global
BoD s may need to become more international

BoD s may have to consider the interests of all key stake holders and not just
who own stock while taking strategic decisions
Ability to articulate a strategic vision and motivate people to achieve it may
become the most important characteristics required of a CEO
Environmental analysis
Environmental Threat: Challenge by unfavorable

trend
Environmental opportunity
Attractive arena for Company s action where it would

enjoy a competitive advantage
Environment: Taxonomy
- Mega environment
- Micro environment
- Relevant environment
Mega environment:
Technological advances
- Transportation Capability
- Mastery over energy
- Ability to extend and control life and serviceability
- Ability to alter characteristic of materials
- Extension of Man s sensory capabilities
- Growing mechanisation of physical activities
- Growing mechanisation of intellectual processes
Exhibit 6.1: A Taxonomy of the Firm s Environment
Mega Environment
Relevant Environment
Micro Environment
Internal Environment
Exhibit 6.2: Constituents of the Mega Environment
Regulatory
Political
Economic
Technological
Social
The Mega
Environment
Exhibit 6.3: Constituents of the Micro Environment
Suppliers
Marketing Intermediaries
Market Types
Market Demand
Competition
THE MICRO ENVIRONMENT
Financial Institutions
Regulatory
Provisions
Industrial
Relations Climate
Availability of
Skilled Manpower
Some Important Variable in Societal Environment

Economic
Technological
Political-Legal
Socio-Cultural
GDP Trends
Total Government spending

for R&D
Antitrust regulations
Lifestyle Change
Interest rates
Total Industry spending for

R&D
Environmental
protection laws
Career Expectations
Money Supply
Focus of technological
efforts
Tax laws
Consumer activism
Inflation rates
Patent protection
Special incentives
Rate of family
formation
Unemployment levels
New Products
Foreign Trade
Regulations
Growth rate of
population
Wage/price controls
New developments in
Attitude towards
technology transfer from lab foreign companies
to marketplace
Age distribution of
population
Devaluation/
Revaluation
Productivity improvementsautomation
Laws on hiring and

promotion
Regional shifts in
population
Stability of
Government
Live expectancies
Energy availability
and cost
Disposable and
discretionary income
Birth rates
Competitive Landscape
Dynamics of strategic
maneuvering among
global and innovative
combatants!
Price-quality
positioning, new knowhow, first mover!
Hypercompetitive
environments!
Fundamental nature of
competition is changing!
Protect or invade
established product or
geographic markets!
Emergence of
global economy!
Goods, services, people,

skills, and ideas move
freely across geographic
borders.!
Spread of economic
innovations around the
world.!
Hypercompetitive
environments!
Political and cultural

adjustments are
required.!
Emergence of
global economy!
Rapid technological
change!
Increasing rate of
technological change and
diffusion!
The information age!
Increasing knowledge
intensity!
Hypercompetitive
environments!
India s Technology Missions
Providing Drinking Water

Promoting Literacy
Stepping up Child Immunisation
Hiking up Production of Oil Seeds
Linking Remote Areas (Rural) with Country s Telecommunication N/W
Industry Response
Entrepreneurial
- Future Form of Product Group
- Future Processing Technology
- Future Form of Raw Materials
- Technological Developments in Related Areas
- Technological Development Stages Invention, Innovation & Diffusion
Seriousness
Assessing Impact of Opportunities

Threat Matrix
High
1
Major Threat
2
Moderate
Low
3
Moderate
4
Minor
High
Low
Probability of Occurrences
Attractiveness
Opportunity Matrix
High
Very Attractive
Moderately Attractive
Low
Moderately Attractive
Least Attractive
High
Low
External Factor Analysis Summary (EFAS): Maytag as Example

External Factors
Opportunities
Weigh
t
2
Rating
3
Weighted
Scorer
4
0.20
0.10
0.05
0.10
0.10
4
5
1
2
2
0.80
0.50
0.05
0.10
0.20
Acquisition of Hoover
Maytag quality
Low Maytag presence
Will take time
Maytag weak in this channel
0.10
0.10
0.15
0.05
0.10
1.00
4
4
3
1
2
0.40
0.40
0.45
0.05
0.20
3.15
Well positioned
Well positioned
Hoover weak globally
Questionable
Only Asian presence in
Australia
Economic Integration of European Community
Demographics favor quality appliances
Economic development of Asia
Opening of Eastern Europe
Trend to Super Stores

Threats
Increasing government regulations
Strong US competition
Whirlpool and Electrolux strong globally
New product advances
Japanese appliance companies

Total Score
Comments
Notes:
1.
List opportunities and threats (5-10 each) in column 1
2.
Weight each factor from 1.0 (most important) to 0.0 (not important) in column 2 based on that factor s probable
impact on the company s strategic position. The total weights must sum to 1.00
3.
Rate each factor from 5 (outstanding) to 1 (poor) in column 3 based on the company s response to that factor.
4.
Multiply each factor s weight times its rating to obtain each factors weighted score in Column 4.
5.
Use Column 5 (comments) for rationale used for each factor.
6.
Add the weighted scores to obtain the total weighted score for the company in Column 4. this tell how well the
company is responding to the strategic factors in its external environment.
Source: T.L. Wheelen and J.D. Hunger, External Strategic Factors Analysis Summary (EFAS) , Copyright 1991 by
Wheelen and Hunger Associates.

!Increasing environmental uncertainty: environmental scanning
will become important. To remain competitive companies will
have to develop better methods of gathering, evaluating and
disseminating intelligence to those who need it.
!To manage strategically, organisations have to become more
attuned to the many stakeholders who are affected by the
company s actions. Shareholders will form only one part of the
equation
!Distinction between developed and developing nations will begin
to fade as the developing nations take on a greater proportion of
the world trade.
!As more industries become hyper competitive, strategy will
become increasingly short term in orientation, thus creating a
paradox. Can Strategic Management exist with only a short time
horizon?
Internal Corporate Analysis
(Organisational Audit)
Corporate Strength
Competitive & other distinct competencies in market place
Corporate Weakness
Constraints or obstacles which check movement in desired

direction and may also inhibit organisation in gaining a
distinctive competitive advantage
Criteria for Determination

Historic
Past performance Sales, Prof after Tax, Cap.

Utilization, Before coming to conclusions should check
replicability of PAST in future
Normative
Judgement (What ought to be on level of

performance (Expert opinion)
Competitive parity
Firm must at min. meet the actions of competitors should

Identify dimensions of uniqueness
Critical factor for success
KFS; EG: TV Manufacturer: advertising is a

must can t afford- may be considered as a weakness
One criterion seldom sufficient to evaluate a firm

Measurement:
Attribute Measures
Effectiveness Measures
Efficiency Measures
Impact Matrix
Trends
Probability of
Occurrences
Impact on Strategies
S1
S2
S3
S4
T1
T2
T3
T4
Impact Scale
+2
+1
-1
-2
Extremely
Favorable
Moderately
favorable
No impact
Moderately
unfavorable
Extremely
unfavorable
Competitive Analysis
Need to study competition
- What is driving competition in specific industry?
- What actions competitors are likely to take in the wake of increased competition?
Types of Industry Structures
Factor
Perf. Competition
Monopolistic Competition
Oligopoly
Monopoly
No. of Factors
Many
Many
Few
One
Prod Diffn
No
Yes
Yes
Unknown
Entry or Exit
Open
Open
Restricted
Blocked
Competitor Analysis
- Current Strategy
- Current Performance
- S&W
- Actions (Expected) in the near Future
Routes to Competitive Advantage

- Intensify function diffn. (key factors of success)
- Exploit competitor s weakness (relative superiority)
- Ask Why\Whys (aggressive initiatives)
- Maximize user benefit (strategic degree of freedom)
Three Generic Strategies
(Accelerating to Porter)
Strategic Advantage
Industry Wide
Differentiation
Strategic Target
Overall cost Leadership

Focus
Particular Segment Only

Uniqueness Perceived
Low cost Position
by Customer
Competition
Marketing warfare viewpoint

- Defensive warfare for Market leaders
- Offensive warfare for No. 2s-attack Leader s weak point
- Flanking warfare for firms with limited resources eg., Promise
- Guerilla warfare for smaller Companies eg., Deccan Herald
FIRM S VALUE CHAIN

Firm Infrastructure
(general management, accounting, finance, planning)
Support
Activities
Human Resource Management

(recruitment, training, development)
Profit
Margin
Technology Development
(R&D, process & product development)
Procurement
(purchasing of raw materials, machines, supplies)
Inbound
Logistics
(raw
materials)
Operations
(machining,
assembly,
testing)
Out bound
Logistics
(distribution)
Marketing
Services
& Sales
(Installation,
(advertisement, repair)
promo)
Primary Activities
Source:Michael E Porter: Competitive Advantage: Creating and Sustaining Superior Performance, Freeman Press, 1985, p. 37
Risks of Generic Competitive Strategies

Risks of Cost Leadership
Risks of Differentiation
Risks of Focus
Cost Leadership is not sustained:
Differentiation is not sustained:
Competitors imitate
Technology changes
Other bases for the cost leadership
erode
Competitors imitate
Bases for differentiation become less
important to buyers
The focus strategy is imitated:

The largest segment becomes
structurally unattractive:
Structure erodes
Demand disappears
Proximity in differentiation is lost
Cost proximity is lost
Broadly targeted competitors

overwhelm the segment:
The segment s differences from other
segments narrow
The advantages of a broad line increase
Cost focusers achieve even lower cost in

segments
Differentiation focusers achieve even

greater differentiation in segments
New focusers sub-segment the industry
Source: Michael E. Porter, Competitive Advantage: Creating and Sustaining Superior Performance, The Free Press, p.21.
The Eight Dimensions of Quality

1
Performance
Primary operating characteristics, such as a washing machine s cleaning ability
Features
Reliability
Conformance
Durability
Serviceability
Number of years of service a consumer can expect from a product before it significantly
deteriorates. Differs from reliability in that a product can be durable, but still need a lot
of maintenance
Product s ease of repair
Aesthetics
How a product looks, feels, sounds, tastes, or smells
Perceived Quality
Product s overall reputation. Especially important if there are no objective, easily used
measures of quality
Bells and whistles , like cruise control in a car, that supplement the basic functions
Probability that the product will continue functioning without any significant
maintenance
Degree to which a product meets standards. When a customer buys a product out of the
warehouse, it will perform identically to that viewed on the showroom floor
Source: D.A.
Garvin,
Managing
Quality: The
Strategic and
Competitive
Edge, Free
Press, New
York, 1988.
Key Factors for Success

A key Success Factor is a competitive skill or asset that is particularly relevant to the
industry. To PLAY IN THE GAME a competitor will usually need to have some minimum
level of skill or asset with respect to each of the industry s Key Success Factors. If a firm has
strategic weakness in a Key Success Factor and it is not neutralized by a well conceived
strategy, the firm s ability to compete will be weak. Conversely sustainable competitive
advantages usually will be based on Key Success Factors. In general the successful firm will
have strengths in the Key Success Areas and unsuccessful competitor will lack one or more
of them
Key Success Factors
To Increase Profits
To Gain Market Share
Raw-Material Procurement
Gold-mining, Wine-making
Sugar-industry, Petroleum
industry
Raw-material Processing
Steel & Paper Industry
Steel & Paper Industry
Production Fabrication
Integrated Circuits, Tire Industry
Integrated Circuits, Tire Industry
Assembly
Apparel Industry, Instrumentation
Instrumentation
Design
Heavy Engineering Industry
Heavy Engineering Industry
Distribution
Bottled water, Metal cans
Home Appliances, Cement

Industry
Marketing
Branded Cosmetics, Liquor
Branded Cosmetics, Liquor
Service
Automobiles
Hotel Industry
Alternative Formats for Analysis
Check Lists (Ref: X8)

Conceptual Approach By Bates & Eldredge
- Management, Operations & Finance
Strengths & Weakness profile
Dimension.
Basis of Comparison
Ranking
7S
Grid Approach (by Ansoff):

F/W
Ref: x9
FNS
Dimension
Marketing
Finance
Existing
S or W
Human Resource
Production
Management
Financial
Operations
1.
2.
3.
Strategy
Structure
Systems
4.
Shared
Values
Skills
Style
Staff
5.
6.
7.
Corp Audit
1) Ask questions within & outside

2) Observation
3) Examine Records
Match S&W for competitive advantage; concept of synergy could be helpful
Exhibit 7.3: Porter s Model of Industry Competition

Potential Entrants (2)
Economies of Scale
Absolute Cost Advantage
Brand Identity
Access to Distribution
Switching Costs
Government Policy
Threat of
Suppliers (4)
Supplier Concentration
Number of Buyers
Switching Costs
Substitute Raw Materials
Threat of Forward
Integration
Bargaining
Power of
Suppliers
New Entrants
The Industry Competitors (1)

Degree of Rivalry
Number of Competitors
Industry Growth
Asset Intensity
Product Differentiation
Exit Barrier
Threat of Substitute
Bargaining
Power of
Customers
Buyers (5)
Buyer Concentration
Number of Suppliers
Switching Costs
Substitute Products
Threat of Backward
Integration
Products or Services
Substitutes (3)
Functional Similarity
Price/Performance Trend
Product Identity
Source: The Free Press, A Division of Macmillan, Inc. from Competitive Strategy by Michael E. Porter, p.4
Exhibit 7.4: Areas of Strength and Weakness

Functions
Facilities &
Equipment
Personnel Skills
Organisational
Capabilities
Management
Capabilities
Warehousing
Retail Outlets
Sales Offices
Training Facilities
for Sales Staff
Door to Door
Selling
Retail Selling
Advertising
After Sales Service
Direct Sales
After Sales
Service Network
Customer Loyalty
Industrial Marketing
Household Marketing
Large Customer Base
1. General
Management
2. Finance
3. R&D
4. Operations
5. Marketing
(examples)
ORGANISATIONAL ANALYSIS - VRIO FRAMEWORK

1. Value: Does It provide Competitive Advantage?
2. Rarity: Do other competitors possess it?
3. Imitability: Is it costly for others to imitate?
4. Organisation: Is the firm organised to exploit the resource?
Using resources to gain Competitive Advantage

Identify and classify the firm s resources in terms of
strengths and weaknesses
Combine the firm s strengths to specific capabilities: Corporate
capabilities (often called core competencies)
should move to
distinctive competencies
Profit potential & capabilities : for sustainable Competitive
Advantage
Select the best Strategy.
Identify resource gaps and invest in upgrading weaknesses
Determining The Sustainability of an Advantage

Durability: Rate at which a firm s resources and capabilities
become obsolete
Imitability: Rate at which a firm s resources and capabilities
can be duplicated by others. A core competency can be imitated
to the extent it is transparent, transferable & replicable.
* Transparency - Speed with which other firms can understand the
relationship of resources and capabilities
supporting a successful firm s strategy
e.g.. Gillette, Sensor, Mach 3.
* Transferability - ability of competitor to gather resources
and capabilities to support a competitive
challenge
* Replicability - ability of a competitor to use duplicated resources
and capabilities to imitate the firm s success
Internal Factor Analysis Summary

Internal Strategic Factors
Weight
Rating
Weighted
Score
Comments
Strengths
S1 Quality Maytag Culture
S2 Experienced top Management
S3 Vertical Integration
S4 Employee relations
S5 Hoover s International Orientation
0.15
0.05
0.10
0.05
0.15
5
4
4
3
3
0.75
0.20
0.40
0.15
0.45
Quality key to success

Know appliances
Dedicated Factories
Good but deteriorating
Hoover s name in cleaners
Weaknesses
W1 Process-oriented R&D
W2 Distribution Channels
W3 Financial Position
W4 Global position
W5 Manufacturing facilities
0.05
0.05
0.15
0.20
0.05
2
2
2
2
4
0.10
0.10
0.30
0.40
0.20
Slow on new products

Superstores replacing small dealers
High debt load
Hover weak outside UK & Australia
Investing now
Total
1.00
3.05
Global Issues for the 21 Century

*As more & more Cos become hyper-competitive, it will become
harder to maintain competitive advantage, unless a Co. has a
distinctive competency which is not only hard to imitate but
also durable. Durability has however little value during technical
discontinuity.
* Subcontracting by firms to reduce costs and become globally
competitive
* Primary activities to increase in importance in hyper-competitive
global industries.
* Autonomous work-teams may lead to greater efficiency and
reduction in supervision. Work-teams should have better training
to handle conflict management.
Strategic Factor Analysis Summary (SFAS) Matrix

1
Key Strategic Factors

(Select the most important opportunities/threats from
EFAS,
Table 3.4 and the most important strengths and
weakness from IFAS,
Table 4.2)
S1
S3
W3
W4
O1
O2
O5
T3
T5
Quality Maytag culture (S)

Hoover s international orientation (S)
Financial Position (W)
Global Positioning (W)
Economic integration of
European Community (O)
Demographics favor quality (O)
Trend to super stores (O+T)
Whirlpool and Electrolux (T)
Japanese appliance companies (T)
Total Score
Weight
Rating
Weighted
Score
0.10
0.10
0.10
0.15
5
3
2
2
0.50
0.30
0.20
0.30
0.10
0.10
0.10
0.15
0.10
1.00
4
5
2
3
2
0.40
0.50
0.20
0.45
0.20
Duration 5
S
h
or
t
In
t
e
r
m
e
d
I
a
t
e
Lo
n
g
X
X
X
X
X
X
X
X
X
Comments
Quality key to success
Name recognition
High debt
Only in NA, UK, and Australia
Acquisition of Hoover
Maytag quality
Weak in this channel
Dominate industry
Asian presence
3.05
Notes:
1.
List each of your key strategic features developed in your IFAS and EFAS tables in Column 1
2.
Weight each factor from 1.0 (most important) to 0.0 (not important) in column 2 based on that factor s probable impact on the company s
strategic position. The total weights must sum to 1.00
3.
Rate each factor from 5 (outstanding) to 1 (poor) in column 3 based on the company s response to that factor.
4.
Multiply each factor s weight times its rating to obtain each factors weighted score in Column 4.
5.
For duration of Column 5, check appropriate column (short term less than 1 year; intermediate 1-3 years; long term-over3 years).
6.
Use Column 6 (comments) for rationale used for each factor.
Source: T.L. Wheelen and J.D. Hunger, External Strategic Factors Analysis Summary (EFAS) , Copyright 1991 by Wheelen and Hunger Associates.
Introduction to
Case Analysis
Prof R Srinivasan, IISc
Case Analysis
!
Performance of an organization over a period of

time.
Information on organizations history and operations
environment.
Contains data related to functional areas like
Marketing, Finance, Operation and Human
Resources.
Presents to students a realistic situation by which
they are exposed to decision making practices
Objectives of the Case Method

To acquire skills to apply theoretical
knowledge to practice.
! To get into the habit of diagnosing the
problem, analysis and evaluation of
alternatives and formulation of an action plan.
! To learn to independently find the answers to
practical problems
! T o g a i n e x p o s u r e t o a v a r i e t y o f
organizational and managerial situations.
!
Benefits of the case method

Clear thinking in complex situations
! Devising consistent, rational and creative
action plans
! Application of quantitative knowledge
! Recognizing the value of information
! Group communication
! Better written communication
! Applying personal values to the decision
making process
!
Developing a case study

Should have the following aspects
!
!
!
!
!
!
!
!
Origin/History and growth of company over time

Organizational analysis
Nature of external environment
Strength Weakness Opportunities Threats (SWOT)
Analysis
Present corporate strategy
Present business strategy
Organizational structure and control systems
Recommendations
Key Financial Ratios

Profitability ratios
1.
2.
3.
4.
5.
6.
7.
Leverage Ratios
Gross profit margin

Operating profit margin
Net profit margin
Return on total assets
Return on stock
holders equity
Return on common
equity
Earnings per share
1.
2.
3.
4.
5.
Debts to assets
Debt to equity
Long-term debt to
equity ratio
Times interest earned
Fixed charge coverage
Key Financial Ratios (cont d)

Activity Ratios
1.
2.
3.
4.
5.
Liquidity ratios
Inventory turnover
Fixed assets turnover
Total assets turnover
Accounts receivable
turnover
Average collection period
1.
2.
3.
Current ratio
Quick ratio
Inventory to net working
capital
Other Ratios
1.
2.
3.
4.
Dividend yield on common

stock
Price earnings ratio
Dividend payout ratio
Cash flow per share
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Infosys
TCS
Wipro
Detailed Risk management Reporting
YES
NO
NO
Corporate Governance Report
YES
YES
YES
Detailed Subsidiary information
YES
NO
NO
Value Reporting
YES
NO
NO
Intangible Asset Scoresheet
YES
NO
NO
Human resource Valuation
YES
NO
NO
EVA information
YES
NO
NO
Brand Valuation
YES
NO
NO
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Quality
People
Predictability
Transparency
Sustainability
Maintenance
Translating clients to partners

Long-term relationship
Offshore Software
Development Centers
Growth
Higher value services
Increase revenue productivity
Offshore model - Global Delivery
Exposure limits for client concentration

Exposure limit for dotcom businesses
Upsell to existing customers
Exposure limit for opportunity

businesses (like Y2K)
Iterative Model of Development
Geographical diversification
Profitability
De-risking
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Business Strategy
A company can make use of its business strategy to improve the
competitive position of its business units and products/services
within the specific market segment or industry
The generic strategies suggested by Porter i.e., cost leadership,
differentiation and focus, could help the company in drawing up
the business strategy
Whereas the corporate strategy asks what industry/industries,
should the company be in, the business strategy asks how the
company should compete or co-operate in each industry
Cost Dynamics
Cost Levels in India:
Textiles
For comparable pre-tax RET. On invest, a typical Indian Plant with

cap of 6,000 tons/yr polyester production has 84% higher selling price
than a typical polyester plant with 30,000 tons/yr cap in USA. Even with
same cap, India: 24% higher selling prices
Similar trends are obtained in tyre and tube, Al, Steel

Causes
Excise, Customs, Sales Tax Levies, Etc, Uneco, Production levels,

Obsolete technology, high B/E points, excess dependence on
import of semi=finished goods
High costs narrowed Dom. Cons. Markets & competition in International markets
Larger size plants not only save on initial invest. Cost but also on operational costs (cost v/s size
of production)
Cost v/s Market
Sellers Market
Product s Price
= Intl. Cost + desired profit margin
Profit Margin
Buyers market
= Permissible price intl. Cost
Tolerable Cost
= Permissible price acceptable profit
OR
Experience Curve:
Unit Manufacturing Cost
When Production Quantity
When Production Quantity
of time of Dir. Lab components for each item
80%
Experience
Accumulated Production
2
4 (100*0.80)
=
8 (80*0.80)
=
16(64*0.80)
=
Curve
Cost/Unit (RS)
100
80
64
51
Plot give 80% Exp. Curve Hyperbola

Causes: Improved Lab. Productivity
Incre4ased specialisation
Innovation in production methods
Value engineering & fine tuning
Line balancing
Rationalisation of methods & systems
Exp. Curves
- Simple approximations of extremely complex real-time relationships;

extreme care is to be exercised to get rreliable results distinguish time
from exp; unit exp; consider influence of time
Sensitivity Analysis:
Can be w.r.t., FC, VC, and/or price

decrease in FC results in decrease in B-E-P. Profitability
at a particular volume of production improves with lower FC
in VC has marked effect on B-E-P & eats up profits
in VC improves profitability
in permissible price, B-E-P and vice-versa. At a particular
volume of production profitability improves. Price-most
sensitive instrument followed by VC & FC
Non-Linear B/E Analysis
When prices may be consciously reduced to gain additional

sales vol. & market share or in response to computer s action
Assumptions
FC Fixed for all production volumes
(often unrealistic)
VC do not fall with increasing level of production

TC && TR vary in linear relationship with output
Maximise profit BEF int. & tax is the desirable BUS. objective
Experience curve relationship
- Good framework for marginal considerations for

predicting industrial scenario w.r.t., future costs,
profit margins and corresponding cash flows for
own & competitor s opns
- Has done very well in segments such as PC mkt;
implications a few large plants with standardised
productions would be able to supply global market
marketing efforts SH. Be fully coordinated with
manufacturing plans; lowering prices SH. Not be
inferior quality; more applicable when dem is elastic
- Limitations: detn. of cost; data reg. competitors;
a late market entrants has to operate at lower initial
prices to survive
B/E Analysis
TC = FC + VC * Q
(VC-Unit Var. Cost-R/M, electricity, fuel, packing etc)
TR = P * Q
At B/E point TR = TC
p * QB = FC + VC * QB
[P VC = Unit Contribution]
QB = FC/(P-VC)
Doom Loops
!Self reinforcing processes.
!Drive an organization into cyclical situations from
which an organization finds it difficult to extract itself.
!To avoid getting into a doom loop, it is required to
constantly upgrade the products, services and
efficiency of distribution channels.
!To get out of a doom loop refocus on the small
business units and a change has to be brought about in
the firm s culture.
Doom loop - Example

Competitors innovate
& develop better Pdt.
at lower cost.
Competitor matches
price & yet is profitable.
Competitor gains mkt.

Share at firms expense.
Firm cuts price to hold

onto the market share.
Employees become
demoralized.
Firm has inadequate

margins to reinvest.
Quality of Pdt. &

services becomes poor.
Corporate Strategy
The important issues involved in Corporate Strategy are:
! The company s orientation towards growth, stability or
retrenchment. This is referred to as directional strategy.
! The markets in which the company competes through its
products or business units. This is referred to as Portfolio strategy.
!Activity co-ordination and transfer of resources for achieving
capabilities among product lines and business units. This is referred
to As parenting strategy.
Relative Cost advantage & Competitive Strategy

Examples
Modi Tyres
- Initially entered largest product

segment i.e., truck with latest
technology & lower prices (good
value for money). Subsequently
matched market leader s price
and displaced him by capturing
higher market share
Hero Cycles
- Dropped irrelevant product

attributes; subcontracted
production of parts
Portfolio Analysis and Display Matrices

Portfolio Analysis
Balancing
- Corp. investments in different products or industries (SBUs)

- w.r.t. net cash flow
Stake of development
Risk
Display Matrices:
BCG Matrix
McKinsey Matrix
Strategic Planning Institute s Matrix (Profit impact of Market Strategy PIMs)
Arthur D.Little Co s Matrix
Hofer s Product/Market evaluations Matrix
The Boston Consulting Group s

Growth-Share Matrix
SBU Objectives:
Stars
22%
Hold (for strong Cash Cows)
20%
Market Growth Rate
Build (For Question Marks)
Question Marks
4
18%
14%
Divest (for Question Marks and Dogs which are

a drag on company profits)
12%
10%
Cash Cow
8%
Dogs
Strategic Planning
6%
Planning: Viable fit between

organization s objectives and its
changing market opportunities
4%
2%
0
Harvest (for weak Cash Cows; can also be used

with Question Marks and Dogs)
10x
4x
2x
1.5x 1x 0.5x 0.4x 0.3x 0.2x 0.1x
Relative Market Share
Key: investment portfolio, future

profit potential, strategy
Source: B. Heldey, Strategy and the Business Portfolio , Long Range Planning, February 1977, p.12
Reprinted with permission from Long Range Planning, 1977, Pergamon Press Ltd.
BCG Matrix (New)

!2*2 Matrix
! Size of competitive advantage Vs. No. of approaches to
competitive advantage.
Size of the comp. Adv.
Fragmented
Specialization
Many
No. of
approaches
to achieve
comp. Adv.
Stalemate
Volume
Few
BCG Matrix (Contd.)

Fragmented
Specialization
!Small and Regionalized.
!Focused segments.
!Profitability not related to size.
!Steep learning curves.
!Advantage gained by focus.
!Ex. Cray research in field of

Super computers.
!No premium on growth.

!Ex. Specialty restaurants or
designer labels.
Stalemate
Volume
!Where it is difficult to gain

advantage.
!Where there are economies of scale

and IRS operates.
!CA often is the sheer sustaining

power.
!Constrained by market
segmentation and differentiation.
!Ex. Kellogg's in India.
!Ex. The car industry.
GE Matrix
Protect Position
Invest to grow at maximum
digestible rate
Concentrate effort on
maintaining strength
Invest to build
Challenge for leadership
Build selectively on strengths
Reinforce vulnerable areas
Build selectively
Specialize around limited
strengths
Seek ways to overcome
weaknesses
Withdraw if indications of
sustainable growth are
lacking
Medium
Build Selectively
Invest heavily in most attractive
segments
Build up ability to counter
competition
Emphasize profitability by
raising productivity
Selectivity/ manage for

earnings
Protect existing program
Concentrate investments in
segments where profitability is
good And risk is relatively low
Limited expansion or
harvest
Look for ways to expand
without high risk;
otherwise, minimize
investment and rationalize
operations
Low
Protect and refocus

Manage for current earnings
Concentrate on attractive
segments
Defend strengths
Manage for earnings

Protect position in most
profitable segments
Upgrade product line
Minimize investment
Divest
Sell at time that will
maximize cash value
Cut fixed costs and avoid
investment meanwhile
High
MARKET ATTRACTIVENESS
Strong
Medium
BUSINESS STRENGTH
(b) Strategies
Weak
Table 2-2
Factors underlying market attractiveness and competitive position in GE Multifactor
Portfolio Model: Hydraulic Pumps Market
Weight
Market Attractiveness
Overall market size

Annual market growth rate
Historical profit margin
Competitive intensity
Technological requirements
Inflationary vulnerability
Energy requirements
Environmental impact
Social/political/legal
Competitive Position
Market share
Share growth
Product quality
Brand reputation
Distribution network
Promotional effectiveness
Productive effectiveness
Productive efficiency
Unit costs
Material supplies
R&D performance
Managerial personnel
Rating (1-5)
Value
0.20
0.20
0.15
0.15
0.15
0.05
0.05
4.00
5.00
4.00
2.00
4.00
3.00
2.00
0.80
1.00
0.60
0.30
0.60
0.15
0.10
0.05
Must be acceptable
1.00
3.00
0.15
.
3.70
0.10
0.15
0.10
0.10
0.05
0.05
0.05
0.05
0.15
0.05
0.10
0.05
1.00
4.00
2.00
4.00
5.00
4.00
3.00
3.00
2.00
3.00
5.00
3.00
4.00
0.40
0.30
0.40
0.50
0.20
0.15
0.15
0.10
0.45
0.25
0.30
0.20
3.40
Source: La Rue T. Hormer, Strategic Management, Englewood Cliffs, N.J.: Prentice Hall, 1982, p.310
McKinsey Matrix
Used for GE: Factors determining industry (Market) attractiveness
1.
2.
3.
4.
5.
6.
Weightage (typical)
Size of the market
10%
Growth rate (sales)
15%
Nature of Competition
15%
Technology Requirements
10%
Entry conditions & Social factors
10%
Profitability
40%
SBUs rated on a scale of 1-10
100%
Factors Determining Competitive Position
1.
2.
3.
4.
5.
6.
7.
Market Share
Growth rate
Location & Distribution
Mgt. Skills
Work force harmony
Technical excellence
Company image
Weightage
20%
10%
10%
15%
20%
20%
5%
100%
Rating (1-10)
7
7
5
6
7
8
8
Score
1.4
0.7
0.5
0.9
1.4
1.6
0.4
6.9
Shall Matrix :
Similar to GE approach identifies different strategies for each grid sector
PIMS Model:
Profit impact of market strategy (PIMS) started at GE used later by strategic

planning institute develops industry CH/C, bus avg. profitability using crosssectional regrn. Of more than 2000 industries
Shell s Directional Policy Matrix
SECTORAL
PROSPECTS
Attractive
Leader
Try Harder
Double or quit
Average
Leader
Growth
Custodial
Phased
withdrawal
Cash
Generation
Phased
Withdrawal
Disinvest
Strong
Average
Weak
Unattractive
UNIT S COMPETITIVE POSITION

Strategy
Business
Prospects
Competitive
Capability
Recommended Strategy
1. Leader
High
Strong
High priority with all necessary resources to hold high market position
2. Try Harder
High
Medium
Allocate more resources to move to leader position
3. Double or
Quit
High
Weak
Pick products likely to be future high flyers for doubling and abandon
others
4. Growth
Average
Avg. strong
May have some strong competition with no one company as leader.

Allocate enough resources to grow with market
5. Custodial
Average
Average
May have many competitors, so maximise cash generation with

minimal new resources
6. Phase
withdrawal
Low
Average
Slowly withdraw to recover most of investment
7. Cash
generation
Low
Strong
Spend little cash for further expansion, and use this as a cash source for
faster growing businesses
8. Disinvest
Low
Weak
Assets should be liquidated as soon as possible and invested elsewhere.
Misfit between Critical Success Factors

and Parenting characteristics
Low
Heartland
Ballast
Edge of
Heartland
Alien
Territory
Value trap
High
Low
High
Fit between Parenting Opportunities and

Parenting characteristics
Arthur D Little Company s Matrix

The Matrix considers the different stages of
the PLC with the business strength.
The businesses are classified according to
business strength as weak, tenable,
favorable, strong or dominant.
The Horizontal axis has the four stages of
the PLC: Embryonic, Growth, Mature and
Decline.
B
U
S
I
N
E
S
S
S
T
R
E
N
G
T
H
Dominant
Harvest
Hold
Strong
Build
Favorable
Tenable
Weak
Unacceptable
The Strategy recommended in the growth and embryonic

stage is to build the business except when the business
strength is weak.
For Businesses in the mature stage, with dominant to
favorable business strength, hold strategy is recommended.
For Businesses with strong and dominant position in the
declining stage, harvest strategy is recommended.
For Businesses which are weak and in the mature/decline
stage, the return-on-investment is unacceptable.
Hofer s Product/Market Evolution

Matrix
It is a 3x5 matrix, where businesses are
plotted in terms of the product/market
evolution and competitive position.
The circles show the relative size of the
industry, and the shaded portion depicts the
market share.
According to the matrix,

Businesses in the Development or the Growth stage have
the Potential to become Stars.
! If the market share is large, additional resources must be invested, to
develop competitive position.
!If the market share is low, a strategy to improve should be developed.
Businesses in Shake out/Maturity stages can be Cash

Cows. These may require some Investments.
Businesses in the Decline stage with a low Market share
are in the category of Dogs and should be considered for
Divestment or Liquidation.
Intenational Portfolio Analysis

Portfolio analysis can be applied to international markets
to help in the international strategic planning.
The matrix makes use of country s attractiveness, which
comprises market size, market growth rate, extent and type
of government regulation, economic and political factors.
It also makes use of the product s competitive strength,
which consists of Market share, product fit, contribution
margin and market support.
Depending on how the product fits in the matrix, funding or
harvesting can be decided upon.
HIGH
H
I
G
H
M
E
D
I
U
M
L
O
W
C
O
U
N
T
R
Y
A
T
T
R
A
C
T
I
V
E
N
E
S
S
MEDIUM
LOW
DOMINANT/DIVEST
JOINT VENTURE
INVEST/GROW
SELECTIVE
STRATEGIES
HARVEST/DIVEST
COMBINE/LICENSE
Functional Strategy
The approach followed by a functional area to
achieve the objectives set by the corporate
and business strategy by maximizing
resource productivity is called
FUNCTIONAL STRATEGY.
It is concerned with the nurturing and
development of distinctive competitiveness.
Orientation of Functional Strategy is
dictated by the Parent s strategy.
Utility of Display Matrices:

Correlate industry growth or profitability with market share
either as direct single variable or as an index based on multiple
variables
Facilitate graphic display of diversity of orgn; help raise critical

questions; not provide precise answer; not applicable where mkt.
share is not critical or capital cannot be easily withdrawn; if value
added is low or cost can be decreased without experience, rapid
technology transfer, seasonal/cyclic business, patent restrictions.
Low economies of scale complicate their outcome
Indian Situation:
- Industrial development much behind Japan or USA
- Huge dom. Potl. Mkt still untapped
- Manager s will & systematic approach with top management
support can help make use of these matrices for developing
competitive strength and corp. growth
A distinctive Competency must meet the following

three tests:
1. Customer Value
2. Competitor Unique
3. Extendability
For a Functional Strategy to be successful, it should
be built on a distinctive competency within a
Functional Area, else should consider
outsourcing.
Outsourcing
Outsourcing refers to purchasing a product
or service which the company was
previously producing.
The key to Outsourcing lies in the
purchasing from outside only those
activities that are not key to company s
distinctive competencies.
Marketing Strategy
Marketing strategy deals with the pricing,
selling and distribution of a product.
Using this strategy, a business unit can
improve its market share for current
products through market saturation and
penetration, or develop new products for
existing markets.
Financial Strategy
Financial strategy examines the financial
implications at corporate and business levels to
identify the best financial course of action.
This can provide competitive advantage through
lower cost of funds and flexibility to raise capital.
This strategy normally helps in maximizing the
financial value.
R&D Strategy
The R&D strategy determines the R&D mix that a
company has to follow.
It determines the mix of basic research, product
development and process R&D.
This strategy also influences the decisions in the
areas of development of new technologies,
acquisition of technology from external sources,
strategic alliances, product/process innovation and
improvement.
Operations Strategy
Operations strategy answers vital questions
of manufacturing, concerning where to
produce, vertical integration, deployment of
resources, relationship with suppliers,
technology to be used and levels of quality
to be acheieved.
Purchasing Strategy
Decisions regarding raw materials, parts and suppliers for
the manufacturing function are influenced by the
purchasing strategy.
The company has the options of single, multiple or parallel
sourcing.
Single sourcing- It helps in reduction of both cost and time
and in controlling quality.
Parallel sourcing- It provides two suppliers for two different
parts, with each of them backing up the other s parts.
Multiple Sourcing-It has an advantage in that it forces
suppliers to compete, leading to reduction in costs and
improvement in quality for the company.
Logistics Strategy
Logistics strategy deals with the flow of the
product into and out of the manufacturing
function.
This requires synergies across business
units and expertise in transportation modes.
Two Important decisions on logistics strategy
! Centralization
!Outsourcing
Human Resource Management

Strategy
This strategy deals with the recruitment of
skilled employees and their training to
participate in self managed work teams.
Information Systems Strategy

Information systems make use of
information technology to provide
companies with competitive advantage
Strategic Choice and Development

of Policies
.Strategic choice represents the evaluation
of alternative strategies and selection of the
best alternative.
Assignment 4
What are the different types of Environments that
a firm faces? For a Firm you are acquainted with,
chart the relevant Environment.
According to Porter s Model, what determines the
Competition Intensity in an Industry? With respect
to a Firm that you know, identify the key Strategic
factors in its External Environment.
For the above Firm, develop the Industry Matrix
and an EFAS.
For the same Firm, compare and contrast different
scenarios by using Trend Extrapolation.
Assignment 5
What are the criteria used to determine the Corporate
Strengths and Weaknesses? Use these criteria for a
company you are familiar with to identify its Strengths and
Weaknesses. Suggest Corrective Actions.
How can Value Chain Analysis be used to Identify
Corporate Strengths and Weaknesses?
How can a Company make use of its Structure and Culture
in Internal Corporate Analysis?
What is VRIO Framework? How can this be used for
gaining Sustainable Competitive Advantage?
List the Strategic Marketing, Financial, R&D, Operational
and HRM issues for a Company you are familiar with.
How has Information Systems affected Strategic Decisionmaking? What are the issues that have surfaced in the light
of rapid changes in Information Technology.
Assignment 6
What is a Propitious niche? Which Industry forces can
make it to disappear?
When the Industry becomes Hypercompetitive, is it
possible to have a sustainable Competitive Advantage?
Give reasons.
Strategic Alliances are temporary. Do you Agree? Justify.
What is Doom Loop? Why do Industries find it difficult to
get out of it?
Discuss how Corporate Parenting is different from
Portfolio Analysis. In what aspects are they similar? How
could this be useful in Global Marketing?
When should a company Outsource a Function or
Activity?
How does Policy relate to Strategy? Explain
Strategy Implementation
Strategy implementation refers to the sum total of
the activities and choices required for execution of a
strategic plan. The implementation process has to
answer these questions:
Who will carry out the strategic plan?
What should be done to align the company s
operations in the new direction?
W hen and how everyone concerned, should
respond?
Factors Differentiating Stage I, II and III Companies

Function
Stage I
Stage II
Stage III
1. Sizing up: Major

problems
Survival and growth

dealing with short-term
operating problems
Growth, rationalization, and

expansion of resources,
p ro v i d i n g f o r a d e q u a t e
attention to product
problems
Trusteeship in management and investment

and control of large, increasing and diversified
resources. Also, important to diagonise and
take action on problems at division level
2. Objectives
Personal and subjective
Profits and meeting

functionally oriented budgets
and performance targets
ROI, profits EPS
3. Strategy
Implicit and personal;

exploration of immediate
opportunities seen by
owner-manager
Functionally oriented moves

to one product scope;
exploitation of one basic
product or service field
G ro w t h a n d p ro d u c t d i v e r s i f i c a t i o n ;
exploitation of general business opportunities
4. Organisation:
Major characteristic
of structure
One unit,
show
One unit functionally

specialized group
Multiunit general staff office and decentralised

operating divisions
5. (a) Measurement
and control
Personal criteria,
relationships with owner,
operating efficiency
ability to solve operating
problems
Functional and internal

criteria such as sales,
performance compared to
budget, size of empire, status
in group, personal
relationships, etc
More interpersonal application of comparisons

such as profits, ROI, P/E ratio, sales, market
share, productivity, product leadership,
personal development, employee attitudes,
public responsibility
6. Reward
punishment system
Informal, personal,
subjective; used to
maintain control and
divide small pool of
resources to provide
personal incentives for
performers
More structured; usually

based to a greater extent on
agreed policies as opposed to
personal opinion and
relationships
Allotment by due process of a wide variety of

different rewards and punishments on a formal
and systematic basis. Companywide policies
usually apply to many different classes of
managers and workers with few major
exceptions for individual cases
one-man
Source: O.H. Thain, Stages of Corporate Development, Business Quarterly, p.37, Winter 1969.
Board of Directors
Chairman &
Managing Directors
R&D
Operating
Companies
(India)
Corporate Staff
Operating
Companies (SAARC
Countries)
Operating
Companies
(Africa)
Operating
Companies
(Europe)
Product
Group
Product
Group
Product
Group
Product
Group
Product
Group
Geographical Area Structure of an MNC
Classification
According to Risk :
Low
Moderate
High
Courses of Action
: Niche
Vertical Integration Backward and Forward
Horizontal expansion
Diversification
According to desired rate of growth: Alternatives are

- Internal Expansion. (adding more capacity)
- Internal Stability (by augmenting resources
- Internal retrenchment or turnaround (eg: Hind.
Photo-Films)
- External Retrenchment or Divestiture (ITDC- decided
to close Hotel Akbar some years ago)
- External expansion through mergers
- Combination of the above strategies
Selection of Strategy
: Based on growth objects, resources, S&W, government

policy & best method to close the gap between projected
performance and desired performance; PL-C of
product/SBU could also be helpful; marginal factors
(attitudes towards risk) also influence selection.
Matrix and Network Structure

Top Management
Manufacturing
Marketing
Finance
Human Resource
Manager:
Project A
Manufacturing
Unit
Marketing
Unit
Finance
Unit
Human Resource
Unit
Manager:
Project B
Manufacturing
Unit
Marketing
Unit
Finance
Unit
Human Resource
Unit
(a) Matrix Structure
Packers
Designers
Suppliers
Corporate
Headquarters
(Broker)
Manufacturers
Distributors
Promotion/
Advertising
Agencies
(b) Network Structure
Diversification
Related: Eg. JK- from textiles to synthetic fibres unrelated
Related: Constrained or Controlled

Linked
- Closely related to main product line
- Weak link
as well as to teach other
- Bus reln.
Eg: Nirlon from nylon filament yarn for
Eg: India
to nylon tyre cord for industrial
Shaving products.
applications to conveyor belts, V-belts,.
all based on industrial grade nylon yarn
(Blades to toiletries and writing products)
Qns. Co. SH. Ask:
Do the common skills & Res. Really exist?
Will the economies/benefits resulting from sharing of skills and res. be substantial?
Will the related diversification improve overall results?
Will the related diversification lead to any difficulties or problems and does the Co. have cap. To
overcome these?
Unrelated diversification
By setting up new projects, Through mergers, take overs

off-running business. Eg: Hyderabad Allwun: Bus body
Building to refrigerators to deep freezeders, water coolers, Acs,
Watches,.
Planned diversification
Options to Management
- Status Quo
- Sail with the wind
- Go on moving in the direction
- Move in new direction in a planned manner
Diversification in an ongoing process

- Define your bus
- SWOT analysis
- GAP Analysis
- Competition & Risk analysis
Corporate diversification in India Now actively pursued due to
- Liberalisation
- Indian Entrepreneur willing to think big and
grow big
- higher risk bearing attitude by financial
institutions
- Middle class confidence in equity market
- shrinking demand for Indian consumables
abroad; so joint ventures in India; NRI
scheme for technology & finance flow
- Massive market expansion (largely middle
class domestic market
Integration
Horizontal Owning (or controlling) a number of similar but

separate activities in the same industry of business
Vertical Backward Diversifying into R/M & other supplies for
the company s products may enable a co. to improve the
quality of final product Eg: Vimal
Forward Div ersification further down the line to final
consumer direct control on distribution and logistic
channel Eg: Nirlon
Diversification & Synergy

Production Synergy: Co. mfg coolers, refrigerator,s ACs, getting into room
heaters, ovens
Marketing Synergy: Cricket balls & bats; tennis balls and rackets
Financial Synergy: Fan manufacturers offering discount in winter
Organisation Synergy: Manufacturing organisation starting consulting services
Diversification V/s Expansion: Before diversifying company can & SH. Consider
expansion in existing product line
Mergers and Acquisitions:

Merger - Takes place when two or more Cos roughly of equal size
or strength formally submerge their corporate identities into
a single one in a friendly atmosphere; a holding Co. may be
formed and its shares are exchanged for shares held by the
share-holders of the merging Cos
Acquisition When a Co. offers cash or securities in exchange for the
or take over the majority shares of another co. happens when merger
is not agreed upon when the battle is severe, tgt price
may be 100% above market price
Merger - Improving Economies of scale, gaining managerial expertise,
motivations
market supremacy, acquiring a new product or brand name,
diversifying the portfolio, reducing risk and borrowing costs
taxation or investment incentives
Screening Process:
- Identify industries Medium scale investment/large scale investment
- Select sectors: based on data w.r.t., sales T/O, ROI, market shares,
competition, asset turn over, etc
- Choose Cos by sales turnover & asset level- determines acqn. Cost
- Cost of acquisition & returns: Compare candidates
- Ranking: Concept of Fit
- Identifying good ones:
High market share
Growing market
Good management system
Diversified portfolio
ROI above bench mark level
Assembling suitability of a proposal
- Funds availability
- Likely positive synergies
- Negative synergies & Weaknesses
- Is timing appropriate
- Is required management style available
Valuation for mergers and acquisitions:
Market price per share
P/E Ratio:-------------------------------------------Net earnings after tax per share
-P/E Ratio & EPS (Market price of Share / P/E ratio) SH. Be compared with
balance sheet & P&L A/C
Acquirer should
- Divest loss making opns
- Use ratio analysis (to compare with ind. Avg)
- current ratio (reduce C.L.)
Stocks
- Stock Level
=
(reduced stock level)
* 12 months
Cost of Goods sold
Debtors
- Avg. Age of debtors (in days) =-----------(Reduce ave age of Debtors)
Sales
* 365
- Revise B/S & P&L A/c

- Incorporate growth & expectation rates
age of assets
- Calculate replacement value of assets = 1 - ----------------Tot. Eco. Life
of asset
* current cost of
asset
Managing after merger:

Indian scene
- NRI status is helping in mergers (to get out of FERA)

- Likely to become more dominant in future
Evaluation and Control Process can be viewed as a

five-step model:
To determine what to measure this means that the
processes and results must be capable of being measured in an
objective and consistent manner.
To establish performance standards = these specify the
measures & acceptable results i.e., provide a tolerance range.
Actual performance measurement
Comparison of actual with standard
Taking corrective action this becomes necessary when the
actual results are outside tolerance range. Before acting, the
manager has to ensure whether the deviation is due to chance
fluctuation and whether the process is correct and
appropriate.
Problems in Measurement of Performance

Shortterm orientation (high ROI in short-term)
Goal displacement refers to the confusion of means with end. It occurs
when activities intended to help managers achieve corporate objectives
become ends in themselves or are adapted to meet ends other than those
for which they are intended.
Goal displacement can be of two types Behaviour Substitution and
Sub-optimisation.
Behaviour Substitution: refers to a phenomenon where activities that do
not lead to goal accomplishment are substituted for activities that do
lead to goal accomplishment. In other words, the wrong activities and
people who focused on these activities are being rewarded.
Sub-optimisation: is a situation where optimisation occurs for a unit or a
functional area to the detriment of an organisation as a whole.
Strategy Audit
The idea of strategy audit is to develop benchmarks. This
process involves the following steps:
Identification of area or process to be examined usually an
activity which can give competitive advantage to a business unit.
Determination of measures of performance of the area or
process.
Competitors against whom the company has to benchmark
these have to be generally the best among the industry.
Difference in performance measurement of the company and
the best in class.
To develop tactical program for bridging performance gap.
Implementation of programs and comparing the results of new
measures with those of best-in-class.
The following guidelines can be made use of for proper

control of strategic planning implementation exercise:
Focus should be on critical success factors i.e., 20% that
determine 80% of the results.
C ontrol should be directed towards monitoring
meaningful activities and results and should be timely.
Controls can be both long term and short term.
Controls should help in pinpointing exceptions.
There should be emphasis on rewards on meeting or
exceeding standards of performance.
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IT and Strategy
Traditional and Alternative views of IT vary in four
dimensions
! Nature
! Evaluation
! Use
! Returns.
There is a growing feeling in organizations, as per the
alternative view, that the returns on IT investments, may
not, at the expected levels, be making the investment
decisions look suboptimal. This is due to the fact that IT is
viewed as providing strategic inputs.
IT Strategy Components
Sound strategic plans contain at least six
components or elements, they include
!Application system components
!Application development components
!Infrastructure component
!Maintenance component
!Operations component
!Security component
Viewing IT as Strategy
Investments should be made in those IT
based applications and services that are
likely to yield the best returns.
Information systems for competitive
advantage are those that reflect the
fundamental objectives of the firm and that
may have a significant impact on its
success.
Influence of IT on pricing strategies

Increased availability of information Increased
information gathering, handling, and analysis capabilities
enhance price customization, bundling and unbundling,
revenue management and automated pricing strategies
Enhanced reach Enhanced reach catalyses various
pricing strategies, in particular the internet provides
companies, access to an extended universe of customers,
more demand and new markets
Expanding interactivity - IT may increase efficiency
through electronic transactions and online customer
interactions, which can affect pricing by creating
exchanges, such as maintenance, repairs and operations
hubs, through which buyers and sellers group together.
Emphasis on Strategy for IT

Organizations with more experience in
automation, realize that IT can not only
improve the efficiency and effectiveness,
but also play a decisive role in the
companies success thus acquiring a strategic
quality.
Strategic Contributions of IT
Nolan Growth Curve and the Growth of Management
Looking ahead
The nature of the linkage between IT
investment and corporate strategy needs to
be put on firmer grounds
The nature of IT in organizations is
undergoing continuous change. There is
need to quantify the benefits arising out of
the shift towards IT in organizations.
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Technology Management
!Tech. Management Due to market changes.
!Tech. Management Crucial for Corporate success.
!Cos. should think of methodologies to generate max. return
on R&D investment.
!Innovative approaches from personnel thus becomes
essential.
!This calls for taking risks on the part of Management.
!Top Mgmt. - To stress upon new product development,
having customer needs and wants in mind.
Environmental Scanning
!Scanning internal and external environments.
!Marketing intelligence system Help in building
a Technology Road Map .
!I ndian firms in the ongoing process of
globalization should learn to listen not only to
their current customers, but also look at new
customers.
!Firms to always escape from technological
discontinuity.
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Balanced Score Card.

! Strategy Evaluation - 4 Parameters:
a) The Financial perspective.
b) The Customer perspective.
c) The Internal business perspective.
d) Learning and Growth.
! Managing the Strategy 4 processes:
a) Translating the Vision.
b) Communicating and Linking.
c) Business Planning.
d) Feedback and Learning.
Balanced Score Card (Contd.)

! BS as a tool:
Using BS companiesa) Clarify and update Strategy.
b) Communicate throughout the company.
c) Align unit and individual goals throughout the
company.
d) Identify and align Strategic initiatives.
e) Conduct periodic performance reviews.
BCG Matrix (New)

! 2*2 Matrix
! Size of competitive advantage Vs. No. of approaches to
competitive advantage.
Size of the comp. Adv.
Fragmented
Specialization
Many
No. of
approaches
to achieve
comp. Adv.
Stalemate
Volume
Few
BCG Matrix (Contd.)

Fragmented
Specialization
!Small and Regionalized.
!Focused segments.
!Profitability not related to size.
!Steep learning curves.
!Advantage gained by focus.
!Ex. Cray research in field of

Super computers.
!No premium on growth.

!Ex. Specialty restaurants or
designer labels.
Stalemate
Volume
!Where it is difficult to gain

advantage.
!Where there are economies of scale

and IRS operates.
!CA often is the sheer sustaining

power.
!Constrained by market
segmentation and differentiation.
!Ex. Kellogg's in India.
!Ex. The car industry.
Competitive Advantage of Nations.

! Porter Differences - 4 Decisive elements:
a) Availability of strengths in certain narrow, technical fields.
b) High demand in the home country.
c) Related and supporting industries in the home country.
d) Strong domestic rivals, Local rivalry.
Porter also refers to this as the NATIONAL DIAMOND .
Competitive Adv. Of Nations (Contd.)

!Generalizations for Strategic management:
a)Devaluation is bad for competitiveness.
b)Relaxing antitrust is bad.
c)Relaxing product safety and environmental regulation is bad.
d)Deregulation is good.
e)Promoting inter-firm cooperation is bad.
f)Orderly marketing agreements are bad.
g)Increasing defence contracts are bad.
Competitive Convergence.
!Firms compete on the basis of similar strategies as in Strategic
groups.
!Cannot be the basis for sustained Competitive advantage.
!Firms to compete for unique positioning different Strategies
(Competitive divergence).
!Also loosely related to Prahlad s concept of Dominant
Managerial Logic.
Grand Strategy Matrix

(Dimensions: Competitive position and Market growth).
Rapid Mkt. growth
Mkt Development, Mkt Penetration,
Pdt. Development, Horizontal
Integration, Divestiture, Liquidation.
Q2
Weak Comp. Posn.
Retrenchment, Concentric
Diversification, Horizontal
Diversification, Conglomerate
Diversification, Divestiture,
Liquidation.
Q4
Mkt Development, Mkt Penetration,

Fwd Integration, Bwd
Integration,Horizontal Integration,
Divestiture, Liquidation.
Q1
Q3
Strong Comp. Posn.
Concentric Diversification,
Horizontal Diversification,
Conglomerate Diversification,
Divestiture, Joint Ventures.
Slow Mkt. growth
Doom Loops.
!Self reinforcing processes.
!Drive an organization into cyclical situations from which an
organization finds it difficult to extract itself.
!To avoid getting into a doom loop, it is required to constantly
upgrade the products, services and efficiency of distribution
channels.
!To get out of a doom loop refocus on the small business units
and a change has to be brought about in the firm s culture.
Doom loop - Example

Competitors innovate
& develop better Pdt.
at lower cost.
Competitor matches
price & yet is
profitable.
Competitor gains mkt.

Share at firms
expense.
Firm cuts price to hold
onto the market share.
Employees become
demoralized.
Firm has inadequate

margins to reinvest.
Quality of Pdt. &

services becomes poor.
J Curve, Floating
!First noticed by Jack Welch.

!Future predictions Things would get worse before it got better.
!Welch J curve would shift to right as time came closer.
!Myopic pessimism becomes clear here.
J Curve, Floating.
Performance
Time
Cobweb Theorem.
!Equilibrium need not necessarily be
established in an iterative process.
Convergence
!Originally conceived to explain why

inflation may arise through a mismatch
of expectations.
!Has widespread applicability in
pricing strategies.
!Diagrams Denoting demand supply
imbalances, one process guarantees
converging, the other, diverging [dis]
equilibrium.
Divergence
End Game Strategies.

Enhance the productivity of declining businesses till they
collapse absolutely.
The decline phase, according to Harrigan and Porter becomes
volatile because
!Uncertain demands due to changing technology,
preferences, rising uncertainty.
!Exit barriers.
!Strategic considerations.
!Management resistance.
!Asset Disposition.
End Game Strategies.(Contd.)

Harrigan and Porter s four strategic options -
Fav. Industry
structure for decline.
Unfav. Industry
structure for decline.
Has competitive strengths

for remaining demand
pockets.
Lacks competitive strengths

for remaining demand
pockets.
Leadership
Harvest
Or
Or
Niche
Divest
Harvest
Or
Niche
Divest
Quickly.
4 Strategies: Leadership, Niche, Harvesting, Divest.
Economic Value Added (EVA).

!EVA = The after tax cash flow generated by a business - cost of
capital it has deployed to generate that cash flow.
!Can be employed to evaluate the performance of a company.
!Important role is Strategy formulation.
!EVA 4Ms in Implementation:
Measurement
Management system
Motivation
Mindset
National Diamond.
! Porter s way of looking at a nation s competitive advantage.
! National Diamond why? Because it s valuable, adds value.
! Four parts :
a) Factor conditions (Land, Labor, Capital, Entrepreneurship).
b) Demand conditions.
c) Role of Supporting Industries.
d) Firms Structure Rivalry and Strategy.
Space Matrix.
! Strategic Position and ACtion Evaluation Matrix.
! For determining an organization s overall strategic
performance.
FS
! 4 Quadrant framework
a) Aggressive.
b) Conservative.
c) Defensive.
d) Competitive.
Aggressive
Conservative
CA
IS
Competitive
Defensive
ES
Space Matrix(contd.)
2 internal dimensions
!Financial Strengths (FS) Cash flows, liquidity, ROI, ease of
exit from market etc.
!Competitive Advantage(CA) Mkt. Share, Product life cycle,
customer loyalty etc.
2 External dimensions
!Environmental Stability(ES) Technological changes, Rate
of inflation, Demand variability etc.
!Industry Strength Growth potential, Profit potential,
Technological know-how etc.
Strategic Control Grid.

! To measure the power that a firm is able to establish in its
working environment.
! Mapping of this control grid w.r.t competitors can give the
strategist useful ideas of the appropriateness of the strategy.
! 5 elements to the manifestation of this power
a) Position.
b) Profits.
c) Process.
d) Product.
e) Perception.
Web Structure.
! Definition: A set of companies that use a common
architecture to deliver independent elements of overall
value propositions that grows stronger as more companies
join.
! 2 conditions:
! A common platform, either technology or geography etc.
! Increasing returns to scale.
! 3 types of webs (Hagel):
a) Market web : Shopping Malls.
b) Consumer web : Readers digest.
c) Technology web : Tech. Platforms windows etc.
X Efficiency.
!The measure of a firm s management in minimizing the cost
of producing a given output or maximizing the output given a
set of inputs.
!Supposed to capture the discrepancy between the efficient
behavior of firms as implied by economic theory and their
observed behavior in practice.
!Libenstein introduced this theory of inefficiency generated
due to lack of competition.
Organisational
Agency
3.
10.
11.
Awareness
Confidence
Strategy
1.
2.
5.
7.
8.
9.
Image
Disposition
Resource in kind
Resource Monetary
Top Management
Self - interest
External
4.
6.
External
Social
Comparison
NPO
Parameters of NPO Choice

Responsiveness
Credibility
Capability
Confidence
Communication
Channel
Tangibility
Top Management
A Theoretical Model for Corporate Philanthropy
(Note: Numbers denote factor rankings)
CP
Policy
and
Programs
Non Profit Organizations

Important factors for an NPO choice in the Indian
context are
Responsiveness
Channel
Credibility
Tangibility
Capability
Top management
Confidence
Communication
Small and Medium Enterprise (SME)

Small and Medium Enterprise (SME) employs less
than two hundred People with an annual turnover of
Rs.5 crores.
SMEs in India have to develop entrepreneurial
characteristics in order to survive in the changing
market scenario. Four important characteristics which
are key to the success of the firm are:
Ability to identify potential opportunities better.
A sense of urgency making them action oriented.
Knowledge of key to success in the industry.
Supplementing through outside help skills, knowledge
and ability
Guidelines
Focus on industries facing sustained technological or regulatory changes, especially those which
witnessed exits by established competition
Seek industries whose smaller firms have relatively weak competitive position
Seek industries that are in early, high-growth stage of evaluation
Seek industries in which it is possible to create high barriers for subsequent entry
Seek industries with heterogeneous products that are relatively unimportant to the customers overall
success
Seek to differentiate your products from those of your competitors in ways that are meaningful to
your customers
Focus differentiation efforts on product quality, marketing approaches and customer service and
charge enough to cover the costs of doing so
Seek to dominate the market segments you compete in. if necessary, segment the market differently, or
change the nature and focus of your differentiation efforts to increase the domination of the segments
you serve.
Stress innovation, especially new product innovation, that is built on existing organisational
capabilities
Seek natural, organic growth through flexibility and opportunism that builds on existing
organisational strengths.
Some guidelines for new venture success
Source: C.W. Hofer, and W.R. Sandberg, Improving New Venture performance: Some guidelines for
new venture success , American Journal of Small Business, pp.17, 19, Summer 1987.

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Strategic ManagementThe Competitive Edge

* Each session is approximately for 1.5 hours

Books and References

MGT PROCESSES IN ORGNS THRO WHICH THE FUTURE

PROD-MKT: BASIC CHEMICALS &

PURPOSE & MISSION:

: USE OF FIRM S RES CAPABILITIES

A strategically revealing mission

What customer need is being satisfied

Mission statement to strategic

Questions that must be answered

What changes are occurring in markets and what are the

GOALS: LEGITIMISE ORGN; IDENTIFY INTER ORGNL RELNSHIPS;

VERTL. INTEGN. STRATEGIES - BACKWARD; FORWARD RISK: LOSS OF FLEXIBILITY

Tests of a winning strategy

Goodness of fit test

Competitive advantage test

STRATEGIC - INTERFACE BETWEEN OPEN & EXTL. ENVNT OPERATING

ORGN S SUCCESS OR FAILURE IN THE LONG-RUN DEPENDS UPON STRATEGIC

Table 1.1: Comparison Of Operating and Strategic Decisions

Clear strategy and effective

Unclear strategy but effective

Clear strategy but ineffective

Unclear strategy and

The full set of commitments, decisions,

Strategic Management Decision Making Process

REDEFINE & REVISE

Strategic Management Process

Solving Problems Systematically

Transferring knowledge quickly and efficiently

Mintzberg s Modes of Strategic Decision Making

* Planning Mode: Systematic gathering of appropriate information

CHANGES IN THE OVERALL SHAPE OF AN ORGN - TAKES YRS TO

ANTICIPATE TECHGL. CHANGES & ACHIEVE STRATEGIC OBJS & GOALS

Figure 3.1A Conceptual Model of Corporate Planning

THE DATA BASE

ORGNL CHANGE - COMPLEX RELATIONSHIP BETWEEN STRATEGY, STRUCTURE,

PRESCRIBES FORMAL RELNSHIPS AMONG VARIOUS POSITIONS

ACCING TO McKINSEY (7S FRAMEWORK) - RELNSHIP BETWEEN STRATEGY AND

RULES, REGLNS AND PROCEDURES - FORMAL & INFORMAL THAT

LEVER TO BRING ABOUT ORGNL CHANGE - PATTERN OF ACTION

SELECTION, PLACEMENT, TRG & DEVPT OF APPROPRIATELY

ONE OF THE MOST CRUCIAL ATTRIBUTES OR CAPABILITIES OF AN

THE REAL TASK OF IMPLEMENTING STRATEGY IS ONE OF BRINGING

Global Issues for the 21st Century

- Oversees the running of the enterprise by C.E.

- Individually have no power; collective body of directors has superior total

- Make calls on shareholders in respect of money unpaid on their shares

- Expected to meet once in a quarter;

- Marginally derived expectations

- 2 or 3 in small private companies to 20 in large public companies

: Ratio of WTDs to TDs is high in multinational companies like

- Japanese Cos: Most directors are whole time employees

<=5% of net profits if onlyh on WTD

- CEO (Responsible to BOD for overall management of organisation)

: Figurehead (for ceremonial duties)

: Monitor (of information)

Planning for succession encouraging creative thinking

Corporate Values- Reflect values of managers, especially at the top

Degree of involvement by BODs

Enhancing BODs effectiveness:

: Various operational units or division of firm

: Monitor integrate System 3 and System 4

FOUR RESPONSIBILITIES OF BUSINESS