ASSIGNMENT ON STRATEGIC

MANAGEMENT

By

KINI JAISWAL

IIBS BAGALORE

1
Business Growth Strategy

Survival of the Fittest--- Innovation as a Strategy

What do you do when your most profitable market segment is fast becoming saturated by a
number of smaller competitors-- and a 500-pound gorilla with deep pockets suddenly
appears to grab what they can?

a. Directly attack the smaller competitors and try to put them out of business
b. Directly attack the gorilla and put yourself out of business
c. All of the above
d. None of the above

If you answered d, you're correct! At least partially-- The answer is not to do "nothing", but
to do something innovative.

This is exactly the situation a client of mine found themselves in a couple of years ago. By
developing an innovation centered solution, they not only saved their business but went on
to enjoy increased profitability over the next two years.

Waging War
Attacking the competition is not only a poor substitute for good marketing-- it's war. And in
war, the superior force almost always wins. Direct assaults often produce significant losses,
especially when a well-capitalized foe fights back. In the 1980's a restaurant chain I'm
familiar with was fighting for a bigger market share in the Midwestern U.S. They decided to
attack a well positioned another chain by attempting to short circuit the competitor's highly
successful free drink cup promotion. The attacking restaurant communicated to the
competitor's customers that they were willing to offer a free food incentive to customers who
would turn in their "free drink" cups. The victim responded by flooding the market with
hundreds of the free cups, forcing the attacker to spend thousands of dollars to fulfill their
advertised promise. Not smart.

Conquering New Ground

Rather than go to war with competitors, my client decided to establish a new position on a
nearby, unoccupied hill. In other words, they opted to establish themselves in a new
category that held the promise of higher gross margins. They did not invent a new product
or service, they simply changed what they had, combined it with some additional features,
and offered it to another market segment. By virtue of this planned innovation tactic, they
established a new category. They did not have to beat the competition, they left it behind!

Prior to the competitive intrusion by the 500-pound gorilla, my client had offered seminars,
books and videos targeted to beginning and advanced accounting software users. When the
segment became so saturated as to become almost unprofitable, all of the expertise gained
in producing the original programs was channeled into different seminar and expert level
materials that appealed to consultants who installed and supported the very same software
application. This new market was hungry for this highly specialized information and was
willing to pay far more for it than the previous customers.

True innovation requires someone who can visualize the possibilities of an idea and who has
the ability and tenacity to successfully implement it. That does not always mean that the
innovator always has to create or invent something new, they can innovate by applying or
implementing the inventions of others. There are many creative people who have new ideas,

2
but never implement them.

A Viable Strategy
Innovators go beyond simply solving the problem immediately before them. Instead of
countering a competitor's every move, they try to distance themselves from the competition
by moving into an area where the competitor may be weak, lacking in expertise, or unable
to follow without significant investment of time and effort. The larger the competitor, usually
the slower they are to react to a smaller, more innovative challenger. Distancing yourself
and creating barriers to entry through innovation can help create a sustainable competitive
advantage for your company.

Marketing can be a bit tricky after you've established yourself alone (at least for a while!) in
a new category. You probably have been used to aggressively promoting your "brand" while
fighting it out with competitors. A shift in emphasis may be necessary for a while in terms of
educating buyers as to the benefits associated with your new category/offering. As new
competitors follow you into the new category, you will need to go back toward brand
building again. When Sony first created the category of small, portable, self-contained audio
tape players by introducing the Walkman, they first needed to educate potential buyers as to
what a "Walkman" was and why you should have one. As others entered the market
(category) they needed to change their approach to a "Why you should buy ours instead of
theirs" message.

As far as my client goes, their old competitors may eventually catch up with them someday,
but by then they'll innovate again!

WHAT IS THE BCG GROWTH-SHARE MATRIX?

To begin with, BCG is the acronym for Boston Consulting Group—a general management consulting
firm highly respected in business strategy consulting. BCG Growth-Share Matrix (see figure 1) happens
to be one of many of BCG's strategic concepts the organisation developed in the late 1970s, and is
being taught at leading business schools and executive education programmes around the world.
It is a management tool that serves four distinct purposes (McDonald 2003; Kotler 2003; Cipher
2006): it can be used to classify product portfolio in four business types based on four graphic labels
including Stars, Cash Cows, Question Marks and Dogs; it can be used to determine what priorities
should be given in the product portfolio of a company; to classify an organisation’s product portfolio
according to their cash usage and generation; and offers management available strategies to tackle
various product lines. Consider companies like Apple Computer, General Electric, Unilever, Siemens,
Centrica and many more, engaging in diversified product lines. The BCG model therefore becomes an
invaluable analytical tool to evaluate an organisation’s diversified product lines as later seen in the
ensuing sections.

WHAT ARE THE MAIN ASPECTS OF THE BCG GROWTH-SHARE MATRIX?

The BCG Growth-Share Matrix is based on two dimensional variables: relative market share and
market growth. They often are pointers to healthiness of a business (Kotler 2003; McDonald 2003). In
other words, products with greater market share or within a fast growing market are expected to wield

3
relatively greater profit margins. The reverse is also true. Let’s look at the following components of the
model:
Fig. 1: Source: 12manage.com 2006

Relative Market Share

According to the proponents of the BCG (Herndemson 1972), It captures the relative market share of a
business unit or product. But that is not all! It allows the analysed business unit be pitted against its
competitors. As earlier emphasized above, this is due to the sometime correlation between relative
market share and the product’s cash generation. This phenomenon is often likened to the experience
curve paradigm that when an organisation enjoys lower costs, improved efficiency from conducting
business operations overtime. The basic tenet of this postulation is that the more an organisation
performs a task often; it tends to develop new ways in performing those tasks better which results in
lower operating cost (Cipher 2006). What that suggests is that the experience curve effect requires
that market share is increased to be able to drive down costs in the long run and at the same time a
company with a dominant market share will inevitably have a cost advantage over competitor
companies because they have the greater share of the market. Hence, market share is correlated with
experience.
A case in point is Apple Computer’s flagship product called the iPod, which occupies a dominant 73%
share the portable music player market (Cantrell 2006). Analysts believe it is the impetus for Apple's
financial rebirth 40% of Apple's sales is attributed to the iPod product line (Cantrell 2006). Similarly,
Dell’s PC line shares the same market dominance theory as the iPod. The PC manufacture giant
occupies a worldwide market share of 18.1%, which is commensurate to its large market revenue
above its competitors (see figure 2).
Figure 2: Source: Reuters 2006

Market Growth
Market growth axis, correlates with the product life cycle paradigm, and predicates the cash
requirement a product needs relative to the growth of that market. A fast growing market is generally
considered attractive, and pulls a lot of organisation’s resources in an effort to increase gains. A case
in point is the technological market widely consider by experts as a fast growing market, and tends to
attract a lot of competition. Therefore, a product life cycle and its associated market play a key role in
decision-making.

Cash Cows

4
These products are said to have high profitability, and require low investment for the fact that they are
market leaders in a low-growth market. This viewpoint is captured by the founders themselves thus:
The cash cows fund their own growth. They pay the corporate dividend. They pay the corporate
overhead. They pay the corporate interest charges. They supply the funds for R&D. They supply the
investment resource for other products. They justify the debt capacity for the whole company. Protect
them (Henderson 1976).
According to experts (Drummond & Ensor 2004; Kotler 2003; McDonald 2003), surplus cash from cash
cow products should be channelled into Stars and Questions in order to create the future Cash Cows.

Stars
Stars are leaders in high growth markets. They tend to/should generate large amounts of cash but also
use a lot of cash because of growth market conditions. For example, Apple Computer has a large share
in the rapidly growing market for portable digital music players (Cantrell 2006).

Question Marks
Question Marks have not achieved a dominant market position, and hence do not generate much cash.
They tend to use a lot of cash because of growth market conditions. Consider Hewlett-Packard’s small
share of the digital camera market, behind industry leader Canon’s 21% (Canon 2006). However, this
is a rapidly growing market.

Dogs
Dogs often have little future and are big cash drainers on the company as they generate very little
cash by virtue of their low market share in a highly low growth market.
Consider Pfizer’s Inspra (Gibson 2006): “Pfizer launched this drug in Q4 2003 and continues to pump
money into this problem child, despite anaemic sales of roughly $40 million in the $2.7 billion heart-
failure market dominated by Toprol-XL (metoprolol). It was thought to gain market share and become
a star, and eventually a cash cow when the market growth slowed. But, according to industry’s
experts, Inspra is likely to remain a dog, despite any amount of promotion, given its perceived safety
issues and a cheaper, more effective spironolactone in the same Pfizer portfolio. Because Pfizer
invested heavily in promotion early on with Inspra, the drug's earnings potential and positive cash flow
is elusive at best. A portfolio analysis of Pfizer's cardiovascular franchise would suggest redeploying
promotional spend on Inspra to up-and-coming stars like Caduet (amlodipine/atorvastatin) or
torcetrapib to ensure those drugs reach their sales potential.”

The International Market Entry Evaluation

Process
5
 How to Enter a Foreign Market.
This lesson gives an outline of the way in which an organization should select which foreign to
enter. The International Marketing Entry Evaluation Process is a five stage process, and its
purpose is to gauge which international market or markets offer the best opportunities for our
products or services to succeed. The five steps are Country Identification, Preliminary Screening,
In-Depth Screening, Final Selection and Direct Experience. Let's take a look at each step in turn.

Step One - Country Identification

The World is your oyster. You can choose any country to go into. So you conduct country
identification - which means that you undertake a general overview of potential new markets.
There might be a simple match - for example two countries might share a similar heritage e.g. the
United Kingdom and Australia, a similar language e.g. the United States and Australia, or even a
similar culture, political ideology or religion e.g. China and Cuba. Often selection at this stage is
more straightforward. For example a country is nearby e.g. Canada and the United States.
Alternatively your export market is in the same trading zone e.g. the European Union. Again at
this point it is very early days and potential export markets could be included or discarded for any
number of reasons.

Step Two - Preliminary Screening

At this second stage one takes a more serious look at those countries remaining after undergoing
preliminary screening. Now you begin to score, weight and rank nations based upon macro-
economic factors such as currency stability, exchange rates, level of domestiv consumption and
so on. Now you have the basis to start calculating the nature of market entry costs. Some

6
countries such as China require that some fraction of the company entering the market is owned
domestically - this would need to be taken into account. There are some nations that are
experiencing political instability and any company entering such a market would need to be
rewarded for the risk that they would take. At this point the marketing manager could decide
upon a shorter list of countries that he or she would wish to enter. Now in-depth screening can
begin.

Step Three - In-Depth Screening

The countries that make it to stage three would all be considered feasible for market entry. So it is
vital that detailed information on the target market is obtained so that marketing decision-making
can be accurate. Now one can deal with not only micro-economic factors but also local
conditions such as marketing research in relation to the marketing mix i.e. what prices can be
charged in the nation? - How does one distribute a product or service such as ours in the nation?
How should we communicate with are target segments in the nation? How does our product or
service need to be adapted for the nation? All of this will information will for the basis of
segmentation, targeting and positioning. One could also take into account the value of the nation's
market, any tariffs or quotas in operation, and similar opportunities or threats to new entrants.

Step Four - Final Selection

Now a final shortlist of potential nations is decided upon. Managers would reflect upon strategic
goals and look for a match in the nations at hand. The company could look at close competitors
or similar domestic companies that have already entered the market to get firmer costs in relation
to market entry. Managers could also look at other nations that it has entered to see if there are
any similarities, or learning that can be used to assist with decision-making in this instance. A
final scoring, ranking and weighting can be undertaken based upon more focused criteria. After
this exercise the marketing manager should probably try to visit the final handful of nations
remaining on the short, shortlist.

Step Five - Direct Experience

Personal experience is important. Marketing manager or their representatives should travel to a
particular nation to experience firsthand the nation's culture and business practices. On a first
impressions basis at least one can ascertain in what ways the nation is similar or dissimilar to
your own domestic market or the others in which your company already trades. Now you will
need to be careful in respect of self-referencing. Remember that your experience to date is based
upon your life mainly in your own nation and your expectations will be based upon what your
already know. Try to be flexible and experimental in new nations, and don't be judgemental - it's
about what's best for your company - happy hunting.

The Five Forces

Porter's Five Forces
7
 A MODEL FOR INDUSTRY ANALYSIS

The model of pure competition implies that risk-adjusted rates of return should be
constant across firms and industries. However, numerous economic studies have
affirmed that different industries can sustain different levels of profitability; part of this
difference is explained by industry structure.

Michael Porter provided a framework that models an industry as being influenced by five
forces. The strategic business manager seeking to develop an edge over rival firms can
use this model to better understand the industry context in which the firm operates.

Diagram of Porter's 5 Forces

SUPPLIER POWER
Supplier concentration
Importance of volume to supplier
Differentiation of inputs
Impact of inputs on cost or differentiation
Switching costs of firms in the industry
Presence of substitute inputs
Threat of forward integration
Cost relative to total purchases in industry

BARRIERS
TO ENTRY
Absolute cost advantages
Proprietary learning curve THREAT OF
Access to inputs SUBSTITUTES
Government policy -Switching costs
Economies of scale -Buyer inclination to
Capital requirements substitute
Brand identity -Price-performance
Switching costs trade-off of substitutes
Access to distribution
Expected retaliation
Proprietary products

BUYER POWER DEGREE OF RIVALRY

Bargaining leverage
Buyer volume
Buyer information
Brand identity
Price sensitivity
Threat of backward integration
Product differentiation
Buyer concentration vs. industry
-Exit barriers
-Industry concentration
-Fixed costs/Value added
-Industry growth
-Intermittent overcapacity
-Product differences
-Switching costs
-Brand identity

8
 Substitutes available -Diversity of rivals
Buyers' incentives -Corporate stakes

I. Rivalry

In the traditional economic model, competition among rival firms drives profits to zero.
But competition is not perfect and firms are not unsophisticated passive price takers.
Rather, firms strive for a competitive advantage over their rivals. The intensity of rivalry
among firms varies across industries, and strategic analysts are interested in these
differences.

Economists measure rivalry by indicators of industry concentration. The Concentration

Ratio (CR) is one such measure. The Bureau of Census periodically reports the CR for
major Standard Industrial Classifications (SIC's). The CR indicates the percent of market
share held by the four largest firms (CR's for the largest 8, 25, and 50 firms in an
industry also are available). A high concentration ratio indicates that a high
concentration of market share is held by the largest firms - the industry is concentrated.
With only a few firms holding a large market share, the competitive landscape is less
competitive (closer to a monopoly). A low concentration ratio indicates that the industry
is characterized by many rivals, none of which has a significant market share. These
fragmented markets are said to be competitive. The concentration ratio is not the only
available measure; the trend is to define industries in terms that convey more
information than distribution of market share.

If rivalry among firms in an industry is low, the industry is considered to be disciplined.

This discipline may result from the industry's history of competition, the role of a leading
firm, or informal compliance with a generally understood code of conduct. Explicit
collusion generally is illegal and not an option; in low-rivalry industries competitive
moves must be constrained informally. However, a maverick firm seeking a competitive
advantage can displace the otherwise disciplined market.

When a rival acts in a way that elicits a counter-response by other firms, rivalry
intensifies. The intensity of rivalry commonly is referred to as being cutthroat, intense,
moderate, or weak, based on the firms' aggressiveness in attempting to gain an
advantage.

In pursuing an advantage over its rivals, a firm can choose from several competitive
moves:

• Changing prices - raising or lowering prices to gain a temporary advantage.

• Improving product differentiation - improving features, implementing innovations
in the manufacturing process and in the product itself.
• Creatively using channels of distribution - using vertical integration or using a
distribution channel that is novel to the industry. For example, with high-end

9
 jewelry stores reluctant to carry its watches, Timex moved into drugstores and
other non-traditional outlets and cornered the low to mid-price watch market.
• Exploiting relationships with suppliers - for example, from the 1950's to the 1970's
Sears, Roebuck and Co. dominated the retail household appliance market. Sears
set high quality standards and required suppliers to meet its demands for product
specifications and price.

The intensity of rivalry is influenced by the following industry characteristics:

1. A larger number of firms increases rivalry because more firms must compete
for the same customers and resources. The rivalry intensifies if the firms have
similar market share, leading to a struggle for market leadership.
2. Slow market growth causes firms to fight for market share. In a growing market,
firms are able to improve revenues simply because of the expanding market.
3. High fixed costs result in an economy of scale effect that increases rivalry.
When total costs are mostly fixed costs, the firm must produce near capacity to
attain the lowest unit costs. Since the firm must sell this large quantity of product,
high levels of production lead to a fight for market share and results in increased
rivalry.
4. High storage costs or highly perishable products cause a producer to sell
goods as soon as possible. If other producers are attempting to unload at the
same time, competition for customers intensifies.
5. Low switching costs increases rivalry. When a customer can freely switch from
one product to another there is a greater struggle to capture customers.
6. Low levels of product differentiation is associated with higher levels of rivalry.
Brand identification, on the other hand, tends to constrain rivalry.
7. Strategic stakes are high when a firm is losing market position or has potential
for great gains. This intensifies rivalry.
8. High exit barriers place a high cost on abandoning the product. The firm must
compete. High exit barriers cause a firm to remain in an industry, even when the
venture is not profitable. A common exit barrier is asset specificity. When the
plant and equipment required for manufacturing a product is highly specialized,
these assets cannot easily be sold to other buyers in another industry. Litton
Industries' acquisition of Ingalls Shipbuilding facilities illustrates this concept.
Litton was successful in the 1960's with its contracts to build Navy ships. But
when the Vietnam war ended, defense spending declined and Litton saw a
sudden decline in its earnings. As the firm restructured, divesting from the
shipbuilding plant was not feasible since such a large and highly specialized
investment could not be sold easily, and Litton was forced to stay in a declining
shipbuilding market.
9. A diversity of rivals with different cultures, histories, and philosophies make an
industry unstable. There is greater possibility for mavericks and for misjudging
rival's moves. Rivalry is volatile and can be intense. The hospital industry, for
example, is populated by hospitals that historically are community or charitable
institutions, by hospitals that are associated with religious organizations or
universities, and by hospitals that are for-profit enterprises. This mix of
philosophies about mission has lead occasionally to fierce local struggles by

10
 hospitals over who will get expensive diagnostic and therapeutic services. At
other times, local hospitals are highly cooperative with one another on issues
such as community disaster planning.
10. Industry Shakeout. A growing market and the potential for high profits induces
new firms to enter a market and incumbent firms to increase production. A point is
reached where the industry becomes crowded with competitors, and demand
cannot support the new entrants and the resulting increased supply. The industry
may become crowded if its growth rate slows and the market becomes saturated,
creating a situation of excess capacity with too many goods chasing too few
buyers. A shakeout ensues, with intense competition, price wars, and company
failures.

BCG founder Bruce Henderson generalized this observation as the Rule of Three
and Four: a stable market will not have more than three significant competitors,
and the largest competitor will have no more than four times the market share of
the smallest. If this rule is true, it implies that:

o If there is a larger number of competitors, a shakeout is inevitable

o Surviving rivals will have to grow faster than the market
o Eventual losers will have a negative cash flow if they attempt to grow
o All except the two largest rivals will be losers
o The definition of what constitutes the "market" is strategically important.

Whatever the merits of this rule for stable markets, it is clear that market stability
and changes in supply and demand affect rivalry. Cyclical demand tends to
create cutthroat competition. This is true in the disposable diaper industry in
which demand fluctuates with birth rates, and in the greeting card industry in
which there are more predictable business cycles.

II. Threat Of Substitutes

In Porter's model, substitute products refer to products in other industries. To the

economist, a threat of substitutes exists when a product's demand is affected by the
price change of a substitute product. A product's price elasticity is affected by substitute
products - as more substitutes become available, the demand becomes more elastic
since customers have more alternatives. A close substitute product constrains the ability
of firms in an industry to raise prices.

The competition engendered by a Threat of Substitute comes from products outside the
industry. The price of aluminum beverage cans is constrained by the price of glass
bottles, steel cans, and plastic containers. These containers are substitutes, yet they are
not rivals in the aluminum can industry. To the manufacturer of automobile tires, tire
retreads are a substitute. Today, new tires are not so expensive that car owners give
much consideration to retreading old tires. But in the trucking industry new tires are
expensive and tires must be replaced often. In the truck tire market, retreading remains

11
a viable substitute industry. In the disposable diaper industry, cloth diapers are a
substitute and their prices constrain the price of disposables.

While the threat of substitutes typically impacts an industry through price competition,
there can be other concerns in assessing the threat of substitutes. Consider the
substitutability of different types of TV transmission: local station transmission to home
TV antennas via the airways versus transmission via cable, satellite, and telephone
lines. The new technologies available and the changing structure of the entertainment
media are contributing to competition among these substitute means of connecting the
home to entertainment. Except in remote areas it is unlikely that cable TV could compete
with free TV from an aerial without the greater diversity of entertainment that it affords
the customer.

III. Buyer Power

The power of buyers is the impact that customers have on a producing industry. In
general, when buyer power is strong, the relationship to the producing industry is near to
what an economist terms a monopsony - a market in which there are many suppliers
and one buyer. Under such market conditions, the buyer sets the price. In reality few
pure monopsonies exist, but frequently there is some asymmetry between a producing
industry and buyers. The following tables outline some factors that determine buyer
power.

Buyers are Powerful if: Example

Buyers are concentrated - there are a few

DOD purchases from defense contractors
buyers with significant market share

Buyers purchase a significant proportion of

Circuit City and Sears' large retail market
output - distribution of purchases or if the
provides power over appliance manufacturers
product is standardized

Buyers possess a credible backward

integration threat - can threaten to buy Large auto manufacturers' purchases of tires
producing firm or rival

Buyers are Weak if: Example

Producers threaten forward integration -

Movie-producing companies have integrated
producer can take over own
forward to acquire theaters
distribution/retailing

12
Significant buyer switching costs - products
not standardized and buyer cannot easily IBM's 360 system strategy in the 1960's
switch to another product

Buyers are fragmented (many, different) - no

buyer has any particular influence on product Most consumer products
or price

Producers supply critical portions of buyers'

Intel's relationship with PC manufacturers
input - distribution of purchases

IV. Supplier Power

A producing industry requires raw materials - labor, components, and other supplies.
This requirement leads to buyer-supplier relationships between the industry and the
firms that provide it the raw materials used to create products. Suppliers, if powerful, can
exert an influence on the producing industry, such as selling raw materials at a high
price to capture some of the industry's profits. The following tables outline some factors
that determine supplier power.

Suppliers are Powerful if: Example

Baxter International, manufacturer of hospital

Credible forward integration threat by
supplies, acquired American Hospital Supply, a
suppliers
distributor

Suppliers concentrated Drug industry's relationship to hospitals

Significant cost to switch suppliers Microsoft's relationship with PC manufacturers

Boycott of grocery stores selling non-union

Customers Powerful
picked grapes

Suppliers are Weak if: Example

Many competitive suppliers - product is Tire industry relationship to automobile

standardized manufacturers

13
Purchase commodity products Grocery store brand label products

Credible backward integration threat by Timber producers relationship to paper

purchasers companies

Garment industry relationship to major

Concentrated purchasers
department stores

Customers Weak Travel agents' relationship to airlines

V. Barriers to Entry / Threat of Entry

It is not only incumbent rivals that pose a threat to firms in an industry; the possibility that
new firms may enter the industry also affects competition. In theory, any firm should be
able to enter and exit a market, and if free entry and exit exists, then profits always
should be nominal. In reality, however, industries possess characteristics that protect the
high profit levels of firms in the market and inhibit additional rivals from entering the
market. These are barriers to entry.

Barriers to entry are more than the normal equilibrium adjustments that markets typically
make. For example, when industry profits increase, we would expect additional firms to
enter the market to take advantage of the high profit levels, over time driving down
profits for all firms in the industry. When profits decrease, we would expect some firms to
exit the market thus restoring a market equilibrium. Falling prices, or the expectation that
future prices will fall, deters rivals from entering a market. Firms also may be reluctant to
enter markets that are extremely uncertain, especially if entering involves expensive
start-up costs. These are normal accommodations to market conditions. But if firms
individually (collective action would be illegal collusion) keep prices artificially low as a
strategy to prevent potential entrants from entering the market, such entry-deterring
pricing establishes a barrier.

GENERIC STRATEGIES TO COUNTER THE FIVE FORCES

Strategy can be formulated on three levels:

• corporate level
• business unit level
• functional or departmental level.

The business unit level is the primary context of industry rivalry. Michael Porter identified
three generic strategies (cost leadership, differentiation, and focus) that can be

14
implemented at the business unit level to create a competitive advantage. The proper
generic strategy will position the firm to leverage its strengths and defend against the
adverse effects of the five forces

Mintzberg
Operating core

Those who perform the basic work related directly to the production of products and services

Strategic apex

Charged with ensuring that the organisation serve its mission in an effective way, and also that it
serve the needs of those people who control or otherwise have power over the organisation

Middle-line managers

Form a chain joining the strategic apex to the operating core by the use of delegated formal
authority

Technostructure

The analysts who serve the organisation by affecting the work of others. They may design it, plan
it, change it, or train the people who do it, but they do not do it themselves

Support staff

Composed of specialised units that exist to provide support to the organisation outside the
operating work flow

Henry Mintzberg suggests that the traditional way of thinking about strategy implementation
focuses only on deliberate strategies. Minztberg claims that some organizations begin
implementing strategies before they clearly articulate mission, goals, or objectives. In this case
strategy implementation actually precedes strategy formulation.

Minztberg calls strategies that unfold in this way emergent strategies. Implementation of
emergent strategies involves the allocation of resources even though an organization has not
explicitly chosen its strategies.

Benchmarking
15
Benchmarking is the process of comparing one's business processes and performance metrics to
industry bests and/or best practices from other industries. Dimensions typically measured are
quality, time, and cost. Improvements from learning mean doing things better, faster, and
cheaper.

Benchmarking involves management identifying the best firms in their industry, or any other
industry where similar processes exist, and comparing the results and processes of those studied
(the "targets") to one's own results and processes to learn how well the targets perform and, more
importantly, how they do it.

The term benchmarking was first used by cobblers to measure people's feet for shoes. They
would place someone's foot on a "bench" and mark it out to make the pattern for the shoes.
Benchmarking is most used to measure performance using a specific indicator (cost per unit of
measure, productivity per unit of measure, cycle time of x per unit of measure or defects per unit
of measure) resulting in a metric of performance that is then compared to others.

Popularity and benefits from benchmarking

In 2008, a comprehensive survey on benchmarking was commissioned by The Global
Benchmarking Network, a network of benchmarking centers representing 22 countries. Over 450
organizations responded from over 40 countries. The results showed that:

1. Mission and Vision Statements and Customer (Client) Surveys are the most used (by 77%
of organisations) of 20 improvement tools, followed by SWOT analysis(72%), and
Informal Benchmarking (68%). Performance Benchmarking was used by (49%) and Best
Practice Benchmarking by (39%).
2. The tools that are likely to increase in popularity the most over the next three years are
Performance Benchmarking, Informal Benchmarking, SWOT, and Best Practice
Benchmarking. Over 60% of organizations that are not currently using these tools
indicated they are likely to use them in the next three years
3. Collaborative benchmarking
Benchmarking, was originally invented as a formal process by Rank Xerox, is usually carried out
by individual companies. Sometimes it may be carried out collaboratively by groups of
companies (e.g. subsidiaries of a multinational in different countries). One example is that of the
Dutch municipally-owned water supply companies, which have carried out a voluntary
collaborative benchmarking process since 1997 through their industry association. Another
example is the UK construction industry which has carried out benchmarking since the late 1990s
again through its industry association and with financial support from the UK Government.

Procedure
There is no single benchmarking process that has been universally adopted. The wide appeal and
acceptance of benchmarking has led to various benchmarking methodologies emerging. The
seminal book on benchmarking is Boxwell's Benchmarking for Competitive Advantage published

16
by McGraw-Hill in 1994.[1] It has withstood the test of time and is still a relevant read. The first
book on benchmarking, written and published by Kaiser Associates,[2] is a practical guide and
offers a 7-step approach. Robert Camp (who wrote one of the earliest books on benchmarking in
1989)[3] developed a 12-stage approach to benchmarking.

The 12 stage methodology consisted of 1. Select subject ahead 2. Define the process 3. Identify
potential partners 4. Identify data sources 5. Collect data and select partners 6. Determine the gap
7. Establish process differences 8. Target future performance 9. Communicate 10. Adjust goal 11.
Implement 12. Review/recalibrate.

The following is an example of a typical benchmarking methodology:

1. Identify your problem areas - Because benchmarking can be applied to any business
process or function, a range of research techniques may be required. They include:
informal conversations with customers, employees, or suppliers; exploratory research
techniques such as focus groups; or in-depth marketing research, quantitative research,
surveys, questionnaires, re-engineering analysis, process mapping, quality control
variance reports, or financial ratio analysis. Before embarking on comparison with other
organizations it is essential that you know your own organization's function, processes;
base lining performance provides a point against which improvement effort can be
measured.
2. Identify other industries that have similar processes - For instance if one were
interested in improving hand offs in addiction treatment he/she would try to identify other
fields that also have hand off challenges. These could include air traffic control, cell
phone switching between towers, transfer of patients from surgery to recovery rooms.
3. Identify organizations that are leaders in these areas - Look for the very best in any
industry and in any country. Consult customers, suppliers, financial analysts, trade
associations, and magazines to determine which companies are worthy of study.
4. Survey companies for measures and practices - Companies target specific business
processes using detailed surveys of measures and practices used to identify business
process alternatives and leading companies. Surveys are typically masked to protect
confidential data by neutral associations and consultants.
5. Visit the "best practice" companies to identify leading edge practices - Companies
typically agree to mutually exchange information beneficial to all parties in a
benchmarking group and share the results within the group.
6. Implement new and improved business practices - Take the leading edge practices and
develop implementation plans which include identification of specific opportunities,
funding the project and selling the ideas to the organization for the purpose of gaining
demonstrated value from the process.

Cost of benchmarking
The three main types of costs in benchmarking are:

• Visit Costs - This includes hotel rooms, travel costs, meals, a token gift, and lost labor
time.

17
 • Time Costs - Members of the benchmarking team will be investing time in researching
problems, finding exceptional companies to study, visits, and implementation. This will
take them away from their regular tasks for part of each day so additional staff might be
required.
• Benchmarking Database Costs - Organizations that institutionalize benchmarking into
their daily procedures find it is useful to create and maintain a database of best practices
and the companies associated with each best practice now.

The cost of benchmarking can substantially be reduced through utilizing the many internet
resources that have sprung up over the last few years. These aim to capture benchmarks and best
practices from organizations, business sectors and countries to make the benchmarking process
much quicker and cheaper.

Technical Benchmarking/Product Benchmarking

The technique initially used to compare existing corporate strategies with a view to achieving the
best possible performance in new situations (see above), has recently been extended to the
comparison of technical products. This process is usually referred to as "Technical
Benchmarking" or "Product Benchmarking". Its use is particularly well developed within the
automotive industry ("Automotive Benchmarking"), where it is vital to design products that
match precise user expectations, at minimum possible cost, by applying the best technologies
available worldwide. Many data are obtained by fully disassembling existing cars and their
systems. Such analyses were initially carried out in-house by car makers and their suppliers.
However, as they are expensive, they are increasingly outsourced to companies specialized in this
area. Indeed, outsourcing has enabled a drastic decrease in costs for each company (by cost
sharing) and the development of very efficient tools (standards, software).

Types of benchmarking
• Process benchmarking - the initiating firm focuses its observation and investigation of
business processes with a goal of identifying and observing the best practices from one or
more benchmark firms. Activity analysis will be required where the objective is to
benchmark cost and efficiency; increasingly applied to back-office processes where
outsourcing may be a consideration.
• Financial benchmarking - performing a financial analysis and comparing the results in
an effort to assess your overall competitiveness and productivity.
• Benchmarking from an investor perspective- extending the benchmarking universe to
also compare to peer companies that can be considered alternative investment
opportunities from the perspective of an investor.
• Performance benchmarking - allows the initiator firm to assess their competitive
position by comparing products and services with those of target firms.
• Product benchmarking - the process of designing new products or upgrades to current
ones. This process can sometimes involve reverse engineering which is taking apart
competitors products to find strengths and weaknesses.
• Strategic benchmarking - involves observing how others compete. This type is usually
not industry specific, meaning it is best to look at other industries.
18
 • Functional benchmarking - a company will focus its benchmarking on a single function
to improve the operation of that particular function. Complex functions such as Human
Resources, Finance and Accounting and Information and Communication Technology are
unlikely to be directly comparable in cost and efficiency terms and may need to be
disaggregated into processes to make valid comparison.
• Best-in-class benchmarking - involves studying the leading competitor or the company
that best carries out a specific function.
• Operational benchmarking - embraces everything from staffing and productivity to
office flow and analysis of procedures performed.[4]

Metric Benchmarking
Another approach to making comparisons involves using more aggregative cost or production
information to identify strong and weak performing units. The two most common forms of
quantitative analysis used in metric benchmarking are data envelope analysis (DEA) and
regression analysis. DEA estimates the cost level an efficient firm should be able to achieve in a
particular market. In infrastructure regulation, DEA can be used to reward companies/operators
whose costs are near the efficient frontier with additional profits. Regression analysis estimates
what the average firm should be able to achieve. With regression analysis firms that performed
better than average can be rewarded while firms that performed worse than average can be
penalized. Such benchmarking studies are used to create yardstick comparisons, allowing
outsiders to evaluate the performance of operators in an industry. A variety of advanced statistical
techniques, including stochastic frontier analysis, have been utilized to identify high performers
and weak performers in a number of industries, including applications to schools, hospitals, water
utilities, and electric utilities.[5]

One of the biggest challenges for Metric Benchmarking is the variety of metric definitions used
by different companies and/or divisions. Metrics definitions may also change over time within
the same organization due to changes in leadership and priorities. The most useful comparisons
can be made when metrics definitions are common between compared units and do not change
over time so improvements can be verified.

19
Description of the Model
The General Electric Company, with the aid of
the Boston Consulting Group and McKinsey
and Company, pioneered the nine cell strategic
business screen illustrated here. The circle on
the matrix represents your enterprise. Both axes
are divided into three segments, yielding nine
cells. The nine cells are grouped into three
zones:
The Green Zone consists of the three cells in
the upper left corner. If your enterprise falls in
this zone you are in a favorable position with
relatively attractive growth opportunities. This
indicates a "green light" to invest in this
product/service.
The Yellow Zone consists of the three diagonal
cells from the lower left to the upper right. A
position in the yellow zone is viewed as having
medium attractiveness. Management must
therefore exercise caution when making
additional investments in this product/service.
The suggested strategy is to seek to maintain
share rather than growing or reducing share.
20
Characterize Your Enterprise
The vertical axis represents the industry
attractiveness. The expert system will position
your enterprise on the chart based upon your
description of:
• bargaining power of the buyers
• bargaining power of the suppliers
• internal rivalry
• the threat of new entrants
• the threat of substitutes
The horizontal axis represents the firm's
competitive strength or ability to compete in
the industry. It includes an analysis of:
• the value and quality of the offering
• market share
• staying power
• experience
You can trace through the supporting analysis
and its conclusions, adjusting your input until
you are satisfied your description accurately
characterizes your enterprise.
The Red Zone consists of the three cells in the
lower right corner. A position in the red zone is
not attractive. The suggested strategy is that
management should begin to make plans to exit
the industry.

Analysis of Your Enterprise Position

High Attractiveness High Attractiveness High Attractiveness
Strong Competitive Average Competitive Weak Competitive Position
Position Position The strategy advice for this
The strategy advice for The strategy advice for cell is to opportunistically
this cell is to invest for this cell is to invest forinvest for earnings. However,
growth. Consider the growth. Consider the if you can't strengthen your
following strategies: following strategies: enterprise you should exit the
market. Consider the
• provide • build selectively following strategies:
maximum on strength
investment • define the • ride with the market
• diversify implications of growth
• consolidate your challenging for • seek niches or
position to focus market specialization
your resources leadership
• seek an opportunity
• accept moderate • fill weaknesses to increase strength
near-term profits to avoid through acquisition
to build share vulnerability
Medium Attractiveness Medium Attractiveness Medium Attractiveness
Strong Competitive Average Competitive Weak Competitive Position
Position Position The strategy advice for this
The strategy advice for The strategy advice for cell is to preserve for harvest.
this cell is to selectively this cell is to selectively Consider the following
invest for growth. invest for earnings. strategies:
Consider the following Consider the following
strategies: strategies: • act to preserve or
boost cash flow as
• invest heavily in • segment the you exit the business
selected market to find a • seek an opportunistic
segments, more attractive sale
• establish a position
ceiling for the • seek a way to
market share you • make increase your
wish to achieve contingency strengths
plans to protect
• seek attractive your vulnerable
new segments to position

21
 apply strengths
Low Attractiveness
Strong Competitive
Position
The strategy advice for
this cell is to selectively
invest for earnings.
Consider the following
strategies:
Low Attractiveness
Average Competitive
Position
The strategy advice for
this cell is to restructure,
harvest or divest.
Consider the following
strategies:
Low Attractiveness
Weak Competitive Position
The advice for this cell is to
harvest or divest. You should
exit the market or prune the
product line.

• defend strengths • make only

• shift resources to essential
attractive commitments
segments • prepare to divest
• examine ways to
revitalize the • shift resources to
industry a more attractive
segment
• time your exit by
monitoring for
harvest or
divestment
timing
2. Identify major difficulties encountered in strategy implementation

'Strategy is defined as the determination of the basic long-term goals and objectives of an
enterprise, and the adoption of courses of action and the allocation of resources necessary
for carrying out those goals'' Chandler(1962)

Implementing a strategy or strategy implementation is defined as "the translation of strategy into

organisational action through organisational structure and design, resource planning and the
management of strategic change".

To identify significant problems encountered in implementing a new strategy in a business, a

critical look at the components to be applied in implementing the strategy would be a good
pointer. These are considered below:

1. Organisational structure and design; and strategy implementation;

translating the strategy into organisational action by using the structure of the organization will
also be dependant on the type of structure in use in the organization. This is so because the needs

22
of a multinational organization are different from those of a small business. It is also possible that
the extent of devolution or centralisation can influence strategy implementation.

2. Another problem encountered here is the way and manner information is

passed down or up the ranks. If there is a blockage which impedes the flow of
information processes it means that decisions would be made based on outdated or
obsolete information. This can be solved by devolving the central command for
easy flow of information among all rank and files especially in implementing a
new strategy in a business. Recognition must be given to organisational structure
and design's set up where operational and strategic decisions are made, there
should be compromise if implementing a new strategy will succeed in any
business.
3. The next aspect in strategy implementation - resource planning sets out
resources and competences need to be created. It deals with the identification of
resources needed and how those resources will be deployed and controlled to
create the competences needed to implement the strategies successfully. This
resource configuration is dependent on: protecting unique resources i.e. where a
strategy depends on the uniqueness of a particular resource such as patent; and it
must be protected; by legal means;
4. One of the major problems of strategy implementation as a result of resource
planning is a failure to translate statements of strategic purpose, such as
gaining market share into critical factors that will make the purpose achievable
and ultimately achieved. This a critical success factor analysis can be pursue as a
start in resource planning.. The problem here is that due to the non-uniformity in
the times needed for the various activities, it is difficult to know where to start.
5. The next component in the implementation stage of the strategy is the
management of strategic change. It is widely accepted that strategic change builds
on four underlying premises:

a. There is a clear view within an organization of the strategy to be followed.

b. Change will not occur unless there is a commitment to change
c. The approach to managing strategic change is likely to be context dependent.
d. Change must address the powerful influence of the paradigm and cultural web on, the
strategy being followed by the organization.

There are two types of change - incremental change-which merely builds on the skills, routines
and beliefs of those in the organization, so that change is efficient and likely to win their
commitment, and transformational change - which requires the organization to change its
paradigm over time. It could be a change in routine (''the way of doing things around here''. It
could also be a change in strategy that will necessitate the change. Although the implementation
of strategy concerns the changing aspect of organization structure, control systems and resource
planning which does affect the day-to-day operations of members of the organization; people's
behaviours and perceptions may not have changed.

6. To effect a successful strategy implementation, management must also adopt

appropriate styles to manage the change processes. For example, it there is a
problem in managing change based on misinformation, or lack of information,

23
 education and communication style will be used. This involves the explanation of
the reasons for and means of strategic change. Collaboration or participation
involving those who will be affected by strategic change in the identification of
strategic issues; intervention, direction and coercion styles.

) Explain the concept of value chain analysis.

The value chain was a concept initially proposed by McKinsey (the management consultants) and
later developed and made public by Harvard strategy guru Michael Porter. The value chain is
basically the set of activities that an organisation performs. The activities can be categorised as
being either primary or secondary. Primary activities are directly involved in serving the
customer while secondary support the primary ones. Examples of primary activities would be
sales, operations, distribution, while secondary activities would be accounts, HR etc.

The value chain allows an organisation to understand what activities it performs, classify them
into primary and secondary activities and most importantly of all, understand which ones add
value to the customer..
Value Chain Analysis helped identify a firm's core competencies and distinguish those activities
that drive competitive advantage. The cost structure of an organisation can be subdivided into
separate processes or functions assuming that the cost drivers for each of these activities behave
differently. Porter's strength was to condense this activity based cost analysis into a generic
template consisting of five primary activities and four support activities. The nine activity groups
are:

Primary activities:

1. inbound logistics: materials handling, warehousing, inventory control, transportation;

2. operations: machine operating, assembly, packaging, testing and maintenance;

3. outbound logistics: order processing, warehousing, transportation and distribution;

4. marketing and sales: advertising, promotion, selling, pricing, channel management;

5. service: installation, servicing, spare part management;

Support activities:

6. firm infrastructure: general management, planning, finance, legal, investor relations;

24
7. human resource management: recruitment, education, promotion, reward systems;

8. technology development: research & development, IT, product and

process development;

9. procurement: purchasing raw materials, lease properties, supplier contract negotiations.

By subdividing an organisation into its key processes or functions, Porter was able to link
classical accounting to strategic capabilities by using value as a core concept, i.e. the ways a firm
can best position itself against its competitors given its relative cost structure, how the
composition of the value chain allows the firm to compete on price, or how this composition
allows the firm to differentiate its products to specific customer segments.

Q) Technique of strategic controls

Premise control

Implementation control

Strategic surveillance

Special alert control

5. role of top management in strategic control and implementation

ROLE OF TOP MANAGEMENT

Top management is essential to the effective implementation of strategic change. Top
management provides a role model for other managers to use in assessing the salient
environmental variables, their relationship to the organization, and the appropriateness of the
organization's response to these variables. Top management also shapes the perceived
relationships among organization components.

Top management is largely responsible for the determination of organization structure (e.g.,
information flow, decision-making processes, and job assignments). Management must also
recognize the existing organization culture and learn to work within or change its parameters.
Top management is also responsible for the design and control of the organization's reward and
incentive systems.

25
Finally, top management are involved in the design of information systems for the organization.
In this role, managers influence the environmental variables most likely to receive attention in the
organization. They must also make certain that information concerning these key variables is
available to affected managers. Top-level managers must also provide accurate and timely
feedback concerning the organization's performance and the performance of individual business
units within the organization. Organization members need information to maintain a realistic
view of their performance, the performance of the organization, and the organization's
relationship to the environment.

A key role of a CEO's is to communicate a vision and to guide strategic planning. Those who
have successfully implemented strategic plans have often reported that involving teams at all
levels in strategic planning helps to build a shared vision, and increases each individual's
motivation to see plans succeed.

Implementing strategic plans may require leaders who lead through inspiration and coaching
rather than command and control. Recognizing and rewarding success, inspiring, and modeling
behaviors is more likely to result in true commitment than use of authority, which can lead to
passive resistance and hidden rebellion.

26
27
28