STRATEGIC MANAGEMENT NOTES

STRATEGY AND PROCESS CONCEPT OF STRATEGY

The term strategy is derived from a Greek word strategos which means generalship. A plan or
course of action or a set of decision rules making a pattern or creating a common thread.

A strategy of a corporation is a comprehensive master plan stating how corporation will

achieve its mission and its objectives. It maximizes competitive advantage and minimizes
competitive disadvantage. The typical business firm usually considers three types of strategy:
corporate, business and functional.

Definition for strategic management: Strategic Management is defined as the dynamic process
of formulation, implementation, evaluation and control of strategies to realize the
organizations strategic intent.

Strategic management is the set of managerial decision and action that determines the long-run
performance of a corporation. It includes environmental scanning (both external and internal),
strategy formulation (strategic or long range planning), strategy implementation, and evaluation
and control. The study of strategic management therefore emphasizes the monitoring and
evaluating of external opportunities and threats in lights of a corporation’s strengths and
weaknesses.

THE NEED FOR STRATEGIC MANAGEMENT

1. Strategic management is the primary means available to managers to deal with the increased
scale and pace of change within and outside organizations. This is due to the technological,
social and economic environments in which business operates which are increasingly volatile and
unpredictable

2. Advances in information, communication and operations technology have not only

significantly changed the way in which existing organizations function, but have created a
whole new fields of business activity. The customers have also become more educated, informed
and demanding while at the same time becoming less loyal. This calls for more efficient methods
of serving them while remaining at the edge of competition.

3. Besides the external challenges, management is now faced further by challenges of

organizations themselves being in a state of turmoil. Some of organizations have grown so large
and complex that they stretch the feasibility of traditional management theory, whereas others
have experienced significant downsizing and refocusing of their activities.

4. All managers must understand how their activities add value to the operations of the
organization. Strategic management is, therefore, the responsibility of all managers in an
organization. Strategic management is not an activity that is confirmed to large, conglomerate
profit-oriented organizations.
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5. A survey of nearly 50 corporations in a variety of countries and industries found the three most
highly rated benefits of strategic management to be:

i) Clearer sense of strategic vision for the firm

ii) Sharper focus on what is strategically important
iii) Improved understanding of a rapidly changing environment

The characteristics of Strategic Management

The characteristics of strategic management demonstrate that it is an extremely complex pursuit.

Strategic managers are not only concerned with analyzing the environment, or choosing and
implementing strategies, but are also concerned with:
 Motivate people to participate in the process
 Seeking out and balancing viewpoints
 Creating a cohesive set of organizational values to guide behavior
 Fostering ideas
 Managing risk profiles
 Applying figurehead, innovation and interpersonal skills to act as dynamic leaders rather
than mechanistic managers

Critical Tasks of Strategic Management

1. Formulate the company's mission, including broad statements about its purpose, philosophy,and
goals.
2. Conduct an analysis that reflects the company's internal conditions and capabilities.
3. Assess the company's external environment, including both the competitive and the general
contextual factors.
4. Analyze the company's options by matching its resources with the external environment.
5. Identify the most desirable options by evaluating each option in light of the company's
mission.
6. Select a set of long-term objectives and grand strategies that will achieve the most desirable
options.
7. Develop annual objectives and short-term strategies that are compatible with the selected set of
long-term objectives and grand strategies.
8. Implement the strategic choices by means of budgeted resource allocations in which the
matching of tasks, people, structures, technologies, and reward systems is emphasized.
9. Evaluate the success of the strategic process as an input for future decision-making.

Dimensions of Strategic Decisions

1. Strategic Issues Require Top-Management Decisions: who has the perspective needed to
understand the broad implications of such decisions and the power to authorize the necessary
resource allocations.

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2. Strategic Issues Require Large Amounts of the Firm's Resources: Strategic decisions involve
substantial allocations of people, physical assets, or moneys that either must be redirected from
internal sources or secured from outside the firm. They also commit the firm to actions over an
extended period.
3. Strategic Issues Often Affect the Firm's Long-Term Prosperity: They commit the firm for a
long time, typically five years; with the impact lasting much longer.
4. Strategic Issues Are Future Oriented: Strategic decisions are based on what manager’s
forecast, rather than on what they know and selecting the most promising strategic options.
5. Strategic Issues Usually Have Multifunctional or Multi-business Consequences: Strategic
decisions have complex implications for most areas of the firm. Decisions about such matters as
customer mix, competitive emphasis, or organizational structure necessarily involve a number of
the firm's strategic business units (SBUs), divisions, or program units. All of these areas will be
affected by allocations or reallocations of responsibilities and resources that result from these
decisions.
6. Strategic Issues Require Considering the Firm's External Environment
All business firms exist in an open system. They affect and are affected by external conditions that
are largely beyond their control. Therefore, to successfully position a firm in competitive
situations, its strategic managers must look beyond its operations. They must consider what
relevant others (e.g., competitors, customers, suppliers, creditors, government, and labor are likely
to do.

Conceptual framework for the development of strategic management:

 Strategic Advantage
 Organizational capability
 Competencies
 Synergistic Effects
 Strengths and weaknesses
 Organizational Resources
 organizational behavior

STRATEGIC MANAGEMENT PROCESS

Model of strategic management OR Basic Elements of Strategic Management Process

Strategic management model consists of FOUR basic elements

 1. Environmental scanning
 2. Strategy Formulation
 3. Strategy Implementation and
 4. Evaluation and Control

1. Environmental scanning: Is the monitoring, evaluating and disseminating of information from

the external and internal environments to key people within the corporation. Its purpose is to
identify strategic factors – those external and internal elements that will determine the future of the
corporation. This is well done through use of SWOT analysis tool and the PESTEL tool.
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2. Strategic formulation: Is the development of long term plans for the effective management of
environmental opportunities and threats, in light of corporate strengths and weaknesses. It includes
defining the corporate mission, specifying achievable objectives, developing strategies and setting
policy guidelines.

3. Strategic implementation: Is the process by which strategies and polices are put into action
through the development of programs, budgets and procedures. This process might involve
changes within the overall culture, structure, and/or management system of the entire organization.
Sometimes referred to as operational planning, strategy implementation often involves day-to-day
decisions in resource allocation.

4. Evaluation and control: Is the process in which corporate activities and performance results
are monitored so that actual performance can be compared with desired performance. Managers
at all levels use the resulting information to take corrective action and resolves problems.
Although this is the final stage, it can also pin point weaknesses in the other stages thus stimulate
the entire process to start all over again. This means that a good and effective process of strategic
management must have room for feedback to ensure such changes and corrections are performed.

Conclusion:
Despite its complexity, strategic management is becoming more important in the overall scheme
of organizational life. Without a clear vision, widely held corporate goals, innovation and
leadership, and the ability of organizational to respond to these challenges in weak.

Throughout the strategic management process, the organization must focus carefully on all its
activities, searching for answers to four basic questions:

1. Who are we? The question is an attempt to identify the company’s competitive position. How
do we differentiate ourselves from competitors, focusing on our strengths and weaknesses? What
is our natural market? Looking at threats and opportunities, how do we fit in this market? Simply,
it is the mission of the company.

2. Where are we now? Are we maximizing opportunities and reducing threats to the success
of the organization? Where is the company compared to the rest of the industry? Are we leading
or lagging behind the industry, or just holding our own? Is our strategy adequate to counter our
shortcomings? Where is the company standing right now? Is it an acceptable position? What is our
current strategy?

3. Where do we want to be? If the current strategy is not appropriate, especially in the long run,
what strategy should we adopt? This is simply stating objectives.

4. How do we get there? How can we turn threats into opportunities? This question isolates the
means to achieve objectives efficiently and effectively, the choice of new strategy, and how to
implement it.

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The strategist must analyze corporate objectives in light of the environment.

Strategic Intent Defined

Strategic intent is a high-level statement of the means by which your organization will achieve
its vision. It is a statement of design for creating a desirable future (stated in present terms).
Simply put, a strategic intent is your company's vision of what it wants to achieve in the long
term.
Purpose of Strategic Intent
The logic, uniqueness and discovery that make
your strategic intent come to life are vitally important for employees. They have to understand,
believe and live according to it.
Strategy should be a stretch exercise, not a fit exercise. Expression of strategic intent is to help
individuals and organizations share the common intention to survive and continue or extend
themselves through time and space.

THE STRATEGY HIERARCHY

The Three Levels of Enterprise Strategy

Enterprise strategy can be formulated and implemented at three different levels:

1. Corporate level
2. Business unit level
3. Functional or departmental level

At the corporate level, you are responsible for creating value through your businesses. You do so
by managing your portfolio of businesses, ensuring that your businesses are successful over the
long term, developing business units, and sometimes ensuring that each business is compatible
with others in your portfolio.

Products and services are developed by business units. The role of the corporation is to manage its
business units, products and services so that each is competitive and so that each contributes to
corporate purposes.

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1. Corporate level Strategy: At the corporate level, strategies tend to have the broadest scope.
It is at this level, e.g. where the organization’s statement of its mission would be
accomplished. Determining what business the organization should be in.

Corporate level strategy is concerned with; enterprise-wide business process management;

competitive contact; managing activities and business interrelationships; and management
practices

2. Business level Strategy: Once established, the business level sets strategies related to
ensuring that the organization is competing or performing within the areas delineated in the
mission. At this level, one can conceptualize the organization in terms of strategic business
units or, as they are more commonly known, SBUs.

The notion of SBUs has to do with the grouping of a firm’s similar products or services, as
well as the number of industries in which the firm competes, and follows closely the
organization’s diversification.

3 Functional level Strategy: The functional level relates to the strategies employed in the
various functional areas (i.e., human resources, production, marketing, finance, research
and development, etc.) of the organization.

Managers must analyze and develop strategies in the context of how they will affect, or be
affected by, other functional areas in achieving overall organizational goals and objectives.

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STRATEGY FORMULATION

Strategy formulation is the development of long-range plans for they effective management of
environmental opportunities and threats, taking into consideration corporate strengths and
weakness.

It includes defining the corporate mission (Purpose/reason for existence in the society), specifying
achievable objectives, developing strategies and setting policy guidelines.

A well conceived mission statement defines the fundamental, unique purpose that sets a company
apart from other firms of its types and identifies the scope of the company ‘s operation in terms of
products offered and markets served

Strategy formulation requires a defined set of six steps for effective implementation. Those steps
are:
1. define the organization,
2. define the strategic mission,
3. define the strategic objectives,
4. define the competitive strategy,
5. implement strategies, and
6. evaluate progress.

Step 1. Define the Organization

The first step in defining an organization is to identify the company’s customers. Without a strong
customer base, whose needs are being filled, an organization will not be successful. This requires a
company to identify its customers by end benefits sought, by specific target markets, or by
technology.
Some of the ways in which companies can define themselves.
 End Benefit
Organizations must remember that people are buying benefits not features.
 Target Market
Companies can become successful by identifying themselves with a particular target group. This
focus should not be limited only to demographic segmentation (i.e., age, income, education,
gender, income, family life-cycle, culture) but also by psychographic indicators
 Technology
Computer companies, medical research companies, and other companies that identify themselves
with the tech world will find that they must be able to quickly adapt to changes in the marketplace.

Step 2. Define the Strategic Mission

An organization’s strategic mission offers a long-range perspective of what the organization strives
for going forward. It ensures that the company is able to identify its values, the nature of its
business, its competitive advantage, and its vision for the future.

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Step 3. Define the Strategic Objectives

Strategic objectives should be defined based on performance targets and may include increases in
market share, customer service improvements, corporate expansion, sales increases, production
methods, etc. and must be communicated to all employees and stakeholders in order to ensure
success.

Step 4. Define the Competitive Strategy

Three factors must be considered when determining the overall competitive strategy:
the industry and marketplace,
the company’s position relative to the competition,
the company’s internal strengths and weaknesses.

Step 5. Implement Strategies

Developing a strategy is only effective if it is put into place. Without implementing the strategy,
the organization’s work will be of little or no value. The methods employed for implementing
strategies are known as tactics. A company must implement its strategic plan in order to achieve
success

Step 6. Evaluate Progress

Strategies must be evaluated and revised on a regular basis in order to meet the changing needs
and challenges of the marketplace and business environment.

An organization will be able to successfully implement its strategy both now and in the future
through evaluating feedback.

DEVELOPING GOALS, STRATEGIC VISION, MISSION AND OBJECTIVES

Goal: Goal denotes what an organization hopes to accomplish in a future period of time.

Objectives: Objectives are the end results of planned activity; they state what is to be
accomplished by when and should be quantified if possible. The achievement of corporate
objectives should result in fulfillment of the corporation’s mission.

Role of Objectives:
 Objectives define the organizations relationship with its environment.
 Objectives help an organization pursue its vision and mission.
 Objectives provide the basis for strategic decision making.
 Objectives provide the standards for performance Appraisal.

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Characteristics of Objectives: SMART

1. Specific: You indicate who is doing the action, what is happening, when it is
happening, why it is happening, and how it is happening.
2. Measurable: State the metrics that you'll use to determine whether you've met your
objectives. It should be a numeric or descriptive quality that defines quality,
quantity, cost, etc.

3. Achievable: Is this goal attainable and within someone's capabilities?

4. Relevant/Realistic: Does the goal align with the broader goals of the company or
department?

5. Time-bound: Include the date by which you'll achieve the objectives, or the
frequency with which you'll carry out the activity.

Meaning of vision statement: It is sometimes called a picture of your company in the future.
Vision statement is your inspiration; it is the dream of what you want your company to
accomplish.

Meaning for mission Statement: It is a brief description of a company’s fundamental purpose.

The mission statement articulates the company’s purpose both for those in the organizations and
for the public.

Corporate Governance: Corporate Governance involves a set of relationships amongst the

company’s management its board of directors, shareholders and other stakeholders. These
relationships which various rules and incentives provide the structure through which the objectives
of the company are set and the means of attaining the objectives and monitoring performance are
determined.

Definition for Business: A company should define its business in terms of three dimensions:
1. Who is being satisfied (what customer groups)
2. What is being satisfied (what customer needs)
3. How customer needs are being satisfied (by what skills, knowledge or distinctive competencies)

Stake holders in Business: Stake holders are the individuals and groups who can affect by the
strategic outcomes achieved and who have enforceable claims on a firm’s performance. Stake
holders can support the effective strategic management of an organization.

Stake holder’s relationship management. Stake holders can be divided into:

1. Internal Stakeholders
Shareholders, Employees, Managers, Directors
2. External Stakeholders
o Customers

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 o Suppliers
o Government
o Banks/creditors
o Trade unions
o Mass Media
Stake holder’s Analysis:
o Identify the stake holders.
o Identify the stake holders expectations interests and concerns
o Identify claims stakeholders are likely to make on the organization
o Identify the stakeholders who are most important from the organizations
perspective.
o Identify the strategic challenges involved in managing the stakeholder relationship.
Key aspects of Good Corporate Governance
o Transparency of corporate structures and operations
o Corporate responsibility towards employees, creditors, suppliers and local
communities where the corporation operates.
Relating corporate Governance to strategic management:
o Corporate Governance and strategic intent
o Corporate Governance and strategy formulation
o Corporate Governance and strategy implementation
o Corporate governance and strategy Evaluation

Initiation of strategy (Triggering Events that stimulate change)

Some of the possible triggering events:

 New CEO: By asking a series of embarrassing questions, the new CEO cuts through the
veil of complacency and forces people to question the very reason for the corporation’s
existence.
 Intervention by an external institution: The firm’s bank suddenly refuses to agree to a
new loan or suddenly calls for payment in full on an old one.
 Threat of a change in ownership: Another firm may initiate a takeover by buying the
company’s common stock.
 Management’s recognition of a performance gap: A performance gap exists when
performance does not meet expectations. Sales and profits either are no longer increasing
or may even be falling.
 Business expansion, Diversification…..
 Competition………

Strategic decision making Process

Following eight-step strategic decision-making process is proposed

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1. Evaluate current performance results against any expectations.

2. Review corporate governance (Board of Directors, Top Management)

3. Scan the external environment (PESTEL analysis)

4. Analyze strategic factors/Internal Factors (SWOT)

5. Generate, evaluate and select the best alternative strategy that may be adopted for use.

6. Implement selected strategies including programmes, budgets, procedures etc

7.Evaluate implemented strategies

COMPANY ‘S MISSION AND SOCIAL RESPONSIBITY

Strategic Intent
Refers to the purposes the organization strives for. It is the articulation of a simple criterion or
characterization of what the company must become to establish and sustain global leadership.
Leaders help stakeholders to embrace change by setting a clear vision of where the business
strategy needs to take the organization.

Hamel and Prahald on the one hand, strategic intent evasions a desired leadership position and
establishes the criterion the organization will use to chart its progress…..At the same time,
strategic intent is more than simply unfettered (unconstrained) ambition. The concept also
encompasses an active management process that includes;
 focusing the organization attention on the essence of winning, motivating people by
communicating values of the target,
 leaving room for individual and group contributions
 sustaining enthusiasm by providing new operational definition as circumstances change.
 Using strategic intent to consistently guide the allocation of resources.

Defined by Hamel and Prahald to involve:

 A dream that energizes a company. It has an emotional core.
 Involves a stretch for the organization even if the current resources will not satisfy the
aspirations of a vision, it is more than material resources with objectives.

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 It gives a sense of direction – it is a long-term ambition, which enables the integration of
complex skills to achieve objectives.
 Sense of discovering – it offers a new destination for employees to work towards.
 It gives coherence to strategic plans.

The Vision
What is a vision? A vision gives a sense of direction, enables flexibility to exist in the context of
the guiding idea. It is an orientation that guides a manager in specific direction. A vision should be
clear. A strategy draws on the vision. It will provide boundaries for the firm’s direction. It involves
answering the questions:
 What the business is now?
 What it could be in an ideal world?
 What the ideal world would be like?

Problems with Vision

 Ignores real practical problem.
 Can degenerate into wishful thinking.

A vision is meant to stimulate motivation and enthusiasm throughout the company by guiding
activities and behavior and providing a sense of common destiny so that we can all pull in the
same direction.

The Kenya Power & Lighting Co. Ltd

‘To achieve world class status as a quality services business enterprise so as to be the first choice
supplier of electrical energy in a competitive environment’.

Explanation of the key phrase

To achieve
 KPLC runs a service business. Our customers’ expectations and operating environment keep
changing. The word ‘achieve’ will take on a continuous strive.
 We will keep striving to provide a service that is equal to that of other top world electricity
suppliers.
 We will display a relentless desire to improve day by day.
 We recognize the need to continuously seek ways to be new and better.
World class status
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 We recognize that due to rapidly changing information technology, liberalization and
globalization, only companies taking a global viewpoint of their business will thrive in the
future.
 We will not be complacent but will continuously seek new knowledge and skills through
innovation and benchmarking with world class companies.
 We will seek viable strategic alliances globally in a bid to achieve excellence in our business

Quality services
 We recognize fulfillment of customer needs and expectations are the yardstick against which
the quality of our services shall be judged.
 Continuously, we will aim to meet and exceed customers expectations while at the same time
seeking opportunities to improve
 We will require continuous adjustment and realignment of resources, people, procedures and
systems in order to address changing customer needs.
 The scope, quality of services and total commitment to customers shall be our distinguishing
hallmark.

Business Enterprise
 We recognize that the future prosperity depends on our ability to add value to investment.
 We recognize the need for high performance and cost effectiveness. Therefore, we shall be
critical of how we utilize resources.
 The company will be managed on modern business principles of operational efficiency, cost
effectiveness and stakeholder’s satisfaction.
 Employee will adopt a business approach to decision making in all undertaking to give added
value to shareholders, customers, the company and other stakeholders.
First choice

 We shall endeavor to be the top of the mind supplier of electrical energy

 The company will maintain a positive and a dominant position in the market place.
 We shall overcome competition by ensuring that we remain the market leaders in provision of
electrical energy.
Electrical energy

 We recognize that there are other sources of energy but our main focus shall remain electrical
energy.
Competitive environment

 We recognize and appreciate that there are other sources of energy but our main focus shall
remain electrical energy.
 We will welcome competition but seek to create competitive advantage in the entire energy
sector
 We recognize that customers can turn to other sources of energy such as wood, industrial oil,
power generators or even regional suppliers of electrical energy.

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  We shall strive to make electrical energy the preferred choice of energy by building an
unmatched attractiveness to it.

Mumias Sugar Company Ltd

Vision Statement: MSC‟s Vision is: “A leading producer of Sugar, Energy and related
products.”

Mission Statement: The Company’s Mission is: “To add value to all stakeholders through
integrated processes in a dynamic, efficient and ethical manner to achieve growth and
sustainability.”

Core Values: The Core Values or principles by which the Company will operate are:

 Integrity;
 Teamwork;
 Stakeholder Focus;
 Innovation & Creativity;
 Business Focus.

Masinde Muliro University of Science & Technology

Motto: University of Choice

Vision: To be the Premier University in Science Technology & innovation

Mission: To provide Excellent University Education Training and Research through integrating
Science, Technology and innovation into quality programs to suit the needs of a dynamic world
Core Values
Customer focus
Collegiality
Excellence
Professionalism

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 Equity
Accountability
Innovativeness

Characteristic of good Vision

 It should be feasible - Aim high but not impossible targets
 It should be precise – not be so narrow as to restrict some opportunities.
 It should be Clear – clear enough to lead to action.
 It should be motivating.
 It should be distinctive.
 It should indicate major components of strategy
 It should indicate how objectives are to be accomplished.

Benefits of a vision

 Good vision is inspiring and exhilarating.

 Visions represent a discontinuity, a step function and a jump ahead so that the company knows
what it is to be.
 Good vision helps in the creation of a common identity and a shared sense in the market place
as they are practical.
 Good vision foster risk taking and experimentation.
 Good vision foster long- term thinking.
 Good vision represent integrity they are truly genuine and can be used for the benefit of people

A Mission Statement

A company mission is the fundamental purpose that sets a firm from other firms of its type and
identifies the scope of its operations in products and market terms. A mission is cultural glue.
It enables an organization to function as a unity.

It is the statement that expresses the purpose of our organization in line with the expectations of all
stakeholders. It sets the scope and the boundaries of the business activities. It defines the
business we are in.

A mission statement is important because it clarifies for both the internal and the external
stakeholders what our business is seeking to achieve.

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 A company mission is designed to accomplish seven outcomes:
 To ensure unanimity of purpose within the organization.
 To provide a basis for motivating the use of the organization resources.
 To develop a basis, or standard, for allocating organizational resources.
 To establish a general tone or organizational climate; for example, to suggest a business like
operations.
 To serve as focal point for those who can identify with the organization’s purpose and direction
and to deter those who cannot do so from participating further in its activities.
 To facilitate the transformation of objectives and goals into a work structure involving the
assignment of tasks to responsible elements within the organization.
 To specify organizational purposes and the translation of these purposes into goals in such a
way that cost, time, and performance parameters can be assessed and controlled.

Elements of Mission

a). Purpose

The purpose explains why the company exists? Say the company exists to create wealth for
shareholders, to satisfy needs of all stakeholders to reach some higher goals etc.

b). Strategy

The strategy provides the commercial logic for the company. It is how the business hopes to
compete and prosper.

c). Policies

Policies convert the mission into everyday performance. This includes simple matters such as
politeness to customers, speed at which phone calls are answered etc.

d). Values include the principles of business like commitment to suppliers, staff and customers,
the social policy. Values like loyalty and commitment can inspire employees to sacrifice their
own personal interests for the good of the whole. Values also act as a guide for behavior.

A mission helps create a work environment where there is a sense of common purpose.

Newest Trends in Mission Components

i) Sensitivity to customer wants

 “The customer is our top priority!”
 Emphasis on extensive product safety programs
ii) Concern for quality
 “Quality is job one!”
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  Emphasis on quality in manufacturing
 New philosophy – quality is the norm
iii) Statements of company vision
 Developed to express the aspirations of the executive leadership
 Presents the firm’s strategic intent
 “A computer on every desk, and in every home, running on Microsoft software”

Kenya Power & Lighting Co. Ltd. Mission statement

‘To efficiently transmit and distribute power throughout Kenya at cost effective tariffs; to achieve
the highest standards of customer service; and ensure the company’s long term technical and
financial viability’.

Kenya Power & Lighting Co. Ltd. Core values are;

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 Customer
driven
 Teamwork
 Result- driven
 Empowerment
 Innovation
 Professionalis
m
 Equal
opportunity
 Ethics/Integrit
y
 Social
responsibility
 Environmental
friendly

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Importance of Mission
 Communicating internally
 Values and feeling are integral element of consumers’ buying decision.
 Suggest that employees are motivated by more than money.

Mission statements are formal statements of an organization, they should be brief for
ease of remembrance, flexible to accommodate change, and distinctive to make the
firm stand out.

It is difficult for managers to master mission statement because of its philosophical

and qualitative nature. Many organizations find their departments and sometimes even
their groups pulling in different directions often with disastrous results. This is
because the organization has not defined the boundaries of its business and the way it
wish to do business.

Differences between Mission and Vision

A mission about here and now but vision refers to the future. Vague mission will fail
to motivate, whereas a mission is designed to motivate. A vision that is achieved will
cease to motivate.

Concepts of Agency Theory

Where there is separation of owners (principals) and managers (agents) of a firm

potential exists for owners’ wishes to be ignored. This and the fact that the agents are
expensive for the basis of the agency theory. Whenever owner’s delegation of
decision-making authority to manager’s agency relationship exist between the two
parties. The relationship can be very effective as long as managers make investment
decisions in a way that are consistent with the stockholders interest. When the interest
of the manager diverge from those of the owner’s, then the management decisions are
more likely to reflect the manager’s preferences than the owner’s preferences.

In general stockholders seek stock value maximization and managers prefer strategies
that results in stock appreciation. When manager hold important blocks of companies
stock, they too prefer strategies that result to stock appreciation. When manager
behave like “hired hands” rather than owner partners, they are likely to pursue
strategies that result to increase in their personal payoff.

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Agency theory argues that self-interested managers act in a way that increase their
own welfare at the expense of the gain of corporate stockholders. The owner as such
incurs the agency cost which is the gain they could have gotten from the owner’s
optimal strategies and the cost of monitoring and control system designed to minimize
the consequences of self-centered management decisions.

How Can Agency Problems Occur?

Moral hazard problem occurs because the owners have limited information about the
performance of the firm. Also the owners cannot monitor every executive decision
and executives are often free to pursue own interests. Executive may design strategies
that present the highest possible benefits to them with the welfare of the organization
being a secondary consideration. They may offer discount that threatens the price to
earn bonuses.

Adverse selection-this is the limited ability that the stockholders have to precisely
determine the competencies and priorities of the executives at the time they are hired.
Because of this, problems of overlapping priorities between owners and executives
likely to occur.

In summary the potential Agency Relationship Problems will include, executives

pursue growth in company size rather than in earnings, executives attempt to diversify
their corporate risk, executives avoid risk, managers act to optimize their personal
payoffs and executives act to protect their status

Solutions to the Agency Problem

• Define agent’s responsibilities in a contract, including elements like bonuses to
align executives’ and owners’ interests
• Pay executives a premium for their services
• Structure a back loaded compensation plan for executives
• Create teams of executives across different organizational units to focus on overall
organizational performance.

The Stakeholder Approach to Social Responsibility

“Few trends could so thoroughly undermine the very foundation of our free society as
the acceptance by the corporate official’s o a social responsibility other then to make
as much money for their stockholders as possible”
Milton Friedman, capitalism and freedom,1962

20
Since Milton wrote these words, the issues of social responsibility has remained
highly contentious one. But manager recognize that deciding to what extent to accept
social responsibility is a strategic decision.

In defining the mission statement, the management must recognize the legitimate
claimant. These will include all the stakeholders of the organisation. Social
responsibility is the obligation of decision-makers to take actions that protect and
improve the welfare of society as a whole along with their own interest. It is in other
words the social responsibility obligations that a business has. At any one time in any
society there is a set of generally accepted relationship obligations and duties between
the major institutions.

Social responsibility concept developed as a result of business growth, increase in

social consciousness, growth in the level of education and concentration of economic
power in hands of big corporation

The evolution of social responsibility has taken place since the 2nd world war. The
modern business organization must consider the impact of their actions on whom they
interact. This is the traditional standard of performance that is profit ethics is being
challenged that the modern business can no longer make decisions solely on basis of
profits.

Stakeholder’s View
The view is that many groups have a stake in what the organization does.
Shareholder’s own the business but employees, customer’s, and government also have
particular interest. It is argued that modern corporations are so powerful that
unrestrained use of their power will inevitably damage other people’s rights.

If the stakeholder’s concept is upheld, then the public is a stakeholder in the business.
A business only succeeds because it is part of a wider society. Giving to charity is one
way of encouraging this relationship. Donations to charity are a useful medium of
Public relations and can reflect well on business.

An organization might accept the legitimacy of the expectations of shareholder’s other

than shareholder’s and build those expectations into shared purpose. This is because
without appropriate relationships with these groups, the organization will not be able
to function.

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Why has there been this shift towards social responsibility?

 The very success of the modern businessman has created new responsibility for
him.
 Decline in public support of the power hungry and power seeking type of
businessman.
 The situation and knowledge of both the modern manager and modern consumer
on society concern and goals.
 Also increasing depersonalization of corporation resulting from corporate growth
i.e. Separation of ownership and control giving managers more autonomy.
 Corruption rather than competition is gaining importance as a way of getting
things done.
 Translation of corporation from producer of goods and services to modern purpose
social institution.
 The modern businessman has earned a high place among national leaders making
his responsibility more social to keep pace with his new social role.

Support for Doctrine of Corporate Social Responsibility

The supporters of this concept agree on two basic hold.

 The industrial society faces serious human and social problems brought about by
the rise of large enterprises.
 Managers must conduct the affairs of their corporation in ways which will serve
or reduce its problems.
Besides they argue that social responsibility in business will improve shareholders
returns; in that;

 It is essential to being a sustainable enterprise- a sustainable enterprise is one

whose competitive strategy does not conflict with the long-term needs and values
of the society.
 Attract socially conscious investors i.e. think about oil, tobacco, car, armaments,
mining, brewing and assess the level of their sustainability.
 Attracts socially conscious consumers-consumers ready to pay premium for
products they regard as sound.
 Improves relations with governments and other regulatory bodies. To a great
extent, a firm depends of the goodwill of governments.
 Reduces stress on management and staff and permits improved morale. Socially
responsible firm may attract staff who are conscious of ethics and social
responsibility.

These supporters contend that democratic capitalism has failed because it did not
develop a functioning society i.e. a society that gives each individual a respectable
status based on social functions he performs. They further contend that an economy
is a means to an end therefore the way it is organized should be a function of the value
systems of a society in which it exists.

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Arguments against Corporate Social Responsibility

 It reduces the corporate profits i.e. it takes money out of the pockets of the
shareholders. Some economists have argued that such practices rank counter to the
free market economy.
 Businesses are not directly accountable to the public thus to give them social
obligation is to give them activities for which they are not responsible for the
performance or results.
 Business organizations have no expertise in social responsibility.
 Management and staff expertise may be wasted in social project.
 Shareholders funds may be diverted to socially worth project
 Social responsibility gives organizations more power.
 Social responsibility is a redundant concept that is the existing laws sufficiently
constrain the corporate activities.
The doctrine is incompatible with the prices system where sellers carry on the rational
calculation in order to maximize their profits and the buyers to maximize satisfaction.
As such the only control visible should be the marketplace and nowhere else.

The business enterprise must assume the single role of profit maximization for the
price system to work at maximum efficiency. If business takes on other roles then the
price system may loose in production of goods and services for profit and leave other
goals/roles for the family for host government and any other entity.

CSR Today

Three broad trends are driving businesses to adopt CSR frameworks

• The resurgence of environmentalism

• Increasing buyer power
• Globalization of business

CSR’s Effect on the Mission Statement

In developing mission statements, managers must identify all stakeholder groups and
weigh their relative rights and abilities to affect the firm’s success

• Some companies are proactive in their approach to CSR, making it an integral part
of their raison d’être (e.g., Ben and Jerry’s ice cream)
• Others are reactive, adopting socially responsible behavior only when they must
(e.g., Exxon after the Valdez incident)

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INDUSTRY ANALYSIS/ INTERNAL STRATEGIC AUDIT

The Business Environment

The environment in which an organization exists could be broadly divided into

two parts; the external and the internal environment. The environment literally means
the surrounding, external object, influences or circumstances under which someone
exists. The environment of any organization is the aggregate of all conditions, events
and influences that surround and affect it.

Throughout midst of its history, corporations have been viewed solely as economic
institutions with only economic responsibilities. These responsibilities included
producing goods and services to meet consumer needs, providing employment for
much of the nation’s work force, paying dividends to shareholders and making
provision for future growth. Where these economic responsibilities were fulfilled, the
business was considered successful and to have met its obligation to the society.

However, the last 50 years has seen a dramatic change in the environment in
which the business functions. New roles have been defined for business to
perform in the society. The society has devoted increasing amount of attention to
issues such as pollution control, safety and health, equal opportunity and
production of quality and safe products. These concerns have resulted in the
proliferation of new laws and regulations that restrict business activities that affect the
society in an adverse manner. The effect of this change is dramatic change in the
“rules of game” by which a business is expected to operate.

Thus economic functions of business are no longer dominant and must be seen in
relation to the social and political roles that business is being asked to assume.
The business institution is being reshaped to meet these responsibilities and must
factor social and political considerations into its planning and operational process.
This is the new reality businesses must learn to live.

This changing role of business in society has, of course, made an impact on the
management task within corporations. Managers have had to incorporate social
and political concerns into their decision-making process. These are becoming part
of routine business operations in many corporations. Many managers have changed
the way in which they view their responsibilities to society.

Learning to understand the external environment and to consider its impact in

making management decision has become the most necessary skill for every
successful manager. No business decisions today can be based solely on traditional
business rationale and be successful.

The lesson that the students of strategic management need to learn is that, in a
dynamic environment, it is suicidal for organizations to remain static. They have

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to forego keeping an internal orientation and attempt to change dynamically as
the environment changes.

Some of the Tools used in Industry Analysis

PESTEL ANALYSIS TOOL

1. Political: These factors determine the extent to which a government may
influence the economy or a certain industry. E.g. tax policies, Fiscal policy,
trade tariffs etc. that a government may levy around the fiscal year and it
may affect the business environment (economic environment) to a great
extent.
2. Economic: These factors are determinants of an economy’s performance
that directly impacts a company and have resonating long term effects.
E.g. rise in the inflation rate of any economy would affect the way
companies’ price their products. Economic factors include inflation rate,
interest rates, foreign exchange rates, economic growth patterns etc.
3. Social: These factors scrutinize the social environment of the market, and
gauge determinants like cultural trends, demographics, population
analytics etc. An example for this can be buying trends for Western
countries like the US where there is high demand during the Holiday
season.
4. Technological: Pertain to innovations in technology that may affect the
operations of the industry and the market favorably or unfavorably. E.g.
automation, research and development and the amount of technological
awareness that a market possesses.
5. Environmental: include all those that influence or are determined by the
surrounding environment. This aspect of the PESTEL is crucial for certain
industries particularly e.g. tourism, farming, agriculture etc. Factors of a
business environmental analysis include but are not limited to climate,
weather, geographical location, global changes in climate,
environmental offsets etc.
6. Legal: These factors have both external and internal sides. There are
certain laws that affect the business environment, and certain policies that
companies maintain for themselves. Legal analysis takes into account both
of these angles and then charts out the strategies in light of these
legislations. E.g. consumer laws, safety standards, labor laws etc.

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2. SWOT ANALYSIS

A SWOT analysis (alternatively SWOT matrix) is a structured planning method

used to evaluate the strengths, weaknesses, opportunities and threats involved in a
project or in a business venture.

A SWOT analysis can be carried out for a product, place, industry or person. It
involves specifying the objective of the business venture or project and identifying the
internal and external factors that are favorable and unfavorable to achieve that
objective.

Strength and weakness are internal forces and factors that are to be assessed
continuously since more and more competitive organizations with state of the art
technology and services are entering into the market and competition is getting
intensified day by day.
Opportunities and threats are the external factors and forces in the business
environment which are also changing day by day with the change of government
policy, industrial policy, monetary policy, political situation at national and
international levels, formation of various trade blocks and trade barriers including the
changes in legal and social environment in the business world.

Strengths:
Strength is the power and excellence with the resources, skills and advantages in
relation to the competitors. A strength is a distinct technical superiority with best
technical know-how, financial resources and skill of the people in the organization,
goodwill and image in the market for the product and services, company’s access to
best distribution network, the discipline, morale, attitude and mannerisms of the
employees at all levels with a sense of belonging.
Management Science I Pro
Weakness:
Weakness is the incapability, limitation and deficiency in resources such as technical,
financial, manpower, skills, brand image and distribution pattern. It refers to
constraints or obstacles, which check movement in a certain direction and may also
inhibit an organization in gaining a distinct competitive advantage.

Opportunities:

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Environmental opportunity is an alternative area for company’s action in which the
particular company would enjoy a competitive advantage. An opportunity is a major
favorable advantage to a company. Proper analysis of the environment and
identification of new market, new and improved customer group with better product
substitutes or supplier’s relationship could represent opportunities for the company.

Threats:
Environmental threat is the challenge posed by the unavoidable trend or development
that would lead, in the absence of purposeful action to the erosion of the company’s
position. Slow market growth, entry of resourceful multinational companies, increase
bargaining power of the buyers or sellers because of a large number of options, quick
rate of obsolescence due to major technological change and adverse situation because
of change of government policy rules and regulation is disadvantageous to any
company and may pose a serious threat to
business operation.

Identification of SWOTs is important because they can inform later steps in planning
to achieve the objective.

3. PORTER'S FIVE FORCES ANALYSIS

A MODEL FOR INDUSTRY ANALYSIS

Porter's Five Forces Analysis is an important tool for assessing the potential for
profitability in an industry. 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

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Michael Porter’s approach to industry analysis

Michael Porter, an authority on competitive strategy, contends that a corporation is

most concerned with the intensity of competition within its industry. Basic
competitive forces determine the intensity level.

The stronger each of these forces is, the more companies are limited in their ability to
raise prices and earned greater profits.

a) Threat of new entrants

New entrants are newcomers to an existing industry. They typically bring new
capacity, a desire to gain market share and substantial resources. Therefore they are
threats to an established corporation. Some of the possible barriers to entry are the
following.
1. Economies of scale
2. Product differentiation
3. Capital requirements
4. Switching costs
5. Access to distribution channels
6. Cost disadvantages independent of size
7. Government policy

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 b) Rivalry among existing firms
Rivalry is the strength competition in an industry. In most industries corporations are
mutually dependent. A competitive move by one firm can be expected to have a
noticeable effect on its competitors and thus make us revenge or counter efforts.
According to Porter, intense rivalry is related to the presence of the following
factors.
1. number of competitors
2. rate of industry growth
3. product or service characteristics
4. amount of fixed costs
5. capacity
6. height of exit barriers
7. diversity of rivals
c) Threat of substitute product or services
Substitute products are those products that appear to be different but can
satisfy the same need as another product. According to Porter, “Substitute limit the
potential returns of an industry by placing a ceiling on the prices firms in the industry
can profitably charge.” To the extent that switching costs are low, substitutes may
have a strong effect on the industry.
d) Bargaining power of buyers
Buyers affect the industry through their ability to force down prices, bargain
for higher quality or more services, and play competitors against each other.
e) Bargaining power of supplier
Suppliers can affect the industry through their ability to raise prices or reduce the
quality of purchased goods and services.

4. PRODUCT PORTFOLIO ANALYSIS/BCG MATRIX

The general purpose of the analysis is to help understand, which brands the firm
should invest in and which ones should be divested.

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 1. Stars- Stars represent business units having large market share in a fast
growing industry. They may generate cash but because of fast growing market,
stars require huge investments to maintain their lead. Net cash flow is usually
modest. SBU’s located in this cell are attractive as they are located in a robust
industry and these business units are highly competitive in the industry. If
successful, a star will become a cash cow when the industry matures.
2. Cash Cows- Cash Cows represents business units having a large market share
in a mature, slow growing industry. Cash cows require little investment and
generate cash that can be utilized for investment in other business units. These
SBU’s are the corporation’s key source of cash, and are specifically the core
business. They are the base of an organization. These businesses usually
follow stability strategies. When cash cows lose their appeal and move
towards deterioration, then a retrenchment policy may be pursued.
3. Question Marks- Question marks represent business units having low relative
market share and located in a high growth industry. They require huge amount
of cash to maintain or gain market share. They require attention to determine if
the venture can be viable. Question marks are generally new goods and
services which have a good commercial prospective. There is no specific
strategy which can be adopted. If the firm thinks it has dominant market share,
then it can adopt expansion strategy, else retrenchment strategy can be
adopted. Most businesses start as question marks as the company tries to enter
a high growth market in which there is already a market-share. If ignored, then
question marks may become dogs, while if huge investment is made, then they
have potential of becoming stars.
4. Dogs- Dogs represent businesses having weak market shares in low-growth
markets. They neither generate cash nor require huge amount of cash. Due to
low market share, these business units face cost disadvantages. Generally
retrenchment strategies are adopted because these firms can gain market share
only at the expense of competitor’s/rival firms. These business firms have
weak market share because of high costs, poor quality, ineffective marketing,
etc. Unless a dog has some other strategic aim, it should be liquidated if there
is fewer prospects for it to gain market share. Number of dogs should be
avoided and minimized in an organization.

Limitations of BCG Matrix

The BCG Matrix produces a framework for allocating resources among different
business units and makes it possible to compare many business units at a glance. But
BCG Matrix is not free from limitations, such as-

1. BCG matrix classifies businesses as low and high, but generally businesses
can be medium also. Thus, the true nature of business may not be reflected.
2. Market is not clearly defined in this model.
3. High market share does not always leads to high profits. There are high costs
also involved with high market share.
4. Growth rate and relative market share are not the only indicators of
profitability. This model ignores and overlooks other indicators of profitability.

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 5. At times, dogs may help other businesses in gaining competitive advantage.
They can earn even more than cash cows sometimes.
6. This four-celled approach is considered as to be too simplistic.

5. INDUSTRY VALUE CHAIN ANALYSIS

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6.MICHAEL PORTER’S GENERIC STRATEGIES MODEL
Competitive Advantage

Porter's Generic Strategies Model

Michel Porter in his Porter's Generic Strategies Model, has applied firm's competitive
advantages or strengths i.e. cost advantage and product differentiation in either broad
or narrow market scope and identified following three generic strategies :-
1. Cost Leadership Strategy,
2. Differentiation Strategy, and
3. Focus Strategy.

These strategies are applied at business unit level. These strategies are called generic
strategies because they are not dependent on specific firm or industry.

1. Cost Leadership Strategy

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This strategy calls for being a low cost producer in an industry for a given level of
quality. This strategy usually targets broad markets. The producer can charge either
equal to average industry price to earn a profit higher than that of competitors, or
blow average industry price to gain market share. In the situation of price war, the
firm can earn some profit, but the competitors have to suffer losses. When the
industry matures and prices declines, the firm that produce more cheaply will remain
profitable for longer time.

The firm can reduce cost of production by improving processes efficiency, getting
lower cost materials, vertical integration, optimal outsourcing, efficient distribution
channels, expertise in manufacturing and engineering.

2. Differentiation Strategy
This strategy calls for the development of product or service that offers unique
attributes and that is perceived by customers different or of greater value than the
products or services of the competitors. The unique attributes makes the product
different from the competitors' products and adds value to it. This added value allows
the producer to charge a premium price for its product.

The unique attributes can be brought to the product through scientific research and
development, creative and skilled product development team, proper communication
of perceived strength of the product, innovated design and features. This strategy also
targets broader market.

3. Focus Strategy
The focus strategy targets a narrow market or segment and within that segment
attempt to achieve either cost advantage or differentiation. As the entire focus of the
firm is on a group or segment, so the needs of the segment can be serviced better, and
firm often gain high degree of customer loyalty.

Conclusion
Competitive strategy is a long term action plan that is devised by an organization to
gain sustainable competitive advantage over its rivals.

7. McKinsey’s 7S Model

This was created by the consulting company McKinsey and company in the early
1980s. Since then it has been widely used by practitioners and academics alike in
analyzing hundreds of organizations.

It explains each of the seven components of the model and the links between them.
The McKinsey 7S model was named after a consulting company, McKinsey and
company, which has conducted applied research in business and industry. All of the
authors worked as consultants at McKinsey and company, in the 1980s, they used the
model to analyze over 70 large organizations.

The McKinsey 7S Framework was created as a recognizable and easily remembered

model in business.

33
1. Strategy: Strategy is the plan of action an organization prepares in
response to, or anticipation of changes in its external environment. What
is your plan for the future? How do you intend to achieve the objectives?
How do you deal with competitive pressure? What are the key strategic
priorities such as improved customer service?

2. Structure: Refers to the framework in which the activities of the

organization’s members are coordinated. i.e. focus employees’ attention on
what needs to get done by defining the work they do and whom they should be
working with. How is the organizational structure designed right now? How
is the team divided? How do the various departments coordinate activities?
How do the team members organize and align themselves?

3. Systems: Refers to the day-to-day processes and procedures. Having

effective systems helps reduce redundancy and streamlines process. What
are the main systems that run the organization? Where are the controls and
how are they monitored and evaluated? What internal rules and processes
does the team use to keep on track?

4. Shared Values: (also known as Super-ordinate goals): Refers to the guiding

principles of the organization. These are the core values of the company and
your department. What are your core and stated values? What do you
measure and reward? Do they share the same company and departmental
vision etc?

5. Style: Refers to the leadership approach and the organizations overall

operating approach. How would you describe your department? How would
your employees describe your department? etc

6. Staff: Refers to the staff levels and how people are hired, developed, trained,
socialized, integrated, and ultimately how their careers are managed. Are you
staffed to serve customers adequately? Will the addition or deletion of one or
two staff members change anything?

34
 7. Skills: Refers to the distinctive competencies of people within the
organization. What skills have you been hiring for? What skills do you need?
Are there any skills gaps? How are skills monitored and assessed? etc

Hard components are:  Strategy,  Structure,  Systems

Soft components are:  Shared values,  Style,  Staff,  Skills

8. BALANCED SCORECARD

What is the balanced scorecard?

 A system of corporate appraisal which looks at financial and non-financial

elements from a variety of perspectives.
 An approach to the provision of information to management to assist strategic
policy formation and achievement.
 It provides the user with a set of information which addresses all relevant
areas of performance in an objective and unbiased fashion.
 A set of measures that gives top managers a fast but comprehensive view of
the business.

Why the balanced scorecard…

 Allows managers to look at the business from four important perspectives.

 Provides a balanced picture of overall performance highlighting activities that
need to be improved.
 Combines both qualitative and quantitative measures.
 Relates assessment of performance to the choice of strategy.
 Includes measures of efficiency and effectiveness.
 Assists business in clarifying their vision and strategies and provides a means
to translate these into action.

In what way is the scorecard a balance?

The scorecard produces a balance between:

 Four key business perspectives: financial, customer, internal processes and

innovation.
 How the organization sees itself and how others see it.
 The short run and the long run
 The situation at a moment in time and change over time

Main benefits of using the balanced scorecard

35
  Increases the focus on the business strategy and its outcomes.
 Leads to improvised organizational performance through measurements.

 Align the workforce to meet the organization's strategy on a day-to-day basis.

 Targeting the key determinants or drivers of future performance.

 Improves the level of communication in relation to the organization's strategy

and vision.

 Helps to prioritize projects according to the timeframe and other priority

factors.

The Basics of Balanced Scorecard

Following is the simplest illustration of the concept of balanced scorecard. The four
boxes represent the main areas of consideration under balanced scorecard. All four
main areas of consideration are bound by the business organization's vision and
strategy.

The balanced scorecard is divided into four main areas and a successful organization
is one that finds the right balance between these areas.

Each area (perspective) represents a different aspect of the business organization in

order to operate at optimal capacity.

 Financial Perspective - This consists of costs or measurement involved, in

terms of rate of return on capital (ROI) employed and operating income of the
organization.

36
  Customer Perspective - Measures the level of customer satisfaction,
customer retention and market share held by the organization.
 Business Process Perspective - This consists of measures such as cost and
quality related to the business processes.
 Learning and Growth Perspective - Consists of measures such as employee
satisfaction, employee retention and knowledge management.

The four perspectives are interrelated. Therefore, they do not function independently.
In real-world situations, organizations need one or more perspectives combined
together to achieve its business objectives. For example, Customer Perspective is
needed to determine the Financial Perspective, which in turn can be used to improve
the Learning and Growth Perspective.

Features of a Balanced Scorecard

When it comes to defining and assessing the four perspectives, following factors are
used:

 Objectives - This reflects the organization's objectives such as profitability or

market share.
 Measures - Based on the objectives, measures will be put in place to gauge
the progress of achieving objectives.
 Targets - This could be department based or overall as a company. There will
be specific targets that have been set to achieve the measures.
 Initiatives - These could be classified as actions that are taken to meet the
objectives

THE INDUSTRY LIFE CYCLE

The industry life cycle is not the same as the product life cycle, because within an
industry there is a constant updating of products. For example TV manufacturers first
produced monochrome TVs, then colour TVs and subsequently home entrainment
systems. Within the colour TV segment, the screen technology has evolved from
cathode ray displays to flat screens such as plasma screens. Recently the first 3D TVs
and Internet enabled TV sets appeared on the market.

Industries evolve over time, both structurally and in terms of overall size. The
industry life cycle is measured in total industry sales and the growth in total industry
sales. The industry structure and competitive forces that shape the environment in
which businesses operate change throughout the life cycle. Therefore a business's
strategy must adapt accordingly.

It is useful to consider the evolution of the industry life cycle in the context of Porter’s
5 Forces.

1. Introduction

37
In the introduction stage there are few competitors and there is no threat from
substitutes because the industry is so new.
The power of buyers is low, because those who require the product are prepared to
pay to get hold of supplies that are limited. Suppliers exert some power, because
volumes purchased are still low and the industry is relatively unimportant for
suppliers.

2. Growth
In the growth stage the number of competitors increases rapidly as other firms enter
the growing industry. However, because at this stage growth in demand outstrips
growth of capacity, rivalry among firms is kept in check.
The power of buyers is still very low because demand exceeds supply. Often industry
growth is associated with high profitability. While at this stage firms may profitable,
they could still be cash absorbing and running risks as they jockey for position and
market share.

3. Maturity
As the industry enters maturity, the power of buyers is increasing because capacity
matches or exceeds demand.
In contrast, the power of suppliers has declined because by now the volumes
purchased by the industry are very important to suppliers. Losing a large customer
could be very damaging to suppliers. The threat from substitutes is now growing. The
industry will start to consolidate, possibly through mergers and acquisitions. Mature
industries are settled in, risks are low and cash is generated. However, rivalry among
competitors is fierce and falling prices pose a serious threat to profitability.

4. Decline
The decline stage poses new challenges. Capacity exceeds supply thereby increasing
the power of buyers.
The weakest competitors will withdraw from the industry, leading to a decline in the
rivalry between firms. At this stage firms may also combine forces to ask for
government intervention or subsidies to help to protect the declining industry. The
threat of substitutes is high; indeed, substitutes are often the root cause of decline.
However, managed correctly, a slowly declining industry can produce attractive
returns for investors because there is no new investment as the industry is gradually
run down and milked for cash.

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 STRATEGIC IMPLEMENTATION

We keep hearing news stories and anecdotes about this “successful business” or that
“entrepreneur who hit the big time with his business idea”. These stories often leave
us in a state of wonder and awe, and we find ourselves wanting to know more. More
about how the business became a success, more about what inspired a normal working
guy (or girl) to think of a novel and brilliant business idea, and more about how
someone can start a business, and make her dreams a reality.

We become so fixated on these stories that, all too often, we overlook the other side of
that reality: that just as businesses become big and successful, there are also
companies – perhaps in greater numbers – that fail.

What many often fail to realize, is that they can also learn from business ideas that
tanked and business ventures that never really got off the ground. Better, they can also
learn a lot from businesses that were able to get started, and then, somewhere along
the way, something went wrong. They were having problems and great difficulty in
maintaining their operations, until most of them declared bankruptcy or liquidated.

Why Businesses fail for a lot of reasons.

Some had to close up shop because of economic upheavals that simply did not
provide any room for new businesses to try making headway in their operations.
Others blame the actions of competitors, and even the business challenges that are
inherent in the market. There are also those businesses that blame the lack of
resources for the failure.

However, this makes one wonder: if the economy, the competitors, the market and its
challenges, and the availability of resources are at fault, how come other businesses
were able to survive, and even become hugely successful? At this point, the most
logical reason that comes to mind is mismanagement. More often than not, it is about
how the business was unable to manage its strategies very well.

Strategic management is considered to be one of the most vital activities of any

organization, since it encompasses the organization’s entire scope of strategic
decision-making. Through the strategic management process, it allows the
organization to formulate sets of decisions, actions and measures – collectively known
as strategies – that are subsequently implemented in order to achieve organizational
goals and objectives.
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 Strategy formulation

where the organization’s mission, objectives, and strategies are defined and set – is the
first stage in strategic management. That is where it all begins, which means that, if
the organization was unable to complete that stage with very good results, then the
company’s strategy management is already ruined from the start. Many organizations
fail during the first stage, in the sense that they are unable to come up with strategies
that will potentially take the organization where it wants to be.

However, there are also a lot of businesses that are able to formulate excellent and
very promising strategies. And yet, the end result is still the organization having
problems and even ultimately closing down. What could have gone wrong?

Most probably, it was because of poor implementation of the strategies.

STRATEGY IMPLEMENTATION
The second stage of strategic management, after strategy formulation, is “strategy
implementation” or, what is more familiar to some as “strategy execution”. This is
where the real action takes place in the strategic management process, since this is
where the tactics in the strategic plan will be transformed into actions or actual
performance.

Strategic implementation is a process that puts plans and strategies into action to
reach desired goals. The strategic plan itself is a written document that details the
steps and processes needed to reach plan goals, and includes feedback and progress
reports to ensure that the plan is on track.

Other writers say Strategy implementation is a term used to describe the activities
within a workplace or organization to manage the activities associated with the
delivery of strategic plan

Needless to say, it is the most rigorous and demanding part of the entire strategic
management process, and the one that will require the most input of the organization’s
resources. However, if done right, it will ensure the achievement of objectives, and
the success of the organization.

If strategy formulation tackles the “what” and “why” of the activities of the
organization, strategy implementation is all about “how” the activities will be carried
out, “who” will perform them, “when” and how often will they be performed, and
“where” will the activities be conducted.

And it does not refer only to application of new strategies. The company may have
existing strategies that have always worked well in the past years, and are still
expected to yield excellent results in the coming periods. Reinforcing these strategies
is also a part of strategy implementation.

The basic activities in strategy implementation involve the following:

 Establishment of annual objectives

 Formulation of policies for execution of strategies

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 Allocation of resources
 Actual performance of tasks and activities
 Leading and controlling the performance of activities or tactics in various
levels of the organization

Incidentally, businesses may also find that they have to perform further planning even
during the implementation stage, especially in the discovery of issues that must be
addressed.

Strategy implementation is the stage that demands participation of the entire

organization. Formulation of the strategies are mostly in the hands of the
strategic management team, with the aid of senior management and key
employees. When it comes to implementation, however, it is the workforce that
will execute the strategic plan, with top or senior management taking the lead.

FACTORS THAT SUPPORT STRATEGY IMPLEMENTATION

Effective execution of strategies is supported by five key components or factors. All
five must be present in order for the organization to be able to carry out the strategies
as planned.

People
There are two questions that must be answered: “Do you have enough people to
implement the strategies?” and “Do you have the right people in the organization to
implement the strategies?”

The number of people in your workforce is an issue that is easier to address, because
you can hire additional manpower. The tougher part of this is seeing to it that you
have the right people, looking into whether they have the skills, knowledge, and
competencies required in carrying out the tasks that will implement the strategy.

If it appears that the current employees lack the required skills and competencies, they
should be made to undergo the necessary trainings, seminars and workshops so that
they will be better equipped and ready when it’s time to put the strategic plan into
action.

In addition, the commitment of the people is also something that must be secured by
management. Since they are the implementers, they have to be fully involved and
committed in the achievement of the organization’s objectives.

Resources
One of the basic activities in strategy implementation is the allocation of resources.
These refer to both financial and non-financial resources that (a) are available to the
organization and (b) are lacking but required for strategy implementation.

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Of course, the first thing that comes to mind is the amount of funding that will support
implementation, covering the costs and expenses that must be incurred in the
execution of the strategies. Another important resource is time. Is there more than
enough time to see the strategy throughout its implementation?

Structure
The organizational structure must be clear-cut, with the lines of authority and
responsibility defined and underlined in the hierarchy or “chain of command”.
Each member of the organization must know who he is accountable to, and who he is
responsible for.

Management should also define the lines of communication throughout the

organization. Employees, even those on the lowest tier of the organizational hierarchy,
must be able to communicate with their supervisors and top management, and vice
versa. Ensuring an open and clear communication network will facilitate the
implementation process.

Systems
What systems, tools, and capabilities are in place to facilitate the implementation of
the strategies? What are the specific functions of these systems? How will these
systems aid in the succeeding steps of the strategic management process, after
implementation?

Culture
This is the organizational culture, or the overall atmosphere within the company,
particularly with respect to its members. The organization should make its employees
feel important and comfortable in their respective roles by ensuring that they are
involved in the strategic management process, and that they have a very important
role. A culture of being responsible and accountable for one’s actions, with
corresponding incentives and sanctions for good and poor performance, will also
create an atmosphere where everyone will feel more motivated to contribute to the
implementation of strategies.

These factors are generally in agreement with the key success factors or prerequisites
for effective implementation strategy, as identified by McKinsey. These success
factors are presented in the McKinsey 7s Framework, a tool made to provide
answers for any question regarding organizational design.

The emphasis of the framework is “coordination over structure”, which also supports
how strategy implementation is described to involve the entire organization and not
just select departments or divisions.

The 7 factors are divided into two groups: The Hard S (strategy, structure and
systems) and the Soft S (style, shared values, staff and skills)

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Strategy
The strategy – or the plan of the business to achieve competitive advantage and
sustainable growth – must be long-term and clearly defined. It must indicate a
direction that leads to the attainment of objectives. When you take the organization’s
mission and core values, the strategy should also be in line with them.

Structure
The organizational structure must be visible to everyone, and clearly identify how the
departments, divisions, units and sections are organized, with the lines of authority
and accountability clearly established.

Systems
There should be a clear indication and guide on how the main activities or operations
of the business are carried out. The processes, procedures, tasks, and flow of work
make up the systems of the organization.

Style
This addresses the management or leadership style in force within the organization,
from top management to the team leaders and managers in the smaller units. Strategy
implementation advocates participative leadership styles, and so this is really more
about defining and describing the interactions among the leaders in the organization
and, to some extent, how they are perceived by those that they lead or manage.

Staff
Organizations will always have to deal with matters regarding staffing. Human
resources, after all, is one of the most important assets or resources of an organization.
Thus, much attention is given to human resource processes, specifically hiring,
recruitment, selection and training.

Skills
Employees without skills are worthless resources to the organization. In order to aid
the organization on the road towards its goals, the employees must have the skills,
competencies and capabilities required in the implementation of strategies.

Shared Values
This is at the heart of the McKinsey 7s framework, and they refer to the standards,
norms and generally accepted attitudes that ultimately spur members of the
organization to act or react in a certain manner. Employee behavior will be influenced
by these standards and norms, and their shared values will become one of the driving
forces of the organization as it moves forward.

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 Usually, organizations may take a look at each of these key success factors for
individual analysis. However, the McKinsey approach takes a wider approach,
assessing if they are well-aligned with the other factors or not. All seven prerequisites
are interconnected, which means all seven must be present, and they must
be effectively aligned with each other, in order to ensure effective strategy
implementation, and overall organizational effectiveness.

Here is another interesting lecture from Stanford University on how to align your
organization to execute strategy.

WHAT CAUSES FAILURE OF STRATEGY IMPLEMENTATION?

Going back to the earlier discussion on why some businesses failed, even with the
best-laid plans and strategies, have you ever wondered what went wrong in the
implementation of these strategies?

In a study conducted by Fortune Magazine, it was revealed that nine out of ten
organizations are unable to fully, completely and properly implement their strategic
plan, often resulting to complete business failure. We’re looking at nine out of ten
organizations that just wasted their resources, opportunities, and probably even
very good strategies that have been formulated in the first stage of the strategic
management process.

The most common reasons why implementation of the strategies are unsuccessful
are:

1. The employees and managers do not fully understand the strategy, and
this arises mainly from their lack of understanding of the mission and objectives of
the organization. This lack of understanding may be traced to a number of reasons,
such as:

o Lack of effective communication, or lack of communication, in

general. It falls upon the shoulders of senior management and the strategic
management team to communicate the organizational mission and goals to every
member of the workforce, and also make them understand the strategy and each
member’s particular role in how it will be carried out.
o Lack of ownership on the part of the “implementers”, the members of
the workforce. Since the employees and maybe even the supervisors of the smaller
units are unaware of the strategy, or do not understand it, there is very little
motivation and sense of empowerment to make them perform well in their respective
tasks and functions. There is a lack of ownership, since the employees do not feel that
they have a stake in the plan, and this results to poor implementation of the strategy.
o Confusing, convoluted, and generally overwhelming plan. Some
people can only assimilate several things at one time. If they are presented with a plan
that seems too massive and too ambitious for them, their natural response would
involve shutting down and refusing to understand. Thus, it is important that the
strategy formulation be carried out properly, and the strategic plan prepared in a user-
friendly manner. Also, communication is key. No matter how overwhelming the
strategic plan may be, it can still be understood and accepted by the workforce if
communicated properly.

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2. The strategy is disconnected from with crucial aspects of the business
such as budgeting and employee compensation and incentives. Executing the
strategies involves funding, resource allocation, financial management and other
budgeting matters, and if there is no link connecting these activities to the strategies,
then there is no way that they will be implemented effectively. This is largely an issue
that must be addressed in the strategy formulation stage.
3. The strategy is paid little attention by management. All too often, the
owners, managers and supervisors become too caught up in the day-to-day operations
of the business, they rarely refer to the strategic plan. Before long, they end up
adopting a dismissive attitude towards the strategic plan, treating the strategies as
something related to the overall management process, but still separate. They devote a
token number of hours in a month to go over the plan and discuss strategies, but that’s
it. After the discussion, they will put it at the back of their minds, and continue as they
were.

In order to ensure the success of the strategy implementation, covering all your bases
is important. The best way to go about that is by following the essential steps to
executing the strategies.

STEPS IN STRATEGY IMPLEMENTATION

To ensure an effective and successful implementation of strategies, it’s a good idea to
have a system to go about it. Take a look at the steps to ensure that happens.

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 Step #1: Evaluation and communication of the Strategic Plan
The strategic plan, which was developed during the Strategy Formulation stage, will
be distributed for implementation. However, there is still a need to evaluate the plan,
especially with respect to the initiatives, budgets and performance. After all, it is
possible that there are still inputs that will crop up during evaluation but were missed
during strategy formulation.

There are several sub-steps to be undertaken in this step.

a) Align the strategies with the initiatives. First things first, check that the
strategies on the plan are following the same path leading to the mission and strategic
goals of the organization.

b) Align budget to the annual goals and objectives. Financial assessments

conducted prior will provide an insight on budgetary issues. You have to evaluate how
these budgetary issues will impact the attainment of objectives, and see to it that the
budget provides sufficient support for it. In the event that there are budgetary
constraints or limitations, they must first be addressed before launching fully into
implementation mode.
c) Communicate and clarify the goals, objectives and strategies to all
members of the organization. Regardless of their position in the organization’s
hierarchy, everyone must know and understand the goals and objectives of the
organization, and the strategies that will be employed to achieve them.

Step #2: Development of an implementation structure

The next step is to create a vision, or a structure, that will serve as a guide or
framework for the implementation of strategies.

a) Establish a linking or coordination mechanism between and among the various

departments and their respective divisions and units. This is mainly for purposes of
facilitating the delegation of authority and responsibility.

b) Formulate the work plans and procedures to be followed in the

implementation of the tactics in the strategies.
c) Determine the key managerial tasks and responsibilities to be performed, and
the qualifications required of the person who will perform them.
d) Determine the key operational tasks and responsibilities to be performed, and
the qualifications required of the person who will perform them.
e) Assign the tasks to the appropriate departments of the organization.
f) Evaluate the current staffing structure, checking if you have enough
manpower, and if they have the necessary competencies to carry out the tasks. This
may result to some reorganization or reshuffling of people. In some cases, it may also
require additional training for current staff members, or even hiring new employees

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 with the required skills and competencies. This is also where the organization will
decide if it will outsource some activities instead.
g) Communicate the details to the members of the organization. This may be in
the form of models, manuals or guidebooks.

Step #3: Development of implementation-support policies and programs

Some call them “strategy-encouraging policies” while others refer to them as
“constant improvement programs”. Nonetheless, these are policies and programs that
will be employed in aid of implementation.

a) Establish a performance tracking and monitoring system. This will be the

basis of evaluating the progress of the implementation of strategies, and monitoring
the rate of accomplishment of results, or if they were accomplished at all. Define the
indicators for measuring the performance of every employee, of every unit or section,
of every division, and of every department.

b) Establish a performance management system. Quite possibly, the aspect of

performance management that will encourage employee involvement is a recognition
and reward structure. When creating the reward structure, make sure that it has a clear
and direct link to the accomplishment of results, which will be indicated in the
performance tracking and monitoring system.
c) Establish an information and feedback system that will gather feedback and
results data, to be used for strategy evaluation later on.
d) Again, communicate these policies and programs to the members of the
organization.

Step #4: Budgeting and allocation of resources

It is now time to equip the implementers with the tools and other capabilities to
perform their tasks and functions.

a) Allocate the resources to the various departments, depending on the results of

financial assessments as to their budgetary requirements.

b) Disburse the necessary resources to the departments, and make sure

everything is properly and accurately documented.
c) Maintain a system of checks and balances to monitor whether the departments
are operating within their budgetary limits, or they have gone above and beyond their
allocation.

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 Step #5: Discharge of functions and activities
It is time to operationalize the tactics and put the strategies into action, aided by
strategic leadership, utilizing participatory management and leadership styles.

Throughout this step, the organization should also ensure the following:

a) Continuous engagement of personnel by providing trainings and

reorientations.

b) Enforce the applicable control measures in the performance of the tasks.

c) Evaluate performance at every level and identify performance gaps, if any, to
enable adjusting and corrective actions. It is possible that the corrective actions may
entail changes in the policies, programs and structures established and set in earlier
steps. That’s all right. Make the changes when necessary.

Basically, the results or accomplishments in Step #5 will be the input in the next step,
which is the third stage of Strategic Management: “strategy evaluation”.

Some argue that implementation of strategies is more important than the strategies
themselves. But this is not about taking sides or weighing and making comparisons,
especially considering how these two are important stages in Strategic Management.
Thus, it is safe to say that formulating winning strategies is just half the battle,
and the other half is their implementation. Steps to a Successful Strategy
Implementation Process

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