MB403D Strategic Management of Technology & Innovation

UNIT 20: Case
Study
MB-403D
Strategic
Management of
Technology &
Innovation
Strategic Management of Technology &
Innovation
Course Design
Advisory Council
Chairman
Dr Parag Diwan
Members
Dr Kamal Dr Anirban Dr Ashish
Bansal Dean Sengupta Dean Bhardwaj CIO
Dr S R Das
Dr Sanjay Mittal Prof V K
VP – Academic
Professor – IIT Nangia IIT
Affairs
Kanpur Roorkee
SLM Development Team

Wg Cdr P K
Gupta Dr Joji Rao
Dr Neeraj
Anand Dr K K
Pandey
Print Production
Mr Kapil Mehra Mr A N Sinha

Manager – Material Sr Manager – Printing
Author
Neelakantan Tatikonda
All rights reserved. No part of this work may be reproduced in any form, by mimeograph or any other
means, without permission in writing from MPower Applied Learning Enterprise.
Course Code: MB-403D

Course Name: Strategic Management of Technology & Innovation
Version: July 2013
© MPower Applied Learning Enterprise

UNIT 20: Case
Study
Contents
Block-I
Unit 1 Strategy........................................................................................................... 3
Unit 2 Strategic Thinking.......................................................................................... 13
Unit 3 Evolution of Strategic Thinking......................................................................23
Unit 4 Corporate Strategic Planning.........................................................................31
Unit 5 Case Study.................................................................................................... 47
Block-II
Unit 6 Strategic Objectives...................................................................................... 51

Unit 7 Strategic Management.................................................................................. 61
Unit 8 Strategy and Technology............................................................................... 71
Unit 9 Strategic Management Practice in India........................................................79
Unit 10 Case Study.................................................................................................... 89
Block-III
Unit 11 Technology and Innovation............................................................................95

Unit 12 Technological Innovation System................................................................103
Unit 13 Managing Technology and Innovation.........................................................113
Unit 14 Strategy and Innovation.............................................................................. 123
Unit 15 Case Study.................................................................................................. 133
Block-IV
Unit 16 Strategy Formulation...................................................................................139

Unit 17 Generic Strategies....................................................................................... 151
Unit 18 Strategy Implementation............................................................................. 163
Unit 19 Strategy Implementation Approaches.........................................................173
Unit 20 Case Study.................................................................................................. 183
iv
Strategic Management of Technology & Innovation
Block-V
Unit 21 Strategic Control and Evaluation.................................................................189
Unit 22 Tools for Strategic Planning and Evaluation................................................199
Unit 23 Life Cycle Approach to Strategic Planning...................................................213
Unit 24 Strategic Management of Technological Innovation....................................225
Unit 25 Case Study.................................................................................................. 233
Glossary.....................................................................................................237
UNIT 1: Strategy
1
Notes
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BLOCK-I
Detailed Contents Strategic Management of Technology &
Innovation
2
Notes
UNIT 1: STRATEGY
F
UNIT 3: EVOLUTION OF STRATEGIC THINKING
 Introduction
___________________
 Introduction
 Meaning of Strategy
___________________  Annual Budgeting
 Strategy vs Tactics
___________________  Long-range Planning
 Characteristics of Strategy
 Environmental Scanning
___________________
UNIT 2: STRATEGIC THINKING  Strategic Planning Phase
___________________
 Introduction
___________________ UNIT 4: CORPORATE STRATEGIC PLANNING
 Meaning of Strategic Thinking
 Introduction
 ___________________
Key Elements
 Meaning of Corporate Strategic Planning
 ___________________
Attributes of Strategic
 Mission – Vision of the Firm
Thinking
___________________  Preparation of Vision and Mission Statements
 Relevance of Strategic
Thinking
___________________
UNIT 5: CASE STUDY
UNIT 1:
Strategy
3
Unit 1 Notes
Activity
Visit a small business unit and ask what the meaning of strategy to them is and
Strategy
___________________
___________________
___________________
Objectives
After completion of this unit, the students will be aware of the
following topics:
f Meaning of Strategy
f Strategy vs. Tactics
f Characteristics of Strategy
Introduction
Strategy is a high level plan to achieve one or more goals
under conditions of uncertainty. Strategy becomes even
necessary when it is known or suspected there are
insufficient resources to achieve these goals.
Strategy is also about attaining and maintaining a position of
advantage over adversaries through the successive
exploitation of known or emergent possibilities rather than
committing to any specific fixed plan designed at the outset.
Business-level strategies outline a company’s core
competencies. Core competencies represent a company’s
strengths, which they use to create market share in the
business environment. Core competencies include good
customer service, unique products that are difficult for
competitors to duplicate and the use of a supply chain to
deliver products into the economic market. Business owners
often integrate core competencies into business-level
strategies to ensure a sustainable competitive advantage is
maintained by their company.
Meaning of Strategy
Strategy is a set of key decisions made to meet objectives. It
refers to a complex web of thoughts, ideas, insights,
experiences, goals, expertise, memories, perceptions and
expectations that provides general guidance for specific
actions in pursuit of particular ends. Nations have, in the
management of their national policies, found it necessary to
evolve strategies that adjust and correlate political,
4 economic, technological, and psychological factors, along

Notes
with military elements. Be it management of national
policies, international relations, or even of a game on the
playfield, it provides us with the preferred path that we
should take for the journey that we actually make.
Source: http://www.odonnellstrategy.com/media/strategy.jpg
Figure 1.1: Strategy
Every firm competing in an industry has a strategy, because

strategy refers to how a given objective will be achieved.
'Strategy' defines what it is we want to achieve and charts
our course in the marketplace; it is the basis for the
establishment of a business firm; and it is a basic
requirement for a firm to survive and to sustain itself in
today's changing environment.
An organization cannot operate effectively without a
strategy. The strategy may have been developed explicitly
through a planning process or it may have evolved implicitly
through the operations of the various functional departments
– but in order to function effectively in the marketplace, the
organization must have answers to these questions:
 What business are we in? What products and services will
we offer?
 To whom?
 At what prices?
UNIT 1: Strategy
 On what terms? 5
Notes
 Who are the competitors?
 On what basis will we compete?
If the organization asks any of these key questions and it has
the answers, then there is a strategy in place.
The definitions given below provide an insight into the
diversity of thinking and changing perceptions on the nature
of strategy:
Chandler: Strategy is the determination of the basic long-
term goals of an enterprise, and the adoption of courses of
action and the allocation of resources necessary for carrying
out these goals.
Learned: Strategy is the pattern of objectives, purposes or
goals and major policies or plans for achieving these goals,
stated in such a way as to define what business the company
is in or is to be in and the kind of business it is or is to be.
Andrews: Corporate strategy is the pattern of decisions in a
company that determines and reveals its objectives,
purposes, or goals, produces the principal policies and plans
for achieving those goals, and defines the range of business
the company is to pursue, the kind of economic and human
organization it intends to be, and the nature of economic and
non-economic contribution it intends to make to its
shareholders, customers and communities.
Mintzberg: Strategy is a mediating force between the
organization and its environment: consistent patterns in
streams of organizational decisions to deal with the
environment.
Quinn: A strategy is the pattern or plan that integrates an
organization's major goals, policies, and action sequences
into a cohesive whole. A well-formulated strategy helps to
marshal and allocate an organization's resources into a
unique and viable posture based upon its relative internal
competencies and shortcomings, anticipated changes in the
environment, and contingent moves by intelligent opponents.
Wernerfelt: Strategy is to create a situation where a
resource position makes it more difficult for others to catch
up.
Grant: Strategy is the overall plan for deploying resources to
establish a favourable position; it is less a predetermined
program of investment plans and more a positioning of the
firm to permit it to take advantage of opportunities as they
arise.
6 Normann: Strategy is the art of creating value.

Notes
Activity Prahalad: Strategy is more than just fit and allocation of
executive and ask him the practical difference he finds in strategy and tactic and prepare a slideshow.
___________________ resources. It is stretch and leveraging of resources.
___________________
Teece: The essence of strategy is the search for rents.
___________________ Strategic Management is – or can and should be – the study
of rent-seeking by the enterprise.
Mahoney: Strategy is a search for balance.
Porter: Strategy is about being different. It means
deliberately choosing a different set of activities to deliver a
unique mix of value.
Check Your
Progress
Fill in the blanks:
1. Strategy is a set of key........................made to meet
objectives.
2. An organization cannot operate effectively without
a
Strategy vs Tactics
Strategy and tactics are both concerned with formulating and
then carrying out courses of action intended to attain
particular objectives. The language of strategic manoeuvre is
also largely the language of tactics. 'Tactics' follow and
facilitate strategy and is defined as techniques or a science of
dispensing and manoeuvring forces to accomplish a limited
objective or an immediate end.
Strategy and tactics are distinct in terms of their dimensions.
Strategy, for the most part, is concerned with deploying
resources, and tactics is concerned with employing them.
Strategy deals with wide spaces, long periods of time, and
large movements of forces; tactics deal with the opposite.
Strategy is the prelude to action, and tactics the action itself.
Table 1.1 attempts to summarize the difference between the
two, as there often is confusion about the distinction between
strategy and tactics.
Despite distinctions in theory, strategy and tactics cannot
always be separated in practice. Strategy gives tactics its
mission and resources and seeks to reap the results. Tactics,
then become an important conditioning factor of strategy,
and as the tactics change, so does strategy. Strategy triggers
a movement; a
UNIT 1: Strategy
movement begets an action; and the action results in new 7

Notes
movement. This inter-connectedness between the movement
and the action often merges one into the other.
Table 1.1: Difference between Strategy and Tactics

Aspects Strategy Tactics
Scale of the Grand Limited
Objective
Scope of the Action Broad and General Narrowly Focused
Guidance Provided General and Specific and
Ongoing Situational
Degree of Flexibility Adaptable, but not Fluid, quick to
hastily changed adjust and adapt in
minor or major
ways
Timing in Relation to Before Action During Action
Action
Focus of Resource Deployment Employment
Utilization
There is a unique relationship between strategy and tactics.

Every tactic can be a significant strategic opportunity. It is
necessary to understand the difference between strategy and
tactics, as this can be a strategic edge to the organization. It
gives us the ability to have the ultimate position of the
organization and the particular strategy in mind while
executing any tactic. This competency can enhance the
organization's effectiveness without any investment.
For example, assume the strategic position of the company
is: "To be the best known, most trusted and respected
company in the target market." If that is our overall goal,
then we have to ask what our tactics do to achieve this
important goal. If our salesperson is simply trying to make a
sale, then he is operating only tactically.
Source:
http://www.softwareag.com/corporate/images/ARIS_Strategy_KeyVisual_269x217_t
cm16-79368.jpg
Figure 1.2: Strategy

8 If he can think strategically, he must ask "What should I do to

Notes sell the product and make the customer believe my
company
Activity
ase study of strategy is the
and try to identify the characteristics
___________________ of abest inand
strategy theprepare
market?" If he can accomplish this
a presentation. objective
in his sale, he is improving the effectiveness of the
___________________
organization at no cost to the organization. If not, he is just
___________________ chasing the sale of the day, and not building anything
sustainable for the organization. This is difficult as most
business executives, even from the biggest firms in the
world, are so tactical that they often find it difficult to
differentiate between strategy and tactics.
Check Your
Progress
Fill in the blanks:
1. Strategy and tactics are distinct in terms of their
………………….
2. Every tactic can be a significant..........opportunity.
3. Strategy and tactics cannot always be................in
practice.
4. There is a unique......................between strategy and
tactics.
Characteristics of Strategy
Business strategies help companies create a competitive
advantage in the marketplace. Corporate, department and
business-level strategies are commonly used by business
owners to create a competitive advantage.
Corporate strategies provide direction when the company
enters new economic markets. Department strategies outline
specific goals for individual business departments. Business-
level strategies focus on a specific function that can increase
a company’s market share and profitability.
The definition of strategy suggests the following characteristics:
1. Strategy is the right combinations of factors. This
requires not only the isolation of the components of the
situation, but also an evaluation of their relative
importance.
2. Strategy relates the business organisation to its
environment. Strategy decisions are primarily concerned
with external, rather than internal, problems of the
organisation.
UNIT 1: Strategy
3. Strategy is relative. It is an action to meet particular 9

Notes
conditions, to solve a certain problem or to attain a
desired objective. It may take many forms, for almost
every situation varies and, therefore, requires a
somewhat different approach.
4. Strategy may require contradictory action. A manager
may take a course of action today and revises or retraces
his steps tomorrow because of changes in situations.
5. Strategy is forward looking; it has to do orientation
towards the future. Strategy is required in a new
situation. Nothing new requiring solution can exist in the
past, so strategy is relevant only to the future.
6. Strategy is ubiquitous. It can be found at the highest
levels of corporate, governmental, military and
organizational endeavour and in small, medium and large
units. It is used to define the basis for competition and it
can give rise to collaboration and cooperation. It can
even be found guiding and explaining individual initiative.
It is everywhere.
7. Strategy is an abstraction, a construct. It has no concrete
form or substance. At best it can be communicated in
words and diagrams. But, just as "the map is not the
territory," the words and diagrams used to communicate
strategy are not the strategy they convey.
8. Strategy is the art of the general. It is broad, long range
and far reaching. In part, it is about the preparations
made before battle, before the enemy is engaged. But it
is also about avoiding battle and making combat
unnecessary. It is as much about destroying the enemy's
will to fight as it is about destroying the enemy in a fight.
If that sounds too militaristic, consider the business
parallel: a firm that raises such formidable barriers to
entry that would-be competitors throw up their hands and
walk away. In short, destroying the will to compete differs
little from destroying the will to fight.
9. Strategy is a general plan of attack, an approach to a
problem, the first step in linking the means or resources
at our disposal with the ends or results we hold in view.
Tactics, of course, is the second step. Strategy is
concerned with deploying resources and tactics is
concerned with employing them. Without some goal,
some end in view, there can be no strategy and tactics
will consist of aimless flailing about-action for the
10 sake of action. Strategy, then, is relative, which is to say

Notes
that it exists only in relation to some goal, end or
objective. If someone asks us, "What is your strategy?"
be sure to reply, "In relation to what?"
10. Strategy is direction and destination. At one and the
same time strategy says, "We are headed there - by this
path." Yet, as noted earlier, it is also ruse and deception;
that is, our strategy takes us down a path with many
branches and only we know our destination and the
choices we will make as we are confronted with them. In
short, strategy is a way of confounding our enemies or, in
less warlike terms, our competitors.
11. Strategy is a set of decisions made. What business are
we in? What products and services will we offer? To
whom? At what prices? On what terms? Against which
competitors? On what basis will we compete?
Check Your
Progress
Fill in the blanks:
1. Business strategies help companies create a
……………
advantage in the marketplace.
2. Corporate strategies provide direction
Summary
Strategy is the pattern of objectives, purposes or goals and
major policies or plans for achieving these goals, stated in
such a way as to define what business the company is in or is
to be in and the kind of business it is or is to be. The essence
of strategy is the search for rents. Strategic Management is –
or can and should be – the study of rent-seeking by the
enterprise. Strategy and tactics are distinct in terms of their
dimensions. Strategy, for the most part, is concerned with
deploying resources, and tactics is concerned with employing
them.
Strategy is a general plan of attack, an approach to a
problem, the first step in linking the means or resources at
our disposal with the ends or results we hold in view. Tactics,
of course, is the second step. Strategy is concerned with
deploying resources and tactics is concerned with employing
them.
UNIT 1: Strategy
11
Lesson End Activity Notes
Visit a small business unit and design strategies for its future
growth with the help of officials.
Keywords
Competency: The quality of being adequately or well
qualified physically and intellectually.
Opportunity: A set of circumstances that makes it possible
to do something.
Strategy: Strategy is a high level plan to achieve one or
more goals under conditions of uncertainty.
Tactic: A tactic is a conceptual action implemented as one or
more specific tasks.
Questions for Discussion

1. What do you mean by strategy?
2. Differentiate between strategy and tactics.
3. “Strategy is direction and destination”. Comment.
4. What are the characteristics of a Strategy?
5. “Strategy is ubiquitous”. Explain how?
Further Readings
Books
White Margaret Alice (2010), “The Management of
Technology and Innovation: A Strategic Approach”, Cengage
Learning.
Christensen.Clayton (2008), “Strategic Management of
Technology and Innovation”, McGraw-Hill Education.
Dicke. Wilhelmina Margaretha (2005), “Managing Technology
and Innovation: An Introduction”, Routledge.
Web Readings
http://www.freemba.in/articlesread.php?
artcode=1196&stcode=7&s ubstcode=60
http://en.wikipedia.org/wiki/Strategy
Innovation
12
Notes
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
UNIT 2: Strategic
Thinking
13
Unit 2 Notes
Strategic Thinking
Objectives
following topics:
f Meaning of Strategic Thinking

f Key Elements of Strategic Thinking
f Attributes of Strategic Thinking
f Relevance of Strategic Thinking
Introduction
Strategic thinking is defined as a mental or thinking process
applied by an individual in the context of achieving success in
a game or other endeavour. Strategic thinking includes
finding and developing a strategic foresight capacity for an
organization, by exploring all possible organizational futures,
and challenging conventional thinking to foster decision
making today. Recent strategic thought points ever more
clearly towards the conclusion that the critical strategic
question is not the conventional “What?”, but “Why?” or
“How?”. The work of Henry Mintzberg and other authors
further support the conclusion; and also draw a clear
distinction between strategic thinking and strategic planning,
another important strategic management thought process.
While there is no generally accepted definition for strategic
thinking, no common agreement as to its role or importance,
and no standardised list of key competencies of strategic
thinkers; most agree that traditional models of strategy
making, which are primarily based on strategic planning, are
not working. Strategy in today's competitive business
landscape is moving away from the basic ‘strategic planning’
to more of ‘strategic thinking’ in order to remain competitive.
However, both thought processes must work hand-in-hand in
order to reap maximum benefit. It has been argued that the
real heart of strategy is the 'strategist'; and for a better
strategy execution requires a strategic thinker who can
discover novel, imaginative strategies which can re-write the
rules of the competitive game;
14 and set in motion the chain of events that will that will shape
Notes and "define the future".
Activity
Draftanarticleonthe meaning of strategic thinking.
___________________
___________________ Meaning of Strategic Thinking

As 'change' becomes increasingly frequent, it makes it more
and more difficult to define a strategic direction for an
organization.
Because the future is progressively uncertain and does not
follow any predictable path, increasing competition, forces of
globalization, the regulatory environment, customer choices,
innovations and technological changes make it essential to
continuously evaluate and update strategies.
Corporations in the 21st century have to look for a more
flexible and dynamic system to meet the demands of the
changing external environment. Strategic thinking is a
process of developing or examining the assumptions about
the future upon which the organization's mission, goals, and
strategy are based, to evaluate whether they still reflect the
realities the organization faces.
Strategic thinking looks at the vision for the organization and
then works backwards by focusing on how the business will
be able to reach this vision. In doing so, it improves the
ability of the organization to make its business vision a
reality.
'Vision' is a long-term perspective of what is the final
destination of the organization. Vision is what keeps the
organization moving forward. Vision is the motivator in an
organization. It needs to be meaningful with a long term
perspective so that it can motivate people even when the
organization is facing discouraging odds.
These are times of change and paradigm shift, where
management no longer has the luxury of resting upon past
successes or ways of doing business. The future is unknown
and the world is continually changing, all business plans and
strategies eventually become obsolete and the assumptions
on which they are based must be re-examined and updated.
Therefore, it is not surprising that strategic thinking has
become a critical requirement of the business process and is
a necessary requirement for the modern organization.
In strategic thinking, we first seek a clear understanding of
the particular character of each element of a situation. Then
we make the fullest possible use our brainpower to
restructure the elements in the most advantageous way.
Phenomena and events in the real world do not always fit a
linear model. Hence the most reliable
UNIT 2: Strategic Thinking
means to analyse a situation is to break it up into its 15

constituent parts and reassemble the constituent parts in the Notes
Activity
desired pattern. This is not a step-by-step methodology
Visit 1/09/strategic-thinking- such
innovation-creativity- leadership-managing-rein.html and identify th
___________________
as systems analysis. Rather, it uses the ultimate nonlinear
thinking tool, the human brain. True strategic thinking thus ___________________
contrasts sharply with the conventional mechanical systems’ ___________________
approach based on linear thinking. However, it reaches its
___________________
conclusions with a real breakdown or analysis.
Check Your
Progress
Fill in the blanks:
1.............................. improves the ability of the organization
to make its business vision a reality.
2. Strategic thinking has become a critical
requirement of theprocess.
Key Elements
Strategic thinking requires a definition of the problem. We
need to itemize the respects in which the organization
requires to change to have a competitive advantage. Identify
the phenomena that share a common denominator. Combine
them into groups. Having done this, look once again at each
group as a unit and ask, 'What crucial issue does each unit
pose?' The source of the problem must be understood before
any real solution can be found, and the process of abstraction
should bring the crucial issues to light without the risk of
overlooking anything important.
The first stage in strategic thinking is to identify the critical
issue in the situation. In problem solving, it is vital at the start
to formulate the question in a way that will provide a
solution. For example, overtime has become chronic in a
company, dragging down profitability. If we frame the
question as: ‘What should be done to reduce overtime?’ Many
answers will suggest themselves:
 Work harder during the regular working hours
 Shorten the lunch period and coffee breaks
 Forbid long private telephone conversations
Such questioning is a characteristic of organizations using
techniques that involve the participation of all employees.
Ideas are gathered, screened, and later incorporated in the
improvement program. But this approach has an intrinsic
limitation. The
16 questions are not framed to point toward a solution; rather,

Notes
they are directed toward finding remedies to symptoms.
We could frame the question in a more solution-oriented way:
‘Is this company's workforce large enough to do all the work
required?’
There can be only one of two answers: 'yes' or 'no'. To arrive
at the answer 'yes', we have to compare with other
companies in the same
industry, find the historical trend of workload per employee,
and the degree of automation and computerization and their
economic effectiveness. On the other hand, after careful
perusal of the sales record, profit per employee, ratio
between direct and indirect labour, comparison with other
companies, etc., if the answer should turn out to be 'no', this
in itself would be tantamount to a solution of the original
problem. The solution is an increase in personnel.
That is not the only way the question could have been
formulated. We might have asked it this way: ‘Do the
capabilities of the employees match the nature of the work?’
This formulation, like the previous one, is oriented towards
finding a possible solution. Here too, a negative answer
would imply a shortage of suitable personnel, which would in
turn suggest that the solution is either in staff training or in
recruiting capable staff. On the other hand, if the answer is
'yes', it indicates chronic overtime lies in the amount of the
workload. Thus, not training but adding to the workforce
would then be the crucial factor in the solution.
If the right questions are asked in a solution-oriented
manner, and if the proper analyses are carried out, the final
answer is likely to be the same, even though it may have
started from a differently phrased question and may have
been arrived at by a different route. In either case, a question
concerning the nature and amount of work brings the real
issue into focus and makes it easy to arrive at a clear-cut
verdict.
Solution-oriented questions can be formulated only if the
critical issue is localized and grasped accurately. When
problems are poorly defined, the creative mind does not work
well. Isolating the crucial points of the problem and
determining the critical issue is most important to the
discovery of a solution.
No matter how difficult or unprecedented the problem, a
breakthrough to the best possible solution can come only
from a
combination or rational analysis, based on the real nature of 17

things, and imaginative reintegration of all the different items Notes
into a new pattern, using non-linear brainpower. This is Activity
Create a digital essay on the
___________________
always the most effective approach to devising strategies for
Attributes Thinking. of Strategic
dealing successfully with challenges and opportunities, in the ___________________
market arena as on the battlefield.
There are four key requirements to strategic thinking:
 A definite purpose in mind,
 An understanding of the firm's environment, particularly
of the forces that affect or impede the fulfilment of that
purpose, the environmental view; the marketplace view;
the project view; and the measurement view,
 The organization, the people, the organizational
structure, and the resources necessary to make it all
work, and
 Creativity in developing effective responses to all the
above forces.
Check Your
Progress
Fill in the blanks:
1. When problems are ……………… defined, the
creative mind does not work well.
2. No matter how difficult or unprecedented the
problem, a ……………… to the best possible
solution can come only from a combination or
Attributes of Strategic Thinking

Drucker defines strategic thinking as examining the "Theory
of the Business". According to Drucker, in the dynamic
conditions of change today, strategic thinking provides the
insights to answer the questions, ‘What business are we in
today?’ and ‘What business should we be in tomorrow?’
Strategic thinking is a creative, mind expanding process
which visualizes the future environment and formulates
strategy that will bring success. To succeed, the key
participants involved in the process must be active, involved,
connected, committed, alert, and stimulated. They have to
create an environment of calculated chaos, which drives their
thinking, enabling them to build reflection on action as an
interactive process.
18 According to Jeanne Liedtka (1998), of the Batten Institute –

Notes
the major attributes of strategic thinking are:
 "A systems or holistic view. Strategic thinking is built on
the foundation of a systems perspective."
 It includes "a mental model of the complete end-to-end
system of value creation and an understanding of the
interdependencies it contains."
 It involves looking at each part "not as a sum of its
specific tasks, but as a contribution to a larger system
that produces outcomes of value."
 “Strategic thinking is intent-driven; it allows individuals
within an organization to leverage their energy, to focus
attention, to resist distraction, and to concentrate for as
long as it takes to achieve a goal."
 “Strategic thinkers link past, present, and future. The gap
between today's reality and intent for the future is
critical."
 “Strategic thinking deals with hypothesis generating and
testing as central activities and avoids the analytic-
intuitive dichotomy it is both creative and critical in
nature.”
 As such, strategic thinking allows us to, "pose ever-
improving hypotheses without forfeiting the ability to
explore new ideas" and be "intelligently opportunistic."
 “The dilemma involved in using a well-articulated
strategy to channel organizational efforts effectively and
efficiently must always be balanced against the risks of
losing sight of alternative strategies better suited to a
changing environment. There must be room for
intelligent opportunism that not only furthers intended
strategy but that also leaves open the possibility of new
strategies emerging."
Check Your
Progress
Fill in the blanks:
1. Strategic thinking is a ……………… and ………………
expanding process.
2. Strategic thinking deals with..................generating.
19
Relevance of Strategic Thinking
Notes
Strategic thinking is aimed at putting us into Activity
the most
Visit sources/critical-and-strategic- thinking and prepare a short re
favourable position to engage the opposition, and compelling ___________________
the opposition to engage at a disadvantage. It evolves ways ___________________

and means of developing capabilities in team work, problem
___________________
solving, and critical thinking in
the organization. It provides clarity of purpose, common
understanding and a framework for detailed planning; it gives
the organization a focus on the strategic developments it
should be pursuing and a view of the future towards which it
is moving.
The characteristics of strategic thinking can be summarized as:
 An Ability to see the 'Whole Picture': Looking across
all parts of the organization and its business, and its
relationships with others; understanding the connections
between them, both now and in various possible futures.
 Creativity: Thinking outside existing boundaries and
constraints; identifying and questioning the assumptions
upon which the existing business organization and
operations are based.
 Scenario Generation and Evaluation: Consideration
of many possible futures for the organization, through
formulation and responses to 'What if ?' questions ability
to deal with ambiguity and uncertainty.
 Identification of Strategic Issues: The strategy will be
driven by our perception of the issues, and the strategic
themes.
Strategic thinking finally leads the organization to gain
insight into the driving forces behind the new competitive
paradigm; systematically develop a sustainable competitive
advantage based on its core competencies; create an
infrastructure for the continuous review and redefinition of
strategic direction to maximize results, while minimizing the
time spent on this process; and recognize and capitalize on
new developments and opportunities in the market.
Check Your Progress

Fill in the blanks:
1.The strategy will be driven by ourof
the issues, and the strategic themes.
Contd...
20
Notes 2.Strategic thinking is aimed at putting us into the most
…………………… position to engage the opposition.
Summary
Strategic thinking includes finding and developing a strategic
foresight capacity for an organization, by exploring all
possible organizational futures, and challenging conventional
thinking to foster decision making today. Strategic thinking
looks at the vision for the organization and then works
backwards by focusing on how the business will be able to
reach this vision. In doing so, it improves the ability of the
organization to make its business vision a reality.
Strategic thinking is a creative, mind expanding process
which visualizes the future environment and formulates
strategy that will bring success. To succeed, the key
participants involved in the process must be active, involved,
connected, committed, alert, and stimulated.
Lesson End Activity

Visit http://www.inc.com/paul-schoemaker/6-habits-of-
strategic- thinkers.html and prepare a presentation as per
your learning.
Keywords
Change: It refers to become different or undergo alteration.
Creative: It relates to or involves the imagination or original
ideas.
Strategic Thinking: Strategic thinking is defined as a
mental or thinking process applied by an individual in the
context of achieving success in a game or other endeavour.

1. What is the meaning of strategic thinking?
2. Discuss the key elements of strategic thinking.
3. Explain the attributes of strategic thinking.
4. Describe the relevance of strategic thinking.
5. Give a holistic view of strategic thinking.
21
Further Readings Notes
Books
Learning.
Christensen Clayton (2008), “Strategic Management of
Dicke Wilhelmina Margaretha (2005), “Managing Technology
Web Readings
http://en.wikipedia.org/wiki/Strategic_thinking
http://www.forbes.com/2010/11/09/strategic-thinking-
innovation- creativity-leadership-managing-rein.html
Innovation
22
Notes
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
UNIT 3: Evolution of Strategic
Thinking
23
Unit 3 Activity Notes
Create a digital essay on annual budgeting.
Evolution of Strategic Thinking

___________________
___________________
Objectives
following topics:
f Annual Budgeting
f Long-range Planning
f Environmental Scanning
f Strategic Planning Phase
Introduction
A strategic plan is a document used to communicate with the
organization the organizations goals, the actions needed to
achieve those goals and all of the other critical elements
developed during the planning exercise.
Strategic Management is a development of the concepts
embodied in Strategic Planning. Strategic Planning in an
organization appears to evolve through four sequential
phases according to Gluck, Kaufman, and Walleck, which
starts with the annual budgeting process. The four phases of
evolution are explained in the following sections.
Annual Budgeting
Companies in Phase I often have sound business strategies,
but the business strategy is reflected in its budgeting
procedure. The annual budgeting process reduces the
functioning of the organization to a financial problem.
Procedures are developed to forecast revenue, costs, and
capital needs. This is a budget that identifies limits for
expenses on an annual basis. Information systems’ reportage
on functional performance is compared with budgetary
targets to establish control and feedback. These may be
reflected in the projected sales/earnings growth rate,
occasionally qualified by certain debt/equity target or other
explicit financial objectives.
The CEO and his top team plan the future based on their
knowledge of their company's products and markets. They
try to
24 sense what major competitors are doing and are expected to

Notes do. Based on this framework and their own cost structure,
Activity
Draft a magazine they can estimate what the impact of a product or marketing
style article on long range planning.
___________________
change will be on their plants, their distribution system, or
___________________
their sales force. With this knowledge, and if they are not
planning for the business to grow beyond reasonable limits,
the need to set up an expensive planning system may not be
there.
Complexities increase when companies become large – the
number of products and markets served, the degree of
technological sophistication required, and the complex
economic systems involved far exceed the intellectual grasp
of any one manager or a small group of managers. Explicit
documentation in place of implicit knowledge is required to
chart the strategy of the organization.
The financial planning system is extended to estimate the
capital needs and the trade-off between alternative financing
plans. This requires extrapolation of past trends and an
attempt to predict the future impact of political, economic,
and social forces. This is the basis of the second phase:
forecast-based planning. Many Indian companies use a Phase
II planning system – long-range planning – today.
Check Your
Progress
Fill in the blanks:
1. The financial planning system is extended to
estimate the...........needs.
2. Procedures are developed to......................revenue,
costs, and capital needs.
Long-range Planning
Phase II is the traditional long-range planning system. The
objective of the long-range planning activities is to provide
the organization with answers to the questions:
1. Where is the organization now?
2. Where is it going?
3. Where does it want to go?
4. What does it have to do to get to where it wants to go?
UNIT 3: Evolution of Strategic Thinking
In its most elementary form, traditional long-range planning 25

Notes
identifies four key activities on which the concept of planning
is based – monitoring, forecasting, goal setting, and
implementing policies and actions to facilitate the goals.
Long-range plans are produced by performing these key
activities as a continuing process.
Figure 3.1: Traditional Long Range Planning Model
The inter-relationship between these activities is shown in Figure

3.1.The cycle begins by:
 Monitoring selected trends of interest to the organization,
 Forecasting the expected future of those trends,
 Defining the desired future by setting organizational
goals in the context of the expected future,
 Developing and implementing specific policies and
actions designed to reduce the difference between the
expected future and the desired future, and
 Monitoring the effects of these actions and policies on the
selected trends.
The major limitation of the long-range planning model is that
information about the changing external environment is
usually not taken into account systematically or
comprehensively. It is assumed that there is continuity in the
environment. This assumption is valid only under very special
circumstances, e.g., mature industries, or to basic industries
like mining, etc. Hence, the usefulness of this type of model
under dynamic conditions is limited.
26 Differences between Phase I and Phase II

Notes
Usually this phase starts like the annual budget with a time
frame of around 3 – 5 years as compared to a year for Phase
I. However, as the organization develops its capabilities, the
models become more sophisticated. In the early models,
there is generally significant variance between the real world
and the forecasts. The simple extended budgeting models
often fail to signal major environmental shifts. As these
models become more sophisticated, they protect the
negative impact on corporate fortunes of the limited
accuracy of the earlier models.
Nevertheless, Phase II improves the effectiveness of strategic
decision-making. It forces management to confront the long-
term implications of decisions and to give thought to the
potential business impact of discernible current trends. One
of the greatest impacts of Phase II is on resource allocation.
Under the pressure of long-term resource constraints,
planners learn how to look at the flow of capital and other
resources among business units with a longer time frame.
However, owing to the limited view of the horizon, Phase II
companies tend to be focused on current capabilities, rather
than on the search for longer term options. Moreover, the
model is deterministic, that is, the current position of a
business is used to determine the appropriate strategy,
according to a generalized formula. And Phase II companies
typically regard positioning as the end product of strategic
planning, rather than as a starting point.
Phase II systems are also beneficial in analysing medium-
term trends and setting operational objectives (for example,
productivity improvement or better fund utilization), but the
key business issues are often ignored as the focus is on short
or medium-term operating performance at the expense of
long-term goals.
Check Your
Progress
Fill in the blanks:
1. The major limitation of the long-range planning
model is that information about the changing
…………………
environment is usually not taken into account.
2. The key business issues are often ignored as the
27
Environmental Scanning
Notes
Activity
Organizational environment consists of both external and
Discuss within a group of 5 studentsabout environmental scanning.
internal factors. Environment must be scanned Visit so as to of your___________________
an organization preference and study its strategic plannin
determine development and forecasts of factors that will ___________________
influence organizational success. Environmental scanning ___________________
refers to possession and utilization of information about
___________________
occasions, patterns, trends, and relationships within an
organization’s internal and external environment. It helps the
managers to decide the future path of the organization.
Scanning must identify the threats and opportunities existing
in the environment. While strategy formulation, an
organization must take advantage of the opportunities and
minimize the threats. A threat for one organization may be an
opportunity for another.
As businesses become more competitive, planners typically
reach for more advanced forecasting tools to handle the
complexities of the marketplace. This may include trend
analysis and regression models and, eventually, computer
simulation models. These models are an improvement. They
add information from the external environment to the long-
range planning process. Environment scanning is used to:
 Identify new and potentially crucial information that
should be added to those identified and tracked during
monitoring.
 Identify possible developments that must be used to
adjust the forecasts of the internal issues derived from
forecasting.
Check Your
Progress
Fill in the blanks:
1. Organizational environment consists of both
……………
and.................factors.
2. Scanning must identify the …………… and ……………
Strategic Planning Phase

By merging the two models of planning, long-range planning
and environmental scanning to form an inter-related model –
the Strategic Planning Model was formed. The Strategic
Planning model is a tool that helps an organization in setting
up goals or objectives; the analysis of the environment and
the resources of the
28 organization; the generation of strategic options and their

Notes
evaluation; and the planning, design and implementation of
control systems or monitoring mechanisms.
This model consists of six identifiable stages that fulfil the
requirements of the management thinkers:
 Environmental scanning
 Evaluation of issues
 Forecasting
 Goal setting
 Implementation
 Monitoring
Strategic planning can take many different routes, depending
upon the organization’s needs. Various models of strategic
planning include vision- or goal-based strategic planning,
issues-based planning. Whichever strategic planning model
you choose determines upon your specific process, although
they all have several aspects in common. Each model uses
short- and long – term goal setting; clear, measurable, and
quantifiable objectives; and actionable strategies and tactics
to bring a strategic plan to life. A critical component of every
strategic plan is making sure it is in line with the company’s
mission, values, and vision statements.
This planning process is very basic, but also effective. By
looking ahead to the future instead of the “now,” companies
are able to see what strategies are most effective toward
reaching their goals. Important steps of this planning process
include: creating a mission statement, creating a vision
statement, clarifying company values, and breaking down the
plan into goals, objectives, strategies, and tactics.
Organizations that have tried long-term planning in the past
and have failed may want to try a different approach focused
more on the “here and now.” An essential element of issues-
based planning is effective team brainstorming to identify
real issues facing the company.
29
Check Your Notes
Progress
Fill in the blanks:
1. Each model uses short- and long-term.........setting.
2. An essential element of issues-based planning is
effective team …………….
Summary
Strategic Management is a development of the concepts
embodied in Strategic Planning. The annual budgeting
process reduces the functioning of the organization to a
financial problem. Procedures are developed to forecast
revenue, costs, and capital needs. The major limitation of the
long-range planning model is that information about the
changing external environment is usually not taken into
account systematically or comprehensively.
Environmental scanning refers to possession and utilization
of information about occasions, patterns, trends, and
relationships within an organization’s internal and external
environment. It helps the managers to decide the future path
of the organization.
Strategic planning can take many different routes, depending
upon the organization’s needs. Various models of strategic
planning include vision- or goal-based strategic planning,
issues-based planning.
Lesson End Activity

Prepare a chart of long range planning model with text and
images.
Keywords
Environmental Scanning: It refers to possession and
utilization of information about occasions, patterns, trends,
and relationships within an organization’s internal and
external environment.
Forecasting: It is the process of making statements about
events whose actual outcomes have not yet been observed.
Strategic Plan: A strategic plan is a document used to
communicate with the organization the organizations goals,
the actions needed to achieve those goals and all of the other
critical elements developed during the planning exercise.
Discus
Questions for sion
30 1. Briefly explain annual budgeting.

Notes 2. Explain the traditional long range planning model.
3. What are the reasons environmental scanning is used?

4. Explain in brief the strategic planning phase.
5. Differentiate between annual budgeting and long range
planning.
Further Readings
Books
White Margaret Alice (2010), “The Management of Technology and
Innovation: A Strategic Approach”, Cengage Learning.
Dicke Wilhelmina Margaretha (2005), “Managing Technology and
Innovation: An Introduction”, Routledge.
Web Readings
http://www.managementstudyguide.com/environm
ental- scanning.htm
http://en.wikipedia.org/wiki/Environmental_scanning
UNIT 4: Corporate Strategic
Planning
31
Unit 4 Notes
Activity
Visit the planning division of an organization and find out the tools or methods they use for strategi
Corporate Strategic Planning

___________________
___________________
___________________
Objectives
following topics:
f Meaning of Corporate Strategic Planning

f Mission-Vision of the Firm
f Preparation of Vision and Mission Statements
Introduction
Simply put, strategic planning determines where an
organization is going over the next year or more, how it's
going to get there and how it'll know if it got there or not. The
focus of a strategic plan is usually on the entire organization,
while the focus of a business plan is usually on a particular
product, service or program. There are a variety of
perspectives, models and approaches used in strategic
planning. The way that a strategic plan is developed depends
on the nature of the organization's leadership, culture of the
organization, complexity of the organization's environment,
size of the organization and expertise of planners.
Strategic planning is an organizational management activity
that is used to set priorities, focus energy and resources,
strengthen operations, ensure that employees and other
stakeholders are working toward common goals, establish
agreement around intended outcomes/results, and assess
and adjust the organization's direction in response to a
changing environment. It is a disciplined effort that
produces fundamental decisions and actions that shape and
guide what an organization is, who it serves, what it does,
and why it does it, with a focus on the future. Effective
strategic planning articulates not only where an organization
is going and the actions needed to make progress, but also
how it will know if it is successful.
Meaning of Corporate Strategic Planning

Corporate Planning departments, equipped with tools and
techniques to formalize the strategic planning system, are
32 extremely effective when internal changes prevail in the

Notes
business environment. However, when changes in the
external environment become predominant, they bring out
the limitations of a formal planning system. In order to
survive, corporate planning departments must plan ahead
comprehensively, controlling an array of critical functions in
every detail. They specify policies and procedures in
meticulous detail, spelling out for practically everyone what
can and what cannot be done in particular
circumstances. They establish hurdle rates, analyse risks, and
anticipate contingencies. As strategic planning processes
proliferate in these companies, strategic thinking gradually
withers away.
Data analysis and decision-making tools of strategic planning
do not make the organization work – they can only support
the intuition, reasoning skills, and judgment that people bring
to their organization. The success of Strategic Planning has to
do with the acceptability of the plan and dynamics of the
organization. The success of Strategic Management will be
the topic for the remaining part of this book.
According to Mintzberg, the problem is that strategic
planners often believe that strategic planning, strategic
thinking, and strategy making are synonymous. When
managers comprehend the difference between planning and
strategic thinking, it is possible to return to what the
strategy-making process should be:
“Capturing what the manager learns from all sources (both
the soft insights from his or her personal experiences and the
experiences of others throughout the organization and the
hard data from market research and the like) and then
synthesizing that learning into a vision of the direction that
the business should pursue."
Henry Mintzberg (1994), in an article appearing in the
Harvard Business Review titled "The Fall and Rise of Strategic
Planning," sees strategic planning as practiced as strategic
programming – articulating and elaborating strategies that
already exist. According to Mintzberg, strategic planning is
about analysis (i.e., breaking down a goal into steps,
designing how the steps may be implemented, and
estimating the anticipated consequences of each step) while
strategic thinking is about synthesis, about using intuition
and creativity to formulate an integrated perspective, a
vision, of where the organization should be heading.
UNIT 4: Corporate Strategic Planning
33
Check Your
Progress Notes
Activity
Search the mission and vision statements of any three organizations of FM
___________________
Fill in the blanks:
___________________
1. When changes in the external environment
become predominant, they bring out the
…………………… of a formal planning system.
2. The success of Strategic Planning has to do with
the
…………………… of the plan and.........................of
Mission – Vision of the Firm
The first task of Strategic Management is formulating the
organization's vision, mission, and value statements. These
statements are primarily based on internal processes within
the organization. They have the greatest impact on the
identity and the future of the organization and reflect the
strategic intent of the organization. Vision, mission, and
values have their distinct characteristics and play distinct
roles in the subsistence of the organization:
 Vision is what keeps the organization moving forward.
Vision is the motivator in an organization. It needs to be
meaningful with a long-term perspective so that it can
motivate people even when the organization is facing
discouraging odds.
 Mission is the founders' intentions at the outset of the
organization – what they wanted to achieve. In the
dynamic environment of today, it must be re-examined
and refreshed periodically.
 Values manifest in what the organization does as a
group and how it operates. An explicit depiction of values
is a guide to ways of choosing among competing
priorities and about how to work together.
Vision, values and mission are the three components of focus
and context of the organization. They form a hierarchy. The
vision of the organization leads to its Mission and its values.
The Mission in turn leads to the Objectives of the firm. This
relationship is shown graphically in Figure 4.1.
34
Notes
Vision Mission & Values
Objectives
Figure 4.1: Hierarchy of Vision, Mission and Objectives
The time to articulate vision, mission, and values is at the

outset of an organization's life, if possible and at the first
opportunity if the organization is already under way.
Vision Statements
When you begin the process of corporate strategic planning
then vision comes first. Martin Luther King, Jr. said, "I have a
dream," and what followed was a vision that changed a
nation. That famous speech is a dramatic example of the
power that can be generated by a compelling vision of the
future. A vision is a guide to implementing strategy. Visions
are about feelings, beliefs, emotions, and pictures.
A vision statement answers the question, "What will success
look like?" The pursuit of this image of success is what
motivates people to work together. It is an important
requirement for building a strong foundation. When all the
employees are committed to the firm's visions and goals,
optimum choices on business decisions are more likely.
The process and outcomes of visioning is to develop an
effective basis for business strategy. The foresight of the
organization is to fit the strengths of the organization with
the market demands, to make the organization highly
competitive with growth and profits as the rewards.
Whatever the eventual architecture of the organization, the
vision statement encompasses the organization in all its
forms. The vision statement identifies activities the
organization intends to pursue, sets forth long-term direction
and provides a big perspective of:
 Who are we?
 What are we trying to do?
 How do we want to go about it?
 Where are we headed?
Successful organizations have a vision that is executable – 35

Notes
not a pie-in-the-sky blanket statement but a realistic goal,
according to Sunil Alagh, former Managing Director and CEO
of Britannia Industries. "It's all about how you define the
market, or how you redefine it for yourself. We can always
raise the bar, but the vision stays with the company." When
he was the CEO of Britannia, he decided to come up with a
one-line vision for the company. He came up with the
following vision statement:
'Every third Indian must be a Britannia consumer by 2004.'
It is this vision of the organization that has made Britannia a
leading manufacturer of bakery and dairy products.
Jack Welch redefined GE's approach to its business when he
announced to all GE managers, "To me, quality and
excellence means being better than the best ……if we aren't
better than the best, we should ask ourselves 'What will it
take?', then quantify the energy and resources to get there."
Y.C. Deveshwar, Chairman of ITC, had a vision of ITC
reminiscent of Jack Welch. He said that in a mature economy,
with developed market institutions, ITC was unlikely to be
successful unless it was focused on a one theme vision:
'Either we become world-class or we leave the business.'
It is this quality of vision that makes organizations excel.
Therefore, it is not surprising that this vision statement
comes from ITC which has remained, over the last five
decades, one of the leading consumer products
conglomerates in the country, with its annual revenues
reaching $2 billion in 2002.
The vision statement of Ford Foundation is an illustration of a
well-crafted vision statement. It identifies who they are and
who they are not, what they are trying to do, how they are
going about it, and where they are headed.
A Basis for Performance

A vision is a description in words that conjures up a similar
picture for each member of the organizations of the path and
the destination. A clear vision of the desired future is an
essential component for the high performance of the
organization.
Take an example from the story based on Italian folk lore.
The story goes like this:
36 A man was cutting stones in a stone quarry. A traveller was

Notes
passing the stone quarry, and seeing the man cutting stones,
asked him, "What are you doing?" The man was irritated at
being disturbed and said, "Can't you see, I am cutting
stones." When the traveller had gone some additional
distance, he saw a second man doing similar work and he
again asked, "What are you doing?" The man looked up,
smiled at him and replied, "I am earning a living." Further on,
the traveller came across another man cutting stone. When
he was asked, "What are you doing?" The man straightened
up and proudly replied, "I am building a cathedral."
The person building the cathedral had a vision that would
make his performance outstanding in comparison to his
compatriots. Building this type of motivation is what an
organization looks at in its Vision Statement.
Reflects Core Values

The vision statement should be built around the core values
of the organization and the people within it. The statement
should be designed to orient the group's energies towards
the core values and serve as a guide to action.
The vision statement is meant to inspire challenge and
motivate the workforce, arouse a strong sense of
organizational purpose, build pride and strike a responsive
chord to their value system.
Way to Communicate
A vision statement is an exercise in communication. A well
communicated vision statement will bring the workforce
together and galvanise people to act. It will cause people to
live in the business rather than live with the business. The
'dream' of Martin Luther King Jr. was communicated so
effectively, that it changed the course of the American
nation. A well-crafted Vision Statement should be:
 Realistic and credible,
 Well-articulated and easily understood, and
 Appropriate, ambitious, and responsive to change.
Given below are vision statements of Tata Iron & Steel Co.
Ltd., Hindustan Lever Ltd., DuPont, Burger King and Reliance
Industries. These are a representative cross-section of vision
statements.
38 Steel Co. Ltd.

Tata Iron and 37
Notes Notes
 To seize the opportunities of tomorrow and create a future.
 To continue to improve the quality of life of our
employees and the communities we serve.
 Revitalize the core business for a sustainable future.
 Venture into new businesses that will own a share of our
future.
 Uphold the spirit and values of TATAs towards nation
building.
Hindustan Lever Ltd.
Our vision is to meet the everyday needs of people everywhere.
DuPont
 We, the people of DuPont, dedicate ourselves daily to the
work of improving life on our planet.
 We have the curiosity to go farther … the imagination to
think bigger the determination to try harder … and the
conscience to care more.
 Our solutions will be bold. We will answer the
fundamental needs of the people we live with to ensure
harmony, health and prosperity in the world.
 Our methods will be our obsession. Our singular focus will
be to serve humanity with the power of all the sciences
available to us.
 Our tools are our minds. We will encourage
unconventional ideas, be daring in our thinking, and
courageous in our actions. By sharing our knowledge and
learning from each other and the markets we serve, we
will solve problems in surprising and magnificent ways.
 Our success will be ensured. We will be demanding of
ourselves and work relentlessly to complete our tasks.
Our achievements will create superior profit for our
shareholders and ourselves.
 Our principles are sacred. We will respect nature and
living things, work safely, are gracious to one another and
our partners, and each day we will leave for home with
consciences clear and spirits soaring.
Burger King
 We take Pride in serving our Guests the Best Burgers and
a variety of other Great Tasting, Healthy Foods Cooked
over an Open Fire. That's what we're all about.
 The ultimate success of the vision statement is the extent
to which leadership and key stakeholders actually begin
living the vision day-to-day. Sometimes, there is an
unwritten vision statement, understood by the
stakeholders and the leadership.
Reliance Industries
 Reliance believes that any business conduct can be
ethical only when it rests on the nine core values of
Honesty, Integrity, Respect, Fairness, Purposefulness,
Trust, Responsibility, Citizenship and Caring.
 We are committed to an ethical treatment of all our
stakeholders – our employees, our customers, our
environment, our shareholders, our lenders and other
investors, our suppliers and the Government. A firm
belief that every Reliance team member holds is that the
other persons' interests count as much as their own.
 The essence of these commitments is that each
employee conducts the company's business with
integrity, in compliance with applicable laws, and in a
manner that excludes considerations of personal
advantage.
 We do not lose sight of these values under any
circumstances, regardless of the goals we have to
achieve. To us, the means are as important as the ends.
Mission Statements
Vision is the critical focal point and beginning to high
performance. But obviously a vision alone won't make it
happen. Even the most exciting vision will remain only a
dream unless it is followed up with striving, building, and
improving.
Why does the organization exist? What is its value addition?
What's its function? How does it want to be positioned in the
market and minds of customers? What business is it in?
These are all questions of purpose. They deal with the deeper
motivations and assumptions underlying the values and
purpose that form the context and focus of the organization.
 Your mission statement draws on your belief statements. 39

Notes
 Your mission statement must be future oriented and
portray your organization as it will be, as if it already
exists.
 Your mission statement must focus on one common purpose.
 Your mission statement must be specific to the
organization, not generic.
The mission statements set the organization apart from
others. They give meaning to the reason for being, value-add,
and define the business of the organization. As with vision
and values, the mission should have clear answers to the
above questions. It should arouse a strong sense of
organizational identity and business purpose.
Though some of these questions often seem deceptively
simple, they are not so simple. We need to answer them to
prepare a mission statement. For example the question,
"What business are we in?" The implications of making a
definitive identification means that the organization has put
boundaries around to give guidance to the strategic direction
in which it will move.
The mission statement has direct implications on the
diversification strategy of the organization. It provides
directions on the strategic choice in diversification strategies.
If the areas are to be related it puts limits on the options. The
diversification options may be related in a number of
different ways; the new products and services may have
similar technologies, or may be serving similar markets, or
may have similar competencies.
Signal to Management's Intents

Specifically speaking of Mission statements, a well-crafted
mission statement must be narrow enough to specify the real
area of interest; and it should serve as a signal on where the
top management intends to take the firm. Overly broad
mission statements provide no guidance in strategy making.
However, diversified companies will have a broader mission
definition than single business enterprises. In either case, the
statement should lead to the direction the organization plans
to take.
Ranbaxy Laboratories Ltd. – Mission Statement
Our mission is to become a research-based international

pharmaceutical company.
40 McDonald's – Mission Statement

Notes
To offer the customer fast food prepared in the same high
quality worldwide, tasty and reasonably priced, delivered in a
consistent low key décor and friendly manner.
In the examples given above, the mission statement of
Ranbaxy gives a clear signal of the management's intent. As
a matter of fact, Ranbaxy rejected a lucrative offer to
expand by setting up business in the USSR. It was the
management's view that this would deter it from its mission
to become an international pharmaceutical company.
Similarly, McDonald's mission statement which is given
above, gives a clear signal of its management's intent. It
indicates that it will look at domestic and international
markets, and it intends to remain in the reasonably priced,
high quality fast food industry.
Setting a Direction
If we study the Mission Statements carefully, we will notice
that these statements have three distinct and identifiable
components. These are:
 The key market
 Contribution
 Distinction
The Ford Foundation Mission Statement identifies "the world
living in poverty" as its key market, Otis Elevator identifies
the key market as, "any customer" and McDonald's mission
statement that was given earlier, identifies the key market as
"fast food customers."
The distinctions are specified in the last part of the
statements. The distinction of Ford Foundation is, "To be an
excellent institution able to attract, excite, and nurture
diverse and committed staff with exceptional skills who know
how to listen and learn." In the case of Otis Elevator it is,
"with higher reliability than any other enterprise in the
world," and in the case of McDonald's it is, "delivered in a
consistent low key décor and friendly manner."
Mission statement can set the direction of the business
organization by identifying the key market, the contribution
the organization plans to make to the key market, and the
'distinctive competencies' or 'value' the organization will
provide in its focus on
to serve the key market. This provides clarity and focus to 41

Notes
the strategy that the organization employs.
Outward Looking Statements

There are different ways to define in a mission statement;
Customer needs – what is being satisfied; and Customer
Groups – Who is being satisfied. Looking outwards at
customer needs makes the organization a market driven
organization and customer driven firm. An example is the
mission statement of Hindustan Lever Ltd.
Hindustan Lever Ltd. – Mission Statement
Our purpose in Unilever is to meet the everyday needs of
people everywhere – to anticipate the aspirations of our
consumers and customers and to respond creatively and
competitively with branded products and services which raise
the quality of life.
Mission Statements by Functional Areas

Though mission statements are generally considered to be in
the domain of the corporate entity, sometimes, these are
made by functional areas in an organization also. They may
be used to focus on the department's contribution to the
overall mission of the company; the department's role and
scope within the company; and direction in which the
department needs to move. This is more common in highly
diversified firms or firms that have a high level of
specialization.
Organizational Values and their Impact on Strategy

The value statements give a common cause and a common
sense of purpose across the organization. Just like the
mission statement, it provides the direction to the strategy of
the organization. It provides an explicit depiction of values to
guide the organization in choosing among competing
priorities, thereby setting the organization apart from others.
Organizational Values can set the direction of the business
organization by identifying the contribution the organization
plans to make to the key market, and the 'distinctive
competencies' or 'value' the organization will provide in its
focus on to serve the key market. The statements should
speak loudly and clearly for themselves, elicit personal effort
and dedication and generate enthusiasm for the firm's future
– the strategy of the organization.
42 The value statement of the Ford Foundation provides

Notes guidelines to the moral conduct of the organization in
Activity
lass to prepare a vision achieving
and a mission statement for a
___________________ its mission
new organization and
manufacturing objectives.
health drinks. The statements reflect
that the Ford Foundation do not believe in a 'no holds barred'
___________________
strategy. The strategies that it will adopt will be limited by
___________________ the ethical values of the organization. The value statement is
___________________ given below, as an example:
What does Pillsbury mean? Pillsbury perhaps means a lot
because it is identified with high quality dough products. Two
of the biggest names that have emerged in the past decade
are Amazon and Starbucks. Does Starbucks mean coffee?
Absolutely not. But we get to know a company and that starts
to create an image. It is linked in customers' minds with
attributes or benefits.
Identity is the answer to the question, "Who are we?" The
Tatas have been advertising, "Tata, a century of trust". This
corporate identity reflects the personalities and values of the
founders and its management. It envelops the whole group of
industries operating in different areas of business and the
economy.
Check Your
Progress
Fill in the blanks:
1. The vision of the organization leads to its
………………
and its ……………….
2. The process and outcomes of visioning is to
Preparation of Vision and Mission Statements

In a competitive economy driven by the cruel logic of
markets, a company with a determined management can
transform an organization much more quickly and much
more effectively than in the past. Clearly articulating your
strategic intent is the key. Vision, mission, and values hold an
organization together.
Unfortunately, they don't come neatly packaged in separate
mental compartments. Instead, they are linked in people's
hearts and minds. Most people can relate to a personal
vision, their personal values, and their mission in life, but
they often find it difficult to arrive at a consensus on issues
concerning mission, values, and vision of the group.
It's important to recognize and respect diverse approaches to 43

Notes
questions of ultimate purpose in a group. Ideally, the senior
management team defines the broad parameters of what
business we're in and which direction we're heading. They
can prepare a rough vision for input and refinement or leave
things wide open for the rest of the organization to fill in.
Group members then exchange ideas and make decisions to
articulate the vision, mission, and values.
Different ways of defining a group's vision, mission and
values may seem foolish or even alarming; but organizations
are strongest when many aptitudes, interests, and points-of-
view can be worked out together. Teams or organizations
need a shared vision, not something that only a few people
own. Everyone should be a "stakeholder" in spirit. That's
usually a cascading process, but it can start in any part of an
organization.
The vision and mission statements should provide clarity to
the issues of governance. However, often there are conflicts
in perceptions. What organizations describe as "personality
conflicts", after a little exploration often reveals real
differences on issues about governance, finances, purpose
and program of the organization.
There are many ways in which the Vision Statement can be
prepared. It depends on the nature and type of organization
as well as the philosophy and management style of the top
management. One popular method, to prepare the vision
statement, is given here.
We may brainstorm with our staff or our board what we
would like to accomplish in the future, using the "guided
fantasy" method. We bring the participants together and ask
them to imagine and create a vision of what the group's
activities will be five or ten years down the line. We can begin
by leading the group with our vision of how the world will
change as the result of the group's work, the array of things
we like it to do – our vision. And others will find themselves
thinking first about how the organization should evolve and
how they can work with each other within the public
elements of the organization's values. People can spur each
other on to more daring and valuable dreams and visions –
dreams of changing the world that they are willing to work
hard for. For some people, it will be most comfortable to
focus on the purpose of the organization itself – its mission.
This should be consistent with the organization's values.
44 An exercise like this encourages people to develop their

Notes
visions and missions, loosening their imaginative powers.
Keep the process as open as possible. Avoid symbolic or
theoretical disputes and try not to be diverted by details.
Then discuss the ideas this has brought up. Create a
consensus and welcome all the contributions.
Then have a working group prepare a draft after the meeting,
summarizing the results and harvest what is needed to
formulate mission and vision statements.
Check Your
Progress
Fill in the blanks:
1. Teams or organizations need a shared.................,
not something that only a few people own.
2. The vision and mission statements should provide
clarity to the issues of ………………….
Summary
Systematic process of determining goals is to be achieved in
the foreseeable future. It consists of: (1) Management's
fundamental assumptions about the future economic,
technological, and competitive environments. (2) Setting of
goals to be achieved within a specified timeframe. (3)
Performance of SWOT analysis.
(4) Selecting main and alternative strategies to achieve the goals.
(5) Formulating, implementing, and monitoring the
operational or tactical plans to achieve interim objectives.
As with vision and its mission, the organizational values
provided should be clear, to provide answers to what
strategic options are acceptable to the organization. It should
add to the sense of organizational identity and business
purpose and identify the areas of value-addition of the
organization in its business. The Values of an organization are
often built with associations. You create a simple and
consistent message of who you are, what you're looking for,
and your uniqueness as differentiated from others.
Lesson End Activity

Prepare a collage of various vision statements of an
organization of your choice.
45
Keywords Notes
Mission: 'Mission' is the founders' intentions at the outset of

the organization – what they wanted to achieve.
Values: 'Values' manifest in what the organization does as a
group and how it operates. It is a guide to ways of choosing
among competing priorities and about how to work together.
Vision: 'Vision' is a long-term perspective of what is the final
destination of the organization. A vision is a description in
words that conjures up a similar picture for each member of
the organizations of the path and the destination.

1. Use your insight and critical abilities to analyse the Vision
and Mission Statements for any three organizations given
in this unit.
2. What would be the impact of vision and mission
statements on the functioning of organizations? And,
Why?
3. This question requires students to demonstrate an
understanding of the importance and relevance of the
vision and mission statements of an organization.
4. How vision and mission statements are arrived at, and
under what circumstances they need to be changed or
revised.
Further Readings
Books
Learning.
Dicke.Wilhelmina Margaretha (2005), “Managing Technology
Web Readings
http://en.wikipedia.org/wiki/Strategic_planning
http://www.balancedscorecard.org/BSCResources/StrategicPl
annin gBasics/tabid/459/Default.aspx
Innovation
46
Notes
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
UNIT 5: Case
Study
47
Unit 5 Notes
Case Study
Objectives
After analysing this case, the student will have an appreciation of the
concept of topics studied in this Block.
Case Study: Dorsey Corporation

Dorsey Corporation was a medium sized company. The
Chairman of the Board, John T. Pollock, and President of
Sewell Plastics, Charles Sewell were the principal officers of
the company. In 1975, Dorsey Corporation consisted of
three divisions - Chattanooga Glass, Sewell Plastics and
Dorsey Trailers. Chattanooga Glass made green Coca-Cola
bottles for its Southern region; Sewell Plastics made plastic
containers and Dorsey Trailers produced cargo trailers for
bulk transportation. Chattanooga Glass accounted for 60 per
cent of total sales and dominated Dorsey's business.
Du Pont had invented a new technology in plastics, called
PET (polyethylene terephthalate). In an attempt to find
applications for this new material, Du Pont found the
beverage market had good potential. They made a 2-litre
container out of PET and submitted it to the FDA for
approval. In 1977, Du Pont received FDA approval to use PET
bottles as beverage containers. They worked with a machine
tool company, Cincinnati Milacron, who built a line to mass-
produce the PET bottle.
In 1977, most glass companies had been ignoring the
potential of new plastic technology in bottles. Dorsey
recognized that a plastic bottle made of PET was not only
lighter than glass bottles but could hold carbonated
beverages as well as glass. This would result in lower freight
costs and less breakage. Also, glass manufacturing had
come under the purview of environmentalists and required
large investments to meet the new emerging pollution
standards.
Charles Sewell saw this as a unique opportunity and
immediately took the board's approval and invested $ 4
million in new plant and machinery. Sewell knew he was
competing against giant companies like Owen-Illinois,
Continental, Amoco, etc. He saw the introduction of PET
beverage bottles as an opportunity for a smaller company
with older technology - yet receptive to technological
change, to challenge his competition.
He invested further in plastic bottles. He not only used PET
containers for beverages; he also introduced them for milk
and chemicals. By 1982, Sewell Plastics was the market
leader in beverage bottles and had a sales volume of nearly
$ 800 million.
Contd...
48
The PET bottle innovation by Dorsey made obsolete both the product and production process of glass beverage bottles for large
Notes
Question:
What was the result of identifying a new opportunity by Sewell ?
UNIT 6: Strategic Objectives
49
Notes
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
BLOCK-II
Innovation
50
Notes
UNIT 6: STRATEGIC OBJECTIVES
F
UNIT 8: STRATEGY AND TECHNOLOGY
 Introduction
___________________
 Introduction
 Setting Objectives
___________________  Strategies of Indian IT Companies
 Network Objectives
___________________  Strategies of the Indian Tata Group
 Make them Challenging but
 Technology Strategy
Attainable
___________________
___________________ UNIT 9: STRATEGIC MANAGEMENT PRACTICE

UNIT 7: STRATEGIC MANAGEMENT
IN INDIA
 ___________________
Introduction
 Introduction
 Overview of Strategic Management
___________________  An Overview of Strategic Management
 Components of a Strategy Practice in India
___________________
Statement
 TSMG’s Strategic Management
 ___________________
Strategic Management Process
 Family Run Corporates
___________________
UNIT 10: CASE STUDY
UNIT 6: Strategic
Objectives
51
Unit 6 Notes
Strategic Objectives
Objectives
following topics:
f Setting Objectives
f Network Objectives
f Make them Challenging but Attainable
Introduction
Statements of vision tend to be quite broad and can be
described as a goal that represents an inspiring, overarching,
and emotionally driven destination. Mission statements, on
the other hand, tend to be more specific and address
questions concerning the organization’s reason for being and
the basis of its intended competitive advantage in the
marketplace. Strategic objectives are used to operationalize
the mission statement. That is, they help to provide guidance
on how the organization can fulfil or move toward the “high
goals” in the goal hierarchy-the mission and vision. As a
result, they tend to be more specific and cover a more well-
defined time frame.
Setting objectives demands a yardstick to measure the
fulfilment of the objectives. If an objective lacks specificity or
measurability, it is not very useful, simply because there is
no way of determining whether it is helping the organization
to move toward the organization’s mission and vision. Most of
strategic objectives are directed toward generating greater
profits and returns for the owners of the business, others are
directed at customers or society at large.
Objectives must typically be specific, quantifiable,
challenging but ‘doable,’ and tied directly to a reward
system. In addition, a method must be established to
communicate each level's goals to the next level down (flow
down) and also send feedback (roll-up) to the next level up.
Much of management literature talks of long-run and short-
run objectives. Long-run objectives focus on long-term
performance and
52 short-run objectives focus on short-term performance.

Notes Generally, the span of a short-run objective is 1–2 years,
Activity
Create a digital while the span of a long-run objective is 3–5 years. Corporate
essay on quantifying the objectives.
___________________
Objectives or Strategic Objectives are normally long-term
___________________
objectives, but often incorporate short-run objectives. Short-
run objectives play a significant part in assessing and
determining whether the speed and level of performance
being aimed for is being achieved. These also provide a
stepping stone towards attaining the long term performance.
Setting Objectives
All managers need objectives. A very important consideration
in setting objectives is to convert the organization into
integrated networks. The process should be such that the
shared values and identity of the organization is reflected in
the process.
Top-down Objectives: Objective setting is generally a top-
down process. This achieves unity and cohesion throughout
the organization. Managers at different levels in the
organizational hierarchy are concerned with different kinds of
objectives. The Board of Directors and top managers are
involved in determining the Vision, the Mission and the
Strategic Objectives of the firm. They are also involved in
deciding upon the specific overall financial objectives in the
Key Result Areas.
The middle management is involved in setting up objectives
for the Key Result Areas, objectives at the divisional levels, at
the departmental and individual levels. Lower level managers
set objectives of units as well as their subordinates.
Bottom-up Approach: Though in most manufacturing and
service organizations, the objective is set top-down, there is
an argument for a bottom-up approach. This is especially true
for knowledge based companies, where the argument is that
objective setting should be bottom-up that it should be part
of a learning process and not a part of the reward and
punishment system.
Proponents of the bottom-up approach argue that top
management needs to have information from lower levels
and this will make objectives more realistic and acceptable.
They also argue that subordinates are more likely to be
highly motivated by, and committed to goals that they
initiate, than to objectives thrust upon them. In spite of the
strength of the arguments, the bottom- up approach is highly
under-utilized.
Setting objectives is a critical exercise in an organization. Not 53

Notes
only does it direct the organization towards its goals but also,
it is the basis for the reward system. Therefore, this activity
affects almost everyone in the firm. Some care needs to be
taken while setting objectives. Some of the issues that need
to be kept in mind while setting business objectives have
been discussed below.
Balance Your Objectives

Objectives should be balanced. They should incorporate
requirements that will involve all members of the
organization. If our objectives focus on only profit and sales,
people outside of the executive planning group may wonder,
"What's in it for us?" If they ask that question out loud, we've
got a problem. If they ask it silently to themselves, we've got
an even more serious problem.
Multiplicity of Objectives
We should not set too many objectives. If we do, we'll lose
focus. We won't be able to use our objectives in managing
day to day. Keep the objective lists short. The importance of
the objectives is that we should enthuse and motivate the
employees. In order to do so, employees should be able to
remember and keep the objectives in mind.
At every level in the hierarchy there are likely to be a number
of objectives. Some people think that a manager can handle
a limited span of objectives effectively. Too many objectives
have a number of problems:
 They tend to dilute the drive needed for their accomplishment
 They may unduly highlight minor objectives to the
detriment of major ones
There is no agreement to the number of objectives that a
manager can handle. However, if there are so many that
none receives adequate attention and the execution of the
objectives is ineffective, there is a need to be cautious.
However, it will be wise to identify the relative importance of
each objective, in case the list is not manageable.
Themes for Objectives

For an objective to be useful, it has to meet certain criteria. It
must carry a single theme. It should tell us to do one thing
only, not two or more. When there is more than one theme in
the objective there
54 is a problem in evaluating the performance, both for the

Notes
management as well as for us. If we fulfil one of the two
themes, have we met our objectives? A lack of clarity can
make the objective redundant.
Multiple themes also create conflict. It is unlikely that the
themes will result in the same outcomes. Were this so, there
would be no need to have multiple themes.
Use Result-oriented Objectives

There are two orientations in describing activities. Based on
this, there are two types of objectives that we can develop:
 Result-oriented
 Activity-oriented.
In a result-oriented objective, we focus on the outcome from
the activities of the individual or function. We could require
the function to increase its production of certain products,
say by 10 per cent. This is a result-oriented objective. We
could also require the workers to put in 10 per cent extra
hours in production. This is now an activity-oriented
objective. In this case, the increase in hours put in by the
worker does not ensure that there is an increase in the
production by 10 per cent.
Obviously, the first is a stronger statement. It motivates the
workers to work harder and even improve their productivity
so as to provide the result. We should establish results-
oriented objectives whenever possible. Results-oriented
objectives are stronger. Whenever possible, we write our
objectives in terms of a result, rather than an activity.
Activity-oriented objectives should be used when it is
extremely difficult to write a results-oriented objective. It
should be an exception.
Quantify Your Objectives

Objectives must be quantified. Everyone in the organization
has to know how much effort we need to put in to accomplish
the objectives and we've got to be able to measure it to
figure out whether or not we've succeeded.
Some objectives are easy to measure, some are not.
Financial objectives are the easiest to quantify. Marketing
objectives, e.g., sales volume and market share are also
usually easy enough to turn into numbers if we can agree on
a measurement for industry sales.
Quantities like 'customer satisfaction' are more difficult to 55

measure. We can count complaints. We can measure Notes
Activity
defective product. We can count referrals to new accounts oran old newspaper page and cover network objectives
Recreate
___________________
repeat business or warranty costs. In the case of a measure
___________________
of 'customer satisfaction', we assume that it is difficult to
measure directly, and so we use proxy variables. Something
we believe parallels the issue of customer satisfaction. We
quantify our objectives even if we have to "force" our
measurement. So when warranty cost gets below 1.5%; or
when the reorder ratio goes over 75%; or when referrals to
new accounts reach 25% of total billings – then we'll believe
that customer satisfaction is where we want it to be.
Though it seems some objectives are measurable, on
analysing the measure more carefully, the measure may not
be so good. For example, it is normally accepted that market
share is a measurable objective. But is this true? It's difficult
to get agreement on the total market size used in calculating
market share. And even if we can agree on total market size,
there is a lag between the periods when the objectives have
to be met and when market data will be available. This lack
of timely information means we can't use the market share
objective to manage our business on a day-to-day basis.
Check Your
Progress
Fill in the blanks:
1. When there is more than one theme in the
objective there is a problem in evaluating the
………………….
2. Some objectives are easy to.............., some are not.
3.......................objectives are the easiest to quantify.
Network Objectives
Objectives are never linear. When one objective is
accomplished, it is not neatly followed by another, and so on.
Objectives form an interlocking network. One objective is
very often dependent on another. The implementation of one
may impact the implementation of the other. It's one thing to
write down an objective and say "Yes, that's fine. I think we
can do it. Let's commit to it." Then go on to the next one and
do it again and again.
56 There is the aspect of 'fitting'. When we have a number of

Notes objectives we should take a long, hard look at them. And ask,
Activity
an organization and___________________ "Can
analyze if it is both challenging but we and
attainable do prepare
this whole bunch of objectives all at the same
a presentation.
time?" Very often, an examination like that will indicate the
___________________
type of problems we may face, as typified below:
___________________
"Assume we have a situation where the manufacturing
department has to cut the cost of the product by say 5 per
cent. It can do so by taking long production runs. The
marketing department, in order to meet its objectives desires
to have all the products in the line readily available for
dispatch. The finance department has the objective of
maintaining investment in inventories at a certain low level.
We wrote a set of objectives calling for growth in the sales
volume, and reduction in the cost of manufacture, at the
same time. But the two are conflicting objectives. Because
reduction in cost requires high productivity and sales growth
requires that it should be able to ship the products promptly
to the customers so that they do not go to other sources. The
solution could have been an increase in inventory. But this is
in conflict with the objectives of the finance department, who
have to ensure that inventories are maintained at a low
level."
Make sure objectives not only fit but also reinforce each
other. The requirement is that everyone on your planning
team should believe that we can accomplish all the
objectives we have put down, at the same time.
Check Your
Progress
Fill in the blanks:
1. Objectives form an.....................network.
2. The marketing department, in order to meet its
objectives desires to have all the products in the
line readily available for ………………….
Make them Challenging but Attainable

There was a lot of literature that came out in the nineteen
sixties on 'Achievement Motivation'. The main proponent of
this concept, Atkinson, proposed that if the task put before a
person was too easy or too difficult, the likelihood was that
there would be failure in executing the task efficiently, as the
motivation to succeed was
related to the person's perception of the probability of 57

Notes
success or failure. In order to prove his hypothesis, he used
expert marksmen and gave them an extremely easy target
range to shoot at. He found that the marksmen did not
perform as well as they should have - according to him this
was a result of poor motivation.
The objective should be challenging but, at the same time,
attainable. In other words, an objective should be achievable.
People in your organization should understand that
accomplishment of the objective requires effort and given
that effort, they should expect they can accomplish the
objective.
For example, DuPont has defined a set of goals; immortal
polymers; zero waste processes; elastic coatings as hard as
diamonds; elastomers as strong as steel; materials that
repair themselves; chemical plants that run by a single chip;
and coatings that change colour on demand.
Thank God, this is the vision of the company. Were these the
objectives of the company, we would be so overwhelmed that
we would put our hands up even before we started trying to
play the game. Even if the objective were "maintain our
performance at last year's level," (there could be good
reasons for such an objective) most people would relax
assuming that it was too easy to require them to put in
additional effort. Chances are they would not be able to
maintain last year's performance.
We must make each of our objectives both challenging and
attainable. Finally, in writing objectives, eliminate the "why".
Do not be tempted to explain 'why', in order to enthuse or
motivate employees. The 'why' may replace the objective in
the mind of the employee and the focus of the objective will
be lost. Also, don't write 'how' in the objective. Not only will it
cause confusion, it will also cause conflict. Is the 'how' more
important than the objective itself? We must also understand
that the answer to "how" is really a strategy.
SMART Formula
The SMART Formula is a useful method of examining
objectives. Many business schools use this model to illustrate
how to build up and create proper business objectives. Each
letter in SMART stands for a characteristic associated with
business objectives. That is:
 Specific: Clearly state what it is we want to do/achieve
by way of a factual description?
58  Measurable: Ensure that the success of your business

Notes
objective can be measured against concrete criteria.
 Achievable: Is the objective achievable given your
current operational resources and/or
competence/capacity?
 Realistic: Is the scope of the objective within the bounds
of what is recognizable as a proper 'business fit'?
 Timely: Include a time scale within which the objectives
should be achieved.
The SMART method is a very nice way to reassess the
objectives, once they are made. It is a good evaluation
method.
Check Your
Progress
Fill in the blanks:
1. We must make each of our objectives both
………………
and ……………….
2. The '….............' may replace the objective in the
mind
Summary
All businesses need to set objectives, objectives are
important they focus organisations. Businesses that have
specific aims are usually more successful than those that
don't; because a business with objectives knows what it is
trying to achieve. Objectives can be set in all areas of the
business e.g. sales, production, finance and marketing.
An objective that follows SMART is more likely to succeed
because it is clear (specific) so you know exactly what needs
to be achieved. You can tell when it has been achieved
(measurable) because you have a way to measure
completion. A SMART objective is likely to happen because it
is an event that is achievable. Before setting a SMART
objective relevant factors such as resources and time were
taken into account to ensure that it is realistic. Finally the
timescale element provides a deadline which helps people
focus on the tasks required to achieve the objective. The
timescale element stops people postponing task completion.
59
Lesson End Activity Notes
Prepare a chart with text and images on SMART objectives.
Keywords
Customer Satisfaction: It is a term frequently used in
marketing, is a measure of how products and services
supplied by a company meet or surpass customer
expectation.
Objective: It refers to A specific result that a person or
system aims to achieve within a time frame and with
available resources.
Strategic Objective: A broadly defined objective that an
organization must achieve to make its strategy succeed.

1. Explain short-run and long-run objectives.
2. What is bottom-up approach?
3. What do you mean by multiplicity of objectives?
4. Briefly describe network objectives.
5. Why should the objectives be challenging?
Further Readings
Books
Learning.
Web Readings
http://www.tutor2u.net/business/strategy/objectives.htm
http://www.sbaer.uca.edu/publications/strategic_managemen
t/pdf/0 8.pdf
Innovation
60
Notes
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
UNIT 7: Strategic
Management
61
Unit 7 Notes
Strategic Management
Objectives
following topics:
f Overview of Strategic
Management f Components of a
Strategy Statement f
Introduction
Strategic management analyses the major initiatives taken
by a company's top management on behalf of owners,
involving resources and performance in external
environments. It entails specifying the organization's mission,
vision and objectives, developing policies and plans, often in
terms of projects and programs, which are designed to
achieve these objectives, and then allocating resources to
implement the policies and plans, projects and programs.
A balanced scorecard is often used to evaluate the overall
performance of the business and its progress towards
objectives. Recent studies and leading management theorists
have advocated that strategy needs to start with
stakeholders expectations and use a modified balanced
scorecard which includes all stakeholders.
Strategic management is a level of managerial activity below
setting goals and above tactics. Strategic management
provides overall direction to the enterprise and is closely
related to the field of Organization Studies. In the field of
business administration it is useful to talk about "strategic
consistency" between the organization and its environment
or "strategic consistency." According to Arieu (2007), "there
is strategic consistency when the actions of an organization
are consistent with the expectations of management, and
these in turn are with the market and the context." Strategic
management includes the management team and possibly
the Board of Directors and other stakeholders.
62
Overview of Strategic Management
Notes
Activity Strategic management is an ongoing process that evaluates and
you involved in strategy making and know his point of view about strategic management and prepare a report.
___________________
controls the business and the industries in which the
___________________ company is involved; assesses its competitors and sets goals
___________________ and strategies to meet all existing and potential competitors;
and then reassesses each strategy annually or quarterly to
___________________
determine how it has been
implemented and whether it has succeeded or needs
replacement by a new strategy to meet changed
circumstances, new technology, new competitors, a new
economic environment, or a new social, financial, or political
environment."
Strategic Management can also be defined as "the
identification of the purpose of the organisation and the plans
and actions to achieve the purpose. It is that set of
managerial decisions and actions that determine the long-
term performance of a business enterprise. It involves
formulating and implementing strategies that will help in
aligning the organization and its environment to achieve
organisational goals.
Strategic Management is all about identification and
description of the strategies that managers can carry so as to
achieve better performance and a competitive advantage for
their organization. An organization is said to have
competitive advantage if its profitability is higher than the
average profitability for all companies in its industry.
Strategic management can also be defined as a bundle of
decisions and acts which a manager undertakes and which
decides the result of the firm’s performance. The manager
must have a thorough knowledge and analysis of the general
and competitive organizational environment so as to take
right decisions. They should conduct a SWOT Analysis
(Strengths, Weaknesses, Opportunities, and Threats), i.e.,
they should make best possible utilization of strengths,
minimize the organizational weaknesses, make use of arising
opportunities from the business environment and shouldn’t
ignore the threats.
Strategic management is nothing but planning for both
predictable as well as unfeasible contingencies. It is
applicable to both small as well as large organizations as
even the smallest organization face competition and, by
formulating and implementing appropriate strategies, they
can attain sustainable competitive advantage.
UNIT 7: Strategic Management
63
Check Your
Progress Notes
Activity
Conduct a survey and perform environmental scanning for a startup organiza
___________________
Fill in the blanks:
___________________
1. Strategic management is an........................process
that evaluates and controls the business. ___________________
2. Strategic management can also be defined as a

bundle of …………………….
Components of a Strategy Statement
The strategy statement of a firm sets the firm’s long-term
strategic direction and broad policy directions. It gives the
firm a clear sense of direction and a blueprint for the firm’s
activities for the upcoming years. The main constituents of a
strategic statement are as follows:
Source: http://www.ehow.com/facts_6901134_meaning-strategic-intent_.html
Figure 7.1: Strategic Intent
Strategic
Intent
An organization’s strategic intent is the purpose that it exists
and why it will continue to exist, providing it maintains a
competitive advantage. Strategic intent gives a picture about
what an organization must get into immediately in order to
achieve the company’s vision. It motivates the people. It
clarifies the vision of the vision of the company. Strategic
intent helps management to emphasize and concentrate on
the priorities. Strategic intent is nothing but, the influencing
of an organization’s resource potential
64 and core competencies to achieve what at first may seem to

Notes
be unachievable goals in the competitive environment. A well
expressed strategic intent should guide/steer the
development of strategic intent or the setting of goals and
objectives that require that all of organization’s competencies
be controlled to maximum value.
Strategic intent includes directing organization’s attention on
the need of winning; inspiring people by telling them that the
targets are valuable; encouraging individual and team
participation as well as contribution; and utilizing intent to
direct allocation of resources. Strategic intent differs from
strategic fit in a way that while strategic fit deals with
harmonizing available resources and potentials to the
external environment, strategic intent emphasizes on
building new resources and potentials so as to create and
exploit future opportunities.
Mission Statement
Mission statement is the statement of the role by which an
organization intends to serve its stakeholders. It describes
why an organization is operating and thus provides a
framework within which strategies are formulated. It
describes what the organization does (i.e., present
capabilities), who all it serves (i.e., stakeholders) and what
makes an organization unique (i.e., reason for existence). A
mission statement differentiates an organization from others
by explaining its broad scope of activities, its products, and
technologies it uses to achieve its goals and objectives. It
talks about an organization’s present (i.e., “about where we
are”).
For instance, Microsoft’s mission is to help people and
businesses throughout the world to realize their full potential.
Wal-Mart’s mission is “To give ordinary folk the chance to buy
the same thing as rich people.” Mission statements always
exist at top level of an organization, but may also be made
for various organizational levels. Chief executive plays a
significant role in formulation of mission statement. Once the
mission statement is formulated, it serves the organization in
long run, but it may become ambiguous with organizational
growth and innovations.
In today’s dynamic and competitive environment, mission
may need to be redefined. However, care must be taken that
the redefined mission statement should have original
fundamentals/components. Mission statement has three main
components – (i) a statement of mission or vision of the company, 65

Notes
(ii) a statement of the core values that shape the acts and
behaviour of the employees, and (iii) a statement of the goals
and objectives.
Features of a Mission
Following are the features of a mission statement:
 Mission must be feasible and attainable. It should be
possible to achieve it.
 Mission should be clear enough so that any action can be
taken.
 It should be inspiring for the management, staff and
society at large.
 It should be precise enough, i.e., it should be neither too
broad nor too narrow.
 It should be unique and distinctive to leave an impact in
everyone’s mind.
 It should be analytical i.e., it should analyse the key
components of the strategy.
 It should be credible, i.e., all stakeholders should be able
to believe it.
Vision
A vision statement identifies where the organization wants or
intends to be in future or where it should be to best meet the
needs of the stakeholders. It describes dreams and
aspirations for future. For instance, Microsoft’s vision is “to
empower people through great software, any time, any place,
or any device.” Wal-Mart’s vision is to become worldwide
leader in retailing. A vision is the potential to view things
ahead of themselves. It answers the question “where we
want to be”. It gives us a reminder about what we attempt to
develop. A vision statement is for the organization and its
members, unlike the mission statement which is for the
customers/clients. It contributes in effective decision making
as well as effective business planning. It incorporates a
shared understanding about the nature and aim of the
organization and utilizes this understanding to direct and
guide the organization towards a better purpose. It describes
that on achieving the mission, how the organizational future
would appear to be.
66 An effective vision statement must have following features:

Notes
 It must be unambiguous.
 It must be clear.
 It must harmonize with organization’s culture and values.
 The dreams and aspirations must be rational/realistic.
 Vision statements should be shorter so that they are
easier to memorize.
In order to realize the vision, it must be deeply instilled in the
organization, being owned and shared by everyone involved
in the organization.
Goals and Objectives
Goals
A goal is a desired future state or objective that an
organization tries to achieve. Goals specify in particular what
must be done if an organization is to attain mission or vision.
Goals make mission more prominent and concrete. They co-
ordinate and integrate various functional and departmental
areas in an organization. Well-made goals have following
features:
 These are precise and measurable.
 These look after critical and significant issues.
 These are realistic and challenging.
 These must be achieved within a specific time frame.
 These include both financial as well as non-financial
components.
Objectives
Objectives are defined as goals that organization wants to
achieve over a period of time. These are the foundation of
planning. Policies are developed in an organization so as to
achieve these objectives. Formulation of objectives is the
task of top level management. Effective objectives have
following features:
 These are not single for an organization, but multiple.
 Objectives should be both short-term as well as long-term.
 Objectives must respond and react to changes in
environment, i.e., they must be flexible.
 These must be feasible, realistic and operational.
67
Check Your
Progress Notes
Activity
Prepare a flowchart to show the process of strategic management on
___________________
Fill in the blanks:
___________________
1. Strategic …………………… gives a picture about
what an organization must get into immediately in
order to achieve the company’s vision.
2. A vision is the.........................to view things ahead of
themselves.
Strategic Management Process
The strategic management process means defining the
organization’s strategy. It is also defined as the process by
which managers make a choice of a set of strategies for the
organization that will enable it to achieve better
performance. Strategic management is a continuous process
that appraises the business and industries in which the
organization is involved; appraises its competitors; and fixes
goals to meet the entire present and future competitor’s and
then reassesses each strategy.
Strategic management process has following four steps:
Environmental Scanning
Environmental scanning refers to a process of collecting,
scrutinizing and providing information for strategic purposes.
It helps in analysing the internal and external factors
influencing an organization. After executing the
environmental analysis process, management should
evaluate it on a continuous basis and strive to improve it.
Strategy Formulation
Strategy formulation is the process of deciding best course of
action for accomplishing organizational objectives and hence
achieving organizational purpose. After conducting
environment scanning, managers formulate corporate,
business and functional strategies.
Strategy Implementation
Strategy implementation implies making the strategy work as
intended or putting the organization’s chosen strategy into
action. Strategy implementation includes designing the
organization’s structure, distributing resources, developing
decision making process, and managing human resources.
Strategy
Evaluation
Strategy evaluation is the final step of strategy management
68 process. The key strategy evaluation activities are:
Notes appraising internal and external factors that are the root of
present strategies, measuring performance, and taking
remedial/corrective actions. Evaluation makes sure that the
organizational strategy as well as its implementation meets
the organizational objectives.
These components are steps that are carried, in chronological
order, when creating a new strategic management plan.
Present businesses that have already created a strategic
management plan will revert to these steps as per the
situation’s requirement, so as to make essential changes.
Source: http://www.managementstudyguide.com/strategic-management-process.htm
Figure 7.2: Components of Strategic Management Process
Strategic management is an ongoing process. Therefore, it

must be realized that each component interacts with the
other components and that this interaction often happens in
chorus.
Check Your
Progress
Fill in the blanks:
1. Environmental …………………… refers to a process
of collecting, scrutinizing and providing information
for strategic purposes.
2. Evaluation makes sure that the organizational
strategy as well as its ………………… meets the
organizational objectives.
Summary
Strategic Management is a way in which strategists set the
objectives and proceed about attaining them. It deals with
making and implementing decisions about future direction of
an organization. It helps us to identify the direction in which
an organization is moving.
Strategic management is a continuous process that evaluates 69

Notes
and controls the business and the industries in which an
organization is involved; evaluates its competitors and sets
goals and strategies to meet all existing and potential
competitors; and then re-evaluates strategies on a regular
basis to determine how it has been implemented and
whether it was successful or does it needs replacement.
Strategic Management gives a broader perspective to the
employees of an organization and they can better understand
how their job fits into the entire organizational plan and how
it is co-related to other organizational members. It is nothing
but the art of managing employees in a manner which
maximizes the ability of achieving business objectives. The
employees become more trustworthy, more committed and
more satisfied as they can co-relate themselves very well
with each organizational task. They can understand the
reaction of environmental changes on the organization and
the probable response of the organization with the help of
strategic management. Thus the employees can judge the
impact of such changes on their own job and can effectively
face the changes. The managers and employees must do
appropriate things in appropriate manner. They need to be
both effective as well as efficient.
Lesson End Activity

Prepare a model of strategic management process and
display it in your class.
Keywords
Environmental Scanning: It refers to a process of
collecting, scrutinizing and providing information for strategic
purposes.
Goal: A goal is a desired future state or objective that an
organization tries to achieve.
Objectives: Objectives are defined as goals that
organization wants to achieve over a period of time.
Strategic Intent: Strategic intent is defined as a compelling
statement about where an organization is going that
succinctly conveys a sense of what the organization wants to
achieve long- term.
Questions for
Discussion
1. “Strategic management is an ongoing process”. Discuss.
2. Discuss strategic intent as a component of strategic intent.
70
Notes
3. Explain the features of both mission and vision statements.
4. Explain strategic management process with the help of a
diagram.
5. Why does strategic management called bundle of decisions?
Further Readings
Books
Web Readings
http://www.managementstudyguide.com/strategy-
statement- components.htm
http://www.managementstudyguide.com/strategic-
management- process.htm
UNIT 8: Strategy and
Technology
71
Unit 8 Notes
Strategy and Technology

Objectives
following topics:
f Strategies of Indian IT
Companies f Strategies of
the Indian Tata Group f
Technology Strategy
Introduction
Strategy plays a vital role in companies for its sustainability
and growth. Major issues of strategy are being discussed at
national and global levels and research being undertaken to
understand what makes some companies outperform their
industry peers. It is argued that companies need tools and
techniques to excel in an industry but more important is how
to formulate and implement strategies as also what kind of
management practices to be followed. A large body of
literature is available throwing light on various strategic
issues for companies to excel in an industry.
 Organizational Excellence and Dynamics Challenges
 Innovation and Corporate Sustainability
 Competition and Competitiveness
 Strategy Formulation and Implementation
 Balanced Scorecard
 Change Management
Some of the Indian companies entered the global market and
become major player. They are either cost leader or producer
of differentiated products. They accept the challenges of
global competition by innovation and strategic dynamics.
They capture global market through joint ventures, mergers
and acquisitions. They try to make their present felt in the
global market. However they have to struggle hard to
compete with other global players.
72
Strategies of Indian IT Companies
Notes
Activity Many IT companies are growing in terms of sales, man power,
ganization of your preference and analyze its strategies and prepare a report.
___________________
and skills. Indian companies are becoming part of the world
___________________ reputed IT projects. What are the growth strategies of
___________________ successful Indian IT companies?
Indian IT companies' revenues are increasing every year after
the US economic slowdown in 2000. Every year Indian IT
industry is reaching the software export targets projected by
the NASSCOM. Many IT companies are growing in terms of
sales, man power, and skills. Indian companies are becoming
part of the world reputed IT projects. What are the growth
strategies of successful Indian IT
companies? How are they getting more business every year
in spite of the tough competition from China? How are they
becoming profitable? How are they able to retain their
employees for long term? How they are able to deliver good
quality turnkey solutions?
People are the first assets to any company. It is the human
capital which is giving maximum returns to any company.
The skilled man power and the education system India is
having are the greatest assets. The young engineers in India
are very flexible in learning new technologies and they are
hunger for technology and technical developments.
Indian software engineers welcome new technologies and
they accept change, which is an advantage to IT companies.
Indian IT companies are heavily investing in training young
engineers. As we know technologies change fast. To catch
the new technical projects, these companies should be ready
with the latest skilled technical man power. Quick learning
capabilities of these engineers is also an advantage to these
software services firms. Once you have the man power
available in the latest technologies, it is easy to bid the
projects in those technologies.
One of the growth strategies of Indian IT services firms is
acquisitions. In the recent past many Indian IT companies
acquired companies in US and Europe which are having the
good customer base so that they can get more business from
US and Europe. For example, US based NerveWire was
acquired by Wipro Technologies. If you look at the global
player Cisco, It is best example for Mergers & Acquisitions. It
has acquired hundred of companies having related products.
Another growth strategy they are following is diversification
strategy. Some IT companies are having plans to enter into
UNIT 8: Strategy and Technology
biotechnology area. Companies like Satyam, TCS and Wipro 73

Notes
are already into Bioinformatics. And many IT companies are
following the chain.
One more growth strategy these IT companies are following
is geographical diversification. Satyam started their
development centre in China and Dubai. Majority of Indian
software houses are becoming MNCs by starting their
development centres abroad. They are recruiting diversified
workforce. Infosys is going to global business schools to
recruit their management graduate.
Companies like Infosys and i-Flex are entering into IT
products segments with their banking products to the global
markets. These IT companies are diversifying their customer
base. They are not dependent on single customer.
Also these IT companies are diversifying their services
offering to the customer. Earlier they were into maintenance
and manpower supply to the western IT customers. These
days Indian IT companies are providing offshore facilities,
project management, program management, design, and
architecture services also. In fact, Infosys is providing
complete business solutions to the customer by providing
management consulting services through their business
consulting venture and IT services through their traditional
software business.
According to NASSCOM President, Kiran Karnik's article titled
“Dreaming of a new India” published in The Times of India,
now every global company is having "India Strategy". The
boards of these global players are having the India specific
strategies.
Now let us see other side of the spectrum. According to the
article published in recent BusinessWeek, 16 Jan 2006 Issue,
“Sub-continental Drift” written by Nandini Lakshman, there
are around 30,000 foreign workers in Indian IT and ITES
companies working in India. This number is triple the number
of foreigners in India which is two years ago. People from
European countries are coming and working in Indian IT
enabled services companies in Metro areas. Majority of them
are language experts in Spanish, Finish, French, and German.
Many foreign program and business managers of global IT
companies like IBM are working in India. Indian IT industry is
attracting many foreigners to come and work here.
Mumbai based Mastek, is part of the biggest IT program of
UK, which is NHS computerization in UK. Mastek is taking
care of
74 providing offshore facilities for NHS. It is working along

Notes with British Telecom
for NHS in UK.
Activity
eshow of strategies___________________
of Tata Group in bullet points and present it in the class.
Check Your
___________________
Progress
___________________
Fill in the blanks:
1. The young engineers in India are very …………………
in learning new technologies.
2. Companies like Infosys and i-Flex are entering into
IT products segments with their
products
Strategies of the Indian Tata Group
Complex ownership structures are a common phenomenon
across Asian business groups. There has been a large amount
of international work focusing on the various aspects of
ownership structures and strategies adopted by international
business groups. In the Indian literature, we found little work,
especially with respect to case studies. In this unit, we use
public information of a well-known business group (the Tatas)
passing through a major restructuring and document the
development of ownership structure. The country's second-
largest conglomerate, the Tata group, with year 2005
revenue of over ` 80,000 crore (US$ 20 billion) and core
interests ranging from steel, cars and telecommunications to
software consulting, hotels and consumer goods, has come a
long way since JRD Tata passed the dynamics mantle to
Ratan Tata, in 1991.
Indian Business Houses Tata Group
Tata Heritage
 Jamsedji Tata
 Started textile mill in 1877
 Inspired steel and power industry
 Technical education and philanthropy
 JRD Tata
 Pioneered civil aviation
 Funded-Homi Bhabha’s nuclear programme
 Guided the Tata group for over half a century
 Ratan Tata
 Present Chairman since 1991
Figure 8.1: Tata Group

We examine the interrelation of ownership structure, 75

corporate strategy, and external forces for one of the largest Notes
Activity
conglomerate from India. In all Tata group affiliates, control
Compare is
and contrast traditional technology strategy and modern IT te
___________________
enhanced through pyramidal structures, and cross-holdings
___________________
among affiliates. This case study on the oldest business
empire also explores the rationale behind these moves and
examines the tensions and complementarities between
stronger ownership ties among group affiliates. While
bridging ties among group affiliates does benefit the new
dynamics in creating a more cohesive business group yet the
findings hold enough water to conclude that these moves are
contradictory to the interests of the minority shareholders in
the individual operating companies.
Check Your
Progress
Fill in the blanks:
1. …………………… ownership structures are a
common phenomenon across Asian business
groups.
2. In all Tata group affiliates, control is enhanced
through
Technology Strategy
A Technology strategy is the overall plan which consists of
objective(s), principles and tactics relating to use of the
technologies within a particular organization. Such strategies
primarily focus on the technologies themselves and in some
cases the people who directly manage those technologies.
The strategy can be implied from the organization's
behaviours towards technology decisions, and may be written
down in a document.
Other generations of technology-related strategies primarily
focus on: the efficiency of the company's spending on
technology; how people, for example the organization's
customers and employees, exploit technologies in ways that
create value for the organization; on the full integration of
technology-related decisions with the company's strategies
and operating plans, such that no separate technology
strategy exists other than the de facto strategic principle that
the organization does not need or have a discreet
'technology strategy'.
76 A technology strategy has traditionally been expressed in a

Notes
document that explains how technology should be utilized as
part of an organization's overall corporate strategy and each
business strategy. In the case of IT, the strategy is usually
formulated by a group of representatives from both the
business and from IT. Often the Information Technology
Strategy is led by an organization's Chief Technology Officer
(CTO) or equivalent. Accountability varies for an
organization's strategies for other classes of technology.
Although many companies write an overall business plan
each year, a technology strategy may cover developments
somewhere between three and 5 years into the future.
Check Your
Progress
Fill in the blanks:
1. The strategy can be implied from the
organization's behaviours towards.decisions.
2..............................varies for an organization's
strategies
Summary
Strategy plays a vital role in companies for its sustainability
and growth. Major issues of strategy are being discussed at
national and global levels and research being undertaken to
understand what makes some companies outperform their
industry peers. People are the first assets to any company. It
is the human capital which is giving maximum returns to any
company. The skilled man power and the education system
India is having are the greatest assets. One of the growth
strategies of Indian IT services firms is acquisitions. While
bridging ties among group affiliates does benefit the new
dynamics in creating a more cohesive business group yet the
findings hold enough water to conclude that these moves are
contradictory to the interests of the minority shareholders in
the individual operating companies.
Lesson End Activity

Conduct a survey and find out the strategies most widely
used in IT sector and prepare a presentation based on your
findings.
77
Keywords Notes
Enterprise Data: It defines a plan for how an enterprise

utilizes the data required to execute its business process
through strategic technology.
Growth: It means development from a lower or simpler to a
higher or more complex form; evolution.
Technological Change (TC): It is a term that is used to
describe the overall process of invention, innovation and
diffusion of technology or processes.

1. Discuss the strategies in IT sector.
2. Explain the strategies of Indian Tata Group.
3. What do you understand by technology strategy?
4. Explain diversification as a growth strategy in IT sector.
Further Readings
Books
Learning.
Web Readings
http://www.businessweek.com/stories/2008-04-28/indian-it-
companies-eye-new-strategiesbusinessweek-business-
news-stock- market-and-financial-advice
http://www.thehindubusinessline.com/industry-and-
economy/info- tech/time-for-it-companies-to-reframe-
business- strategies/article3377405.ece
Innovation
78
Notes
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
UNIT 9: Strategic Management Practice in
India
79
Unit 9 Notes
Activity
Collect recent news on strategicmanagement practice in India and prepa
Strategic Management Practice in
___________________
___________________
India ___________________
Objectives
following topics:
f An Overview of Strategic Management Practice in India

f TSMG’s Strategic Management
f Family Run Corporates
Introduction
In words of C.K. Prahalad, "As Indian firms emerge into the
global scene; they bring with them their unique brand of
innovative practice. Some of these are radically new ways of
organizing and leveraging resources globally, while others
are breaking new grounds in offering products and services
at price points and quality never envisaged before.
Simultaneously, Indian firms are facing hurdles in their rapid
growth, as they transition from domestic to global players".
"The rise of India poses opportunities as well as fundamental
challenges both to academics and strategists. While access
to potentially one billion customers poses large untapped
opportunities, the very unique milieu in India is requiring a
re-thinking of strategic tenets."
An Overview of Strategic Management Practice

in India
In keeping with the strategic imperatives of contemporary
global business, the India should focus on the opportunities
and challenges associated with enhancing innovation in a
world, which is becoming increasingly flatter. Businesses in
India, both domestic and foreign, are redefining global
industries through innovations in product, process and
business models. Importantly, the emergence of innovations
that are being targeted to the bottom of the pyramid, are
heralding a significant shift to a more inclusive form of
capitalism.
80 As India shakes off the shackles of its past and emerges on

Notes
the world stage as a rapidly modernizing and progressive
nation, it poses a number of challenges and opportunities to
strategic thinkers, industry leaders, and policy makers
around the world. From the perspective of Indian firms, the
challenge revolves around developing platforms for
innovation and growth that will sustain their meteoric rise
onto the world stage as 'emerging multinationals.' From the
perspective of Western firms, the rise of
India poses opportunities as well as fundamental challenges.
While access to a potential one billion customers poses large
untapped opportunities, the very unique milieu in India and
the competition from resurgent and ambitious Indian firms
poses learning challenges. From this platform, a set of
intriguing questions arises:
How can Indian companies put innovation at the heart of
their business strategy and organizational culture? How can
they harness their entrepreneurial skills to build world-class
businesses? What's next for India as it further integrates into
the world economy? How are India's leading retailers, banks,
pharmaceutical companies and other service providers
turning the country into a centre for innovation? How should
India Inc. help bolster the relatively weak innovation eco-
system and infrastructure in the country? How can Indian
firms manage overseas growth and integrate Western
businesses into their fold?
How can Indian firms innovate to face the challenges from
challengers such as China and other emerging markets?
Similarly, how can Western companies learn to compete in
the new world? How can they tap into the disruptive power of
innovations that are finding expression at the bottom of the
pyramid and scale that into their existing markets? How can
they morph themselves so that they are proactive
participants in the new age? More broadly, what are the
opportunities for creating new insights for strategic
management by focusing on the business activities in
emerging markets such as India?
Many trans-national businesses have been eyeing India
keenly. They either want to cater to the Indian market,
source products from India or outsource businesses
processes here. The country has a highly skilled manpower
pool fluent in English. This, along with state-of-the-art
telecom infrastructure makes it a favourable destination for
offshore outsourcing of business processes. Further, the
country's technology savvy talent base gives it an advantage
in
UNIT 9: Strategic Management Practice in India
low-cost manufacturing of engineered products. But on the 81

flip side, India is a complex market with diverse economic Notes
Activity
strata, differential economic growth across Analyseregions,
and do a SWOT analysis of TSMG’s strategic manageme
___________________
dynamically changing government policies, diverse cultures,
___________________
geographically dispersed markets and a huge low-cost
unorganized distribution structure.
Therefore, to understand these diversities is extremely
important before product portfolios and investment phases
for the Indian market are designed. Decisions on partners,
acquisition targets and manufacturing locations can also be
critical for the success of a business in India.
Check Your
Progress
Fill in the blanks:
1. The....................revolves around developing
platforms
for innovation and growth.
2. Many ……………… businesses have been eyeing
TSMG’s Strategic Management

TSMG (Tata Strategic Management Group) of Tata group has
developed a unique consulting model for addressing the
issues faced by companies leveraging India in its global
strategy for growth or cost optimization. Their experience
across sectors, knowledge of the Indian markets and
consumers, and understanding of government regulations
and policies has stood them in good stead while assisting a
number of companies from the US, Europe and Asia prepares
and implements India entry strategies. Further, they have
helped clients looking to harness India's low-cost
manufacturing, through strategic sourcing initiatives and
vendor identification. Their numerous service industry clients
have been benefited by way of outsourcing their customer
facing and back-office processes and setting up of BPO
outfits. Often, they have partnered them from identifying
processes through to transitioning and stabilising the BPO.
TSMG helps companies understand the contradictions of the
Indian market and industry. They develop a detailed strategy
for entering India on the lines of phasing of products,
markets, investments and customer access plans. As
manufacturing capacities are disintegrated and
geographically diverse, it is no
82 easy task to identify the most appropriate supplier of a

Notes product. They assist companies in identifying the products
Activity
, choose one of them that
as per your preference and study
___________________ the can have
strategies factor
of the same advantages when manufactured in India.
and prepare a slideshow.
They also identify and qualify suitable suppliers with the
___________________
appropriate technology for production at desired price points,
___________________ their financial capability to sustain supplies and credibility in
___________________ business dealings. TSMG also assist in identification of
strategic alliance partners and acquisition targets, due
diligence and location studies.
In the case of outsourcing of processes, it is critical to identify
a suitable vendor as a large number of third-party BPOs,
focusing on different industry verticals and business
processes, have mushroomed in different geographical hubs.
TSMG assist our clients identify the processes to outsource by
mapping their criticality to business and costs. The processes
can either be out- located to a subsidiary in India or
outsourced to a suitable vendor. In the case of out-location,
we assist the client set up a subsidiary in India. In the latter
case, TSMG help them identify suitable Indian suppliers. We
also map the transitioning of the processes to India. TSMG
could also run a program management office to stabilize the
process in the Indian outfit.
TSMG’s India entry practice has assisted several global
corporations including some Fortune 500 companies in
businesses as diverse as media, retail, telecom and auto
components explore and/or set up operations in the Indian
subcontinent.
Check Your
Progress
Fill in the blanks:
1. TSMG helps companies understand the …………………
of the Indian market and industry.
2. TSMG assist in identification of strategic ………………
partners and...................targets.
Family Run Corporates

A silent revolution is sweeping through India Inc. Leading
family- run business groups such as the Birlas, the Ruias, the
Goenkas and the Jindals are making efforts to centralise
functions such as IT and payroll processing under a single
entity, that mirror the large BPO and IT captives currently
being run by multinationals such as Citi and HSBC.
Some groups like Essar and the Jindals have already put in 83
Notes
one to two years into these efforts and have recruited senior
management consultants to head the ventures or put key
group executives in
charge of them. Other groups, like the Kolkata-based RPG
group, are in the process of short-listing consultants to help
them come up with a blueprint for the new venture.
"Ours is a large diversified group and it makes sense to have
a separate company to handle all IT and related activities.
Especially as we have been expanding internationally, the
need to have unified company for these services is vital,"
said Prashant Ruia, director, Essar group.
"This is what has happened globally. We are following the
same trend," said Milan Sheth, partner, Ernst & Young.
According to him, as these large family-run businesses go
global through acquisitions, having a single entity that
handles all the IT and support functions also makes
integration easier. "In future, these companies can be listed
or valued as a commercial business," he added.
Most promoters ET spoke to said the goal was to run the
companies as shared service centres, facilities that cater to
customers even outside the group fold, making it easier to
monetise them. The immediate driver, however, is to build
economies of scale and higher efficiency across the group
firms.
"We could see three options emerge. One is that the
company continues to service all the group companies. The
other is, they take the concept to market and take on third
party business. The third is, eventually sell it out to a
specialised provider like what happened in the Philips-Infosys
BPO deal," said Vikash Jain, engagements director, Everest
Group.
The Essar group hired Vijay Mehra, a former McKinsey
executive with international experience and designated him
as group CIO to outline the unified IT and BPO strategy. One
of Mr. Mehra's first tasks was to come out with a 160-page
vision document setting out the blueprint for the delivery of
IT solutions across the group, as well for processes such as
payroll, human resources, accounting and procurement.
Today, Essar Information Technology Holdings (EITH) is being
built to serve all the common IT needs of the group and some
functions such as payroll are being handled by its BPO, Aegis
84 BPO. "There will be three legs to it, BPO, IT applications and

Notes
data centres. To start with, we will service the six Essar
businesses under various holding companies and later, also
take on external clients," said Mr. Mehra.
Similarly, Aditya Birla group firm, PSI Data Systems, is now
being repositioned to handle the IT requirements of all the
group companies. "It will be more inward looking now," group
chairman Kumar Mangalam Birla had told ET in a recent
interview.
The appointment of Dev Bhattacharya, a key member of the
Birla group think-tank as group executive president, IT & ITES
also reflects this focus, Birla group officials said. In the JSW
group, the
common IT functions are being centralised under a new firm,
JSoft Solutions, formed for this purpose.
"Accounting, payroll, procurement, HR and other common
functions will be run as shared services. In another six
months we will also extend the operation to outside the
group," said JSW group finance director, MVS Seshagiri Rao.
Others like the RPG group are in the process of short listing a
consultant to guide it on this exercise.
In family run companies, there was a time when the value
system of the organization was simply the value system of
the patriarch and his wife. Back then, those who invested in
company shares were usually businessmen from the same
community as the promoter, which meant they had implicit
trust in the family management. There were no rules of
conduct written down, no formal norms of governance, and
the patriarch's sons, sons-in-law and nephews were groomed
to carry on the business, hopefully inculcated with the same
set of values.
It's a wonderful structure in theory, relying as it does on
goodness of family values, but alas, history shows that very
few have been able to carry it off in practice. MV Subbiah is
one of the few who has managed to avoid an acrimonious
split in the family, though he's candid about the tensions
inherent between the idea of family and the idea of business.
Speaking at the third CII Corporate Governance Summit in
Mumbai, the former chairman of the Murugappa group said:
"A business needs meritocracy, but families want equality
among members, so they practice nepotism. Further, families
look for high profit, high dividends, safety and security, while
a business needs growth and risk-taking ability."
Arun Bharat Ram, chairman of SRF, is from a prominent 85

Notes
business family that splintered famously in the late 80s. He
believes attitudes have changed since then and business
families now
actively seek to bring the aspirations of their members in line
with what's good for the company. "Family businesses have
adapted," he says. "They realize that what is good for the
common shareholders in good for them."
With 42% of the companies listed on the Bombay Stock
exchange having family shareholdings exceeding 50%, India
Inc's fortunes are closely linked to the way family businesses
conduct themselves. Then there are a new set of family
businesses that are currently establishing themselves in
these times of rapid growth. Many of them fall in the Small
and Medium Enterprise (SME) category and are not yet listed,
but they will eventually set the pace.
ICICI Bank has made its business to lend to the SME sector
and CEO KV Kamath is confident that the new-gen family
businesses will measure up. "They are adopting good
corporate governance practices of their own volition," he
says. "They understand that the best way to increase their
wealth is through the valuation of their companies."
Not everyone is convinced. Ajay Bagga, CEO of Lotus India
Asset Management, says that family managements continue
to be arrogant and at the CII Summit, he presents a series of
examples of families that have enriched themselves at the
expense of common shareholders. Some give themselves
preferential allotments at reduced prices ahead of an IPO and
others merge their group companies in a way that the swap
ratio favours the company with the higher promoter stake. "It
gets hushed up because everyone is making 40% returns on
the market," he says. "Shareholder activism doesn't yet exist
in India, but if the returns fall, there could be trouble."
What do family-run businesses need to do to earn a
reputation for good corporate governance? Ernst & Young, in
conjunction with CII, has recently released a discussion paper
titled Corporate Governance: Value for whom and how, where
it suggests they install a succession planning mechanism,
appoint independent directors who are not too close to the
family and empower them to help resolve conflicts of interest
between the business and the family.
86 Farokh Balsara, "A huge chunk of Indian companies are

Notes
family managed and their corporate governance will
determine whether people will invest in them and the
premium they will pay. For example, in Tata group
companies, corporate governance has added significant
value to the brand."
One of the most sensitive areas in family run corporates is
succession planning. Indian corporates are still a long way
from the American model of separation of ownership from
management, which means a place needs to be made for
succeeding generations of the family. Promoters try to
mitigate this problem by ensuring their children have
impeccable educational credentials, often followed by a stint
in another organization where they might earn their spurs.
But still, the nagging question remains – is the family
member the best person to take charge? Or should
professionals within and outside of the organization be
considered?
Rama Bijapurkar is an independent director on the boards of
Infosys, Godrej Consumer Products and Mahindra Resorts
among others and she candidly admits that it's a difficult call:
"Given our Indian culture, if the family owns 60%, can you
really contest it if a well-educated new family member is
brought into the company? As an independent director, I've
struggled with that question."
Worse still are the sibling rivalries that crop up in the second
generation, when independent directors are usually called
upon to mediate. The Murugappa group's MV Subbiah says
such rivalries are usually unavoidable and need to be
managed. At the CII Summit he had this piece of practical
advice to give to family business patriarchs: "Build schools,
hospitals, engage your family in social work. Not only does it
build a sense of values, it acts as a glue when it comes to a
question of a split.
Check Your
Progress
Fill in the blanks:
1. A business needs ……………………, but families
want equality among members, so they practice
nepotism.
2. Families look for high profit, high dividends, safety
and security, while a business needs
88 87
SummaryNotes Notes
As India shakes off the shackles of its past and emerges on

the world stage as a rapidly modernizing and progressive
nation, it poses a number of challenges and opportunities to
strategic thinkers, industry leaders, and policy makers
around the world. Many trans-national businesses have been
eyeing India keenly.
They either want to cater to the Indian market, source
products from India or outsource businesses processes here.
The country has a highly skilled manpower pool fluent in
English. Therefore, to understand these diversities is
extremely important before product portfolios and
investment phases for the Indian market are designed.
Lesson End Activity

Collect the information on strategic management of Reliance
and prepare a presentation.
Keywords
Global: It means Pertaining to the entire globe rather than a
specific region or country.
Growth: It means development from a lower or simpler to a
higher or more complex form; evolution.
Innovation: It is the development of new values through
solutions that meet new requirements, inarticulate needs, or
old customer and market needs in value adding new ways.

1. Comment on the strategic management practice
prevalent in India.
2. Write a note on various ways in which different Indian
organizations have set up their vision, mission and
values.
3. What is the importance and relevance of the vision and
mission statement of various Indian organizations?
4. Write a brief note on the family run Corporates.
Further
Readings
Books
Dicke.Wilhelmina Margaretha (2005), “Managing Technology and
Web Readings
http://articles.economictimes.indiatimes.com/200
7-12- 21/news/27676357_1_group-firms-goenkas-
essar-group
http://www.tsmg.com/resources/16.html
UNIT 10: Case
Study
89
Unit 10 Notes
Case Study
Objectives
Case Study: JetBlue Airlines' Success Story

In early 2003, JetBlue Airways (JetBlue), the three-year-old
no-frills American airline, posted a profit of $ 17.6 million for
the first quarter of 2003. In the same period, the American
airline industry announced losses of around $2 billion.
JetBlue was one of the few bright spots in an industry which
has been reeling under the woes of over-capacity and losses
for over two years.
The company managed to succeed in a period when big
names of the American airline industry like American
Airlines, United Airlines, US Airways and others suffered
huge losses and were a few steps from bankruptcy. The
American airline industry was in a bad state owing to the
effects of terrorism, war and economic downturn. The major
carriers alone were estimated to have an outstanding debt
of over $100 billion, as against a combined stock market
value of $13 billion in 2002. Passenger traffic was also falling
consistently. In early 2003, the traffic was 17% lower than in
the same period of 2002 (which was itself 10% lower than
the traffic in early 2001). In this scenario, a number of low
cost airlines began to make their presence felt in the
industry.
Southwest Airlines, the highly successful 30-year-old
discounter, was the inspiration for most of the low-cost start-
ups. However, not all the start-ups succeeded. The most
important cause for failure was the inability of these low-
cost airlines to bring about a balance between cost-cutting
and quality of service.
The most successful exception to this condition was JetBlue.
JetBlue, which was also modelled on the lines of Southwest
Airlines, managed to succeed in a depressed and highly
competitive industry, because of its innovative approach to
business and its efforts in becoming a cost leader by cutting
down on unnecessary frills and wasteful expenses. The
airline managed to cut costs without compromising on the
quality of service. In fact, it provided more amenities than
other airlines, including personal television sets for every
flyer and comfortable leather seats, creating a feeling of
luxury. JetBlue's strategy was to identify and eliminate non-
value adding costs and use the money so saved, to provide
service of better quality.
JetBlue is the brainchild of David Neeleman (Neeleman), the
son of a Mormon missionary, who grew up in Salt Lake City,
Utah. Neeleman was a poor student and dropped out of the
University
Contd...
90 of Utah after his freshman year. After dropping out, he spent

Notes two years in Brazil as a missionary.
Returning to the USA, he took up a career in sales, selling
condominiums in Hawaii. To boost his business, he started
his own travel agency by chartering flights to transport
prospective clients to the Hawaiian Islands. Neeleman was a
hard-seller who even tried to push honeymoon packages
onto couples during their weddings. His reputation as a
salesman caught the attention of June Morris, who owned
one of Utah's largest travel agencies. Together they started
a Utah-based charter operation in 1984 called Morris Air.
Neeleman modelled Morris Air on the lines of Southwest
Airlines (Southwest) run by his idol Herb Kelleher. He took
ideas from Southwest and tried to improve on them. He
adopted a strategy of keeping costs low to increase margins
by turning around the planes quickly and having
reservationists work from home to save office rentals.
He also developed the industry's first electronic ticketing
system, which was easier to operate than manual ones and
did not cost much. By 1992, Morris Air had developed into a
regular scheduled airline and was poised for an IPO.
Herb Kelleher, impressed with the airline's low cost, high
revenues strategy, offered to take it over. Southwest bought
Morris Air for $129 million. Neeleman gained $22 million
from this sale and went to work at Southwest as an
executive vice president. This arrangement, however, did
not work out. Neeleman, accustomed to running his own
airline, was unable to adjust to working in a team. Within a
year, he split ways with Southwest. Before he could leave,
Kelleher made him sign a non- compete agreement, which
would be valid for five years. Neeleman then moved to
Canada, where he co-founded a discount airline called West
Jet. He also fine-tuned the online reservations system he
developed at Morris Air, called it Open Skies and sold it to
Hewlett-Packard in 1999, for a reported $22 million.
JetBlue succeeded because of its cost advantages and no-
nonsense approach to business. The company adopted
aggressive cost cutting by doing away with most of the frills
other airlines provided (which only increased their cost and
did not improve customer value) without compromising on
quality or comfort.
Said Neeleman, "You can be efficient and effective and
deliver a great experience at the same time." JetBlue's aim
was to create a cost structure that would support low fares,
without lowering service standards. The fares charged by
JetBlue for a round trip averaged between $98 to $498,
which was more than 50 per cent less than those charged by
the majors in the industry (For instance, a round trip from
New York to Florida cost about $ 500 on the major airlines;
JetBlue charged about $ 140 for the same trip with a seven
day advance purchase). To support its decision to become a
cost leader, JetBlue adopted a number of innovative
measures on its flights. Jetblue decided not to serve meals
on its flights, no matter what the distance or duration.
Neeleman identified food as an area in which major cost
cutting was possible.
Contd...
UNIT 10: Case Study
91
Notes
d for the management to look after its employees well. Things cannot be the same forever. With JetBlue growing at a very rapid pace, its real succes
Source: http://www.icmrindia.org/casestudies/catalogue/Business
%20Strategy1/Business%2 0Strategy%20Jetblue%20Airlines%20Success
%20Story.htm
Innovation
92
Notes
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
UNIT 11: Technology and Innovation
93
Notes
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
BLOCK-III
Innovation
94
Notes F
UNIT 11: TECHNOLOGY AND INNOVATION
UNIT 13: MANAGING TECHNOLOGY
 Introduction
___________________ AND INNOVATION
 Importance of Technology and  Introduction
___________________
Innovation to Business
 Importance of Managing Technology
 ___________________
Importance of Technology and Innovation to
 Process and Tools for Managing Technology
Society
___________________
 Making Decisions for Managing Technology
 Technology and Innovation Do Not Stand Still
___________________  Making Decisions for Managing Innovation
 Value Creation is the Key
___________________
UNIT 14: STRATEGY AND INNOVATION
UNIT 12: TECHNOLOGICAL INNOVATION
___________________
SYSTEM  Introduction
 Introduction
___________________  Link between Strategy and Innovation
 Background of Technological Innovation  Change and Innovation
___________________
System
 Innovation as Strategy
 ___________________
Structures of a Technological Innovation
System
UNIT 15: CASE STUDY
 Seven System Functions
 Acquiring New Technologies and Capabilities
UNIT 11: Technology and
Innovation
95
Unit 11 Notes
Activity
Give examples of those products or companies which have been successful in using technolo
Technology and Innovation

___________________
___________________
Objectives ___________________

following topics:
f Importance of Technology and Innovation to

Business f Importance of Technology and
Innovation to Society f Technology and
Innovation Do Not Stand Still
f Value Creation is the Key
Introduction
GE illustrates that the management of technology and
innovation is not a new concern for businesses. However
today, new products, processes, and approaches are
emerging faster than in the past. As a result, the
management of technology and innovation has been pushed
to the forefront as a major focus for both business and
society.
Importance of Technology and Innovation to Business

To illustrate the importance of technology to business,
consider the following statement by Alan Greenspan, former
Chairman of the Federal Reserve.
New technologies that evolved from the cumulative
innovations of the past half-century have now begun to bring
about dramatic changes in the way goods and services are
produced and in the way they are distributed to final users.
Those innovations, exemplified most recently by the
multiplying uses of the Internet, have brought on a flood of
start-up firms, many of which claim to offer the chance to
revolutionize and dominate large shares of the nation’s
production and distribution system.
Former Chairman Greenspan goes further in his speech
saying that not only will the future of business be directed by
technology but also that the root of business today is driven
by technology and its application. His belief in the growth of
technology is supported by the growth in patents worldwide.
96 The practical impact on business of this growth in technology

Notes
is illustrated by the fact that as recently as ten years ago
information, including pricing on many different
types of
machinery and commodity products, was highly inefficient. It
was difficult to know exactly what each firm would charge for
its product and what the price would be for other firms. A
business person could call and ask the price for that
product. Whether the
price was the same if you called a different salesperson in a
different part of the month was not predictable.
The result was that widely different prices were charged for
the same products. Purchasing agents spent a lot of time
looking for the best price. However, changes in
telecommunications have all but eliminated this inefficiency.
Internet availability has resulted in more transparent and
efficient pricing for both capital goods and commodity
products today.
The impact of technology on business is seldom one-
dimensional, but rather, new technology causes a cascading
effect within firms. To illustrate, consider the information
technology from the prior example. In economic theory, we
learn that price is a function of supply and demand. But the
technology has resulted in both more demand and lower
prices. New technology has made more information available
to consumers. As more information becomes available,
potential buyers become more aware of opportunities to
obtain and use products. This leads to greater demand. But
more precise information also leads to pricing being more
systematic. Thus, technology leads to better prices. A similar
cycle has taken place in other markets. Today, people use
the Internet to buy automobiles, books, and other products.
This has resulted in more buyers while, in many cases,
exerting pressures to lower prices. For a firm to make a profit
in this environment, it must be more efficient.
One of the key ways that a firm obtains such efficiency is
through technology. Thus, the use of technology in one
domain typically leads to greater need for changes in
technology in other areas. Retail is one of the oldest
industries in the United States. Wal- Mart is the world’s
largest retailer and is a good example of this cascading effect
in practice. Today, when you purchase goods and check out
at a Wal-Mart store, you or the cashier scans the various
products you are purchasing. This process is more than a way
to speed your checkout from the store. There is information
generated on the sale and on the product itself. This
information is used for reordering products and tracking sales
patterns.
Wal-Mart wants to expand the information generated at the 97

checkout by implementing nationwide Radio Frequency Notes
Activity
Identification (RFID) technology. RFID technologyWhat
requires a creative technology you can add to upgrading your s
additional
___________________
small tag be placed on each item at the manufacturer.
___________________
Check Your
Progress
Fill in the blanks:
1. A business person could call and ask the
………………
for that product.
2. The impact of technology on business is seldom
Importance of Technology and Innovation to Society
The impact of technology is not simply on individual firms. It
also has broader societal impact both positive and negative.
Consider the positive effect by examining the findings on the
impact of technology in a single state, Washington. This state
has aggressively developed its technological foundation. It
has been found that technology-based businesses contribute
more to the state’s international exports than other types of
businesses.
As noted before, technology helps push firms to lower costs.
However, this has led to increased levels of outsourcing by a
number of firms to lower cost settings; technology advances
in communication and computers help ensure that such
outsourcing can be successful. Technology allows many job
activities to be done as easily in one part of the world as
another. Thus, technology has encouraged and permitted the
outsourcing of jobs to these lower cost environments to a
degree not seen before. In the past, manufacturing jobs were
the only jobs principally outsourced. However, today, the jobs
outsourced include not only computer programmers but also
other technical jobs such as reading MRI images from
medical tests and preparing tax returns. In fact, Princeton
economist Alan Blinder predicts that over the next 20 years
over 40 million such jobs will be lost.
However, outsourcing is not all negative. Outsourcing
impacts the United States as well as other developed
economies. Countries as diverse as Ireland and Korea have
experienced some of the same negative impact from
technology as jobs are outsourced to lower cost
environments. But as one country outsources some jobs
other jobs will be in sourced. While individually an outsourced
job may
98 be very painful, studies indicate that there is a net 14 per

Notes cent benefit to the outsourcing nation through new job
Activity
hnology and innovation creation
do not stand still? With the help
___________________ and a increased
of internet prepare efficiencies.
In addition, the
presentation on the same.
development of the economies of India, China, Russia, and
___________________
other similar nations provides new markets for other
___________________ businesses from developed economies.
___________________ The interaction between society and technology can be
viewed in terms of pushing and pulling. When we say that
technology is pushing society, we mean that new innovations
in technology lead to changes in society that were not
expected. For example, society was not demanding the
development of the Internet. However, when it became a
reality, it was quickly adopted and employed. Business can
also be pulled by society to create technology.
For example, society demanded through their legal
representatives that there be new innovations in automobiles
such as more safety features and better gas mileage. The
major American automakers headquartered in Detroit
insisted that it would be impossible to meet those goals.
However, when laws were passed demanding the
innovations, business rose to the task and developed the
technology necessary to meet the demands. Thus, the
relationship between society and technology is rich and
multidimensional.
Check Your
Progress
Fill in the blanks:
1. The impact of technology is not simply on
………………
firms.
2. The major American automakers headquartered in
…………… insisted that it would be impossible to meet
Technology and Innovation Do Not Stand Still

Technology and innovation influence both the firm and
society as a whole, and this impact is ongoing. Entire
industries can be created or can disappear very quickly
because of new technologies. To illustrate, consider what has
happened to the recorded music industry. In the last 40
years, the dominant technology has changed from records
(LPs), to eight-track tapes, to cassette tapes, to compact
discs. Turntables are antiques, and eight-track players are
collectibles. Now with the emergence of MP-3 and other types
of new technologies (4G phones), CDs and MP-3 players
may soon
become obsolete. Individual companies can similarly be 99

created or can disappear quickly due to technological Notes
Activity
changes. Draftadigitalessayon importance of Value Creation.
___________________
For example, a classic American company Polaroid went into
___________________
bankruptcy because of the development of the digital
camera, which made many of Polaroid’s products obsolete.
Today, Polaroid has reinvented itself with its innovative line
of Polaroid PoGo digital products, digital cameras, digital
photo frames, etc. Today, the firm has become a consumer
electronics company that employs a wide range of cutting
edge technologies not a camera manufacturer. Therefore, as
we begin to look at technology, we hope you recognize that
technology is a key part of most businesses.
Technology is typically pervasive in ways that we may not
realize until we begin to explore it in depth. It is clear that an
industry, firm, or individual who ignores technology and its
development does so at great risk. A recent McKinsey report
sums up how technology and innovation are changing how
business is done as follows:
As globalization tears down the geographic boundaries and

market barriers that once kept businesses from achieving
their potential, a company’s ability to innovate – to tap the
fresh value-creating ideas of its employees and those of its
partners, customers, suppliers, and other parties beyond its
own boundaries has become a core driver of growth,
Check Your
Progress
Fill in the blanks:
1. Entire industries can be created or can disappear
very quickly because of new …………………….
2. Today, the firm has become a consumer
…………………
company that employs a wide range of cutting edge
technologies not a camera manufacturer.
performance, and valuation.
Value Creation is the Key

Whether in the United States or elsewhere in the world,
technology and innovation must add value to the firm or to
society to flourish. The goal of technology and innovation
processes is to add value to the business but not just for the
purpose of creation. This typically means that there is a
profit motive for the business
100 or an efficiency and effectiveness motive for non-profits.

Notes
Basic research, which focuses on the creation of knowledge
for the sake of knowledge, can have value to society, but it is
not a major concern here. In focusing on value creation, the
manager must also recognize that in today’s environment
there is a need for technology to provide a visible and timely
creation of value for the firm. Following the dot-com business
crash of the mid-1990s, the spending on new technology by
businesses decreased.
However, this decrease must be kept in perspective. For four
decades prior to the technology investment decline in the
late 1990s, spending on new technology increased 10 per
cent annually. In 2003, that level of spending growth had
declined. However, spending growth in new technology was
still approximately 4 per cent per year. Thus, businesses are
no longer willing to invest in technology if the strategic and
performance benefits of the technology are not clear. During
the boom years of the 1990s, firms invested with hopes that
there would be a positive result. The new competitive
environment requires more in the management of
technology. Now the value addition of the technology must
be clear and based on sound analysis and forecasts to justify
the investment. This makes the processes of the
management of technology and innovation more difficult and
complex.
The focus on value creation has clearly been true in the
turbulent economy of recent years. In 2009, the prediction
was for a 4 per cent increase in technology spending.
However, in 2010 as the economy recovered spending is
returning to historical averages closer to 10 per cent. Thus,
the global economy is affected by technology development
and affects technology usage. Individual technology-focused
firms may experience ups and downs, but the core
importance of technology continues for businesses in
developed economies such as the United States and
European Union, as well as emerging economies around the
world.
Check Your
Progress
Fill in the blanks:
1. The goal of technology and innovation processes is
to add …………………… to the business but not just
for the purpose of creation.
2. In 2009, the prediction was for a.......................per
cent increase in technology spending.
101
Summary Notes
New technologies that evolved from the cumulative

innovations of the past half-century have now begun to bring
about dramatic changes in the way goods and services are
produced and in the way they are distributed to final users.
The impact of technology on business is seldom one-
dimensional, but rather, new technology causes a cascading
effect within firms. Wal-Mart wants to expand the information
generated at the checkout by implementing nationwide Radio
Frequency Identification (RFID) technology. The impact of
technology is not simply on individual firms. It also has
broader societal impact both positive and negative. The
interaction between society and technology can be viewed in
terms of pushing and pulling. Technology and innovation
influence both the firm and society as a whole, and this
impact is ongoing. The goal of technology and innovation
processes is to add value to the business but not just for the
purpose of creation.
Lesson End Activity

Critically examine the impact of technology on business.
Keywords
Business: A business (also known as enterprise or firm) is an
organization involved in the trade of goods, services, or both
to consumers.
Globalization: Globalisation is the process by which the
world is becoming increasingly interconnected as a result of
massively increased trade and cultural exchange.
Innovation: Innovation generally refers to renewing,
changing or creating more effective processes, products or
ways of doing things.
Outsourcing: Outsourcing is the contracting out of an
internal business process to a third party organization.
Radio Frequency Identification (RFID): Radio-frequency
identification (RFID) is the wireless non-contact use of radio-
frequency electromagnetic fields to transfer data, for the
purposes of automatically identifying and tracking tags
attached to objects.
Society: Society made up of individuals who have agreed to
work together for mutual benefit.
102 Technology: Technology is a body of knowledge used to

Notes
create tools, develop skills, and extract or collect
materials.
Value Creation: The performance of actions that
increase the worth of goods, services or even a business.

1. Discuss the importance of technology to business.
2. “One of the key ways that a firm obtains such efficiency
is through technology.” Elucidate.
3. How does technology helps push firms to lower costs?
4. “The interaction between society and technology can be
viewed in terms of pushing and pulling.” Explain.
5. Describe the goal of technology and innovation processes.
Further Readings
Books
Web Readings
http://www.inc.com/ss/10-tech-innovations-help-your-business#1
http://www.ey.com/GL/en/Issues/Business-environment/Six-
global- trends-shaping-the-business-world—Rapid-
technology-innovation- creates-a-smart – mobile-world
http://www.foundation.org.uk/journal/archive.htm
http://www.helmholtz.de/en/research/key_technologies/technology_i
nnovation_and_society/
http://blogs.sfu.ca/departments/cprost
/wp-
content/uploads/2012/06/0802.pdf
UNIT 12: Technological Innovation
System
103
Unit 12 Notes
Activity
Collect recent updates on Technological Innovation system.
Technological Innovation System

___________________
___________________
Objectives
following topics:
f Background of Technological Innovation

System f Structures of Technological
Innovation System f Seven System
Functions
f Acquiring New Technologies and Capabilities
Introduction
The Technological Innovation System is a concept developed
within the scientific field of innovation studies which serves to
explain the nature and rate of technological change. A
Technological Innovation System can be defined as ‘a
dynamic network of agents interacting in a specific
economic/industrial area under a particular institutional
infrastructure and involved in the generation, diffusion, and
utilisation of technology’.
The approach may be applied to at least three levels of
analysis: to a technology in the sense of knowledge field, to a
product or an artefact, or to a set of related products and
artefacts aimed at satisfying a particular [societal] function.
With respect to the latter, the approach has especially proven
itself in explaining why and how sustainable (energy)
technologies have developed and diffused into a society, or
have failed to do so.
Background of Technological Innovation System

The concept of a Technological Innovation System was
introduced as part of a wider theoretical school, called the
innovation system approach. The central idea behind this
approach is that determinants of technological change are
not (only) to be found in individual firms or in research
institutes, but (also) in a broad societal structure in which
firms, as well as knowledge institutes, are embedded. Since
the 1980s, innovation system studies have pointed out the
influence of societal structures on technological
104 change, and indirectly on long-term economic growth, within

Notes
nations, sectors or technological fields.
The purpose of analysing a Technological Innovation System
is to analyse and evaluate the development of a particular
technological field in terms of the structures and processes
that support or
hamper it. Besides its particular focus, there are two, more
analytical, features that set the Technological Innovation
System approach apart from other innovation system
approaches.
Firstly, the Technological Innovation System concept
emphasises that stimulating knowledge flows is not sufficient
to induce technological change and economic performance.
There is a need to
exploit this knowledge in order to create new business
opportunities. This stresses the importance of individuals as
sources of innovation, something which is sometimes
overseen in the, more macro-oriented, nationally or sectorally
oriented innovation system approaches.
Secondly, the Technological Innovation System approach
often focuses on system dynamics. The focus on
entrepreneurial action has encouraged scholars to consider a
Technological Innovation System as something to be built up
over time. This was already put forward by Carlsson and
Stankiewicz:
‘Technological Innovation Systems are defined in terms of
knowledge/competence flows rather than flows of ordinary
goods and services. They consist of dynamic knowledge and
competence networks. In the presence of an entrepreneur
and sufficient critical mass, such networks can be
transformed into development blocks,
i.e. synergistic clusters of firms and technologies within an
industry or a group of industries.’
This means that a Technological Innovation System may be
analysed in terms of its system components and/or in terms
of its dynamics.
Check Your
Progress
Fill in the blanks:
1. The concept of a Technological Innovation System
was introduced as part of a wider theoretical
school, called the....approach.
2. The Technological Innovation System approach
often focuses on system …………………….
UNIT 12: Technological Innovation System
105
Structures of a Technological Innovation System
Notes
Activity
The system components of a Make Technological Innovation
an assignment on Structures of a Technological Innovation System of an organizatio
System are called structures. These represent the static ___________________
aspect of the system, as they are relatively stable over time. ___________________
Three basic categories are distinguished:
___________________
Actors
Actors involve organisations contributing to a technology, as
a developer or adopter, or indirectly as a regulator, financer,
etc. It is the actors of a Technological Innovation System that,
through choices and actions, actually generate, diffuse and
utilise technologies. The potential variety of relevant actors is
enormous, ranging from private actors to public actors and
from technology developers to technology adopters.
The development of a Technological Innovation System will
depend on the interrelations between all these actors. For
example, entrepreneurs are unlikely to start investing in their
businesses if governments are unwilling to support them
financially. Vice versa, governments have no clue where
financial support is necessary if entrepreneurs do not provide
them with the information and the arguments they need to
legitimate policy support.
Institutions
Institutional structures are at the core of the innovation
system concept. It is common to consider institutions as ‘the
rules of the game in a society, or, more formally, the humanly
devised constraints that shape human interaction’. A
distinction can be made between formal institutions and
informal institutions, with formal institutions being the rules
that are codified and enforced by some authority, and
informal institutions being more tacit and organically shaped
by the collective interaction of actors. Informal institutions
can be normative or cognitive. The normative rules are social
norms and values with moral significance, whereas cognitive
rules can be regarded as collective mind frames, or social
paradigms.
Examples of formal institutions are government laws and
policy decisions; firm directives or contracts also belong to
this category. An example of a normative rule is the
responsibility felt by a company to prevent or clean up waste.
Examples of cognitive rules are search heuristics or problem-
solving routines. They also involve dominant visions and
expectations held by the actors.
Technological Factors
Notes Technological structures consist of artefacts and the
106
___________________ technological infrastructures in which they are integrated.
They also involve the techno-economic workings of such
___________________
Activity artefacts, including costs, safety, and reliability. These
Prepare a chart on seven system functions.
features are crucial for understanding the feedback
mechanisms between technological change and institutional
change. For example, if R&D subsidy schemes supporting
technology development should result in improvements with
regard to the safety and reliability of applications, this would
pave the way for more elaborate support schemes, including
practical demonstrations. These may, in turn, benefit
technological improvements even more. It should, however,
be noted here that the importance of technological features
has often been neglected by scholars.
The structural factors are merely the elements that make up
the system. In an actual system, these factors are all linked
to each other. If they form dense configurations they are
called networks. An example would be a coalition of firms
jointly working on the application of a fuel cell, guided by a
set of problem-solving routines and supported by a subsidy
programme. Likewise, industry associations, research
communities, policy networks, user-supplier relations etc. are
all examples of networks.
An analysis of structures typically yields insight into systemic
features - complementarities and conflicts - that constitute
drivers and barriers for technology diffusion at a certain
moment or within a given period in time.
Check Your
Progress
Fill in the blanks:
1. The development of a Technological Innovation
System will depend on the interrelations between
all ………….
2. …………… structures are at the core of the
Seven System Functions

Structures involve elements that are relatively stable over
time. Nevertheless, for many technologies, especially newly
emerging ones, these structures are not yet (fully) in place.
For this reason, mostly, the scholars have recently enriched
the literature on
Technological Innovation Systems with studies that focus on 107

Notes
the build-up of structures over time. The central idea of this
approach is to consider all activities that contribute to the
development, diffusion, and use of innovations as system
functions. These system functions are to be understood as
types of activities that influence the build-up of a
Technological Innovation System.
As an example, the seven system functions defined by Suurs
are explained here:
Entrepreneurial Activities
The classic role of the entrepreneur is to translate knowledge
into business opportunities, and eventually innovations. The
entrepreneur does this by performing market-oriented
experiments that establish change, both to the emerging
technology and to the institutions that surround it. The
Entrepreneurial Activities involve projects aimed to prove the
usefulness of the emerging technology in a practical and/or
commercial environment. Such projects typically take the
form of experiments and demonstrations.
Knowledge Development
The Knowledge Development function involves learning
activities, mostly on the emerging technology, but also on
markets, networks, users etc. There are various types of
learning activities, the most important categories being
learning-by-searching and learning-by- doing. The former
concerns R&D activities in basic science, whereas the latter
involves learning activities in a practical context, for example
in the form of laboratory experiments or adoption trials.
Knowledge Diffusion/Knowledge Exchange

The characteristic organisation structure of a Technological
Innovation System is that of the network. The primary
function of networks is to facilitate the exchange of
knowledge between all the actors involved in it. Knowledge
Diffusion activities involve partnerships between actors, for
example technology developers, but also meetings like
workshops and conferences. The important role of Knowledge
Diffusion stems from Lundvall’s notion of interactive learning
as the raison-d’être of any innovation system. The innovation
system approach stresses that innovation happens only
where actors of different backgrounds interact. A special form
108 of interactive learning is learning-by-using, which involves

Notes
learning activities based on the experience of users of
technological innovations, for example through user-producer
interactions.
Guidance of the Search

The Guidance of the Search function refers to activities that
shape the needs, requirements and expectations of actors
with respect to their (further) support of the emerging
technology. Guidance of the Search refers to individual
choices related to the technology but it may also take the
form of hard institutions, for example policy targets. It also
refers to promises and expectations as expressed by various
actors in the community. Guidance of the Search can be
positive or negative. A positive Guidance of the Search
means a convergence of positive signals – expectations,
promises, policy directives – in a particular direction of
technology development. If negative, there will be a
digression, or, even worse, a rejection of development
altogether.
This convergence is important since, usually, various
technological options exist within an emerging technological
field, all of which require investments in order to develop
further. Since resources are usually limited, it is important
that specific foci are chosen. After all, without any focus
there will be a dilution of resources, preventing all options
from prospering. On the other hand, too much focus may
result in the loss of variety. A healthy Technological
Innovation System will strike a balance between creating and
reducing variety.
Market Formation
Emerging technologies cannot be expected to compete with
incumbent technologies. In order to stimulate innovation, it is
usually necessary to create artificial (niche) markets. The
Market Formation function involves activities that contribute
to the creation of a demand for the emerging technology, for
example by financially supporting the use of the emerging
technology, or by taxing the use of competing technologies.
Market Formation is especially important in the field of
sustainable energy technologies, since, in this case, there
usually is a strong normative legitimation for the intervention
in market dynamics.
Resource Mobilisation
Resource Mobilisation refers to the allocation of financial,
material and human capital. The access to such capital
factors is necessary
for all other developments. Typical activities involved in this 109

Notes
system function are investments and subsidies. They can also
involve the deployment of generic infrastructures such as
educational systems, large R&D facilities or refuelling
infrastructures. In some cases, the mobilisation of natural
resources, such as biomass, oil or natural gas is important as
well. The Resource Mobilisation function represents a basic
economic variable. Its importance is obvious: an emerging
technology cannot be supported in any way if there are no
financial or natural means, or if there are no actors present
with the right skills and competences.
Support from Advocacy Coalitions

The rise of an emerging technology often leads to resistance
from actors with interests in the incumbent energy system. In
order for a Technological Innovation System to develop, other
actors must counteract this inertia. This can be done by
urging authorities to reorganise the institutional configuration
of the system. The Support from Advocacy Coalitions function
involves political lobbies and advice activities on behalf of
interest groups. This system function may be regarded as a
special form of Guidance of the Search. After all, lobbies and
advices are pleas in favour of particular technologies.
The essential feature which sets this category apart is that
advocacy coalitions do not have the power, like for example
governments, to change formal institutions directly. Instead,
they employ the power of persuasion. The notion of the
advocacy coalition is based on the work of Sabatier, who
introduced the idea within the context of political science.
The concept stresses the idea that structural change within a
system is the outcome of competing interest groups, each
representing a separate system of values and ideas. The
outcome is determined by political power.
Check Your
Progress
Fill in the blanks:
1. Structures involve …………………… that are
relatively stable over time.
2. The classic role of the …………………… is to
translate knowledge into business opportunities,
and eventually innovations.
110 Acquiring New Technologies and Capabilities

Notes
To improve competitiveness and retain sustainability, firms
wspapers and other___________________
means onthetechnologies capabilities that India acquiredrecentlyin
require new technologies and capabilities. In this age of rapid
and has any andinnovation and complexity, it is challenging for the firms to
___________________
___________________ develop internally and remain competitive at the same time.

Merger, acquisition and alliance are some of the ways to
technologicalsector
___________________
prepare a slideshow. achieve this, but the primary driver is the desire to obtain
valuable resources. Many acquisitions failed to achieve their
objectives and resulted in poor performance because of
improper implementation.
1. Improper documentation and changing implicit
knowledge makes it difficult to share information during
acquisition.
2. For acquired firm symbolic and cultural independence
which is the base of technology and capabilities are more
important than administrative independence.
3. Detailed knowledge exchange and integrations are
difficult when the acquired firm is large and high
performing.
4. Management of executives from acquired firm is critical
in terms of promotions and pay incentives to utilize their
talent and value their expertise.
5. Transfer of technologies and capabilities are most difficult
task to manage because of complications of acquisition
implementation. The risk of losing implicit knowledge is
always associated with the fast pace acquisition.
Preservation of tacit knowledge, employees and literature are
always delicate during and after acquisition. Strategic
management of all these resources is a very important factor
for a successful acquisition.
Increase in acquisitions in our global business environment
has pushed us to evaluate the key stake holders of
acquisition very carefully before implementation. It is
imperative for the acquirer to understand this relationship
and apply it to its advantage. Retention is only possible when
resources are exchanged and managed without affecting
their independence.
Check Your Progress

Fill in the blanks:
1. Many ……………… failed to achieve their objectives and resulted in poor performance because of improper im
111
2.of tacit knowledge, employees and literature Notes
are always delicate during and after acquisition.
Summary
Technological Innovation System concept emphasizes that
stimulating knowledge flows is not sufficient to induce
technological change and economic performance.
Technological Innovation System approach often focuses on
system dynamics. The focus on entrepreneurial action has
encouraged scholars to consider a Technological Innovation
System as something to be built up over time.
The development of a Technological Innovation System will
depend on the interrelations between all these actors. For
example, entrepreneurs are unlikely to start investing in their
businesses if governments are unwilling to support them
financially. Preservation of tacit knowledge, employees and
literature are always delicate during and after acquisition.
Strategic management of all these resources is a very
important factor for a successful acquisition.
Lesson End Activity

Prepare a report on new technology innovation system by
finding a television show or movie.
Keywords
Actors: Actors involve organisations contributing to a
technology, as a developer or adopter, or indirectly as a
regulator, financer, etc.
Competence: Competence (or competency) is the ability of
an individual to do a job properly.
Entrepreneur: An entrepreneur is a person who undertakes
new financial ventures despite the risks.
Innovation System: The concept of the innovation system
stresses that the flow of technology and information among
people, enterprises and institutions is key to an innovative
process.
System Dynamics: System dynamics is an approach to
understanding the behaviour of complex systems over time.
112 Technological Change: Technological change (TC) is a term

Notes
that is used to describe the overall process of invention,
innovation and diffusion of technology or processes.
Technological Structures: It consists of artifacts and the
technological infrastructures in which they are integrated.

1. Discuss the central idea behind the innovation system
approach.
2. “Technological Innovation Systems are defined in terms

of knowledge/competence flows rather than flows of
ordinary goods and services.” Elucidate.
3. Explain the Technological factors in innovation system.
4. Describe the function of Guidance of the Search.
5. What do you understand by Resource Mobilisation?
6. Highlight the reasons involved in the failure in many
acquisitions.
Further Readings
Books
Web Readings
http://en.wikipedia.org/wiki/Technological_innovation_system
http://heimeriks.net/measuring-and-modelling-
innovation/mmi- lesson-6-innovation-systems/
UNIT 13: Managing Technology and
Innovation
113
Unit 13 Notes
Managing Technology and

Innovation
Objectives
following topics:
f Importance of Managing Technology

f Process and Tools for Managing
Technology f Making Decisions for
Managing Technology f Making
Decisions for Managing Innovation
Introduction
Technology and innovation influence not only the technical
aspects of business but also the behaviours and attitudes of
individuals and groups within the organization. The result is
that technology and innovation are an organization-wide
concern. An organization cannot isolate one unit and say its
concern is technology while the rest of the organization
ignores such issues. To illustrate, the portable cell phone has
become part of our everyday lives in the last decade. This
technological innovation means that employees who are out
of the office are not out of contact. This has made it easier to
work from locations other than the office. In fact today, with
applications such as wireless connection and video capability
available for many cell phones and laptops, an employee may
never need to be in the office. As a result, processes must be
in place to ensure that the person in the field behaves as
desired by the firm. This means that managers must learn
how to integrate and manage these individuals differently
from employees who are physically present each day. Thus,
managers must not only manage changes in technology but
also the structures and systems of the organization where
the technology is used.
Today, it is difficult to segment technology as being from one
country or another. For example, many Taiwanese
semiconductor firms have their headquarters in Taiwan,
produce their chips in mainland China, but maintain their
principal research facilities in the United States. Thus,
technology firms are truly international entities.
114 It is true that much of the theory, and principles, as well as

Notes the investigation of the
management of innovation and
Activity
Preparean
___________________ technology came from the
United States and other developed
article
countries.
g the importance of managing technology taking examples from realHowever,
world. this
does not limit their relevance to
___________________
these countries. A theoretical foundation relevant for
___________________ technology should be applicable in a wide variety of settings
in management just as theory for physics or chemistry
applies anywhere in the world. For a theory to be sound, it
cannot simply apply to a single nation.
Importance of Managing Technology

Now that we have defined technology and its management,
what will actually be needed to build an understanding of
how to do these activities? The National Task Force on
Technology has listed five specific reasons individuals and
organizations should be concerned about the management of
technology. These reasons are as follows:
1. The rapid pace of technological change demands a cross-
discipline approach if economic development is to occur
in an effective and efficient manner to take advantage of
technological opportunities.
2. The rapid pace of technological development and the
increasing sophistication of consumers have shortened
product life cycles. The result of these factors is a need
for organizations to be more proactive in the
management of technology.
3. There is a need to cut product development times as well
as to develop more flexibility in organizations. The lead-
time from idea to market is being reduced by the
emergence of new or altered technologies.
4. Increasing international competition demands that
organizations must maximize competitiveness by
effectively using new technologies.
5. As technology changes, the tools of management must
change, but the process of determining what those new
tools should be is in its infancy.
Each of these issues will be dealt with in this book as we
develop an understanding of how to manage technology.
Although focusing on a single dimension of the management
of technology may be interesting, it does not provide a
usable basis to actually manage
UNIT 13: Managing Technology and Innovation
the firm. As a result, this text will address a wide range of 115
issues and integrate those issues into a usable whole. At the Notes
Activity
heart of the various issues Collect
examined is the
information belief
from the that
internet theout the tools and processes that have been recently i
and find
___________________
management of technology is the central strategic concern
for the firm. If the business approaches the management of ___________________
technology from this perspective, it will then have the ___________________

foundation and insight to be successful.
Check Your
Progress
Fill in the blanks:
1. The rapid pace of ………………… change demands
a cross-discipline approach.
2. As technology changes, the tools of...............must
change.
Process and Tools for Managing Technology
The range of tools and issues that a firm must examine can
be broad. To illustrate, consider the example of the iBOT, a
new type of wheelchair that has been developed. The
wheelchair has been in existence for more than 100 years,
with very little change in its fundamental design. Wheelchair
designs have historically confined their use to relatively flat
and smooth surfaces. However, Dean Kamen, the inventor of
the iBOT, saw how difficult it was for someone to handle a
wheelchair in settings that were not flat, such as on stairs. So
he went looking for a new solution. However, rather than
thinking of a wheelchair traditionally, he sought to build a
chair that could stand up and balance like a human. The end
result would be a wheelchair that could carry a person up and
down stairs.
The development of the iBOT illustrates the role of various
elements in the firm needing to work together for success.
For example, the iBOT shows the need for a new approach
and philosophy so that the problem could be attacked in a
different way. Thus, it allows individuals in wheelchairs to roll
across sand or stand to get products off the top shelf in their
home or the grocery store.
This case demonstrates the need not only for engineers to
design the product but also for financial experts to
underwrite the costs and marketing personnel to test the
product. The development of
116 this product took substantial funds and investment.

Notes Marketing wasalso critical to the actual acceptance of the
Activity
are a presentation on Making Decisions for Managingproduct.
___________________ While
Technology.the
$29,000 cost per unit is high and its cost could be offset by
___________________
the normal cost associated with modifying a house to meet
the needs of a person who uses a wheelchair, it requires
marketing to educate individuals about this benefit. Thus, it
not only took the vision of one person to see a different
solution, but it took an entire organization to develop the
product. A full range of tools needs to be considered when
examining the management of technology.
This perspective on the role of technology in the firm means
that the specific tools necessary to properly manage
technology can be very broad. Too often, managers of
technology assume that, because the technology is
interesting or attractive to them, it will be demanded by the
consumer. However, for success, the manager does more
than rely on his or her own judgment about the viability of
the product. Instead, the manager needs to do things such
as:
 Analyse the industry structure both domestically and
internationally
 Understand the firm’s capabilities and those of its competitors
 Conduct a financial analysis of the product and firm
 Forecast future changes
Check Your
Progress
Fill in the blanks:
1. The range of ………………… and.....................that a
firm must examine can be broad.
2. A full range of tools needs to be considered when
examining the.....................of technology.
Making Decisions for Managing Technology

There are key decisions that need to be made as businesses
and managers seek to manage technology. These decisions
initially focus on the strategic posture the firm wants to
assume. For example, the firm must determine if it wants to
be a leader or follower in its industry. There are benefits to
both, but the choice will result in the firm taking radically
different steps and developing different processes and
structures. The firm must also determine whether it will
develop its own new technology or buy
the technology. Again, each of these strategic approaches 117

Notes
has benefits and drawbacks that will be detailed later, but the
firm needs to weigh these pluses and minuses for itself.
Source: http://blog.vistage.com/wp-
content/uploads/2012/12/shutterstock_85351111- 300x225.jpg
Figure 13.1: Managing Technology and Innovation
The strategic decisions do not stop there. The firm will also
have to determine the scope of products it wants to offer. A
key element in this determination is how it can leverage its
technology and innovations to create a total platform of
products and processes. The firm must also determine the
scale of products, how it will price the products, where it will
market the products, and where it will manufacture the
products.
The process that the firm needs to address each of these
issues is critical. If the business responds in a reactive,
piecemeal manner to the competition rather than actively
determining its direction, the performance of the business
will suffer. The answers to the questions and the review of
relevant concerns will help identify the tools that need to be
employed in the decision-making processes associated with
the management of technology.
Check Your
Progress
Fill in the blanks:
1. There are key decisions that need to be made as
businesses and managers seek to manage
……………….
2. The firm will have to determine the.......................of
118
Making Decisions for Managing Innovation
Notes
Activity Fostering creativity is essential to managing
innovation. However,
covering the topic ___________________
Making Decisions for Managing Innovation by studying examples from real world.
it is more than encouraging individuals to think outside the
___________________ proverbial box. It is a process that includes developing an
___________________ environment of discovery in the organization. Delbecq and
Mills described the characteristics of firms that manage the
___________________
innovation process well. These firms are characterized by:
1. Separate funds for innovation,
2. Periodic reviews of informal proposals by a group outside
line management,
3. Clear direction on studies to be done and follow-ups that
are expected,
4. Extensive boundary-spanning activities to learn from
others and to gain an understanding of what others are
doing,
5. Sets of realistic expectations, and
6. Supportive atmosphere for debugging and exploring
variations as well as appropriate resources for
maintenance and service.
Pixar Animation Studios illustrates the way to build a
supportive environment for innovation. This studio has
created the movies Toy Story, Wall-E, Cars, and Up among
others. It has pioneered the development of new
computerized animation technologies, including Marionette, a
software for animation, and Ringmaster, a software system
for modelling, animating, and lighting. The studio has very
creative individuals heading the firm (Steve Jobs, founder of
Apple Computer) and others working throughout the firm. To
ensure that individuals in the firm have the range of skills
necessary, the business started Pixar University, which allows
individuals to study for three months on a variety of topics
related to Pixar’s work. The company seeks to further
encourage creativity by limiting its bureaucracy. Thus, the
business has sought to create a total environment for
creativity.
The management of innovation requires that the firm
encourage creativity and risk taking by individuals. The firm
must employ processes that allow failure and exploration.
There are four key individual characteristics that enhance the
initiative that sparks innovation. If an organization manages
the work environment in such a way as to encourage these
behaviours, then innovation is more likely. The four
behaviours are:
1. Asking questions to identify problems and opportunities, 119

Notes
2. Learning new skills,
3. Taking risks and being proactive, and
4. Aligning strong personal beliefs and values with the
organizations values and goals.
As you consider this innovation process, what becomes clear
is that it should be a continuous process in the organization.
It is not a process that occurs once and brings the firm all of
the innovation it needs. To illustrate this process, consider
Koch Industries. The firm is one of the largest privately held
companies in the United States. Koch rewards individuals for
developing new ideas like many firms. But Koch also actively
seeks to cross-train individuals in different areas of the firm
so that they understand how the entire firm works.
Additionally, the firm consciously seeks not to punish
individuals if they try something new that does not work. The
culture at Koch encourages risk taking. The end result is a
firm that has been able to diversify from an oil and gas
company into one that continually finds new markets into
which it can expand.
Tools for Managing Innovation

The management of technology involves a much broader
scope of continuing and nurturing existing technology than
does innovation. Innovation directly involves the discovery
and development of new products and/or processes.
Most often, when we think of innovation, we think of radically
new and inventive products and/or processes. For example,
the innovation of the lean manufacturing system pioneered
by Toyota has reshaped how manufacturers do business, with
techniques such as JIT inventory now becoming the norm
worldwide. However, innovation does not have to be so
radical; it may be as simple as using an old product in a new
way.
For example, Scotch Masking Tape has been an innovation
that has served 3M well since its invention in 1923. The
original problem to be solved was making waterproof
sandpaper. However, Richard Drew went to an auto body
shop to test his ideas and discovered a need for tape that
adhered to a painted surface and stripped off easily. This
innovation and the resultant technology
120 have led to over 900 other varieties of Scotch brand tape.
Notes
Successful technology and innovation management have
made 3M the international corporation it is today. In this unit
we have discussed the differences between Management of
Technology (MOT) and the Management of Innovation (MOI),
but remember that they are interconnected within the
organization. This differentiation helps us better analyse the
firm’s actions, but in reality, they are intertwined at a number
of levels.
Check Your
Progress
Fill in the blanks:
1. Fostering.............is essential to managing innovation.
2. Innovation directly involves the ………… and …………
of new products and/or processes.
Summary
This unit has established the foundation for the exploration of
management of innovation and technology. The unit
highlighted that the use of technology continues to expand in
business in the United States and around the world. This
expanding use and impact of technology make the
understanding of the management of technology and
innovation that much more critical. The unit has defined both
technology and innovation and what is needed to manage
them. The focus in these definitions is on multiple dimensions
of the concepts, with strategic management playing a
particularly critical role.
Lesson End Activity

Create a group of 6 students and discuss the tools that are
used for managing technology.
Keywords
Creativity: It refers to the use of the imagination or original
ideas, esp. in the production of an artistic work.
Innovation: Innovation is the development of new values
through solutions that meet new requirements, inarticulate
needs, or old customer and market needs in value adding
new ways.
Strategic Decisions: Decisions concerning policy that have 121

Notes
a long term impact on a business.

1. Why there is a need for cross-discipline approach?
2. What changes are required when technology changes?
3. Define management of technology and give an example
based on your knowledge.
4. Define management of innovation and give an example
of how a firm can manage innovation processes.
5. Give an example of GE’s management of technology and
how they were able to gain a competitive advantage from
those activities.
Further Readings
Books
Learning.
Web Readings
www.cgee.org.br/sobre/cgee_english.php
www.acronymfinder.com/Strategic-Management-of-
Technology
Innovation
122
Notes
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
UNIT 14: Strategy and
Innovation
123
Unit 14 Notes
Activity
Interview an official of a reputed organization and ask him about his views on the linkage of strategy a
Strategy and Innovation

___________________
___________________
___________________
Objectives
After completion of this unit, the students will be aware of the ___________________
following topics:
f Link between Strategy and Innovation

f Change and Innovation
f Innovation as Strategy
Introduction
Strategy and innovation are often conflated. The conundrum
is that every business needs both. Without strategy you have
no direction, without innovation you lose relevance. They
both need to be part of an integrated effort. So it is important
to be clear about what each needs to succeed, where to
deploy them, who should drive them and what to expect.
Strategy is probably the most overused word in business. It is
often employed, unhelpfully, as a value distinction. If
something is “strategic,” then it’s well thought out, if it’s
“unstrategic” then some idiot must have done it.
In reality, a strategy is a coherent and substantiated logic for
making one set of choices rather than another. In other
words, it’s used to make decisions that drive action, whether
that entails the overall mission of the enterprise, where it
allocates resources or how it implements programs and
processes.
Good strategy is clear, never confused. At its best it’s
elegant, meaning that it explains the maximum amount of
variables in the fewest number of statements. Most of all,
everything strategy does is in the service of operational
success. There can never be “good strategy, but poor
execution,” because assessing capabilities is a crucial
component of strategy.
Link between Strategy and Innovation

The “why” of innovation is simple: change is accelerating and
we don’t know what’s coming in the future, which means that
we must
124 innovate to both prepare for change, and to make change. If

Notes
things didn’t change, then your company could keep on doing
what it’s always done, and there would be no need for
innovation. If markets were stable, if customers were
predictable, if competitors didn’t come up with new products
and services, and if technology stayed constant, then we
could all just keep going as we did yesterday.
But all the evidence shows that change is racing at you faster
and faster, which means many new types of vulnerabilities.
Technology advances relentlessly, altering the rules of
business in all the markets that it touches, which is of course
every market. Markets are not stable, customers are
completely fickle, and competitors are aggressively targeting
your share of the pie. So please ask yourself, “Are we
managing with the realities of change in mind? And are we
handing uncertainty?”
Since the alternatives are either to “make change” or to “be
changed,” and making change brings considerable
advantages while being changed carries a huge load of
negative consequences, then the choice isn’t really much of a
choice at all. You’ve got to pursue innovation, and you’ve got
to do it to obtain long lasting benefits.
The decisions to be made focus on how best to prepare for
future markets, and the actions relate to transforming the
innovation mind set into meaningful work throughout the
organization, work that results in the development of
innovations that impact the market, and improve the position
of the organization relative to its competitors. This means,
finally, an organization-wide commitment to designing and
implementing your version of the innovation master plan.
So what we’re talking about here is the practice of innovation
as a vital aspect of corporate or organizational strategy; the
rest of this unit explores how strategy and innovation are
intimately linked and should be mutually reinforcing. The
units that follow will then address the best practical
approaches to achieving superior innovation results.
A tight linkage between innovation and strategy will certainly
be part of your master plan, and to give you a better idea of
how this works in practice, in this unit we take a look at
Apple, Cisco, Blockbuster, IBM, and Coca Cola to see how
their strategies have shaped their pursuit of innovation.
UNIT 14: Strategy and Innovation
Strategic Technology and Innovation 125

Notes
Strategic technology and innovation can be developed as follows:
IT Strategy
Provides insight and counsel to clients concerning trade-offs
and opportunities for making prudent investments in security
technology. The goal is to generate a competitive advantage
in the market while meeting the demands of clients and
constituents.
Enterprise Data
Defines a plan for how an enterprise utilizes the data
required to execute its business process through strategic
technology. An Enterprise Data Strategy includes defining
comprehensive data architecture, defining a set of data
management processes, and developing a thorough
understanding and definition of data to be used for critical
decision-making.
Enterprise Architecture
It improves business processes, operational stability of
investments, cohesion between departments, and enhanced
communication. We help government IT leaders maintain a
holistic view of the enterprise, so they can effectively position
applications, infrastructure, and information through strategic
technology.
Service Oriented Architecture (SOA)

It applies the latest architecture approach to enterprise
information sharing and systems integration. SOA helps
create a more agile and responsive enterprise by closely
aligning strategic technology with business goals and
deploying reusable services.
Mission Engineering
An innovation bridges the gap between business and
engineering by addressing requirements from a user and
developer perspective.
Mission Assurance
It addresses all activities and processes that ensure an
organization's ability to accomplish its mission in an all-
hazard environment. Our systems and processes enable an
enterprise to withstand and recover quickly from business
interruptions.
126 Information Assurance

Activity
Notes It provides services applicable to the acquisition and program
earch on Tata’s innovation of Nano and present a detailed report.
___________________ management of security technology, services, and systems,
including security assessments, acquisition and program
___________________
planning, security policy and governance, and compliance
activities.
Trusted Services
It provides a framework through strategic technology that
enables our clients to adopt new computing and IT models in
ways that satisfy needs for trust, mobility, scalability, and
economic efficiencies.
Check Your
Progress
Fill in the blanks:
1. Technology advances relentlessly, altering the
…………
of business in all the markets that it touches.
2. A tight ……………… between innovation and
Change and Innovation

Innovation by your competitors and by your own firm causes
existing products, services, and business models, and indeed
entire businesses, to become obsolete. Since innovation is
the driver of change, and change is the most fundamentally
important driver of business strategy, then it’s not an
exaggeration to say that innovation is the means of achieving
strategy, as we find in the story of Apple’s turnaround from
the abyss.
When Steve Jobs was asked to return to Apple as CEO in
1997 after an absence of more than ten years, the company
was, to put it bluntly, a mess. If you thought that the PC
market was a war between Apple and Microsoft, it was clear
that Microsoft had won big.
Apple’s market share was about 5% and shrinking, and to
many observers it seemed that the company was fading
away. Its product line was an incoherent collection of 11
different computers, and there didn’t seem to be a clear
vision guiding the company forward. The board of directors
was desperate. But did Jobs have a vision for the 21st
century, as he had had in the 1970s? Did he still have the
magic? We know today that he did, but imagine that it’s
1997
and you’re Steve Jobs, and you have to figure out how to turn 127
Apple Computer around. What do you do? Notes
Activity
Give an example of an organization like Google who have used its innovatio
Today Apple’s share of the US PC market is growing, although ___________________
it’s still less than 10%. But the iPod is the undisputed MP3
___________________
world leader, with 70% of the market, the iPhone became the
world standard design for smart phones immediately upon its ___________________
launch, and the iPad may do the same in the tablet market.
And 13 years after Jobs returned Apple’s total market
capitalization recently achieved an insider milestone when
the company’s total stock value surpassed arch-rival Microsoft.
Without a focused and successful effort at innovation Apple
surely would not have survived; the quality of its innovative
efforts led not only to survival, but leadership. Innovation was
thus essential to the company’s strategy, and it was in fact
how the strategy was executed, so much so that we simply
can’t imagine “Apple” without thinking about “innovation.”
Check Your
Progress
Fill in the blanks:
1................................. is the driver of change, and change is
the most fundamentally important driver of business
strategy.
2. Without a ………………… and ………………… effort
at innovation Apple surely would not have
Innovation as Strategy
Do you admire Google? Then ask yourself what role
innovation plays in Google’s strategy. It’s obvious that we
wouldn’t admire Google, and in fact we wouldn’t even know
about Google if it weren’t for innovation. The very existence
of the company is based on a single strategic insight and on
two critical innovations that made the strategy real. The
insight was that as the number of web pages grew, the
internet’s potential as an information resource was
surpassing all other resources for scale, speed, and
convenience, but it was getting progressively more difficult
for people to find the information they were looking for.
People therefore came to value better search results, and
Google’s first innovation to address that need was its
PageRank system, developed in 1995, an algorithm for
internet searches that returned better results than any other
search engine at the time.
128 The second innovation was a business model innovation,

Notes
which turned the company into a financial success along with
its technical search success. When Google’s leaders realized
in 2000 that they could sell advertising space at auction in
conjunction with key words that Google users searched for,
they unleashed a multi-billion dollar profit machine. The
integration of these two innovations provided a multiplicative
advantage, and Google’s competitors are falling by the
wayside as the company continues to dominate.
For example, in November 2010, Ask.com threw in the towel
with only 2% of the market for internet search after trying for
five years to compete with Google following its $1.85 billion
acquisition by Barry Diller’s IAC/InterActiveCorp. Diller wrote,
“We’ve realized in the last few years you can’t compete
head on with Google.”
Yahoo, a much bigger company than Ask, came to the same
conclusion earlier in 2010 when it decided to position itself as
a media company rather than a technology company, and
outsourced its search function to Microsoft’s Bing.
What other companies do you like? Do you also admire
Starbucks? Or Disney? Or Sony? Or Toyota? Or BMW? They’re
certainly innovators, and many of us appreciate them
precisely because of it.
So the relationship between strategy and innovation is vital,
and the important role that innovation plays in transforming
the concepts of strategy into realities in the marketplace tells
us that none of these companies could have succeeded
without innovation.
Nothing is more certain than change. While many speak as if
change is a reflection of the 21st century, the world has
actually been changing for many, many years. The ability to
manage that change effectively, especially in business
organizations, is critical. The effects of change can be
negative or positive. Successful management will ensure the
latter.
Accept Change
In this technology-driven global economy, it is important to
accept the inevitability of change and communicate this to
employees. You do not want to raise expectations that the
rate of change will eventually slow. Instead, companies serve
their employees best when they acknowledge change is
constant, but manageable.
130
Practice Openness 129
Notes Notes
Organizations manage change most effectively when alert to
its impact upon staff. Thus, commit to fostering an
environment of openness. Establish an environment of trust
through open-door
policies, tools allowing two-way feedback and – most
importantly – the willingness to listen non-defensively to all
feedback, even when critical.
Solicit Input
Employees do not oppose change; they oppose change they
have no opportunity to influence. If you welcome their input,
they will better appreciate and accept the reasons for
change. Also, your business just may benefit from their
insights. After all, they are on the front lines with the best
grasp of customer needs and preferences.
Provide Training
Organizations should first assess employee knowledge and
skill level to determine their readiness for change. If they are
found wanting, then they should first receive appropriate
training to get better equipped to meet the demands of the
new change or innovation. Adapting to change often requires
mastery of new processes and skills.
Accept and Recognize

It is inevitable that some failure will occur as management
and employees work to implement change. Accepting failure
as an inevitable part of the learning process sends a positive
message to employees. Organizations managing change and
innovation most effectively are the ones taking time to
recognize and celebrate success. They acknowledge change
can be stressful, requiring long hours and extra effort.
Recognizing this will go a long way toward motivating
employees to continue responding positively.
Check Your
Progress
Fill in the blanks:
1. The relationship between …………… and..............is
vital.
2. Organizations should first assess employee
……………
and …………… level to determine their readiness for
Summary Strategic Management of Technology & Innovation
Strategy is probably the most overused word in business. It is

often employed, unhelpfully, as a value distinction. If
something is “strategic,” then it’s well thought out, if it’s
“unstrategic” then some idiot must have done it. Innovation
by your competitors and by your own firm causes existing
products, services, and business models, and indeed entire
businesses, to become obsolete.
It is inevitable that some failure will occur as management
and employees work to implement change. Accepting failure
as an inevitable part of the learning process sends a positive
message to employees. Organizations managing change and
innovation most effectively are the ones taking time to
recognize and celebrate success.
Lesson End Activity

Pick an organization of your preference and study the
innovations done by it and how it used its innovations as
strategy.
Keywords
Enterprise Data: It defines a plan for how an enterprise
utilizes the data required to execute its business process
through strategic technology.
Innovation: Innovation is the development of new values
through solutions that meet new requirements, inarticulate
needs, or old customer and market needs in value adding
new ways.
Mission Engineering: An innovation that bridges the gap
between business and engineering by addressing
requirements from a user and developer perspective.

1. What is a good strategy? Explain.
2. Which factor do you think drives innovation?
3. Why does a linkage required between strategy and innovation?
4. Describe Service Oriented Architecture (SOA).
5. What is the role of innovation in Apple’s Strategy? 131

Notes
6. Explain the innovation of Google.
Further Readings
Books
WhiteMargaret Alice (2010), “The Management of
Learning.
Web Readings
http://www.boozallen.com/consulting/transf
orm- technology/technology-innovation
http://www.digitaltonto.com/2012/the-difference-between-
strategy- and-innovation/
Innovation
132
Notes
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
UNIT 15: Case
Study
133
Unit 15 Notes
Case Study
Objectives
Case Study: Innovation at Apple

The iconic founder of technology major Apple Inc. (Apple),
Steve Jobs (Jobs), passed away on October 5, 2011, aged 56.
Jobs's demise led to speculations about the consequences
for Apple and its ability to continue to innovate without him.
Jobs was succeeded by Timothy Cook as CEO, but some
analysts raised concerns about whether the company would
thrive without Jobs's vision and flair for innovation. They
were apprehensive whether Apple which was synonymous
with innovation would continue to break new ground without
Jobs. According to Jason O. Gilbert, a technology reporter for
the Huffington Post, “The biggest challenge for Apple is the
one whose answer is difficult precisely because it is hard to
define”.
“How do you replace someone whose talents seemed to go
beyond design and imagination to almost-ethereal, zeitgeist-
y qualities? How do you hand over responsibility for
maintaining an aura? For Apple, as for any company, that's a
high bar, one it will likely fail to reach. Apple's coolest days
are probably behind it."
Apple was founded by Steve Jobs, Stephen Gary Wozniak
(Wozniak), and Ronald Gerald Wayne (Wayne) on April 1,
1976. Working at Jobs's garage they designed a personal
computer (PC) that was sold as Apple I. The company was
incorporated as Apple Computer, Inc. on January 3, 1977.
Thereafter, the company grew by introducing many
innovative and commercially successful products such as
Apple II (1977) and Apple III (1980). Right from its inception,
Apple had been a company committed to building great
products using the latest technologies. The strong R&D
focus that Jobs and Wozniak insisted on helped Apple to
differentiate itself from its competitors.
Apple products enjoyed wide recognition among end-users
both for their attractive designs and their powerful
applications in high-end computing in the education,
multimedia, and entertainment industries. A large portion of
this credit went to Jobs who had always seen himself as a
product architect rather than as a businessman. Apple
brought out a number of innovative products and innovative
features in the early 1980s. In its early days, Apple's product
development strategy focused on replacing existing
products with new ones at regular intervals. For instance,
Apple I was replaced by Apple II and then Apple II by
Contd...
134 Apple III. When Apple III failed in the market and there was
Notes an onslaught of competition, Jobs was compelled to create
products that would differentiate them from the traditional
low-end computing products.
Apple's Approach to Innovation
At Apple, innovation was a way of life and a part of its
corporate DNA. Apple's success was attributed to its ability
to develop innovative products. Over the years, the
company launched some great products in the market which
became the benchmark for customer experience. For five
consecutive years (2006-2011), Apple was ranked number
one on the world’s most innovative companies list compiled
by BusinessWeek. Since its inception, Apple had focused on
innovation and had ventured into those markets where it
could make a significant contribution.
Product Innovation
Apple became the leading technology company in the world
by creating cutting edge products. The company constantly
innovated with its business model to respond to market
needs and challenges and to deliver quality products and
services. The technology behemoth combined new
technology with simplicity to come out with cool and simple
products.
Innovation in Customer Experience
Apple's innovation strategy was customer centric. The
company designed new products around the needs of the
user, not the demands of the technology. It came out with
such products which created value for both the company
and its customers. Apple products were such that consumers
never really realized they needed just these until they were
launched in the market. These products empowered
customers through their high quality user experience.
Innovation Leadership
Jobs were the chief innovator at Apple. Since re-joining Apple
in 1996, he had focused heavily on innovation and he played
an important role in the product development process. He
ensured that new ideas were aligned with the company's
vision. He emerged as the one of the most innovative
business leaders in the world. Talking about Apple's struggle
to innovate in the initial years, Jobs said, "You need a very
product-oriented culture, even in a technology company.
Lots of companies have tons of great engineers and smart
people. But ultimately, there needs to be some gravitational
force that pulls it all together. Otherwise, you can get great
pieces of technology all floating around the universe. But it
doesn't add up to much. That's what was missing at Apple
for a while. There were bits and pieces of interesting things
floating around, but not that gravitational pull.
Where's Apple Headed
For the third quarter ended June 2011, Apple generated
quarterly revenues of US$28.57 billion compared to
US$15.70 billion in the corresponding period of the previous
year. The company recorded a net profit of US$7.31 billion.
International sales accounted for
Contd...
UNIT 15: Case Study
2011, Apple briefly surpassed oil group Exxon Mobil Corporation to become the most valuable company in the world in terms of market capitalizati
135
Notes
e case.
Source: http://www.forbes.com/fdc/welcome_mjx.shtml
Innovation
136
Notes
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
UNIT 16: Strategy Formulation
137
Notes
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
BLOCK-IV
Innovation
138
Notes
UNIT 16: STRATEGY FORMULATION
F
UNIT 18: STRATEGY IMPLEMENTATION
 Introduction
___________________
 Introduction
 Meaning of Strategy Formulation
___________________  Meaning of Strategy Implementation
 Strategy Selection Process
___________________  Strategy Implementation Process
 Steps in Strategy Formulation
 Three C’s of Implementing Strategy
Process
___________________
 Strategy Formulation vs Strategy Implementation
 Three Aspects of Strategy
___________________
Formulation
___________________ UNIT 19: STRATEGY IMPLEMENTATION
APPROACHES
UNIT 17: GENERIC STRATEGIES
___________________  Introduction
 Introduction
___________________  Strategic Control Approach
 Cost Leadership Strategy
___________________  Virtual Organization
 Differentiation Strategy
 Opportunity-based Designs
 Focus and Niche Strategies
___________________
UNIT 20: CASE STUDY
UNIT 16: Strategy
Formulation
139
Unit 16 Notes
Activity
Prepare a scrapbook of such images with the help of which you can explain the meaning of strategy
Strategy Formulation
___________________
___________________
Objectives ___________________

following topics:
f Meaning of Strategy Formulation

f Strategy Selection Process
f Steps in Strategy Formulation Process
f Three aspects of Strategy Formulation
Introduction
Formulating competitive strategy involves the consideration
of four key factors. These factors determine what a company
can successfully accomplish. The factors that are internal to
the organization are its strengths and weaknesses and the
values of its key personnel; the factors that are external to
the organization are the industry opportunities and threats
and societal expectations. These factors combine to provide
the basis and limits to the competitive strategy a company
can successfully adopt. The appropriateness of the
competitive strategy can be determined by testing the
proposed objectives and policies for consistency.
These broad considerations in an effective competitive
strategy can be extended into a generalized approach to the
formulation of strategy.
Meaning of Strategy Formulation

In a tidy logical world, any process of choice could be
rational. Identifying and choosing options would be done
purely analytically. This is not necessarily true. Identifying
and evaluating options and then exercising it for strategy
formation is a complex process. Actually, it may be difficult to
identify all possible options with equal clarity, or at the same
time.
The future may evolve differently from any of the options.
Unexpected events can create new opportunities, destroy
foreseen
140 opportunities, or alter the balance of advantage between

Notes opportunities. The results may eventually depend as much on
Activity
organizationand strategy selectionchance and opportunity as on the deliberate choice. Good
___________________
Visitan
study its process fortune and inspiration play a large role in organization
___________________
and prepare a success and failure, too.
presentation.
___________________
The formulation of a sound strategy facilitates a number of
actions and desired results that would be difficult otherwise.
A strategic plan, when communicated to all members of an
organization, provides employees with a clear vision of what
the purposes and objectives of the firm are. The formulation
of strategy forces organizations to examine the prospect of
change in the foreseeable future and to prepare for change
rather than to wait passively until market forces compel it.
Strategic formulation allows the firm to plan its capital
budgeting. Companies have limited funds to invest and must
allocate capital funds where they will be most effective and
derive the highest returns on their investments.
On the other hand, a firm without a clear strategic plan gives
its decision makers no direction other than the maintenance
of the status quo. The firm becomes purely reactive to
external pressures and less effective at dealing with change.
In highly competitive markets, a firm without a coherent
strategy is likely to be out maneuvered by its rivals and face
declining market share or even declining sales.
Check Your
Progress
Fill in the blanks:
1. The …………………… of a sound strategy facilitates
a number of actions.
2. Strategic formulation allows the firm to plan its capital
…………………….
Strategy Selection Process

The evolution of strategic choice is driven by many different
forces. Ideas and practices emerge from collaborative
contacts between organizations. Firms cannot avoid learning
and borrowing when they trade and work together. The
evolution of strategy is also pushed along by competition and
confrontation. New ideas and practices arise when managers
try to outwit or beat back powerful
rivals. New strategies are often a recasting of the old. In a 141

Notes
sense, old strategic ideas never disappear entirely; they
infiltrate new practices covertly, like the blending of old and
new malt whiskies. Finally, strategy is pushed along by the
sheer creativity of managers, because they explore new ways
of doing things.
The nuts and bolts of strategy start with the selection
process. Strategy selection is based on the vision of the
organization. It blends into the missions and goals of the
organization. Through strategies, organizations align their
internal resources with environmental demands to ensure
long-term effectiveness. A workable strategy is built on
these outputs.
Results of Process
Chosen Strategy
Strategic Intent
CONTEXT
Strategic AssessmentAvailable Options
Figure 16.1: Strategic Choice Process
The relationship of strategy selection with the strategic intent

and the strategic assessment process is shown in Figure
16.1. In the figure, strategic intent, strategic assessment and
available options are shown as three circles. To some extent,
strategic choice shapes and even limits the goals a company
can reasonably pursue. The logically viable strategy emerges
where the three logical elements overlap. Where all three
circles overlap, the differing requirements of intent and
assessment are most fully met.
The common ground between any two circles is of some
interest. This is explained in Figure 16.2. Where any two
circles overlap are areas where feasible options may exist
which are not aligned to strategic intent. This may raise the
question of whether the strategic intent should be changed.
Options that are not feasible may seem highly attractive and
may have powerful supporters, so the reasons why they are
not feasible may need to be carefully argued with clear
evidence in support.
142 Logically viable options/ Chosen strategy

Aligned but infeasible options
Notes
Activity
a group of 3 students the various steps in strategy formulation process. Strategic Intent
___________________
Choice criterial No options identified
___________________
Strategic AssessmentAvailable Options
Feasible but unaligned options
Figure 16.2: The Strategic Choice Process Explained
Another case may be that they are aligned but have not been
found feasible. In this case also, it will be necessary to
faithfully document all the assumptions and analysis of why
the option was found not to be feasible. Choices of what not
to do may sometimes be as important as choosing what to
do.
Check Your
Progress
Fill in the blanks:
1. Ideas and practices emerge from.............contacts
between organizations.
2. The nuts and bolts of strategy start with the
……………
Steps in Strategy Formulation Process

The process of strategy formulation basically involves six
main steps. Though these steps do not follow a rigid
chronological order, however they are very rational and can
be easily followed in this order.
Setting Organizations’ Objectives

The key component of any strategy statement is to set the
long- term objectives of the organization. It is known that
strategy is generally a medium for realization of
organizational objectives. Objectives stress the state of being
there whereas strategy stresses upon the process of reaching
there. Strategy includes both the fixation of objectives as well
the medium to be used to realize those objectives. Thus,
strategy is a wider term which believes in the manner of
deployment of resources so as to achieve the objectives.
While fixing the organizational objectives, it is essential that 143

Notes
the factors which influence the selection of objectives must
be analysed before the selection of objectives. Once the
objectives and the factors influencing strategic decisions
have been determined, it is easy to take strategic decisions.
Evaluating the Organizational Environment

The next step is to evaluate the general economic and
industrial environment in which the organization operates.
This includes a review of the organizations competitive
position. It is essential to conduct a qualitative and
quantitative review of an organizations existing product line.
The purpose of such a review is to make sure that the factors
important for competitive success in the market can be
discovered so that the management can identify their own
strengths and weaknesses as well as their competitors’
strengths and weaknesses.
After identifying its strengths and weaknesses, an
organization must keep a track of competitors’ moves and
actions so as to discover probable opportunities of threats to
its market or supply sources.
Setting Quantitative Targets

In this step, an organization must practically fix the
quantitative target values for some of the organizational
objectives. The idea behind this is to compare with long term
customers, so as to evaluate the contribution that might be
made by various product zones or operating departments.
Aiming in Context with the Divisional Plans

In this step, the contributions made by each department or
division or product category within the organization are
identified and accordingly strategic planning is done for each
sub-unit. This requires a careful analysis of macroeconomic
trends.
Performance Analysis
Performance analysis includes discovering and analysing the
gap between the planned or desired performance. A critical
evaluation of the organizations past performance, present
condition and the desired future conditions must be done by
the organization. This critical evaluation identifies the degree
of gap that persists
144 between the actual reality and the long-term aspirations of

Notes the organization. An attempt is made by
the organization to
Activity
rporate level strategies estimate
being used in today’s business
___________________ its probable
world and prepares future
a slideshow with textcondition
and images. if
the current trends
persist.
___________________
___________________ Choice of Strategy

___________________ This is the ultimate step in Strategy Formulation. The best
course of action is actually chosen after considering
organizational goals, organizational strengths, potential and
limitations as well as the external opportunities.
Check Your
Progress
Fill in the blanks:
1. The key component of any strategy statement is to
set the.................objectives of the organization.
2. An organization must practically fix the …………………
target values for some of the organizational
Three Aspects of Strategy Formulation
The following three aspects or levels of strategy formulation,
each with a different focus, need to be dealt with in the
formulation phase of strategic management. The three sets
of recommendations must be internally consistent and fit
together in a mutually supportive manner that forms an
integrated hierarchy of strategy, in the order given.
Corporate Level Strategy

In this aspect of strategy, we are concerned with broad
decisions about the total organization's scope and direction.
Basically, we consider what changes should be made in our
growth objective and strategy for achieving it, the lines of
business we are in, and how these lines of business fit
together.
It is useful to think of three components of corporate level strategy:
(a) growth or directional strategy (what should be our growth
objective, ranging from retrenchment through stability to
varying degrees of growth - and how do we accomplish this),
(b) portfolio strategy (what should be our portfolio of lines of
business, which implicitly requires reconsidering how much
concentration or diversification we should have), and (c)
parenting strategy (how we allocate resources and manage
capabilities and activities across
the portfolio – where do we put special emphasis, and how 145

Notes
much do we integrate our various lines of business).
Source: http://smallbusiness.chron.com/types-corporate-level-strategy-60147.html
Figure 16.3: Running a Business Requires thoughtful Strategy
Corporate level strategy is concerned with the strategic

decisions a business makes that affect the entire
organization. Financial performance, mergers and
acquisitions, human resource management and the allocation
of resources are considered part of corporate level strategy.
There are four types of corporate level strategy that a
business can employ.
Value-Creating Strategy
A value-creating strategy is one in which the business seeks
to edge out its competitors by gaining more market share.
These strategies seek to add real and perceived value to the
business' products and services by exploiting economies of
scope – the resources and capabilities of the business that
can be shared across the entire organization to reduce
costs and increase efficiency. A key idea behind value-
creating strategy is diversification: offering more products to
more consumers within the market in an attempt to dominate
all of part of the overall market share.
Value-Neutral Strategy
A business can employ a value-neutral strategy when the
organization isn't so much concerned with allocating
resources and manpower as it is with securing its current
place within the
146 market. In essence, value-neutral strategy helps shore up the

Notes
business' operations plan. Initiating regulatory oversight,
creating synergy between departments, working to reduce
risk and securing a steady cash flow are value-neutral
approaches.
Value-Reducing Strategy
Businesses also sometimes engage in value-reducing
strategies. This happens on an organization-wide level when
the stakeholders or customers perceive that the business is
getting too big for its britches or that only the top-level
executives are benefiting from diversification. In this case,
value-reducing strategy refocuses the business market, helps
it define a target demographic and puts mechanisms in place
to prevent unnecessary or harmful growth.
Deciding on a Strategy
While it sometimes is evident which type of corporate level
strategy an organization should adopt, it is less clear at other
times, particularly when the market is unsteady or the
business cannot afford to waste resources trying new
products and services that may not be profitable. Asking
yourself a few strategy-level questions can help in the
decision: Does my company feel threatened by competitors?
If so, value-creating strategy is the right direction. Does my
business need to tighten its resources and monitor its
finances more closely? Focus on value-neutral strategy. Are
just a select few people benefiting from the organization's
success? Consider value-reducing strategy.
Competitive Strategy (often called Business Level Strategy)

This involves deciding how the company will compete within
each Line of Business (LOB) or Strategic Business Unit (SBU).
Business strategies help companies create a competitive
advantage in the marketplace. Corporate, department and
business-level strategies are commonly used by business
owners to create a competitive advantage.
Business-level strategies focus on a specific function that can
increase a company’s market share and profitability. These
strategies also integrate various economic resources to
improve a company’s production efficiency.
148 147
Notes Notes
Source: http://www.golime.co/blog/bid/173704/Can-Cloud-Computing-
Lead-to-a- Competitive-Advantage
Figure 16.4: Competitive Advantage
Functional Strategy
A functional strategy is one that dictates the task and
activities of a certain business area. Owners and managers
make up certain rules and guidelines for employees to follow.
Each department operates by these guidelines, with all
departments working together to achieve the overarching
company goals. Common areas where a company may
implement a functional strategy include the production,
finance, or the research and development departments. An
organizational strategy may also be functional. These more
localized and shorter-horizon strategies deal with how each
functional area and unit will carry out its functional activities
to be effective and maximize resource productivity.
Production Strategy
Production department strategies often fall under the “make
versus buy” analysis. Each product or product line is
reviewed by owners and managers, who use specific rules to
make this decision. The functional strategy helps dictate how
to decide the best alternative for new or existing products.
For example, the strategy may involve reviewing available
materials, looking at the labour skill in the current market,
and reviewing the costs for outsourcing the product for
production purposes. The result leads to an informed decision
on how a company will proceed with product production.
Financial Strategy
A company’s finance department typically makes decisions
on capital structure. The capital structure includes a mix of
debt and equity funds to finance large business operations. A
functional strategy provides guidance on how to review
operational income and decide what portion should be
reinvested into the company. From here, finance employees
then look to different funding options to fund the shortfall in
cash from operations. Selecting the lowest cost of capital
from the mix of funding options is typically the goal of a
functional strategy.
Other Departments
Other departments can also work under a functional strategy.
The strategy best describes any set of rules that provide
specific guidance for moving the company forward. The
research and development department, for example, can
have guidelines on how to increase the company’s product
pipeline. Human resource departments have a focus on hiring
and retaining skilled workers. The accounting department has
a schedule for processing information and closing the books
each month, meeting the company’s goals.
Through each of these individual functional strategy
divisions, a company can meet its overarching business
goals. Executives can set a company’s focus through its
organizational mission statement or other goal-setting
statements. This provides guidance for each department on
how to proceed with developing their own strategies. An
organizational strategy typically has the overarching goals of
building the company’s structure, training staff to complete
tasks, and setting competitive wages in the market. Outside
legal advice may be necessary to complete some of these
items.
Check Your
Progress
Fill in the blanks:
1. Business ……………………… help companies create
a competitive advantage in the marketplace.
2. Human resource departments have a focus on
………………… and.......................skilled workers.
150 149
SummaryNotes Notes
The formulation of a sound strategy facilitates a number of

actions and desired results that would be difficult otherwise.
A strategic plan, when communicated to all members of an
organization, provides employees with a clear vision of what
the purposes and objectives of the firm are. The nuts and
bolts of strategy start with the selection process. Strategy
selection is based on the vision of the organization. It blends
into the missions and goals of the organization.
An organizational strategy typically has the overarching goals
of building the company’s structure, training staff to
complete tasks, and setting competitive wages in the market.
Lesson End Activity

Try to formulate a strategy to introduce a hypothetical
product created by you.
Keywords
Competitive Advantage: An advantage that a firm has
over its competitors, allowing it to generate greater sales or
margins and/or retain more customers than its competition.
Environment: It refers to the setting or conditions in which a
particular activity is carried on.
Strategic Management: Strategic management is a firm’s
effort to analyse its environment and its own strengths and
weaknesses and then consciously choose the competitive
path it wants to follow.

1. What do you mean by strategy formulation?
2. Discuss the components of strategy selection process
with diagrams.
3. What are the steps in strategy formulation process?
4. Explain corporate level strategy with examples.
5. Describe functional strategy in detail.
Further
Readings
Books
Web Readings
http://www.enotes.com/strategy-formulation-
reference/strategy- formulation
http://www.managementstudyguide.com/strategy-
formulation- process.htm
http://www.wisegeek.com/what-is-a-functional-strategy.htm
UNIT 17: Generic
Strategies
151
Unit 17 Notes
Generic Strategies
Objectives
following topics:
f Cost Leadership Strategy

f Differentiation Strategy
f Focus and Niche Strategies
Introduction
The objective of the organization is to yield a superior rate of
return on the investment for the organization. The principle
to meet this objective is that organizations achieve
competitive advantage by providing their customers with
what they want, or need, better or more effectively than
competitors and in ways the competitors find difficult to
imitate. The best strategy for the organization, therefore, is
ultimately unique, reflecting the particular circumstances it
faces.
In order to succeed in this, organizations have found many
offensive and defensive actions to defend their position in the
industry and cope with the five competitive forces. A firm's
relative position within its industry determines whether a
firm's profitability is above or below the industry average.
The fundamental basis of above average profitability in the
long run is sustainable competitive advantage. There are two
basic types of competitive advantage a firm can possess: low
cost or differentiation. The two basic types of competitive
advantage combined with the scope of activities by which a
firm seeks to achieve them, lead to three internally
consistent generic competitive strategies that can be used by
the organization to outperform competition and defend its
position in the industry. These strategies are:
 Cost Leadership
 Differentiation, and
 Focus and Niche Strategies.
152
Notes
Activity
hat have attained success by applying cost leadership strategy and prepare a digital report.
___________________
___________________
___________________
Figure 17.1: Generic Strategies
The focus strategy has two variants, cost focus and

differentiation focus. This is shown in Figure 17.1.
These strategies are explained below. Effectively
implementing any of the generic competitive strategies
usually requires total commitment and determined
organizational support. This happens when there is
compatibility between corporate level strategy and the
strategy at the business level.
Cost Leadership Strategy

A firm pursuing a cost-leadership strategy attempts to gain a
competitive advantage primarily by reducing its economic
costs below its competitors. This policy once achieved
provides high margins and a superior return on investments.
The skills and resources required to be successful in this
strategy are sustained capital investment and access to
capital; superior process engineering skills; good supervision
and motivation of its labour force; product designed for ease
in manufacturing; low-cost distribution system. The
organization attempts to exploit economies of scale by
aggressive construction of efficient economies of scale
through:
 Volume of production and specialized machines
 Volume of production and cost of plant and equipment
 Volume of production and employees’ specialization
 Volume of production and minimised overhead costs
This strategy requires tight cost control. This is often done by
using a full costing method or activity based costing with
frequent and detailed control reports. The structure of the
organization should be clear-cut and responsibilities clearly
laid out. Organizations often provide incentives based on
meeting strict quantitative targets, etc.
UNIT 17: Generic Strategies
In order to remain a cost leader, the firm attempts to avoid 153

Notes
those factors that can cause the economies of scale to be
affected. It has to work within the physical limits to efficient
size; worker motivation; and focus on markets and suppliers,
sometimes, in restricted geographical areas. Firms that are
known to have successfully used this strategy in a number of
their businesses include Black and Decker, Texas
Instruments, and DuPont.
The low-cost producer strategy works best when buyers are
large and have significant bargaining power; price
competition among rival sellers is a dominant competitive
force; the industry's product is a standard item readily
available from a variety of sellers; there are not many ways
to achieve product differentiation that have value to the
buyer; buyers incur low switching costs in changing from one
seller to another and are prone to shop for the best price.
A low-cost leader is in the strongest position to set the floor
on market price and this strategy provides attractive
defences against competitive forces. Its cost position gives it
a defence from competitors because its lower costs mean
that it can still earn returns after its competitors have
competed away their profits through rivalry. It is protected
from powerful buyers because buyers can exert power only
to lower prices, and this will be possible only with next most
efficient competitor. Lower cost provides protection against
suppliers because there is more flexibility in the organization
to cope with input cost increases. Any new entrant will find it
difficult to overcome entry barriers because of required
economies of scale, and also because the activities taken to
achieve low costs are both rare and costly to imitate.
Finally, it places the organization in a favourable position
when pitted against substitutes compared to competitors in
the industry.
Cost leadership is valuable if:
 Buyers do not value differentiation very much
 Buyers are price-sensitive
 Competitors will not immediately match lower
prices There are no changes in:
 Consumer tastes
 Technology
 Exogenous prices/costs
154 There are a number of risks in using this strategy. These risks
Notes relate to the fast changing business environment. The most
Activity
cle for a magazine on how differentiation strategy canserious
___________________ risk to
help businesses cost
if it is leadership
helpful isoftechnological
in smaller tasks day to day life. change that
nullifies past investment or learning of the organization.
___________________
Sometimes the inability of the management to see or
___________________ anticipate the changes required in the product or market
___________________ change, is a grave handicap. The organization's advantage
can also be neutralized if there is low cost learning by
industry newcomers or inflation in costs of supplies or
processes that provide the organization a competitive
advantage. Check Your
Progress
Fill in the blanks:
1. The structure of the organization should be
……………
and responsibilities clearly laid out.
2. The most serious risk to cost leadership is
……………
Differentiation Strategy
In a differentiation strategy, a firm seeks to be unique in its
industry along some dimensions that are widely valued by
buyers. It selects one or more attributes that many buyers in
an industry perceive as important, and uniquely position itself
to meet those needs. Differentiation will cause buyers to
prefer the company's product/service over the brands of
rivals. An organization pursuing such a strategy can expect
higher revenues/margins and enhanced economic
performance.
The challenge is finding ways to differentiate that create
value for buyers and that are not easily copied or matched by
rivals. Anything a company can do to create value for buyers
represents a potential basis for differentiation. Ways to
differentiate products/services include:
 Product features
 Linkage between functions
 Timing
 Location/convenience
 Product mix
 Links with other firms
 Customization 155
Notes
 Product complexity/sophistication
 Marketing (image, etc.)
 Service and support
Successful differentiation creates lines of defense against the
five competitive forces. It provides insulation against
competitive rivalry because of brand loyalty of customers and
hence lower sensitivity to price. The customer loyalty also
provides a disincentive for new entrants who will have to
overcome the uniqueness of the product or service.
Competitors are not likely to follow a similar approach if
buyers value the differentiated products and services. If they
do, this will lead to a lose-lose situation for them. The higher
returns of the strategy, provides a higher margin to deal with
supplier power. Buyer power is mitigated as there are no
comparable alternatives. Finally a company that has
differentiated itself to achieve customer loyalty should be
better placed to compete with substitutes than its
competitors. Some successful examples of this strategy are
DaimlerChrysler in Automobiles, Bose in Audio Systems, and
Caterpillar in construction equipment.
Competitive advantage through differentiation is sustainable
if the activities taken to achieve differentiation are rare and
costly to imitate. The most appealing types of differentiation
strategies are those least subject to quick or inexpensive
imitation. Differentiation is most likely to produce an
attractive, long-lasting competitive edge when it is based on
technical superiority, quality, giving customers more support
services, and on the core competencies of the organization.
Differentiation requires the organization to have some of
these skills and resources:
 Strong marketing abilities
 Product engineering
 Creative flair
 Corporate reputation for quality or technological leadership
 Strong cooperation from channels
 Strong coordination among functions
 Amenities to attract highly skilled labour, scientists, or
creative people
156 Differentiation strategy works best when there are many

Notes ways to differentiate the product/service and these
Activity
rating in your city and differences
try to analyze these strategies and
___________________ are perceived
prepare a detailed presentation. by
buyers to have value or when
buyer needs and uses of the item are diverse. The strategy is
___________________
more effective when not many rivals are following a similar
___________________ type of differentiation approach. There are risks in this
strategy when the cost of differentiation becomes too great
or when buyers become more sophisticated and need for
differentiation falls.
Check Your
Progress
Fill in the blanks:
1. Differentiation will cause buyers to prefer
the company's product/service over the brands of
………….
2. Successful differentiation creates lines of ……………
Focus and Niche Strategies

The generic strategy of focus rests on the choice of a narrow
competitive scope within an industry. The focuser selects a
segment or group of segments in the industry, or buyer
groups, or a geographical market and tailors its strategy to
serving them to the exclusion of others. The attention of the
organization is concentrated on a narrow section of the total
market with an objective to do a better job serving buyers in
the target market niche than the rivals. Each functional policy
of the organization is built with this in mind.
There are two aspects to this strategy, the cost focus and the
differentiation focus. In cost focus a firm seeks a cost
advantage in its target market. The objective is to achieve
lower costs than competitors in serving the market – this is a
low cost producer strategy focused on the target market
only. This requires the organization to identify buyer
segments with needs/preferences that are less costly to
satisfy as compared to the rest of the market. Differentiation
focus offers niche buyers something different from other
competitors. The firm seeks product differentiation in its
target market.
Both variants of the focus strategy rest on differences
between a focuser's target market and other markets in the
industry. The target markets must either have buyers with
unusual needs or else
the production and delivery system that best serves the 157
Notes
target market must differ from that of other industry
segments. Cost focus exploits differences in cost behaviour in
some markets, while
differentiation focus exploits the special needs of buyers in
certain markets. A focuser may do both to earn a sustainable
competitive advantage though this is difficult. Examples of
focus strategies are Rolls-Royce in luxury automobiles; Apple
Computer in Desktop publishing.
Focus strategy is successful if the organization can choose a
market niche where buyers have distinctive preferences,
special requirements, or unique needs and then developing a
unique ability to serve the needs of the target buyer
segment. Even though the focus strategy does not achieve
low cost or differentiation from the perspective of the market
as a whole, it does achieve this in its narrow target. However,
the market segment has to be big enough to be profitable
and it has growth potential. The organization has to identify a
buyer group or segment of a product line that demands
unique product attributes. Alternatively, it has to identify a
geographical region where it can make such offerings.
Focusing organizations develop the skills and resources to
serve the market effectively. They defend themselves against
challengers via the customer goodwill they have built up and
their superior ability to serve buyers in the market. The
competitive power of a focus strategy is greatest when the
industry has fast-growing segments that are big enough to be
profitable but small enough to be of secondary interest to
large competitors and no other rivals are concentrating on
the segment. Their position is strengthened as the buyers in
the segment require specialized expertise or customized
product attributes.
A focuser's specialized ability to serve the target market
niche builds a defence against competitive forces. Its focus
means that either the organization has a low cost position as
its strategic target, high differentiation, or both. The logic
that has been laid out earlier for cost leadership and
differentiation also is applicable here.
Some of the situations and conditions where a focus strategy
works best are:
 When it is costly or difficult for multi-segment rivals to
serve the specialized needs of the target market niche;
158  When no other rivals are concentrating on the same

Notes
target segment;
 When a firm's resources do not permit it to go after a
wider portion of the market;
 When the industry has many different segments, creating
more focusing opportunities and allowing a focuser to
pick out an attractive segment suited to its strengths and
capabilities.
A focus strategist must beware of events that could impact
the target market. This can happen when broad-line, multi-
segment competitors may find effective ways to match the
focused firm in serving the narrow target market, or the
segment may become so appealing that it is soon crowded
with eager, aggressive rivals, causing segment profits to be
split. Often the niche buyer's preferences and needs drift
more and more towards the product attributes desired by the
market as a whole; this could be threatening. The focus
strategy always implies some limitation on the overall market
share achievable. The strategy involves a trade- off between
profitability and sales volume.
Some Aspects of Generic Strategies

The three generic strategies differ on many dimensions.
Implementing them successfully requires different resources
and skills. Organizations pursuing different strategies will find
that they attract different sorts of people. This should result
in different styles of leadership that can translate into
different corporate cultures and atmospheres.
If the organization is in a position where it is between the
three strategic options, it usually takes time and sustained
effort to come out of this position. In spite of the fact that
successfully executing each generic strategy involves
different resources, strengths, organizational arrangements,
and managerial style, some organizations try to flip back and
forth among the generic strategies. In addition, the
organization would be amenable to a blurring of the
corporate culture and conflicting motivation system.
Obviously, this happens when organizations do not exercise
their options based on their capabilities and limitations.
An organization must take a fundamental strategic decision
to select one of the three generic strategies. Failing to
develop a strategy in any of the three directions will result in
low profitability. It will either lose the high volume customers
who
demand low prices or operate with reduced profits to get this 159
Notes
business away from low cost competition. It will also lose high
margin businesses to competition that have achieved
differentiation overall.
This seems to indicate that in many industries there is a U-
shaped relationship between profitability and market share.
The profitability is high with low market share using a
differentiation strategy and a high market share using a cost
leader strategy. For example, in the automobile industry the
profit leaders are General Motors that has a price leadership
strategy and DaimlerChrysler which has a differentiation
strategy.
The three strategies are based on competing differently in
the marketplace. They construct different types of defenses
against competitive forces. The types of risks they face are
also different. However, there are two types of risks that are
common to all of them:
 Failing to attain or sustain the strategy, and
 Erosion in the value of the strategic advantage with
industry evolution.
Cost leadership imposes severe burden on the organization
to keep up its position. It means the organization has to
reinvest in modern equipment so as to keep reaping all
economies of scale. In addition, it must keep honing its
process engineering core capability. Similarly, differentiation
requires investments in a strong R&D on a continuous basis
and the ability to attract the right type of people into the
company.
Check Your
Progress
Fill in the blanks:
1. A........................strategist must beware of events
that
could impact the target market.
2. The strategy involves a..........................between
Summary
The strength of competitive forces in an industry determines
the degree to which this inflow of investment occurs and the
ability of organizations to sustain above average returns. The
five
160 competitive forces – threat of new entrants; threat of

Notes
substitute products or services; bargaining power of
suppliers; bargaining power of buyers; and rivalry among
existing firms, reflects the fact that competition in an
industry goes well beyond the established players.
There are two basic types of competitive advantage a firm
can possess: low cost or differentiation. A firm pursuing a
cost- leadership strategy attempts to gain a competitive
advantage primarily by reducing its economic costs below its
competitors. In a differentiation strategy a firm seeks to be
unique in its industry along some dimensions that are widely
valued by buyers. An organization pursuing such a strategy
can expect higher revenues/ margins and enhanced
economic performance. Competitive advantage through
differentiation is sustainable if the activities taken to achieve
differentiation are rare and costly to imitate.
Lesson End Activity

Within a group of 4 students discuss one example per group
member of companies using one or the other generic
strategies.
Keywords
Cost Focus: Cost focus exploits differences in cost behaviour
in some markets. In cost focus, a firm seeks a cost advantage
in its target market. The objective is to achieve lower costs
than competitors in serving the market – this is a low cost
producer strategy focused on the target market only.
Cost-leadership Strategy: A firm pursuing a cost-
leadership strategy attempts to gain a competitive
advantage primarily by reducing its economic costs below its
competitors.
Different Strategy: In a differentiation strategy a firm
seeks to be unique in its industry along some dimensions that
are widely valued by buyers. It selects one or more attributes
that many buyers in an industry perceive as important, and
uniquely positions it to meet those needs.
Differentiation Focus: Differentiation focus offers niche
buyers something different from other competitors. The firm
seeks product differentiation in its target market.
Generic Competitive Strategies: Generic competitive 161

Notes
strategies are those competitive strategies that can be used
by the organization to outperform competition and defend its
position in the industry.
Generic Strategy: The generic strategy of focus rests on
the choice of a narrow competitive scope within an industry.
The focuser selects a segment or group of segments in the
industry, or buyer groups, or a geographical market and
tailors its strategy to serving them to the exclusion of others.

1. Explain generic strategies with the help of diagram.
2. How can a firm gain competitive advantage through cost
leadership?
3. Discuss how a firm can operate its business by applying
focus and niche strategies.
4. Explain the risks involved in generic strategies.
5. Differentiate the three strategies as per your
understanding from this unit.
Further Readings
Books
Learning.
Web Readings
http://smallbusiness.chron.com/generic-business-level-
strategies- 2566.html
http://smallbusiness.chron.com/advantages-
disadvantages- businesslevel-strategy-19209.html
Innovation
162
Notes
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
UNIT 18: Strategy
Implementation
163
Unit 18 Notes
Objectives
following topics:
f Meaning of Strategy Implementation

f Strategy Implementation Process
f Three C’s of Implementing Strategy
f Strategy Formulation vs Strategy Implementation
Introduction
Strategic implementation put simply is the process that puts
plans and strategies into action to reach goals. A strategic
plan is a written document that lays out the plans of the
business to reach goals, but will sit forgotten without
strategic implementation. The implementation makes the
company’s plans happen.
Strategic implementation is critical to a company’s success,
addressing who, where, when, and how of reaching the
desired goals and objectives. It focuses on the entire
organization. Implementation occurs after environmental
scans, SWOT analyses, and identifying strategic issues and
goals. Implementation involves assigning individuals to tasks
and timelines that will help an organization reach its goals.
A successful implementation plan will have a very visible
leader, such as the CEO, as he communicates the vision,
excitement and behaviours necessary for achievement.
Everyone in the organization should be engaged in the plan.
Performance measurement tools are helpful to provide
motivation and allow for follow-up. Implementation often
includes a strategic map, which identifies and maps the key
ingredients that will direct performance. Such ingredients
include finances, market, work environment, operations,
people and partners.
To successfully implement your strategy, several items must
be in place. The right people must be ready to assist you with
their unique skills and abilities. You need to have the
resources, which
164 include time and money, to successfully implement the

Notes strategy. The structure of management must be
Activity
an article for a magazine on the meaning of strategycommunicative
___________________ and open, with scheduled meetings for
implementation.
updates. Management and technology systems must be in
___________________
place to track the implementation, and the environment in
the workplace must be such that everyone feels comfortable
and motivated.
Meaning of Strategy Implementation

Strategy implementation is the translation of chosen strategy
into organizational action so as to achieve strategic goals and
objectives. Strategy implementation is also defined as the
manner in which an organization should develop, utilize, and
amalgamate organizational structure, control systems, and
culture to follow strategies that lead to competitive
advantage and a better performance. Organizational
structure allocates special value developing tasks and roles
to the employees and states how these tasks and roles can
be correlated so as maximize efficiency, quality, and
customer satisfaction – the pillars of competitive advantage.
But, organizational structure is not sufficient in itself to
motivate the employees.
An organizational control system is also required. This control
system equips managers with motivational incentives for
employees as well as feedback on employees and
organizational performance. Organizational culture refers to
the specialized collection of values, attitudes, norms and
beliefs shared by organizational members and groups.
A very common mistake in strategic implementation is not
developing ownership in the process. Also, a lack of
communication and a plan that involves too much are
common pitfalls. Often a strategic implementation is too
fluffy, with little concrete meaning and potential, or it is
offered with no way of tracking its progress. Companies will
often only address the implementation annually, allowing
management and employees to become caught up in the
day-to-day operations and neglecting the long-term goals.
Another pitfall is not making employees accountable for
various aspects of the plan or powerful enough to
authoritatively make changes.
UNIT 18: Strategy Implementation
165
Check Your
Progress Notes
Activity
Search over the internet and studythestrategy implementation process of a company of your c
___________________
Fill in the blanks:
___________________
1. Organizational structure allocates..................value
developing tasks and roles to the employees. ___________________
2. A very common mistake in strategic

implementation is not developing in the
Strategy Implementation Process
A strategic plan is of little use to an organization without a
means of putting it into place. In fact, implementation is an
essential part of the strategic planning process, and
organizations that develop strategic plans must expect to
include a process for applying the plan. The specific
implementation process can vary from organization to
organization, dependent largely on the details of the actual
strategic plan, but some basic steps can assist in the process
and ensure that implementation is successful and the
strategic plan is effective.
Step 1
Evaluate the strategic plan. The first step in the
implementation process is to step back and make sure that
you know what the strategic plan is. Review it carefully, and
highlight any elements of the plan that might be especially
challenging. Recognize any parts of the plan that might be
unrealistic or excessive in cost, either of time or money.
Highlight these, and be sure to keep them in mind as you
begin implementing the strategic plan. Keep back-up ideas in
mind in case the original plan fails.
Step 2
Create a vision for implementing the strategic plan. This
vision might be a series of goals to be reached, step by step,
or an outline of items that need to be completed. Be sure to
let everyone know what the end result should be and why it
is important. Establish a clear image of what the strategic
plan is intended to accomplish.
Step 3
Select team members to help you implement the strategic
plan. Make sure you have a team that “has your back,” so to
speak, and understands the purpose of the plan and the
steps involved in
166 implementing it. Establish a team leader, if other than

Notes yourself, who can
encourage the team and field questions or
Activity
pare a chart of Three address
C’s of Implementing Strategy with
___________________ problems
examples.as they arise.
___________________ Step 4
Schedule meetings to discuss progress reports. Present the
list of goals or objectives, and let the strategic planning team
know what has been accomplished. Whether the
implementation is on schedule, ahead of schedule, or behind
schedule, assess the current schedule regularly to discuss
any changes that need to be made. Establish a rewards
system that recognizes success throughout the process of
implementation.
Step 5
Involve the upper management where appropriate. Keep the
organization’s executives informed on what is happening,
and provide progress reports on the implementation of the
plan. Letting an organization’s management know about the
progress of implementation makes them a part of the
process, and, should problems arise, the management will be
better able to address concerns or potential changes.
Check Your
Progress
Fill in the blanks:
1. The specific …………………… process can vary from
organization to organization.
2. Create a.......................for implementing the strategic
plan.
Three C’s of Implementing Strategy

To successfully execute an organization’s strategy, it must be
the focus of every person in that organization. It is up to the
leaders to create, monitor, and reward that focus as it is
expressed. So how then do you provide the leadership
required to implement strategies in a way that allows them to
come to life in each corner of an organization?
Clarify your Strategy

All too often, strategies are expressed as high-level
statements that resonate with board and executive levels but
fall flat with
mid-level and frontline personnel. Unfortunately, if people 167

Notes
don’t understand the strategy, they are unable to connect
with it. So the first step is to clarify your strategy in a way
that people in your organization can rally to support its
implementation. Done well, this strategy will tie together
your goals and objectives and clearly explain what you intend
to do. In their book “Top Management Strategy”, Ben Tregoe
and John Zimmerman offer a very useful definition of
strategy, calling it, “the framework which guides those
choices that determine the nature and direction of an
organization.” Most importantly, try to stay away from
“corporate speak,” or “bureaucratize,” which Herb Kelleher of
Southwest Airlines calls “difficult to understand and boring.”
Communicate your Strategy
Powerfully communicating the essence of your strategy at
every level of the organization using multiple mediums is the
key here. Use internal blogs and message boards, brown bag
luncheons, podcasts, and department meetings to
communicate what the strategy is and how everybody’s work
is informed by that strategy. Discussions need to occur at
each level, translating the organization’s strategy to
understandable and contextualized sound bites, which
connect to the work of individuals. In short, communicating
the strategy provides the “connective tissue” throughout the
organization that helps people understand the big picture.
Cascade your Strategy

If strategy is “what” you do then tactics are “how” you do it.
And if you want your strategy implemented well, you need to
cascade it throughout the organization and get to the
practical and tactical components of people’s jobs every day.
Ideally, you will involve your managers in this process, and
they will help to translate the elements of the strategy for
your organization to their own functional areas. Doing this
allows them to develop and own the process of cascading the
strategy and designing implementation plans with high
likelihood of execution. Cascading strategy is the proverbial
rubber hitting the road. The bulk of the work in implementing
strategy is done at this stage. It is the team meetings, the
one-on-one coaching, the process improvements, the
customer meetings, and the responses to the market that, in
alignment with an organization’s strategy, can make a
tremendous difference for an organization.
168 The pace of business shows no signs of slowing down and the
Notes competition inany sector isn’t getting easier. But effectively
Activity
e a slideshow on Strategy implementing
Formulation vs. Strategy Implementation.
___________________ strategy can be a source of competitive
advantage. Try this Three Cs and see if they help. Leaders
___________________
from Fortune 500 companies to small not-for-profits must be
armed with the ability to effectively implement the strategies
of their organization, all while juggling 100s of emails and
voice mails, and addressing the exigencies of the day.
Because implementing strategy is not additive work for the
leader. It is, in fact, their pivotal job.
Check Your
Progress
Fill in the blanks:
1. First step is to.........................your strategy in a way
that people in your organization can rally to support
its implementation.
2...........................strategy is the proverbial rubber hitting
the road.
Strategy Formulation vs Strategy Implementation

Following are the main differences between Strategy
Formulation and Strategy Implementation:
Strategy Formulation Strategy Implementation

Strategy Formulation includes Strategy Implementation involves
planning and decision-making all those means related to
involved in developing executing the strategic plans.
organization’s strategic goals and
plans.
In short, Strategy Formulation is In short, Strategy Implementation
placing the Forces before the is managing forces during the
action. action.
Strategy Formulation is an Strategic Implementation is mainly
entrepreneurial activity based an Administrative task based on
on strategic decision-making. strategic and operational decisions.
Strategy Formulation emphasizes Strategy Implementation
on effectiveness. emphasizes on efficiency.
Strategy Formulation is a Strategy Implementation is
rational process. basically an operational process.
Strategy Formulation requires Strategy Implementation requires
coordination among few coordination among many
individuals. individuals.
Strategy Formulation requires a Strategy Implementation
great deal of initiative and logical requires specific motivational
skills. and leadership traits.
Strategic Formulation Strategy Implementation
precedes Strategy follows Strategy Formulation.
Implementation.
Excellently formulated strategies will fail if they are not 169

Notes
properly implemented. Also, it is essential to note that
strategy implementation is not possible unless there is
stability between strategy and each organizational dimension
such as organizational structure, reward structure, resource-
allocation process, etc.
Strategy implementation poses a threat to many managers
and employees in an organization. New power relationships
are predicted and achieved. New groups (formal as well as
informal) are formed whose values, attitudes, beliefs and
concerns may not be known. With the change in power and
status roles, the managers and employees may employ
confrontation behaviour.
Check Your
Progress
Fill in the blanks:
1. Strategy formulation is an entrepreneurial activity
based on strategic.............…-making.
2. Strategy...................poses a threat to many
managers
Summary
Strategic implementation is critical to a company’s success,
addressing who, where, when, and how of reaching the
desired goals and objectives. A very common mistake in
strategic implementation is not developing ownership in the
process. Also, a lack of communication and a plan that
involves too much are common pitfalls. Often a strategic
implementation is too fluffy, with little concrete meaning and
potential, or it is offered with no way of tracking its progress.
The first step in the implementation process is to step back
and make sure that you know what the strategic plan is. This
vision might be a series of goals to be reached, step by step,
or an outline of items that need to be completed. Establish a
team leader, if other than yourself, who can encourage the
team and field questions or address problems as they arise.
Present the list of goals or objectives, and let the strategic
planning team know what has been accomplished.
Involve the upper management where appropriate. Keep the
organization’s executives informed on what is happening,
and provide progress reports on the implementation of the
plan.
Activity
Lesson End
170 Discuss in a group of 5 students the differences between the

Notes formulation and implementation of strategy.
Keywords
Strategic Plan: A strategic plan is a written document that
lays out the plans of the business to reach goals, but will sit
forgotten without strategic implementation.
Strategy Formulation: It includes planning and decision-
making involved in developing organisation’s strategic goals
and plans. In short, strategy formulation is placing the forces
before the action.
Strategy Implementation: Strategy Implementation refers
to the sum total of the activities and choices required for
execution of a strategic plan.

1. What do you mean by strategy implementation?
2. Discuss the steps included in strategy implementation process.
3. Explain the 3 C’s of strategy implementation in detail.
Give examples.
4. How will you differentiate between strategy formulation
strategy implementation?
Further Readings
Books
Dicke.Wilhelmina Margaretha (2005), “Managing Technology and
Web Readings 171

Notes
http://smallbusiness.chron.com/implementation-process-
strategic- plans-4514.html
http://smallbusiness.chron.com/strategic-
implementation- 5044.html
http://www.forbes.com/sites/scottedinger/2012/08/07/thre
e-cs-of- implementing-strategy/
Innovation
172
Notes
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
Approaches
173
Unit 19 Notes
Approaches
Objectives
following topics:
f Strategic Control Approach

f Virtual Organization
f Opportunity-based Designs
Introduction
Prahalad and Hamel related strategy to the internal world of
a company. Strategy, according to them, consisted of all the
resources and competencies of the organization, and how
they were leveraged. Porter, on the other hand, believed
strategy focused on the external world of industry structure
and the strategy of competitors. However, a rational view –
taking into consideration both these approaches to strategy –
is that strategy is a dynamic and evolutionary process of
finding external opportunities into which the competencies
can be meshed to provide competitive advantage.
Strategy is based on three iterative processes. The first
process is to continuously look for growth by identifying new
market opportunities into which the company's existing
resources and competencies can be exploited. This concept is
based on the classic economic model that Porter postulated.
C.K. Prahalad and Gary Hamel together, provide the rationale
for the second iterative process. They explained that an
organization has to face a different type of competition: the
competition for resources and capabilities. The second
process, then, is to continuously improve on the strategic
architecture, both by strengthening existing competencies
and also by developing or acquiring new ones. What drives
these two processes is the third process. This is to create a
sense of purpose that energizes the whole strategic process.
These two views are connected through the strategy
implementation process. Even though strategy may be about
174 deciding what to do based on competitive considerations,

Notes implementation is about getting it done
through the use of
Activity
a presentation on Strategic resources
Control Approach with text
___________________ and competencies. In order to
and diagrams. have a competitive
edge over its rivals, an organization with a superior strategy
___________________
needs a superior ability to execute strategy. The superiority
comes from its portfolio of resources and competencies. The
superiority can be maintained by continuously improving on
the strategic architecture, both by strengthening existing
competencies and also by developing or acquiring new ones.
Conventional management models also view implementation
of strategy as being as important as the strategy itself, but
they see the relationship between structure and strategy in a
different way. They view strategy formulation as a top
management function and the rest of the organization as a
means to implement the strategy. Therefore, for the proper
implementation of strategy, it has to be translated such that
it is accepted and adopted by the rest of this organization.
This requires the capacity to design good working
environments, working environments that motivate and
effectively coordinate the activities of the people working in
the organization.
To a large extent, this is determined by its organizational
architecture and structure. An appropriate organizational
structure is crucial for success. It helps develop the capacity
to implement strategy effectively. The structural components
are a means to facilitate the smooth translation of
organizational strategy and policies to action that motivate
and coordinate the activities of the people working in the
organization. A lack of motivation or coordination (or both),
can cause the organization to lose its competitive advantage.
Strategic Control Approach

Strategic control approach is based on improving the
competitive capacity of the organization by providing a high
level of autonomy to the operating units. It is basically a
hands-off organizational strategy with control systems to
monitor and evaluate the performance of the business unit.
The objective is to control efficiency, quality, innovation, and
responsiveness to customers. Therefore, it looks at the
strategic plan from a perspective that lies between the two
extremes – the strategic planning approach and the financial
control approach and creates an appropriate structure.
Strategic control approach, therefore, is not single
UNIT 19: Strategy Implementation Approaches
stereotype architecture, but a set of organizational structures 175

Notes
that bridges the space between strategic planning and
financial control.
Unlike the system used in Strategic Planning architectures,
which focused on the consequences of the increasing size of
the organization, goals are set in a participatory manner
based on a belief that the unit has a better knowledge of the
requirements of the customers and the efficiency, quality and
innovation required to meet the objectives of the corporate
centre. The graphical representation of the Strategic Control
Approach is shown in Figure 19.1.
CORPORATE CENTRE (STRATEGIC CONTROL)
Strategy Balance Policies Capital Allocations PerformanceEstablishment Agreed Business Plans

Assessment& Infrastructure
Division/ Department
Figure 19.1: Strategic Control Approach
The corporate centre is not concerned with developing

strategy through structuring the tasks of its various
departments or divisions. It is concerned with shaping the
behaviour in departments and divisions. And it is concerned
with the context within which others are operating. Generally,
business plans are produced by divisions – but within central
guidelines based on the use of long-term and strategically
relevant criteria to set up the strategic plan.
There can be many different types of strategic controls.
However, the controls that are commonly used in the
preparation of the strategic plan are financial controls, output
controls and behaviour controls.
 Behaviour control is exercised by monitoring and
evaluating systems. Operationally this is affected through
operating budgets and standardization of inputs, e.g.,
policies on employment, market coverage, etc.;
conversion activities of inputs, throughputs and outputs;
the reward structure, e.g., Commission Systems, Bonus
Plans, etc.
176  Financial control is exercised through defining and

Notes
agreeing to specific financial parameters and laying down
targets for a number of measurable financial quantities,
e.g., stock market price, return on investment, market
share and cash flow, etc.
 Output control is exercised by agreeing upon on targets
for the divisional and functional goals. Table 19.1 shows
the summary of some of the possible control systems.
Table 19.1: Types of Strategic Controls
Financial Control Output Control Behaviour Control

Stock Prices Divisional Goals Budgets
ROI Functional Goals Standardization
Rules & Procedures
On the one hand, the philosophy of conventional

organizations that focus of organizational design is based on
'flexibility' so that the changing environmental forces are
exploited effectively. On the other hand, what is being
promoted as a philosophy by new economy companies is that
design of the organization could itself be used as the
strategy.
The emergence of new economy companies in the 1990s
revived interest in the use of structure as strategy. Perhaps,
in a sense, this represents a revival of the use of strategy by
Indian companies to gain competitive advantage. However,
the framework was different. The new economy companies
were led by a group of corporations, primarily in the
information technology businesses. These organizations were
enabled by technology and its concomitant focus on
reduction in prices and their aspirations were compelled by
the expectations of pioneering trends. They have now
become the drivers of the markets and the investment
community in the new millennium.
The philosophy of the new technology companies has
resulted in the development of new organization forms where
structure is seen as strategy. Their strategic framework is
different; these businesses have flat matrix-like structures
and avoid vertical integration and diversification. The
organizations are tiered vertically, e.g., from components to
subassemblies to systems. For example, Apple's open
architecture sharply reduced interaction costs in the
computer industry. By conforming to a set of well-
documented standards, specialized companies could, for the
first time, work together easily to produce complementary
products and services. As a result, tightly coordinated webs
of companies – such
as Adobe Systems, Apple, Intel, Microsoft, Novell, and Sun 177

Microsystems – could form and ultimately compete effectively Notes
Activity
against the entrenched, vertically integrated giants. article on
___________________
Draftan fora
This has empowered component developers to bring out newspaper Virtual
___________________
organizations.
radically new devices with the assurance that the 'system'
will adopt superior new components without hesitation. This
has permitted a free flow of the latest technologies from
components to subassemblies to systems, and so on. Intel
invests more than $100 million each year to help other
companies develop software and hardware that use Intel
technology. It supports advances across the entire computer,
communications and media sector, while assuring the need
for its own microprocessors.
Check Your
Progress
Fill in the blanks:
1. Strategic control approach is based on improving
the
…………………… capacity of the organization.
2..............................control is exercised by monitoring
Virtual Organization
The 'virtual organization' is described as one which will
appear almost edgeless, with permeable and continuously
changing interfaces between company, supplier, and
customer; operating divisions will be constantly reforming
according to need and job responsibilities will regularly shift,
as will lines of authority. Even the very definition of employee
will change, as some customers and suppliers begin to spend
more time in the company than will some of the firm's own
workers. One of the Canada's best performing natural
resources companies created a unique organizational
structure that combines the advantages of small business
units with Virtual Structures – groupings of these business
units – that can address different strategic issues and
competitive environments. It created over 100 business
units. Based on the requirement, it subdivided the units on
the basis of:
 Business Units serving a common customer group
 Business Units located in a common geography
 Business Units served by a common supplier group and
 Business Units in a similar phase of development
178 Each of the 100-plus business units represents a small team

Notes
with accountability for strategy, resources and performance.
According to the authors, "This enables the CEO and his team
to push accountability for value as close as possible to the
'coal face', where value is actually created or destroyed."
Virtual structure is a grouping of business units that can
address different strategic issues and competitive
environments. It is a unique organizational structure and
form of business organization that is emerging. The benefit of
these virtual business units is their ability to tackle corporate
strategic issues that the operational business units cannot
address on their own without creating new layers of
bureaucracy that too often become permanent.
Business Units served by a Common Supplier Group
Business Units in a Similar Development Phase
Single Business Unit

Business Units serving a Common Customer Group
Business Units located in a Common Geography
Figure 19.2: Virtual Organization Structure
Moreover, because they are "virtual", these larger groupings

of business units can be "organized" in many different ways
to meet the company's priorities, even as they evolve over
time. This gives the company enormous capacity to organize
and reorganize in response to an ever-moving agenda and
competitive environment.
Check Your
Progress
Fill in the blanks:
1. Virtual structure is a grouping of business units
that can address different strategic issues and
………………
environments.
2. The benefit of these virtual business units is their
ability to tackle corporate strategic issues that
179
Opportunity-based Designs
Notes
Activity
Some companies, rather than viewing the corporation as a
With the help of internet, find out any two such organizations which are using opportunity based design as
portfolio of business units, regard it as a portfolio of ___________________
resources and of opportunities to create value. This ___________________

opportunity-based design perspective gives these companies ___________________
the flexibility to bring the most useful resources to bear on
___________________
the most promising opportunities. For example, ABB is an
engineering company with a decentralized structure. ABB's
country manager immediately appointed an airport project
leader, who persuaded ABB's businesses in the country to
work under his guidance. These businesses, with their
networks, offered the complete set of resources needed for
the project. Because the project leader – the "opportunity
owner" was empowered to coordinate these resources, and
because the heads of ABB business units and functions – the
"resource owners" were willing to dedicate them to an
opportunity that others had identified, ABB won 70 airport
contracts, with a total worth of more than $300 million.
In opportunity-based designs, owners of opportunities and
resources typically exist within or alongside the business-unit
structure. The organization must therefore be managed on
two levels. Its foundation is a host of stable business units
that conduct the company's day-to-day work, such as
creating and marketing individual products. On top of that lie
a number of fluid "opportunity units" that pull together
elements of different businesses in order to tackle particular
projects. The resulting organization is more complex and
poses new managerial challenges. Opportunity-based design
helps established companies emulate the market
responsiveness of start-ups without sacrificing the
advantages of scale and scope.
This opportunity-based structure has tricky implications for
an organization and for human resources in particular. In a
traditional line organization, everything is connected directly
to the formal structure: careers, accountability, and decision-
making processes. But all that changes when people begin to
think of themselves as entrepreneurial resources that can be
applied to a range of opportunities. In this case, employees
need to juggle independent assignments, to build careers
that move outward as well as upward.
180
Notes Check Your
Progress
Fill in the blanks:
1. In opportunity-based designs, owners of
…………………
and ………………… typically exist within or
alongside the business-unit structure.
2. In a traditional line organization, everything
Summary
The strategy implementation process is a bridge between the
classic economist's view and the view of the resource school.
Critical areas related to the implementation of strategy are
organizational structure, the culture of the organization, and
the strategic change process.
The structure of the organization determines three key
components pertaining to organizing the activities of the
people in the organization. The organization chart is the
visual representation of underlying activities and processes
being undertaken by the organization. The principle
underlying the organization chart is that vertical linkages
primarily show control, while horizontal linkages indicate
coordination and collaboration.
Based on the manner in which the strategic plan is structured
and executed, organizations can be divided into three
organizational architectures. These are the strategic
planning, the financial control, and the strategic control
approaches.
Lesson End Activity

Hold a group discussion in a group of 5 members on various
approaches to strategy implementation.
Keywords
Behaviour Control: It is exercised by monitoring and
evaluating systems.
Financial Control: It refers to defining and agreeing to
specific financial parameters and laying down targets for a
number of measurable financial quantities.
Output Control: It is exercised by agreeing upon on targets 181

Notes
for the divisional and functional goals.
Strategic Control Approach: It is based on improving the
competitive capacity of the organization by providing a high
level of autonomy to the operating units.

1. Write a note on various approaches to implementation of
strategy.
2. What are the three types of strategic control?
3. What do you understand by virtual organizations?
4. Explain opportunity based designs.

5. Prepare the diagram of virtual organizations.
Further Readings
Books
Learning.
Web Readings
http://www.slideshare.net/birubiru/strategy-control-7038193
www.floridatechonline.com/.../strategic-management-
technology- inn.
Innovation
182
Notes
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UNIT 20: Case
Study
183
Unit 20 Notes
Case Study
Objectives
Case Study: Wal-Mart's Cost Leadership Strategy

By successfully adopting a cost leadership strategy over the
decades, Wal-Mart has emerged as the largest company (in
terms of revenues) in the world.
The case examines in-depth the key elements of the cost
leadership strategy followed by Wal-Mart. It discusses how
the cost leadership strategy generated above-average
returns for the company and acted as a defence against
competition in the industry.
Finally, the case discusses the plans and challenges faced
by Wal- Mart in early 2004.
For the financial year ending January 31, 2003, retailing
giant Wal-Mart reported revenues of $244.5 billion, making
it the world's largest company. The company topped
Fortune's list of the world's largest companies for the second
year in succession.
Considering the modest beginning of this company four
decades ago, nobody, including the company officials
expected Wal-Mart to emerge such a dominant player in the
retailing industry. Wal- Mart's success story is a classic
example of a company, which became successful by
rigorously pursuing its core philosophy of cost leadership,
right from the day it began operations in 1962. Wal-Mart
was founded by an ambitious entrepreneur, Sam Walton
(Walton), who figured out early that retailing, was a volume-
driven business, and his company could achieve success by
offering consumers better value for their money. Wal-Mart's
growth during the first two decades was propelled primarily
by following the strategy of establishing discount stores in
smaller towns and capturing significant market share.
The company was able to foster its growth in the 1980s by
making heavy investments in information technology (IT) to
manage its supply chain and by expanding business in
bigger metropolitan cities. In the late 1980s, when Wal-Mart
felt that the discount stores business was maturing, it
ventured into food retailing by introducing Supercentres.
In the late 1990s, Wal-Mart launched exclusive
groceries/drug stores known as "neighbourhood markets" in
the US. Though Wal-Mart had achieved huge success over
the decades, the company drew severe criticism from
industry analysts for its
Contd...
184 strategies that aimed at killing competition. At the speed at

Notes which Wal-Mart was growing, analysts feared that the
company would soon face an anti-trust suit2 for its
monopolistic practices. Christopher Hoyt, president of
Scottsdale, an Arizona-based supermarket store, Hoyt &
Company, said, "The only thing that could stop Wal-Mart is if
the government gets involved, just as it did with Microsoft."
On July 2, 1962, Samuel Moore Walton (Walton), a merchant
with over 15 years of experience in retailing, set up his first
discount store in Rogers, a small town in the state of
Arkansas, US. The store offered a wide variety of branded
merchandise at a competitive price.
During the initial years, Walton focused on establishing new
stores in small towns, with an average population of 5,000.
These towns were largely neglected by leading retailers like
Sears Roebuck & Company, K-Mart and Woolco, which
concentrated more on larger towns and big cities. In his
efforts to attract people from the rural areas to his stores,
Walton introduced the concept of everyday low prices
(EDLP).
EDLP promised Wal-Mart's customers a wide variety of high
quality, branded and unbranded products at the lowest
possible price, offering better value for their money. Wal-
Mart's advertisement describing EDLP said, "Because you
work hard for every dollar, you deserve the lowest price we
can offer every time you make a purchase. You deserve our
Every Day Low Price.
It's not a sale; it's a great price you can count on every day
to make your dollar go further at Wal-Mart."4 From the very
beginning, Walton made efforts to procure products at the
lowest prices possible from manufacturers.
He always shared these savings with customers by charging
them lower prices, thus giving them the maximum value for
their money. Wal-Mart's products were usually priced 20%
lower than those of its competitors. Walton's pricing strategy
led to increased loyalty from price-conscious rural
customers. It helped the company to generate more profits
due to larger volumes. Explaining his pricing strategy,
Walton said, "By cutting your price, you can boost your sales
to a point where you earn far more at the cheaper retail
price than you would have by selling the item at the higher
price. In retailer language, you can lower your mark-up but
earn more because of the increased volume."5 EDLP was
extremely attractive to rural customers and emerged as the
key contributor to Wal-Mart's growth over the years.
Achieving Cost Leadership
Offering products at EDLP, especially during its early years,
when Wal-Mart was not an established retail player, was
quite difficult. The company aggressively followed a cost
leadership strategy that involved developing economies of
scale and making consistent efforts to reduce costs.
The surplus generated was reinvested in building facilities of
an efficient scale, purchasing modern business-related
equipment
Contd...
UNIT 20: Case Study
and employing the latest technology. The reinvestments 185

made by the company helped it to maintain its cost Notes
leadership position.
From the start, Wal-Mart imposed a strict control on its
overhead costs. The stores were set up in large buildings,
while ensuring that the rent paid was minimal. The company
imposed an upper limit for its rent payment at $1.00 per
square foot during the late 1960s. Not much emphasis was
laid on the interiors of the stores. The company did not
invest on standardized ordering programs and on basic
facilities to sort and replenish the stock...
Wal-Mart in the 1990s
In the early 1990s, Wal-Mart started focusing on its
Supercenters and Sam's Clubs to fuel growth. Wal-Mart
expanded its operations into the Northeast and West of the
US by placing a lot of emphasis on the groceries business
through its Supercenters.
The modus operandi was to first establish discount stores,
after which the best performing stores were to be converted
into Supercenters.
By 1991, Wal-Mart's mammoth retail network comprised of
1,355 discount stores, 120 Sam's Clubs and three
Supercenters being served by 16 distribution centers.
However, at this time, Wal-Mart had yet to enter as many as
23 states in the US. In the early 1990s, it was estimated that
the size of the groceries business in the US was three times
that of the discount store business. So, Wal-Mart decided to
focus on Supercenters to propel its growth. Following
Walton's death in 1992, David Glass (Glass) succeeded him
as the CEO of Wal-Mart. Glass viewed food retailing as a key
driver to increase revenue growth in the 1990s.
The Growth Continues
By the beginning of the new millennium, Wal-Mart was one
of the world's largest companies, with revenues of $165
billion in fiscal 2000. Wal-Mart's rapid growth continued in
the initial years of the new millennium.
While continuing its aggressive expansion in the food
business, the company started launching innovative
programs to further penetrate the US markets. For instance,
in 2001, Wal-Mart launched a program, called 'Store of the
community.' Under the program, Wal-Mart began
remodelling its discount stores and Supercenters in the US
to fulfil the needs of customers they served, in line with
what the customers wanted. Explaining the program, Tom
Coughlin, President and CEO of Wal-Mart Stores Division,
said, "The one-size-fits-all concept simply doesn't work
anymore in the retail industry. Customers tell us what they
want and it is our responsibility to meet those needs. Our
store associates live and work in each store's community
and interact with over 100 million customers each week.
Plans and Challenges
Wal-Mart has chalked out an aggressive expansion plan to
accelerate its growth in the near future. By the fiscal year
ending 2007-08, Wal-Mart aims at achieving a revenue
target of $500 billion.
Contd...
186
ars. By 2008, Wal-Mart plans to open 1,000 Supercenters in the US. Analysts and media reports are expressing doubts as to whether Wal-Mart will b
Notes
Source: http://www.volunteeringaustralia.org/files/1E8H8EVUL8/Case%20Studies.pdf
UNIT 21: Strategic Control and Evaluation
187
Notes
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BLOCK-V
Innovation
188
Notes
UNIT 21: STRATEGIC CONTROL AND
F
UNIT 23: LIFE CYCLE APPROACH TO STRATEGIC
EVALUATION
___________________ PLANNING
 Introduction
 Introduction
___________________
 Strategic Control Process
 Arthur D. Little’s Life Cycle Approach
 ___________________
Strategic Evaluation Process
 Business Portfolio Balancing
___________________
UNIT 22: TOOLS FOR STRATEGIC PLANNING  Strategic Funds Programming
AND___________________
EVALUATION
UNIT 24: STRATEGIC MANAGEMENT OF
 Introduction
___________________ TECHNOLOGICAL INNOVATION
 Competitive Cost Dynamics
___________________  Introduction
 Learning Curve
 Strategic Management
___________________
 BCG Matrix
 Technological Innovation
 ___________________
SWOT Analysis
 Strategic Innovation
___________________
UNIT 25: CASE STUDY
UNIT 21: Strategic Control and
Evaluation
189
Unit 21 Notes
Activity
Visit an organization and prepare a presentation on the Strategic Control Process
Strategic Control and Evaluation

___________________
___________________
___________________
Objectives
following topics:
f Strategic Control Process

f Strategic Evaluation Process
Introduction
In order that the system should work effectively, credibility of
its leaders has to be maintained. For example, credibility may
arise from being a member of the peer group – this is why so
many seniors in professional service departments or
organizations are professional themselves. The software
industry – which is one of the country’s best growth
industries – reflects the values of such organizations.
Generally, the head of the department is competent enough
to undertake assignments personally as well as overseeing
the work of others.
The contribution of senior managers to this process is to
ensure that individuals have the channels to interact, and
that the social/cultural controls which this process of
interaction creates are properly regulated to avoid rigidities.
Senior managers have to be actively concerned with shaping
the context in which the members of the organization are
working so that the individuals remain highly motivated.
One of these key resources to maintain the channels of
interaction is likely to be information. The organization’s IT
strategy is a critical ingredient in this process of supporting
such individuals. The control through information technology
is being discussed separately.
Strategic Control Process

Strategic control involves tracking a strategy as its being
implemented. It's also concerned with detecting problems or
changes in the strategy and making necessary adjustments.
As a
190 manager, you tend to ask yourself questions, such as

Notes
whether the company is moving in the right direction, or
whether your assumptions about major trends and changes
in the company's environment are correct. Such questions
necessitate the establishment of strategic controls.
Different types of Strategic Control Systems are required to
effectively exercise control. Standard systems of controls are
generally classified into four types:
 Premise controls
 Implementation controls
 Strategic surveillance
 Special alert control
Premise Control
Every strategy is based on certain planning premises or
predictions. It highlights and identifies these and checks if
these are still valid as future events unfold. Premise control is
designed to check methodically and constantly whether the
premises on which a strategy is grounded on are still valid. If
you discover that an important premise is no longer valid, the
strategy may have to be changed. The sooner you recognize
and reject an invalid premise, the better. This is because the
strategy can be adjusted to reflect the reality.
It highlights and identifies these and checks if these are still
valid as future events unfold. The sooner these invalid
premises are detected, better are the chances of devising an
acceptable shift in the strategy. These premises can be from
environmental factors external to the organization. The firm
has little control on them, but they have a profound impact
on the success of strategy. These include:
 Rate of inflation
 Interest rates
 Legislations and regulations by government
 Demographic changes
 Social changes, etc.
Other industry factors external to the organization that set
are unique to the industry that should be considered include:
 Competitors 191
Notes
 New entrants
 Suppliers
 Substitutes
 Buyers
 Barriers to entry and exit, etc.

These premises may be major or minor; they are categorized
on the basis of their impact on the success of strategy. Since
tracking all premises is time consuming, short lists of
premises that have a significant effect on the implementation
of strategy are prepared. These are identified and recorded
and their monitoring responsibility is fixed. If these premises
are not in line with the assumptions made at the beginning,
adjustments to strategy, either operational or functional, may
become necessary.
Implementation Control
Implementing a strategy takes place as a series of steps,
activities, investments and acts that occur over a lengthy
period. As a manager, you'll mobilize resources, carry out
special projects and employ or reassign staff. Implementation
control is the type of strategic control that must be carried
out as events unfold. There are two types of implementation
controls: strategic thrusts or projects, and milestone reviews.
Strategic thrusts provide you with information that helps you
determine whether the overall strategy is shaping up as
planned. With milestone reviews, you monitor the progress of
the strategy at various intervals or milestones.
Implementation control serves the purpose of assessing
whether the overall strategy needs modification/changes in
the light of events unfolding and results accomplished. It is of
two types:
 Assessing Strategic Thrust, and
 Milestone Reviews
This information on the thrust of the strategy is used to point
out changes that may have to be incorporated in the
strategy. However, it is important to agree to the evaluation
of thrust points during the formulation of strategy itself. And
also agree to gate- keeping thresholds in terms of time, cost,
degree of progress of project, or/and success of a program.
These are major hold-points
192 for the overall strategy, and lack of progress or unforeseen

Notes
happenings at these checkpoints may even require
abandonment of the strategy.
Milestone review is a full-scale reassessment of the overall
strategy and is usually linked to:
 Critical events
 Stage of major allocation of resources
 Time frame.
Milestones are more effective if they are related to major
stages where uncertainty needs to be resolved. These
reviews may determine the need to continue or reinforce
strategy implementation.
Strategic Surveillance
Strategic surveillance, as the name implies, is intended to
monitor a very broad range of events inside and outside the
firm. The choice of the events is not pre-selected or pre-
planned. It is a general system of monitoring different
sources of information to uncover important but
unanticipated information that can have major impact on the
strategy. This is somewhat of a loose scanning activity. Trade
magazines, technical or industry conferences, business
newspapers, industry watchers, etc.; provide a wide range of
information.
Strategic surveillance is designed to observe a wide range of
events within and outside your organization that are likely to
affect the track of your organization's strategy. It's based on
the idea that you can uncover important yet unanticipated
information by monitoring multiple information sources. Such
sources include trade magazines, journals such as the Wall
Street Journal, trade conferences, conversations and
observations.
Special Alert Control

A special alert control is the rigorous and rapid reassessment
of an organization's strategy because of the occurrence of an
immediate, unforeseen event. An example of such event is
the acquisition of your competitor by an outsider. Such an
event will trigger an immediate and intense reassessment of
the firm's strategy. Form crisis teams to handle your
company's initial response to the unforeseen events. This
control is a subset of the other types of
controls. This is a rapid but thorough review of the entire 193

Notes
strategy in the light of sudden and unexpected events.
Unforeseen events trigger immediate reassessment of
strategy. Many firms have
‘crisis teams’ in place to respond and coordinate the
activities through the period of crisis. These reviews often
lead to contingency plans.
Controls can be generated either to focus on the actual
outputs or on the activities that generate the performance.
Output control specifies what is to be accomplished by
focusing on the end result of the behaviours through the use
of objectives and performance targets. Behaviour control
specifies how something is to be done through policies, rules,
standard operating procedures, etc. This type of control is
used when performance results are difficult to measure but
the cause-effect relationship between activities and results is
clear. Output control and behaviour control are not
interchangeable.
The process needs to be an ongoing and continuous process.
It provides, on a continuous basis, a clinical check up on the
progress of the business objectives in the near term Annual
Operating Plan and the long-term Strategic Plan. It
determines if the performance requirements are being met
within the timeframe. In addition, evaluation and control
process determines whether the results are meaningful and
whether they add to the goals of continuous improvement for
the organization and add real value to the customer.
Figure 21.1 shows the different components of the strategy
control process with a control system in place. The
relationship of the strategy control process with the strategy
of the organization is apparent. As will be seen from the
figure, the different components and the feedback loop is
cyclical and the different elements mesh into each other to
form two connected systems. One is the strategy
implementation system, and this is connected to the different
components of strategy which is the second system. The
control process is the connecting element.
194
Notes Mission and Goals
Activity
he Strategic Evaluation Process with a diagrammatic representation of your own.
___________________
External Analysis Opportunities and ThreatsStrategic ChoiceInternal Analysis Strengths and Weaknesses
___________________
___________________
Functional-level Strategy
Business-level Strategy
Corporate-level Strategy
Resource Allocation
Matching Strategy Structure/Controls
Managing Strategic Change

Designing Org Structure Designing Control Systems
Feedback
Figure 21.1: Control through the Planning Process
Check Your
Progress
Fill in the blanks:
1. Output control specifies what is to be
accomplished by focusing on the of the
behaviours.
2. Evaluation and control process determines
whether the results are meaningful for the
Strategic Evaluation Process

Strategic evaluation is as significant as strategy formulation
because it throws light on the efficiency and effectiveness of
the comprehensive plans in achieving the desired results.
The managers can also assess the appropriateness of the
current strategy in today’s dynamic world with socio-
economic, political and technological innovations. Strategic
evaluation is the final phase of strategic management.
The significance of strategy evaluation lies in its capacity to
co-ordinate the task performed by managers, groups,
departments etc., through control of performance. Strategic
evaluation is significant because of various factors such as -
developing inputs for new strategic planning, the urge for
feedback, appraisal and
reward, development of the strategic management process, 195

Notes
judging the validity of strategic choice etc.
The process of Strategy Evaluation consists of following steps:
Fixing Benchmark of Performance

While fixing the benchmark, strategists encounter questions
such as - what benchmarks to set, how to set them and how
to express them. In order to determine the benchmark
performance to be set, it is essential to discover the special
requirements for performing the main task. The performance
indicator that best identify and express the special
requirements might then be determined to be used for
evaluation. The organization can use both quantitative and
qualitative criteria for comprehensive assessment of
performance. Quantitative criteria include determination of
net profit, ROI, earning per share, cost of production, rate of
employee turnover etc. Among the Qualitative factors are
subjective evaluation of factors such as - skills and
competencies, risk taking potential, flexibility etc.
Measurement of Performance
The standard performance is a bench mark with which the
actual performance is to be compared. The reporting and
communication system help in measuring the performance. If
appropriate means are available for measuring the
performance and if the standards are set in the right manner,
strategy evaluation becomes easier. But various factors such
as managers’ contribution are difficult to measure. Similarly
divisional performance is sometimes difficult to measure as
compared to individual performance. Thus, variable
objectives must be created against which measurement of
performance can be done. The measurement must be done
at right time else evaluation will not meet its purpose. For
measuring the performance, financial statements like -
balance sheet, profit and loss account must be prepared on
an annual basis.
Analysing Variance
While measuring the actual performance and comparing it
with standard performance there may be variances which
must be analysed. The strategists must mention the degree
of tolerance limits between which the variance between
actual and standard performance may be accepted. The
positive deviation indicates a better performance but it is
quite unusual exceeding the target
196 always. The negative deviation is an issue of concern

Notes
because it indicates a shortfall in performance. Thus in this
case the strategists must discover the causes of deviation
and must take corrective action to overcome it.
Taking Corrective Action

Once the deviation in performance is identified, it is essential
to plan for a corrective action. If the performance is
consistently less than the desired performance, the
strategists must carry a detailed analysis of the factors
responsible for such performance. If the strategists discover
that the organizational potential does not match with the
performance requirements, then the standards must be
lowered. Another rare and drastic corrective action is
reformulating the strategy which requires going back to the
process of strategic management, reframing of plans
according to new resource allocation trend and consequent
means going to the beginning point of strategic management
process.
Check Your
Progress
Fill in the blanks:
1. Strategic ………………… is the final phase of
strategic management.
2. Strategic evaluation is as significant as strategy
………………….
Summary
There are many kinds of strategic control systems. The
evaluation and control process is designed to ensure that the
organization is achieving its goals and objectives. The
Evaluation Process is the early warning system for the
organization. The objective of the activities of the
organization is to implement the critical success factors
which identify the levels of performance needed to
outperform competition, to measure corporate performance
as well as implement the appropriate strategy. Performance
is the end result of activities. The organization has to develop
a system of measurement of outputs through a series of
agreed Performance Indicators (PIs).
Strategic control approach is based on providing a high level
of autonomy to the operating units. It is basically a hands-off
organizational strategy with control systems to monitor and
evaluate the performance of the business unit. Strategic 197

Notes
control architecture, therefore, is not single stereotype
architecture, but a set of organizational structures that
bridge all of the space between strategic planning and
financial control.
Lesson End Activity

Prepare a presentation on strategic control vs. strategic evaluation.
Keywords
Behaviour Control: Behaviour Control specifies how
something is to be done through policies, rules, standard
operating procedures, etc.
Evaluation and Control Process: The Evaluation and
Control Process is a process designed to ensure that the
organization is achieving its goals and objectives. It compares
performance with the desired results and provides the
management with a feedback to evaluate results and take
the necessary corrective action.
Output Control: Output Control specifies what is to be
accomplished by focusing on the end result of the behaviours
through the use of objectives and performance targets.

1. Write a brief note on strategic control.
2. Briefly describe strategic evaluation.
3. What are the steps involved in strategic control process?
4. What do you understand by analysing variance
while evaluating strategies?
5. Discuss the steps involved in strategic evaluation process.
Further Readings
Books
Learning.
198 Dicke Wilhelmina Margaretha (2005), “Managing Technology and

Notes
Web Readings
http://smallbusiness.chron.com/four-types-strategic-
control- 14720.html
http://www.managementstudyguide.com/strategy-evaluation.htm
UNIT 22: Tools for Strategic Planning and
Evaluation
199
Unit 22 Notes
Activity
Draft an article for a magazine on competitive cost dynamics.
Tools for Strategic Planning
___________________
___________________
and Evaluation
Objectives
following topics:
f Competitive Cost Dynamics

f Learning Curve
f BCG Matrix
f SWOT Analysis
Introduction
Continuous Improvement Plan provides a structural program
for identifying root causes to problems and the best solution
to help eliminate the problem. It's formatted for use by "your
quality tiger team" leader with step-by-step slides to make
for easy implementation.
Strengths and Weakness Analysis clearly defines current
strengths and weaknesses of a company providing solid
information upon which to base strategic decisions. It helps a
company to define new business opportunities which may not
otherwise have surfaced.
Competitive Cost Dynamics

This strategy emphasizes efficiency. By producing high
volumes of standardized products, the firm hopes to take
advantage of economies of scale and experience curve
effects. The product is often a basic no-frills product that is
produced at a relatively low cost and made available to a
very large customer base. Maintaining this strategy requires
a continuous search for cost reductions in all aspects of the
business. The associated distribution strategy is to obtain the
most extensive distribution possible. Promotional strategy
often involves trying to make a virtue out of low cost product
features.
200 To be successful, this strategy usually requires a

Notes
considerable market share advantage or preferential access
to raw materials, components, labour, or some other
important input. Without one or more of these advantages,
the strategy can easily be mimicked by competitors.
Successful implementation also benefits from:
 Process engineering skills
 Products designed for ease of manufacture
 Sustained access to inexpensive capital
 Close supervision of labour
 Tight cost control
 Incentives based on quantitative targets.
Always ensure that the costs are kept at the minimum
possible level.
Examples include low-cost airlines such as EasyJet and
Southwest Airlines, and supermarkets such as KwikSave.
"Achieving a sustainable competitive advantage in the IT
industry through hybrid business strategy: A contemporary
perspective" – Tharinda Jagathsiri MBA, University of East
London.
When a firm designs, produces and markets a product more
efficiently than competitors such firm has implemented a
cost dynamics strategy. Cost reduction strategies across the
activity cost chain will represent low cost dynamics. Attempts
to reduce costs will spread through the whole business
process from manufacturing to the final stage of selling the
product. Any processes that do not contribute towards
minimization of cost base should be outsourced to other
organisations with the view of maintaining a low cost base.
Low costs will permit a firm to sell relatively standardised
products that offer features acceptable to many customers at
the lowest competitive price and such low prices will gain
competitive advantage and increase market share. These
writings explain that cost efficiency gained in the whole
process will enable a firm to mark up a price lower than
competition which ultimately results in high sales since
competition could not match such a low cost base. If the low
cost base could be maintained for longer periods of time it
will ensure consistent increase in market share and stable
profits hence consequent in superior performance. However
all writings direct us to the understanding that
sustainability of the
UNIT 22: Tools for Strategic Planning and Evaluation
competitive advantage reached through low cost strategy will 201

Notes
depend on the ability of a competitor to match or develop a
lower cost base than the existing cost leader in the market.
A firm attempts to maintain a low cost base by controlling
production costs, increasing their capacity utilization,
controlling material supply or product distribution and
minimizing other costs including R&D and advertising. Mass
production, mass distribution, economies of scale,
technology, product design, learning curve benefit, work
force dedicated for low cost production, reduced sales force,
less spending on marketing will further help a firm to main a
low cost base.
Decision makers in a cost dynamics firm will be compelled to
closely scrutinise the cost efficiency of the processes of the
firm. Maintaining the low cost base will become the primary
determinant of the cost dynamics strategy. For low cost
dynamics to be effective a firm should have a large market
share. New entrants or firms with a smaller market share
may not benefit from such strategy since mass production,
mass distribution and economies of scale will not make an
impact on such firms. Low cost dynamics becomes a viable
strategy only for larger firms. Market leaders may strengthen
their positioning by advantages attained through scale and
experience in a low cost dynamics strategy. But is there any
superiority in low cost strategy than other strategic
typologies? Can a firm that adopts a low cost strategy
outperform another firm with a different competitive
strategy? If firms costs are low enough it may be profitable
even in a highly competitive scenario hence it becomes a
defensive mechanism against competitors.
Further they mention that such low cost may act as entry
barriers since new entrants require huge capital to produce
goods or services at the same or lesser price than a cost
leader. The academic framework of competitive advantage
raising barriers for competition wills consequent in
sustainable competitive advantage and in consolidation with
the above writings we may establish the fact that low cost
competitive strategy may generate a sustainable competitive
advantage.
Further in consideration of factors mentioned above that
facilitate a firm in maintaining a low cost base; some factors
such as technology which may be developed through
innovation and some may even be resources developed by a
firm such as long-term
202 healthy relationships build with distributors to maintain cost

Notes effective distribution channels or supply chains (inimitable,
Activity
how on the learning___________________ unique,
curve of an established organization valuable
in technology sector. non-transferable resource). Similarly
economies of scale may be an ultimate result of a
___________________
commitment made by a firm such as capital investments for
___________________ expansions. Also raising barriers for competition by virtue of
the low cost base that enables the low prices will result in
strong strategic positioning in the market. These significant
strengths align with the four perspectives of sustainable
competitive advantage mentioned in the early parts of this
literature review. Low cost dynamics could be considered as
a competitive strategy that will create a sustainable
competitive advantage.
However, low cost dynamics is attached to a disadvantage
which is fewer customers. Relatively low prices will result in
creating a negative attitude towards the quality of the
product in the mind- set of the customers. Customer's
impression regarding such products will enhance the
tendency to shift towards a product which might be higher in
price but projects an image of quality. Considering analytical
in depth view regarding the low cost strategy, it reflects
capability to generate a competitive advantage but
development and maintenance of a low cost base becomes a
vital, decisive task.
Check Your
Progress
Fill in the blanks:
1. Low cost dynamics could be considered as a
……………
strategy that will create a sustainable competitive
advantage.
2. Cost ………………… strategies across the activity
Learning Curve
The learning curve effect and the closely related experience
curve effect express the relationship between experience and
efficiency. As individuals and/or organizations get more
experienced at a task, they usually become more efficient at
it. Both concepts originate in the adage, "practice makes
perfect", and both concepts are opposite to the popular
misapprehension that a "steep" learning curve means that
something is hard to learn. In fact, a "steep" learning curve
implies that something gets easier quickly.
The term "learning curve" was introduced by the 19th- 203

Notes
century German psychologist Hermann Ebbinghaus in the
context of the efficiency of memorizing vs. the number of
repetitions.
Later the term acquired a broader meaning. The learning
curve effect states that the more times a task have been
performed, the less time will be required on each subsequent
iteration. This relationship was probably first quantified in
1936 at Wright- Patterson Air Force Base in the United States,
where it was determined that every time total aircraft
production doubled, the required labour time decreased by
10 to 15 per cent. Subsequent empirical studies from other
industries have yielded different values ranging from only a
couple of per cent up to 30 per cent, but in most cases it is a
constant percentage: It did not vary at different scales of
operation. Learning curve theory states that as the quantity
of items produced doubles, costs decrease at a predictable
rate. This predictable rate is described by Equations 1 and 2.
The equations have the same equation form. The two
equations differ only in the definition of the Y term, but this
difference can make a significant difference in the outcome
of an estimate.
1. The following equation 1 describes the basis for what is
called the unit curve. In this equation, Y represents the
cost of a specified unit in a production run. For example,
if a production run has generated 200 units, the total cost
can be derived by taking the equation below and
applying it 200 times (for units
1 to 200) and then summing the 200 values. This is
cumbersome and requires the use of a computer or
published tables of predetermined values.
log2 b[
Y x = Kx …(1)
2]
where,
K is the number of direct labour hours to produce the first
unit Yx is the number of direct labour hours to produce
the xth unit x is the unit number

b is the learning percentage
2. The following equation 2 describes the basis for the
cumulative average or cum average curve. In this
equation, Y represents the average cost of different
quantities (X) of units. The significance of the "cum" in
cum average is that the average
204 costs are computed for X cumulative units. Therefore, the

Notes total cost for
X units is the product of X times the cum
Activity
Draw BCG matrix___________________ average cost.
for Apple Inc. and present it in the class. For example, to compute the total costs of
units 1 to 200, an analyst could compute the cumulative
___________________
average cost of unit 200 and multiply this value by 200.
This is a much easier calculation than in the case of the
unit curve.
1
1+log 2 b
1 + log2 b x
Y=
x K
where,
x …(2)
K is the number of direct labour hours to produce the first
unit Yx is the average number of direct labour hours to
produce
First xth units
x is the unit
number
b is the learning percentage
Check Your
Progress
Fill in the blanks:
1. The learning curve effect states that the
…………………
times a task has been performed, the …………………
time will be required on each subsequent iteration.
2. The learning curve effect and the closely related
experience curve effect express the relationship
between ………………… and ………………….
BCG Matrix
Boston Consulting Group (BCG) Matrix is a four celled matrix
(a 2 × 2 matrix) developed by BCG, USA. It is the most
renowned corporate portfolio analysis tool. It provides a
graphic representation for an organization to examine
different businesses in it’s portfolio on the basis of their
related market share and industry growth rates. It is a two
dimensional analysis on management of SBU’s (Strategic
Business Units). In other words, it is a comparative analysis of
business potential and the evaluation of environment.
According to this matrix, business could be classified as high
or low according to their industry growth rate and relative
market share.
Relative Market Share = SBU Sales this year leading 205

Notes
competitors sales this year.
Market Growth Rate = Industry sales this year - Industry
Sales last year.
The analysis requires that both measures be calculated for
each SBU. The dimension of business strength, relative
market share, will measure comparative advantage indicated
by market dominance. The key theory underlying this is
existence of an experience curve and that market share is
achieved due to overall cost leadership.
BCG matrix has four cells, with the horizontal axis
representing relative market share and the vertical axis
denoting market growth rate. The mid-point of relative
market share is set at 1.0. if all the SBU’s are in same
industry, the average growth rate of the industry is used.
While, if all the SBU’s are located in different industries, then
the mid-point is set at the growth rate for the economy.
Resources are allocated to the business units according to
their situation on the grid. The four cells of this matrix have
been called as stars, cash cows, question marks and dogs.
Each of these cells represents a particular type of business.
Figure 22.1: BCG Matrix
1. Stars: Stars represent business units having large

market share in a fast growing industry. They may
generate cash but because of fast growing market, stars
require huge
206 investments to maintain their lead. Net cash flow is

Notes
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 represent 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 loose 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, and 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 are fewer
prospects for it to gain market share. Number of dogs
should be avoided and minimized in an organization.
Limitations of BCG Matrix 207
Notes
Activity
The BCG Matrix produces a framework for allocating
Pick an organization of your choice in technology sector and prepare its SW
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:
___________________
 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.
 Market is not clearly defined in this model.
 High market share does not always leads to high profits.
There are high costs also involved with high market
share.
 Growth rate and relative market share are not the only
indicators of profitability. This model ignores and
overlooks other indicators of profitability.
 At times, dogs may help other businesses in gaining
competitive advantage. They can earn even more than
cash cows sometimes.
 This four-celled approach is considered as to be too simplistic.
Check Your
Progress
Fill in the blanks:
1. When cash cows loose their appeal and move
towards deterioration, then a. policy may be
pursued.
2.....................are generally new goods and services
SWOT Analysis
SWOT is an acronym for Strengths, Weaknesses,
Opportunities and Threats. By definition, Strengths (S) and
Weaknesses (W) are considered to be internal factors over
which you have some measure of control. Also, by definition,
Opportunities (O) and Threats (T) are considered to be
external factors over which you have essentially no control.
SWOT Analysis is the most renowned tool for audit and
analysis of the overall strategic position of the business and
its environment. Its key purpose is to identify the strategies
that will create a firm specific business model that will best
align an organization’s
208 resources and capabilities to the requirements of the

Notes
environment in which the firm operates. In other words, it is
the foundation for evaluating the internal potential and
limitations and the probable/likely opportunities and threats
from the external environment. It views all positive and
negative factors inside and outside the firm that affect the
success. A consistent study of the environment in which the
firm operates helps in forecasting/predicting the changing
trends and also helps in including them in the decision-
making process of the organization.
An overview of the four factors (Strengths, Weaknesses,
Opportunities and Threats) is given below:
Strengths
Strengths are the qualities that enable us to accomplish the
organization’s mission. These are the basis on which
continued success can be made and continued/sustained.
Strengths can be either tangible or intangible. These are
what you are well-versed in or what you have expertise in,
the traits and qualities your employees possess (individually
and as a team) and the distinct features that give your
organization its consistency. Strengths are the beneficial
aspects of the organization or the capabilities of an
organization, which includes human competencies, process
capabilities, financial resources, products and services,
customer goodwill and brand loyalty. Examples of
organizational strengths are huge financial resources, broad
product line, no debt, committed employees, etc.
Weaknesses
Weaknesses are the qualities that prevent us from
accomplishing our mission and achieving our full potential.
These weaknesses deteriorate influences on the
organizational success and growth. Weaknesses are the
factors which do not meet the standards we feel they should
meet. Weaknesses in an organization may be depreciating
machinery, insufficient research and development facilities,
narrow product range, poor decision-making, etc.
Weaknesses are controllable. They must be minimized and
eliminated. For instance - to overcome obsolete machinery,
new machinery can be purchased. Other examples of
organizational weaknesses are huge debts, high employee
turnover, complex decision making process, narrow product
range, large wastage of raw materials, etc.
Opportunities 209
Notes
Opportunities are presented by the environment within which
our organization operates. These arise when an organization
can take benefit of conditions in its environment to plan and
execute strategies that enable it to become more profitable.
Organizations can gain competitive advantage by making use
of opportunities. Organization should be careful and
recognize the opportunities and grasp them whenever they
arise. Selecting the targets will best serve the clients while
getting desired results is a difficult task. Opportunities may
arise from market, competition, industry/government and
technology. Increasing demand for telecommunications
accompanied by deregulation is a great opportunity for new
firms to enter telecom sector and compete with existing firms
for revenue.
Threats
Threats arise when conditions in external environment
jeopardize the reliability and profitability of the organization’s
business. They compound the vulnerability when they relate
to the weaknesses. Threats are uncontrollable. When a threat
comes, the stability and survival can be at stake. Examples of
threats are - unrest among employees; ever changing
technology; increasing competition leading to excess
capacity, price wars and reducing industry profits; etc.
Check Your
Progress
Fill in the blanks:
1................................. can be either tangible or intangible.
2. Opportunities are presented by the ……………………

within which our organization operates.
Summary
The starting place of strategy evaluation is the strategic
analysis of the organization.
New deflationary pressures are facing businesses today,
which are squeezing profit margins and the availability of
capital for investment. Indeed, many management thinkers
question whether existing business models are sustainable,
and if there is a need to develop new business models to face
the situation.
210 SWOT Analysis is the most renowned tool for audit and
Notes
analysis of the overall strategic position of the business and
its environment. A consistent study of the environment in
which the firm operates helps in forecasting/predicting the
changing trends and also helps in including them in the
decision-making process of the organization.
Lesson End Activity

Make two groups of four students each and prepare SWOT
analysis of two organizations in the same sector, one for
each group and them compare the SWOT analysis.
Keywords
Cash Cow: A cash cow is a business venture which
generates a steady return of profits which far exceed the
outlay of cash required to acquire or start it.
Opportunities: Opportunities are presented by the
environment within which our organization operates.
Strengths: Strengths are the qualities that enable us to
accomplish the organization’s mission.
Threats: Threats arise when conditions in external
environment jeopardize the reliability and profitability of the
organization’s business.
Weaknesses: Weaknesses are the qualities that prevent us
from accomplishing our mission and achieving our full
potential.

1. What is the effect of low cost strategy on the sale of a
firm’s products?
2. Discuss the negative impact of low cost dynamics.
3. Explain learning curve in detail.
4. Draw and explain each component of BCG matrix.
5. What do you understand by SWOT analysis?
211
Further Readings Notes
Books
Learning.
Dicke.Wilhelmina Margaretha (2005), “Managing Technology
Web Readings
http://www.managementstudyguide.com/bcg-
matrix.htm
http://www.managementstudyguide.com/swot-
analysis.htm
Innovation
212
Notes
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
UNIT 23: Life Cycle Approach to Strategic
Planning
213
Unit 23 Notes
Life Cycle Approach to

Strategic Planning
Objectives
following topics:
f Arthur D. Little’s Life Cycle Approach

f Business Portfolio Balancing
f Strategic Funds Programming
Introduction
Formal planning and evaluation processes can play an
important part in organizations which develop and select
strategies through these fragmented, incremental processes.
They can be an important influence to insure that best
practice is communicated through the various parts of the
organization, and communicating the wider organizational
context to their 'local' decision makers. Planning can be
about changing minds, not just making plans.
In some organizations, especially in family managed business
houses or the visionary type organizations the dominant
process for the selection of strategies is command. The
decision is taken at the highest level with involvement/advice
from the organization to varying degrees. The efforts of those
involved in formal evaluation are concerned to ensure that
selections made through command process are well
informed. It is important that, if strategies are selected in this
way, they have some completeness and are workable in
practice.
Without some detailed substance in terms of specific
strategic choices development directions and methods, the
vision and intentions are not a basis on which strategy
selection should proceed. The role of formal planning in these
circumstances is to devise useful means of raising the level
of debate among the decision-makers during the selection
process.
The pace of change, today, is unrelenting. It has created
challenges, ranging from direct threats like increased
competition
214 to technological discontinuities. Organizations that have to

Notes maintain or improve their position in the marketplace
and
Activity
d out some more facts create
about Arthur D. Little’s Life Cycle
___________________ competitive
Approach and prepare a advantage
small report. for themselves will find
that
well thought out strategies will play an increasingly important
___________________
role in the future. They will have to move towards a style of
___________________ management that closely resembles a planned approach.
Arthur D. Little’s Life Cycle Approach

Strategy selection is a complex process. Strategy will be
driven by the perception of the challenges and opportunities
facing the organization, and our strategic response to them.
Choice of strategies will depend on the relationship between
the company and its competitive environment; allocation of
resources among competing investment opportunities; and
committing resources – often long-term – needed to realize
these opportunities.
Notwithstanding the complexity of the process of strategic
choice, the organization cannot live in a vacuum; it has to
choose its strategies so that it can survive in the
marketplace. Once strategy formulation is undertaken by the
organization, it needs to evaluate the strategic options it can
exercise. In assessing strategies, there are three types of
evaluation criteria that can be used.
 Suitability
 Acceptability
 Feasibility
Assessing Suitability
Assessing the suitability of strategic options is the starting
point of the selection process. On the basis of the results of
the exercise, a more detailed analysis concerning the
acceptability and feasibility of these options can be
undertaken.
It addresses the concern that under what circumstances of
the organization and its strategic intent, does the strategy
bring the results that it is looking for. There are a number of
analytic techniques that can be used to bring in clarity.
As shown in Figure 23.1, the different techniques that have
been identified provide answers for different points of view.
Life Cycle Analysis examines the stage of development of the
products; Portfolio Analysis examines the ability of the
strategy to
UNIT 23: Life Cycle Approach to Strategic Planning
strengthen the balance of activities; the Business Profile 215

Notes
examines the financial performance; Positioning tells the
organization whether or not the position is viable; and Value
Chain Analysis provides information whether or not the
strategy improves the value for money and exploits the core
competencies of the organization. An organization can use all
or a combination of some of these techniques described
above.
rtfolio Analysis Does it strengthen the balance of activities?

Suitability Business
Is this a good Profile Will it lead to good financial performance?
strategy?
Value Chain Analysis Does it improve value for money?

Life Cycle Analysis Does it fitDoes it exploit
the stage core
we will becompetencies?
in? Positioning
Is the positioning viable?
Figure 23.1: Testing Suitability
Life Cycle
Analysis
One of the tools described in this unit is the Product Life
Cycle Model. The product life cycle model is a representation
of life stage of a product. Based on the life stage of the
product the organization can decide the type of strategy it
would like to follow for the product.
Table 23.1 describes the relationship between the stage of
the product's life and its market position. This is called the
Life Cycle- Portfolio matrix. The market status is defined by
its competitive position. This has been broken up into five
categories ranging from dominant to weak. The product
development stage has been classified as embryonic, growth,
mature and aging. The purpose of the matrix is to establish
the appropriateness of particular strategies in relation to the
two dimensions. It shows the likely or suitable strategies that
can be used, depending upon the life cycle position of the
product.
216 The position of the product within the life cycle is normally
Notes
determined by eight external factors; market growth rate;
growth potential; breadth of product lines; number of
competitors; spread of market share between these
competitors; customer loyalty, entry barriers and technology.
Table 23.1: Life Cycle-Portfolio Matrix by Arthur D. Little
STAGES OF INDUSTRY MATURITY

Embryonic Growth Mature Ageing
Fast Fast Grow Defend Defend
Grow Cost Positio Positio
Dominant Start-up Leadership n Cost n Focus
Renew Leadership Renew
Defend Renew Grow
Positio Fast Grow
n
Differentiat Fast Grow Cost Find
e Fast Grow Catch-up Leadership Nich
Strong Start-up Differentiat Renew e
e Cost Focus Hold
Leadership Differentiat Nich
e e
Grow Grow
Harvest
Differentiate Catch-up Harvest; Retrenc
Fast Grow Differentiate Hang-in; h Turn
Focus Focus Find Niche; around
Favorable Start-up Grow Hold Niche;
Renew; Turn
around;
Focus;
Differentiate
;
Grow
Focus Harvest Harvest Divest
Start- ; Hang- Find Niche Retrenc
up in h
Grow Find Niche; Turn around
Tenable Hold Niche; Retrench
Catch-up
Turn
around;
Focus
Differentiate
;
Grow
Find Niche Turn around Withdraw Withdraw
Weak Turn around Retrench Divest
Grow
The competitive position of the organization within its

industry can also be established by looking at the
characteristics of each category. Few organizations are in a
dominant position in an industry, unless they are state
monopolies. For example, the State Trading Corporation and
the Mines & Minerals Trading Corporation were set up by the
Government of India in the early sixties to give the
Government better control over foreign exchange. Even now,
Oil & Natural Gas Corporation (ONGC) has virtual monopoly in
the exploration sector. Normally, dominant
businesses are controlled by the State under the monopolies 217

Notes
prevention legislations. However, in specific products it is
possible for an organization to be in a dominant position.
Strong organizations are those that are in a position to follow
strategies without feeling threatened by competition. An
organization is in a favourable position where no single
competitor stands out, but where the company is better
placed than most. Tenable and weak competitive position
indicates either the organization is maintained by
specialization or will find it difficult to survive independently
in the long run.
Positioning
Positioning is a basic proposition promoted by Michael Porter
in determining the generic strategies for competitive
advantage. So assessing whether the existing and future
positioning is viable can be done by asking whether demand
is likely to grow or decline. For example, the quality of the
resources and the uniqueness of the competencies are the
basic features that determine the ability and suitability of a
positioning the product or service using a strategy of
differentiation. The extent to which the organization is
capable of supporting a particular positioning can be
determined by using the format given as Table 23.2.
The first step in the analysis on the suitability of the
positioning strategy of the organization is to list out the key
resources and competencies underpinning the strategy. In
order to complete the first step, you need to fill in column A
in the table.
Table 23.2: Assessing the Suitability of a Strategy
A B1 B2 C
Resources & Which of these Which will be sustainable/
Competencie Resources/ difficult to Imitate
s
underpinnin Competencies is
g
Strategy likely to create
Cost Added
Reductio Value in
n
terms of
Needs
perceived
by
Customer
s
Value Rare Comple Tacit
d x
218 These are then scored against two important competencies

Notes
of the firm. These competencies, 'cost reduction' and 'value
added' have a significant impact on the outcome. In the table
above, these are given in columns B1 and B2. We need to ask
the question whether each of the competencies identified in
A strengthens cost reduction or adds to the perceived value.
A score is given on a scale of 1 to 5. For example, the in-
house R&D activities may be the source of significant cost
reductions and unique product features valued by the
customers. It would, then, score highly both in columns B1 as
well as B2.
Finally, the analysis requires re-examining each of the
resources and competencies to establish whether it is
sustainable and/or difficult to imitate. Unique resources and
core competencies are sources of competitive advantage.
The criteria used to judge the competitive advantage through
the resources and competencies include: whether it is valued
by the consumers; whether it is rare; is it complex to
replicate; and whether it is embedded in the tacit knowledge
of the organization.
Generally speaking, few resources and competencies are
difficult to imitate. Most often, competitive advantage may
not come directly from specific resources and competencies
but on the ability of the organization to manage linkages
between the separate activities. However, assessing the
relationship between the generic product/market strategy
and the strategic capability of the organization is useful in
preparing resource plans for the strategy and in identifying
its critical success factors.
Assessing Acceptability
Life cycle approaches must suit the requirements of all
relevant stakeholders, particularly also including those from
developing countries. There is a need to strengthen the
implementation of the related policies, and there is a need to
reach out to those who are still unfamiliar to the issues.
Capacity building, training and information are key for
making our current consumption and production patterns
more sustainable. Both capacity building and training have to
provide important contributions in order to achieve this
ambitious aim. In every stage of its life cycle, products
interact with other systems: life cycles are therefore called
open cycles. In order to make a product, substances, energy,
labour, technology and money are required, while other
substances
are emitted to the environment. Products can interact with 219

Notes
the environmental (extraction or addition of substances, land
use), economic (the cost to produce a product, implement
technology, the profit to sell) and social domain. The relations
between the environmental, economic and social domains
are quite dynamic. The implementation of cleaner technology
will decrease the pollution of the environment, but might
increase the cost to make that product, at least in short term.
Assessing Flexibility
In a life cycle economy, all decisions are made based upon an
analysis of its consequences on the total life cycle, including
the environmental, economic and social domains. In a life
cycle economy, a company that wants to design a new
product will analyse the consequences of its proposal in a
broad range of issues, including the environment, the
company costs, and the benefits for the local economy where
the production will take place, the social workers rights, and
so on. A proposal will be implemented if it has a good balance
between its positive and negative effects. Life cycle
approaches are used to assess this proposal; they are the
tools, programs, and procedures to help making such life
cycle based decisions. To achieve a life cycle economy, a
change in attitude/ mentality is required, from one-phased
thinking to system thinking. Being able to oversee the entire
life cycle of a product, the use of a life cycle approach gives
the potential to optimise the effects of improvements. By
making adjustments in that part of the life cycle where
intervening is relatively cheap, the costs of environmental
improvements can be minimised. For example, it can be
cheaper to redesign a product to make it better fit for
recycling, then to invest in the improvement of recycling
methods. In this way, better design for recycling will reduce
both the environmental and economic costs of recycling.
Check Your
Progress
Fill in the blanks:
1. Positioning is a basic proposition in determining
the generic strategies for.................advantage.
2. Few resources and competenciesare difficult to
…………………….
220
Business Portfolio Balancing
Notes
Activity A number
of techniques have been developed for displaying
Prepare a presentation on Business Portfolio Balancing.
___________________
a diversified organization's operations as a portfolio of
___________________ businesses. The techniques provide simple frameworks for
reviewing the performance of multiple Strategic Business
Units (SBUs') collectively. An SBU is a business that can be
planned separately
from others, has its own set of Competitors, and is managed
as a Profit Centre. Techniques of portfolio analysis have their
greatest applicability in developing strategy at the corporate
level. It charts and characterizes the different businesses in
the organization's portfolio and helps in determining the
implications for resource allocation.
A business portfolio is the collection of Strategic Business
Units (SBU) that makes up a corporation. The optimal
business portfolio is one that fits perfectly to the company's
strengths and helps to exploit the most attractive industries
or markets. A SBU can either be an entire mid-size company
or a division of a large corporation. It normally formulates its
own business level strategy and often has separate
objectives from the parent company.
The aim of a portfolio analysis is:
 Analyse its current business portfolio and decide which
SBUs should receive more or less investment,
 Develop growth strategies for adding new products and
businesses to the portfolio, and
 Decide which businesses or products should no longer be
retained.
The basis for many of these matrix analyses grew out of work
carried out in the 1960s by the Boston Consulting Group
(BCG). BCG observed in many of their studies that producers
tend to become increasingly efficient as they gain experience
in making their product and costs usually declined with
cumulative production. They came up with a hypothesis to
explain how an organization with the highest market share in
the industry generally will have the greatest accumulated
volume of production and therefore the lowest cost relative
to other producers in the market.
Techniques of business portfolio balancing have their
greatest applicability in developing strategy at the corporate
level. It charts
and characterizes the different businesses in the 221

organization's portfolio and helps in determining the Notes
Activity
implications for resource allocation.
Visit aThe Boston
reputed Consulting
and financially sound organization and find out how do they strategize their
___________________
Group Matrix (BCG Matrix) is the best-known portfolio
___________________
planning framework. The GE/Mckinsey Business screen is
another well- known portfolio framework, but it is a more ___________________
complex version of the BCG matrix. The aim of these
techniques is to develop growth strategies for adding new
products and businesses to the portfolio, and decide which
businesses or products should no longer be retained.
Check Your
Progress
Fill in the blanks:
1. A business portfolio is the collection of Strategic
Business Units (SBU) that makes up a
………………….
2. …………………… of business portfolio balancing
have their greatest applicability in developing
Strategic Funds Programming

Funds are used to maintain (1) the same level of production
or services, (2) the organization’s “market share,” or (3) a
specified, ongoing rate of growth.
Strategic funds are invested in the new programs required to
meet the organization’s goals and objectives. They are used
to purchase new assets, such as equipment, facilities, and
inventory; to increase working capital; and to support direct
expenses for research and development, marketing,
advertising and promotion. In the private sector, strategic
funds are also used for mergers, acquisitions and market
development. A market penetration strategy, for example,
may call for a more intensive investment of funds in the
current business. A market expansion strategy usually
requires aggressive use of strategic funds for advertising and
promotion. A company must use strategic funds to produce
more diverse products or services and to develop new
markets for them.
The programming of strategic funds begins with the
identification of basic organizational units (program or budget
units) and the formulation of goals and objectives for these
units. The total amount of strategic funds available to the
organization can be
222 determined by subtracting baseline funds from total assets

Notes
(revenue or appropriation). Strategies must be formulated to
carry out the goals and objectives of each unit. Once
estimates have been made as to the funds required for each
strategy, they can be ranked according to their potential
contribution to the achievement of the identified goals and
objectives. In undertaking this ranking, the kinds of strategic
funds available and the level of risk involved must be taken
into account.
The available strategic funds should be allocated to each
program according to some set of priorities. Key decision
points concerning risk and return are encountered (1) when
funds available from internal sources have been fully
consumed, and (2) when readily available credit sources have
been exhausted. At this point, proposed strategies must be
evaluated in terms of changes required in the financial
structure of the organization. The final step is to establish a
management control structure to monitor the generation and
application of funds to achieve the desired results.
The programming of strategic funds simply identifies feasible
options under different fiscal assumptions. A further
assessment or risk and return on investment must be made
before the final option is chosen.
Check Your
Progress
Fill in the blanks:
1. Strategic funds are invested in the new programs
required to meet the organization’s
and
………………….
2. A market.............................strategy usually requires
aggressive use of strategic funds for advertising and
Summary
Different techniques that have been identified provide
answers for different points of view. Life Cycle Analysis
examines the stage of development of the products; Portfolio
Analysis examines the ability of the strategy to strengthen
the balance of activities; the Business Profile examines the
financial performance; Positioning tells the organization
whether or not the position is viable; and Value Chain
Analysis provides information whether or not the
strategy improves the value for money and exploits the core 223
Notes
competencies of the organization.
Positioning is a basic proposition in determining the generic
strategies for competitive advantage. Gap analysis is a useful
technique that can be used to identify the extent to which
the existing strategies will fail to meet the performance
objectives in the future. Screening options basically are
concerned with the relative merits between different
strategies.
The Life Cycle-Portfolio matrix depicts the relationship
between the stage of the product's life and its market
position. The purpose of the matrix is to establish the
appropriateness of particular strategies in relation to the two
dimensions.
Lesson End Activity

Collect various facts on the business portfolio balancing from
the newspapers and prepare a poster on the same.
Keywords
Divestment: A Divestment is a sale of healthy firms that
don't "fit" the organization's strategic plan or those
businesses that the organization cannot operate effectively.
Profit Strategy: A profit strategy is one that capitalizes on a
situation in which a long time trend or type of product is
being replaced by a new one.
Spin-off: A Spin-off is when an organization sets up a
business unit as a separate business through a distribution of
stock or a cash deal. Spin offs are another expression of
withdrawal strategy.
Stability Strategies: Stability Strategies are characterized
by an absence of significant changes.
Stable Growth: This is the generic form. It simply means
that the organization's strategy includes no bold initiatives. It
will just seek to do what it already does a bit better.
Worldwide Sourcing: "Worldwide sourcing" is a system
used by multinational companies of integrating the supply
chain by operating supplier's plants abroad and integrating
those plants to manufacture components as subdivisions of a
globally organized production process.
Discus
Questions for sion
224 1. Describe the relationship between the stage of product's

Notes life and its market position.
2. Comment on Life Cycle-Portfolio matrix.
3. How is the programming of strategic funds useful in
meeting the goals and objectives of organisational units?
4. Portfolio balancing provides a framework for reviewing
the performance of multiple Strategic Business Units
(SBUs) collectively. Comment.
5. The Programming of Strategic funds identifies feasible
options under different physical assumptions. Discuss.
Further Readings
Books
Web Readings
http://dspace.mit.edu/bitstream/handle/1721.1/2061/SWP
-1493- 15478032.pdf
www.degroote.mcmaster.ca/ogp/gdiplomas.html
UNIT 24: Strategic Management of Technological
Innovation
225
Unit 24 Notes
Activity
Prepare a lecture on strategic management to present in your junior
Strategic Management of
___________________
___________________
Technological Innovation
Objectives
following topics:
f Strategic Management
f Technological Innovation
f Strategic Innovation
Introduction
Innovation is the most important determinant of business
competitiveness, growth, and economic prosperity in a world
of global markets and rapid technological change
(Christensen et al., 2004; Houston, 2003). By providing new
and improved solutions in healthcare, personal security, and
the quality of our environment, innovation also improves the
quality of life of every country.
Innovation is ultimately a business investment decision.
Government policies aiming to encourage business
investment in innovation should: Encourage investment in
productive assets in R&D, machinery and equipment used in
producing goods and services of greater value, and
workplace training; Increase the cash that businesses have
available to invest by leaving more money in the hands of
those companies making the investments (Carlsson and
Stankiewicz, 1991); Raise the rate of return on productive
assets, thereby making investments in R&D, technology;
Workforce skills more attractive for businesses than other
ways of allocating cash (Brookfield, 2000); and Assure
businesses that policy measures will remain in place during
the course of their investment cycle and provide greater
certainty and consistency with respect to the application of
rules and eligibility requirements (Leonard-Barton, 1995).
The increasing importance of strategic management may be
a result of several trends. Increasing competition in most
industries
226 has made it difficult for some companies to compete. Modern

Notes
and cheaper transportation and communication have led to
increasing global trade and awareness (Gatignon and
Robbertson, 1985). Technological development has led to
accelerated changes in the global economy. Regardless of
the reasons, the past two decades have seen a surge in
interest in strategic management. Many perspectives on
strategic management and the strategic management
process have emerged.
This unit’s approach is based predominantly on three of these
perspectives: (1) the traditional perspective, (2) the resource
based view of the firm, and (3) the stakeholder approach,
which are outlined in Table 24.1.
Table 24.1: Three Perspectives
Traditional Resource Stakeholder

Perspective Based View
View
Origin Economics, Economics, Business ethics
distinctive and
other business competencies,
disciplines, and Social
and responsibility
consulting firms general
management
capability
Firm An economic A collection of A network
entity resources, of
skills, and relationships
abilities among the firm
and its
stakeholders
Strategy Situation analysis Analysis Analysis of
Formulation of internal of the
and external organizational economic
environments resources, power,
leading skills, and political
to influence,
formulation of abilities rights, and
mission Acquisition demands of
of various
and strategies superior stakeholders
resources,
skills, and
abilities
Competitive Best adapting Possession of Superior
Advantage the organization resources, linkages with
to its skills, and stakeholders
environment abilities that are leading to trust.
UNIT 24: Strategic Management of Technological Innovation
227
Check Your
Progress Notes
Activity
Compare and contrast technological innovation and strategic innov
___________________
Fill in the blanks:
___________________
1. Increasing competition in most industries has
made it difficult for some companies to
…………………….
2. Many …………………… on strategic management
Technological Innovation
The technological innovation system is a concept developed
within the scientific field of innovation studies which serves to
explain the nature and rate of technological change. A
technological innovation system can be defined as ‘a
dynamic network of agents interacting in a specific
economic/industrial area under a particular institutional
infrastructure and involved in the generation, diffusion, and
utilization of technology. The approach may be applied to at
least three levels of analysis: to a technology in the sense of
knowledge field, to a product or an artifact, or to a set of
related products and artifacts aimed at satisfying a particular
[societal] function’. With respect to the latter, the approach
has especially proven itself in explaining why and how
sustainable (energy) technologies have developed and
diffused into a society, or have failed to do so.
The concept of a technological innovation system was
introduced as part of a wider theoretical school, called the
innovation system approach. The central idea behind this
approach is that determinants of technological change are
not only to be found in individual firms or in research
institutes, but also in a broad societal structure in which
firms, as well as knowledge institutes, are embedded. Since
the 1980s, innovation system studies have pointed out the
influence of societal structures on technological change, and
indirectly on long-term economic growth, within nations,
sectors or technological fields. The purpose of analysing a
Technological Innovation System is to analyse and evaluate
the development of a particular technological field in terms of
the structures and processes that support or hamper it.
Besides its particular focus, there are two, more analytical,
features that set the Technological Innovation System
approach apart from other innovation system approaches.
228 Firstly, the Technological Innovation System concept

Notes
emphasizes that stimulating knowledge flows is not sufficient
to induce technological change and economic performance.
There is a need to exploit this knowledge in order to create
new business opportunities. This stresses the importance of
individuals as sources of innovation, something which is
sometimes overseen in the, more macro-oriented, nationally
or sector ally oriented innovation system approaches.
Secondly, the Technological Innovation System approach
often focuses on system dynamics. The focus on
entrepreneurial action has encouraged scholars to consider a
Technological Innovation System as something to be built up
over time.
This was already put forward by Carlsson and Stankiewicz:
Technological Innovation Systems are defined in terms of
knowledge/competence flows rather than flows of ordinary
goods and services. They consist of dynamic knowledge and
competence networks. In the presence of an entrepreneur
and sufficient critical mass, such networks can be
transformed into development blocks,
i.e. synergistic clusters of firms and technologies within an
industry or a group of industries. This means that a
Technological Innovation System may be analysed in terms
of its system components and/or in terms of its dynamics.
Innovation Challenges
Some innovations are technology based. Other innovations,
such as new products or services in retailing financial
services, are facilitated by new technology. The critical for
success technological innovation are commercial rather than
technical: A successful innovation is one that returns original
investment in its development plus some additional returns.
This requires that a sufficiently large market for the
innovation can be developed.
Innovations are the outcome of the innovation process, which
can be defined as the combined activities leading to new,
marketable products or new production and delivery systems.
We showed Figure 24.1 the relationships among key
concepts in the technological innovation process. It highlights
the activities constituting the process and the outcome
produced. The process depicted in Figure 24.1 can start with
market development or technical activities. In reality, the
technological innovation process will almost always be
iterative and concurrent rather than unidirectional and
sequential.
229
Notes
Activity
Prepare an article on strategic innovation for a business magazin
___________________
___________________
Figure 24.1: The Relationship among Key Concept

Concerning Technological Innovation
Check Your
Progress
Fill in the blanks:
1. Innovations are the outcome of the
………………………
process.
2. The critical for success technological innovation are
Strategic Innovation
Strategic innovations are wholly and radically new creative
business ideas. They end up changing life as we know it,
business as usual, or both. They create new markets. They
stimulate research in areas related to their improvement.
They create demand for competencies uniquely suited to
them. Bringing these ideas to the market necessarily involves
a bold departure from the existing, proven and established
business models. As a result, strategic innovations take
longer, cost more and are ambiguous, as compared to
continuous process improvements, process revolutions and
product/service innovations.
Now, we define of Cognitive Dimensions of Strategic
Innovation. Strategic Thinking is pattern recognition, the
ability to “connect the dots” at a strategic level to see
underlying patterns, discontinuities, and future scenarios,
and how they interact to create opportunities for new growth.
Sense making is to scan and interpret, rapidly reframe, and
generate insight into the changing
230 environment. The ability to mine periphery, to make deep

Notes
intuitive meaning out of the maelstrom of trends and force
that shape markets.
Figure 24.2: Cognitive Dimensions of Strategic Innovation
Divergent thinking is the capability to expand the boundaries

of mental models and see things from many, often
paradoxical, perspective. The ability is to break existing
frames, and make new combinations among seemingly
disparate elements. Critical Thinking is the ability to examine
and transform strategic assumptions, orthodoxies, mental
models, and other blind spots that impede divergent thinking
and strategic innovation.
Malleable learning orientation is a malleable, non-liner
learning orientation that is “at home” in a dynamic
environment rife with ambiguous information, loosely
structured problems, deep uncertainty, paradox, and
complex trade-offs. The ability is to learn through continuous
experimentation as well as from and through experience.
Conceptual Capacity is the ability conceives and
conceptualizes; to think holistically and abstractly in terms of
concepts, models and architectures.
Check Your
Progress
Fill in the blanks:
1. Strategic innovations are wholly and radically new
creative.........................ideas.
2. Divergent thinking is the capability to expand the
…………………… of mental models.
Summary
Joint definition of a complex product such as an aircraft
requires a high degree of interaction among all the teams and
firms involved.
Prospective customers must also be included in the process, 231

Notes
with all their requirements at varying levels of stringency.
The specialties involved in the development of systems,
equipment, and components are often similar. Most
important challenges in choice of product (Technological
Innovation approach) are in market culture and company
abilities.
Lesson End Activity

Prepare a diagram as per your understanding showing the
inter- relationship between strategy, innovation and
technology and draw it on a chart.
Keywords
Innovation Challenges: Some innovations are technology
based. Other innovations, such as new products or services in
retailing financial services, are facilitated by new technology.
Strategic Innovation: Strategic innovations are wholly and
radically new creative business ideas. They end up changing
life as we know it, business as usual, or both.
Technological Innovation: The Technological Innovation
System is a concept developed within the scientific field of
innovation studies which serves to explain the nature and
rate of technological change.

1. Describe the Strategic Management.
2. Explain the Technological Innovation.
3. What do you understand by strategic innovation?
4. Write a brief note on divergent thinking.
Further Readings
Books
Learning.
232 Dicke Wilhelmina Margaretha (2005), “Managing Technology and

Notes
Web Readings
www.sce.carleton.ca/.../Christensen_Strategy_
%26_TIM_ in_large_fir.
www.floridatechonline.com/.../strategic-management-
technology- inn.
UNIT 25: Case
Study
233
Unit 25 Notes
Case Study
Objectives
Case Study: Avon Case in Strategic Management (SCM)

Avon Products, Inc. (Avon) is based in New York. The firm
engages in the manufacture and marketing of beauty and
complimentary products primarily in North America, Latin
America, Europe, and Asia Pacific. Avon’s products are
classified into three product categories: Beauty, Beauty Plus,
and Beyond Beauty. The Beauty category consists of
cosmetics, fragrances, skin care, and toiletries; Beauty Plus
includes fashion jewellery, watches, apparel, and
accessories; and Beyond Beauty comprises home products,
gift and decorative products, candles, and toys. The
company sells and markets its products through a
combination of direct selling, marketing by independent
Avon representatives, and via its consumer Web site,
avon.com.
Avon was one of the prominent direct sales companies in the
beauty products industry. Started in the late 1800s by David
McConnell, the company sold a wide variety of beauty-
related products to homemakers through its direct sales
agents. However, by the 1980s, the company had lost its
lustre and performance began to falter. A failed
diversification strategy made it the target of several
takeover attempts. Turnaround efforts were initiated in the
1990s under then CEO James Preston and continued by his
successor Charles Perrin, however, they failed to make a
significant impact. Performance began to improve only after
Andrea Jung became the CEO of the company in 1999.
Andrea Jung became president and CEO of Avon in 1999 and
has totally revamped the company. Under her leadership,
the company has updated its product line, launched new
advertising, and created a new image. Avon’s sales have
increased by 30%, profits 40%, and the stock price has
dramatically improved. Jung’s has been able to align the
firm’s core capabilities with its strategic targets which have
led to phenomenal results. It appears that Jung has been
able to establish a clear vision for the firm that has been
incorporated in every aspect of the firm’s operating system.
This vision is shared by all employees and representatives
of Avon priming the company for continued success.
Other strategies of Jung include cost cutting by reducing
number of raw material suppliers, shifting production from
smaller plants to larger ones, moving manufacturing from
high cost nations like
Contd...
234 Great Britain to lower cost countries such as Poland. As

Notes mentioned in the Avon case study, the e-representative
initiative also has helped Avon cut costs. The direct sellers
are asked to fill in the order online.
Avon’s brand has definitely resonated for women through
the years. During the 1980s, the company began to diversify
by investing in retirement properties and healthcare
products, and launching catalogues for men and children.
During the initial stages of this strategy, Avon started to
remove itself from its core market of selling to women. The
results were downward revenue trends and slow growth
throughout the 1990′s which resulted in several takeover
bids.
Unfortunately, Sears Roebuck and JC Penny do not really
resonate well with being a carrier of women’s beauty
supplies. The name “Sears” have been associated with
appliance and not beauty products. The move of aligning
with this companies and trying to sell higher end beauty
products will only push Avon in the opposite direction that it
should be heading, which is to move back towards tailoring
to women domestically and globally.
Over the years, Avon has experienced several problems
leveraging its brand in many of its product lines. As a result,
positive net sales and earnings growth for the past five
years have been in single digits and steadily declining year
after year. Specific problem areas are stagnated sales, slow
earnings growth, limited distribution capabilities and shift in
personal care preferences and spending habits.
Andrea Jung’s proposal to expand into certain retail markets
will only perpetuate Avon’s trend of declining net sales. The
proposed plan will indeed create an additional distribution
outlet and cater to this market segment. However, the
question to examine is at what expense or cost will Avon
endure making this decision? Avon has faced tremendous
pitfalls marketing its product lines to effectively increase
brand loyalty and recognition. Examples of this include the
hair care product line. Avon did not effectively develop
products for ethnic hair types. Additionally, Avon did not
have a hair colouring product line. As a result, Avon suffered
in building brand awareness and loyalty with the younger
generation as well as the older generation that also
demanded this product.
Avon has lost loyalty and brand recognition as a result of its
decision to diversify into different industries and different
product lines. This has resulted in a loss of market share
drastically affecting annual profit margins. To examine the
previous question of what cost will Avon endure deciding to
move into the retail markets? It is clear and evident; the cost
will be a further extension of the existing internal problems
that Avon faces. Deciding to move into the retail market to
create a store inside a store is not in Avon’s best interest.
This move would be a further expansion of Avon’s previous
decisions to diversify into markets that do not have synergy
and thus will hurt the overall branding of the company.
Finally, implementing Andrea Jung’s proposal to
Contd...
UNIT 25: Case Study
enter the retail market would be detrimental to the already 235

fragile state of Avon’s brand awareness, recognition and Notes
loyalty.
Another factor for the underperformance of Avon in the late
1990s is its failure to develop the online business. For the
fear of alienating its labour force, Avon downplayed the
importance of developing the e-business. A company cannot
ignore the environment and expect to be successful in the
long run. Due to its internal struggle with the internet
strategy, Avon fell behind other less established companies
in taking advantage of the explosive growth of the internet
Avon’s approach should build on original direction and
implementations however expanding as necessary to fit
current trends and environmental assessments. The focus
should be on existing internal structures to build, create and
advance current product lines. Avon’s focus should also
exist in the field of technology to increase online selling
opportunities, update internet technology and to re-brand
themselves to be a leader of online sells. To accomplish this,
strategy should focus on expanding kiosks globally and
domestically. The expansion will leverage Avon by appealing
to the market segment requesting additional distribution
channels. This strategy will allow for trained beauty
consultants to offer advice, education and samples thus
increasing brand awareness and loyalty. Kiosks will have
minimal start up cost and lower overheads. Focusing on
product lines and catering to the needs and wants of each
demographic group will prevent the previous pitfalls of lack
of integration and decreased brand awareness and loyalty.
Keeping Avon’s product offering separate and distinct will
help existing challenges of branding. Focusing on technology
improvements and online sales, Avon will have an
opportunity to emerge as a leader in this area, thus adding
additional channels of distribution and appealing to the
overwhelming need.
Under Andrea Jung’s leadership, Avon has faced a number of
challenges. Some of these challenges were addressed
successfully and others were not. In the early part of 2000,
the management team had the daunting task of choosing an
appropriate strategy for the immediate and long-term future
for the company. One setback was a decrease in the firm’s
growth rate to single digits and stagnated earnings. Avon’s
CEO, Andrea Jung, was presented with a multitude of options
that ranged from distributing through other departments
stores, establishing kiosks, to overhauling the firm’s e-
business. Jung was right in acknowledging that Avon’s core
competency is direct selling and its major strength is its
brand name. By refocusing on the core competency,
improving efficiencies, and adapting to the environment with
new initiatives, Avon could overcome the hurdles of the past
and turn the company in the new direction.
Questions:
1. What is your assessment of Andrea Jung’s performance
as chief strategist at Avon Products? What has she done
well? What overall grade would you give Andrea Jung for
the job she has done as CEO?
Contd...
236
2. What is Andre Jung’s
Notesstrategic vision for Avon? Do you approve of the company’s new strategic direction? Why was it time for Avon to fu
Source: http://ranjitmalayath.wordpress.com/2010/04/17/avon-case-study-in-
strategic- management-scm/
Glossar
y
237
Glossary Notes
Actors: Actors involve organisations contributing to a technology,

as a developer or adopter, or indirectly as a regulator, financer, etc.
Behaviour Control: Behaviour Control specifies how something is
to be done through policies, rules, standard, operating procedures,
etc.
Business: A business (also known as enterprise or firm) is an

organization involved in the trade of goods, services, or both to
consumers.
Cash Cow: A cash cow is a business venture which generates a

steady return of profits which far exceed the outlay of cash required
to acquire or start it.
Change: It refers to become different or undergo alteration.
Competence: Competence (or competency) is the ability of an

individual to do a job properly.
Competency: The quality of being adequately or well qualified

physically and intellectually.
Competitive Advantage: An advantage that a firm has over its

competitors, allowing it to generate greater sales or margins and/or
retain more customers than its competition.
Cost Focus: Cost focus exploits differences in cost behaviour in
some markets. In cost focus, a firm seeks a cost advantage in its
target market. The objective is to achieve lower costs than
competitors in serving the market – this is a low cost producer
strategy focused on the target market only.
Cost-leadership Strategy: A firm pursuing a cost-leadership
strategy attempts to gain a competitive advantage primarily by
reducing its economic costs below its competitors.
Creative: It relates to or involves the imagination or original ideas.
Creativity: It refers to the use of the imagination or original ideas,

esp. in the production of an artistic work.
Customer Satisfaction: It is a term frequently used in marketing,
is a measure of how products and services supplied by a company
meet or surpass customer expectation.
Different Strategy: In a differentiation strategy a firm seeks to be

unique in its industry along some dimensions that are widely valued
by buyers. It selects one or more attributes that many buyers in an
industry perceive as important, and uniquely positions it to meet
those needs.
238 Differentiation Focus: Differentiation focus offers niche buyers

Notes
something different from other competitors. The firm seeks product
differentiation in its target market.
Divestment: A Divestment is a sale of healthy firms that don't "fit"
the organization's strategic plan or those businesses that the
organization cannot operate effectively.
Enterprise Data: It defines a plan for how an enterprise utilizes
the data required to execute its business process through strategic
technology.
Entrepreneur: An entrepreneur is a person who undertakes new
financial ventures despite the risks.
Environment: It refers to the setting or conditions in which a
particular activity is carried on.
Environmental Scanning: It refers to possession and utilization of
information about occasions, patterns, trends, and relationships
within an organization’s internal and external environment.
Evaluation and Control Process: The Evaluation and Control
Process is a process designed to ensure that the organization is
achieving its goals and objectives. It compares performance with
the desired results and provides the management with a feedback
to evaluate results and take the necessary corrective action.
Financial Control: It refers to defining and agreeing to specific
financial parameters and laying down targets for a number of
measurable financial quantities.
Forecasting: It is the process of making statements about events
whose actual outcomes have not yet been observed.
Generic Competitive Strategies: Generic competitive strategies
are those competitive strategies that can be used by the
organization to outperform competition and defend its position in
the industry.
Generic Strategy: The generic strategy of focus rests on the
choice of a narrow competitive scope within an industry. The
focuser selects a segment or group of segments in the industry, or
buyer groups, or a geographical market and tailors its strategy to
serving them to the exclusion of others.
Global: It means Pertaining to the entire globe rather than a
specific region or country.
Globalization: Globalisation is the process by which the world is
becoming increasingly interconnected as a result of massively
increased trade and cultural exchange.
Goal: A goal is a desired future state or objective that an
organization tries to achieve.
Glossary
Growth: It means development from a lower or simpler to a higher 239

Notes
or more complex form; evolution.
Innovation: Innovation is the development of new values through
solutions that meet new requirements, inarticulate needs, or old
customer and market needs in value adding new ways.
Innovation Challenges: Some innovations are technology based.
Other innovations, such as new products or services in retailing
financial services, are facilitated by new technology.
Innovation System: The concept of the innovation system
stresses that the flow of technology and information among people,
enterprises and institutions is key to an innovative process.
Mission: 'Mission' is the founders' intentions at the outset of the
organization – what they wanted to achieve.
Mission Engineering: An innovation that bridges the gap between
business and engineering by addressing requirements from a user
and developer perspective.
Objective: It refers to a specific result that a person or system
aims to achieve within a time frame and with available resources.
Opportunities: Opportunities are presented by the environment
within which our organization operates.
Opportunity: A set of circumstances that makes it possible to do
something.
Output Control: Output Control specifies what is to be
accomplished by focusing on the end result of the behaviours
through the use of objectives and performance targets.
Outsourcing: Outsourcing is the contracting out of an internal
business process to a third party organization.
Profit Strategy: A profit strategy is one that capitalizes on a
situation in which a long time trend or type of product is being
replaced by a new one.
Radio Frequency Identification (RFID): Radio-frequency
identification (RFID) is the wireless non-contact use of radio-
frequency electromagnetic fields to transfer data, for the purposes
of automatically identifying and tracking tags attached to objects.
Society: Society made up of individuals who have agreed to work
together for mutual benefit.
Spin-off: A Spin-off is when an organization sets up a business unit
as a separate business through a distribution of stock or a cash
deal. Spin offs are another expression of withdrawal strategy.
Stability Strategies: Stability Strategies are characterized by an
absence of significant changes.
240 Stable Growth: This is the generic form. It simply means that the
Notes
organization's strategy includes no bold initiatives. It will just seek
to do what it already does a bit better.
Strategic Control Approach: It is based on improving the
competitive capacity of the organization by providing a high level of
autonomy to the operating units.
Strategic Decisions: Decisions concerning policy that have a long

term impact on a business.
Strategic Innovation: Strategic innovations are wholly and

radically new creative business ideas. They end up changing life as
we know it, business as usual, or both.
Strategic Intent: Strategic intent is defined as a compelling
statement about where an organization is going that succinctly
conveys a sense of what the organization wants to achieve long-
term.
Strategic Management: Strategic management is a firm’s effort
to analyse its environment and its own strengths and weaknesses
and then consciously choose the competitive path it wants to
follow.
Strategic Objective: A broadly defined objective that an

organization must achieve to make its strategy succeed.
Strategic Plan: A strategic plan is a document used to

communicate with the organization the organizations goals, the
actions needed to achieve those goals and all of the other critical
elements developed during the planning exercise.
Strategic Thinking: Strategic thinking is defined as a mental or
thinking process applied by an individual in the context of achieving
success in a game or other endeavour.
Strategy: Strategy is a high level plan to achieve one or more

goals under conditions of uncertainty.
Strategy Formulation: It includes planning and decision-making
involved in developing organisation’s strategic goals and plans. In
short, strategy formulation is placing the forces before the action.
Strategy Implementation: Strategy Implementation refers to the
sum total of the activities and choices required for execution of a
strategic plan.
Strengths: Strengths are the qualities that enable us to

accomplish the organization’s mission.
System Dynamics: System dynamics is an approach to

understanding the behaviour of complex systems over time.
Tactic: A tactic is a conceptual action implemented as one or more

specific tasks.
Glossary
Technological Change (TC): It is a term that is used to describe 241

Notes
the overall process of invention, innovation and diffusion of
technology or processes.
Technological Innovation: The Technological Innovation System
is a concept developed within the scientific field of innovation
studies which serves to explain the nature and rate of technological
change.
Technological Structures: It consists of artifacts and the
technological infrastructures in which they are integrated.
Technology: Technology is a body of knowledge used to create
tools, develop skills, and extract or collect materials.
Threats: Threats arise when conditions in external environment
jeopardize the reliability and profitability of the organization’s
business.
Value Creation: The performance of actions increases the worth

of goods, services or even a business.
Values: 'Values' manifest in what the organization does as a group

and how it operates. It is a guide to ways of choosing among
competing priorities and about how to work together.
Vision: 'Vision' is a long term perspective of what is the final
destination of the organization. A vision is a description in words
that conjures up a similar picture for each member of the
organizations of the path and the destination.
Weaknesses: Weaknesses are the qualities that prevent us from

accomplishing our mission and achieving our full potential.
Worldwide Sourcing: "Worldwide sourcing" is a system used by
multinational companies of integrating the supply chain by
operating supplier's plants abroad and integrating those plants to
manufacture components as subdivisions of a globally organized
production process.
Innovation
242
Notes
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UNIT 20: Case

SLM Development Team

Mr Kapil Mehra Mr A N Sinha

Course Code: MB-403D

© MPower Applied Learning Enterprise

Unit 6 Strategic Objectives...................................................................................... 51

Unit 11 Technology and Innovation............................................................................95

Unit 16 Strategy Formulation...................................................................................139

Unit 21 Strategic Control and Evaluation.................................................................189

Unit 22 Tools for Strategic Planning and Evaluation................................................199

Unit 23 Life Cycle Approach to Strategic Planning...................................................213

Unit 24 Strategic Management of Technological Innovation....................................225

Unit 25 Case Study.................................................................................................. 233

4 economic, technological, and psychological factors, along

Figure 1.1: Strategy

Every firm competing in an industry has a strategy, because

6 Normann: Strategy is the art of creating value.

movement begets an action; and the action results in new 7

Table 1.1: Difference between Strategy and Tactics

There is a unique relationship between strategy and tactics.

Figure 1.2: Strategy

8 If he can think strategically, he must ask "What should I do to

3. Strategy is relative. It is an action to meet particular 9

10 sake of action. Strategy, then, is relative, which is to say

Questions for Discussion

f Meaning of Strategic Thinking

___________________ Meaning of Strategic Thinking

means to analyse a situation is to break it up into its 15

16 questions are not framed to point toward a solution; rather,

combination or rational analysis, based on the real nature of 17

Attributes of Strategic Thinking

18 According to Jeanne Liedtka (1998), of the Batten Institute –

the opposition to engage at a disadvantage. It evolves ways ___________________

Check Your Progress

Lesson End Activity

Questions for Discussion

Evolution of Strategic Thinking

24 sense what major competitors are doing and are expected to

In its most elementary form, traditional long-range planning 25

Figure 3.1: Traditional Long Range Planning Model

The inter-relationship between these activities is shown in Figure

26 Differences between Phase I and Phase II

Strategic Planning Phase

28 organization; the generation of strategic options and their

Lesson End Activity

30 1. Briefly explain annual budgeting.

3. What are the reasons environmental scanning is used?

Corporate Strategic Planning

f Meaning of Corporate Strategic Planning

Meaning of Corporate Strategic Planning

32 extremely effective when internal changes prevail in the

Figure 4.1: Hierarchy of Vision, Mission and Objectives

The time to articulate vision, mission, and values is at the

Successful organizations have a vision that is executable – 35

A Basis for Performance

36 A man was cutting stones in a stone quarry. A traveller was

Reflects Core Values

38 Steel Co. Ltd.

 Your mission statement draws on your belief statements. 39

Signal to Management's Intents

Our mission is to become a research-based international

40 McDonald's – Mission Statement

to serve the key market. This provides clarity and focus to 41