Strategic Planning: © 247campus - Co.Uk. All Rights Reserved

STRATEGIC PLANNING
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© 247CAMPUS.CO.UK. ALL RIGHTS RESERVED.
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STRATEGIC PLANNING
CONTENTS
Sl No Description Page No
1 Introduction to Strategic Planning 5

1.1 Concept of Strategy 5
1.2 Business Environment 5
1.2.1 Internal and External Environment 5
1.2.2 Vision, Mission and Objectives 6
1.2.3 Goals, Strategies and Policies 7
1.3 Levels of Strategy for an Organisation 8
1.4 Strategic Planning or Strategy Formulation 9
1.5 Process of Strategic Planning 9
1.6 Strategy Implementation 10
1.7 Benefits of Good Strategic Planning 10
2 The External Environment 12

2.1 Environment of Business 12
2.1.1 Economic Environment 12
2.1.2 Market Environment 13
2.1.3 Socio-Cultural Environment 13
2.1.4 Political and Legal Environment 14
2.2 Competitive Environment 14
2.3 Stakeholders’ Relations & Expectations 15
2.4 Changes in External Environment Affecting Business Strategy 15
2.5 Environmental Scanning 16
2.6 Scanning Leading to Updation of Strategy Plans 17
2.7 Analysis Tools & Techniques 17
2.7.1 Competitors’ Analysis 17
2.7.2 Customers’ Analysis 18
2.7.3 Porter Five Forces Method for Competitive Analysis 18
3 Framework for Evolving Business Plans and Strategies 20

3.1 Introduction and Overview of Business Planning 20
3.2 Organisational Appraisal 21
3.2.1 Methods & Techniques used for Organisational Appraisal 22
3.2.2 VRIO Framework 22
3.2.3 Value Chain Analysis 23
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3.2.4 Benchmarking 24
3.2.5 Organisational Capability Factors: Key-Factor Analysis 24
3.2.6 Balanced Scorecard 25
3.2.7 SWOT Analysis 25
3.2.8 Strategic Advantage Profile 26
3.2.9 Evaluation of Internal Capabilities 26
3.3 Market Position Analysis 27
3.3.1 Boston (BCG) Growth/Market-Share Analysis Matrix 27
3.3.2 Industry Life Cycle Analysis 28
3.4 Competitiveness Analysis 29
3.4.1 Resource Analysis 29
3.4.2 Competencies Audit 30
4 Developing Options for Strategic Planning 32

4.1 Introduction to Strategic Planning 32
4.1.1 Strategic Decision Framework 32
4.1.2 Nature of Strategic Planning 33
4.2 Modelling Tools for Developing Strategic-Options 34
4.2.1 Mintzberg’s Strategies 34
4.2.2 Ansoff’s Product-Market Grid / Matrix 35
4.2.3 Gap Analysis 36
4.2.4 Competitive Strategies 36
4.3 Competitiveness Analysis 38
4.4 Strategy Options for Formulation of Strategic Plan 38
4.4.1 Expansion Strategies 38
4.4.2 Internationalisation Strategies 39
4.4.3 Strategic Alliances & Joint Venture 39
4.4.4 Mergers & Acquisition 40
4.4.5 Niche Marketing 40
4.4.6 Superior Product Portfolio 41
4.4.7 Value Based Strategy 41
4.4.8 Workforce Development Strategy 41
4.4.9 Acquiring Alternate/New Technology 41
5 Factors Influencing the Strategy 42

5.1 Factors Influencing Strategic Choice 42
5.2 Socio-Cultural Context 43
5.3 Organisation-Specific Factors 43
5.4 Managerial Factors 44
6 Formulation of Strategic Plan 45

6.1 Strategy Formulation Structure 45
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6.2 Task Differentiation & Integration 47
6.3 Process of Implementation 47
6.3.1 Strategy and Structure 48
6.3.2 Implementation Targets 48
6.3.3 Risks and Uncertainties 48
6.3.4 Ethical Framework 48
6.3.5 Success Matrices 49
6.4 Resource Requirement 49
6.5 Assessment of Reaction from Competitors 49
6.6 Contingency Plans 50
7 Plan for Implementation 51

7.1 Introduction 51
7.2 Planning for Implementation 51
7.3 Project Team for Strategy Implementation 52
7.4 Defining Responsibility & Accountability 52
7.5 Stakeholders’ Agreement 52
7.6 Strategic Planning Document 53
7.7 Barriers to Strategy Implementation 54
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UNIT 1. INTRODUCTION TO STRATEGIC PLANNING
1.1 Concept of Strategy

1.2 Business Environment
1.3 Levels of Strategy for an Organisation
1.4 Strategic Planning or Strategy Formulation
1.5 Process of Strategic Planning
1.6 Strategy Implementation
1.7 Benefits of Good Strategic Planning
1.1 Concept of Strategy
Strategy of a business organisation relates to the decisions taken by its top management, regarding
the future direction and scope of its business. It covers an action plan, commitment to the specific
products & services, and the markets. It specifies the competitive moves and business approaches to
be taken for achieving the objectives of the organisation. Its main purpose is to create competitive
advantage for itself in the market(s). In a simple language, a strategy is the means to achieve the
objectives of the organisation.
Business strategy of a firm can be of two types: master strategy and programme strategy. A master
strategy refers to determination of the mission and long-term objectives of an organisation; and the
policies necessary for achieving the mission and objectives. The programme strategy is specific
action plan drawn up to accomplish any established objective within a specified timeframe.
1.2 Business Environment
Business environment refers to the ‘totality of factors’ which are external to the organisation and
are beyond its control. These business related ‘factors’ are not the creations of a business firm. In a
way, these environmental factors are “given” to it, within which it has to operate.
Environment spells out certain conditions under the business firms should carry out their business
activities. The business environmental factors may vary, to some extent, from country to country.
These factors are not static, but are dynamic by nature. These factors change with time; some
change little where as some factors change much with change of time.
1.2.1 Internal and External Environment
Though the terminology of “environment” was coined to refer to the environment external to the
business organisation, but this term has also been extended to the internal situation and conditions
of the organisation where it is called the internal environment. Thus, the environment may be
viewed in two different manners: external environment and the internal environment. For example,
an organisation works under the framework of business laws made by the Government, specific
technological conditions, and social expectations. These factors relate to the environment external
to the business organisation. This business-firms have no control over the external environmental
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factors. They have to accept these external situations/conditions as ‘given’ and adapt themselves to
find their business success while working within these specific laws or conditions.
The internal environmental factors refer to the organisation structure, management policies,
organisational culture, wage structure etc. These are specific to the particular organisation, and the
management can take suitable actions to change these factors. These factors are not completely
beyond control of the business firms, but any such desired change may take some time to be
implemented.
A number of business organisations may have the same/identical external environment of business.
But each organisation has its own unique internal environment. The internal environment is specific
to the particular organisation; and two different organisations may be distinguished on the basis of
their internal environmental factors.
1.2.2 Vision, Mission and Objectives
Vision: As a part of strategic planning, an organisation looks forward to its future as an organisation;
and asks itself a question: What kind of an organisation we want to become? This question is aiming
at ‘direction-setting’ underlying the concept of ‘strategic vision’ for the organisation. This ‘question’
is an attempt to evolve a road-map of the organisation’s future. Strategic vision is defined as “a
perception of the kind of position in the environment that the organisation aspires to achieve within
a broad timeframe”.
As stated above, ‘vision’ provides the answer to the question: What do we want to create”? What
we want the organisation to achieve in future? The process of vision-setting has following
characteristics:
 Vision is based on the ‘collective desire’ of the members of the organisation.
 It sets a direction for the future for the organisation.
 It inspires the members of the organisation.
 It relates to the long-term, and is dynamic in nature. It gets continuously updated as the
organisation progresses towards achievement of the vision. At any time, the vision
relates to long-term aspects of future achievement.
Mission: The ‘mission’ of the organisation is derived from its ‘vision’ and provides the ‘purpose’ for
existence of the organisation. It is defined in terms the ‘benefits’ the organisation provides to its
‘customers’. Therefore, the starting point for defining the mission of any business is its customers.
The mission is described in terms of the products/services, markets and clients. The mission of a
business firm has following characteristics:
 The mission provides answer to the question: “what the customers think of our
business”. Therefore, it is defined ‘from the outside’ and not from ‘inside the firm’.
 The mission is stated in abstract terms;
 It provides directions to all employees and managers of the firm.
 It is concerned with the future, and remains valid for few years till it is updated.
 The concept of mission is always dynamic and not static.
 The ‘mission’ should cover the total scope of business of the firm.
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Objectives: The objectives of a business firm are derived from the ‘mission’ of the business of the
firm. The objectives can be defined for the total organisation, and also for different businesses of the
organisation. The objectives serve as ‘guiding framework’ for business activities of the firm. Every
activity and task undertaken by the firm is oriented toward meeting its objectives. It has following
characteristics:
 It provides long-term directions for business activities of the organisation.
 It is described in specific form and not in abstract form like the mission.
 It answers to the question: how the firm seeks to fulfil its mission?.
 Objectives reflect the ‘action’ orientation of the mission.
 Different objectives may be set for different levels in the organisation.
 The multiple objectives may come in conflict with other objective(s). Therefore, firms
generally set the priorities for meeting various objectives.
1.2.3 Goals, Strategies and Policies
Goals: The goals of an organisation are derived from the ‘objectives’ and set the link between the
objective-achievement and the timeframe. Some organisations provide direction regarding the
milestones to be reached before finally achieving the overall objective. These milestones related
goals are called the intermediate goals. These serve as the time-bound targets for achievement of
objectives. Goals are expressed in very specific quantitative or qualitative terms.
The terms ‘objectives’ and ‘goals’ are sometimes differentiated on the basis of ‘generality’ and
‘specificity’ of what the organisation wants to achieve or become. Objectives are the desired future
positions stated in broad time-less statement. Goals are specific and time-bound statements.
All goals have four components:

i. derived from objectives;
ii. serves as yardstick measuring progress and performance;
iii. a target to be achieved; and
iv. a time-limit within which the objective is to be achieved.
To obtain optimal performance, goals of a business firm must be:

 consistent with achievement of the mission;
 balanced between the requirement of the present and of the future; and
 balanced between each other and priorities must be established where ever there may
be a scope for conflict.
Strategy: Having set its objectives, a firm decides on certain plan of actions to achieve the objectives.
The specific ‘path of actions’ chosen by the firm to achieve its objectives is referred as its strategy.
A strategy for a business organisation has the following components:

 The specific products and markets in which the firm operates.
 The changes planed in the product-market scope.
 The competitive advantage of the business firm in the market against its competitors.
 The distinctive competence(s) or business related strengths of the firm.
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The strategy seeks to achieve the firm’s objectives in the context of a specific product-market scope
with a future orientation, based on its internal strengths and its unique market position.
Policies: Implementation of objectives and strategies involves many ‘operations’ which have to be
undertaken on day-to-day basis and call for large number of decisions. Many of such decisions have
to be taken frequently, which may be called repetitive decisions. Some of such decisions have to be
obtained from the top-management. To ensure that operating managers do not have to approach
the top-management, again and again, the firm may evolve set of “standard decisions” for such
situations arising repeatedly and may lay down certain guidelines, which are called as policies.
The policies act as an aid and not an obstacle in the implementation of strategy. It is therefore,
important that the policies are derived from the design of the strategies.
Policies are needed to facilitate certain consistency in decisions conveyed by the operating
managers. Policies ensure:
 Consistency of individual decisions taken in different branches of the organisation at
different time in similar circumstances;
 Consistency of decisions over time;
 Proper delegation of work and authority; and
 Avoiding ad-hoc and arbitrary decisions.
1.3 Levels of Strategy for an Organisation
Though strategies are formulated for the entire organisation or for a big and independent unit of the
organisation, components of it may have implications for different levels of business. Specific
strategies may be made for different levels of organisation. The strategies can be of different types
as under:
 Corporate level strategy;
 Business level strategy; and
 Functional level strategy.
Corporate level strategy refers to the strategic decisions relating to the organisation-wide policies
and actions. These are very useful in multi-divisional companies having wide-ranging business
interests. For example, strategies and policies relating to acquisitions, diversification, and structural
redesigning belong to the category of corporate level strategies
Business level strategies primarily relate to industry issues, product-market issues and with policies
having bearing on the functional units. These are derived from the corporate level strategies by
translating general statements of direction and intent generated at corporate level, into concrete
functional objectives for the business units.
Functional level strategies involve decision-making for specific functional areas namely production,
marketing, finance, personnel etc. These are also called tactical decisions.
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1.4 Strategic Planning or Strategy Formulation
For a business organisation, ‘corporate strategy’ has two implications: (i) ‘formulation of strategy’ or
‘strategic planning’, and (ii) strategy implementation. Strategic planning is discussed in this section;
whereas strategy implementation is discussed in a subsequent section under unit-7.
Formulation of strategy or strategic planning involves deciding what the strategy should be. It
involves decision making by the corporate management on the following aspects:
 Deciding and conveying the objectives, purposes and goals of the business;
 Deciding and providing the policies and plans for achieving the goals;
 Defining in physical terms, the business the firm intends to take-up; and
 Preparing an action-plan for achievement of the objectives.
Strategic planning is thus the process of deciding on objectives, on the resources used to attain these
objectives, and the policies that will govern the acquisition, use and disposition of these resources.
Basically, it relates to evolving the long-term objectives & goals for the organisation, and deciding on
the course of actions to be taken for their achievements, and also deciding on the
allocation/mobilisation of required resources.
Strategy formulation needs following important information inputs:

a) Identification of opportunities and threats in the organisation’s environment along with
the estimates of risks;
b) Analysis and appraisal of these strengths and weaknesses; and
c) Objective assessment of ‘potential’ capacity of the organisation to take advantage of
perceived market needs and to cope with the associated business risks.
There are four major factors which guide the managers in the task of strategy formulation:
 External opportunities and constraints,
 Internal capabilities, competence and resources,
 Personal values of management including propensity to assume risks, and
 Obligations to the society and to the stakeholders.
1.5 Process of Strategic Planning
The process of decision-making starting from ‘developing strategic vision for the organisation’ and
ending at the ‘implementation of the strategy’ is called as the process of strategic planning or
strategy formulation. This is shown in the figure below.
Developing Define Set Develop Decide Implement

Strategic Business Corporate Strategic on ‘Best’ the
Vision Mission Objectives Options Option Strategy
Fig: Process of Strategic Planning or Strategy Formulation
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Various steps involved in the process of strategic planning or strategy formulation are as given
below:
i. Develop a strategic vision for the organisation indicating where the organisation intends
to be in future.
ii. Define its business mission; indicating how well it wants to serve its customers.
iii. Set its corporate objectives, indicating in specific terms the business activities the
organisation wants to undertake.
iv. Generate a set of business activities through which the objectives of the organisation
can be achieved.
v. Evaluate each of the business-options generated in the last step in terms of the criteria
set by the corporate management. The ‘best’ or the ‘optimal’ option is selected as the
business strategy for the organisation.
vi. A detailed action-plan is evolved for implementation of the strategy based on the ‘best
option’ selected by the management. The strategy implementation proposal is
evaluated to incorporate any improvement, if required.
1.6 Strategy Implementation
Strategy implementation is a physical process across the organisation involving variety of decision-
making regarding:
 assessment & mobilisation of required resources,
 designing an appropriate organisation structure,
 establishing process of progress/performance measurement,
 employee compensation,
 allied organisational administrative policies, and
 setting up a monitoring & management system.
The key elements of strategy implementation are choice of appropriate organisational structure,
setting up organisational processes, and setting up system of appropriate multi-level leadership.
Designing appropriate organisation structure is of crucial importance to strategy implementation, as

it involves: (i) the relative ranking of key tasks of the strategy, (ii) assessment of competence,
working style, and commitment of key personnel, and (iii) determination of a hierarchical structure
consistent with delegation of formal authority and the organisation-wide information system.
1.7 Benefits of Good Strategic Planning
Strategic planning refers to understanding & analysing the business environment, identification of
opportunities & threats, assessing the internal strengths & weakness of the organisation, evolving an
action-plan of business activities which are likely to be most suitable for the business interest of the
organisation. As seen from this broad definition, a good strategic planning brings following benefits
to the organisation:
 It proposes a best ‘fit’ between the external factors and the internal strengths &
competencies of the organisation, thus providing inbuilt advantage for success.
 It has fair amount of ‘risk assessment’ built into the planning.
 It brings high degree of awareness among organisational employees and stakeholders
regarding proposed action-plan for the future.
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 As the likely problems have been discussed and analysed at strategy formulation stage,
it provides enhanced capability for problem prevention.
 It leads to improved quality of decision-making through group involvement/interaction.
 It leads to better understanding of the business priorities across all levels of employees
as well as the managers.
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UNIT 2. THE EXTERNAL ENVIRONMENT
2.1 Environment of Business

2.2 Competitive Environment
2.3 Stakeholders’ Relations & Expectations
2.4 Changes in External Environment Affecting Business Strategy
2.5 Environmental Scanning
2.6 Scanning Leading to Updation of Strategy Plans
2.7 Analysis Tools & Techniques
2.1 Environment of Business
The environment of any organisation is the sum-total of all conditions, events and influences that
surround and affect it. Generally business environment consists of the ‘totality of all factors’ which
are external to it, and largely beyond the control of individual business firm. Many factors relating
to general money supply, market condition, the competitors, suppliers, technological conditions,
government policies and legislations, and social settings are external to the business firm, and
constitute its external business environment. Important and influential segments of external
environment are: economic environment, market environment, social environment, political
environment, and technological environment.
2.1.1 Economic Environment
The economic environment consists of macro-level factors related to means of production and
distribution of wealth that has an impact on the business of all organisations operating under it. It
would be worth noting that almost all annual reports of business companies devote attention to the
general economic environment prevailing in the country of their operation, and also provide an
assessment of its impact on their company.
The business sector has economic relations with the government, the capital market, banks, and the
financial institutions, which together influence the trends and structure of the economy. The form
and functioning of economy varies from country to country.
For any business firm, the economic system is influenced by: (i) socio-political setup and changes
therein; (ii) Governmental decisions & policies; (iii) capital market(s); (iv) domestic and foreign
market situations etc. In most countries, the Government is the manager of the economy and its
policies have big impact on nature and functioning of the economy. For example, macro decision-
making in the economy is more decentralised in a federal form of Government than in a unitary form
of Government.
The economic system at the national level defines the institutional framework of economic
environment. The ownership, control, and management of the enterprise reveal the nature of the
economic system. The role and responsibility of the various sectors of the economy, namely the
private sector, public sector, joint sector, etc throw light on the philosophy and practices of an
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economic system – capitalistic, socialistic or mixed. The level of economic development and the
structure of economy define the framework of the environment. For example, available natural
resources like oil, minerals etc, human resources, and material resources of a country set a limit to
its sector endowment which determines its production.
2.1.2 Market Environment
The market environment consists of factors related to groups of companies, individual companies,
and other organisations that compete with one-another and have impact on markets & business of a
business firm. The market environment depends on the type of industry structure. In monopolies
and oligopolies, the concern for market environment is much lesser than what it is under pure
competition. In a controlled economy, public utilities for water, electricity etc, and petrol & gas
companies operate in protected environment though the situation is slowly changing in most
countries.
Some of the important factors and influences operating in the economic business environment are
as described below:
 Product factors such as demand, features, design, price, promotion/advertising,
distribution, and availability of substitute products or services.
 Customer factors such as needs, preferences, perceptions, values, bargaining power,
buying behaviour, and satisfaction of customers.
 Marketing intermediary factors such as middlemen, distribution channels, levels &
quality of customer service, logistics, costs, delivery systems, and the financial
intermediaries.
 Competitor-related factors such as different types of customers, entry & exit of major
competitors, nature of competition, and relative strategic positioning of major
competitors.
2.1.3 Socio-Cultural Environment
Socio-cultural environment comprise of factors related to human relationships within the society. It
also covers the development, forms, and functions of such a relationship and learned/shared
behaviour of groups of human beings having a bearing on the business of an organisation. Some of
the important factors and influences operating in social environment are:
 Socio-cultural attitudes and values;
 Demographic characteristics;
 Socio-cultural concerns regarding societal issues/problems;
 Educational levels;
 Work ethics;
 Family structure, and changes in it; and
 Role and positions of men, women, children, and the aged in the family.
The socio-cultural environment primarily affects the strategic management process within the
organisation in areas of mission & objective setting, and decisions related to products and markets.
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2.1.4 Political and Legal Environment
Political processes and legislation influence the environmental regulations with which the industry
must comply. As the case with many factors in the general environment, changes that benefit one
industry may cause certain damage to others. Government legislation can have a significant impact
on the governance and performance of business firms.
The significance of political conditions in strategic planning may be explained in terms of the
predictability of business activities under stable political conditions; and conversely by reference to
the impact of political instability, unrest and threat to law and order.
2.2 Competitive Environment
Business environment (or simply the environment) has direct impact on the business and its success
outcome. Therefore, it is important to understand the nature of the environment. Its major
characteristics are briefly described below:
 The environment is not static but dynamic in nature. The constituents of market have
close interactions and inter-dependence with each other. Change in one aspect has
impact on other aspect(s). For example, market inflation has effect in terms of reduction
in demand which in turn sets a chain of reactions. Thus, all factors do not remain same
all times. On the whole, the environment undergoes gradual changes over time.
Sometimes certain drastic and sudden changes may also be observed.
 The environment is complex in nature. It consists of a number of factors events,
conditions and influences arising from different sources. It is difficult to understand the
environment in totality, though its parts can be debated and analysed.
 The environment is multi-faceted. There are large numbers of factors adding up to make
the environment. Different firms get affected by different parts in different manner and
to different degree. One firm may get benefited whereas the other may be affected
adversely.
 There are far-reaching impact(s) of environmental factors on business organisations. The
growth and profitability of a business firm largely depends on the environment in which
it exists and operates.
One major and most important characteristics of modern business environment is that it is a
competitive environment. The nature of competition in an industry, as well as the profitability of a
firm, is often more directly influenced by developments in the competitive environment. The
underlying factors of competitive environment are: competitors, customers and the suppliers.
Technological developments have also fuelled the competitiveness of the environment. With rapid
advances in technology, newer manufacturing techniques are becoming available to the
manufacturers; which has two-fold implications for business. Firstly newer products are now
entering market at an increased pace than before. Secondly, better technology and superior
materials has made it possible to produce better/higher quality products at cheaper price and in
lesser time than before. This has revolutionised the market competition to the advantage of the
customers. The Industry and the business firms now have got a new statement for defining
competition: “Better, Cheaper & Faster”; meaning competition has now made it possible to produce
and sell ‘better products’ at ‘lesser price’ and developing these at faster pace than before.
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2.3 Stakeholders’ Relations & Expectations
Stakeholders are the individuals and groups who can affect and are affected by the strategy
outcomes; and who have enforceable claims on the firm’s performance. They generally support the
effective management of an organisation. They can, at times, with-hold their effective participation
for the performance of the organisation. Therefore, their support to the business firm, as well as
their expectations from it, are important part of success of ‘strategic management processes’ of the
organisation. The firm should honour their support and attempt to fulfil their expectations.
External Contribution/ Internal

Stakeholders Support Stakeholders
Customers,
Suppliers,
Business Firm Shareholders,
Unions(s),
Employees,
Mass Media,
Managers,
Bankers,
Directors
Creditors, and
Local Expectations/
Communities Claims
Figure: The Organisation–Stakeholder Relationship
The association of stakeholders with the organisation is a two-way relationship. Stakeholders

provide support to the organisation and contribute in different ways for achievement of the
objectives of the organisation. In return, the organisation tries to satisfy their expectations and
claims. External stakeholders such as customers pay the price for products & services, suppliers
supply the materials, creditors provide finance and so on. The internal stakeholders such as the
shareholders buy the shares, employees provide skills & labour, managers undertake decision-
making, and directors provide guidance & supervision to the managers. In return, the stakeholders
have expectations and claims. The shareholders expect good performance and returns on their
investment. The employees and managers expect fair dealing from the organisation and claim
compensation in terms of salary & wages.
2.4 Changes in External Environment Affecting Business Strategy
An organisation evolves its business strategy for its continued good/satisfactory performance,
survival in the fast changing market environment, and for ensuring its future growth in the face of
tough market competition. Major changes in the external environment disturbs the strategic
equilibrium established earlier and ‘pushes’ the firm to either a situation of advantage and gains, or
towards a situation posing disadvantage(s) for the firm.
Changes in economic environmental factors have direct impact of the performance of a firm. For
example, changes in factors namely economic structure, economic policies and economic indices
(like national income, distribution of income, rate & growth of GNP, per capita income, rate of saving
& investment, and balance of payment situation etc) affect the medium and long range business
planning of a business firm.
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Major changes in the market environment such as products/services demand & supply situation,
buying behaviour of customers, entry of big competitors in the market, and changes in market-
intermediary factors etc can have big influence on business firm which can be felt even in the short
time.
Similarly major changes in political & legal environment can have even immediate effects on
business performance of a business firm. However, changes in socio-cultural environment and in the
technological environment have far-reaching changes on business, but such effects are felt only
gradually and business firm get time to develop/evolve appropriate strategy to overcome the bad
effects, if any.
2.5 Environmental Scanning
The future of a business firm is closely linked up with what is happening in its environment. To grow,
innovate over and to manage the changes, a firm must attempt to anticipate the unknown parts of
the future environment. The fast-changing conditions require a systematic process of scanning and
diagnosis to determine (a) what factors in the environment present threats to the company’s
present strategy and achievement of objectives, and (b) what factors in the environment present
opportunities for better accomplishment of objectives; and whether they call for any adjustment of
goals or change in the strategy. A firm must install some ‘system’ and ‘process’ for anticipating
changes in its business environment, before they start impacting on the firm.
Environmental scanning can be defined as “the process by which organisations monitor their
relevant environment to identify the likely opportunities and threats which may affect their
business”.
There are certain important characteristics of environment scanning system:

 Environmental scanning and analysis is a holistic exercise in the sense that it must
comprise a total view of environment rather than viewing the trends piecemeal, like a
radar covering 360 degree of the horizon, and not just a segment.
 The scanning of environment must be a continuous process rather than having limited
scanning. General scanning of the horizon is essential to pick up new signals from the
environment (like in case of scanning by the radar) and to keep track of shifts in the
overall pattern of trends.
 Environmental analysis is a heuristic or exploratory process.
Environmental scanning involves surveillance of a firm’s external environment to predict the

changes that may affect the firm’s business operations and growth. Successful environmental
scanning alerts the firm about the critical trends and events, before the changes develop into a
discernible pattern and before the competitors recognise them.
By monitoring the environment through ‘environmental scanning’, an organisation can consider the
impact of the different events, trends, and expectations on its strategic management process. Since
the environment facing any organisation is complex, the scanning is absolutely essential. It has to be
so carried out that unnecessary time and effort is not expanded, and the important factors do not
get ignored. A systematic approach to environmental scanning is very useful in minimising time &
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cost, ‘catching’ the essential and most relevant at the earliest possible; and generating the
concerned trends systematically for better and fuller information-coverage.
In order to draw a clear picture of what opportunities and threats are faced by the firm at a given
time, it is necessary to carry out proper environmental appraisal. This leads to the identification of
many issues that affect the organisation. These issues could be judged on the basis of the intensity
of their impact on the business of the organisation and the relative probability of such an impact.
2.6 Scanning Leading to Updation of Strategy Plans
The information generated through environmental scanning is used to update the strategy plan(s)
for the organisation. The revision may be called major or minor on the basis of the observed trends
& events and the intensity of their impact of the business performance of the firm.
The results of environmental scanning bring out the possible impact of the business opportunities or
the threats for which appropriate options have to be decided by the management. This may lead to
the need for a revised strategy plan. This may include revision in the business activities, priorities for
business, and issue of revised statement of resource requirement. If the forecasted impact is serious
and or important, even changes in the work-structure may be considered.
2.7 Analysis Tools & Techniques
Analysis and appraisal of environment of business is carried out using different tools & techniques
for different factors of the environment. Some commonly used analysis tools are described in
following sections.
2.7.1 Competitors’ Analysis
While ‘industry analysis’ and ‘strategic group analysis’ focus on the industry as a whole, competitors’
analysis focuses on each company with which the firm competes directly. According to Porter, the
purpose of conducting a competitor analysis is to:
 Determine each competitor’s probable reaction to the industry and environmental
changes;
 Anticipate the response of each competitor to the likely strategic moves by the other
firms; and
 Develop a profile of the ‘nature’ and ‘success’ of the possible strategic changes, which
each competitor might undertake.
A competitor response profile can be built on the basis of the four components of competitor
analysis, namely (i) future goals of the competitors; (ii) current business strategy of competitor; (iii)
the key assumptions that the competitor makes about itself and about the industry, and (iv)
capabilities of competitors in terms of strengths & weaknesses. Based on a thorough analysis of
these components, a response profile can be prepared for each competitor that can help in
predicting their strategic moves; which can be ‘defensive’ or ‘offensive' by nature. The information
collected in the response profile is a vital input for formulation of (or revision to) business strategy of
an organisation.
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2.7.2 Customers’ Analysis
The customers’ analysis is carried out specifically in response to a particular product/service or for a
group of products/services in a particular market at a given time. It basically caters to finding
answers to following questions:
 What are the specific ‘needs’ of the customers?
 What are their ‘preferences’ among similar products /services?
 What are their preferences to the ‘specific features’ offered in different
products/services?
 What product ‘quality’ they are looking for meeting their general/routine requirements?
 What product/service ‘quality’ will ‘delight’ the customers?
 What ‘price’ they are willing to pay for respective quality of products/services?
 What product-support they are looking for?
Collection of above information with respect to a product/service or a group of product/service

helps a firm to evolve their marketing strategy for the product(s)/service(s) for a particular market.
2.7.3 Porter’s Five Forces Method for Competitive Analysis
Porter’s Five Forces Model is a popular and effective technique for analysing industry competition.
This model is described below in this section.
Potential
Entrants
Threat of New Entrants
Bargaining Powers of Suppliers Bargaining Power of Buyers

Suppliers Industry Buyers
Competitors
Rivalry among
Existing Firms
Threat of Substitute
Products & Services
Substitutes
Figure: Porter’s Five-Forces Model of Industry Competition
The “five forces” model by M.E. Porter is a commonly used analytical tool for examining the
competitive environment in an industry. It describes the competitive environment in terms of five
basic components of competitive forces as given below:
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 The threat of new entrants in the market.
 The bargaining power of the buyers in the market.
 The bargaining power of the suppliers in the market.
 The threat of substitute products & services available in the market.
 The intensity of rivalry among the competitors in the industry.
Each of these ‘forces’ affects the ability of a firm to compete in a given market. When these forces
operate together, they determine the profit potential for a particular industry. It helps a firm to
assess its future position in the industry and provides the rationale for increasing or decreasing the
resource commitment in future time.
For industry analysis to be valuable, a firm should collect and evaluate a wide variety of information
collected from many sources. This method of analysis assumes a ‘zero-sum game’, determining how
a firm can enhance its position relative to the ‘forces’. Such an approach can be short-sighted in the
sense that it can overlook the many potential benefits of developing constructive win-win
relationships with suppliers and customers. Further, by working together as partners, suppliers and
manufactures can provide the greatest value to the customers at the lowest cost.
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UNIT 3. FRAMEWORK FOR EVOLVING BUSINESS PLANS &
STRATEGIES
3.1 Introduction and Overview of Business Planning

3.2 Organisational Appraisal
3.2.1 Methods & Techniques used for Organisational Appraisal
3.2.2 VRIO Framework
3.2.3 Value Chain Analysis
3.2.4 Benchmarking
3.2.5 Organisational Capability Factors: Key-Factor Analysis
3.2.6 Balanced Scorecard
3.2.7 SWOT Analysis
3.2.8 Strategic Advantage Profile (SAP)
3.2.9 Evaluation of Internal Capabilities
3.3 Market Position Analysis
3.3.1 Boston (BCG) Growth/Market-Share Analysis Matrix
3.3.2 Industry Life Cycle Analysis
3.4 Competitiveness Analysis
3.4.1 Resource Analysis/Audit
3.4.2 Competencies Audit
3.1 Introduction and Overview of Business Planning
Business planning or strategic planning refers to a set of action-plan prepared in accordance of its
business strategy prepared in relation to the emerging changes in the business environment and the
firm’s capabilities and competencies. Environmental changes offer certain opportunities and threats
to the firms operating under it. Individual firms prepare an appropriate strategy depending on their
strengths and weaknesses for meeting the challenge(s) offered by the environment. Thus, the roll-
out of business strategy is done though a well prepared business plan, approved by the top
management of the firm.
Therefore, preparation of business strategy and business planning of a firm is carried out on the
basis of careful analysis of environmental changes and the strengths & weakness of the firm.
Analysis of external environment of the firm has been discussed in the previous unit. A study and
analysis of internal environment is equally necessary. “What should be achieved” is decided by the
challenges offered by the changes in the external environment. However, “how should it be done” is
largely decided on the basis of strengths of the internal environment, particularly the strengths,
competencies and capabilities of the organisation. Therefore, a proper organisational appraisal is
carried out, before attempting to evolve the business/strategic plan for the organisation.
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3.2 Organisational Appraisal
The main purpose of business plans for an organisation is to build-up its strategic advantage for
meeting the challenges posed by the external environment. It is primarily achieved through
development of firm’s resources and its organisational culture & behaviour.
The internal environment of a business firm provides it a framework for moulding its strategic
advantage in comparison with the other competitor firms. The components of competitive
advantage are as under:
i. Organisational resources;
ii. Organisational culture & behaviour;
iii. Its strengths & weaknesses;
iv. Synergistic efforts made by the organisation;
v. Organisational competencies; and
vi. Organisational capabilities.
The framework is presented in the figure shown below.
Strategic
Advantage
Organisational
Capabilities
Competencies
Synergistic
Efforts
Strengths &
Weaknesses
Organisational Organisational
Resources Culture & Behaviour
s
Figure: Framework for ‘Development of Strategic Advantage’ for an Organisation
An organisation operates on its resources, which may be classified as physical, human, and
organisational. The physical resources are the plant & equipment, technology, geographic location,
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access to raw materials etc. The human resources are the knowledge, experience, training,
intelligence, relationships, personal attributes etc present in the organisation. The organisational
resources are the formal systems and structures as well as the information system.
Organisational culture & behaviour is the manifestation of the various forces and influences
operating in the internal environment of the organisation that creates the ability for usage of the
resources. Strength is an inherent capability which an organisation can use to gain strategic
advantage over its competitors. A weakness is an inherent limitation or constraint which creates
strategic disadvantage for the firm.
Synergistic efforts refer to the phenomena /situation where addition of two efforts creates a ‘whole
sum’ which may be greater than the sum of two efforts. Such efforts do not add up arithmetically,
but adds up while carrying many other unconcerned factors also with them so that the ‘result’
appears to be more than the normal result of effort equal to the simple arithmetic sum of the efforts.
Competencies are the special qualities possessed by an organisation that make them withstand the
presence of competition in the marketplace. Capabilities refer to the inherent capacity or potential
of an organisation to use its ‘strengths’ and to overcome its ‘weaknesses’ in order to exploit the
opportunities and face the threats coming from its external environment.
Strategic advantages are the outcome of the organisational capabilities. They are the result of
organisational activities leading to rewards in terms of financial parameters, such as profit or
shareholder value; and also non-financial parameters such as market share or prestige etc.
Competitive advantage is one type of strategic advantage where major benefit is in terms of superior
or higher capability to compete in the marketplace.
3.2.1 Methods & Techniques used for Organisational Appraisal
The methods and techniques used for organisational appraisal can be identical to those used for
performance evaluation of an organisation. Three types of analysis are commonly used in
organisational appraisal:
a) Internal Analysis
b) Comparative Analysis
c) Comprehensive Analysis
Internal Analysis of an organisation deals with an investigation into its strengths and weaknesses by
focussing on factors that are specific to it. Two methods are used very often in industry related
analysis of firms. These are: VRIO Framework, and Value Chain Analysis. Comparative Analysis deals
with an examination of strengths and weaknesses in relation to its own past record or with
reference to its components. A comprehensive analysis uses a combination of techniques to make a
holistic analysis of weaknesses and strengths of a firm. Some commonly used tools and techniques
used for organisational appraisal of an organisation are described in subsequent sections.
3.2.2 VRIO Framework
This method is used for capability-analysis for the organisation. The acronym VRIO stands for
‘valuable’, ‘rare’,’ inimitable’, and ‘organised’ for usage. These terms are described below.
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a) Valuable: These are the valuable organisational capabilities possessed by the firm that help
it to generate revenues by capitalising on opportunities and/or reduce costs by neutralising
threats; for example (i) the ability to provide high quality after-sales service to the
customers, and (ii) ability to generate an amicable relationship with the government.
b) Rare: These are the organisational capabilities that are possessed by the firm exclusively or
just by a few other firms in the industry.
c) Inimitable: These are the organisational capabilities possessed by the firm that are
impossible, very difficult or not worthwhile to duplicate or substituted by the competitors.
d) Organised for usage: These are the organisational capabilities possessed by the firm that
could be used through appropriate organisational structure, business processes, control
systems, and reward systems that are present in the firm.
3.2.3 Value Chain Analysis
Porter in 1985 had introduced the framework of “value creation”, “value-addition operation”, and
“value chain”. When a raw material is ‘processed’ to convert it into a usable product, its value to the
customers increases. This operation is called ‘value-addition operation’. The line joining such value
addition operations is called the value-chain. In this context, the word ‘value’ basically means ‘value
for the customers’. This method analysis examines all ‘value-addition operations’ carried out in the
firm. Each step of ‘value creation’ or ‘value addition’ generates profit for the firm. If more value is
generated for comparatively lesser cost, the ‘profit-margin’ of the firm is ‘high’. An example of value
chain analysis is shown in the figure shown below.
(Support Activities)
Firm Infrastructure
Human Resource Management
Technology Development Profit
Margin
Procurements (Support Activities)
Inbound Operations Outbound Marketing Services

Logistics Logistics & Sales
Primary Activities
Figure: Value Chain Analysis – Porter’s Generic Value Chain
Porter divided the value chain of a manufacturing firm into ‘primary activities’ and the ‘support
activities’. Primary activities are directly related to the flow of the product to the customer and
include five sub-activities as follows: (i) inbound logistics (raw materials etc received from suppliers),
(ii) operations (conversion of raw materials into finished goods); (iii) outbound logistics (finished
products supplied from manufacturing plant to the warehouses in different locations); (iv) marketing
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& sales to the customers; and (v) services (after-sales services to the customers). The primary
activities are undertaken with direct focus on creating value for the customers (value from view
point of customers).
The support activities are provided to sustain the primary activities. These are: (I) firm infrastructure
(accounting, finance, general management, and legal support etc); (ii) human resource management
(recruitment, training, developing, appraising, compensating activities etc); (iii) technology
development (product design, process design, equipment design and servicing procedures); and (iv)
procurement (purchasing raw materials and other assets like machinery etc).
The profit margin that the organisation earns depends on how effectively the vale-chain is managed.
Value-chain management is one of the most important activities of the firm.
3.2.4 Benchmarking
A benchmark is a reference point for taking certain measures or taking action. It serves as a
reference yardstick for making comparison with. The process of fixing ‘benchmark’ aims at finding
the best ‘practice’ or ‘performance’ within and outside the particular industry. The purpose of
benchmarking is to find the best performers in an area so that one may attempt to even surpass it.
While making comparison among organisations, three types of benchmarking are common to
observe. These are:
 Performance benchmarking for comparing one’s own performance with that of other
organisation(s);
 Process benchmarking for comparing the methods & practices for performing processes;
and
 Strategic benchmarking for comparing long-term, significant decisions & actions
undertaken by other organisations for achieving their objectives.
3.2.5 Organisational Capability Factors: Key-Factor Analysis
This is a comprehensive method for organisation appraisal, which is used in association with
financial analysis. This method is based on ‘comprehensive information gathering & investigation’
regarding number of key performance areas, and providing them ‘ratings’ as per a pre-determined
methodology and standards set for this purpose. Each ‘key-area’ is investigated by asking number of
carefully planned, thoughtful and penetrating questions.
The key areas generally investigated thoroughly, include the followings:

 Functional capability factors;
 Marketing capability factors;
 Operations capability factors;
 Personal capability factors;
 Information management capability factors; and
 General management capability factors.
Any number of key factor areas may be added to the analysis, but subjectivity is observed to get
increased when key factor areas become large in numbers. Best results are obtained when in-depth
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penetrating questions are asked for limited number of areas which are crucial for the success and
growth of the business organisation.
3.2.6 Balanced Scorecard
This method is used as a means of assessment of ‘strengths’ and ‘weaknesses’ of an organisation.

Proposed by Kalpan and Norton, balanced scorecard attempts to do away with the bias in
performance measures towards financial indices and tries to build a holistic system of measurement.
Balanced scorecard is considered as a ‘set of measures that gives top managers a comprehensive
view of the ‘business’. It includes financial measures that tell the results of actions already taken. It
compliments the financial measure on customer satisfaction, internal processes, and the
organisation’s innovation and improvement activities that are the drivers of future financial
performance.
This method identifies four performance measures for the firm, as the following:
a) Customer perspective;
b) Internal business perspective;
c) Innovation and learning perspective; and
d) Financial perspective.
Each of the perspective could be used individually, but using them in combination provides deeper
insights and a balanced approach to strategy formulation.
3.2.7 SWOT Analysis
The diagnosis of a firm’s strengths and weaknesses can be by fruitful only if the environmental
factors and market conditions are considered along with the internal capabilities. This approach
involves matching of internal capabilities with the external opportunities and threats, and is known
as SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis. Organisations perform a
SWOT analysis to understand their internal and external environments so that an effective business
strategy can be formulated for the organisation.
Therefore, an effective strategy for an organisation should capitalise on the opportunities, and
neutralise the threats by minimising the weaknesses.
Using SWOT analysis technique involves three steps:

 Objective-setting for the organisation;
 Identifying its Strengths, Weaknesses, Opportunities and Threats;
 Identify possible ways & means for taking the ‘four steps’ for: (i) maximising the
strengths, (ii) minimising the weaknesses, (iii) capitalising on the opportunities, and (iv)
protecting the organisation from the threats posed by the environment.
The answers regarding ways and means for taking the above ‘four steps’ provide the necessary
information for strategy formulation for the organisation.
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STRENGTHS : WEAKNESSES :
List of ‘Strengths’ of the Organisation List of ‘Weaknesses’ of the Organisation
OPPORTUNITIES : THREATS :
List of ‘Opportunities’ for the Organisation List of ‘Threats’ for the Organisation
Figure: Typical Lay-Out of SWOT Matrix
A typical lay-out of the SWOT matrix for an organisation is shown in the figure, given above.
The SWOT analysis is usually done with the help of the template in the form of a four-cell matrix,
each cell of the matrix representing: Strengths, Weaknesses, Opportunities and Threats. Filling up of
the matrix is done through a brainstorming workshop of managers.
The SWOT analysis has several advantages in terms of preparation and usage: (i) flexible and ,
adaptable in different situations, (ii) simple to use, (iii) low cost, (iv) facilitates development of
strategy-options, and (v) useful for strategic analysis.
3.2.8 Strategic Advantage Profile (SAP)
This analysis is an extension of SWOT analysis, described above. A profile of strategic advantage is a
summary statement which provides an overview of advantages and the disadvantages in the key
areas, which are likely to influence the performance of the organisation.
It is a tool for making a systematic evaluation of the strategic advantage factors which are significant
for the organisation in its environment. The preparation of such a profile presupposes detailed
analysis and diagnosis of the factors in each of the functional areas such as production, marketing,
finance and accounting etc.
It is prepared in terms of a table having two columns: one for the various internal areas, and the
second for strengths & weaknesses. Signs of plus (+) and sign of minus (-) are used before
statements for strengths and weaknesses respectively, written in the second column.
3.2.9 Evaluation of Internal Capabilities
This method is an extension to the SWOT analysis. It caters for analysis of the strengths and the
weaknesses, identified during SWOT analysis. A factor is considered a strength if it is a distinct
competency or competitive advantage.
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Number of perspectives are analysed in detail for identifying the potential capabilities of a firm for
success in competitive market environment. Some of these perspectives to be analysed are: (i) past
performance and capabilities; (ii) evolution of product/market approach; (iii) comparison with the
competitors; and (iv) success-factors in the industry.
This method facilitates identification of potential capabilities of the firm contributing to its strengths,
and which may be used for evolving strategy option for the business firm.
3.3 Market Position Analysis
All firms compete for market share, which is an indicator for its competitiveness. Several factors
influence market share of a firm, namely: product quality, price, after-sales product services, specific
product-features, meeting customers’ taste & preferences, marketing strategy, and advertising etc.
For strategy formulation, market-position is an important element for ensuring growth of the
business in various market(s). A proper understanding of the underlying issues is helpful in proper
business planning. This is carried out through a brainstorming session with the managers.
3.3.1 Boston (BCG) Growth/Market-Share Analysis Matrix
The key purpose of portfolio models is to assist the firm in achieving a balanced portfolio of business
for optimal market share. A firm’s strategic business unit (SBU) is plotted on a two-dimensional grid.
The horizontal axis represents the ‘relative market-share’ and the vertical axis represents ‘industry
growth rate’. There are four quadrants in the BCG grid, as shown in the figure given below.
Stars Question Marks

12% -
Industry Growth -
Rate
8% -
6% - Cash Cows Dogs
4% -
2% -
0% ! ! ! ! ! ! !
. 8.0 4.0 2.0 1.0 0.5 0.25 0.125
Relative Market Share of the Firm
Figure: An Example of ‘Boston Consultancy Group (BCG) Portfolio Matrix’
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Each circle represents one of the strategic business-unit (SBU) of the firm. The size of circle
represents the relative size of the business unit in terms of revenues. The BCG model is based on the
application of two interrelated concepts: the experience curve and the growth share matrix. As per
the experience curve, the unit cost of production reduces when level of production rises. This is due
to concept of ‘economy of scale’. The four quadrants of the grid are described below.
The ‘Star’ (high growth/high market share) business units operate in high growth industries, and
enjoy high growth rate. The ‘Question Marks’ (high growth/low market share) business units are also
operating in high growth rate industries, but have lesser market share as compared to the star units.
The ‘Cash Cows’ (low growth/high market share) business units operate in low growth rate
industries, but have high market share like the star units. The ‘Dogs’ (low growth/low market share)
business units operate in low growth rate industries and also have relatively lesser market share.
Relative market share, by definition, is the market share of the concerned business unit divided by
the market share of the most dominant competitor. It reflects the unit’s competitive position and
indicates the rate of cash generation. It is learning from the experience curve that if a business unit
enjoys market share relative to its competitors, then its cash earnings/profits will also be
correspondingly higher.
3.3.2 Industry Life Cycle Analysis
Sales/Profit
Growth Maturity
Introduction Decline
Time (of Industry Operation)
Figure: Stages of Industry Life-Cycle
Life cycle is a ‘conceptual model’ that suggests that products, markets, business, and industry evolve
through sequential stages of introduction, growth, maturity, and decline. The life cycles move from
one stage to other stage with passage of time. Simultaneously, the strategic considerations for the
business unit also change accordingly.
Basically, life cycle curve is a variation of S-shaped curve which exhibits the relationship of ‘sales’ or
‘profits’ with respect to time. Its four stages can be described as under:
 First stage of ‘introduction’ characterised by ‘slow sales growth’;
 Second stage of ‘growth’ depicting rapid market acceptance and consequently fast rising
sales;
 Third stage of ‘maturity’ characterised by ‘slow-down in growth rate’ and ‘stagnant
sales’; and
 Fourth stage of ‘decline’ depicting ‘sharp fall in sales’, and ‘eroding profit margin’
compelling the management to withdraw the product from the market.
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There are different strategic implications for the industry over the life-cycle. In the ‘introduction’
stage (the first stage), product is not familiar to the customer, and markets are not defined. Due to
low sales growth, profit margins are poor with risk & fear of ‘loses’. Therefore, new competitors
hesitate to join the market at this stage.
In the ‘growth’ stage (second stage of industry life cycle) sales are picking up, customers are drawn
towards the product. Rising sales increase the profit margins. Many new competitors get attracted
by the market-promise and enter the market.
‘Maturity’ stage (third stage) brings a ‘stage of caution’ as sales are becoming stagnant and profit
margins are no more attractive. But, the business unit wants to extract maximum value from its
investment, as no new expenditure is required in various resources. This is a stage of ‘wait and
watch’.
The ‘declining’ stage (fourth stage) pushes up the ‘costs of making sales’, but the sales climb down
very fast. Profit margins are also falling steeply. The future of the industry appears to be ‘dark. The
management of firms are forced to make hard decision(s). Ultimately, the production comes to very
low level and most of the competitors withdraw from the market.
One of the essential step before strategy formulation is to understand and analyse the competition
in the industry and the competitiveness of member firms operating in the industry. A useful tool for
study of competition in an industry is the “Porter’s Five-Forces Model”, which has been discussed in
detail in the previous unit.
There are two strong pillars of competitiveness of a business firm. First, ‘quality of its resources’ is
the key factor in planning and implementing the business strategy & business plans. It is the
resources that make the ‘results’ happen and the ‘success’ come true. Secondly, the ‘level of the
competencies of the firm’ translates the ‘efforts’ into desired results. Therefore ‘resource analysis’
and ‘competency analysis’ provide some very useful inputs for strategy formulation for the business
firm.
3.4.1 Resource Analysis/Audit
Internal ‘resource analysis’ is also called as ‘resource audit’. However analysis is a broader
terminology as compared to audit. The analysis covers issues like nature of resources, their quality
and capability, and time left before the need of their replenishment/replacement. The important
resources covered during the analysis are physical, financial, human as well as the intangible
resources of the firm.
Assessment of the physical resources means looking into the inventory of physical assets &
properties, as well as the production capacity. Other allied issues namely nature, age, capability,
location, and state of maintenance are also recorded and analysed for exploring the possibilities of
continued use in the future.
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Financial resources need to be assessed with regard to the potential sources and uses of long-term
capital, changes in working capital, cash flow, terms of credits, outstanding debts etc. Cash
generation capability of the resource is considered as an important asset.
Human resource assessment should aim at analysing the number of employees in different skill
categories, their age and experience, and ability to change. The work culture and organisational
commitment of employees are important attributes of human resources which influence their
commitment, dedication and quality of work output.
Intangible resources are generally reflected in the goodwill of a firm. But they have value for the
firm, particularly in service based enterprises.
The resource analysis or the resource audit should be very comprehensive covering each aspect of
all resources. Possibility of renewal of resources must also be looked into. It must lead to assessment
of strategic advantage to the business firm. It is necessary that particular resources are identified
which are critical in underpinning the organisation’s distinctive capabilities.
3.4.2 Competencies Audit
The abilities and skills of employees coupled with the capabilities of organisational resources provide
the organisation certain unique capabilities which deliver ‘desired results’. This ability to deliver
desired results is the “competence of the organisation”. Many organisations institute detailed
studies to identify the specific business areas where the organisation has ability to deliver ‘required
results’ in respect of products/services having ‘value for the customers’ in the marketplace.
Competencies refer to special qualities and attributes possessed by the organisation, which helps to
deliver required results, while meeting the competitive pressure from the market. Such special
ability used along with competitive resources results in unique capabilities which make the
organisation competent to handle changing tasks against the competitive forces of the environment.
Some key ‘abilities of the organisation’ make it ‘competent to deliver results’ even against the
competition. These are called the ‘competencies’ of the organisation.
The competencies available in unique areas of strengths, giving an edge to the organisation over its
competitors, are called as the “core competencies” of the organisation in those particular areas.
Generally, organisations formulate their strategies and business plans around their core
competencies. Core competencies have two aspects:
(i) ‘Particular abilities’ giving edge over competitors, and
(ii) ‘Areas of business’ where such competitive edge is available.
When such competitive abilities of the organisation are unique to it, or are exclusive to the particular
organisation, and provide distinctive strategic advantage to the organisation, these are called the
distinctive competencies of the organisation.
Competencies audit refers to study, examination, and assessment of unique organisational abilities
in terms of (i) competencies, (ii) core competencies, and (ii) distinctive competencies with specific
reference to business areas and markets of business. It helps the organisation in formulating
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competitive business strategies around these three types and levels of unique capabilities of the
organisation.
Value chain analysis may also be helpful in identifying the core competencies of the organisation by
means of comparison with the value chain analysis of its competitors.
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UNIT 4. DEVELOPING OPTIONS FOR STRATEGIC PLANNING
4.1 Introduction to Strategic Planning

4.2 Modelling Tools for Developing Strategic-Options
4.4 Strategy Options for Formulation of Strategic Plan
4.1 Introduction to Strategic Planning
Business environment consists of the totality of all factors which are external to it, and are largely
beyond the control of individual business firms. This environment has number of segments, namely
economic, social, political, legal and technological environments. The environment is not static, but
is dynamic in nature. A business firm formulates its business planning keeping in view the
environmental factors and also how they impact its business.
The environment undergoes changes with time; some changes are slow and gradual in nature
whereas some ‘changes’ may by fast or even sudden. The changes may have implications for the
business firm affecting its survival and growth. Therefore, the business firm can not just react to the
changing occurring in the environment. It must attempt to be proactive in anticipating the ‘changes’
and taking appropriate actions to ensure that environment changes do not have adverse impact on
the firm. Whenever possible, ‘environmental forecasting techniques’ are used to generate a broad
picture of future environmental scenario. The firm should be able to identify, in advance if possible,
the opportunities & threats that the environmental changes may bring for it.
The business firm must carry out environmental appraisal as a continuous on-going exercise. The
factors internal to the organisations are referred as the “internal environment” for the firm, though
the internal factors are organisation specific. The ‘internal organisational capability factors’ are also
taken into account while formulating the strategic business plan. However changes in external
environment factors form the basis for starting the actions for evolving the business plan.
The opportunities and threats posed by the changes in external environment are studied and
analysed and the implications for the firm are also analysed. The implications may be positive and
supporting the business activities of the firm. Otherwise, these may be negative and be damaging to
the possibility of growth of business. Each of the opportunity and/or threat provides scope for
generation of a ‘business strategy option’ for meeting the environmental changes. A number of
‘options’ may be identified.
These strategy ‘options’ are investigated by gathering more information on it. Thereafter, each
‘option’ is analysed in terms of:
 Nature and quantum of resources required;
 Identification of critical resources,
 Broad statement & brief analysis of business activities involved;
 Any problem likely to be faced and remedial action-plan;
 Time and capital cost involved; and
 Resource mobilisation plan in brief.
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At the end, each strategy option is compared and a ‘best’ or ‘optimal’ strategy option is selected for
further work for strategy formulation.
4.1.1 Strategic Decision Framework
Strategic planning or strategy formulation involves set of decisions on which the development of
appropriate strategy is based. ‘Environmental analysis’ and ‘evaluation of internal capabilities’
should be carried out before attempting to formulate the business strategy for the organisation. The
matching of external threats and opportunities with the strategic advantage factors (SAP analysis
followed by SWOT analysis) provides the necessary informational backdrop for strategy formulation.
Based on the detailed understanding of external environment and the internal capabilities, potential
strategy options can be identified. This is followed by evaluation of the pros and cons of the various
alternatives so as to choose the most appropriate alternative. Thus, strategy formulation has three
stages:
 Intelligence gathering and analysis,
 Strategy designs/options, and
 Making the choice among various alternatives generated.
Intelligence gathering activity involves environmental analysis and diagnosis so as to identify the
‘problems’ to be solved and the ‘opportunities’ worth availing of. It calls for strategic decisions at the
corporate level. Strategy-Design activity involves formulation of various alternatives/options for
dealing with the threats/opportunities posed by the external environment. The search for
alternatives is based on the ‘informational’ input provided by the intelligence activity. The Choice-
Making activity consists of selecting the most appropriate strategy from among the alternatives. This
framework is helpful in understanding the essential elements involved in the process of strategy
formulation.
4.1.2 Nature of Strategic Planning
Strategic planning is a systematic and disciplined exercise to formulate strategies. It relates to the
enterprise as a whole or to a particular strategic business unit (SBU) of a centralised organisation.
The management has to take risk-decisions for the future with the limited knowledge of the
probable outcome of various ‘events’ and associated consequences.
Thus, the strategic planning involves formulation and analysis of various strategy-alternatives.
Thereafter, ‘one strategy alternative is selected’. The ‘strategic planning’ is a forward looking
exercise which determines the future posture of the enterprise with special reference to its product-
market posture, profitability, size, rate of innovation, and external institutions. Strategic planning is
concerned with the long-term aspects of business, and is therefore dealt with at the corporate level.
Strategic planning is different from project planning, tactical planning and operational planning.
Project planning relates to the action-plan expected to be implemented in the near-future for
meeting the organisational objectives like introducing some new product, or searching for new
market for existing products, or setting up of some manufacturing or testing facility etc. The
objectives have more clarity. Tactical planning is concerned with operational level issues, whereas
strategic planning concerns the corporate level issues to be faced in the long-term horizon. The
tactical planning is concerned more with the present than with the future. It implies an ad-hoc
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approach based on expediency with a time schedule. Operational planning is essentially concerned
with the existing product-market operations.
Strategic planning involves high degree of decision-risks and outcome uncertainty. Such risks are
moderate in tactical planning and are of a low order in the operational planning.
4.2 Modelling Tools for Developing Strategic-Options
4.2.1 Mintzberg’s Strategies
It was brought out by Henry Mintzberg that the ‘business strategies’ do not get implemented as
planned or originally intended in the strategic planning. It is commonly observed that the business
environment is very complex and the competitors, other organisations and market related factors do
not show behaviour as was thought in the planning stage. Their actions and behaviour at later time
when strategy is being implemented may actually be all together different. This calls for revisions in
the strategic plan to suit the new conditions/situations. This leads to a different strategy called as the
‘emergent strategy’. Ultimately, what gets implemented is the revised strategy, which is the actually
“realised strategy”. This is presented in the figure shown below.
Formulated Implemented
Strategy Strategy
Deliberate
. Intended Strategy Realised Strategy
Strategy
Unrealised Emergent
Strategy Strategy
(Source: Adapted from H. Mintzberg, “Pattern in strategy formulation”, Management Science, May 1978, 24, 9, p - 45)
Figure: Mintzberg’s Conception of the types of Strategy
In real life situation, many of the assumptions made during strategy planning, may not come true
when strategy in being implemented. The strategic plan may undergo many changes, which have to
be decided midway during implementation. In reality, there is iterative sequence of
‘implementation’-problems-reformulation’. The ‘realised strategy’ may be quite different from the
‘intended strategy’.
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4.2.2 Ansoff’s Product-Market Grid / Matrix
This method analyses the product-market relationship in a specific market for a business firm. It can
be used both for analysis of the market situation and for generating strategy options for (i)
concentration strategies and also for (ii) diversification strategies.
Concentration is a first level of expansion strategy where resource deployment is concentrated in

one or few business areas. The expansion is planned around basic factors like customer needs &
preferences, competitors’ products etc. Ansoff had proposed a product-market grid/matrix in 1957
in a research paper published in “Harvard Business Review”. This is presented in the figure shown
below.
Product
Current New
Market
Present Market Product

Penetration Development
New Market Diversification

Development
Figure: Ansoff Product-Market Matrix
Four growth strategies are shown in the matrix as under:

a) Market Penetration: It proposes marketing/selling of current products in the present
market. The firm attempts to increase its market share in present market, by attracting
more customers. In a mature market, the firm may adopt strategy to drive out its
competitors.
b) Market Development: It proposes marketing/selling of current products in new markets.
It involves attracting new users for existing products & services. The firm attracts new
customer groups in the same market.
c) Product Development: It proposes marketing/selling of new products in the present
market. The firm may identify more needs of customers in the markets where it has
strong presence, and may introduce new products for existing and new customers in
present market.
d) Diversification: It proposes marketing/selling of new products in new markets. This
strategy is not a concentration strategy like the above three strategies. It advocates
developing/acquiring new products for marketing in new markets where it may have
some presence and goodwill.
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For expansion of business, concentration (of resources) is an attractive choice of most firms as they
like to do what they have been doing well. A firm familiar with a particular industry will prefer to
invest more in known business.
4.2.3 Gap Analysis
This is a technique for focussing on strategic options/alternatives by visualising the ‘future state’ and
working backwards. The firm sets objectives for a future period of time, say three to five years and
then works backward to find out where it can reach through the present level of efforts and
resources. By forecasting/computing the ‘planned performance’ is analysed with respect to time.
This may be plotted on a graph. Then the performance using current level of resources & efforts is
also computed and plotted on the same graph. Thus, we get a comparative picture of two
performances as shown in the figure below.
Performance
Desired/Planned Performance
‘Gap’ in Performance
Present Performance
Time
Figure: Gap Analysis Technique for focussing on Strategic Alternatives
By the above technique, it is noticed that the desired performance (at desired time) can not be
achieved through current level of resources and efforts, as it falls little short as seen by the ‘gap’
between the two levels of performances.
In the example shown in the figure above, it provides the valuable information that the present
resources/efforts should be increased so that desired performance can be achieved at the desired
time. This technique is called the ‘gap analysis’. The present performance (using current level of
resources/efforts) is at same level upto some time, but starts lagging behind the desired
performance after that time.
4.2.4 Competitive Strategies
The main strategy of a business organisation for assured survival is to serve the already identified
customer groups and provide value to the customers through ‘providing them proper satisfaction of
their needs’. The organisation strives for growth by using its competencies to gain, sustain, and
enhance its competitive advantage against its rivals in the industry.
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Business firms desiring to sustain or enhance its competitive advantage do not rely on a single
strength, but strive for well-rounded strategies to ensure that their ‘advantages’ remain more lasting
or sustainable. Michael Porter (1980) has suggested three competitive strategies:
(i) Overall cost leadership strategy,
(ii) Differentiation strategy, and
(iii) Focus business strategy.
The three competitive strategies suggested by Porter are shown in the figure below.
Overall Cost Differentiation

Broad Target
Competitive Leadership
Scope Focussed Cost Focussed
Narrow Target
Leadership Differentiation
Low-Cost Differentiated
. Products/Services Products/Services
Competitive Advantage
Source: Adapted from M.E. Porter, “Competitive Advantage: Creating and Sustaining Superior Performance”,
New York, Free Press, 1985, p-12
Figure: Porter’s Generic Competitive Business Strategies
Overall cost leadership relates to a situation where the firm is able to produce and sell
products/services at lower costs as compared to the competitor firms, without lowering the quality.
This is achieved by detailed analysis of each activity on the value chain, and effecting cost reduction
on each activity to the extent possible. When the business organisation is able to produce the
product at lower cost than what its competitors are able to, the strategy is called as “cost leadership
strategy”. Customers prefer a lower cost product if it offers the same quality as offered by other
comparable products. The cost leader firm earns higher profit owing to its lower cost of products.
Cost leadership offers a margin of flexibility to sell the product in normal times at marginally lower
cost; but may lower its price significantly when the competitors reduce prices of their products.
A business firm can acquire competitive advantage by offering products/services having special
features which are valued by customers, who are willing to pay more for it. This strategy is called as
the differentiation business strategy. For this, it is essential that the products/services are unique in
terms of product/service features which are liked and valued by the customers. Such products or
services stands apart in the market and attract higher sales and profitability for its business firm.
Focus strategies rely on either cost leadership or differentiation, but cater to a narrow segment of
the total market. In terms of market, the focus strategies are niche strategies. More commonly used
basis for identifying customer groups are demographic characteristics, geographic segmentation, or
life-style. For the identified market segment, a focussed organisation attains advantage either
through lower cost strategy or the differentiation strategy. A firm following focus strategy must
direct its attention (or focus) toward narrow product lines, buyer segments, or targeted geographic
markets.
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4.3 Competitor Analysis
This is already covered under Section 2.7.1 earlier in Unit 2. Competitor analysis involves
identification of likely response of each competitor of a business firm to the changes in the
competition or in the environment. It attempts to foresee the likely actions by some competitors
and corresponding reactions by other competitor firms.
This method analyses the competitive history of each competitor firm and anticipates the probable
reaction(s) of each competitor to the possible environmental changes. Based on this, the likely
responses of each competitor to the possible strategic moves by the other firms are identified,
analysed and evaluated for their likely effectiveness.
At the end, a ‘competitive response profile’ of each competitor is compiled which identifies the
nature and effectiveness of the possible strategic moves likely to be made by the each competitor.
This helps in predicting their likely strategic moves, which may be offensive or defensive in nature.
4.4 Strategy Options for Formulation of Strategic Plan
Based on “environmental analysis” and “internal capability analysis/assessment”, various strategy

alternatives can be suggested. Each strategy alternative acts as an ‘option’ for implementation. In
order to choose the best alternative, all strategy options are analysed and evaluated for meeting the
objectives of the business organisation. As per the organisational objectives and nature of
environmental changes, a criterion is evolved for evaluating the strategy option. The ‘best’ or the
‘optimal’ strategy option is selected for implementation. Sometimes, the situation is multi-
dimensional and quite complex. In such a case, firm may decide to select number of strategies for
implementation, say one from certain strategy areas.
Two types of strategies draw the attention of top management most of the time: corporate
strategies and the business level strategies. The corporate level strategies or corporate strategies
relate to business firm as a whole i.e. total organisation is affected by the strategy implemented,
though it may not bring changes into all areas of business. Corporate strategies help to exercise the
choice of direction that the organisation adopts. It basically relates to decisions to be taken at top-
management level, related to:
a) Transferring resources from one set of businesses to others;
b) Decisions regarding expansion of business within and/outside the organisation;
c) Managing and nurturing new portfolio(s) of business.
Business level strategies relate to the specific business of an organisation. These are necessary as
different organisations compete with each other for market share. It is at particular industry level
that most competitive fights occur among various business firms operating as part of the industry.
Some of the important corporate and business level strategies are discussed in this section.
4.4.1 Expansion Strategies
This strategy of expansion is followed when the organisation aims significantly broadening the scope
of its businesses. The expansion may be planned through expanding the customer groups, customer
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segments, new markets and use of new technologies for increased quality and efficiency of
production. Expansion is an attractive proposition when the market demands are likely to increase
significantly, and the resource position of the organisation allows the organisation to act and
perform in growth oriented manner. It is also appropriate when increasing ‘size’ of businesses may
lead to more control over the market as compared to the competitors.
4.4.2 Internationalisation Strategies
These are a specific type of expansion strategies that require the business firm to market its produce
beyond the national boundaries. To achieve this objective, the firm has to assess its internal
capabilities and identify the foreign market(s) where the firm can market its products/services with
certain competitive advantage. The firm has to plan and formulate appropriate strategies for
entering the identified market(s). The strategy may offer options for: (i) exporting products/services
to the foreign market, and/or (ii) setting up production or assembly facilities in that country.
Four types of international strategies are commonly used by business firms. These are briefly
discussed below:
 International Strategy is adopted when a firm can create ‘value’ by transferring its
products/services to other country, where such products/services are not available, or
its products/services will enjoy some competitive advantage.
 Multi-domestic strategy is adopted when the firm is able to customise its
products/services according to the local conditions of different countries and still able to
have competitive advantage.
 Global Strategy is adopted when the firm is able to take advantage of ‘experience curve
phenomena’ and is able to offer its standardised products/services in many countries
across the world.
 Transnational Strategy is adopted when the firm is able to set up production facilities in
other countries and produce low-cost products/services with high local responsiveness.
But in this situation, the firm is extending its resources too much, and has to find ways to
use the local resources in cost effective manner.
4.4.3 Strategic Alliances & Joint Venture
These two forms of business partnerships are similar, but not exactly the same. A major difference is
that joint venture involves creation of a new business entity in legal sense, meeting the laws of the
country. In strategic alliance, the two organisations cooperate and work together under well defined
objectives, goals and business structure; but no ‘third party entity’ is created.
Strategic Alliance: In this case, two or more firms agree to work under a combined framework to
achieve mutually agreed set of objectives and goals, but remain independent for other businesses
even after formation of the alliance. The partner firms share the benefits, like profit and experience,
of the alliance. They contribute in key areas like manpower, money capital, products, and
technology. The partners develop a common strategy and create a win-win situation for both
parties.
Joint Venture: It is an entity resulting from a long term contractual agreement between business
firms to undertake mutually agreed business activities, exercise joint control, and contribute equity
capital. They share the benefits in terms of profits or losses from the entity. It is different from the
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‘merger’ where two firms combine to form a new business firm. Joint venture offers advantage of
achieving the agreed objectives mutually by the participating firms. It offers following advantages to
both parties:
 Controlling or reducing ‘competition’;
 Increasing the ‘market share’;
 In case of ‘technological difficulties’, the joint venture with technologically strong
business firm is possible under joint venture.
 If any ‘legal or regulatory hurdle’ comes in the way of expansion, this can be subverted
through a joint venture, within the national legal framework.
 Joint venture is an effective strategy when development costs have to be shared, risks
spread out, and expertise is to be shared.
4.4.4 Mergers & Acquisition
Combination of two or more firms is called as the merger of those firms to become one single entity
in business & legal sense. Sometimes, only a part of one firm joins the other firm as it has been
bought or acquired by the other firm. Thus, there are two ways of merger and acquisition. A
combination of two or more firms in which one firm acquires the assets and liabilities of the other in
exchange for cash or ‘shares’ and/or debentures is known as the ‘merger’. For the organisation
which acquires another, it is a case of “acquisition”; whereas for the organisation which is being
acquired, it is a case of “merger”.
If all combining firms/units are dissolved, in technical sense, and a new business firm is formed to
take over the assets and liabilities of these units against issue of new shares and debentures, then it
is described to be the case of ‘amalgamation’ or ‘consolidation’.
Types of Mergers & Acquisitions:

(i) A combination of two or more firms engaged in same business or in same aspects of
production processes is called ‘horizontal merger’.
(ii) A combination of two or more firms providing complementation to each other in
terms of supply of ‘inputs’ like materials etc and/or marketing of business outputs
(goods and services) is called ‘vertical merger’.
(iii) A merger which involves combination of two or more businesses related by
technology, production process or markets for business is called the ‘concentric
merger’.
(iv) A merger of certain firms not related to each other in respect of technology,
production process or markets, is called as ‘conglomerate merger’.
4.4.5 Niche Marketing
‘Niche’ refers to a small area of market where an organisation has certain advantage over the other
competitors or where others have no interest and have left in uncovered. Niche marketing strategies
are ‘similar to focus business strategies’, as niche marketing has a small and unique market position.
The ‘nicher’ firm should have the capability to provide a special product or service to a distinct
geographical area or to offer a customised product or service to a select group of customers. Like
focus strategies, niche marketing carries similar risks. If the market leader plans an expansion
covering niche area, the advantage of niche marketing may get negated.
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4.4.6 Superior Product Portfolio
In this strategy, a firm can introduce portfolio of products and services with superior features and/or
higher quality than what is offered by the competitors. Two techniques are generally used for this
strategy. Firstly, a firm may introduce products and services having superior features and quality
attributes as compared to the competitors’ products and services. Secondly a firm can take planned
actions to provide incrementally more attractive features/attributes, valued by the customers. For
this, a survey among the customers in various market segments is carried out to identify any
‘requirement’ or ‘preferences’ of the customers not being satisfied by other firms. Making
incremental improvement(s) in specific area(s) may not have large cost implications, but may
provide an attractive proposition to the customers in terms of higher satisfaction, which can
generate large market share.
4.4.7 Value Based Strategy
It is similar to superior product portfolio strategy, except that this strategy is not addressing to the
portfolio but to specific products(s) and service(s). This strategy aims at taking steps for enhancing
the ‘value for the customers’ in the products and services offered by the firm. Most firms carry out
value-chain analysis to identify areas where it will be cost-effective to make improvements in
performance, which will be appreciated by the customers to the extent that this may influence their
‘buying-behaviour’. Customer-feedback may also be generated either by customer-surveys or
seeking feedback at points-of-sales.
4.4.8 Workforce Development Strategy
This strategy aims at bringing cost-effective improvements in various steps of value-chain, through
improved contribution(s) by the workforce. The behavioural and attitudinal aspects may not add
much to the cost, but have the potential to make valuable contributions impacting through ‘lower
costs’ and ‘improved quality’ of products and services. It aims at providing training & development
for the workforce, and also improving factors relating to ‘job satisfaction’ and ‘quality of work life’.
4.4.9 Acquiring Alternate/New Technology
In the current environment, every firm or organisation uses technology almost at each step of
business, namely procurement/supplies, testing, storing, production, quality control, test &
clearance, supplying to the customers, and after sales support. Every business firms continuously
reviews the technology used at various steps for identifying new/alternate technology which may
enhance value to the customers in a cost-effective manner. Old technology may be saving the costs,
but may be losing on the quality, thus driving-away some of the customers. Most firms evolve long-
term technology strategy for their current and future businesses. Separate strategies may be
required for:
 Input material testing technology,
 New/alternate production-technology,
 Product/service improvement technology, and
 Product-testing & clearance technology.
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UNIT 5. FACTORS INFLUENCING THE STRATEGY
5.1 Factors Influencing Strategic Choice

5.2 Socio-Cultural Context
5.3 Organisation-Specific Factors
5.4 Managerial Factors
The work related to strategy planning & formulation is carried by organisation’s managers and the
top-management. It involves considerable amount of information-generation and analysis activities
followed by decision-making at appropriate senior level in the organisation. From practical
consideration, every activity may not be undertaken in the idealistic manner by the concerned
persons due to their different commitment, abilities, and ‘interests’ within the organisation and/or
outside. Thus, variety of such factors influences the strategy-planning activities, which should be
kept in view by the management.
5.1 Factors Influencing Strategic Choice
The basic factor calling for strategy formulation is the dynamic external environment where the
changes may pose opportunities or threats for the organisation working under it. Every organisation
evolves certain business strategies to cope with these changes to maintain its strategic advantage as
against the firms competing with it. It is the choice and decision making by the senior management
to choose the best or optimal option for evolving its strategy. There are number of factors and
constraints which influence strategy planning. These factors are discussed below.
External Factors: Every business firm is dependent to some extent on factors external to it for
success of its business activities. Some of these external factors are: the suppliers, customers,
competitors, shareholders, and the policies of bankers and governmental agencies. These factors
influence the strategic choices to be made for strategy formulation.
Influence of Previous Strategy: The managers of the organisation have had close knowledge and
experience regarding the present and past strategies followed by the organisation. Even
unknowingly, they tend to benchmark all planning actions and related decision-making with these
strategies. This may create some kind of bias for some strategy alternatives. Decision makers
associated with previous successful strategy are often influenced by the strength/correctness of
earlier decisions and in the first instance they may suggest/approve similar action-plan.
Time Pressure: The shareholders (owners) and top management of organisations bring pressure on
senior managers to “see that appropriate strategy is formulated at the earliest”. Under pressure of
time, it is possible either to ‘agree’ or to ‘not agree’ to the strategy options being discussed. There is
no time to explore ‘mix of some options’ or evolving improved solution. The ‘hurry’ makes them to
agree to something “less than the optimal”. The group could have arrived at better solution if they
had some more to discuss and improve over some suggested solution.
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Competitors’ Reaction: Before finally selecting a strategy option, the senior managers involved in
formulation of strategy generally ‘guess’ and ‘weigh’ the reactions of competitors to the strategy
selected by the organisation. Sometimes, the competitor firm(s) may or may not ‘over-react’ or give
a strong offensive reply. But all possibilities have to be kept in view, and the firm has to keep itself in
the state of readiness for any possible reaction.
5.2 Socio-Cultural Context
An organisation has close working as well as cultural interaction with its social environment. The
cultural issues of the internal environment also play an important impact while making strategy
related decisions. The members of the organisation come from the society, and thus bring with them
the values and beliefs of the society or social groups. Business organisations have to cope up with
the social and cultural beliefs of the society and its own members. They also have to face public
opinion, social media, and the legislation. Their views and strong opinion acts as some kind of
binding, directly or indirectly, on the strategy decisions taken by the firm.
The employees and managers of the organisation may have some kind of association with various
types of organised social groups like trade unions, religious groups, social & political bodies. The
management will not like to go against the values and beliefs of such social groups; and strategies
are made keeping in view the value of their support.
The organisational climate and culture also impact on the decisions taken by the managers of the
organisation, for example regarding offensive strategies or defensive strategies, decisions regarding
acquisitions & mergers, hostile taking-over of a company through purchase of majority shares of the
company, etc. Dominant culture plays its role and influences decision-making by the managers at
their subconscious mind.
Internal and external stakeholders of the organisation have their expectations from the organisation.
They are in a position to influence strategy-decisions by the organisation, by virtue of sources of
power arising out of the organisational dependence on their support.
5.3 Organisation-Specific Factors
Organisation has its internal capabilities and strengths around which it forms its business strategies.
The environment provides ‘opportunities’ and ‘threats’, but the organisation provides its strengths
to exploit the ‘opportunities’ and avoid the ‘threats’. Various organisational factors having strong
influence on decision-making regarding strategy planning are: market-image/positioning, unique
strength of its resources, its products & services, competitive advantage, leadership, and its
organisation structure.
A firm with strong market presence, good brand image, strategic advantage through cost effective
products & services, and excellent competitive resources can be in a position to plan an offensive
strategy. But a firm with weak internal strengths will attempt defensive strategies. Similarly,
innovative human resources and latest technology help the organisation to be in a position to plan
and implement strategy of cost leadership.
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According to Porter, different organisational arrangements, namely organisational structure,
leadership and motivation are needed for different generic strategies. Human skills, strong resources
and organisational capabilities are the key resources for any successful strategy implementation. The
workforce including technical persons and the managers provides a cost effective way to produce
products and services to the customers. Similarly, if a firm can identify the areas which hold the key
to success in the relevant industry, and apply the ‘right-mix’ of resources to them, it can attain
competitive superiority in the market.
5.4 Managerial Factors
The process of strategy planning & implementation is highly dependent on contributions of

managerial decisions, starting from setting of organisational vision & mission, defining organisational
objectives & goals, environmental scanning, generating strategy options, and decision making for
selecting the best/optimal strategy alternative. The managerial contribution is of very high order in
strategy making.
Strategic decisions regarding choice among the alternative strategy options are made by managers
on the strengths and limitations emerging from certain inherent abilities. As per Glueck, these
abilities are as under:
 Attitude towards risk-taking and working under uncertainty;
 Involvement in decision making for previous strategies adopted by the organisation;
 Organisation structure for ‘task distribution’ and integration of results/outputs for
supply to the customers;
 Managerial power relationships; and
 Degree of external dependence by the organisation.
The management style of the leader and the “attitude to risk” of senior managers towards ‘risk-
taking’ is one of the dominant factor in ‘management/leadership style’ and ‘managerial capabilities’
for decision making, particularly the decisions regarding selection of ‘best’ alternative among the
strategy options. Further, different managers may take different positions because of differences
between their values and the consequent weighing of key factors.
Some managers take calculated risks. They look for high returns in high growth markets. It is their
belief that ‘risk’ is a way of life, and risk-taking is necessary for success in dynamic business
environments.
In most organisations, strategy related decisions are influenced (though to varying degree in
different organisations) by the power-play among different interest groups within and also outside
the organisation. The personal views of the senior managers are considered very important by
functional level managers, and nobody may to speak against it in formal forums of the organisation.
Various ‘interest groups’ try to influence decision makers by making in-depth presentations on their
subjects of interest and thus indirectly become a part of strategy related discussions. Once common
interest issue gets indirectly highlighted, many managers tend to support such line of strategy
action-plan.
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UNIT 6. FORMULATION OF STRATEGIC PLAN
6.1 Strategy Formulation Structure

6.2 Task Differentiation & Integration
6.3 Process of Implementation
6.4 Resource Requirement
6.5 Assessment of Reaction from Competitors
6.6 Contingency Plans
6.1 Strategy Formulation Structure
Basically, the strategies of an organisation originate from its foundational structure of “vision-
mission-objectives’. Its goals and policies are also derived from this structure. The business activities
of the organisation are planned and executed to meet its objectives. As organisation operates in
dynamic environment, the objectives also undergo some changes but generally in a slow gradual
manner over the time. However, the mission may also get modified when the organisation
diversifies in different types of businesses. But this does not happen often. Whatever changes may
be brought in, the corporate vision provides the overall guiding framework for business activities
and the associated policies of the organisation.
The business firm organises itself and its business in such a way that it enjoys certain degree of
competitive advantage in the market over other firms also operating in the same market. But in the
dynamic environment, new competitors may enter the market; new products & services may be
introduced; customers’ needs & preferences may change; and the governmental policies like
taxation & regulations may also change with time. When the external environment is undergoing
significant changes, a business firm has to reorient its business by evolving a revised business
strategy so as to retain its competitive advantage.
Analysis of the external environment is the first major step towards strategy planning. Each segment
of the external environment is carefully analysed to identify the changes which may have ‘positive
impact’ or ‘adverse impact’ on the business firm. Each change may pose certain opportunity or
threats for the organisation. It is in the interest of the business firm to plan for ‘suitable action-plan’
to draw maximum advantages from the ‘opportunities’ and to overcome the effect of likely ‘threats’.
‘Suitable action-plan’, as mentioned above has to be evolved keeping in view the organisational
capabilities in various areas. Therefore, an ‘organisational appraisal’ is carried out to identify the
strengths of various capability factors.
The above mentioned two steps provide answers to two pertinent questions: What environmental
issues are required to be addressed? What are the strength/capability factors of the organisation,
around which the ‘changes’ may be planned? Thus, various “strategy options/alternatives” are
evolved by the managers/members of the organisation and submitted to the management. Each
proposal for a ‘strategy-option’, a statement is enclosed providing following information:
 The specific opportunity/threat posed by the environment;
 Strategy-proposal for addressing above issue;
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 Brief action-plan for implementing the strategy proposal;
 Likely ‘reaction(s)’ from the competitors; and suggested ‘steps’ to overcome them;
 Resource-requirement for the strategy proposal/option, including cost and timeframe.
Each of the strategy-option is analysed/assessed by a ‘team of senior managers’ nominated for this
purpose, and a ‘best’ or ‘most-optimal’ option is selected for strategy implementation.
A diagrammatic representation of the steps and structure used for strategy formulation is given in
the figure below.
Implementation of
Strategy Plan
Preparation of
Strategy Plan
Assess and Plan for Obtain ‘Agreement’

Select ‘Best Option’
Required Resources of All Stakeholders
Assessment of
Strategy Options
Context Context
Strategy
Options
Analysis
Environmental Organisational
Analysis Appraisal
Objectives
Context Context
Mission of the
Organisation
Vision of the
Organisation
Figure: Structure for ‘Formulation of Strategic Plan’ for an Organisation
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The selected ‘best option’ is again assessed for resource-requirement, before presentation to the
top management to seek their agreement/approval. A brief ‘proposal-statement’ is prepared, giving
the selected ‘best’ strategy option, and the associated resource requirements. Agreement of the
stakeholders should also be obtained to the strategy plan.
Stakeholders’ agreement enhances its chances for success, and brings awareness at all segments of
stakeholders regarding the reasons of strategy planning and how it will affect the interest of the
organisations and its stakeholders. The ‘proposal’ is first informally discussed in small groups with
the stakeholders of the organisations. Clarifications are provided, as required. The ‘doubts’ or ‘fears’,
if any, are also sorted/removed during such discussions.
Views and suggestions given by the stakeholders are discussed with higher management to seek
their suggestions and guidance. Thereafter, formal meeting(s) may be held with different groups of
stakeholders to seek their agreement. The purpose of such discussions is to ensure that proper
communication is provided to the stakeholders particularly on following issues:
 What is proposed to be done under the strategy plan?
 Why some ‘changes’ have becoming necessary?
 What ‘changes’ are proposed to be undertaken?
 What will be the benefits to the organisation, as a result of the proposed changes?
 Who all may be affected by the proposed changes?
 How the interests of such (affected) stakeholders are proposed to be taken care of?
The views and suggestions given by stakeholders are again discussed with top management for
incorporation in the strategy plan. Based on the formal approval of the top management to the
strategy proposal, a detailed document on ‘Strategy Plan’ is prepared and issued to all concerned in
the organisation.
6.2 Task Differentiation & Integration
According to Steiner and Miner, “the implementation of strategies and policies is concerned with the
design and management of systems to achieve the best integration of people, structures, and
resources in realising the organisational objectives”. It requires the commitment and cooperation of
all units, levels, and members of the organisation.
For any plan to succeed, two prong actions are essential: differentiation or organising tasks by
dividing the total strategy plan into number of component parts, and integration of results of
‘strategy-component parts’ into ‘total strategy outcome’ in its full effect.
As part of differentiation task, the sub-plan and related activities to be carried out by specific units or
divisions/departments of the organisation are defined and clearly stated. On this basis, the activities
and responsibilities of various units, small or big, are defined and stated with full clarity. Thus
accountability also gets assigned across the organisation.
For success of the strategy plan, it is necessary that some managers are assigned the task of
coordination and integration of diverse activities and roles into a unified and cohesive approach.
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6.3 Process of Implementation
Structural and administrative mechanisms are also required to be established, which should be
compatible with the requirement of tasks and goals. Four process-related issues are relevant in this
regard:
 Structure for organising tasks and activities;
 Allocation of resources for various goals, sub-goals, tasks, and activities;
 Monitoring and control of activities and progress thereof; and
 Administrative framework and policies.
6.3.1 Strategy and Structure
Michel Porter has stated that different types of strategies require different types of organisational
arrangements, namely the administrative setup, leadership style, and employee motivation etc.
Further different organisational structures and systems are needed for different stages of strategy
implementation. Different units/department engaged on different strategy sub-goals have different
requirements namely skills, process engineering skills, resource-allocation criticalities, cost-control
methodologies, and performance incentives on meeting the quantitative goals etc.
6.3.2 Implementation Targets
The strategy plan should have well defined and clearly stated ‘targets’ for ‘result areas’ and limits on
‘resource consumption’ particularly regarding manpower, cost in terms of money capital, and the
timeframe. For the purpose of effective implementation, the ‘overall targets’ should be translated
into targets for divisions, departments, units and sub-units of the organisation. To ensure effective
monitoring, ‘intermediate targets at specific time-intervals of time’ should also be decided and
included in the plan.
6.3.3 Risks and Uncertainties
Management decisions are taken on the basis of information provided to them. Here three aspects
are relevant: (i) quality and completeness of information; (ii) relevance to the purpose for which
information has been collected; and (iii) accuracy of information, particularly of quantitative
information. The manager faces a dilemma regarding uncertainty or degree of certainty and aspects
involving uncertainty. Information uncertainties constitute one kind of risk involved in decision-
making. Here the decision-maker has no control over it, or he even does not know about degree of
risk involved. It is like a “trap” in the process of decision making. Secondly, the managers may have
different capabilities and personal inclinations towards risk-taking. Leading business firms have a
policy of encouragement for risk-taking, but advocate calculated risk-taking.
6.3.4 Ethical Framework
The strategy or any business policy or activity is reflection of ‘corporate ethical performance’.
Therefore, every aspect of strategic planning must be in accordance with well understood and
generally agreed “business ethics”. Every action must be, and must also appear to be, above-board.
Illegal practices must never be resorted to. This is particularly important and essential while dealing
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with the customers and the competitors. There should be atmosphere of openness and transparency
in decision-making, which can be observed by the peers. The ethical organisation is characterised by
a conception of ethical values and integrity as a driving force of the enterprise. A strong ethical
orientation can have a positive effect on employee commitment and motivation to excel.
6.3.5 Success Matrices
The strategy plan should provide ‘goals’ and ‘targets’ for various areas and also the matrices for
measurement of performance or of strategy implementation. The degree or level to which the goals
and target are met by the respective work-groups provides a measure of success. Therefore the
“success matrices” may be defined in terms of goals and targets. Such matrices can serve yardstick
for deciding ‘incentives’ and ‘rewards’.
Such success matrices also serve as yardsticks for benchmarking. An open understanding and
agreement over the success matrices motivate the employees to strive for success, even under
difficult situations. This also provides a fair yardstick for performance; and for contribution towards
achievement of organisational objectives.
6.4 Resource Requirement
Managers are called upon to organise proper allocation and utilisation of the ‘portfolio of
organisational resources’. Such a portfolio includes human capital, financial capital, social capital,
and the organisational capital. A realistic assessment of resource requirement is very essential for
success of the organisation, particularly for financial performance. Over-assessment of resource-
requirement leads to unnecessary costs to the organisation. On the other side, under-assessment of
resources may cause serious delays and even result in ‘loss of opportunity’.
A critical managerial task in any organisation is proper and timely allocation of resources. For this, he
has to decide clear priorities among the competing programmes, tasks, and activities. The strategy
document should provide some kind of guidance to strategy managers to allocate right resources.
The ‘criticalities of resource allocation’ for important activities must be indicated in the plan. For
example, the project managers prepare critical-path diagram for the project. The definition of critical
path is that a delay in any activity on the critical path will delay the overall completion time for the
project. Therefore, “critical path activities” are declared as ‘critical-for-resource-allocation’ and get
priority in allocating the resources. Some organisations pursue their strategy implementation
programme as a project; and use project management tools & techniques.
6.5 Assessment of Reaction from Competitors
Every strategy planner is aware that once the strategy rolls out, the ‘competitors’ will start thinking
for their ‘ways and means’ for taking actions to ensure that this plan does not affect them adversely.
Therefore, the competitors will show some reaction(s) and consequently this strategy plan may not
be fully effective in achieving the desired results for the organisation. Therefore, the likely reactions
from the competitors should be anticipated and counter-strategy should be evolved for each of the
likely reaction.
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Many organisations hold brainstorming sessions where the views of the members are invited
regarding the likely reactions from competitors. Later, the views generated are discussed by a group
of managers and every ‘reaction’ is given a ‘probability’ of becoming the reality. The ‘more probable’
reactions are then discussed in another meeting on some other day to suggest the ‘response from
this organisation’ to the particular ‘reaction’ to the strategy. Companies prefer to keep a ‘reaction
bank’ where the likely reaction(s) and fitting response(s) from the organisation are kept on record.
Whenever required, the company can unfold its counter-strategy in the minimum time, as may be
possible.
6.6 Contingency Plans
A strategy plan may not succeed or progress, as planned due to the following factors:
 Counter-reaction(s) by the competitors;
 The inaccuracies in the environmental analysis; and consequent identification of
‘opportunities’ and ‘threats’ for the organisation;
 The inaccuracy in organisational assessment, and identification of core competencies &
strategic capabilities;
 Delays due to required resources not made available in timely manner to the critical
activities;
 Difficulties in effective monitoring and control of plan-implementation;
 Lack of ownership in some area(s);
 Partial or complete communication failure;
 Lack of required commitment and motivation; and
 Improper enforcement of accountability.
Therefore, the strategy plan may not progress as planned, and some changes may always occur. The
original plan may have to be updated or revised based on ground realities. When minor problems
are faced, the original plan undergoes certain revisions and a new plan emerges, which is called the
emergent strategy plan.
Some time, the basic assumptions made for the plan do not come true; and suddenly a new plan is
required to be put into place. Therefore, most organisations keep ‘alternatives plans’ ready when
the main strategy plan is being formulated. Such plans are called the contingency plan. The ‘resource
requirement’ and ‘plan for their mobilisation’ are kept ready. The ‘activity plan’ and associated
work-organisation structure is also kept in readiness.
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UNIT 7. Plan for Implementation
7.1 Introduction
7.2 Planning for Implementation
7.3 Project Team for Strategy Implementation
7.4 Defining Responsibility & Accountability
7.5 Stakeholders’ Agreement
7.6 Strategic Planning Document
7.7 Barriers to Strategy Implementation
7.1 Introduction
A strategic plan of an existing organisation brings a change in (i) the organisation, (ii) its business
processes & activities (iii) its work-organisation structure, and (iv) managerial-processes also. All
major activities critical to the success of an organisation have to be implemented in carefully
planned manner. The likely problems and other issues likely to arise have to be understood and
some solution(s) have to be evolved and informed to all concerned.
7.2 Planning for Implementation
For implementation of a strategy, there are many uncertain aspects needing attention of strategy
planner. Such factors should be addressed in the ‘strategy plan document’ for reference and
guidance of all concerned. These factors are:
 Organisational set-up/structure for strategy implementation,
 Relative priorities among various sub-goals and sub-objectives to be achieved through
the strategy plan;
 Fair estimates for cost & timeframe for implementation; and
 Appropriate management style for plan implementation.
Strategy Critical Activities: The activities on the ‘value chain’ must be examined closely to identify
the activities, which must be implemented exceedingly well for strategic success. Adequate amount
of resources should be provided for such activities without delay, even in case of resource
constraint. If serious resource problem is encountered, then some of the non-critical activities
and/or support activities may be outsourced to save organisational resources.
Structural Design for Strategy Implementation: As critical activities are crucial for strategy success,
then they should be implemented with necessary resource being allocated in the beginning.
Sufficient organisational powers should be delegated for such activity for quick decision-making. If
required organisational restructuring may be adopted.
Supporting Management Style: The main ability of the leader and the managers is to see that the
‘tasks’ are implemented with desired success in a timely manner. In the context of strategy
implementation, the effectiveness of the leader is judged by his abilities to deal with the people
effectively and to motivate them to willingly undertake difficult tasks with dedication.
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Effective Coordination: In traditional organisations, certain components of ‘strategy-critical activities’
are spread across number of departments, headed by different persons. As tasks are inter-
connected / inter-related, any delay in one department may delay in one department may seriously
affect the activities in other department. Therefore, coordination becomes crucial to ultimate
success. Therefore, ‘activity coordination’ has to be integrated in ‘organisational structure’ which
may generate coordination related issues ahead of problems so that actions may be taken in timely
manner.
7.3 Project Team for Strategy Implementation
Strategy implementation has many similarities with a project. Both are one-time activity and not a
repetitive one. Both have definite ‘start’ and a definite ‘finish’; though in strategy implementation,
the ‘finish’ is not as clear and abrupt as in project. Both need allocation of resources. Both can be
seen to be divided in terms of activities needing certain time and resources.
Therefore, many leading organisations implement strategies in ‘project-mode’. This has advantage of
freedom to create a small independent organisation, within the overall organisation, for
implementation of strategy. In this case, the existing Chief Executive Officer (CEO) need not be
burdened with additional responsibility of strategy implementation; rather a new CEO can be
appointed only for this purpose for temporary period, under the name of ‘Strategy Champion’
similar to a ‘Project Champion’. He has clear and exclusive responsibility towards the ‘strategy’ and is
held accountable for the success of strategy implementation.
7.4 Defining Responsibility & Accountability
The role, authority, organisational power, responsibility, and accountability should be defined in
clear and simple language in the ‘strategy formulation document’, and should be enforced
effectively for all managers and executives working on strategy implementation. This is possible only
when, the ‘overall task’ is divided into number of sub-strategy components, which are assigned
required resources and adequate decision making powers. As stated earlier, it is necessary that
some managers are assigned the task of coordination and integration of diverse activities.
7.5 Stakeholders’ Agreement
As stated earlier in unit-2, the stakeholders are the individuals and groups who can affect (and are
affected by) the strategy outcomes. They can, at times, withhold their effective participation for the
performance of the organisation. Therefore, their support to the strategy is crucial to the success of
‘strategy implementation’ in the organisation. Stakeholders provide valuable support to the
organisation and contribute in different ways for achievement of the objectives. External
stakeholders such as customers pay the price for products & services, suppliers supply the materials,
creditors provide finance and so on. The internal stakeholders such as the shareholders buy the
shares, employees provide skills & labour, managers undertake decision-making and directors
provide guidance & supervision to the managers of the organisation.
In view of the above, the agreement of stakeholder to the proposed strategic plan is essential for
success of implementation of the strategy across the organisation. This is best done by establishing a
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‘process of two-way communication’ between the management and the stakeholders. It may be a
long drawn process. The following issues should be communicated to the stakeholders, in simple
language:-
 The emergent changes in the organisational environment;
 Impact of environmental changes on the survival and growth of the organisation;
 A pro-active reaction by the organisation is the only alternative, and that the ‘action’ can
not be postponed for long;
 The benefits likely to accrue to the organisation;
 A brief description of the proposed strategy; and the departments, employees and
stakeholders who may be affected by the strategy-implementation;
 The nature and extent to which various segments of stakeholders may be affected;
 The proposed action-plan for safeguarding/compensating the interests of the
stakeholders;
 The team and the Leader responsible for implementing the strategy;
 The resources (including the timeframe) required for the strategy plan; and how these
resources will be mobilised; and
 The long-term benefits to various segments of stakeholders.
The above communication process with the stakeholder may be planned as an informal two-way
communication to be conducted in atmosphere of mutual trust and cooperation. The top
management must be kept informed regarding the progress of all stages and rounds of discussions
with various groups of stakeholders.
Gradually, clarity will emerge and good suggestions will emerge from both sides. Stakeholders may
request for some changes to be introduced in the strategy implementation plan. When most of the
issues have been sorted out and amicable solutions have been found to most of the issues, formal
meetings may be held with different groups of stakeholder to seek and record their agreement. A
feeling and policy of ‘give-and-take’ from both side facilitates agreement at early stage of time.
7.6 Strategic Planning Document
A strategic plan document provides information regarding the proposed strategy plan and the
manner in which the managements want to implement it. It provides the necessary background
information regarding the external & internal business environment and the changes occurring or
likely to occur. The ‘how’ and ‘why’ of the proposed strategic ‘changes’ are also explained.
It also provides necessary information regarding the ‘strategy’ selected for implementation and the
agreement/approval by the stakeholders and the top management. The organisational systems,
processes and procedures for implementation of the strategy plan are also presented in detail for
understanding and compliance by all members of the organisation.
The ‘structural arrangements’ for task differentiation, including the activities to be handled by
various divisions, departments, and units are explained in detail. The responsibility and
accountability of various managers are also stated in clear and simple language. The ‘criteria for
success’ in ‘performance’ and the ‘success matrices’ are also defined and explained. The key
management duties/responsibilities assigned to senior persons (by names), including the top
management, are also stated with necessary clarifications and additional information.
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Some organisations prepare and issue a single document providing all types of information, as may
be required by different persons performing different roles/tasks. However, the modern trend is to
issue a brief document on strategy implementation, providing only the strategy related information.
In addition, supplements/appendices to the main document are prepared on specific aspects of
strategy implementation.
Depending on the nature of the ‘market competition’ and the nature of the proposed business
strategy, different organisations take their own decisions regarding ‘security-grading’ to be given to
the strategy plan document. Some organisations treat it as a ‘confidential’ document. Some
organisations keep the confidential information in a separate appendix or in the supplement to the
main strategy implementation document, so that maximum amount of information can be shared
with all concerned in an open and free manner.
A comprehensive strategic plan document may include the following:-

 The name of the organisation, and the strategic business unit to which the strategy
relates to;
 The specific businesses of the organisation for which the strategy has been formulated;
 Statement of the vision, mission, goals and objectives of the organisation;
 Background information, in brief, regarding the business of the organisation covering
the past and current performance; and also its market-position;
 The events, signals, and information suggesting a need for strategic evaluation/analysis;
 Results of environmental analysis covering the ‘opportunities’ & the ‘threats’ for the
organisation;
 Results of organisational appraisal covering the ‘strengths’ and ‘weaknesses’;
 The proposed strategy approved by the stakeholders and the top management;
 ‘Plan-implementation schedule’, providing ‘activity-time’ progress chart;
 The ‘resource-critical activities’ identified for strategy implementation;
 Resource budget for strategy implementation, including the funds & timeframes;
 Proposed ‘organisational structure’ and ‘organisational systems’ for strategy
implementation;
 The role and responsibilities of the senior managers, including top managers; and
 Measures/Success-Matrices to be used for evaluating the performance(s).
7.7 Barriers to Strategy Implementation
Strategies are prepared by experts and specialists, but similar high level of expertise and skills is
generally not available for implementing the strategy in its all organisational areas and in all parts of
business. Numbers of reasons are often put forward for this difficulty faced in strategy
implementation. These reasons include:
 Inadequate managerial skills at middle and operational levels of management;
 Poorly defined responsibilities;
 Insufficient delegation of authority and powers;
 Lack of coordination;
 Insufficient budget allocation in the beginning;
 Resource-critical activities not identified at the start of work;
 Weak leadership; and
 Unclear success matrices.
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Some weaknesses in the managerial process also impede the progress and ultimate success of
strategy implementation. These factors are:
 Most of the managers have past experience in planning, but do not have much
experience in strategy implementation.
 The tasks of ‘formulation’ and ‘implementation’ are usually done by two different set of
managers.
 Every-thing does not always go as planned. Implementation-managers find it difficult to
update the plans to suit the changed circumstances.
 Strategy plan document is brief, and does not provide sufficient information or guidance
to operation-level managers.
 ‘The Leadership’ and the middle level managers have not planned for ‘change-
management’ which is an essential and critical part of the strategy implementation
process.
 Responsibilities and accountabilities are not defined clearly for all levels of the
organisation involved in strategy implementation.
 Lack of employee motivation and commitment.
The above issues/problems act as barriers to smooth implementation of strategic plans. The main
answer to this problem is to follow a clear and established model of strategy implementation. Some
of these issues are explained in section 7.6 on ‘strategic planning document’. Some useful steps for
overcoming the ‘strategy implementation barriers, are as mentioned below:
(i) Organisational systems, processes and procedures for implementation of the strategy
plan should be carefully designed with participation of all senior and operational
managers who may be involved in strategy implementation.
(ii) Task differentiation structure explaining the tasks to be performed by various divisions,
departments, and units should be “made public knowledge” by issue of a formal
document.
(iii) The responsibilities and accountabilities of all managers should be stated in clear and
simple language.
(iv) The ‘criteria for success’ in performance; and the ‘success matrices’ should be defined
and explained for information of all concerned.
(v) The role of senior persons (by names) in monitoring and control of progress in ‘strategy
implementation’ should be formally announced for information of all concerned.
(vi) The organisation should plan for “monthly strategic implementation meeting” and “six-
monthly/annual review meetings”.
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STRATEGIC PLANNING

1 Introduction to Strategic Planning 5

2 The External Environment 12

3 Framework for Evolving Business Plans and Strategies 20

4 Developing Options for Strategic Planning 32

5 Factors Influencing the Strategy 42

6 Formulation of Strategic Plan 45

7 Plan for Implementation 51

1.1 Concept of Strategy

1.1 Concept of Strategy

1.2 Business Environment

1.2.1 Internal and External Environment

1.2.2 Vision, Mission and Objectives

1.2.3 Goals, Strategies and Policies

All goals have four components:

To obtain optimal performance, goals of a business firm must be:

A strategy for a business organisation has the following components:

1.3 Levels of Strategy for an Organisation

Strategy formulation needs following important information inputs:

1.5 Process of Strategic Planning

Developing Define Set Develop Decide Implement

Fig: Process of Strategic Planning or Strategy Formulation

1.6 Strategy Implementation

Designing appropriate organisation structure is of crucial importance to strategy implementation, as

1.7 Benefits of Good Strategic Planning

2.1 Environment of Business

2.1 Environment of Business

2.1.1 Economic Environment

2.1.2 Market Environment

2.1.3 Socio-Cultural Environment

2.2 Competitive Environment

External Contribution/ Internal

Figure: The Organisation–Stakeholder Relationship

The association of stakeholders with the organisation is a two-way relationship. Stakeholders

2.4 Changes in External Environment Affecting Business Strategy

2.5 Environmental Scanning

There are certain important characteristics of environment scanning system:

Environmental scanning involves surveillance of a firm’s external environment to predict the

2.6 Scanning Leading to Updation of Strategy Plans

2.7 Analysis Tools & Techniques

2.7.1 Competitors’ Analysis

Collection of above information with respect to a product/service or a group of product/service

2.7.3 Porter’s Five Forces Method for Competitive Analysis

Bargaining Powers of Suppliers Bargaining Power of Buyers

Figure: Porter’s Five-Forces Model of Industry Competition

3.1 Introduction and Overview of Business Planning

3.1 Introduction and Overview of Business Planning

The framework is presented in the figure shown below.

Figure: Framework for ‘Development of Strategic Advantage’ for an Organisation

3.2.1 Methods & Techniques used for Organisational Appraisal

3.2.2 VRIO Framework

3.2.3 Value Chain Analysis

Inbound Operations Outbound Marketing Services

Figure: Value Chain Analysis – Porter’s Generic Value Chain

3.2.5 Organisational Capability Factors: Key-Factor Analysis

The key areas generally investigated thoroughly, include the followings:

3.2.6 Balanced Scorecard

This method is used as a means of assessment of ‘strengths’ and ‘weaknesses’ of an organisation.

3.2.7 SWOT Analysis

Using SWOT analysis technique involves three steps:

List of ‘Strengths’ of the Organisation List of ‘Weaknesses’ of the Organisation

Figure: Typical Lay-Out of SWOT Matrix

3.2.8 Strategic Advantage Profile (SAP)