Chapter – 01

Understanding Strategy

- Dr. Vinay Nandre

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 Syllabus – Chapter 01
Understanding Strategy:
• Concept of strategy, Levels of Strategy - Corporate, Business and Functional.
Strategic Management - Meaning and Characteristics. Distinction between
strategy and tactics.
• Strategic Management Process, Stakeholders in business, Roles of
stakeholder in strategic management.
• Strategic Intent – Meaning, Hierarchy, Attributes, Concept of Vision & Mission -
Process of envisioning, Difference between vision & mission. Characteristics of
good mission statements. Business definition using Abell’s three dimensions.
Objectives and goals, Linking objectives to mission & vision.
• Critical success factors (CSF), Key Performance Indicators (KPI), Key Result
Areas (KRA).
• Components of a strategic plan, Analyzing Company’s External Environment:
Environmental appraisal, Scenario planning – Preparing an Environmental
Threat and Opportunity Profile (ETOP).
• Analyzing Industry Environment: Industry Analysis - Porter’s Five Forces Model
of competition, Entry & Exit Barriers. (7+2)
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 Literature - Reading material
• Chapter 1, 2, 3 and 4 - Strategic Management and
Business Policy by Azhar Kazmi, Tata McGraw-Hill,
Fourth Edition.
• Pre reading 1 – Shared by academic team
• Case study - The external environment and its effect on
strategic marketing planning of Mc Donald’s - Research
gate
• Case Study - Indian cosmetics and toiletries industry
profile – Strategic Management and Business Policy by
Azhar Kazmi, Tata McGraw-Hill, Third Edition.

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STRATEGIC MANAGEMENT
FOURTH EDITION
 Introduction
• The word “strategy” is derived from the
Greek word “stratçgos”;
• “stratus” (meaning army) and
• “ago” (meaning leading/moving).

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 Discussion Points
• Why Strategy
• What is the importance
• What is mean by strategy
• Why is strategy more complex

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 Importance of strategy

• Financial Benefits:
• Offsetting Uncertainty:
• Clarity in Objectives & Directions:
• Increased Organizational Effectiveness:
• Personnel Satisfaction:

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The Relationship Between Planning
Implementation and Control

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• Def. - Strategy is an action that managers take to attain one or more
of the organization’s goals.

• A strategy is all about integrating organizational activities and utilizing

and allocating the scarce resources within the organizational
environment so as to meet the present objectives. While planning a
strategy it is essential to consider that decisions are not taken in a
vacuum and that any act taken by a firm is likely to be met by a
reaction from those affected, competitors, customers, employees or
suppliers.

• Strategy is the blueprint of decisions in an organization that shows its

objectives and goals, reduces the key policies, and plans for achieving
these goals, and defines the business the company is to carry on, the
type of economic and human organization it wants to be, and the
contribution it plans to make to its shareholders, customers and
society at large.

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 Definition
• Strategic management can be defined as the art and science of
formulating, implementing, and evaluating cross-functional decisions
that enable an organization to achieve its objectives. As this definition
implies, strategic management focuses on integrating management,
marketing, finance and accounting, production and operations,
research and development, and information systems to achieve
organizational success.

• Strategy is a high level plan to achieve one or more goals under

conditions of uncertainty.

• Henrik von Scheel defines the essence of strategy as the activities to

deliver a unique mix of value – choosing to perform activities
differently or to perform different activities than rivals.

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 Definition
• “Strategic management is concerned with the determination of the
basic long-term goals and the objectives of an enterprise, and the
adoption of courses of action and allocation of resources necessary
for carrying out these goals”.
– Alfred Chandler, 1962

• “Strategic management is a stream of decisions and actions which

lead to the development of an effective strategy or strategies to help
achieve corporate objectives”.
– Glueck and Jauch, 1984

• “Strategic management is a process of formulating, implementing

and evaluating cross-functional decisions that enable an
organisation to achieve its objective”.
– Fed R David, 1997
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 Definition
• “Strategic management is the set of decisions and actions resulting in
the formulation and implementation of plans designed to achieve a
company’s objectives.”
– Pearce and Robinson, 1988

• “Strategic management includes understanding the strategic position

of an organisation, making strategic choices for the future and turning
strategy into action.”
– Johnson and Sholes, 2002

• “Strategic management consists of the analysis, decisions, and

actions an organisation undertakes in order to create and sustain
competitive advantages.”
– Dess, Lumpkin & Taylor, 2005

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A word of caution for the term
“Strategy”
• The term strategic is often misunderstood, misinterpreted and
misused.

• The literature and texts in strategic management assign a definite

meaning to the term ‘strategic’.

• Marketing strategy, advertising strategy or purchasing strategy and

strategic procurement or strategic recruitment are commonly used
terms.

• Strategic means when things are done keeping in view the

objectives and strategies of the organisation and is seen as
something having a long-term and vital significance to the future of
the organisation.
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 The Concept of Strategy
A strategy could be:
• a plan or course of action or a set of decision rules making a pattern or
creating a common thread;
• the pattern or common thread related to the organisation's activities which
are derived from the policies, objectives and goals;
• related to pursuing those activities which move an organisation from its
current position to a desired future state;
• concerned with the resources necessary for implementing a plan or
following a course of action; and
• connected to the strategic positioning of a firm, making trade-offs between
its different activities, and creating a fit among these activities.
• the planned or actual coordination of the firm's major goals and actions, in
time and space that continuously co-align the firm with its environment.

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LEVELS OF STRATEGY

CORPORATE LEVEL

BUSINESS LEVEL

FUNCTIONAL LEVEL
 Characteristics

LEVEL OF
MEMBERS AREAS
STRATEGY

• Board of Directors
• Range of Business
• Consultants
CORPORATE •Type of Business
• Corporate
• widening Products & Services
Planners

• General Managers
• Related to a unit of an
BUSINESS • Divisional Heads
organisation
• Unit Heads

FUNCTIONAL / • Concerned with Departmental

• Functional Heads
OPERATIONAL contribution
 Levels at which Strategy
Operates
LEVELS OF MANAGEMENT LEVELS OF STRATEGY

Corporate
CORPORATE Office CORPORATE-LEVEL

SBU SBU SBU SBU BUSINESS-LEVEL

A B C

FUNCTIONAL

Finance Marketing Operations HRM Information

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 Strategic Decision-Making
• Objectives to be achieved are determined;

• Alternative ways of achieving the objectives are

identified;

• Each alternative is evaluated in terms of its objective-

achieving ability; and

• The best alternative is chosen.

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 Problems in Strategic
Decision Making
• Problem related to objective-setting.

• The identification of alternatives.

• The objective-achieving ability of each

alternative.

• Choosing the best alternative is a formidable

task.
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 Issues in Strategic Decision-
Making
• Criteria for decision-making
• Rationality in decision-making
• Creativity in decision-making
• Variability in decision-making
• Person-related factors in decision-making
• Individual versus group decision-making.

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 STRATEGIC MANAGEMENT
VS.
OPERATIONAL MANAGEMENT

• Strategic management is the process of:

• Understanding the business environment
• Developing the desired state of performance and
• Implementing strategies to achieve it

• Operations management involves:

• Executing the strategy on the day to day basis
• To achieve the desired performance in the long run
• SCOPE:
• Strategic management is an organizational wide.
• The operations management is concerned of operations as in production function.

• TERM:
• Strategic management is a long term process
• Operations management is short term.

• NATURE:
• The strategic management a non routinized tasks (very ambiguous and dynamic).
• The operations management day to day activities very routinized and mechanical.

• COMPLE X ITY:
• Strategic management is a complex.
• Operations management is a fairly simple process.

• APPROACH:
• Survival of an organization is directly linked to strategic management.
• Operation management is not directly related to the survival of the organization.
?
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 Strategic Management
Defined
• Strategic management is defined as the dynamic process of
formulation, implementation, evaluation and control of
strategies to realise the organization’s strategic intent.

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 Strategic Management is
characterized as…

• Dynamic process.
• Continual, evolving, iterative process.
• Evolving mosaic of relevant activities.

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 Four phases in Strategic
Management

Establishment
of
Formulation of Implementation of Strategic
strategic
strategies strategies evaluation
intent

Strategic control

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 Comprehensive Model of
Strategic Management
Strategy
Implementati
Strategic Strategy Formulation on Strategic
Intent Evaluation
Environmental Organisational Project
Appraisal Appraisal Procedural
Vision
Mission Resource allocation
SWOT Analysis Structural Strategic evaluation
Business definition
Corporate-level Strategies Behavioural and control
Business model
Business-level Strategies Functional &
Objectives
Strategic analysis and choice Operational
Strategic plan Implementation

Strategic control

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ESTABLISHING THE HIERARCHY
OF STRATEGIC INTENT

• Creating and Communicating Vision.

• Designing a Mission statement.

• Defining Business.

• Adopting the Business Model.

• Setting Objectives.
FORMULATION OF STRATEGIES
• Performing Environmental Appraisal.

• Doing Organisational Appraisal.

• Formulating Corporate Level Strategies.

• Formulating Business Level Strategies.

• Undertaking Strategic Analysis.

• Exercising Strategic Choice.

• Preparing Strategic Plan.

IMPLEMENTATION OF STRATEGIES

• Activating Strategies.

• Designing The Structure, Systems and Processes.

• Managing Behavioral Implementation.

• Managing Functional Implementation.

• Operationalizing Strategies.
STRATEGIC EVALUATION
• Performing Strategic Evaluation.

• Exercising Strategic Control.

• Reforming Strategies
Strategic Management Process -
Meaning, Steps and Components

Fig. - Components of Strategic Management Process

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Strategic management process has following four steps:

• Environmental Scanning- Environmental scanning refers to a

process of collecting, scrutinizing and providing information for
strategic purposes. It helps in analyzing the internal and external
factors influencing an organization. After executing the
environmental analysis process, management should evaluate it
on a continuous basis and strive to improve it.

• Strategy Formulation- Strategy formulation is the process of

deciding best course of action for accomplishing organizational
objectives and hence achieving organizational purpose. After
conducting environment scanning, managers formulate
corporate, business and functional strategies.

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• Strategy Implementation- Strategy implementation implies
making the strategy work as intended or putting the
organization’s chosen strategy into action. Strategy
implementation includes designing the organization’s structure,
distributing resources, developing decision making process,
and managing human resources.

• Strategy Evaluation- Strategy evaluation is the final step of

strategy management process. The key strategy evaluation
activities are: appraising internal and external factors that are
the root of present strategies, measuring performance, and
taking remedial / corrective actions. Evaluation makes sure that
the organizational strategy as well as it’s implementation meets
the organizational objectives.

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 Stakeholders In Business
• A corporate stakeholder is a party that can affect or be affected by the
actions of the business as a whole. Stakeholder groups vary both in terms
of their interest in the business activities and also their power to influence
business decisions. Here is the summary:

The stake holders of a company are as follows

• Shareholders
• Creditors
• Directors and managers
• Employees
• Suppliers
• Customers
• Community
• Government

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 SHAREHOLDERS

GOVERNMENT CREDITORS

DIRECTORS
COMMUNITY AND
MANAGERS

CUSTOMERS EMPLOYEES

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Stakeholder Main Interests Power and influence

Shareholders Profitgrowth, Share Election of directors

price growth, dividends
Creditors Interest and principal to be
repaid, maintain credit rating
Directors and managers Salary, share options,job
satisfaction, status
Employees Salaries & wages, job security,
job satisfaction & motivation
Suppliers Long term contracts, prompt
payment, growth of purchasing
Reliable quality,
Customers
value for money,
Product availability,
customer service
Community Environment, local jobs, local
impact
Government Operate legally, tax receipts,
jobs
Can enforce loan covenants and
Can withdraw banking facilities
Make decisions, have detailed
information
Staff turnover, industrial action,
service quality
Pricing, quality, product
availability
Revenue /repeat business,
Word of mouth /
recommendation
Indirect via local planning and
opinion leaders
Regulation, subsidies, taxation,
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planning
 Stakeholders’ relationship
management
• Stakeholders can be divided into internal and
external stakeholders:
– Internal stakeholders such as shareholders /
owners, managers or employees
– External stakeholders such as customers, suppliers
or government

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The Organisation-Stakeholder
Relationship
External stakeholders CONTRIBUTIONS /
Customers SUPPORT
Suppliers
Government regulators Internal stakeholders
Banks / creditors Shareholders
Trade unions Employees
Employers’ organizations Managers
Mass media Directors
NGOs/activists
Local communities
General public EXPECTATIONS/
CLAIMS

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 Stakeholders’ Analysis
• Stakeholder relationship management requires that stakeholder analysis be
done to identify the relative importance of various stakeholders and to
ensure that the claims of the more important stakeholders are satisfied first.
Usually, the stakeholder analysis follows the steps below:
– Identify the stakeholders
– Identify the stakeholders’ expectations, interests and concerns
– Identify the claims stakeholders are likely to make on the organisation
– Identify the stakeholders who are more important from the organisation’s perspective
– Identify the strategic challenges involved in managing the stakeholder relationship

Discussion ...
Which defensive system company have to manage these stake holders?
HR dept.(for employees) PR department, CRM department

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?
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 Comprehensive Model of
Strategic Management
You
are
here Strategy
Implementati
Strategic Strategy Formulation on Strategic
Intent Evaluation
Environmental Organisational Project
Appraisal Appraisal Procedural
Vision
Mission Resource allocation
SWOT Analysis Structural Strategic evaluation
Business definition
Corporate-level Strategies Behavioural and control
Business model
Business-level Strategies Functional &
Objectives
Strategic analysis and choice Operational
Strategic plan Implementation

Strategic control

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 Strategic Intent
• Strategic intent is the purpose for which an organisation strives for.
These could be in the form of vision and mission statements for the
organisation as a corporate whole.

• At the business level of firms these could be expressed as the business

definition and business model.

• In precise terms, as an expression of aims to be achieved operationally,

these may be the goals and objectives.

• Strategic intent lays down the framework within which firms would
operate, adopt a predetermined direction and attempt to achieve their
goal.

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 Understanding Strategic Intent
• The term strategic intent has been understood as an obsession with an
organisation: an obsession by having ambitions that may even be out of
proportion to their resources and capabilities. This obsession is to win
at all levels of the organisation while sustaining that obsession in the
quest for global leadership.

• The concept also encompasses an active management process that

includes: focusing the organization's attention on the essence of
winning, motivating people by communicating the value of the target,
leaving room for individual and team contributions, sustaining
enthusiasm by providing new operational definitions as circumstances
change and using intent consistently to guide resource allocations

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 Concept of Stretch, Leverage
and Fit
• Stretch is a misfit between resources and aspirations
• Leverage refers to concentrating, accumulating, complementing,
conserving, and recovering resources in such a manner that meagre
resource base is stretched to meet the aspirations that an
organisation dares to have.
• Fit means positioning the firm by matching its organisational
resources to its environment.

G. Hamel and C. K. Prahalad: "Strategy as Stretch and Leverage" Harvard Business Review, Mar - April 1993, pp. 75 - 84.

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 Concept of Stretch, Leverage
and Fit
• The strategic fit is central to the strategy school of positioning where
techniques such as SWOT analysis are used to assess
organisational capabilities and environmental opportunities.

• The ideas of stretch and leverage belong appropriately to the

learning school of strategy where the capabilities are not seen as
constraints to achieving and the environment is perceived not as
something which is considered as given but as something which can
be created and moulded

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 Vision
• Vision articulates the position that a firm would like to attain in distant future.
• Kotter (1990) defines it as a "description of something (an organization, a
corporate culture, a business, a technology, an activity) in the future".
• El-Namaki (1992) considers it as a "mental perception of the kind of
environment an individual, or an organization, aspires to create within a
broad time horizon and the underlying conditions for the actualization of this
perception".
• Miller and Dess (1996) view it simply as the "category of intentions that are
broad, all-inclusive, and forward thinking".

• J. Kotter, A Force for Change: How Leadership Differs from Management (London: Free Press, 1990)
• M. S. S. El-Namaki, "Creating a corporate vision" Long Range Planning, Vol. 25, No. 6, (1992), pp. 25 – 29
• A. Miller and G. G. Dess, Strategic Management (2nd. ed.) (New York: McGraw-Hill, 1996), p. 6.

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Unilever’s Vision Statement
“to make sustainable living commonplace.
We believe this is the best long-term way for
our business to grow.”

The following components are notable in Unilever’s vision

statement:
• Commonplace sustainable living
• Best long-term way
• Business growth

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Unilever’s Mission Statement

“to add vitality to life. We meet everyday needs for

nutrition, hygiene and personal care with brands that
help people feel good, look good and get more out of
life.”

The following are the significant components in Unilever’s mission

statement:
• Adding vitality to life
• Meeting everyday needs for nutrition, hygiene, and personal care
• Helping people feel good, look good, and get more out of life

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Apple Mission Statement
and Vision Statement
Apple’s mission is
“to bringing the best user experience to its customers
through its innovative hardware, software, and
services.”

And vision is
“We believe that we are on the face of the earth to make
great products and that’s not changing. We are
constantly focusing on innovating.”

• Indeed, where a mission statement focuses more on

the business objectives and how to reach them.
• The vision is about how that same company sees itself in50
the long-term.
Amazon’s
Mission Statement

When Amazon.com launched in 1995, it was with

the mission

“to be Earth's most customer-centric company, where

customers can find and discover anything they might
want to buy online, and endeavors to offer its
customers the lowest possible prices.”

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 Benefits of a vision
• Parikh and Neubauer (1993) point out the several benefits accruing to
an organisation having a vision.
– Good visions are inspiring and exhilarating.
– Visions represent a discontinuity, a step function and a jump ahead
so that the company knows what it is to be.
– Good visions help in the creation of a common identity and a shared
sense of purpose.
– Good visions are competitive, original and unique. They make sense
in the marketplace as they are practical.
– Good vision foster risk taking and experimentation.
– Good vision fosters long-term thinking.
– Good visions represent integrity: they are truly genuine and can be
used to the benefit of people.

J. Parikh & F. Neubauer: "Corporate Visioning" in International Review of Strategic Management, Vol. 4 edited by D.
E. Hussey), (West Sussex, England: John Wiley & Sons, 1993): 109 - 111.
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 Process of Envisioning

• The core ideology defines the enduring character of an

organisation that remains unchangeable as it passes
through the vicissitudes of vectors such as technology,
competition or management fads.

• The envisioned future too consists of two components: a

10 - to - 30 years audacious goal and vivid description of
what it will be like to achieve that goal.

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 Mission
• Mission is what an organisation is and why it exists.
• Mission is a statement which defines the role that an
organisation plays in the society.
• Thompson (1997) defines mission as the "essential
purpose of the organization, concerning particularly why it
is in existence, the nature of the business(es) it is in, and
the customers it seeks to serve and satisfy".
• Hunger and Wheelen (1999) say that mission is the
"purpose or reason for the organization's existence".
J. L. Thompson: Strategic Management: Awareness and Change, (3rd ed.) (London: International Thomson Business Press)
1997, p.6;
J. D. Hunger & T. L. Wheelen: Strategic Management, (Reading, Mass.: Addison Wesley Longman), 1999, p. 10.

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 Characteristics of Mission
Statements
• A mission statement defines the basic reason for the existence of the
organisation. Such a statement reflects the corporate philosophy,
identity, character, and image of an organisation. It may be defined
explicitly or could be deduced from the management's actions,
decisions or the chief executive's press statements: Some of the
characteristics include:
– It should be feasible
– It should be precise
– It should be clear
– It should be motivating
– It should be distinctive
– It should include major components of strategy
– It should indicate how objectives are to be accomplished

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 Abells’ Three Dimensions for
Defining a Business of a Watch
Company
Customer functions:
Utility / ornamental

Alternative technologies:
Mechanical / quartz
technology

Customer groups:
children, men or
women

Based on: D.F. Abell: Defining the Business: The Starting Point of Strategic Planning
Englewood Cliffs, N.J. Prentice-Hall, 1980

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 The three dimensions of the business are the customer groups (who will be served
by the business), customer needs (what are the customer needs that will be met)
and technology or distinctive competencies (how are these needs going to be
met).

A major point of importance in this matrix is to focus on understanding the customer

rather than the industry and its products and services. Through these three
dimensions, this tool helps define a business by its competitive scope (narrow or
broad) and the extent of competitive differentiation of its products/services.
• What are the customers of the organization? (Customer group)
• How can the organization meet the needs of its customers? (Customer
Need)
• What techniques are employed by the organization to meet these
customer needs? (Technology)

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 Dimensions of a Business
• Defining business along the three dimensions of customer
groups, customer functions, and alternative technologies.

• Customer groups are created according to the identity of

customers and relate to ‘who’ is being satisfied.

• Customer functions are based on what the products or services

provide for the customers and answer ‘what’ is being satisfied.

• Alternative technologies describe the manner in which a

particular function can be performed for a customer and
describes ‘how’ the need is being satisfied.

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 Business Definition and
Strategic Management

• A clear business definition is helpful for strategic management in

many ways.

For instance, a business definition can indicate the choice of

objectives, helps in exercising a choice among different strategic
alternatives, facilitate functional policy implementation, and suggests
an appropriate organisational structure.

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 Levels of Business
• Like strategy, business could be defined at the corporate or SBU
levels.
• A single-business firm is active in just one area so its business
definition is simple.
• A large conglomerate, operating in several businesses, would have a
separate business definition for each of its businesses.
• At the corporate level, the business definition will concern itself with the
wider meaning of customer groups, customer functions, and alternative
technologies.
• A highly diversified company organised on a divisional basis could
benefit by having a business definition covering all the three
dimensions. Each division could again have more accurate business
definition at the SBU-level.

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 Product/Service Concept

• A product / service concept is the manner in which a company

assesses the user’s perception of its product or service. Such a
perception is based on how the product or service provides
functions that satisfy customer needs.
• A product / service concept - carefully and innovatively defined -
can prove to be of significant worth to strategists in different
phases of strategic management.

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 Business Model
• Business model could be defined as “a representation of a
firm's underlying core logic and strategic choices for creating
and capturing value within a value network.”
• Business models have an intimate relationship with the
strategy of an organization. Strategies result in choices;
a business model can be used to help analyze and
communicate these strategic choices

Shafer, Scott M. & Smith, H. Jeff & Linder, Jane C., 2005. "The power of business models,"
Business Horizons, Elsevier, vol. 48(3), pages 199-207

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 Business Models
• For instance, direct sales, franchising, advertising-based, and brick-
and-mortar stores are all examples of traditional business models.
There are hybrid models as well, such as businesses that combine
internet retail with brick-and-mortar stores or with sporting
organizations like the NBA.
• IKEA is a group of companies that designs and sells ready-to-
assemble furniture appliances and home accessories.
• Wikipedia is a free Internet encyclopedia that helps to improve
common knowledge. It allows its users to edit almost any article
accessible. It is the largest and most popular general reference work
on the Internet and is ranked among the ten most popular websites.

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Examples of Business Models
• Movie making – any movie making house making 20% of
gross profit after releasing movie in theater….. But things
change with the arrival of the internet…. Company
decides to stream movies online instead of renting or
selling physical copies. This change disrupts the
business model in a positive way.
• Online cash transfer
• Online retail

Cont…

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65
 Goals and Objectives

• Goals denote what an organisation hopes to accomplish

in a future period of time. They represent the future state
or outcome of effort put in now.
• Objectives are the ends that state specifically how the
goals shall be achieved. They are concrete and specific
in contrast to goals that are generalised.
• Goals may be qualitative, objectives tend to be mainly
quantitative in specification.

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 Role of Objectives

• Objectives define the organisation's relationship with its

environment
• Objectives help an organisation pursue its vision and mission
• Objectives provide the basis for strategic decision-making
• Objectives provide the standards for performance appraisal

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 Examples of strategic goals
• Increase revenues
• Increase team productivity.
• Increase web traffic.
• Improve customer relations.
• Innovate new solutions.
• Create and launch new product(s)
• Increase customer conversion
• Become market leader
• Sales: Company’s sales growth/Market sales Growth
• Customer satisfaction:
• Gain market position
• Explore new customer segments
• Attract investment
• Return on Assets
• Shareholders dividend
• Number of products in portfolio (BCG matrix)
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• Increase community outreach.
 Characteristics of Objectives

• Objectives should be understandable

• Objectives should be concrete and specific
• Objectives should be related to a time frame
• Objectives should be measurable and controllable
• Objectives should be challenging
• Different objectives should correlate with each other
• Objectives should be set within constraints

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 Issues in Objective Setting

• Specificity
• Multiplicity
• Periodicity
• Verifiability
• Reality
• Quality

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 Factors for Objective Setting

• The forces in the environment

• Realities of enterprise' resources and internal
power relationships
• The value system of the top executive
• Awareness by the management

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 The Balanced Scorecard
Model How do we look to shareholders?

Financial Perspective
Objectives Targets

Customer Perspective Internal Process Perspective

Vision & Strategy
Objectives Targets Objectives Targets

Learning / Innovation
Perspective
Objectives Targets

Based on R.S. Kaplan & D.P. Norton: The Strategy-focused orientation: How Balanced
Scorecard Companies Thrive in the New Business Environment Boston: Harvard Business
School Publishing, 2000 and R.S. Kaplan & D. P. Norton: The Balanced Scorecard:
Translating Strategies into Action Boston: Harvard Business School Press, 1996.
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 Different Perspectives of a
Balanced Scorecard
• Financial perspective: This perspective considers the financial
measures arising from the strategic intent of the organization.
Examples of such measures are revenues, earnings, return on
capital, and cash flow.

• Customers’ perspective: This perspective measures the ability of the

organization to provide quality goods and services, effective
delivery, and overall customer satisfaction. Examples of such
measures are market share, customer satisfaction measures, and
customer loyalty.

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 Different Perspectives of a
Balanced Scorecard
• Internal businesses perspective: Internal business processes are
the mechanisms through which performance expectations are
achieved. Examples of such measures are productivity indices,
quality measures, and efficiency.

• Learning and growth perspective: This perspective focuses on the

ability of the organization to manage its businesses and adapt to
change. Examples of such measures are morale, knowledge,
employee turnover, usage of best practices, share of revenue from
new products, and employee suggestions.

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 Examples of focused
strategic objectives
Financial Strategic Objectives
• Financial Growth: To exceed 10 million in the next 10 years.
• Financial Growth: To increase revenue by 10% annually.
• Financial Efficiency: To decrease expenses by 5%.
• Financial Efficiency: To increase net profit by 10% annually.
Customer/Constituent Strategic Objectives
• Current Customers: Expand sales to existing customers.
• Current Customers: Increase customer retention.
• Current Customers: Achieve and maintain outstanding customer service.
• Current Customers: Develop and use a customer database.
• New Customers: Introduce existing products into a new market.
• New Customers: Introduce new products to new and existing markets.
• New Customers: To expand sales to the global marketplace.
• Customer Services: Improve our service approach for new and existing
customers. 75
Internal/Operational Strategic Objectives
• Product/Service/Program Management: To have all product meet standard of
excellence guidelines. (Some businesses prefer to list their individual products or
services as separate objectives.)
• Operations Management: Capitalize on physical facilities (location, capacity, etc.).
• Operations Management: Increase community outreach.
• Technology Management: Increase efficiencies through use of wireless or virtual
technology.
• Communication Management: Improve internal communications.
• Customer Management: To execute and maintain a CRM process that is
producing results.
• Marketing Management: Develop and implement a promotional plan to drive
increased business.
• Alliance Management: Establish one new strategic alliance annually.
• Channel Management: Improve distributor and/or supplier relationships.

People/Learning Strategic Objectives

• People: Employ professionals who create success for customers.
• Training: To develop the leadership abilities and potential of our team.
• Culture: To align incentives and staff rewards with performance.
76
• Knowledge: To continually learn and adopt current best practices.
 A Typical Strategy Map
Long term shareholder value

Financial Improve cost Improve cost Improve cost Improve cost

perspective structure structure structure structure

Customer Customer Value proposition

perspective Price Quality Availability Selection Functionality Service Partnership Brand

Internal Operations Customer Innovation Regulatory & Social

perspective Management Management Processes Processes
Processes Processes

Learning / Human capital

innovation Information capital
perspective Organisation capital
Culture Leadership Alignment Teamwork

Source: Based on R.S. Kaplan & D.P. Norton: The Strategy-focused orientation: How Balanced Scorecard
Companies Thrive in the New Business Environment (Boston: Harvard Business School Publishing, 2000) and R.S.
Kaplan & D. P. Norton: The Balanced Scorecard: Translating Strategies into Action (Boston: Harvard Business School
Press, 1996). 77
 Critical Success Factors
• Critical success factors (CSFs) are crucial for organisational
success. When strategists consciously look for such factors and
take them into consideration for strategic management, they are
likely to be more successful, putting in relatively less efforts.

• Rockart has applied the CSFs approach to several organisations

through a three-step procedure for determining CSFs. These steps
are: to generate the success factors (`what does it take to be
successful in business?'), refining CSFs into objectives (`what
should the organisation's goals and objectives be with respect to
CSFs?) and identifying measures of performance (`how will we
know whether the organisation has been successful on this factor?').

John F. Rockart, "CEs define their own data needs", in Harvard Business Review (Mar-Apr. 1979): 89.

78
 Example of CSF
A critical success factor (often abbreviated “CSF”) may sound
complicated, but it’s actually a pretty simple concept. A CSF is a
high-level goal that is imperative for a business to meet.

Examples are -
• Increase Market Share Through Current Customers
• Be Service-Oriented When Working With Our Customers
• Achieve Order Fulfillment Excellence Through On-Line Process
Improvement
• Align Incentives & Rewards With Employee Roles For Increased
Employee Satisfaction

79
 Key Performance Indicators
• Key performance indicators(KPIs) are the metrics or
measures in terms of which the critical success factors are
evaluated.
• KPIs help an organization define and measure progress
toward its objectives. They give everyone in the organization
a clear picture of what is important and what they need to do
to accomplish objectives. They are a helpful tool for
organizations to motivate their employees towards
achievement of objectives. KPIs are applied in business
intelligence to gauge business trends.

80
 Marketing: Marketing KPIs help you track your web performance in general and all
the online campaigns you launch. They are important to give the big picture of all
your online activities and determine an accurate marketing ROI. Below you can find
our top 16 KPI examples for the marketing department:
1) Cost per Acquisition (CPA)
2) Cost per Lead
3) Sales Target & Growth
4) Average Order Value
5) Return on Investment (ROI)
6) CLTV (customer lifetime value)
7) Website-Traffic-to-Lead Ratio
8) Lead-to-MQL Ratio
9) MQL-to-SQL Ratio
10) Goal Conversion Rates
11) Average Time to Conversion
12) Landing Page Conversion Rates
13) Cost-per-Click (CPC)
14) Bounce Rate
15) Engagement Rate
16) Click-Through-Rate (CTR)

81
 Sales: Sales KPIs provide you with insights on your sales process and
representatives. Tracking the pipeline health, lead generation, general activity and
productivity, they are essential to drive sales forward. Below you can find our top 17
KPI examples for the sales department:
1) Sales Growth
2) Sales Target
3) Customer Acquisition Cost
4) ARPU (Average revenue per unit)
5) CLTV (customer lifetime value)
6) Customer Churn Rate
7) Average Sales Cycle Length
8) Lead-to-Opportunity Ratio
9) Opportunity-to-Win Ratio
10) Lead Conversion Rate
11) Number of Sales Opportunities:
12) Sales Opportunity Score
13) Average Purchase Value
14) Revenue per Sales Rep
15) Profit Margin per Sales Rep
16) Upsell & Cross-Sell Rates
17) Incremental Sales by Campaign
82
 Finance: Financial KPIs track the performance of a business in its cash
management, expenses, sales and profits. They help stay in track with initial financial
objectives. Below you can find our top 18 KPI examples for the finance department:
1) Gross Profit Margin Percentage
2) Operating Profit Margin Percentage
3) Operating Expenses Ratios
4) Net Profit Margin Percentage
5) Working Capital
6) Current Ratio
7) Quick Ratio / Acid Test
8) Berry Ratio
9) Cash Conversion Cycle
10) Accounts Payable Turnover Ratio
11) Accounts Receivable Turnover Ratio
12) Vendor Payment Error Rate
13) Budget Variance
14) Return on Assets
15) Return on Equity
16) Economic Value Added
17) Employee Satisfaction:
18) Payroll Headcount Ratio 83
 Key Result Area (KRA)
• A key result area (KRA) is an strategic factor either
internal to the organization or external, where strong
positive results must be realized for the organization to
achieve its strategic goal(s), and therefore, move
toward realizing the organization's longer term vision of
success

Typical CORE Key Results Areas for an IT department would be:

– IT Strategy and Planning
– Business Solutions (design, development and implementation)
– Service Delivery – the management of the delivery of services to
the organisation
– Service Support – the support of users and service delivery
84
environment
 Difference between KRA and KPI
• Once 6-9 KRAs are defined, a leadership team can move on to spelling
out (and eventually selecting) a set of feasible strategy alternatives for
positively impacting each Key Result Area. These strategies can then
be incorporated into the organization’s long term strategic plan with
appropriate responsibilities and time frames assigned. This set of
longer term strategies must then be translated into a balanced set of
operational objectives, which are foundational to building and
implementing the near term operating plan.
• Key Performance Indicators (KPIs) on the other hand are high level
measures or metrics, for one particular objective, which (when
measured and reported) give the leadership team an “indication” as to
whether the organization is making progress towards achieving that
particular objective.

85
?
86
 KEY QUESTION TO ASK

What macro environmental

conditions will have a material What is our
effect on our ability to firm’s industry?
implement our strategy
successfully?

What are the

characteristics of
How stable are
the industry?
these
characteristics?
KEY SUCCESS FACTORS AS
BARRIERS TO ENTRY
SOFT DRINK EXAMPLE

Key success factor (KSF) KSFs:

Key asset or requisite  Ability to meet competitive
skill that all firms in an pricing
industry must possess in
order to be a viable  Extensive distribution
competitor
 Ability to raise consumer
awareness

 Broad product mix

 Global presence

 Well positioned bottlers and

bottling capacity
Competitive Forces
Figure- Five Forces Determining Segment Structural
Attractiveness

Cont.
 ANALYZING INDUSTRY STRUCTURE USING
FIVE – FORCES
Complementors
Number of complements
Relative value added
Barriers to complement
entry
Difficulty of engaging
complements
Buyer perception of
complements
Complement exclusivity
Threat of New Entrants (and Entry Barriers)
• Absolute cost advantages
• Proprietary learning curve
• Access to inputs
• Government policy
• Economies of scale
• Capital requirements
• Brand identity Industry value chain –
• Switching costs from raw materials and
• Access to distribution other inputs, to channel
• Expected retaliation to end consumer
• Proprietary products

Supplier Power Degree of Rivalry
• Supplier concentration • Exit barriers
• Importance of volume to supplier • Industry concentration
• Differentiation of inputs • Fixed costs/value added
• Impact of inputs on cost or differentiation • Industry growth
• Switching costs of firms in the industry • Intermittent overcapacity
• Presence of substitute inputs • Product differences
• Threat of forward integration • Switching costs
• Cost relative to total purchases in industry • Brand identity
• Diversity of rivals
• Corporate stakes
Buyer Power (Channel and End consumer)
• Bargaining leverage
• Buyer volume
• Buyer information
• Brand identity
• Price sensitivity
• Threat of backward integration
• Product differentiation
• Buyer concentration vs. industry
• Substitutes available
• Buyer’s incentives

Threat of Substitutes
• Switching costs
• Buyer inclination to substitute
• Price-performance tradeoff of substitutes
• Varity of substitutes
• Necessity of product or service

Source: Adapted from M.E. Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors (New York: Free Press, 1980)
 CAUSES OF RIVARLY
Barriers to Entry Barriers to Exit
In addition to entry
and exit barriers,
many factors drive
rivalry
• History of price
wars

• Level of fixed costs

• Industry
concentration

• Strong brands • Few other • Market growth

• Proprietary opportunities
technology • Sunk investments • Etc.
• Start-up costs • Etc.,
• Etc.,
 SUPPLIER POWER
Diamond supply Diamond
Percent Retailers

Others 50

When firms in the

supply industry can
dictate terms, they can
extract greater profits

DeBeers 50
 BUYER POWER ILLUSTRATIVE

Industry A Industry B
Suppliers Buyers Suppliers Buyers

In industries
characterized
with many
suppliers and few
buyers, buyers
often capture a
Profits Profits greater share of
profits
THREAT OF SUBSTITUTES
Soft drinks Movie rentals

Block buster

Coke Pepsi

Hollywood video
Bottled water

Cable TV
 IMPACT OF COMPLEMENTOR
Three
Complement or:
Examples
Any factor that makes it more Hot dogs
attractive for suppliers to supply
an industry on favorable terms or + More sales
that makes it more attractive for Buns
buyers to purchase products or
services from an industry at Music
prices higher than it would pay
+ More attractive offering
absent the complement or
MPS player
Delta
plane
orders
+
Lower costs from Boeing
Airlines
plane
orders
COMPETITIVE INTELLIGENCE

Competitive intelligence
is a method whereby
firms are able to gather
information about their
competitors.
 Information need to collect
1. What decisions do you regularly make?
2. What information do you need to make these decisions?
3. What information do you regularly get?
4. What special studies do you periodically request?
5. What information would you want that you are not getting now?
6. What information would you want daily? Weekly? Monthly?
Yearly?
7. What magazines and trade reports would you like to see on a
regular basis?
8. What topics would you like to be kept informed of?
9. What data analysis programs would you want?
10. What are the four most helpful improvements that could be
made in the present marketing information system?
 Comprehensive Model of
Strategic Management
You are
here
Strategy
Implementati
Strategic Strategy Formulation on Strategic
Intent Evaluation
Environmental Organisational Project
Appraisal Appraisal Procedural
Vision
Mission Resource allocation
SWOT Analysis Structural Strategic evaluation
Business definition
Corporate-level Strategies Behavioural and control
Business model
Business-level Strategies Functional &
Objectives
Strategic analysis and choice Operational
Strategic plan Implementation

Strategic control

99
 Concept of Environment
• Environment literally means the surroundings, external
objects, influences or circumstances under which someone or
something exists.
• The environment of any organisation is the aggregate of all
conditions, events and influences that surround and affect it.
• Since the environment influences an organisation in so many
different ways, its understanding is of crucial importance.
• The concept of environment can be understood by looking at
some of its characteristics.
K. Davis, The Challenge of Business (New York, N.Y.: McGraw-Hill, 1975):.43

100
 Marketing Environment

Demographic

Company
Cultural Economic

Publics Suppliers
Company
Customers
Competitors Natural
Political
Intermediaries

Technological
 Characteristics of
Environment
• Environment is complex The environment consists of a number
of factors, events, conditions, and influences arising from
different sources.
• Environment is dynamic The environment is constantly
changing in nature.
• Environment is multi-faceted What shape and character an
environment assumes depends on the perception of the
observer.
• Environment has a far-reaching impact The environment has a
far-reaching impact on organisations.

102
 Internal and External
Environment
• The internal environment refers to all factors within an
organisation that impact strengths or cause weaknesses of a
strategic nature.

• The external environment includes all the factors outside the

organisation which yield opportunities or pose threats to the
organisation.

• The environment in which an organisation exists can, therefore, be

described in terms of the strengths and weakness existing in the
internal environment and the opportunities and threats operating in
the external environment.

103
 Environmental Influences
Internal environment:
• Strength is an inherent capacity which an organisation can use to
gain strategic advantage.
• Weakness is an inherent limitation or constraint which creates
strategic disadvantages.
External environment:
• Opportunity is a favourable condition in the organisation's
environment which enables it to consolidate and strengthen its
position.
• Threat is an unfavourable condition in the organisation's
environment which creates a risk for, or causes damage to, the
organisation.

104
 General versus Relevant
Environment
General Environment:
In a wider sense, the external environment encompasses a variety of
sectors like international, national, and local economy, social changes,
demographic variables, political systems, technology, attitude towards
business, energy sources, raw materials and others resources, and many
other macro-level factors.

Relevant Environment:
The immediate concerns of any organisation are confined to just a part of
the general environment which is of high strategic relevance to the
organisation. This part of the environment could be termed as the
immediately relevant environment or simply, the relevant environment.
105
The Business Environment of
an Organisation

ORGANIZATION

106
 Environmental Sectors
• The classification of the general environment into sectors helps an
organisation to comprehend the different influences operating and
relate them to its strategic management process.
• Depending on a variety of factors such as the size of the organisation,
level and scope of activities, geographical spread of markets, nature
of product, type of technology used, level of uncertainty faced, and
managerial philosophy, an organisation may divide its environment
into sectors capable of being analysed conveniently.
• These eight sectors of the environment include economic,
international, market, political, regulatory, socio-cultural, supplier,
and technological sectors. We will now take up each of these sectors
for discussion.
107
 Economic Environment
The economic environment consists of macro-level factors:

• The economic stage in which a country exists at a time such as

agrarian, industrial or post-industrial economy
• The economic structure adopted, such as a capitalistic, socialistic or
mixed economy
• Economic policies such as industrial, monetary, fiscal policies.
• Economic planning such as 5 year plans, annual budgets, etc.
• Economic indices like national income, distribution of income, rate
and growth of GNP, per capita income, disposable personal income,
rate of savings and investments, value of exports and imports, the
balance of payments, etc.
• Infrastructural factors such as financial institutions, banks, modes of
transportation, and communication facilities, etc. 108
 International Environment
The international (or global) environment consists of all those factors
that operate at the transnational, cross-cultural or across- the-border
level having an impact on the business of an organisation

• Globalisation, its process, content and direction

• Global economic forces, organisations, blocs, and forums
• Global trade and commerce, its processes and trends
• Global financial system, sources of financing, and accounting standards
• Geopolitical situation, equations, alliances, and strategic interests of
nations
• Global demographic patterns and shifts

109
 International Environment
Some of the important factors and influences operating in the
international environment are as below.

• Global human resource: institutions, availability, nature, quality of

skills and expertise, mobility of labour and other skilled personnel.
• Global information system, communication networks, and media.
• Global technological and quality systems and standards.
• Global markets and competitiveness.
• Global legal system, adjudication and arbitration mechanisms.
• Globalisation of management and allied disciplines and diffusion of
management techniques in industry.

110
 Market Environment
The market environment factors and influences are as follows:
• Customer or client factors such as the needs, preferences, perceptions,
attitudes, values, bargaining power, buying behaviour and satisfaction of
customers.

• Product factors such as the demand, image, features, utility, function,

design, life cycle, price, promotion, distribution, differentiation, availability
of substitutes of products or services.

• Marketing intermediary factors such as levels and quality of customer

service, middlemen, distribution channels, logistics, costs, delivery systems
and financial intermediaries.

• Competitor-related factors such as the different types of competitors, entry

and exit of major competitors, nature of competition, and relative strategic
position of major competitors.
111
 Political Environment
The political environment factors and influences are below:

• The political system and its features like nature of the political
system, ideological forces, political parties and centres of power.

• The political structure, its goals and stability.

• Political philosophy, government's role in business, policies and

interventions in economic and business development.

• Political processes like operation of the party system, elections,

funding of elections, formation of governments and legislation with
respect to economic and industrial promotion and regulation.

112
 Example of political influence
on Business in India
• The industries act which seeks to regulate industrial pattern and prices
• The essential commodities act which empowers the government to declare any
commodity as essential in the public interest and exercise control over it.
• The companies act which regulates the promotion and management of the
corporate sector in India
• Pollution control laws which seek to protect the environment against air, water
and noise pollution and to preserve the ecological balance
• Laws which specify standards for the product and packaging and even prohibit
the marketing of certain products.
• Controls on advertising of alcoholic products and tobacco products
• The consumer protection act which seeks to protect the rights of consumers
• Laws regulating monopolistic, unfair trade and resistive trade practices
• The competition act which seeks to regulate competition in the public interest
• Labor laws designed to protect and promote the interests of the working class.

113
 Other factor’s influence on
Business in India
• Economic factors are straightforward. They’re anything that affects the state of the
economy, profits, and revenue. Consider taxes, inflation rates, stock market trends,
labor costs and others.

• Social factors focus primarily on consumers and prospective customers. Buying trends,
lifestyle choices, population rates, education level and social classes affect how
consumers buy. Considering all businesses need customers, heavy amounts of focus
are put in this section of the PESTLE analysis.

• Technological factors are levels and advancements in technology. Every business uses
technology to sell products. It’s appropriate to study access to modern
technology, communication methods, technological change rates and prices. Tech-
based companies pay special attention to this section.

• Legal factors are sometimes considered similar to political factors. But it affects how
companies operate costs, facilitate business, and handle product demands. For example,
some firms require several patents to ensure competition don’t copy their products. But
this section also includes consumer laws, health and safety laws, and more.

• Environmental factors include climate (change), weather, and eco-friendliness of

products. Tourism, forestry, and agriculture industries must pay extra attention to these
114
factors. Bad weather may mean a severe lack of profits.
 Regulatory Environment
The regulatory environment factors and influences are:

• The constitutional framework, directive principles, fundamental

rights, and division of legislative powers between the Central, State,
and local governments.
• Policies related to licensing, monopolies, foreign investment, and
financing of industries.
• Policies related to distribution and pricing, and their control.
• Policies related to imports and exports.
• Other policies related to the public sector, small-scale industries, sick
industries, development of backward areas, control of environmental
pollution and consumer protection.
115
 Socio-Cultural Environment
• Demographic characteristics such as population, distribution, age,
inter-state migration, rural-urban mobility, income distribution etc.
• Socio-cultural concerns such as pollution, corruption, mass media,
consumerism, role of business in society etc.
• Socio-cultural attitudes and values, such as expectation of society,
social customs, beliefs, rituals, lifestyle pattern, materialism etc.
• Family structure and changes in it, attitude towards and within the
family, and family values.
• Role and position of men, women, lesbian, gay, transgender,
children, adolescents, and aged in family and society etc.
• Educational levels, awareness and consciousness of rights, work
ethic of members of society and attitude towards minority and
disadvantaged groups.
116
 Supplier Environment
The supplier environment factors and influences are below:

• Cost, availability and continuity of supply of raw materials, sub

assemblies, parts and components.
• Cost, availability and the existence of sources and means for supply of
plants and machinery, spare parts & after-sale service.
• Cost and availability of finance for implementing plans & projects.
• Cost, reliability and availability of energy used in production.
• Cost, availability and dependability of human resources.
• Infrastructural support and ease of availability of the different factors
of production, bargaining power of suppliers, and existence of
substitutes.
117
 Technological Environment
The technological environment consists of factors related to
knowledge applied, material & machines used in the production of
goods & services that have an impact on business of an organisation:
• Sources of technology like company sources, external sources, and
foreign sources; cost of technology acquisition; collaboration in, and
transfer of, technology.
• Technological development, stages of development, change and rate
of change of technology, and research and development.
• Impact of technology on human beings, the man-machine system, and
the environmental effects of technology.
• Communication and infrastructural technology in management.

118
 Environmental Scanning
Environmental scanning is the process by which organisations monitor
their relevant environment to identify opportunities & threats affecting
their business for the purpose of taking strategic decisions.

Factors to be Considered for Environmental Scanning:

• Events are important and specific occurrences taking place in different
environmental sectors.
• Trends are the general tendencies or the courses of action along which
events take place.
• Issues are the current concerns that arise in response to events and
trends.
• Expectations are the demands made by interested groups in the light of
their concern for issues.
119
 Approaches to Environmental
Scanning
Kubr suggested three approaches as mentioned below:

• Systematic approach Under this approach, information for environmental

scanning is collected systematically. Information related to markets, customers,
changes in legislation, regulations, government policies pertaining to the
organisation's business and industry, etc. could be collected continuously to
monitor changes and take the relevant factors into account.
• Ad hoc approach Using this approach, an organisation may conduct surveys and
studies to deal with specific environmental issues to evaluate existing strategies
or devise new strategies.
• Processed-form approach For adopting this approach, the organisation uses
information in a processed form available from different sources both inside and
outside the organisation.

M. Kubr (Ed.) Managing a management development institution (Geneva: 120

International Labour Organisation, 1982): 88 - 89.
 Sources of Information for
Environmental Scanning
• Documentary or secondary sources of information like different types of
publications. Like newspapers, magazines, journals, books, trade and
industry association newsletters, government publications, annual reports
of competitor companies etc.
• Mass media such as radio, television and Internet.
• Internal sources like company files and documents, internal reports and
memoranda, management information system, databases, company
employees, sales staff, etc.
• External agencies like customers, marketing intermediaries, suppliers, trade
associations, government agencies, etc.
• Formal studies done by employees, market research agencies, consultants
and educational institutions.
• Spying and surveillance through ex-employees of competitors, industrial
espionage agencies, or by planting 'moles' in rival companies. 121
Methods and Techniques Used
for Environmental Scanning
• The range of methods and techniques available for environmental scanning
is wide. There are formal and systematic techniques as well as intuitive
methods available.

• Strategists may choose from the methods and techniques those which suit
their needs in terms of the quantity, quality, availability, timeliness,
relevance and the cost of environmental information.

• The environmental techniques are based on statistical methods, artificial

intelligence, neural networks, data mining, knowledge based system, use of
sophisticated software, computer assisted environmental scanning and
forecasting, while some of them, like scenario-writing, may not use
statistical information but employ informed judgement and intuition to
predict what the future is most likely to be, expressed in the form of a
descriptive statement or report. 122
 Pitfalls in Environmental
Scanning
• Sometimes strategic planners may focus so excessively on the
influences in the relevant environment that they miss out the trends
and issues in the general environment that really matter.
• Environmental scanning should not become a number-crunching or
paper-pushing routine that may prevent timely action.
• The purpose of environmental scanning is to uncover influences that
matter for the future of the organisational strategic decision-making.
• Environmental scanning function should not be integrated too
closely with the operational and functional activities of the
organisation.
• Similarly, environmental scanning should not be too far from the
realities of the organisation making it an impersonal, staff function.

123
 Appraising the Environment
Factors Affecting Environmental Appraisal
• Strategist-related factors Strategists characteristics such as age,
education, experience, motivation level, cognitive style, ability to
withstand time pressures and strain of responsibility have an impact to
appraise their organisation's environment to any given extent.

• Organisation-related factors These characteristics are the nature of

business the organisation is in, its age, size and complexity, the nature of
its markets, and the product or services that it provides.

• Environment-related factors The nature of the environment depends on

its complexity, volatility or turbulence, hostility, and diversity.
124
 Identifying the Environmental
Factors
• Environmental scanning results in a mass of information related to different
sectors of the environment. Without a technique to deal with this information,
a strategist would be at a loss to comprehend and analyse the environmental
influences.
• Environmental scanning leads to the identification of many issues that affect
the organisation.
• The issues which are most likely to have a high level of impact on the
organisations are the critical issues and need immediate attention of the
strategists.
• High priority issues have a medium to high probability of impact while those
currently having a high level of impact but a low probability of occurrence
need to be kept under watch.
• All other issues could be considered as being of low priority but still
requiring continuous monitoring as conditions may change later.

125
 Identifying High Priority
Environmental Issues
Impact on Business
_______________________________________________________________________________
Probability of impact High Medium Low
---------------------------------------------------------------------------------------------------------------------
High Critical High priority Low priority
---------------------------------------------------------------------------------------------------------------------
Medium High priority High priority Low priority
---------------------------------------------------------------------------------------------------------------------
Low To be watched Low priority Low priority
_______________________________________________________________________________

Source: Adapted from the W. R. Boulton, Business Policy: The Art of Strategic Management (New
York: Macmillan Publishing Co., 1984):120.

126
 ETOP analysis
• ETOP analysis (environmental threat and
opportunity profile) is the process by which
organizations monitor their relevant
environment to identify opportunities and
threats affecting their business for the
purpose of taking strategic decisions.

127
 Environmental Threat and Opportunity Profile
(Structuring Environmental Appraisal)

• Structuring the environmental appraisal is a difficult process as

environmental issues do not lend themselves to a straightforward
classification into neat categories.

• A technique, suggested by Glueck, is preparing an Environmental Threat

and Opportunity Profile (ETOP) for an organisation.

• The preparation of ETOP involves dividing the environment into different

sectors and then analysing the impact of each sector on the organisation. A
comprehensive ETOP requires subdividing each environmental sector into
sub factors and then the impact of each sub factor on the organisation is
described in the form of a statement. A summary ETOP may only show the
major factors for the sake of simplicity.

W. F. Glueck and L. R. Jauch, Business Policy and Strategic Management (New York: McGraw-Hill, 1984):
120-121.

128
 Example : Environmental Threat and
Opportunity Profile (ETOP) for a Motor
Bike company:
Environmental Sectors Impact of each sector
Social (↑) Customer preference for motorbike, which are fashionable, easy
to ride and durable.

Political (→) No significant factor.

Economic (↑) Growing affluence among urban consumers; Exports potential

high.

Regulatory (↑) Two Wheeler industry a thrust area for exports.

Market (↑) Industry growth rate is 10 to 12 percent per year, For motorbike
growth rate is 40 percent, largely Unsaturated demand.

Supplier (↑) Mostly ancillaries and associated companies supply parts and
components, REP licenses for imported raw materials available.

Technological (↑) Technological up gradation of industry in progress. Import of

machinery under OGL list possible. 129
Next few slides are for extra reading
130
Hambrick and Fredrickson Model of
Strategic Management
Internal and
External Strategic
Analysis

Strategy:
Arenas
Vision and Goals and Implementation
Vehicles
Mission Objectives Levers and
Differentiators
Strategic
Staging
Leadership
Economic logic

D. C. Hambrick & J. W. Fredrickson: “Are you sure you have a strategy?”

(2001). Academy of Management Executive Vol. 15, No. 4, pp. 48-59
131
 Evolution of Strategic
Management and Business Policy

• The genesis of strategic management and business

policy
• Evolution based on managerial practices
• Historical perspective of evolution of strategic
management
• Pointers to the future

132
Hambrick and Fredrickson’s
Strategy Model

133
1) Arenas
• Where is it that you are going to compete for market share?
This is the first question that you are going to have to answer
when using the Hambrick and Fredrickson model. Of course,
this is a logical place to start, as all of the subsequent
decisions that you make regarding your strategy are going to
relate to the markets where you have chosen to compete.

• You have a number of options for ‘arenas’ that you can use to
grow your business today thanks to the ubiquity of the internet
and online shopping. Are you going to be selling straight to
consumers through a number of retail channels, or are you
building a business to business model instead? Whatever
your plan, outline it in detail here before moving on to the next
portion of the diamond.

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2) Differentiators
• How are you different from the competition? What is it about the products
and/or services that you offer that will allow you to win in the market
place? This is a crucial question that you absolutely must answer before
you are going to be able to move forward successfully. In many ways, this
question is at the heart of being in business. If there is nothing that is
going to differentiate you from the crowd, you will not stand a chance of
being successful.
• Think about recent buying decisions that you have made in your own
personal life. How did you make those decisions? Where they based on a
certain factor that you valued over everything else? Most likely, you make
the majority of your buying decisions on either quality or price. In some
cases, you will buy an item because you know it is the best available.
Other times, however, you will buy to save money, sacrificing quality for
cost savings.

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3) Vehicles
• Now that you have two huge questions out of the way – where
you are going to compete, and how you are going to stand out –
you will need to move on to the implementation side of the
puzzle.
• How are you going to develop the products and services that you
plan to sell? Is everything going to be done ‘in house’, or will you
be partnering with other organizations to create goods that can be
taken to market? This is another important point, because it will
affect how fast you are able to grow, and how quickly you can get
to the market with your goods.
• There are pros and cons to both sides of this debate, so there
isn’t a ‘right or wrong’ answer – think about your situation and the
market as a whole before finalizing a strategy for product
development and launch.

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4) Staging and Pacing
• The path from ‘here to there’ isn’t always clear in business. In other
words, you may have great plans for the future of your organization, but
you need to have a strategy for getting from where you are now to where
you would like to be later on.
• This is where the staging and pacing part of the diamond comes into
play. Working from one logical step to the next is the only way to grow
your company, as you will run the risk of going out of business if you get
ahead of yourself along the way. Many previous organizations have been
done in by rapid expansion that they were not ready to handle – and that
is a legacy that you do not want to follow with your own business. Put a
growth strategy into place and follow it closely on your way toward the
top.

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5) Economic Logic
• The final portion of the diamond is meant to pull everything
together in the name of profitability (for a for-profit business).
• Are all of the decisions and strategy choices that have been
made up until this point going to work together to generate profit?
If not, where can you make adjustments to bring the business into
the black? At the end of the day, you will need to turn a profit if
you are going to be around for the long run. Only when your
strategy makes economic sense should you go ahead with the
plans that you have put into place during the previous steps. As
long as it all ‘adds up’ at the end and your strategies play nicely
into one another, you should be able to move forward with
confidence.

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