301- Strategic Management (2019 Pattern) Unit I Mr.

Bagal S R

301-Strategic Management

Unit I

Introduction

The word strategy came from the Greek word `strategia`, which means a general, troop leader. At
that time, strategy literally meant the art and science of directing military forces. Today strategy is
used in business to describe how an organization is going to achieve its objectives.

Strategic management may be defined as a systematic approach to positioning the business in

relation to its environment to ensure continued success and offer security from surprises. Strategic
management is that set of managerial decisions and actions that determine the long-run
performance of a corporation. Strategic mission consists of a long-term vision of what an
organization seeks to do and what kind of an organization it intends to become.

Development of organization completely rests on the efficiency of the decision-makers. Strategic

management always concentrates on the anticipated aim. Hence, strategic decisions are always
incomplete and are some- times based on hypothetical information. It may lead to further
problems.

Understanding Strategy

The concept of strategy is central to understanding the process of strategic management. The term
‘strategy’ is derived from the Greek word ‘strategia’, which means generalship-the actual direction
of military force, as distinct from the policy governing its deployment. In business parlance, there is
no definite meaning assigned to strategy. It is often used loosely to mean a number of things.

A) Definitions:

1) Ansoff*: "Strategy is a rule for making decisions. Ansoff also distinguishes between policy
and strategy .A policy is a general decision that is always made in the same way whenever the
same circumstances arise”.

2) Alfred D. Chandler*: “Strategy can be defined as the determination of the basic long-term
goals and objectives of an enterprise, and the adoption of courses of action and the allocation of
resources necessary for carrying out these goals”.

3) Sharplin*: “Strategic management is the formulation and implementation of plans and

carrying out of activities relating to the matters which are of vital, pervasive or continuing
importance to the total organisation.”

B) Concept of Strategy:

Strategy is a high level plan to achieve one or more goals under conditions of uncertainty.
Strategy is important because the resources available to achieve these goals are usually
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301- Strategic Management (2019 Pattern) Unit I Mr. Bagal S R
limited. Strategy is that which top management does that is of great importance to the
organization. Strategy refers to basic directional decisions, that is, to purposes and missions.
Strategy consists of the important actions necessary to realize these directions. Strategy
answers the questions: like what should the organization be doing? What is the ends company
seeks and how should company achieve them?

C) Levels of Strategy:

Good managers observe their competition all the time and speculate on what particular strategy
those organizations are following. In fact, strategic planning and management may be occurring
at three or more different levels in an organization. It will look like a cascading hierarchy of
strategic initiatives that build and depend upon each other.

Levels Structure Strategy

Corporate Corporate Office Corporate

Level Strategy
Strategic Business
Business Unit SBU SBU SBU Level Strategy
A B C

Functional Finance Marketing Functional

Level Strategy

Operations Personnel

1) Corporate Level Strategy:

Strategy at the corporate level is designated as corporate strategy. It is the top management plan to
direct and run the enterprise as a whole. Corporate level strategy represents the pattern of
entrepreneurial actions and intents underlying the organisation’s strategic interests in different
business, divisions, product lines, customer groups, technologies etc. Corporate strategy
emphasizes upon the fact that how one should manage the scope, mix and emphasis of various
activities and how the resources should be allocated over the different priorities of the corporation.

2) Business Level Strategy:

For many companies which are dealing in number of product mix and dealing with different types
of market, for them a single strategy is not only inadequate but also inappropriate. The need is for
multiple strategies at different levels. In order to segregate different units or segments each
performing a common set of activities, many companies organize on the basis of operating
divisions, or simply divisions. The divisions may also be known as Profit Centers or Strategic
Business Units.

3) Functional Level Strategy:

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301- Strategic Management (2019 Pattern) Unit I Mr. Bagal S R
Functional level strategy deals with a relatively restricted plan which provides the objectives for a
specific function. These objectives are

1) The allocation of resources among different operations within that functional area.

2) Enabling a co-ordination between them for an optimal contribution to the achievement of

business and corporate level objectives.

Strategic management is a comprehensive area that covers almost all the functional areas of the
organization. It is an umbrella concept of management that comprises all such functional areas as
marketing, finance & account, human resource, production operation into a top level management
discipline.

Characterstics

Flexible
Not
Long-
Operatio
Term
n
Issues
Specific

Stream
Competi
of
tive
Decisio
Advanta
ns and
ge
Actions

Effect
Innovati on
on Operati
Shareho ons
lders
Oriented

1) Flexible:

A strategic management system must include a high degree of flexibility. Even when managers use a
decision matrix or another model for making decisions, they need flexibility to break from the
model when business conditions demand it.

2) Long-Term Issues:

Strategic management deals primarily with long-term issues that may or may not have an
immediate effect. For example, investing in the education of the company's work force may yield no
immediate effect in terms of higher productivity. Still, in the long run, their education will result in
higher productivity, and therefore enhanced profit.

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301- Strategic Management (2019 Pattern) Unit I Mr. Bagal S R
3) Competitive Advantage:

Strategic management helps managers find new sources of sustainable competitive advantage.
Executives that apply the principles of strategic management in their work continuously try to
deliver products or services economically, produce greater customer satisfaction and make
employees more satisfied with their jobs.

4) Effect on Operations:

Good strategic management always has a sizable effect on operational issues. For example, a
decision to link pay to performance will result in operational decisions being more effective as
employees try harder at their jobs.

5) Shareholders Oriented:

Managing the organisation in a strategic fashion requires that the interests of shareholders be put
at the heart of all issues. Whether the question at hand is expansion into a new market or
negotiating mergers and acquisitions, shareholder value should be at the core at all times.

6) Innovation:

Innovation or creativity is an important feature in the case of strategic management. Environment

is ever changing, that is way demand, taste, and behavioral patterns of employers and employees
are to be changed. Strategic management controls and takes things forward by producing new
strategic planning and framing newer strategies.

7) Stream of Decisions and Actions :

Strategic management is a stream of decisions and actions. It is a process by which top-level

management decides and does for the success of the organisation. It helps to determine the best
possible strategy so that organisation could win the game in competitive business environment.

8) Not Operation Specific:

Strategic management has organisation wide implication. It is not operation specific. It is a systems
approach. It involves strategic choice.

Distinction between strategy and tactics

Strategy defines your long-term goals and how you’re planning to achieve them. In other words,
your strategy gives you the path you need toward achieving your organization’s mission.

Tactics are much more concrete and are often oriented toward smaller steps and a shorter time
frame along the way. They involve best practices, specific plans, resources, etc. They’re also called
“initiatives.”

What makes a good strategy?

A solid strategy reflects the core values of the organization. Your strategic team should gather input
from across the organization to ensure there’s alignment between the strategy and each
department’s priorities. All strategies should be actionable.
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When creating a good strategy, focus on the desired end result (the goal). Your strategy is the
foundation for all activities within the organization, and how it’s crafted will guide decision-making
as your teams work to achieve those goals. For example, if a furniture company has a goal to expand
market share, its strategy could include offering the most competitive prices and always being in
stock of common offerings. Leadership teams will make decisions that prioritize lower costs.

What makes a good tactic?

A good tactic has a clear purpose that aids your strategy. It has a finite timeline during which
specific activities will be completed and their impacts measured.

A tactic for the furniture company would be to analyze manufacturing processes to minimize waste
and inefficiencies, thereby decreasing cost and, by extension, prices for customers. The company
can clearly measure the success of the tactic by comparing their costs before and after the analysis.

D) Strategic Management Vs Operational Management:

No. Strategic Management Operational Management

Strategic management is an The operations management is concerned of

organizational wide activity where the operations as in production function of the
operations, sales and finance are organization at the operations/manufacturing floor
concerned from the top level to the level of the organization.
1)
bottom level of the organization. In other
words strategic management is concerned
about all the activities in the organization
as a whole

Strategic management is a long term Operations management is short term focused and
process where it identifies the long term handles day to day operations of an entity.
2)
desired level of performance and tries to
achieve it.

The strategic management process The operations management involves day-to-day

involves Unstructured decisions where activities of a business organization at the operations
3) the situation is very ambiguous and level which is very routine-type and mechanical. It
dynamic in nature does not involve any ambiguity.

Strategic management is a complex Operations management is a fairly simple process

process which requires heavy and a manager with average skills can handle the
4)
management skills to handle. daily operations of the organization.

Survival of an organization is directly Operation management is not directly related to the

linked to strategic management process as survival of the organization rather it indirectly
it manages critical success factors of an influences the survival through
5) organization. It identifies the factors that cumulative performance on a day to day basis.
has direct link to the survival of an
organization and manage them to
optimize performance.
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1.3 Phases in Strategic Management

Strategic management includes the determination or formulation, implementation and evaluation

of strategy. These activities constitute the most important elements of top management’s strategic
job; as such they form a continuous process in organisational life. The process contains the setting
up of broad objective and establishment of plans and policies for their attainment.

A) Phases in Strategic Management Process:

The strategic management process is ways for businesses to build strategies that help the company
respond quickly to new challenges. It is not a static concept, but an ongoing process. This dynamic
process helps organizations find new and more efficient ways to do business. The four key elements
are: Environmental scanning or situational analysis, strategy formulation, strategy implementation,
and strategy evaluation.

Establishing Strategic Intent

vision, mission, business definition,
and objective.

Formulation of Strategies
Environmental Organisational
Appraisal Appraisal
SWOT Analysis
Corporate - level strategies
Business - level strategies
Strategic choice
Strategic plan

Strategic Implementatio
Project
Procedural
Resource allocation
Structural
Behavioural
Functional and operational

Strategic Evaluation

A) Phases in Strategic Management Process:

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1) Establishing Strategic Intent:

The foundation for the strategic management is laid by the hierarchy of strategic intent. The
process of establishing the hierarchy of strategic intent is very complex. In this hierarchy, the
vision, mission, business definition and objectives are established. Formulation of strategies is
possible only when strategic intent is clearly set up. This step is mostly philosophical in nature. It
will have long term impact on the organization. Strategic intent is a high-level statement of the
means by which organization will achieve its vision. The hierarchy of strategic intent lays the
foundation for the strategic management of any organisation. The elements in this phase are
explained below:

a) The Vision:

b) Mission:

c) Defining the Business:

d) Setting Objectives

2) Strategy Formulation:

Strategy formulation refers to the process of choosing the most appropriate course of action for the
realization of organizational goals and objectives and thereby achieving the organizational vision.
The process of strategy formulation basically involves seven main steps. Though these steps do
not follow a rigid chronological order, however they are very rational and can be easily followed in
same order. This phase of the strategic management process consists of the following elements:

a) Environmental Appraisal :

b) Organisational Appraisal :

c) SWOT Analysis:

d) Corporate Level Strategies:

e) Business Level Strategies:

f) Strategic Choice :

g) Strategic Plan :

3) Strategy Implementation:

Strategy implementation is the translation of chosen strategy into organizational action so as to

achieve strategic goals and objectives. Strategy implementation is also defined as the manner in
which an organization should develop, utilize, and amalgamate organizational structure,
control systems, and culture to follow strategies that lead to competitive advantage and a
better performance. For the implementation of a strategy, the strategic plan is put into action
through following six sub-processes:
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a) Project Implementation:

b) Procedural Implementation :

c) Resource Allocation:

d) Structural Implementation:

e) Behavioural Implementation:

f) Functional and Operational Implementation:

g) 4) Strategy Evaluation:

h) Strategy evaluation is as significant as strategy formulation because it throws light on the

efficiency and effectiveness of the comprehensive plans in achieving the desired results. The
managers can also assess the appropriateness of the current strategy in today's dynamic
world with socio-economic, political and technological innovations. Strategic Evaluation is
the final phase of strategic management. This is the last phase of strategic management
process is strategic evaluation. It appraises the implementation of strategies and measures
organisational performance.

B) Stakeholders in business:

Stakeholders are people or groups that are affected by company's operations.

Shareholders or owners are a commonly recognized stakeholder group. However, one also needs
to consider how customers, community, employees and business partners impact business. A
well-rounded approach that shows understanding of each stakeholder normally increases long-
term viability and success.

a) Meaning:

Stakeholders are the individuals or groups that have an interest in the organization and are affected
by its actions. Stakeholders are customers, employees, and suppliers, board of directors,
owners, shareholders, government agencies, unions, political groups, the media, and others.
Stakeholders can be divided into internal and external stakeholders. Internal Stakeholders are:
stockholders and employees, including executive officers, other managers and board members.
External stakeholders include: all other individual and groups that have some claim on the
company, This group is comprised of customers , suppliers , creditors , government , unions , local
communities and the general public.

b) Effect of Stakeholders on Business:

Stakeholders are people or groups that are affected by company's operations. Shareholders or
owners are a commonly recognized stakeholder group.

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Customers
and Employees
Community

Business
Shareholders Effects of Partners
stakehold
ers in
business

1) Shareholders:

Company owners usually have a strong voice in the direction company takes. In a partnership, each
owner-partner has a financial interest in the profit potential of the business. (Changing
Shareholding Pattern)

2) Customers and Community:

In the long run, ability to meet the needs of customers and community is key to success.
Customers provide the revenue and cash flow that business needs to operate and ultimately earn a
profit. One must understand customer wants and needs and meet them on an ongoing basis.

3) Employees:

In the early 21st century, companies tend to place greater value on the contributions employees
make to business operations. If one operates a service-based business, employees provide the
consistent service that helps to attract and retain customers.

4) Business Partners:

Business partners and suppliers can also significantly influence business. Partners are companies
that collaborate with in joint ventures or shared investment opportunities. Suppliers are
companies that rely on for key resources used inside company and for products to resell.

c) Roles of Stakeholders in Strategic Management:

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2. Providing
Detailed
Requirements
and a Financial
1. 3. Committing
Plan
Understanding the Necessary
the Business Resources
Drivers

4. Taking
Ownership of
9. Project Appropriate
Closure Deliverables

5. Project
8. progress and
Communicatin Cascading
g Throughout Information to
the Life of the Others Who
Project Need to Know
7. Identifying 6. Establish the
and Resolving Training and
any Project Support
Issues and Requirements
Risks

1) Understanding the Business Drivers:

Understanding the Business drivers and Ensuring that the project fits with the strategy for their
area of the business is a fundamental responsibility of the stakeholder. Stakeholder must be able to
clearly explain the necessity for their project to be taken on before others and prove its strategic
merit.

2) Providing Detailed Requirements and a Financial Plan:

Every project must have these and is deemed to fail if they’re not completed up front.

3) Committing the Necessary Resources:

It’s key to have individuals from the affected areas involved on any project. They can provide with
instant answers and feedback as to how things do or should work. They are the daily operational
link to the eventual user base of the project deliverables and cannot stress enough the importance
and usefulness of having them involved.

4) Taking Ownership of Appropriate Deliverables:

The stakeholder needs to take ownership of the appropriate deliverables and make sure that they
work pertaining to a number of key elements such as mirroring the requirements, process
compatibility, usability and performance.

5) Project progress and Cascading Information to Others Who Need to Know:

The stakeholder must not skip project meetings and rely upon others to keep them up to speed.
Similarly, they must also keep affected others or teams up to date with frequent progress reports.
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6) Establish the Training and Support Requirements:

The stakeholder must identify any affected individuals of their projects and establish the necessary
training and support requirements. This will be done in harness with the relevant departments but
the stakeholder is responsible for it.

7) Identifying and Resolving any Project Issues and Risks:

It’s up to the stakeholder to identify and acknowledge any potential risk and change associated with
their project during the proposal stages.

8) Communicating Throughout the Life of the Project:

Requirements or processes sometimes change during project development and without having
relevant resource or communication with the targeted business areas a project will quickly loose
resonance and relevance.

9 ) Project Closure:

In accordance with good project governance, the stakeholder must perform an analysis of the
projects delivery against plan, budget and strategic objectives and sign off and accept the project.

SINGUR TO SANAND, THE JOURNEY ON THORNS!

1.4 Hierarchy of Strategic Intent

Effective strategic management begins with the management by clearly articulating its vision for
the future. The concept of strategic intent, popularized by Gary Hamel and C.K. Prahalad (1989),
refers to the purpose of the organization and the ends it wishes to pursue. The strategic intent
represents the organization’s belief about its state of the future. The purpose or ends the
organization wishes to pursue varies from being really broad and long-term (vision and mission), to
being narrow, with a focus on the short or near-term (objectives of goals).

A) Meaning of Strategic Intent:

Prahlad and Hamel coined the term "strategic intent". It means an "ambitious goal" of a firm to
acquire a desired leadership position. A company exhibits strategic intent when it relentlessly
pursues an ambitious goal and concentrates its full resources and actions on achieving that goal.
Strategic intent is focused on the ends, while the means are left to be flexible.

B) Attributes of Strategic Intent:

The specific relationship between the long-term and short-term intentions is described in the
hierarchy of strategic intent.

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B) Attributes of Strategic Intent:

1) Vision:

The vision of the organization refers to the broad category of long-term intentions that the
organization wishes to pursue. It is broad, all inclusive, and futuristic. As the word ‘vision’ suggests,
it is an image of how the organization sees itself. It is in most cases, a dream; the aspirations the
organization holds for its future; a mental image of the future state. It might therefore be difficult
for the organization to actually achieve its vision even in the long-term, but it provides the direction
and energy to work towards it.

a) Definitions:

1) Kottler:

“Vision is a description of something (an organisation, a corporate culture, a business, a technology or

an activity) in the future.”

2) Miller and Dess:

“It is the category of intentions that are broad, all-inclusive and forward thinking.”

b) Benefits of Vision:

According to Parikh and Neubouer, there are several benefits of having a vision. They are as
follows:

i. Good vision is inspiring and exhilarating.

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ii. Good vision helps in the creation of common identity and a shared sense of purpose.

iii. Good vision is competitive, original and unique. It makes sense in the market place, as it is
practical.

iv. Vision represents a discontinuity, a step function and a jump ahead, so that the company
knows what it is to be.

v. Good vision represents integrity. It is truly genuine and can be used for the benefit of
people.

vi. Good vision foster risk taking and experimentation.

vii. Foster long- term thinking.

viii. Good vision represents integrity: they are truly genuine and can be used to the benefit of the
people.

c) Process of Envisioning:

Well Conceived Vision

The process of envisioning is a difficult one, According to Collins and Porras (1996), a well-
conceived vision consists of two major components: core ideology and envisioned future.

1) Core Ideology:

The core ideology defines the enduring character of an organization that remains unchangeable as
it passes through the vicissitudes of vectors such as technology, competition or management fads.

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The core ideology rests on the core values (the essential and enduring tenets of an organization)
and core purposes (an organization’s reason for being).

2) Envisioned Future:

The envisioned future too consists of two components: a 10—30 year’s audacious goal and vivid
description of what it will be like to achieve that goal. The process of envisioning is shown in the
below figure.

2) Mission:

The mission statement makes the vision statement more tangible and comprehensible. In most
cases, the vision statement is just a slogan, a war cry, or even a short phrase containing
superlatives.

a) Meaning:

Mission is a statement which defines the role that an organization plays in the society. It refers to
the particular needs of the society, for instance. Its information needs. A mission statement clearly
specifies:

i. Why the organization exists or the purpose?

ii. What differentiates the organization from others, or the identity?

iii. The basic beliefs, values, and philosophy of the organization.

b) Definitions:

Thompson:

”Mission is the essential purpose of the organisation, 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.”

c) Key Elements in Developing a Mission Statement:

Most organizations derive their mission statement from a particular set of tasks they are called
upon to perform in the light of their individual, national or global priorities. Following are the key
elements considered while developing a mission statement.

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History of the Distinctive

Organization's
Organisation Competencies of
Environment
the Organisation

1) History of the Organisation:

Each and every organisation, whether it is a manufacturing or service organisation, profit-oriented

or non-profit based, big or small, has its own history of objectives, policies, working, and mistakes.

2) Distinctive Competencies of the Organisation:

A company can do or produce many things, but they should decide what it can do best and more
efficiently. Thus, organisation with such distinctive competencies can offer advantages over similar
organisation. They must have the competencies to capitalise the opportunities offered by the
markets and society.

3) Organisation’s Environment:

The opportunities and threats posed by the environment should be identified by management,
while developing a mission statement. For example - advanced technology in communication
industry can adversely affect on hotel industry or transport industry.

d) Characteristics of a Good Mission Statement:

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It Should
Indicate How It Should be
Objectives are Feasible
to be
Accomplished

It Should
Indicate the It Should be
Major Precise
Components
of Strategy

It Should be
It should be Clear
Distinctive
It Should be
Motivating

1) It Should be Feasible:

A mission should always aim high but it should not be an impossible statement. It should be
realistic and achievable; its followers must find it to be credible. But feasibility depends on the
resources available to work towards a mission.

2) It should be Precise:

A mission statement should not be so narrow as to restrict the organization’s activities, nor should
it be too broad to make itself meaningless.

3) It should be clear:

A mission should be clear enough to lead to action. It should not just be a high-sounding set of
platitudes meant for publicity purposes. Many organizations do adopt such statements (some-
times referred to as the corporate positioning statement) but probably they do so for emphasizing
their identity and character.

4) It should be Motivating:

A mission statement should be motivating for members of the organization and of the society and
they should feel it worthwhile working for such an organization or being its customers.

5) It should be Distinctive:

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A mission statement which is indiscriminate is likely to have little impact. If all scooter
manufacturers defined their mission in a similar fashion, there would not be much of a difference
among them.

6) It Should Indicate the Major Components of Strategy:

A mission statement, along with the organisational purpose should indicate the major components
of the strategy to be adopted.

7) It Should Indicate How Objectives are to be Accomplished:

Besides indicating the broad strategies to be adopted, a mission statement should also provide
clues regarding the manner in which the objectives are to be accomplished.

3) Core Values:

Core values of the organization represent the commonly held beliefs, mindsets, and assumptions
that shape how work is done in an organization. They clearly specify the organization’s and its
members' enduring preference for a mode of conduct (in both their business processes, and their
relationship with business partners).

Core values are derived out of the organization’s mission statement(s), and aid in differentiating the
organization from others, apart from spelling out the organization‘s expectations and intended
behaviors of people.

Good core value statements clearly delineate the observable norms of behavior that reflect the
desired core values of the organization. For instance, an organization might have ‘customer
responsiveness` as its core value, but without proper operationalization in terms of observable
norms of behavior, it might mean different things to different people.

4) Goals:

Goals provide the basis for action towards the achievement of the organization’s mission, in the
form of specific milestones. Goals are financial and non-financial, and specify the route the
organization takes to achieve its vision and mission. It is often seen that organizations pursue a
range at financial and non-financial goals, which are not always perfectly consistent with one
another.

The goals statement also specifies the relative priorities and trade-offs between the various goals
the organization intends to pursue. Goals that make the organization ‘stretch’ in order to achieve
them are called stretch goals, and are considered to be more effective in extracting the best out of
the people and the resources in control of the organization.

5) Objectives:

Objectives are operational definitions of the organization‘s goals. They provide the measurable
parameters for monitoring/evaluating the performance of the organization. Objectives also include
a time dimension that delineates the specific goals the organization intends to achieve in defined
periods.

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By providing a series of time-bound objectives, the organization demonstrates how it can move
towards achievement of its goals, through consistently and periodically achieving its objectives.

6) Plans:

Plans indicate the specific actions that will be taken by the organization in order to achieve the
objectives. Plans specify the roles members of the organization will perform, the resource allocation
across different organizational sub-units and departments, and prioritize and schedule the various
activities.

Difference between Vision and Mission

No. Vision Mission

Mission is the fundamental, unique purpose that
Category of intension's are broad, all sets a business apart from other firms of its type
1
inclusive and forward Thinking and identifies the scope of its operations in
product and market terms
It states aspirations for the firm
It states how it would achieve the vision of the
2 without stating the means to achieve
firm
them
Vision is dream, little hazy and
3 Mission is clear, tangibalize, or concretizes vision.
intangible
It guides in formulation of business definition,
4 It guides in formulation of mission.
goals and objectives
5 It is futuristic in nature It is current in nature
Vision is a mental image of a possible
Mission is enduring statement of philosophy and
6 and desirable future stale of the
a creed statement.
organization.
Vision answers the question " What Mission answers the question ‘what is our
7
we want to become" business.".
D) Business:

Business is a typical economic activity with the object of earning an income i.e. profit.

a) Dimensions of Business Definitions:

According to Abell (1980; Abell and Hammond, 1979), a business may be defined by three
dimensions:

1) Customer groups describe the categories of customers, or whom the business satisfies.

2) Customer functions describe customer needs, or what is being satisfied.

3) Technologies describe the way the firm satisfies customer needs.

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Dimensions of Business Definitions:

1) Customer Groups:

Defining customer groups requires understanding customers’ identities. Some common dimensions
for describing identity include geography, demography, socioeconomic class, life style, personality
characteristics (in a consumer goods situation), or user industry and size.

2) Customer Functions:

Products or services perform certain functions for customers. However, functions must be
separated conceptually from the way the function is performed (i.e., technology), as well as the
attributes or benefits that a customer may perceive as important criteria for choice. In this sense,
transportation is a function: a taxi is a way of performing the function; and price, comfort, speed,
and safety are the attributes or benefits associated with the choices.

3) Alternative Technologies:

Technologies describe the alternative ways in which a particular function could be performed for a
customer. Therefore, in this context, a technology represents the form of the solution to the
customer’s problem. If the function is transportation, the technologies might include road, rail, and/
or sea travel.

Linking Objectives to Missions and Visions:

Mission and vision statements are sometimes accompanied by statements of enterprise values
sometimes referred to as philosophies. Such statements are not, however, integral elements of
either mission or vision statements. The trend is towards making statements short and memorable,
expanding and qualifying them with separate, detailed statements of corporate and business
objectives and strategies. Since most enterprises of any size now have websites, it is easy to
communicate these more comprehensive statements.

a) Enterprise Objectives:

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Mission and vision statements require translation into tangible and specific enterprise objectives to
guide future actions and to provide milestones against which to assess performance and progress.
Objectives attract various names including aims, ends, goals and targets, often used imprecisely. In
popular usage, aims are the broadest or highest level, in effect the enterprise mission, leading to
more detailed goals, objectives and targets. To set relevant, realistic objectives and targets requires
clarity of aims and goals. Since aims and objectives exist at different levels, they signal actions of
different degrees of specificity.

F) Strategic Performance Management Process:

Key
Performance Key Success Key Result
Performance
Measurement Factors (KSFs): Areas (KRA):
Indicators

1) Performance Measurement:

The process of performance measurement considers collection, consolidation, and distribution of

performance data to compile the performance information. Such performance information then
gets related to the critical success factors (CSFs) and/or the performance indicators (KPIs).

2) Key Success Factors (KSFs or CSF):

Key success factors (KSFs) or Critical success factors (CSFs) relate to the specific strategy elements,
product or service attributes resources, capabilities, competencies, and/or business outcomes that
influence a firm‘s profitability and/or survival in a particular industry. The KSFs are, by definition,
important for all firms in that industry to possess and pay attention to.

Major Sources of KSFs:

Rockart (1979) identified four major sources of KSFs:

a) Structure of the Industry:

b) Competitive Strategy, Industry Position, and Geographic Location:

c) Environmental Factors:

d) Temporal (sequential) Factors:

3) Key Performance Indicators (KPIs):

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Performance indicators are well understood as being metrics or measures in terms of which
performance is measured, evaluated or compared.

Key performance indicators (KPIs) are the metrics or measures in terms of which the critical
success factors are evaluated. What makes the KPIs ‘key' is their relationship to the CSFs and
ultimately, to the vision of the organization.

The company has to determine which combinations of metrics it would use to determine and
whether it is successful. KPIs thus, help to quantify critical success factors.

Benefits of KPI:

KPIs have gained importance as well as popularity in the corporate world as they have several
benefits as follows:

a) Helps in Shaping the Organisation:

b) Clear Understanding to Accomplish Objectives:

c) As a Motivational Factor:

d) To Measure Business Trends:

e) Easy in use:

f) Can be used as a Benchmarking tool:

4) Key Result Areas (KRA):

These are sometimes called Operational Objectives. There is no complete agreement on what the
key result areas of a business should be. They may differ for various enterprises. These are
normally short term objectives that have a time horizon of one or two years, and if necessary are
renewed from time no time.

They form the bread and butter of the organization. Generally, they are subservient to the strategic
Objectives and often to the Business Process Objectives. These are areas where performance is
essential for the ongoing success of the enterprise. In these areas, managements normally attach
financial objectives as well as operational objectives. Say if Marketing/ Sales is a Key Result Area; it
would have objectives that are financial as well as those that relate to the measure of success in the
market.

Most firms face external environments that are highly turbulent, complex, and global- conditions
that make interpreting those environments increasingly difficult. To cope with often ambiguous and
incomplete environmental data and to increase understanding of the general environment, firms
engage in external environmental analysis, the continuous process includes four activities:
scanning, monitoring, forecasting, and assessing.

A) Environmental Appraisals:

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In order to draw a clear picture of what opportunities and threats are faced by the organization at
a given time, it is necessary to appraise the environment. This is done by being aware of the factors
that affect environmental appraisals, identifying the environmental factors and structuring the
results of this environmental appraisal.

Factors affecting Environmental appraisal

Geographic
Power of the Dimensions of
Organisation Organisation
Environmental-
Related Factors
Organization-
Related
Factors
Strategist-
Related
Factors

1) Strategist-Related Factors:

There are many factors related to the strategist, which affect the process of environmental
appraisals. Since strategists play a central role in the formulation of strategies, their characteristics
such as age, education, experience, motivation level, cognitive styles, ability to withstand
time pressures and strain of responsibility have an impact on the extent to which they are able
to appraise their organization’s environment and how well they are able to do it.

2) Organization-Related Factors:

These characteristics are the nature of business the organization is in, its age, size and
complexity, the nature of its markets and the product or services that it provides. Another
variable identified is of information climate, which as assessed through the information
infrastructure implemented, i.e. the processes, technologies and people used in information
acquisition and handling.

3) Environmental-Related Factors:

The nature of environment facing an organization determines how its appraisal could be done. The
nature of the environment depends on its complexity, volatility or turbulence, hostility and
diversity. Information processing perspectives suggest that scanning activity will increase in
response to increasing environmental uncertainty.

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4) Power of the Organisation:

The relative power of the organisation vis-a-vis its external environment determines the extent to
which the organisation can control or is controlled by the environmental forces. If the
organisation is strong in respect of certain environmental factors, it is unlikely to focus attention on
this aspect.

5) Geographic Dimensions of Organisation:

The geographic dimensions of the organisation affect the type of interaction which the organisation
has with its environment. Generally, the organisation having greater area of operation will require
more information because the environmental factors may differ from place to place.

b) Importance of Environmental Appraisal:

Importance of Environmental Appraisal

Helpful in Assessing the
Facilitates
Evaluation of Impact of Assessment of
Planning and
Present Environmental Future
Strategies
Strategy Change

Importance of Environmental Appraisal:

1) Helpful in Evaluation of Present Strategy:

The importance of environmental appraisal lies in its usefulness for evaluating the present strategy,
setting strategic objectives and formulating future strategies. The fortunes of business enterprises
are determined by changes in the social, economic, political, business and industrial
conditions.

2) Assessing the Impact of Environmental Change:

An alert management continually tunes in to the environmental forces that influence the
demand for existing products and services and create opportunities for new ones. Environmental
change affects much more than the products or services offered by an institution.

3) Assessment of Future:

To assess the future is a difficult task and all eventualities cannot be anticipated. But to some
extent, the future events can be predicted by systematic appraisal and monitoring of the
environment.

4) Facilitates Planning and Strategies:

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Environmental appraisal comprises information processing and forecasting of social, economic,
political and even international conditions besides technological and product market conditions.

B) Scenario- Planning:

To manage risks related to innovation investments that extend long into the future, managers must
be willing to look ahead and consider uncertainties. But rather than doing that, many people react
to uncertainty with denial. They take an unconsciously deterministic view of events. They take it for
granted that something’s will or will not happen.

a) Meaning:

Scenario Planning is a strategic planning method that some organisations use to make flexible
long-term plans. It is one of the methods which strategic planners have found useful for the
interpretation of a fluid, rapidly changing business environment with an uncertain future. Scenarios
constitute an effective device for sensing, interpreting, organising and bringing to bear diverse
information about the future in planning and strategic decision-making.

b) Definition:

Pierre Wack, Royal Dutch/Shell:

“Scenario planning is a discipline for rediscovering the original entrepreneurial power of creative
foresight in contexts of accelerated change, greater complexity and genuine uncertainty.”

c ) Process of Scenario Planning:

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c ) Process of Scenario Planning:

The Scenario Planning Process works as follows:

1) Uncovering the Decision:

Management has to understand its choices. Each company has to take decisions in the near or
immediate future. Their response will determine its future performance or survival. So in this first
step the covered strategic decisions are to be uncovered.

2) Information Hunting and Gathering:

To create scenarios, observations from the real world must be built into the story. Thus, this
process involves research-skilled hunting and gathering of information.

3) Identifying Driving Forces of a Scenario:

The first task in building the scenario itself is to look for driving forces. Such driving forces
influence the key factors identified earlier.

4) Uncover Predetermined Elements:

Predetermined elements are developments and logics that work in scenarios without being
dependent on any particular chain of events. It means that a predetermined element is something
that seems certain. For example, the most commonly recognised predetermined element is
demographics because it is changing so slowly.

5) Identify Critical Uncertainties:

In every plan critical uncertainties exist. Scenario planners seek them to prepare for them. Critical
uncertainties are often related to predetermined elements. They are the variables in scenario
planning and are the basis to create different scenarios in parallel.

6) Composing Scenarios:

Scenarios describe how the driving forces might plausibly behave which is useful to explain the
future. They are based on the assumption of predetermined elements and critical uncertainties.
Important uncertainties are used to describe the different scenarios and their plots.

7) Analysis of Implications of Decisions:

Once the scenarios have been developed in some detail, then it is time to return to the decision
identified in step one.

8) Selection of Leading Indicators and Signposts:

It is important to know as soon as possible which of several scenarios is closest to the course of
history as it actually unfolds. For this purpose, a few indicators should be selected to monitor the
strategy or decision in an ongoing way. Monitoring these indicators will allow a company to know
what the future holds for a given industry and how that future is likely to affect strategies and
decisions in the industry. If the scenarios
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C) Preparing an Environmental Threat and Opportunity Profile ( ETOP):

Environmental Threats and Opportunities Profile (ETOP) gives a summarized picture of

environmental factors and their likely impact on the organization. ETOP is generally prepared as
follows.

1) List Environmental Factors:

The different aspects of the general as well as relevant environmental factors are listed. For
example, economic environment can be divided into rate of economic growth, rate of inflation, fiscal
policy etc.

2) Assess Impact of each Factor:

At this stage, the impact of each factor is assessed closely and expressed in qualitative (high,
medium or low) or quantitative factors (1, 2, 3). It is to be noted that not all identified
environmental factors will have the same degree of impact. The impact is assessed as positive or
negative.

3) Get a big picture:

In the final stage, the impact of each factor and its importance is combined to produce a summary of
the overall picture.

a) Example:

ETOP Profit of a Bicycle Company Ltd

Environmental Impact
Sectors

Economic High export potential.

Political No significant factor.

Social Preference for sports cycles and fashionable cycles

Technological up gradation of industry in progress. Import of machinery is

Technological
possible.

Ancillaries and associated companies supply parts and components.

Supplier
Imported raw material available.

Government Liberalisation for technology import and a thrust area for export.

For sport cycles growth rate is 25% while others it is 7 to 9 per cent
Market
Increasing demand.

a) Example:

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ETOP of a Bicycle Company Ltd

Looking to above chart, it can be concluded that many opportunities are operating in the
environment for a bicycle company. A company can take advantage of Government policies and
increase its production as per demand in the market. It can also take advantage of high expert
potential. Though, all conditions are favourable for settled company, but for a new company
much would depend upon supply of raw materials and how company can be able to acquire latest
technology. ETOP provides very useful information to a strategist. With the help of ETOP,
organisation knows where it stands with respect to its environment and this helps the strategist in
formulation of an appropriate strategy.

1.6Analyzing Industry Environment

An analysis of the external environment includes an industry analysis and an examination of key
external stakeholders and the broad environment.

Industry Analysis:

Environmental analysis should begin with an industry analysis. The first step in industry analysis is
to provide a basic description of the industry and the competitive forces that dominate it.

A) Porter’s Five Forces Model of

Competition:

A key concept in porter’s five forces model is the view that some industries are more attractive and
others are less attractive. Therefore, the ability to identify industry attractiveness is important.
Porter argues that industries can be characterized and evaluated by looking at and analyzing the
following five forces:

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A) Porter’s Five Forces Model of Competition:

1) The Threat of Substitute Products:

If the product of an industry can be substituted by that of another, the purchaser of that product
has choices that extend beyond rival products. For example, going to the cinema can be a
substitute for a meal at a restaurant. Substitute products are a strong threat when:

a) They offer a similar level of benefits at proximate prices.

b) The consumer will not incur switching cost in moving between alternatives.

c) The consumer is price sensitive.

2) The Threat of New Entrants:

When new entrants enter an industry, they bring extra capacity to the Industry. If demand is
increasing the new entrants can use this capacity to meet the increased demand. This is frequently
the case during the growth stage of an industry, but as the industry matures demand growth slows
and new entrants will have to start competing with existing companies for a share of existing
demand. In this situation, the new entrants will have to gain market share by offering similar
products at competitive prices or by redefining the market to increase products demand.

3) The Bargaining Power of Buyers:

Buyers or customers are powerful when the following conditions exist:

a) There are few buyers who purchase in large quantities.

b) Buyer has low switching costs.

c) Buyer has choices because there is a large volume of sellers.

d) The product or service supplied is not an important one.

e) The buyer has the ability to produce the product supplied.

f) The buyer has information about the costs of production and other buyer’s prices.

g) The impact of powerful buyers can be significant because they can negotiate prices down
and reduce industry profitability.

4) The Bargaining Power of Suppliers:

The factors that influence buyer’s power are similar to those that influence supplier power; they
just act in the opposite direction.

Supplier power is high when:

a) There are few alternative sources of supply and there are many buyers.

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b) Particular buyer is not an important customer to the supplier.

c) The product or service supplied is an important input for the buyer.

d) The buyer cannot make the produce cheaper that the supplier can.

e) There are no substitutes for the supplied products.

f) The supplied product has a good brand reputation, especially when this branding is
important to the final product.

5) The Rivalry Amongst Industry Members:

There are two extreme possibilities

a) Competition between industry members is low. Each industry member is content with its
market share and gets involved only minimally with competitive activity. The main concern
is to maintain industry profitability by tacit co-operation.

b) Competitive rivalry is high and is manifested in direct and indirect price cutting,
promotional activities and discounted products.

Rivalry tends to be high when:

a) Demand is growing slowly or declining. This causes greater rivalry when it is difficult to
leave the industry.

b) Customers can switch over to other products easily.

c) New entrants are seeking to gain market share by price cutting.

d) Industry members are of similar size and have similar market power.

e) There is excess capacity. In this situation, some industry members may be prepared to sell
at prices that exceed variable costs but do not necessarily cover total costs.

B) Entry and Exit Barriers:

A barrier to entry is something that blocks or impedes the ability of a company (Competitor) to
enter an industry. A barrier to exit is something that blocks or impedes the ability of a company
(competitor) to leave an industry.

a) Barriers to Entry:

1) Economies of Size:

The need for a large volume of production and sales to reach the cost level per unit of production
for profitability is a barrier to entry.

2) Capital Intensive::

A large capital investment per unit of output in facilities tends to limit industry entry.

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3) Intellectual Property:

Patents and other types of proprietary intellectual property are very effective in limiting industry
entry.

4) High Switching Costs:

The tendency for buyers of an industry`s products to be reticent about switching to a new supplier
tends to limit entry.

5) Established Brand Identity:

Industries dominated by branded products are difficult to enter due to the large amount of time and
money required to create a competing branded product.

6) Permitting Requirements:

Industries where permitting and licenses are required to establish production tend to have limited
entry.

7) Government Standards:

Industries where rigid industry standards exist tend to have limited entry.

b) Barriers to Exit:

1) Investment in Specialist Equipment:

An investment in specialized equipment that cannot readily be used in other industries tends to be
an impediment to leaving the industry.

2) Specialized Skills:

Highly specialized skills by industry participants that cannot be utilized in other industries tend to
be an impediment to leaving the industry.

3) High Fixed Costs:

High levels of dedicated fixed costs tend to be an impediment to leaving an industry

C) Strategic Group Analysis:

After analysing the environment it is necessary for a firm to analyse their competitors. The aim here
is to focus on the group of firms that are the closest rivals to the organization in respect of the
strategy positions they find themselves in. Specifically, a strategy group will generally share similar
strategic characteristics, follow similar strategies and compete on similar bases.

a) Meaning:

Strategic groups are "conceptually defined clusters of competitors that share similar strategies and
therefore compete more directly with one another than with other firms in the same industry".
They are conceptual as they are not formally identified groups or part of an industry association.
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C) Strategic Group Analysis:

b) Benefits of Strategic Group Analysis:

Helps in Predict
the Future
Opportunities

Helps in Provide a
Predict the Formula for
Threat Success
Benefits

Predict
Helps in
Important
Identifying
Market
Competitors
Dimensions

b) Benefits of Strategic Group Analysis:

1) Helps in Identifying Competitors:

It serves as a purpose of indentifying the strategic groups and then analysing the industry from the
view-point of the differences in the business strategies employed. This facilitates a direct
comparison among the group of firms that compete directly with each other.

2) Helps in Predict the Threat:

It helps to understand the variance of threats and opportunities and competitive dynamics among
firms within an industry.

3) Helps in Predict the Future Opportunities:

It helps to indentify strategic opportunities by revealing area in the industry I which no or very few
firms currently compete.

4) Provide a Formula for Success:

It indicates a formula for success for a service category. Such insight may broader manager’s view
of important market needs.

5) Predict Important Market Dimensions:

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It indicates important market dimensions or niches that are not being capitalized on by the existing
competitors. Lack of attention to critical success factors by other competitive organizations offering
the same or a similar service may provide an opportunity for management to differentiate its
services.

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