BBA 308 :BUSINESS POLICY & STRATEGY

UNIT -1
Prepared and Presented by
Dr. Ashima Gaba
Assistant Professor
Delhi Metropolitan Education
SYLLABUS
 LECTURE SCHEME
S.NO. TOPIC
PART A INTRODUCTION
1.01 Nature and Scope of Business Policy

1.02 Importance of Business Policy

1.03 Evolution

1.04 Forecasting and Long Range Planning

1.05 Strategic Planning

1.06 Strategic Management

 LECTURE SCHEME
S.NO. TOPIC
PART B STRATEGIC MANAGEMENT
PROCESS
1.07 FORMULATION PHASE UPTO
IMPLEMENTATION PHASE

1.08 STRATEGIC ACTIVITIES, EVALUATION

AND CONTROL
What is Business Policy?
• According to Flippo, Policy “is a man made rule of pre-determined
course of action that is established to guide the performance of work
toward the organization objective. It is a type of standing plan that
serves to guide subordinates in the execution of their task.”
• According to George R. Terry, meaning of Policy is “ A verbal, written
or implied overall guide setting up boundaries that supply the general
limits and directions in which managerial actions will take place.”
• Policies are statements of the organization framed in light of its
objectives in the various areas with which its operation are concerned
personnel, finance, and production, marketing and so on.
• Policy can be developed for any type of business activity. It can be
related with product, pricing, promotion, finance and so on. Statement
that codifies such guidelines is called policy statement. Policies
highlight the thinking of the top management
What is Business Policy?
• A business policy is the study of the nature and process of choice
about the future of independent enterprises by those responsible for
decisions and their implementation. (R.E Thomas).
• A business policy is an implied overall guide setting up boundaries that
supply the general limits and directions, in which managerial action
will take place.
• Business policies are the guidelines developed by an organisation to
govern its actions. They define the limits with in which decisions must
be made.
CHARACTERISTICS OF BUSINESS POLICY
• SIMPLE
• CLEAR
• FLEXIBLE
• CERTAIN
• CONSISTENT
• RELEVANT
• COMPREHENSIVE
• STABLE
• SPECIFIC
IMPORTANCE OF BUSINESS POLICIES

• CONTROL
• EFFECTIVE COMMUNICATION
• CLARITY
• MOTIVATION
• POLICY REVIEW
• ECONOMICAL AND EFFICIENT
• COORDINATION OF EFFORTS
• HIGH MORALE
SCOPE OF BUSINESS POLICY

• Scope of business policy is very wide. They

are formulated by top management for
guiding the various functional executives to
ensure best contribution towards
organizational goals.
• Policy can be applied, implied or imposed.
 “Without Business Policy and
Strategy, an organisation is like
a ship without rudder, going
around in circles. It is like a
tramp it has no place to go”.
WIUU Business Policy, 2017. J.
Bentz
 Origin of Strategic Management
• The origin of strategic management can be traced to 1911, when
Harvard Business School introduced an integrative course in
management called “ Business Policy”.
• The Gorden and Howell report , sponsored by Ford foundation
recommended a capstone course of business policy.
• The Pierson report made similar recommendation.
• In 1969,American assembly of Collegiate School of Business made
course of business policy a mandatory requirement.
• In 1977, University of Pittsburgh moved from business policy through
strategic management and strategic planning.
• Strategic management has now a become an integral part of
management curriculum.
Evolution of Strategic Management
Evolution of Business Policy has undergone four paradigms
which are :
Paradigm One: Ad-hoc Policy – making.

1900 -1930: Era of Mass Production – Maximising output, normally a Single

Product, Standardised and low cost product, catering to unique set of
customers servicing limited geographical area – Informal control and co-
ordination. The Strategic planning was centred on maximising
output.
Paradigm Two – Integrated Policy Formulation.

1930-1940: Changes in Technology, Turbulence in Political environment,

emergence of new industries, demand for novelty products even at higher
costs, product differentiation, market segmentation in increasingly
competitive and changing markets. These all made investment
decisions increasingly difficult. This was era of integrating all functional
areas and framing policies to guide managerial actions.
WIUU Business Policy, 2017. J. Bent
Evolution of Strategic Management

Paradigm Three – The Concept of Strategy.

1940- 1960: Planned policy became irrelevant due to

increasingly complex and accelerating changes. Firms had to
anticipate environmental changes. A strategy needed to be
formed with critical look at basic concept of Business and its
relationship to the existing environment then.
WIUU Business Policy, 2017. J. Bentz
Evolution of Strategic Management
Paradigm Four – The Strategic Management.

1980 & onwards: The focus of Strategic Management is on the strategic

process of business firms and responsibilities of general management.
Everything out side the four walls is changing rapidly and this
phenomenon is called as “Discontinuity” by Mr. Peter Drucker. Past
experiences are no guarantee as science and technology is moving
faster. The future is no more extension of the past or the present. What
to produce, where to market, which new business to enter, which one to
quit and how to get internally stronger and resourceful are the new
stakes.
Strategic Planning is required to be done to endow the enterprise with
certain fundamental competencies / distinctive strengths which could
take care of eventualities resulting from unexpected environmental
changes.
INDIAN SCENARIO
• Management education received a big boost in early 60’s after setting
up of Indian Institute of Management(IIM) and Administrative staff
college of management.
• Almost all management education institutes offer strategic
management and business policy courses usually in the later part of
their degree and diploma programs.
• Business policy is preferred nomenclature but strategic management
is being progressively adapted.
FORECASTING/BUSINESS FORECASTING
• Forecasting is a systematic estimation of future events with the help of in-
depth analysis of past and present events.
• Forecasting provides a basis for planning. Forecasting includes both
assessing the future and making provision for it. As a result, planning
cannot be done without forecasting.
• Thus, forecasting is the projection of future events (or conditions) in the
environment in which plans operate. Forecasting aims at understanding
various uncertainties and complexities associated with the environment.
• Forecasting is an essential element of planning. It means estimating
future on a systematic basis. Almost every business executive makes
forecasts of one thing or the other.
• ‘Forecasting is a systematic attempt to probe the future by inference from
known facts.’ [L. A. Allen]
• ‘Forecasts are predictions (or estimates) of any change in economic
phenomena which may affect business plans.’ [Mc Farland]
• ‘Forecasting refers to the statistical analysis of the past and current
movements so as to obtain clues about the future pattern of movement.’
[Neter and Wasserman]
FORECASTING – NEED & SIGNIFICANCE
• Forecasting is a necessary activity for any business right from its birth.
• It helps in effective planning by providing a scientific and reliable basis for
anticipating future operations such as sales, production, inventory, supply of
capital and so on.
• Forecasting aims at reducing the area of uncertainty that surrounds
management decision-making with respect to costs, production, sales,
profits, pricing, etc
• Forecasting is necessary for efficient managerial control as it can disclose the
areas where control is lacking.
• Forecasting brings exactness and accuracy in managerial decisions. It
improves the quality and validity of management decisions.
• It helps to identify and face environmental challenges with determination.
Risks and uncertainties can be reduced to a great extent with the help of
forecasting.
• Forecasting brings about coordination in the efforts of the subordinates.It
creates team spirit in the organisation.
• Forecasting ensures smooth and continuous working of an organization.
Planning without forecasting is impossible.
What is Strategy?
• “Strategy is the direction and scope of an organization over the long-term. It
helps achieve an advantage for the organization through its configuration of
resources within a challenging environment, to meet the needs
of markets and fulfill stakeholder expectations.”
• A strategy is defined as, “a unified, comprehensive, and integrated plan that
relates to the strategic advantages of the firm and to the challenges of the
environment. It is designed to ensure that the basic objectives of the
enterprise are achieved through proper execution by the organisation.”
• Alfred D. Chandler defines strategy as, “the determination of the basic long-
term goals and objectives of an enterprise and the adoption of the courses of
action and the allocation of resources necessary for carrying out these
goals.”
• Strategy is defined by Arthur Sharplin as, “a plan or course of action which is
of vital pervasive, or continuing importance to the organisation as a whole.”
• James Brain Quinn defines the term strategy as, “the pattern of plan that
integrates an organisation’s major goals, policies and action sequences into a
cohesive whole.”
What is Strategy?
The analysis of various definitions of strategy presents the following
points:
– Strategy is a central understanding of the strategic management process.
– Strategy is the determination of basic long-term goals and objectives of
an organisation.
– It helps in determining the courses of action to attain the predetermined
goals and objectives.
– It points to allocation of necessary resources for implementing the course
of action.
– It develops the company from its present position to the desired future
position.
– It is a set of decision-making rules having a common thread.
History’s Greatest Strategist – Henry
Ford
https://www.youtube.com/watch?v=8mef_bxijJk
Learning Outcomes
Apple’s Business Strategy
Apple business strategy can be classified as product differentiation. Specifically,
the multinational technology company differentiates its products and services
on the basis of simple, yet attractive design and advanced functionality. Apple
business strategy consists of the following four elements:
1. Focus on design and functionality of products:According to its business
strategy, Apple has adapted advanced features and capabilities of its products
and services as bases of its competitive advantage. The list of innovations
introduced by Apple include, but not limited to the introduction of iPad, the
first device of its kind that stored thousands of songs with a simple shuffle
capabilities through songs, development Macintosh, the first computer to use
a graphical user interface and the launch of iMac that “ripped up the
computer design rule book, doing away with dull beige boxes and instead
replacing them with fun, translucent machines in shades such as “Bondi Blue”
that hinted at the aesthetic Apple would become so well-known for.”[1]
First mover advantage is another element of Apple competitive advantage.
It has to be stated that Apple competitive advantage may be challenging to
be sustained for long-term perspective. Specifically, the management may fail
in terms of ensuring the addition of innovative features and capabilities in
new versions of its products, thus compromising its competitive advantage.
Apple’s Business Strategy
2. Enhancing customer experience: Focusing on customer experience is one of the pillars of
Apple business strategy. It is not rare for Apple fans to create videos of themselves
unwrapping their new Apple products and uploading the video on YouTube. This
happens because the company has succeeded in creating a customer experience that
extends beyond the purchasing process of a product.
For example, starting using any Apple product is extremely easy. Customers open the
box, plug to electricity, turn on and start using products. There is no need to install or
download anything. More than 500 Apple Stores in 25 countries and regions, where
people can try products and ask helpful staff questions effectively also contributes to
customer experience.
3. Strengthening Apple ecosystem: Apple business strategy can be characterised as vertical
integration in a way that the company has advanced expertise in software, hardware,
and services at the same time. Apple’s vertical integration is one of the major factors
that set it apart from the competition. The company has been benefiting from its
vertical integration immensely. Specifically, an important source of Apple competitive
advantage relates to its ecosystem, which is enabled by such integration.
Apple devices and software sync easily and work well with each other. Applications
work on multiple Apple devices at the same time and there is no much difference in
user interfaces. However the same items do not pair with products of other companies,
thus creating the likes of a closed ecosystem. Apple’s ecosystem creates switching costs
for its customers to the competition. The ecosystem also provides the opportunities to
leverage relationships with existing customers to offer other products and services.
Apple’s Business Strategy

4. Decreasing dependence of the business on the sales of iPhones:Apple

business strategy is transitioning from relying on iPhone sales to
prioritizing its services business and other divisions.
Strategy Diamond
Donald Hambrick and James Fredrickson created the Strategy
Diamond in 2001. It provides a concise way to show how
the parts of an organization’s strategy fit together.
• Where will we be active? (Arenas)
• How will we get there? (Vehicles)
• How will we win in the marketplace? (Differentiators)
• What will be our speed and sequence of moves? (Staging)
• How will we make our returns? (Economic logic)
 Is Strategy a Plan ?

• Analysis of definitions indicates that strategy is a long-run plan. Some authors

view it as an integrated plan. Of late, it is viewed that strategy need not be a
plan.

• Strategies need not be planned and they can be emerged. As such, strategy is
viewed as a planned or emergent course of action that is expected to contribute
to the achievement of organizational goals.
STRATEGIC MANAGEMENT
• “Strategic management is concerned with deciding on strategy and
planning how that strategy is to be put into effect.”
• According to Samuel C. Certo and J. Paul Peter, “Strategic management
is a continuous, iterative, cross-functional process aimed at keeping an
organization as a whole appropriately matched to its environment.”
• Schellenberger and Bosenan define the term strategic management
as, “the continuous process of effectively relating the organisation’s
objectives and resources to the opportunities in the environment.”
• Strategic management is defines as a dynamic process of formulation,
imolementation,evaluation and control of strategies to realise the
organisations strategic intent.
• It is a newer and broader concept of managing organisations
strategically.
STRATEGIC MANAGEMENT PROCESS

Establishment Strategic
Formulation of Implementation
of Strategic Evaluation and
strategies of Strategies
Intent Control
Step 1 : Establishment of Strategic Intent
• Strategic intent is preferring the situation of acquiring necessary
resources and capabilities to achieve the objectives or goals under the
circumstances of future environmental challenges and/or
opportunities.
• This steps comprise of :
– Creating and Communicating a vision
– Designing mission statement
– Defining business
– Adopting business model
– Setting objectives
 VISION
• Vision statement indicates what the company wants to create in the
future. A clear vision is essential to develop an appropriate mission
statement.
• Vision statements visualise the future of the company. An organisation’s vision
statement answers the question: “What do we want to become?” or “What
can we become?” Normally, mission statements are defined based on vision
statements.
• Examples:
Nike :Their vision is “To bring inspiration and innovation to every athlete in the world.”
Pfizer: Their vision is “To be the world's most valued company to patients, customers,
colleagues, investors, business partners, and the communities where we work and
live.”
Netflix :Their vision is “Helping content creators around the world to find a global
audience.”
VISION
VISION

Parikh and Neubauer (1993) brings out several benefits of having a vision which
are as follows:

1. Good visions are inspiring

2. Vision describes the purpose of the company.

3. Good visions help in creation of common identity and shared sense of

purpose.

4. Good visions are competitive, original and unique.

5. Good visions fosters long term thinking.

6. Good visions fosters risk taking and experimentation.

7. Good visions represents integrity- they are truly genuine and can be used to
the benefit of people.
MISSION
• Mission statement provides a link between the societal requirements and
organisational business.
• A mission statement is a short statement of why an organization exists, what its
overall goal is, identifying the goal of its operations: what kind of product or
service it provides, its primary customers or market, and its geographical region
of operation
• Examples
Nike ; do everything possible to expand human potential. We do that by
creating groundbreaking sport innovations, by making our products more
sustainably, by building a creative and diverse global team and by making a
positive impact in communities where we live and work.

Find out mission statement

of pfizer and Netflix?
MISSION
MISSION
An effective mission statement must possess following characteristics:

1.It should be feasible

2.It should be precise

3.It should be clear

4.It should be motivating

5.It should be distinctive

6.It should indicate major components of strategy

7.It should indicate how objectives are to be accomplished

MISSION
Functions of Mission Statement
A mission statement:
• Should define what the organisation is and what the organisation
aspires to be;
• Should be limited enough to exclude some ventures and broad
enough to allow for creative growth;
• Should distinguish a given organisation from all others;
• Should serve as a framework for evaluating both current and
prospective activities;
• Should be stated in terms sufficiently clear to be widely understood
throughout the organisation;
• Should facilitate the translation of objectives and goals into a work
structure involving the assignment of tasks of responsible elements
within the organisation.
BUSINESS
As per Derek Abell, business is defined along three
dimensions i.e.
➢ Customer groups (Who is being satisfied)
➢ Customer functions (What is being satisfied)
➢ Technology (How the need is being satisfied)
BUSINESS MODEL

• Business model could be defined as ‘a representation of a

firms underlying core logic and strategic choices for
creating and capturing value with in a value network’.

• Business model enables to answer a question of “ How to

make money?’’
BUSINESS MODEL - NETFLIX
• In the late 1900s, renting DVDs was a common business but was an expensive
one too in the United States due to the high demands of the public.
• It was in 1997 when software engineers Marc Rudolf and Reed Hastings
realized that the charges demanded by the various companies for the DVD
rental business were way too expensive. In 1998, they launched Netflix with
the motive to deliver DVD by mail.
• When only 2% of the Americans owned DVD players, the idea of delivering
DVDs by mail became a game-changer in the business.
• Netflix business model got expanded in 2007 with the introduction of
streaming for binge-watching while retaining the DVD and Blu-ray rental
business. The company expanded across the globe in 2010 with streaming
available in Canada then Latin America and the Caribbean. In the year 2013,
they entered into the content-production industry by debuting its first series
House of Cards.
• The business model of Netflix is a subscription-based model that makes
money via basic, standard, and premium subscription plans while offering
access to stream series, shows, and movies on the Netflix streaming platform.
Its business model is quite innovative. A renowned OTT(Over The Top)
content provider, Netflix provides media through internet streaming.
BUSINESS MODEL – SWIGGY
• Founded by a trio of three friends- Rahul Jaimini, Nandan Reddy, and
Sriharsha Majety.
• Swiggy is an online food ordering as well as food delivery service. It
allows customers to order their favourite dish from their favorite
restaurants and get the food delivered to their doorstep in just 30
minutes. Unlike other food ordering as well as providing companies,
they have their delivery fleet, and it is the most important reason for
their fast-paced success.
• Main activities channelized by Swiggy business model are partnering
with different eateries and retail shops, managing delivery and
payment options along with hiring delivery providers and suppliers.
• Channels that help Swiggy in channelizing its business model are
mobile apps, websites, and digital marketing. Different value
propositions of its framework include efficient food delivery with a
no-restriction order system, no minimum order requirement, easy
online payment system with different payment options and
personalized experience for the users.
ACTIVITY FOR CLASS

What is the business model of

Whatsapp?How do whatsapp make
money ?
Goals and Objectives

• Goals denote what an organisation hopes to accomplish in

future whereas objectives are the ends that state
specifically how the goals shall be achieved.

• Objectives are concrete and specific.

• Objectives makes the goals operational.

• Goals can be qualitative whereas objectives are

quantitative.
Goals and Objectives

• Some common examples of business goals include the following:

Maximizing profits
Growing revenues
Increasing efficiency
Providing excellent customer service
Becoming an industry leader
Creating a brand
Becoming carbon-neutral
• Following are some examples of objectives:
Earn a minimum of 15% return on investment in a fiscal year
Increase the company’s market share to 7% by the end of next fiscal year
Cut down the operating costs by 10% within two years
Reduce the response time for sales inquiries to 12 hours by the end of this quarter
Goals vs Objectives
• Alignment and order: Goals are set to achieve the mission of an organization or
individual, while objectives are set for the accomplishment of goals. Goals are thus
higher in order than objectives.

• Scope: Goals are broad intentions and are often incapable of being measured in
quantifiable units. Objectives are narrower than goals and are described in terms of
specific tasks.

• Specificity: Goals are general statements of what is to be achieved. They do not specify
the tasks that need to be performed to accomplish them. Objectives, on the other
hand, are specific actions one takes within a certain timeframe.

• Tangibility: Goals can be intangible and non-measurable, but objectives are defined in
terms of tangible targets. For example, the goal to “provide excellent customer service”
is intangible, but the objective to “reduce customer wait time to one minute” is tangible
and helps in achieving the main goal.

• Timeframe: Goals are set to be achieved over a long period, while objectives are meant
for a shorter time frame. A goal is usually divided into several objectives spread over
multiple time frames.

• Language: The language used in describing goals is more focused on conceptual

thinking, whereas that used in objectives is more on the creative side.
Hierarchy of Objectives
Role of Objectives

• Objectives defines organisation’s relationship with environment.

• Objectives help organisation to pursue its vision and mission.

• Objectives provide basis for strategic decision making.

• Objectives provides standards for performance appraisal.

Characteristics of Objectives

• Objectives should be understandable

• Objectives should be concrete and specific

• Objectives should be related to time frame

• Objectives should be measurable and controllable

• Objectives should be challenging

• Objectives should be should correlate with each other

• Objectives should be should be set with in constraints.

 Step 2
Formulation of Strategies
• This stage of strategic management process includes:
➢ Performing environmental appraisal
➢ Performing organisational appraisal
➢ Formulating corporate-level strategies
➢ Formulating business – level strategies
➢ Undertaking strategic analysis
➢ Exercising strategic choice
➢ Preparing strategic plan
 Step 3
Implementation of Strategies
• This stage of strategic management process include:
➢ Activating strategies

➢ Managing behavioural implementations

➢ Managing functional implementations

➢ Putting strategies into operation

 Step 4
Performing Strategic Evaluation and Control

• This stage of strategic management process include:

➢ Performing strategic evaluation

➢ Exercising strategic control

➢ Reformulating strategies
 NEED FOR STRATEGIC MANAGEMENT

• Strategic management allows firms to anticipate changing conditions.

• Strategic management provides clear direction to employees.

• Environment is not static due to which it is necessary to work

strategically. Strategic management helps in understanding the
environment.

• Strategic management helps in profit optimization.

• It brings motivation to employees.

THANK YOU
 UNIT –II
ENVIRONMENTAL ANALYSIS
By:
Dr. Ashima Gaba
Assistant Professor
Delhi Metropolitan Education
TOPICS TO BE COVERED
• Need, characterization and categorization of
environmental analysis
• Approaches to Environmental Analysis
• ETOP – a diagnosis tool
• Resource Audit
• Strategic Advantage Analysis
• Value chain approach to Internal Analysis
• Strategic Advantage Profile
• Resource Deployment Matrix
• SWOT Analysis
• Mckinsey’s 7s Framwork
ENVIRONMENT
• Environment of any organisation is
“aggregate of all conditions, events and
influences that surround and affect it”
• Environment influences organisation in so
many different ways of crucial importance.
Characteristics of Environment
• Environment is complex
• Environment is dynamic
• Environment is multifaceted
• Environment has far reaching impact
Internal Environment
• Internal environment is a component of the business
environment, which is composed of various elements
present inside the organization, that can affect or can be
affected with, the choices, activities and decisions of the
organization.
• It refers to all the factors with in the organization that
impact strength or cause weaknesses of a strategic nature.
Strength : Examples include who is on your team, your
patents and intellectual property, and your location.
Weakness : Examples include financial limitations, low
morale, overdependence on a single product
External Environment
• External environment include all the factors outside
organization that yield opportunities or pose threats to an
organization.
Opportunities: Economic boom, loosening of
regulations, arrival of new technologies
Threats: New stringent regulations, shift in consumer
taste, loss of key staff.
• The external business environment consists of economic,
political and legal, demographic, social, competitive,
global, and technological sectors.
TYPES OF EXTERNAL ENVIRONMENT
ECONOMIC ENVIRONMENT
• economic environment refers to all the external economic factors that
influence buying habits of consumers and businesses and therefore affect the
performance of a company. These factors are often beyond a company’s
control, and may be either large-scale (macro) or small-scale (micro).
• Macro factors include: Employment/unemployment ,Income, Inflation,
Interest rates, Tax rates, Currency exchange rate, Saving rates, Consumer
confidence levels, Recessions
• Micro factors include: The size of the available market, Demand for the
company’s products or services, Competition, Availability and quality of
suppliers,the reliability of the company’s distribution chain (i.e., how it gets
products to customers).
• While companies often can’t control their economic environment, they can
evaluate economic conditions before choosing to enter a particular market or
industry or pursue other strategies.
INTERNATIONAL ENVIRONMENT
• It consist of all the factors that operate at
trans-national, cross cultural and across the
border level having an impact on the
business of an organization.
• It includes; Global economic forces,Global
legal system,Global technology etc.
MARKET ENVIRONMENT
• It consist of factors related to the groups and
other organizations that compete with and have
an impact on organizations markets and
behaviors.
• Examples of factors forming marketing
environment are
✓ Customer related factors
✓ Product factors
✓ Customer services, middlemen,logistics,delivery system.
✓ Competitor related factors
POLITICAL ENVIRONMENT
• It include factors related to management of
public affairs by state.
• Example;Political philosophy,governements
role in business, its
policies,elections,formation of government
etc.
REGULATORY ENVIRONMENT
• It include factors related to planning, promotion,
and regulation of economic activities by the
government that have impact on business of an
organisation.
• Example; policies related to licensing, export
import policies, policies related to small scale
industries.
SOCIO-CULTURAL ENVIRONMENT
• The socio-cultural environment refers to trends and
developments in changes in attitudes, behavior, and
values in society. It is closely related to population,
lifestyle, culture, tastes, customs, and traditions. These
factors are created by the community and often are
passed down from one generation to another.
SOCIO-CULTURAL ENVIRONMENT
Eight Significant Socio-Cultural Trends
1. Increasing environmental awareness
2. Growing health consciousness
3. Expanding seniors market
4. Impact of Generation Y
5. Declining mass market
6. Changing pace and location of life
7. Changing household composition
8. Increasing diversity of workforce and markets
TECHNOLOGICAL ENVIRONMENT
• Technological environment refers to the state of science
and technology in the country and related aspects such as
rate of technological progress, institutional arrangements
for development and application of new technology, etc
• The technological environment is part of the company’s
external environment related to developments and
changes in technology.
TECHNOLOGICAL ENVIRONMENT
Significant Technological Breakthroughs
1. Portable information devices and electronic networking
2. Alternative energy sources
3. Precision farming
4. Virtual personal assistants
5. Genetically altered organisms
6. Smart, mobile robots
ENVIRONMENTAL SCANNING
• It can be defined as a process by which organisations
monitor their relevant environment to identify
opportunities and threats affecting their business for the
purpose of strategic decision making.
• The process of collecting, evaluating, and delivering
information for a strategic purpose is defined as
environmental scanning.
• The process of environmental scanning requires both
accurate and personalized data on the business
environment in which the organization is operating or
considering entering.
ENVIRONMENTAL SCANNING

Gathering
Information on

External : Internal :
Opportunities Strengths and
and threats weakness
FACTORS TO BE CONSIDERED
• Events: specific occurrences
• Trends: general tendencies
• Issues: current concerns
• Expectations: demands made by interest
groups
APPROACHES TO ENVIRONMENTAL SCANNING

• Systematic Approach : Under this approach information related to

markets, customers,changes in legislations, government policy and
regulations have a direct impact on organisation is collected
continously to monitor contniously and take actions accordingly.
• Ad- hoc Approach: Under this approach organisations conduct special
surveys and studies to deal with specific environmental issues from
time to time.
• Processed-form Approach: Under this approach,organisation uses
information is processed form available from different sources from
both inside and outside the organisation.
Sources for Environmental Scanning
• Documentary and Secondary sources : Examples
journals, publications, magazines,newspapers etc.
• Mass Media : Examples radio, television and
internet.
• External Agencies: Examples customers, suppliers,
government associations, trade associations etc.
• Formal Studies
• Spying and Surveillance
PITFALLS IN ENVIRONMENTAL SCANNING

• Strategic planners often focus more on relevant

environment and miss out the trends and issues in general
environment.
• There is a danger of “ Paralysis by analysis”.
• Environmental scanning function should not be integrated
too closely with the operational and functional
characteristics of the organisations. It should not be
aligned too closely with activities of departments.
• Environmental scanning should not be too far from the
realities of the organisation.
FACTORS AFFECTING ENVIRONMENTAL ANALYSIS

1.Organization – Related factor: The nature, age, size, competitive power,

complexity, etc. of the organization have an impact on environmental
analysis. For example, new, large, and less powerful organizations require
more information than old, small and more powerful organizations. Similarly,
organizations operating in multiple products and /or unrelated products and
with geographically dispersed operations need more information than single
product and concentrated organizations.
2. Strategist – Related factors: Strategists plays a central role in strategy
formulation. Therefore, their age, education, experience, motivation level,
attitudes, sense of responsibilities and the ability to face time pressure have a
major impact on environmental analysis. For example, forward looking and
long term oriented managers seeks more information than those who
believes in status and short term.
3. Environment - related factor: How does an organization scan its environment
also depends on the nature of environment. A more thorough scanning s
required when the environment is complex, volatile, hostile and diverse.
ETOP ANALYSIS
Environmental Threat and Opportunity Profile (ETOP)
• There are many techniques available for environmental appraisal
(assessment), one such technique suggested by Glueck is ETOP the
preparation of ETOP involves dividing the environment into different sectors
& then analyzing the impact of each sector on the organization.
• The preparation of an ETOP provides a clear picture to the strategists about
which sectors & the different factors in each sector have a favourable impact
on the organization. By the means of an ETOP, the organization knows where
it ne stands with respect to its environment.
• It is the process by which organizations monitor their relevant environment to
identify opportunities & threats affecting their business for p purpose of
taking strategic decision.
• The ETOP is the most useful technique of structuring the results of
environmental analysis. ETOP or environmental impact Matrix is a summary
of the environmental factors and their impact on the organization.
Why ETOP is needed?
✓ Helps organization to identify O-T
✓ To consolidate and strengthen organization’s position
✓ Provides the strategists of which sectors have a favorable
impact on the organization.
✓ Helps organization knows where its stands with respect to
its environment.
✓ Helps in formulating appropriate strategy.
✓ Helps in formulating SWOT analysis.
ETOP ANALYSIS
The preparation of ETOP involves the following steps:
i.Selection of Environmental factor: First of all, relevant competent of
the environment are selected. Each major factors are divided into
economic policies, economic indices, market environment etc.
ii.Assessment of Importance:The importance of each selected factor /
sub factor is assessed in qualitative (high, medium, low) or
quantitative (3, 2,1)terms.
iii.Measurement of impact: The positive and negative impact of each
factor is measured as opportunities and threats respectively.
iv.Combinations of Importance and Impact: The importance and impact
of each factor together indicate clearly the situation.
ETOP PROFILE
The profile is a technique of environment analysis was organizations make of
profile of their external environment. ETOP analysis provides information
about environment threats & opportunities & their impact on strategic
opportunities for the company. The profile contains mainly 3 issues, they are
1] Forecasting:- Forecasting means predicting the future events & analyzing their
impact on present plans business organizations analyze the environment but
applying various techniques to forecast government is used to formulate
business plans & strategies.
2] Verbal Written information:- Verbal information is collected but hearing &
written information is collected by reading articles, journals, newspaper,
newsletters etc.., common sources of information are radio, television,
workforce, outsiders. It informs changes in the environment & prepares
business organization to incorporate than in their business plans & strategies.
3] Management Information System [MIS]:- It is a formal method of making
available to management to management the accurate & timely information
necessary to facilitate the decision making proceeds & enable the organization
planning, control & operational
 Environmental
Factors

ETOP Profile
Threat Matrix
Include

Opportunity
Matrix
ENVIRONMENTAL FACTORS
THREAT MATRIX

High
Major Moderate
Threat threat
Attractiveness

Low
Moderate Minor
threat threat

High Probability of occurrence Low

OPPORTUNITY MATRIX

High Very Moderate

Attractive Attractive

Attractiveness

Low Moderate Less

Attractive Attratcive

High Probability of occurrence Low

Advantages of ETOP Analysis
✓ Help to determine the key factor of threats and
opportunities.
✓ Good tool to qualify the factors related to company’s
strategy.
✓ Can consider many factors for each special case.
✓ It provides a clear of which sector & subsectors have
favourable impact on the organization.
✓ It helps to interpret the result of environmental analysis.
✓ The organization can assess its competitive position.
✓ Appropriate strategies can be formulated to take
advantage of opportunities & counter the threat.
Disadvantages of ETOP Analysis
✓ It doesn’t show the interaction between the
factors.
✓ It can’t reflect the dynamic environment.
✓ It’s a subjective analysis tool
STRATEGIC ADVANTAGE
• Strategic advantage are outcome of organisational
capabilities.
• They are the results of organisational activities leading to
rewards in terms of financial parameters such as profits,
market share and reputation.
• Strategic advantage are measurable in absolute terms.
ORGANISATIONAL CAPABILITIES
• The areas of a company capability factors that can leads to strategic
advantages are:
1.Financial Capabilities i.e. sources of funds, usage of funds,
management of funds
2.Marketing Capabilities i.e.factors related to pricing, promotion,
distribution of products and services are all related to marketing
capability of an organization. These factors have a bearing on an
organization capacity and ability to implement its strategies
3.Operations Capabilities i.e. factors related to the production of
goods and services and effective utilization of material resources
are categorized into operations capability of an organization.
These factors and all the allied aspects have a bearing on an
organization’s capacity and capability to effectively implement its
strategies.
ORGANISATIONAL CAPABILITIES
• The areas of a company capability factors that can leads to strategic
advantages are:
4.Personnel capability i.e. The factors related to the existence and
use of human resources and skills are categorized into personnel
capability of the organization.
5.Information management capability i.e. Information management
capability factors are the factors that are related to the design and
management of the flow of information from outside into, and
within an organization for the purpose of making decisions
6.General management capability i.e factors related to the
integration, coordination, and direction of the functional
capabilities of an organization towards its common goals is
categorized into general management capability factors. T
COMPETITIVE ADVANTAGE
• Competitive advantage accrues to a firm when it does something that
the rivals cannot do or owns something that the rival firms desire.
• Competitive advantage refers to factors that allow a company to
produce goods or services better or more cheaply than its rivals.
These factors allow the productive entity to generate more sales or
superior margins compared to its market rivals.
APPROACHES
The different approaches are there to develop as competitive advantage:
1) Key Success Factors (KFS):-
It is to compete based on existing strengths. The form can gain strategic advantage if it
focuses resources on one crucial point.
2] Avoids head – on competition:-
The 2nd approach is still based on existing strengths but avoids head on competition.
The firm must look at its own strength which are different or superior to that of the
competition & exploit this relative superiority to the fullest..Ex- makes use of the
technology; sales network & so on of those of its products which are not directly
competing with the products of competitors.
3] Unconventional Approach:-
To compute directly with a competitor, it is used for well established, stagnant industry.
It may be needed to upset the key factors for success that the competitor has used to
build on advantage. The starting point is to challenge accepted assumption about the
way business is done & gain a novel advantage by creating new success factors.
4] Means of Innovations:-
It can obtain by means of innovation which open new markets or result in new
products. This approach avoids head on competition but requires the firm to find new &
creative strengths. Innovation often involves market segmentation & finding new ways
of satisfying the customer’s utility function.
APPRAISING CAPABILITIES
1. Identification of key areas
2. Grading of areas
3. SWOT Analysis
4. Preparation of 1) Functional Area Profile and 2) Strategic Advantage
Profile
Functional Area Profile
• Developed by Hofer and Schendel, this method makes a comparative
analysis of a firm’s own resource deployment position and focus of
efforts with those of competitors.
• This method requires the preparation of a matrix of functional areas
with characteristics common to each, e.g., focus of financial outlay,
physical resource position, organizational system, and technological
capability.
• Following this exercise, it is required that the resource outlay and
focus of efforts over time in the respective functional areas be
presented also in the form of a matrix.
• This matrix is also known as resource deployment matrix.
STRATEGIC ADVANTAGE PROFILE
• It is also known as SAP. It shows strength & weaknesses of an
organization. Preparation of SAP is very similar process to the ETOP.
• SAP is a summary statement which provides an overview of the
advantages & disadvantages in key areas likely to affect future
operations of a firm. It is a total for making systematic evaluation of
strategic advantage factors which are significant for the company in its
environment.
• SAP is the technique of analyzing the internal factor of the
organization by preparing a critical picture of different capacity factors.
It is a relative strength of the company over its competitors.
• Every firm has strategic advantage and disadvantages for,
• Example: Large firm have financial strength but they tent to move
slowly, compared to smaller firms, and often cannot react to change
quickly. No firm is equally strong in all its functions. In other words,
every firm has strength as well as weakness.
STRATEGIC ADVANTAGE PROFILE
• The strategists must be aware of the strategic advantages or strengths
of the firm to be able to choose of the best opportunity for the firm.
On the other hand they must regularly analyze their strategic
disadvantages or weaknesses in order to face environmental threats
effectively.
• The strategist should look to see if the firm is stronger in these factors
than its competitors. When a firm is strong in the market, it has a
strategic advantage in launching new products or services & increasing
market share of present products & services.
• There are generally 5 functional areas in most of the organizations.
These areas are:-
✓ Marketing and Distribution
✓ R & D and Engineering
✓ Production and Operations management
✓ Corporate resources and personnel
✓ Finance and Accounting
ORGANISATIONAL APPRAISAL
• Organisational appraisal is also referred as internal appraisal, internal
analysis, organizational analysis, or company analysis.
• Purpose of organisational appraisal is to determine the organizational
capability in terms of strengths and weaknesses that lie in different
functional areas.
• Organisational appraisal is required in organisation in order to match
strengths and weaknesses with the environmental opportunities and
threats for strategy formulation.
Factors Affecting Organizational Appraisal
1. The ability of the strategists to comprehend complexity determines
how well the different forces and influences, operating with in
internal environmental, are analysis.
2. The size of organisation affects the quality of appraisal. Larger
organisations are usually more difficult to appraise than smaller
organisations.
3. A cohesive management team is more likely to appraise the
organisation better.
VALUE CHAIN ANALYSIS
Every organization performs several activities. These activities are interrelated
and form a chain. Each activity in the chain creates some value and involves
cost. Thus, a value chain analysis is a set of interlinked and value – creating
activities performed by an organization.
a. Primary Activities: These activities are directly related to the creation of
product or service. Primary activities consist of the following.
i.Inbound logistics: All the activities used for receiving, storing and
transporting inputs into the production process are known as inbound
logistics.
ii. Operations: All activities involved in the transformation of inputs into
outputs are called operations.
iii. Outbound logistics: All the activities used for receiving, storing and
transporting finished products are known as outbound logistics.
iv. Marketing and sales: These consist of activities used to market and sell
products services to customers.
v. Service: These are the activities used for enhancing and maintaining a
product’s value.
VALUE CHAIN ANALYSIS
b.Support Activities: These activities provide support to the primary
activities. Support activities consist of:
i. Firm infrastructure: All activities for general management of the
organization to achieve its objective are called firm infrastructure.
ii. Human resource management: These comprise recruitment,
selection, and training, deploying and retaining the human resources
of an organization.
iii. Technology development: Typical activities in this category are
research and development, product and process design, equipment
design etc.
iv. Procurement: Obtaining raw materials, parts, supplies, machinery,
equipment and other purchased items are included in procurement
VALUE CHAIN ANALYSIS
The value chain analysis require :
• Recognizing the activities that make up the organisations value
chain and classifying them into primary and support activities.
• Identifying the things done in those activities that contribute to
providing value for the customer.
• Identifying how the value contribution can be increased so that its
cost less to provide the same or more value thereby increasing the
profit margin of the company.
• Identifying how the value configuration could be improved by
innovatively recombining activities.
ADVANTAGES
• A big advantage is that the value chain is a very flexible strategy tool for
looking at your business, your competitors and the respective places in the
industry’s value system.

• The value chain can be used to diagnose and create competitive advantages
on both cost and differentiation. I’ve written about this in Using The Value
Chain To Create Competitive Advantage.

• It helps you to understand the organisation issues involved with the promise
of making customer value commitments and promises because it focuses
attention on the activities needed to deliver the value proposition.

• Comparing your business model with your competitors using the value chain
can give you a much deeper understanding of your strengths and weaknesses
to be included in your SWOT analysis.
DISAVANTAGES
• Simple yet difficult to implement.
• Applicable to industrial organisations.
• Concept of value is hazy.
• ABC costing is required to obtain correct estimate of cost.
• Difficulty in data collection.
SWOT ANALYSIS
• SWOT is an acronym for Strengths, Weaknesses, Opportunities and
Threats.
• Strengths (S) and Weaknesses (W) are considered to be internal
factors over which you have some measure of control.
• Opportunities (O) and Threats (T) are considered to be external factors
over which you have essentially no control.
• SWOT Analysis is the most renowned tool for audit and analysis of the
overall strategic position of the business and its environment.
• Its key purpose is to identify the strategies that will create a firm
specific business model that will best align an organization’s resources
and capabilities to the requirements of the environment in which the
firm operates.
SWOT ANALYSIS
• It is the foundation for evaluating the internal potential and limitations
and the probable/likely opportunities and threats from the external
environment.
• It views all positive and negative factors inside and outside the firm
that affect the success.
• A consistent study of the environment in which the firm operates
helps in forecasting/predicting the changing trends and also helps in
including them in the decision-making process of the organization.
STRENGTHS
• Strengths - Strengths are the qualities that enable us to accomplish
the organization’s mission. These are the basis on which continued
success can be made and continued/sustained.
• Strengths can be either tangible or intangible. These are what you are
well-versed in or what you have expertise in, the traits and qualities
your employees possess (individually and as a team) and the distinct
features that give your organization its consistency.
• Strengths are the beneficial aspects of the organization or the
capabilities of an organization, which includes human competencies,
process capabilities, financial resources, products and services,
customer goodwill and brand loyalty. Examples of organizational
strengths are huge financial resources, broad product line, no debt,
committed employees, etc.
WEAKNESSES
• Weaknesses are the qualities that prevent us from accomplishing our mission
and achieving our full potential. These weaknesses deteriorate influences on
the organizational success and growth. Weaknesses are the factors which do
not meet the standards we feel they should meet.
• Weaknesses in an organization may be depreciating machinery, insufficient
research and development facilities, narrow product range, poor decision-
making, etc.
• Weaknesses are controllable. They must be minimized and eliminated.
• For instance - to overcome obsolete machinery, new machinery can be
purchased. Other examples of organizational weaknesses are huge debts, high
employee turnover, complex decision making process, narrow product range,
large wastage of raw materials, etc.
OPPORTUNITIES
• Opportunities are presented by the environment within which our
organization operates. These arise when an organization can take benefit of
conditions in its environment to plan and execute strategies that enable it to
become more profitable. Organizations can gain competitive advantage by
making use of opportunities.
• Organization should be careful and recognize the opportunities and grasp
them whenever they arise. Selecting the targets that will best serve the clients
while getting desired results is a difficult task. Opportunities may arise from
market, competition, industry/government and technology. Increasing
demand for telecommunications accompanied by deregulation is a great
opportunity for new firms to enter telecom sector and compete with existing
firms for revenue.
THREATS
• Threats arise when conditions in external environment jeopardize the
reliability and profitability of the organization’s business. They
compound the vulnerability when they relate to the weaknesses.
Threats are uncontrollable. When a threat comes, the stability and
survival can be at stake. Examples of threats are - unrest among
employees; ever changing technology; increasing competition leading
to excess capacity, price wars and reducing industry profits; etc.
ADVANTAGES OF SWOT ANALYSIS
• It is a source of information for strategic planning.
• Builds organization’s strengths.
• Reverse its weaknesses.
• Maximize its response to opportunities.
• Overcome organization’s threats.
• It helps in identifying core competencies of the firm.
• It helps in setting of objectives for strategic planning.
• It helps in knowing past, present and future so that by using past and
current data, future plans can be chalked out.
DISADVANTAGES OF SWOT ANALYSIS
• Subjective
• Information overload
• Increase Cost
• Ambiguity
• No weighing factors
RESOURCE AUDIT
• This audit reviews the resources of an organization for the purpose of
assessing the inherent strengths of those resources. Resources include
physical, financial, human and intangible assets of an organization, “a
Resource is an asset, competency, process, skill or knowledge
controlled by an organization”. It can be a positive strength if
competitors do not possess it or negative when a firm has lesser
strength than competitors”.
TYPES OF RESOURCE AUDIT
Physical Resources: The physical resources include plant and machinery, land and
building, vehicles, stock, etc. Their numbers and book values are not as important as
their expected benefits are. Therefore an assessment is made in terms of their
potential benefits by examining their age, condition, location, capabilities, etc.

Financial Resources: Financial resources include cash, bank, debtors, marketable

securities, etc. In assessing the financial resources, the various sources of finance like
equity shares, debentures, retained earnings, long – term and short term loans are
considered. Their cost of capital, availability and their effect on the overall liquidity and
solvency of the firm is examined.
Human Resources: Human resources are the most valuable assets of the organization,
especially in the present business scenarios – where we find people competing than
corporations. Traditionally top management were grand strategists, junior managers
were implementers and middle the administrators of the strategy.
Intangibles : The resource audit exercise should not forget the intangibles. Intangibles
have value like goodwill. Goodwill plays vital role in service-oriented organizations,
retail organizations etc. Good will is represented by the brand image, customer loyalty,
congenial contacts and relations, public image about the firm, quality and reliable
service etc.
Mckinsey’s 7s Model
McKinsey 7s model was developed in 1980s by McKinsey consultants
Tom Peters, Robert Waterman and Julien Philips with a help from
Richard Pascale and Anthony G. Athos.Since the introduction, the model
has been widely used by academics and practitioners and remains one
of the most popular strategic planning tools. It sought to present an
emphasis on human resources (Soft S), rather than the traditional mass
production tangibles of capital, infrastructure and equipment, as a key to
higher organizational performance. The goal of the model was to show
how 7 elements of the company: Structure, Strategy, Skills, Staff, Style,
Systems, and Shared values, can be aligned together to achieve
effectiveness in a company. The key point of the model is that all the
seven areas are interconnected and a change in one area requires
change in the rest of a firm for it to function effectively
Mckinsey’s 7s Model
Mckinsey’s 7s Model
The elements are defined as follows:
• Strategy – This is the organization’s alignment of resources and
capabilities to “win” in its market.
• Structure – This describes how the organization is organized. This
includes roles, responsibilities and accountability relationships.
• Systems – This is the business and technical infrastructure that
employees use on a day to day basis to accomplish their aims and
goals.
• Shared Values – This is a set of traits, behaviors, and characteristics
that the organization believes in. This would include the organization’s
mission and vision.
• Style – This is the behavioral elements the organizational leadership
uses and culture of interaction.
• Staff – This is the employee base, staffing plans and talent
management.
• Skills – This is the ability to do the organization’s work. It reflects in the
performance of the organization.
 Mckinsey’s 7s Model
The 7S model is a strategic model that can be used for any of the following
purposes:
• Organizational alignment or performance improvement
• Understanding the core and most influential factors in an organization’s
strategy
• Determining how best to realign an organization to a new strategy or
other organization design
• Examining the current workings and relations an organization exhibits
Mckinsey’s 7s Model