Strategic Management

Unit - I
Strategic Management – Meaning and Concept
Strategic Management is a stream of decisions and actions which lead to the
development of an effective strategy or strategies to help achieve corporate
objectives. The Strategic Management process is the way in which strategists
determine objectives and make strategic decisions. Strategic Management can
be found in various types of organizations, business, service, cooperative,
government, and the like.
Strategic Management can be defined as “the art and science of formulating,
implementing and evaluating cross-functional decisions that enable an
organization to achieve its objectives”. In fact, Strategic Management focuses
on integrating management, marketing, finance/accounting,
production/operations, research and development, and computer information
systems to achieve organizational success.
The term Strategic Management is used synonymously with the term Strategic
Planning. The later term is more often used in the business world, whereas the
former is often used in academia.
At time, the term Strategic Management is used to refer to strategy formulation,
implementation, and evaluation, with strategic planning referring only to
strategy formulation. The purpose of Strategic Management is to exploit and
create new and different opportunities for tomorrow long-range planning in
contrast, tries to optimize for tomorrow the trends of today.
A Strategic Plan is, in essence, a company’s game plan. Just as a football team
needs a good game plan to have a chance for success, a company must have a
good strategic plan to be able to complete successfully. A strategic plan results
from tough managerial choices among numerous good alternatives, and signals
commitment to specific markets, policies, procedures, and operations in line of
other, “less desirable” courses of action.
At the heart of strategic management is the question – ‘How and why do some
firms outperform others?’ Thus, the challenge to managers is to decide on
‘strategies’ that provide advantages that can be sustained over time. Much of
strategic management is about identifying and developing the strategies that
managers can pursue to attain superior performance and a competitive
advantage for their organisations.
Strategic management is the process of assessing the firm and its environment
in order to meet the long-term objectives of the firm. It refers to the series of
decisions taken by management to determine the strategies to achieve
organisational goals.
Strategic management involves systematic analysis of the internal and external
environments, to evaluate a company’s current policies, strategy and goals to
build new strategic moves and plans.
Thus, strategic management is the process of planning, directing, organising,
and controlling a company’s strategy-related decisions and actions to achieve
competitive advantage and the long-run performance goals of a company.
By ‘Strategy’, managers mean:
i. Large-scale, future-oriented plans for interacting with the competitive
environment.
ii. An integrated and coordinated set of commitments and actions designed to
exploit core competencies.
iii. A company’s game and action plan of how, when and where it should
compete, against whom it should compete; and for what purposes it should
compete.

Strategic Management – Evolution

In the initial days, typically in early 1920s till the 1930s, managers used to do
day-to-day planning methods. However, after that, managers have tried to
anticipate the future. They have tools like preparation of the budgets and by
using control systems like capital budgeting and management by objectives, and
various other tools. However, as these techniques and tools were unable to
emphasize the role of the future adequately.
The next step was to try and use long-range planning, which was soon replaced
by strategic planning, and later by strategic management, a term that is currently
being used to describe the process of strategic decision-making.
The first phase, which can be traced back to the mid-1930s mainly due to the
nature of the business of that period, the way planning was done was on the
premise of ad hoc policy making. The need for policy making arose as many of
the businesses had just about started operations and were mostly in a single
product line. The ranges of operations were in a limited area. Most of them were
catering to a small and identifiable set of customers. As companies grew, they
expanded their products, catered to more customers and also increased their
geographical coverage.
The method of using informal control and coordination was not enough and
became somewhat irrelevant as these companies expanded. This expansion
brought in complexity and a lot of changes in the external environment. Thus,
there was then a need to integrate functional areas. This integration was brought
about by framing policies to guide managerial action.
Policies helped to have predefined set of actions, which helped people to make
the decisions. Policy-making became the way owners managed their business
and it was considered their prime responsibility. They later assumed the role of
senior management. Thus, with the increasing environment changes in the
1930s and 1940s, planned policy formulation replaced ad hoc policy making,
which shifted the emphasis to the integration of functional areas in a rapidly
changing environment.
As the years progressed, there was more complexity and significant changes in
the environment, especially after the Second World War. This made the
management lead through planned policy, as a way of management,
increasingly difficult. Businesses had grown much larger and were targeting
larger markets geographically, serving more number and types of customers and
also were manufacturing and selling more types of products.
Competition had also increased with many companies entering the markets.
Policy making and functional area integration only did not suffice for the
complex needs of a business. By the 1960s, there was a demand for a critical
look at the basic concept of business, due to increasing competition.
The environment had a crucial role on the business. The effect and relationship
of the business with the environment led to the concept of strategy. This helped
the management of managing both the business and the environment, thus
leading to the third phase, based on a strategy paradigm, in the early sixties.
In the earlier eighties, the patterns again changed, with many companies going
global and also facing competition from rivals across the world. Japanese
companies unleashed a force across the world along with other Asian
companies and posed threats for the US and European companies. This led to
the current thinking, which emerged in the eighties. It is on the premise of
strategic management.

Strategic Management – Definition Provided by Eminent Authors: Lamb

Robert, Learned, Schendel, Hofer, Bracker, Jemison, Van Cauwenbergh,
Fredrickson and a Few Others
Strategic management has been defined by various thinkers, philosophers and
practitioners. Strategic management can be defined as the formal process for
defining company vision & mission, assess internal & external environment,
formulate strategies under resource constraints, implement strategies, and
evaluate the strategies. Strategic management is the art and science of
formulating, implementing and evaluating cross function decision that enable
the business to achieve its objectives.
Lamb Robert (1984) – Strategic management is an on-going process that
evaluates and controls the business and the industries in which the company is
involved; assesses its competitors and sets goals and strategies to meet all
existing and potential competitors; and then reassesses each strategy annually or
quarterly [i.e., regularly] to determine how it has been implemented and
whether it has succeeded or needs replacement by a new strategy to meet
changed circumstances, new technology, new competitors, a new economic
environment, or a new social, financial, or political environment.

Nature of strategic management specifies its characteristics which are as

follows:
1. Strategic Management as a Process:
Strategic management is basically a process. It has emerged out of management
in other fields where the concept of management is taken as a process for
achieving certain objectives of the organization. Thus, strategic management
involves establishing a framework to perform various processes. The concept of
strategic management must embody all general management principles and
practices devoted to strategy formulation and implementation in the
organization.
2. Top Management Function:
Strategic management is basically top management function. Thus, in order to
ensure effective top management function, it is necessary that a distinction
should be made between strategic management and operational management
which emphasises day-to-day operations in the organization, so that top
management can focus more attention on the strategic aspect rather than
emphasising on operational management.
Since the environment of the organization is always changing providing new
opportunities and threats, top management must spend more and more time on
this aspect. Thus, there is a considerable change on the emphasis of top
management functions in the organizations, particularly in large and complex
organizations. The change is from operational management to strategic
management.
3. General Management Approach:
Strategic management has general management approach. This approach has
three characteristics – (i) This approach uses system frame of reference in
dealing with wholeness of an organization. In this dealing, the emphasis is put
on identifying tendencies of various phenomena in the organization and
relationships among these tendencies, (ii) Decision criteria are based on overall
betterment of the organization as a whole, not the criteria used by functional
specialists, (iii) Attempt is made to achieve organizational equilibrium and
generation of synergy. This may be even suboptimal for some departments or
units of the organization.
4. Relating Organization to Environment:
The focus of strategic management is on relating the organization to its external
environment. This emphasises that there is continuous interaction between the
organization and its environment taking an open systems approach. Thus, the
organization must create adequate channel through which external information
will pass to various points in the organization.
5. Long-Term Issues:
Strategic management deals primarily with long-term issues of the organization
that may or may not have an immediate effect. For example, investment in
research and development (R&D) may yield no immediate effect in terms of
new product development. However, this investment may lead to development
of new products and, therefore, enhanced profits.
6. Flexibility:
Strategic management has flexibility. This flexibility is required because
strategic management works in the context of environment which is quite
dynamic. As a result, many strategic actions planned maybe either left,
postponed, or changed in the light of environmental requirements.

7. Innovation:
Strategic management puts emphasis on innovation which is the process of
introducing new things or new ways of working. Innovation is achieved through
new strategic actions which are quite different from the previous actions.
Innovation is required to face environmental challenges effectively.
Strategic Management – Importance
i. It helps the organization to be more proactive instead of reactive in shaping its
future. Organizations are able to analyze and take action instead of being mere
spectators.
ii. It provides framework for all the major business decisions of an enterprise
such as – decisions on businesses, products, and markets, manufacturing
facilities, investments and organizational structure.
iii. It seeks to prepare the corporation to face the future and acts as a pathfinder
to various business opportunities. Organizations are enabled to identify the
available opportunities and identify ways and means to reach them.
iv. It helps organizations to avoid costly mistakes in product market choices or
investments.
v. It helps organizations to evolve certain core competencies and competitive
advantages that assist in their fight for survival and growth.
vi. Strategic management looks at the threats present in the external
environment and thus companies can either work to get rid of them or else
neutralizes the threats in such a way that they become an opportunity for their
success.
vii. It also adds to the reputation of the organizations because of the consistency
that results from organizational success.
Strategic Management – Levels: Corporate, SBU and Functional Strategies
In a multi-business enterprise, having several SBUs, there would be three levels
of strategy, viz., – corporate strategy, SBU strategy and functional strategy. In
enterprises which do not have SBUs, there will be only two levels of strategy,
i.e., corporate strategy and functional strategies.
1. Corporate Strategy:
Corporate strategy is the long-term strategy encompassing the entire
organisation. Corporate strategy addresses fundamental questions such as what
is the purpose of the enterprise, what business/businesses it wants to be in
(portfolio strategy) and how to expand/get into such business/businesses (for
example – by establishing greenfield enterprises or by M&As).
In other words, “corporate-level strategic management is the management of
activities which define the overall character and mission of the organisation, the
product/service segments it will enter and leave, and the allocation of resources
and management of synergy among its SBUs.”
Corporate strategy is formulated by the top level corporate management (board
of directors, CEO, and chiefs of functional areas).
2. SBU Strategy:
SBU-level strategy, sometimes called Business Strategy or Competitive
Strategy, is concerned with decisions pertaining to the product mix, market
segments and manoeuvring competitive advantages for the SBU.
While corporate strategy decides the business portfolio (i.e., the types of
business), the competitive strategy decides the strategy/strategies to succeed in
the chosen business/businesses.
SBU strategy has to conform, obviously, to the corporate philosophy and
strategy.
In short, “the SBU-level strategic management is the management of an SBU’s
effort to compete effectively in a particular line of business and to contribute to
overall organisational purposes.”
The responsibility for SBU strategy is with the top executives of the SBU who
are normally second-tier executives in the corporate hierarchy. In single-SBU
organisations, senior executives have both corporate and SBU-level
responsibilities.
3. Functional Strategies:
Functional-level strategies are strategies for different functional areas like
production, finance, personnel, marketing, etc. In other words, “functional-level
strategic management is the management of relatively narrow areas of activity,
which are of vital, pervasive, or continuing importance to the total
organisation.”
Functional-level strategy is the responsibility of functional area heads.
Strategic Management – 16 Important Objectives
Some important objectives of strategic management are as follows:
1. To exploit and create new and different opportunities for tomorrow.
2. To provide the conceptual frameworks that will help a manager understand
the key relationships among actions, context, and performance.
3. To put an organisation into a competitive position.
4. To sustain and improve that position by the deployment and acquisition of
appropriate resources and by monitoring and responding to environmental
changes.
5. To monitor and respond to the demands of key stakeholders.
6. To find, attract, and keep customers.
7. To ensure that the company is meeting the needs and wants of its customers,
which is a cornerstone in providing the quality product or service that customers
really want.
8. To sustain a competitive position.
9. To utilize the company’s strengths and take full advantage of its competitor’s
weaknesses.
10. To understand the various concepts involved like strategy, policies, plans
and programmes.
11. To have knowledge about environment—how it affects the functioning of an
organisation.
12. To determine the mission, objectives and strategies of a firm and to
visualize how the implementation of strategies can take place.
13. To find the solutions of problems in real-life business.
14. To develop analytical ability to identify threats and opportunities present in
the environment.
15. To develop the skills of strategic decision making.
16. To develop a creative and innovative attitude and to think strategically.
Strategic Management – Strategic Decision Making
Strategic decision making, or strategic planning, describes the process of
creating a company’s mission and objectives and choosing the course of action
a company should pursue to achieve those goals. Strategic decisions are
different in nature from all other decisions which are taken at various levels of
the organization during their day-to-day working.
The major dimensions of strategic decisions are given below:
i. Strategic issues require top-management decisions.
ii. Strategic issues involve the allocation of large amounts of company
resources.
iii. Strategic issues are likely to have a significant impact on the long term
prosperity of the firm.
iv. Strategic issues are future-oriented.
v. Strategic issues usually have major multi-functional or multi-business
consequences.
vi. Strategic issues necessitate consideration of factors in the firm’s external
environment.
Strategic Management – Tasks
Strategic thinking provides the vision for Strategic Management; by providing
an insight into the forces behind the new completion by – helping us develop a
sustainable competitive advantage based on our organization’s core
competencies; creating in infrastructure for the review and redefinition of our
strategic direction; and along us to recognize and capitalize on new
developments and opportunities in the market. The vision and direction
provided by strategic thinking has to be incorporated into the Strategic
Management framework.
Strategic Management process can be described by a number of tasks to be
undertaken by the organization. In the final analysis, the success of the Strategic
Management process boils down to the ability of the organization to carry out
these tasks effectively and efficiently.
1. Evolve business goals, by formulating its future mission and vision in terms
of the expectations of the stakeholders.
2. Set objectives that are achievable in light of changing external factors that
include regulation, competition, technology and customers.
3. Evolve and develop a competitive strategy to achieve the mission.
4. Create an effective organizational structure and arrange the resources to
successfully carry out the strategy.
5. Finally, evaluate the performance so that necessary corrective measures can
be taken to keep it on track to achieve the vision.

Difference Between Tactics and Strategy

In a business environment, firms use various techniques, to survive, compete
and grow in the long run. These techniques can be called as tactics and
strategy. Tactics are the actions, projects or events, to reach a particular point or
the desired end, whereas the Strategy is defined as a game plan, which can help
the organization to achieve its mission and objectives.
These terms are used very often, when we talk about competition among firms
at the market. While tactics refers to the moves which businesses adopt, to
achieve a specific result. On the other hand, strategy implies a blueprint, that
leads the organization to its vision. The scope of the strategy is bigger than
tactics, in a sense that there can be some tactics in a single strategy. Moreover,
the two should go in tandem or else, the business may have to face failure.

Difference Between Tactics and Strategy

BASIS FOR
TACTICS STRATEGY
COMPARISON

Meaning A carefully planned A long range blue print of an

action made to achieve a organization's expected image
specific objective is and destination is known as
Tactics. Strategy.

Concept Determining how the An organized set of activities

strategy be executed. that can lead the company to
differentiation.

Nature Preventive Competitive

What is it? Action Action plan

Focus on Task Purpose

Formulated at Middle level Top level

Risk involved Low High

BASIS FOR
TACTICS STRATEGY
COMPARISON

Approach Reactive Proactive

Flexibility High Comparatively less

Orientation Towards the present Future oriented

conditions

Definition of Tactics

The word tactic is an ancient Greek origin of term ‘taktike’ which means ‘art of
arrangement.’ To put simply, tactics refers to the skill of dealing or handling
difficult situations, to achieve a specific goal. It is defined as a process that
integrates all the resources of the firm like men, material, method, machinery,
and money, to cope up with the changing situation immediately. It can be a
caution that prevents the organization from uncertainties.

Tactics are subordinate to, as well as in support of the strategy. There can be an
end number of tactics in a single strategy. Formulated by the middle-level
management, i.e. department heads or divisional managers are responsible for
making tactics considering the company’s overall strategy. They are made
according to the prevalent market conditions. Hence, changes are frequently
made.

Definition of Strategy

A master plan, designed by the organization to fulfill its overall objectives is

known as a strategy. In simple terms, the strategy is defined as a comprehensive
plan, made to defeat the enemies in the battle. It has the same meaning in the
business context also.

The strategy is a combination of corporate moves and actions, used by the

management to attain a competitive market position, carry on its operations,
making best possible use of scarce resources attract more and more customers to
compete in the market efficiently and achieve organizational objectives.
Strategies are action oriented and based on practical considerations, not on
assumptions.

Strategic Planning: Concept and Process | Business Management

Concept of Strategic Planning:
Planning is related with future. A planning process involves different degrees of
futurity.

Some parts of the organisation require planning for many years into the future
while others require planning over a short period only.

For instance, capital expenditure is related to long- term period while budget for
a year is of short-term nature. The former is called strategic planning or long-
range planning.

‘Strategic planning’ may be defined as the process of determining the objectives

of the organisation and the resources to be used to attain these objectives, as
also the policies to govern the acquisition, utilisation and disposition of these
resources.

Examples of strategic planning in an organisation are—diversification of

business into new lines, planned growth rate in sales, type of products to be
offered, etc. Strategic planning encompasses all the functional areas of business
and is affected within the existing and long- term framework of economic,
technological, social and political factors.

It also involves the analysis of various environmental factors—particularly with

regard to how an organisation relates to its environment. Generally, for most of
the organisations, strategic planning period ranges between three to five years.

Process of Strategic Planning:

The process of strategic planning consists of the following steps:
1. Determination of Mission and Objectives:
Strategic planning starts with the determination of the mission for the
organisation. The principal objectives for which the organisation has been set up
should be clearly defined. Strategic planning is concerned with an
organisation’s long-term relationship to its external environment. So, the
business mission should be fixed in terms of social impact of the organisation.

2. Environmental Analysis:
In order to identify the opportunities and threats, the external environment of
the organisation is analysed. A list of important factors likely to affect the
organisation’s activities is prepared.

3. Self-appraisal:
In the next step, the strengths and weaknesses of the organisation are analysed.
Such an analysis will enable the enterprise to capitalize on its strengths and to
minimise its weaknesses. The enterprise can utilise the external opportunities by
concentrating on its internal capacity. By matching its strengths with the
environmental opportunities, an enterprise can face competition and achieve
growth.

4. Strategic Decision-making:
Strategic alternatives are then generated and evaluated. After that, a strategic
choice is made to reduce the performance gap. The organisation must select the
alternative that is best suited to its capabilities. For instance, in order to grow,
an enterprise may enter into new markets or develop new products or sell more
in the present markets.

Choice of strategy depends upon external environment, managerial perception,

the managers’ attitude towards risk, past strategies and managerial power and
efficiency.

5. Strategy Implementation and Control:

Once the strategy is determined, it must be translated into tactical operational
plans. Programmes and budgets are developed for each function. Short term
operational plans are prepared to use the resources. Control should be developed
to evaluate performance as the strategy is put into use.

Wherever actual results are below the expectation, the strategy should be
reviewed or reappraised. It must be modified and adapted to the changes in the
external environment.

Strategic Intent - Mission and Objectives

Strategic Intent

CK Prahald and Hamel coined the term ‘strategic intent’ to indicate an

obsession of an organization, some times having ambitions that may even be out
of proportion to their resources and capabilities. They explain the term ‘strategic
intent’ like this.

“On the one hand, strategic intent envisions a desired leadership position and
establishes the criterion the organization will use to chart its progress…. At the
same time, strategic intent is more than simply unfettered ambition.

The concept also encompasses an active management process that includes

1. focusing the organization’s attention on the essence of winning,

2. motivating people by communicating the value of the target,

3. leaving room for individual and team contributions,

4. sustaining enthusiasm by providing new operational definitions as

circumstances change and

5. using intent consistently to guide resource allocations”.

Hamel and Prahlad quote several examples of global firms, almost all of
American and Japanese origin, to support their view. In fact, the concept
of strategic intent –as evident from their path breaking article, published
in 1989 in the Harvard Business Review- seems to have been proposed by
 them to explain the lead taken by Japanese firms over their American and
European counterparts.

Indian examples of companies with strategic internet are late Dhirubai

Ambani’s Reliance group with the strategic intent of being a global leader
of being the lowest cost producer of polyester products a status achieved
with vertical integration and operational effectiveness. The Indian
hardware giant, HCL’s aspiration to become global software and service
company is working with the strategic intent of putting hardware,
software and networking together and making it work At Procter &
Gamble (P&G) employees participate in a program the CEO calls
“combat training, “The program’s intent is to focus on ways P&G can
beat the competition.

Vision

A vision states what the organization aspires to become in the future.

A mission reflects the organization's past and present by stating why the
organization exists and what role it plays in society. Goals are the more
specific aims that organizations pursue to reach their visions and
missions.

Vision is the starting point for articulating organisation’s hierarchy of goals and
objectives. A vision statement is a vivid idealised description of a desired
outcome that inspires, energizes and helps firm to create a mental picture of its
target. It represents a destination that is driven by and evokes passion, but it
does not specify the means that will be used to reach the desired destination.
The vision provides the point of reference on the horizon — a beacon of light. It
seeks to answer the basic question, “What do we want to become?”
The corporate success depends on the vision articulated by the chief executive
officer or the top management. In other words, developing and implementing a
vision is one of a leader’s central roles. CEO or top management need to have
not only a vision statement but also a plan to implement it. This view was
supported by a research conducted with sample of 1500 top level employees
(630 senior leaders and 870 CEOs) from 20 different countries.
The respondents were asked what they believed were the key traits that leaders
must have ninety-eight per cent of respondents opined that “a strong sense of
vision,” was the most important trait. Similarly, when asked about the critical
knowledge skills, the respondents cited “strategy formulation to achieve a
vision,” as the most important skill.

An organization’s vision and mission combined offer a broad, overall sense of

the organization’s direction. To work toward achieving these overall
aspirations, organizations also need to create goals[2]—narrower aims that
should provide clear and tangible guidance to employees as they perform their
work on a daily basis. The most effective goals are those that are

Specific,

Measurable,
Achievable,

Realistic, and
Time-bound.

An easy way to remember these dimensions is to combine the first letter of each
into one word: SMART (Figure 2.4 “Creating SMART Goals”). Employees are
in a much better position to succeed to the extent that an organization’s goals
are SMART.A goal is specific if it is explicit rather than vague. WestJet’s
vision is that “By 2016, WestJet will be one of the five most successful
international airlines in the world providing our guests with a friendly caring
experience that will change air travel forever.”

A goal is measurable to the extent that whether the goal is achieved can be
quantified. WestJet’s goal of being one of the five most successful international
airlines in the world by 2016 offers very simple and clear measurability: Either
WestJet will be in the top five by 2016 or they will not.

A goal is aggressive if achieving it presents a significant (as opposed to easy)

challenge to the organization. A series of research studies have demonstrated
that performance is strongest when goals are challenging but attainable. Such
goals force people to test and extend the limits of their abilities. This can result
in reaching surprising heights.
Mission

Its name or articles of incorporation do not define a business. The business

mission defines it. Only a clear definition of mission and purpose of the
organization makes possible clear and realistic business objectives.

Mission statements can vary in length, content, format, and specificity. Most
practitioners and academicians of strategic management feel that an effective
statement exhibits nine characteristics or components. Because a mission
statement is often the most visible and public part of the strategic-management
process, it is important that it includes all of these essential components:
Mission follows vision. Creating strategic vision is concerned with “what do we
want to become?” On the other hand, a company’s mission statement outlines
the core purpose of the organisation, “why it exists?” The mission examines the
“raison d’etre” of a company. The vision becomes tangible as a mission
statement.
A company’s mission statement is defined by the buyer needs it seeks to satisfy,
the customer groups and market segments it is endeavouring to serve and the
resources and technologies that is developing in trying to please its customers.
A mission statement is a message designed to be inclusive of the expectations of
all stakeholders for the company’s performance over the long run. The
executives and board who prepare the mission statement attempt to provide a
unifying purpose for an organisation, that will lay emphasis on business and
thereby path for development.

A mission statement defines what line of business a company is in, and why it
exists or what purpose it serves. Every company should have a precise
statement of purpose that gets people excited about what the company does and
motivates them to become part of the organization. A mission statement should
also define the company’s corporate strategy and is generally a couple of
sentences in length.

Example of a Mission Statement

Let’s look at Microsoft Corp.’s mission statement. Microsoft Corp. is an

American multinational company that develops, manufactures, licenses, and
sells technology products, including computer software, electronics, and
personal computers. It is also one of the largest corporations in the world,
alongside companies such as Apple, Inc. and Amazon.com, Inc.

1. Customers: Who are the firm’s customers?

2. Product or services: What are the firm’s major products or services?
3. Markets: Geographically, where does the firm compete?
4. Technology: Is the firm technologically current?
5. Concern for survival, growth and profitability: Is the firm committed to
growth and financial soundness?
6. Philosophy: What are the basic beliefs, values, aspirations, and ethical
priorities of the firm?
7. Self-concept: What is the firm’s distinctive competence or major competitive
advantage?
8. Concern for public: Is the firm responsive to social, community, and
environmental concerns?
9. Concern for employees: Are employees a valuable asset of the firm?

Pepsi Co’s mission is to increase the value of our shareholders’ investment. We

do this through sales growth, cost controls, and wise investment resource. We
believe our commercial success depends upon offering quality and value to our
consumers and customers; providing products that are safe, wholesome,
economically efficient, and environ-mentally sound; and providing a fair return
to our inventors while ad-hering to the highest standards of integrity.

Dell Computer’s mission is to be the most successful computer company in the

world at delivering the best customer experience in markets we serve. In doing
so, Dell will meet customer expectations of highest quality; leading technology;
competitive pricing; individual and company accountability; best-in-class
service and support; flexible cus-tomization capability; superior corporate
citizenship; financial stability.

Establishing an organizational mission is an important part of management’s

job, because the existence of a formally expressed organi-zational mission
generally makes it more likely that the organizational will succeed. Having an
established and documented organizational mission accomplishes several
important things. A mission statement once established serves an organization
for many years. But a mission may become unclear as the organization grows
and adds new product, markets and technologies to its activities. So a mission
statement should be broad enough to accommodate any new changes to avoid
reformulation.
Objectives

An organization’s mission gives a framework or direction to a firm. The next

step in planning is focusing on establishing progressively more specific
organizational direction by setting objectives. An organizational objective is a
target toward which the organization directs its efforts. Objectives in
organizations, as shown in Figure 3.3 exhibit a hierarchy.
The BOD are more concerned with mission, purpose and overall objectives.
Middle managers are involved in key result areas(KRAs), division and
department objectives. At the lower level, group personal objectives are set. The
objectives can be top down or bottom up taking the initiative from lower
management.

Managers should develop organizational objectives that are

1. Specific

2. Require a desirable level of effort

3. Flexible

4. Measurable and operational

5. Consistent in the long and short run

Peter Drucker, perhaps the most influential business writer of modern times, has
pointed out that it is a mistake to manage organizations by focusing primarily
on one and only one objective. According to Drucker, organizations should aim
at achieving several objectives instead of just one. Enough objectives should be
set so that all areas important to the operation of the firm are covered. Eight key
areas in which organizational objectives should normally be set are:

Market standing: The position of an organization – where it stands – relative

to its competitors
Strategic Management Process
The strategic management process means defining the organization’s strategy. It
is also defined as the process by which managers make a choice of a set of
strategies for the organization that will enable it to achieve better performance.
Strategic management is a continuous process that appraises the business and
industries in which the organization is involved; appraises it’s competitors; and
fixes goals to meet all the present and future competitor’s and then reassesses
each strategy.
Strategic management process has following four steps:

1. Environmental Scanning- Environmental scanning refers to a process of

collecting, scrutinizing and providing information for strategic purposes.
It helps in analyzing the internal and external factors influencing an
organization. After executing the environmental analysis process,
management should evaluate it on a continuous basis and strive to
improve it.
2. Strategy Formulation- Strategy formulation is the process of deciding
best course of action for accomplishing organizational objectives and
hence achieving organizational purpose. After conducting environment
scanning, managers formulate corporate, business and functional
strategies.
3. Strategy Implementation- Strategy implementation implies making the
strategy work as intended or putting the organization’s chosen strategy
into action. Strategy implementation includes designing the
organization’s structure, distributing resources, developing decision
making process, and managing human resources.
4. Strategy Evaluation- Strategy evaluation is the final step of strategy
management process. The key strategy evaluation activities are:
appraising internal and external factors that are the root of present
strategies, measuring performance, and taking remedial / corrective
 actions. Evaluation makes sure that the organizational strategy as well as
it’s implementation meets the organizational objectives.

These components are steps that are carried, in chronological order, when
creating a new strategic management plan. Present businesses that have already
created a strategic management plan will revert to these steps as per the
situation’s requirement, so as to make essential changes.

Components of Strategic Management Process

Strategic management is an ongoing process. Therefore, it must be realized that
each component interacts with the other components and that this interaction
often happens in chorus

5. Analysis of Company’s External Environment:

The second phase of strategic management process is analysis of organisation’s
external operating environment. The prime purpose of analysing external
operating environment is to identify (organisation’s) strategic opportunities and
threats for the organisation, in which organisation pursues its vision, mission
and goals.
The key environmental factors that affect an organisation are political and legal,
economic, technological, socio-cultural and societal factors. All these factors
may be grouped into three categories, they are – (i) industry environment, (ii)
national environment, and (iii) macro environment.
6. Analysis of Company’s Internal Environment:
It is the third phase of strategic management process. The essential purpose of
the internal analysis is to identify strengths and weaknesses of the organisation.
The internal environment of organisation consists of variables that are within
the organisation itself. They are the structure, culture and resources. A business
becomes strong when it has all these three in balance. The absence of all these
or any of them makes the firm weak.
 Environmental Analysis
An environmental analysis is a strategic analysis tool to identify all of the external and internal
factors that can affect a company's performance. The purpose is to assess the level of risk various
environmental factors pose as well as the business opportunities they present. The analysis
considers the company's strengths and weaknesses and how they affect the ability to handle
external threats/opportunities.

Successful businesses can usually modify their internal business strategy and operating
procedures to adapt to external circumstances. For example, Google is working with China on
building a censored search app that could serve over 99% of queries. This move has been
criticized by many who believe that it conflicts with Google's mission to organize the world's
information and make it universally accessible and useful. However, it demonstrates that
companies can find a way to expand even when confronted by political or legal challenges.

Environmental Analysis Process

Creating a strategic analysis is a 3-step planning process-

1. Identify Factors
The company must first determine which internal and external factors may affect a business.
More often than not, there is a combination of different elements at stake.

For example, Toys R Us went out of business due to increasing competition from discount stores
such as Target and Amazon. They were also saddled with debt from a buy out in 2005. The two
environmental factors that affected Toys R Us were internal financial problems and external
competing markets.

2. Gather Information
The company then gathers information about the identified internal and external conditions that
impact business operations.

For example, some localities regulate or prohibit the usage of digital billboards due to
environmental concerns. A company that utilizes digital billboards to run advertisements across
many locations has heard that new regulations may affect their ability to run ads during certain
hours. The company would then review the local ordinances and regulations to see if they can
continue running their campaigns in each of their locations, or if they need to change their
advertising strategy.

3. Determine Impact
The gathered information predicts how environmental factors will affect the business. Internal
operational and financial processes need to be reviewed to determine how the company will be
able to respond to each risk.
For instance, a company has an opportunity to sell their products in another country. However,
that country is currently experiencing poor economic conditions which might affect sales. The
company can then determine whether the number of sales would exceed the cost of expanding its
market to another company and whether they could take the financial hit if the endeavor failed.

Environmental scanning is frequently utilized to help organizations scan the landscape of

competitors, customers, economic conditions, market conditions, etc. before implementing a new
product/service. A commonly utilized project management tool to perform environmental
scanning is PESTEL, which refers to the political, economic, social, and technological factors
affecting a company. Here are the different components of a PESTEL analysis, by letter.
PESTEL analysis

Political
Political issues refer to the government's level of intrusion in an organization's operations.
Particular issues of concern are taxation, tariffs, regulations, elections, and political stability. For
example, different political parties have different stances on increasing the minimum wage.
Small businesses may pay attention to an election where one candidate proposes an increase in
the minimum wage because it can affect their product/service prices and ability to maintain
current employees.

Economic
Businesses who operate within the United States first focus on the health of the American
economy as a whole, including growth, employment, inflation, and interest rates. Organizations
that operate outside of the U.S. will focus on exchange rates. For example, a startup may
evaluate the current health of the economy to determine whether or not they will be able to
sustain themselves, as economic conditions affect a company's long-range revenue and expenses.

Social
Social issues involve shifts in age, demographical changes, changing attitudes towards safety and
health, consumer preferences and technological advancements, or population growth. For
example, 86% of millennials utilize social media. As a result, companies who see millennials as
their target audience are more likely to run promotional advertisements on social media
platforms.

Technology
Technology includes research and development, robotics, automation, or any type of
technological change. Technological disruption refers to innovations that completely change the
cast of leading competitors. For example, Facebook's popularity was a technological disruption
for Myspace, who was considered a dominating social media platform back in the early 2000s.

Environmental
Climate change, weather, air quality, and natural disasters are all environmental factors. Some
industries are especially at risk from changes in the environment, including agriculture or
tourism. To illustrate, farmers may watch the Weather channel or read the Farmer's Almanac
because the weather can affect pesticide application, irrigation scheduling, planting dates, or
fungicide application.

Legal
Legal factors include employment, health, and safety policies. Discrimination and consumer
protection laws can also affect a company's ability to operate. For example, the 2009 Dodd-
Frank Act was passed by Congress after the Great Recession to place strict regulations on banks
to protect consumers. Many larger banks were able to cope with the regulations imposed on
them, but 90% of small banks claimed that compliance costs increased too dramatically and 81%
said Dodd-Frank was too financially burdensome.

Environmental Factors in Strategic Planning

For any business to grow and prosper, managers of the business must be able to anticipate, recognise
and deal with change in the internal and external environment. Change is a certainty, and for this
reason business managers must actively engage in a process that identifies change and modifies
business activity to take best advantage of change. That process is strategic planning.

The following diagram provides examples of factors that are agents of change and need to be
considered in the strategic planning process. Explanation of these factors is found below.

Internal and External Environment

All businesses have an internal and external environment. The internal environment is very much
associated with the human resource of the business or organisation, and the manner in which people
undertake work in accordance with the mission of the organisation. To some extent, the internal
environment is controllable and changeable through planning and management processes.

The external environment, on the other hand is not controllable. The managers of a business have no
control over business competitors, or changes to law, or general economic conditions. However the
managers of a business or organisation do have some measure of control as to how the business reacts
to changes in its external environment.

Table 1: Factors in the internal environment and their affect on the business/organisation

Factor Influence on the organisation

The knowledge, experience and capability of an organisation's workforce

Human Resource is a determining factor of success. For this reason, organisations pay
particular attention to the recruitment of staff and also to engage in
the training of staff and volunteers to build the organisation's capability.
In pursuing both recruitment and training strategies, an organisation is
often limited by its financial strength. Nevertheless, training of staff is
an essential aspect of good business management, and even in difficult
financial circumstances is an achievable strategy.

The culture within the organisation is a very important factor in business

Organisational Culture
success. (see More about organisation culture). The attitudes of staff
and volunteers, and their ability to "go the extra mile" makes a very
significant difference. Negative attitudes can severely impact on the
organisation's ability to implement strategies for development despite
however thorough the planning processes. Positive attitudes of staff and
volunteers will not only make the management task easier but also will
be noticed and appreciated by customers of the business or members of
organisation.

Businesses and organisations may be impeded by their

Organisation Structure structure, constitution and/or forms of governance. Organisation
structure is essentially the way that the work needed to carry out the
mission of the organisation is divided among its workforce. (see more
about organisation structure)

In a non-profit organisation, the organisation will include the

management board or committee
(i.e. President, Secretary, Treasurer and Ordinary Committee Members),
the salaried staff of the organisation and all the volunteers that have
roles as coordinators of various business functions (e.g. Event
 Coordinator, Promotions Coordinator and Coaching Coordinator).When
an organisation is a for-profit business that operates in a very
competitive environment, its organisation structure may help or hinder
the ability of the organisation to react to change. For example, when
the organisation structure has many levels of management, decision
making can be slow as information is carried up and down the hierarchy.
For this reason, "flatter" organisation structures are often preferred i.e.
people who work "at the coal face" and one level of management above.
Volunteers are normal part of the non-profit organisation but not the
profit-business. Although it is often hard to find volunteers, the
organisation structure of the non-profit organisation can be very flexible
by appointing volunteers as needed.

The capability of the management team and the leadership styles

Management employed by managers will also have a major impact on the morale of
staff (and volunteers in a non-profit organisation) and organisation
culture. More contemporary forms of management involve workers in
decision making processes and trusting that, although managers and
workers have different viewpoints, they largely benefit by working
together to achieve the business objectives.

The internal environment of the organisation can be made richer or

Assets poorer by its assets. For example, the organisation's premises can be
pleasant and uplifting, or demure and depressing. The availability of
equipment is another asset that can significantly impact on the internal
environment. If equipment is in short supply or not of the expected
standard, then staff may be hindered in the performance of their duties,
or if equipment is used by customers then customer satisfaction will fall.

Financial strength is a factor in its own right that influences the internal
Financial Strength environment of the organisation. Despite however good other internal
factors may be, it is very difficult for an organisation that is too short of
cash to implement strategies within the strategic plan. If the
organisation struggles financially this can impact on staff morale as
budgets need to be excessively tight.
External Environment Factors

Table 2 below identifies important aspects of the external environment in which the business operates. The
business cannot control these aspects but can respond to change if needed. The main problem for business
managers is to be able to respond early to change in the external environment, and this depends on how
soon any change is identified. Some external environmental factors such as economic conditions are
reported daily in the media and managers have a wealth of information on which to develop strategic plans.
However, some external factors may be difficult to identify, particularly of the pace of change is very slow
or is hidden from view.
Table 2: Factors in the external environment and their affect on the business/organisation

Factor Influence on the organisation

Prevailing economic conditions of the nation will have an effect on the

Economic conditions spending patterns of citizens. Increases in interest rates and/or a high
level of unemployment will depress consumption of non-essential goods
and services. For example. when people experience financial hardship,
they will spend much less on sport and recreation, holidays, new cars and
luxury goods. Economic conditions are global as well as national, and
when there is a global financial crisis as in 2007, changes in the external
environment can be dramatic.

The strength of business competition is a constantly changing factor in

Market (competition) the external business environment. Not only will competitors come and
go, but they will also change marketing strategies, product lines and
prices. Often such changes are not heralded and business managers must
be alert as to what competitors are doing.

Technological change has been rapid in the last 50 years and is a factor in
Technology the external environment that constantly exerts pressure on the business
or organisation. If businesses do not adapt sufficiently quickly to
technological change, they risk losing market share. It's not just that
technological change affects the design of products, but even the
delivery of services can change.

Climate change is an insidious threat because the pace of change may be

Climate change recognisable only if considered on a decade-by-decade basis. The effect
of climate change will not fall equally on all nations and all businesses.
Businesses that depend directly on a good supply of water e.g.
agriculture, field sports will be adversely effected if climate change
results in reduced rainfall. However the flow on affects of drought will
eventually work their way through to all businesses in the effected
community.

Taxation is one of most obvious changes in law through legislation.

Legal Sometimes taxation changes occur overnight with little warning and
sometimes there is plenty of time for the business to prepare. Other law
changes that commonly affect business include Workplace Health and
 Safety, Industrial Relations, Consumer Protection and Environmental Law,

The media is undergoing rapid and significant change. The main driver of
Media this change is technology and the rise of the internet. Newspapers once
carried many pages of job adverts but now this business is conducted by
online recruitment companies such as Seek.

Like law, changes in government policy can be well notified and

Political discussed, or without warning. As an example of how government policy
has an effect, is that many organisations depend on government financial
assistance. When there is a change of government, such funding
assistance can disappear in a short space of time.

There is constant change in the make-up of the population. Some of these

Demographic changes include an increasing proportion of elderly citizens, increasing
number of two-income families, the age at which people marry is
increasing, increasing ethnic diversity, suburbs which were once
dominated by young families now have few. These demographic changes
can have a significant effect locally. For example, a sport club which
once prospered can begin to decline as the local area has less and less
children.

Industry Analysis
Industry analysis is a market assessment tool used by businesses and analysts
to understand the competitive dynamics of an industry. It helps them get a
sense of what is happening in an industry, e.g., demand-supply statistics,
degree of competition within the industry, state of competition of the industry
with other emerging industries, future prospects of the industry taking into
account technological changes, credit system within the industry, and the
influence of external factors on the industry.

Industry analysis, for an entrepreneur or a company, is a method that helps to

understand a company’s position relative to other participants in the industry.
It helps them to identify both the opportunities and threats coming their way
and gives them a strong idea of the present and future scenario of the
industry. The key to surviving in this ever-changing business environment is to
understand the differences between yourself and your competitors in the
industry and use it to your full advantage.

Learn more in CFI’s Corporate & Business Strategy Course.

Types of industry analysis

There are three commonly used and important methods of performing

industry analysis. The three methods are:

1. Competitive Forces Model (Porter’s 5 Forces)

2. Broad Factors Analysis (PEST Analysis)
3. SWOT Analysis
#1 Competitive Forces Model (Porter’s 5 Forces)

One of the most famous models ever developed for industry analysis,
famously known as Porter’s 5 Forces, was introduced by Michael Porter in his
1980 book “Competitive Strategy: Techniques for Analyzing Industries and
Competitors.”

According to Porter, analysis of the five forces gives an accurate impression of

the industry and makes analysis easier. In our Corporate & Business Strategy
course, we cover these five forces and an additional force — power of
complementary good/service providers.

The above image comes from a section of CFI’s Corporate & Business Strategy
Course.

1. Intensity of industry rivalry

The number of participants in the industry and their respective market shares
are a direct representation of the competitiveness of the industry. These are
directly affected by all the factors mentioned above. Lack of differentiation in
products tends to add to the intensity of competition. High exit costs such as
high fixed assets, government restrictions, labor unions, etc. also make the
competitors fight the battle a little harder.

2. Threat of potential entrants

This indicates the ease with which new firms can enter the market of a
particular industry. If it is easy to enter an industry, companies face the
constant risk of new competitors. If the entry is difficult, whichever company
enjoys little competitive advantage reaps the benefits for a longer period.
Also, under difficult entry circumstances, companies face a constant set of
competitors.

3. Bargaining power of suppliers

This refers to the bargaining power of suppliers. If the industry relies on a

small number of suppliers, they enjoy a considerable amount of bargaining
power. This can particularly affect small businesses because it directly
influences the quality and the price of the final product.

4. Bargaining power of buyers

The complete opposite happens when the bargaining power lies with the
customers. If consumers/buyers enjoy market power, they are in a position to
negotiate lower prices, better quality, or additional services and discounts. This
is the case in an industry with more competitors but with a single buyer
constituting a large share of the industry’s sales.

5. Threat of substitute goods/services

The industry is always competing with another industry producing a similar

substitute product. Hence, all firms in an industry have potential competitors
from other industries. This takes a toll on their profitability because they are
unable to charge exorbitant prices. Substitutes can take two forms – products
with the same function/quality but lesser price, or products of the same price
but of better quality or providing more utility.
#2 Broad Factors Analysis (PEST Analysis)

Broad Factors Analysis, also commonly called the PEST Analysis stands for
Political, Economic, Social and Technological. PEST analysis is a useful
framework for analyzing the external environment.

To use PEST as a form of industry analysis, an analyst will analyze each of the 4
components of the model. These components include:

1. Political

Political factors that impact an industry include specific policies and

regulations related to things like taxes, environmental regulation, tariffs, trade
policies, labor laws, ease of doing business, and overall political stability.

2. Economic

The economic forces that have an impact include inflation, exchange rates
(FX), interest rates, GDP growth rates, conditions in the capital markets (ability
to access capital), etc.

3. Social

The social impact on an industry refers to trends among people and includes
things such as population growth, demographics (age, gender, etc.), and
trends in behavior such as health, fashion, and social movements.

4. Technological

The technological aspect of PEST analysis incorporates factors such as

advancements and developments that change the way a business operates
and the ways in which people live their lives (e.g., the advent of the internet).
#3 SWOT Analysis

SWOT Analysis stands for Strengths, Weaknesses, Opportunities, and

Threats. It can be a great way of summarizing various industry forces and
determining their implications for the business in question.

The above image comes from a section of CFI’s Corporate & Business Strategy
Course. Check it out to learn more about performing SWOT analysis.

1. Internal

Internal factors that already exist and have contributed to the current position
and may continue to exist.

2. External

External factors are usually contingent events. Assess their importance based
on the likelihood of them happening and their potential impact on the
company. Also, consider whether management has the intention and ability to
take advantage of the opportunity/avoid the threat.

Importance of Industry Analysis

Industry analysis, as a form of market assessment, is crucial because it helps a

business understand market conditions. It helps them forecast demand and
supply and, consequently, financial returns from the business. It indicates the
competitiveness of the industry and costs associated with entering and exiting
the industry. It is very important when planning a small business. Analysis
helps to identify which stage an industry is currently in; whether it is still
growing and there is scope to reap benefits or has reached its saturation
point.

With a very detailed study of the industry, entrepreneurs can get a stronghold
on the operations of the industry and may discover untapped opportunities. It
is also important to understand that industry analysis is somewhat subjective
and does not always guarantee success. It may happen that incorrect
interpretation of data leads entrepreneurs to a wrong path or into making
wrong decisions. Hence, it becomes important to collect data carefully.
Competition Analysis
No business operates in a bubble. If you’re a small business owner, chances are you think about
your competition a lot. But what should you focus on, and what should you do with that
information?

That’s where a competitor analysis can help. At any stage of your business, it’s worth taking
time to conduct one. You’ll identify competitors, research their marketing strategies, and assess
your brand’s strengths and weaknesses.

Before any big game, a good sports team spends time studying their opponent. Coaches will do
research, watch game footage, and put together a scouting report on each opposing player. A
competitor analysis is like a scouting report for your business—a tool for designing a game plan
that helps your company succeed.

Competitor analysis

A competitor analysis, also referred to as a competitive analysis, is the process of identifying

competitors in your industry and researching their different marketing strategies. You can use
this information as a point of comparison to identify your company’s strengths and weaknesses
relative to each competitor.

You can do a competitor analysis at a high level, or you can dive into one specific aspect of your
competitors’ businesses. This article will focus on how to conduct a general competitive
analysis, but you’ll want to tailor this process to match the needs and goals of your business.

Why do a competitor analysis

More often than not, small business owners find themselves juggling many tasks at once. Even
amid a busy schedule, though, it’s worth taking the time to do a competitor analysis. It can
benefit your business by helping you:

 Identify your business’s strengths and weaknesses.

 Understand your market.
 Spot industry trends.
 Set benchmarks for future growth.

Identify your business’s strengths and weaknesses

By studying how your competitors are perceived, you can draw conclusions about your own
brand’s strengths and weaknesses. Knowing your company’s strengths can inform
your positioning in the market, or the image of your product or service that you want members of
your target audience to have in their minds. It’s essential to clearly communicate to potential
customers why your product or service is the best choice of all those available.
Being aware of your company’s weaknesses is just as important in helping your business grow.
Understanding where you fall short of your customers’ expectations can help you identify areas
where you may want to invest time and resources.

You might learn that customers prefer your competitors’ customer service, for example. Study
your competition to find out what they’re doing right, and see what you can apply to your
business.

Understand your market

While identifying competitors, you may find companies that you didn’t know about or that you
didn’t consider part of your competition before. Knowing who your competitors are is the first
step to surpassing them.

Conducting a thorough assessment of what your competitors offer may also help you identify
areas where your market is underserved. If you find gaps between what your competitors offer
and what customers want, you can make the first move and expand your own offerings to satisfy
those unmet customer needs.

Spot industry trends

Studying the competition can also help you see which way the industry as a whole is moving.
However, you should never do something just because your competitors are doing it. Copying
the competition without really considering your own place in the market rarely, if ever, leads to
success.

If you see your competitors doing something that you’re not, don’t rush to replicate their
offering. Instead, evaluate what your customers’ needs are and how you can create value for
them. It’s often better to zag when everyone else zigs.

Set benchmarks for future growth

When doing a competitor analysis, you should include companies that are both larger and
smaller than your own. Studying well-established businesses in your industry can give you a
model of what success looks like and a reference point against which to compare your future
growth. On the other hand, researching new entrants into your industry tells you what companies
may threaten your market share in the future.

When should you do a competitor analysis

Conducting a thorough competitive analysis is always a good idea when starting a new business.
However, a competitor analysis isn’t just for startups. It’s a tool that can—and should—be used
at every stage of the business life cycle. Periodically revisiting and updating your competitor
analysis, or conducting one from scratch, will help you identify new trends in the market and
maintain a competitive advantage over other companies in your industry.
How to do a competitor analysis

Figuring out what to focus on when conducting a competitive analysis can be tricky. Below are 6
steps to help you get started. Before you begin your competitor analysis, consider what you want
to get out of it. Add any other areas of research that align with these goals.

1. Identify your competitors

To create a list of potential competitors, consider where your customers would turn if they didn’t
buy from your company. An easy way to start is to search your product name or category on
Google or another search engine and explore the results. You can also survey or interview
existing customers to ask them what alternatives they considered before deciding on your
product or service.

Keep your list to 10 or fewer competitors so that you can devote enough time and attention to
researching each of them. When you finalize your list, aim to include a diverse set of companies
to get an accurate assessment of what the market is like. You should consider businesses that fall
into each of the 3 categories of competitors.

Direct competitors
Direct competitors sell a similar product or service to a similar target audience. These are likely
the companies that first come to mind when you think of your competition. For example,
McDonald’s likely considers other fast food burger chains like Wendy’s and Burger King to be
its direct competitors.

Indirect competitors
Indirect competitors sell a different product or service in the same category but target an
audience similar to yours. For example, takeout pizza restaurants like Domino’s and Papa John’s
are indirect competitors of McDonald’s.

Replacement competitors
Replacement competitors exist outside your product category, but they satisfy a similar customer
need. For McDonald’s, replacement competitors could be any solution that consumers turn to
when they’re hungry, including products such as frozen meals. Of the 3 types of competitors,
replacement competitors are the hardest to identify.

When conducting a competitor analysis, you should focus most of your attention on direct and
indirect competitors. Still, it’s worth briefly taking stock of potential replacement competitors
that could threaten your business prospects.

2. Create a competitor matrix

Before you dive into your competitor analysis, take a moment to get organized. A competitor
matrix, also known as a competitor grid, is a table or spreadsheet you can use to compile your
research. This will make it easier to compare your findings across competitors and spot larger
trends.
Start by devoting one row or column to each competitor that you’ve identified. On the other axis,
list data points or categories of information you’d like to find out about each competitor. Don’t
worry if you’re not sure what you should be looking for at this point. You can also always add
more categories as you progress through your research.

3. Gather background information

Once you have a list of competitors to research, start learning about their businesses. Look for
the most basic information first, and then build your way up from there. Start by looking at
company websites, social media pages, and any news articles that have been published about
them. Here’s some basic information that you may want to look for.

Company history
This includes information such as founding date, funding sources, and any mergers or
acquisitions they have been involved with. You can often find this information by reading the
“About” section of their website or browsing past press releases from the company. Studying
how your competitors got to where they are today will give you a more complete understanding
of their businesses.

Location
This will vary greatly based on your industry. If you’re in the e-commerce business, you could
be competing against companies that sell their products worldwide. For traditional brick-and-
mortar businesses, your competition is likely highly localized. Either way, it’s always smart to
know where your competition is based and where they sell.

Company size
How many people do your competitors employ? LinkedIn and Glassdoor are helpful resources
for this kind of data. You’ll also want to look into how many customers your competitors have
and how much revenue they generate. This information will likely be easily accessible online for
larger companies. For smaller and privately held companies, you might have to make do with
rough estimates. Knowing how large your competitors are will help you better contextualize the
rest of the data you collect.
4. Profile your competition’s target customers
A company is nothing without its customers. Getting an idea of who your competitors sell to will
tell you a lot about their businesses. To pinpoint the target customer for any business:

 Read their mission statement.

 Look at what kind of messaging they use.
 Track who they interact with on social media.
 See if they feature any existing customers in their content.

Use this information to construct a profile of who your competitors are trying to reach with their
products or services. These customer profiles will probably resemble your own target
customers—these are your competitors, after all—so make note of even small differences.
 5. Focus on the 4 P’s
Now that you’ve identified the target customer for each competitor, it’s time to look into how
they go about reaching that segment of the market. This will require a deep dive into their
marketing strategies.

The marketing mix, also known as the 4 P’s—product, price, promotion, and place—covers the
must-have elements when bringing a product to market. As part of your research, ask yourself
the following questions for each competitor you’ve selected.

Product

 What are they selling?

 What features are included in their product or service?
 What is most appealing to customers about the product or service? What are some weak points of
the product or service? (Pro tip: Check out customer reviews.)

Price

 What kind of pricing model do they use? Is it a one-time purchase or a subscription?

 How much do they charge for their product or service? Do they offer sales or discounts?
 How does their pricing reflect the quality, or perceived quality, of their product or service?

Promotion

 How do they get the word out about their product or service? What advertising channels (social
media, email marketing, print advertisements, etc.) do they use?
 What elements of their product or service do they emphasize? What’s their unique selling
proposition?
 What’s their company story? How do they talk about their brand?

Place

 Where do they sell their product? Do they sell online or in brick-and-mortar locations?
 Do they sell to customers directly, or do they partner with retailers or third-party marketplaces?

These questions are meant to be a starting point. Feel free to expand on them and tailor your
questions to your industry and the goals of your research.

You’ll likely find a lot of information. Try to condense your findings into short bullet points that
you can easily reference later. Be sure to include quantitative data where appropriate if you’re
able to find it.
6. Analyze strengths and weaknesses—yours and your competitors’
Using the information you’ve collected, consider the strengths and weaknesses of each of your
selected competitors. Ask yourself why consumers choose a particular company’s product or
service over the other available options. Record your conclusions in your spreadsheet.

Last, consider your own company’s strengths and weaknesses. How does your business compare
to the competitors you’ve researched? Knowing what sets your business apart from the
competition—and where it falls short of expectations—can help you better serve your target
customers.

A competitor analysis sets you up for success

Completing a competitive analysis isn’t the end of your strategic planning—it’s just the
beginning. Don’t let your hard work go to waste. Use the insights you’ve collected to guide your
strategic decision-making.

Not sure where to start? It can be helpful to conduct a SWOT analysis, in which you evaluate
your strengths, weaknesses, opportunities, and threats. This can help you sift through the
information you collected during your competitor analysis and identify actionable next steps for
your business.

Using a competitive analysis as part of your strategic planning is an ongoing process. You can
always refer back to your research whenever you need to make an important decision for your
business. To stay ahead of the competition, you should regularly revisit and update your
competitor analysis.

Whether your company is big or small, well established or just starting out, it’s essential to keep
your competition in mind. Conduct a competitor analysis today to set your business up for
success.
 STRATEGIC MANAGEMENT
UNIT-III ORGANISATIONAL ANALYSIS

SUB/CODE Strategic Management (UACO4003)

CLASS/SEM II-B.Com (D&E) IV SEMESTER

UNIT III- ORGANISATIONAL ANALYSIS

Notes By- Prof. NMA

MEANING
Organizational analysis is the systematic evaluation of an organization's capability in
terms of strength and weakness of all functional areas of an entity such as finance, human
resource, production, marketing and R&D so as to get the competitive advantage at the
market place over its rivals.
It is also known as corporate appraisal, appraisal of internal factors, audit of
organizational competencies and resources.
Role of Organizational Analysis
• An organization tries to relate itself to its environment by emphasizing its strength
and overcoming its weakness.
• Organizational analysis also enables the managers to overcome their weakness.
• Generally it can adopt two methods:
– It can make its weakness as a strong point by rearranging and reallocating its
resources (man, money & material) etc. or
– It may withdraw itself from that particular area where the organization is weak
at.
Process of Organizational Analysis
The following are the process of an organizational analysis

• Identification of Key Factors

1

• Identification of Importance of key

2 Factors

• Assessing Strength and Weakness on Key

3 Factors

• Preparing Organizational Capability

4 Profile

• Relating Organizational Capability to

5 Strategy

1. Identification of Key Factors

Organizational analysis process starts with identification of key factors that can be
evaluated for determining strength & weakness. So the analysis must cover all the
aspects of the organization. These factors may be in the area of organization structure
and managerial pattern, personnel, finance & accounting, manufacturing, marketing
R&D.
 2. Identification of Importance of Factors
All factors indentified for the purpose of analysis may not have equal strategic
importance; some are more important, some are less important. The relative
importance of the factors depends on the nature of the organization or industry to
which it belongs to. These factors are also called as critical success factors (CSF)
these are the core (main) factors that contribute more towards the success of any
organization. The key success factors relating to some common industries have been
given in the following.

For Food industry: High quality product, packaging, efficient distribution network,
and sales promotion.
For Courier Service industry: Speed of Delivery, reliability and price.
For Automobile industry: Styling, strong dealer network, manufacturing cost control,
etc.
For banking industry: the quality of customer service will be an important factor
Therefore in this process these key factors will be identified and assessed.

3. Assessing Strength and Weakness on Key Factors

The identification of key strategic factors in the first step may now lead to the
assessment of strength and weakness. The organizational strength on any factor would
be considered as the positive contribution and the organizational weakness on any
factor would be taken as the negative contribution in achieving the objectives of the
organization. The assessment can be made by following various methods and
techniques of organizational analysis such as internal analysis, comparative analysis,
and comprehensive analysis.

4. Preparing Organizational capability Profile

After the assessment of strength and weakness of the organizational factors the
organizational capability profile (OCP) would be made. This OCP will describe the
strength and weakness of all factors in terms of degree, either in quantity like 1 to 5 or
in quality like very strong or very weak.
However when both strength and weakness of factors are taken in the same profile the
positive number can be used for strength and negative number can be used for
weakness in case the quantitative approach is followed.

5. Relating organizational capability to strategy

Technically speaking, this is not the part of organizational analysis; however the
organizational analysis will be meaningless unless it provides a way to relating the
strength to the organizational strategy. Since the main purpose of the organizational
analysis is to create competitive edge over its rival in the market by focusing on its
strength and overcoming its weakness.
STRATEGIC /CAPABILITY/COMPETITIVE ADVANTAGE FACTORS
• Organisational analysis starts with the identification of factors which are relevant for
assessing organisational capability (strength and weakness). These factors are
synonymously known as strategic factors, capability factors and competitive
advantage factors.
The classification of all functional areas of an organisation
1. Production / Manufacturing
2. Marketing
 3. Finance
4. Human Resource &
5. General management
PRODUCTION FACTORS
• Production /manufacturing processes are the mediating factors for converting input
into outputs these processes have important implications for an organisation in
formulating and implementing strategies. The following aspects of production must
be considered for analysis of strength and weakness.
• Location pattern of plants (factory location)
• Cost of production
• Level of capacity utilisation in the production
• Production facilities
• Cost and availability of raw materials
• Purchasing and inventory control
• Production control and management
• Quality of technology being used
• Technology up gradation
• Patent rights
• R&D facilities etc.
MARKETING FACTORS
• Marketing factors are most important to a business organisation as it generates more
revenue (sales) through marketing. Marketing factors have relevance in formulating
and implementing strategies. The following aspects of marketing must be considered
for analysis of strength and weakness.
• The degree of competition in the market
• The level of market share
• Product line, product width and product variety
• Product life cycle
• Pricing strategies
• Brand
• Channel of distribution
• Marketing research etc.
HUMAN RESOURCE FACTORS
• Human resource area deals with acquisition and use of human resource and skills in a
business to achieve the organisational objectives. And this also matters to the strategy
formulation and implementation. For assessing human resource strength and
weakness the following factors should be analysed.
• Hr planning, recruitment and selection, training and development, appraisal
and compensation management of the organization
 • Employee retention and turnovers, safety and health management (working
conditions) in the organization.
• Employee’s attitude, motivation and morale
• Degree of employee absenteeism in the organization
• Relationship of organization with labor union
FINANCE FACTORS
Finance area deals with raising, managing and distributing of funds in a business. For
assessing financial strength and weakness the following factors should be analysed
• Capital structure & cost of capital of the firm
• Ease in raising funds
• Financial position of a firm
• Utilisation funds
• Relationship with fund providers
Financial planning and budgeting etc.
General management is the integrating force in an organization and provides direction to
the organization as a whole as well as its various parts. The following factors should be
analyzed for determining strength and weakness in this area.
• Quality of top management (CEO, CFO, GENERAL MANAGER)
• Recruitment and compensation of managerial personnel
• Leadership qualities of top management
• Organizational Prestige (image)
• Organizational structure
• Information and reporting system of the management
• Organizational culture and climate
• External relationships (with stakeholder) etc.
METHODS AND TECHNIQUES OF ORGANISATIONAL ANALYSIS
Methods and Techniques used in Organization Analysis and appraisal may be
classified as follows:

A. INTERNAL ANALYSIS: The internal analysis is a technique of organisational analysis

by using which the resources and the capabilities (strength and weakness) of an organisation
can analysed. Basically it consists of four techniques such as vrio framework, value chain
analysis, quantitative and qualitative analysis.

1. VRIO Framework: The VRIO framework is an internal analysis tool that helps to
understand the factors in the business that gives a firm long-term (sustainable) competitive
advantage. It might be resources or capabilities, or products, whatever that gives or is going
to give you an advantage can be framed within the VRIO framework.

a. Valuable: These are the capabilities that enable the organization to generate
revenues by capitalizing on opportunities and / or to reduce costs by neutralizing
 threats. The ability to provide high quality after sale services to customers and the
ability to develop rapport with the government.

b. Rare: These are the capabilities that one or a few firms in the industry exclusively
possess. A unique location and a highly motivated workforce are example rare
capabilities.

c. Inimitable: these are the capabilities which competitors either cannot duplicate or
can duplicate only at a very high cost. Excellent corporate image and the ability to
acquire new business are example of inimitable capabilities.

d. Organized for usage: These are the capabilities which an organization can use
through its appropriate structure business processes, control and reward system. The
availability of competent R & D personnel and research laboratory to continually
strong out innovative products is an example of organized for usage capability.

2. Value Chain Analysis: This is a method of assessing the strength and weakness of an
organisation based on series of activities it performs. Prof. Michael E. Porter (1985) was
credited with the introduction of framework called value chain. Value chain is a set of
interlinked value creating activities performed by an organisation. These activities may begin
with the procurement of basic raw material and go through processing in various stages right
up to the end products marketed to the ultimate consumer.
Porter divides the value chain of a manufacturing organisation into primary and
support activities.

a. Primary Activities: Primary activities are directly related to the flow of the
product to the customer. 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 or services to its customers.

v. Service: These are the activities used for enhancing and maintaining a
product’s value. Such as after sale services installation, repair, maintenance
and customer training etc.

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.
The value chain analysis is a useful method for organisational analysis (particularly for
manufacturing firms) as it helps in providing clarity about areas where the strength and
weakness of the organisation reside. In general, the activities that can be provided in a
manner that create more value to the customer at less cost and increases profit margin are
strength. Those activities that provide less value at more cost and reduce profit margin are
weaknesses. In such a case it would be better for the organisation to outsource those activities
to external parties who could perform them better. Those areas the organisation is strong
should be retained as they are competencies.
3. Quantitative analysis: In quantitative analysis both financial and non financial aspects are
covered.
i. Financial Analysis: In order to judge strength and weaknesses in different
functional areas, ratio analysis and economic value added analysis are used.

ii. Non-Financial Analysis: There are several aspects of an organization which

cannot be measured in financial terms. Non-financial analysis is used to assess these
aspects .Employee absenteeism and turnover, advertising recall rate, production cycle
time, service call rates, number of patents registered per annum, inventory turnover
rate, etc. are such aspects.

4. Qualitative Analysis: Those aspects of an organization which cannot be expressed in

quantitative terms are assessed through qualitative analysis. Corporate image, corporate
culture, learning ability, employment morale, etc. are examples of these aspects. Qualitative
analysis can be used to support and strengthen quantitative analysis.

B. COMPARATIVE ANALYSIS: Strengths and weaknesses provide a competitive

advantage to the organization when these are unique and exclusive. Therefore, an
organization should compare it capabilities with those of its competitors. Comparative
analysis can be over a time period, on the basis of industry norms and through bench
marking.
 1. Historical Analysis: In historical analysis an organizations strengths and
weaknesses are compared over different time periods. Its reveals whether the
strengths are improving or declining. Areas which show continuous improvement are
durable strengths. Hofer and Schendel have developed a functional-area profile and
resource deployment matrix for historical analysis.

2. Industry Norms: Every industry has certain norms or standards for key parameters
of performance. The performance levels of a firm can be compared with the norms of
the industry in which the firm operated. For example, cost levels of Maruti Suzuki
may be compared against cost standards in the car industry. A more selective
approach can be to compare with firms that follow similar strategies. These firms are
known as strategic group .According to Miller and Dess, a strategic group is “a cluster
of competitors that share similar strategies and, therefore, compete more directly with
one another than with other firms in the same industry.”

3. Benchmarking: A benchmark means a reference point for the purpose of

measurement and comparison.” Benchmarking is the process of identifying,
understanding and adapting outstanding practices from within the same industry or
from other businesses to help improve performance.” The basic purpose of
benchmarking is to match and even surpass the best performer. The key question is
benchmarking are: What to benchmark and whom to benchmark. These questions can
be answered by knowing the types of bench marking. On the basis of what to
benchmark, benchmarking is to following types:

i. Performance benchmarking
ii. Process benchmarking
iii. Strategic benchmarking
iv. Competitive benchmarking
v. Functional benchmarking
vi. Generic benchmarking

C. COMPREHENSIVE ANALYSIS: Each of the techniques has its own benefits but fails
to offer a comprehensive representation of organizational strengths and weaknesses.
Comprehensive analysis is required to defeat this limitation. The techniques used in
comprehensive analysis are given below:

1. Key factor rating: In this technique the key factors as discussed under are analyzed
to judge their positive and negative impact on the functioning of the organization.

2. Balanced Scorecard: Balanced scorecard is the most comprehensive method of

analyzing an organization’s strengths and weaknesses. It integrates different
perspectives with vision and strategy to present a comprehensive and balanced picture
of organizational performance. The four key performance actions identified in
balanced scorecard are as under

i. Financial perspective’
ii. Customer perspective
iii. Internal Business Processes Perspective
iv. Learning and innovative perspectives
D. SWOT ANALYSIS: The SWOT stands for the following:
 SWOT analysis is also known as WOTS and TOWS analysis. It helps in
understanding the internal and external environment of an organisation or business.
 It is very useful in strategy formulation as the organizations strengths and weaknesses
can be matched with the opportunities and threats. An effective strategy makes use of
strengths to capitalize on the opportunities and minimize the impact of weaknesses to
neutralize the threats.
 SWOT analysis enables an organization to decide how to maximize its strengths and
minimize its weaknesses as well as to exploit the opportunities and to face the threats.

1. Strength(S): Strength could be the resources or competencies of an organisation

which facilitates it to gain an advantage over its competitors for e.g. strong brand
name, skilled employees etc.

2. Weakness (W): A weaknesses is a just opposite of strength. These are the

inabilities of an organisation which creates a competitive disadvantage for it may be a
weak brand name, unskilled employees, weak financial capability etc.

3. Opportunity (O): An opportunity is a favourable condition arising in the external

environment (market) may be the sudden increase in demand, tax reductions,
favourable laws of government and favourable changes in the environment etc.

4. Threat (T): A threat is a quite opposite of opportunities. It is an adverse condition

in the external environment. May be the sudden decrease in demand, tax hikes,
entry of new competitors in the industry and unfavourable changes in the
environment etc.

Strength and weaknesses can be identified through organizational appraisal or

analysis of the internal environment whereas Environmental appraisal or analysis of
the external environment reveals the opportunities and threats.

Advantages of SWOT analysis are as follows:

 It is simple to use
 It is inexpensive
 It provides a comprehensive picture of environment
 It is flexible and can be adapted to different types of organizations it serves as
the basis for strategic analysis.
 STRATEGIC MANAGEMENT
UNIT-IV CORPORATE AND BUSINESS STRATEGIES

SUB/CODE Strategic Management (UACO4003)

CLASS/SEM II-B.Com (D&E) IV SEMESTER

UNIT(4) IV- CORPORATE AND BUSINESS STRATEGIES

Notes By- Prof. NMA

 UNIT-IV CORPORATE AND BUSINESS STRATEGIES
CHAPTER-1 CORPORATE STRATEGIES(Corporate Level Strategies)
CORPORATE STRATEGY
 Corporate strategies are the highest level strategy in a strategic tier and
also known as grand strategies.
 It is usually formulated by the top management of the organisations like
CEO’s and board of directors.
 Basically it defines the overall direction in which the organisation will
move in.
 Corporate strategies are the major strategies concerning the management
of its business portfolios whether to expand or limit the businesses in an
organisation it could be to add new product line, to acquire new business
or may even to close down some unprofitable businesses from its
business portfolio.
 And it outlines what the companies wants to achieve whether growth,
stability, retrenchment or a combination of these.
TYPES OF CORPORATE STRATEGIES
There are four types’ corporate also known as grand strategies (as proposed by
glueck):
1. Expansion or Growth Strategy
2. Stability Strategy
3. Retrenchment Strategy
4. Combination Strategy
 1. EXPANSION/GROWTH STRATEGY
Definition:
The Expansion Strategy is adopted by an organization when it attempts
to achieve a high growth as compared to its past achievements. In other words,
when a firm aims to grow considerably by broadening the scope of one of its
business operations in the perspective of customer groups, customer functions
and technology alternatives, either individually or jointly, then it follows the
Expansion Strategy.
Reasons/objectives for Expansion / Growth Strategies
The reasons for the expansion could be survival, higher profits, increased
prestige, economies of scale, larger market share, social benefits, etc. The
expansion strategy is adopted by those firms who have managers with a high
degree of achievement and recognition. Their aim is to grow, irrespective of the
risk and the hurdles coming in the way.

Types of Expansion / Growth Strategies

 Expansion through Concentration
 Expansion through Diversification
 Expansion through Integration
Expansion through Concentration
Simply, the strategy followed when an organization coincides its
resources into one or more of its businesses in the context of customer needs,
functions and technology alternatives, either individually or collectively, are
called as expansion through concentration. For e.g. the baby diaper company
expands its customer groups by offering the diaper to old aged persons along
with the babies.
Expansion through Diversification
The Expansion through Diversification is followed when an
organization aims at changing the business definition, i.e. either developing a
new product or expanding into a new market, either individually or jointly. And
it could be of two types
 Concentric Diversification (e.g. baby diaper to adult diaper)
 Conglomerate Diversification (e.g. consumer products to automobile
sector)
Expansion through Integration
The Expansion through Integration means combining one or more
present operation of the business with no change in the customer groups. This
combination can be done through a value chain. And it also could be two types.
  Vertical integration: The vertical integration is of two types: forward
and backward. When an organization moves close to the ultimate
customers, i.e. facilitate the sale of the finished goods is said to have
made a forward integration. Example, the manufacturing firm open up its
retail outlet.
Whereas, if the organization retreats to the source of raw materials, is said
to have made a backward integration. Example, the shoe company
manufactures its own raw material such as leather through its subsidiary
firm.
 Horizontal Integration: A firm is said to have made a horizontal
integration when it takes over the same kind of product with similar
marketing and production levels. Example, the pharmaceutical company
takes over its rival pharmaceutical company
2. STABILITY STRATEGY
Definition:
The Stability Strategy is adopted when the organization attempts to
maintain its current position and focuses only on the incremental improvement
by merely changing one or more of its business operations in the perspective of
customer groups, customer functions and technology alternatives, either
individually or collectively.
Reasons of Stability Strategy
Generally, the stability strategy is adopted by the firms that are risk
averse, usually the small scale businesses or if the market conditions are not
favourable, and the firm is satisfied with its performance, then it will not make
any significant changes in its business operations. Also, the firms, which are
slow and reluctant to change finds the stability strategy safe and do not look for
any other options.
Types of Stability Strategy
No Change Strategy:
The No-Change Strategy, as the name itself suggests, is the stability
strategy followed when an organization aims at maintaining the present business
definition. Simply, the decision of not doing anything new and continuing with
the existing business operations and the practices referred to as a no-change
strategy.
Profit Strategy:
The Profit Strategy is followed when an organization aims to maintain the
profit by whatever means possible. Due to lower profitability, the firm may cut
costs, reduce investments, raise prices, increase productivity or adopt any
methods to overcome the temporary difficulties.
Pause / Proceed with Caution Strategy:
The Pause/Proceed with Caution Strategy is well understood by the name
itself, is a stability strategy followed when an organization wait and look at the
market conditions before launching the full-fledged grand strategy.
Both profitability and pause strategies are also known as temporary strategies.
3. RETRENCHMENT STRATEGY
Definition:
The Retrenchment Strategy is adopted when an organization aims at
reducing its one or more business operations with the view to cut expenses and
reach to a more stable financial position.
Reasons of Retrenchment Strategy
The strategy followed, when a firm decides to eliminate its activities
through a considerable reduction in its business operations, in the perspective of
customer groups, customer functions and technology alternatives, either
individually or collectively is called as Retrenchment Strategy.The firm can
either restructure its business operations or discontinue it, so as to revitalize its
financial position.
Types of Retrenchment Strategy
Turnaround Strategy:
The Turnaround Strategy is a retrenchment strategy followed by an
organization when it feels that the decision made earlier is wrong and needs to
be undone before it damages the profitability of the company.
Divestment Strategy:
The Divestment Strategy is another form of retrenchment that includes the
downsizing of the scope of the business. The firm is said to have followed the
divestment strategy, when it sells or liquidates a portion of a business or one or
more of its strategic business units or a major division, with the objective to
revive its financial position.
Liquidation Strategy:
The Liquidation Strategy is the most unpleasant strategy adopted by the
organization that includes selling off its assets and the final closure or winding
up of the business operations.
4. COMBINATION STRATEGIES
Definition:
The Combination Strategy means making the use of other grand
strategies (stability, expansion or retrenchment) simultaneously. Simply, the
combination of any grand strategy used by an organization in different
businesses at the same time or in the same business at different times with an
aim to improve its efficiency is called as a combination strategy.
Reasons for Combination Strategy
Such strategy is followed when an organization is large and complex and
consists of several businesses that lie in different industries, serving different
purposes.
Go through the following example to have a better understanding of the
combination strategy:
* A baby diaper manufacturing company augments its offering of diapers for
the babies to have a wide range of its products (Stability) and at the same time,
it also manufactures the diapers for old age people, thereby covering the other
market segment (Expansion). In order to focus more on the diapers division,
the company plans to shut down its baby wipes division and allocate its
resources to the most profitable division (Retrenchment).
CHAPTER-2 BUSINESS STRATEGIES (Business Level Strategies)
BUSINESS STRATEGY
Business level strategies refer to the combined set of moves and
actions taken with an aim of offering value to the customers and developing a
competitive advantage, by using the firm’s core competencies, in the individual
product or service market. It determines the market position of the enterprise, in
relation to its rivals.
Business-Level Strategies are mainly concerned with the firms having
multiple businesses and each business is considered as Strategic Business Unit
(SBU). For e.g. TATA company is dealing with multiple businesses say, Tata
Motors, Tata Consumer Products, Tata Neu online shopping etc.
Business level strategies deal with the following issues:
 Satisfying the needs of the customers.
 Achieving an edge over its rivals.
 Avoiding a competitive disadvantage.
Strategies at this level are concerned with meeting competition, defending
market share while making a profit.
A firm is said to have a competitive advantage if it can attract the target
customers, as well as survive the competitive forces better, as compared to the
rivals.
Effective Business-Level Strategies entails developing distinctive
competencies and implementing them in order to have an upper hand over its
rivals. Michael Porter has propounded three business-level strategies in the
year 1998, also known as Porter’s Generic Business Strategies which are
discussed as under:
 Cost Leadership Strategy
This strategy stresses on manufacturing standardized products, at a low
cost for the price-sensitive consumers.Cost leadership strategy tends to focus on
the broad mass market. And for this, the firm continuously and rigorously
strives for cost reduction in different areas, whether it is procurement,
production, packaging, storage, distribution of the product while achieving
economies in overheads.To gain cost leadership, firms often follow forward,
backward and horizontal integration.
Ways to Implement Cost leadership Strategy
 Quick demand forecasting for the product or service.
 Effective utilization of the firm’s resources to avoid wastage.
 Attaining economies of scale which results in lowercost per-unit.
 Investing in high-end technology for smart working.
 Product standardization for mass production, which leads to economies of scale.

Differentiation Strategy
A firm following a differentiation strategy attempts to convince
customers to pay a premium (extra) price for its products and services by
providing unique and desirable features on it. For e.g. mobile manufacturers
they charge prices according the different features and specification of smart
phones the prices could vary according to the ram, internal storage and even the
colours.
Ways to Implement Differentiation Strategy
 Providing utility to the customers that match their taste and preference.
 Increasing product performance.
 Product innovation
 Setting up product prices on the basis of differentiated features of the product
and affordability of the customers.
 Focus Strategy
Focus strategy or niche strategy, in the simplest term, means focusing on
a narrow and specific segment in the market. The idea behind the focus strategy
is to develop, market, and sell a specific product to a specific group of
customers. For e.g. Johnson & Johnson Company sells baby products by
focusing on this particular segment it offers different products serving the needs
of newborns such as baby powder, baby oil, baby moisturisers, baby soaps etc.
Ways to Implement Focus Strategy
 Choosing a particular niche, often avoided by cost leaders and differentiators.
 Excel in catering to the specific niche.
 High-efficiency generation to serve that niche.
 Creating new ways for the value chain management.

RED OCEAN AND BLUE OCEAN STRATEGIES

Professors Chan Kim and Renée Mauborgne introduced the concepts of
red and blue oceans in their international best-seller Blue Ocean Strategy. First
published in 2005, it was updated and expanded with fresh content in 2015.
RED OCEAN STRTEGY
Red Oceans already contain a number of competitors. You can think of
the colour red being used in the term red ocean because of the bloodbath that a
highly competitive marketplace can sometimes feel like. A Red Ocean Strategy
is a strategy which aims to fight and beat the competition.

Characteristics of Red Ocean Strategy

Red Ocean Strategies have the following common characteristics:
 They focus on competing in a marketplace which already exists.
 They focus on beating the competition.
 They focus on the value/cost trade-off. The value/cost trade-off is the view that a
company has the choice between creating more value for customers but at a
higher cost, or reasonable value for customers at a lower cost.
 They focus on exploiting existing demand.
 They focus on implementation of (better marketing, lower cost base & product
differentiation etc) in the existing market.
A Red Ocean Strategy ultimately leads to an organization choosing to
follow one of two strategies – differentiation or low cost. Whichever is chosen
the organization must align all activities with one of these strategic directions.
BLUE OCEAN STRTEGY
Blue Ocean Strategy is where a company creates a completely new
market space (or market category). This new market space is created by
launching new offerings, with the aim being to make the competition irrelevant
so that an organization can grow, uncontested, at least in the beginning.
You can think of a blue ocean being a place where the sailing is easy
(uncontested with clear water) if you can successfully introduce an offering.

Blue Oceans can be thought of as markets that do not exist yet. The
microwave oven would have been a blue ocean in the 1970s. Conversely, Red
Oceans can be thought of as all the marketplaces which currently exist. So,
whilst microwave ovens were definitely Blue Ocean in the 1970’s, today they
are definitely a red ocean space.
 Characteristics of Blue Ocean Strategy
Blue Ocean Strategies have the following common characteristics:
 They focus on creating new marketplace which does not exist.
 They focus on making the competition irrelevant.
 They do not focus on the value/cost trade-off.
 They focus on creating new demand.
 They focus on implementation of new product or service in the market.
Difference between RED and BLUE Ocean Strategy

Red Ocean Strategy Advantages

 The market is already established.
 It is clear what products and services customers want.
Red Ocean Strategy Disadvantages
 There is usually an established market leader who will be very hard to beat.
 There are usually numerous niches trying to carve out market share in a subset
of the total market.
 Competition is fierce.
Blue Ocean Strategy Advantages
 There can be a very high-profit margin in new markets.
 The successful creation of a blue ocean can create brand equity which could
last for years or even decades.
Blue Ocean Strategy Disadvantages
 These markets are new and as such, there is the risk of completely
misjudging the market and getting it wrong. This can be painful because
creating a blue ocean typically requires a large investment.
 Blue oceans eventually become red oceans.
 There are very few success stories of companies who have successfully used
blue ocean strategy.
 Because blue oceans are new, with no existing customer base, a lot of time
needs to be spent educating customers as to the benefits of the category.
Strategy Implementation
Strategy implementation refers to various activities involved in executing the strategies of an
organization. In simpler words, strategy implementation puts an organization’s strategies into
action through various procedures, plans and programs. Strategy implementation involves
actions and tasks that are needed to be performed after the formulation of strategies.
It is influenced by management’s perspective, as management sets the strategies that are
executed in the implementation stage. An effective implementation of strategy is significant for
an organization’s growth, whereas failure in effective strategy implementation may have
negative consequences for an organization.
What is Strategy Implementation
Strategy implementation is a procedure through which a chosen strategy is put into action.
Strategies are only a means to an end i.e., achievement of organization’s objectives which have
to be activated through implementation. This is because both strategic formulation and strategic
implementation process are intervened into each other.
Strategy formulation and implementation are interconnected though skills and levels of skills are
dissimilar. The relationship between the two can be better understood in terms of forward and
backward linkages. Forward linkage means elements in strategy formulation influence strategy
implementation.
Strategy Implementation – Definitions and Concept
According to Glueck, “Strategy implementation is the assignment or reassignment of corporate
and Strategic Business Unit leaders to match the strategy. The leaders will communicate the
strategy to the employees. Implementation also involves the development of functional policies
about the organization structure and climate to support the strategy and help achieve
organizational objectives”.
Steiner, Miner and Gray have defined strategic implementation as “Implementation of strategies
is concerned with the design and management of systems to achieve the best integration of
people, structure, processes and resources in reaching organizational purposes”.
Need for Strategy Implementation
As we know,the concept of the 7-S framework, popularly known as the Mckinsey 7-S model.
The seven key factors, viz., strategy, structure, systems, staff, skills, style and shared value must
be compatible with each other in order to ensure that the organisation implements its strategy
effectively, and in the process achieves the excellence needed to survive and grow. Each of these
seven factors influence the choice of the other, thereby affecting the overall organisational
effectiveness.
There is, thus, a need to find the optimum mix of strategy and the other six factors to ensure the
smooth implementation of strategy. It must be remembered that there is nothing like the ‘best’
strategy in absolute terms. Rather, whenever there is a need to reposition a firm, the emphasis
has to be on developing a new combination of strategy and the other six factors. The new
combination enables the firm to respond properly to the emerging compulsions of the
environment and also helps it to maximise the total value created by the firm.

From this perspective, strategy implementation is necessarily concerned with:

1. Determining the right organisational structure;

2. Designing appropriate management systems for planning and control, capital expenditure,
information and reporting, review and follow-up, training and development, rewards and
punishment, career progression, delegation of power, procedures, rules, etc.;

3. Choosing a right mix of employees;

4. Choosing a right mix of skills and competencies;

5. Adopting a right style of management in both strategic and operating areas;

6. Inculcating right values and culture within the organisation.

Needless to say, action in each of the above areas should be taken after duly considering the
requirement of the strategy being pursued, and the compatibility of all the seven factors
(including strategy) with each other.

Top 5 Features of Strategy Implementation

Features of strategy implementation are explained in the following points:
1. Action Oriented:
It implies that a strategy should be actionable. A strategy is made actionable with the help of
different management processes, such as – planning and organizing. The role of management is
not just restricted to formulating the plans, but also extends to converting these plans into
actions.

2. Varied Skills:
It implies that strategy implementation involves wide-ranging skills. In an organization, vast
knowledge, attitude, and abilities are required to implement a strategy. These skills help in
allocating resources, designing structures, and formulating policies.

3. Wide Involvement:
It means that strategy implementation requires the participation of the top, middle, and lower
level management. The top management must clearly communicate the strategy, which needs to
be implemented, to the middle management. You should note that the middle management plays
an active role in strategy implementation.

4. Wide Scope:
It involves a range of managerial and administrative activities. In simpler words, any managerial
action can be a part of the strategy implementation process because of its wide scope. For
example, implementing a marketing strategy may involve preparing marketing budget,
conducting market research, developing advertising and promotional plan, conducting test
marketing, launching product, and collecting customers’ feedback.

5. Integrated Process:

It refers to the fact that different activities in the strategy implementation process are
interdependent. Therefore strategy implementation is an integrated and holistic process. For
example, different activities of a promotional strategy of an organization are interrelated;
therefore one needs to be executed in accordance with other activities.

13 Major Issues Involved in Strategy Implementation

The strategy formulation and the relationship between strategy formulation and strategic
implementation should be studied. This is because the formulation and implementation process
are intertwined in real life. The two linkages existing between strategy formulation and strategy
implementation are – (i) forward linkage, and (ii) backward linkage. The forward linkage deals
with preparing the organisational activities including organisational structure, leadership, culture
etc., necessary for the strategic implementation.
The backward linkage deals with the influence of implementation on strategy formulation. In
other words, once the strategy is selected and implemented, it is found in the reality that there are
certain deviations due to the different ground realities. These deviations force the strategist to
reformulate the strategy based on the ground realities. Therefore, the past strategic actions and
experiences should be taken into consideration in formulating strategies.
A number of issues are normally involved in strategy implementation. The important issues are
project, procedural, organisational, structural, behaviour considerations, production/ operations,
human resources, financial and marketing.
1. Project Implementation:
Project is defined by the Project Management Institute of the US as, “a one-shot, time limited,
goal- oriented, major undertaking, requiring the commitment of varied skills and resources.”
Thus, a project is a highly specific programme for which the time schedule and specific costs are
determined in advance. Projects create all necessary conditions and facilities for the strategy
implementation, the discipline of project management. The goals for a project are
devised/derived from the plans and programmes which are based on the strategies adopted.
A project passes through various phases before a set of task can be accomplished:
(i) Detailed planning related to different aspects of the projects such as infrastructure engineering
designs, schedules and budgets, finance etc., has to be completed.
(ii) The phase is an extension of strategic formulation phase of the strategic management. Ideas
generated during the process of strategic alternatives and choice consideration from the core of
the future projects that may be undertaken by the organisation.
(iii) After a set of projects have identified and arranged according to the priority they have to be
subjected to a preliminary project analysis which examines the marketing, technical, financial
and economic aspects. This analysis is done to find out whether it would stand the scrutiny of the
financial institutions, banks and investors. After this screening the viable projects are taken up
and feasibility studies conducted.
(iv) The detailed engineering, material, awarding contracts, civil and other types of construction,
etc., have to be undertaken during the implementation phase leading to the testing, trail and
commissioning of the plant.
(v) The final phase deals with disbanding the project.
2. Procedural Implementation:
Strategy implementation also requires executing the strategy, based on the rules, regulations and
procedures formulated by the government. Though, many procedures are simplified with the
liberalisation, privatisation and globalisation of Indian economy, certain procedures are still
applicable in the process of strategy implementation. Therefore, the strategists should study the
following procedural aspects before implementing the strategy.
They are – licensing procedures, foreign collaboration procedures, Foreign Exchange and
Regulation Act requirements, environmental requirements Monopolies and Restrictive Trade
Practices requirements, import and export requirements, incentives and benefits, requirements of
labour laws and other legislations.
3. Organisational Structures and Strategies:
Companies build structures for their organisations based on their strategies. There are a number
of methods/ways that the organisations can be structured. The simple strategies require simple
structure whereas the growth strategies require flexible structure and complex strategies
necessarily influence to build matrix structures. In fact, the stable strategies require a mechanistic
organisation and a growth strategy require an organic structure.
4. Organisational Growth:
Organisational structure is a means to an end of achieving organisational mission and objectives.
Thus, it is an important means for strategic implementation. Organisational structure refers to the
methods of allocating duties and responsibilities to individuals, and the ways what individuals
are grouped together into units, departments and divisions.
The formal organisational structure represents the relationships between people and functions as
designated by management and conveyed in the organisation chart. It also defines the number of
levies in the organisational hierarchy. The informal organisational structure represents the web of
social relationships among various members of a company.
5. Entrepreneurial Structure:
Generally, the small businesses and the businesses when they are started consist of an owner-
manager and few employees. These types of organisations do not require an organisational chart
and formal assignment of responsibilities. Organisation structure is fluid with each employee
often knowing how to perform more than one task and with owner- manager involved in all
aspects/areas of business.
The small firms, if, they are successful during the first years of crucial period, it would be due to
the increased demand for products or services. The entrepreneurs develop the business and
increase the size of the firm to meet the increased demand. The business begins to evolve from
fluidity to a status of more permanent division of labour due to the growth.
The owner-manager, who was performing all functions in the initial stage now finds that he has
to perform more managerial activities than operational activities. The growth demands the owner
to employ new candidates and this results in assignment of specialised functions to these
employees.
The business growth results in expansion of organisational structure both vertically and
horizontally.
The entrepreneurial structure is simple and it offers some advantages like – timely decision-
making, sensitive to environment demands and operational flexibility. But, this structure results
in excessive depending on owner-manager who is normally not a professional manager. This
structure cannot respond to the increasing demand beyond a point. Thus, this structure is mostly
suitable to the strategy catering to the needs of a local market by being small.
6. Vertical/Tall Organisations:
Vertical/Tall organisations refer to increase in the length of the organisation’s hierarchy chain of
command. The hierarchical chain of command represents the company’s authority –
accountability relationship between superiors and subordinates. Authority and responsibility
flows from the top to the bottom through all the levels of the hierarchy, accountability from the
lowest level to the highest level. Employees at each level should report to their superior, who in
turn should report to his boss. Thus, the activities are reported to the top. Authority is more
centralised in tall organisation.
The advantage of tall organisation include – effective analysis of factors and efficient decision
making are possible as a number of managers at different levels supervised and check the
activities. The organisation can formulate effective policies, programmes and control
mechanisms. Further, it provides promotional avenues to the employees.
But, too many hierarchical levels results in bureaucratic characteristics rather than commercial
characteristics to the business firm. Tight operational control delays the decision making process.
This process makes the organisation incompetent. Too many controls may reduce the cost of
operation.
Tall and centralised organisations allow for better communication of company’s mission, goals
and objectives to all employees. It also enhances coordination of functional areas to ensure that
each area will work closely with the other functions. Since, all employees are centrally directed,
coordination become possible.
Tall organisational structure is appropriate for the firms having bleak growth opportunities,
problem children and dogs. Further, firms with cost minimisation strategy and firms in maturity
stage can adopt tall organisations. Thus, this type of structures are well suited for environments
that area relatively stable and predictable.
7. Horizontal/Flat Organisations:
Horizontal/flat organisations refer to an increase in breadth of an organisation’s structure. The
number of levels in the organisational hierarchy are a few. The span of control is relatively large.
The increasing bio-professionalisation and multi- professionalisation and wide acceptance for
empowerment allowed even the large business firms to reduce the number of hierarchical levels
of their organisations. Consequently, large sized firm also started adopting horizontal/flat
organisation by delayering. In fact, this structure is well suited for the small size business firms.
Authority is more decentralised in relatively flat structures. Managers with broad span of the
control must grant more authority to his subordinates. Decisions are more likely to be made by
the employees who are at the helm of affairs and more familiar with the situations and ground
realities. Organisational activities are mostly performed informally. Professional managers are
treated as real profession lists.
The major advantage of flat structure is quick decision-making. Thus, it enables the management
to take decisions in right time. Other advantages of this structure include – low administrative
costs, freedom and autonomy to the managers to operate, decision making by the managers who
are at helm of affairs and empowerment of managers. These benefits motivate the managers to
accept responsibility and commit themselves towards organisational objectives. Further, these
characteristics enable the organisation to be duly sensitive to the environmental demands. The
employees also become innovative and creative.
The horizontal/flat organisational structure are appropriate for the organisations with horizontal
and vertical growth strategies, stars and cash cows. Thus, these structures are useful for
competitive and dynamic business firms.
8. Resources Allocation:
Resource allocation is the process of allocating organisational resources to various divisions,
department and strategic business units (SBUs). Resource allocation deals with the procurement
and commitment of financial, physical and human resources to strategic tasks for the
achievement of organisational objectives.
Resource allocation is a powerful means of communicating the strategy of the organisation as it
gives the desired signals to all concerned. It will demonstrate what strategy really is in operation.
If the resource shift is not in line with the official strategy, the latter will remain only as a paper
strategy.
Resource allocation decisions are linked to the objectives. Several questions have to be dealt
with in resource allocation. What sources can be tapped for resources? What fact affect resource
allocation? What different approaches could be adopted?
How does resource allocation take place? Decision about dividend is important in relation to
objectives and long-term ability of the company to attract capital. How to distribute the expected
profits among investors, employees and the company’s own needs is an important resource
allocation decision from the viewpoint of long- term implementation of the strategy.
Methods for resource allocation are (i) B.C. G. Matrix, (ii) Budgeting systems.
9. Functional Policies:
Functional policies provide guidelines to operating managers, so that (a) coordination across
functional units take place. Once the strategy of the company is decided, modification functional
policies may become necessary to meet the demands of the new business, (b) similar situations
are handled consistently, (c) strategies are implemented, and (d) executive time in decision
making is reduced.
10. Communication of Strategy:
Communication of strategy covering the mission objectives market scope, technology and all the
issues relating to implementation, to different level in organisation is very important for its
success. This is so because strategy is implemented through people who ought to be clear about
the roles they have to play in relation to each other.
11. Leadership:
Developing appropriate leaderships is one of the most important elements in the implementation
of a strategy. Appropriate leadership is necessary, though not a sufficient condition for
developing effective structure and systems for the success of strategy. Leadership is the key
factor for developing and maintaining right culture and climate.
There are several aspects of leadership styles and skills, some of them appropriate to the context,
content of strategy, while others are desirable attributes in general for the success of an
organisation. The challenges of leaderships is in implementation are the gravest as leadership in
most scare resources.
12. Challenge of Change:
The strategy implementation process generally involves a change. The change can be minor or
major. If it affected a large number of people, cuts into deeper issues like beliefs, values etc., it is
major change. The process of change has three stages namely freezing, moving and refreezing.
13. Pre-Implementation Evaluation of Strategy:
Before the implementation of strategy it is advisable to go for a final scrutiny so as to avoid
failure due to weaknesses in the analysis, if any and to ensure that strategy decided for the
organisation is optimal. It is something like checking all the electrical connections before
switching on the circuit. There are several check-points that may be used for evaluation.
The process of strategy formulation is referred to in current literature as ‘Strategic planning’ and
is distinguishable from Management Planning and Control for strategy implementation. Strategic
planning is defined as the process of deciding on the objectives of the organisation, on the
changes in the objectives, on the resources used to attain these objectives, and on the policies that
are to govern the acquisition, use and disposition of these resources.
It involves matching of the external economic, political and social environments to corporate
capabilities and setting the long-term objectives and goals of the organisation as well as the
policies and strategies to achieve the objectives.
For effective implementation of strategy, the essential elements of the planning and control
system should consist of:
(a) An appropriate organisation structure that defines authority and responsibility in terms of the
job to be accomplished;
(b) A reporting system that can quickly diagnose deviations from the desired results, particularly
in those areas which represent key variables in operations;
(c) Goals and targets of organisational units based on the input- output relationship in the
relevant operations;
(d) Participation and support of all levels of management and supervisory personnel;
(e) A follow-up mechanism to ensure prompt remedial action by proper analysis, review and
coordinated action.
The planning device commonly used to implement strategy is the budget. As an instrument for
putting plans and policies into effect. The budget enables management to formalise goals and
targets in quantitative/financial terms. Moreover, budgeting requires the participation of
managers at different levels in the development of plans and policies.
A motivational force is thus built into the process of planning and control, which is a vital
necessity for successful implementation of the strategy. Its usefulness, notwithstanding
budgeting has also its inherent limitations. But on balance many of the limitations may be found
to lie not in the budget or the process of budgeting but in the lack of management awareness of
the limitations, or the improper use of budgets.

Activities Involved in Strategy Implementation

Strategy implementation is the process that turns strategy or strategies into action in order to
accomplish organisational objectives. Strategy implementation involves activities that effectively
put the strategy into work.
It is fundamentally an administration activity and includes the following activities:
1. Building an Organisation Capable of Carrying out the Strategy Successfully:
This is done by:
i. Creating a strategy-supportive organisation structure,
ii. Developing the skills and distinctive competence upon which strategy is grounded, and
iii. Selecting people for key positions.
2. Establishing a Strategy-Supportive Budget:
Strategy supporting budget is the budget that is:
i. Ensuring that each organisational unit has the budget to carry out its part of the strategic plan,
and
ii. Ensuring that resources are used efficiently to get “the biggest bang for the buck”.
3. Installing Internal Administrative Support Systems:
Administrative support system is very important for strategy implementation and it is
installed by:
i. Establishing and administering strategy-facilitating policies and procedures,
ii. Developing administrative and operating systems to give the organisation strategy-critical
capabilities, and
iii. Generating the right strategic information on a timely basis.
4. Devising Rewards and Incentives that are Linked to Objectives and Strategy:
Designing rewards and incentives are essential for motivating individuals.
It involves:
i. Designing rewards and incentives that induce the desired employee performance,
ii. Promoting results orientation.
5. Shaping the Corporate Culture to Fit the Strategy:
Generally existing culture does not help in implementing strategy.
Thus, there is a need to shape supportive corporate culture by:
i. Established shared values,
ii. Setting ethical standards,
iii. Creating a strategy-supportive work environment,
iv. Building a spirit of high performance into the culture.
6. Exercising Strategic Leadership:
For creating and effective use of above five issues we need a leader who can lead:
i. The process of shaping values, moulding culture and energizing strategy accomplishment,
ii. Keeping the organisation innovative, responsive and opportunistic,
iii. Dealing with the politics of strategy, coping with power struggles, and building consensus,
iv. Enforcing ethical standards and behaviour, and
v. Initiating corrective actions to improve strategy execution.
Thus, the specific activities in strategy implementation include- establishing annual objectives,
devising policies, allocating resources, altering an existing organisational structure, restructuring
and reengineering, revising reward and incentive plans, managing change, developing a strategy
supportive culture, adopting production and operations processes, developing an effective human
resource function, and if necessary downsizing.
What is the organisational arrangement for strategy execution? The answer is that strategy
implementer needs a separate set of people different from those who formulate it. Generally in
most large, multi-divisions or businesses organisation’s every employee participates in strategy
implementation. The employees are Vice Presidents of functional areas (personnel, finance,
production, marketing and R&D), directors of different divisions or business units with their
subordinates implement plans.
At the same time unit heads, plant managers, and project managers are also involved in strategy
implementation. It indicates that every operational manager down to first line supervisors
directly and other employees indirectly involve themselves in strategy implementation.
Proper communication of strategy benefits to all operational managers and all employees of
organisation is very important because it helps in getting their support for smooth strategy
implementation. By communicating the benefits of strategy to employees one can make them
feel that they are a part of the company, thereby make them committed the organisation.

Problems in Resource Allocation - Planning And Resources Allocation

There are several difficulties in resource allocation. The following are some of the identified
problems.

i) Scarcity of resources

Financial, physical, and human resources are hard to find. Firms will usually face difficulties in
procuring finance. Even if fiancé is available, the cost of capital is a constraint. Those firms that
enjoy investor confidence and high credit worthiness possess a competitive advantage as it
increases their resource-generation capability. Physical resources would consist of assets, such
as, lard machinery, and equipment. In a developing country like India, many capital goods have
to be imported. The government may no longer impose many conditions but it does place a
burden on the firm’s finances and this places a restriction on firms wishing to procure physical
resources. Human resources are seemingly in abundance in India but the problem arises due to
the non-availability of skills that are specially required. Information technology and computer
professionals, advertising personnel, and telecom, power and insurance experts are scarce in
India. This places severe restrictions on firms wishing to attract and retain personnel. In sum, the
availability resources is a very real problem.

ii) Restriction on generating Resources

In the usual budgeting process these are several restrictions for generating resources due to the
SBU concept especially for new divisions and departments.

iii) Overstatement on Needs

Over statement of needs is another frequent problem in a bottom-up approach to resource

allocation. The budgeting and corporate planning departments may have to face the ire of those
executives who do not get resources according to their expectations. Such negative reactions may
hamper the process of strategic planning itself.
Types of Strategy Implementation – Procedural and Functional Implementation
1. Procedural Implementation:
A procedure refers to a sequence of related task which make-up a chronological series. It is an
established way of performing the work to get accomplished. Procedural implementation level
concerned with completion of all statutory and other formalities which have been prescribed by
the Government may at country or regional or local level.
Based on strategy, certain procedures are needed to incorporate in the process of strategic
implementation such as, licensing requirements, Foreign Exchange Management Act
requirements, collaboration procedures, import and export requirements, incentives and benefits,
requirements of Labour Laws and other Legislations. These procedural issues differ from
country to country.
The major procedural requirements involved from Indian business point of view are
discussed in brief as under:
i. The licensing provisions have been given under the Industries (Development and Regulation)
Act, 1951. In many industries industrial license is required particularly in those industries which
are perceived to be harmful to public health.
ii. Under the provisions of FEMA, all companies registered under the Companies Act, 1956
having foreign shareholding in excess of 50% and all foreign companies are required to obtain
authorization from Reserve Bank of India, regarding any financial decisions.
iii. In case of agreements with foreign companies, Indian companies has to take prior approval
from Central Government.
iv. Under the provisions of Securities Exchange and Board of India Act, 1992, SEBI exercises
some powers over capital issues to the public in the form of disclosure norms. For this purpose,
SEBI scrutinizes the prospectus of the company planning to enter the capital market to ensure
that relevant information has been provided in the prospectus on the basis of which the public
can analyse the worth of issue of shares or debentures. For raising funds from prior permission of
the Central Government is also required.
v. Import and Export requirements differ in two categories of goods that is which are under the
list of open general license and those under restrictive list. There is less requirements for items
falling under open general license barring that the companies going for import/exports have to
inform the Reserve Bank of India. However, import and export license is required to be sought
from the Ministry of Commerce in the case of items falling under restrictive list.
2. Functional Implementation:
The implementation of strategy also needs development of functional policies which provide the
direction to middle management on how to make the optimal use of allocated resources.
Functional policies guide the middle level executives in framing operational plans and tactics to
make strategy implementable. Policies are basically general principles to help executives to
make certain choices.
They are developed in order to guarantee that strategic decisions are implemented. Functional
implementation deals with the development of policies and plans in different areas of functions
which an organisation undertakes. Functional approach of organisational analysis takes into
account various functional areas and evaluates these for identifying strengths and weaknesses.
Strategies necessitate linkage at both dimensions that is vertically and horizontally. Vertical
linkages establish coordination and support amongst corporate level, business unit level,
divisional level and functional level plans.
A divisional strategy calling for development of a new product should be driven by a corporate
objective that is growth and on a knowledge of available resources, capital resources available
from corporate as well as human and technological resources in the R&D function.
Linkages which are horizontally transverses through departments, divisions and functional areas
of the organization should go hand in hand with each other. For example, a strategy calling for
introduction of a new product needs the combined efforts of and coordination and cooperation
among R&D, marketing, and the manufacturing departments.
Factors to be Considered in Strategy Implementation
The following factors to be considered in strategic implementation are:
Factor # 1. Allocation of Resources:
For effective implementation of the strategy, sufficient resources like financial, human, material,
technology etc., are to be available in time. The resource configuration of the organization
identifies and reflects the potential to strengthen existing competencies and develop new ones.
Resource allocation is concerned with both the identification of resource requirements and how
those resources will be deployed to create the competencies needed to undertake the particular
strategies. These competencies are usually created through allocating a mixture of resources to a
particular activity and processes which link these activities together.
The task of resource allocation in an organization is particularly challenging because most large
companies are active not in one line of business but in several. In addition, beneath the surface of
most organizations are three kinds of core processes – a customer relationship process, a product
innovation process and an infrastructure or operational process.
Customer relationship process is to find customers and build relationships with them. Product
innovative process is to conceive of attractive new products and services and figure out how best
to bring them to market. The role of infrastructure process is to build and manage facilities for
high volume, repetitive operational tasks such as logistics and storage, manufacturing,
communication etc.
Factor # 2. Communication of Strategy:
Strategic implementation is concerned with a number of people at various levels. Many of them
might not have taken part in the strategy formulation. This highlights the importance of
communicating the strategy. Even those who are not directly involved in strategy
implementation need to be informed about the strategy because everybody in the organization
should know what are the future plans for the organization, what changes are affecting the
organization, why these changes or strategy, what are the objectives and implications etc.
It is essential to instill a feeling of belongingness to the organization. Absence of such
communication would create a feeling of division in the employees causing morale and reduce in
motivation and would also cause resistance to the strategy.
Proper communication of the strategy is an important requirement for successful implementation
of the strategy. A clear understanding of the strategy gives purpose to the activities of each
organization member. It allows the individual to link whatever task is at hand to the overall
organizational direction. This is mutually enhancing and gives meaning to the task. It also
provides the individual with general guidance for making decisions and enables him/her to direct
efforts towards activities that count.
Factor # 3. Information System:
Information is the raw material and the input which are used to make decisions. Organizations
gain a competitive advantage from information by providing the right information to the right
person at the time. In the past decade, there have been significant advances in communications,
software and computers.
These have opened entirely new possibilities of sharing knowledge and information rapidly and
efficiently. Those organizations that have made investments in information technology, to
provide its employees information useful to their jobs, for the most part have found that their
investments have paid off handsomely.
Information technology has an extremely important role in implementation strategy. Data
interpretation for implementation involves assessing whether an organization has missed
milestones thresholds. The performance targets and identified critical success factors are set
earlier in the strategic plan. While deciding if any negative variances have occurred may be
relatively simple task, deciding what this data might mean may not be so simple.
Decision-makers must assess the extent and criticality of exceptions, an interpretational process
heavily dependent on what they might consider justifying circumstances. The information system
is not only restricted to the implementation but also in formulation of strategy. Information
system provides required information to the managers at the right time in the right form for the
relevant use which helps him in understanding and stimulating his actions.
Factor # 4. Organizational Change and Design:
i. Organizational Design:
Organizational design deals with structural aspects of organization. It aims at analyzing roles and
relationships so that collective effort can be explicitly organized to achieve specific ends. The
Design process leads to development of an organization. Structure consists of units and
positions.
These are relationships involving exercise of authority and exchange of information between
these units and positions. Thus, organization design may lead to the definition and description of
a more or less formal structure. Organization design is a process of systematic and logical
grouping of activities of the organization.
ii. Organization Change:
The true organization change implies the creation of imbalances in the extent pattern or situation.
Adjustment among people, technology and structural setup is established when an organization
operates for a long time. People adjust with their jobs, working conditions, colleagues, superiors
etc.
Change can be reactive or proactive. A proactive change is necessarily to be planned to attempt
to prepare anticipated future challenges. A reactive change may be an automatic response or a
planned response to change taking place in the environment.
Steps in Organization Change:
a. Analysis of present and future circumstances and environmental factors.
b. Analysis of company’s mission, business and strategic plans, objectives, goals and strategies.
c. Activities – Assessment of work being done and what needs to be done, if the company is to
achieve its objective.
d. Decision to be taken across horizontal and vertical dimensions.
e. Relationships from the communications’ point of view, span of management, management
levels etc.
f. Organization structure which includes grouping of activities, description, specification etc.
g. Job Structure – Job design, job analysis, description, specification etc.
h. Organization Climate – Working atmosphere of the company.
i. Management style which includes availability of human resource skills, knowledge and
commitment.
Factor # 5. Organizational Structure:
Organizational structure not only affects strategy. It affects other factors too, i.e., environmental
stability, workflow, technology, sire and life cycle, and corporate culture. Therefore, it is not
surprising that there is an overriding importance given to the structure in the implementation
strategy. With a structural framework in place, people working within a firm know how to
interrelate their actions with the actions of others to support and execute the organization’s
strategy.
Organizations are social entities that are goal directed, with deliberately structured activity
systems, and with a link to the external environment. They create value for owners, customers,
and employees by their activities. They bring together resources to accomplish specific goals,
whether those goals are to put a man on the moon, sell lottery tickets, produce goods and
services, or provide value to its customers. They organize the activities of the people to meet
organizational objectives.
The structure of the organization determines three key components pertaining to organizing the
activities of the people in the organization and their relationships with each other –
i. Designation of formal reporting relationships including number of levels of the hierarchy and
span of control of managers and supervisors;
ii. Grouping of individuals into departments and of departments into the total organization; and
iii. Design of systems to ensure effective communication, coordination and integration across
departments.
Organizational structure has become important because of the size, global spread, and
complexity of the modern business firm. Expanding markets, new competitors, a proliferation of
products, instant communications, and a fierce focus of asset values have made the old industrial
corporation obsolete in many instances. Even in the case of a midsize company, management
can’t oversee every employee. Authority and accountability must be distributed, systems of
control and inspection implemented with incentives to encourage desired behaviour.
The main issue in designing organization structure is how to group tasks, functions and
divisions; how to allocate authority and responsibility; and how to use integrating mechanisms to
improve coordination between functions. Above all, the organization must infuse the
corporation’s work with meaning, for thousands of its employees. It must be understood that the
most important resource of an organization is its people. It is people who implement strategy.
Factor # 6. Organizational Systems:
Organizational structure provides the mechanisms for the fixing of authority and responsibility
within the organization. The result is a framework organizational unit, such as departments and
divisions that consists of many positions of authority. A structure is a means of subdividing the
total authority and responsibility among different organizational units and positions.
Since the organization has to perform a set of tasks framed to achieve its objectives, a need arises
to evolve systems that would bind the different units and positions so that the performance of
activities takes place in a coordinated manner. These systems are called as Organizational
Systems.
The major functional areas are production/operations, marketing, finance and accounting, and
human resources. Each of these major areas is divided into subareas, for example, marketing is
divided into sales promotion, physical distribution, sales volume, and so on. Similar is the case
with other functional areas. Besides these functional areas, organisation’s general management
factors are also taken into, consideration. Thus, in functional approach of organisational analysis,
following factors are evaluated to identify strengths and weaknesses-
A. Production/operations,
B. Marketing,
C. Finance,
D. Human resources, and
E. General management.
A. Production/Operations:
Production / Operations processes are the mediating factors for converting raw materials into
finished products. There are various factors which affect the internal operations of the
organisation and these factors should be taken into account while appraising the organisation’s
capabilities in these areas.
1. Allocation and Use of Resources:
The degree of an organisation’s success or failure depends on the degree of effective allocation
and use of resources. Resources do not mean only money, building, and plant but also the scarce
resources of management talent, capability, and technical skills. An organisation making well-
balanced allocation and use of its resources is in a better position to face challenges from the
environment.
The allocation and use of resources can be balanced by taking into account the need for various
activities contributing to the objectives, their criticality, and resource requirements.
2. Rationalisation of Resources:
Another important aspect of using resources is their rationalisation. This problem is more
important in the context of multiunit organisations. For example, a multiunit organisation may
have many plants and offices with duplication of various efforts. The extent to which the
duplication is avoided, the company becomes strong as cost of duplication is a burden on the
organisation.
3. Locational Pattern:
Though locational pattern is affected by a large number of factors, both economic and
noneconomic, it affects the operational efficiency of the organisation. Such locational pattern can
be analysed both for plants as well as for administrative offices. The extent to which
organisation’s plants and offices are located at favourable places, it stands to benefits and that is
a strength for it.
For example, opening of plants in backward areas may offer various advantages because of
incentives from the government, but opening of administrative offices may not offer the similar
advantages. This is the reason why many companies go for backward areas for establishing
production facilities but open offices in well-developed areas, for example, Fort area in Mumbai
or Chowranghee area in Kolkata.
4. Production Capacity and Its Use:
The use of production capacity affects the profitability of the organisation. High use of
production capacity is strength but a low use of this is a weakness because the organisation’s cost
of production in this case may be very high.
5. Cost Structure:
The cost structure of the product affects the organisation’s profitability. If the cost of product is
high, it is a weakness. Moreover, the extent to which cost cannot be controlled is also weakness
of the organisation. Thus, low cost with high level of controllability is a strength and high cost
with low level of controllability is weakness.
6. Cost Volume Profit Relationship:
While cost structure gives the general idea of high or low cost, cost volume profit relationship
suggests the profitability of the organisation at various levels of production. If the relationship is
such that it gives break even at high level of production with low margin of safety, it is weakness
for the organisation, On the other hand, if break-even point is low with high margin of safety, it
is strength for the organisation.
7. Operation Procedures:
Efficient and effective operation procedures like production design, scheduling, output, and
quality control affect the internal efficiency of the organisation. As such, these are the strengths
for the organisation, and opposite of these will be weakness because these will affect
organisational efficiency adversely.
8. Raw Materials Availability:
The extent to which the raw materials are critical and scarce and are supplied from a very limited
sources, the organisational functioning is adversely affected. In such a case, the organisation
does not have any control or has very limited control over the supply of raw materials.
Hence, its dependence on the limited sources of supply of raw materials is a weakness. If the
company is procuring its materials from well diversified sources and the materials are easily
available indigenously, its dependence is less which is a strength for it.
9. Inventory Control System:
An efficient inventory control system which pinpoints on the various aspects of materials
provides strength to the organisation because it can control and regulate the procurement of
materials in such a way that its cost is minimum and there is no unnecessary hindrance in the
production. A defective and non-existent inventory control system is a weakness.
10. Research and Development:
Research and development is an important area where management should concentrate because
of two reasons. First technical collaboration with any foreign organisation lasts up to five years
with an extension of three years in exceptional cases. The government stipulates that local
organisations, should develop its R&D during this period.
Second, there are special tax benefits on the expenditure of R&D and products developed out of
the organisation’s R&D efforts. In order to take the advantages, the organisation must take R&D
activities and must evaluate as how these are contributing to the organisational product
development.
R&D activities can be evaluated in terms of amount spent on them, number of products
developed, or number of patents registered by inside R&D. A high score on these items is
strength of the organisation.
11. Patent Rights:
Organisations holding certain patent rights under which they can use some well established
brand names have certain advantages because they have not to incur any extra expenditure for
promoting the brand.
B. Marketing:
Marketing factors are of prime importance for a business organisation as it relates itself to its
environment through marketing functions. The managers should appraise the organisation in the
light of various marketing factors taking into account how these factors are contributing or not
contributing to the achievement of organisational objectives and how long they will continue to
do so if the same position continues.
Prominent marketing factors taken for evaluation are as follows.
1. Competitive Competence:
Business organisations have to operate in a competitive field, except in the case of protective
markets where markets are not defined by individual company or market factors but by
nonmarket factors.
The organisation’s competitive competence can be appraised on the basis of trends in market
shares for which the information can be made available from various outside sources as well as
through the organisation’s own marketing research department. Apart from market shares, many
other factors also go in determining the competitive competence as described below.
2. Product Mix:
Product mix decides the various sources of revenue to the organisation. This is true not only for a
diversified organisation but even for a single class. If the revenue is coming from a single
product or from very limited number of products for a diversified company, this may be its
weakness.
3. Product Life Cycle:
Product life cycle is an attempt to recognise distinct stages in the sales history of the product.
Corresponding to these stages are the various marketing opportunities and threats. Normally
every product and brand has to pass through a life cycle: introduction stage, growth stage,
maturity stage, and declining stage. Products at declining stage are the weak point for the
organisation and adequate precaution must be taken.
4. Marketing Research:
Marketing research offers the information for taking various marketing decisions in the light of
the environmental demand. The efficient and effective marketing research system is a strength
for the organisation because it will enable to relate the organisation with its environment through
suitable strategy.
5. Channel of Distribution:
An effective channel of distribution is a strength of the organisation because it not only
distributes the products at the points where these are needed but also provides the feedback
regarding the changes in the market forces.
6. Sales Force:
An effective and efficient sales force closed with key customers is a strength for the organisation
because it may withstand any threat posed by the environment. However, sales force
concentrating sales efforts to a few customers may be weakness.
7. Pricing:
Pricing is a factor which affects both sales as well as revenue to the organisation, particularly in
price sensitive markets. Though there can be different pricing strategies in different markets and
at different product life stages, these must match with the product and market.
8. Promotional Efforts:
Various promotional efforts affect the positioning of the products in the market. They also affect
the brand images as well as the general image of the organization. Effective promotional efforts
are a strength for the organisation and their absence a weakness.
C. Finance:
Finance area deals primarily with raising, administering, and distributing financial resources to
various activities so that a proper balance is maintained and the organisation achieves its
objectives. Since the objective achievement is often expressed in monetary terms, the areas of
finance and accounting have assumed added importance.
The extent to which the organisation has effective financial management and accounting system,
it is strong.
The strengths and weaknesses in the areas of finance and accounting can be ascertained in
the following ways:
1. Capital Cost:
The various sources through which the organisation raises its financial funds determine the
capital cost. A proper balancing of various sources of financing ensures that the overall cost of
capital for the organisation is low. While determining the sources for funds, various factors can
be taken into account, such as debt/equity norm, capital market position, profitability of
organisation, and various conditions attached with funds. A low capital cost is a strength and
high capital cost is weakness.
2. Capital Structure:
Capital structure of an organisation determines the scope for flexibility in raising additional
capital needed, maintaining financial leverage, and maintaining minimum capital cost. An
effective capital structure is strength which provides for greater flexibility for raising funds and
appropriating various sources of funds so as to take advantages of trading on equity.
3. Financial Planning:
Financial planning is the determination, in advance, of the quantum of capital requirement and its
forms. Thus, it determines what types of assets will be required to run the business and how
much capital will be required for this, time when the capital is required, and from where the
necessary capital will be available. If the organisation plans all these things well in advance, it
stands to benefit and thus, it is its strength.
4. Tax Benefits:
Tax benefits are partly the result of efficient financial planning and partly the result of
environmental variables, particularly government policy. If the organisation is planning its
investment pattern properly, it takes the advantages of tax benefits under various provisions.
5. Relationship with Shareholders and Financiers:
The type of relationship between the company and its shareholders and financiers determines the
type of risk that the company can take. If such relationship is cordial, the company can go for
smooth working even in case of adversity and can undertake major policy changes. The role of
shareholders and financiers is quite important in formulating and implementing these policies
because such actions can be taken only after their approval.
6. Accounting Procedures:
Efficient accounting procedures and systems for costing, budgeting, profit planning, and auditing
not only determine that there Is no. misappropriation of funds but also provide feedback for
further course of action.
D. Human Resources:
In organisational analysis, often, human resources are not given adequate importance because of
the perception that these resources do not contribute to organisational success. This perception
was valid in pre-liberalised era, when most of the organisations were operating in protected
markets. However, post liberalisation, the competitive scenario has changed from sellers’ market
to buyers’ market in which organisations are using human .resources as a means for developing
competitive advantage.
In analysing human resources, following factors are taken into consideration:
1. Quality of Personnel:
Quality of personnel employed by an organisation is a key determinant of its success. The quality
of personnel includes their knowledge, skills, attitudes, and motivation to work. If all these
characteristics are favourable, these are strengths as these can be used as a means for translating
physical and financial resources into outputs in a better way.
2. Personnel Turnover and Absenteeism:
Personnel turnover, particularly at managerial and technical levels, is a big problem for
organisations in today’s context. In knowledge based industries like information technology,
consultancy, etc., this problem is even more acute. Since organisations build their strategies
around the personnel available at present or available in future, retention of personnel is a
significant issue. To the extent, an organisation is able to retain its key personnel, it has strength.
Coupled with personnel turnover is personnel absenteeism.
3. Industrial Relations:
Industrial relations is a basic element for the success of the organisation particularly in the age of
frequent industrial relations problems. Better industrial relations is strength for the organisation.
The state of industrial relations can be measured taking into account the breakdown in work
because of employee agitation or noncooperation, number of industrial disputes, number of
grievances from the employees, employee absenteeism and turnover, and their willingness to
accept change in the organisation.
E. General Management:
Various factors discussed above are, no doubt, important but they cannot work welI without the
support of suitable leadership and various management practices. These are the integrating force
of an organisation. Therefore, strategists should analyse these factors to identify strengths and
weaknesses.
Following factors are relevant in this category:
1. Leadership:
Leadership is the process of winning enthusiastic support of personnel in an organisation. It is
one of the major determinants of organisational success. Most of the organisations which have
achieved high success are characterised by good leadership, and they place emphasis on
transformational leadership as against transactional leadership.
A transformational leader inspires his followers through high vision and energy. A transactional
leader determines what subordinates need to do to achieve objectives, classifies those
requirements, and helps the subordinates become confident that they can reach objectives.
2. Top Management Constitution and Philosophy:
Top management contributes the lifeblood for the total organisation. Its constitution and
philosophy are strong determinants of organisational success. Organisation characterised by age
old and traditional management is less likely to succeed in the environment of growing
competition. Enterprising approach of top management is also an important factor determining
the growth of the organisation.
3. Organisational Image and Prestige:
Organisational image and prestige affect the organisational working by providing it various
facilities and constraints better image and prestige providing facilities and low image and
prestige providing constraints. The measurement of corporate image and prestige, however, is
quite difficult because of the absence of any quantitative criteria
4. Organisational Climate:
Organisational climate is the internal set of attributes specific to an organisation that may be
induced from the way the organisation deals with its members. Thus, organisation members
relationship is built upon the basis of how the former treats the latter. Organisational climate can
be measured by taking into account how its members react to various actions, how willingly they
cooperate with it in achieving its objectives, and how satisfied they are with the organisation.
5. Management Practices:
The extent to which the organisation follows various management practices affects its success.
High scores on managerial practices in respect to strategic planning, objective control and
evaluation system, management information system, and manpower planning and succession
plan are strengths of the organisation.
6. Organisation Structure:
Organisation structure is network of internal relationship through which individuals interact
among themselves in the context of organisational matters. A suitable organisation structure is
strength for the organisation. The suitability of organisation structure is not universal
phenomenon but is determined by the organisation’s environment, technology, size, and people.
Thus, a suitable organisation structure is one, which meets the demands of all these factors.
7. Organisational External Relationships:
The organisation has to work in environment where large number of factors exist. These factors
affect the organisational operations by offering facilities and constraints to it. The extent to
which the organisation builds relationships with the factors offering such facilities and
constraints, including government and other regulatory bodies, its success or failure is
determined.
Strategy Implementation in Projects
Projects in themselves are unique and time-bound. As such, strategy implementation in each
project differs in content but the core approach remains the same.
1. Project Implementation:
A project can be defined as a ‘non-repetitive activity’. This needs augmenting by other
characteristics.
i. It is goal oriented – it is being pursued with a particular and or goal in mind;
ii. It has particular set of constraints – usually centered around time and resource;
iii. The output of the product is measurable;
iv. Something has been changed through the project being carried out.
For example, purchasing machinery is a project, the machinery is purchased for manufacturing
products at less cost and at high quality, the output of machinery is measurable in units. But
purchasing and installing huge machinery requires huge investment and time consuming.
Project management begins with project planning phase, and ends with project review and
monitoring phase. Goals or objectives of a project are developed at the project planning stages
that are based on the strategies to be adopted. Generally, any new project management involves
five standard phases’ viz., planning, analysis, selection, financing, implementation and review.
Project implementation stage involves setting up of manufacturing facilities; like project and
engineering design, negotiations and contracting, construction, training and plant
commissioning.
For example, a company is diversifying into unrelated area of business, then it has to follow
project management stages. Project implementation is complex, time consuming and risky when
compared to formulation of project. Whatever level of complexity and risk involved in a project
implementation, firm should not delay implementation process that would lead to substantial cost
over runs.
The best examples for this are government projects, are government sanctions a project which is
supposed to be completed in a five years period and at a cost of some lakhs or crores. Due to
political problems most of government projects do not complete within a given period, leading to
cost over runs. Only effective formulation of project with the help of network techniques and use
of principle responsibility accounting project implementation can be done at a reasonable cost.
2. Procedural Implementation:
Project implementation is putting project plan which is there on paper into action. It cannot be
done just having plans, programmes, projects, budgets unless they are approved by the concerned
government agency, whether it may be state government or central government, sometimes
permission is required from both. Procedural framework comprises of a good number of
legislative enactments, and administrative orders apart from policy guidelines released by the
concerned government from time to time.
The prime and common regulatory elements of procedures implementation are:
i. Formation of company.
ii. Licensing procedures (if it is coming under licensing category of companies).
iii. Fulfillment of SEBI guidelines and requirements.
iv. Fulfillment of FEMA requirements (if dealing in foreign exchange).
v. Import and export requirements.
vi. Obtaining patents and trademarks (if developed any new product and producing products
under another company licence respectively).
vii. Fulfillment of labour legislation requirements.
viii. Obtaining permission from Environmental Protection and Pollution Control Board.
The above listed are the prime rules/regulations/procedures to be followed. Due to liberalisation,
privatisation and globalisation many procedures are liberalised (simplified), but still there are
some procedures need to be approved by government. Let us discuss them in brief.
i. Formation of Company:
It is governed by the provisions of the Companies Act, 1956. Promotion of company involves,
promotion, registration of company with registrar of companies (ROCs) and flotation of required
capital.
ii. Licensing Procedures:
License is a written permission from the government to a company to manufacture a specified
products included in the schedule. A firm need to be applied to Industries (Development and
Regulation) Act, 1951 (IDRA) for licence. Government grants license under Sec.30 of the IDRA.
In the past 1991 liberalisation licensing requirements abolished for many categories of
companies, except a few (security, defence, environmental concern etc.).
iii. SEBI Requirements:
The Security Exchange Board of India, 1992, replaces the Capital Issues Control Act, 1956, and
it is dealing with capital markets. SEBI is promoted to protect the interests of investors and to
promote the development of securities market and to regulate securities market. SEBI has
comprehensive powers in Indian Capital market. For example, IPOs, mergers, takeover,
acquisition and almost all regulatory activities in security market. Any manager who is taking a
decision needs to get approval from SEBI.
iv. FEMA Requirements:
Any firm which is planning to deal with foreign supplier or consumer need to fulfill certain
procedures under Foreign Exchange Management Act, 1999 (replaced FERA Act, 1973). The
main objective of FEMA is to consolidate and amend the law relating to foreign exchange with a
view to facilitate external trade. Put in simple words any firm that is dealing with foreigners it
has to fulfill the FEMA provisions concerned to the transaction.
v. EXIM Policy Requirements:
Export and import requirements need to be fulfilled in strategy implementation phase. Any firm
which is planning to import raw materials or input, or fixed assets and planning export goods or
provides services to foreigners, it is under the Exim policy regulations. So firm has to complete
any such procedures are need to be fulfilled for exporting or importing assets or products.
vi. Patents and Trademark Requirements:
LPG increased competition. In the competitive era patents, trademarks, copyright places a crucial
role in market share. Any company which has developed any innovative product or process can
obtain patents against it under Patents Act, 1970, and the Patents Rules, 1972. Section 47 of the
Act confers patents to the patentee if eligible.
Any firm that is planning produce products or provides services under some foreign company
brand name, it has to get trademarks. Thus, any business strategy that involves in any of patent,
copyright, trademark and design need to be obtained permission.
3. Resource Allocation:
Another important aspect of strategy implementation is resource allocation. However good a
strategy is, its effectiveness is proven only when it is implemented. Implementation requires
actionable agenda which in turn require allocation of resources. A resource is a physical or
virtual entity of limited availability, which needs to be consumed to produce a product or service
for the benefit of the customer. The types of resources are natural resources, human resources,
and process resources.
i. Natural Resources:
These can be renewable as well as non-renewable resources. The non-renewable ones include
minerals and fossils which form the raw materials for manufacturing industry. Depletion of these
resources looms large and allocation of these resources becomes very important to conserve the
available resources over a longer period.
ii. Human Resources:
Human beings are also considered resources because they have the capacity to convert raw
materials into valuable products. Human resources can also be said to include the skills, energies,
talents, abilities, and knowledge that are utilized in the conversion of raw materials into goods or
for offering services.
iii. Process Resources:
These are both tangible and intangible. The tangible resources include plant and machinery,
infrastructure such as power, and information technology equipment, intangible resources
encompass technical know-how, brands and patents. As these resources may not always be
consumed in the original form, they may have to be processed and developed. Again the
resources are not available at a single source and are spread randomly over the globe. They also
are subject to depletion and obsolescence in the case of intangible resources. Human resource
allocation also becomes extremely important in aiding strategy implementation.
Resources need to be identified and acquired at the outset before being allocated to various
functions to achieve the organization’s purpose. Resource allocation, therefore, should be such as
to create a sustainable competitive advantage for the organization.
6 Behavioural Issues for Strategy Implementation
Behavioural implementation deals with those aspects of strategy implementation that have
impact on the people in an organization. Since an organization is a deliberate and purposive
entity of human beings, the activities and behaviour of its members need to be directed in a
specified way. Any departure from this way leads to inefficiency in the organization and,
consequent, failure of strategy.
There are six behavioural issues relevant for strategy implementation:
1. Leadership.
2. Organizational culture.
3. Values, ideologies, and ethics.
4. Social responsibility.
5. Corporate governance.
6. Organizational politics.
However, our objective will not be to elaborate underlying theories in these issues but how these
are relevant for strategy implementation.
1. Leadership:
Leadership is basically the ability to persuade others to seek defined objectives willingly and
enthusiastically. A manager can get an intended work accomplished by his subordinates in the
organization in two ways- by exercising authority vested in him or by winning support of his
subordinates. Out of these, the second approach is better because it brings people to work
enthusiastically and their contributions would be more than the first approach in which people
use about 60-70 per cent of their ability in performing work.
That is why Stephen Covey, a management consultant, has observed that “while producers and
managers are important, but leaders are vital to lasting organizational success.” Thus, every
forward- looking organization needs leadership, more particularly strategic leadership. Before
going through the details of role of leadership in strategy implementation, it is desirable to see
what strategic leadership is.
2. Organizational Culture:
Organizational culture is another element which affects strategy implementation as it provides a
framework within which the behaviour of organizational members takes place. Though there
have been differing views about exact concept of organizational culture, a consensus has
emerged in the form that it is a system of shared meaning. O’Reilly has defined organizational
culture in a precise manner. Accordingly, “Organizational culture is the set of assumptions,
beliefs, values, and norms that are shared by an organization’s members.”
Thus, organizational culture is a set of characteristics that are commonly shared by people in the
organization. Such characteristics may be in the form of assumptions, beliefs, values, and norms
which are known as abstract elements of the culture; or externally-oriented characteristics like
products, buildings, dress, etc. which are known as material elements of the culture.
3. Values, Ideologies, and Ethics:
Values, ideologies, and ethics affect the way in which a strategy will be implemented by an
organization. These three elements are the major determinants of individual behaviour, and since
an organization is a collectivity of individuals, hence total organizational behaviour.
i. Values:
Values are convictions and a framework of philosophy of an individual on the basis of which he
judges what is good or bad. Rokeach, a noted socio-psychologist, has defined values as “global
beliefs that guide actions and judgements across a variety of situations.” He further says, “Values
represent basic convictions that a-specific mode of conduct (for end-state of existence) is
personally or socially preferable to an opposite mode of conduct (or end-state of existence).”
He has classified values into two categories- terminal and instrumental. Terminal values, also
known as end values, reflect what a person is ultimately striving to achieve, e.g., comfortable
life, family security, self-respect, achievement, etc. Instrumental values, also known as means
values, relate to means for achieving ends, e.g., courage, honesty, imagination, etc. Individuals
differ in holding terminal values, at least in the context of degrees.
Similarly, they may differ in respect of instrumental values for achieving a particular terminal
value. Though values are generally of enduring nature, an individual adapts new values and
refines the old ones in the light of new knowledge and experience as he grows.
ii. Ideologies:
In a simple way, an ideology is an organised collection of ideas. The American Heritage
Dictionary has defined ideology as “the body of ideas reflecting the social needs and aspirations
of an individual, a group, a class, a culture.” In organizational context, Collins and Porras state
that a core ideology is made up of a set of core values and a purpose that drive an individual or
organization forward, a set of principles that guide them to succeed through tough times.
Core values are an organization’s essential and enduring tenets—a small set of general guiding
principles not to be compromised for financial gain or short-term expediency. Purpose is an
organization’s fundamental reasons for existence beyond just making money. The core
ideologies of an organization have some sort of permanency and are not subject to change even
in adverse situations. Thus, the connotation of ideologies is broader than that of values though
values provide foundation for ideologies.
iii. Ethics:
Ethics may be thought of in terms of a mass moral principles or set of values about what conduct
ought to be. Thus, it specifies what is good or bad, right or wrong from social point of view.
Business ethics relates to the behaviour of businessmen in business situation. Business ethics
operates as a system of values and “is concerned primarily with the relationship of business goals
and techniques to satisfy human ends.”
Business ethics generates from – (a) value-forming institutions, (b) organizational values and
goals, (c) peers and colleagues, (d) work and career, and (e) professional code of conduct.
4. Social Responsibility:
Present-day managers are increasingly concerned with social issues that they and their
organizations are facing. This is happening throughout the world, and India is no exception.
Though there have been arguments in the past against social responsibility of business
organizations as well as in its favour, a consensus has emerged that it is essential for long-term
survival of organizations.
Organizations exist within a society. Since the society is a broader framework within which
organizations operate, there are many social issues which impinge on the operation of the
organizations. This is the reason why most of the organizations include social issues in their
objectives. Social responsibility refers to an organization’s decisions and actions taken to reasons
at least partially beyond its direct economic interest. Thus, an organization has to look at
fulfilling the requirements of various interest groups – shareholders, workers, customers,
suppliers, government, and society.
Social Responsibility and Strategy Implementation:
While implementing a strategy, an organization has two options. First, it may overlook social
issues involved in strategy. However, this is likely to be counter-productive in the long run.
Second, the organization may operationalise social responsibility while implementing its
strategy. This latter option is more desirable. Therefore, let us discuss how an organization may
operationalise social responsibility.
Operationalisation of Social Responsibility:
Once the organization accepts that it has social responsibility to discharge, the issues come-what
social activities the organization should undertake, how much to do, and how to inject social
view into decision-making process.
5. Corporate Governance:
Corporate governance has very high relevance in strategy implementation as every organization
has to follow certain management practices in accordance to its own prescriptions or imposed
externally. Corporate governance is a newly introduced system for managing a company in the
best interest of all its stakeholders. It is a system by which companies are directed and controlled
based on code of good corporate practices. While describing corporate governance, World Bank
says, “Corporate governance is about promoting fairness, transparency, and accountability.”
Adrian Cadbury, Chairman of Cadbury, has elaborated corporate governance by saying,
“Corporate governance is concerned with holding the balance between economic and social
goals between individual and communal goals. The corporate framework is there to encourage
the efficient use of resources and equally requires accountability for the stewardship of those
resources. The aim is to align as nearly as possible the interests of individuals, corporations, and
society.”
6. Organizational Politics:
Strategic choice is governed by organizational politics. Same is the case with strategy
implementation too. Organizational politics and power relationship are closely interlinked and
each power center tries to get the things done in its favour. For example, Pfiffner and Sherwood
have observed as “The ‘who gets what’ (politics) is endemic to every organization, regardless of
size, function, or character of ownership. Furthermore, it is to be found in every level of the
hierarchy; and it intensifies as the stakes become more important and the area of decision
possibilities greater.”
It can be observed that everyone plays some kind of politics at some point of time in the
organization. We can find references that define politics as one or more of the following self-
serving behaviour – acquisition of power, protection of one’s own domain, building of support
through group formation, or influence manoeuvring. In all these cases, politics involves
acquisition of power or be around power and engage in self-serving behaviour.
Therefore, politics can be referred to as actions for seizing, holding, extracting, and executing of
power by individuals and groups for achieving personal goals. Because of organizational politics,
organizational decisions are affected in such a way that they contribute to personal goals rather
than organizational goals.