Strategic MGMT

NAME: _______________________________
YEAR & GROUP: ________________________
STRATEGIC
MANAGEMENT
18
BHM308 - STRATEGIC MANAGEMENT

HOURS ALLOTED: 30 MAXIMUM MARKS: 50
S.No. Topic Hours Weight
age
01 ORGANISATIONAL STRATEGY 04 15%
A. MISSION
 Mission Statement Elements and its importance
B. OBJECTIVES
 Necessity of formal objectives
 Objective Vs Goal
C. STRATEGY
 DEVELOPING STRATEGIES
- Adaptive Search
- Intuition search
- Strategic factors
- Picking Niches
- Entrepreneurial Approach
02 ENVIRONMENTAL AND INTERNAL RESOURCE ANALYSIS 05 15%
A. NEED FOR ENVIRONMENTAL ANALYSIS

B. KEY ENVIRONMENTAL VARIABLE FACTORS
C. OPPORTUNITIES AND THREATS
 Internal resource analysis
D. FUNCTIONAL AREAS RESOURCE DEVELOPMENT MATRIX
E. STRENGTHS AND WEAKNESSES
 Marketing
 Finance
 Production
 Personnel
 Organisation
03 STRATEGY FORMULATION 08 25%
A. STRATEGY (GENERAL) ALTERNATIVES

 Stability Strategies
 Expansion Strategies
 Retrench Strategies
 Combination Strategies
B. COMBINATION STRATEGIES
 Forward integration
 Backward integration
 Horizontal integration
 Market penetration
 Market development
 Product development
 Concentric diversification
 Conglomerate diversification
 Horizontal diversification
 Joint Venture
National Council for Hotel Management & Catering Technology, NOIDA.

19
 Retrenchment
 Divestitute
 Liquidation
 Combination
04 STRATEGIC ANALYSIS AND CHOICE (ALLOCATION OF RESOURCES) 06 20%
A. FACTORS INFLUENCING CHOICE

 Strategy formulation
B. INPUT STAGE
 Internal factor evaluation matrix
 External factor evaluation matrix
 Competitive profile matrix
C. MATCHING STAGE
 Threats opportunities – weaknesses – strengths matrix (TOWS)
 Strategic position and action evaluation matrix (SPACE)
 Boston consulting group matrix (BCGM)
 Internal – External matrix
 Grand Strategy matrix
D. DECISION STAGE
 Quantitative Strategic Planning matrix (QSPM)
05 POLICIES IN FUNCTIONAL AREAS 03 10%
A. POLICY
B. PRODUCT POLICIES
C. PERSONNEL POLICIES
D. FINANCIAL POLICIES
E. MARKETING POLICIES
F. PUBLIC RELATION POLICIES
06 STRATEGIC IMPLEMENTATION REVIEW AND EVALUATION 04 15%
A. MCKINSEY 7-S FRAMEWORK

B. LEADERSHIP AND MANAGEMENT STYLE
C. STRATEGY REVIEW AND EVALUATION
 Review underlying bases of Strategy
 Measure Organisational Performance
 Take corrective actions
TOTAL 30 100%
National Council for Hotel Management & Catering Technology, NOIDA.

Institute of Hotel Management & Catering Technology, Mumbai
ORGANISATIONAL STRATEGY
STRATEGIC MANAGEMENT PROCESS
“Strategy management; can be defined as the art and science of formulating, implementing
and evaluating cross functional decisions that enable an organization to achieve the
objectives.”
BENEFITS/ IMPORTANCE OF STRATEGIC MANAGEMENT
1. It provides a way to anticipate future problems and opportunities.

2. It provides an objective view of management problems.
3. It represents a framework for improved coordination and control of activities.
4. It minimizes the effects of adverse conditions and changes.
5. It allows more effective allocation of time and resources to identified opportunities.
6. It provides a basis for the clarification of individual responsibilities.
7. It encourages a favorable attitude towards change.
8. It gives a degree of discipline and formality to the management of a business.
9. It results in cost saving.
10. It results in more effective and better performance of the firm.
STEPS IN STRATEGIC MANAGEMENT PROCESS
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 its
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
BHM 308 – Strategic Management Page 1 of 16

Organisational Strategy May 2021
essential changes.
The strategy management can be best studied and applied by using a strategic management
model.

VISION STATEMENT
The future state or mental picture of what the organization wants to achieve over a very
long time.
DEVELOPING A VISION STATEMENT
 Firms goals in alignment with community goals

 Clear values
 Precise and practical and should contain no ambiguity
 Expressing company’s commitment to a deliberate strategic management process
 Should be made public and must be well communicated to all stakeholders
MISSION STATEMENT
“Unique character and purpose of the organization, which identifies the scope of its
activities and which distinguishes it from others of its type”.
Every organization should have a mission, purpose or reason for being. This can be
embedded within a mission statement. A mission statement describes in writing the basic
purpose of an organization and what it is trying to accomplish. A mission statement is a
brief description of an organization’s fundamental purpose and objectives. It communicates
basically why the organization exists, what it does and for whom it does it for. It helps the
firm to respect and reward the individuals i.e. employees, the shareholders, customers,
suppliers and other members of the society who are involved in some way or the other with
the organization. A mission statement establishes a sound organizational culture. The
primary purpose of a mission statement is to help formulate strategy, goals and
objectives for the organization.
IMPORTANCE OF MISSION STATEMENT
1. It provides a road to development and drive for growth.

2. It provides a clear sense of purpose, direction and desired future state and when this
image is widely shared individuals are able to find their own roles both in the
organization and in the society.
3. Mission statement empowers individuals and confers status on employees because they
see themselves as a part of a worthwhile enterprise.
4. It results in a clear definition of the business of a company.
5. Mission statement helps in modifying, extending and developing the existing ongoing
business.
6. A mission statement makes everybody imbibe the spirit and inspires employees.
CHARACTERISTICS/ ELEMENTS OF MISSION STATEMENT
1. Clarity: It should be clear and easy to understand the philosophy and purpose of the
organization. It should be clear to everyone in the organization so that it acts as a guide to
action.
2. Feasibility: It should not state impossible tasks. A mission statement should always aim

higher but not impossible goals. It should state a purpose which should be realistic and
attainable.
3. Current: It may become outdated after sometime. A mission statement may hold good
for a certain number of years, say 10 year. It should be modified or revised taking into
consideration the change in the internal and external environment.
4. Enduring: It should be a motivating force guiding and inspiring the individuals in the
organization for higher and better performance.
5. Distinctive: It should be unique and distinctive. It should not appear similar as compared
to the other competitors or companies. The drafting of the mission statement must be
done in such words that it brings uniqueness to the mission statement.
6. Precise: It should contain few words and not a very long statement. It should be to the
point and still sound good and look good. It should be a very attractive statement and yet
concise.
7. Comprehensive: It should be comprehensive in nature. It should indicate the philosophy,

the purpose and the strategy to be adopted to accomplish it. It should not only state the
philosophy.
COMPONENTS OF A MISSION STATEMENT
Mission statements could vary in length, content, format and specificity. Most practitioners
and academicians of strategic management feel that an effective statement exhibits nine
components.
1. Customers: Who are the organization’s customers? How do you benefit them? The
organization declares which types of customers it will target.
2. Products/services: What are the organization’s major products or services?
3. Location/markets: Where does the organization compete? The range of regions,
countries or country groups where the company wants to/ will operate.
4. Technology: What is the firm’s basic technology? Is the firm technologically current?
5. Concern for survival, growth and profitability: Is the firm committed to growth,
financial soundness and economic objectives?
6. Philosophy: What are the basic beliefs, values, aspirations, and ethical priorities of the
firm?
7. Self-concept: What is the organization’s distinctive competence or major competitive
advantage?
8. Concern for public image: Is the organization responsive to social, community and
environmental concerns?
9. Concern for employees: Are employees considered to be a valuable asset of the
organization?
EVALUATING A MISSION STATEMENT
Once a mission statement is developed, it has to be evaluated to check whether it contains

details about all of the 9 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. Most firms try to incorporate most of these components. A few
examples:
1 2 3 4 5 6 7 8 9
Self- concept
Concern for
public image
Concern for
Technology
Philosophy
Employees
Customers
Company Mission
Products/
Markets
Services
survival
“To provide the tools and knowledge
to allow entrepreneurs to compete √ √ √ × √ √ √ × ×
successfully in the Fast Food (2,5)
industry worldwide(3) , by
Subway consistently offering value to
consumers (1) through providing
great tasting food (6) that is good for
them and made the way they want
it.”(7)
“To refresh the world (3) – in mind,

body and spirit… To inspire × × √ × × √ × × ×
moments of optimism – through our
Coca Cola brands and actions… To create value
and make a difference everywhere we
engage.”(6)
“Our mission is to be our

customer’s (1) favorite place and way √ √ √ × √ √ × √ √
to eat & drink (2). We’re dedicated to
being a great place for our people to
work (9); to being a strong, positive
McDonald’s presence in your community (8); and
to delivering the quality, service,
cleanliness and value our customers
(6) have come to expect from the
Golden Arches (5) – a symbol that’s
trusted around the world.” (3)
“To be the world’s premier (3)

consumer products company focused × √ √ × √ √ × √ √
on convenient foods and beverages
(2). We seek to produce financial
rewards (5) to investors as we
PepsiCo provide opportunities for growth and
enrichment to our employees (9), our
business partners and the
communities in which we operate (8).
And in everything we do, we strive
for honesty, fairness and integrity.”(6)

DIFFERENCE BETWEEN VISION AND MISSION STATEMENTS
Both communicate aims, purpose and cultural values of the organization; however following
are some distinguishable differences:
1. The mission statement communicates the ‘present’ state and purpose of the
organization e.g. what the organization wants to achieve here and now. A vision
statement describes what a company wants achieve in the ‘future’.
2. A mission statement communicates how the organization will get to where it wants to
be e.g. what do we do to improve daily and what makes us different. A vision
statementcommunicates what the organization aims or wants to be.
3. A mission statement is about the present which leads to the future, whereas a vision is
about aspirations for the future and trying to lead change in the long-term with
inspiration and courage.
STAKEHOLDER APPROACH TO COMPANY RESPONSIBILITY
Stakeholders are individuals or groups that have one or more of the various kinds of stakes
in a business. These stakes/ interests are varied. Stakeholders can directly or indirectly
influence the operation of the business and they also get affected by the activity of the
organization. While making a mission statement, the stakeholder claims are also addressed.
Stakeholders can be internal or external to an organization.
1. Internal stakeholders: They are the stakeholders within the organization. They are
highly affected by the decisions, performance, profitability and other activities of the
company. In the absence of internal stakeholders, the organization will not be able to
survive in the long run. They include:
 Employees
 Owners/ Shareholders
 Board of Directors
 Investors
The interests of internal stakeholders are significant, particularly when it comes to

investors. For example, a venture capital firm decides to invest $5 million in a technology
startup in return for 10% equity and significant influence, the firm becomes an internal
stakeholder of the startup. The return on the venture capitalist firm's investment hinges on
the startup's success or failure, meaning that the firm has a vested interest.
2. External stakeholders: They are the outside parties which form part of the business
environment. They are not a part of the management, but they indirectly affected by the
work of the company. They do not participate in the day to day activities of the entity, but
the actions of the company influence them. They include:
 Suppliers
 Customers
 Creditors
 Intermediaries
 Competitors

 Society
 Government
STEPS TO INCORPORATE STAKEHOLDERS INTERESTS IN A MISSION

STATEMENT
1. Identification of stakeholders: Every business faces a slightly different set of

stakeholders. In defining a company, strategic managers must identify all of the
stakeholder groups and weigh their relative rights and their relative ability to affect the
organizations success.
2. Understanding stakeholder’s specific claims vis-à-vis the firm: Each stakeholder has a
set of general claims and demands from an organization. Strategic decision makers should
understand the specific demands of each group. They will then be better able to initiate
actions that satisfy these demands.
3. Reconciliation of these claims and assignment of priorities: The concerns of various

claimants often conflict. For example, the primary goal of a corporation, from the
perspective of its shareholders, is to maximize profits and enhance shareholder value.
Since labour costs are unavoidable for most companies, a company may seek to keep
these costs under tight control. This is likely to upset another group of stakeholders, its
employees.
Thus, claims must be reconciled in a mission statement that resolves the competing,
conflicting and contradicting claims of stakeholders.
4. Coordination of the claims with other elements of the company mission: Demands of
stakeholder groups constitute only one principal set of inputs to the company mission
statement. The other principal sets are the managerial operating philosophy, and the
determinants of the product-market offering. These determinants act like a reality test
that the accepted claims must pass. The key question is, “How can the organization
satisfy its stakeholders and at the same time optimize its economic success in the
marketplace.”
CORPORATE SOCIAL RESPONSIBILITY (CSR)
It is a self-regulating business model that helps a company be socially accountable -- to

itself, its stakeholders and the public. By practicing corporate social responsibility,
also called corporate citizenship, companies can be conscious of the kind of impact they
are having on all aspects of society, including economic, social, and environmental. To
engage in CSR means that, in the ordinary course of business, a company is operating in
ways that enhances society and the environment, instead of contributing negatively to them.
Corporate social responsibility is a broad concept that can take many forms depending on the
company and industry. Through CSR programs, philanthropy and volunteer efforts,
businesses can benefit society while boosting their brands.
For a company to be socially responsible, it first needs to be accountable to itself and its
shareholders. Often, companies that adopt CSR programs have grown their business to the

point where they can give back to society. Thus, CSR is primarily a strategy of large
corporations. Also, the more visible and successful a corporation is, the more responsibility it
has to set standards of ethical behavior for its peers, competition and industry.
SOCIAL RESPONSIBILITY TOWARDS VARIOUS GROUPS
1. Responsibility towards Employees: The survival and success of a business depends

upon the quality and commitment of its human resources. Therefore a business
organization needs to fulfill its social responsibility towards its employees in the
following manner.
 The company should provide job security to its employees
 Employees should be paid proper and timely wages and other monetary incentives
 The company should take adequate measures to protect the health and life of the
employees.
 The workers should be provided with good working condition such as good lighting,
ventilation, proper working hours and soon.
 The company should adopt proper personnel policies relating to training, transfer,
promotion, performance appraisal etc.
 There should be proper grievance procedure to handle employee’s complaints.
 The management should recognize the rightful trade union, representing majority of
the workers.
2. Responsibility towards Shareholders:

 The shareholders expect optimum utilization of their funds.
 The management should make a proper disclosure regarding the affairs of the
company.
 The shareholders expect periodic information about important happening or
development in the company.
 The shareholders would appreciate if the company directors indulge in fair practices
on the stock exchange
 They expect a fair return on their investment.
3. Responsibility towards Customers:

 The company should produce quality good
 The company should charge fair price.
 The company expects honest advertising and information
 The company should make the good available regularly and not create artificial
shortage to rise prices
 The firm must provide good after sales service
 The company should deal with the complaint of the customers immediately
 The consumers expect healthy competition in the market and not monopolistic hold
over the market by one dominant seller
4. Responsibility towards Society:

 The company should take all possible measures to prevent air, water and soil pollution
 The business firms should make indiscriminate use of the scarce resources in the
interest of the society
 The society expects that companies should make efforts to uplift backward areas by

starting and developing industries in such areas.

 The business firms should uplift the weaker section of the society by making efforts to
provide jobs and also social activities
 The society expects that the companies should work for communal harmony and not
to participate in anti-social activities.
 Business firm should donate generously to various social causes such as eradication of
poverty, illiteracy etc.
5. Responsibility towards Government:

 The government expects co-operation and financial assistance from the business
sector in implementing socio economic programs
 The government expects the business sector to pay taxes and duties regularly
 The business firms should strictly observe government’s rules and regulations
 The business firms should work toward political stability in the country
 The business forms should avoid seeking unfair favor from government authorities
 The corporate sector should provide assistance to the government during natural
calamities.
DEFINING ORGANIZATIONAL GOALS AND OBJECTIVES
Goals and Objectives are often used interchangeably. The process of defining goals and
objectives involves breaking up the mission statement into definite milestones identifying
events, activities, stages and targets in a time-bound manner.
Organizational goals are the goals that the organization tries to achieve, intentions on which
the organization's decisions and actions are based.
A goal is a short statement of a desired outcome to be accomplished over a long time frame,
usually three to five years. It is a broad statement that focuses on the desired results and does
not describe the methods used to get the intended outcome.
Objectives may be defined as those ends which the organization seeks to achieve by its
existence and operations. What the organization seeks to achieved must be quantified and
specific so that there is no confusion when one reaches there.
Objectives are specific, actionable targets that need to be achieved within a smaller time
frame, such as a year or less, to reach a certain goal. Objectives describe the actions or
activities involved in achieving a goal.
When writing employee objectives, applying the principles of S.M.A.R.T goals helps to
create a more defined objective. The basic idea of S.M.A.R.T. goals are that they are:
 Specific (simple, sensible, significant)
 Measurable (meaningful, motivating)
 Attainable (agreed, achievable)
 Relevant (reasonable, realistic and resourced, results-based)
 Time based (time-bound, time limited, time/cost limited, timely, time-sensitive)

FACTORS THAT AFFECT OBJECTIVES
1. Forces in the environment: Politics of the government, competition and change in

customer preference of products / services affect objectives.
2. Internal forces: Employer – employee relation, technology adopted by the organization,

commitment of the top management and its employees.
3. The value system of the top Executives: Social and moral responsibilities to the
customer, shareholders, societies etc.
NECESSITY OF FORMAL OBJECTIVES
1. Strategy Plans: Objectives help strategy planning and thus help effective functioning of
the organizations in a given environment.
2. Management by objective: Clearly formulated objectives form the basis for the
management to manage the organization so that the desired results are achieved.
3. Standards for assessments and control: Making clear the objectives and what the
results should be provides the basis for control and assessment of organizational
performance.
4. Coordination: Objectives help coordinate decision and decision makers. It reduces

conflict in decision making.
5. Organization: Objectives indicate the purpose and aim of the organization there by
justifying its existence.
6. Decentralization: Objectives help decentralization, i.e., objectives when assigned to

lower level employees in the organization helps in faster decision making.
7. Efficiency: Objectives help in the overall efficiency of the organization thereby helping
the organization with the achievement/ fulfillment of the strategies or strategic plans.
HIERARCHY OF OBJECTIVES
Mission
Corporate level Increasingly

objectives detailed
Business units level objectives
Increasingly
Function level objectives
strategic
Individual level objectives

Objectives have a hierarchy. They can be set at different levels of organization as follows:
1. Corporate level objectives: They form the overall objectives of the organization which
are long range. It is formulated and pursued by the top management, Board of Directors
and the top most managers. They are stated broadly. The characteristics are as follows:
 Set priorities and common goals
 Focus on the use of resources
 Specify the expected results or achievements
2. Business units level objectives: They are set for each strategic business unit (SBU).
They define the business of the organization. They are set for key result areas, such as
profit, market share, sales. The annual reports of public hotel, motel and restaurant chains
speak of their organizational objectives. Business level objectives deal with the following
aspects for each SBU:
 Long-term profitability
 Market share growth
 Product category scope : product line and items
3. Function level objectives: Functional level strategies are the actions and goals assigned
to various departments that support your business level strategy and corporate level
strategy. These are the objectives of the different departments within the company, which
will help the ‘Individual level objective’ which in turn would help the corporate objective.
Function level objectives deal with the following aspects for each function/ department:
 HR: increase hiring of highly-trained employees
 Marketing: improve brand identification
 Production: reduce rejections
4. Individual level objectives: They are related to daily or weekly performance of each
employee. They follow from the function level / department level objective. They deal
with:
 Level of output per employee
 Sales per salesperson
 Career planning and development, etc.
GOALS VS OBJECTIVES
Goals Objectives
Definition: Goals are open ended Definition: Objectives are close ended
attributes or statements that denote the attributes or statements that denote the
future state or outcome. future state or outcome.
Action: Goals are general / abstract Action: Objectives are specific/ concrete
statements. statements.
Measure: Goals may not be strictly Measure: Objectives must be
measurable or tangible. measurable and tangible.
Time frame: Long term Time frame: Short term to medium
term

Meaning: It is the purpose towards Meaning: It is something that one‘s

which an endeavor is directed. efforts/ actions are intended to attain or
accomplish a purpose or a target.
Principle: Based on ideas Principle: Based on facts
AN ILLUSTRATION OF OBJECTIVES AND GOALS
Example of goals Example of goals converted to

objectives
To improve efficiency of factory. Reduce shut down 10% monthly.
To improve the profitability of the outlet. Improve net profit to 12 % from
current 10%.
To promote growth of the chain of hotels. Add 250 keys this year to the chain.
To contribute to the wealth of shareholders. Pay y% of dividend.
To ensure optimal use of resources. Improve return on investment by
5% this financial year.
To contribute towards employee welfare. Annual increment ,PLI etc.
To promote welfare of the society. Construction of bus stands, wells
etc. this budgeted year.
To be leaders in technology and knowhow. Innovative technologies in the
current operational year.
STRATEGY
The word strategy is derived from the Greek word “STRATEGIA” which means the art and
science of directing the military forces.
Definition: “Strategy is the direction and scope of an organization over the long-term, which
achieves advantage for the organization through its configuration of resources within a
changing environment, to meet the needs of markets and to fulfill stakeholder expectations”.
THE FIVE Ps OF STRATEGY
Strategy is a complex concept that involves many different processes and activities within an
organization. According to Professor Henry Mintzberg, understanding how strategy can be
viewed as a plan, as a ploy, as a position, as a pattern, and as a perspective is important. Each
of these five ways of thinking about strategy is necessary for understanding what strategy is,
but none of them alone is sufficient to master the concept (Mintzberg, 1987).
1. Plan: Strategic plans are the essence of strategy. A strategic plan is a carefully crafted set
of steps that a firm intends to follow to be successful. Virtually every organization creates
a strategic plan to guide its future.
2. Ploy: A strategic ploy is a specific move designed to outwit or trick competitors. Ploys
often involve using creativity to enhance success.

3. Pattern: The degree of consistency in a firm’s strategic actions. This view focuses on the
extent to which a firm’s actions over time are consistent.
4. Position: A firm’s place in the industry relative to its competitors. Firms can carve out a
position by performing certain activities in a different manner than their rivals.
5. Perspective: How executives interpret the competitive landscape around them. Because
each person is unique, two different executives could look at the same event; such as a
new competitor emerging, and attach different meanings to it.
CHARACTERISTICS OF STRATEGY
1. Strategic decisions are likely to be concerned with or affect the long-term direction of an
organization.
2. Strategic decisions are normally about trying to achieve some advantage for the
organization such as effective positioning to give an advantage in the market.
3. Strategic decisions are likely to be concerned with the scope of an organization’s

activities.
4. Strategy can be seen as the matching of the activities of an organization to the

environment in which it operates. This is sometimes known as, “The search for strategy
fit”.
5. Strategy can also be seen as building on or “stretching” an organization’s resources and

competencies to create new opportunities or capitalize them.
6. Strategies may require major resources (money/cash) changes for an organization.
7. Strategic decisions are likely to affect operational decisions.
HIERARCHY OF STRATEGY
Corporate Strategy
Business (Division level)
Strategy
Functional
strategy
1. Corporate strategy: The first level of strategy in the business world is corporate strategy,
which sits at the ‘top of the heap’. Corporate strategy will outline exactly what businesses
you are going to engage in, and how you plan to enter and win in those markets.

Corporate level strategy is focused on one of three outcomes:
 Growth
 Stability
 Retrenchment
2. Business strategy: This level of strategy as a ‘step down’ from the corporate strategy
level. In other words, the strategies that you outline at this level are slightly more specific
and they usually relate to the smaller businesses within the larger organization. If, for
example, your corporate level strategy was to ‘increase market share’, your business
level strategy might be:
 Broaden exposure
 Increase marketing budget
 Improve quality
 Rebrand
 Tap new and emerging markets
3. Functional strategy: This is the day-to-day strategy that is going to keep your
organization moving in the right direction. Functional level strategies are the specific
actions and benchmarks assigned to departments (and individuals) that move your
business toward the goals created by the corporate level strategy. Functional strategies
support business strategies, which, in-turn, support the corporate strategy. That strategy
would then be broken down into smaller jobs and assigned to individuals who would do
the actual work.
For example: If you set one of your business level strategies to ‘improve the quality of your
product’ in response to the corporate level strategy of ‘increasing market share’, then a
specific functional level strategy might be for your ‘R&D department to redesign the product
to make it cheaper to produce’.
APPROACHES TO DEVELOPING STRATEGIES
Many strategies are developed for the long run and future of the organization. Strategic
decision is made by the CEO who has a brilliant insight and is quickly able to convince
others in the organization to follow the idea. Some typical approaches are the following.
1. Adaptive Search Approach: Adaptive search approach of strategic decision making is

basically reactive and tries to assimilate the change in decision‐making context; various
factors, particularly environmental ones, affecting strategic decisions. Various features of
strategic decision making under adaptive search approach are as follows:
 Decision making is basically meant for problem solving rather than going for new
opportunities.
 Adaptation process is adopted to meet the threats by changed environment as against

the decision.

 Decisions are made in sequential, incremental steps, one thing at a time

necessitated by environmental changes i.e. to maintain flexibility to adapt the
decisions to more pressing needs.
Example: Eureka Forbes door to door selling of its water purifier to the customer to sell
its products in the market is an example of adaptive search. This product will not sell
unless there is door to door selling.
2. Intuition search Approach: The basic premise of this approach is that the strategy
evolves in the mind of the chief executive without ever being explicitly and without the
aid of formal procedures. As per this approach the executive uses his intuition for
strategy development. It comes out of his instinct. He thinks without any data available
but his experience in the field matters. He is very keen and has quick insight.
In the United States, Alfred Sloan, Henry Ford and in India J R D Tata, G M Modi, G D
Birla, to name a few among the pioneer industrialists, are often remembered for their
imagination, drive and expansive vision, which led to corporate growth and prosperity in
different fields. The strategies developed by each of them over the years may be
attributed to their intuition and judgment.
3. Strategic Factors Approach: Under this approach the CEO looks out for various
critical factors in the organization – like the various SBUs and its business in terms of its
strengths and weakness that would determine the success or future of the organization.
Identification of key strategic factors may lead to the assessment of organizational
strengths and weaknesses in respect of these factors. A factor may not necessarily
contribute directly to the achievement of overall objectives but may contribute indirectly
by achieving a lower level objective. Another way for assessing strengths and
weaknesses is to make a comparative analysis of these factors with those of the
competitors. For the assessment of organizational strengths and weaknesses, some
techniques or tools like—financial analysis, key factor rating and functional area profile
and resource‐development matrix have been developed.
4. Picking Niches Approach: One of the older strategies for organizations is that of
picking propitious niches in which to operate. A Niche is a “need” in the marketplace that
is currently unsatisfied or unattended to. The goal here is to find the “Propitious niche”-
an extremely favourable niche- that is so well suited to the firm’s internal and external
environment, that other corporations are not likely to challenge or dislodge it. It is
situation, where organization can use its core competencies to take advantage of a
particular market opportunity and the niche is just large enough for one firm to satisfy its
demand. It is also called “The strategic sweet spot” for a company.
Example: A company ‘Zamboni’ manufactured a machine for smoothing ice for ice
skating which earlier was done manually. No company has found a substitute. This
company has found a niche in the business world. The customers are clearly defined and
the products are unique.
Ananda in the Himalayas by IHHR Hospitality Pvt. Ltd., Belvedere Club by Oberoi and
The Chambers by Taj are examples of niche products in hospitality.

5. Entrepreneurial Approach: The thrust under this approach is related with the role of
the manager as an entrepreneur. Drucker has depicted the role of an entrepreneurial
manager as that of a systematic risk- maker and risk-taker, looking for and finding
opportunity. “ Entrepreneurship is essentially the acceptance of change as an
opportunity and the acceptance of the leadership in change as the unique task of the
entrepreneur.”
The entrepreneurial approach has the following characteristics:
 It is dominated by an active search for opportunities. The focus is on opportunities

rather than problem solving.
 The power rests with one man, the chief executive, who is capable of taking bold
decisions on the basis of personal power charisma.
 With bold decisions taken in the face of uncertainty, strategy in the entrepreneurial
organization moves forward by unusual leaps and thrives with corresponding gains.
 The most dominant goals in this approach consist of growth and expansion in terms of
assets, market share and turnover.
6. Asking the Right Questions: An approach frequently missed by executives is that of

asking the right questions. Organizations should examine their strengths and weaknesses,
how they can serve their customers better and what operations can use its strengths in
planning a strategy.
7. Following the Market Leader: Some organizations follow the market leader in terms of
what other organizations are doing. In many instances, an organization will follow the
leader because it really has no other option.
∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞

Institute of Hotel Management and Catering Technology, Mumbai
ENVIRONMENTAL AND
INTERNAL RESOURCE ANALYSIS
ENVIRONMENTAL ANALYSIS / SCANNING
The methods and techniques employed by an organization to monitor the environment and to
gather data of decisive information about the opportunities and threats that affect their
business and the process by which organizations monitor their environment is known as
environmental analysis.
Environment refers to all those forces or factors that influence various decision of the firm. A
firm’s environment consists of internal environment and external environment, both these
environment help to determine the strength, weakness, opportunity and threat.
The business environment consists of both the internal and external environments:
Internal environment - The internal environment consists of those factors that affect the
firm from inside its organizational boundaries. The internal factors are generally regarded as
controllable factors because the company, generally, has control over these factors. It can
alter or modify such factors to suit the environment as they are personnel, physical facilities,
organization and functional means, such as the marketing mix.
External environment – The external environment consists of those factors that affect the
firm from outside its organizational boundaries. The external factors, on the other hand, are,
by and large, beyond the control of a company. The external or environmental factors such as
the economic factors, socio-cultural factors, government and legal factors, demographic
factors, geo-physical factors etc. are, therefore, generally regarded as uncontrollable factors.
NEED / IMPORTANCE OF ENVIRONMENTAL ANALYSIS / SCANNING
1. Identification of strength: Analysis of internal business environment helps to identify

strength of the firm. After identifying the strength, the firm must try to consolidate or
maximize its strength by further improvement in its existing plans, policies and
resources.
2. Identification of weakness: Monitoring internal environment helps to identify not only

the strength but also the weakness of the firm. For further growth and expansion, the
weakness should be identified so as to correct them as soon as possible.
3. Identification of opportunities: The firm should make every possible effort to grab the
opportunities as and when theycome.
4. Identification of threat: Environmental analysis helps the firm to identify threat from
the external environment. Early identification of threat is always beneficial as it helps to
diffuse off some threat.
5. Optimum use of resources: Proper environmental assessment helps to make optimum

utilization of scarce human, natural and capital resources.

Environmental and Internal Resource Analysis May 2021
6. Survival and growth: Systematic analysis of business environment helps the firm to
maximize their strength, minimize the weakness, grab the opportunities and diffuse
threats.
7. To plan long-term business strategy: Proper analysis of environmental factors helps

the business firm to frame plans and policies that could help in easy accomplishment of
those organizational objectives. Without undertaking environmental scanning, the firm
cannot develop a strategy for business success.
8. Environmental scanning aids decision-making: An environmental analysis is an

extremely important tool in understanding and decision making in all situation of the
business. Study of environmental analyses enables the firm to select the best option for
the success and growth of the firm.
COMPONENTS OF BUSINESS ENVIRONMENT
The various components or factors of business environment can be broadly divided in to two
groups:
 Internal Environment
 External Environment
Internal Environment: A firm’s internal environment consists of its plan, policies,

resources, relations and other factors which affect its working. The following are some of the
important factors of internal environment.
1. Management Philosophy: It greatly influence the working of a business firm, the

management may adopt a traditional philosophy which approach places emphasis on
family management or a professional philosophy which gives importance to
professionalism in management and social responsibility towards various members of the
society.
2. Mission and Objective: The objective of the firm must be consistent with the mission
statement therefore it is always advisable to frame a mission statement and then list out
the various objectives.
3. Plan and Policies: The plan and policies of the firm must be in line with its objectives as
far as possible, a firm should frame proper plans and policies taking in to consideration
the objectives and resources.
4. Human Resource: The survival and success of the firm largely depends on the quality of
human resource. The knowledge, attitude, skills and social behaviour of the employee
greatly affect the working of the business firm. Therefore a firm’s need to have not only
experience and qualified workforce but also a highly dedicated and motivated team.
5. Physical Resources: It includes machines, buildings, equipment, office premises, furniture

and fixture etc. A firm need adequate and quality physical resources.
6. Financial Resources: It relates to monetary resources. A firm needs adequate working

capital as well as fixed capital. There is a need to have proper management of working

and fixed capital. The firm should obtain the funds from the right sources at lowest
possible cost.
7. Corporate image: A firm should develop, maintain and enhance a good corporate image
in the minds of employees, investors, customers and others.
8. Labour Management Relations: There should be excellent relations between the

management and workers (unions). They should work as a team to achieve the objective
of the firm.
External Environment: The external business environment also plays an important role in
the survival and success of a business enterprise. There is a constant need to analyze the
external environment so as to find out the opportunities and threats. The external environment
can be divided in to two groups:
1. Micro Environment: Micro environment consists of all those factors in the firm’s
immediate environment. They are:
 The Customers: The customer is one of the most important factors in the firm’s
external environment. The consumers affect most of the business decisions. The
customers’ needs, wants, preferences and buying behaviour must be studied in order
to frame proper production and marketing strategies.
 The Competitors: A company has to identify and monitor its competitor’s activities.
Information must be collected about competitors in respect of their prices, products,
promotion and distribution strategies.
 The Suppliers: Suppliers supply raw materials, machines, equipments and other
resources. Such purchases do have a direct impact on the firm’s marketing decisions.
The Company has to keep a watch over prices and quality of materials and machines
supplied by the suppliers.
 Channel Intermediaries: Dealers and other Intermediaries in the chain of distribution

are important factors in the firm’s immediate environment. The Firm has to select and
satisfy its dealers in order to push and promote its products in the market.
 Society: The Society may also affect company’s decisions. The Society can either
facilitate or make it difficult for a Company to achieve objectives. Therefore
professional business firms maintain Public Relations Departments to handle
complaints, grievances and suggestions from the general public. The various members
of the Society include:
 Financial Institutions and Banks --- affect firm’s ability to obtain funds.
 Media --- affect the goodwill of the firm through their favourable or unfavourable
reporting about the Company.
 Government --- affect the firm’s decisions through its policies, rules and
regulations etc.

2. Macro Environment: Macro environment consists of the societal factors that affect the
working of a firm. It relates to the demographic, economic, natural, technological,
political, cultural, international and legal forces. The various macro environment factors
are :
 Demographic Environment: It studies human population with reference to its size,

density, literacy rate, life expectancy, sex ratio, rural-urban divide, age composition,
occupation etc. The various demographic factors help the firm to frame proper
production and marketing strategies.
 Economic Environment: A business firm closely interacts with its economic

environment, which consists of
 Economic conditions in the market (Demand and supply factors).
 Economic policies of the Government in respect of taxation, foreign trade, money
market etc.
 Economic system of the Country.
 Natural (Ecological) Environment: It relates to natural resources like land, water,

minerals etc. Business firms should understand and take necessary measures to
control erosion and pollution of natural resources.
 Technological Environment: These are constant technological developments. Business

firms should constantly make efforts to adapt and adjust to new technological
development so as to survive and succeed in the competitive business world.
 Political Environment: Business decisions are greatly influenced by the developments

in the political environment. This environment consists of government agencies,
political parties and pressure groups that influence and control various individuals and
organisations in a society. Business firms need to keep a track of all political events,
anticipate changes in Government policies and frame production and marketing
changes accordingly.
 Cultural Environment: This involves knowledge, beliefs, morals, laws, customs and
other such elements which are acquired by individuals and groups in a society.
However, slow and gradual changes keep taking place in cultural environment. The
lifestyles, taste and preferences keep changing and as such business firms should
make a note of such changes so as to serve their customers with appropriate goods
and services.
 Legal Environment: Legal environment includes laws which define and protect the
fundamental rights of individuals and organisations. Business needs legal support to
 Protect Firms by defining and preventing unfair competition.

 Protect Consumers from unfair business practices.
 Protect the interest of various members of the society such as employees,
investors, suppliers, dealers etc.
Business firms must have up to date and complete knowledge of the laws governing
production and distribution of goods and services.

SWOT ANALYSIS
SWOT is an acronym used to describe the internal Strengths and Weaknesses of a business
and environmental Opportunities and Threats facing that business. Business decisions are
influenced by, broadly, two sets of factors, viz., firm related factors (internal environment)
and external influence (external environment). The external environment has, broadly, two
components, viz., business opportunities and threats to business. Similarly, the organizational
environment has two components: strengths and weaknesses of the organization. Thus,
strategy formulation is properly pitting the organizational factors (the internal environment)
against the opportunities and threats in the external environment. In other words, business
decisions are conditioned by two broad sets of factors, viz., the internal environment and the
external environment.
A SWOT analysis should not only result in the identification of a corporation’s core
competencies, but also in the identification of opportunities that the firm is not currently
able to take advantage of due to a lack of appropriate resources. The SWOT analysis
framework has gained widespread acceptance because it is both simple and powerful for
strategy development.
INTERNAL
1. Strength: It is an inherent capacity which an organization can use to gain strategic

advantage. It is a resource, skill or other advantage relative to competitors. Examples:
reputation among customers, resources, assets, experience, knowledge etc could be a
source of strength.
2. Weakness: It is an inherent limitation or constraint which creates strategic disadvantages.

It could impede effective performance of the organization. Examples: gaps in capabilities,
limited financial resources, substandard marketing skills, poor brand image, low
employee morale etc.
Understanding the key strengths and weaknesses of an organization is essential in

narrowing the choice of alternatives and selecting a strategy.

STRENGTHS WEAKNESSES
Marketing
 Strong brand image  Poor brand image

 Strong distribution network  Weak distribution
 Deep product mix  Narrow product mix
 Efficient and motivated sales force  Poor sales force
 High quality product  Poor product quality
Production
 Economies of scale  High cost due to small size

 State-of-the-art technology  Obsolete technology
 Efficient input sourcing  Inefficient input sourcing
 Efficient inventory management  Poor inventory management
 Strong R&D support  No R&D support
Finance
 Comfortable debt-equity ratio  Lop-sided capital structure

 Large internal accruals  Very high interest payments
 High dividends and market  Poor reserves
capitalisation  Low credit rating
 High credit rating  Poor receivables management
Human Resource / Personnel
 Qualified and experienced human  Redundant human resource

resource  Excess manpower
 Motivated human resource  Poor morale
 Good industrial relations  Poor industrial relations
 Good human resource management  Poor human resource management
Management / Organization
 Efficient Board of Directors  Inefficient Board of Directors

 Efficient and motivated managers  Unhealthy conflict between
members of Board
 Conflict between members of
Board and top managers
 Inefficient managers

EXTERNAL
1. Opportunity: It is a favourable condition in the organization's external environment

which enables it to consolidate and strengthen its position. Examples: economic boom,
favourable demographic shifts, arrival of new technologies, loosening of regulations,
favourable global markets, unfulfilled customer needs etc.
2. Threat: It is an unfavourable condition in the organization’s external environment

which creates risks or causes damage to the organization. Examples: economic downturn,
demographic shifts, new competitors, changes in consumer tastes, unfavourable new
regulations, unfavourable legislation etc.
SWOT analysis may be done by people within the organization or by external experts like
consultants. Analysis by external experts may be preferable in certain cases as it would not be
influenced by internal biases, conscious or unconscious. However, even when it is done by
external experts, close interaction with people within the organization and giving due
weightage to their views are essential. Often, opinions of other knowledgeable people, like
industry analysts, external stakeholders like suppliers, customers, marketing intermediaries,
financiers etc. are also sought. Former executives could be a very important source of
information. While taking the opinions, various people are useful though the analysts have to
make their own judgment to separate the chaff from the grain.
Several other terms and respective acronyms related to SWOT analysis are in use. Terms
such as WOTS-up analysis, SCOT (Strengths, Constraints, Opportunities and Threats),
internal analysis (analysis of strengths and weaknesses of the firm), external analysis
(analysis of environmental threats and opportunities), ETOP (Environmental Threats and
Opportunities Profile), EFE (external factor evaluation) Matrix, IFE (Internal Factor
Evaluation) Matrix etc. are also used in this context.
WHEN DO WE USE SWOT / BENEFITS OF SWOT ANALYSIS
A SWOT analysis can offer helpful perspectives at any stage of an effort. It might be used to:
1. Explore possibilities for new efforts or solutions to problems.
2. Make decisions about the best path for business initiative. Identifying the opportunities
for success in context of threats to success can clarify directions and choices.
3. Determine where change is possible. If the business is at a juncture or turning point, an

inventory of its strengths and weaknesses can reveal priorities as well as possibilities.
4. Adjust and refine plans mid-course. A new opportunity might open wider avenues, while
a new threat could close a path that once existed.
5. SWOT also offers a simple way of communicating about business initiative or program
and an excellent way to organize information that has been gathered from studies or
surveys.

PESTLE ANALYSIS (DYNAMICS OF EXTERNAL ENVIRONMENT)
While analyzing the total (macro) environment, it is more effective to deal with external
forces first and then the internal, although some opine that the reverse is better. While
deciding the external-internal order one should not lose sight of aspects that work well in one
set of conditions and change color in another set of circumstances.
These factors indirectly affect the organization but cannot be controlled by it.
1. Political environment: The political atmosphere of the country is significantly relevant

to business organizations. The policy of globalization of the Indian economy,
liberalization etc has created a good climate for private sector investment in the country
several laws are enacted to protect companies from each other by preventing unfair
competition.
2. Economic environment: It consists of macro level factors that have an impact on the
business of the organization. Market share of the competitors, pricing of product general
level of profits are factors that affect a company’s product / service.
3. Social/ Cultural Environment: The social environment consists of factors related to the
consumption habits of the people, customs and traditions, tastes and preferences.
Demographic factors like the size of the population, age composition, sex composition,
educational levels, language, caste and religion etc are all factors which are relevant to
business.
4. Technological Environment: Technological factors relate to the technological aspects,

innovations, barriers and incentives and to what degree these impact the business. These
factors can lower barriers to entry, reduce minimum efficient production levels and
influence outsourcing decisions.
5. Legal/ Regulatory Environment: Legal factors relates to the laws, regulation and
legislation that will affect the way the business operates. There are number of
administrative controls over business that are exercised through the regulatory
mechanism.
6. Ecological Environment: Studying the ecological environment has become important

due to the increasing scarcity of raw materials, pollution targets and carbon footprint
targets set by governments. Furthermore, growing awareness of the potential impacts of
climate change is affecting how companies operate and the products they offer. This has
led to many companies getting more and more involved in practices such as corporate
social responsibility (CSR) and sustainability.

Some of the important factors and influences operating in the above mentioned
environments are as follows:
POLITICAL ECONOMIC
 Political system  Capital requirements, ease of entry and
 Government stability exit
 Government policies  Industry growth
 Government involvement in trade  Economy trends
unions and agreements  Stock market trends
 Trade control policies  Seasonality issues
 Bureaucracy  Home and overseas economy situation
 Funding, grants and initiatives  General taxation issues
 Lobbying/ pressure groups  Taxation
 International pressure groups  Inflation
 Wars and conflicts/ terrorism.  Interest
 Economies of scale
 International exchange rates
SOCIAL TECHNOLOGICAL
 Demographics  Technology incentives
 Media views of the industry  Automation
 Work ethic  R&D activity
 Brand, company, technology image  Technological change
 Lifestyle trends  Access to new technology
 Cultural Taboos  Level of innovation
 Consumer attitudes and opinions  Technological awareness
 Consumer buying patterns  Internet infrastructure
 Ethical issues  Communication infrastructure
 Consumer role models  Life cycle of technology
 Major events and influences  Consumer buying mechanisms/
 Buying access and trends technology
 Advertising and publicity  Competitor technology development
 Intellectual property issues
LEGAL ECOLOGICAL
 Current legislation  Weather
 Future legislation  Climate
 International legislation  Environmental policies
 Regulatory bodies and processes  Climate change
 Copyright and patent laws  Natural disasters
 Employment law  Air and water pollution
 Consumer protection law  Recycling standards
 Data protection laws  Attitudes towards green products
 Health and safety regulations  Support for renewable energy
 Money laundering regulations
 Tax regulations
 Competitive regulations
 Industry-specific regulations

MICHAEL PORTER’S FIVE FORCES ANALYSIS (DYNAMICS OF EXTERNAL

ENVIRONMENT)
A firm is a part of the industry and therefore its working is influenced by the industry in
which it operates. ‘Michael E. Porter’ advocates that a structure analysis of industry be
made so that a firm would be in a better position to identify its strengths and weaknesses.
He proposed a model in 1979 consisting of 5 competitive forces:
1. Threat of new entrants,

2. Rivalry among competitors,
3. Bargaining power of suppliers,
4. Bargaining power of buyers and
5. Threat of substitute products that determine the intensity of industry competition and
profitability.
While scanning its industry, a corporation must assess the importance to its success of each of
5 forces that can determine the intensity of industry competition and profitability. A high
force can be regarded as a threat because it is likely to reduce profits. A low force, in
contrast, can be viewed as an opportunity because it may allow the company to earn greater
profits. In the short run, these forces act as constraints on a company’s activities. In the long
run, however, it may be possible for a company, through its choice of strategy, to change the
strength of one or more of the forces to the company’s advantage.
Here is the Michael Porter’s Five Forces Model:
The five forces are discussed as below:
1. The threat of new entrants:
There is always a threat of new entrants in the market, especially when an industry offers
profitable prospects. The new entrants may desire to make good investments in the
industry so as to get a good market share. The new entrants may take away a part of the
market of the existing firms or it may gain a share of the growing market. The existing
firms may be affected due to the entry of new firms in the market.

The chances of new entrants entering into the industry depend upon the entry barriers and
the retaliation strategies adopted by existing firms. If the entry barriers are quite high then
the potential entrants may find it difficult to enter the market. So, also if the existing firms
adopt aggressive retaliation strategies, then the new entrants would find it difficult to
enter the market or sustain its entry.
Threat of entry to an industry will depend on the extent to which there are barriers to
entry, which are as follows:
 Economies of scale: Prohibits entry by forcing the aspirant either to come in a large
scale or to accept a cost disadvantage. Economies of scale can also act as hurdles in
distribution, utilization of the sales force, financing and nearly any other part of a
business. For example, Economies of scale gives Intel a significant cost advantage
over any new rival.
 Capital requirement: The need to invest large financial resources in order to compete
creates a barrier to entry, particularly if the capital is required for unrecoverable
expenditures in up-front advertising or R&D. Capital is necessary not only for fixed
facilities but also for customer credit, inventories and absorbing start-up losses. While
major corporations have the financial resources to invade almost any industry, the
huge capital requirements in certain fields, such as computer manufacturing and
airlines, limit the pool of new entrants. For example, any new entrant, wanting to
produce large commercial airplanes will be in a huge competition against Boeing and
Airbus.
 Access to distribution channels: The more limited the wholesale or retail channels are
and the more that existing competitors have these tied up, the tougher that entry into
the industry will be. Sometimes this barrier is so high that, to surmount it, a new
entrant must create its own distribution channels, as Timex did in the watch industry in
the 1950s. A new food product, for example, must displace others from the
supermarket shelf via price breaks, promotions, intense selling efforts, or some other
means.
 Cost disadvantages independent of size: It is difficult for a competitor to break into a

market if there is an established operator which knows that market well, has good
relationships with the key buyers and suppliers and knows how to overcome market
and operating problems.
Entrenched companies may have cost advantages not available to potential rivals, no
matter what their size and attainable economies of scale. Once their product earns
sufficient market share to be accepted as the standard for that type of product, these
companies have a key advantage. These advantages could also be; availability of
proprietary technology, access to the best raw materials sources, assets purchased at
pre-inflation prices, government subsidies, or favourable locations. For example,
Microsoft’s development of the first widely adopted operating system (MS-DOS), and
later, Windows helped the company get competitive advantage over potential
competitors as their system is on more than 90% of personal computers worldwide.

 Retaliation by established producers: If a competitor enters a market believes that the

retaliation of an existing firm will be as great as to prevent entry or mean that entry
would be too costly this is also a barrier.
 Regulatory Barriers & Government policy: Legal restraints on competition vary from
patent protection, regulation to control markets (e.g. Pharmaceuticals and insurance).
Although the principal role of the government in a market is to preserve competition

through anti-trust actions, government also restricts competition through the granting
of monopolies and through regulation with the help of regulatory bodies. The
government also can play a major indirect role by affecting entry barriers through
controls such as air and water pollution standards and safety regulations. For example,
highly regulated industries such as power, coal mining, tobacco, liquor could be very
difficult for a new entrant to start business in.
 Brand differentiation/ Product differentiation: Creates a strong barrier by forcing

entrants to spend heavily to overcome customer loyalty, by working on providing a
differentiated product or service. For example, Procter & Gamble, which manufacture
products such as Tide, create high entry barriers through their high levels of
advertising and promotion.
 Price differentiation: Higher price than competitor- It means the provision of a product
or service regarded by the user as different from and of a higher value than
competitor.
2. Bargaining power of suppliers:
The bargaining power of suppliers either individually or collectively can also affect the
position of suppliers and buyers in the industry. A high supplier bargaining power can
adversely affect the position of the buyers. The suppliers may increase the price or may
force the buyer to accept whatever is provided.
A high supplier bargaining power may be due to:
 Size and concentration of supplier relative to buyer: When the suppliers are few in
numbers, or when the buyer buys in small quantity and therefore may not be
important to supplier. A supplier group is powerful if it is dominated by a few
suppliers or is more concentrated than the industry it supplies to. For example, The
DeBeers Company of South Africa owns the vast majority of diamond mines in the
world. This gives the firm great leverage when negotiating with various jewellery
producers.
 Supplier’s switching costs: If the cost of switching from one supplier’s product to
another supplier’s product – are high, the bargaining power of suppliers is high. For
example, most university classrooms have Microsoft OS based PC’s. If they want to
shift to Apple OS based pc’s, they would endure enormous costs.
 Supplier’s ability to forward integrate: When the supplier may be in a position to
integrate forward and use its products for the production of end product or services

etc. For example, if Intel wants to move forward in the supply chain, it could conduct
a merger or acquisition of a company like Dell or start making its own PC’s.
 Price sensitivity: Supplier power is high if the buyer is not price sensitive and
uneducated regarding the product.
 Product differentiation: If the supplier’s product is highly differentiated, then supplier

bargaining power is high. For example, Dolby laboratories offer top-quality audio
systems that have a superb reputation. Firms that make home theatre systems have
little choice but to buy from Dolby because many consumers simply expect to enjoy
Dolby’s technology.
 Buyer not important to the supplier: A purchasing industry buys only a small portion
of the supplier group’s goods and services and is thus unimportant to the supplier. The
suppliers can survive even when they stop supplying to the buyers as the major part of
their business is coming from some other industry.
 Availability of substitute products: If substitute products are unavailable in the

marketplace, then supplier power is high. For example, airlines, electricity etc.
3. Bargaining power of buyers:
The bargaining power of buyers either individually or collectively, also affects the
position of suppliers and buyers in the industry. A high buyer bargaining power may
adversely affect the existing firms as well as the newer entrants.
The high buyer bargaining power may be due to:
 Size and concentration of buyer relative to supplier: If buyers are more concentrated
than sellers; if there are few buyers and many sellers, then buyer power is high. The,
Products purchased from the industry represent a significant percentage of the buyer’s
costs or purchases. For example, Wal-Mart has done this by aggressively negotiating
with suppliers over the years.
 Buyer’s switching costs: If the costs of switching from one seller’s product to another
seller’s product are low, the bargain power of buyers is high. For example, Circuses
can find elephants, clowns, and trapeze artists from any source possible. This allows
circus managers to shop around for the best prices. Air travellers choosing the best
and cheapest airline.
 Buyer’s ability to backward integrate: If buyers can easily backward integrate or

begin to produce the seller’s product themselves, the bargain power of
customers is high. For example, a buyer begins to produce the supplier product.
Netflix, Amazon etc
 Price sensitivity: If the consumer is price sensitive and well-educated about the
product, then buyer power is high. A buyer group is powerful when the good or
service purchased by the buyers represents a high percentage of the buyer’s costs,

encouraging ongoing searches for lower-priced suppliers. For example, Most

consumers pay little attention to prices when buying toothpaste, but may spend hours
exhaustively searching the Internet for information on automobile prices.
 Product differentiation: If the supplier’s product is not differentiated, then buyer

bargaining power is high. The buyers, can always find alternative suppliers, and may
play one supplier against another. For example, Subway can drive a hard bargain
when purchasing commodities such as wheat and yeast is typically identical to other
vendor’s.
 Availability of substitute products: If substitute products are available on the market,

buyer power is high. A buyer group is powerful when the good or service purchased
by buyer groups is of limited importance to the quality or price of the buyer’s
offerings. Thus, can be easily substituted without affecting the final product adversely.
For example, auto manufacturers can purchase glass and spark plugs from any
vendor as long as it meets quality standards. This gives automakers leverage when
negotiating with glass and spark plugs companies.
4. The threat of substitutes:
The availability of close substitutes affects adversely the existing firms as well as new
entrants in the market. The market attempts of companies in other industries to win
customers over to their own substitute products. In business, the competitors in an
industry not only must watch each other, they must keep an eye on firms in other
industries whose products or services can serve as effective substitutes for their offerings.
In some cases, substitutes are so effective that they are said to “disrupt” the industry,
meaning they kill most or all industry demand.
 Cooking at home can be an effective substitute for eating at restaurants, especially in

challenging economic times.
 E-mails and faxes are cost effective substitutes to the Postal Service’s offerings.
 Once the personal computers and printers became widely accepted, the typewriter
industry declined dramatically.
Threat of substitutes could be high, based on the following factors:
 Availability of substitutes (product to product): If there is a close substitute available,

there is a limit to the price the customer is willing to pay.
 Consumer’s switching costs: If the substitute product is cheaper than the industry’s
product; thereby placing a ceiling on the price of the industry’s product, then a threat
of substitute’s high risk is the case.
 The price sensitivity: Doing without a product on the part of the customers is indicated
by the price elasticity of demand for the product.
 Generic substitution: Occurs when different products and services compete to address
a particular need.

5. Intensity of industry rivalry among competing firms:
The desire to be a market leader or to get a larger market share leads to rivalry among the
competitors. The extent of rivalry among the firms affects the intensity of competition
within the industry. For instance when the rivalry is less, competition level is low and
vice-versa. The rivalry in the market can affect the existing firms as well as the new
entrant.
The forces which are likely to affect competitive rivalry:
 Number of competitors: If the industry consists of numerous competitors, then

rivalry will be more intense. Whereas if the competitors are of equal size or market
share, the intensity of rivalry will increase.
 Industry growth: The intensity of rivalry will be high if industry growth is slow. A
shortage of new customers leads firms to steal each other’s customers.
 Product Differentiation: Rivalry will be intense if the industry’s products are

undifferentiated or are commodities. This, forces the competitors to compete based on
price rather than based on the uniqueness of their offerings.
 Brand loyalty: If brand loyalty is insignificant and consumer switching costs are
low, then this will intensify industry rivalry.
 Global presence: Development of global customers may increase competition

among suppliers as they try to win with their business on a global scale.
 Excess Production capacity: An industry with excess production capacity will have
greater rivalry among competitors. When too much of a product is available, firms
must work hard to earn sales.
 High fixed costs: If the industry’s fixed costs are high, then competitive rivalry
will be intense. These costs must be covered, even if it means slashing prices in order
to do so.
 High exit barriers: Costs or losses incurred as a result of ceasing operations. High
barriers to exit might force a company to continue competing in the market, which
would intensify competition. Rivalry among firms are intensified due to the high exit
barriers associated with significant capital investment as well as the high exit cost such
as the depreciation cost of fixed assets, severance pay for employees and
compensation cost for breach of contracts with suppliers and buyers. Exit barriers are
especially high for large hotel chain with multiple locations. Until these costs have
been covered, the company may not have the resources to expand into a new line of
business.
 The product is perishable: The intensity of the rivalry will be high amongst firms
dealing in sales of perishable products. Perishable products offered by hotels create
the urgency in selling the product as soon as possible to capture revenue, elevating the

competition especially during off-peak season with oversupply of rooms.
As the competition grows, firms are required to provide more variety of products. As a result
of this, there are offerings of various consumer products, more than ever before. It has
become a common practice for the same company to offer different products for different
market segments.
CREATION OF STRATEGIC & COMPETITIVE ADVANTAGE
An organization uses different types of resources. The interplay of these different resources
along with the prevalent behaviour produces synergy within an organization, which leads to
the development of strengths or weakness over a period of time.
Some of these strengths make an organization especially competent in a particular area of its
activity causing it to develop competencies. Organizational capability rests on an
organization’s capacity and the ability to use its competencies to excel in a particular field,
thereby giving it a strategic & competitive advantage.
The resources, behaviour, strengths and weaknesses, synergistic effects and competencies of
an organization determine the nature of its internal environment. Following is the diagram
showing the framework that is adopted for an explanation of the process of development of
strategic & competitive advantage by an organization:
 Organizational Resources: A firm is a bundle of resources, tangible and intangible, that

include all assets, capabilities, organizational process, information, knowledge etc. These
resources could be classified as physical, human and organizational resources. The
physical resources are the technology, plant and machinery, geographical location etc.
present in an organization. The resources of an organization can ultimately lead to

strategic advantage for it, if they possess four characteristics i.e. if these resources are
valuable, rare, costly to imitate and non substitutable.
 Organizational Behaviour: An organization does not become capable merely by

acquiring resources. Its strength and success depends on an efficient utilization of these
resources which in turn depends on the behaviour of individuals and groups in an
organization. Organizational behaviour refers to the manifestation of various forces and
influences operating in the internal environment of an organization that create the ability
for, or place constraints on, the usage of resources. Organizational behaviour leads to the
development of a special identity and character of an organization.
Several forces and influences such as management philosophy, organizational climate and
culture, organizational politics and use of power shape organizational behaviour.
If resources are considered the hardware of an organization, behaviour is its software.

Organizational resources and behaviour together create it strength and weaknesses.
 Strengths and Weaknesses: Strength is an inherent capability which an organization can

use to gain strategic advantage. A weakness, on the other hand is an inherent limitation or
constraint which creates a strategic disadvantage for an organization. For example, low
cost of capital is strength and inexperienced management is a weakness. Strengths and
weaknesses do not exist in isolation but combine within a functional area and also across
different functional areas to create synergistic effects.
 Synergetic Effects: Synergy occurs when two element complement each other. It is
popularly known as (2 + 2 = 5) Effect. In other words, synergy means the whole is more/
less than some of its parts. For example, when marketing and production departments
support each other there is an operating synergy. Within a functional area for e.g.
marketing; when product, pricing, distribution and promotion support each other there is a
marketing synergy.
Synergetic effect can also be negative (2 + 2 = 3). For example, conflict between
marketing and production area leads to negative synergy. Synergistic effects influence the
type and quality of the internal environment of an organization and may lead to
development of competencies.
 Competencies: Competencies are unique qualities possessed by an organization that

facilitates them in withstanding the pressures of competition in the market place.
Competencies may exist in a form of unique resources, core capabilities, surrounded
knowledge, invisible asset etc.
When an organization develops its competencies over a period of time and hones them
into a fine art of competing with its rivals, it tends to use these competencies exceedingly
well, which then turns them into Core competencies.
 Competence is something an organization is good at doing.
 Core competence is a proficiently performed internal activity.
 Distinctive competence is an activity that a company performs better than its rivals.
Distinctive competencies become the basis for strategic competitive advantage.

 Organizational Capability: Organizational capability is the inherent capacity or

potential of an organization to use its strengths and overcome its weaknesses in order to
exploit the opportunities and face the threats in its external environment. It is also viewed
as a skill for coordinating resources and putting them to productive use. Without
capability, resources even though valuable and unique, may be worthless.
Organizational capabilities are most often developed in specific functional areas such as
marketing or operations or in a part of a functional area such as distribution or research
and development. Organization capability is a measurable attribute. And since it can be
measured, it follows that organizational capability can be compared. Yet, it is very
difficult to measure organizational capability as it is, in the ultimate analysis, a subjective
attribute.
Other terms synonymous to organizational capability factors are strategic factors,

strategic advantage factors, corporate competence factors etc.
 Strategic and Competitive Advantages: Strategic advantages are the outcomes of

organizational capabilities. They are the result of organizational activities leading to
rewards in terms of financial parameters, such as profit or shareholder value and/ or non-
financial parameters, such as market share or reputation. In contrast, strategic
disadvantages are penalties in the form of financial loss or damage to market share.
Profitability could be used to measure strategic advantage. Higher the profitability better
is the strategic advantage. They are comparable in terms of historical performance of an
organization over a period of time or its current performance with respect to its
competitors in the industry.
Competitive advantage is a special case of strategic advantage. It is a relative term and is

compared with respect to rivals in the industry. So, outperforming the rival in profitability
or market standing could be a competitive advantage for an organization.
INTERNAL RESOURCE ANALYSIS
It is also called as Organizational Scanning or organizational audit and the objective is to

identify the organizational capability factors.
Following are the capability factors in the six functional areas of finance, marketing,
operations, personnel, information and general management. For each capability factor, there
are a few illustrations of typical strengths.
1. Financial Capability Factors: Financial capability factors relate to the availability,

usages and management of funds and all allied aspects that have a bearing on an
organization’s capacity and ability to implement its strategies.
Typical strengths that support financial capability:
 Access to financial resources.

 Harmonious relationship with financial institutions.
 High level of credit‐worthiness.

 Efficient capital budgeting system.

 Low cost of capital as compared to competitors.
 High level of shareholders confidence.
 Effective management control system.
2. Marketing Capability Factors: Marketing capability factors relate to the pricing,

promotion and distribution of products or services and all the allied aspects that have a
bearing on an organizations capacity and ability to implement its strategies.
Typical strengths that support marketing capability:
 Wide variety of products.

 Better quality of products.
 Low prices as compared to those of similar products in market.
 High quality customer service.
 Effective distribution system.
 Effective sales promotion.
 High profile advertising.
 Favourable company and product image.
3. Production (Operational) capability factors: Operations capability factors relate to the

production of product or services, use of material resources and all allied aspects that
have a bearing on an organization capacity and ability to implement its strategies.
Typical strengths that support operations capability:
 High level of capacity utilization.

 Favourable plant location.
 High degree of vertical integration.
 Reliable sources of supply.
 Effective control of operational costs.
 Existence of good inventory control system.
 Availability of high calibre R & D personnel.
4. Personnel Capability factors : Personnel Capability factors relate to the existence and
use of human resources and skills and all allied aspects that have a bearing on an
organization’s capacity and ability to implement its strategies.
Typical strengths that support personnel capability:
 Efficient and effective personnel systems.

 Organization perceived as a fair and model employer.
 Excellent training opportunities and facilities.
 Pleasant working environment.
 Highly satisfied and motivated workforce.
 High level of organizational loyalty.
 Low level of absenteeism.

5. Information management Capability: Information management capability factors

relate to the design and management of the flow of information from outside into and
within an organization’s capacity and ability to implement its strategies.
Typical strengths that support information management capability:
 Ease and convenience of access to information sources.

 Widespread use of computerized information system.
 Positive attitude to sharing & disseminating information.
 Presence of foolproof information security system.
 Top management understanding of, IT & its application within the organization.
6. General Management Capability factors: General management capability factors relate

to the integration, co-ordination and direction of the functional capabilities towards
common goals and allied aspects that have a bearing on the organization’s capacity and
ability to implement its strategies.
Typical strengths that support information management capability:
 Effective system for corporate planning.

 Control, reward and incentive system for the employees.
 Favourable corporate image.
 Development oriented organisational culture.
 Commonly being perceived as a good organization to work for.
 Entrepreneurial orientation and high propensity for risk-taking.
METHODS OF ORGANISATIONAL APPRAISAL
1. Functional Area Profile & Resource Development Matrix:
Hofer and Schendel have developed this technique to make a comparative analysis of a firm’s
own resources deployment position and focus of efforts with those of competitors. Firstly, the
technique requires the preparation of a matrix of functional areas with common features. For e.g.
focus of financial outlay, physical resources, organizational systems and technological capability.
Secondly, a matrix is prepared showing deployment of resources and focus of effort over a period
of time. This profile shows how key functional areas stand in relation to each other and as
compared to the competitors with regard to deployment of resources and the focus of efforts in
each functional area.
The matrix gives data pertaining to resources deployment in various functional areas over
a period of time. It also shows how the focus of efforts has changed within a time frame.
Strategies can draw their own conclusions based on past experience, current trends and
future expectations. They can find out whether the firm is able to strengthen the areas of
advantage or dissipate its energies over a period of time. While drawing comparisons it is
advisable to compare firms, which are in the same phase of PLC (Product Life Cycle).

The matrix can be shown thus:
Functional Resource
Area Development
and Focus of
Efforts
Marketing Development
outlay %
Amount (₹)
Focus Effort
Production Development
outlay %
Amount (₹)
Focus Effort
Finance Development
outlay %
Amount (₹)
Focus Effort
R&D Development
outlay %
Amount (₹)
Focus Effort
Management Development
outlay %
Amount (₹)
Focus Effort
2. SAP (Strategic Advantage Profile):
When a firm analyzes its internal capabilities, it is known as SAP. It is the process by
which firm’s resources and capabilities of key functional areas are examined to determine
its strengths and weaknesses. SAP provides “a picture of the more critical areas which
can have a relationship with the strategic posture of the firm in the future.”
For example, large firms have financial strength but they tend to move slowly, compared
to smaller firms, and often cannot react to changes quickly. No firm is equally strong in
all its functions. Strategists must be aware of the strategic advantages or strengths of the
firm to be able to choose the best opportunity for the firm. On the other hand they must
regularly analyze their strategic disadvantages or weaknesses in order to face
environmental threats effectively.
These factors are covered under the following broad headings:
 Marketing and Distribution

 R & D and Engineering
 Production and Operations Management
 Corporate Resources and Personnel
 Finance and Accounting

Note: Up arrow indicates strength, down arrow indicates weakness, while horizontal
arrow indicates a neutral position.
3. Organizational Capability Profile:
It is drawn in the form of a chart, which shows a summarized OCP. The strategists are
required to systematically assess the various functional areas and subjectively assign
values to different functional capability factors and sub factors, along a scale ranging
from values of -5 to +5. After completion of the chart, the strategists are in a position to
assess the relative strengths and weaknesses of an organization in the six functional areas
and identify gaps that need to be corrected.
Capability factors Weakness Normal/ Strength

-5 Neutral +5
1. Financial Capability factors
a)
b)
c) A
2. Marketing Capability factors
a) A
b)
c)
3. Operations Capability factors
a) AAA
b)
c)
4. Personnel Capability factors
a)
b) A
c)
5. Information management Capability factors
a)
b) A
c)
6. General management Capability factors
a)
b) AA
c)
∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞

STRATEGY FORMULATION
STRATEGIC ALTERNATIVES
After analyzing the environment and assessing the internal environment, the next step in the
strategic planning process is to develop strategic alternatives to help the organization in
achieving its objectives. Strategic alternatives revolve around the question of whether to
continue or change the business an enterprise is currently in or improve the efficiency and
effectiveness of its current and future operations.
Strategic alternatives are termed as grand strategies or basic strategies or generic strategies.
These are intended to provide basic direction for strategic actions of a firm.
According to William Glueck and Lawrence Jauch, strategic alternatives can be considered in
four generic ways:
1. Stability strategy: When an organization attempts at incremental improvement of its

performance by marginally changing one or more of its businesses in terms of their
respective customer groups, customer functions and alternative technologies either singly
or jointly , it follows stability strategy.
2. Expansion strategy: When an organization substantially broadens the scope of its

customer groups, customer functions and alternative technologies either singly or jointly
in order to improve its overall performance, it follows expansion strategy.
3. Retrenchment strategy: When an organization aims at contraction of its activities

through a substantial reduction or elimination of the scope of one or more of its
businesses in the scope of its customer groups, customer functions and alternative
technologies either singly or jointly in order to improve its overall performance, it follows
retrenchment strategy.
4. Combination strategy: When an organization adopts a mixture of stability, expansion

and retrenchment either at the same time in its different businesses or at different times in
one of its businesses, with the aim of improving its performance, it follows combination
strategy.
STRATEGIC PLANNING GAP

Strategy Formulation May 2021
In the strategy development process, the corporate management/ strategist will identify the
Strategic Planning Gap. “Strategic Planning Gap is the difference between the desired sales &
Current portfolio”.
HOW CAN A COMPANY FILL THE STRATEGIC PLANNING GAP?
 The first option is to identify opportunities for growth within current businesses
(Intensive opportunities).
 The second is to identify opportunities to build or acquire businesses related to current

businesses (Integrative opportunities).
 The third is to identify opportunities to add attractive unrelated businesses

(Diversification opportunities).
I. INTENSIVE GROWTH STRATEGIES/ CONCENTRATION STRATEGIES
These strategies involve trying to compete successfully only within a single, broad industry.
There are three concentration strategies: market penetration, market development, and
product development. A firm can use one, two, or all three as part of their efforts to excel
within an industry. Ansoff has described these strategies in a matrix. It helps a firm match
products and markets. Markets are defined as customer groups, and products are items sold to
customers.
Igor Ansoff’s Product-Market Expansion Grid:
PRODUCT
PRESENT NEW
MARKET
Market Product
PRESENT
Penetration Development
Market
NEW Diversification
Development
1. Market Penetration: Seeking increased market share for present product in the present
markets through greater marketing efforts is called Market Penetration Strategy. This can
be achieved in three ways:
 Increasing present customers rate of usage:

 Increasing the size of the product
 Increasing the rate of product obsolescence
 Advertising other uses
 Giving price incentives for increased use
For example: If customers of toothpaste who brush once a day are convinced to brush
twice a day, the sales of the product to the current consumers might almost double.

 Attract competitor’s customers: If the firm succeeds in making the customers to

switch from the competitor’s brands to the firm’s brands, while maintaining its
existing customers intact, there will be an increase in the firm’s sales. This can be
done through:
 Establishing sharp brand differentiation
 Increasing sales promotional effort
 Initiating price cuts
For example: A television company offering additional guarantee for two years, in
comparison to a competitor who just provides 1 year guarantee.
 Attracting non-users to buy the product: If there are a significant number of non-users
of a product who could be made users of the product, there will be an opportunity to
increase market share. This can be done through:
 Inducing trial use through sampling, price incentives, etc
 Pricing up or down
 Advertising new uses
For example: In India there are a large no of people in the rural areas who do not use
tooth paste these people could be encouraged to start using the product.
2. Market Development: Market development strategy seeks to expand the market for the
existing product. Market development may be done by:
 Entering new market segments: This can be achieved through:

 Developing product versions to appeal to other segments
 Entering other channels of distribution
 Advertising in other media
For example: McDonald’s used market development as its primary intensive strategy
for expanding into growing economies, especially those of Asian countries.
 Geographical expansion: A company, which has been confined to some part of a

country, may expand to other parts and foreign markets. Thus, market development
can be achieved through:
 Regional expansion
 National expansion
 International expansion
For example: Nirma, which was confined to local markets in the beginning, later
expanded to the regional market and then to the national market.
3. Product Development: Seeking increased sales by developing new products for present
markets is called Product Development. This can be achieved in three ways:
 Developing new product features

Techniques like SCAMPER can be used:
 Substitute (What resources can be substituted to improve the product?)
 Combine (Can you combine this product with another, to create something new?)

 Adapt (How could you transform your product to fill a gap in the market?)
 Modify/minify/magnify (Why not change the shape, look, or feel of the product?)
 Put to Another Use (Could your product be useful elsewhere? perhaps in another
industry?)
 Eliminate (What features, parts, of the product could you eliminate?)
 Reverse (What components or process could you rearrange to change the output
of this product?)
 Developing quality variations
 Developing additional models and sizes (product proliferation)
For example: Hindustan Unilever keeps on adding new brands or improved versions of
consumer products from time to time to maintain its market share.
II. INTEGRATIVE GROWTH STRATEGIES
After examining intensive growth strategies, the next step is to consider integrative growth
strategies. Integration basically means combining activities relating to the present activity of
a firm. Such a combination can be done on the basis of the industry supply chain. A company
performs a number of activities to transform an input to output. Integrative growth strategies
allow a firm to gain control over: Distributors (forward integration), Suppliers (backward
integration) and Competitors (horizontal integration). Integrative growth strategies may be as
follows:
1. Vertical Integration: When, the grand strategy of an organization involves the

acquisition of businesses that either supply the organization with inputs, (such as raw
materials, machinery, etc) or serve as a customer for the organization’s outputs, (such as
warehouse for finished products, selling outlets, etc), vertical integration is involved.
Thus vertical integration is a term used to describe both backward and forward
integration.
 Backward Integration: A growth strategy by which organizations acquire/ purchase

businesses that supply them with the inputs
For example: A restaurant purchasing a bakery, a big hotel group purchasing a kitchen
equipment company.
In the early days of the automobile business, Ford Motor Company pursued backward
vertical integration by creating subsidiaries that provided key inputs to vehicles such as
rubber, glass, and metal.
Backward integration is generally adopted when:

 Present suppliers are unreliable, too costly or cannot meet the firm’s needs,
 The firm’s industry is growing rapidly.
 The number of suppliers is small, but the number of competitors is large.
 Stable prices are important to stabilize cost of raw materials.
 Present suppliers are getting high profit margins.
 The firm has both capital and human resources to manage the new business.

 Forward Integration: A growth strategy by which organizations acquire business that

are closer to the ultimate consumer or concerned with the company’s outputs such as a
hotel acquiring a chain of travel agents. Helps in gaining ownership or increased control
over distributors or retailers.
For example: A bicycle tire manufacturer who begins manufacturing bicycles.
Disney has pursued forward vertical integration by operating more than three hundred
retail stores that sell merchandise based on Disney’s characters and movies. This allows
Disney to capture profits that would otherwise be enjoyed by another store.
Forward integration is generally adopted when:

 The present distributors are expensive, or unreliable or incapable of meeting the
firm’s needs.
 The availability of quality distributors is limited.
 The firm’s industry is growing and will continue to grow.
 The advantages of stable production are high.
 Present distributors or retailers have high profit margins.
 The firm has both the capital and human resources needed to manage the new
business.
2. Horizontal Integration: When a company wishes to grow through horizontal integration,

its aim is to acquire a similar company in the same industry. The result of horizontal
integration, when successful, is the ability to produce more revenue together compared to
if they were to compete independently. In addition to this, a newly merged company can
cut down on costs by sharing technology, marketing, research and development (R&D),
production, and distribution.
For example: Marriott's 2016 acquisition of Starwood Hotels & Resorts Worldwide,
Inc. in the hospitality industry.
Horizontal integration is generally adopted when:

 When an organization can gain monopolistic characteristics in a particular area or
region.
 When an organization competes in a growing industry.
 When increased economies of scale provide major competitive advantages.
 When an organization has both the capital and human competitive advantages.
 When competitors are faltering due to a lack of managerial expertise or a need for
particular resources that an organization possesses.
Styles of doing Horizontal integration also include:
 Merger Strategy: A merger is the voluntary fusion of two companies on broadly equal
terms into a new legal entity. The firms that agree to merge are roughly equal in terms
of size, customers, scale of operations etc. For this reason, the term ‘merger of equals’
is sometimes used. Mergers are most commonly done to gain market share, reduce
costs of operations, expand to new territories, unite common products, grow revenues,
and increase profits—all of which should benefit the firm's shareholders. After a

merger, shares of the new company are distributed to existing shareholders of both
original firms.
For example:
 On 31 August 2018, Vodafone India merged with Idea Cellular, to form a new
entity named Vodafone Idea Limited. Vodafone currently holds a 45.1% stake in
the combined entity and Aditya Birla Group holds a 26% stake.
 In 2001, Hewlett-Packard and Compaq merged in a deal worth $25 billion.
 Takeover/ Acquisition Strategy: A takeover, or acquisition, on the other hand, is

characterized by the purchase of a smaller company by a much larger one. This
combination of ‘unequals’ can produce the same benefits as a merger, but it does not
necessarily have to be a mutual decision. A larger company can initiate a hostile
takeover of a smaller firm, which essentially amounts to buying the company in the
face of resistance from the smaller company's management. In an acquisition, the
acquiring firm usually offers a cash price per share to the target firm's shareholders.
For example:
 The acquisition of 21st Century Fox by Disney took place on March 20, 2019 for
$71.3 billion.
 In 1998, Daimler-Benz took over Chrysler for $37 billion.
III. DIVERSIFICATION GROWTH STRATEGIES
An organization may undertake diversification growth strategy when good opportunities can
be found outside the present businesses. Diversification growth makes sense when good
opportunities exist outside the present businesses; the industry is highly attractive and the
company has the right mix of business strengths to succeed.
Diversification is the process of adding new businesses to the existing businesses of the
company. In other words, diversification adds new products or markets to the existing ones.
A diversified company is one that has two or more distinct businesses. The diversification
strategy is concerned with achieving a greater market from a greater range of products in
order to maximize profits. From the risk point of view, companies attempt to spread their risk
by diversifying into several products or industries.
Diversification can be achieved through a variety of ways:

 Through mergers and acquisitions.
 Through joint ventures and strategic alliances.
 Through starting up a new unit (internal development).
Types of Diversification Growth Strategies:
1. Concentric Diversification (Related Diversification): Concentric diversification

strategy occurs, where there is a strong degree of relatedness (the common thread)
between the existing business of an organization and its chosen diversification plan. In

other words, adding new, but related products even though the product may appeal to a
new class of customers.
For example: PepsiCo adopted a related diversification strategy when it broadened its
product line from soft drinks, to fast food franchises and snack foods.
2. Conglomerate Diversification (Unrelated Diversification): Conglomerate

diversification exists at the opposite extreme where there is no relatedness between the
existing business and the proposed diversification option. In other words, company seeks
new businesses that have no relationship to company’s current technology, product or
market.
For example: Coca-Cola a soft-drink company purchased a movie studio called

Columbia Pictures in 1982 for $750 million. This is a good example of unrelated
diversification, which occurs when a firm enters an industry that lacks any important
similarities with the firm’s existing industry or industries. Luckily for Coca-Cola, its
investment paid off—Columbia was sold to Sony for $3.4 billion just seven years later.
3. Horizontal diversification: Acquiring or developing new products or offering new

services that could appeal to the company´s current customer groups. In this case the
company relies on sales and technological relations to the existing product lines.
For example: Camlin which is famous for stationary products has come out with
stitching and fabric painting materials. Different products altogether, but have the
potential to attract many of the existing customers.
4. Vertical Diversification: This occurs when the company goes back to previous stages of
its production cycle, or moves forward to subsequent stages of the same cycle -
production of raw materials or distribution of the final product. It is same as ‘Vertical
integration’ strategy.
For example:
 In 2015, IKEA bought 83,000 acre woodland in northeastern Romania. It was the first
effort the company had made at managing its own forest operations. IKEA purchased
the forest in order to manage wood sustainably at affordable prices.
 Netflix is one of the most significant examples of vertical diversification in the

entertainment industry. Prior to starting its own content studio, Netflix was at the end
of the supply chain because it distributed films and television shows created by other
content creators. However, Netflix leaders realized they could generate greater
revenue by creating their own original content. In 2013, the company expanded its
original content offerings.
IV. RETRENCHMENT STRATEGIES
This is characterized by a reduction in the scale and scope of the operations of the
organization. Both physical assets and human resources are withdrawn in order to streamline
operations and make them more cost efficient. It is accomplished either by cost reduction or
asset reduction or both. Retrenchment/ Retrench strategies are followed when an organization

substantially reduced the scope of customer groups, customer functions or alternative

technologies jointly or singly.
1. Turnaround: Turnaround strategy can be referred as converting a loss making unit into a
profitable one. It is a process dedicated to corporate renewal. When a company that has
experienced a period of poor performance moves into a period of a financial recovery.
A firm may opt for turnaround strategy in the following situation:
 Liquidity problem: A company may be facing shortage of cash or liquid assets. This
may be due to less inflow and arising outflow of funds. The liquidity problem affects
the working capital needed of the firm.
 Fall in market share/sales: A company may have declining market share, which may
be due to heavy competition, ineffective marketing & distribution of goods and
services.
 Decline in Profits: A firm may witness decline in profits over a period of time and
may incur losses. The losses may be due to increase in costs and lower revenues.
 Underutilization of plant capacity: If the production capacity of a plant is

underutilized, it can be overcome by merging the firm with another company, which
is in a position to make optimum use of installed capacity.
 High inventory: There are cases where the inventory piles up continuously which
indicate that the sales are on decline and therefore, turnaround is required through
restructuring, otherwise they may have to close down.
For example:
 Apple went into a decade-long downward spiral after CEO Steve Jobs left the
company in 1985. For 12 years its innovation, popularity and sales continued to
plummet, almost reaching bankruptcy until Jobs rejoined the company in 1997.
The company was able to turn itself around with a successful rebranding and new
technology and now Apple is one of the most well-known and valuable companies
in the world, raking in almost $300 billion in revenue each year.
 Starbucks is one of the greatest examples of the rewards of hearing the voice of
the customer. Launched in 1971 by Jerry Baldwin, Zev Siegl and Gordon Bowker,
Starbucks first became profitable in Seattle during the early 1980s. In 1987 the
original founders sold Starbucks to Howard Schultz for $3.8 million. However, in
the late 1980s, the company experienced a brief economic downturn after
attempting to expand to the Midwest and British Columbia but made a comeback
in the 1990s when it entered California. By 2002, there were almost 6,000 stores
worldwide, showing a 300% growth rate in 15 years. But, when the financial crisis
hit in 2008, Starbucks was forced to close almost 1,000 stores and experienced a
28% profit loss over the next two years. During this time Schultz took back
control of the company and sent out a message to all employees on his first day
back: “The Company must shift its focus away from bureaucracy and back to its
customers.” Only two months later, the company implemented a new strategy

based on technology, free thinking and community involvement. ‘My Starbucks

Idea’ was rolled out in March 2008 to give customers a chance to have a say in the
direction Starbucks went as a company. Over 90,000 ideas were shared via social
media and raised page views per month to over 5 million. Through this campaign,
Starbucks implemented over 100 ideas and developed a community of like-
minded baristas and coffee lovers. Today, the company employs 250,000 people
at 27,000 locations worldwide, owns several successful subsidiaries and continues
to grow into new markets.
2. Divestment/ Divestiture/ Sell off: This strategy involves dropping some of the product,
markets or functions. The dropping of activities or business can be attained rather through
sale or liquidation. The sell out strategy makes sense if managements can still obtain a
good price for its shareholders and the employees can keep their jobs by selling the entire
company to another firm. This strategy is applied if a corporation is with a weak
competitive position in its industry.
Divestment/ divestiture strategies can take any one of 2 forms:
 Spin-off: A spinoff is the creation of an independent company through the sale or

distribution of new shares of an existing business or division of a parent company.
Assets, employees, intellectual property, technology or existing products that are
taken from the parent company. Shareholders of the parent company receive
equivalent shares in the new company in order to compensate for the loss of equity in
the original stocks.
For example: In 2014, healthcare company Baxter International Inc. spun-off its
biopharmaceuticals business into a new company called Baxalta Incorporated.
Baxter shareholders received one share of Baxalta for each share of Baxter common
stock held by them.
 Split-off: A split-off occurs where an organization recognizes that a part of its

operations (usually a substantial part) is significantly different from the rest of its
operations and needs to operate independently if it is to be successful. In a split-off,
the parent company's shareholders are required to exchange their shares, to get shares
in the subsidiary.
For example: DuPont Co., the biggest U.S. chemical producer, announced in 1999,
the terms it will provide to its shareholders for the sale of the 70 percent stake it holds
in Conoco Inc. Rather than calling the transaction a spinoff, where shareholders
usually receive new shares of the company being sold, DuPont is calling the
transaction a split-off, because stockholders will have a choice whether to swap their
shares or not.
3. Liquidation: The definition of liquidation is the act of turning assets into cash. The
organization takes the decision to sell its entire business and funds so that it can be
invested in some other business. Liquidation occurs when an entire company is dissolved
and its assets are sold. Not all retail bankruptcies result in outright liquidation; however,
companies can also use bankruptcy as an opportunity to turn things around financially.

Assets are sold under the supervision of the courts. Debtors are paid in proportion and
ultimately the organization ceases to exist.
Liquidation may be done in the following ways:

 Voluntary winding up.
 Compulsory winding up under the supervision of the court.
 Voluntary winding up under the supervision of the court.
For example: A retailer that suffered a loss in its business may find no one interested in
buying the company as a growing concern. To extract as much value out of the business
as possible, the owner has a liquidation sale and sells all the inventory, fixtures and
equipment before permanently closing the store’s doors.
MH Carbon and MF Global are examples of companies that went into voluntary
liquidation.
V. COOPERATION STRATEGIES
1. Joint Venture: When two or more independent firms mutually decide to participate in
business venture, contributed to total equity capital (because one equity share- one voting
right is the principle) and establish a new organization, it is known as a joint venture.
An example of Indian Joint Venture with a foreign company is the airline, Vistara. It is
the brand name of Tata SIA Airlines Ltd, a joint venture between India’s corporate giant
Tata Sons and Singapore Airlines (SIA).
2. Strategic Alliance: Two or more firms unite to pursue a set of agreed upon goals, but
remain independent subsequently to the formation of alliance. Partners may provide the
strategic alliance with resources such as products, distribution channels, manufacturing
capability, project funding, capital equipment, knowledge, expertise or intellectual
property. When a company has built strategic business alliance with other partners, they
enjoy the following benefits/advantages:
 They gain better access to the attractive market.

 Take advantage of partner’s local market knowledge and network.
 Capture economies of scale in production and/or marketing.
 Fill gaps in technical expertise or knowledge.
 Share distribution facilities and dealer networks.
 Share technical and financial resources to attack the rivals.
 Direct combined competitive energies toward defeating mutual rivals.
 Useful way to gain agreement on important technical standards.
For example:
 McDonald’s and Coca-Cola strategic alliance is on since 1955 & is a big success.
These two companies helped each other grow and expand around the globe. Over the
years, the companies created a system for the delivery and production of Coke’s sodas
at McDonald’s restaurants. At other restaurants, Coke syrup is delivered in plastic

bags. But for McDonald’s, Coke delivers its syrup in stainless steel tanks that ensure
its freshness, creating what many believe is the best Coca-Cola available.
 In late 2014, streaming music service Spotify announced a partnership with Uber,
allowing passengers to listen to their own music during the ride. This was a huge win
for both companies’ market reach. Uber’s CEO Travis Kalanick revealed that the
Uber app serves two million rides per day. If even a small fraction of those rides
decide to use Spotify, that’s a massive opportunity for acquiring new paid users and
building brand loyalty.
EXPANSION STRATEGIES
1. Market Development
2. Integrative Growth Strategies
a) Vertical Integration
 Backward Integration
 Forward Integration
b) Horizontal Integration
 Merger Strategy
 Takeover/ Acquisition Strategy
3. Diversification Growth Strategies
a) Concentric Diversification
b) Conglomerate Diversification
c) Horizontal Diversification
d) Vertical Diversification
4. Cooperation Strategies
a) Joint Venture
b) Strategic Alliance
ITC’S COMBINATION STRATEGIES (TILL FINANCIAL YEAR 2013)
ITC was established in 1910 under the name Imperial Tobacco Company of India Ltd. As the
company’s ownership progressively Indianised, the name of the company was changed from
Imperial Tobacco Company of India Ltd. to Indian Tobacco Company Ltd. in 1970 and then
to I.T.C. Ltd. in 1974. In recognition of the company’s multi-business portfolio
encompassing a wide range of businesses, the full stops in the company’s name were
removed effective from September 18, 2001. The company now stands rechristened ITC Ltd.
where ‘ITC’ is today no longer an acronym or an initialised form.
In the first six decades, the company concentrated on the growth and consolidation of the
cigarettes and leaf tobacco businesses. The packaging and printing business which the
company set up in 1925 was a strategic backward integration for ITC’s cigarettes business.
ITC started a strategic diversification move in the mid-1970s by entering the hospitality
business, which eventually led to the development of the second largest Hotel Chain in India.
The company steadily added new businesses to its business portfolio like, financing,
agribusiness, paperboards and speciality papers and Infotech.

ITC’s foray into the packaged foods business in 2001 is an outstanding example of
successfully blending multiple internal competencies to create a new driver of business
growth. In 2000, it entered lifestyle retailing with premium men’s apparel. In 2002, ITC
launched the education and stationery products business. The company entered the Personal
Care Business in 2005.
ITC also supports small and cottage sector through its agarbattis and safety matches business.
ITC has been following a combination of strategies for its development. In the tobacco
industry, ITC, the largest Indian firm, is globally reputed. However, in the context of the
social campaign against tobacco consumption and the growing awareness of the
consequences of tobacco usage, the limitations of the tobacco business in spurring the growth
of a company became very obvious. It is no wonder that ITC, therefore, adopted a stability
strategy for the tobacco business and pursued an aggressive diversification strategy for a
rapid growth trajectory. The Stability Strategy is not a ‘do nothing’ strategy; it may require
reinvestment, R&D and innovation. It has been very much true of ITC’s tobacco business
which continues to grow, although at a lower rate than the overall growth of ITC.
ITC’s diversification into financial sector (ITC Classic) ended in a failure, judged by the huge
loss it accumulated vis-à-vis the size of its business. ITC, therefore, exited this business (i.e.,
retrenchment/ divestiture strategy).
ITC has been following an impressive growth strategy in respect of its first major
diversification – hospitality business. Its hotel business has grown to occupy a position of
leadership, with over 100 owned and managed properties spread across India under four
brands namely, ITC Hotels – Luxury Collection, Welcome Hotels, Fortune Hotels and
Welcome Heritage. Internationalisation of the hospitality business has also set in.
In 2000, ITC spun off its information technology business into a wholly owned subsidiary,
ITC Infotech India Ltd. to more aggressively pursue emerging opportunities in this area.
Today, ITC Infotech is one of India’s fastest growing global IT and IT-enabled services
companies and has established itself as a key player in offshore outsourcing, providing
outsourced IT solutions and services to leading global customers across key focus verticals –
Banking Financial Services and Insurance (BFSI), Consumer Packaged Goods (CPG), Retail,
Manufacturing, Engineering Services, Media and Entertainment, Travel, Hospitality, Life
Sciences and Transportation and Logistics.
ITC’s smart diversification into non-tobacco FMCG sectors has become a major driver of the
company’s impressive growth. According to the company source, it “is today proud to have
created over 50 energetic and popular brands across categories that delight nearly 140 million
households. Within a relatively short span of time, ITC has established vital brands with
significant salience among consumers like Aashirvaad, Sunfeast, Bingo!, Yippee!, Candyman,
mint-o and Kitchens of India in the Branded Foods space and Essenza Di Wills, Fiama Di
Wills, Vivel and Superia in the Personal Care products segment. In addition, brands like
Classmate and Paperkraft in Education and Stationery products; Wills Lifestyle and John
Players in the Lifestyle Apparel business; Mangaldeep in Agarbattis as well as Aim in
Matches have established significant market standing and continue to delight consumers with
superior offerings.”

As a result of ITC’s chosen strategy of creating multiple drivers of growth, it is “today, the
leading FMCG marketer in India, a trailblazer in ‘green hoteliering’ and the second largest
Hotel chain in India, the clear market leader in the Indian Paperboard and Packaging industry
and the country’s foremost Agribusiness player. The company’s wholly-owned subsidiary,
ITC Infotech India Limited, is one of India’s fast growing Information Technology
companies in the mid-tier segment.” The company with a market capitalisation of over `
2,60,000 crores in the beginning of 2013 has consistently featured amongst the top 10 private
sector companies in terms of market capitalisation and profits.
The non-cigarette segment net revenue has grown 14-fold from about ` 1,360 crores in 1996
to nearly Rs 19,500 crores in FY 2013. As a result, 58 per cent of net segment revenue of ITC
in Financial Year 2013 was from businesses other than cigarettes. This shows the great role
diversification has played in the growth of ITC, even as its traditional business, cigarettes,
has been growing.
∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞

STRATEGIC ANALYSIS AND CHOICE

(ALLOCATION OF RESOURCES)
Strategy analysis and choice largely involve making subjective decisions based on objective
information. Strategy analysis and choice seek to determine alternative courses of action that
could best enable the firm to achieve its mission and objectives. The firm’s present strategies,
objectives, vision and mission, coupled with the external and internal audit information,
provide a basis for generating and evaluating feasible alternative strategies. This systematic
approach is the best way to avoid a crisis. Alternative strategies are derived from the firm’s
vision, mission, objectives, external audit and internal audit; they are consistent with, or build
on, past strategies that have worked well. Strategists never consider all feasible alternatives
that could benefit the firm because there are an infinite number of possible actions and an
infinite number of ways to implement those actions. Therefore, a manageable set of the most
attractive alternative strategies are to be developed and finally implemented.
STRATEGY-FORMULATION ANALYTICAL FRAMEWORK
STAGE-1: THE INPUT STAGE
Internal Factor Evaluation External Factor Evaluation Competitive Profile

Matrix (IFEM) Matrix (EFEM) Matrix (CPM)
STAGE-2: THE MATCHING STAGE
Threats- Strategic
Boston
Opportunities- Position & Internal- Grand Strategy
Consulting
Weaknesses- Action External (GS)
Group (BCG)
Strengths Evaluation Matrix (IEM) Matrix
Matrix
(TOWS) Matrix (SPACE) Matrix
STAGE-3: THE DECISION STAGE
Quantitative Strategic
Planning Matrix (QSPM)
Strategy-formulation techniques can be integrated into a three-stage decision-making

framework, as shown above. The tools presented in this framework are applicable to all sizes
and types of organizations and can help strategists identify, evaluate, and select strategies.
Stage 1 of the analytical formulation framework consists of the EFEM, the IFEM, and the
CPM. It is called the “Input Stage”, because the three tools summarize the basic input
information needed to generate feasible alternative strategies.

Strategic Analysis and Choice (Allocation Of Resources) May 2021
Stage 2, of the analytical formulation framework consists of (TOWS) Matrix, (SPACE)

Matrix, (BCG) Matrix, IEM and (GS) Matrix. It is called the ‘Matching Stage’, as it focuses
on generating feasible alternative strategies and strives to match internal and external factors
like bigger market share, quicker design to quit rivals, quality, cost, product, economics, sale,
brand, customer, global recognition, market and many others.
Stage 3, of the analytical formulation framework consists of a single technique the QSPM. It
is called the ‘Decision Stage’, as it uses input information from Stage 1 to evaluate feasible
alternative strategies identified in Stage 2. It reveals the relative attractiveness of alternative
strategies by evaluation and selection and, thus, provides an objective basis for selecting
specific strategies.
All nine techniques included in the strategy-formulation framework require the integration of
intuition and analysis. Strategists themselves are always responsible and accountable for
strategic decisions.
STAGE-1: THE INPUT STAGE
1. Internal Factor Evaluation Matrix (IFEM):
This strategy-formulation tool summarizes and evaluates the major strengths and
weaknesses in the functional areas of a business, like marketing, finance, production, and
research & development. It also provides a basis for identifying and evaluating
relationships among those areas. Intuitive judgments are required in developing an IFE
Matrix.
An IFE Matrix can be developed in five steps:
 List key internal factors as identified in the internal audit process. List strengths first
and then weaknesses. Recommended number of factors is 20.
 Assign a weight that ranges from 0.0 (not important) to 1.0 (all important) to each
factor. The weight assigned to a given factor indicates the relative importance of the
factor to being successful in the firm's industry regardless of whether a key factor is
an internal strength or weakness. The sum of all weights must equal 1.0. Weights are
industry based.
 Assign a 1 to 4 rating to each factor to indicate whether that factor represents a major
weakness (rating =1), a minor weakness (rating = 2), a minor strength (rating = 3) or a
major strength (rating = 4). Note that strengths must receive a 4 or 3 rating and
weaknesses must receive a 1 or 2 rating. Ratings are company based.
 Multiply each factor's weight by its rating to determine a weighted score for each
factor.
 Sum the weighted scores for each factor to determine the total weighted score for the
organization.

A Sample Internal Factor Evaluation Matrix:
Regardless of how many factors are included in an IFEM, the total weighted score can
range from a low of 1.0 to a high of 4.0, with the average score being 2.5. Total weighted
scores well below 2.5 characterize organizations that are weak internally, whereas scores
significantly above 2.5 indicate a strong internal position.
2. External Factor Evaluation Matrix (EFEM):
The EFE Matrix can help strategists evaluate the market and industry, but these tools
must be accompanied by good intuitive judgment. This technique is similar to the IFE
matrix, except that the focus is on the economic, social, cultural, demographic, political,
governmental, legal, technological and competitive opportunities and threats.
An EFE Matrix can be developed in five steps:
 List key external factors as identified in the external audit process. List the
opportunities first and then the threats. Recommended number of factors is 20.
 Assign a weight that ranges from 0.0 (not important) to 1.0 (all important) to each
factor. The weight assigned to a given factor indicates the relative importance of the
factor to being successful in the firm's industry regardless of whether a key factor is
an opportunity or a threat. The sum of all weights must equal 1.0. Weights are
industry based.
 Assign a rating between 1 and 4 to each key external factor to indicate how
effectively the firm’s current strategies respond to the factor, where 4 = the response
is superior, 3 = the response is above average, 2 = the response is average and 1 = the
response is poor. Ratings, as well as weights, are assigned subjectively to each factor.
Ratings are company based.

 Multiply each factor's weight by its rating to determine a weighted score for each
factor.
 Sum the weighted scores for each factor to determine the total weighted score for the
organization.
A Sample External Factor Evaluation Matrix:
Regardless of the number of key opportunities and threats included in an EFEM, the
highest possible total weighted score for an organization is 4.0 and the lowest possible
total weighted score is 1.0. The average total weighted score is 2.5. A total weighted
score of 4.0 indicates that the firm’s strategies effectively take advantage of existing
opportunities and minimize the potential adverse effects of external threats. A total score
of 1.0 indicates that the firm’s strategies are not capitalizing on opportunities or avoiding
external threats.
3. Competitive Profile Matrix (CPM):
The Competitive Profile Matrix (CPM) identifies a firm’s major competitors and its
particular strengths and weaknesses in relation to a sample firm’s strategic position. The
Competitive Profile Matrix (CPM) identifies an organization’s Key Success Factors
(KSF’s) in relation to a sample firm's strategic position.
A Competitive Profile Matrix can be developed in the following steps:
 Strategists need to identify the Key Success Factors (KSF’s) in the industry.
 A weight is assigned to each key success factor to indicate the relative importance of
that factor, to success factors in the industry. Ranging from 0.0 (not important) to 1.0
(all important) to each factor. The sum of all weights must equal 1.0.
 Strategists should assign a rating to each competitor to indicate the firm’s strength or
weakness on each key success factor, where 1 = major weakness, 2 = minor

weakness, 3 = minor strength and 4 = major strength. Note that strengths must receive
a 4 or 3 rating and weaknesses must receive a 1 or 2 rating.
 The weight assigned to each key success factor must be multiplied by the
corresponding rating for each competitor to determine a weighted score.
 Find the Total weighted score of all firms by adding the weighted scores for each
variable.
A Sample Competitive Profile Matrix:
In the above example, it shows that Competitor 1 is the market leader and dominates its
competitors with highest score 3.10. Company A is on the second position at 2.80 and
Competitor 2 is the weakest competitor among these three with a score of 2.65.
 If the difference between a firm’s overall rating and the scores of lower-rated rivals is
higher, then the firm has greater net competitive advantage.
 On the other hand, if the difference between a firm’s overall rating and the scores of
higher-rated rivals is bigger, then the firm has greater net competitive disadvantage.
STAGE-2: THE MATCHING STAGE
1. Threats-Opportunities-Weaknesses-Strengths (TOWS) Matrix:
TWOS Matrix is a strategic planning tool used to evaluate the Threats, Opportunities and
Strengths, Weaknesses involved in a project or in a business venture or in any other
situation requiring a decision.
This is an important tool in order to formulate strategy. It is composed of 9 cells. As seen

in the format, there are 4 Key Factor Cells, 4 Strategy Cells and 1 cell that is always left
blank (The upper left cell. The 4 strategy cells are labeled SO, WO, ST and WT are
developed after the 4 key factors cells labeled and S.W.O. and T. are completed.

The TOWS Matrix:
STRENGTHS- S WEAKNESSES- W
1 1
2 2
3 3
Always leave blank 4 List strengths 4 List weaknesses
5 5
6 6
7 7
OPPORTUNITIES- O (SO) STRATEGIES (WO) STRATEGIES
1 1 1
2 2 2
3 3 Use strengths to take 3 Overcome weaknesses
4 List opportunities 4 advantage of 4 by taking advantage of
5 5 opportunities 5 opportunities
6 6 6
7 7 7
THREATS- T (ST) STRATEGIES (WT) STRATEGIES
1 1 1
2 2 2
3 List threats 3 Use strengths to avoid 3 Minimize weaknesses
4 4 threats 4 and avoid threats
5 5 5
6 6 6
7 7 7
There are eight steps involved in constructing a TOWS Matrix:
 List the firm’s key external opportunities.

 List the firm’s key external threats.
 List the firm’s key internal strength.
 List the firm’s key internal weaknesses.
 Match internal strengths with external opportunities and record the resultant strategies
in the SO Strategies cell.
 Match internal weaknesses with external opportunities and record the resultant
strategies in the WO Strategies cell.
 Match internal strengths with external threats and record the resultant strategies in the
ST Strategies cell.
 Match internal weaknesses with external threats and record the resultant strategies in
the WT strategies cell.
This Matrix is an important matching tool that helps managers develops four types of
strategies: SO Strategies (strength-opportunities), WO Strategies (weakness- opportunities),
ST Strategies (strength-threats) and WT Strategies (weakness-threats).The most difficult part
of TOWS matrix is to match internal and external factor.

 SO Strategies: Every firm desires to obtain benefit from its resources. Such benefits can
only be obtained if they utilize its strength to take advantage of external opportunity.
For example: A firm having a good financial position (which is a strength) and externally
if there is an opportunity to expand business, the strong financial position provides an
opportunity to expand the business. The matched strategy is known as SO strategy.
 WO Strategies: WO Strategies are developed to match weakness of the firm with the
external opportunities. WO strategy is very useful if the firm takes advantage of the
external opportunities in order to overcome its weakness.
For example: A firm may find an opportunity of increasing its production by introducing
new technology but the firm may lack skilled workers required for the production. In such
case, a possible WO strategy would be to hire and train people with essential technical
skills.
 ST Strategies: ST Strategies is an important strategy to overcome external threats. This

does not mean that a strong organization should always meet threats in the external
environment head-on.
For example: A firm with strong legal department can avoid external threats such as
copying ideas, innovation and patented products.
 WT Strategies: Every firm has a desire to overcome its weakness and reducing threats.
This type of strategy is helpful when weaknesses are minimized to avoid/ overcome
external threats.
For example: If a firm has weak financial position and the demand for its products is
reducing, then the firm would have to use retrenchment or divestment strategies.
2. Strategic Position and Action Evaluation Matrix (SPACE Matrix):
SPACE matrix is used to determine what type of a strategy a company should undertake.
It focuses on strategy formulation, especially, as related to the competitive position of an
organization.
The SPACE Matrix analysis functions upon two internal and two external strategic
dimensions to determine the organization’s strategic position in the industry.
SPACE matrix is based on four areas of analysis:
 Internal strategic dimensions: Financial strength (FS) & Competitive advantage (CA)
 External strategic dimensions: Environmental stability (ES) & Industry strength (IS)
The SPACE matrix calculates the importance both the dimensions and places them on a
graph with X and Y coordinates in the following manner:
 The CA and IS values in the SPACE matrix are plotted on the X axis.
 The FS and ES dimensions of the model are plotted on the Y axis.

The SPACE matrix is broken down to four quadrants where each quadrant suggests a
different type or a nature of a strategy:
 The First quadrant is ‘Aggressive strategy’ (+ +). Firms getting this as a position on
the space matrix can follow Intensive, Integrative and Diversification strategies.
 The Second quadrant is ‘Conservative strategy’ (- +). Firms getting this as a position
on the space matrix can follow Intensive and related Diversification strategies.
 The Third quadrant is ‘Defensive strategy’ (- -). Firms getting this as a position on the
space matrix can follow Retrenchment, Divestment and Liquidation strategies.
 The Forth quadrant is ‘Competitive strategy’ (+ -). Firms getting this as a position on
the space matrix can follow Integrative and Intensive strategies.
The steps required to develop a SPACE Matrix are as follows:
 Select a set of variables to define competitive advantage (CA), industry strength (IS),
environmental stability (ES) and financial strength (FS).
 Assign a numerical value ranging from +1 (worst) to +6 (best) to each of the variables
that make up the FS and IS dimensions. Assign a numerical value ranging from –1
(best) to –6 (worst) to each of the variables that make up the CA and ES dimensions.
 Compute the average scores for (CA), (IS), (ES) and (FS) by summing the values
given to the variables of each dimension and then by dividing by the number of
variables included in the respective dimension.
 Plot the average scores on the appropriate axis in the SPACE Matrix.
 Add the two average scores on the x-axis and plot the point ‘X’ and add the two
average scores on the y-axis and plot the point ‘Y’. Plot the intersection of the new
‘XY’ point.
 Draw a directional vector from the origin through the new intersection point. This
vector reveals the type of strategy most appropriate for the company.
A Sample calculation for SPACE Matrix:

The SPACE Matrix
(FS)
+6
Quadrant 2 +5 Quadrant 1
“Conservative strategy” +4 “Aggressive strategy”
+3
+2
+1
(CA) (IS)
-6 -5 -4 -3 -2 -1 +1 +2 +3 +4 +5 +6
-1
-2
Quadrant 3 -3 Quadrant 4
“Defensive strategy” -4 “Competitive strategy”
-5
-6
(ES)
This particular SPACE matrix tells us that the company should pursue an aggressive strategy.
3. Boston Consulting Group (BCG) Matrix:
The Boston Consulting Group is a management consulting firm founded by HBS alumnus
Bruce Henderson in 1963. The BCG matrix / Growth share matrix was developed by
Bruce Henderson in 1968 and published in 1970. The BCG model is a well-known
portfolio management tool used in product life cycle theory. BCG matrix is often used to
prioritize which products within company product mix get more funding and attention.
This comparative analysis, combined with the TOWS matrix and SPACE matrix,
provides a basis for identifying feasible alternative strategies for an organization.
The BCG model is based on classification of products or company business units into
four categories based on combinations of market growth and market share relative to the
largest competitor.
 Relative market share can be defined as the ratio of a division’s own market share of
the industry to the market share held by the largest rival.
 Relative market growth rate can be defined as the annual increase in product sales or
the population within a given market. It symbolizes the attractiveness of the market.

 Quadrant I: Question Marks: Low relative market share & High industry growth rate.
Generally these firm’s cash needs are high and their cash generation is low. Quadrant
1 divisions should be significantly strengthened through increased allocation of
company resources or alternatively, they should be divested.
Strategies to be followed by these firms: Market penetration, market development,

product development or divest the division.
 Quadrant II: Stars: High relative market share & High industry growth rate.
Quadrant II divisions represent the organizations best long-run opportunities for

growth and profitability. These divisions should receive substantial investment to
maintain or strengthen their dominant position.
Strategies to be followed by these firms: Intensive and integrative strategies.
 Quadrant III: Cash cows: High Market share & Low industry growth rate.
Due to their dominant position and minimal need for additional resources, these
businesses generate cash in excess of their needs. Therefore, they are often ‘Milked’.
Cash cow divisions should be managed to maintain their strong position for as long as
possible. Many of today’s Cash cows were yesterday’s Stars. Today’s Cash cows
could become tomorrow’s Dogs.
Strategies to be followed by these firms: Product development or concentric

diversification or retrenchment and divestiture.
 Quadrant IV: Dogs: Low Market share & Mature slow growing industry.
These firms compete in a slow or no-market growth industry. Therefore, they produce
little but also require few investments. That means that the cash resources used for
and the cash resources required by these products are both low and for that reason are

in balance. Dogs are worthless cash traps; they do not bring sufficient profits for a
company. Many Dogs have historically bounced back, after strenuous asset and cost
reduction, to be viable and profitable divisions.
Strategies to be followed by these firms: Liquidation, divestment or retrenchment.
Overall, the major benefit of the BCG matrix is that it draws attention to the cash flow,
investment characteristics and needs of an organization’s various divisions.
Historically, the divisions of many organizations may evolve over time as follows:
Question Marks become Stars, Stars become Cash Cows and Cash Cows become Dogs,
in an anti-clockwise motion. In some organizations, no anti-clockwise motion is apparent.
Over time, organizations should strive to achieve a portfolio of divisions that are Stars.
4. The Internal-External (IE) Matrix:
It is another strategic management tool used to analyze the working conditions and
strategic position of a business. This matrix is based on an analysis of internal and
external business factors which are combined into one suggestive model. IE matrix
belongs to the group of strategic portfolio management tools. In a similar manner like
the BCG matrix, the IE matrix positions an organization into a nine cell matrix.
The IE matrix is based on the following two criteria:
 Score from the EFE matrix - plotted on the y-axis

 Score from the IFE matrix - plotted on the x-axis
On the X-axis of the IE Matrix, an IFE total weighted score of 1.0 to 1.99 represents a
weak internal position; a score of 2.0 to 2.99 is considered average; and a score of 3.0 to
4.0 is strong. On the Y-axis, an EFE total weighted score of 1.0 to 1.99 is considered low;
a score of 2.0 to 2.99 is medium; and a score of 3.0 to 4.0 is high.
The Internal- External (IE) Matrix:
THE IFE TOTAL WEIGHTED SCORE

Strong Average Weak
3.0 to 4.0 2.0 to 2.99 1.0 to 1.99
High
THE EFE 3.0 to 4.0 I II III
TOTAL
WEIGHTED Medium
SCORE 2.0 to 2.99 IV V VI
Low
1.0 to 1.99 VII VIII IX

The IE Matrix is divided into three major regions that have different strategy
implications:
 The prescription for the divisions that fall into Cells I, II or IV can be ‘Grow and
build’. They need to focus on intensive and Integrative strategies.
 Second, divisions that fall into Cells III, V or VII can be best managed with ‘Hold
and maintain’ strategies. They need to focus on market penetration and product
development.
 Third, divisions that fall into Cells VI, VIII or IX can be best managed with
‘Harvest and Divest’ strategies. They need to focus on retrenchment or divestment.
5. The Grand Strategy Matrix:
In addition to the TOWS Matrix, SPACE Matrix, BCG Matrix, and IE Matrix, the
Grand Strategy Matrix has become a popular tool for formulating alternative
strategies. All organizations can be positioned in one of the grand Strategy Matrix’s
four strategy quadrants.
The Grand strategy matrix is based on two evaluative dimensions:

• Competitive position
• Market growth
A generic sample of the GS Matrix:
RAPID MARKET GROWTH
Quadrant II Quadrant I
1. Market development 1. Market development

2. Market penetration 2. Market penetration
3. Product development 3. Product development
4. Horizontal integration 4. Forward integration
5. Divestiture 5. Backward integration
6. Liquidation 6. Horizontal integration
7. Concentric diversification
WEAK STRONG
COMPETITIVE COMPETITIVE
POSITION POSITION
Quadrant III Quadrant IV
1. Retrenchment 1. Concentric diversification

2. Concentric diversification 2. Conglomerate diversification
3. Conglomerate diversification 3. Horizontal diversification
4. Divestiture 4. Joint venture
5. Liquidation
SLOW MARKET GROWTH

 Quadrant I:
Firms located in Quadrant I of the Grand Strategy Matrix are in an excellent strategic
position. For these firms, continued concentration on current markets (‘Market
penetration’ and ‘Market development’) and products (‘Product development’) are
appropriate strategies. When a Quadrant I organization has excessive resources, then
‘Vertical integration’ or ‘Horizontal integration’ may be effective strategies. When a
Quadrant I organization is too heavily committed to a single product, then
‘Concentric diversification’ may reduce the risks associated with a narrow product
line. Quadrant I firms can afford to take advantage of external opportunities in many
areas; they can aggressively take risks when necessary.
 Quadrant II:
Firms positioned in Quadrant II need to evaluate their present approach to the

marketplace seriously. Although their industry is growing, they are unable to compete
effectively. Because Quadrant II firms are in a Rapid Market growth industry,
‘Market penetration’, ‘Market development’ and ‘Product development’ may be
effective strategies. If the firm is lacking a distinctive competence or competitive
advantage, then ‘Horizontal integration’ may be a desirable alternative. As a result,
‘divestiture’ or ‘liquidation’ should be considered. ‘Divestiture’ can provide funds
needed to acquire other businesses or buy back shares of stock.
 Quadrant III:
These organizations compete in a slow-growth industry and have a weak competitive

position. These firms must take some drastic changes quickly to avoid further demise
and possible extinction. Extensive cost and asset reduction (‘Retrenchment’) should
be pursued first. An alternative strategy is to shift resources away from the current
business into different areas. If all else fails, the final options for Quadrant III
businesses are ‘Divestiture’ or ‘Liquidation’.
 Quadrant IV:
Quadrant IV businesses have a strong competitive position but are in a slow-growth

industry. These firms have the strength to launch diversified programs into more
promising growth areas. Quadrant IV firms gave characteristically high cash flow
levels and limited internal growth needs and often can successfully pursue
‘Concentric’, ‘Horizontal’ or ‘Conglomerate diversification’. Another viable option
for these firms is to form a ‘Joint venture’.

STAGE-3: THE DECISION STAGE
The Quantitative Strategic Planning Matrix (QSPM):
QSPM is a high-level strategic management approach for evaluating possible

strategies. QSPM provides an analytical method for comparing feasible alternative actions.
The steps involved in constructing a QSPM are:
 Step 1: List the firm’s key internal strengths/ weaknesses and external opportunities/
threats in the left column of the QSPM. This information should be taken directly
from the IFE Matrix and the EFE Matrix. A minimum of ten key internal and external
factors each should be included in the QSPM.
 Step 2: Assign weights to each Internal and External factor. These weights are
identical to those in the IFE Matrix and the EFE Matrix. The ratings are presented in a
straight column just to the right of the key internal and external factor column.
 Step 3: Examine the Stage 2 (Matching Stage) matrices and identify alternative
strategies that the organization should consider implementing. Record these strategies
in the top row of the QSPM.
 Step 4: Determine the Attractiveness Scores (AS). AS is determined by examining

each Internal and External Key factor, one at a time and asking the question; ‘Does
the key factor have an effect on the choice of the strategies being evaluated?’
 If the answer to the above question is YES, then the strategy should be evaluated
relative to that Key factor. Attractiveness Scores are defined as numerical values
that indicate the relative attractiveness of each strategy in a given set of
alternatives. (1 = Not attractive, 2 = somewhat attractive, 3 = reasonably
attractive and 4 = highly attractive).
 If the answer to the above question is NO, then it indicates that the respective Key
factor has no effect upon the specific choice being made. Hence, no Attractiveness
Scores are assigned to the strategies in that set. Use a dash (-) to indicate that the
key factor does not affect the choice being made.
 Step 5: Compute the Total Attractiveness Scores. Total Attractiveness Scores (TAS) are
defined as the product of multiplying the weights (Step 2) by the AS (Step 4) in each row.
The TAS indicates the relative attractiveness of each alternative strategy, considering
only the impact of the adjacent Internal or External Key factor. The higher the Total
Attractiveness score, more attractive is the strategic alternative.
 Step 6: Compute the Sum Total Attractiveness Score. Add Total Attractiveness Scores in
each strategy column of the QSPM. The Sum Total Attractiveness Scores reveal which
strategy is most attractive in each set of alternatives. Higher scores indicate more
attractive strategies, considering all the relevant internal and external factors that could
impact the strategic decisions.

A generic sample of the QSPM:
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POLICIES IN FUNCTIONAL AREAS
‘Policies are directives designed to guide the thinking, decisions and actions of managers and
their subordinates in implementing an organization’s strategy’.
On a day to day basis policies are needed to make a strategy work. Policies are established to
support and encourage work toward stated goals. Policies are instruments for strategy
implementation.
PURPOSE/ ROLE/ ADVANTAGES OF POLICIES
Policies communicate specific guides to decisions. They are designed to control and reinforce
the implementation of functional strategies and the grand strategies and they fulfil this role in
several ways:
1. Policies provide a basis for management control which allows co-ordination across
organizational units.
2. Policies let both employees and managers know what is expected of them, thereby
increasing the likelihood that strategies will be implemented successfully.
3. Policies establish indirect control over independent action. Policies set boundaries,
constraints and limits on the kinds of administrative actions that can be taken to
reward and sanction behaviour; they clarify what can and cannot be done in pursuit of
an organization’s objectives.
4. Policies promote uniform handling of smaller activities. This facilitates co-ordination

of work tasks and helps reduce friction arising from favouritism, discrimination and
disparate handling of common functions.
5. Policies reduce uncertainty in repetitive and day-today decision making. Policies
facilitate solving recurring problems and guide the implementation of strategies.
6. Policies ensure quicker decisions. They reduce the amount of time managers spend on
decision making by standardizing answers to previously answered questions that
would otherwise recur and be pushed up the management hierarchy again and again.
7. Policies help institutionalize/ establish basic aspects of organizational behaviour.

This minimizes conflicting practices and establishes consistent patterns of action in
terms of how organizational members attempt to make the strategy work.
8. Policies reduce resistance to corporate strategies. When major strategic change is

undertaken, unambiguous operating policies help clarify what is expected and
facilitate acceptance, particularly when operating managers participate in policy
development.

Policies in Functional Areas May 2021
POLICIES IN FUNCTIONAL AREAS
Effective implementation of strategies is crucial for the accomplishment of strategic

management. Proper strategy implementation functional policy is a broad guideline
indicating the criteria that a functional manager should use in making decisions in his
functional area.
FUNCTIONAL POLICIES RELATED TO PRODUCT
One of the important elements of marketing mix is Product. Any firm is known by the
product it is offering. The other elements of marketing mix are based on it. So it is very
important that the firm must have a sound product policy. In a product policy, the statements
that are included are the products which the company should emphasize, the products that
contribute most to the profitability, the image of the product which has to be given
importance and also continuous improvement of the product. It is a competitive tool in the
hands of the firm. It involves four types of product policy decisions. These are:
Key Decision Areas Typical Questions that should be Answered by the functional
policy
1. Individual  Product attribute: Quality, feature, style and design of the product.
product decision  Product branding: Unique brand name to help the firms in
promoting the product and making consumer brand conscious.
 Product packaging: It is generally said that Packaging acts as a
silent salesman because product packaging helps the customer to
get the knowledge about the product quality, quantity, weight, price
etc.
 Product labeling: Manufacturer’s name, place, date of
manufacturing, expiry date, calories, carbohydrates, nutritional
value etc.
 Product support services: Services which are provided to the
customer after selling the product to the customer like after sale
services, installation etc.

2. Product line  Should the line be expanded to meet the needs of a broader range of
decision consumers?
 Should the product be repositioned to appeal to a different target
market?
 At what point should the product line be contracted and which
items eliminated?
3. Product mix Add New Product: Can it add new product lines, which will widen
decision its product mix based on the firm’s goodwill?
 Lengthen Current Product Line: Can the company lengthen its
current product lines to emerge as a more full-line company?
 Add More Versions of Product: Can the company also add more
product versions of each product, which will deepen its product
mix?
 Increase or Decrease Product Line Consistency: Does the company
want to have a strong reputation in a single field or several fields?
4. Product  Which method to follow to find the firm’s current position?
positioning  How to analyze the competitors?
decision  What factors to consider in developing a unique product position?
 How to create a positioning statement?
 What guidelines to follow while creating the product tagline?
 How to test the marketing positioning?
FUNCTIONAL POLICIES IN OPERATIONS/ PRODUCTION
These are concerned with the transformation of inputs into outputs. The main objectives are
to produce the required quantity and quality of outputs at the right time and at the lowest
possible cost. Policies are formulated with respect to production system, operations planning
and control, research and development and modernization.
policy
1. Production  Capacity
System  Location
 Layout
 Product or service design
 Work systems
 Degree of automation
 Extent of vertical integration
2. Production/  Aggregate production planning
Operations  Materials supply
Planning and  Inventory, cost and quality management
Control  Maintenance of plant and equipment

3. Logistics  Which sources of raw materials and components are available?

Management  How many manufacturing locations are there?
 What products are being made at each manufacturing location?
 What modes of transportation should be used for various products?
 What is the nature of distribution facilities?
 What is the nature of materials handling equipment possessed? Is it
ideal?
 What is the method for deploying inventory in the logistics
network?
 Should the business firm own the transport vehicles?
4. Supply Chain  Product Development: Customers and suppliers must work together
Management in the product development process. This will help in shortening the
life cycles.
 Procurement: Procurement requires careful resource planning,
quality issues, identifying sources, negotiation, order placement,
inbound transportation and storage.
 Manufacturing: Flexible manufacturing processes must be in place
to respond to market changes.
 Physical Distribution: Delivery of final products to customers is the
last position in a marketing channel. Thus supply chain
management links a marketing channel with customers.
 Outsourcing: Outsourcing is not limited to the procurement of
materials and components, but also includes outsourcing of services
that traditionally have been provided within an organization.
 Customer Services: Organizations through interfaces with the
company’s production and distribution operations develop customer
relationships so as to satisfy them.
 Performance Measurement: Performance is measured in different
parameters such as costs, customer service, productivity and
quality.
FUNCTIONAL POLICIES IN MARKETING
Marketing policy deals with the 7 'P’s of the marketing mix: Product, Price, Place,
Promotion, Physical evidence, People and Process.
As mentioned above, in product policy, the statements that are included are the products
which the company should emphasize, the products that contribute most to the profitability,
the image of the product which has to be given importance and also continuous improvement
of the product.
In the price policy, the various approaches to the pricing of the product are mentioned. How
the product should be priced like cost oriented, market oriented, competition oriented etc are
mentioned in the marketing policy of which price is component.

The place component is concerned with as to how manager should appoint dealer,
distributors, wholesalers etc. it also gives guidelines to managers regarding the selection of
channel of distribution and how the goods / services should reach the final customer.
In the promotion policy, various statements that guide the use of advertising budget, media
selection are mentioned. These statements help manager to take decisions which are cost
effective and beneficial to the company.
Physical evidence often takes two forms: evidence that a service or purchase took place and
proof or confirmation of the existence of your brand. Policies about physical evidence
essentially refers to decision making guidelines related to visual aspects or quantifiable
features of the brand, such as the website, logo, business cards, a sign on firm’s building, the
brand’s headquarters and equipment and the social media presence. These are the elements
that the customer is likely to see prior to actually engaging with the firm’s offerings.
There’s no use in creating a great brand, innovative product or amazing social media
presence if the firm does not have the right people working for it. It’s integral to the survival
of the business that all of the employees, no matter how behind-the-scenes or customer-facing
they are, have fair training and a considerable understanding of their role and the impact that
it has within the company. That is what is taken care of by People policies.
Process policies refer to steps related to the delivery of the product or service to a customer.
Maps need to be made to outline functions, activities, tasks and processes. Doing so keeps the
processes functioning smoothly and efficiently.
policy
1. Product (for  Which products do we emphasize?
service)  Low cost provisions Providers of goods and services- quality and
quantity.
 Best Customer services.
 Strive for absolute growth.
 Which product/ service contribute most to profitability?
 What consumer needs do the products/ services seek to meet?
 What changes should be influencing our Customer orientation?
2. Price  Are we primarily competing in price?
 Can we offer discounts or other pricing modifications?
 Are pricing policies standard throughout the country or is there
regional control?
 What price segments are we targeting (high, medium, low, etc)?
 What is the gross profit margin?
3. Place  What level of market coverage is necessary?
 Are there priority geographic areas?
 What are the key channels of distribution?
 What are the channel objectives, structure and management?
 Should the marketing managers change their degree of reliance on
distributors, sales reps and direct selling?

4. Promotion  What are the key promotion priorities and approaches?

 Which advertising/ communication priorities and approaches are
linked to different products, market s and territories?
 Which media would be most consistent with the total marketing
strategy?
5. Physical Evidence  In your corporate is the tangibility of service predominant?
 Do you create a deep impression in the minds of your customers
through the layouts, décor, etc?
 State how your services are differentiated from that of competitors?
6. Process (Service  Can you create a model for the delivery system for the services, say
Delivery System ) from the moment of guest check-in to check-out?
 Is your service delivery model logical, efficient and time saving?
 Do you have a fully automated service delivery system, and is it
cost effective?
7. People  Do you believe in ‘Moment of Truth’?
 If so, how the brand recall/ recognition are created through Moment
Of Truth?
 Does your department train your front line staff, in conformity with
the SOPs which will create brand recall/ recognition and ultimately
it leads to brand loyalty?
 How are your departmental and employee level objectives set? Is it
based on service orientation?
 Does the merit rating of employees take into account the above
factors?
FUNCTIONAL POLICIES IN FINANCE/ ACCOUNTING
Financial policy of an organization is related to the availability, usage and management of

funds. The three aspects are interrelated and interdependent. Statements in the financial
policy include capital investment, fixed asset acquisition, dividend decisions, usage of funds.
If there is no financial policy, the usage of funds would be inefficient, leading to less than
optimum utilization of resources. Some of the other statements in the financial policy include
as to how final selections of projects are to be made, to obtain approval from top management
regarding capital allocation, what portion of earnings should be paid not as dividend etc.
Financial operating policies with longer time perspectives guide financial managers in long-
term capital investment, use of debt- financing, dividend allocation and the firm’s leveraging/
borrowing posture.
policy
1. Capital Acquisition  What is an acceptable cost of capital?
(Financing)  What is the desired proportion of short and long-term debt,
preferred and common equity?
 What balance is between internal & external funding?
 What risk and ownership restrictions are appropriate?

2. Capital Allocation/  What are the priorities for capital allocation projects?
Capital budgeting/  On what basis is final selection of projects to be made?
Investment  What level of capital allocation can be made by operating
managers without higher approval?
3. Dividend and  What portion of earnings should be paid out as dividends?
working Capital  How important is dividend stability?
management  Are things other than cash appropriate as dividends?
 What are the cash flow requirements, minimum and maximum
cash balances?
 What payment timing and procedure should be followed?
FUNCTIONAL POLICIES IN PUBLIC RELATIONS DEPARTMENT (PR)
Public relations professionals present the face of an organization or individual, usually to

articulate its objectives and official views on issues of relevance, primarily to the media. A
Public relations department contributes to the way an organization is perceived by
influencing the media and maintaining relationships with stakeholders.
Public relations is the art of creating mutual understanding between an organization and the
various group or groups of people whose opinion has a direct bearing in the functioning of an
organization. In a public relation policy, the various statements that are mentioned are how to
generate goodwill, understanding and image building of the organization through varied
communication strategies, the various ways the media should be used for publicity, the
importance of press. Audio- visual channels, radio etc the kind of audience to be reached, aim
of public relations etc are mentioned in the policy. How to use the Public Relations Budget
by the PR manager is mentioned in a statement form in the Public Relations Policy.
Operations management concerns associated with different elements of a policy:
Operation Decision Areas Associated conditions that may affect or place demands
on the operations function
1. Financial public relations Communicating financial results and business strategy.
2. Consumer/lifestyle Gaining publicity for a particular product or service.
3. Crisis communication Responding in a crisis.
4. Internal communications Communicating within the company itself.
5. Government relations Engaging government departments to influence public
policy.
6. Media relations Building and maintaining close relationships with the news
media so that they can sell and promote a business.
7. Food-centric relations Communicating specific information centered on foods,
beverages and wine.

FUNCTIONAL POLICIES IN PERSONNEL
Personnel policies guide the effective utilization of human resources to achieve both the
annual objectives of the firm and the satisfaction and development of employees. These are
made with the involvement of top management in HR, by setting up training and
development centres, alignment of performance and appraisals systems etc. The various
statements in the personnel policy include employee recruitment, selection, orientation,
career development, counselling, performance evaluation, training and development, salary
and compensation etc.
Functional Tactic Typical Questions that Personnel Tactics Should Answer

1. Recruitment,  What key human resources are needed to support the chosen
selection & strategy?
orientation  How do we recruit these human resources?
 How sophisticated should our selection process be?
 How should we introduce new employees to the organization?
2. Career development  What our future human resource needs?
& training  How can we prepare our people to meet these needs?
 How can we help our people develop?
3. Compensation  What levels of pay are appropriate for the tasks we require?
 How can we motivate and retain good people?
 How should we interpret our payment, incentive, and benefit and
seniority policy?
4. Evaluation,  How often should we evaluate our people? Formally or
discipline and informally?
control  What disciplinary steps should we take to deal with poor
performance or inappropriate behavior?
 In what ways should we “control” individual and group
performance?
5. Labour relations  How can we maximize labour management co-operation?
and equal  How do our personnel practices affect women/ minorities?
opportunity  Should we have hiring policies?
requirements
DISTINCTION BETWEEN POLICY AND STRATEGY
1. Policy of an organization is prepared to deal with the internal affairs generally. Whereas
strategy generally deals with the affairs and events that are external to the firm.
2. Strategy produces the policies but policies do not produce strategy.
3. A strategic process goes through analysis and diagnosis, choice, implementation and
evaluation to complete. But in framing the policies the executive does not need to scan
the environment.

4. A policy is a set of common rules and regulations, which forms as a base to take the day
to day decisions. But a strategy is to achieve the organizational goals and objectives.
5. The strategy of a company can be known if we analyze the policy followed by a

company.
6. The policy is a sub-function of strategy. When recurring problems arise frequently then a
best standard solution is found out and is termed as policy. So, policy implements strategy
but strategy does not implement policy.
7. Policy is a blueprint of the organizational activities which are repetitive/ routine in nature.
While strategy is concerned with those organizational decisions which have not been
dealt with/ faced before in same form. Hence, policy deals with routine/ daily activities
essential for effective and efficient running of an organization, while strategy deals with
strategic decisions.
8. Strategy formulation is responsibility of top level management. While policy formulation

is done by middle level management.
9. Strategy is the plan of action while policy is the principle of action.
10. Examples of policies are product policy, sales policy, purchase policy, personnel policy.
Whereas, examples of strategy are stability strategy, growth strategy, retrenchment
strategy and combination strategy.
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STRATEGIC IMPLEMENTATION REVIEW

AND EVALUATION
MCKINSEY 7S FRAMEWORK
It is essential for an organization to know whether the time is right for change. In this context,
The Mckinsey 7-S Framework was developed in the 1980's by Robert Waterman, Tom Peters
and Julien Phillips whilst working for McKinsey and originally presented in their article
‘Structure is not Organization’.
To quote them:"Intellectually all managers and consultants know that much more goes on in
the process of organizing than the charts, boxes, dotted lines, position descriptions and
matrices can possibly depict. But all too often we behave as though we didn’t know it - if we
want change we change the structure. Diagnosing and solving organizational problems means
looking not merely to structural reorganization for answers but to a framework that includes
structure and several related factors."
The framework was a watershed in thinking about organizational effectiveness. The 7S Model
which they developed and presented became extensively used by managers and consultants
and is one of the cornerstones of organizational analysis.
The uses of McKinsey’s 7S Framework are as follows:
 Improve the performance of a company

 Examine the likely effects of future changes within a company
 Align departments and processes during a merger or acquisition
 Determine how best to implement a proposed strategy
The McKinsey 7-S model is more than simply a list. Key Points are:
 The top 3: Strategy, Structure and Systems are categorized as hard elements. They are
easier to define or identify and management can directly influence them: these are strategy
statements; organization charts and reporting lines; and formal processes and IT systems.
 The bottom 4: Skills, Staff, Style and Super Ordinate Goals/ Shared Values are the soft
elements. They can be more difficult to describe, and are less tangible and more influenced
by culture. However, these soft elements are as important as the hard elements if the
organization is going to be successful.
 The basic premise is that a business must focus on all the seven elements if it wants to be
successful.
 All the elements are all inter-dependant. Changes in one will have repercussions on the
others. Thus introduction of new systems will certainly affect skills and may well effect
structure, style and staff. It could even have an impact on strategy. Similar repercussions
occur with decentralization.

Strategic Implementation Review and Evaluation May 2021
 If you just try to change one element on its own, the other element may well resist the
change and try to maintain the status quo.
 In this sense, any change in an organization is best seen as a shift in the whole picture.
The complex relationship between the 7 elements may be diagrammatically represented as

below:
Given below is the description of each element and some of the questions that are needed to
explore to help the firm understand the current situation in terms of the 7-S framework:
1. Strategy: Strategy can be defined as the plan framed and developed by the company to
gain a competitive advantage in the market by beating the competition and successfully
thriving on a long-term basis. A sound strategy is the one that is clearly articulated, is long-
term and is reinforced by strong vision, mission and values. Strategy comprises of four
components: Product-market scope, growth, competitive advantage and return on
investment. The 7S model helps the management to understand if the strategy is aligned
with the other factors such as systems and structure for its successful implementation.
The questions needed to explore to help the firm understand the current situation:
 What is our strategy?
 How do we intend to achieve our objectives?
 How do we deal with competitive pressure?
 How are changes in customer demands dealt with?
 How is strategy adjusted for environmental issues?
2. Structure: The structure of the organization is designed in accordance with the strategy
involved. If the structure of the organization is already in place, it is advisable that it is
flexible enough to accommodate changes for implementing the strategy. The design of the
structure involves allocation of responsibilities, relationship between various departments
of the organizations and the ways in which the organization’s tasks are integrated and
coordinated. The structure of the organization is depicted by the organizational chart.

 How is the company/team divided?
 What is the hierarchy?
 How do the various departments coordinate activities?
 How do the team members organize and align themselves?
 Is decision making and controlling centralized or decentralized? Is this as it should
be, given what we're doing?
 Where are the lines of communication? Explicit and implicit?
3. Systems: It refers to the rules and procedures that support the structure of the organization.
Systems are the resources and procedures that people use to do their work. Systems include
production planning and control system, recruitment, selection, training and development
strategy changes than the organization structure.
 What are the main systems that run the organization? E.g.: Production planning and
control system, recruitment, selection, training and development system etc.
 Where are the controls and how are they monitored and evaluated?
 What internal rules and processes does the team use to keep on track?
4. Shared Values/ Super Ordinate Goals: The word ‘super ordinate’ literally means ‘of
higher/superior order’. They are guiding concepts—a set of values and aspirations, often
unwritten, that goes beyond the conventional formal statement of corporate objectives.
Typically, therefore, they are expressed at high levels of abstraction and may mean very
little to outsiders. But for those inside, they are rich with significance. Super- ordinate goals
can be considered as fundamental ideas around which a business is built. Hence they
represent the main values of the organizations. They can also provide the broad notions of
future direction. Examples of super ordinate goals include strong drive to ‘provide great
customer service’, ‘innovation throughout the organization’.
 What are the core values?
 What is the corporate/team culture?
 How strong are the values?
 What are the fundamental values that the company/team was built on?
5. Style: Top managers in organization use style to implement strategies. Style represents the
way the company is managed by top-level managers, how they interact, what actions do
they take and their symbolic value. The style of the working of the organization becomes
evident through the patterns of actions taken by the top management over a period of time.
These styles of managers are likely to influence the people in the lower levels of the
organization. The style of the managers must be in such a way that it should be adaptable to
the changing internal and external environment. The managerial style must be to teach the
employees the correct way to think, take correct decisions etc.
 How participative is the management/leadership style?
 How effective is that leadership?

 Do employees/team members tend to be competitive or cooperative?

 Are there real teams functioning within the organization or are they just nominal
groups?
6. Staff: Staff refers to the way organizations introduce young recruits into the mainstream of
their activities and the manner in which they manage their careers as the new entrants
develop into future manager. Proper staffing ensures human resource’s potential of a higher
order, which can contribute to the achievement of organizational goals. Staffing includes
selections, placement, training and development of appropriately qualified personnel. It can
start from appointing young recruits to the mainstream of the organization’s activities &
their career progression. At the hard end of the spectrum, it includes; appraisal systems, pay
scales, formal training programs, and the like. At the soft end of the spectrum, we talk
about morale, attitude, motivation, and behaviour.
 What positions or specializations are represented within the team?
 What positions need to be filled?
 Are there gaps in required competencies?
7. Skills: Skills form the capabilities and competencies of a company that enables its
employees to achieve its objectives. It refers to crucial attributes or capabilities of an
organization. The dominant skills are those characteristics which most people use to
describe an organization. Refer to those activities organizations do best and for which they
are known. For example: Du Pont is known for research, P&G for product management,
Hewlett-Packard for innovation and quality, Unilever for its marketing skills, Hindustan
lever is known for its marketing, TELCO for its engineering skills, SONY for its new
product development etc. Skills are developed over a period of time and are a result of the
interactions of a number of factors, could be personnel, top management, structure, system
etc. Skills in the 7-S framework can be considered as the distinctive competence.
 What are the strongest skills represented within the company/team?
 Are there any skills gaps?
 What is the company/team known for doing well?
 Do the current employees/team members have the ability to do the job?
 How are skills monitored and assessed?
WHAT IS LEADERSHIP
Leadership is known as the nucleus of the organization, and it should have the pivotal role in
the growth of the organization. Leadership is a set of behaviour that enforces the people to
formulate the organizational goals and then motivate them to jointly contribute in order to
achieve organization’s goals.
Leadership is critical to formulate and implement strategy. Formulated strategies are nothing
if they could not be implemented efficiently. Leadership has to have the evaluation process to
ensure the effectiveness of the whole process and this aspect will facilitate to identify the
drawbacks and to make fresh the strategies in line with the change as well.

WHAT MAKES A GOOD LEADER OR A MANAGER
The leader is responsible for encouraging the institutions to become successful, and this
success comes out of making effective decisions for the formulation of strategy and their
enactment. If the strategies are not enacted with perfection, great strategies become
insignificant.
There are many qualities that are needed to be a good leader or manager:
 Be able to think creatively to provide a vision for the company and solve problems.
 Present a role for others to identify with and to follow.
 Set an example in terms of behaviour.
 Possess excellent two-way communication skills.
 Be well informed and knowledgeable about matters relating to the business.
 Have the desire to achieve great things.
 Show confidence in the follower’s abilities to meet the standards.
CHARACTERISTICS OF LEADERSHIP
 It is an inter-personal process in which a manager is into influencing and guiding workers

towards attainment of goals.
 It denotes a few qualities to be present in a person, which includes intelligence, maturity
and personality.
 It is a group process. It involves two or more people interacting with each other.
 A leader is involved in shaping and molding the behaviour of the group towards
accomplishment of organizational goals.
 Leadership is situation bound. There is no best style of leadership. It all depends upon
tackling the different types of situations.
 The relation between the leader and the workers should be active.
 There must be followers otherwise the concept of leadership does not exist.
IMPORTANCE/ FUNCTIONS OF LEADERSHIP
 Motivating employees by providing commensurate environment for achieving the group

goals.
 Creating confidence by recognizing their performance so that they exert best of their
potential abilities.
 Building morale of the workers in a positive direction for developing a sense of belonging
to the organization and a positive attitude towards the management and the organization.
TYPES OF MANAGEMENT STYLES DESCRIBED BY VARIOUS BEHAVIORAL

SCIENTISTS/ CONSULTANTS
The style approach believes that leaders can effectively control the behaviour of their
subordinates. There is no leadership style that is a success in all situations. Situations therefore
dictate the best style for the occasion. There are different management styles:

1. Kurt Lewin’s leadership styles:
In 1939 Kurt Lewin, identified 3 different styles of leadership, in particular around

decision-making:
i. Authoritarian Leadership (Autocratic): The Autocratic Management style is the most

controlling of management styles. Variations of this style are authoritative, persuasive,
and paternalistic.
 Authoritative: The Authoritative Management style has little trust or confidence in

employees. This manager dictates orders to employees and expects that they do
exactly as required.
 Persuasive: The Persuasive Management style is one in which the manager still
makes all decisions but then convinces employees that these decisions were made in
the best interest of the team.
 Paternalistic: The Paternalistic style is one in which the manager makes all of the
decisions and treats the employees in a condescending or paternalistic way.
ii. Participative Leadership (Democratic): The Democratic Management style involves

managers reaching decisions with the input of the employees but being responsible for
making the final decision. There are many variations of this style, including
consultative, participative, and collaborative styles.
 Consultative: The Consultative Management style is one in which there is

confidence placed in the employees and management actively seeks out their
opinions.
 Participative: The Participative Management style is similar to consultative but

does not only seek out opinions and ideas, but they work together to make decisions
as a group and the staff is highly involved.
 Collaborative: The Collaborative Style is one in which managers communicate

extensively with employees and make decisions by the majority.
iii. Delegative (Laissez-Faire) Leadership: The Laissez-Faire management style involves

little or no interference from management. The staff is highly skilled, which allows
management to take the hands off approach and leave the problem solving and decision
making to the team. Variations of this style include the Delegative style and what is
referred to as Self-managed teams.
2. Likert's leadership styles:
Early theories about management and leadership style focused primarily on the manner by
which authority was exercised. Based on research carried out at the University of Michigan
in the 1950s, Dr. Rensis Likert identified four main styles of leadership:

i. Exploitive authoritative: In this style, decisions are imposed on subordinates,

motivation is characterized by threats, high levels of management have great
responsibilities, but lower levels have virtually none, where there is very little
communication and no joint teamwork. Communication is almost entirely downwards
and the psychologically distant concerns of people are ignored.
ii. Benevolent authoritative: When the leader adds concern for people to an authoritative
position, a 'benevolent dictatorship' is formed. The leader now uses rewards to
encourage appropriate performance and listens more to concerns lower down the
organization, although what they hear is often rose-tinted. There is little
communication and relatively little teamwork.
iii. Consultative: Leadership is by superiors who have substantial but not complete trust in
their subordinates, where motivation is by rewards and involvement, where a high
proportion of personnel, especially those at the higher levels feel the responsibility for
achieving organizational goals. There is some communication (both vertical and
horizontal) and a moderate amount of teamwork.
iv. Participative: This style of leadership is the optimum solution, where leadership is by
superiors who have complete confidence in their subordinates. Subordinates are
motivated by economic rewards based on goals which have been set in participation.
People across the organization feel responsible for the organizational goals, are
psychologically closer together and work well together as a team at all levels. The
participative leadership style is the one which is ideal for profit- oriented and human-
concerned and Likert states that all organizations should adopt this system.
3. Blake & mouton’s managerial grid
The managerial grid model (1964) is a behavioral leadership model developed by Robert
R. Blake and Jane Mouton. This model identifies five different leadership styles based on
two axes.

The grid has two axes, measuring: Concern for People (y-axis) and Concern for
Completing Task (x-axis).The resulting leadership styles are as follows:
i. Impoverished style (1, 1) - The indifferent: This leader is very ineffective. In this style,
managers have low concern for both people and production. Managers use this style to
preserve job and job seniority, protecting themselves by avoiding getting into trouble.
The result of this leadership style could be a highly disorganized workplace with low
satisfaction and motivation.
ii. Country club style (1, 9) - The accommodating: This style has a high concern for
people and a low concern for production. Managers using this style pay much attention
to the security and comfort of the employees. This leader probably supposes that
members of the organization will work hard if the feel happy and secure. The resulting
atmosphere is usually friendly, but not necessarily very productive.
iii. Produce or perish style (9, 1) - The dictatorial style: This style has a high concern for
production, and a low concern for people. Managers using this style find employee
needs unimportant; they provide their employees with money and expect performance
in return. Managers using this style have very strict and autocratic work rules and
perhaps views punishment as the best motivational force. This style is often used in
cases of crisis management.
iv. Middle of the road style (5, 5) - The status quo: Managers using this style try to balance
between company goals and workers' needs. By giving some concern to both people
and production, managers who use this style hope to achieve suitable performance but
doing so gives away a bit of each concern so that neither production nor people needs
are met. Workers may end up moderately motivated and satisfied and production may
only become moderately effective. This may lead to average performance, where top
results may not be achieved.
v. Team Leadership style (9, 9) - The sound: According to the Blake Mouton model, this
is the best and most effective leadership style. These leaders both stress the importance
of workforce needs and production needs. In this style, high concern is paid both to
people and production. Managers choosing to use this style encourage teamwork and
commitment among employees. This creates an atmosphere of team spirit, where each
team member is highly motivated and satisfied, which commits the worker to work
hard and increase productivity.
ENTREPRENEURIAL STYLE (MANAGEMENT STYLE) AND ORGANIZATIONAL

STRUCTURE
The term ‘Entrepreneurship’ probably has a strong positive connotation as a modern

management concept. There must be a fit or a balance between the organizational structure of
the firm and the type of entrepreneurial behaviour in which it engages. Entrepreneurship
represents organizational behaviour. It includes:
1. Risk taking: The preference for high-risk projects with chances of very high returns over
low risk projects with lower and more predictable rates of return. The willingness to pursue
opportunities boldly and aggressively.

2. Pro-activity: The willingness to initiate actions to which competitors then respond. The
proactive organization attempts to be first in the introduction of new products, services and
administrative technologies, rather than merely responding to competitors.
3. Innovation: The willingness to place strong emphasis on research and development, new
products, new services, improved product lines and general technological improvement in
the industry.
A successful organization not only engages in entrepreneurial managerial behaviour, but also
has the appropriate culture and organizational structure to support such behaviour. An effective
manager maintains the proper balance between entrepreneurial behaviour and organic
organizational structure.
Organic Structure
An ‘Organic structured organization’ is more adaptable, more openly communicating, more

consensual and more loosely controlled. Opposite to this, ‘Mechanistic structured organization’
tends to be much more traditional, more tightly controlled and more hierarchical in its
approach.
The message for managers is clear if they choose to be entrepreneurial, they have to make sure
that they should have a supportive organizational structure and culture to back up your risk
taking, pro-activity and innovation.
ORGANICITY AND ENTRPRENEURSHIP

Entrepreneurial Pseudo Effective
Entrepreneurial Entrepreneurial
Entrepreneurial Firms Firms
Management
Style 2 1
Efficient 3O 4O Unstructured
r r
Conservative Bureaucratic Unadventurous
g
Firms Og O Firms
a
ra r
n
gn g
i
Mechanic ai a Organic
c c
n n
Organizational
i istructure
c c
Cell 1: Effective entrepreneurial firms have the desired combination of entrepreneurial

behaviour (risk taking, pro-activity and innovation) as well as an organic structure to support
and nurture that behaviour. Their structures work because they enhance communication and
minimize bureaucratic barriers to innovation.
Cell 2: Pseudo-entrepreneurial firms take risks and act in an entrepreneurial fashion, but are
stymied by a mechanistic, bureaucratic, rigid organizational structure. Although these firms

engage in entrepreneurial activities, their structures do not provide the needed support.
Therefore, they do not realize the true benefits of an entrepreneurial managerial style.
Cell 3: Efficient bureaucratic firms won’t take risks and don’t want to. Their mechanistic
structure helps them to operate efficiently. These firms achieve high efficiencies by using
conservative approaches that emphasize structure and certainty. Their structures provide order
and predictability and accomplish routine or repetitive tasks with maximum efficiency.
Cell 4: Unstructured unadventurous firms are quite organic and adaptable in their
organizational structure, but they are also very conservative. While they can respond quickly to
their environments, they don’t, because of their conservative managerial style. As a result, they
do not realize the full benefit of their adaptive, organic structures.
ORGANIC VERSUS MECHANISTIC ORGANIZATIONAL STRUCTURE
ORGANIC STRUCTURE MECHANISTIC STRUCTURE
1. Channel of communication: Open 1. Channel of communication: Highly

with free flow of information structured, restricted information flow.
throughout the organization.
2. Operating Styles: Allowed to vary 2. Operating Styles: Must be uniform &

freely. restricted.
3. Authority for Decisions: Based on
3. Authority for Decisions: Based on
formal line Management position.
expertise of individuals.
4. Free Adaptation: By the organization 4. Reluctant Adaptation: With

to the changing circumstances. insistence on holding fast to tried and
true management principles despite
changes in business conditions.
5. Emphasis on getting things done: 5. Emphasis on formally laid down

Unconstrained by formally laid out procedures: Reliance on tried and true
procedures & principles. management.
6. Losses, Informal control: With 6.Tight Control: Through sophisticated

emphasis on norm of co-operation. control systems
7. Flexible on job Behaviour: Permitted to 7. Constrained on job Behaviour:

be shaped by the requirements of the Required to conform to job descriptions.
situation.
8. Participation and group consensus used 8. Superiors make decisions with
frequently. minimum consultation and involvement
of subordinates.

STRATEGY REVIEW AND EVALUATION
Strategy- Evaluation Framework:
Activity one: Review Underlying Bases of Strategy
Prepare revised Internal Prepare revised External

Factor Evaluation matrix Factor Evaluation matrix
Compare revised versus Compare revised versus

Existing Internal Factor Existing External Factor
Evaluation Matrix Evaluation Matrix
Activity
Do significant Three:
differences occur? YES
NO
Take
Activity Two: Measure Organizational
Corrective
performance
Actions
Compare planned versus actual progress towards
meeting stated goals and objectives
Do significant
YES
differences occur?
NO
Continue present course
The purpose of the strategic evaluation is to evaluate the effectiveness of the strategy in
achieving the organizational objective. Thus the strategic evaluation and control can be defined
as the process of determining the effectiveness of a given strategy in achieving the
organizational objectives and taking the corrective action where ever necessary.
Effective strategy evaluation allows an organization:

 To capitalize on internal strength.
 To expeditiously exploit external opportunities.
 To recognize and defend against environmental threats.
 To improve internal weakness before it becomes detrimental.
 To deliberately and systematically formulate, implement and evaluate strategies.

Strategy evaluation consists of three activities:
1. Review Underlying Bases of Strategy: It is appropriate for strategy evaluation to begin

with a review of the existing bases of an organization’s current strategy, because internal &
external factors do change. As shown in the figure below, reviewing the underlying bases
of an organization’s strategy could be approached by developing a revised EFE Matrix and
IFE Matrix.
 A revised IFE Matrix should focus on changes in the organization’s management,

marketing, finance/ accounting, production/ operations, research and development
(R&D) and management information systems (MIS) strengths and weaknesses.
 A revised EFE Matrix should indicate how effective a firm’s strategies have been in
response to key opportunities and threats. This analysis could also address such
questions as the following:
i. How have competitors reacted to our strategies?
ii. How have competitor’s strategies changed?
iii. Have major competitor’s strengths and weaknesses changed?
iv. Why are competitors making certain strategic changes?
v. Why are some competitor’s strategies more successful than others?
vi. How satisfied are our competitors with their present market positions and
profitability?
vii. How far can our major competitors be pushed before retaliating?
viii. How could we more effectively cooperate with our competitors?
2. Measure Organizational Performance: Another important strategy-evaluation activity is

measuring organizational performance. This activity includes comparing expected results
to actual results, investigating deviations from plans, evaluating individual performance
and examining progress being made toward meeting stated objectives. Both long-term and
annual objectives are commonly used in this process.
Failure to make satisfactory progress toward accomplishing long-term or annual objectives

signals a need for corrective actions. Many factors, such as unreasonable policies,

unexpected turns in the economy, unreliable suppliers or distributors or ineffective

strategies can result in unsatisfactory progress toward meeting objectives.
Strategy evaluation is based on both quantitative and qualitative criteria. Selecting the exact
set of criteria for evaluating strategies depends on a particular organization’s size, industry,
strategies and management philosophy.
Quantitative criteria commonly used to evaluate strategies are financial ratios, which
strategists use to make three critical comparisons:
 Comparing the firm’s performance over different time periods,
 Comparing the firm’s performance to competitors, and
 Comparing the firm’s performance to industry averages.
Six qualitative questions those are useful in evaluating strategies:

 Is the strategy internally consistent?
 Is the strategy consistent with the environment?
 Is the strategy appropriate in view of available resources?
 Does the strategy involve an acceptable degree of risk?
 Does the strategy have an appropriate time framework?
 Is the strategy workable?
3. Take Corrective Actions: The final strategy-evaluation activity, taking corrective action,
requires making changes to reposition a firm competitively for the future. Taking corrective
actions does not necessarily mean that existing strategies will be abandoned or even that
new strategies must be formulated. Taking corrective actions is necessary to keep an
organization on track toward achieving stated objectives.
Examples of changes that may be needed are:

 Altering an organizational structure
 Replacing one or more key individuals
 Selling a division of the company
 Revising a business mission or objective
 Reviewing company’s policy
 Adding more sale stock
In his thought-provoking books, Future Shock and The Third Wave, Alvin Toffler argued
that business environments are becoming so dynamic and complex that they threaten
people and organizations with future shock, which occurs when the nature, types and speed
of changes overpower an individual’s or organization’s ability and capacity to adapt.
Strategy evaluation enhances an organization’s ability to adapt successfully to changing
circumstances. Brown and Agnew referred to this notion as ‘corporate agility’.
Taking corrective action raises employee’s and manager’s anxieties. Research suggests that
participation in strategy-evaluation activities is one of the best ways to overcome
individuals’ resistance to change. Individuals accept change best when they have a
cognitive understanding of the changes, a sense of control over the situation and an
awareness that necessary actions are going to be taken to implement the changes.

Strategy evaluation can lead to strategy-formulation changes, strategy-implementation

changes, both formulation and implementation changes or no changes at all. Strategists
cannot escape having to revise strategies and implementation.
Corrective actions should place an organization in a better position to capitalize upon

internal strengths; to take advantage of key external opportunities; to avoid, reduce or
mitigate external threats; and to improve internal weaknesses. Corrective actions should
have a proper time horizon and an appropriate amount of risk. They should be internally
consistent and socially responsible. Perhaps most importantly, corrective actions strengthen
an organization’s competitive position in its basic industry. Continuous strategy evaluation
keeps strategists close to the pulse of an organization and provides information needed for
an effective strategic management system.
∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞

SHORT NOTES
1. STRATEGIC BUSINESS UNIT (SBU)
“A strategic business unit (SBU) is an operating division of a firm which serves a distinct
product/ market segment or a well-defined set of customers or a geographic area. The SBU is
given authority to make its own strategic decisions within corporate guidelines as long as it
meets the corporate objectives.”
Strategic business units are created based on the market segments catered by organisation and
are generally created to increase profits. Each strategic business unit has its own budget and
also has its own sales targets along with marketing plan and thus acts as independent
organisation within the main organisation. Thus, the organisation shares the responsibility
with the SBU and this works for betterment of organisation as whole.
There are different factors which decide SBUs. Each product line or a group of related
product lines may form an SBU. Nature of SBUs may be influenced by factors such the
volume of business, future plans, market characteristics etc.
Example of Strategic business units: The SBUs of Hindustan Unilever include soaps and
detergents, personal products, fats and culinary items, animal feeds, beverages, frozen foods,
specialty chemicals, agribusiness and exports. LG as a company makes consumer durables. It
makes refrigerators, washing machines, air-conditioners as well as televisions. These small
units are formed as separate SBUs so that revenues, costs as well as profits can be tracked
independently.
2. PRODUCT LIFE CYCLE
The Product Life Cycle is an important concept in marketing. The life cycle of a product is
associated with marketing and management decisions within businesses and all products go
through five primary stages: development, introduction, growth, maturity and decline. Each
stage has its costs, opportunities and risks, and individual products differ in how long they
remain at any of the life cycle stages.
i. Development: The product development stage is often referred to as ‘the valley of

death’. At this stage, costs are accumulating with no corresponding revenue. Some
products require years and large capital investment to develop and then test their
effectiveness. Since risk is high, outside funding sources are limited. While existing
companies often fund research and development from revenue generated by current
products, in startup businesses, this stage is typically funded by the entrepreneur from
their own personal resources.
ii. Introduction: The introduction stage is about developing a market for the product
and building product awareness. Marketing costs are high at this stage, as it is
necessary to reach out to potential customers. This is also the stage where intellectual
property rights protection is obtained. Product pricing may be high to recover costs
associated with the development stage of the product life cycle, and funding for this
stage is typically through investors or lenders.

Short Notes May 2021
iii. Growth: In the growth stage, the product has been accepted by customers and
companies are striving to increase market share. For innovative products there is
limited competition at this stage, so pricing can remain at a higher level. Both product
demand and profits are increasing and marketing is aimed at a broad audience.
Funding for this stage is generally still through lenders or through increasing sales
revenue.
iv. Maturity: At the mature stage, sales will level off. Competition increases, so product
features may need to be enhanced to maintain market share. While unit sales are at
their highest at this stage, prices tend to decline to stay competitive. Production costs
also tend to decline at this stage because of more efficiency in the manufacturing
process. Companies usually do not need additional funding at this stage.
v. Decline: The decline stage of the product life cycle is associated with decreasing
revenue due to market saturation, high competition and changing customer needs.
Companies at this stage have several options: They can choose to discontinue the
product, sell the manufacturing rights to another business that can better compete or
maintain the product by adding new features, finding new uses for the product or tap
into new markets through exporting. This is the stage where packaging will often
announce ‘new and improved’.
3. ENVIRONMENTAL THREAT AND OPPORTUNITY PROFILE (ETOP)
It is a technique to structure the environment for fundamental business analysis. It was

developed by Glueck. The preparation of ETOP involves dividing the environment into
different sectors and then analyzing the impact of each sector on the organization. A
comprehensive ETOP requires subdividing each environmental sector into sub-sectors and
then the impact of each sector is described in the form of a statement. A summary of ETOP
may only show the major factors for the sake of simplicity.
The strategic managers should keep focus on the following dimensions:
i. Issue Selection: Focus on issues which have been selected should not be missed since
there is a likelihood of arriving at incorrect priorities. Some of the impotent issues
may be those related to market share, competitive pricing, customer preferences,
technological changes, economic policies, competitive trends, etc.
ii. Accuracy of Data: Data should be collected from good sources otherwise the entire
process of environmental scanning may go waste. The relevance, importance,
manageability, variability and low cost of data are some of the important factors,
which must be kept in focus.
iii. Impact Studies: Impact studies should be conducted focusing on the various
opportunities and threats and the critical issues selected. It may include study of
probable effects on the company’s strengths and weaknesses, operating and remote
environment, competitive position, accomplishment of mission and vision etc. Efforts
should be taken to make assessments more objective wherever possible.

iv. Flexibility in Operations: There are number of uncertainties that exist in a business
situation and so a company can be greatly benefited by devising proactive and flexible
strategies in their plans, structures, strategy etc. The optimum level of flexibility
should be maintained.
A sample Environmental Threat and Opportunity Profile (ETOP):
4. MANAGEMENT BY OBJECTIVES (MBO)
MBO can be defined as a process whereby the employees and the superiors come together to
identify common goals, the employees set their goals to be achieved, the standards to be
taken as the criteria for measurement of their performance and contribution and deciding the
course of action to be followed.
MBO is a process of agreeing upon objectives within an organization so that management

and employees agree to the objectives and understand what they are in the organization. The
term ‘management by objectives’ was first popularized by Peter Drucker in his 1954 book
‘The Practice of Management’.
The principle behind Management by Objectives (MBO) is to make sure that everybody
within the organization has a clear understanding of the aims or objectives of that
organization, as well as awareness of their own roles and responsibilities in achieving those
aims.
The complete MBO system is to get managers and empowered employees acting to
implement and achieve their plans, which automatically achieve those of the organization.
The MBO style is appropriate for knowledge-based enterprises where the staff is competent.
It is appropriate in situations where you wish to build employees management and self-
leadership skills and tap their creativity and initiative. Management by Objectives (MBO) is
also used by chief executives of multinational corporations (MNCs) for their country
managers abroad.

5. DIFFERENTIATION STRATEGY
Every individual customer is unique in itself and so is his/ her tastes, preferences, attitudes
etc. These needs of the customers are fulfilled by the firms by producing differentiated
products. In our day-to-day life we see many such examples of differentiated products. To
satisfy the diverse needs of the customers, it becomes essential for the firms to adopt a
differentiation strategy. To make this strategy successful, it is necessary for the firms to do
extensive research to study the different needs of the customers. Differentiation can lead to
differential advantage in which the firm gets the premium in the market, which is more than
the cost of providing differentiation. The extent to which the differentiation occurs depends
on the overall strategy of the firm. Previously differentiation was viewed narrowly by the
firms, but in the present scenario it has become one of the essential components of the firm’s
strategy.
There are a number of factors which result in differentiation. Some of them are:
 To compete against the rivals.
 To create entry barriers for newcomers by building a unique product.
 To reduce the threats arising from the substitutes.
 To develop a differentiation advantage.
Factors/ Drivers for differentiation:
i. Policy choice: Every firm decides its own policies regarding the activities to be
performed and the activities to be ignored. The policy choices are basically related to
the type of services to be provided to the customers, the credit policy, to what extent a
particular activity is to be adopted, the content of activity, skill and experience
required by the employees etc.
ii. Links: The uniqueness of a product depends to a large extent on the links within the
vertical chain with suppliers and distribution channels, the firm deals with. If the firm
has a good link with suppliers and has a sound distribution channel, then it becomes
easy for the firm to produce and supply the product to the end users.
iii. Timing: The firms can achieve uniqueness by encashing the opportunities at the right
time. If the timing is perfect then a successful differentiation strategy can be adopted.
iv. Location: This is one of the important factors for the firms to have uniqueness. For
example a bank may have its branch open which is accessible to the customers and
then the bank will gain an edge towards other banks.
v. Interrelationships: A better service can be offered to the customers by sharing

certain activities, e.g. sales force with the firm’s sister concerns.
vi. Learning: To perform better and better, continuous improvement is necessary and
this comes through continuous learning.
vii. Integration: The firm can be termed as unique if its level of integration is high. The
integration level means the coordination level of value activities.

viii. Scale: Larger the scale more will be the uniqueness. If small volumes of products are
produced, then the uniqueness of the product will be lost over a longer period of time.
A very good example can be home-delivery services. The type of scale leading to
differentiation varies depending on the individual firm’s activities
6. DIFFERENT APPROACHES TO DEVELOP A COMPETITIVE ADVANTAGE
i. The first approach is to compete based on existing strengths. This approach is called
KFS, abbreviated from Key Success Factors. The firm can gain strategic advantage if it
focuses resources on one crucial point.
ii. The second approach is still based on existing strengths but avoids head-on
competition. The firm must look at its own strengths which are different or superior to
that of the competition and exploit this relative superiority to the fullest. For example,
the strategist either (a) makes use of the technology, sales network and so on, of those
of its products which are not directly competing with the products of competitors or (b)
makes use of other differences in the composition of assets. This avoids head-on
competition.
iii. The third approach is used for example to compete directly with a competitor in a well-
established, stagnant industry. Here an unconventional approach may be needed to
upset the key factors for success that the competitor has used to build an advantage. The
starting point is to challenge accepted assumptions about the way business is done and
gain a novel advantage by creating new success factors.
iv. Finally, a competitive advantage may be obtained by means of innovations which open
new markets or result in new products. This approach avoids head-on competition but
requires the firm to find new and creative strengths. Innovation often involves market
segmentation and finding new ways of satisfying the customer's utility function.
In each of these approaches the principal point is to avoid doing the same thing as the
competition on the same battleground. So the analyst needs to decide which of these
approaches might be pursued to develop a sustainable distinctive competence.
7. BALANCED SCORECARD
It was developed by Dr. Robert Kaplan (Harvard Business School) and David Norton as a
performance measurement framework that added strategic non-financial performance
measures to traditional financial metrics to give managers and executives a more 'balanced'
view of organizational performance.
The balanced scorecard retains traditional financial measures. But financial measures tell the
story of past events, an adequate story for industrial age companies for which investments in
long-term capabilities and customer relationships were not critical for success. These
financial measures are inadequate, however, for guiding and evaluating the journey that
information age companies must make to create future value through investment in
customers, suppliers, employees, processes, technology and innovation.

Perspectives: The balanced scorecard suggests that we view the organization from four
perspectives and to develop metrics, collect data and analyze it relative to each of these
perspectives:
i. The Learning & Growth Perspective: This perspective includes employee training
and corporate cultural attitudes related to both individual and corporate self-
improvement. In the current climate of rapid technological change, it is becoming
necessary for knowledgeable workers to be in a continuous learning mode.
ii. The Business Process Perspective: This perspective refers to internal business
processes. This perspective allows the managers to know how well their business is
running and whether its products and services conform to customer requirements (the
mission).
iii. The Customer Perspective: Recent management philosophy has shown an

increasing realization of the importance of customer focus and customer satisfaction
in any business. These are leading indicators: if customers are not satisfied, they will
eventually find other suppliers that will meet their needs. Poor performance from this
perspective is thus a leading indicator of future decline, even though the current
financial picture may look good.
iv. The Financial Perspective: Timely and accurate funding data will always be a
priority and managers will do whatever necessary to provide it. With the
implementation of a corporate database, it is hoped that more of the processing can be
centralized and automated. But the point is that the current emphasis on financials
leads to the ‘unbalanced’ situation with regard to other perspectives. There is perhaps
a need to include additional financial-related data, such as risk assessment and cost-
benefit data, in this category.
∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞

SUBJECT CODE: BHM308 EXAM DATE: 22.11.2013
ROLL No…………….
NATIONAL COUNCIL FOR HOTEL MANAGEMENT
AND CATERING TECHNOLOGY, NOIDA
ACADEMIC YEAR – 2013-2014
COURSE : 5th Semester of 3-year B.Sc. in H&HA
SUBJECT : Strategic Management
TIME ALLOWED : 02 Hours MAX. MARKS: 50
______________________________________________________________________
(Marks allotted to each question are given in brackets)
______________________________________________________________________
Q.1. What do you understand by Mission Statement? Discuss the elements of a
Mission Statement in brief. (10)
Q.2. Explain the term Environment in relation to an organization. Also explain the
factors of internal and external environment of an organization.
OR
What is SWOT analysis? Also discuss its usefulness in an organization. (10)
Q.3. Write short notes (any two):

(a) Joint Venture (b) Stability Strategy
(c) Liquidation (d) Product Development (2x2 ½ =5)
Q.4. Explain Boston Consulting Group (BCG) Matrix. (5)
Q.5. What do you understand by corporate level strategies? Explain in brief difference
between Expansion and Retrenchment strategy.
OR
Discuss McKinsey’s 7S Framework. (5)
Q.6. Discuss Integration Strategy. Also discuss in brief types of Integration Strategies.
OR
Explain SPACE Matrix. (5)
Q.7. What do you understand by Diversification Strategy? Also sight difference

between Concentric and Conglomerate (unrelated) diversification. (5)
Q.8. What do you mean by Strategic Business Unit (SBU)?

OR
Sight the difference between Backward Integration and Forward Integration. (5)
*******
SM/NOV/ODD/13/02 Page 1 of 1
______________________________________________________________________
______________________________________________________________________
Q.1. (a) Define Strategic Management.
(b) What are the salient features of a mission statement?
(5+5=10)
Q.2. Write short notes on any two:

(a) Importance of objectives (b) SWOT analysis
(c) Leadership grid (d) Diversification
(2x5=10)
Q.3. Discuss the concept of external environment with relevant examples.

OR
List and give a brief on the various approaches to developing strategies.
(5)
Q.4. “The Seven-S frame work provides insight into an organisation’s working and help
in formulating plans for improvement”. In the light of the statement, explain
McKINSEY’s framework with the help of a diagram.
(5)
Q.5. Discuss Boston Consultancy Group (BCG) matrix of corporate portfolio analysis.
(5)
Q.6. Throw light on Internal Factor Evaluation matrix (IFE matrix) displaying a table of
strength and weaknesses of an individual hotel property.
OR
Draw a model for strategic review and evaluation.
(5)
Q.7. How do policies play a vital role in the day-to-day operations of hotel industry?
OR
Describe five expansion strategies adopted by companies, listing an example for
each.
(5)
SM/NOV/ODD/14-15/03 Page 1 of 2
Q.8. Match the following:
1 TVS and Suzuki companies club their Divestitute

efforts to develop a new bike.
2 Café coffee day adds new coffee flavours Backward Integration
to its existing coffee technology products.
3 Sky chef air caterers stop outsourcing of Joint Venture
bakery products and start own bakery to
meet their catering needs.
4 Tata group steps into information Concentric Diversification
technology, other than the existing
businesses of hotel, watches, tea, steel
etc.
5 Reliance group winds up retail petrol Conglomerate Diversification
pump business from its wide array of
business portfolios.
(5)
**********
SM/NOV/ODD/14-15/03 Page 2 of 2
_______________________________________________________________________
_______________________________________________________________________
Q.1. Define Mission. Describe the components and importance of mission.
OR
Explain in detail about adaptive search and intuition search.
(2+4+4=10)
Q.2. What is the significance of expansion for an organization? Explain the various
expansion strategies in detail.
(10)
Q.3. Write short notes on:

(a) PLC (Product Life Cycle)
(b) Retrenchment strategies
(2 ½ + 2 ½ =5)
Q.4. Explain BCG (Boston Consultancy Group) Matrix in detail with diagram.
OR
Describe Competitive Profile Matrix in detail giving example from hospitality
industry.
(5)
Q.5. Differentiate between the following (any two):

(a) Vision and Mission
(b) Merger and Takeover
(c) Autocratic and Democratic leadership
(d) Concentric and Conglomerate Diversification
(2x2 ½=5)
Q.6. Discuss Mckinsey 7-S framework with the help of diagram and examples.
(5)
Q.7. Explain SWOT analysis with special emphasis on P.E.S.T. analysis.

(5)
SM/NOV/ODD/15-16/01/NC Page 1 of 2
Q.8. Give appropriate term for the following:

(a) A plan which is open ended and long term in nature.
(b) IFE stands for
(c) A co-operation strategy where two or more firms join to form a new
independent company.
(d) Approach to strategy making where exploitation of opportunities and risk
taking is involved.
(e) A strategy where sale or liquidation of only a portion of business takes
place.
(5x1=5)
********
_______________________________________________________________________
_______________________________________________________________________
Q.1. Explain the usefulness of SWOT Analysis in today’s competitive scenario.
OR
Explain the dynamics of external environment (PESTLE ANALYSIS).
(10)
Q.2. Explain grand strategy matrix, a tool for situational analysis with a neat
pictographic presentation.
OR
Discuss Boston consultancy Group (BCG) Matrix of corporate portfolio analysis
with neat diagram.
(10)
Q.3. How do policies play a vital role in day-to-day operations of hospitality sector?
(5)
Q.4. List the elements of a well drafted mission statement and give a brief discussion.
(5)
Q.5. State the various approaches for developing strategies.

(5)
Q.6. With the help of a neat diagram, explain McKinsey’s 7S framework in detail.
(5)
Q.7. With the help of appropriate examples, prepare short notes (any five):
(a) Conglomerate diversification (b) Forward integration
(c) Product development (d) Market penetration
(e) Joint venture (f) Liquidation
(g) Divestiture
(5x2=10)
***************
_______________________________________________________________________
_______________________________________________________________________
Q.1. “Volvo will lead the way to the future of mobility, enriching lives around the world
with the safest and most responsible ways of moving people. Through our
commitment to quality, constant innovation and respect for the planet, we aim to
exceed expectations and be rewarded with a smile. We will meet our challenging
goals by engaging the talent and passion of people, who believe there is always a
better way”.
In the light of this well drafted mission statement of Volvo Company,

discuss the salient features of a good mission statement.
(10)
Q.2. Discuss the benefits of SWOT Analysis for a hotel chain in today’s hospitality
environment.
OR
Explain the concept of external environment analysis (Pestle) with a few
appropriate examples.
(10)
Q.3. With the help of a pictographic presentation, explain BCG Matrix of corporate
portfolio analysis.
(5)
Q.4. With the help of a Grid, discuss the styles of leadership.

OR
Draw a model for strategic review and evaluation.
(5)
Q.5. State and give a brief on the various approaches to developing strategies.
OR
With the help of a neat diagram, discuss McKinsey’s 7 S framework.
(5)
Q.6. How do policies play a vital role in day-to-day operations of hotel industry?
(5)
Q.7. Differentiate between (any two):

(a) Market development and market penetration
(b) Concentric and conglomerate diversification
(c) Objectives and goals
(2x 2 ½ =5)
Q.8. Write short notes with appropriate examples (any five):

(a) Divestiture (b) Liquidation
(c) Joint venture (d) Product development
(e) Forward integration (f) Horizontal integration
(g) Backward integration
(5x1=5)
********
ROLL No………………………………….


______________________________________________________________________
______________________________________________________________________
Q.1. Draw and describe the process of strategic management. List the elements of
strategic management.
(5+5=10)
OR
(i) Explain the importance of a mission statement for an organization.
(ii) Write a mission statement for an upscale hotel chain
(5+5=10)
Q.2. What do you understand by strategic approaches? List atleast five approaches
and describe.
OR
What do you understand by the terms ‘objectives’ and ‘goals’? Explain these
terms by giving five examples each.
(10)
Q.3. Write short notes on any two:

(i) Forward integration (ii) SWOT analysis
(iii) McKinsey’s 7s framework (iv) Environmental scanning
(2x5=10)
Q.4. Illustrate environmental threat and opportunity profile (ETOP) for a chain of
budget hotel project.
OR
Illustrate organizational capability profit (OCP). Assume necessary data.
(5)
Q.5. Classify grand strategy alternatives. Explain any two alternatives.

OR
With the help of neat diagram, explain Michael Porter’s five forces of competition.
(5)
Q.6. What are the levels of strategic management? Describe the characteristics of
strategic business unit.
OR
Explain the different leadership styles and theories. Explain any one theory with
illustration.
(5)
Q.7. With the help of a diagram, explain the concept of BCG matrix.
OR
Illustrate ‘product life cycle concept’ on portfolio management.
(5)
********
ROLL No………………………………….
NATIONAL COUNCIL FOR HOTEL MANAGEMENT AND CATERING TECHNOLOGY, NOIDA


__________________________________________________________________________________________________________________
__________________________________________________________________________________________________________________
Q.1. Discuss the concept of external environment with relevant examples..
(10)
Q.2. Explain BCG Matrix with neat diagram in detail.

OR
Explain SPACE Matrix with neat diagram in detail.
(10)
Q.3. Define strategy. List the characteristics of a good mission statement.

OR
List the various approaches adopted while developing strategies. Explain any two approaches in brief.
(5)
Q.4. Differentiate between backward integration and forward integration strategy.

OR
Explain diversification strategy in detail with its sub-categories.
(5)
Q.5. Write short notes on the following (any two):

(a) Advantages of formal policies (b) Styles of leaderships
(c) Marketing policy (d) Need of environmental analysis
(2x2 ½ =5)
Q.6. With a neat diagram, explain McKinsey’s framework.

(5)
Q.7. Match the following:

(a) Turn around (i) New market new product
(b) Conglomerate (ii) Resource reallocation
(c) Market penetration (iii) Continuous losses
(d) Stability (iv) Existing product
(e) Liquation (v) No profit
(5)
Q.8. Fill in the blanks:

(a) __________ is where the organization wants to go from where it is at present.
(b) The process of translating, putting into action or execution of strategy is known as __________.
(c) __________ is the process of identifying and evaluating an organization’s specific characteristics, including its resources,
capabilities, core competencies.
(d) __________ diversification is also known as heterogeneous diversification.
(e) __________ matrix is developed on determining attractiveness scores for various strategies.
(5x1=5)
*********
SM/NOV/ODDSEMESTER/19-20/06/NC Page 1 of 1

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NAME: _______________________________

YEAR & GROUP: ________________________

BHM308 - STRATEGIC MANAGEMENT

A. NEED FOR ENVIRONMENTAL ANALYSIS

A. STRATEGY (GENERAL) ALTERNATIVES

National Council for Hotel Management & Catering Technology, NOIDA.

A. FACTORS INFLUENCING CHOICE

A. MCKINSEY 7-S FRAMEWORK

National Council for Hotel Management & Catering Technology, NOIDA.

STRATEGIC MANAGEMENT PROCESS

BENEFITS/ IMPORTANCE OF STRATEGIC MANAGEMENT

1. It provides a way to anticipate future problems and opportunities.

STEPS IN STRATEGIC MANAGEMENT PROCESS

1. Environmental Scanning: Environmental scanning refers to a process of collecting,

2. Strategy Formulation: Strategy formulation is the process of deciding best course of

3. Strategy Implementation: Strategy implementation implies making the strategy work as

4. Strategy Evaluation: Strategy evaluation is the final step of strategy management

BHM 308 – Strategic Management Page 1 of 16

BHM 308 – Strategic Management Page 2 of 16

DEVELOPING A VISION STATEMENT

 Firms goals in alignment with community goals

IMPORTANCE OF MISSION STATEMENT

1. It provides a road to development and drive for growth.

CHARACTERISTICS/ ELEMENTS OF MISSION STATEMENT

BHM 308 – Strategic Management Page 3 of 16

7. Comprehensive: It should be comprehensive in nature. It should indicate the philosophy,

COMPONENTS OF A MISSION STATEMENT

EVALUATING A MISSION STATEMENT

Once a mission statement is developed, it has to be evaluated to check whether it contains

BHM 308 – Strategic Management Page 4 of 16

“To refresh the world (3) – in mind,

“Our mission is to be our

“To be the world’s premier (3)

BHM 308 – Strategic Management Page 5 of 16

DIFFERENCE BETWEEN VISION AND MISSION STATEMENTS

STAKEHOLDER APPROACH TO COMPANY RESPONSIBILITY

The interests of internal stakeholders are significant, particularly when it comes to

BHM 308 – Strategic Management Page 6 of 16

STEPS TO INCORPORATE STAKEHOLDERS INTERESTS IN A MISSION

1. Identification of stakeholders: Every business faces a slightly different set of

3. Reconciliation of these claims and assignment of priorities: The concerns of various

CORPORATE SOCIAL RESPONSIBILITY (CSR)

It is a self-regulating business model that helps a company be socially accountable -- to

BHM 308 – Strategic Management Page 7 of 16

SOCIAL RESPONSIBILITY TOWARDS VARIOUS GROUPS

1. Responsibility towards Employees: The survival and success of a business depends

2. Responsibility towards Shareholders:

3. Responsibility towards Customers:

4. Responsibility towards Society:

BHM 308 – Strategic Management Page 8 of 16

starting and developing industries in such areas.

5. Responsibility towards Government:

DEFINING ORGANIZATIONAL GOALS AND OBJECTIVES

BHM 308 – Strategic Management Page 9 of 16

FACTORS THAT AFFECT OBJECTIVES

1. Forces in the environment: Politics of the government, competition and change in

2. Internal forces: Employer – employee relation, technology adopted by the organization,

NECESSITY OF FORMAL OBJECTIVES

4. Coordination: Objectives help coordinate decision and decision makers. It reduces

6. Decentralization: Objectives help decentralization, i.e., objectives when assigned to

Corporate level Increasingly

Individual level objectives

BHM 308 – Strategic Management Page 10 of 16