FOS - Material

FUNDAMENTALS OF STRATEGY
Semester – II
B.com/B.com Honors
Edition: 2022
#44/4, District Fund Road, Behind Big Bazaar, Jayanagar 9th Block, Bengaluru, Karnataka
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For Private Circulation Only
FUNDAMENTALS OF STRATEGY
Objectives:
Effective implementation of their strategies by aligning their structures, people, process,
projects and relationships. It aims to develop skills and abilities of the strategic leaders of
organizations, enabling to create vision and direction for the growth and long-term
sustainable success of the organization.
Unit I: STRATEGY AND PROCESS 10 Hours Conceptual framework for strategic
management the Concept of Strategy the Strategy Formation Process Stakeholders in business
Vision Mission Purpose Business definition Objectives Goals Corporate Governance Social
responsibility.
Unit II: COMPETITIVE ADVANTAGE 15 Hours External Environment Porter‘s Five
Forces Model Strategic Groups Competitive Changes during Industry Evolution Globalization
and Industry Structure National Context and Competitive advantage Resources Capabilities
competencies core competencies & Low cost and differentiation strategies Generic Building
Blocks of Competitive Advantage Distinctive Competencies Resources and Capabilities
durability of competitive Advantage Avoiding failures and sustaining competitive advantage.
Unit III: STRATEGIES 15 Hours Stability strategy Expansion strategy Retrenchment
strategy Combination strategies Business level strategy in the Global Environment Corporate
Strategy Vertical Integration Diversification Strategy Strategic Alliances Building and
Restructuring the corporation Strategic analysis and choice Environmental Threat and
Opportunity Profile (ETOP) Organizational Capability Profile SWOT Analysis GAP Analysis
Mc Kinsey's 7s Framework GE 9 Cell Model Distinctive competitiveness Selection of matrix
Balance Score Card. Unit IV: STRATEGY IMPLEMENTATION & EVALUATION 10
Hours
The implementation process Resource allocation Designing organizational structure
Designing Strategic Control Systems Matching structure and control to strategy
Implementing Strategic change Politics Power Conflict Techniques of strategic evaluation &
control
Unit V: OTHER STRATEGIC ISSUES 10 Hours Managing Technology and Innovation
Strategic issues for Non Profit organizations. New Business Models Strategies for Internet
Economy
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Books for reference:
Reference Books:
∙ Becker Professional Education
∙ BPP Learning Media
∙ Kaplan Publishing
∙ Strategic Management Francis cherunilam 5th edition
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MODULE - 1
STRATEGY AND PROCESS
It is an action that managers take to attain one or more of the organization‘s goals. Strategy
can also be defined as “A general direction set for the company and its various components to
achieve a desired state in the future. Strategy results from the detailed strategic planning
process‖. An equivalent definition given in the class is selection of actions that will make an
organization to have superior performance compared to industry. An action means allocating
resources.
Features of Strategy
1. Strategy is Significant because it is not possible to foresee the future. Without a perfect
foresight, the firms must be ready to deal with the uncertain events which constitute the
business environment.
2. Strategy deals with long term developments rather than routine operations, i.e. it deals
with probability of innovations or new products, new methods of productions, or new
markets to be developed in future.
3. Strategy is created to take into account the probable behavior of customers and
competitors. Strategies dealing with employees will predict the employee behavior.
Strategy is a well-defined roadmap or a goal post to be achieved of an organization. It

defines the overall mission, vision and direction of an organization. The objective of a
strategy is to maximize an organization‘s strengths and to minimize the strengths of the
competitors.
Strategy, in short, bridges the gap between ―where we are‖ and ―where we want to be‖.
Strategic Management
Strategic management has now evolved to the point that it is primary value is to help the
organization operate successfully in dynamic, complex global environment. Corporations
have to become less bureaucratic and more flexible. In stable environments such as those that
have existed in the past, a competitive strategy simply involved defining a competitive
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position and then defending it. Because it takes less and less time for one product or
technology to replace another, companies are finding that there are no such thing as enduring
competitive advantage and there is need to develop such advantage is more than necessary.
Corporations must develop strategic flexibility: the ability to shift from one dominant strategy
to another. Strategic flexibility demands a long term commitment to the development and
nurturing of critical resources. It also demands that the company become a learning
organization: an organization skilled at creating, acquiring, and transferring knowledge and
at modifying its behaviour to reflect new knowledge and insights. Learning organizations
avoid stability through continuous self-examinations and experimentations.
Strategic Formation Process:
Setting Organizations’ objectives - The key component of any strategy statement is to set
the long-term objectives of the organization. It is known that strategy is generally a medium
for realization of organizational objectives. Objectives stress the state of being there whereas
Strategy stresses upon the process of reaching there. Strategy includes both the fixation of
objectives as well the medium to be used to realize those objectives. Thus, strategy is a wider
term which believes in the manner of deployment of resources so as to achieve the objectives.
While fixing the organizational objectives, it is essential that the factors which influence the
selection of objectives must be analyzed before the selection of objectives. Once the
objectives and the factors influencing strategic decisions have been determined, it is easy to
take strategic decisions.
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Evaluating the Organizational Environment - The next step is to evaluate the general
economic and industrial environment in which the organization operates. This includes a
review of the organizations competitive position. It is essential to conduct a qualitative and
quantitative review of an organizations existing product line. The purpose of such a review is
to make sure that the factors important for competitive success in the market can be
discovered so that the management can identify their own strengths and weaknesses as well
as their competitors ‘strengths and weaknesses.
After identifying its strengths and weaknesses, an organization must keep a track of
competitors ‘moves and actions so as to discover probable opportunities of threats to its
market or supply sources.
Setting Quantitative Targets - In this step, an organization must practically fix the
quantitative target values for some of the organizational objectives. The idea behind this is to
compare with long term customers, so as to evaluate the contribution that might be made by
various product zones or operating departments.
Performance Analysis - Performance analysis includes discovering and analyzing the gap
between the planned or desired performance. A critical evaluation of the organizations past
performance, present condition and the desired future conditions must be done by the
organization. This critical evaluation identifies the degree of gap that persists between the
actual reality and the long-term aspirations of the organization. An attempt is made by the
organization to estimate its probable future condition if the current trends persist.
Choice of Strategy - This is the ultimate step in Strategy Formulation. The best course of
action is actually chosen after considering organizational goals, organizational strengths,
potential and limitations as well as the external opportunities
Mission Statement
Mission statement is the statement of the role by which an organization intends to serve it‘s
stakeholders. It describes why an organization is operating and thus provides a framework
within which strategies are formulated. It describes what the organization does (i.e., present
capabilities), who all it serves (i.e., stakeholders) and what makes an organization unique
(i.e., reason for existence). A mission statement differentiates an organization from others by
explaining its broad scope of activities, its products, and technologies it uses to achieve its
goals and objectives. It talks about an organization‘s present (i.e., ―about where we are‖).For
instance,
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Ex: Microsoft‘s mission is to help people and businesses throughout the world to realize
their full potential. Wal-Mart‘s mission is ―To give ordinary folk the chance to buy the same
thing as rich people.‖ Mission statements always exist at top level of an organization, but may
also be made for various organizational levels. Chief executive plays a significant role in
formulation of mission statement. Once the mission statement is formulated, it serves the
organization in long run, but it may become ambiguous with organizational growth and
innovations. In today‘s dynamic and competitive environment, mission may need to be
redefined. However, care must be taken that the redefined mission statement should have
original fundamentals/components. Mission statement has three main components-a
statement of mission or vision of the company, a statement of the core values that shape the
acts and behavior of the employees, and a statement of the goals and objectives.
Features of a Mission
a. Mission must be feasible and attainable. It should be possible to achieve it. b.
Mission should be clear enough so that any action can be taken.
c. It should be inspiring for the management, staff and society at large. d. It should
be precise enough, i.e., it should be neither too broad nor too narrow. e. It should be
unique and distinctive to leave an impact in everyone‘s mind. f. It should be
analytical, i.e., it should analyze the key components of the strategy. g. It should be
credible, i.e., all stakeholders should be able to believe it.
Vision
A vision statement identifies where the organization wants or intends to be in future or where
it should be to best meet the needs of the stakeholders. It describes dreams and aspirations
for future. For instance, Microsoft‘s vision is ―to empower people through great software,
any time, any place, or any device.‖ Wal-Mart‘s vision is to become worldwide leader in
retailing.
A vision is the potential to view things ahead of themselves. It answers the question ―where
we want to be‖. It gives us a reminder about what we attempt to develop. A vision statement
is for the organization and it‘s members, unlike the mission statement which is for the
customers/clients. It contributes in effective decision making as well as effective business
planning. It incorporates a shared understanding about the nature and aim of the organization
and utilizes this understanding to direct and guide the organization towards a better purpose.
It describes that on achieving the mission, how the organizational future would appear to be.
An effective vision statement must have following features
a. It must be unambiguous.
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b. It must be clear.
c. It must harmonize with organization‘s culture and values.
d. The dreams and aspirations must be rational/realistic.
e. Vision statements should be shorter so that they are easier to memorize.
Goals and objectives
A goal is a desired future state or objective that an organization tries to achieve. Goals specify
in particular what must be done if an organization is to attain mission or vision. Goals make
mission more prominent and concrete. They co-ordinate and integrate various functional and
departmental areas in an organization. Well-made goals have following features
1. These are precise and measurable.

2. These look after critical and significant issues.
3. These are realistic and challenging.
4. These must be achieved within a specific time frame.
5. These include both financial as well as non-financial components.
Objectives are defined as goals that organization wants to achieve over a period of time.
These are the foundation of planning. Policies are developed in an organization so as to
achieve these objectives. Formulation of objectives is the task of top level management.
Effective objectives have following features:
1. These are not single for an organization, but multiple.
2. Objectives should be both short-term as well as long-term.
3. Objectives must respond and react to changes in environment, i.e., they must be
flexible.
4. These must be feasible, realistic and operational.
Tactics:
Tactics are concerned with the short to medium term co-ordination of activities and the
deployment of resources needed to reach a particular strategic goal. Some typical questions
one might ask at this level are: "What do we need to do to reach our growth / size /
profitability goals?" "What are our competitors doing?" "What machines should we use?"
The decisions are taken more at the lower levels to implement the strategies based on ground
realities.
How strategy is initiated?

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A triggering event is something that stimulates a change in strategy .Some of the possible
triggering events is:
New CEO: By asking a series of embarrassing questions, the new CEO cuts through the veil
of complacency and forces people to question the very reason for the corporation‘s existence.
Intervention by an external institution: The firm‘s bank suddenly refuses to agree to a new
loan or suddenly calls for payment in full on an old one.
Threat of a change in ownership: Another firm may initiate a takeover by buying the
company‘s common stock.
Management’s recognition of a performance gap: A performance gap exists when

performance does not meet expectations. Sales and profits either are no longer increasing or
may even be falling.
Innovation of a new product that threatens the existence of the present status quo.
Basic model of strategic management

Strategic management consists of four basic elements
1. Environmental scanning
2. Strategy Formulation
3. Strategy Implementation and
4. Evaluation and control
Management scans both the external environment for opportunities and threats and the
internal environmental for strengths and weakness. The following factors that are most
important to the corporation‘s future are called strategic factors: strengths, weakness,
opportunities and threats (SWOT)
Strategy Formulation
Strategy formulation is the development of long-range plans for they effective management
of environmental opportunities and threats, taking into consideration corporate strengths and
weakness. It includes defining the corporate mission, specifying achievable objectives,
developing strategies and setting policy guidelines.
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Mission
An organization‘s mission is its purpose, or the reason for its existence. It states what it is
providing to society .A well-conceived mission statement defines the fundamental, unique
purpose that sets a company apart from other firms of its types and identifies the scope of the
company’s operation in terms of products offered and markets served
Objectives
Objectives are the end results of planned activity; they state what is to be accomplished by
when and should be quantified if possible. The achievement of corporate objectives should
result in fulfillment of the corporation‘s mission.
Strategies
A strategy of a corporation is a comprehensive master plan stating how corporation will
achieve its mission and its objectives. It maximizes competitive advantage and minimizes
competitive disadvantage. The typical business firm usually considers three types of strategy:
corporate, business and functional.
Policies
A policy is a broad guideline for decision making that links the formulation of strategy with
its implementation. Companies use policies to make sure that the employees throughout the
firm make decisions and take actions that support the corporation‘s mission, its objectives
and its strategies.
Strategic decision making

Strategic deals with the long-run future of the entire organization and have three
characteristic
1. Rare- Strategic decisions are unusual and typically have no precedent to follow. 2.
Consequential-Strategic decisions commit substantial resources and demand a great deal
of commitment
3. Directive- strategic decisions set precedents for lesser decisions and future actions
throughout the organization.
Mintzberg’s modes of strategic decision making

According to Henry Mintzberg, the most typical approaches or modes of strategic decision
making are entrepreneurial, adaptive and planning.
Stake holders in Business:
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Stake holders are the individuals and groups who can affect by the strategic outcomes
achieved and who have enforceable claims on a firm‘s performance. Stake holders can
support the effective strategic management of an organization.
Stake holder‘s relationship management

Stake holders can be divided into:
1. Internal Stakeholders
∙ Shareholders
∙ Employees
∙ Managers
∙ Directors
2. External Stakeholders
• Customers
• Suppliers
• Government
• Banks/creditors
• Trade unions
• Mass Media
Stake holder‘s Analysis:

• Identify the stake holders.
• Identify the stake holders expectations interests and concerns
• Identify the claims stakeholders are likely to make on the organization • Identify the
stakeholders who are most important from the organizations perspective.
• Identify the strategic challenges involved in managing the stakeholder relationship.
Making better strategic decisions
He gives seven steps for strategic decisions
1. Evaluate current performance results
2. Review corporate governance
3. Scan the external environment
4. Analyze strategic factors (SWOT)
5. Generate, evaluate and select the best alternative strategy
6. Implement selected strategies
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7. Evaluate implemented strategies
SBU or Strategic Business Unit
An autonomous division or organizational unit, small enough to be flexible and large have
independent missions and objectives), they allow the owning conglomerate to respond quickly
to changing economic or market situations.
Corporate Governance
Corporate governance is a mechanism established to allow different parties to contribute
capital, expertise and labour for their mutual benefit the investor or shareholder participates
in the profits of the enterprise without taking responsibility for the operations. Management
runs the company without being personally responsible for providing the funds. So as
representatives of the shareholders, directors have both the authority and the responsibility to
establish basic corporate policies and to ensure they are followed. The board of directors has,
therefore, an obligation to approve all decisions that might affect the long run performance of
the corporation. The term corporate governance refers to the relationship among these three
groups (board of directors, management and shareholders) in determining the direction and
performance of the corporation
Responsibilities of the board
Specific requirements of board members of board members vary, depending on the state in
which the corporate charter is issued. The following five responsibilities of board of directors
listed in order of importance
1. Setting corporate strategy ,overall direction, mission and vision

2. Succession: hiring and firing the CEO and top management
3. Controlling , monitoring or supervising top management
4. Reviewing and approving the use of resources
5. Caring for stockholders interests
Role of board in strategic management

The role of board of directors is to carry out three basic tasks
1. Monitor
2. Evaluate and influence
3. Initiate and determine
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Corporate Social Responsibility:
Corporate Social Responsibility (CSR) is an important activity to for businesses. As
globalization accelerates and large corporations serve as global providers, these corporations
have progressively recognized the benefits of providing CSR programs in their various
locations. CSR activities are now being undertaken throughout the globe
What is corporate social responsibility?

The term is often used interchangeably for other terms such as Corporate Citizenship and is
also linked to the concept of Triple Bottom Line Reporting (TBL) that is people, planet and
profits., which is used as a framework for measuring an organization‘s performance against
economic, social and environmental parameters. It is about building sustainable businesses,
which need healthy economies, markets and communities.
The key drivers for CSR are

Enlightened self-interest - creating a synergy of ethics, a cohesive society and a
sustainable global economy where markets, labour and communities are able to
function well together. Sustainability
You need to understand sustainability. It is being used mostly in organizational forums and
a basic understanding is needed for you. The discussion on sustainability is only for your
understanding.
Sustainability means "meeting present needs without compromising the ability of future
generations to meet their needs‘. These well-established definitions set an ideal premise, but
do not clarify specific human and environmental parameters for modelling and measuring
sustainable developments. The following definitions are more specific:
1. "Sustainable means using methods, systems and materials that won't deplete
resources or harm natural cycles".
2. Sustainability "identifies a concept and attitude in development that looks at a site's
natural land, water, and energy resources as integral aspects of the development".
3. "Sustainability integrates natural systems with human patterns and celebrates
continuity, uniqueness and place making".
Combining all these definitions; Sustainable developments are those which fulfil present and
future needs while using and not harming renewable resources and unique human-
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environmental systems of a site:[air, water, land, energy, and human ecology and/or those of
other [off-site] sustainable systems (Rosenbaum 1993 and Vieria 1993).
Social investment - contributing to physical infrastructure and social capital is increasingly

seen as a necessary part of doing business.
Transparency and trust - business has low ratings of trust in public perception. There is
increasing expectation that companies will be more open, more accountable and be repaired
to report publicly on their performance in social and environmental arenas. Increased public
expectations of business - globally companies are expected to do more than merely provide
jobs and contribute to the economy through taxes and employment.
Corporate social responsibility is represented by the contributions undertaken by companies

to society through its core business activities, its social investment and philanthropy
programmes and its engagement in public policy. In recent years CSR has become a
fundamental business practice and has gained much attention from chief executives,
chairmen, boards of directors and executive management teams of larger international
companies.
They understand that a strong CSR program is an essential element in achieving good
business practices and effective leadership. Companies have determined that their impact on
the economic, social and environmental landscape directly affects their relationships with
stakeholders, in particular investors, employees, customers, business partners, governments
and communities. According to the results of a global survey in 2002 by Ernst & Young, 94
per cent of companies believe the development of a Corporate Social Responsibility (CSR)
strategy can deliver real business benefits, however only 11 per cent have made significant
progress in implementing the strategy in their organization. Senior executives from 147
companies in a range of industry sectors across Europe, North America and Australasia were
interviewed for the survey.
Terminal Questions:
Possible Six Mark Questions

1. Explain business strategy with suitable examples.
2. What is strategic management and explain the various levels of strategic management
3. Describe the characteristics of strategic management.
4. Define Mission and Vision of an organization.
5. How mission is different from vision?
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6. State and explain the different stakeholders in business.
7. What are goals and objectives?
8. List and explain the main characteristics of a well-constructed goal.
9. Define Corporate Governance with suitable examples.
10. What is Corporate Social responsibility? State any three CSR activities initiated by MNC
companies.
Possible Essay Type Questions ( 9 Marks)
1. Explain the various phases of strategy formulation with an illustration.
2. Discuss the various strategic management processes.
3. Define business. Explain the goals and objectives of a business. What is the importance of
social responsibility in business? Give in detail.
4. Explain the expectations and roles of stake holders in business context. 5. What is
Corporate Governance? State the concept, need and principles of corporate governance.
6. Define Corporate Social responsibility. Explain the categories of socially responsible
behaviour.
Case study (12 Marks)

1. Explain what Corporate Social Responsibility is and touch upon the practices prevailing at
domestic as well as international levels with regard to assumption of Corporate Social
Responsibility.
2. Explain how character, ethics, value, truth and trust play a very significant role in the
corporate governance. Mention three organizations that follow the above practices in their
corporate governance.
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MODULE II
COMPETITIVE ADVANTAGE
External Environment- Porter‘s Five Forces - Model Strategic Groups -Competitive Changes
during Industry Evolution - Globalization and Industry - Structure National Context and
Competitive - advantage- Resources Capabilities - competencies core competencies & Low
cost and differentiation. Strategies Generic Building - Blocks of Competitive Advantage -
Distinctive Competencies Resources and Capabilities - durability of competitive Advantage
Avoiding failures and sustaining competitive advantage.
EXTERNAL ENVIRONMENT
Environment of any organization can be considered as "the aggregate of all conditions, events
and influences that surround and affect it". Environment is complex as it consists of a lot of
factors arising from different sources. The nature of environment is one of dynamic as it
keeps changing continuously. The impact of environment on organization is deep and far
reaching.
Concept of Environment:
Environment literally means the surroundings, external objects, influences or circumstances
under which someone or something exists. The environment of any organization is the
aggregate of all conditions events and influences that surround and affect it. Environmental
Factors:
Environmental factors can be classified as:
(i) Macro environmental factors and
(ii) Factors which are specific to the given business i.e. task environment.
The constituents of macro environmental factors are demographic environment, socio cultural
environment, economic environment, political environment, natural environment, technology
environment and legal environment. The environmental factors which are specific
to task environment are market, industry competition, supplier and consumer.
Characteristics of Environment:
a. Environment is Complex
b. Environment is Dynamic
c. Environment is Multi-faceted
d. Environment has a far-reaching impact
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Macro Environmental Factors:
∙ Demographic Environment
∙ Technological Environment
∙ Socio-cultural Environment
∙ Economic Environment
∙ Political Environment
∙ Regulatory Environment
∙ International Environment
∙ Supplier Environment
∙ Task Environment
∙ Forecasting the Environment
Four forecasting techniques are discussed as follows:

Time Series Analysis: This is an empirical forecasting procedure wherein certain historical
trends are used to predict such variables such as firm's sales or market shares. Delphi
Technique: This is a forecasting procedure in which experts are independently and repeatedly
questioned about the probability of some event’s occurrence until consensus in reached
regarding the particular forecasted event.
Judgment Forecasting: It is a forecasting procedure whereby employees, customers,
suppliers and trade associations serve as sources of qualitative information regarding future
trends.
Multiple Scenarios: This is a forecasting procedure in which management formulates several
plausible hypothetical descriptions of sequence of future events and trends. Environmental
Scanning:
Environmental scanning plays a key role in strategy for emulation by analyzing the strengths
and weaknesses and opportunities and threats in the environment. Environmental scanning is
defined as monitoring, evaluating, and disseminating of information from external and
internal environments to managers in organizations so that long term health of the
organization will be ensured and strategic shocks can be avoided.
PORTER'S FIVE FORCES MODEL
An industry consists of a group of companies offering products or services, which are similar
and serve as substitutes for each other. Strategies analyze competitive forces within an
industry to identify opportunities and threats facing a firm. A model for analyzing the industry
environment is developed by Michael E. Porter, an authority on competitive strategy. This
model is known as Five Forces Model and it helps managers to identify and analyze the
competitive forces in an industry environment.
Porter's Five Forces Model:
The five forces which are focused in this model are:
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⮚ Threats of New Entrants
⮚ Bargaining power of Suppliers
⮚ Bargaining power of Buyers
⮚ Treat of Substitute
⮚ Rivalry among Existing Firms
Fig: Porter's Five Forces Model and Strategic Group
This model focuses on five forces that shape competition within an Industry. Porter argues
that the stronger each of these forces is the more limited is the ability of established
companies to raise prices and earn greater profits. Within porters framework, a strong
competitive force can be regarded as a threat because it depresses profits. A weak competitive
force can be viewed as an opportunity because it allows a company to earn greater profits.
The task facing managers is to recognize how changes in the five forces give rise to new
opportunities and threats and to formulate appropriate strategic responses.
STRATEGIC GROUPS
An industry consists of number of firms. Firms in an industry, often, differ from each other
with respect to product, quality, customer service, pricing policy, distribution channel,
advertising policy, promotion, target segment and technological change. Within an industry, a
strategic group refers to a set of business units, which pursue similar strategies with similar
resources. The strategies followed by companies in one strategic group will be different from
the strategy pursued by other strategy group. In a strategy group, each member company
almost follows the basic strategy as other companies in the group.
Mc Donald, Burgar King and Domino are in restaurant industry and have many things in
common. Haldiram, though in the same restaurant industry, has different mission, objective,
strategies and in different strategic group.
Strategic Groups within Industries
Proprietary group: The companies in this proprietary strategic group are pursuing a high risk
high return strategy. It is a high risk strategy because basic drug research is difficult and
expensive. The risks are high because the failure rate in new drug development is very high.
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Generic group: Low R&D spending, Production efficiency, as an emphasis on low prices
characterizes the business models of companies in this strategic group. They are pursuing a
low risk, low return strategy. It is low risk because they are investing millions of dollars in
R&D. It is low return because they cannot charge high prices.
Strategic Types:
By strategic type, we mean that a strategic orientation which is a combination of structure,
culture and process consistent with that strategy. The different strategic orientation is the
reason behind the varying behaviour of firms facing similar environment. In order to examine
the intensity of competition and to predict the moves of firms within strategic groups one has
to familiarizes with different strategic types.
COMPETITIVE CHANGES DURING INDUSTRY EVOLUTION Industries pass
through various stages such as growth, maturity and decline. The competitive forces act upon
these stages and give rise to opportunities and threats for an industry. A strategist should be
aware of these developments during strategy formulation and anticipate them in advance.
Industry Life Cycle and Industry Environment
The industry life cycle model is used for analyzing the effects of industry evolution on
competitive forces. Based on the industry life cycle model, the industry environment could be
identified as follows:
(1) Embryonic industry environment
(2) Growth industry environment
(3) Shakeout environment
(4) Mature industry environment
(5) Declining industry environment
(1) Embryonic Industries: An embryonic industry is one which is just beginning to develop.
Embryonic industry may evolve due to a company's innovative efforts. For example, Apple
Computer, Xerox.
(2) Growth Industries: From embryonic stage, the industry moves on to growth stage. New
customers enter the market and demand expands rapidly.
(3) Industry Shakeout: Growth stage is not sustained continuously and the shakeout stage
follows necessarily. Here the demand is saturated (price cutting and price war). (4) Mature
Industries: It enters the mature stage once the shakeout stage comes to an end. Growth is
very little or nothing.
(5) Declining Industries: Industry enter into declining stage after the maturity stage.
Negative growth is registered due to technological substitutions.
Industry and Sector: An important distinction that needs to be made is between an industry
and a sector. A sector is a group of closely related industries. Industry and Market Segments:
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Market segments are distinct groups of customers within a market that can be differentiated
from each other on the basis of their distinct attributes and specific demands.
GLOBALIZATION AND INDUSTRY STRUCTURE
In conventional economic system, national markets are separate entities separated by trade
barriers and barriers of distance, time and culture. With globalization, markets are moving
towards a huge global market place. The tastes and preferences of customers of different
countries are converging common global norm. Products like Coco Cola, Pepsi, Sony
Walkman and McDonald hamburgers are globally accepted.
Individual companies have dispersed parts of their production process to various parts of the
world to take advantage of national advantage with respect to cost and factors of production
such as land, labour, capital and energy. The end result is low cost and enhanced profits.
General Motors has chosen different locations like South Korea, Germany, Japan, Singapore
and Britain for making its product, Le Mans. General Motor has aimed to reduce its total cost
by dispersing its production activities. The world economy has undergone a fundamental
change. Globalization of production and globalization of markets are taking place. The intense
rivalry forces all firms to maximize their efficiency, quality, innovative power and customer
satisfaction. With hyper competition, the rate of innovation has increased significantly.
Companies try to outperform their competitors by pioneering new products, processes and
new ways of doing business. Previously protected national markets face the threat of new
entrants and intense rivalry.
Hyper Competition
Hyper competition occurs in any industry due to intense environmental uncertainty, which
makes competitive advantage superficial and temporary. With globalization, new entrants and
foreign players make their way into hitherto protected markets. Distribution channels also
vary from country to country.
After regulation of Indian economy the industrial sector has witness's enormous changes. The
banking sector reforms also contributed to changes in the economic conditions of India.
Merger, acquisition and joint venture with MNCs take place in large number. Ultimately
intense competition is felt in the industrial scene. A vibrant stock market has emerged.
NATIONAL CONTEXT AND COMPETITIVE ADVANTAGE
In spite of globalization of markets and production successful companies in certain industries
are found in specific countries:
∙ Japan has most successful consumer electronics companies in the world ∙ Germany has
many successful chemical and engineering companies in the world ∙ United States has
many of the world's successful companies in computer and biotechnology
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It shows that national context has an important bearing on the competitive position of the
companies in the global market.
Economists consider the cost and quality of factors of production as the major reason for the
competitive advantage of some countries with respect to certain industries. Factors of
production include basic factors such as labor, capital, raw material, land and advanced
factors such as technological know-how, managerial talent and physical infrastructure. The
competitive advantages U.S enjoys in bio-technology due to technological know-how, low
venture capital to fund risky start-ups in industries.
According to Michael porter the nation's competitive position in an industry depends on
factor conditions, Industry rivalry, demand conditions, and related and supporting industries.
Strategic Types:
By strategic type, we mean that a strategic orientation which is a combination of structure,
culture and process consistent with that strategy. The different strategic orientation is the
reason behind the varying behaviour of firms facing similar environment. In order to examine
the intensity of competition and to predict the moves of firms within strategic groups one has
to familiarizes with different strategic types.
Miles and Snow have classified the strategic types into:
a) Defenders
b) Prospectors
c) Analyzers
d) Reactors
a) Defenders: The defender strategic type companies have a limited product line and they
focus on efficiency of existing operations. Their preoccupation with cost reduction does not
encourage them to try innovative ideas in new areas.
b) Prospectors: These firms with broad product items focus on product innovation and market
opportunities. Their too much emphasis on creativity makes them somewhat inefficient. They are
preoccupied with creativity at the expense of efficiency.
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c) Analyzers: Analyzers are firms which operate in both stable and variable markets. In stable
markets the company's emphasis efficiency and in variable market they emphasize innovation,
creative and differentiation.
d) Reactors: The firms which do not have a consistent strategy to pursue are called reactors.
There is an absence of well-integrated strategy-structure-culture relationship. Their strategic
moves are not integrated but piecemeal approach to environmental change makes them
ineffective.
The Determinants of Competitive Advantage
According to Michael Porter, the nation's competitive position in any industry depends on the
following:
(1) Factor conditions,
(2) Industry rivalry,
(3) Demand conditions and
(4) Related and supporting industries.
Fig: The Determinants of Competitive Advantage
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RESOURCES, CAPABILITIES AND COMPETENCIES

Resources
Resource Based View (RBV) defines capability as the ability of a bundle of resources to
perform an activity. It is a way of combining assets, people and processes to transform inputs
into output. Physical assets, financial resources, human skills are of no use unless these are
put to good use, in order to produce results. This can be represented mathematically thus:
(= F (TA, IA, S)
Where, C= capability TA=Tangible assets, IA = intangible assets and S=Skills
Capabilities
Capabilities thus, reflect a fimm's capacity to deploy resources that have been purposefully
integrated to achieve a desired end state. They emerge over time through a complex process
of interactions between tangible and intangible resources. The whole purpose is to create and
exploit external opportunities and develop sustained advantages over rivals in the field.
Through repetition and constant practice capabilities become stronger and more valuable
strategically.
Competency
The term competency refers to the ability of an organization to achieve its purpose. It is the
ability to perform exceptionally well and increase the stock of targeted resources of an
organization. Hamel and Prahalad coined the term core competence to distinguish those
capabilities fundamental to a firm's performance and strategy.
Competitive advantage of a company becomes depends on three factors:
1. The value customers place on the company s products
2. The price that a company charges for its products
3. The costs of creating those products
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The value customers place on a product reflects the utility they get from a product, the
happiness or satisfaction gained from consuming or owning the product utility must be
distinguished from price. Utility is something that customers get from a product. It is a
function of the attributes of the product such as its performance, design, quality, and point of
sale and after-sale service.
CORE COMPETENCIES
Core Competencies are fundamental enduring strength which is a key to competitive
advantage. Core competence may be a competency in technology, process, engineering
capability or expertise which is difficult for competitors to imitate. One core competence
gives rise to several products. Honda score competence in designing and manufacturing
engines had led to several products and business such as cars, motorcycles, lawnmowers,
generators etc.
⮚ Honda's core competence in designing and manufacturing engines had led to several
products and business such as cars, motorcycles, lawn mowers, generators etc. ⮚ 3Ms core
competence in substrates and coating adhesives has given rise to 60,000 products which
includes magnetic tapes, photographic films, coated abrasives etc. Sony has a core
competence in miniaturization.
⮚ Dupont has a core competence in chemical technology.
⮚ Eureka Forbes which manufactures domestic vacuum cleaner develops core
competency in door-to-door selling.
Building core competence is a long-term process. Firms invest heavily in technology and
R&D in order to build core competence. The business units search for emerging technologies
and gain expertise over the. The firms bring out proprietary products, which confer on them
an advantage over competitors. Developing core competence involves development and
training of technical force suitable to the required level.
Core competence is the firm's key capabilities and collective learning sill that are fundamental
to its strategy, performance and long term profitability. Core competencies are the activities
that the firm performs especially well compared to competitors and through which the firm
adds value to its goods and services over a long period of time. Core competencies serve as a
source of competitive advantage for a firm over its rivals. They emerge over time through an
organizational process of accumulating and learning how to deploy organizational resources
and capabilities.
When developed, nurtured and applied appropriately throughout a firm, core competencies
serve as the basis for a firm's competitive advantages, its strategic competitiveness and its
ability to earn above average returns.
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LOW COST AND DIFFERENTIATION
A company is said to have attained competitive advantage when the profit rate of a company
is higher than industry average. Return on Sales (ROS) and Return on Assets (ROA) are ratios
calculated to determine profit rate. Gross Profit margin is the basic deciding factors of a
company's profit rate, which is simply the difference between total revenue and total cost
divided by total cost.
Gross Profit Margin = Total Revenue - Total Cost/ Total Cost
If the gross profit margin is to be higher, the following three conditions should be satisfied.
1) The unit price of the company must be higher than that of other average companies. 2)
The unit cost of the company must be lower than that of other average companies. 3) The
company must have a lower unit cost and a higher unit price.
Companies resort to premium when they charge high unit price than the industry average. The
companies and value to the product form the consumer's perspective in order to charge
premium price. Besides, they go for differentiated products in terms of quality, design, after
sales service and delivery time.
Low cost and differentiation are classified as generic business level strategies as they represent
the two basic ways of attaining competitive advantage. Companies which go for low cost
strategy, do everything possible to reduce unit costs. Firms which opt for differentiation
strategy, do everything to differentiate product from that of other players.
Differentiation and Cost Structure
Toyota has differentiated itself from General Motors by its superior quality, which allows it to
charge higher prices, and its superior productivity translates into a lower cost structure. Thus
its competitive advantage over GM is the result of strategies that have led to distinctive
competencies resulting in greater differentiation and a lower cost structure.
Consider the automobile Industry, In 2003 Toyota made 2402 dollar in profit on ever y vehicle
it manufactured in North America. GM in contrast, made only 178 dollar profit per vehicle.
What accounts for the difference?
First has the best reputation for quality in the industry. The higher quality translates into a
higher utility and allows Toyota to charge 5 to 10 per cent higher prices than GM. Second
Toyota has a lower cost per vehicle than GM in part because of its superior labor productivity.
GENERIC BUILDING BLOCKS OF COMPETITIVE ADVANTAGE A company has a
competitive advantage over its rivals when its profitability is greater than the average
profitability of all companies in its industry. It has a sustained competitive advantage when it
is able to maintain above average profitability over a number of years. The following are
factors for building competitive advantage:
Fig: Generic Building Blocks of Competitive Advantage
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Efficiency: In a business organization, inputs such as land, capital, raw material, managerial
know-how and technological know-how are transformed into outputs such as products or
services. Efficiency is measured as a ratio between the costs of inputs required to produce a
given output. Efficiency of operations enables a company to lower the cost of inputs to produce
given output and to attain competitive advantage. Employee productivity is measured in terms of
output per employee. The Japanese auto giants have cost based
competitive advantage over their near rivals in U.S.
Quality: Quality of goods and services indicates the reliability of doing the job, which the
product is intended for. High quality products create a reputation and brand name which in
turn permits the company to charge higher price for the products. Quality is also influenced
by greater efficiency. Hence efficiency, high product quality and productivity move in the
same direction.
Innovation: Innovation means new ways of doing things. Innovation results in new
knowledge, new product development, new production process, management systems,
organizational structures and strategies in a company. Innovation offers something unique,
which the competitors may not have and allows the company to charge high price.
Photocopiers developed by Xerox and Sony's Walkman are typical examples of successful
product innovation of pioneering companies.
Customer Responsiveness: Companies are expected to provide customers what they are
exactly in need of by understanding customer needs and desires. Achieving superior customer
responsiveness involves giving customer value of money. Customer responsiveness is
determined by customization of products, quick delivery, quality, design and prompt after
sales service. The popularity of courier service over Indian Postal Service is due to the
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quickness of service. Caterpillar attends to customer complaints within 48 hours anywhere in
the globe.
DISTINCTIVE COMPETENCIES
The relationship of a company strategy involves distinctive competencies and competitive
advantage. Distinctive competencies shape the strategies that the company pursues which lead
to competitive advantage and superior profitability. However, it is also very important to
realize that the strategies a company adopts can build new resources and capabilities or
strengthen the existing resources and capabilities thereby enhancing the distinctive
competencies of the enterprise. Thus the relationship between distinctive competencies and
strategies is not a linear one, rather it is a reciprocal one in which distinctive competencies
shape strategies and strategies help to build and create distinctive competencies.
Distinctive Competencies: Distinctive competencies are firm specific strengths that allow a
company to differentiate its product and achieve substantially lower costs than its rivals and
thus gain a competitive advantage.
Internal Analysis is a three step process:
1) Manager must understand process by which companies create value for customers and
profit for themselves and they need to understand the role of resources, capabilities and
distinctive competencies in this process.
2) They need to understand how important superior efficiency, innovation, quality and
responsiveness to customers are in creating value and generating high profitability. 3) They
must be able to identify how the strengths of the enterprise boost its profitability and how any
weaknesses lead to lower profitability.
RESOURCES AND CAPABILITIES
Resources: Resources are financial, physical, social or human, technological and
organizational factors that allow a company to create value for its customers. Capabilities:
Capabilities refer to a company s skills at co-coordinating its resources and putting them to
productive use.
A critical distinction between Resources and Capabilities:
The distinction between resources and capabilities is critical to understanding what generates
a distinctive competency. A company may have valuable resources, but unless it has the
capability to use those resources effectively, it may not be able to create a distinctive
competency.
For Example: The steel mini-mill operator Nucor is widely acknowledged to be the most cost
efficient steel maker in the United States. Its distinctive competency in low cost steel making
does not come from any firm specific and valuable resources. Nucor has the same resources as
many other mini-mill operators. What distinguishes Nucor is its unique capability to manage
its resources in a highly productive way. Specifically Nucor s structure, control systems and
culture promote efficiency at all levels within the company.
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DURABILITY OF COMPETITIVE ADVANTAGE
Durability of competitive advantage refers to the rate at which the firm's capabilities and
resource depreciate or become obsolete. Companies try hard to sustain competitive advantage
since every other company tries to develop distinctive competencies and gain competitive
advantage.
Durability depends on three factors:
1. Barrier to Imitation
2. Capability of Competitors
3. Dynamism of Industry
1.Barriers to Imitation: Barriers to those factors, which make it difficult for a competitor to
copy a company's distinctive competencies. The longer the period for the competitor to
imitate the distinctive competence, the greater the opportunity that the company has to build a
strong market position and reputation with consumers.
∙ Imitability refers to the rate at which other duplicate a firm's underlying resources and
capabilities.
∙ Tangible resources such as land, building and equipment are visible and imitable. ∙
Intangible resources like brand names are difficult to imitate and brand names represent
the company's reputation.
∙ Similarly marketing and technological know-how are also intangible resources.
Capabilities are by-products of internal operations and decision-making process of a company
and it is difficult for competitors to comprehend it. If the firm's core competence emanates
from explicit knowledge i.e. knowledge expresses, articulated and communicate, it is easily
imitated by competitors. When capabilities emanate from tacit knowledge i.e. knowledge not
communicated as it is deep-rooted in organization's culture and employees experience,
imitation will be tough for competitors.
Hence a distinctive competence based on unique capabilities is more durable than one based
on resources. Capabilities are invisible to outsiders and it is rather difficult to imitate.
2.Capabilities of Competitors: When a firm is committed to a particular course of action in
doing business and develop a specific set of resources and capabilities, such prior
commitments serve as a deterrent to imitate the competitive advantage of successful firms.
U.S. automobile giants (General Motors, Ford, Chrysler) investments in large sized cars
served as a setback in shifting their massive investments for low cost small sized cards as
made by Japanese competitors.
3.Dynamism of Industry: Dynamic industries are characterized by high rate of innovation
and fast changes. In dynamic industries, product life cycle will be short and competitive
advantage will not last for a long time. It gives rise to hyper competition. The consumer
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electronic industry and computer industry are typical examples of dynamic industries. The
turbulence in computer industry environment has been contributed by continuous innovations
of Apple Computers, IBM, Compaq and Dell.
AVOIDING FAILURES AND SUSTAINING COMPETITIVE ADVANTAGE Analyzing
best industrial practice through benchmark will facilitate organizations to build distinctive
competencies. Bench marking involves identification of best practices adopted in other
countries. It involves measurement of the firms against products, prices, practices and services
of some of the most efficient global competitors. When Xerox was in trouble 1980s, Xerox
applied bench marking for 240 functions against comparable areas in other companies. The
single most significant step in avoiding failure is identification of barriers to change and
overcoming such barriers. This step will point out the need for new organizational structure
and control systems in response to the changed environment. Appropriate leadership style and
prudential use of power will be of help in maintaining competitive advantage. Why do
Companies Fail?
A failing company is one whose profit rate is substantially lower than average profit rate of
competitors. Declining profit and loss of competitive advantage are some of the reasons for
failure of companies. Studies have pointed out the following reasons for failure of companies.
⮚ Inertia
⮚ Prior strategic commitments
⮚ Too much inner directedness and specialization
Inertia: In changed market conditions, companies find it difficult to change their strategies
and structure accordingly. The changed competitive conditions put pressure on the decision
makers to introduce suitable changes in developing capabilities.
Prior Strategic Commitments: The commitments which are already made in terms of huge
investments, direction and facilities prove to be a setback and result in competitive
disadvantage. IBM's massive investments were locked in a shrinking business. Too much
Inner Directedness: Icarus, a Greek mythical figure, who was held as prisoner in an island
flew so well and went higher and higher up to the sun and met with his fatal end. Many
companies, like Icarus are carried away by initial success and lose sight of external
environment. Procter and Gamble and Chrysler were overconfident of their selling ability and
paid no attention to new product development and ended up in inferior products. Avoiding
failures and sustaining competitive advantage
When a company loses its competitive advantage, its profitability falls. The company does not
necessarily fail; it may just have average or below average profitability and can remain in this
mode for considerable time although its resource and capital base is shrinking. A failing
company is one whose profitability is new substantially lower than the average profitability
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of its competitors, it has lost the ability to attract and generate resources so that its profit
margins and invested capital are shrinking rapidly.
Steps to Avoid failure:
1) Focus on the building blocks of competitive advantage
2) Institute continuous improvement and learning
3) Track Best Industrial Practice and Benchmarking
4) Overcome Inertia
Evaluation of Key Resources (VRIO):
Barney has evolved VRIO framework of analysis to evaluate the firm s key resources.
The following questions are asked to assess the nature of resources.
∙ Value - Does it provide competitive advantage?
∙ Rareness - Do other competitors possess it?
∙ Imitability - Is it costly for others to imitate?
∙ Organization - Does the firm exploit the resources?
Terminal Questions:
Possible Five Mark Questions
1. What is meant by Strategic Groups
1. What are core competencies?
2. What do you understand by the term strategic alliance?
3. Define strategic advantage profile.
Possible Essay Type Questions (9 Marks)

1. Explain Porter's Five Forces Model in brief
2. Discuss the various stages of industry lifecycle with examples.
3. Describe the Generic Building Blocks of Competitive Advantage

1. As a corporate planner of a large MNC, how would you plan the environment or the
different units located at different places and belonging to different industries? 2. Discuss
the following components of generic building blocks of competitive advantage.
i)Superior innovation and superior quality ii) Superior efficiency and superior
customer responsiveness.
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MODULE III
STRATEGIES
Stability strategy-Expansion strategy-Retrenchment strategy-Combination strategies Business

level strategy in the Global Environment Corporate Strategy - Vertical Integration
Diversification Strategy-Strategic Alliances Building and Restructuring the corporation
Strategic analysis and choice Environmental Threat and Opportunity Profile (ETOP)
Organizational Capability-Profile SWOT Analysis-GAP Analysis-McKinsey's 7s Framework
- GE 9 Cell Model-Distinctive competitiveness Selection of matrix Balance Score Card.
INTRODUCTION
Strategy is about key issues for the future of organisations. For example, how should Apple,
primarily a devices company, compete in the computer and tablet market with Google,
primarily a search company? Should universities concentrate their resources on research
excellence or teaching quality or try to combine both? How should a small video games
producer relate to dominant console providers such as Microsoft and Sony? What should an
arts group do to secure revenues in the face of declining government subsidies? All these are
strategy questions, vital to the future survival of the organisations involved.
Naturally such questions concern entrepreneurs and senior managers at the top of their
organisations. But these questions matter much more widely. Middle managers have to
understand the strategic direction of their organisations, both to know how to get top
management support for their initiatives and to explain organisational strategy to their staff .
Anybody looking for a management-track job needs to be ready to discuss strategy with their
potential employer. Indeed, anybody taking a job should first be confident that their new
employer’s strategy is actually viable. There are even specialist career opportunities in
strategy, for example as a strategy consultant or as an in-house strategic planner, often key
roles for fast-track young managers. Investors too need to understand strategy if they are to
evaluate the viability of the businesses they invest in. Bankers need to understand the
strategies of the businesses they lend to.
WHAT IS STRATEGY?
strategy is the long-term direction of an organisation. Thus the long-term direction of
Amazon is from book retailing to internet services in general. The long-term direction of
Disney is from cartoons to diversified entertainment. This section examines the practical
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implication of this definition of strategy; distinguishes between different levels of strategy;
and explains how to summarise an organisation’s strategy in a ‘strategy statement’.
LEVELS OF STRATEGY
Corporate-level strategy is concerned with the overall scope of an organisation and how
value is added to the constituent businesses of the organisational whole. Corporate-level
strategy issues include geographical scope, diversity of products or services, acquisitions of
new businesses, and how resources are allocated between the diff erent elements of the
organisation. For Vice Media, diversifying from the original magazine into retail, publishing
and video are corporate-level strategies. Being clear about corporate-level strategy is
important: determining the range of businesses to include is the basis of other strategic
decisions, such as acquisitions and alliances.
Business-level strategy is about how the individual businesses should compete in their
particular markets (for this reason, business-level strategy is often called ‘competitive
strategy’). These individual businesses might be standalone businesses, for instance
entrepreneurial start-ups, or ‘business units’ within a larger corporation (as the magazine is
within Vice Media). Business-level strategy typically concerns issues such as innovation,
appropriate scale and response to competitors’ moves. In the public sector, the equivalent of
business-level strategy is decisions about how units (such as individual hospitals or schools)
should provide best-value services. Where the businesses are units within a larger
organisation, business-level strategies should clearly fit with corporate-level strategy.
Operational strategies are concerned with how the components of an organisation deliver
effectively the corporate- and business-level strategies in terms of resources, processes and
people. For example, Vice Media had to keep raising external finance to fund its rapid growth:
its operational strategy is partly geared to meeting investment needs. In most businesses,
successful business strategies depend to a large extent on decisions that are taken, or activities
that occur, at the operational level. Operational decisions need therefore to be closely linked
to business-level strategy. They are vital to successful strategy implementation.
This need to link the corporate, business and operational levels underlines the importance of
integration in strategy. Each level needs to be aligned with the others. The demands of
integrating levels define an important characteristic of strategy: strategy is typically complex ,
requiring careful and sensitive management. Strategy is rarely simple.
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STABILITY STRATEGY
Stability Strategy is a corporate strategy where a company concentrates on maintaining its
current market position. A company that adopts such an approach focuses on its existing
product and market. A few examples of this strategy are offering the same products to the
same clients, not introducing new products, maintaining market share, and more. Usually, a
company that is satisfied with its current market share or position uses such a strategy. Also, a
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company following this strategy does not need any additional resources and work using the
existing expertise of the workforce. But, this strategy is useful only if there is a simple and
stable environment.
Following such a strategy does not mean that the company doesn’t strive for improvement.
The company here focuses on incremental improvement. Under the stability strategy, the
company usually makes up a plan to move forward either by selling the non-performing
segments or by investing in research and development.
Why Do Companies Adopt a Stability Strategy?

Following are the reasons why a company may adopt a stability strategy:
● If a firm plans to consolidate its position in the industry in which it is operating.
● In case a country in which the company operates is facing recession or
slowdown, and the company wants to save cash rather than spend it for
expansion purposes.
● If a company has significant debt or loans, then also it may pursue such a
strategy than going for expansion. Following such an approach would ensure
that a company has the cash to pay the interest and principal amount as well.
● The industry in which the firm functions have hit maturity, and there is no more
scope for growth.
● Another scenario is when the cost of expansion is less than the gains from it. ●
If the management is happy with the current market position and the level of profit
achieved.
● Risk-averse management may also favor such a strategy.
● A company can also choose this strategy post-merger. In such a case, this
strategy allows a smooth transition of the new entity before the company starts
making significant changes.
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● This strategy could help a company take rest following a fast growth in the past
few years. Such a tactic allows the company to consolidate the results and
resources and plan its next moves.
● Family-owned businesses may decide to slow down in adverse market
conditions. They do this to avoid any loss of financial control.
Types of Stability Strategies

The following are the modest types of Stability Strategies.
a) No change Strategy : As the name suggests, a company following this strategy does not
take up any new activities. Instead, the company continues with its current business.
Companies that are well established may go for this strategy.
b) Modest Growth Strategy : Under this, a company strives to achieve the same target as it
did in the past. For example, if a company hit a 5% growth last year, then for the current year
also, it targets the same percentage (making adjustments for inflation). It is the most relaxed
approach as the risk is low, and the company does not need any additional efforts or
resources.
c) Sustainable Growth Strategy : A company follows this strategy if it believes the external
environment is not favorable. For instance, if the economy is in recession, or if there is a lack
of financial resources.
d) Profit Strategy : If the objective of a company is to generate cash, then a company may
adopt this strategy. A company pursuing this strategy may be willing to give up some of its
market share to make cash.
e) Pause Strategy : A company adopts such a strategy if, in the past, it has enjoyed rapid
growth. By using this strategy, the company wants to take some rest before pushing for
growth again. Or, we can say, a company moves cautiously for sometime before pursuing
growth. It is a temporary strategy. A company can use the rest period to make its production
more efficient to exploit future opportunities.
EXPANSION/GROWTH STRATEGY
If the answer to the question ‘Should the company increase the level of activities in the
current business and/or enter new business(es)?’ is affirmative, a growth (expansion) strategy
is called for. The growth strategy amounts to redefining the business by adding new
products/services or new markets or by substantially increasing the current business. In other
words, a company pursues a growth strategy when:
1. It enters new business (including functions) or market.
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2. Effects major increase in its current business.
Reasons for Growth/Expansion Strategy
Important factors, which encourage companies to adopt growth strategies, are the following.
1. The current business is perceived as having no future.
2. The current business is unstable or volatile in nature.
3. The current business does not fully utilise the available resources and capabilities.
4. There is a feeling of the need for spreading business risks.
5. In some cases, expansion is a retaliatory move. When a company in another business
enters the firm’s business, the firm retaliates by entering the other company’s business.
6. Some firms have a tendency to imitate the growth strategies of competitors. 7. In
many cases, growth strategy is the result of the urge to grow.
8. In several cases, the motive for growth is the objective to increase market share or gain
dominance.
9. In many cases, growth strategy results from the decision to exploit the environmental
opportunities.
Types of Growth/Expansion Strategies

There are a number of strategies for growth/Expansion. Kotler has grouped these strategies
under three heads, viz.,
1. Intensive growth strategy.
2. Integrative growth strategy.
3. Diversification growth strategy.
Intensive Growth Strategies :

Intensive growth strategies aim at achieving further growth for existing products and/or in
existing markets. There are three important intensive growth strategies, viz., market
penetration, market development and product development.
Market Penetration Strategy :

Market penetration strategy strives to increase the sale of the current products in the current
markets. There are the following three major strategies to achieve this.
1. Increase sales to the current customers: For example, if customers of toothpaste, who brush
teeth once a day now, habituate to brush twice a day, the sale of the product to the current
consumers would almost double.
2. Pull customers from the competitors’ products: If the company succeeds in making the
customers switch from the competitors’ brands to the company’s brands while maintaining its
existing customers intact, there will be an increase in the company’s sales. This is growth at
the expense of the competitors. The competitors would naturally fight back. This strategy
35
will, therefore, succeed only if the company has some distinctive edge over the competitors. 3.
Convert non-users into users: If there is a significant number of non-users of a product who
could be made users of the product, that provides a potential opportunity for increasing the
sales. For example, in India, there is a very large number of people, particularly in the rural
areas, who do not have the habit of using toothpaste who could be encouraged to start using
the product. It was reported that Balsara introduced the Babool toothpaste mainly targeting
the first time users.
Market Development Strategy :

The market development strategy involves broadening the market for a product. This may be
achieved by the following strategies.
1. By adding new channels of distribution and thereby expanding the consumer reach of the
product.
2. By entering new market segments. For example, the Hindustan Lever (now Hindustan
Unilever) entered the low price detergent market by introducing the Wheel. The company
increased its share of the toothpaste market from less than 7 per cent in 1989 to 17 per cent
1992 by opening up new segments through innovative products and packaging. 3. By entering
new geographical markets. A company, which has been confined to some part of a nation,
may expand to other parts and foreign markets. The Nirma which in the beginning had been
confined to the local market later expanded to the regional market and then to the national
market.
Product Development Strategy :

A company may be able to increase its current business by product improvement or
introducing products with new features. Colgate-Palmolive has been trying to maintain its
share of the toothpaste market by introducing new brands. (Maintaining the market share in a
growing market means, obviously, increasing sales). Many companies endeavour to
maintain/increase sales through continuous feature improvements/introduction of new
products. This is very obvious in certain industries like electronics, white goods, passenger
vehicles (including two-wheelers) etc. Often, market development and product development
strategies facilitate better market penetration.
INTEGRATIVE GROWTH STRATEGIES

One of the common growth strategies is the integrative growth strategy. A major contributor
to the growth of Reliance Industries in the early stages was backward and forward
integration. It is today the most fully integrated company in the world (from petroleum
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exploration to textiles retailing).
There are broadly two types of integrative growth:

1. Integration at the same level or stage of business in the same industry (horizontal
integration),
Or
2. Integration of different levels/stages of business in the same industry (vertical integration).
Horizontal Integration
Integration at the same level of business, popularly known as horizontal integration, involves
the acquisition of one or more competitors. For example, a tyre company may grow by
acquiring another tyre company. Examples of horizontal integration include acquisition of
Universal Luggages (Aristocrat) by Bloplast (V.I.P.) and Tata Oil Mills Company (TOMCO)
by Hindustan Lever. The Indian cement industry has witnessed considerable horizontal
integration. The FMCG sector has recently undergone several acquisitions resulting in
horizontal integration (Table 14.2 gives some examples). Perhaps the most important
advantage of horizontal integration is that it eliminates or reduces competition.
Vertical Integration
Integration of the different levels/stages of the same industry is known as vertical integration.
Vertical integration may be:
1. Backward integration, or
2. Forward integration.
Vertical integration may be brought about by greenfield investment (i.e., investment in
entirely new projects) or by acquisition of existing enterprise.
Backward Integration
Backward integration involves starting the preceding stage of the current business. For
example, the manufacturer of a finished product may start the manufacture of the raw material
required for the finished product. For instance, a detergent manufacturer may take up the
manufacture of LAB, which is a raw material for detergents (as has been done by Nirma). By
establishing a packaging and printing business, ITC resorted to backward integration for its
cigarettes business.
A company which currently only markets a product, taking up the manufacturing of it is
another example of backward integration. For example, the erstwhile Brook Bond Ltd.
(which was merged with Hindustan Lever) resorted to backward integration by acquiring tea
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plantations. Backward vertical integration has been the cornerstone of the evolution and
growth of Reliance. Starting with yarn trading and then textiles manufacturing in the late
seventies, Reliance pursued a strategy of backward vertical integration – in polyester, fibre
intermediates, plastics, petrochemicals, petroleum refining and oil and gas exploration and
production – and forward integration to textiles retailing to be fully integrated along the
materials and energy value chain. Reliance has well leveraged its strengths with opportunities
unfolded by the economic liberalisation and its activities now spa exploration and production
of oil and gas, petroleum refining and marketing, petrochemicals (polyester, fibre
intermediates, plastics and chemicals), textiles, retail, infotel and special economic zones. It
enjoys global leadership in its businesses, being the largest polyester yarn and fibre producer
in the world and among the top five to ten producers in the world in major petrochemical
products. Backward integration has certain advantages. It ensures smooth supply of materials
for production or goods for marketing. This is particularly important when there are supply
bottlenecks. Secondly, it may enable the company to obtain the goods cheaply or to make
some profits out of the manufacturing. Thirdly, it may also help the company to ensure
quality of the goods. Further, it may also facilitate tax savings. Backward integration,
however, is not an unmixed blessing. In some cases, it may have the following problems: 1.
The cost of making may be higher than the cost of buying.
2. Integration may make exit from a business more difficult.
Forward Integration
Forward integration means entering the subsequent stage of the industry. For example: 1. The
manufacturer of a product who does not do the marketing of it currently, may start the
marketing of it.
2. The manufacturer of the raw material may take up the manufacture of the finished product.
For instance, a LAB manufacturer may start the manufacture of detergents. Some tea
plantations like AVT, Mahavir Plantations, Harrisons Malayalam etc. started consumer
packing and marketing of tea. Textile firms like Bombay Dyeing, Mafatlal, J & K
(Raymonds) resorted to forward integration by entering the readymade garments business.
The advantages of forward integration are:
1. It creates captive demand for the product.
2. It may generate additional profit.
The major risk of forward integration is that there is no guarantee that the new business will
be a success.
RETRENCHMENT STRATEGIES
Retrenchment strategy, also known as defensive strategy, involves contraction of the scope or
level of business or function. In some cases, it amounts to a redefinition of the business. A
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firm pursues a retrenchment strategy when:
1. It drops product line(s), market(s), market segment(s) or function(s). 2.
Focuses on functional improvements or reversing certain deteriorating trends.
Reasons for Retrenchment Strategy TO DO

There are a number of situations that necessitate a retrenchment strategy. 1. Certain
divisions/product lines/products/market segments/functions are not profitable. 2. The
profit from a business is less than the target rate.
3. The company’s new strategy is to focus on its core business.
4. The company is too diversified/scattered that effective management is not possible. 5. The
company has serious financial problems so that the funds obtained by divestiture can be
used for strengthening other businesses.
6. Certain current business does confirm the company philosophy/ethics. 7. The company is
confronted with deteriorating performance indicators (see the chapter on Turnaround
Management and Restructuring for details).
DEFENSIVE STRATEGIES
Defensive strategies include divestiture, liquidation, becoming a captive and turnaround.
Divestiture A divestiture strategy is pursued when a company sells or divests itself of a
business or part of a business. It may be because of loss, less than target rate of return,
urgency to mobilise funds, managerial problems, or redefinition of the business of the
company.
Liquidation
Liquidation occurs when an entire company is sold or dissolved. The reasons for divestiture
mentioned above could also be reasons for liquidation. When there are no buyers for a
company that wants to be sold, its assets may be sold and the company may be wound up.
Becoming a Captive
A firm becomes a captive of another firm when it subjects itself to the decision of the other
firm in return for a guarantee that a certain amount of the captive’s product will be purchased
by the other firm.
Turnaround Strategy
A turnaround strategy involves management measures designed to reverse certain negative
39
trends and to bring the firm back to normal health and profitability. For details, see the
chapter on Restructuring and Turnaround.
COMBINATION STRATEGY
A company pursues a combination strategy when it adopts more than one grand strategy (i.e.,
stability, growth, and retrenchment) simultaneously or sequentially. The reason for pursuing a
combination strategy is the existence of a combination of reasons for any two or more of the
other three generic strategies. Under the combination strategy, a company adopts any one of
the following:
1. Stability and growth strategies.
2. Stability and retrenchment strategies.
3. Growth and retrenchment strategies.
4. Growth, retrenchment and stability strategies.
A combination strategy results from environmental changes and redefinition of the business
portfolio of the company.
DIVERSIFICATION
Diversification means adding new lines of business. The new lines of business may be related
to the current business or may be quite unrelated. If the new lines added make use of the
firm’s existing technology, production facilities or distribution channels or it amounts to
backward or forward integration it may be regarded as related diversification. (Example: the
diversification of Videocon).
Some companies expand the business into unrelated industries (Example: Wipro which is in
the business of several FMCG, electrical and lighting, furniture and IT. Other examples
include the V-Guard cited in the beginning of this chapter, Reliance (see Table 5.3 in Chapter
5), LG, Samsung, Hyundai, General Electric etc. Also see Box 14.2. Expanding the market to
geographical areas where the company has not had business is also regarded as
diversification. Diversification is also described as portfolio change. See the chapter on
Portfolio Strategy for details. Large conglomerate (diversified) business houses dominate the
industrial sector of many countries. While most of the top industrial houses of the US are
focused, West European and Asian countries like Japan, South Korea and India are
diversified.
Reasons for Diversification

The important reasons for companies diversifying their business are the following.
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1. Saturation or decline of the current business: If the market for the current business is not
growing or is declining, it may become necessary to enter new business to achieve growth.
2. Additional opportunities: Even when current business provides scope for further growth,
diversification provides additional opportunities for growth.
3. Better opportunities: There may be better opportunities in new lines of business. They may
look more attractive because of faster growth of the market, limited competition, higher profit
margins, stability of demand etc. A firm in a sunset industry may be tempted to enter sunrise
industries.
4. Risk minimisation: Some companies diversify their business to eliminate or reduce the
risks associated with confining the business to one or very few products. 5. Better
utilisation of resources and strengths: Diversification enables companies to make better
utilisation of their resources and strengths. It may enable better utilisation of production
facilities, technological capabilities, managerial expertise, marketing infrastructure like
distribution channels and sales personnel, financial resources etc. Synergetic advantages
could become a reason for diversification.
6. Benefits of integration: Diversification may also be encouraged by the benefits of
backward and/or forward integration mentioned earlier.
7. Competitive strategy: Diversification may also be a competitive strategy. For example,
when Indana Industries entered the instant coffee market with the Gold Cafe, the Nestle and
Food Specialties (the Indian franchise of Nestle) retaliated by entering the market for ghee
that was Indiana's major business. A company may enter new lines of business to preempt
potential competitors or to gain an edge over competitors by entering the market before the
competitors. Sometimes, some companies follow the same course followed by competitors in
business expansion.
8. Need-related diversifications: A company may introduce new products to serve its current
customers better or to cater to all the related needs of the current customers. Example:
Camlin, Kores etc.
9. Consolidation: Diversification may also be aimed at consolidating the company’s market
position, image etc.
10. Inspiration: Diversification may charge people at various levels, particularly the
managerial and technical personnel, with vigour, inspiration and enthusiasm so that
competent people would be encouraged to stay with the organisation.
Risks of Diversification
Diversification entails several risks, like the following:
1. There is no guarantee that the firm will succeed in the new business. In fact, many
diversifications of a number of companies have been failures.
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2. If the new lines of business result in huge losses, that may adversely affect the old
business.
3. Diversification may sometimes result in the neglect of the old business or the management
not being able to pay sufficient attention and resources to the old business. 4. Diversification
may invite retaliatory moves by competitors that may adversely affect even the old business.
Types of Diversification
Broadly, there are two types of diversification, namely, synergistic diversification and
conglomerate diversification.
Synergistic Diversification
Synergistic diversification is diversification that results in the realisation of synergistic effects.
In business literature, synergy is often described as ‘2 + 2 = 5’ effect which implies that the
result of the combined performances will be greater than if they were done separately and
independently. In other words, synergy offers a firm the advantage of higher consolidated
return on investment than can maximally be obtained from a conglomerate (i.e., separate)
firm. For example, if a firm which is currently selling product ‘A’, introduces a new product
‘B’ which can be sold by the same salesmen selling product ‘A’, the average selling cost of
these products will be lower than if they were handled by separate salesmen for each product.
Similarly, if a company publishing a newspaper introduces several periodicals such as a
general weekly, a women’s magazine, a literary journal, a children’s magazine, a business
periodical etc., it would enable it to share the production, administrative and selling
overheads.
Following are important possible synergies.

1. Marketing Synergy: Marketing synergy can occur when products use common distribution
channels, sales promotion (including sales personnel) and sales administration. 2. Operating
Synergy: Operating synergy is realised by better utilisation of facilities and personnel,
economies in purchasing etc.
3. Investment Synergy: This can result from the use of same production facilities, technology,
materials etc.
4. Management Synergy: Management synergy exists if the existing managerial expertise of
the company will be an advantage for the new business. Videocon is an example of a
company that followed synergistic diversification. It has taken advantage of all the synergies
mentioned above.
If a company adds new products that have technological and/or marketing synergies with
existing product lines, even though they are meant for a new class of customers, that is
described as Concentric Diversification. For example, an audiocassette tape manufacturer
42
may start computer-tape manufacturing using the know-how it possesses. If a company
introduces a new product which is technologically unrelated to the current product line but
which has appeal to its current customers, it is described as horizontal diversification. For
example, Camlin has introduced several products that are not technologically related with
each other but are meant for the same customer class. Although synergistic diversification has
the advantages of synergy, overemphasis on synergy could lead to neglect of several good
business opportunities, which have no synergy with the current business. Thus, the
overemphasis on synergy could confine an enterprise to a particular field of business with all
its disadvantages. Further, synergy by itself does not guarantee success.
SWOT ANALYSIS
SWOT analysis is one of the prime and primary steps in strategic management. 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 (in the case of IFE/EFE Matrix, the key internal/external factors
are identified, they are assigned weightages and weighted scores are obtained by multiplying
the weights with the respective ratings). Another term is PEST (Political, Economic, Social
and Technological) analysis. It is confined to certain external environmental factors and does
not encompass the analysis of the organisational factors. Extensions or variations of PEST
have also been emerging. Some have proposed the inclusion of a legal environment and
termed it as SLEPT. Another modification is the inclusion of environmental factors and
describing it as PESTEL or PESTLE. It has also seen extensions to STEEPLE and
STEEPLED, adding Ethics and Demographic factors. Another avathar is STEER (Socio
cultural, Technological, Economic, Ecological, and Regulatory) analysis.
What are S, W, O, and T?

Strengths are internal competencies of a firm, particularly in comparison with those of its
competitors. Weaknesses are those factors which tend to decrease the competitiveness of the
firm, particularly in comparison with its competitors. opportunity and vice versa. An acid test
to determine whether a factor is weakness or threat and strength or opportunity is to examine
whether it is an internal factor or external factor.
As mentioned earlier, weaknesses and strengths are invariably factors internal to the
organisation, i.e. they are organisation specific. Threats and opportunities are essentially
43
external to the organisation (external environmental factors) but are factors which affect the
organisation
SW OT
Internal (Organisational) Strengths

Weakness External (Environmental) Opportunity
Threats
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45
SWOT MATRIX
BENEFITS AND PITFALLS OF SWOT ANALYSIS
Proper SWOT analysis is very beneficial to organisations in several ways. At the same time,
it has several limitations/pitfalls.
Benefits
SWOT is a prerequisite for proper strategic planning.
1. Analysis of strengths and weaknesses is a real introspection of an organisation. It gives an
in-depth understanding of the strengths and weaknesses. It will indicate measures to be taken
to overcome/minimise the weakness. Even when a company appears not weak on horizontal
evaluation, the absolute evaluation will help it to understand the gap between the potential
and existing.
2. One advantage of analysis of the weaknesses is that sometimes it would reveal that certain
weaknesses are so severe that it becomes necessary to exit certain business or business
functions to make the organisation healthy.
3. Similarly, analysis of the strengths will sometimes reveal that an organisation is
underutilized the resources/strengths. This should trigger new thinking on further
development/improvement of the business.
4. SWOT is very helpful in determining the portfolio strategy which involves decisions
regarding:
46
• Whether the company should continue with all the existing businesses or should it exit any
of the businesses?
• Whether the company should enter any new business?
If the decision is to continue an existing business, SWOT is helpful in determining whether
the company should follow a:
• Stability strategy, or
• Growth strategy, or
• Retrenchment strategy or
• Combination strategy
If the decision is to enter a new business, SWOT helps the decision as to:
• Which specific segments/space of the business to enter?
• What should be the entry strategy (for example, acquisition or greenfield enterprise; wholly
owned enterprise or joint venture etc.)
• What business functions should the company carry out (for example, all the phases of the
business – i.e., product development to marketing or only some functions, like marketing but
the product is outsourced or some of the marketing functions are outsourced. In short, SWOT
analysis helps an organisation to:
• Understand the weaknesses and explore ways and means to overcome/minimise them.
• Understand the strengths and ponder over how best they can be used for further
development of the organisation, like strengthening its existing business, entering new
business etc.
• Understand the threats so that appropriate measures can be taken to combat the threats by
using the strengths, minimising/overcoming the weaknesses or restructuring (including
portfolios restructuring).
• Understand the opportunities so that the organisation can ponder over how best the
opportunities can be taken advantage of using/augmenting its strengths.
Limitations/Pitfalls
1. As mentioned earlier, a SWOT profile reflects the position at the time it is done. The
situation sometimes changes quickly and drastically. Hence, there shall be regular review of
the internal and external environments. Otherwise, the SWOT profile could become
misleading in the changed situation.
2. There are chances of subjectivity in the SWOT analysis. There could be differences in the
perception of a particular thing by different people. 3. Vested interests or biases affecting
SWOT analysis also cannot be ruled out.
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4. SWOT analysis demands in-depth knowledge about the company, the industry in its global
setting and the business environment as a whole. The implication is that if the analysis is not
done by a team with the required expertise, the SWOT profile that emerges would not be the
right one. 5. SWOT analysis has tremendous strategic implications. An improper SWOT
analysis can
land an organisation in very serious trouble.
GAP ANALYSIS Gap analysis compares achieved or projected performance with desired
performance. It is particularly useful for identifying performance shortfalls (‘gaps’) and,
when involving
projections, can help in anticipating future problems. The size of the gap provides a guide to
how far the strategy needs to be changed. Figure shows a gap analysis where the vertical axis
is some measure of performance (e.g. sales growth or profitability) and the horizontal axis
shows time, both up to ‘today’ and into the future. The upper line represents the
organisation’s desired performance, in terms of strategic objectives or perhaps the standard set
by competitor organisations. The lower line represents both achieved performance to today
and projected performance based on a continuation of the existing strategy into the future (this
is necessarily an estimate). In Figure 1 , there is already a gap between achieved and desired
performance: performance is clearly unsatisfactory.
However, the gap in Figure is projected to become even bigger on the basis of the existing
strategy. Assuming ongoing commitment to the desired level of performance, the organisation
clearly needs to find ways of adjusting its existing strategy in order to close the gap. We turn
now to the evaluation of strategic options.
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McKinsey 7S Framework
Tom Peters and Waterman in their famous book In Search of Excellence: Lessons from
America’s Best-run Companies point out that the success of an organisation depends on a
number of mutually supporting variables, besides strategy and structure. Their research has
shown that any intelligent approach to organising had to encompass, and treat as
interdependent, at least seven variables: structure, people, management style, systems and
procedures, guiding concepts and shared values (i.e.,culture). They defined this idea more
precisely and elaborated what came to be known as the McKinsey 7-S Framework. This
framework has caught on around the world as a useful way to think about organising and has
helped in forcing explicit thought about not only the hardware – strategy and structure – but
also about the software of organisation – style, systems, staff (people), skills, and shared
values. Their exposition has led to the realisation that real change in large institutions is a
function of at least seven hunks of complexity. This also indicates the difficulty of changing a
large institution in any fundamental way. Their study of America’s best-run companies has
identified eight attributes that characterise most nearly the distinction of the excellent,
innovative companies. They are as follows:
1. A Bias for Action. In many companies, they employ a host of practical devices to maintain
corporate fleetness of foot and counter the situation that almost inevitably comes with size.
Even though the best-run companies may be analytical in their approach to decision-making,
they are not paralysed by that fact.
2. Autonomy and Entrepreneurship. The innovative companies foster innovation and
leadership throughout the organisation. And they encourage practical risk taking, and support
good tries.
3. Productivity through People. An excellent company treats the rank and file as the root
source of quality and productivity..
4. Hands-on, Value-driven. It is held that the basic philosophy of an organisation has far
more to do with its achievements than do resources or strategic factors. 5. Stick to
Knitting. Although there are exceptions, excellent performance, often, seem strongly to
favour those companies that stay reasonably close to businesses they know.
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6. Lean Simple Form, Lean Staff. The underlying structural forms and systems in excellent
companies are elegantly simple and the top-level staff are. 7. Simultaneous Loose – Tight
Properties. The excellent companies are both centralised and decentralised. For the most part
they have pushed autonomy down to the shop floor or product management team. On the
other hand, they are frantic centralists around the few core values they hold.
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GE Nine(9) Cell Matrix GE nine-box matrix is a strategy tool that offers a systematic
approach for the multi business enterprises to prioritize their investments among the various
business units. It is a framework that evaluates business portfolios and provides further
strategic implications. Each business is appraised in terms of two major dimensions – Market
Attractiveness and Business Strength. If one of these factors is missing, then the business will
not produce desired results. Neither a strong company operating in an unattractive market, nor
a weak company operating in an attractive market will do very well
The vertical axis denotes: Industry attractiveness indicates how hard or easy it will be for a
company to compete in the market and earn profits. The more profitable the industry is the
more attractive it becomes. When evaluating the industry attractiveness, analysts should look
how an industry will change in the long run rather than in the near future, because the
investments needed for the product usually require long lasting commitment.
● Long run growth rate

● Industry size
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● Industry profitability: entry barriers, exit barriers, supplier power, buyer power, threat
of substitutes and available complements (use Porter’s Five Forces analysis to
determine this)
● Industry structure (use Structure-Conduct-Performance framework to determine this)
● Product life cycle changes
● Changes in demand
● Trend of prices
● Macro environment factors (use PEST or PESTEL for this)
● Seasonality
● Availability of labor
● Market segmentation
Horizontal axis represent: Along the X axis, the matrix measures how strong, in terms of
competition, a particular business unit is against its rivals. In other words, managers try to
determine whether a business unit has a sustainable competitive advantage (or at least
temporary competitive advantage) or not.
● Total market share

● Market share growth compared to rivals
● Brand strength (use brand value for this)
● Profitability of the company
● Customer loyalty
● VRIO resources or capabilities (use VRIO framework to determine this) ● Your
business unit strength in meeting industry’s critical success factors (use Competitive
Profile Matrix to determine this)
● Strength of a value chain (use Value Chain Analysis and Benchmarking to determine
this)
● Level of product differentiation
● Production flexibility
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Green zone Suggests you to ‘go ahead’, to grow and build, pushing you through expansion
strategies. Businesses in the green zone attract major investment. Yellow zone Cautions you
to ‘wait and see’ indicating hold and maintain type of strategies aimed at stability.
Red zone Indicates that you have to adopt turnover strategies of divestment and liquidation or
rebuilding approach. Advantages
1. Helps to prioritize the limited resources in order to achieve the best returns. 2. The
performance of products or business units becomes evident. 3. It's a more sophisticated
business portfolio framework than the BCG matrix. 4. Determines the strategic steps the
company needs to adopt to improve the performance of its business portfolio.
Disadvantages
1. Needs a consultant or an expert to determine industry’s attractiveness and business unit
strength as accurately as possible. 2. It is expensive to conduct. 3. It doesn’t take into account
the harmony that could exist between two or more business units.
Balanced Scorecard
The balanced scorecard is a strategic planning and management system that is used
extensively in business and industry, government, and nonprofit organizations worldwide
to align business activities to the vision and strategy of the organization, improve internal
and external communications, and monitor organization performance against strategic
goals. It was originated by Drs. 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. While the phrase balanced scorecard
was coined in the early 1990s, the roots of the this type of approach are deep, and include
the pioneering work of General Electric on performance measurement reporting in the
1950‘s and the work of French process engineers (who created the Tableau de Bord –
literally, a "dashboard" of performance measures) in the early part of the 20th century.
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The balanced scorecard has evolved from its early use as a simple performance measurement
framework to a full strategic planning and management system. The balanced scorecard
transforms an organization‘s strategic plan from an attractive but passive document into the
active plan for implementation for organization on a daily basis. It provides a framework that
not only provides performance measurements, but helps planners identify what should be
done and measured. It enables executives to truly execute their strategies.
Recognizing some of the weaknesses and vagueness of previous management approaches,

the balanced scorecard approach provides a clear prescription as to what companies
should measure in order to 'balance' the financial perspective. The balanced scorecard is a
management system (not only a measurement system) that enables organizations to
clarify their vision and strategy and translate them into action. Kaplan and Norton
describe the innovation of the balanced scorecard as follows:
"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."
Terminal Questions
Possible Six Mark Questions (5 Marks)
1. Write a note on Gap analysis
2. Explain Balance scorecard
3. What is strategy and explain the various types of strategy
Possible Six Mark Questions (9 Marks)

1. Elaborate SWOT analysis with suitable examples for a leading FMCG company.
2. Explain the theoretical framework of McKinsey 7S Framework
3. Describe the GE9 cell matrix in brief with pictorial explanation.
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Case Study (12 Marks)
4. Do a SWOT Analysis for Reliance Gio 4G services in Indian market and analyse the
strategic approach of reliance communication in this regard. 5. Honda motor company is a
Japanese motorcycle, automobile, aircraft and engine manufacture. The company was
founded in 1948 by soichiro Honda, as an automotive parts manufacturer. Honda later
moved to manufacturing motorcycles and has become the world’s largest motorcycle
manufacturer in 1959. In 1962, Honda started manufacturing automobiles and was the
first company to launch a dedicated luxury brand, Acura, in 1986. The company is now
the 8th largest auto manufacturer in the world. Over the years, the company has ventured
into many industries and is now manufacturing jets and robots. Honda always highlighted
that its core business is engines and all the products the company has ventured in is built
around them. Company has been growing significantly over the post few years. Mainly
due to its automobile business. The SWOT of Honda is given under.
Strengths
- Competence in engine manufacturing – company’s core product.
Diversified product portfolio. - Dominance in motorcycle and engine industries
leading to a high brand awareness. - Strong position in Asia’s motorcycle markets.
Weakness
- Dependence on North America to generate most of the revenue. - Low investments in
research and development leading to innovative products. Opportunities
Increasing government regulations. Improving U.S economy. Timing and frequency of
new model releases. Low fuel prices are increasing the demand for pickup trucks and
SUV’s. Threats
Increased competition. Rising Japanese yen exchange rates. Natural disasters.
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Questions:
Based on SWOT, do you think Honda is in difficult situation? (i) What strategy do you
suggest to Honda
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Module 4
STRATEGY IMPLEMENTATION & EVALUATION
Strategic Evaluation
Strategy Evaluation is as significant as strategy formulation because it throws light on the
efficiency and effectiveness of the comprehensive plans in achieving the desired results.
The managers can also assess the appropriateness of the current strategy in today‘s
dynamic world with socio-economic, political and technological innovations. Strategic
Evaluation is the final phase of strategic management.
The significance of strategy evaluation lies in its capacity to co-ordinate the task
performed by managers, groups, departments etc, through control of performance.
Strategic Evaluation is significant because of various factors such as - developing inputs
for new strategic planning, the urge for feedback, appraisal and reward, development of
the strategic management process, judging the validity of strategic choice etc.
The process of Strategy Evaluation consists of following steps
1. Fixing benchmark of performance - While fixing the benchmark, strategists

encounter questions such as - what benchmarks to set, how to set them and how
to express them. In order to determine the benchmark performance to be set, it is
essential to discover the special requirements for performing the main task. The
performance indicator that best identify and express the special requirements
might then be determined to be used for evaluation. The organization can use
both quantitative and qualitative criteria for comprehensive assessment of
performance. Quantitative criteria includes determination of net profit, ROI,
earning per share, cost of production, rate of employee turnover etc. Among the
Qualitative factors are subjective evaluation of factors such as - skills and
competencies, risk taking potential, flexibility etc.
2. Analyzing Variance - While measuring the actual performance and comparing it

with standard performance there may be variances which must be analyzed. The
strategists must mention the degree of tolerance limits between which the
variance between actual and standard performance may be accepted. The positive
deviation indicates a better performance but it is quite unusual exceeding the
target always. The negative deviation is an issue of concern
because it indicates a shortfall in performance. Thus in this case the strategists
57
must discover the causes of deviation and must take corrective action to
overcome it.
3. Taking Corrective Action - Once the deviation in performance is identified, it is

essential to plan for a corrective action. If the performance is consistently less
than the desired performance, the strategists must carry a detailed analysis of the
factors responsible for such performance. If the strategists discover that the
organizational potential does not match with the performance requirements, then
the standards must be lowered. Another rare and drastic corrective action is
reformulating the strategy which requires going back to the process of strategic
management, reframing of plans according to new resource allocation trend and
consequent means going to the beginning point of strategic management process.
Aspects of Strategy Implementation

∙ Creating budgets which provide sufficient resources to those activities which are relevant
to the strategic success of the business.
∙ Supplying the organization with skilled and experienced staff.
∙ Conforming that the policies and procedures of the organisation assist in the successful
execution of the strategies.
∙ Leading practices are to be employed for carrying out key business functions.
∙ Setting up an information and communication system, that facilitate the workforce of the
organisation, to perform their roles effectively.
∙ Developing a favourable work climate and culture, for proper implementation of the
strategy.
RESOURCES ALLOCATION
Resources are a significant investment for most businesses. Therefore, organizations strive to
utilize them optimally for profitability and sustainability. However, managers often focus on
keeping resources occupied with work and assign tasks without considering employee skills
or interests. Resource allocation is an essential step in the resource planning process, and an
efficient resource management system helps achieve the same. Resource allocation, also
known as resource scheduling, recognizes and assigns resources for a specific period to
various activities. These activities can be either project or non-project work such as BAU,
admin, support, operation, etc. Resources can be either fully or partially available. Therefore,
resource managers must take resource availability into account while allocating them to the
projects.
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Resource allocation Benefits
Resource allocation is essential in project management as it allows you to plan and prepare
for project implementation or achieving goals. In addition, it helps schedule resources in
advance and provides an insight into the project team’s progress.
Resource allocation is much more than just delegating assignments. It plays a vital role in
project and operations management and eventually improves business performance. It also
helps achieve optimum utilization and enhances ROI.
Here are some key benefits of resource allocation in project management: i) Reduce project
resource costs significantly ii) Maximize the productivity of resources on projects iii) Enhance
employee engagement and satisfaction iv) Facilitate client satisfaction with successful project
delivery v) Achieve the best outcome within existing resource constraints
ORGANIZATION STRUCTURE
An organization structure serves various functions of the business. It is designed to serve
specific motives. There should also be efforts to match organization structure with changing
needs. A good structure not only facilitates communication but also brings efficiency in
different segments.
Designing Organization Structure:
An organization structure should satisfy the requirements of the business. It should ensure
optimum utilization of manpower and different functions should be properly performed.
There is a need for harmonious relationship among persons at different positions. Designing
of a structure is an important task and it should be undertaken carefully.
Following steps are essential for designing an organization structure:
1. Identifying Activities:
The activities which are required to be performed in achieving organizational objectives
should be identified. The functions to be performed for achieving different goals should be
ascertained and activities relating to these functions should be identified. The major activities
are classified into a number of sub-activities. While identifying activities it should be borne in
mind that no activity has escaped, there is no duplication in activities and various activities
are performed in a coordinated way.
2. Grouping of Activities:
The closely related and similar activities are grouped together for departments, divisions or
sections. The co-ordination among activities can only be achieved through proper grouping.
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The grouped activities can be assigned to different positions. The assignment of activities to
individuals creates authority and responsibility. The authority is delegated to the lower levels
of various departments and responsibility is fixed.
3. Delegation of Authority:
Delegation is an administrative process of getting things done by others by giving them
responsibility. When different positions are created in the organization then work is assigned
to these persons. For getting the work done there is a need for authority. The authority is
delegated to different persons in accordance with the assignment of responsibility. Through
the process of delegation, authority, structure is created in the organization defining who will
formally interact with whom.
Features of a Good Organization Structure:
A good organization structure should meet various needs and requirements of the enterprise.
1. Clear Line of Authority:
There should be a clear line of authority from top to the bottom. The delegation of authority
should be step by step and according to the nature of work assigned. Everybody in the
organization should be clear about his work and the authority delegated to him. In the absence
of this clarity there will be confusion, friction and conflict.
2. Adequate Delegation of Authority:
Delegation of authority must be commensurate with the responsibility assigned. If the
authority is not sufficient for getting the assigned task then the work will not be completed.
Sometimes managers assign work to subordinates without giving them proper authority, it
shows lack of decision-making on their part. An inadequate authority will create problems for
the subordinates because they may not be able to accomplish the task.
3. Less Managerial Levels:
As far as possible minimum levels of management may be created. More the number of these
levels, more the delays in communication. It will take more time to convey the decisions from
the top to the bottom. Similarly, information from lower levels will take much time in
reaching at the top. The number of managerial levels depends upon the nature and scale of
operations. No specific number of levels may be specified for each and every concern but
efforts should be made to keep them at the minimum.
4. Span of Control:
Span of control refers to the number of people a manager can directly supervise. A person
should supervise only that number of subordinates to whom he can directly keep under
contact. The number of people to be supervised may not be universally fixed because it will be
influenced by the nature of work. Efforts should be made to keep a well managed group
under a supervisor otherwise there will be inefficiency and low performance.
5. Simple and Flexible:
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Organizational structure should be very simple. There should not be unnecessary levels of
management. A good structure should avoid ambiguity and confusion. The system should
also be flexible to adjust according to the changing needs. There may be an expansion or
diversification which required reclassification of duties and responsibilities. The organization
structure should be able to incorporate new changes without altering the basic elements.
STRATEGIC CONTROL
“ It is the process by which managers monitor the ongoing activities of an organization
and its members to evaluate whether activities are being performed efficiently and
effectively and to take corrective action to improve performance if they are not” -Sam
Walton
Managers exercise strategic control when they work with the part of the organisation they
have influence over to ensure that it achieves the strategic aims that have been set for it. To do
this effectively, the managers need some decision making freedom: either to decide what
needs to be achieved or how best to go about achieving the strategic aims. Such decision
making freedom is one of the characteristics that differentiate strategic control from other
forms of control exercised by managers (e.g. Operational control – the management of
operational processes).
Strategic controls take into account the changing assumptions that determine a strategy,
continually evaluate the strategy as it is being implemented, and take the necessary steps to
adjust the strategy to the new requirements. In this manner, strategic controls are early
warning systems and differ from post-action controls which evaluate only after the
implementation has been completed.
Important types of strategic controls used in organizations are:
1. Premise Control: Premise control is necessary to identify the key assumptions, and
keep track of any change in them so as to assess their impact on strategy and its
implementation. Premise control serves the purpose of continually testing the
assumptions to find out whether they are still valid or not. This enables the strategists
to take corrective action at the right time rather than continuing with a strategy which
is based on erroneous assumptions. The responsibility for premise control can be
assigned to the corporate planning staff who can identify key asumptions and keep a
regular check on their validity.
2. Implementation Control: Implementation control may be put into practice through the
identification and monitoring of strategic thrusts such as an assessment of the
marketing success of a new product after pre-testing, or checking the feasibility of a
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diversification programme after making initial attempts at seeking technological
collaboration.
3. Strategic Surveillance: Strategic surveillance can be done through a broad-based,

general monitoring on the basis of selected information sources to uncover events that
are likely to affect the strategy of an organisation.
4. Special Alert Control: Special alert control is based on trigger mechanism for rapid
response and immediate reassessment of strategy in the light of sudden and
unexpected events called crises. Crises are critical situations that occur unexpectedly
and threaten the course of a strategy. Organisations that hope for the best and prepare
for the worst are in a vantage position to handle any crisis.
Process of Strategic Control
Strategic control processes ensure that the actions required to achieve strategic goals are
carried out, and checks to ensure that these actions are having the required impact on the
organisation. An effective strategic control process should by implication help an organisation
ensure that is setting out to achieve the right things, and that the methods being used to
achieve these things are working.
Regardless of the type or levels of strategic control systems an organization needs, control
may be depicted as a six-step feedback model:
1. Determine What to Control: The first step in the strategic control process is determining
the major areas to control. Managers usually base their major controls on the organizational
mission, goals and objectives developed during the planning process. Managers must make
choices because it is expensive and virtually impossible to control every aspect of the
organization’s
2. Set Control Standards: The second step in the strategic control process is establishing
standards. A control standard is a target against which subsequent performance will be
compared. Standards are the criteria that enable managers to evaluate future, current, or past
actions. They are measured in a variety of ways, including physical, quantitative, and
qualitative terms. Five aspects of the performance can be managed and controlled: quantity,
quality, time cost, and behavior.
3. Measure Performance: Once standards are determined, the next step is measuring
performance. The actual performance must be compared to the standards. Many types of
measurements taken for control purposes are based on some form of historical standard.
These standards can be based on data derived from the PIMS (profit impact of market
strategy) program, published information that is publicly available, ratings of product /
service quality, innovation rates, and relative market shares standings.
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Strategic control standards are based on the practice of competitive benchmarking – the
process of measuring a firm’s performance against that of the top performance in its industry.
The proliferation of computers tied into networks has made it possible for managers to obtain
up-to-minute status reports on a variety of quantitative performance measures. Managers
should be careful to observe and measure in accurately before taking corrective action.
5. Compare Performance to Standards: The comparing step determines the degree of

variation between actual performance and standard. If the first two phases have been
done well, the third phase of the controlling process – comparing performance with
standards – should be straightforward. However, sometimes it is difficult to make the
required comparisons (e.g., behavioral standards). Some deviations from the standard
may be justified because of changes in environmental conditions, or other reasons.
6. Determine the Reasons for the Deviations: The fifth step of the strategic control
process involves finding out: “why performance has deviated from the standards?”
Causes of deviation can range from selected achieve organizational objectives.
Particularly, the organization needs to ask if the deviations are due to internal
shortcomings or external changes beyond the control of the organization. A general
checklist such as following can be helpful:
1. Are the standards appropriate for the stated objective and strategies? 2. Are the
objectives and corresponding still appropriate in light of the current environmental
situation?
3. Are the strategies for achieving the objectives still appropriate in light of the
current environmental situation?
4. Are the firm’s organizational structure, systems (e.g., information), and resource
support adequate for successfully implementing the strategies and therefore
achieving the objectives?
5. Are the activities being executed appropriate for achieving standard? 7. Take
Corrective Action: The final step in the strategic control process is determining the need
for corrective action. Managers can choose among three courses of action:
1. they can do nothing
2. they can correct the actual performance
3. they can revise the standard.
When standards are not met, managers must carefully assess the reasons why and take
corrective action. Moreover, the need to check standards periodically to ensure that the
standards and the associated performance measures are still relevant for the future.
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IMPLEMENTING STRATEGIC CHANGE
Strategic change is the implementation of new strategies that involve substantive changes
beyond the normal routines of the organization.
There may be slow change where change is introduced gradually in small incremental steps,
so that the roles of managers and a slight change in tasks for other employees, sudden
organizational change will encounter more resistance however carefully it is handled, so that
for example, closing out without some resistance as people lose their jobs or the
circumstances in winch they work alter.
Strategic change is the movement of a company away from its present state towards some
desired future state to increase its competitive advantage. Many companies have gone through
some kind of strategic change as their managers have tried to strengthen their existing core
competences and build new ones to compete more effectively.
Strategic change has to be managed according to the needs of various organizational
stakeholders. The key players are those with a high level of interest in an organization and a
high level of power. For example, major shareholders are likely to have strong interest in a
company and also a high level of power.
Strategic Change – Meaning
Strategic change is the implementation of new strategies that involve substantive changes
beyond the normal routines of the organization. There may be slow change where change is
introduced gradually in small incremental steps, so that the roles of managers and a slight
change in tasks for other employees, sudden organizational change will encounter more
resistance however carefully it is handled, so that for example, closing out without some
resistance as people lose their jobs or the circumstances in winch they work alter.
Strategic Change – Organizational Politics and Strategic Change
Organizational politics are tactics that strategic managers engaged in to obtain and use power
to influence organizational goals and change strategy and structure to further their own
interests.
Top management often conflict regarding the correct policy decisions. Power struggles and
coalition building are a major part of strategic decision-making. In this political view of
decision-making, obstacles to change are overcome and compromise, bargaining, and
coalition of managers and settle conflicts over goals by the outright use of power.
This section will consider the relationship between strategic change and organizational
politics and the process of political decision-making.
We will consider mainly three aspects of organizational politics:
(a) Politics is an essential part of managing the strategic change process.
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(b) The managers and divisions can increase their power to influence the company’s strategic
direction.
(c) The ways in which a company can manage politics to overcome inertia and implement
change.
If an organization requires transformational change, the power structures in the organization
will need to be reshaped. This may happen simultaneous with certain members of the
organization who question the existing ways of operating. This momentum for change will
require full support of the top management.
Not only the chief executive but also every manager involved in managing change needs to
consider how it might be implemented from a political perspective. They should also realize
that analysis and planning may themselves take on political dimensions. So managers should
also be sensitive to the political dimensions of their activities for the simple reason that the
political activity might itself help to effect change.
Strategic Change – Power and Strategic Change

The political systems of an organization play a significant role in the implementation of
strategy. Some political mechanisms have identified that serve the purposes of building a
power base, encourage support or overcome resistance, and achieve commitment. The
mechanisms include:
(a) The manipulation of organizational resources,
(b) The relationship with power groups and elites,
(c) Activity with regard to subsystems in the organization, and
(d) Symbolic activity.
Strategic Change – Managing and Evaluating Change

Who should carry out the change- internal managers or external consultants? There are
advantages of internal managers. They may have the most experience or knowledge about a
company’s operations. But they may lack perspective because they are too much a part of the
organization’s culture. They appear to be politically motivated and a personal stake in the
changes they recommend.
Companies often look for external consultants. They view a situation more objectively. But
they spend a lot of time learning about the company and its problems before they can propose
a plant of action. It is for both these reasons that many companies have brought in new CEOs
from outside the company to spearhead their change efforts. In this way, companies can get
the benefits of both inside information and external perspective.
A company can use two main approaches to manage change:
(a) Top-down change, and
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(b) Bottom up change
(a) Top Down Change:
In this approach, a strong CEO or a top management team analyzes means to change strategy
and structure, recommends a course of action, and then moves quickly to restructure and
implement change in the organization. The emphasis is on speed of response and management
of problems as they occur.
(b) Bottom up Change:
Bottom up change is much more gradual. Top management consults with managers at all
levels in the organization. Then, over time, it develops a detailed plan for change, with a
timetable of events and stages that the company will go through. The emphasis in bottom-up
change is on participation and on keeping people informed about the situation, so that
uncertainty is minimized.
This approach removes some of the obstacles to change by including them in the strategic
plan. Furthermore, the purpose of consulting with managers at all levels is to reveal potential
problems. But this approach is slow.
Companies can manage overall change with an approach called dynamic stability. Dynamic
stability is a process of continual but relatively small change efforts that involve the
reconfiguration of existing practices and business models rather than the creation of new ones.
Dynamic stability requires that the changes must be implemented at the right interval.
Dynamic stability to be achieved involves processes of tinkering and kludging. Tinkering is
where someone is always making things, fiddling with odd nuts and bolts and pieces of old
machines.
Companies such as 3M and Hewlett Packard are world-class tinkerers. They go into the
corporate basement, where they rapidly pull together inspired solutions to their problems.
Dow Chemical, for example, developed Saran Wrap for an industrial coating application. With
a little tinkering- and a lot or experience in marketing and branded consumer products—Dow
successfully aimed the product at consumers, an entirely different market. Tinkering, of
course, do not guarantee successful change. But it is less costly, less destabilizing, and
quicker than creative destruction and invention.
Kludging is tinkering supported by college education. It takes place on a larger scale and
involves many more parts. Some of the parts can come from outside a company’s existing
portfolio—as they do in mergers and acquisitions. Skills in particular functions or standard
technologies or models are the components of a kludge.
These are assets lying around an organizations backyard. Because they are so large, kludges
can result in the creation of a division or an entire business. For example, GKN, a British
industrial conglomerate, faced with a problem of contract cancellations. The organizations
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would contracts and then find engineers to staff the projects, but sometimes contracts would
get postponed or cancelled, leaving engineers idle.
To deal with this recurrent situation, GKN’s units started to rent out their idle engineers for
short assignments elsewhere, pulling them back in to the organization as needed. The units
started the practice on an informal basis, but it proved so successful that GKN created a new
company to manage the hiring out of its own- and other companies’ engineers on short-term
contracts.
The new company, CEDU, was for all intents and purposes a sophisticated employment
agency. The business model had been known in the organization for years. To make more
money from it, GKN had to do was formalize the practice in a new economy. Old economy
companies that to adapt to the new economy can use kludging very effectively. Abrahamson
emphasized that big and small change must be implemented at the right intervals. Because the
companies that already have been changing rapidly face a different challenge of learning to
shift down from highly destabilizing and disruptive change to tinkering and kludging.
The last step in the change process is to evaluate the effects of the changes in strategy and
structure on organizational performance. A company must compare the way it operates after
implementing change with the way it operated before. Changes in stock market price or
market share are the measures to assess the effects of change in strategy. To assess the effects
of changes in structure on a company’s performance is more difficult to measure.
Strategic Change – Barriers to Change: Behavioral Resistance, Resources Constraints,

Environmental Barriers and Organizational Obstacles
1. Behavioral Resistance:
Behavioral resistance is one of the important barriers to change. Fry and Killing discussed
two types of behavioral resistance viz. inertial resistance and conscious resistance. “Inertial
resistance to change arises from the existing perceptions, beliefs, and habits of work in the
organization. Inertial obstacles are critical factors whenever the strategic requirements call for
changes of culture, management style, and management preferences. The impact of inertial
forces is to delay or distort awareness, understanding and response to strategic requirements.”
“Conscious resistance on the part of individuals or groups consists of deliberate actions or
inaction that is intended to delay or deny change. Conscious resistance may be covert or
overt, it may range from foot dragging to outright organized challenge, and it may spring
from a variety of motives.”
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2. Resource Constraints:
In many cases, resource constraints prove to be an important barrier to change. For example,
change strategy may involve large investment that the organization finds very difficult to
mobilize. Some firms may even by human resource constraint.
For example, an organization in a bad shape may experience the light of talented personnel
and it may be difficult to make up the deficiency by new appointments, as people may be
hesitant to join such organization.
3. Environmental Barriers:
Environmental factors may also create an obstacle in the way of change. For example, many
government policies affect adversely strategic change. Sometimes a company also has to face
opposition from the public on account of the technology adopted, ecological, product mix,
labor policy etc.
4. Organizational Obstacles:
Strategic managers must also analyze the factors that cause organizational inertia. Hill and
Jones have identified obstacles to change at four levels in the organization. These include:
i. Corporate Obstacles:
The present structure and strategy of a company may become powerful obstacles to change at
the corporate level. They create a large amount of inertia to overcome before change can take
place. This is why strategic change is usually a slow process. The type of structure a company
uses and the corporate culture can also cause obstacles to change.
ii. Divisional Obstacles:
If divisions are highly interrelated, change is difficult at the divisional level. If a company is
pursuing a strategy of related diversification, a shift in one division’s operations is likely to
affect operations of other divisions and so it becomes more difficult to manage change.
Changes in strategy affect different divisions in different ways, because change generally
favors the interests of some divisions over those of others.
Managers in the different divisions may thus have different attitudes to change, and some will
be less supportive than others. Existing divisions may resist establishing new product
divisions, for example, because they will lose resources and their status in the organization
will diminish.
iii. Functional Obstacles:
Similarly different functions have different strategic orientations and goals and react
differently to the changes management proposes. Differences in functional orientation make it
hard to formulate and implement a new strategy and slow a company’s response to change in
the competitive environment.
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iv. Individual Obstacles:
People simply resist change as it involves uncertainty that breed insecurity and fear of the
unknown. This individual resistance reinforces the tendency of each function and vision to
oppose change that may have uncertain effects on him or her.
All these obstacles make it difficult to change organizational strategy or structure quickly.
Terminal Questions:
Possible Five Mark Questions

1. Explain Strategic Evaluation with suitable examples.
2. State the Aspects of Strategy Implementation
3. Write a note on Resources Allocation
4. List out the various benefits of Resource allocation
5. Define organization structure with examples.
6. Explain Strategic control
7. What is strategic change?
8. State the Features of a Good Organization Structure
Possible Essay Type Questions ( 9 Marks)

1. Describe the process of Strategy Evaluation.
2. Describe the essential steps for designing an organization structure
3. Elaborate the process of strategic control.

1. implementing a strategy successfully depends on selecting the right combination of
organizational structure, control system and culture- “Explain
2. What are the different ways to implement a retrenchment strategy without creating a lot
of resentment and conflict with labour union? Explain with appropriate examples. 3.
Identify the most appropriate organizational structure for a firm pursuing a cost –
leadership strategy, and identify the basic responsibilities of CEO in this type of
organization.
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MODULE -5
OTHER STRATEGIC ISSUES
Research studies have pointed out that innovative companies such as 3M, Procter Gamble
and Rubbermaid are slow in introducing new products and their rate of success is not
encouraging
1) MANAGING TECHNOLOGY AND INNOVATION
1.1) Role of Management:
The top management should emphasize the importance of technology and innovation and
they should provide proper direction.
∙ Environmental Scanning
∙ External Scanning
∙ Impact of stakeholders on innovation
∙ Lead users
∙ Market Research
∙ New product Experimentation
∙ Internal scanning
∙ Resource allocation issues
1.2) Time to Market Issues:
The new product development period is again a crucial issue. Within four years many new
products are imitated. Shorter the period, more beneficial for the company. Japanese auto
manufacturers have gained competitive advantage over their rivals due to relatively short
product development cycle.
Strategy Formulation
The following crucial questions are raised in strategy formulation
• Is the firm a leader or follower in respect of R&D strategy?
• Should we develop our own technology?
• Or should we go for technology outsourcing?
• What should be the mix of basic and applied research?
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1.3) Technology sourcing:
There are two methods for acquiring technology. It involves make or buy decision. In
house R&D capability is one method and tapping the R&D capabilities of competitors,
suppliers and other organizations through contracts is another choice available for
companies.
Strategic R&D alliance involves

• Joint programmes to develop new technology
• Joint ventures establishing a separate company to take a new product to market.
• Minority investments in innovative firms.
It will be appropriate for companies to buy technology which is commonly available from
others but make technology themselves which is rare, to remain competitive. Outsourcing
of technology will be suitable under the following conditions.
• The technology is of low significance to competitive advantage • The
supplier has proprietary technology
• The supplier’s technology is easy to adopt with the present system • The
technology development needs expertise
• The technology development needs new resources and new people
1.4) Technology competence:
In the case of technology outsourcing, the companies should have a minimal R&D
capability in order to judge the value of technology developed by others.
1.5) Strategy Implementation:
To develop innovative organizations deployment of sufficient resources and development

of appropriate culture are crucial at all stages of new product development.
1.6) Innovative Culture:
Entrepreneurial culture is a part of innovative culture which presupposes flexibility and

dynamism into the structure. ―Diffusion of Innovation‖ observes that an innovative
organization has the following characteristics.
• Positive Attitude to change
• Decentralized Decision Making
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• Informal structure
• Inter connectedness
• Complexity
• Slack resources
• System openness
The employees who are involved in innovative process usually fulfill three different roles
such as:
Product champion
Sponsor
Orchestrator
1.7) Corporate entrepreneurship:
Corporate Entrepreneurship is also known as intrapreneurship. According to Gifford

Pinchot an intrapreneur is a person who focuses on innovation and creativity and who
transforms and dreams of an idea into a profitable venture by operating within the
organizational environment. Intrapreneur acts like an entrepreneur but within the
organizational environment.
1.8) Evaluation and control:
The purpose of research is to gain more productivity at a speedy rate. The effectiveness of
research function is evaluated in different ways in various organizations.
1.9) Improving R&D:
The following best practices can be considered as benchmark for a company‟s R&D
activities.
• Corporate and business goals are well defined and clearly communicated to R&D
department.
• Investments are made in order to develop multinational R&D capabilities to tap
ideas throughout the world.
• Formal, cross functional teams are created for basic, applied and developmental
projects.
New Business models and strategies for the Internet Economy
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2) INTERNET ECONOMY:
The internet economy is an economy is based on electronic goods and services produced
by the electronic business and traded through electronic commerce. The Internet
Economy refers to conducting business through markets whose infrastructure is based on
the internet and world-wide web. An internet economy differsfrom a traditional economy
in a number of ways, including communication, market segmentation, distribution costs
and price.
Impact of the Internet and E-commerce

1. Impact on external industry environment
2. Changes character of the market and competitive environment
3. Creates new driving forces and key success factors
4. Breeds formation of new strategic groups
5. Impact on internal company environment
6. Having, or not having, an e-commerce capability tilts the scales 7.
toward valuable resource strengths or threatening weaknesses
8. Creatively reconfiguring the value chain will affect a firm’s competitivenessrivals.
Characteristics of Internet Market Structure:
Internet is composed of
1. Integrated network of user’s connected computers
2. Banks of servers and high speed computers
3. Digital switches and routers
4. Telecommunications equipment and lines
Strategy-shaping characteristics of the E-Commerce Environment
Internet makes it feasible for companies everywhere to compete in global markets. •

Competition in an industry is greatly intensified by new e-commerce. Strategic
initiatives of existing rivals and by entry of new, enterprising e-commerce rivals. •
Entry barriers into e-commerce world are relatively low
• On-line buyers gain bargaining power
• Internet makes it feasible for firms to reach
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2.1) Effects of the Internet and E-commerce:
Major groups of internet and e-commerce firms comprising the supply side include
1. Makers of specialized communications components and equipment 2.

Providers of communications services
3. Suppliers of computer components and hardware
4. Developers of specialized software
5. E-Commerce enterprises
2.2) Overview of E-Commerce Business Models and Strategies:
Business Models: Suppliers of communications Equipment:

1. Traditional business model of a manufacturer is being used by most firms to make
money.
2. Sell products to customers at prices above costs.
3. Produce a good return on investment
4. Strategic issues facing equipment makers
5. Several competing technologies for various components of the internet
infrastructure exist
6. Competing technologies may have different performance pluses and minuses and be
compatible
Strategy options for suppliers of communications Equipment:

1. Invest aggressively in R&D to win the technological race against rivals 2. Form
strategic alliances to build consensus for favored technological approaches
3. Acquire other companies with complementary technological expertise 4. Hedge
firm’s bets by investing sufficient resources in mastering one or more of the competing
technologies
2.3) Business Models: Suppliers of Communication Services:

1. Business models based on profitably selling services for a fee-based on a flat rate
per month or volume of use
2. Firms must invest heavily in extending lines and installing equipment to have
capacity to provide desired point-to- point service and handle traffic load. 3.
Investment requirements are particularly heavy for backbone providers, creating
sizable up-front expenditures and heavy fixed costs
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2.4) Strategic Options:
1. Provide high speed internet connections using new digital line technology 2.
Provide wireless broadband services or cable internet service
3. Bundle local telephone service, long distance service, cable TV service and Internet
access into a single package for a single monthly fee
Business Models: suppliers of Computer Components and Hardware:
Traditional business model is used-Make money by selling products at prices abovecosts

Strategic approaches Stay on cutting edge of technology Invest in R&D
Move quickly to imitate technological advances and product innovations of rivals Key to
success- Stay with or ahead of rivals in introducing next-generation products Competitive
advantage will most likely be based on strategies key to low cost
• Business Models: Developers of Specialized E-Commerce Software •
Business model involves
• Investments in designing and developing specialized software
• Marketing and selling software to other firms
• Profitability hinges on volume
• Strategic approaches: Sell software at a set price per copy
• Collect a fee for every transaction provided by the software.
• Rent or lease the software
2.5) Business Models: Media Companies and content providers:

• Using intellectual capital to develop music, games, video, and text, media firms
• Charge subscription fees or
• Rely on a pay-per-use model
• Business model of content providers involves creating content to attract users, then
selling advertising to firms wanting to deliver a message
• Key success factors for content providers
• Create a sense of community
• Deliver convenience and entertainment value as well as information.
2.6) Business Models: E-Commerce Retailers:

• Sell products at or below cost and make money by selling advertising to other
merchandisers
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• Use traditional mode of purchasing goods from manufacturers and
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distributors, marketing items at a web store
• Filling orders from inventory at a warehouse
• Operate website to market and sell product/ service and outsource manufacturing,
distribution and delivery activities to specialists.
2.7) Strategic Approaches: E-Commerce Retailers:

• Spend heavily on advertising to build widespread
• Add new product offerings to help attract traffic to firm‟s website.
• Be a first-mover or at worst on early mover
• Pay consideration attention to website attractiveness to generate ―buzz‖ about the site
among surfers
• Keep the web site innovative, fresh, and entertaining
Key Success Factors: Competing in the E-Commerce Environment:

• Employ an innovative business model
• Develop capability to quickly adjust business model and strategy to respond to changing
conditions
• Focus on a limited number of competencies and perform a relatively specialized number of
value chain activities
• Stay on the cutting edge of technology
• Use innovative marketing techniques that are efficient in reaching the targeted audience and
effective in stimulating purchases
• Engineer an electronic value chain that enables differentiation or lower costs or better value
for the money.
3) STRATEGIC ISSUES FOR NON-PROFIT ORGANIZATIONS
1. Introduction
The foundation of an organization (Profit/ Non-Profit) strategic plan is based on its vision and
mission. A good strategic plan includes involvement of all vital resources including staff
resources, time and financial resources (Budget etc.) A Profit making organization aims to
achieve profits whereas; nonprofits’ objectives and effectiveness are different. In principle,
nonprofits provide a service and/or program to meet a defined community need. Functionally,
Non Profit Organizations are the most common type of societal institutions that do not have
commercial interests. However, they are not the only category of non-commercial organizations
that can gain official recognition.
For Private circulation only 77
. Importance of Strategic Planning in Non Profit Organization
Strategic planning is essentially an organization alignment process and can be used by any
organization (Profit/ Non Profit), to establish its long term and short term goals as well as to review
effectiveness of operations on periodic basis. Therefore, Strategic planning is to provide a non-profit
with an integrating mechanism that focuses on a desired future, confirms the organization’s mission,
establishes long term goals and establishes a short term action plan to achieve its goals. Therefore,
the goal of a for-profit company is to return dividends to shareholders or profit to owners over time.
2. Definition
Non-Profit Organization: A Non Profit organization (NPO, also known as a non-business
entity) is an organization the purpose of which is making a profit. A non-profit organization is
often dedicated to furthering a particular social cause or advocating for a particular point of
view. In economic terms, a non-profit organization uses its surplus revenues to further achieve
its purpose or mission, rather than distributing its surplus income to the organization's
shareholders (or equivalents) as profit or dividends. This is known as the non
distribution constraint. The decision to adopt a non-profit legal structure is one that will often
have taxation implications, particularly where the non-profit seeks income tax exemption,
charitable status and so on.
3.1) Objectives and Goals of Non- Profit Organization
Some NPOs may also be a charity or service organization; they may be organized as a profit
corporation or as a trust, a cooperative, or they exist informally. A very similar type of organization
termed a supporting organization operates like a foundation, but they are more complicated to
administer, hold more favourable tax status and are restricted in the public charities they support.
Their goal is not to be successful in terms of wealth, but in terms of giving value to the groups of
people they administer to.
3.1 Functions of Non Profit Organization
Non Profit Organization (NPOs) has a wide diversity of structures and purposes. For legal
classification, there are, nevertheless, some elements of importance:
∙ Management provisions
∙ Accountability and auditing provisions
∙ Provisory for the amendment of the statutes or articles of incorporation
∙ Provisions for the dissolution of the entity
∙ Tax statuses of corporate and private donors
∙ Tax status of the founders.
Formation and structure
In India, non-governmental organizations (NGOs) are the most common type of societal institutions
that do not have commercial interests. However, they are not the only category of non-commercial
organizations that can gain official recognition. For example, memorial trusts, which honor renowned
individuals through social work, may not be considered as NGOs. In Indian context a NGO is
consider as an Institution that carries Human Values, System values (open Business system model,
Internal Process Model and Rational Goal Model).
3.2) Types of Non-Profit Organizations
Non-Profit Organizations can be classified into various sub categories:

a. Trusts: The public charitable trust is a possible form of not-for-profit entity in India. Typically,
public charitable trusts can be established for a number of purposes, including the relief of poverty,
education, medical relief, provision of facilities for recreation, and any other object of general public
utility. Indian public trusts are generally irrevocable. No national law governs public charitable trusts
in India, although many states (particularly Maharashtra, Gujarat, Rajasthan, and Madhya Pradesh)
have Public Trusts Acts.
b. Societies: Societies are membership organizations that may be registered for charitable purposes.
Societies are usually managed by a governing council or a managing committee. Societies are
governed by the Societies Registration Act 1860, which has been adapted by various states. Unlike
trusts, societies may be dissolved.
Section 8 Companies A section 8 company (old section 25 company) is a company with limited
liability that may be formed for "promoting commerce, art, science, religion, charity or any other
useful object," provided that no profits, if any, or other income derived through promoting the
company's objects may be distributed in any form to its members.
They can be registered in four ways:
∙ Trust
∙ Society
∙ Section-25 company (Section 8 as per the new Companies Act, 2013)
∙ Special licensing
∙ Schools
∙ Sports. Registration can be with either the Registrar of Companies (RoC) or the Registrar of
Societies (RoS).
The following laws or Constitutional Articles of the Republic of India are relevant to the NGOs:
∙ Articles 19(1)(c) and 30 of the Constitution of India

∙ Income Tax Act, 1961
∙ Public Trusts Acts of various states
∙ Societies Registration Act, 1860
∙ Section 25 of the Indian Companies Act, 1956 (Section 8 as per the new Companies Act,
2013) ∙ Foreign Contribution (Regulation) Act, 1976. 5. Stakeholders of a Voluntary Non
Profit Organization
Stakeholders of a voluntary nonprofit organization

• Beneficiaries/service-users/clients;
• Members
• Statutory funders;
• Individual or corporate donors;
• Staff;
• Volunteers
• Board of management;
• Agencies who refer clients or to whom the organization refers clients;
• Regulatory bodies
3.3) Strategic Management in NGOs

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FUNDAMENTALS OF STRATEGY

STRATEGY AND PROCESS

Strategy is a well-defined roadmap or a goal post to be achieved of an organization. It

Strategic Formation Process:

1. These are precise and measurable.

How strategy is initiated?

Management’s recognition of a performance gap: A performance gap exists when

Basic model of strategic management

Strategic decision making

Mintzberg’s modes of strategic decision making

Stake holders in Business:

Stake holder‘s relationship management

Stake holder‘s Analysis:

Responsibilities of the board

1. Setting corporate strategy ,overall direction, mission and vision

Role of board in strategic management

What is corporate social responsibility?

The key drivers for CSR are

Social investment - contributing to physical infrastructure and social capital is increasingly

Corporate social responsibility is represented by the contributions undertaken by companies

Possible Six Mark Questions

Case study (12 Marks)

Four forecasting techniques are discussed as follows:

Fig: Porter's Five Forces Model and Strategic Group

RESOURCES, CAPABILITIES AND COMPETENCIES

Possible Essay Type Questions (9 Marks)

Case study (12 Marks)

Stability strategy-Expansion strategy-Retrenchment strategy-Combination strategies Business

Why Do Companies Adopt a Stability Strategy?

Types of Stability Strategies

Types of Growth/Expansion Strategies

Intensive Growth Strategies :

Market Penetration Strategy :

Market Development Strategy :

Product Development Strategy :

INTEGRATIVE GROWTH STRATEGIES

There are broadly two types of integrative growth:

Reasons for Retrenchment Strategy TO DO

Reasons for Diversification

Following are important possible synergies.

What are S, W, O, and T?

Internal (Organisational) Strengths

● Long run growth rate

● Total market share

Recognizing some of the weaknesses and vagueness of previous management approaches,

Possible Six Mark Questions (9 Marks)

1. Fixing benchmark of performance - While fixing the benchmark, strategists

2. Analyzing Variance - While measuring the actual performance and comparing it

3. Taking Corrective Action - Once the deviation in performance is identified, it is

Aspects of Strategy Implementation

∙ Supplying the organization with skilled and experienced staff.

3. Strategic Surveillance: Strategic surveillance can be done through a broad-based,

Process of Strategic Control

5. Compare Performance to Standards: The comparing step determines the degree of

Strategic Change – Power and Strategic Change

Strategic Change – Managing and Evaluating Change

Strategic Change – Barriers to Change: Behavioral Resistance, Resources Constraints,

Possible Five Mark Questions

Possible Essay Type Questions ( 9 Marks)

Case study (12 Marks)

1) MANAGING TECHNOLOGY AND INNOVATION

1.1) Role of Management:

1.2) Time to Market Issues:

Strategic R&D alliance involves