Unit 1

1.1 Understanding Strategy

Mrs. Kalyani Kapate

 Learning Objectives
• Study the concept of Strategy and levels of strategy
• Study the concept of Strategic Management and its
characteristics
• Study the phases of Strategic Management process
• Study the meaning and attributes of Strategic Intent
• Discuss the concept of vision, mission, difference between vision
and mission and study the linking of objectives to mission and
vision
• Study the concept of critical success factors(CSF)
• Study the concept of Key Performance Indicators (KPI)
• Study the concept Key Result Areas(KRA)

Mrs. Kalyani Kapate

 INTRODUCTION TO STRATEGY
 A strategy is a business approach to a set of
competitive moves that are designed to
generate a successful outcome.
 A strategy is management’s game plan for
 Strengthening the organization’s competitive
position
 Satisfying customers
 Achieving performance targets

Mrs. Kalyani Kapate

Definition: Johnson and Scholes (Exploring Corporate Strategy) define strategy as
follows:

“Strategy is the direction and scope

of an organisation over the long-
term: which achieves advantage for
the organisation through its
configuration of resources within a
challenging environment, to meet
the needs of market and to fulfil
stakeholders expectations.”

Mrs. Kalyani Kapate

 Strategy is concerned with…………………..

01 Scope Which markets should a business compete

in/ what kind of activities

Local or international Market 02

What resources (skills, assets, finance,

03 Resources
relationships, technical competence, facilities) are
required
What external, environmental
factors affect Environment: 04

05 Stakeholders What are the values and expectations

Mrs. Kalyani Kapate

 Top Management Responsibility

Allocation of Resources

Impact on long term prosperity of the

firm
FEATUERS OF
STARTEGY Future Oriented

Multi-Functional

Consideration of External
Environment

Mrs. Kalyani Kapate

 Strategy is about:

Resources
Better business
required to compete
performance than
competitors

Market scope – Impact of

which markets External
and activities Environmental
Facrtors
Strategy
is about

Mrs. Kalyani Kapate

 PLAN V/S STRATEGY

 A plan is an arrangement, a pattern, a program, or a scheme for a definite

purpose.
 A plan is very concrete in nature and doesn’t allow for deviation
 Whereas
 A strategy, on the other hand, is a blueprint, layout, design, idea used to
accomplish a specific goal.
 A strategy is very flexible and open for adaptation and change when needed.

Mrs. Kalyani Kapate

Corporate
LEVELS OF STRATEGY:
Business

Functional

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 Corporate Level Corporate Office

Business Level

SBU 1 SBU 2 SBU 3

Functional Level

Research and Marketing Human

Manufacturing Finance
Development Resources

Mrs. Kalyani Kapate

Goodyear’s strategic business units are North American
Tire; Latin American Tire; Asia Pacific Tire; and
Europe, Middle East, and Africa Tire.

Goodyear’s SBUs are set up to satisfy customers’

needs in different worldwide markets.

Mrs. Kalyani Kapate

 1. Corporate
level strategy 1. Corporate level strategy: Plan of action covering
various functions performed by different SBU’s.

2.SBU Level Strategy: A comprehensive plan Which

2.SBU provides objectives for SBU’s , Allocation of resources among
Level various functional areas and coordination between them.
Strategy: Purpose: For contribution to the achievement of corporate
level objectives.
3. Functional Level Strategy: relatively a restricted plan,
Provides objectives for a specific Function, allocation of resources
3. Functional Level among different operations within the functional area and
Strategy coordination between them.
Purpose: For contribution to the achievement of corporate level
objectives.

Mrs. Kalyani Kapate

 Levels of Strategy: STRATEGIC BUSINESS UNITS (SBU)

1. Corporate level  SBU is a part of business

strategy: Plan of action organization which is
covering various functions treated separately and is
performed by different SBU’s. involved in single line of
it deals with company business.
objectives, allocation &
 Ex: 1.Bajaj Electricals
coordination of resources of
Ltd(BEL)-
SBU’s for optimal
performance.  2.Pepsico

Mrs. Kalyani Kapate

 DIFFERENCE BETWEEN STRATEGY AND TACTICS

Strategy Strategy

Defines your long-term goals Overall Action plan-

design plans to achieve them operational patterns, activities

oriented towards shorter timeframes Best practices, specific plans,

resources
More concrete
Actual Means used to
achieve objectives

Tactics Tactics

Mrs. Kalyani Kapate

 DIFFERENCE BETWEEN TACTICS AND STRATEGY

BASIS FOR
TACTICS STRATEGY
COMPARISON
Meaning A carefully planned action made to A long range blue print of an
achieve a specific objective organization’s expected image and
destination
Concept Determines how the strategy be An organized set of activities that can
executed lead the company to differentiation

Nature Preventive Competitive

What it is – Nature Action Action Plan

Focus on Task Purpose

Formulated at Middle Level Top Level

Risk Involved Low High

Approach Reactive Proactive

Flexibility High Comparatively Less

Orientation Towards the present conditions Future Oriented

Mrs. Kalyani Kapate

 EXAMPLES:

OBJECTIVEs
GOAL
 Increase sales revenue by 20% by the End of the Year  Increase Traffic To Website by 50% compared with last year

 Increase Repeat Purchases by 10% compared with last year

STRATEGY TACTIC
 Engage Target Audience at key touch points in their
 Run Facebook Advertising at lunchtimes based around similar
day when receptive to brand messaging
interests
 Drive traffic from new unique visitors to your
 Create content around the shopping & lifestyle needs of your
website customers
 Run Online Banner Advertising on XYZ sites targeted at TA in the
 Encourage Repeat Purchases from Existing
evenings
Customers

Mrs. Kalyani Kapate

STRATEGIC MANAGEMENT

 Strategic management is the continuous planning,

monitoring, analysis and assessment of all that is necessary
for an organization to meet its goals and objectives.

Mrs. Kalyani Kapate

 STRATEGIC MANAGEMENT:

Strategy Strategy
formulation implementation

Environmental Strategic Evaluation &

scanning Management is a set Control
of management
decisions and actions
that determines the
long run
performance of a
corporation.

Mrs. Kalyani Kapate

 STRATEGIC MANAGEMENT VS OPERATIONAL MANAGEMENT:

• Operational management is
obligatory for organizations to manage
the daily activities seamlessly.With its
Concept help, an organization is able to make
good use of its resources like labour, raw
material, money and other resources.

• Operational management is the

management of the various business
Meaning activities that take place within an
organization

Mrs. Kalyani Kapate

 Similarities and Differences:

 Strategic Management requires: understanding of competitive

forces in the market ,organizational strengths and weaknesses.
Strategic  Decisions : changes in product line up or features, locations of new
Managment manufacturing plants, selection of new technology systems, decisions
on outsourcing.
 Flexible Strategic plans to adapt to change

 Operational management is concerned with the day-to-day

Operation
Management activities required to produce goods and services,

Mrs. Kalyani Kapate

 Similarities and Differences:

 Focuses on strategic implementation, competitive strategy,

mergers and acquisitions, and managerial economics.
Strategic  Strategic management functions determine direction.
Management
 Strategic managers must understand what is going on at
the operational level.

 Focuses on - daily operations, such as logistics management,

production and operations management, and supply chain
Operation management.
Management  Operational management functions make the strategic plan
happen at ground level.
 Operational managers need a grasp of strategic
considerations.

Mrs. Kalyani Kapate

 Similarities and Differences:

 Roles in operational and strategic management exist in all types of

organizations
 Entrepreneurs and managers of new start-up operations also require
Strategic strategic management skills.
Management
 Top executives typically require both strategic management and
operational management skills.
 Manager of corporate planning, vice president of strategic planning and
director of marketing are examples of strategic management roles.

 Quality control supervisor, assembly department manager

Operation and vice president of manufacturing are examples of
Management operational management roles

Mrs. Kalyani Kapate

 STAKEHOLDERS IN BUSINESS AND THEIR ROLES

 Stakeholders are the people

who are affected by a firm’s
performance and who have
claims on it’s performance.

Mrs. Kalyani Kapate

ROLES OF STAKEHOLDERS IN STRATEGIC MANAGEMENT

Decision Making, Planning and execution, Performance of

various operational activities towards achievement of objectives

Owners
Managers External
Employees Stakeholders

Internal Roles of Stakeholders Suppliers

Stakeholders Society
Customers
etc

Providing resources required

Mrs. Kalyani Kapate

PHASES OF STRATEGIC MANAGEMENT PROCESS

Establishment
01 of strategic
Intent

Strategy
Formulation 02

Implementation
03 of Strategies

Strategic
Evaluation 04

Mrs. Kalyani Kapate

STRATEGIC MANAGEMENT PROCESS

Mrs. Kalyani Kapate

 1. ESTABLISHMENT OF STRATEGIC INTENT

Establishment Strategy
01 of strategic Formulation 02
Intent

Vission Environmental Appraisal &

Organizational Appraisal
Mission
SWOT analysis
Business Definition
Corporate level strategies
Business Model
Business level strategies

Objectives Strategic analysis & Choice

Strategic Plan

Mrs. Kalyani Kapate

 1. ESTABLISHMENT OF STRATEGIC INTENT

Implementation Strategic
03 of Startegies Evaluation 04

Project

Procedural

Resource Allocation

Structural

Behavioural

Functional
Operational

Mrs. Kalyani Kapate

 Establishment
01 of strategic
Hierarchy Of The Strategic Intent Framework:
Intent

 Strategic intent refers to the

purpose for which the
organization strives for.
 It lays down the framework
within which firms would
operate, adopt a predetermined
direction and attempt to achieve
their goal.

Mrs. Kalyani Kapate

 Establishment
01 of strategic Vision And Mission:
Intent

• Is a picture of what the firm wants to be and what it wants to

ultimately achieve.
Vision • Is a statement which articulates the ideal description of an
organization and gives shape to its intended future.

1. “To be globally respected corporation that provides best-of-breed

business solutions, leveraging technology, delivered by best-in-class
people.”-------------------------------------------Infosys

Examples of 2. “To be a respected world class corporation and the leader in Indian
Vission of steel business in quality, productivity, profitability and customer
Companies satisfaction”.-------------------------------------------Steel authority of
India (SAIL)

3. “Leadership through differentiation.”--------------------------------------

--------The Park Group of Hotels

Mrs. Kalyani Kapate

 Establishment
01 of strategic
Intent

Vision General Motors’ vision is to be the world leader in

transportation products and related services.

PepsiCo’s responsibility is to continually improve all aspects of the

world in which we operate – environment, social, economic –
creating a better tomorrow than today.

Mrs. Kalyani Kapate

 Establishment
01 of strategic
Intent

 Vision is the foundation of firm’s mission.

Mission  It is the purpose or reason for the organization’s existence.
 Definition by Thompson(1997) defines Mission as the ‘essential
purpose of the organization, concerning particularly why it is in
existence, the nature of the business it is in and the customers
it seeks to serve and satisfy’.

Examples of
Mission of  “To achieve our objectives in an environment of fairness,
Companies
honesty and courtesy towards our clients, employees, vendors
and society at large”.----------------------------------------------- Infosys

Mrs. Kalyani Kapate

 Establishment
01 of strategic
Intent

Characteristics of a
 1. It should be feasible
Good Mission
 2.It should be precise
 3.It should be clear
 4.It should be Motivating
 5. It should be Distinctive

Mrs. Kalyani Kapate

 Establishment
01 of strategic Vision and Mission:
Intent

Mrs. Kalyani Kapate

 Establishment
01 of strategic
Intent

Difference Between Vision and Mission

• Where an Organization want to be

in future
Vision • Its an inspiring statement of what
the organization intends to become
in future.

• The strategy/action to achieve the

vision by an organization
Mission
• A mission statement is the reason
for the existence of the organization.

Mrs. Kalyani Kapate

THE PROCESS OF
ENVISIONING: Well-Conceived Vision

ENVISIONED
CORE IDEOLOGY
FUTURE

LONG TERM
CORE VALUES AUDACIOUS
GOAL

VIVID
CORE PURPOSE DESCRIPTION OF
ACHEIVEMENT

Mrs. Kalyani Kapate

THE PROCESS OF ENVISIONING:

Core ideology defines the enduring character of an

CORE IDEOLOGY organization that remains unchangeable as it passes
through various changes …..related to technology,
competition

CORE Core values are the fundamental beliefs of a person or

VALUES organization.

Core purpose is an organisation’s reason for being. It

CORE emphasizes how the organisation should view and conduct
PURPOSE itself.

Mrs. Kalyani Kapate

THE PROCESS OF ENVISIONING:

CORE IDEOLOGY A commitment to innovation and excellence.

Apple Computer is perhaps best known for having a

commitment to innovation as a core value. This is
embodied by their "Think Different" motto.
CORE
VALUES A commitment to doing good for the whole. Google, for
example, believes in making a great search engine and
building a great company without being evil.

CORE Kellogg Food Company “Nourishing families so they can

PURPOSE flourish and thrive”

Mrs. Kalyani Kapate

THE PROCESS OF ENVISIONING:

CORE IDEOLOGY
Vision : “To be Earth’s most customer-centric company,
where customers can find and discover anything they might
want to buy online.”
Mission: “We strive to offer our customers the lowest
CORE possible prices, the best available selection, and the utmost
VALUES convenience.”
Core Values: Amazon is guided by following core
values/principles:
Customer obsession, Invent and simplify, Think big, Earn
CORE trust of Others, Deliver results
PURPOSE Core Purpose: Reduction of operational cost so as to
enable the business to minimize cost.

Mrs. Kalyani Kapate

THE PROCESS OF ENVISIONING:

CORE IDEOLOGY
Vision : “To be Earth’s most customer-centric company,
where customers can find and discover anything they might
want to buy online.”
Mission: “We strive to offer our customers the lowest
CORE possible prices, the best available selection, and the utmost
VALUES convenience.”
Core Values: Amazon is guided by following core
values/principles:
Customer obsession, Invent and simplify, Think big, Earn
CORE trust of Others, Deliver results
PURPOSE Core Purpose: Reduction of operational cost so as to
enable the business to minimize cost.

Mrs. Kalyani Kapate

ENVISIONED
FUTURE

Long Term Audacious goal: indicates that ambitious

LONG TERM long-term goals
AUDACIOUS
GOAL

Vivid description of achievement: What it will be

VIVID like to achieve that goal
DESCRIPTION OF
ACHEIVEMENT

Mrs. Kalyani Kapate

 BHAG: Big Hairy Audacious Goal

BHAGs focus on “ audacious 10-to-30- year goals” that propel a company

LONG TERM towards their brand’s vision.
AUDACIOUS GOAL

Mrs. Kalyani Kapate

  Henry Ford Said:

 Audacious Goals: “I’m going to democratize the automobile”.

VIVID
DESCRIPTION OF  Vivid Description: Henry Ford supported his
ACHEIVEMENT Audacious Goal by creating a vivid description He
Said:
 “I will build a motor car for the great multitude. It will be so low in
price that no man making a good salary will be unable to own one
and enjoy with his family the blessing of hours of pleasure in god’s
great open space. When I’m through, everybody will be able to
afford one, and everyone will have one. The horse will have
disappeared from our highways and the automobile will be taken
for granted.”
Mrs. Kalyani Kapate
AT GLANCE………………..
 Business
definition:

• It explains the business undertaken by the firm, with

respect to the customer needs, target audience and
alternative technologies. Business definition:
•Abell’s Model is often applied to analyse a business’s
scope of operation. Derek Abell suggests defining
business along 3 dimensions: Customer Customer Alternative
groups functions Technologies
1. Customer groups,
2. Customer functions and
3. Alternative technologies.

HUL Business Definition :To meet every day

needs of people everywhere with branded products.

Mrs. Kalyani Kapate

DEREK ABELL : BUSINESS DEFINITION:

Mrs. Kalyani Kapate

 DEREK ABELL : BUSINESS DEFINITION:

CUSTOMER
FUNCTIONS-What?
Time pieces: record
time, fashionable, gift
item

CUSTOMER GROUPS- ALTERNATE

Who? TECHNOLOGIES- HOW?
To serve individuals or for Mechanical, Quartz digital,
industrial use Quartz analog

Mrs. Kalyani Kapate

 • Efficient high priced &
Customer appropriate, low priced model;
Xerox • Marketing- full service
India Ltd. Group: maintenance agreement, renting
of machines.

• High & medium quality

Customer photocopier- spares(drums),
consumable items (toner,
Functions: developer)-
• After sales service support

• Heavy investments in high-tech

manufacturing facilities, high
Technology: quality manpower, customer
services staff

Mrs. Kalyani Kapate

BUSINESS DEFINITION OF COMPANIES:

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BUSINESS MODEL:

A business model is a conceptual tool that

contains a set of elements and their relationships 1. Products/Offerings-
Value Proposition
and allows the business logic of a specific firm. 2. . Infrastructure
A Business Model describes how an organization: 3.Customers or target
market
•Creates, 4. Costs and revenues
•Captures and
•Delivers values

Mrs. Kalyani Kapate

 COMPONENTS OF BUSINESS MODEL:

3. 4.
1. 2.
Customer/ Target Costs/Revenues/financ
Products/ Offerings: Infrastructure
market es

1.Core capabilities 1.Target customers 1. Investment

2.Partner network 2.Distribution 2. Cost structure
Value 3. Value channels 3.Revenues, profits
proposition Configuration/value 3. relationships
chain

Mrs. Kalyani Kapate

BUSINESS MODEL CANVAS:

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 GOALS AND OBJECTIVES

 Goals: Goals denote what an organization hopes to accomplish in a future period of

time. They represents the future outcome of efforts put in now.
Financial goals: They are related to the return on investment or growth in revenues.
 Strategic goals: They focus on the achievement of the competitive advantage in the
industry.
 Objectives: Objectives are the ends that state specifically how the goals shall be
achieved . They are concrete and specific whereas goals are generalized.
 Objectives make the goals operational.

Mrs. Kalyani Kapate

 Strategy
Formulation 02

STRATEGY FORMULATION:

Mrs. Kalyani Kapate

 Strategy
Formulation 02

•Environmental Appraisal:
•Environment is “ the aggregate of all conditions, events and influences that
surround and affect it.”
•It is Dynamic
•It consists of Internal & External environment.
•Organizational Appraisal:
•A process of observing an organizational internal environment to identify the
strengths & weaknesses that may influence the organization’s ability to achieve
goals.

Mrs. Kalyani Kapate

 Implementation
03 of Startegies

STRATEGY IMPLEMENTATION:
Strategy Implementation:
Is the action stage of strategic management.
•It refers to decisions that are made to install new strategy or reinforce
existing strategy.
•Strategy Implementation is concern with:

•Designing Structure, Process & Systems:

•Functional Implementation:
•Behavioral Implementation:
•Operational Implementation

Mrs. Kalyani Kapate

 Strategic
04
Evaluation

Strategy Evaluation:
It is the primary means to know when & Why particular strategies are not working well.
It is the process in which corporate activities & performance, results are monitored so as
to compare with the desired performance.
Evaluation Includes:
Review of External & Internal factors which are the basis of current strategies.
Strategic Control: It is Concerned with:
What to Control,
How to control,
Setting Control Standards,
Measurement of Performance
Comparison of Actual with desired standards
Identify Deviations and its reasons
Corrective actions

Mrs. Kalyani Kapate

CRITICAL SUCCESS FACTORS (CSF)

Origin: this Term First coined by Rockart

(HBR,1979).
CSF’s are the limited number of areas in which
satisfactory results will ensure successful
competitive performance for the individual,
department, or organization”.

Critical Success Factors (CSF’s) are the critical

factors or activities required for ensuring the
success your business. The term was initially
used in the world of data analysis, and Critical Success Factor:
business analysis. Product attributes, low cost
efficiency, strong distribution
network, fast technical assistance,
image, design expertise, etc

Mrs. Kalyani Kapate

 Types of Critical Success Factors – CSF

Industry Industry Critical Success Factors (CSF’s)

CSF’s resulting from specific industry characteristics;

Strategy Critical Success Factors

Strategy (CSF’s) resulting from the chosen competitive
CSF’s strategy of the business;

Environmental Critical Success Factors

Environmental (CSF’s) resulting from economic or technological
CSF’s changes; and

Temporal Critical Success Factors

Temporal (CSF’s) resulting from internal organizational needs
CSF’s and changes.

Mrs. Kalyani Kapate

 Key Result Areas (KRA)

Key Result Areas refer to general areas of

outputs or outcomes for which the
department's role is responsible. KRA is a
strategic factor either internal to the
organization or external, where strong positive
results must be realized for the organization to
achieve its strategic goal(s).
In relation to a job role, KRA defines the
outcome or end result expected to be delivered
Key Result Area
while KPA defines all the activities, not always
Key = crucial/main
result oriented, an individual has to perform
Result=outcome/end/consequence
being on job.
Area = space/range

KEY RESULT AREA = crucial outcome

space

Mrs. Kalyani Kapate

 -KRA is not the result.
-KRA is the area identified as important or
crucial where a result will assist in the
achievement of the set objectives or goal.
-KRA defines what a job is expected to
accomplish.
Examples : Key Result Areas
Customer Satisfaction.
Product Management.
Operational Cost Control.
Quality Check.

Mrs. Kalyani Kapate

 KEY PERFORMANCE INDICATORS (KPI):

KPI refers to monetary and non monetary

measures that an organization employ to define
and measure the progress towards achievement
of long term goals of the organization.

Benefits of KPI:
1. Define and measure progress towards
objectives
2. Clarity of important factors and what is
needed to accomplish objectives Key Performance Area
3. Motivate employees Key = crucial/main
4. Benchmarking the performance of an Performance =
organization and comparison with rivals Achievement/Attainment
Area = space/range/field of
operation

Mrs. Kalyani Kapate

-KPA is the overall scope of activities that
an individual on a job role has to perform.
-KPA is not always result focused.
-KPA’s can be inclusive of KRA’s

Mrs. Kalyani Kapate

CRITICAL SUCCESS FACTORS (CSF), KEY PERFORMANCE
INDICATORS (KPI), KEY RESULT AREAS (KRA).

 CSF (Critical Success Factors) & KPI (Key Performance Indicator)

 1. CSF -Something that must happen if an IT service, process, plan, project or other activity is to succeed.
 2. • Key performance indicators are used to measure the achievement of critical success factors
 • A metric that is used to help manage an IT service, process, plan, project or other activity
 3. • Vision Statement – To be known for our superior customer service and satisfaction
 • Goal – To reduce the number of dissatisfied customers by 25% in one year
 4. • KPI – 90% customer complaint resolution – 75% customer complaint resolution with satisfied customer
 • Team Member KRA – The weekly percentage difference in complaints handled that result in satisfied
customers versus unsatisfied customers

Mrs. Kalyani Kapate

Components of Strategic Plan

Mission :
Vision :
Values statement or guiding
principles:
SWOT:
Long-term strategic objectives:
Short-term
goals/priorities/initiatives:
Action items/plans:
1.Scorecard:
2. Financial assessment:

Mrs. Kalyani Kapate

 COMPONENTS OF A STRATEGIC PLAN:

 Mission :
 Vision :
 Values statement or guiding principles: These statements are enduring, passionate, and
distinctive core beliefs. They’re guiding principles that never change and are part of your strategic
foundation.
 SWOT: A SWOT is a summarized view of your current position, specifically your strengths,
weaknesses, opportunities, and threats.
 Long-term strategic objectives:
 Strategies: Strategies are the general, umbrella methods you intend to use to reach your vision.
 Short-term goals/priorities/initiatives: These items convert the strategic objectives into specific
performance targets that fall within the one- to two-year time horizon. They state what, when, and
who and are measurable.
 Action items/plans:
 Scorecard: You use a scorecard to report the data of your key performance indicators (KPIs) and
track your performance against the monthly targets.
 Financial assessment: Based on historical record and future projections, this assessment helps plan
and predict the future, allowing you to gain much better control over your organization’s financial
performance.
 Analyzing Company’s External Environment:

Learning Objectives:
•To study the concept of Environment
•To study the external environmental forces affecting business
of companies
•To study how to prepare ETOP(Environmental Threat
&Opportunity Profile)

Mrs. Kalyani Kapate

Types of Business Environment: Characteristics of Environment:

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Business Environment:

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 External Environmental

A firm’s external environment creates:

EXTERNAL
● Opportunities ENVIRONMENT
● Threats UNDERSTANDING

INTERNAL
collectively, opportunities and threats affect a ENVIRONMENT
firm’s strategic actions. Matching KNOWLEDGE

VISION, MISSION,
AND STRATEGY

Mrs. Kalyani Kapate

 External
01 Environment

• Micro Environment is also known as the Task Environment

Micro & operating Environment
Environment • Forces – Direct bearing on the business operations
• Forces are more immediately linked with the business than
macro forces

• Micro Environment is also known as General Environment

Macro & Remote Environment
Environment • Forces – More Uncontrollable
• Adaptability to such environment

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External Environmental Forces

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1. • Demographic Demographic structure of population

2.
• Economic Inflation rates, Interest rates, Economic policies ,Economic
planning

3.
• Political/Legal Taxation laws, Labor laws, legal framework

4.
• Socio-cultural Societal and cultural values, Social Classes, etc.

5. • Technological Technological advancements, product innovations, new

communication technologies

6. • Global Global economic forces, block and forum ,Global trade and
commerce, trend

7.
• Physical Producing environmentally friendly products, Minimizing a firm’s
environmental footprint

Mrs. Kalyani Kapate

 Economic Political/Legal

This segment refers to the nature and direction of This segment represents how organizations &
the economy in which a firm competes or may governments mutually try to influence each other,
compete. Firms generally seek to compete in and how firms try to understand these influences
relatively stable economies with strong growth
(current and projected) on their strategic actions.
potential.
1. Economic stage at which a country exists
Political/Legal Segment
2. Economic structure adopted
 Taxation laws
3. Economic policies
4. Economic planning  Deregulation philosophies

5. Infrastructural factors  Labor training laws

6. Inflation rates  Educational philosophies and policies
7. Interest rates

Mrs. Kalyani Kapate

 Socio-cultural
The socio-cultural segment is concerned
with a society’s attitudes and cultural values.
Because attitudes and values form the
cornerstone of a society, they often drive
demographic, economic, political/legal, and
technological conditions and changes.
• Societal & cultural factors
•Social Class, Cultural values, religion,
customs etc
Technological
Technological changes occur through new
products, processes, and materials. The
technological segment includes the activities
involved in creating new knowledge and translating
that knowledge into new outputs, products,
processes, and materials. Given the rapid pace of
technological change and risk of disruption, it is
vital for firms to study this segment.
• Technological advancement,
• New communication technologies,
• Product innovations
Mrs. Kalyani Kapate
 Global / International
The international environment consists of all
those factors that operate at transnational,
cross cultural and across border level, having
impact on business of organization.
• Globalization, its process,
• Global economic forces, block and forum
• Global trade and commerce, trend
• Global financial system, sources of
financing
• Geopolitical situation, equation, alliances
and strategic interests of nations
Physical
Concerned with trends oriented to sustaining the world’s
physical environment, firms recognize that ecological,
social, and economic systems interactively influence what
happens in this particular segment.
This segment refers to potential and actual changes in the
physical environment and business practices that are
intended to positively respond to and deal with those
changes.
Energy consumption
Practices used to develop energy sources
Renewable energy efforts
Minimizing a firm’s environmental footprint
Availability of water as a resource
Producing environmentally friendly products
Reacting to natural or man-made disasters
Mrs. Kalyani Kapate
EXTERNAL ENVIRONMENTAL ANALYSIS

Mrs. Kalyani Kapate

 EXTERNAL ENVIRONMENTAL ANALYSIS

The external environmental analysis process should be conducted on a continuous basis. This process includes four

01 Scanning Identifying early signals of environmental changes

and trends

Detecting meaning through ongoing

Monitoring 02 observations of environmental changes and
trends

Developing projections of anticipated

03 Forecasting
outcomes based on monitored changes and
trends
Determining the timing and importance of environmental
Assessing 04 changes and trends for firms' strategies and their management

Mrs. Kalyani Kapate

 EXTERNAL ENVIRONMENTAL ANALYSIS
Firms use several sources to analyze the general environment:

 trade publications
 newspapers
 business publications
 academic research
 public polls
 trade shows
 suppliers
 customers
 employees
Examples: salespersons , purchase managers, public relations directors, and customer service
representatives, each of whom interacts with external constituents

Mrs. Kalyani Kapate

 INDUSTRY ENVIRONMENT ANALYSIS

Concept Industry

Strategic Impact Ability to earn

Impact above-average
on Competitiveness on
returns

Mrs. Kalyani Kapate

 Strategic
Competitiveness STRATEGIC COMPETITIVENESS can be achieved when a firm
successfully formulates and implements a value-creating strategy

above-average returns are earned when firms are able to

Ability to earn effectively study the external environment as the foundation for
above-average
returns identifying an attractive industry and implementing the appropriate
strategy.

FIRMS CAN EARN ABOVE-AVERAGE RETURNS: ● Cost Leadership Strategy – producing standardized goods
or services at costs below those of competitors ● Differentiation Strategy -producing differentiated goods or
services for which customers are willing to pay a price premium

Mrs. Kalyani Kapate

Mrs. Kalyani Kapate
PESTLE

Mrs. Kalyani Kapate

 THE FIVE FORCES OF COMPETITION MODEL

● The five forces model of

competition expands the
arena for competitive
analysis. Historically, firms
concentrated only on direct
competitors.
● Today, firms must study
many industries, as
competitors are defined
more broadly. For example,
the communications
industry now encompasses
media companies, telecoms,
entertainment companies,
and Smartphone producers.

Mrs. Kalyani Kapate

1. THREAT OF NEW ENTRANTS
https://www.youtube.com/watch?v=ziI_BF6lWjg
PORTER'S 5 FORCES INFOGRAPHICS
1 2

Barriers to Economies of
Entry Scale

THREAT OF NEW ENTRANTS

3 4
Other Factors:
Product •Capital Requirement
•Government Policy
Differentiation •Expected Retaliation
•Switching Costs
•Access to Distribution
channels

https://www.youtube.com/watch?v=v4v-l6KqeQU

Mrs. Kalyani Kapate

 PORTER'S 5 FORCES MODEL OF COMPETITION

01 Barriers to Entry

Threaten market share of existing

1.1 Competitors
1. THREAT OF
NEW ENTRANTS Stimulate additional production capacity,
1.2 force existing firms to be more efficient

Difficult for new firms to enter an

1.3 industry

High Entry barriers- increase the returns

1.4 for the existing firms, discourage
potential new entrants

Mrs. Kalyani Kapate

 PORTER'S 5 FORCES MODEL OF COMPETITION

Economies of Scale
Marginal improvements in efficiency that a firm
02 experiences as it incrementally increases its size

2.1 Flexibility in pricing and market share

1. THREAT OF
NEW ENTRANTS
2.2 Costs related to scale economies

2.3 Competitor retaliation

Flexible manufacturing systems

2.4 diminishes the effectiveness of
economies scale to act as a barrier

Mrs. Kalyani Kapate

 PORTER'S 5 FORCES MODEL OF COMPETITION

03 Product Differentiation

3.1 Unique products

1. THREAT OF
NEW ENTRANTS
3.2 Customer loyalty

New entrants frequently offer

3.3
products at lower prices

Mrs. Kalyani Kapate

 PORTER'S 5 FORCES MODEL OF COMPETITION

Capital Requirements
04 Differ according to industry, Availability
of Capital, Physical facilities / investments / Marketing
activities, Knowledge
Requirements

1. THREAT OF
NEW ENTRANTS
Switching Costs
05 One-time costs customers incur when
they buy from a different supplier
New Innovative Products

Access to Distribution
06 Channels
Stocking or shelf space, Price breaks/Cooperative
advertising allowances

Mrs. Kalyani Kapate

 PORTER'S 5 FORCES MODEL OF COMPETITION

07 Government Policy

1. THREAT OF
NEW ENTRANTS 7.1 Licensing and permit requirements

7.2 Regulation/Deregulation of industries

Mrs. Kalyani Kapate

 PORTER'S 5 FORCES MODEL OF COMPETITION

08 Expected Retaliation

Vigorous retaliation can be expected when the

1. THREAT OF 8.1 existing firm has a major stake in the industry.

NEW ENTRANTS

8.2 It has substantial resources

When industry growth is slow or

8.3 constrained

Mrs. Kalyani Kapate

 2. THREAT OF SUBSTITUTES

Threat of
1 Substitutes
Number of 2 increases when
Substitute Buyer
products/ potential
services to
substitute ● The substitute product’s price is lower
● Substitute product’s quality and
THREAT OF SUBSTITUTES performance are equal to or greater than
3 4 the existing product
Performance ● Differentiated industry products that are
of Cost of Change valued by customers reduce this threat
Substitutes

Mrs. Kalyani Kapate

 3. Bargaining power of
Suppliers
Supplier Power
increases when
1
Suppliers 2
concentration/ Uniqueness ● Suppliers are large and few in
Number of of products/ number
Suppliers services ● Suitable substitute products are not available
● Industry firms are not a significant customer for
Bargaining power of the suppliers
Suppliers ● Suppliers’ goods are critical to buyers’
3 4 marketplace success
Ability to Supplier Switching
substitute costs ●Suppliers’ products create high switching
costs
● Suppliers have substantial resources and
provide a highly differentiated product
● Suppliers pose a credible threat to integrate
forward into the buyers’ industry

Mrs. Kalyani Kapate

 4. Bargaining power of Buyers
Buyers Power
increases when
1
2
Buyers
concentration/ Buyer ● Buyers purchase a large
Number of switching Portion of an industry’s total output
Customers costs ● Buyers’ purchases are a significant portion
of a seller’s annual revenues
Bargaining power of ● Switching costs are low
Buyers (to other industry product)
3 4
Price Differential
Sensitivity Advantage
● The industry’s products are
undifferentiated or standardized

Mrs. Kalyani Kapate

 5. Competitive Rivalry

1
2
Number of
Customer
Competitors
Loyalty

Competitive Rivalry
3 4
Requirements Quality Differences/
of Advertising Competitive
Expenses Advantage through
innovation

Mrs. Kalyani Kapate

 INDUSTRY
RESTRUCTURE
D THROUGH
COMPETITORS

The process of new technology

STRATEGIC FOCUS: The Multi-
creation, utilization, and commercialization ultimately
Industry Battle for Mobile and
Home Digital Computing and leads to changes in organizational patterns, and in
Entertainment particular, strategic alliances and mergers and acquisitions as
firms restructure themselves around the opportunities
Competitor analysis must examine how such being created.
technological changes will lead to convergence
of competitors or other firms and associated
organizational changes and the possible re-
creation of a new set of industry competitors,
buyers, and suppliers.

Mrs. Kalyani Kapate

 PORTER'S 5 FORCES MODEL OF COMPETITION

Industry Rivalry
5. Common rivalry dimensions:
Price, Service after the sale, Innovation

Competitors differ in resources and capabilities

5.1 and seek to differentiate themselves from
5. Intensity of competitors
Competitive Firms seek to differentiate their products in ways
5.2 that customers value and thereby they can gain
Rivarly competitive advantage

INDUSTRY RIVALRY INTENSIFIES WITH:

● Numerous or equally balanced competitors
● Slow industry growth
● High fixed costs or high storage costs
● Lack of differentiation opportunities or low
switching costs ● High exit barriers

Mrs. Kalyani Kapate

 EXIT BARRIERS
High exit barriers prevent competitors from leaving the
industry

EXAMPLES
Rivalry among ■ Specialized assets: assets with values linked to a particular
Competitors business

■ Fixed costs of exit: such as labor agreements

Strategic interrelationships: Emotional barriers: aversion to economically

relationships of mutual dependence, such as
those between one business and other parts of a
company’s operations, including shared facilities
and access to financial markets
justified business decisions because of fear for one’s
own career, loyalty to employees, etc.
■ Government and social restrictions: often based on
government concerns for job losses and regional economic
effects;

Mrs. Kalyani Kapate

INTERPRETING INDUSTRY ANALYSIS

Low entry barriers

Suppliers and buyers

have strong positions Unattractive
Strong threats from Industry
substitute products

Intense rivalry among

competitors LOW PROFIT
POTENTIAL
Mrs. Kalyani Kapate
INTERPRETING INDUSTRY ANALYSES

High entry barriers

Suppliers and buyers
have weak positions
Attractive
Few threats from Industry
substitute products

Moderate rivalry
among competitors HIGH PROFIT
POTENTIAL

Mrs. Kalyani Kapate

INDUSTRY ENVIRONMENT ANALYSIS: STRATEGIC GROUPS

STRATEGIC GROUP DEFINED

INTRA-STRATEGIC ● A set of firms emphasizing similar
GROUP COMPETITION strategic dimensions and using similar
strategies

● There is more heterogeneity in the

MORE INTENSE THAN performance of firms within strategic
groups
■ Similar market positions
INTER - STRATEGIC GROUP ■ Similar products
COMPETITION
■ Similar strategic actions

Mrs. Kalyani Kapate

Mrs. Kalyani Kapate
INDUSTRY ENVIRONMENT ANALYSIS: STRATEGIC GROUPS

Extent of technological
1 leadership

2. Product Quality
Strategic
Dimensions
3. Pricing Policies

4. Distribution Channels

5. Customer Service

Mrs. Kalyani Kapate

 INDUSTRY ENVIRONMENT ANALYSIS:
STRATEGIC GROUPS

IMPLICATIONS
■ Firms within a strategic group are direct competitors (offer similar products),
thus rivalry can be intense; the greater the rivalry the greater the threat to each
firm’s profitability
■ The strengths of the five forces differ across strategic groups
■ The closer the strategic groups in terms of strategy, the greater the likelihood of
rivalry

Mrs. Kalyani Kapate

COMPETITOR ANALYSIS COMPONENTS

Mrs. Kalyani Kapate

 COMPLEMENTORS &COMPETITOR
Complementors: The network of companies that sell complementary
products or services or are compatible with the firm’s own product or service.
Complementors expand the set of competitors that firms must evaluate when
completing a competitor analysis

• If a complementor’s product or service

COMPLEMENTOR adds value to the sale of the firm’s
product or service, it is likely to create
value for the firm

• If a complementor’s product or service

is in a market into which the firm
COMPETITOR intends to expand, the complementor
can represent a formidable competitor.

Mrs. Kalyani Kapate

ENVIRONMENTAL THREAT & OPPORTUNITY PROFILE (ETOP)

 Glueck suggested ETOP technique to structure the environmental appraisal.

 He has define environmental analysis in the following word: “Environment
analysis consists of decisions made to react to anticipated or ignore
environmental cues.”
 ETOP involves dividing environment into different sectors/factors and then
analyzing the impact of each factor on the organization.
 ETOP analysis is the process of monitoring relevant environment to identify
opportunities and threats affecting their business for the purpose of taking
strategic decisions.

Mrs. Kalyani Kapate

Need of ETOP:

Mrs. Kalyani Kapate

 Preparation of ETOP:
 Divide the environment into
sectors such as: economical,
market, social, international, legal,
technological, political,
ecological,etc
 Analyze the impact of each
sector on the organization
 Sub-divide each environmental
sector into sub factors
 Check the impact of each sub
factor on organization.

Mrs. Kalyani Kapate

Mrs. Kalyani Kapate
Mrs. Kalyani Kapate
SCENARIO PLANNING – PREPARING AN ENVIRONMENTAL THREAT AND
OPPORTUNITY PROFILE (ETOP).

Mrs. Kalyani Kapate

 Core Ideology
Core Values-should be:
•Guiding principles for every employee who
touches the brand
•Evident to consumers
•Persuasive
E.g. Disney-imagination, wholesomeness
Core Purpose-should be:
• The reason being
•Inspirational
•The answer to ‘why’ is this important?
•A reason for consumer to choose products
from our brand
•E.g. Disney- make people happy
Envisioned Future
Audacious goal-should be:
• Engaging, energizing
• A unifying local point
• An extraordinary effort
E.g. Disney-Become the premier entertainment brand
doubling revenue to over $50 billion
Vivid description:
• Create passion and conviction
• Bring the goal to life
• Create an image people can ‘see’
E.g. Disney- will provide the best wholesome
entertainment option across all entainment
experiences including home party, hotels, zoos, cruises,
sports, website and even neighbourhoods
Mrs. Kalyani Kapate