Learning Objectives

LO 1: Develop awareness about the historical development of strategic

management in India and around the world
LO2: Grasp the concept of strategy and its limitations
LO 3: Gain command of how the strategic management process operates
LO4: Outline the hierarchy of strategic intent
LO5: Discuss the concept of vision
LO6: Explain mission and related concepts
LO7: Describe the role and characteristics of objectives and explain the
process of objective setting

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The Genesis of Strategic Management

The origins of strategic management can be retraced to 1911, when Harvard

Business School introduced an integrative course in management called
‘business policy’ aimed at the creation of general management capability.

In 1969, the Association to Advance Collegiate Schools of Business a

regulatory body for business schools, made the course of business policy a
mandatory requirement for the purpose of recognition.
In 1977, a research symposium at the University of Pittsburgh helped to move
from business policy through strategic planning to strategic management.

The term 'Business Policy' had been traditionally used though titles such as
Strategic Management, Corporate Strategy, Corporate Strategy and Policy,
Competitive Strategy, etc. are now used extensively for the course.

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EVOLUTION OF STRATEGIC MANAGEMENT

Starting from day-to-day planning in earlier times, managers tried to

anticipate the future through preparation of budgets and using control
systems.
With time these techniques failed to adequately emphasise the role of
future long-range planning. Later long-range planning was replaced by
strategic planning, and later by strategic management: a term that is
currently used to describe the process of strategic decision making.
The first phase of evolution of strategic management, which can be traced
back to the mid-1930s, rested on the paradigm of ad hoc policy-making.
Due to the increasing environmental changes in 1930s and 40s in the
U.S. planned policy formulation replaced ad hoc policy-making.

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Ten schools of thought by Mintzberg and his
associates
The Prescriptive Schools
• Design school where strategy formation is a process of conception
• Planning school where strategy formation is a formal process
• Positioning school where strategy formation is an analytical process

The Descriptive Schools

• Entrepreneurial school where strategy formation is a visionary process
• Cognitive school where strategy formation is a mental process
• Learning school where the strategy formation is an emergent process
• Power school where the strategy formation is a negotiation process
• Cultural school where the strategy formation is a collective process
• Environmental process where the strategy formation is a reactive process

The Integrative School

• Configuration school where the strategy formation is a process of transformation
McGraw-Hill | © AZHAR KAZMI & ADELA KAZMI 4
Rumelt et al. pose Four Fundamental questions in
the field of Strategic Management
How do firms behave? Or do firms really behave like rational actors, and,
if not, what models of their behaviour should be used by researchers and
policy makers?

Why are firms different? Or, what sustains the heterogeneity in resources
and performance among close competitors despite competition and
imitative attempts?

What is the function of or value added by the headquarters unit in a

diversified firm? Or, what limits the scope of the firm?

What determines success or failure in international competition? Or, what

are the origins of success and what are their particular manifestations in
international settings or global competition?

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The Indian Scenario

Formal management education started in India in the late fifties and

gained an impetus with the setting up of the Indian Institutes of
Management (IIMs) and the Administrative Staff College of India in the
early sixties.

The All India Council of Technical Education (AICTE), the prescribed

strategic management, first in 1990 and again in 1995.

Strategic Management Forum of India is an actively functioning,

professional association exclusively devoted to the development and
propagation of the theory and practice of strategic management in India.

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Concept of Strategy

A strategy could be:

• a plan or course of action or a set of decision rules making a pattern or creating
a common thread;
• the pattern or common thread related to the organisation's activities which are
derived from the policies, objectives and goals;
• related to pursuing those activities which move an organisation from its current
position to a desired future state;
• concerned with the resources necessary for implementing a plan or following a
course of action; and
• connected to the strategic positioning of a firm, making trade-offs between its
different activities, and creating a fit among these activities.
• the planned or actual coordination of the firm's major goals and actions, in time
and space that continuously co-align the firm with its environment.

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Levels at which Strategy operates

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Definition of Strategic Management

Strategic management is defined as the dynamic process of formulation,

implementation, evaluation and control of strategies to realise the
organisation’s strategic intent.
The first phase consists of establishing the strategic intent for the
organisation.
The second phase of the formulation of strategies is concerned with the
devising of a strategy or a few strategies.
The third phase of implementation is the ‘putting into action’ phase.
The fourth, and the last, phase of evaluation and control involves
assessing how appropriately the strategies were formulated and how
effectively they are being implemented.

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Elements in Strategic Management
Process
A. Establishing the hierarchy of
strategic intent:
•Creating and communicating a vision
•Designing a mission statement
•Adopting the business model
•Setting objectives
B. Formulation of strategies:
•Performing environmental appraisal
•Doing organisational appraisal
•Formulating corporate - level strategies
•Formulating international strategies
•Formulating business-level strategies
•Undertaking strategic analysis
•Exercising strategic choice
•Preparing strategic plan
McGraw-Hill | © AZHAR KAZMI & ADELA KAZMI
C. Implementation of strategies:
Activating strategies
Designing structure, systems and
processes
Managing behavioural implementation
Managing functional implementation
Putting strategies into operation
D. Performing strategic evaluation and
control:
Performing strategic evaluation
Exercising strategic control
Reformulating strategies
10
Model of Strategic Management Process

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Strategic Intent

Hamel and Prahalad coined the term "strategic intent" which they believe
is an obsession with an organisation: of having ambitions that may even
be out of proportion to their resources and capabilities.
Strategic intent envisions a desired leadership position and establishes
the criterion the organisation will use to chart its progress.
The concept also encompasses an active management process that
includes:
• Focusing the organization's attention on the essence of winning
• Motivating people by communicating the value of the target
• Leaving room for individual and team contributions
• Sustaining enthusiasm by providing new operational definitions.

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Vision

Kotter (1990) defines it as a "description of something (an organization, a

corporate culture, a business, a technology, an activity) in the future".

El-Namaki (1992) considers it as a "mental perception of the kind of

environment an individual, or an organization, aspires to create within a
broad time horizon and the underlying conditions for the actualization of
this perception”.

Miller and Dess (1996) view it simply as the "category of intentions that
are broad, all-inclusive, and forward thinking".

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The Benefits a Vision
• Good visions are inspiring and exhilarating.
• Visions represent a discontinuity, a step function and a jump ahead so
that the company knows what it is to be.
• Good visions help in the creation of a common identity and a shared
sense of purpose.
• Good visions are competitive, original and unique. They make sense in
the marketplace as they are practical.
• Good vision foster risk taking and experimentation.
• Good vision fosters long-term thinking.
• Good visions represent integrity: they are truly genuine and can be
used to the benefit of people.

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Process of Envisioning

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Mission
A mission was earlier considered as the scope of the business
activities a firm pursues. The definition of mission has gradually
expanded to represent a concept that embodies the purpose of
existence of an organisation.
According to Thompson (1997) mission is the "essential purpose
of the organization, concerning particularly why it is in existence,
the nature of the business(es) it is in, and the customers it seeks
to serve and satisfy".
According to Hunger and Wheelen (1999) mission is the "purpose
or reason for the organization's existence".

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How are Mission Statements Formulated and
Communicated?
Most organisations derive their mission statements from a particular set of
tasks they are called upon to perform in the light of their individual,
national or global priorities.

Entrepreneurs lay down the corporate philosophy which the organisation

follows in its strategic and operational activities. Such a philosophy may
not be consciously and formally stated but may gradually evolve due to
the entrepreneur's actions.

Major strategists informally lend a hand in the creation of a particular

corporate identity or formally through discussions and the writing down of
a mission statement.

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Business Model

A business model could be defined as “the logic of the firm, the

way it operates and how it creates value for its stakeholders.”

Another view is of business models referring to “a representation

of a firm's underlying core logic and strategic choices for creating
and capturing value within a value network”.

The business model is the basic logic of a company that can help
to understand the benefits provided to the stakeholders. Those
benefits return to the company in the form of revenue.

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Dimensions of a Business Model

Customer dimension consists of customer segments, customer

channels, and customer relationships.
Benefit dimension includes products, services, and values.
Value-added dimension comprises the resources, skills, and
processes.
Partner dimension contains the partner, partner channels, and
partner relations
Financial dimension incorporates the revenues and expenses.

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Goals and Objectives

Goals denote what an organisation hopes to accomplish in a

future period of time. They represent the future state or outcome
of effort put in now.
Objectives are the ends that state specifically how the goals shall
be achieved. They are concrete and specific in contrast to goals
that are generalised.
Any organisation always has a potential set of goals. It has to
exercise a choice from among these goals. This choice must be
further elaborated and expressed as operational and measurable
objectives.

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Role of Objectives

Objectives define the organisation's relationship with its

environment.
Objectives help an organisation pursue its vision and mission.
Objectives provide the basis for strategic decision-making.
Objectives provide the standards for performance appraisal.

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Characteristics of Objectives

According to Drucker, objectives need to be set in the eight vital areas of

market standing, innovation, productivity, physical and financial resources,
profitability, manager performance and development, worker performance
and attitude, and public responsibility.

• Objectives should be understandable

• Objectives should be concrete and specific
• Objectives should be related to a time frame
• Objectives should be measurable and controllable
• Objectives should be challenging
• Different objectives should correlate with each other
• Objectives should be set within constraints

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Critical Success Factors

Critical success factors (CSFs), sometimes referred to a

strategic factors or key factors for success, are those which
are crucial for organisational success.

When strategists consciously look for such factors and take

them into consideration for strategic management, they are
likely to be more successful, putting in relatively less
efforts.

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Key Performance Indicators

Performance indicators are well understood as being metrics or measures

in terms of which performance is measured, evaluated or compared.
Key performance indicators (KPIs) are the metrics or measures in terms
of which the critical success factors are evaluated.
What makes the KPIs ‘key’ is their relationship to the CSFs and ultimately
to the mission and vision of the organization. Identification of which KPIs
to use is important. Selecting the right measures is vital for effectiveness
The major benefit in using KPIs is to help an organization define and
measure progress toward its objectives.

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Balanced Scorecard

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Balanced Scorecard : Perspectives
Financial perspective: Examples of such measures are revenues,
earnings, return on capital, and cash flow.
Customers’ perspective: Examples of such measures are market share,
customer satisfaction measures, and customer loyalty.
Internal businesses perspective: Examples of such measures are
productivity indices, quality measures, and efficiency.
Learning and growth perspective: Examples of such measures are
morale, knowledge, employee turnover, usage of best practices, share of
revenue from new products, and employee suggestions.

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Balanced Scorecard : Approach

The development of the scorecard begins with the establishment of the

organization's strategic intent including the vision and mission.
Next, the design of the balanced scorecard is done identifying the specific
measures related to the four perspectives.
The next step involves mapping the strategy through the identification of
organizational activities that are derived from the strategies..
In the final stage, metrics that can be used to accurately measure the
performance of the organization in the specific areas are established.

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A Typical Strategic Map

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Learning Objectives

Describe the concept of environment in the context of strategic

management
Name, describe, and demonstrate understanding of eight
environmental sectors
Describe the process of environmental scanning
Prepare environmental threats and opportunities profile (ETOP)
for an organization

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Concept of Environment
Environment literally means the surroundings, external objects,
influences or circumstances under which someone or something
exists. The environment of any organisation is "the aggregate of
all conditions, events and influences that surround and affect it.”

Characteristics include:
• Environment is complex
• Environment is dynamic
• Environment is multi-faceted
• Environment has a far-reaching impact

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Internal and External Environment

The internal environment refers to all factors within an organisation that

impact strengths or cause weaknesses of a strategic nature.
• Strength is an inherent capacity which an organisation can use to gain strategic
advantage.

• Weakness is an inherent limitation or constraint which creates strategic

disadvantages.

The external environment includes all the factors outside the organisation
which yield opportunities or pose threats to the organisation.
• Opportunity is a favourable condition in the organisation's environment which
enables it to consolidate and strengthen its position.

• Threat is an unfavourable condition in the organisation's environment which

creates a risk for, or causes damage to, the organisation.

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General Environment and Relevant
Environment
The external environment encompasses a variety of sectors like
international, national, and local economy, social changes, demographic
variables, political systems, technology, attitude towards business, energy
sources, raw materials and others resources, and many other macro-level
factors. These are categorized as the general environment.

The immediate concerns of any organisation are confined to just a part of

the general environment which is of high strategic relevance to the
organisation. This part of the environment could be termed as the
immediately relevant environment or simply, the relevant environment.

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Business Environment of an Organisation

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Environmental Factors: Economic
Environment
The economic environment consists of macro-level factors related to the
means of production and distribution of wealth that have an impact on the
business of an organisation.
Some of the important factors include :
• The economic stage in which a country exists at a time such as agrarian, industrial or post-
industrial economy
• The economic structure adopted, such as a capitalistic, socialistic or mixed economy
• Economic policies such as industrial, monetary and fiscal policies.
• Economic planning, such as five-year plans, annual budgets, etc.
• Economic indices like national income, distribution of income, rate and growth of GNP, per
capita income, disposable personal income, rate of savings and investments, value of
exports and imports, the balance of payments, etc.
• Infrastructural factors such as financial institutions, banks, modes of transportation, and
communication facilities, etc.

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Environmental Factors: International
Environment
The international (or global) environment consists of all those factors that operate at
the transnational, cross-cultural or across-the-border level having an impact on the
business of an organisation.

Some of the important factors include:

• Globalisation, its process, content and direction
• Global economic forces, organisations, blocs, and forums
• Global trade and commerce, its processes and trends
• Global financial system, sources of financing, and accounting standards
• Geopolitical situation, equations, alliances,
• Global demographic patterns and shifts
• Global human resource: institutions, availability, nature and quality of skills and expertise,
mobility of labour and other skilled personnel
• Global information system, communication networks, and media

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Environmental Factors: Market Environment

The market environment consists of factors related to the groups and

other organisations that compete with and have an impact on an
organisation's markets and business.
Some of the important factors includes:
• Customer or client factors such as the needs, preferences, perceptions,
attitudes, values, bargaining power, buying behaviour.
• Product factors such as the demand, image, features, utility, function, design,
life cycle, price, promotion, distribution, differentiation.
• Marketing intermediary factors such as levels and quality of customer service,
middlemen, distribution channels, logistics, costs, delivery systems and
financial intermediaries.
• Competitor-related factors such as the different types of competitors, entry and
exit of major competitors, nature of competition.

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Environmental Factors: Political Environment

The political environment consists of factors related to management of

public affairs by the state including its institutions and legislations and
their impact on the business of an organisation.
Some of the important factors include:
• The political system and its features like nature of the political system,
ideological forces, political parties and centres of power.
• The political structure, its goals and stability.
• Political philosophy, government's role in business, its policies and
interventions in economic and business development.
• Political processes like operation of the party system, elections, funding of
elections, formation of governments and legislation with respect to economic
and industrial promotion and regulation.

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Environmental Factors: Regulatory
Environment
The regulatory environment consists of factors related to planning,
promotion, and regulation of economic activities by the government that
have an impact on the business of an organisation.
Some of the important factors includes:
• The constitutional framework, directive principles, fundamental rights, and
division of legislative powers between the Central, State, and local
governments.
• Policies related to licensing, monopolies, foreign investment, and financing of
industries.
• Policies related to distribution and pricing, and their control.
• Policies related to imports and exports.
• Other policies related to the public sector, small-scale industries, sick
industries, development of backward areas, control of environmental pollution
and consumer protection.
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Areas of Legislative and Administrative
Controls
Industrial policy making, development and regulation, and licensing

Regulation over corporate management and avoidance of industrial sickness

Regulation of monopolies and restrictive trade practices

Regulation of foreign trade, capital, technology, and exchange

Regulation of money and capital markets, and stock exchanges

Regulation of pricing and distribution

Commodity exchange and its regulation

Protection of patents and trademarks

Regulation through environmental and consumer protection

Regulation of employment conditions through labour legislation

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Environmental Factors: Socio-Cultural
Environment
Some of the important factors include:
• Demographic characteristics, such as population, its density and distribution,
changes in population and age composition.
• Socio-cultural concerns such as environmental pollution, consumerism,
corruption, use of mass media.
• Socio-cultural attitudes and values, such as expectation of society from
business, social customs, beliefs, rituals and practices.
• Family structure and changes in it, attitude towards and within the family, and
family values.
• Role and position of men, women, lesbian, gay, bisexual and transgender
(LGBT) community members, children, adolescents, and aged in family and
society.
• Educational levels, awareness and consciousness of rights, work ethic of
members of society.

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Environmental Factors: Supplier Environment

Some of the important factors includes:

• Cost, availability and continuity of supply of raw materials, sub assemblies,

parts and components.
• Cost, availability and the existence of sources and means for supply of plants
and machinery, spare parts and after-sale service.
• Cost and availability of finance for implementing plans and projects.
• Cost, reliability and availability of energy used in production.
• Cost, availability and dependability of human resources.
• Infrastructural support and ease of availability of the different factors of
production, bargaining power of suppliers, and existence of substitutes.

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Environmental Factors: Technological
Environment
Some of the important factors includes:

• Sources of technology like company sources, external sources, and

foreign sources; cost of technology acquisition; collaboration in, and
transfer of, technology.
• Technological development, stages of development, change and rate
of change of technology, and research and development.
• Impact of technology on human beings, the man-machine system,
and the environmental effects of technology.
• Communication and infrastructural technology in management.

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Environmental Scanning

Environmental scanning can be defined as the process by which

organisations monitor their relevant environment to identify opportunities
and threats affecting their business for the purpose of taking strategic
decisions.
Factors to be Considered for Environmental Scanning:
• Events are important and specific occurrences taking place in different
environmental sectors.
• Trends are the general tendencies or the courses of action along which events
take place.
• Issues are the current concerns that arise in response to events and trends.
• Expectations are the demands made by interested groups in the light of their
concern for issues.

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Approaches to Environmental Scanning

Systematic approach Under this approach, information for

environmental scanning is collected systematically.

Ad hoc approach Using this approach, an organisation may

conduct special surveys and studies to deal with specific
environmental issues from time to time.

Processed-form approach For adopting this approach, the

organisation uses information in a processed form available from
different sources both inside and outside the organisation.

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Sources of Information for Environment
Scanning
Documentary or secondary sources of information like different types of publications.
These could be newspapers, magazines, journals, books, trade and industry
association newsletters.

Mass media such as radio, television, Internet and social media.

Internal sources like company files and documents, internal reports and memoranda,
management information system, databases, company employees.

External agencies like customers, marketing intermediaries, suppliers, trade

associations, government agencies, etc.

Formal studies done by employees, market research agencies, consultants and

educational institutions.

Spying and surveillance through ex-employees of competitors, industrial espionage

agencies, or by planting 'moles' in rival companies.

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Techniques used for Environmental Scanning
There are formal and systematic techniques as well as intuitive methods
available. Strategists may choose from among these methods and
techniques those which suit their needs in terms of the quantity, quality,
availability, timeliness, relevance and cost of environmental information.
There are various online templates available for environmental scanning
among them PESTLE template for analysing the different sectors of the
environment such as political, economic, etc.
LeBell and Krasner outline nine groups of techniques: single-variable
extrapolation, theoretical limit envelopes, dynamic modes, mapping,
multivariable interaction analysis, unstructured expert opinion, structured
expert opinion, structured inexpert opinion, and unstructured inexpert
speculation.
Process based techniques for environmental scanning like QUEST (Quick
environmental scanning technique).
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Pitfalls in Environmental Scanning

Sometimes strategic planners may focus so excessively on the influences in the

relevant environment that they miss out the trends and issues in the general
environment that really matter.

There is a danger of ‘paralysis by analysis’ meaning that environmental scanning can

create an overload of information that may prevent timely action.

The purpose of environmental scanning is to uncover influences that matter for the
future of the organisational strategic decision-making. This purpose should not be
lost and environmental scanning should not be used for purposes other than this.

Environmental scanning function should not be integrated too closely with the
operational and functional activities of the organisation. This means that it should not
become a line function thus aligning it too closely with the interests of those
activities.

Similarly, environmental scanning should not be too far from the realities of the
organisation making it an impersonal, staff function.

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Factors Affecting Environmental Appraisal

Strategist-related factors: Characteristics such as age, education,

experience, motivation level, cognitive style, ability to withstand time
pressures and strain of responsibility have an impact on the extent to
which they are able to appraise their organisation's environment.

Organisation-related factors: Characteristics such as nature of business

the organisation is in, its age, size and complexity, the nature of its
markets, and the product or services that it provides

Environment-related factors: The nature of the environment depends on

its complexity, volatility or turbulence, hostility, and diversity. Information
processing perspectives suggest that scanning activity will increase in
response to increasing environmental uncertainty.

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Identifying High Priority Environmental
Issues

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Structuring Environmental Appraisal

The identification of environmental influences is helpful in structuring environmental

appraisal so that the strategists have a good idea of where the environmental
opportunities and threats lie.

Structuring the environmental appraisal is a difficult process as environmental issues

do not lend themselves to a straightforward classification into neat categories.

An influence may arise simultaneously from more than one sector of the
environment. Strategists have to use their experience and judgement to place the
different environmental influences to where they mainly belong so that clarity
emerges.

The preparation of environmental threat and opportunity profile ETOP involves

dividing the environment into different sectors and then analysing the impact of each
sector on the organisation. A comprehensive ETOP requires subdividing each
environmental sector into sub factors and then the impact of each sub factor on the
organisation is described in the form of a statement.

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ETOP for a Bicycle Company

The next slide follows an Environment threat and

opportunity profile (ETOP) for a bicycle company.

Up arrows indicate favourable impact; down arrows

indicate unfavourable impact, while horizontal arrows
indicate a neutral impact.

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McGraw-Hill | © AZHAR KAZMI & ADELA KAZMI 52
Framework for the Development of Strategic
Advantage

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Dynamics of Internal Environment

An organisation uses different types of resources and exhibits a

certain type of behaviour.
The interplay of these different resources along with the prevalent
behaviour produces synergy or dysergy (sometimes, called
antergy) within an organisation, which leads to the development
of strengths or weaknesses over a period of time.
Organisational capability rests on an organisation's capacity and
the ability to use its competencies to excel in a particular field
thereby giving it strategic advantage.

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Organisational Resources

The physical resources are the technology, plant and equipment,

geographic location, access to raw materials, etc.
The human resources are the training, experience, judgement,
intelligence, relationships, etc. present in an organisation.
The organisational resources are the formal systems and
structures as well as informal relations among groups.
The resource-based theory of strategic management holds that
firms possess resources of which that are valuable and rare
enable them to achieve strategic advantage.

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Organisational Behaviour

Organisational behaviour is the manifestation of the various forces and

influences operating in the internal environment of an organisation that
create the ability of, or erect constraints to, the usage of resources.
Some of the important forces and influences that affect organisational
behaviour are: the quality of leadership, management philosophy, shared
values and culture, quality of work environment and organisational
climate, organisational politics, use of power, and such other factors.
Strength is an inherent capability which an organisation can use to gain
strategic advantage. A weakness, is an inherent limitation or constraint
which creates a strategic disadvantage for an organisation.

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Concepts 1
A situation where attributes do not add mathematically but combine to
produce an enhanced or a reduced impact. Such a phenomenon is known
as the synergistic effect.
Synergy is an idea that the whole is greater or lesser than the sum of its
parts. It is also expressed as 'the two plus two is equal to five or three
effect'.
Competencies are special qualities possessed by an organisation that
make them withstand pressures of competition in the marketplace.
The capability to use the competencies exceedingly well turns them into
core competencies.
When a specific ability is possessed by a particular organisation
exclusively or relatively in large measure, it is called a distinctive
competence.

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Concepts 2

Organisational capability is the inherent capacity or potential of an

organisation to use its strengths and overcome its weaknesses in order to
exploit opportunities and face threats in its external environment.
Strategic advantages are the outcomes of organisational capabilities.
They are the results of organisational activities leading to rewards.
Competitive advantage is a special case of strategic advantage where
there is one or more identified rivals against whom the rewards or
penalties could be measured.
Sustained competitive advantage is implementing a value creating
strategy not simultaneously being implemented by any current or potential
competitors and when these other organisations are unable to duplicate
the benefits of this strategy.

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Organisational Capability Factors

Organisational capability factors are the strategic strengths and

weaknesses existing in different functional areas within an
organisation which are of crucial importance to strategy
formulation and implementation.
Terms synonymous to organisational capability factors are:
strategic factors, strategic advantage factors, corporate
competence factors, etc.
Different types of capability factors exist within the internal
environment of an organisation. These are: finance, marketing,
operations, personnel, information, and general management
areas.

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Financial Capability Factors

Factors related to sources of funds Capital structure,

procurement of capital, controllership, financing pattern, working
capital availability, borrowings, capital and credit availability,
reserves and surplus.
Factors related to usage of funds Capital investment, fixed asset
acquisition, current assets, loans and advances, dividend
distribution, and relationship with shareholders.
Factors related to management of funds Financial, accounting
and budgeting systems; management control system, state of
financial health, cash, inflation, credit, return and risk
management.

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Marketing Capability Factors

Product related factors Variety, differentiation, mix quality,

positioning, packaging etc.
Price-related factors Pricing objectives, policies, changes,
protection, advantages, etc.
Place-related factors Distribution, transportation and logistics,
marketing channels, marketing intermediaries, etc.
Promotion-related factors Promotional tools, sales promotion,
advertising public relations, etc.
Integrative and systemic factors Marketing mix, market standing,
company image, marketing organisation, marketing system,
marketing management information system, etc.

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Operations Capability Factors

Factors related to the production system Capacity, location,

layout, product or service design, work systems, degree of
automation, extent of vertical integration, etc.
Factors related to the operations and control system Aggregate
production planning, material supply; inventory, cost and quality
control; maintenance systems and procedures, etc.
Factors related to the R & D system Personnel, facilities, product
development, patent rights, level of technology used, technical
collaboration and support, etc.

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Personnel Capability Factors

Factors related to the personnel system: Systems for manpower planning,

selection, development, compensation, communication, and appraisal;
position of the human resource management department within the
organisation, procedures and standards, etc.
Factors related to organisational and employees characteristics Corporate
image, quality of managers, staff and workers; perception about and
image of the organisation as an employer, availability of developmental
opportunities for employees, working conditions, etc.
Factors related to industrial relations: Union-management relationship,
collective bargaining, safety, welfare and security; employee satisfaction
and morale, etc.

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Information Management Capability Factors

Factors related to acquisition and retention of information Sources,

quantity, quality, and timeliness of information.
Factors related to processing and synthesis of information Database
management, computer systems, software capability.
Factors related to retrieval and usage of information Availability and
appropriateness of information formats.
Factors related to transmission and dissemination Speed, scope, width,
and depth of coverage of information, and willingness to accept
information.
Integrative, systemic and supportive factors Availability of IT infrastructure,
its relevance and compatibility to organisational needs, up gradation of
facilities, willingness to invest in state-of-the-art systems.

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General Management Capability Factors

Factors related to the general management system: Strategic

management system, processes related to setting strategic intent,
strategy formulation and implementation machinery.
Factors related to general managers: Orientation, risk-propensity,
values, norms, personal goals, competence, capacity for work, track
record, balance of functional experience, etc.
Factors related to external relationships Influence on and rapport with
the government, regulatory agencies and financial institutions; public
relations.
Factors related to organisational climate Organisational culture, use
of power, political processes, balance of vested interests;
introduction, acceptance and management of change.

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How organisational capabilities contribute to
strengths and weaknesses?

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Factors Affecting Organisational Appraisal

The ability of the strategists to comprehend complexity

determines how well the different forces and influences, operating
within the internal environment, are analysed.
The size of the organisation affects the quality of appraisal.
Larger organisations are usually more difficult to appraise than
smaller ones.
If the internal environment of an organisation is vitiated owing to
opposing political forces and power games, the quality of
appraisal is likely to suffer. A cohesive management team, on the
other hand, is more likely to appraise the organisation better.

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Approaches Towards Organisational
Appraisal

A systematic approach is adopted as a proactive measure to

appraise the organisation and is used when the strategists opt for
formal strategic planning systems.
An ad hoc approach is generally used as a reactive measure in
response to a crisis or an unusual development.
The assessment of organisational capability may rely on
employees' opinion, company files and documents, financial
statements, the management information system, and other
internal sources

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Porter's Generic Value Chain

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Methods and Techniques for Organizational
Appraisal

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Internal Analysis Techniques: VRIO

Valuable: The organisational capabilities possessed by the firm that help it

to generate revenues by capitalising on opportunities and / or to reduce
costs by neutralising threats.
Rare: The organisational capabilities that are possessed by the firm
exclusively or just by a few other firms in the industry.
Inimitable: The organisational capabilities possessed by the firm that are
impossible, very difficult or not worthwhile to duplicate or substituted by
the competitors.
Organised for usage: The organisational capabilities possessed by the
firm that could be used through appropriate organisational structure,
business processes, control systems, and reward systems that are
present in the firm.

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Internal Analysis Techniques: Value chain
Analysis
A value chain is a set of interlinked value-creating activities performed by
an organisation. These activities may begin with the procurement of basic
raw materials and go through processing in various stages right up to the
end products marketed to the ultimate consumer.
The value chain of a company may be linked to the value chain of its
upstream supplier and downstream buyers forming a series of chains.
Five sub-activities includes:
• Inbound logistics
• Operations
• Outbound logistics
• Marketing and sales
• Service

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Internal Analysis Techniques: Quantitative
Analysis
A technique such as financial ratio analysis assesses the liquidity,
profitability, leverage, and activity aspects of any organisation. It
can be used for analysing strengths and weaknesses and
provides valuable data that can be used in organisational
appraisal.
Economic value-added (EVA) is defined as the system of
corporate management that defines profitability in terms of the
returns on capital above the cost of servicing the capital
employed.
Activity-based cost (ABC) accounting identifies the major
activities in the value chain within a firm and keeps a tab on the
costs within each activity.

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Internal Analysis Techniques: Qualitative
Analysis
An organisational appraisal can be based primarily on quantitative
analysis since it is possible to measure and compare on a numerical
or financial basis.
Since quantification has its limitations, the quantitative analysis has to
be tempered with qualitative analysis. Such an analysis is based on
informed opinion, judgement, intuition, or hunch.
Many of the strengths and weaknesses of an organisation cannot be
expressed in quantitative terms.
Qualitative analysis can also effectively supplement quantitative
analysis. Conversely, quantitative analysis could be used to support
and reinforce qualitative assessment.

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Comparative Analysis: Historical Analysis

One way to compare performance and identify strengths and

weaknesses is to start with the historical analysis of one's own
organisation over a period of time.
Historical analysis is a good measure of how well or badly an
organisation has progressed with respect to its own past
performance.
The performance of companies is shown in terms of comparative
figures over the last year or for the same period in the past year.
Such a practice is standard in presentation of balance sheet and
profit and loss account in the annual report of companies

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 Comparative Analysis: Industry Norms

The industry to which a business belongs is the most obvious

choice for comparison with regard to a wide range of parameters.
A company might check whether its cost structure is comparable
to that of its competitors or the budget spending on advertising is
equal to that of its nearest rival.
In doing so, it is assumed that businesses in an industry operate
under a similar relevant environment and a comparison could
throw up significant information on the basis of which to assess
where one stands with respect to others.

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Comparative Analysis: Benchmarking
A benchmark is a reference point for taking measures against. The
process of benchmarking is aimed at finding the best practices within and
outside the industry to which an organisation belongs.
The purpose of benchmarking is to find the best performers in an area so
that one could match one's own performance with them and even surpass
them.
Performance benchmarking is to compare one's own performance with
that of some other organisation for the purpose of determining how good
one's own organisation is.
Process benchmarking is to compare the methods and practices for
performing processes
Strategic benchmarking is to compare the long-term, significant decisions
and actions undertaken by other organisation to achieve their objectives.

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Comprehensive Analysis: Key Factor Rating

Many systems have been evolved by consultants to assess

organisational strengths and weaknesses.
Essentially, these systems are based on rating depending on a
number of key factors, each of which is analysed on the basis of a
series of thoughtful and penetrating questions.
A detailed study of the areas covered by these questions leads to
a reliable appraisal of an organisation.
The sequence of questions roughly corresponds to functional
capability factors.

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Comprehensive Analysis: Business
Intelligence Systems
Business intelligence (BI), a term coined by Howard J. Dresner of the
Gartner Group in 1989, became popular in late 1990s.
BI enables extraction of insights from vast amount of unstructured
data and transform it into valuable, useful and actionable business
information.
The applications of BI include the activities of decision support
systems, query and reporting, online analytical processing, statistical
analysis, forecasting, and data mining.
For strategic management, BI has the potential to help organisations
in strategic decision-making process, SWOT analysis and strategic
planning.

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Comprehensive Analysis: Balanced
Scorecard
Balanced scorecard is a means of assessment of strengths and
weaknesses of an organisation.
Proposed by Robert S. Kaplan and David P. Norton, balanced
scorecard attempts to do away with the bias in performance
measures towards financial indices and tries to build a holistic system
of measurement.
The balanced scorecard identifies four key performance measures
as:
Financial perspective
Customer perspective
Internal business perspective
Learning and growth

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Preparing Organisational Capability Profile
(OCP)

The organisational capability profile (OCP) is drawn in the form of

a chart which shows a summarised OCP.
The strategists are required to systematically assess the various
functional areas and subjectively assign values to the different
functional capability factors and sub-factors along a scale ranging
from values of - 5 to + 5.
After completion of the chart, the strategists are in a position to
assess the relative strengths and weaknesses of an organisation
in each of the six functional areas and identify the gaps that need
to be corrected or opportunities that could be used.

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Preparing Strategic Advantage Profile (SAP)

Based on the detailed information presented in the OCP, it is

possible to prepare a concise chart of strategic advantage profile.
An SAP can also be prepared directly when students analyse
cases during classroom learning without making a detailed OCP.
An SAP provides a picture of the more critical areas which can
have a relationship of the strategic posture of the firm in the
future.

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