Professional Documents
Culture Documents
Strategic Management 408 v1
Strategic Management 408 v1
Developed By
AS Pillai, PCC (ICF)
On behalf of
Prin. L.N.Welingkar Institute of Management Development & Research
Advisory Board
Chairman
Prof. Dr. V.S. Prasad
Former Director (NAAC)
Former Vice-Chancellor
(Dr. B.R. Ambedkar Open University)
Board Members
1. Prof. Dr. Uday Salunkhe 2. Dr. B.P. Sabale 3. Prof. Dr. Vijay Khole 4. Prof. Anuradha Deshmukh
Group Director Chancellor, D.Y. Patil University, Former Vice-Chancellor Former Director
Welingkar Institute of Navi Mumbai (Mumbai University) (YCMOU)
Management Ex Vice-Chancellor (YCMOU)
ALL RIGHTS RESERVED. No part of this work covered by the copyright here on may be reproduced or used in any form or by any means – graphic,
electronic or mechanical, including photocopying, recording, taping, web distribution or information storage and retrieval systems – without the written
permission of the publisher.
1st Edition, January 2014 2nd Edition, January 2016 3rd Edition, May 2021
2
Contents
8. Strategy Formulation
9. Strategy Implementation
3
1
FUNDAMENTALS OF STRATEGIC
MANAGEMENT
Objectives:
This chapter focuses on the fundamentals of strategic management. At the end of
the chapter, you will be able to understand the following:
• De nition of Strategic Management
• Importance and Relevance of Strategic Management
• Strategic Planning and Strategic decisions
• Levels of Strategy
• Strategic Management Process
• Role of Different Stakeholders
4
fi
FUNDAMENTALS OF STRATEGIC MANAGEMENT
Structure:
1.1 Introduction
1.2 Global Economic Scenario
1.3 Strategic Management De nition
1.4 Concepts and Approaches of Strategic Management
1.5 Importance and Relevance of Strategic Management
1.6 Limitations of Strategic Management
1.7 What is Strategy?
1.8 Strategic Positioning
1.9 Strategic Decisions
1.10 Levels of Strategy
1.11 Structure and Role of Stakeholders
1.12 Strategic Management Process
1.13 Strategic Management-Indian Context
1.14 Summary
1.15 Self-Assessment Questions
5
fi
FUNDAMENTALS OF STRATEGIC MANAGEMENT
1.1 Introduction:
Strategic Management is an important cornerstone of today’s business
world. Strategic management over the years has evolved into a matured
process in many organisations. The very purpose of strategic management
is to align the organisation vision with the external world and create long
term value for stakeholders by unlocking the organisation’s potential,
resources, and its people’s wisdom and compassion. Thus, strategic
management process brings about a balanced execution between the
internal and external environments.
With the key ingredients of the business strategy changing very fast, like
adoption of digital and social business strategy or other forms of
technologies like social media, mobility, analytics and cloud (shortly called as
SMAC), it is also important to note that the strategies that worked in the past
may not work for the future. Today’s organisation needs to build newer
capabilities to stay ahead of the value curve and differentiate itself from the
rest of the market players.
The challenges arising out of formulation and implementation of strategies to
sustain a company’s success have placed greater pressure on the
leadership team of an organisation to respond to these challenges quickly
and decisively, yet responsibly in a fast changing world that is characterised
by hyper competition. A good or bad strategy could make or break the
company’s fortunes drastically. It is also to be noted that the difference in a
company’s success lies in its ability to execute the strategy as per the
strategic management process laid down by the company and stay focused,
by constantly reviewing it. Having a successful strategic management
process is the most important aspect of remaining successful in business.
Hence, Strategic Management becomes a critical business process for any
organisation which has a long term vision to be a leader in its business. This
book brings clarity on the concepts of strategic management and presents
the various stages involved in strategically analysing, formulating,
implementing, reviewing and controlling the strategic management process.
As the environment changes, the organisations may change their vision and
objectives to address the changing market requirements. Thus, the
organisation constantly re nes its strategies, structure, products and
services, markets and competitive advantage.
6
fi
FUNDAMENTALS OF STRATEGIC MANAGEMENT
The course pack broadly provides insights into the following important
components of successful Strategic Management Process:
1. Fundamentals of Strategy and Strategic Management
2. Industry and Competition Analysis
3. Internal and External Environment Analysis
4. Different Levels of Strategy
5. Strategy Formulation
6. Strategy Implementation
7. Strategy Review and Control
8. Strategic Leadership
9. Corporate Governance
Strategic Management is a four step process starting with the environment
analysis, pertaining to both the external and internal scenarios that an
organisation must consider before making a strategy – this comprehensive
exercise is called the PEST analysis. Then it moves to the strategy
formulation stage by doing the SWOT analysis, evaluating various strategic
options and alternatives and by making a choice on the appropriate ones
that help unlock the organisation potential and realise the vision.
The next step is the execution stage, where the process must ensure
meticulous implementation of the strategies agreed during the formulation
stage, by enabling and empowering the entire organisation. Finally, what is
of utmost importance is to evaluate and control the strategy in order to stay
focused on the execution as well as, make necessary changes and course
correction in tune with changes happening in the environments from time to
time. This process is a continuum and hence the process repeats itself in
order to evolve into a successful strategic management process for the
company.
7
FUNDAMENTALS OF STRATEGIC MANAGEMENT
8
fi
fi
fi
fi
fi
fi
fi
fi
FUNDAMENTALS OF STRATEGIC MANAGEMENT
With the world now lled with new socio-economic challenges and new
order, Enterprises are all scrambling to sustain their businesses and be
innovative in their strategies to stay ahead. As said, coordinated actions
among the various governments, regulatory bodies and important
stakeholders are still work in progress, yet to give comfort that the worst for
the world economy is over.
Most Organisations have learnt to evolve their strategies in tune with market
environment and try to stay ahead so as to sustain their performance and
deliver value to stakeholders. The companies, which have stayed on high
growth path, are striving to come out with innovative ideas to introduce new
products and services to take their companies to the next growth trajectory.
One must believe that the strategies that worked earlier for an organisation
may not work the same way going forward. Therefore, it is all the more
important for organisations to demonstrate high discipline in formulating and
implementing a robust strategic management process to ensure they stay
focused on their mission.
The world is shrinking with the introduction and availability of innovative
technologies. The world had never been better connected than now.
Technology is helping companies to innovate. On the one hand the
technological innovation is helping organisations to develop and execute
their strategies more effectively than in the past, to steer their companies on
the path to become star performers, on the other hand there have been a
marked increase in corporate governance issues, allegations of top
management wrongdoings including violation of insider trading policies,
scandals, corruption charges, and sexual harassment and integrity issues
that hamper the con dence of different stakeholders like investors,
customers, employees, partners and most importantly the business
environment at large.
These challenges have exerted greater pressure and onus on the leaders to
respond to strategic problems quickly and effectively. Once the organisation
reputation is damaged, it is almost impossible or it takes a very long time to
regain the brand name and its reputation.
With this backdrop, it is important that the strategic management process
has become an integral process and an important business tool to navigate
the execution of strategy. This has become a vital element of an
organisation, should a company aspire to achieve its business success and
9
fi
fi
FUNDAMENTALS OF STRATEGIC MANAGEMENT
10
fi
fi
fi
FUNDAMENTALS OF STRATEGIC MANAGEMENT
This book reinforces the fact that Strategic management is a critical success
factor for an organisation and is an on-going dynamic process that evaluates
and controls the long term business performance of the company by
formulating and implementing a set of strategies. Strategic planning happens
every year for the next three year period with the individual business units
and functional units submitting their strategic plans (STRAPs) in line with
corporate policies and guidelines.
This course discusses in detail and assesses the environment, its
competitors, sets goals and creates strategies to meet all existing and
potential competitors; then reassesses each strategy (at Corporate,
Business and Functional levels) annually or quarterly i.e. regularly to
determine how strategy has been implemented and whether it has
succeeded or needs replacement by a new strategy to meet the changed
circumstances, new technology, new competitors, a new economic
11
fi
FUNDAMENTALS OF STRATEGIC MANAGEMENT
12
fi
fi
fi
fi
fi
fi
fl
FUNDAMENTALS OF STRATEGIC MANAGEMENT
13
fi
fi
fi
FUNDAMENTALS OF STRATEGIC MANAGEMENT
14
fi
fi
FUNDAMENTALS OF STRATEGIC MANAGEMENT
15
FUNDAMENTALS OF STRATEGIC MANAGEMENT
16
fi
fi
fl
fi
fi
fi
fi
fi
FUNDAMENTALS OF STRATEGIC MANAGEMENT
17
fi
fi
fi
fi
fi
FUNDAMENTALS OF STRATEGIC MANAGEMENT
18
FUNDAMENTALS OF STRATEGIC MANAGEMENT
Anything as Service:
Thinking wildly, the next big thing one can anticipate and the one that would
take the strategy to the next level could be an organisation’s ability to offer
anything as a service to customers without actually having to own it but pay
for only the actual usage. With most of the services already connected on
the virtual world we are already experiencing the pay-as you-use-services.
This strategy works well in the areas like entertainment, music, digital
movies, mobility applications, cloud applications, social media, big data
analytics etc. There will be many new emerging service providers who will be
challengers with ability to disrupt the market with innovative products and
services, and become leaders in their space. The opportunities are in the
areas of innovative solutions and services that can be offered to both B2C
and B2B customers to address the personal and business requirements of
the customers respectively.
1.8 Strategic Positioning:
Strategic positioning is the effort of an organisation to achieve sustainable
competitive advantage by continually preserving what is distinctive about the
company. It may also mean benchmarking different activities from the market
place as well as introducing best practices in performing different activities in
different ways. The key to success is not to get distracted by the short term
opportunistic goals that would hamper the company’s plans to achieve its
purpose, but to continuously focus on achieving the long term objectives of
the company.
Is strategy cost focused or value focused?
Both the strategies work for organisations which intend to take their own
unique path. The strategic management process brings out facts by
analysing the underlying economic structure of the external environment,
choosing a strategic position of low cost focus or value differentiation focus,
to benchmarking the competition vis-à-vis the resources the company is able
to create.
19
FUNDAMENTALS OF STRATEGIC MANAGEMENT
20
fi
fi
fi
fl
FUNDAMENTALS OF STRATEGIC MANAGEMENT
Strategic decisions could vary from choosing the right market segment, to
developing the right products and services, to building high levels skills to
differentiate the offerings, to generating cost effective nancial resources, to
capex investments, to creating a partner ecosystem. It deals with multiple
dimensions and dynamics of the business environment. The top decision
makers in an organisation must understand the complex relationship
between the various factors across the business spectrum to take timely
decisions and create actions to see forward momentum in the company’s
progress. Not taking decisions can serve as bottle-necks to realise sustained
progress.
There could be situations wherein the decision makers would have to take
decisions that could impact the company’s pro tability in the short term but
will bring in signi cant revenues and pro ts in the medium to long term if the
strategy is implemented properly.
For example, if the mission of the organisation is to develop a service that
needs highly skilled employees to perform the service, the decision might
increase the employee wages signi cantly but it is expected that highly
skilled employees deliver higher productivity and higher revenue realisation,
thereby offsetting the increase in employee cost in the long run. If the
mission of the organisation is to develop a high quality product with
enhanced product features then the company would have to invest in state-
of-the-art technology equipment (that implies additional capex costs) to
enhance the quality of the product, but a higher quality product will attract
more customers thereby increasing the sales and revenues to the company
over a long term.
Keeping these complexities and sensitivities involved in mind, strategic
decisions are generally reserved for the top management team which is
expected to understand both the short term and long term implications of
certain decisions. Hence, for all practical purposes, the CEO, the SBU Head
and the Functional Head are collectively responsible for the organisation’s
strategic management. It is for these reasons that every organisation has an
Executive Council (EC) or Management Council (MC) represented by the top
management executives who strategically manage the organisation. It is
generally believed that the quality of strategic decisions improves
dramatically when more than one capable executive participates in the
process.
21
fi
fi
fi
fi
fi
FUNDAMENTALS OF STRATEGIC MANAGEMENT
The quality of strategic inputs and the degree of involvement of top and
middle management leaders depend on the size of the organisation. Large
organisations generally take a structured approach to strategic management
process and have clearly de ned guidelines for decision making process.
They even have delegation of authority (DoA) matrix to enable faster
decision making to support the business and its stakeholders. There is
greater awareness at different levels of the organisation structure the
importance of decision making and as to at what levels certain decisions are
made. It makes it easier to set expectations and turnaround time among
various stakeholders when such informed decisions are made.
The corporate level leaders do also engage outside consultants to help the
top management in the strategic management process. Once the strategic
guidelines are formulated at the corporate level, then the individual SBU
CEOs and its functional leaders like marketing, production, sales, marketing,
human resources, and nance spend quality time together to contribute
strategic inputs and ideas to take decisions within the corporate framework.
The degree of involvement of senior and middle managers in the strategic
management process will depend upon the corporate philosophy and how
far the process has matured over a period of time.
As part of the strategic management process, the top management seeks
inputs from the senior leadership and middle level leadership team members
directly and from other key employees indirectly. This process can be quite
bene cial as these inputs are incorporated in the strategic decision making
during the strategic management. Mostly, the market facing employees
contribute good ideas in new product development or new service
conceptualisation as these frontline employees understand the customers’
problems, requirements, preference and what the competition is offering or
doing in the market place. These inputs are presented to the top
management through their reporting managers. It is nally upto the
management council to decide whether to incorporate the ideas into the on-
going strategic planning process. This clearly explains how individual
employees play a role in the strategic management process.
22
fi
fi
fi
fi
FUNDAMENTALS OF STRATEGIC MANAGEMENT
23
FUNDAMENTALS OF STRATEGIC MANAGEMENT
Corporate Strategy:
Corporate strategy is the long term strategy encompassing the entire
organisation. Corporate strategy addresses the fundamental questions such
as what is the purpose of the enterprise, the vision, what businesses it
wants to pursue, and what is the expansion and diversi cation strategy of
each business mergers & acquisitions, de ne the business guidelines and
corporate governance to be followed by the SBUs and the functional units.
Organisational compliance is very important to achieve the stated goals. In
other words, corporate level strategic management is management of
activities which de ne the overall character and mission of the organization,
the products and service segments it will pursue or exit, the allocation of
resources and management of synergy among its SBUs and functions. The
corporate strategy is formulated by the top level corporate management
comprising of the chairman, the board of directors and the CEO. At the
corporate level, it is important that the rm communicates with all important
and relevant stakeholders about the various initiatives and events that
impact the organisation’s performance both positively and negatively in order
to gain trust and con dence.
SBU Strategy:
Every large corporate organization has interest in multiple lines of
businesses. Each business is of strategic importance to the achievement of
the corporate vision. Each strategic business will be responsible for the
creation of strategy for the products and services, critical decisions
pertaining to the product mix, de ning the market segments, developing
competitive advantage for the SBU.
While corporate strategy decides the business portfolio, the SBU level
strategy decides the competitive advantage it needs to create to succeed
in the chosen business line(s). The SBU strategy has to conform to the
guidelines and governance mechanisms and the corporate philosophy and
strategy. The different SBUs in different lines of business segments work in
tandem with the Corporate to contribute to the overall organization success.
24
fi
fi
fi
fi
fi
fi
FUNDAMENTALS OF STRATEGIC MANAGEMENT
Functional strategy:
Functional level strategies are strategies that work in synchronization with
corporate strategy and SBU strategy for different functional areas like
production, sales and marketing, nance, human resources, customer
service etc. In other words, functional strategic management are meant to
create expertise, competence, competitive advantage, ef ciency and
productivity which are vital to the achievement of the business goals.
Principles of good strategy:
According to Jack Welch, strategy is an organization’s ability to learn and
translate that learning into action rapidly for the ultimate competitive
advantage. A good strategy is a relative term depending on the stage in
which an organization is currently in and its evolution in the value chain.
The essence of strategy lies in creating tomorrow's competitive advantages
faster than competitors mimic the ones you possess today, as clearly
articulated by Gary Hamel & C. K. Prahalad.
As explained in the beginning of this chapter, there are three categories of
organizations from an industry evolution perspective; they are old economy,
traditional economy and new economy industries. A good strategy for a new
economy organization may be different from the old/traditional economy
organizations. Thus, it is relative to the structural evolution of the industry.
There is no one size ts all.
For example, the companies that operate in the traditional market place, a
good strategy is to create competitive products to beat the hyper
competition, while some companies are still able to create new market space
by introducing new products and services in their quest for staying ahead, by
expanding the boundaries of the market place.
The true purpose of an organisation is that it has to evolve a strategy that
goes beyond the competitive advantage, but also to really create a socio-
economic impact to human lives. This applies to all the categories of
Industries.
25
fi
fi
fi
FUNDAMENTALS OF STRATEGIC MANAGEMENT
26
fi
FUNDAMENTALS OF STRATEGIC MANAGEMENT
Board of Directors:
The investors or shareholders share the pro ts of the organisation, without
directly taking responsibility in the operations. However, their involvement
does include their right to elect / nominate the directors and create the board
of directors which is the supreme body of any corporate organisation, which
has a legal duty to represent the shareholders and protect their interests,
and hence play an important role in the corporate strategy making. As
representatives of the shareholders, the board of directors have both the
authority and responsibility to establish basic corporate policies and
guidelines, oversee governance, setting vision and direction of the company
and providing approvals to all critical decisions which might impact the
performance of the company in the long run. In other words, the board of
directors govern and oversee the top management and ensures that the
vision is translated into an executable strategy, with review by the board on
regular intervals.
The board does not formulate the strategy, but plays an important role in
setting the policies, corporate vision/ plans and guidelines that lead to the
strategy making. The board also plays a critical role in the planning,
evaluation, validation, review of the strategic management process and its
implementation at periodic intervals. The board has the power to appoint or
remove the Chief Executive Of cer based on his ability to lead the top
management and performance in consistence with the board mandates. The
board effectively supervises these key components, in order to ensure the
top management follows them to deliver sustainable results:
1. Governance
2. Compliance
3. Risk Management
27
fi
fi
FUNDAMENTALS OF STRATEGIC MANAGEMENT
Corporate Governance:
The term corporate governance refers to the management of relationship
between the three stakeholders in a corporate organisation namely: 1)
Shareholders 2) Board of directors and 3) Top management.
We have seen many instances of scandals and corruption charges
happening at the corporation level with examples such as Enron, WorldCom,
Global Crossing, Tyco, Qwest, Satyam Computer Services etc. It is because
of this, over the past decade, many shareholders and interest groups have
seriously questioned the role of directors in corporations and disclosures to
the shareholders. Their concerns include whether the fulltime directors and
independent directors possess suf cient knowledge, involvement in the
company and enthusiasm to adequately provide guidance to the top
management.
There are instances wherein the board is merely interested in keeping a
CEO happy for delivering performance at the cost of corporate governance,
overlooking standard best practices and exposing organisations to nancial
and regulatory risks over a period of time. This includes strategic investment
decisions that are not evaluated properly leading to risks or boosting
performance of the organisation by arti cially managing books and most
preposterously paying high salaries and incentives for such practices, which
is a breach of trust with all stakeholders keeping short term gains in mind.
The shareholders have of late become more aware of such malpractices
happening at the top management level and they force the board to remove
such errant CEOs.
------------------------------------------------------------------------------------------------------
28
fi
fi
fi
FUNDAMENTALS OF STRATEGIC MANAGEMENT
29
fl
fi
fi
fl
fi
fi
fi
fi
fi
fi
fi
fi
fi
fi
FUNDAMENTALS OF STRATEGIC MANAGEMENT
With loan losses mounting and the fall of Lehman Brothers on 15 September
2008, a major panic broke out on the inter-bank loan market. As share prices
and housing prices declined, many large and well
established investment and commercial banks in the United States
and Europe suffered huge losses and even faced bankruptcy, resulting in
massive public nancial assistance. The global recession and nancial
markets volatility still continues through the year 2013.
Thus, it is very important to recognise that bad governance and lack of
checks and balances lead to erosion of investors’ con dence. It also causes
havoc in the world capital markets, stock prices of companies, market
capitalisation value and damages investors’ wealth in no time. Besides the
global recession, the cases of Lehman Brothers, Enron, WorldCom, Satyam
Computers etc are all different examples of badly managing the
organisations digressing from good practices and good governance.
As part of corporate governance and compliance and as per stock market
guidelines, it is important that the companies make regular disclosures to
market about the various initiatives and events that impact the organisation’s
performance both positively and negatively in order to gain trust with the
important stakeholders i.e., shareholders, investors, customers, employees,
partners etc. Bad decisions like an un t acquisition can also erode the
market value of the company over time. The board has to be the watchdog of
corporate governance, compliance and risk management on a continual
basis.
There are two types of board directors. 1) Inside board director who are
fulltime executives and also hold a management position like a CEO or an
Executive Director in an organisation 2) Outside board director who are
industry experts and are independent Directors and hold no management
position. Independent directors provide independent perspective about the
evaluation, review and the direction of the company strategy. There could be
con icts between the fulltime directors and independent directors at the
board level.
30
fl
fi
fi
fi
fi
FUNDAMENTALS OF STRATEGIC MANAGEMENT
31
fi
fl
fl
fi
fi
fl
FUNDAMENTALS OF STRATEGIC MANAGEMENT
32
fl
fi
fl
fi
fi
fi
fl
fi
FUNDAMENTALS OF STRATEGIC MANAGEMENT
The next important thing in board composition is the quality of the board. It is
not easy to effect a change in the board arbitrarily but if an organisation has
to be rejuvenated, the rst place to start is at the board level. It is to be noted
that the quality of leadership at the board level will have the single largest
impact on the performance of the organisation. If there is any event that
rocks the ship, it will be the board that will come under the scrutiny of the
government and regulatory agencies, hence quality and integrity of the board
must be unquestionable.
Top Management:
The role of the top management in strategic management is clear from the
fact that strategic management is a general management function. The top
management function consists of CEO, COO, Presidents of SBUs, Vice
Presidents/ General Managers of different vertical businesses and
Functional Heads who are responsible for the formulating the organisation
strategy in line with the board’s vision. They are also responsible for the
execution of the strategies for the success of the enterprise as well.
Speci c top management tasks vary from organisation to organisation and
are developed from the analysis of vision, mission, objectives, strategies and
key mandates of the corporation. However, the following are in general, the
top management’s responsibilities in an organisation:
1. Provide executive leadership to the organisation
2. Translate the vision into mission, objectives and strategy
3. Manage the strategic planning process
4. Evaluate and Control the implementation process
The stakeholders in the top management are General Managers who are
strategic thinkers and map out strategy, develops an organisation plan to
implement the strategy and guide the employees to accomplish the
objectives using their vast experience and wisdom.
The typical characteristics of a General Manager is that he is an
entrepreneur (has a vision and sets goals), a strategist (builds plans),
organisation developer (builds teams), a great leader (leads and mentors/
coaches the teams below them) and chief implementer (reviews and
controls). The task is to lead the company or the SBU through unchartered
33
fi
fi
FUNDAMENTALS OF STRATEGIC MANAGEMENT
territory and takes on all the challenges on the way and nd long lasting
solutions to achieve the organisation’s mission.
The highest pro le of a GM is the CEO who heads the organisation or the
SBU. The other General Managers assume responsibilities at the business
unit or line of business level or functional level. Together the entire top
management is called the Management Council (MC) or Executive Council
(EC) of the organisation, the next only to the company’s board. This
Executive Leadership of the organisation directs all activities relevant and
important to the accomplishment of corporate mission, objectives and sets
the tone for the entire organisation.
As strategic vision is a description of what the company is capable of
becoming and what the purpose of the organisation is. It is translated into the
mission, objectives and strategy of the organisation. The top management
should communicate this strategic vision to the general employees so that
everyone in the organisation understands the vision and has a sense of what
the mission is. In short, “a leader’s job is to de ne the overall direction of the
organisation and motivate the employees to get there”, the importance of
executive leadership as illustrated by Steve Reinemund, CEO of PepsiCo.
Keeping tune with the fast changing economic conditions, it is better the top
management gives away it’s so called monopoly on strategic leadership.
This might lead to other capable leaders in the organisation to become just
followers or laggards. The top management should empower authority and
accountability to leaders at all levels to participate in the strategic leadership
to make an inclusive organisation.
For an organisation to succeed in the times of fast changes, every employee
at every level must be empowered to demonstrate leadership and
collaborate in the organisational growth process. In a knowledge based
economy as in the current environment, the workforce will no longer respond
to old style of leadership.
The heads of the organisation that have a clear strategic vision are often
perceived to be dynamic and charismatic leaders. We have many examples
to this. Mr. Ratan Tata of Tata group, Mr. NRN Murthy of Infosys
Technologies, Mr. Shiv Nadar of HCL group, Mr. Azim Premji of Wipro, Mr.
Sunil Bharti Mittal Chairman of Bharti Enterprises, Mr. Deepak Parekh of
HDFC group, Bill Gates of Microsoft, Steve Jobs of Apple Computers to
34
fi
fi
fi
FUNDAMENTALS OF STRATEGIC MANAGEMENT
35
fi
fi
fi
fi
fl
fl
fi
FUNDAMENTALS OF STRATEGIC MANAGEMENT
In a world that is changing at the speed of light, the leadership of the CEO
should bring in enormous value to the organisation consistently and
continually. The CEO should refresh himself on a regular basis in terms of
his personality, skills, knowledge, building relationships and most importantly
looking outwards with open mind to seek ideas as well as criticism, thus
bring in external perspectives.
Otherwise, in the present times when the tenure of CEOs is shrinking, he
becomes a victim of leadership obsolescence as boards view them critically,
as warned by Mr. Ram Charan, CEO Coach and Author of many leading
books on leadership (ET Corporate Dossier Dec 20, 2013). He also adds
that one lousy leader can change everything for the worse. Leadership in
turbulent times is the need of the hour in today’s world economic
environment.
Corporate Planning and Strategic Planning Process:
Strategic planning initiatives now form a part of any organisation which likes
to stay in business for the long term. Hence, large organisations have a
corporate planning division or cell to manage the planning process effectively
from the inception stage through the strategic management program
implementation phase and handover to the operations team when the steady
state is achieved. Unless the top management encourages and supports the
planning process, strategic management is not likely to deliver results.
In most organisations the top management must initiates and evaluate the
strategic planning process. It might rst ask the business units and functional
units to submit their strategic plans for themselves, by drafting the guidelines
that explain the overall corporate plan within which the individual units can
build their own plans.
The planning cell typically consists of 6-8 people headed by a senior General
Manager level person who heads the strategic planning process. The
following are the functions and responsibilities of the corporate planning
division:
36
fi
FUNDAMENTALS OF STRATEGIC MANAGEMENT
37
fi
fi
FUNDAMENTALS OF STRATEGIC MANAGEMENT
38
fl
fl
FUNDAMENTALS OF STRATEGIC MANAGEMENT
1. Environment Analysis:
The environment with which the organisation operates should be considered
as it will have impact on the many factors responsible for the success of the
company. There are factors external to the organisation and some are
internal to the organisation. Industry and competition are two major factors
external to the rm that affect the company’s performance and hence it
assumes highest priority in the formulation of strategy. This is discussed in
detail in a separate chapter later. Then, there are forces that are outside the
Industry and competition – called the macro-environment – should
necessarily be considered as it is important to study how they impact the
industry as a whole as well as the company in particular in pursuit towards its
vision.
39
fi
FUNDAMENTALS OF STRATEGIC MANAGEMENT
40
fi
fi
fi
FUNDAMENTALS OF STRATEGIC MANAGEMENT
41
fi
fi
fi
fi
fi
fi
fi
fi
fi
FUNDAMENTALS OF STRATEGIC MANAGEMENT
bring in synergy within the organisation to deliver the desired results. There
is a separate chapter each on Vision, Mission, Objectives and Goals later in
this book.
b. SWOT Analysis:
In strategic management, it is prudent to analyse the company’s position in
the market place with respect to its strength and weakness, and also
understand the opportunities available there along with perceived threats.
This will decide what kind of strategies it should pursue to deliver the
mission.
In today’s economic scenario where the only constant is change. An
organisation should keep track of the changes happening in the market place
and prepare itself for adjusting itself proactively and to handle the future
changes. When the operating environment changes, the question is how the
company should respond to them? What are the inherent strengths of the
organisation and its resources? What are the opportunities in the
environment which can be exploited leveraging the company’s strengths?
What are the threats and how does the company combat them decisively?
What are the weaknesses and how the company can build additional
competence to overcome the weaknesses? How does the company build a
roadmap with innovative products and services so that it remains ahead of
the competition all the time?
For example, the economic emancipation in India, post liberalisation in 1991,
has opened doors to innumerable opportunities for Indian companies to
expand and diversify their businesses. Many companies have moved from
traditional businesses to new age businesses. Reliance Industries, known as
a large petrochemicals & re nery company, diversi ed its business into oil
and gas exploration, Retail and Telecom services etc. Tata group has been
expanding and diversifying its businesses from salt to software industries, to
acquiring Corus Steel, Jaguar and Land Rover etc. In the whole process,
many other companies entered into new ventures and also made an exit
from some of the new ventures after some time as they did not have relevant
strength to be successful or resources to sustain the business in the long
run.
42
fi
fi
FUNDAMENTALS OF STRATEGIC MANAGEMENT
On the contrary, King Fisher Airlines, once leading full service airlines, closed
down its operations because of huge debt and nancial performance issues.
It left thousands of employees jobless and the banks and nancial
institutions classi ed the KFA account into a non performing asset.
The SWOT analysis of a company is dealt with in detail in a separate chapter
later.
c. Strategic options and alternatives:
Given the mission and objectives, and having analysed the strengths and
weaknesses of the company and the environmental threats and
opportunities, the strategic managers move to identifying the strategic
options to nalise the overall strategy.
There may be different alternative strategies that could be considered for
accomplishing a particular objective, like marketing strategy, customer
acquisition strategy, cost optimisation strategy, etc. For example, in
marketing strategy, the growth in business could be achieved either by
increasing the share of wallet in the existing customers or by entering new
customer segments or by both. Also, the same can be achieved by
enhancing the existing products and services portfolio or introducing new
products and services in the marketplace.
Alternatively, the growth strategy could be through organic means by putting
up green eld plants or through inorganic route by an M&A strategy. A new
business could be started afresh or created by a JV with a technology
partner or opt for an acquisition. There are competitive strategic alternatives
a company can think of as well.
Thus, there are number of strategic options and it is necessary to consider
all the possible options to nalise the relevant strategy in the strategic
management process. This is explained in detail in a separate chapter on
strategy formulation.
43
fi
fi
fi
fi
fi
fi
FUNDAMENTALS OF STRATEGIC MANAGEMENT
44
fi
fi
fi
fi
FUNDAMENTALS OF STRATEGIC MANAGEMENT
3. Acceptability:
•What is the impact of the strategy on pro tability and cash ow?
•What is the justi cation on return on investment criteria?
•How does the strategy affect the capital structure and shareholding
pattern?
•How does it affect the relationship with stakeholders like promoters,
employees and customers?
•How does it impact the brand and corporate image?
4. Implementation:
Implementation is the most important step in operationalizing the strategy.
The top management must ensure the strategy is internalized at different
levels of the organization. It needs clear communication, formulation and
assigning of key performance indicators for performance (KPIs), employee
empowerment through mobilization and allocation of resources, de ning a
clear delegation of authority (DOA), assigning responsibility and
accountability (creating a responsibility matrix) and establishing work ows
and policies for effective implementation.
Implementation of strategy involves a number of administrative and
operational decisions on a real time basis; hence the delegation of authority
matrix must be clearly de ned. It also needs smooth and seamless
functioning of different cross functions under the main SBU, hence there
should be cross functional teams that facilitate con ict resolutions and
information ow between the functions. Implementation is dealt with in detail
in a separate chapter.
45
fl
fi
fi
fi
fl
fl
fi
fl
FUNDAMENTALS OF STRATEGIC MANAGEMENT
46
fl
fl
FUNDAMENTALS OF STRATEGIC MANAGEMENT
The big groups like Tata Group, Birla Group, Mahindra Group, HDFC group,
Bharti Group, Sterlite Group, Essar Group etc have businesses interests in
multiple countries and they all have successfully formulated vision, mission,
strategy and objectives for their individual organisations. The large market
capital companies like, TCS, Infosys, Wipro, ICICI Bank, Tata Motors,
Mahindra & Mahindra, Bharti Airtel, HCL Technologies have proven practices
when it comes to strategic management and strategy implementation. In fact
most of these companies are listed in stock exchanges in other countries like
the US and the UK, and they strictly comply with nancial reporting
standards like IFRS, US GAAP, other compliance and governance
requirements.
In the last decade, many Indian corporates have set ambitious goals and
strategies to grow globally, pursuing their management vision. In the
process, most of these companies have acquired companies in their
industries to augment capacities and capabilities, diversify into
complimentary products and services, and to expand into new geographies.
Examples would be Tata Steel acquiring Corus Steel in UK, Tata Motors
acquiring Jaguar and Land Rover in UK, Bharti Airtel acquiring Zain Telecom
in Africa, Hindalco acquiring Novelis in Canada, Essar Group and ONGC
acquiring strategic oil and gas assets in the African continent, Reliance
Industries acquiring Shale Gas assets in the US, HCL Technologies
acquiring Axon consulting, and Infosys acquiring Lodestone AG in Europe to
name a few.
All of these mergers and acquisitions would not have been possible without
the Indian companies following a robust strategic management process
which has actually helped them pursue their vision of becoming a global
company. Expanding opportunities in the new markets and growing
competition at home have been instrumental for them to devise competitive
strategies to stay ahead in their respective industries.
Mahindra & Mahindra is emerging as India’s most globally ambitious
organization. What started 1945 as a Jeep manufacturing company, today it
is a US $20.7 billion global federation of companies with presence in 11
sectors, operating 22 industries, spread across 6 continents and 100+
countries. Mahindra & Mahindra has acquired (2013) Ssangyong Car of
South Korea, recently acquired (2018) Pininfarina of Italy. In 2018, Mahindra
47
fi
FUNDAMENTALS OF STRATEGIC MANAGEMENT
& Mahindra has also invested US$ 230 million to set up a new car making
plant at Detroit, USA.
As India has increasingly become part of the global environment due to free
economic policies and open market conditions, there have been changes
that have compelled Indian corporates to adopt strategic management more
seriously to build their capabilities and credentials in order to compete in the
global marketplace. The gradual economic liberalization initiatives
implemented by the Indian government post1991 have raised the bar for
Indian corporates to follow global standards in the governance, compliance
and risk management areas. This has tremendously improved the
competitiveness of Indian products and services in the global market.
With more liberal economic policies and opening up of foreign direct
investments (FDI) in the country, Indian companies have encashed upon the
opportunity of making large investments in new technologies, new plants by
entering into joint ventures with foreign partners, which otherwise was not
possible. These strategies of joint partnerships with foreign partners were
clearly visible in sectors like automobiles, pharmaceuticals, telecom,
infrastructure, capital goods, foods and beverages, healthcare, banking,
nancial services and insurance sectors.
In the recent times, this trend is already pervading into other sectors like, civil
aviation, retail, pension fund, etc, for which the government is taking efforts
to open up the sectors or increase the FDI limits in these sectors.
Foreign companies have increasingly liked their Indian counterparts for their
products, services, and most importantly they do not want to be left out in the
Indian growth story. Foreign partnerships for technology and investments,
access to foreign capital markets to raise equity and debt, and liberalisation
in other countries have also helped Indian companies to bring in global best
practices and competitive advantages for their products and services not just
in India but also in international markets, both in terms of scale and value
proposition.
48
fi
FUNDAMENTALS OF STRATEGIC MANAGEMENT
49
FUNDAMENTALS OF STRATEGIC MANAGEMENT
1.14 Summary
Strategic Management has become a critical success factor in any
organisation that aspires to be a long term player both nationally and
internationally. It is important understand the fundamentals of strategic
management and the strategic management process to design and
implement a sustainable business strategy for an organisation. In this
chapter, we also learnt about the four components of strategic management
process viz, environment analysis, strategy formulation, implementation and,
review and control.
This chapter also brought out the importance and limitations of strategic
management process. There are three levels of strategy in organisations
namely corporate strategy, SBU Strategy, and functional strategy. This
chapter also explains how strategic management plays an important role in
Indian companies.
50
1.15 Assessment Questions
1. Which of the following is not pertaining to the de nition of strategy in an
organisation?
a. To create a unique and valuable position for the organisation,
b. To make trade-offs to choose what not to do rather than just de ning
what to do
c. To create “ t” among an organisation’s activities
d. To create orientation towards present conditions
2. What are the key components of strategic management process?
a. Environment analysis, strategy formulation, and review
b. Strategy decision, corporate strategy, business strategy, functional
strategy
c. Strategy planning, operation management and review
d. Environment analysis, strategy formulation, implementation,
evaluation and control
3. Mr. Anand Krishna, a Senior Marketing professional in consumer goods
industry has been recently inducted on the Board of Directors of Avion
Retail Limited. His role includes the following listed items. He needs your
help to identify which of the role is generally not a role of Board of
Directors?
a. Formulate the business strategy of the company
b. Review the business strategy periodically with the management team
for its validity
c. Share insights with the management with respect to strategy risks and
mitigating the risks
d. Ensure the management has adequate contingency plan and
succession plan for management
51
fi
fi
fi
4. You are part of the strategy formulation team in ABC Automobiles Ltd.
You have to understand the strategy making process and present to your
team the sequence of the steps involved in it from below.
a. SWOT analysis, de ne mission and objectives, choose the most
appropriate strategy
b. De ne mission and objectives, make SWOT analysis, formulate
strategic options, choose the most appropriate strategy
c. De ne mission and objectives, formulate strategic options, choose the
appropriate strategy
d. Formulate Strategy, de ne mission and objectives, choose the
appropriate strategy
5. What is the general framework used for evaluation of strategic
alternatives and choices?
a. Simplicity, manageability and process
b. Suitability, feasibility and acceptability
c. Manageability, pro tability, accessibility
d. Complexity, changeability, manageability
6. Ram is fresher in your company Zen Corporation, a mobile devices
company. He is often confused between strategic planning and tactical
planning. He needs help because he is required to engage with the
senior leadership. Please help him to identify which of the following plan
is strategic in nature?
a. Identi cation of the locations for setting up mobile towers in the
identi ed district
b. Diversi cation into Mobile VAS services segment to meet growing
market demand
c. Selection of vendor for one of the key operational process
d. Implementation of Six Sigma project to gain ef ciencies
52
fi
fi
fi
fi
fi
fi
fi
fi
fi
References:
1. Francis Cherunilam, Strategic Management (Prin. L.N. Welingkar
Institute of Management), P 2
2. John A Parnell, Strategic Management, Theory and Practice (Biztantra
2003), P 3
3. John A Parnell, Strategic Management, Theory and Practice (Biztantra
2003), P 5-6
4. Francis Cherunilam, Strategic Management (Prin. L.N. Welingkar
Institute of Management), P 32
5. Michael Porter, Creating Tomorrow’s Advantages, in Rowan Gibson,
Rethinking Future (London Nicholoas Brealey Publishing), 1998, P 6-10
6. Michae Porter, What is Strategy, Harvard Business Review
7. W.Chan Kim, Renee Mauborgne, Blue Ocean Strategy
8. Francis Cherunilam, Strategic Management (Prin. L.N. Welingkar
Institute of Management), P 13-15
9. J.David Hunger, Thomas L Wheelen, Essentials of Strategic
Management (4 Ed) (Prentice Hall India), P 18-19
10. J.David Hunger, Thomas L Wheelen, Essentials of Strategic
Management (4 Ed) (Prentice Hall India), P 18
11. J.David Hunger, Thomas L Wheelen, Essentials of Strategic
Management (4 Ed) (Prentice Hall India), P 19-20
12. J.David Hunger, Thomas L Wheelen, Essentials of Strategic
Management (4 Ed) (Prentice Hall India), P 25
13. J.David Hunger, Thomas L Wheelen, Essentials of Strategic
Management (4 Ed) (Prentice Hall India), P 25
14. Francis Cherunilam, Strategic Management (Prin. L.N. Welingkar
Institute of Management), P 27
15. Francis Cherunilam, Strategic Management (Prin. L.N. Welingkar
Institute of Management), P 27
16. Francis Cherunilam, Strategic Management (Prin. L.N. Welingkar
Institute of Management), P 28-32
53
REFERENCE MATERIAL
Click on the links below to view additional reference material for this chapter
Summary
PPT
MCQ
Video1
Video2
Video3
54
2
ANALYSIS OF INDUSTRY AND
COMPETITION
Objectives:
This chapter focuses on identifying the industry an organisation is operating
in and the competition scenario for its products and services. At the end of
the chapter, you will be able to understand the following:
• De ne the industry and competition
• Evolution of Industry and Industry Lifecycle
• Analysis of industry and competition, SWOT
• Government policies for industry
• Entry and exit barrier
• Bargaining power of customers
55
fi
ANALYSIS OF INDUSTRY AND COMPETITION
Structure:
2.1 Introduction
2.2 Evolution of Industry
2.3 Analysis of Industry
2.4 Competition Analysis
2.5 Competition SWOT Analysis
2.6 Government policies for Industry
2.7 Entry of new Competitors
2.8 Bargaining Power of Customers
2.9 Constraints of Porter’s Model
2.10 Summary
2.11 Self-Assessment Questions
56
ANALYSIS OF INDUSTRY AND COMPETITION
2.1 Introduction
An industry is de ned as a group of companies that produce similar products
and services, but compete with each other to gain social, economic and
competitive advantage through its offerings. Each organisation operates in a
distinct industry which the company should clearly be able to de ne. Each
Industry has its own set of rules and regulations, governed by variables like
product quality, pricing models, place, promotion, people, process and
physical evidence etc.
In the earlier chapter we have already seen three broad categories of
Industries viz 1) Old economy Industries, 2) Traditional economy Industries
3) New economy Industries. Within each category, there are distinct
Industries to which a company belongs to.
1. Old economy industries: Core Industries like Steel, Mining, Coal,
Electricity, Oil & Gas, Power, Cement, Fertilisers, and Petrochemicals,
Infrastructure etc all come under the old economy industries. Banking and
nancial Services also form the core sector driving the economy. They
are in fact the growth engines of an economy.
2. Traditional economy industries: The industries like hotels, automobiles,
aviation, consumer electronics, consumer durables, entertainment, retail,
real estate, healthcare etc all come under traditional economy industries.
3. New economy industries: The third category is the new world economy
where everything is powered by IT and Internet. This Industry has created
a virtual world around everyone. The new industries like IT Services,
Internet services, eCommerce, eRetail, online companies, Social media
companies etc.
It is important for strategic managers to understand the structure of the
industry in which the company is operating in and the competitive scenarios
before deciding on an appropriate strategy to position itself in the market
place. Each category and the industry within that category have distinct
characteristics and those attributes need to be considered as part of the
strategic management process. Industry analysis is the rst step in the
strategic analysis of an organisation.
57
fi
fi
fi
fi
ANALYSIS OF INDUSTRY AND COMPETITION
58
fi
fi
fi
fi
fi
fi
ANALYSIS OF INDUSTRY AND COMPETITION
There is another sub-industry under the retail industry that is eRetail which
predominantly conducts business through online channels. The examples
are eBay.com, amazon.com, ipkart.com, futurebazaar.com, Snapdeal.com,
Myntra.com etc. These companies work in a relatively new industry which
leverages the sudden growth in internet and technology based retail
business platforms and solutions available.
2.2 Evolution of Industry
A deep knowledge and understanding about an industry and the competition
landscape is very crucial to build a good strategy for an organisation.
Industries evolve and change over time and so are competitors in an
industry. There have been new industries evolving at constant pace in this
world. Shifts in demographic forces, cultural changes, social life style
changes, economic changes, technological advancements bring about
change in consumer tastes, requirements, buying power and patterns. As the
industry evolves, the company that operates in it needs to adopt itself to
survive and grow in new challenging environment; otherwise it has to exit the
industry it belonged to.
The nature and structure of the industry might also change as it matures and
the markets become clearly de ned. An Industry’s developmental stage
in uences the nature of competition and the potential pro tability among the
players who compete in that industry. Theoretically, each industry passes
through ve distinct stages of industry life cycle. Traditionally, these stages
are introduction, growth, shakeout, maturity and decline (see Fig 2.1)
In today’s world, there are many instances of an industry transition wherein
one particular industry transforms into another related industry by introducing
new products and services to meet the changing demands of the market
place. Such a transition is in uenced by the changes in trends happening in
the industry and innovation in multiple technology areas. The industry
players sense the change in trends and devise new strategies to transform
themselves and recreate the industry before it hits the decline stage. Such
industries revive and reinvent their evolution into new avatar, in uenced by
change in technological trends happening around the world.
59
fl
fi
fl
fl
fi
fi
fl
ANALYSIS OF INDUSTRY AND COMPETITION
This can be illustrated with many examples. A decade back, people used to
go to normal movie theatres to watch cinema. With competition from digital
channels like new age TV, Direct to Home (DTH), Internet based on-demand
services, and change in customer expectations about movie going
experience, nowadays there are multiplexes that have multiple screens
showing different movies to suit the tastes of different audience with highly
enhanced ambience of a shopping mall turning the whole movie watching
into a true experience. Thus, the industry has transitioned from a traditional
cinema theatre to a full- edged entertainment services experience for
customers.
Another example that we can relate here is the decline of pager industry and
the evolution of mobile industry which have contrasting life-cycle
characteristics. One must have heard of the pager industry that existed in
India between 1994 and 1998. The pager industry just preceded the mobile
industry, then overlapped with the mobile services launch, and served as a
cost-effective communication for end-users, when the mobile tariffs were
prohibitively as high as Rs.18 per minute and normal customers couldn’t
afford mobile services at that point of time.
In the initial years, the pager industry had experienced a sharp growth in
subscriber numbers. However the industry experienced heavy losses and
subsequent fall in mobile tariffs made them lose the industry value
proposition as it had limitations of functionalities as compared to a mobile
service and in the process started losing its customers. Eventually, from the
year 1998, the industry started witnessing decline and lost its place to the
mobile industry.
As we talk about mobile industry, an industry which started as mobile voice
services (based on 2G service) since its launch in 1996, it has transformed
into a full- edged value added services industry with the advent of advanced
technologies like 3G, 4G etc. The industry from introduction in 1996 has
evolved into a converged communication services provider industry as of
today combining the power of voice, data and video capabilities and offering
anytime anywhere any application value proposition.
60
fl
fl
ANALYSIS OF INDUSTRY AND COMPETITION
Industry evolution is a continuous process and seldom any industry can hope
to isolate it from the risk associated with the change in the industry
dynamics. DTH service provider may be enjoying their dominance today but
slowly and steadily, they are losing viewership to web-based content
providers like NEXFLIX.
Fig 2.1
Introduction stage:
An industry in its nascent stage that is beginning to form is considered to be
in the introduction stage. During this stage the demand for the industry’s
products is generally low as the product or service awareness is still
developing. All customers are actually rst-time buyers, and tend to be risk
taking, to experiment with new products. Technology based industry falls
into this category. The industry generally seeks ways to improve the product
and bring in distribution ef ciencies as they learn more about the market.
Growth stage:
Once the product or the service is accepted by large customer base, and key
technological issues are addressed, industry enters the growth stage. The
market demand for the product and service increases and more new
customers are acquired. Most of the companies are pro table, and the
pro ts are invested back into new technologies and facilities to create
product enhancements as well as for expansion and diversi cation of
61
fi
fi
fi
fi
fi
ANALYSIS OF INDUSTRY AND COMPETITION
business. During this stage, more and more competitors come up with
similar products/ business models.
Shake-out stage:
When the industry growth is no longer rapid enough to support more
competitors or when the market demand gets saturated, the industry goes
through a shake-out stage. Some of the weaker competitors go out of
business at this stage as they can no longer invest back in the business and
slowly they lose out on their competitive positioning because of high growth
rate within the industry. Only a small number of stronger players emerge as
leaders and marginal competitors are forced out of the industry.
Maturity stage:
This is the consolidation stage when the market demand is completely
saturated and the industry itself goes through adjustment. Here, the stronger
players might buy out small good companies with value proposition, and
weaker players completely exit from the industry. Eventually, the leaders of
the industry pursue product innovation, seek to expand into new markets,
diversify into new business areas and even some of them look out for global
expansion.
Decline stage:
This stage occurs when demand for an industry’s product and services
decreases, and consumers begin to turn to more advanced or higher quality
product offerings from new industries. Some companies may divest their
business units at this stage whereas others reinvent themselves and pursue
new innovative products and services to sustain in the business.
Indian Context:
Lifecycle model of an industry is useful for strategic analysis, not all
industries necessarily follow these stages nor can any predictable period for
an evolution be clearly de ned. For example Indian infrastructure industry is
one such example, it has not fully reached a maturity stage but have been
going through challenging times since the year 2008 after witnessing rapid
growth between 2002-2008, due to uncertain macro-economic conditions
prevailing in the country.
62
fi
ANALYSIS OF INDUSTRY AND COMPETITION
While the infrastructure industry may take many years to go through this
lifecycle change, it cannot be said that it has reached a decline stage. India
with huge demographic potential will require huge investments to develop
suf cient infrastructure to meet the demand supply imbalances and the
growth trajectory projected or the next three decades.
Innovating strategies in the infrastructure industry space have advantage for
a country like India. It is heartening to note India has emerged as the largest
market in the world in public private partnerships (PPP) in public
infrastructure development as an industry (Economic Times dated
09/11/2013). The PPP model has become one of the largest industries in
India, having investments in roads, airports, healthcare, water supply, ports,
telecom, urban and rural development etc.
Sometimes positive changes in macroeconomic environment may revitalise
an industry. For example, travel industry ourishes when the economy is
going strong, but when the economic growth stagnates or declines the
industry might face slow down and then during the next economic uptrend
the industry bounces back from its lows. Another example, the bicycle
industry fell into decline some years ago when the automobile industry
gained popularity, but has now been rejuvenated due to awareness about
health and physical tness in the society.
India is not far behind any of the western countries when it comes to
development of technology driven industries like IT, ITES, BPO, Media,
Telecom, Online business etc. Indian IT Services companies like TCS,
Infosys, Wipro, HCL Technologies, CTS, Tech Mahindra etc all have multi-
year IT Outsourcing contracts and serve their global customers with an
innovative global services delivery model that delivers value and cost
optimisation to its clients.
In fact most of the large IT companies in the West like IBM, HP, Microsoft,
Google, Yahoo, Cisco, etc have all set up their R&D and Engineering centres
across India notably in Bangalore, Hyderabad, Gurgaon etc to leverage the
knowledge and expertise of India’s young engineering talent. It clearly shows
that Indian value as an Industry is attracting them to set up operations in
India and export services globally.
63
fi
fi
fl
ANALYSIS OF INDUSTRY AND COMPETITION
This is a very important strategic tool for IT players to analyse and formulate
their industry strategies. In fact, this tool can be easily extrapolated for other
industries as well by applying the de nition and the framework. In the
following diagram (Fig 2.3), this tool maps the position of various players in
Gartner’s magic quadrant in Business Intelligence platform industry.
Figure 2.3
65
fi
ANALYSIS OF INDUSTRY AND COMPETITION
Figure 2.4
IDC Market Landscape
Similarly, IDC also developed a report called IDC market landscape for
different industries (Figure Telecom Industry, much in the lines of Gartner’s
magic quadrant, to map the industry players with respect to their strategies
and capabilities and group them under leaders, major players, contenders
and participants categories.
Hence, an analysis of the industry and its competitors is very important to
understand these factors before actually deciding on the company’s strategy.
Strategic managers must use relevant analytical tools as appropriate for their
industry to draw important strategic decisions for their organisation.
Porter’s Five Forces Model
Michael Porter, a leading authority on strategy and industry analysis,
proposed a systematic means of analysing an industry’s potential pro tability
known as “ ve forces model.
According to Porter, an industry’s overall pro tability depends on ve basis
competitive forces; the relative weights of each may vary from industry to
industry.
66
fi
fi
fi
fi
ANALYSIS OF INDUSTRY AND COMPETITION
67
fi
fi
fi
fi
fi
fi
fi
fl
ANALYSIS OF INDUSTRY AND COMPETITION
same period) per month for many mobile companies. The mobile companies
in this industry had started waging a price war since 2008 to gain a customer
market share, a prolonged rate war actually hurt the industry in a signi cant
manner and the pro tability of these companies were eroded as a result of
this tariff war. Ultimately the business models became unsustainable.
The companies operating in this industry needed to have Innovative
Business Models to survive among the Hyper-competition that the Mobile
Industry witnessed in the period 2008 to 2012 when new mobile operators
who launched their services slashed the tariff to unforeseen levels, which
forced the incumbent operators also to cut the tariff steeply.
However, the aggressive and predatory pricing strategy hurt the pro tability
of the industry and only the strong players with innovative business models
could stay in the business, rest marginal players actually exited the industry
due to high xed costs like telecom license fee, spectrum costs as well as
high operating costs and debts servicing costs.
Then, the entry of new players also impacted the market and the
competition landscape. If we analyse the automobile industry, till mid 1990s
there were only a couple of large automobile companies operating in the
Indian market. Maruti Suzuki was clearly a market leader which had just
three models of cars like M800 in the low end, Zen in the mid-market
segment, and Esteem in the high end segment. And, Hindustan Motors Ltd
(HML) was another market leader that had the marquee Ambassador series
of cars for the middle class and government services. However later, with the
liberalisation of the automobile industry in the ‘90s, there came Ford,
Hyundai, Honda, Toyota, General Motors, Fiat, Volkswagen etc, either
through joint venture with Indian partners or on their own. It changed the
landscape of Indian automobiles industry and competition landscape.
This also led to the diversity of competitors with Indian background and
also with foreign background having different culture, different business
goals and means of competition and marketing strategy. The number of
companies in the industry in uences the industry’s intensity of rivalry. Each
player comes with different power levels of expertise and relative size of their
operations could cause shift in market positioning.
68
fi
fi
fl
fi
fi
ANALYSIS OF INDUSTRY AND COMPETITION
The industry players also strategized to ensure their customers stayed with
them for long duration of the relationship. The customer churn was very
signi cant and evident in services industries like credit cards, mobile
services, internet services, nancial services, airlines services etc. As a
result, the competitors resorted to acquiring customers at cheaper prices
rather than positioning themselves for competitive advantage. When
switching costs, the one-time costs that the customers incur, are low the
companies came under considerable price pressure for their products and
services, eroding their pro tability. It is very dif cult to satisfy the customers
who can easily switch to competitors. It is obvious that when the products
and services are less differentiated, purchase decisions are based on price
considerations resulting in hyper competition, as witnessed in the Indian
mobile industry.
This made the leading market players to devise a strategy by which the
customers are engaged with either through a value proposition or through
customer loyalty programs. Interestingly, more often the companies seek
to increase switching costs and encourage customer loyalty. Like the home
loan companies used to have loan switch costs in the range of 1.5% to 2% of
the principal loan amount outstanding. However, later the RBI ruled this as
not a competitive practice and asked all the Indian banks to remove this
surcharge of switching costs.
Automobile industry in 2019, once again at the juncture of extreme
competitive forces – multi-variant portfolio may not yield desired volume and
market share, entry of two large automobile manufacturers (Kia Motors and
MG Motors) will build competition, EV vehicle related policy and infra
anxieties clubbed with switch over to mandatory BS-VI environment emission
norms will create unforeseen and dynamic competitive tug-of-war, never
seen before by any automobile manufacturers. As a result, you also hear
consolidation strategies (Mahindra & Mahindra with FORD Motors and
likewise).
Other industries like Credit card companies introduced Reward Points which
can be en-cashed later for gifts or cash credits, the aviation industry came up
with Frequent Flyer Programs which enabled customers to accumulate their
mileage points which can be later converted into award tickets. Each industry
came up with its own innovative ideas like promotion codes, cash back
schemes to attract and retain their customers.
69
fi
fi
fi
fi
ANALYSIS OF INDUSTRY AND COMPETITION
70
fi
fi
fi
fi
fi
fi
ANALYSIS OF INDUSTRY AND COMPETITION
The following table shows details of the regulator and the corresponding
industry body of that sector.
71
fi
ANALYSIS OF INDUSTRY AND COMPETITION
72
fi
fi
fi
fi
fi
fi
ANALYSIS OF INDUSTRY AND COMPETITION
73
fi
fl
fi
fl
fi
ANALYSIS OF INDUSTRY AND COMPETITION
74
fi
fi
fi
fi
fi
fi
ANALYSIS OF INDUSTRY AND COMPETITION
Thirdly, the model does not take into account the fact that some enterprises,
especially the large ones, can often take steps to change the structure of the
industry or industry landscape, thereby increasing their prospects for
revenues and pro ts. For example, South West airlines in the U.S, JIO
Mobiles in India, created a new industry structure by its own unique
proposition of the market requirements.
Fourthly, the Porter’s model assumes that industry factors, not the rm’s
resources, constitute the primary determinants of the company’s pro ts. This
limitation re ects the ongoing debate on industry organisation based
approach which emphasises industry speci c structures, and resources
based approach which emphasises company speci c characteristics besides
industry speci c characteristics.
Finally, an organisation competes in the global markets across many
countries and hence it must be concerned about multiple industry structures.
The nature of industry competition in the international space differs among
nation and may present challenges that may not be present in the home
country.
While these challenges are there, it is critical to perform a thorough analysis
of the industry by using the ve forces model in developing an understanding
of competition behaviour within an industry. Generally, Porter’s ve forces
model provides the necessary insights into pro t opportunities as well as
potential challenges within an industry.
Summary
In this chapter, we focused on identifying the industry an organisation is
operating in and the competition scenario for its products and services. We
also tried to de ne the industry and relevant competition for that industry. It
involves an understanding the evolution of industry and industry lifecycle. We
also did an analysis of industry and its competition through useful tools. This
chapter also discusses government policies for industry and how they impact
the strategy making process. Lastly we discussed about the entry and exit
barrier and also about the bargaining power of customers.
75
fl
fi
fi
fi
fi
fi
fi
fi
fi
fi
fi
ANALYSIS OF INDUSTRY AND COMPETITION
Assessment Questions
1. What are the different stages of industry life cycle:
a) Introduction, evolution, growth and decline
b) Introduction, growth, maturity and decline
c) Introduction, growth, shake-out, maturity and decline
d) Introduction, growth maturity and shake-out
2. According to Porter’s theory, the forces that combine to form the industry
structure and impact the pro tability prospects of the companies that
operate in the industry are:
a) The intensity of rivalry among incumbent rms
b) The threat of new competitors entering the industry
c) The threat of substitute products and services
d) The bargaining power of the customers and suppliers
e) All of the above
3. ABC Bank has challenge of customer churn in the credit card business.
As a strategic manager what would be your various suggestions to retain
customers and create a strategy for exit barriers?
a) Switch costs, discounts and customer service
b) Relationship management and customer service
c) Relationship management, service excellence, loyalty program,
reward points, cash-credits
d) Service excellence, retention program, discounts
76
fi
fi
ANALYSIS OF INDUSTRY AND COMPETITION
77
ANALYSIS OF INDUSTRY AND COMPETITION
References
1. John A Parnell, Strategic Management, Theory and Practice (Biztantra
2003), P 21
2. Gartner’s Magic quadrant for market position analysis, Gartner Inc and
IDC marktescape map
3. John A Parnell, Strategic Management, Theory and Practice (Biztantra
2003), P 22
4. John A Parnell, Strategic Management, Theory and Practice (Biztantra
2003), P 24-27
5. John A Parnell, Strategic Management, Theory and Practice (Biztantra
2003), P 28-29
78
ANALYSIS OF INDUSTRY AND COMPETITION
REFERENCE MATERIAL
Click on the links below to view additional reference material for this chapter
Summary
PPT
MCQ
Video
79
3
EXTERNAL ENVIRONMENT
Objectives:
The previous chapter discussed the Industry and competition environment
within the industry that an organisation must de ne and analyse for
successful strategy formulation. After the industry has been clearly de ned,
the macro-environment, the forces outside the industry, should be
considered. This chapter covers the macro-environment forces in detail. At
the end of the chapter, you will be able to understand the following:
• Analysis of the macro-environment
• Political and Regulatory forces
• Economic forces
• Social forces
• Technological forces
• Demographic forces
• Environmental scanning
• Forecasting the environment
80
fi
fi
EXTERNAL ENVIRONMENT
Structure:
3.1 Introduction
3.2 Analysis of Macro Environment
3.3 Political and Legal Forces
3.4 Regulatory Forces
3.5 Economic Forces
3.6 Social Forces
3.7 Technological Forces
3.8 Demographic Forces
3.9 Natural Environment
3.10 Environment Forecasting
3.11 Summary
81
EXTERNAL ENVIRONMENT
3.1 Introduction
For any industry there are forces outside the industry that affect the
performance of the industry and the constituent companies signi cantly. It is
important that strategic management process must analyse the environment
external to the industry and to understand how the broad factors in the
macro-environment impact the industry as a whole.
It is important to be aware that every organisation exists within a complex
network of political, regulatory, economic, social, technological and
demographic forces. These elements together form an organisation’s macro-
environment. The analysis of the macro environment and its forces may be
referenced as PEST analysis, an acronym formed from the rst letters of
these different forces. The constant changes in these forces present
numerous challenges and opportunities to strategic managers. The impacts,
both positive and negative, of macro-environmental forces on the industry
and company must be well understood, before all strategic options and risk
management initiatives are evaluated.
3.2 Analysis of Macroenvironment
PEST analysis is a structured way of capturing the different dynamics that
play into an industry. In today’s context such macro forces go beyond the
country in which the company is operating. The industries and the markets
across the world, today, are seamlessly connected with increasing free trade
agreements entered between different countries which have trade
relationships with each other to run their economies effectively and help
each other for trade balance.
There is a saying in the nancial markets that if America sneezes, other
emerging markets like India catch cold. Such is the interdependence that
American government actions and regulatory policies have far reaching
impact on many emerging markets and hence its industries. It impacts
nancial markets and currency markets on a real time basis. It also impacts
political developments in most vulnerable countries like Afghanistan, Iraq,
and Syria etc. Similarly, technological improvements have seamless
rami cations on different countries’ economies, thus impacting the social
lifestyles as well. Legal and regulatory policies of one country can impact the
other, for instance, the US Immigration bill, if passed, will impact the Indian
IT Industry in a big way. We will see this in detail later in this chapter.
82
fi
fi
fi
fi
fi
EXTERNAL ENVIRONMENT
83
fi
EXTERNAL ENVIRONMENT
84
fi
fl
fl
fi
fl
fl
fl
fi
EXTERNAL ENVIRONMENT
85
EXTERNAL ENVIRONMENT
86
fl
fi
EXTERNAL ENVIRONMENT
Answer: Indian workers were not better off in the old days without machines
or tractors, they were much poorer. Why did jobs-killing machines and mega-
companies (like Indian IT or automobile companies) create prosperity rather
than poverty? Because their development steadily replaced low-wage jobs
with higher-wage jobs and improved the living standards of people.
All technological and managerial progress kills old jobs and creates new
ones. To focus only the lost jobs is a recipe for staying poor, something
demonstrated by the Luddites in the 19th century. The creation of textile
machinery in Britain caused massive job losses in traditional handlooms. So,
the Luddites smashed textile factories in an idealistic effort to protect jobs.
They didn't realize that by stalling the industrial revolution — which ultimately
raised living standards tenfold — they were actually keeping people poor.
Economist Joseph Schumpeter demonstrated that capitalism succeeds
because of creative destruction. It constantly destroys old jobs and creates
new ones. This constantly replaces lower-productivity jobs with higher-
productivity jobs, and so the entire economy becomes more productive. The
US loses over three million jobs every month but creates another three
million new ones, and this churning has made it the world's top economy.
The US has safety nets for those who get displaced. India needs safety nets
too (need political will and change). But it must also encourage every
mechanism that improves productivity, seeing it as a blessing and not a
curse. Myopic idealists like the Luddites could only see the immediate job
losses of technological change, not the huge productivity gains. Political
parties need to avoid Luddite illusions in banning any activity, including
foreign-majority retail chains. These can succeed only by reducing prices for
the common people.
Let us suppose that by cutting out middlemen and reaping some new
technological gains, foreign-owned chains can reduce prices 20%. This will
certainly mean some job losses in competing small shops. But it also means
that consumers will have an additional 20% in their pockets, which they will
spend on additional goods and services. This will create a multitude of jobs
in producing those additional goods and services. Rising productivity and
being competitive is always a good thing.
87
EXTERNAL ENVIRONMENT
To truly serve the common man, the political parties must encourage
investment and competition of all sorts (including that from foreign
companies). Fast economic growth is by far the most important factor that
raises living standards. This needs to be supplemented by government
provision of high-quality public goods including roads, schools, health clinics,
safety nets and retraining facilities. India's biggest problem today is the lousy
quality of public goods. Major parties choose cynically to oppose FDI in
retail. If they really listen to small shopkeepers, they will nd that their
biggest problem by far is lack of bank credit, not competition from
hypermarkets. Why not focus on that?
------------------------------------------------------------------------------------------------------
The other Political forces that impact strategy, also include shifts in foreign
policies, critical decisions like engaging in wars and response to domestic
violence (like Kargil war, Maoists encounters, border disturbances, etc) can
affect the government’s focus on the industry and economy. Globally, such
scenarios can impact India as well. The Gulf war in early 1990s affected the
oil prices and brought about supply constraints, and so was the Iraq war in
2003.
Geo-political tensions and disturbances, threats like nuclear warfare by North
Korea, alleged chemical weapons possessions with Syria are all forces that
fall under this category. While these are international forces, they have far
reaching rami cations to Indian industries in certain segments like oil and
gas, goods and services and industries sensitive to exports and imports.
In order to improve trade with other countries, the Indian government has
entered into free trade agreements (FTA) with many countries establishing
bilateral trade relationships. The policies around export and import from time
to time can also impact speci c industries. Decisions on new taxation like
customs duty, excise duty, double taxation treaty can have implications on
speci c industries. Any change in industrial policy, scal policy, tariff policy
may have profound impact on the businesses. Some policy developments
create opportunities to one industry as well as threats to another industry.
88
fi
fi
fi
fi
fi
EXTERNAL ENVIRONMENT
89
fi
EXTERNAL ENVIRONMENT
90
fi
fl
fi
fi
EXTERNAL ENVIRONMENT
country are covered under the Banking system. RBI is also promoting Non-
Banking Finance Corporation (NBFC).
It is disheartening to note that only 26% of India's population is currently
banked, which is far below expectations. In developed countries like the US,
only one-third of the population is unbanked. There is a dichotomy between
the developed nations and an emerging country like India. Hence, the
Government and the RBI had initiated the Financial Inclusion Programme
(FIP) a few years back.
Under RBI's Financial Inclusion Programme (FIP), banks are mandated to
offer nancial services to the unbanked population and each village is to be
covered by a banking outlet. Under Pradhan-Mantri Jan-Dhan Yojana, 35.27
Crore bene ciaries banked so far, which demonstrates government’s resolve
for the nancial inclusions of poor in the banking system.
The banks are required to open a suf cient number of rural branches in such
a manner that there is one branch within a distance of 3-4 km to support
about 8-10 banking correspondents (BCs).
Under FIP, banks need to adopt a planned & structured approach with the
clear objective of providing banking outlets in every village in the next 3
years through a mix of branches and branch less modes.
Similarly, the Telecom sector is a high growth sector. The regulator TRAI has
been formulating policies to ensure the industry became one of the key
engines of the economy. The evolution process ensured that the Telecom
coverage in the country has now reached more than 80% of the human
inhabited areas, the telecom tariffs have been substantially brought down by
bringing in more competitors in the industry and most importantly supporting
the sector to venture into new service offerings by providing the 3G spectrum
and 4G licences. Reliance’s JIO Mobile has given a different ip to the
growth of mobile users across India by offering very economical voice and
data transfer together with cheap smart phones. Jio’s subscriber base has
crossed 300 million by March 2019. However, Jio has triggered
unprecedented price war. Again, the price war in the Indian Telecom industry
actually hurt the industry very badly due to Hyper-competition and the
industry is currently in a self-correction mode.
91
fi
fi
fi
fi
fl
EXTERNAL ENVIRONMENT
92
fi
fi
fl
fi
fl
fi
fi
fi
fi
EXTERNAL ENVIRONMENT
93
fl
fi
fi
fi
fl
fl
fi
fi
fi
EXTERNAL ENVIRONMENT
Hence, it is important to ensure that the slowdown in the economy does not
threaten the various industries and it is incumbent upon the government to
devise new policies and scal measures to revive the economy and the
central banks to resort to benign monetary policy measures to support the
industry. All these actions will have profound impact on the industrial growth
and GDP growth.
During high growth phase, the income levels also increase considerably,
resulting in increased disposable income. The sale of a product for which the
demand is income-elastic naturally increases with an increase in the income.
During the slowdown period of an economy, the rate of increase in income
levels also slow down. Generally, with slow down, the demand also declines
resulting in over supply and reduction in prices.
Recessions can also create opportunities for businesses on the supply side
and it is for the industries to think creatively and innovatively to come out
with new compelling products and services before the next cycle of
economic growth.
Essentially, the following factors in uence the growth drivers for a country:
1. Economic reforms by the government
2. Falling Interest rates
3. Falling In ation
4. Low Fiscal de cit
5. Low Current Account de cit, preferably surplus
In an emerging economy like India where more than 60% of the population
lives in the rural areas, the per capita income is very low and hence there is
no surplus to spend on other consumer discretionary products than the basic
needs to keep life going. India is a domestic consumption driven economy
and the bottom of the pyramid concept has been working well for many
Indian companies as well as multinational companies to do business in India.
94
fl
fi
fi
fi
fl
EXTERNAL ENVIRONMENT
In ation
In ation is a key force that impacts the economic growth in a signi cant
manner. In most of the markets, the in ation-growth dynamics play out
cyclically from time to time and have varied impact on the economy. There is
a tight correlation between in ation and growth, which we will see in detail in
this chapter. India has been seeing elevated in ation levels since the year
2009 till 2013 (Annual in ation = Consumer Price Index i.e. CPI was between
9.13% to 14.97% and during 2014 to 2018 it ranged between 4% to 6.32%.
There are typically four scenarios on how the combination of growth cycles
and in ation cycles play out in an economy. We will discuss these in detail.
High growth and low or moderate in ation
When the economy grows at a fast pace, it increases the income levels,
which in turn, enhances the buying power of consumers due to increase in
disposable incomes. This phenomenon, over time, gradually increases the
demand for goods and services. When the demand cycle overtakes the
supply cycle and is persistent with widening gap between demand and
supply, the prices of goods and services go up. This stokes in ationary
pressures on the economy. In ation moves up from low to moderate levels
and then goes to elevated levels if the demand supply gap continues for an
extended period of time and is not corrected with additional supply or
augmented capacity by the industry.
FLOW DIAGRAM
95
fl
fl
fl
fl
fl
fl
fl
fl
fl
fl
fi
EXTERNAL ENVIRONMENT
96
fl
fl
fl
fi
fl
fl
fl
fl
fi
fl
fi
fl
fl
EXTERNAL ENVIRONMENT
Hence, the in ation had become deep rooted before the government rolled
back the scal stimulus and RBI started increasing the policy rates to control
in ation. The RBI was forced to increase the interest rates high during the
most part of 2012 and 2013, due to almost double digit in ation witnessed in
the economy. This is a complex situation where the GDP growth has fallen to
4.4% (as against our earlier growth of 8-9%), but the in ation was at
elevated levels at almost 9-10%.
In low growth and high in ation scenario, there will be inherent disin ationary
pressures acting on the economy as the high prices have already hurt the
economic growth. This tends to reduce pressure on the in ation and the
prices should start coming down over a medium term, reviving the chances
for softening of interest rates and thus the GDP growth.
Low growth and low in ation
Similarly, when the economy is faced with low growth and low in ation for a
long period of time, as in the case of most of the developed economies like
the US, UK, Europe, Japan etc, their central banks have unleashed easy
monetary policies to stimulate the demand, thereby supporting growth to pick
up in their economies. Post the 2008 global recession, the central / federal
banks of these developed world economies have been keeping their interest
rates very low (near zero) and extending monetary stimulus (also called the
Quantitative Easing QE in the US) by bond purchase programs and
releasing money into the nancial system to stimulate growth.
Interest Rates:
As explained above, we have seen the various scenarios of administrating
the interest rates. We have just seen the composite effect of in ation rates
and interest rates on an economy. There are both short term and long term
interest rates that affect the consumers spending pattern and the growth of
the economy.
Long term interest rates are for especially high value products that are
nanced over an extended period of time such as home loans, car loans,
capital expenditure loans etc. Short term interest rates are for overnight
borrowing, credit cards, short term deposits etc. Some companies offer very
attractive short term interest rates for duration of 6 months or 12 months to
stimulate sales in the consumer durables and other discretionary spending
97
fi
fl
fi
fl
fl
fl
fi
fl
fl
fl
fl
fl
fl
EXTERNAL ENVIRONMENT
by offering EMI schemes through the customer’s credit cards. This is aimed
at encouraging consumer spending.
At corporate level, interest rates also in uence strategic decisions related to
short term and long term nancing of the capital investments and business
operations. High interest rates, for instance, tend to dampen the business
plans to expand (capex investments) or replace ageing facilities. Lower
interest rates, however, are more likely to encourage capital expenditure for
expansion, new business investments and other business development
initiatives by the company.
Exchange Rates:
In simple terms, exchange rate is de ned as the value of one currency for
the purpose of conversion to another (the exchange rate of the Indian Rupee
against US Dollar). Exchange rates are the amount of one currency you can
exchange for another. Eg: 1 US$ = Rs. 60 INR means to get one US $, you
need to give Rs. 60/-. In more meaningful way, if 1 US $ = Rs. 58 INR means
Indian rupee is stronger as less rupee needs to be given to get one US $. If 1
US 4 = Rs. 62 INR, it means Indian rupee has become weaker as more
rupees needs to be given to get one US $.
The currency exchange rates are in uenced by the global economic
conditions, domestic and international bond yields and central banks'
monetary policies. It also depends on the coordinated economic policies of
various governments.
Today the US dollar is the largest exchange currency used as a common
denomination by many countries for trade. Strengthening of the US dollar
invariably puts pressure on the currencies of the emerging markets. During
this time, the US companies would nd themselves at a competitive
disadvantage to do business internationally as the prices of their goods and
services rise in the foreign markets, especially it hurts imports of their goods
and services in the emerging markets. Also, during this time, the American
consumers may be inclined to buy products produced aboard which are less
expensive and competitive than the goods and services produced in the US.
98
fi
fi
fl
fi
fl
EXTERNAL ENVIRONMENT
Let us discuss about Indian currency situation. India's Rupee had been
weakening on the back of strong US dollars since May 2013 till 2015 (1USD
= Rs. 60.02/Rs. 62.29/Rs. 66.25). The reasons attributed were numerous but
India's high Current Account De cit (CAD) is believed to be a key reason for
higher in ation in the country, as the cost of imported goods became dearer
with a higher exchange rate for USD, as explained in the previous
paragraph. Secondly, the US had been having an easy monetary policy
since the nancial crisis in 2008 and due to the US Federal Reserve's (the
US Central Bank) Quantitative Easing (QE) programme to stimulate the
slowing US economy since then.
When Fed announced that it was going to taper the QE in May 2013, the
investors were worried and started withdrawing their investments from their
emerging market portfolios like India which spooked the Indian equity and
money markets with huge dollar out ows from the Indian economy. The US
dollar which was at around 56-58 Rs per dollar till April 2013, started
appreciating all the way up to 68-69 Rs per dollar by 2018, hurting the
economy, more particularly the import sector signi cantly.
However, In India, a weaker or depreciating Rupee helps higher exports as
Indian goods and services become more competitive in the international
market. For example, when the Indian currency was depreciating during
most part of 2013, the Indian IT services industry and other Export oriented
industries like pharmaceuticals, textiles, leather, auto-components etc
performed well during this period and the Indian exports started growing
healthily.
CURRENT ACCOUNT DEFICIT:
The Current Account De cit (CAD) is the difference between the capital
in ows into and the capital out ows from the country, as measured as a
percentage of GDP. It is also referred to as the Balance of Payments (BoP)
for a country. A high CAD symbolizes that money availability is scare,
draining also foreign exchange reserves of the country and thus it generally
triggers higher in ation hurting economic growth. and A lower CAD
symbolizes that more money is available , thus it will help build a healthy
foreign exchange reserve for the country. It generally moderates or reduces
the in ation. A Current Account surplus situation puts the country to unleash
more reforms and attract more investments.
99
fl
fl
fl
fi
fl
fi
fl
fi
fl
fi
EXTERNAL ENVIRONMENT
Trade De cit is one component of the Current Account De cit. Trade De cit
is calculated as the difference between the imports and exports a country is
making in a nancial year. India's main imports are crude oil, gems & gold
and capital equipment and engineering goods, organic chemicals etc. The
Indian export industries range from IT services, textiles, leather, garments,
jewellery, automobiles etc. The IT & ITES Services industry contributes close
to about $ 181 billion (as of FY 2018-19) and has been the bellwether of the
Indian exports industry as well as for the economy.
India's current account de cit widened to USD 16.9 billion, or 2.5 percent of
the GDP in the last three months of 2018 from USD 13.7 billion or 2.1
percent of the GDP a year earlier. The goods de cit increased to USD 49.5
billion from USD 44 billion a year ago as imports rose 9 percent while
exports went up at a softer 7.2 percent. On the other hand, the services
surplus increased to USD 21.3 billion from USD 20.7 billion, boosted by a
rise in net earnings from telecommunications, computer and information
services and nancial services. As one can understand, the Current Account
De cit has implications beyond just imports and exports, into impacting the
country's in ation and growth parameters. A well contained CAD protects the
country from the external risks like currency uctuations and US dollar ows.
Fiscal De cit:
Fiscal de cit is the difference between the government’s revenue incomes
and expenditure, both planned and non-planned. Fiscal de cit is measured
as a % of the GDP. India’s scal de cit was 4.9% of GDP in the nancial year
2012-13. It is projected to be contained at 4.6% of GDP. Higher the scal
de cit, higher will be the chances of it bringing in ationary pressures on the
economy as a result of forcing the government to borrow beyond its means
to meet the expenditure. This situation will have a spiralling effect on the
GDP growth as higher in ationary situation will make the Central bank to
raise the policy rates to contain the in ation. This will have an adverse effect
on the Industrial production (IIP) and Rupee depreciation leading to costlier
imports of essential commodities and lower GDP growth.
Good news is that India has met the scal de cit target of 3.4% (actually
achieved 2.5%) percent of gross domestic product in 2018-19 scal year
ended March 31, by cuts in state spending and higher borrowings from small
savings funds. As a result, in ation is among the lowest, RBI reduced REPO
100
fi
fi
fi
fi
fi
fl
fi
fi
fl
fi
fi
fl
fi
fi
fl
fl
fi
fi
fl
fi
fi
fi
fi
fi
fl
fi
EXTERNAL ENVIRONMENT
Rates further which will reduce loan interest rate and thus individuals and
commercial enterprises will bene t from it.
Fiscal de cits result from governments populist initiatives like higher
subsidies and higher non-planned expenditures. The subsidy programs
include food subsidy (like food security), fertiliser subsidy (cheap fertilisers),
oil subsidy (like petrol, diesel, cooking gas, kerosene etc), farm loan waivers
etc. Another area that impacts the scal de cit comes from non-planned
expenditures of various ministries when there are no resources or no means
of higher government revenues to substantiate higher spending.
Higher scal de cit is not good for the economy. The global rating agencies,
like S&P, Moody’s and Fitch are likely to downgrade India’s rating to below
investment grade if the scal pro igacy continues. This will severely impact
the foreign investors’ sentiment and investment ows in to the country and
on contrary many investors start pulling out their investments from the
country triggering more out ows and hence widening the current account
de cit as well. This situation is counter-productive to the economic growth of
the country. Thus higher scal de cit has major counter effects and
cascading impacts on other macro-economic factors like growth, in ation,
interest rates, investments, current account de cit, currency exchange rates
etc.
3.6 Social Forces
Society is the centre piece of the economy and for the industry, because that
is where the consumers belong to. They are a critical component of success
for any industry. Customer is king, as they say. Thus, social forces include
factors such as purchasing power, disposable incomes, customer behaviour
and acceptability, societal values, culture, traditions, religious practices and
beliefs of the members of the society.
The cultural values like individual freedom, fairness, secularism, free markets
and equality of opportunity all play a role in the consumer behaviour,
employment opportunities, and disposable incomes that impact the industry
in one way or the other. These values foster entrepreneurial spirit and
translate into people’s ability to aspire for higher quality life.
101
fi
fi
fi
fi
fi
fi
fl
fl
fi
fi
fi
fi
fi
fl
fl
EXTERNAL ENVIRONMENT
In India, with a wide strata of society, the income levels vary from the
superrich to the underprivileged. A 2013 UN Report stated that a third of the
world's poorest people live in India. Poverty in India is widespread, with the
nation estimated to have a third of the world's poor currently. A World Bank
Report (2013) says that 30% of the total Indian population (800 million nos)
falls below the International poverty line of US$ 1.90 per day (in PPP terms).
while 68.7% live on less than US$ 2 per day.
FOLLOWING STILL TO BE CHECKED – YOU MAY DELETE THIS AFTER
NOTING FOLLOWING CHANGES
In fact, these gures have improved signi cantly over the last decade as
India's economy has been growing at a higher pace. According to ‘’World
Poverty Clock data released by the World Bank in 2018, India is no longer
the country with the most number of living poor living below the poverty line.
It is estimated that the number of Indians living on less than $1.90
(considered ‘’extreme poor’’ by the UN’s Sustainable Development Agenda)
has fallen from 306 million in 2011 some 70 million today. India's poverty
rate is projected to drop below 3% in 2022 from 32.7% in 2010. The report
also indicates that in Southern Asia, however, only India, where the poverty
rate is projected to fall from 51% in 1990 to below 3% in 2015 22% in 2015,
is on track to signi cantly reduce poverty. This is heartening news for the
Indian Government and Indian Corporates.
While it is painful to see the people under poverty line suffer on a day-to-day
basis, India's Economic Liberalisation since 1991has helped the country
progress much faster than the other emerging world countries. Over the last
10 years, the Government has come out with various schemes to alleviate
poverty as well as create more Rural Financial Inclusion Programs and
create employment opportunities for underprivileged people through
MNREGA, Direct transfer schemes etc.
What it means is that as the bottom of the pyramid population moves up the
value chain, it will have a cascading impact on the economy and stimulate
demand for products and services for the industry. The Indian economy
presents a huge potential and opportunities to entrepreneurs, Indian
companies as well as global enterprises to build capacities, create new
offerings, participate in key social sectors like infrastructure, education,
healthcare, employment, women and childcare welfare etc.
102
fi
fi
fi
EXTERNAL ENVIRONMENT
103
fi
fi
fl
fi
EXTERNAL ENVIRONMENT
104
fi
fi
fi
fi
fi
EXTERNAL ENVIRONMENT
105
fl
fl
fi
fi
fi
fi
fi
EXTERNAL ENVIRONMENT
106
fi
fi
EXTERNAL ENVIRONMENT
advancement will help to make batteries with lower cost, higher interval
between two charging, better run per charge and more.
2. Life Sciences and healthcare: Wearable Devices
Personal health monitoring is growing in developed markets and even in
India, as people monitor their sleep, exercise impact, heart health, and
progress of pregnancy. The penetration of these devices will make a
signi cant advance as these devices begin to be connected to hospitals. A
wearable devices network can be considered an Internet of Things, and will
be in uenced by SMAC (Social Media, Mobility, Analytics and Cloud) and is
thus a good illustration of how cutting-edge technologies reinforce each
other.
3. Wearable devices are not just for health monitoring:
There are strong possibilities of cognitive Computing. Cognitive computing is
a process by which computers learn as they do their tasks— and engage
with humans like humans. This term was coined by IBM to distinguish it from
the more popular term 'arti cial intelligence', and to stress the fact that there
is nothing arti cial about cognitive computing. IBM's Watson is the most
advanced cognitive computing platform, but a few others are also being
developed, mostly by start-ups.
These are some of the examples of new technology trends happening
across industries.
------------------------------------------------------------------------------------------------------
107
fi
fl
fi
fi
EXTERNAL ENVIRONMENT
108
fi
fi
EXTERNAL ENVIRONMENT
109
fi
fi
fi
fi
fi
fi
EXTERNAL ENVIRONMENT
Brands like Benetton, Zodiac, Z3, Zara, Vero Moda, Calvin Klein, Diesel and
Tommy Hil ger have experienced good sales growth in the country, while
names like Zara, Armani, Forever21 or Uniqlo appeal to the Indian
audiences, attracting higher per square foot sales compared to the
departmental or hypermarket stores.
On the other hand, Indian companies like the Arvind group, Madura Fashion
and Lifestyle, Raymond Apparel, Trent Retail, Reliance Retail and Future
Group has launched their own fashion labels.
India's growing luxury brands market is set to exceed $14.72 billion-mark by
2015 boosted by a new class of wealthy termed as the 'closet customers'
who have joined the traditionally rich contributing to higher luxury sales,
according to a recent report said.
3.9 Natural environment
Environmental issues have been affecting business fortunes and strategies
for quite some time now. Large projects and investments have not taken off
the ground due to clearances from the government agencies due to
bureaucratic delays.
Geographical and ecological factors like natural resources, weather, climatic
conditions, topographical factors, location aspects from a global context, port
facilities are all relevant for the smooth conduct of business. Changes in
geographical conditions between different markets may sometimes call for
changes in the marketing mix.
Geographical and ecological factors also in uence the location of certain
industries. For eg., industries with high raw material index need to be
located near the raw material source. Climate and weather conditions affect
the location of certain industries like cotton and textile industries.
Topographical factors may affect the demand pattern. For example in hilly
areas with dif cult terrain, utility vehicles may be in greater demand than
normal cars.
Ecological and environmental factors like deforestation have recently
assumed greater importance. The depletion of the natural resources on the
one hand and deforestation and relocation of people in pursuit of new
sources of raw materials on the other hand, have created disturbances in
110
fi
fi
fl
EXTERNAL ENVIRONMENT
111
fi
fl
EXTERNAL ENVIRONMENT
112
fl
fi
fi
fi
fi
fi
EXTERNAL ENVIRONMENT
113
fi
fl
fl
EXTERNAL ENVIRONMENT
114
fi
fi
fl
fi
fi
fi
fi
fi
fl
fl
fl
fl
fi
fl
fl
fi
fi
fi
fi
fi
fi
fi
fi
fi
fl
fi
4. Etihad Airlines would like to enter into the Civil Aviation space in India by
acquiring a majority stake in Jet Airways. Before formulating an appropriate
entry strategy the company would like to understand the common entry
barriers. You are hired as a consultant to advise the company. Which of the
following do you think could most likely become a challenge to Etihad?
a) Government policies for foreign airlines and political objections
b) Increasing competition in the local civil aviation market
c) Shift in market trend towards low cost airline services
d) Increase in aviation fuel prices and cost of operations
5. What is called an empirical forecasting procedure in which certain
historical trends are used to predict variables like a rm’s sales and market
share?
a) Time Series Analysis
b) Judgemental forecasting
c) Multiple scenario forecasting
d) Delphi Technnique
6. Which of the following is not a characteristic of strategic decision
a) Consideration of present conditions
b) Consideration of future and uncertainty
c) Value orientation
d) Competitive orientation
115
fi
References:
1. John A. Parnel, Strategic Management, Theory and Practice, P 34-35
2. FDI in multi-brand retail, Economic Times, by Swaminathan A Aiyar dated
19/1/2014
3. Francis Cherunilam, Strategic Management (Prin. L.N. Welingkar Institute
of Management), P 104
4. Francis Cherunilam, Strategic Management (Prin. L.N. Welingkar Institute
of Management), P 105
5. John A. Parnel, Strategic Management, Theory and Practice) P 47-48
116
REFERENCE MATERIAL
Click on the links below to view additional reference material for this chapter
Summary
PPT
MCQ
Video1
Video2
117
4
MISSION, OBJECTIVES AND
GOALS
Objectives:
This chapter focuses on an organisation’s vision, mission, goals and
objectives. At the end of the chapter, you will be able to understand the
following:
• De ne the mission of the organisation
• Importance and Relevance of Strategic Management
• Strategic Planning and Strategic decisions
• Levels of Strategy
• Strategic Management Process
• Role of Stakeholders
118
fi
MISSION, OBJECTIVES AND GOALS
Structure:
4.1 Introduction
4.2 Vision and Mission
4.3 What is Mission?
4.4 Mission statement criteria
4.5 Formulation of mission
4.6 Mission and Strategy
4.7 Objectives
4.8 Goals
4.9 Levels of Objectives
4.10 Global in uences
119
fl
MISSION, OBJECTIVES AND GOALS
4.1 Introduction
The ultimate purpose of an organisation is to create value for all its
stakeholders. Each organisation seeks to do so through different means of
vision, strategy and execution. If the strategy of an organisation is not
aligned with the purpose (vision) of the organisation and its resources, it will
be challenging to implement the same.
It is the responsibility of the organisation’s top executives to establish and
communicate its vision to the entire organisation and its people. The vision of
a company should integrate the views of the various stakeholders.
The vision is the statement of purpose of an organisation’s existence. The
vision is always in long term nature to create social-economic value, not only
to its shareholders but also to create a social and economic impact for a
country. In modern corporate context, although both vision and mission are
sometimes interchangeably used to refer to the organisation’s purpose,
sometimes a distinction must be made that mission evolves from the vision
which is de ned at the board level.
Mission identi es the scope of an organisation’s operations and its offerings
to the various stakeholders. Various stakeholders include individuals or
groups, who are affected by or in uenced by an organisation’s operations
and will have different perspectives on the purpose of the rm.
Objectives may be de ned as those ends which the organisation seeks to
achieve by its existence and operations. In other words, objectives are long
term results an organisation seeks to achieve in pursuing its basic mission.
A goal is de ned as an intermediate result to be achieved within a certain
time as part of the overall strategic plan or an objective. A plan or an
objective therefore can have many goals. Goals are generally short term
milestones or benchmarks that an organisation must achieve in order for
long term objectives are reached. The goals of an organisation should be
de ned as speci c, measurable, achievable, realistic and time-bound,
popularly called by the acronym SMART goals.
The vision of an organisation translates into strategy which has multiple
objectives to achieve the purpose. The objectives in turn lead to goals which
are quantitative in nature and are designed to achieve the objectives. Goals
120
fi
fi
fi
fi
fi
fi
fl
fi
MISSION, OBJECTIVES AND GOALS
lead to targets which are assigned against each goal to achieve the set
goals.
The following diagram illustrates how mission, strategy, objectives, goals and
targets work in sequence formulation and achievement.
This chapter discusses the role that an organisation’s unique mission and
resources play in the strategic management process.
4.2 Vision and Mission
Vision is a value statement that re ects the principle and purpose of an
organisation and is the pivot around which the corporate strategy revolves. A
mission statement re ects the long term vision of an organisation in terms of
what it wants to be and whom it wants to serve. It describes an
organisation’s purpose, its customers, products, services, markets,
philosophy and values.
For example, the vision of a company could be to become the most loved
consumer services brand enriching the life of its customers and employees.
The mission might be to produce products and services that not only meet
the customers’ needs but also enhances their lifestyle and provides world-
class employment to its employees. The objectives can be to introduce new
technologies and innovative features to make the product different than the
competitors. And most importantly, the mission indicates its ability to be
resilient enough to change the business if the market so demands.
Peter Drucker observes that “that business purpose and business mission
are so rarely given adequate thought is perhaps the most important single
cause of business frustration and business failure”. He also reinforces that
“de ning the purpose and mission of the business is dif cult, painful and
risky but it alone enables a business to set objectives, to develop strategies,
to concentrate its resources and to go to work. It alone enables a business to
be managed by performance.
121
fi
fl
fl
fi
MISSION, OBJECTIVES AND GOALS
122
fi
fi
fi
MISSION, OBJECTIVES AND GOALS
123
fi
fi
fi
fl
fi
MISSION, OBJECTIVES AND GOALS
124
fi
fi
fl
fl
fi
MISSION, OBJECTIVES AND GOALS
• What is the basic purpose of the organization and how to envision the
future of the company?
• What is unique about the organization, and how does it create its unique
value proposition in the marketplace?
125
MISSION, OBJECTIVES AND GOALS
126
fi
MISSION, OBJECTIVES AND GOALS
Four hundred young people were recruited and brought to Hosur. Titan
immediately provided the support necessary. Many had never seen a city or
lived in anything but a simple hut. Accommodation was built and foster
parents lived with the young people teaching them the life skills necessary
for living in a city and work in a factory. Titan also provided sports and
cultural activities, and the facilities to help its works study degrees and even
take post graduate courses after the factory hours. At the factory, trainers
and engineers taught the young workers how to use precision machinery.
Titan is now a highly successful enterprise employing thousands of people in
Tamil Nadu and has three factories in Hosur alone, with nearly all the
workers coming from the surrounding villages. It provides employment
indirectly to thousands more in rms making watch strap, casings and other
components. In 2001, Titan was voted the most admired brand and proved it
was a truly societal organisation.
Thus, Tata group has resolved and proved all the time that having a societal
purpose does not in any way reduce its intensity to compete and win in the
business they are in. In fact all its companies, including Titan have
demonstrated signi cant nancial and market performance. The company in
this case analysis Titan Industries, in fact, has created multi-fold economic
wealth to its stakeholders through excellent nancial performance and stock
market performance.
4.6 Mission and strategy
As explained above, mission sets the direction for the strategy development
of an organization. As Peter Drucker says in his book, “Managing the
Future”, ‘the mission makes the organization focus on action. It de nes the
speci c strategies needed to attain the crucial goals. It creates a disciplined
organization. It alone can prevent the most common degenerative disease
of organizations, especially large ones, splintering their limited resources on
things that are interesting or look pro table rather than concentrating them
on a very small number of productive efforts’.
Corporate mission statements must be operational, ethical and nancial
guiding lights of companies. They are not just fancy slogans. They articulate
the purpose, value, goals, dreams, behaviour, culture, and strategies of the
companies.
127
fi
fi
fi
fi
fi
fi
fi
fi
MISSION, OBJECTIVES AND GOALS
Once the mission is clearly de ned and articulated by the top management
(as the top management is held accountable for the mission), strategy is the
next important step in the strategy management process. Strategy has been
studied for years by business leaders and by business theorists. Yet, there is
no de nitive answer about what strategy really is. One reason for this is that
people think about strategy in different ways.
For instance, some believe that the organisation must analyse the present
carefully, anticipate changes in its market or industry, and, from this, plan
how it will succeed in the future. Meanwhile, others think that the future is
just too dif cult to predict, and they prefer to evolve their strategies
organically.
Gerry Johnson and Kevan Scholes, authors of "Exploring Corporate
Strategy," say that strategy determines the direction and scope of an
organization over the long term, and they say that it should determine how
resources should be con gured to meet the needs of markets and
stakeholders.
Michael Porter, a strategy expert and professor at Harvard Business School,
emphasizes the need for strategy to de ne and communicate an
organization's unique position, and says that it should determine how
organizational resources, skills, and competencies should be combined to
create competitive advantage.
While there will always be some evolved element of strategy, it is believed
that planning for success in the marketplace is important; and that, to take
full advantage of the opportunities open to them, organizations need to
anticipate and prepare for the future at all levels.
Many successful and productive organizations have a corporate strategy to
guide the big picture. Each business unit within the organization then has a
business unit strategy and functional strategy, which its leaders use to
determine how they will compete in their individual markets.
In turn, each team should have its own strategy to ensure that its day-to-day
activities help move the organization in the right direction. At each level,
though, a simple de nition of strategy can be: "Determining how we are
going to win in the period ahead." That is the most critical element of
formulating strategy.
128
fi
fi
fi
fi
fi
fi
MISSION, OBJECTIVES AND GOALS
129
fi
fi
fi
MISSION, OBJECTIVES AND GOALS
companies have withered the global economic turmoil many times in the last
couple of decades and have demonstrated their leadership in nancial
management, operational management, change management, talent
management and socio-economic responsibility over many years.
IBM’s Business Model:
Let us look at how IBM transformed from a pure hardware based company
selling computers to an innovation based company in the IT Services space
and established its leadership globally. Its mission is simple – “Let’s build a
smarter planet”. This mission is about creating smarter businesses, smarter
workforce, smarter communities, smarter cities, smarter transportation,
smarter nance etc. Everything they do is to optimise energy and resources
to make the planet a better place to live.
IBM was a company with hardware and related technology focused business
strategy till a decade back. In an industry characterized by a relentless cycle
of innovation and commoditization, one model for success is that of the
commodity player—winning through low price, ef ciency and economies of
scale. The other model is creating value: the path of innovation, reinvention
and shift to higher value. These are choices for the company to create their
strategies.
IBM chose to shift to higher value: They developed a strategy to do so in
their portfolio of services, in their organic R&D investment, and through
targeted acquisitions and divestitures.
They remix the research and development: Two decades ago, 70 percent of
IBM’s researchers were working in materials science, hardware and related
technology as their focus. Even the one-in-ten working in software were
focused on operating systems and compilers. Today, 60 percent are in elds
that support key growth initiatives, such as the 400 mathematicians
developing algorithms for business analytics, as well as a diverse group of
specialists that include medical doctors, computational biologists, experts in
natural language processing, and weather and climate forecasters. Since the
beginning of 2010, IBM has spent $51.48 billion on R&D, and in 2018 IBM
earned the most U.S. patents for the 26th straight year, with a record total of
9,100 for the year and collectively registering 1,10,000 patents.
130
fi
fi
fi
fi
MISSION, OBJECTIVES AND GOALS
IBM acquired newer capabilities. Organizations run into trouble when they
look to ful l a new strategy or provide the basis for transformation through
acquisitions. IBM practices a disciplined approach that asks three questions:
Does it build on or extend a capability IBM already has? Does the company
have scalable intellectual property? Can it take advantage of its reach into
170 countries? IBM’s balanced formula has built a strong track record since
2000, with more than 140 acquisitions.
It is also IBM’s strategy to divest nonstrategic assets in line with its mission:
Always moving to the future isn’t just about what you invent. It also involves
choices about when to move on. Over the past decade there has been a
cumulative divestment of almost $15 billion of annual revenue—businesses
that no longer t its strategy. If they had not done so, they would be a larger
company today, but with lower margins and capabilities less essential to the
clients.
Hence the question, “what is our business, why we need to be in that
business and what is the purpose?” may lead to debates that help identify
the right strategies and will help realise its mission. The most important time
to ask this seriously is when a company has been doing well and keep the
strategies evolving proactively so as to avoid crisis when the environment
keeps changing fast as we experience in today’s economy. The mission and
strategy must indicate the company’s ability and resilience power to change
its business if the market so demands. IBM is a classic example of such a
transformation.
A look at other similar companies like, IBM, Apple, Google or Facebook
shows that all of them have very clear mission and purpose, and have been
thriving on innovation as the key strategy and been successful for many
years in their industries.
131
fi
fi
MISSION, OBJECTIVES AND GOALS
4.7 Objectives
Once the mission and strategy are developed, the organization needs to
come out with a set of objectives that could translate the strategy into results
and enable the company to realize its mission. Objectives form the basis for
the functioning of the organization and help de ne the organisation in its
environment.
Objectives may be de ned as those ends which the organization seeks to
achieve by its existence, operations and business results while pursuing its
mission. In other words, most organizations need to justify their existence,
and business to be accountable to various stakeholders like the investors,
shareholders, the government, customers, employees, partners and society
at large.
Once the strategy is de ned, the company should come out with key
priorities and initiatives which can be translated into actionable goals.
Objectives cover long term aims of the company breaking down the strategy
into different and speci c initiatives that the company should perform in order
to achieve speci c SBU and functional strategies, and thus the organization
strategy.
Often, objectives of a particular nature indicate speci c initiatives the
company must perform for its existence, operation and business results.
Broadly, there are four or ve categories of objectives, under which the
organization can form several relevant initiatives, and prioritise them
depending on the importance and the time horizon available, as part of the
overall strategy. They are:
1. What initiatives the company should focus on to improve its nancial
performance?
2. What initiatives the company should undertake to enhance customer
experience?
3. What initiatives the company should create to improve operational
excellence?
4. What initiatives the company should do to create employee satisfaction?
5. What initiatives the company should do to create a unique brand and
organizational culture?
132
fi
fi
fi
fi
fi
fi
fi
fi
MISSION, OBJECTIVES AND GOALS
133
fi
fi
fi
fi
fl
fi
fi
fi
fl
fi
fi
MISSION, OBJECTIVES AND GOALS
Like objectives, goals also should be established at the corporate, SBU, and
functional levels in a large organization. Goals should be clearly stated in
terms of the various teams namely management, marketing, nance,
production, and research and development. There should be a set of goals
for each objective for each of these functional teams.
Goals are speci cally important in strategy implementation whereas
objectives are important for strategy formulation. Goals represent the basis
for allocating resources for each function and department. A set of goals
under each objective should be quanti able in nature like sales quotas,
revenue target, margins, marketing budget, market share, employee attrition
etc.
While objectives are general key result areas pertaining to the mission, the
goals set speci c targets to be achieved within a stipulated time frame.
These goals may also be called key performance indicators (KPIs). The key
performance indicators guide the behaviour of the organisation at all levels to
bring in synergy within the organisation.
4.9 Levels of Objectives
Organisations have different levels of stakeholders who lead the mission,
strategy and objectives. There are corporate objectives, SBU objectives,
functional objectives and individual objectives.
The corporate objectives are to be formulated and pursued by the board of
directors and the executive management team of the company. Then, it is
the SBU objectives which are formulated and owned by the SBU leadership
team. In a multi-SBU organisation, there will be separate set of objectives
that will be pursued by the respective SBUs. For example, if a company has
two SBUs namely B2B business and B2C business, there will be two distinct
set of strategies and objectives driven by the respective SBU leadership
teams.
Then comes the functional and departmental objectives which are formulated
for functions like sales, marketing, production, nance, HR, services, R&D
etc. A function might have different geographical divisions like north zone,
east zone, west zone and south zone or several product divisions like
personal care division, home care division, food care division etc (in an
FMCG company).
134
fi
fi
fi
fi
fi
MISSION, OBJECTIVES AND GOALS
Each such division will have its own marketing objectives and initiatives
which will contribute to the achievement of the overall marketing function’s
objectives. Each division or group then have their people with their
respective objectives which are speci c in nature, like sales targets,
marketing campaign targets, revenue targets etc.
Thus, the organisation has a hierarchy of objectives for different levels of
leadership across the organisation. And the objectives of different levels are
designed to help achieve the overall objectives of the organisation. These
objectives are then translated into measurable goals or KPIs as explained
above in the goals section.
Socio-Economic Objectives
In any business there are important socio-economic objectives that de ne
the organisation value and culture. Every organisation has to have a
balanced approach towards both economic objectives and social objectives.
In fact, some of the social and economic objectives are so intertwined that it
is dif cult to separate them from organisation’s vision and objectives. It is
only more appropriate to describe them as socio-economic objectives.
The economic objectives of an organization are survival of the organization,
return on investment, pro table growth, market share and innovation. The
promoters and the investors in an organization were generally considered to
be pro t motivated. These objectives no longer re ect the organisation’s
value creation of investors’ wealth, without creating a positive impact on the
society it serves.
As we can see in modern economy, there is an evolving trend wherein most
organizations have a stated vision and objective which addresses both the
economic and social obligations of the company. For e.g., IBM’s vision of
creating a smarter planet, Bharti Airtel’s vision of enriching the lives of
millions, or Tata group companies’ mission and belief of returning wealth to
the society in which they serve.
These visions and objectives clearly re ect what these companies stand for
and their commitment to social objectives and responsibility, not just merely
thriving upon its economic objectives. WE have seen that in the case
analysis studied earlier in this chapter.
135
fi
fi
fi
fi
fl
fl
fi
MISSION, OBJECTIVES AND GOALS
136
fl
MISSION, OBJECTIVES AND GOALS
137
fi
MISSION, OBJECTIVES AND GOALS
4.12 Summary
This chapter has covered the de nitions of vision, mission, objectives and
goals, and given different perspectives through different case analyses. A
mission statement is an enduring statement of purpose that distinguishes
one business from the other similar rms. The mission statement also
identi es the scope of an organisation’s operations in the chosen product
and market terms.
The mission statement should be clearly articulated, relevant, current and
unique. To achieve the mission, the organisation has to set its objectives and
goals/ targets for the short term, medium term and long term. Objectives are
long range a company aims and are combined with more speci c
department or functional goals.
An organisation should look beyond its nancial performance or market
performance to create shareholders’ wealth, but should also have the
purpose of sharing its wealth with the society and create socio-economic
value for the country.
This chapter provides few case studies to understand the de nitions and
implications of vision, mission, objectives and goals.
138
fi
fi
fi
fi
fi
fi
MISSION, OBJECTIVES AND GOALS
Assessment Questions
1. What is your understanding of a mission statement?
a) A mission is a statement that sets the business targets for the
company
b) A mission statement provides the company necessary resources to
achieve its strategy
c) A mission statement is a comprehensive statement about a
company’s operations
d) A mission is an enduring statement of purpose that
distinguishes one business from other similar rms & identi es
the scope of the company’s operations in product & market
terms
2. INS Limited a company in the Insurance industry is formulating a mission
statement. The CEO is seeking your assistance to know what should be the
key elements of a mission statement. Which of the following element you will
not recommend him for consideration?
a) Need a clear purpose and articulation
b) Alignment with competitor’s mission
c) Relevance to the culture of INS Ltd
d) Continue to guide, motivate and inspire
3. The mission of HXL Ltd, an FMCG company is to become the most loved
brand enriching the lives of millions of consumers. What impact do you think
this company must make to achieve the mission?
a) The company needs to create employment opportunities
b) The company needs to deliver nancial performance
c) The company needs to focus on corporate social responsibility
d) The company needs to create economic impact by contributing
through economic growth, employment, and corporate social
responsibility.
139
fi
fi
fi
MISSION, OBJECTIVES AND GOALS
4. Which are the social forces that impact a company’s prospects of staying
competitive in the marketplace?
a) A mission is a statement that sets the business targets for the
company
b) A mission statement provides the company necessary resources to
achieve its strategy
c) A mission statement is a comprehensive statement about a
company’s operations
d) A mission is an enduring statement of purpose that
distinguishes one business from other similar rms & identi es
the scope of the company’s operations in its business
5. What is corporate social responsibility (CSR) and why is the Tata group
different from the other companies?
a) Their nancial performance is far superior than other companies
b) Tata organisations identify the societal needs of the region
where the company operates and their companies' performance
is far beyond just the nancial performance
c) They are number one in the respective market segments
d) They have a great brand name and it is recognised by the society
140
fi
fi
fi
fi
MISSION, OBJECTIVES AND GOALS
References
1. Francis Cherunilam, Strategic Management (Prin. L.N. Welingkar Institute
of Management), P 46-47
2. Vern McGinni, “The mission statement: A key step in strategic planning of
Business”1981, P 41
3. Francis Cherunilam, Strategic Management (Prin. L.N. Welingkar Institute
of Management), P 49
4. Morgen Witzel, Tata, The Evolution of a Corporate Brand, Portfolio/
Penguin, (P x-xi)
5. Peter Drucker, Managing the Future, on mission statement
6. Morgan Witzel, Tata, The evolution of a corporate brand, P 13 and 16
7. Reference from IBM Chairman Virginia M. Rometty, letter to investors/
shareholders, March 2013
8. John A. Parnel, Strategic Management, Theory and Practice, P 56
------------------------------------------------------------------------------------------------------
Case Study on Tesco on Vision, Mission, Values and Strategy
Tesco was founded in 1919 by Jack Cohen from a market stall in London’s
East End. Today it is one of the largest retailers in the world. Tesco’s core
business is retailing in the UK, which provides 60% of all sales and pro ts.
Tesco has the widest range of food of any retailer in the UK. Its two main
food brands are its Finest and Everyday Value ranges, each sell over £1
billion per year.
The position of Tesco as a leading global brand is clearly illustrated by its
expansion of operations into 12 countries including China, Czech Republic,
India, Malaysia, Ireland, Hungary and Poland. In 2013 Tesco employed in
excess of 530,000 people. This level of success does not happen by chance.
Tesco’s leaders have always set high standards and clear goals, never
settling for anything less than the best.
141
fi
MISSION, OBJECTIVES AND GOALS
142
fi
MISSION, OBJECTIVES AND GOALS
143
fi
fi
MISSION, OBJECTIVES AND GOALS
Values
Whilst a vision is important and outlines the company’s aspiration, without
values a business such as Tesco would struggle to remain competitive.
Tesco’s values are:
• To create new opportunities for millions of young people around the world.
• To improve health and through this help tackle the global obesity crisis.
• To lead in reducing food waste globally.
These are underpinned by what Tesco calls ‘The Essentials’:
• We trade responsibly.
• We are reducing our impact on the environment.
• We are a great employer.
• We support our local communities.
144
fi
MISSION, OBJECTIVES AND GOALS
145
fi
fi
MISSION, OBJECTIVES AND GOALS
146
fi
fi
fi
fi
MISSION, OBJECTIVES AND GOALS
Seven Part
Focus and Tactics
Strategy
This involved increasing staff members by
20,000 over two years, renovating existing
To grow the UK
1 stores and introducing more promotions. The
Core
core values of making customers feel wanted
and respected underpin this strategy.
This involves developing its own label brands
To be a creator of
such as F&F clothing and Tesco Finest to
2 highly valued
provide customers with quality products at
brands
competitive prices.
In 2012, its international businesses
generated 30% of the Group's pro ts, the
To be an
new strategy includes opening up to fty new
outstanding
3 F&F franchise stores over the next ve years
international retailer
in the Middle East, Saudi Arabia,
in stores and online
Kazhakhstan, Georgia, Armenia and
Azerbaijan.
To grow retail Generating 1 billion BP in revenue in 2012,
4 services in all our Tesco Bank is a focal part of the potential for
markets future growth in retail services.
To put our
In 2011, Tesco made its responsibilities to the
responsibilities to
communities’ central to all it does, rather than
5 the communities
just be a part of it. This is demonstrated
we serve at the
through its "Three Big Ambitions".
heart of what we do
Tesco's most important asset is its people,
who live by its values to do their very best for
To build our team
customers. In keeping with its vision to be a
6 so that we create
highly values, innovative growth company,
more value
Tesco has committed to training effective
leaders in all areas within its Group.
To be as strong in Food is Tesco's heritage, but the business
7 everything we sell continues to diversify, adding a wide range of
as we are in food products and services in-store and online.
147
fi
fi
fi
MISSION, OBJECTIVES AND GOALS
148
fi
MISSION, OBJECTIVES AND GOALS
REFERENCE MATERIAL
Click on the links below to view additional reference material for this chapter
Summary
PPT
MCQ
Video
149
5
CORPORATE LEVEL STRATEGY
Objectives:
This chapter focuses on the key strategic decisions to be made at the
corporate level, to identify the corporate pro le and determine whether the
company will operate in a single business or more than one related business
or venture into other unrelated businesses. At the end of the chapter, you will
be able to understand the following:
• De ne and identify the corporate pro le
• Making a decision on single business or multi business
• Growth strategy
• Stability strategy
• Retrenchment strategy
• BCG growth share matrix
• Global corporate strategy
150
fi
fi
fi
CORPORATE LEVEL STRATEGY
Structure:
5.1 Introduction
5.2 The corporate pro le
5.3 Growth strategy
5.4 Stability strategy
5.5 Corporate restructuring strategy
5.6 Turnaround strategy
5.7 Divestment strategy
5.8 BCG growth share matrix
5.9 Corporate involvement in SBU
5.10 Global Corporate strategy
5.11 Summary
5.12 Assessment questions
151
fi
CORPORATE LEVEL STRATEGY
5.1 Introduction
With the scale and complexity of modern businesses increasingly becoming
volatile and global in nature, there is a necessity to have a sound strategic
management process in any corporate organisation. The markets expect
continuous innovation and unprecedented changes happening in macro-
economic factors that the corporates have to play with and re ect back in its
overall strategy. Thus, corporate strategy assumes highest importance in
creating strategy and de ning leadership in the industry both locally as well
as globally.
While, the analysis of industry, competition, macro environment and
corporate mission are keys to building a strong foundation to the strategy
formulation process, the next critical step in strategic management process
is to review the organisation’s current strategy and direction. As we
discussed brie y in chapter 1, there are three levels of strategies viz
corporate level, SBU level and functional level in any organisation. This
chapter discusses what kind of strategy a corporation should pursue to
nurture and grow their various businesses. The various strategic options and
choices are being discussed. This chapter focuses on corporate level
strategy in particular.
Corporate strategy is the long term strategy encompassing the entire
organisation. It is the strategy that the top management formulates for the
overall corporation. Corporate strategy is an overarching strategy, which
precedes the business unit level and functional level strategies and sets new
direction for the entire organisation. Corporate strategy addresses the
fundamental questions such as what is the purpose of the enterprise, the
vision, what businesses it wants to pursue, and what is the expansion and
diversi cation strategy of each business, mergers and acquisitions, de ne
the business guidelines and corporate governance to be followed by the
SBUs and the individual Functions.
Corporate strategy must ensure organisational compliance to achieve the
stated goals. In other words, corporate level strategic management is
management of activities which de ne the overall character and mission of
the organization, the products and service segments it will pursue or exit, the
allocation of resources and management of synergy among its SBUs and
Functions. Corporate strategy is formulated by the top level corporate
152
fi
fl
fi
fi
fl
fi
CORPORATE LEVEL STRATEGY
153
fi
fi
fi
fi
fi
fi
fi
fi
fi
fi
CORPORATE LEVEL STRATEGY
Diversi cation enables a company to grow its revenues, pro ts, potentially
use its resources more effectively and build new products, new services and
new markets.
Tata Group is a classic example of diversi cation into multiple related as well
as unrelated industries. Famously known as the 'salt to software
conglomerate' with revenue turnover in excess of $ 110.7 bn (FY 2018), the
Tata group has practically diversi ed into almost all industry verticals as
many as 28 sectors. The industries vary from chemicals, steel, automobiles,
software, telecom, coffee, tea, retail, power, hospitality, etc. It is impossible to
understand the corporate pro le and the Tata brand, without understanding
the symbiotic relationship that the brand has with the various group company
pro les and its products and services. There is a saying the Tata group talks
not of conquering markets but of serving people [1].
Tata group has been aggressively charting out growth strategy through
expansion of related businesses through M&A strategies and diversi cation
into unrelated industries through JV and alliance partnerships. For example,
let us talk about Tata group's foray into the civil aviation sector. The Tata
group pioneered civil aviation in this country with the establishment of Tata
Airlines in 1932. In fact Tata’s were the ones who started the rst civil
aviation company in the country, Air India post-independence and later sold it
to the Government of India. Tata group has been vying for re-entering this
sector for quite some time with failed attempts couple of times in the late 90's
and early last decade. In the year 2013, Tata Sons the holding company of
Tata Group companies decided to forge two JVs in the civil aviation sector.
The rst one was a JV with Air Asia to launch a no-frills airlines in the country
and the second one was a JV with Singapore Airlines to launch a full service
carrier to meet the growing demands of the market post the fall of King sher
Airlines early in 2012. These two JVs were supposedly aimed to address
clearly two complementing segments of the marketplace without competing
with each other.
On January 31, 2007, Tata Steel Limited (Tata Steel), one of the leading
steel producers in India, acquired the Anglo Dutch steel producer Corus
Group Plc (Corus) for US$ 12.11 billion (€ 8.5 billion).
154
fi
fi
fi
fi
fi
fi
fi
fi
fi
fi
CORPORATE LEVEL STRATEGY
155
fl
fi
fi
fi
fi
fi
fi
fi
fi
fi
CORPORATE LEVEL STRATEGY
Thus, the strategy should enable the company to create a compelling value
proposition to stay pro table in both the core business as well as the
diversi ed business. The strategy should ensure that the diversi ed business
does not eat into the resources and pro tability of the core business, thereby
making the whole business plan unsustainable.
The company should ensure it builds the overall competence that is dif cult
to imitate. Generally, it is challenging to accomplish integration between
different business units when they do not share common cultural values. The
strategic managers have to work collaboratively to ensure such cultural
differences are smoothened out and they do not impact the overall value
proposition of the different related business units.
The corporate level strategies include the following:
1. Growth Strategy
a. Organic growth
b. Inorganic growth
i. Horizontal integration
ii. Vertical integration
iii. Conglomerate diversi cation
iv. Mergers and acquisitions
c. Strategic alliances
2. Stability Strategy
3. Retrenchment Strategy
4. Turnaround Strategy
5. Divestment Strategy
6. Liquidation Strategy
156
fi
fi
fi
fi
fi
fi
CORPORATE LEVEL STRATEGY
157
fi
fi
fi
fi
fi
CORPORATE LEVEL STRATEGY
In the last decade when Indian economy witnessed high GDP growth in the
range of 8-9%, Indian corporates raised their aspirations to become global
companies. They developed corporate strategies to diversify into newer
business areas both related and unrelated industries and started looking at
large mergers and acquisitions to lead the industry growth, both nationally
and globally.
Most of the large corporates thus pursued their aspiration to expand their
geographical footprint beyond a country or a continent or to expand their
product portfolio, to truly become a global organisation.
Two big merger deals in 2017 needs to be mentioned here — both from the
Aditya Birla Group. In August 2016, the conglomerate announced the merger
of Grasim and Aditya Birla Nuvo, creating a Rs 60,000 crore mega-
corporation. Another merger deal is a a $27 billion merger of Idea Cellular
and Vodafone India was announced, which will create the largest Indian
telecom company. Neither was technically a takeover or a buyout. However,
both mergers were done with an eye on growth. The Grasim-Nuvo merger
was designed to provide Nuvo’s growth business, the nancial services
subsidiary, “a stronger parentage” of Grasim’s balance sheet. The Idea-
Vodafone deal, too, sacri ced control — Vodafone holding 45.1% of the
merged entity and the Aditya Birla group 26% — and prepped it up for
growth and competition, namely Reliance Jio.
While above examples are pertaining to mergers, on acquisition front also
many examples are worth mentioning namely – IndusInd Bank acquiring
IL&FS Security Services, Havells India acquiring Lloyd Electric’s Consumer
Business for $235 million, Flipkart acquired eBay India and Cadila
Healthcare buying 6 brands of MSD Pharmaceuticals and Bharti Airtel
acquiring Zain Telecom in Africa.
While organisations acquire other companies either in the same line of
business or unrelated line of business, there are challenges in terms of
integration of the new companies with the core business. Let us see some of
such scenarios in detail in this chapter.
158
fi
fi
CORPORATE LEVEL STRATEGY
159
fi
fi
fi
fi
fi
fi
CORPORATE LEVEL STRATEGY
the process by adding newer capabilities and customer offerings. Here, the
purpose was that certain key competencies were lacking in one or two areas
to complete its overall business strategy.
When such an acquisition happens, post integration the combined entity will
be in a position to demonstrate the complementary core competencies in the
market place, thus placing itself to be able to acquire more customers, and
deliver more quality products and services. The resultant synergy of the two
combined organisations provides higher effectiveness and ef ciency, and
empowers the company to participate in more market opportunities to
increase revenues and pro tability.
Conglomerate diversi cation
When a company acquires a business in an unrelated industry to reduce
cyclical uctuations in its revenues or cash ows, the scenario is called
Conglomerate Diversi cation. Examples of conglomerate diversi cation
include General Electric, Virgin Group Ltd. and The Walt Disney Company.
Initially a lighting business, General Electric diversi ed into medical devices
and household appliances. Virgin expanded from a record label to transport
and healthcare, while Disney’s operations range from lm studios to
entertainment parks. As seen above, while diversifying into related business
is more for strategic reasons, diversifying into unrelated industries is mostly
for tactical, ambition led or nancial reasons. Conglomerate Diversi cation
allows a company to continue to grow even when its core business has
matured and revenues are saturated. Here, the challenge would be the core
organisation would lack the expertise to manage an unrelated business until
it develops it's know how to run the new business unit effectively. The
corporate has to rely on the management of the acquired rm to deliver
business results until it develops its expertise to provide strategic direction.
This is de nitely a pitfall often encountered in such diversi cations.
Vertical Integration
Vertical integration refers to an organisational expansion by acquiring a
company in the distribution channel. The vertical integration varies from
industry to industry. As indicated earlier, a full vertical integration is achieved
when an organisation is able to perform all activities in the complete value
chain of its business operations, ranging from the procurement of raw
materials to the production of nal outputs, to the distribution of the products
160
fl
fi
fi
fi
fi
fi
fi
fl
fi
fi
fi
fi
fi
fi
fi
CORPORATE LEVEL STRATEGY
to the end customers in all markets, whereas rms that engage in some but
not all of these activities, are only partially integrated.
When a company acquires its suppliers, it engages in Backward Integration,
whereas if it acquires Distribution Channels or Buyers, it engages in Forward
Integration. A solar power company that produces photovoltaic products and
also manufactures the cells used to create those products is another
example of a vertically integrated business. In this case, the company moved
along the supply chain to assume the manufacturing duties, conducting a
backward integration. Another legendary example of backward integration is
Reliance Industries Ltd., - from polymer trading to making to nally setting up
the complete re nery. Amazon has recently acquired organic grocery chain
‘’Whole Foods’’, which is a brick & mortar set up. It conveys Amazon’s
interest in bringing goods close to the doors of consumers who do not prefer
to use online medium as well as offer combined bene ts to their existing
customers. Vertically integrated companies have many advantages. It can
optimise sourcing costs, transportation costs, distribution costs, production
costs etc. The company is able to differentiate products because of
increased control on its operations right from input costs to output costs
including distribution because of scale. It greatly reduces transaction costs
between suppliers and buyers and lots of intellectual property information
gets secured to gain a market advantage.
Vertical integration also has its own disadvantages. It reduces operational
exibility as the organisation is heavily invested in both upstream and
downstream integrations. It can raise costs if the critical mass of volume in
production is not realised, impacting the overall pro tability of the company.
Overhead costs may also increase as a result and the company may
experience low productivity. Such integrations are high risk projects and can
impact the overall corporate’s success.
The success in integration of such an inorganic expansion lies in choosing
the right t and identifying the right strategy to suggest whether or not the
integration should be carried out. Keeping this in mind, in some corporate
groups, certain acquisitions happen for strategic reasons, mostly in unrelated
area and the acquired company may continue to operate independently
without any integration to the core industry.
161
fl
fi
fi
fi
fi
fi
fi
CORPORATE LEVEL STRATEGY
162
fi
fi
fi
fi
fi
fi
CORPORATE LEVEL STRATEGY
163
fi
fi
fi
fi
fi
fi
fi
CORPORATE LEVEL STRATEGY
164
fi
fi
fi
fi
CORPORATE LEVEL STRATEGY
165
fi
fi
fl
fi
fi
CORPORATE LEVEL STRATEGY
166
fi
fi
fl
fi
fi
CORPORATE LEVEL STRATEGY
two promoters who hold majority stakes in the company try to acquire shares
from the open market to increase their stakes and take over the company.
Even established and leading companies need to restructure their
organisation at regular intervals as the company’s progress through various
product lifecycles changes and economic cycles change. In India, most of
the large corporates do corporate and business unit level restructuring at
regular intervals in order to sustain their growth strategy and to keep their
costs under control. This has paid rich dividends over time. The restructuring
needs are more accentuated in companies whose industries are subject to
fast changing internal and external environments, like changes in domestic
or global economy, new technological trends, competition behaviour, new
political changes or social changes. These companies need to rede ne their
strategies to reach their ultimate purpose.
5.6 Turnaround strategy
When an organisation continues to perform below its potential or below
market growth, it requires a turnaround strategy to bring it back to health. In
other words, turnaround strategy transforms the company into a leaner,
meaner and effective organisation. During such tough times, the organisation
would need to undertake certain hard decisions and measures. The
measures include eliminating wastes, pruning assets, reducing the
workforce, cutting down the budgets and other costs like sales and
distribution and it might even have to rethink on its strategy of its current
product portfolios and other unpro table business portfolios.
Turnarounds are often accompanied by changes in the macro environment,
industry order, competition behaviour etc. In most organisations both
turnaround and restructuring happen at the same time. The turnaround
strategy of an organisation depends on the actual problems it has been
going through. The reasons could be many, from performance to governance
issues.
Besides performance issues, the other reasons for a company to become a
potential candidate for turnaround strategy is that there have been instances
of corporate governance issues, allegations of top management
wrongdoings, scandals, corruption charges, and management integrity
issues that hamper the con dence of different stakeholders like investors,
customers, employees, partners and most importantly the business
167
fi
fi
fi
CORPORATE LEVEL STRATEGY
168
CORPORATE LEVEL STRATEGY
169
fi
fi
fi
CORPORATE LEVEL STRATEGY
too, did a commendable job prior to the acquisition by acting swiftly on the
case, for a change. It reconstituted a 6-member board of top business minds
that included the likes of Deepak Parekh, Kiran Karnik, Tarun Das and S
Damodaran, who triggered the two Cs of rejuvenating, - communicating and
cleansing.
While there were turnaround challenges, the acquisition was considered to
be synergistic as the skills were complementary, the customer overlap was
zero and the geographic overlap was beautifully laid out. While Tech M was
a Europe centric company, Satyam's clients were chie y in the American
market. Also, from a vertical standpoint, Tech M largely covered the telecom
space, British Telecom being a major client, and so looked vulnerable and
would have found it dif cult to sustain and grow.
Apart from teeth, the merger gave Tech M a more balanced portfolio of
clients from different industry verticals (manufacturing, retail, healthcare, life
sciences, tech media, and entertainment), with A-grade enterprise capability
that Satyam had and the combined entity became the 5th largest Indian IT
services player (ex-Cognizant). However, Satyam founder’s largesse had
already burnt a hole in the organization.
From a customer base of 400, Tech M inherited 290 clients when it acquired
Satyam. The spirit of the employees, or associates as they are called in IT,
was severely compromised. From 45,000 people during its hay days, Tech M
had to take hard decisions and rationalize the employee strength to 28,000.
The rationalization as part of the turnaround strategy was done "in a nice
fashion" by inviting the competition over to hire directly from Satyam.
Nevertheless, Team Tech M was looked upon as barbarians at the gate, as
they were completely focused on earnings and cost control, which had
eluded the erstwhile Satyam because of corporate governance
mismanagement.
So on June 20, 2009, Mr. Nayyar, Vice Chairman Tech Mahindra and Mr
Gurnani, the Mahindra Satyam’s CEO mustered enough courage to
announce that he was reducing the 13 layers of management to six at
Satyam over the next three years. To oversee the transition, the corporation
set up a 10 people team from M&M in Satyam's leadership team.
170
fi
fl
CORPORATE LEVEL STRATEGY
Tech M brought in some youngsters from our global leadership cadre and
ensured they didn't come with any baggage, as emphasized by Mr Gurnani.
Alongside, 5-6 leaders of Satyam were let go, particularly in the legal and
nance functions, where the toxicity was maximum, as top-level transfusion
became the need of the hour.
"In some areas, we were very clear that it has to be a Tech M representative
running it because from a good governance perspective, from shareholder
value protection, it was important people saw a face that was more aligned
to Tech M than the erstwhile management of Satyam," con des Mr. Gurnani.
Between them, Mr. Nayyar and Mr. Gurnani divided responsibilities. While
Mr. Nayyar was to look at legal and investor issues, Mr. Gurnani would be
focused on the customers and employees.
Yet another step toward "a marriage of equals" was taken in 2011 when Tech
Mahindra took 130 leaders to Thailand with an idea to get people from the
erstwhile Satyam and Tech Mahindra to sit together and thrash out a new
vision. At the end of the exercise, mission 2015 came up, which meant
doubling up revenues by 2015. "The aim was to bring up a new culture which
is not Tech Mahindra culture or Satyam culture but a New Tech Mahindra
culture," says Gurnani, creating a new code for 84,000 people.
It was as clear as during the formative stages of the acquisition when Nayyar
and Gurnani met up with heavyweight clients like AT&T, who would snidely
comment on Satyam and how Raju pulled the curtains. That was the rst
year-and-a-half. "After that, there was a change in the meaning of Satyam,
which was synonymous with fraud and forgery. As per them, it gives the
greatest feeling that they have changed the meaning of Satyam from being
synonymous with fraud to rejuvenation.
While this merger was 'Rest In Peace' for the erstwhile Satyam, it was
'Recovery in Progress' for the Tech Mahindra management. And going by the
latest quarterly results (Jun-Sep, 2013), the marriage seems to have worked
ne, with revenues up about 5% sequentially at $758 mn (QoQ). The results
were liked by the market. Mahindra Satyam nally got merged into Tech
Mahindra in June 2013 with the approval of the shareholders of both the
companies and necessary regulatory and legal approvals, with the combined
entity to become the sixth largest IT Services Company in India.
171
fi
fi
fi
fi
fi
CORPORATE LEVEL STRATEGY
172
fi
fi
CORPORATE LEVEL STRATEGY
To use the chart, analysts plot a scatter graph to rank the business units (or
products) on the basis of their relative market shares and growth rates.
• Dogs, more charitably called pets, are units with low market share in a
mature, slow-growing industry. These units typically "break even",
generating barely enough cash to maintain the business's market share.
Though owning a break-even unit provides the social bene t of providing
jobs and possible synergies that assist other business units, from an
173
fi
fi
fi
CORPORATE LEVEL STRATEGY
174
fi
fi
fi
fi
CORPORATE LEVEL STRATEGY
• Stars whose high share and high growth assure the future
• Cash cows that supply funds for that future growth and
• Question marks to be converted into stars with the added funds
pro ts. The theory behind the matrix assumes, therefore, that a higher
growth rate is indicative of accompanying demands on investment.
The cut-off point is usually chosen as 10 per cent per annum. Determining
this cut-off point, the rate above which the growth is deemed to be signi cant
(and likely to lead to extra demands on cash) is a critical requirement of the
technique; and one that, again, makes the use of the growth–share matrix
problematical in some product areas. What is more, the evidence from fast-
moving consumer goods markets at least, is that the most typical pattern is
of very low growth, less than 1 per cent per annum. This is outside the range
normally considered in BCG Matrix work, which may make application of this
form of analysis unworkable in many markets.
Where it can be applied, however, the market growth rate says more about
the brand position than just its cash ow. It is a good indicator of that
market's strength, of its future potential (of its 'maturity' in terms of the market
life-cycle), and also of its attractiveness to future competitors. It can also be
used in growth analysis.
Balanced Strategy
A well-balanced business strategy ideally should have mostly stars and cash
cows, some question marks and few dogs. To attain this ideal scenario,
there could be four options of corporate strategies.
1. Strategic managers can have a strategy to build market share with stars
and question marks. The question marks have the potential to become
the future star of the corporation. So the corporate strategy should be to
identify and support the promising question marks so that they can be
transformed into stars. It may involve increasing the scale of volume or
aggressively price the products and services, which may impact the
overall pro tability of the business in the short term.
2. The corporate strategy can be to hold market share with the cash cows,
thereby generating more cash ows from operations than building market
share. The corporate can use the cash ows contributed by the cash
cows to support the stars and potential question marks to grow their
market share.
176
fi
fi
fl
fl
fl
fi
CORPORATE LEVEL STRATEGY
177
fl
fi
fi
fi
fl
fi
fl
CORPORATE LEVEL STRATEGY
The matrix ranks only market share and industry growth rate, and only
implies actual pro tability, the purpose of any business. (It is certainly
possible that a particular dog can be pro table without cash infusions
required, and therefore should be retained and not divested.) The matrix also
overlooks other elements of industry.
With this or any other such analytical tool, ranking business units has a
subjective element involving guesswork about the future, particularly with
respect to growth rates. Unless the rankings are approached with rigor and
scepticism, optimistic evaluations can lead to a dot com mentality in which
even the most dubious businesses are classi ed as "question marks" with
good prospects; enthusiastic managers may claim that cash must be thrown
at these businesses immediately in order to turn them into stars, before
growth rates slow and it's too late. Poor de nition of a business's market will
lead to some dogs being misclassi ed as cash cows.
Alternative marketing techniques
As with most marketing techniques, there are a number of alternative
offerings vying with the growth–share matrix although this appears to be the
most widely used. The next most widely reported technique is that developed
by McKinsey and General Electric, which is a three-cell by three-cell matrix—
using the dimensions of `industry attractiveness' and `business strengths'.
This approaches some of the same issues as the growth–share matrix but
from a different direction and in a more complex way (which may be why it is
used less, or is at least less widely taught). A more practical approach is that
of the Boston Consulting Group's Advantage Matrix, which the consultancy
reportedly used itself though it is little known amongst the wider population.
5.9 Corporate involvement in SBU
Most corporates de ne the vision and stipulate policy guidelines to control
the business unit level operations strategically. The extent to which the
corporates are involved with each business varies from one company to
another. Such participation is generally aimed at steering and grooming the
business in a healthy manner and it is mostly welcomed by the top
executives in the business units. However, in some companies, there is a
perception that the corporate involvement is considered as interference or
sti ing its progress.
178
fl
fi
fi
fi
fi
fi
fi
CORPORATE LEVEL STRATEGY
179
fi
fi
fi
fi
fi
fi
CORPORATE LEVEL STRATEGY
181
fi
fi
fi
CORPORATE LEVEL STRATEGY
Drug producers in one country typically allow producers in the other country
to produce and market their products abroad under a licence agreement.
International franchising is a form of licensing in which a local franchisee
pays a franchiser in another country for the right to use the franchiser’s
brand names, promotions, materials and processes. Franchising is more
commonly employed in services industries like fast food restaurants.
Global orientation
Global orientation is a necessity for companies to remain in business for a
longer time and deliver innovative products and services in line with
international market trends. There are many reasons for a company to
change its strategy from domestic orientation to global orientation.
1. Pursuing global markets can reduce per capita production costs by
achieving economies of scale.
2. A global strategy helps extend the product life cycle whose domestic
markets may be declining
3. Setting up facilities abroad can help the company bene t from
comparative advantage, i.e the difference in local resources among
nations that provide cost advantage and labour arbitrage.
4. A global orientation can also help reduce risks because demand and
competitive factors tend to vary among nations.
5. The company can leverage technology expertise of the partner in another
country to produce products that otherwise would have taken many years
to implement.
Emerging economies like China, India, South Africa, Mexico are attractive
investment opportunities in many respects, however there are other
challenges as well like poor infrastructure, cumbersome government
regulations, local political system etc. There is signi cant foreign capital
owing into these countries with global companies expanding into various
industry sectors. Indian corporates are growing their business by pursuing
expansion in other emerging economies as well, as those nations warrant
economic development. However, the advantages and disadvantages of
growth through global expansion must be considered carefully before
pursuing a strategy for expansion into an emerging market.
182
fl
fi
fi
CORPORATE LEVEL STRATEGY
5.11 Summary
This chapter has dealt with the key strategic decisions to be made at the
corporate level. Firstly, the corporate management must identify the
corporate pro le and determine whether the company will operate in a single
business or more than one related business or venture into other unrelated
businesses.
There are bene ts and challenges in each of these options. Secondly, the
corporation must make a choice of business strategy as per their laid down
vision viz: growth, stability or retrenchment. This chapter also has presented
the various growth and retrenchment strategies that help in addressing the
corporate strategy requirements.
Corporate portfolio frameworks like BCG matrix may help the strategic
managers to manage the various business units in relation to their revenues,
market share and cash ows. While engaging with various businesses, the
corporation must clearly decide on the extent to which it should involve itself
in the business operations of the various units.
While expanding into global markets, various options have been evaluated
here. International concerns represent a key consideration to a company’s
corporate strategy. There are various options, both aggressive and
conservative choice, available each with advantages and disadvantages,
depending on the level of aspiration a corporate has to expand into the
international markets.
183
fi
fi
fl
CORPORATE LEVEL STRATEGY
3. You are entrusted with the job of de ning the corporate pro le and
relevant strategy of your organisation. What is your understanding of a
corporate pro le and what would be your strategy?
a) To understand the macro environment and decide the strategy to suit
the organisation businesses
b) Corporate pro le is a function of the company’s mission, culture
and values, strategy and direction, strengths and weaknesses,
opportunities and threats to stay ahead on the face of challenges
posed by the industry, competition and the macro environment
c) To create strategy for all the business units and make a centralised
strategy for all businesses
184
fi
fi
fi
fi
fi
fi
fi
fi
CORPORATE LEVEL STRATEGY
4. What are the bene ts of BCG growth share matrix with respect to
corporate strategy formulation?
a) It helps the company to allocate resources appropriately and the
framework is used as an analytical decision making tool in
corporate strategic management in the areas of brand marketing
and portfolio analysis of its various businesses.
b) It helps in creating a company’s market share and de ning the market
growth rate
c) It helps in diversifying into various businesses to grow the corporate
business
185
fi
fi
fi
fi
fi
CORPORATE LEVEL STRATEGY
186
fi
References:
1. Morgen Witzel, Tata - The Evolution of a Corporate Brand, P xvi
2. John A Parnel, Strategic Management, Theory and Practice, P 70-76
3. Corporate Dossier, Economic Times, 22/11/2013
4. John A Parnel, Straetgic Management, Theory and Practice, P 78-79
187
REFERENCE MATERIAL
Click on the links below to view additional reference material for this chapter
Summary
PPT
MCQ
Video1
Video2
188
6
BUSINESS UNIT LEVEL STRATEGY
Objectives:
This chapter focuses on the key strategic decisions to be made at the
business unit level, to identify the appropriate strategy to compete in the
market. It explains the Porter’s generic strategy framework that helps de ne
the right business strategy, cost leadership model or differentiation
leadership model. It also introduces an alternative called Miles and Snow’s
strategy framework for discussion. At the end of the chapter, you will be able
to understand the following:
• Understand Porter’s generic strategy framework
• Cost leadership strategy
• Differentiation strategy
• Miles and Snow’s strategy framework
• Choosing the right generic strategy for business
• Social business strategy
• Competitive advantage
189
fi
BUSINESS UNIT LEVEL STRATEGY
Structure
6.1 Introduction
6.2 Porter’s Generic strategy framework
6.3 Cost Leadership strategy
6.4 Differentiation strategy
6.5 Focus or Leadership strategy
6.6 Recent developments
6.7 Criticism of Generic strategy
6.8 Choosing the Right Generic strategy
6.9 Miles and Snow’s strategy framework
6.10 Social Business Strategy
6.11 Competitive Advantage
6.12 Business Size and Competition Assessment
6.13 Global Scenario
6.14 Summary
6.15 Assessment
190
BUSINESS UNIT LEVEL STRATEGY
6.1 Introduction
After the corporate level strategy has been decided, the strategic managers
will need to focus on the business unit level strategy. In a diversi ed
business where the organization is engaged in multiple businesses, there is
a need for unique strategies for individual businesses. The generic
strategies they need to focus on are the SBU’s mission, the competitive
landscape, competitive advantage, and the strategic objectives to achieve
the mission. While the corporate strategy drives the overall organization
strategy and thrust, the business unit strategy addresses the competitive
aspect in the market place. These include how to develop the business,
which are the target markets, and who are the target customers, what
strategy is required to deliver the products and services and how to develop
core competencies required for the business, and what positioning the
organization needs to take, so that the customers are able to identify the
business for their needs.
A business unit is an independent business entity with its own vision,
industry, and set of competitors. A single rm that operates within one single
industry is also considered as a business unit. Each business unit will have
a unique strategy. The SBU level strategy, also called business strategy or
competitive strategy is concerned with decisions pertaining to the product
mix, the marketing mix, and, de ning and implementing competitive
advantage for the SBU. While corporate strategy decides the business
portfolio, the business unit strategy decides on the speci c strategies
required to become successful in the chosen business. The SBU strategy
has to obviously conform to the corporate philosophy and the strategy.
The business unit strategies can be classi ed into a limited number of
generic strategies based on their similarities within the industry. Generic
strategies emphasize on the commonalities among different business
strategies, not their differences. After the corporate level strategy, the
responsibility for SBU strategy is with the top executives of the SBU who are
normally the second tier executives in the corporate hierarchy. In single SBU
organizations, the senior executives of the rm have both corporate and SBU
level responsibilities.
191
fi
fi
fi
fi
fi
fi
BUSINESS UNIT LEVEL STRATEGY
Strategic managers within the SBU devise the competitive strategies for
each business unit to create a sustainable competitive advantage thereby its
unique strategies cannot be easily duplicated by the competitors. In most
industries, a number of competitive approaches can be successful,
depending on the business unit’s resources.
Let us take Airlines industry or Food industry for as an example where there
are competitive strategies to attract a speci c segment of customers - on one
side you have customers who are price sensitive and on the other side you
have experience sensitive customers who are keen on getting ful lling
experience, while consuming the services. Both the approaches are
competitive in nature and both are still successful. You have Indigo Airlines
with low-frills:low cost strategy is successful and so is Jet Airways, who
cater to high value customers who seek on-board experience. Both are
equally competitive in their customer segments and yet successful in the
airline industry.
There are challenges while formulating and implementing a generic strategy
as it is impacted by various internal and external factors. Selection of the
generic approach is only the rst step in formulating a business strategy. It is
always necessary to ne tune the strategy with respect to the organisation’s
unique set of strengths. In this regard, Porter’s generic framework is a good
starting point for developing a business strategy.
6.2 Porter’s Generic Strategy
Figure: 6.1
192
fi
fi
fi
fi
BUSINESS UNIT LEVEL STRATEGY
193
fi
fi
fi
fi
BUSINESS UNIT LEVEL STRATEGY
However, there could be a strategy that brings both cost leadership as well
as differentiation together to the market place. Also, some businesses bring
low-cost-differentiation as a viable alternative. Combining these two
strategies is dif cult, but it can be a great strategy to create a new market
space.
In his 1980 classic Competitive Strategy: Techniques for Analysing Industries
and Competitors, Porter simpli es the scheme by reducing it down to the
three best strategies. They are:
1. Cost leadership
2. Differentiation
3. Market segmentation (or focus)
Market segmentation is narrow in scope while both cost leadership and
differentiation are relatively broad in market scope. An empirical study on
the pro t impact of business strategy indicated that rms with a high market
share were often quite pro table, but so were many rms with low market
share. The least pro table rms were those with moderate market share.
This was sometimes referred to as the hole in the middle problem.
Porter’s explanation of this is that rms with high market share were
successful because they pursued a cost leadership strategy and rms with
low market share were successful because they used market segmentation
to focus on a niche but pro table market strategy. Firms in the middle were
less pro table because they did not have a viable generic strategy.
Porter suggested that combining multiple strategies is successful in only one
case. Combining a market segmentation strategy with a product
differentiation strategy was seen as an effective way of matching a rm’s
product strategy (supply side) to the characteristics of the company’s target
market segments (demand side). But combinations like cost leadership with
product differentiation were seen as hard (but not impossible) to implement
due to the potential for con ict between cost minimization and the additional
cost of value-added differentiation.
Since that time, empirical research has indicated companies pursuing both
differentiation and low-cost strategies may be more successful than
companies pursuing only one strategy.
194
fi
fi
fi
fi
fi
fi
fi
fl
fi
fi
fi
fi
fi
fi
BUSINESS UNIT LEVEL STRATEGY
195
fi
fi
fi
fi
fi
fl
fi
fi
fi
fi
BUSINESS UNIT LEVEL STRATEGY
The second dimension is achieving low direct and indirect operating costs.
This is achieved by producing and offering high volumes of
standardized products, offering basic no-frills products and limiting
customization and personalization of service. Production costs are kept low
by using fewer components, using standard components, and limiting the
number of models produced to ensure larger production runs. Overheads are
kept low by paying low wages, locating premises in low rent areas, fostering
and establishing a cost-conscious culture, etc.
In this approach, we can quote Southwest Airlines’ strategy to produce high
volume, no frills airline seats as an example of standardizing the services
with higher turn-around of ights. Maintaining this strategy requires a
continuous search for cost reductions across all operational parameters and
in all aspects of the business. This will include outsourcing, controlling
production costs, increasing asset capacity utilization, operations turnover
and minimizing other costs including distribution, R&D and advertising. The
associated distribution strategy is to obtain the most extensive distribution
possible. Promotional strategy often involves trying to make a virtue out of
low cost product features.
The third dimension is control over the supply/procurement chain to ensure
low costs. This could be achieved by bulk buying to enjoy quantity discounts,
squeezing suppliers on price, instituting competitive bidding for contracts,
working with vendors to keep inventories low using methods such as Just-in-
Time purchasing or Vendor-Managed Inventory to reduce costs of inventory,
interests and operating capital.
For example, Wal-Mart is famous for squeezing its suppliers to ensure low
prices for its goods. Dell Computers initially achieved market share by a
unique low cost direct marketing strategy, keeping inventories low and only
building computers to order. Other procurement advantages could come
from preferential access to raw materials, or backward integration.
Some small and medium companies believe that cost leadership strategies
are only viable for large rms with the opportunity to enjoy economies of
scale and large production volumes. However, this takes a limited industrial
view of strategy. Small businesses can also be cost leaders if they enjoy any
advantages conducive to low costs. For example, a local restaurant in a low
rent location can attract price-sensitive customers if it offers a limited menu,
rapid table turnover and employs staff on minimum wages.
196
fi
fl
BUSINESS UNIT LEVEL STRATEGY
198
fi
fi
fi
BUSINESS UNIT LEVEL STRATEGY
199
fi
fi
fi
fi
fi
fl
fi
fi
fi
fi
BUSINESS UNIT LEVEL STRATEGY
200
fi
fi
fi
fl
fi
fi
fi
fi
BUSINESS UNIT LEVEL STRATEGY
Two focal objectives of low cost leadership and differentiation may clash with
each other resulting in no proper direction for a rm. However, there is a
viable middle ground between strategies. Many companies, for example,
have entered a market as a niche player and gradually expanded. According
to Baden-Fuller and Stopford (1992) the most successful companies are the
ones that can resolve what they call "the dilemma of opposites".
However, contrary to the rationalisation of Porter, contemporary research has
shown evidence of successful rms practising such a “hybrid strategy”, by
which rms employing the hybrid business strategy (low cost and
differentiation strategy) outperform the ones adopting one generic strategy.
Many challenge Porter’s concept regarding mutual exclusivity of low cost and
differentiation strategy and further argued that successful combination of
those two strategies will result in a sustainable competitive advantage.
In today’s fast changing world, multiple business strategies may be required
to respond effectively to any challenging environment condition. In the mid to
late 1980s where the environments were relatively stable there was no
requirement for exibility in business strategies but survival in the rapidly
changing, highly volatile and unpredictable present global market contexts
will require exibility to face any contingency.
Though Porter had a fundamental rationalisation in his concept about the
invalidity of hybrid business strategy, the highly volatile and turbulent market
conditions will not permit survival of rigid business strategies since long term
establishment will depend on the agility and the quick responsiveness
towards market and environmental conditions. Market and environmental
turbulence will make drastic implications on the root establishment of a rm.
If a rm’s business strategy could not cope with the environmental and
market contingencies, long term survival becomes unrealistic. To diverge the
strategy into different avenues with the view to exploit opportunities and
avoid threats created by market conditions will be a pragmatic approach for a
rm.
Critical analysis done separately for cost leadership strategy and
differentiation strategy identi es elementary value in both strategies in
creating and sustaining a competitive advantage. Consistent and superior
performance than competition could be reached with stronger foundations in
the event “hybrid strategy” is adopted. Depending on the market and
competitive conditions hybrid strategy should be adjusted regarding the
201
fi
fi
fi
fl
fl
fi
fi
fi
fi
BUSINESS UNIT LEVEL STRATEGY
202
fi
fi
fi
BUSINESS UNIT LEVEL STRATEGY
203
fi
fi
fi
fi
fi
fl
BUSINESS UNIT LEVEL STRATEGY
Defender
Rather than seeking new growth opportunities and innovation, an
organization that follows a defender strategy concentrates on protecting its
current markets, maintaining stable growth, and serving its current
customers. Defenders are almost opposite of prospectors. They perceive the
environment to be stable and they control in their operations to achieve
maximum ef ciency. Defenders incorporate an extensive division of labour,
high formalisation and high centralisation. They concentrate on only one
segment of the market.
BIC Corporation used defender strategies, despite its history as an
innovative rm (the original BIC "crystal" and the BIC "biro" pen were
signi cant innovations in the writing instruments industry). Since the late
1970's, with the maturity of the market for writing instruments, BIC has
adopted a less aggressive, less entrepreneurial style of management and
has chosen to defend its substantial market share in the industry. It has done
this by emphasizing ef cient manufacturing and customer satisfaction.
Another example: Often a rm implementing a prospector strategy will
gradually switch to a defender strategy. This happens when the rm
successfully creates a new market or business and then attempts to protect
its market from competition. Mrs. Fields Inc. was one of the rst rms to
introduce high quality, high-priced cookies. Mrs. Fields sold its product in
special cookie stores and grew very rapidly. This success, however,
encouraged numerous other companies to enter the market. Increased
competition, plus reduced demand for high-priced cookies, has threatened
Mrs. Fields's market position. To maintain its pro tability, the rm has slowed
its growth and is now focusing on making its current cookie operation more
pro table.
This is the reason why prospectors must develop expertise in innovation,
continuous improvement and evaluate risk scenarios effectively to ensure
competitors are not able to easily catch with their business.
204
fi
fi
fi
fi
fi
fi
fi
fi
fi
fi
fi
BUSINESS UNIT LEVEL STRATEGY
Analyser
Analysers look for stability and exibility, and attempt to capitalize on the
best of the prospector and defender strategy types. They exert tight control
over existing operations and lose control for new businesses. Analysers have
strength and ability to respond to prospectors while maintaining ef ciency in
operations. An organization that follows an analyser strategy both maintains
market share and seeks to be innovative, although usually not as innovative
as an organization that uses a prospector strategy. Analyser seeks a second
mover advantage and leverages market learnings and experience from the
prospector and defender strategies.
Most large companies fall into this third category, because they want both to
protect their base of operations and to create new market opportunities. IBM
uses analyser strategies. Thousands of customers have purchased IBM
computers over the last several decades. It is in IBM's interest to keep these
customers satis ed and to introduce new products and services that update
their computer facilities. Whenever IBM introduces a new computer system,
for example, it develops procedures that help its customers to move from the
older system to the new system. In this way IBM maintains its customer
base. However, IBM also tries to create new markets. Its line of personal
computers represents an effort to expand beyond its traditional base of
mainframe computers.* IBM has also invested in biotechnology,
superconductivity technology, and other projects which are very innovative.
Another example: As a major food products company, Proctor & Gamble
(P&G) has established numerous name brand products, such as Crest
toothpaste, Tide laundry detergent, and Sure deodorant. It is important for
P&G to continue to invest in its successful products, in order to maintain
nancial performance. But P&G also needs to encourage the development of
new products and brand names. In this way, it can continue to expand its
market presence and have new products to replace those whose market falls
off. Through these efforts P&G can continue to grow.
205
fi
fi
fl
fi
BUSINESS UNIT LEVEL STRATEGY
Reactor
According to Miles and Snow, an organization that follows a reactor
strategy has no consistent strategic approach and no strategic choice; it
drifts with environmental events, reacting to but failing to anticipate or
in uence those events. Not surprisingly, these organizations usually do not
perform as well as organizations that implement prospector, defender, or
analyser strategies. Reactor organisation lacks an appropriate set of
response mechanisms with which to confront any environment change.
There is no strength in the reactor strategic type. Most organizations would
probably deny using reactor strategies.
If we study the Porter’s typology and Miles & Snow’s typology closely, there
are similarities. Miles and Snow’s prospector business strategy is likely to
emphasise differentiation, whereas defender business strategy typically
emphasises low costs. There are fundamental differences as well. Porter’s
approach is based on economic principles associated with the cost
differentiation dichotomy whereas Miles and Sow’s approach describes the
philosophical approach of the business to its environment.
206
fl
fi
BUSINESS UNIT LEVEL STRATEGY
207
fi
fi
fi
BUSINESS UNIT LEVEL STRATEGY
208
fi
fi
fi
fi
fi
BUSINESS UNIT LEVEL STRATEGY
209
BUSINESS UNIT LEVEL STRATEGY
210
fi
fl
fi
fi
fl
fi
fl
fi
fi
BUSINESS UNIT LEVEL STRATEGY
but can also help them predict and respond to any competitive challenges
that the competitors might pose to the business. This will also help creating
mitigation plans to counter any threat posed by the competition.
Collaboration with Competitors
In today’s world, competition is a relative word and area of competition
depends from business to business. Two companies view each other as
competition in certain areas of business and yet collaborate in some other
areas of business where they see some value. There are no permanent
enemies in business considering the challenges and opportunities present in
the marketplace. This perspective on the market helps an organisation to
respond to the challenges by optimising internal cost structures and go to
market strategies to increase the market reach, by identifying partners with
whom it can collaborate effectively through long term or short term contracts.
For example, in airlines industry, code sharing agreement enables an airlines
company to diversify its operations into sectors where it did not have any
service, but core sector are serviced by its own network which is the most
cost effective way of serving the overall market. Each industry has its own
collaborative alliances.
Another example is, the Sony-Samsung case. Sony Corp. entered into a joint
venture (JV) with its erce competitor Samsung Electronics to develop and
produce LCD panels for at-screen TVs. Collaborating with the competitor,
Sony was able to launch a new product popularly known as “Bravia" while
Samsung developed “Bordeaux". Teaming with rivals produced two
innovations, toppled other competitors from their positions and more than
doubled the combined market share of these two companies.
In one of the leading Indian publications, it is recently reported that a
consortium of automakers including Ford, Toyota and Suzuki, developing
standards for in-vehicle car telematics as an alternative to Google’s Android
Auto and Apple’s CarPlay. In high technology industries, the need for co-
opetition is felt more due to rapidly changing technologies, shorter life-cycle
products and high research and development (R&D) costs. The bottom line
is that the cost of introducing disruptive technologies can be prohibitive for a
single rm. However, by joining hands, insurmountable challenges become
achievable.
211
fi
fi
fl
BUSINESS UNIT LEVEL STRATEGY
212
fi
BUSINESS UNIT LEVEL STRATEGY
India to produce a wide range of customized models suited for the Indian
roads. Indian customers are highly cost conscious and sensitive to higher
mileage giving cars. Car models are also redesigned for Indian roads and
the widely uctuating weather conditions from Kashmir to Kanyakumari.
These global companies face intense competition in most markets with the
local producers of goods and services who offer their products at much
cheaper rates. In India, for instance, these global brands have to compete
with established brands like Tata Motors, Mahindra and Mahindra, and
Maruti Suzuki, who have gained the trust and goodwill of the customers over
the decades. The strategy should take into consideration of competition
strategy in the local markets.
Hence, the strategic managers must remain abreast of opportunities and
challenges that may exist in new markets, especially the emerging markets
like China, India, Brazil, Africa, Mexico, Russia etc. The emerging market
dynamics may be entirely different from the developed markets. And so,
they need to pursue strategies relevant to each market considering the stiff
competition from the local players.
In today’s economic scenario, global companies are scrambling for entering
new markets and gain market shares for their businesses, while the growth
in developed markets have plateaued for a long time. The emerging market
strategy is to derisk their overall corporate level strategy to expand and
diversify into new markets with new innovative products and services.
Emerging markets present huge potential with a prospective long term
outlook. The fast demographic changes happening in emerging markets
present great opportunity to many global companies to expand their foot
prints into those markets and tap the growth opportunities.
213
fl
BUSINESS UNIT LEVEL STRATEGY
6.14 Summary
From a business level strategy perspective, the strategic managers must
determine how the business unit needs to compete effectively in the market
place. As per Porter’s framework, the strategic managers must decide
whether to focus on a segment of the market or whether to emphasise on
cost leadership or differentiation. Each approach has its own advantages
and disadvantages. Sometimes, the business units may choose to combine
the low cost and differentiation strategies to nd their market space, though
this approach may be dif cult to implement.
In Miles and Snow’s framework, the strategic managers may select either of
these strategies: a prospector or an analyser, or defender or reactor
strategies. While each approach may be effective for different businesses,
the reactor strategy is a sub-optimal choice.
One needs to examine each major business unit of an organisation carefully
and identify which generic strategy that best describes the strategy of each
business unit. Both strategy typologies, Porter’s and Miles and Snow’s,
should be applied appropriately. Each business has its own unique strategy
based on its own combination of resources. Hence, this chapter reinforces
that importance of discussing how the organisation’s business unit level
strategy differs from others in the industry. Companies must ensure that they
do consider this phase of strategic management process crucial and do not
neglect a quality time being spent on their business unit strategies.
214
fi
fi
BUSINESS UNIT LEVEL STRATEGY
215
BUSINESS UNIT LEVEL STRATEGY
216
fi
fi
fi
fi
fi
BUSINESS UNIT LEVEL STRATEGY
References:
1) Reference: “Porters Generic Strategies” for developing business unit
strategies
2) Excerpted from Barney, J.B. & Grif n, R.G. "The management of
organizations: Strategy, structure, behavior." Houghton Mif in, 1992
3) W. Chan Kim and Renée Mauborgne in their 1999 Harvard Business
Review article "Creating New Market Space"
4) John A. Parnel, Strategic Management, Theory and Practice), Business
Unit Strategy P 95
5) John A. Parnel, Strategic Management, Theory and Practice), Business
Unit Strategy P 97
217
fi
fl
BUSINESS UNIT LEVEL STRATEGY
REFERENCE MATERIAL
Click on the links below to view additional reference material for this chapter
Summary
PPT
MCQ
Video
218
7
FUNCTIONAL UNIT LEVEL
STRATEGY
Objectives:
This chapter focuses on the key strategic decisions to be made at the
functional level, to identify the appropriate strategy to compete in the market
place. It explains the importance of cross functional collaboration and
synergy required from different functions in order to achieve the business
unit’s strategy. It provides the attributes of each function and responsibilities
of strategic managers to work on interrelationships as the same business
objective needs involvement of different functions for the execution of the
business goals. It deals with different function in detail: Marketing, Finance,
Human resource, Production, Quality management, Research and
development, Supply chain management, Information systems etc. At the
end of the chapter, you will be able to understand the following:
• Understand the importance of functional synergy
• Cross functional collaboration
• Understand the different functions and responsibilities
• Strategic Management Process
• Role of Stakeholders
219
FUNCTIONAL UNIT LEVEL STRATEGY
Structure:
7.1 Introduction
7.2 Marketing
7.3 Finance
7.4 Human Resource
7.5 Production
7.6 Quality Management
7.7 Research and Development
7.8 Supply Chain Management
7.9 Information Systems
7.10 Summary
220
FUNCTIONAL UNIT LEVEL STRATEGY
7.1 Introduction
Once the corporate and business unit level strategies are identi ed and
developed, then the strategic managers should formulate the functional
strategy of the business unit. Functional strategies should support the
implementation of the corporate and business unit level strategies. Each
functional area of the organisation should integrate its activities with other
functional groups in order to seamlessly facilitate the overall performance of
the organisation. In short, the ultimate execution of the corporate and
business unit level strategies should happen at different functional levels in a
coordinated manner.
As seen brie y in Chapter 1, the functional level strategies are strategies that
work in synchronization with corporate strategy and business unit strategy
for different functional areas like marketing, sales, production, nance,
human resources, supply chain, customer service, information systems etc.
In other words, functional strategic management are meant to create
organisational expertise, competence, competitive advantage, ef ciency and
productivity which are vital to the achievement of the business goals.
Functional strategy for various areas must be developed in alignment with
the corporate and business unit strategies. In fact, the extent to which all of
the business unit’s functional strategies integrate would determine the
effectiveness of the business unit as well as corporate level strategies.
Hence, it is important that building capabilities of the various functional areas
is necessary when corporate and business strategic options are being
considered.
The strategic managers in each functional area often may not understand
the interrelationships among the functions. For example, marketers who do
not understand production may promise customers some product features
that the production department cannot readily or economically integrate into
the product’s design. In contrast, production managers who do not
understand marketing may not actually understand the changes in market
trends and customers’ actual needs.
For this reason, managers in all functional areas need to understand how the
various functional areas integrate and they should work together to formulate
functional strategies that eventually support the business and corporate level
strategies. It is for this reason that many organisations have a central team
221
fl
fi
fi
fi
FUNCTIONAL UNIT LEVEL STRATEGY
222
fl
fi
fi
fi
fi
fi
fl
fi
FUNCTIONAL UNIT LEVEL STRATEGY
strategies are dynamic and interactive. They are partially planned and
partially unplanned. Marketing strategy needs to take a long term view, and
tools such as customer lifetime value models can be very powerful in helping
to simulate the effects of strategy on customer acquisition, revenue per
customer and churn rate.
Marketing strategy involves careful and precise scanning of the internal and
external environments. Internal environmental factors include the marketing
mix and marketing mix modelling, plus performance analysis and strategic
constraints that pose challenges. External environmental factors include
customer analysis, competitor analysis, target market analysis, as well as
evaluation of any elements of the political/ legal, economic, technological,
and socio-cultural environments likely to impact success as discussed in
detail in the earlier chapter on external environment. A key component of
marketing strategy is often to keep marketing in line with a company's
overarching mission statement.
Once a thorough environmental scan is complete, a strategic plan can be
constructed to identify business alternatives, establish challenging goals,
determine the optimal marketing mix to attain these goals, and detail
implementation. A nal step in developing a marketing strategy is to create a
plan to monitor progress and a set of contingencies if problems arise in the
implementation of the plan.
Marketing strategies may differ depending on the unique situation of the
individual business. However, there are a number of ways of categorizing
some generic strategies. A brief description of the most common categorizing
schemes is presented below:
Strategies based on market dominance - In this scheme, rms are classi ed
based on their market share or dominance of an industry. Typically there are
four types of market dominance strategies:
• Challenger – Has ability to challenge the leader and has high potential to
become a leader with ability to introduce new products and services and
the company is already on fast growth trajectory
223
fi
fi
fi
FUNCTIONAL UNIT LEVEL STRATEGY
224
fi
fi
fi
FUNCTIONAL UNIT LEVEL STRATEGY
225
fl
fi
fl
fl
fi
fi
FUNCTIONAL UNIT LEVEL STRATEGY
226
fi
fi
fi
fi
FUNCTIONAL UNIT LEVEL STRATEGY
Product Strategy
Product concept is critical and the product design should include compelling
features that improves product’s ability to meet the customers’ needs and
expectations, and deliver performance. A well-designed product addresses
both the functional and aesthetic requirements of the consumers including
other factors like how the product works, how it feels to own the product, how
easily the product can be used or assembled or xed, and how it provides a
competitive advantage for the consumer.
Wildcraft backpacks were popular among trekkers as they made scienti cally
designed backpacks to help the users. Growing young working population of
India, often looking for style and uniqueness of their possessions, gave an
opportunity to Wildcraft to develop products suitable for them – regular
backpack, laptop carry backpack, amateur hiking enthusiast backpack and
more. It’s the same customer group who also started weekend trekking to
get rid of stressful work environment started preferring Wildcraft, referring
wildcraft and thus sale and market share both signi cantly increased.
The product strategy is highly dynamic and interactive one, with market
trends changing at a fast pace, with key differentiation being innovation and
creativity to launch new products with faster time to market.
For example, in the early days of messaging on mobile phones, it was a
challenging job to sell the push mail concept to enterprise customers and
consumers. Bharti Airtel, the number one mobile services company,
pioneered this market in the Black Berry Mai Services by providing Black
Berry mobile devices to their sales personnel and demonstrated how the
push mail concept actually contributed to the enterprise productivity of
mobile workforce.
Place Strategy
Place strategy is all about building channels and distribution strategy for the
products and services that create the target market for a business. While
low-cost businesses typically seek to meet the basic needs of the target
market and minimise costs, the businesses with differentiation often select
the most appropriate means of distribution strategy regardless of cost. In
some cases, differentiated business uses the means of distribution as a way
of differentiating their business. For example, fast food restaurant Domino’s
Pizza uses the delivery time of 20 minutes for a pizza order by having an
227
fi
fi
fi
FUNCTIONAL UNIT LEVEL STRATEGY
228
fl
fi
FUNCTIONAL UNIT LEVEL STRATEGY
229
fl
fi
fi
fi
fi
fi
fi
FUNCTIONAL UNIT LEVEL STRATEGY
higher. The key business strategy here is to maintain quality and enhance
product differentiation and not just looking at minimizing the cost of funds.
The nance function strategy is characterised by clearly measurable metrics
and nancial ratios that are constantly reviewed and improved to deliver the
nancial performance of the company. It is also important to compare the
metrics with those of key competitors or the industry averages. The key
nancial ratios that can support the strategic managers while evaluating the
nancial position of the organization are current assets versus current
liabilities, gross pro t margins and EBITDA pro t margins, total debt versus
total equity, total debts versus total assets, day’s sales outstanding, net
pro t etc.
Students’ work
What is the nancial position of an organisation? Kindly do a study and
research, and present your nding to your class.
7.4 Human resources
In a knowledge economy, many modern businesses consider “employees
rst, customer second” strategy for successful business performance. The
underlying essence of the strategy is to develop its human resource by
unlocking their wisdom and compassion by ensuring that employees are well
empowered to serve their customers and deliver high performance.
The human resource function includes activities such as planning,
recruitment, compensation and bene ts, performance appraisal, assessment
of employee satisfaction, learning and development, and talent
management. HR also has the responsibility to create a brand for future
human resource needs of the organization. A company is truly only as great
as the people who embody the mission of the organization; employees are
those who go above and beyond to see the company succeeds and to make
the customers happy.
Strategic HR function seeks to build an employee work force that enables
the organization to achieve its goals. The HR also creates an environment
for employees to come out with innovative ideas to make the organization a
creative work place of work. Many companies seek to become “the best
place to work” in order to attract high calibre employees. Today, many
employees no longer anticipate or desire to have a life-long employment with
230
fi
fi
fi
fi
fi
fi
fi
fi
fi
fi
fi
fi
FUNCTIONAL UNIT LEVEL STRATEGY
a single rm. Employees look for new challenges to unlock their potential.
So, the HR strategy should be to clearly understand and identify the high
performing employees’ aspirations, design a career succession planning,
and develop leadership qualities in them.
The HR department also fosters a work culture which adds value to the
overall organization brand value. At the same time, all organizations are
challenged to develop employee commitment to the company and to the job.
Fostering commitment and developing a strong, competitive work force
requires the creation of an attractive working environment that may include
providing customized bene ts like health care, child day care, maternity and
paternity leave, exible working hours as well as strategic needs of the
organization like training and development, job rotation, career progression
and international travel opportunities.
Some companies have several HR programmes, which are institutionalised,
to develop people’s leadership competencies as an ongoing practice.
Coaching is a powerful intervention that improves employees’ performance
considerably. When and where do the companies use coaching and for
what? Here are some obvious opportunities to applying coaching at work:
motivating staff, delegating, problem solving, con ict resolution, relationship
issues, team building, appraisals & assessments, task performance,
planning & reviewing, employee leadership development and team working.
The list is endless and the opportunities can be tackled by using a highly
structured approach, the formal coaching session or the coach/manager can
equally choose to retain a degree of structure but be less formal -
discussions might sound like a normal conversation and the term coaching
might not be used.
As the companies expand their businesses into the global markets, in
modern workforce, there are other strategic dimensions evolving like code of
conduct, gender equality, compliance, increased employee security (post
9/11 and 26/11 terrorist attacks), cultural diversity etc. The other concerns
like sexual harassment at workplace have assumed greater signi cance and
most of the corporates have laid down very clear, strict and transparent rules
governing this aspect as there have been many instance of such assaults.
231
fi
fl
fi
fl
fi
FUNCTIONAL UNIT LEVEL STRATEGY
Over the last decade or so, there have been many mergers and acquisitions
done by Indian corporates which involves massive restructuring of the
businesses and hence HR had to play a very crucial role in organisation
restructuring, layoffs, retrenchment, and optimisation of HR function itself.
These are sensitive issues which the HR functional strategy had to deal with.
Most importantly, the HR strategic managers must learn to help employees
of diverse backgrounds, perceptions and facilitate functional areas work
effectively as cross functional teams. The success of such collaborative
endeavours as cross functional teams, quality circle and other functional
activities, require unity of actions that can be achieved only through mutual
understanding, respect and team spirit among employees.
Today, many organisations seek to deliver more value to their customers.
This effort needs high calibre and high potential employees. Such
organisations really feel the need to attract the best talent, as the
prerequisite for enhancing its differentiation. High performing employees
enhance ef ciency and differentiation by increased productivity, innovative
ideas and demonstrate excellence in job performance.
A business unit’s generic strategy can in uence speci c components of its
human resource program. For example, the business unit’s rewards and
recognition program should be tied to employee behaviour that helps
achieve its business goals. Hence low-cost business units should reward its
employees who help reduce operating costs, create differentiation in
products or services that help encourage output improvements and
innovations, and most importantly help deliver highest level of customer
experience.
7.5 Production
Functional strategy for production department, also called operations
management, is vital for a manufacturing company. There is a wide range of
production strategies that help organisations grow their business. The
primary mission of production strategies is planning the production
schedule within budgetary limitations and time constraints. Companies do
this by analysing the plant’s personnel and capital resources to select the
best way of meeting the production quota.
232
fi
fl
fi
Production strategies determine (often using mathematical formulae) what
capital expenditure would be required, whether new machines need to be
purchased, whether overtime or extra shifts of personnel and planning of raw
material or resources are necessary, and what the sequence and scheduling
of production will be. They monitor the production run to make sure that it
stays on schedule and correct any problems that may arise.
Because the work of many functions is interrelated, production managers
have to work closely with heads of other departments such as sales and
marketing, procurement, and logistics to plan and implement company goals,
policies, and procedures. For example, the production manager works with
the procurement department to ensure that plant inventories are maintained
at their optimal level. This is vital to a rm’s operation because maintaining
the right inventory of materials necessary for production ties up the rm’s
nancial resources, yet insuf cient quantities cause delays in production.
Therefore a major component of a production strategy is inventory
management and control. Similarly production managers also have to work
with logistics teams closely to make timely and effective distribution of the
goods produced to the market, without letting inventories to pile up.
The production function is one of the key concepts of mainstream business,
used to de ne marginal product and to distinguish allocative ef ciency, the
de ning focus of economics. The primary purpose of the production function
is to address allocative ef ciency in the use of factor inputs in production and
the resulting distribution of income to those factors, while abstracting away
from the technological problems of achieving technical ef ciency, as an
engineer or professional manager might understand it.
As an organisation grows, the range of production strategies that it can think
of also increases. Speci cally large business units can capitalise on a
number of factors that accompany their large size. Each of these factors is
associated with the experience curve, i.e. the reduction in per-unit costs that
the organisation is able to achieve as it gains experience producing a
product or service.
Each time, as the production of a company’s output doubles the production
costs decline by a speci c percentage depending on the industry. Many
companies leverage economies of scale to gain market share as well as
reduce production costs and distribution costs thereby increasing their
233
fi
fi
fi
fi
fi
fi
fi
fi
fi
fi
fi
FUNCTIONAL UNIT LEVEL STRATEGY
pro tability. The experience curve has been observed in a wide range of
manufacturing and service industries, including automobiles, personal
computers and airlines industries. The original equipment manufacturers
(OEMs) will be in a better position to negotiate higher discounts with their
ecosystem of sub-component makers, using the economies of scale.
The experience curve, that helps manufacturing companies to improve their
per-unit costs with experience, involves three underlying concepts: learning,
economies of scale and capital labour substitution possibilities. The
organisation gains learning experience over time and its employees become
more ef cient as they the gain expertise in doing the various tasks over and
again. This applies to all employees in the organisation, the staff,
managerial, non-managerial across corporate, business unit and functional
levels. Moreover, most companies are able to create and institutionalise the
production process that results in better productivity in terms of product
output.
The next important reasoning is economy of scale i.e reduction in per-unit
costs as volume increases, esp where the volumes are in big numbers like
two-wheeler industry or mobile services industry. Then, capital labour
substitution refers to an organisation’s ability to substitute labour for capital
or vice versa as volume increases depending on which combination
minimises the overall costs and / or maximises productivity and output
effectiveness. For example, many companies shift their manufacturing
operations to another country where labour costs or interest costs are much
lower.
The recent advancements in technology in the production area have
changed the capital labour dichotomy. Industrial automation and business
process reengineering have signi cantly improved the way products are
manufactured with less or no manpower in the production facilities. The role
of workers in these facilities is limited to other administrative and distribution
related responsibilities.
Low cost businesses with large market shares tend to bene t the most from
the experience curve. Differentiated businesses often attempt to gain a
similar advantage by charging higher than average prices, seeking to gain
market share and eventually reduce costs by offering higher quality products.
However, differentiators do not always capitalise on the opportunities
234
fi
fi
fi
fi
FUNCTIONAL UNIT LEVEL STRATEGY
235
fl
fl
fi
FUNCTIONAL UNIT LEVEL STRATEGY
237
fi
fi
FUNCTIONAL UNIT LEVEL STRATEGY
238
fi
fi
fi
fi
fi
fi
FUNCTIONAL UNIT LEVEL STRATEGY
239
fi
fi
fi
fi
fl
FUNCTIONAL UNIT LEVEL STRATEGY
Some organizations use additional belt colours, such as Yellow Belts, for
employees that have basic training in Six Sigma tools and generally
participate in projects and "White belts" for those locally trained in the
concepts but do not participate in the project team. "Orange belts" are also
mentioned to be used for special cases.
Thus it is very critical that any change in competitive environment can trigger
quality decisions among competitors in a given industry and the companies
must turn challenges into opportunities to emphasise quality as the success
mantra of the organisation and seek to develop long term competitive
advantage in the market place.
7.7 Research and Development
For any progressive organisation, the key strategy is to invest in the most
important function, which is close to the production function, called Research
and Development (R&D). The investment in this direction is to foster
innovation and leadership in products and the services that organisation is
planning to provide in the market place for the present and future.
Product and Service R&D seeks to develop efforts towards improvements or
innovation in the quality and uniqueness of a company’s product or service.
Process R&D seeks to reduce operational costs and make the production
processes more ef cient. In the fast changing world, the organisations are
always on their feet to bring continual changes in their offerings to remain
competitive. While low cost business units seek to emphasise on process
R&D to reduce or optimise their operations costs, the differentiators tend to
emphasise on product or service R&D to bring out improved and innovative
offerings to their customers.
Organisations might face risk in product and services innovation as the new
products or services that were envisaged may not generate the level of
demand suf cient to justify the R&D investment. Some of the R&D decisions
are strategic, long term and well debated decisions taken at the board or
executive management level. Today, in order to mitigate risks arising out of
R&D investment, many companies work jointly with partners to develop new
product designs and share the risks and rewards.
240
fi
fi
FUNCTIONAL UNIT LEVEL STRATEGY
241
fi
fi
fi
fi
fi
fi
FUNCTIONAL UNIT LEVEL STRATEGY
242
fi
fi
fl
FUNCTIONAL UNIT LEVEL STRATEGY
243
fi
fi
fi
FUNCTIONAL UNIT LEVEL STRATEGY
244
fi
fi
fl
FUNCTIONAL UNIT LEVEL STRATEGY
with customers who would like to do business on the go, besides big data
analytics application hep an organisation to analyse the customer data on a
real time basis.
245
FUNCTIONAL UNIT LEVEL STRATEGY
Summary
This chapter has provided a detailed insight of the various strategies across
different functions within a business unit of a corporate organisation. It talks
about how strategic managers must align their activities in the functional
areas to ensure that the various departments are well coordinated and
collaborate together for the organisation success. The functions like
marketing, nance, production, supply chain management, human resources
and information systems are increasingly looking at an integrated strategy to
exploit the advent of new technologies like internet, e-commerce, social
media, mobility etc to implement their business initiatives.
246
fi
FUNCTIONAL UNIT LEVEL STRATEGY
Assessment Questions
1. What is a cross functional team and the purpose of a cross functional
team (CFT)?
a) It helps in solving business problems
b) It convenes meeting between different functions
c) It takes care of operational excellence of the strategy management
d) A CFT is represented by key members of the various functions in
order to facilitate ow of information, joint meetings, decision
making, communication, change management and con ict
management within the functions
2. What are the typical characteristics in services marketing strategy?
a) Attributes like intangibility, perishability, inseparability and
heterogeneity
b) Services cannot be stored in inventory
c) Service Providers have to deliver services to consumers proactively
d) Focus on product marketing mix to improve services experience
3. HXL is one of the large FMCG companies and would like to focus on its
core competence of FMCG products. They have a huge IT operations
team and the costs are increasing year on year. As a management
consultant, you have to advise the company to reduce cost and provide
strategic options?
a) Reduce IT costs by reducing the IT personnel in the operations team
b) Suggest a cut in the capex budgets of the company for the coming
nancial year
c) Suggest to evaluate multiple IT outsourcing vendors, outsource
IT operations and reduce costs by 25%, as the company wants to
focus on its core business i.e. FMCG
247
fi
fl
fl
FUNCTIONAL UNIT LEVEL STRATEGY
248
fi
FUNCTIONAL UNIT LEVEL STRATEGY
References
1. John A. Parnel, Strategic Management, Theory and Practice), Business
Unit Strategy P 97
2. Business Process Reengineering
3. Sig Sigma Process Excellence
249
REFERENCE MATERIAL
Click on the links below to view additional reference material for this chapter
Summary
PPT
MCQ
Video
250
8
STRATEGY FORMULATION
Objectives:
This chapter focuses on the SWOT Analysis and strategy formulation. After
de ning the corporate, business unit and functional strategies, it is
appropriate to formulate the strategy with reference to the organisation
strengths, weaknesses, opportunities and threats. Strengths and
weaknesses are based on internal environment and capabilities, whereas
opportunities and threats are related to the external environment. SWOT
analysis is the prime step in strategy formulation process and positioning of
the organization in order to compete in the market place. At the end of the
chapter, you will be able to understand the following:
• Understand the SWOT Analysis
• The Resources that impact the strategic options
• Understand the Opportunities and threats
• Choosing the best strategic alternatives
• Organisation culture and its impacts on strategy formulation
• Corporate ethics and social responsibility
251
fi
STRATEGY FORMULATION
Structure:
8.1 Introduction
8.2 SWOT Analysis
8.3 SWOT Analysis diagram
8.4 How to use SWOT Analysis
8.5 Human Resources
8.6 Organisational Resources
8.7 Physical Resources
8.8 Opportunities and Threats
8.9 SW / OT Matrix
8.10 Choosing the Best Strategic Alternatives
8.11 Organisation Culture
8.12 Corporate Ethics
8.13 Corporate Social Responsibility
252
STRATEGY FORMULATION
8.1 Introduction
Competitive strategy is about being different. It means deliberately choosing
to perform activities differently or to perform different activities than rivals to
deliver a unique mix of value, as advocated by Michael E. Porter. Therefore,
organisations must identify and analyse the different alternatives and
possibilities available to formulate a winning strategy appropriate for them.
Strategy formulation, as some organisations call it the strategy development,
is the important stage in the strategic management process. In the strategic
management process, once the industry and competition evaluation, external
and internal environment analysis have been carried out, it is time to map the
organisation’s internal capabilities with the external environment, and ensure
that the organisational vision and goals are compatible with the internal
characteristics and its external environment and challenges. Reviewing the
current strategic initiatives is the next step in deciding what the strategic
roadmap of the organisation should be, considering its vision and goals.
Thus, strategic management involves an analysis of the organisational
characteristics like the strengths and weaknesses and the environmental
factors such as the opportunities and threats for the business. This important
stage involves an analysis commonly known as the SWOT analysis. This
analysis enables the organisation to position itself to take advantage of
speci c opportunities in the environment while mitigating or minimising
certain environmental threats. In this process, the rm attempts to identify
and leverage its strengths and develop areas that were lacking
(weaknesses).
The SWOT analysis is also useful in unlocking certain hidden strengths that
have not yet been fully utilised and also in identifying weaknesses that can
be corrected as they go forward. The purpose of this analysis is to match the
analysis of the market environment with the organisation’s capabilities
thereby enabling the strategic management to formulate realistic and
effective strategic options to attain the mission and goals.
253
fi
fi
STRATEGY FORMULATION
254
fi
fi
fi
fi
fi
fi
fi
STRATEGY FORMULATION
255
fi
fi
STRATEGY FORMULATION
The above diagram (Fig 8.1) represents a typical generic SWOT analysis
that could be considered for any company. This analysis captures the
important areas a strategic manager might have to possibly consider while
building the SWOT table for his organisation. It must be noted that there
could be other factors speci c to his organisation. We will discuss this in
detail in the following sub chapters.
8.4 How to Use SWOT Analysis
As seen from the above diagram (Fig 8.1), while strengths and weaknesses
are often internal to an organization, the opportunities and threats generally
relate to external factors. For this reason the SWOT Analysis is sometimes
called Internal-External (IE) Analysis and the SWOT Matrix is sometimes
called an IE Matrix.
256
fi
STRATEGY FORMULATION
Strengths:
The following are some of the questions the strategic mangers must ask to
analyse the strengths of an organisation.
• What are the capabilities the company lacks and how could those
capabilities be improved?
257
fi
STRATEGY FORMULATION
Again, consider this from an internal and external basis: Does the market
seem to perceive weaknesses that the company doesn’t see? Are the
competitors doing any better than the company? It's best to be realistic now,
and create awareness and actions, or face any unpleasant truths later.
Opportunities:
The following questions help nd answers to opportunities the company
should identify in the marketplace.
• What are the market segments and product segments that the competitors
are not addressing currently?
Useful opportunities can come from such things as changes in technology
and markets on both a broad and narrow scale. Changes in government
policy related to the industry or eld and changes in social patterns,
population pro les, lifestyle changes, and so on.
A useful approach when looking at opportunities is to look at company’s
strengths and explore whether these open up any new opportunities for the
company. Alternatively, look at the weaknesses and explore whether the
company could open up opportunities by eliminating them.
Threats
• What are obstacles the company is facing? What are the competitors
doing?
258
fi
fi
fi
fi
fl
STRATEGY FORMULATION
259
fi
fl
STRATEGY FORMULATION
260
fi
fi
fi
fi
STRATEGY FORMULATION
261
fi
fl
fi
fl
STRATEGY FORMULATION
262
fi
fi
fl
fi
STRATEGY FORMULATION
263
fi
fl
STRATEGY FORMULATION
264
fi
fi
fi
fi
fi
fi
fi
fi
STRATEGY FORMULATION
FIG 8.2
Opportunities Threats
1. Fast growth in
1. Increasing
Service
Strategic alternatives or options competition
2. A competition with
2. Government Policy
complement
on taxation hitting
products
margins
3. Demand from
3. Customer churn
global markets
1. Financial stability
2. Brand name and
recognition
1. Acquire a competition with complementing
3. Large internal cash
products (Combination of S1, S3, W2, O2)
Strengths 2. Exit business with high competition and low
balance
4. Technology and
margin (W4, T1, T2)
product capability
3. Leverage customer service and services
5. Customer Service marketing to arrest customer churn (S5, O1,
T3)
1. Loss of market share
4. Acquire modern technology and expand,
in one biz
launch new product lines (S3, S4, O1)
2. Gaps in product mix
5. Form strategic alliance with a suitable
3. No international
foreign rm having marketing capability (S1,
Weaknesses presence
S2, W3, O3)
4. Low margin business
6. Initiate lobbying with government to address
line
policy issues (S1, S2, W1, O1, T2)
5. Over dependence on
partners
265
fi
fi
STRATEGY FORMULATION
266
fl
fi
fi
STRATEGY FORMULATION
267
fi
fi
fi
fi
fi
STRATEGY FORMULATION
Student work:
Consider an organisation of your choice in any industry and discuss the
different strategic alternatives available to the organisation using the SW /
OT matrix, and the pros and cons of these alternatives.
268
fi
fi
STRATEGY FORMULATION
269
fi
fi
fi
fi
fi
STRATEGY FORMULATION
pattern of such collective behaviours and assumptions that are taught to new
organizational members as a way of perceiving, and even thinking and
feeling. Organizational culture affects the way people and groups interact
with each other, with clients, and with stakeholders. An organization’s culture
has both negative and positive aspects internally and externally.
Some organisations culture is innovative and encouraging with openness to
new initiatives, whereas some may be conservative and closed. The most
important in uencer in an organisation’s culture is its founders and
promoters who can bring in a special set of values to the organisation like,
entrepreneurship, quality, innovation, inclusiveness, resilience, bold and risk
taking etc.
If one looks at Apple, innovation is a key value the company breathes every
day. Perhaps that is what the company is known to stand for. It is closely
associated with what Apple’s founder Mr. Steve Jobs believed in what he
said "Innovation distinguishes between a leader and a follower." India’s
largest telecom company Bharti Airtel is characterised by its
entrepreneurship, inclusiveness, bold and risk taking values. These values
have been nurtured by its promoter Mr. Sunil Bharti Mittal over a long period
of time.
Innovative organisations are likely to respond to market with new product
introductions and whereas companies who are known for its low priced
products may respond with lower costs even further. Bold, risk taking and
aggressive companies pursue growth through acquisitions and expansions in
different countries. Conservative companies with less risk appetite take pure
organic approach and grow steadily over a long time.
Organizational culture is a set of shared mental assumptions and beliefs that
guide interpretation and action in organizations by de ning appropriate
behaviour for various situations. They actually foster an organisation’s
distinctive competence that differentiates its offerings to the market. At the
same time although a company may have their "own unique culture", in
larger organizations, there is a diverse and sometimes con icting cultures
that co-exist due to different characteristics of the management team and
different diverse businesses.
270
fl
fi
fl
STRATEGY FORMULATION
271
fi
fi
fl
fi
fi
fl
fi
fi
fi
STRATEGY FORMULATION
companies have strong cultures, but appropriate culture to suit the rm’s
strategy and it should contain necessary values that can help adapt to the
environmental changes.
Shaping the culture
Organisations become vulnerable to market competition if its culture is not in
tune with the fast changing world. Key values like entrepreneurship, quality,
innovation, inclusiveness, resilience, bold and risk-taking are considered to
be the facilitating factors as compared to being conservative, business-as-
usual attitude which are considered to be hindering to the progress.
Fostering the right culture starts from the top management and the culture
should be evolved as the organisation grows.
Evolution of culture has to keep in tandem with the company’s progress. Top
leadership can in uence and shape the organisation’s culture in many
different ways. Not by command but by inspiring, collaborating and fostering
a sense of ownership among employees to act on the values to be
demonstrated in their behaviour. The following are some of the suggestions
that could help the organisation achieve to constantly evolve the culture
relevant to its business:
1. The top management should systematically focus on areas of businesses
that are key to the strategy’s success. These speci c areas should be
identi ed as critical to the rm’s long term performance and there should
be inclusiveness at all levels of leadership.
2. The top management’s response to certain critical events or crises that
potentially impact the company’s performance like declining sales,
workforce strike, technological obsolescence etc. For example, if quality
is the assurance the company makes in its mission statement, then the
company should respond to every challenge and create opportunity to
demonstrate that value.
3. The top management should become a role model for the rest of the
organisation. It fosters the behaviour across the organisation to adopt.
The message about “employees rst” from the CEO makes a lots of
difference to the morale of the employees. They will go any extent to
ensure the performance of the organisation on a sustainable basis.
272
fi
fl
fi
fi
fi
fi
STRATEGY FORMULATION
273
fl
fi
fi
STRATEGY FORMULATION
274
fi
STRATEGY FORMULATION
The organisation’s business purpose is not just to meet the nancial interests
and pro tability motive of the shareholders. In today’s economic world, the
expectation is also to serve the society and other stakeholders in all fairness.
The performance of the organisation can be directly linked to be the direct
result of the ethical or unethical decisions taken by the various strategic
managers at different points of time. These organisations which are
considered to be delinquent would soon get exposed through various
manifestations of such actions like scandals, corruption, etc
Generally, corporate ethical behaviour can be looked at a number of ways
how the organisation behaves during various challenges. If an individual in
the organisation pursues his or her own economic self-interest in
organisational activities it will impact the organisation’s interest in the long
run and will be against the interest of the organisation, and such violations
will be dealt with as per the code of ethics of the company, to be complied by
all the employees of the organisation.
8.13 Social Responsibility
Corporate Social Responsibility is generally the expectation that the
corporate organisation should serve both the societal needs and the nancial
interests of the shareholders in a fair manner. A rm’s position towards
social responsibility can be a critical factor in making strategic decisions. If
social responsibility is not considered, decisions of the rm may be aimed
only at pro t or other narrow motives without a concern for the social
objectives.
Corporate social responsibility (CSR), also called corporate conscience
or social performance, or sustainable business/ responsible business, is a
form of corporate self-regulation integrated into a business model. CSR
policy functions as a built-in, self-regulating mechanism whereby a business
monitors and ensures its active compliance with the spirit of the law, ethical
standards, and international norms. In some models, a rm's implementation
of CSR goes beyond compliance and engages in "actions that appear to
perform social good, beyond the interests of the rm and that which is
required by law."
275
fi
fi
fi
fi
fi
fi
fi
fi
STRATEGY FORMULATION
CSR is a process with the aim to embrace responsibility for the company's
actions and encourage a positive impact through its activities on the society,
environment, consumers, employees, communities, stakeholders and all
other members of the public sphere who may also be considered as
stakeholders. This, however, is beyond the general economic expectation
that businesses have always been expected to provide employment to
people and to meet customer needs.
The term "corporate social responsibility" became popular in the 1960s and
has remained a term used indiscriminately by many to cover legal and moral
responsibility more narrowly construed.
Proponents argue that corporations make more long term pro ts by
operating with a perspective, while critics argue that CSR distracts from the
economic role of businesses. McWilliams and Siegel's article (2000)
published in their Strategic Management Journal, cited by over 1000
academics, compared existing econometric studies of the relationship
between social and nancial performance. They concluded that the
contradictory results of previous studies reporting positive, negative, and
neutral nancial impact were due to awed empirical analysis. McWilliams
and Siegel demonstrated that when the model is properly speci ed; that is,
when you control for investment in Research and Development, an important
determinant of nancial performance, CSR has a neutral impact on nancial
outcomes.
Some argue that CSR is merely window-dressing, or an attempt to pre-empt
the role of governments as a watchdog over powerful multinational
corporations. Political sociologists became interested in CSR in the context
of theories of globalization, neo-liberalism, and late capitalism. Adopting a
critical approach, sociologists emphasize CSR as a form of capitalist
legitimacy and in particular point out that what has begun as a social
movement against uninhibited corporate power has been co-opted by and
transformed by corporations into a 'business model' and a 'risk management'
device, often with questionable results.
276
fi
fi
fi
fl
fi
fi
fi
STRATEGY FORMULATION
277
fi
STRATEGY FORMULATION
Summary
In this chapter we studied the importance of SWOT analysis and how it
forms the basis for the formulation of strategies at all levels. The SWOT
analysis also takes care of the organisation’s internal (strengths and
weaknesses) and external (opportunities and threats) attributes which must
be well analysed and mapped to the various important elements of the
organisation viz human, organisational, and physical resources. The SW/OT
matrix generates strategic alternatives or options by combining the internal
and external factors analysed in the SWOT analysis.
Social Responsibility and ethics should be integral parts of the strategic
decision making process. In addition, an organisation’s culture can facilitate
or hinder the rm’s strategic actions. Successful strategy implementation
requires strategically appropriate culture, the one that is appropriate and
supportive of the organisation’s long term strategy.
278
fi
STRATEGY FORMULATION
Assessment Questions
1. According to Michael Porter, what is strategy formulation?
a) Creating a plan for the future of the organisation
b) It means deliberately choosing to perform activities differently or
to perform different activities than rivals to deliver a unique mix
of value to all stakeholders
c) Perform analysis about the strengths and weakness of an
organisation
d) Create an action plan to achieve its vision
2. The following process is designed to monitor a broad range of events
inside and outside company that are likely to threaten the course of the rm’s
strategy.
a) Operation monitoring
b) Strategic planning
c) Strategic surveillance
d) None of the above
3. The main advantage of strategic planning is that it will assist the
management to eliminate the business risk. True or False?
a) True
b) False
4. The strategic option for a company which has strengths on good nancial
performance, internal cash accruals with weakness on complementing
product mix, and a good market opportunity is
a) To form a strategic alliance
b) Acquire a company with complementing products
c) Acquire modern technology and expand
d) Change the product mix to the company’s core strength
279
fi
fi
STRATEGY FORMULATION
5. Which is the right way to choose the best strategic alternative in strategy
formulation?
a) Consider the organisation’s importance to achieve the pro table
growth
b) Create a plan for the future of the organisation
c) To get as clear as possible about company’s current challenges,
aspirations, objectives and “decision criteria” which make a
decision appropriate for the company’s strategy
d) Analyse the various opportunities available for the organisation
6. What are the key standards or behaviours that de ne management ethics
in an organisation?
a) The nancial interests and pro tability motive of the shareholders
b) Respect, Integrity, Accountability and responsibility
c) Actions to improve reputation of the organisation
d) Work towards improving organisational culture
280
fi
fi
fi
fi
STRATEGY FORMULATION
References
1. John A. Parnel, Strategic Management, Theory and Practice), Business
Unit Strategy P 125
2. John A. Parnel, Strategic Management, Theory and Practice), Business
Unit Strategy P 127
3. John A. Parnel, Strategic Management, Theory and Practice), Business
Unit Strategy P 132
4. C D Pringle and D F Jennings, Managing organisation functions and
behaviours, P 594
5. M. Driver, “Learning and Leadership in Organisation:”, Management
Learning (2002): 96-126
6. McWilliams and Siegel's article (2000) published in Strategic
Management Journal
281
REFERENCE MATERIAL
Click on the links below to view additional reference material for this chapter
Summary
PPT
MCQ
Video1
Video2
282
9
STRATEGY IMPLEMENTATION
Objectives:
This chapter focuses on strategy implementation which is the next logical
step once the strategy formulation exercise has been completed. This
chapter talks about a number of challenges and issues that need to be
considered well in advance by the strategic managers during the execution
of strategy.
At the end of the chapter, you will be able to understand the following:
• Understand different approaches to strategy implementation
• The formulation of organisation structure
• Understand the communication strategy
• Choosing right organisation structure
• Organisation culture, leadership and change management
• Top changes in strategy implementation
283
STRATEGY IMPLEMENTATION
Structure
9.1 Introduction
9.2 Approaches to Successful Strategy
9.3 Formulation of Organisation Structure
9.4 Leadership Implementation
9.5 Communicating the Strategy
9.6 Annual Operating Plans
9.7 Different Types of Organisation Structures
9.8 Policies an Guidelines
9.9 Rewards and Recognition
9.10 Strategy Implementation Approaches
9.11 Strategy Implementation Stakeholders
9.12 Executive leadership an Change Management
9.13 Top Challenges in Strategy Implementation
9.14 Summary
284
STRATEGY IMPLEMENTATION
9.1 Introduction
“I’d rather have a rst-rate execution and second-rate strategy any time than
a brilliant idea and a mediocre management”, said Mr. Jamie Dimon current
CEO and chairman of JPMorgan Chase & Co. This shows that execution is
the most important and vital part of success for an organisation’s strategy. In
other words, it is implied that even the best conceived strategic plans often
fail from lack of the leadership’s ability to implement them successfully. While
strategy formulation is mostly an intellectual process, strategy
implementation is all about actions and relentless execution.
During strategy implementation, the strategic mangers will face a number of
challenges and issues that need to be considered well in advance. The most
important aspect, for implementation to be successful, is to consider how the
organisation should be structured and how its current leadership practices
can facilitate or hinder the implementation process.
A brilliant strategy, blockbuster product, or breakthrough technology can put
the organisation on the competitive map, but only a solid execution can keep
it there sustainably. Execution is the result of thousands of decisions made
every day by the top management and employees acting according to the
information they have and the direction they have to take to reach the goals.
There are many moving parts which need to be monitored and controlled on
real-time basis during implementation. Hence, in practice, strategy execution
is a dif cult task for many reasons.
Many leaders don’t know what strategy execution is or how they should
approach it, especially when there is change management which is part of
the strategy plan. The organisation may not have a well-developed or an
institutionalised process of managing change. There will be resistance to
change always. The strategic managers must recognise this as they build
their strategy plan and speci c strategies should be formulated to overcome
these challenges. Also, it must be taken into account that certain home-
grown approaches may be incomplete if they fail to incorporate some of the
basic activities which are critical to the strategy execution.
285
fi
fi
fi
STRATEGY IMPLEMENTATION
286
fi
fi
fi
fi
STRATEGY IMPLEMENTATION
287
fi
fi
fi
STRATEGY IMPLEMENTATION
4. Make Decisions
Strategy execution is much like setting the direction towards a planned
destination with clear milestones of achievement and timelines de ned in the
beginning. A de ned course and a full complement of navigational charts will
never eliminate the need to remain vigilant, to assess the environment, and
to make corrections as conditions change. As part of the regular reporting
process leaders must make on-going strategic decisions to keep the strategy
current, dynamically aligned to changes and on course always.
5. Identify Strategic Projects
Companies roll-out many strategic interventions to complement and
strengthen the ongoing strategy. Hence, there are many ongoing projects at
any point, but they rarely have a rm grasp on the type and range of these
projects. The rst step in improving project-oriented strategy execution is to
capture and organize them, strategy projects in particular, that are underway
throughout an organization.
6. Align Strategic Projects
Once projects are identi ed they must be aligned to the strategies or goals of
the organization. This step entails comparing each project, either proposed
or ongoing, to the strategic goals to determine if alignment exists. Only those
projects that directly impact the strategy should be resourced and continued.
7. Manage Projects
Organizations must develop a capability in project management if they are to
execute strategy effectively. In some settings, projects receive very little
management and fail to deliver desired results. In others, projects persist
well beyond their scheduled completion. The full list of projects in any
organization should be coordinated and controlled by a central project
management of ce or of cer with the responsibility for monitoring both
progress and performance.
8. Communication Strategy
It is dif cult to execute strategy when the strategy itself is not well
understood or articulated about its value, or when performance relative to the
strategy is not communicated from time to time. Leaders must communicate
288
fi
fi
fi
fi
fi
fi
fi
fi
STRATEGY IMPLEMENTATION
their visualized strategy to the workforce in a way that will help them
understand not only what needs to be done, but why.
9. Align Individual Roles
Employees want to know they are making a meaningful contribution to their
organization’s success. It is up to strategic mangers and senior leaders to
ensure that employees at all levels can articulate and evaluate their personal
roles with clearly de ned KPIs towards achievement of speci c strategic
goals. This is perhaps one of the most critical aspects of the execution
process.
10. Reward and recognition of Performance
In strategy execution, as in any other area of management, what gets
measured gets done. Taking this one step further, what get measured and
rewarded gets done faster. After explaining the strategy and aligning the
workforce to it, senior managers institute the incentives and rewards that
drive employees’ behaviours consistent with the strategy.
Rewards and recognition (generally called R&R program) are important
practices that help in effective implementation of the strategy. A successful
execution depends on the motivation of employees who are ultimately
responsible for delivering the results. Therefore, it is necessary to have a
system to recognise superior performance and reward the star performers,
thereby motivate the other employees to perform better next time.
9.3 Formulation of Organisation Structure
A good strategy in itself does not ensure successful implementation. The
operationalization of strategy requires various critical elements that support
the implementation process. These are organisation structure, delegation of
authority, mobilisation and allocation of resources, responsibility matrix,
tasks, information and communication ows, policies and guidelines, and
evaluation and control. Formulation of the appropriate organisation structure
is perhaps the rst step in the implementation process, immediately after the
strategy formulation.
289
fi
fi
fl
fi
STRATEGY IMPLEMENTATION
Typically for small organizations with an owner and a few employees, it may
not be necessary to have a formal organizational structure or a clear
assignment of responsibilities to employees. However, when an organization
grows its business to a large scale or expanding and diversifying its business
pro le, it becomes necessary to have a proper organizational structure,
assignment of roles and responsibilities, delegation of authority at every level
of leadership.
The organizational structure has to be aligned to the strategy to deliver the
mission of the organization. The division of responsibilities should ensure
that the various leadership levels from the top management to the middle
management and the employees are clearly de ned with respect to their
functions. It is the responsibility of the top management to evolve the system
of creating the tasks and goals to facilitate implementation of the company’s
strategy. The top management must also evaluate the effectiveness of the
implementation process at periodic intervals through a monitoring and
evaluation process, which is discussed in detail in chapter 10.
An organizational structure is a formal means by which the various tasks are
assigned, co-ordinated and aligned to the organization strategy. In other
words, the structure provides correction, control, and co-ordination for the
top management. The structure also de nes the number of levels in
hierarchy and designates formal reporting relationships (refer g 9.1).
290
fi
fi
fi
fi
STRATEGY IMPLEMENTATION
The various tasks are organized across various business lines and co-
ordinated with functional lines so that the employees can work in their
respective areas of speciality, by products or services, and collaborate with
other functions and geographical regions in an integrated manner. An
organization structure generally has three dimensions, viz by products, by
function, and by divisions or geography. The structure should also ensure
the products division, the functional unit, work with various geographical
regions to ensure that the business decisions are customised to the unique
needs of the geographical regions. It is reasonable to assume that there is
no single best structure and the one selected by an organisation will have its
own set of bene ts and challenges. In fact, many large organisations change
the structures frequently to re ect the changes in the external environment.
Strategy implementation is described as the action phase of strategic
management process. It covers strategy activation, evaluation and control.
Strategy activation includes communicating strategy and motivating, setting
goals and tasks, formulating policies and functional strategies, leadership
implementation and resource allocation.
291
fi
fl
STRATEGY IMPLEMENTATION
292
fi
fi
fl
fl
fi
STRATEGY IMPLEMENTATION
leadership team consists of right people with right calibre with highest
credentials to make sustainable impact to the organisation in the long run.
9.5 Communicating the Strategy
A formal and proper communication process is a prerequisite for successful
implementation of the strategy. When the strategy formulation exercise
happens at the top leadership team, only some of the strategic managers
from different lines of businesses and functions participate in the exercise.
However, when the strategy implementation process happens across the
broad in the organisation, it involves a number of people being part of the
process at different levels to make it a success. Many of them might not
have taken part in the strategy formulation exercise. This naturally creates a
divide between the ‘thinkers’ and the ‘doers’. This gap must be bridged by
following the right strategy implementation approach, discussed later in this
chapter and an effective communication strategy.
Thus, it is necessary that all the employees who are expected to implement
the strategy must be informed about the strategy and the future plans of the
organisation. What the strategy means to the organisation must be clearly
understood by the employees. The key elements of strategy like the
company mission, values, strategic objectives, what and why changes are
being made, how it will affect the organisation, what are the broad roles and
responsibilities of key people and the expected results from the strategy that
the company wishes to implement.
The communication process is an essential component of the strategy
implementation phase. It is very important to instil a feeling of belongingness
and inclusiveness of the people in the organisation. Absence of such a
communication would render the employees lack of understanding about the
strategy and create a feeling of being left out in the process. This could lead
to disengagement of the employees with their leaders and dampen the
morale and motivation which could affect their willingness to change and
adopt the strategy implementation.
It is important that through the communication process, the CEO interacts
and engages with the various internal and external stakeholders of the
corporation, like the employees, customers, shareholders, partners,
suppliers, consultants, advisors, legal teams etc. Moreover, the CEO uses
communication to formulate and disseminate his/ her vision for the future of
293
STRATEGY IMPLEMENTATION
294
fi
fi
fi
fi
fi
fi
STRATEGY IMPLEMENTATION
295
fl
fl
fl
STRATEGY IMPLEMENTATION
296
fl
fi
fl
fi
fl
fl
fl
STRATEGY IMPLEMENTATION
297
fi
fi
fi
STRATEGY IMPLEMENTATION
298
fl
fi
fi
fl
fi
fi
STRATEGY IMPLEMENTATION
299
fl
fi
fi
fi
fi
fi
STRATEGY IMPLEMENTATION
300
STRATEGY IMPLEMENTATION
301
fl
fi
STRATEGY IMPLEMENTATION
When divisional structure is utilized, more specialization can occur within the
groups. When divisional structure is organized by product, the customer has
their own advantages especially when only a few services or products are
offered which differ greatly. When using divisional structures that are
organized by either markets or geographic areas they generally have similar
function and are located in different regions or markets. It allows business
decisions and activities coordinated locally.
The disadvantages of the divisional structure are that it might support
unhealthy rivalries among divisions. This type of structure may increase
costs by requiring more quali ed managers for each division. Also, there is
usually an over-emphasis and importance on divisional priorities more than
organizational goals which results in duplication of resources and efforts like
staff services, facilities, personnel, training and development.
Matrix Structure
Modern corporate organisations use matrix structure to suit the needs of
challenges associated with the fast changing business environment.
The matrix structure groups employees by both function and business unit or
product unit. This structure can combine the best of both separate structures.
A matrix organization frequently uses teams of employees to accomplish
work, in order to take advantage of the strengths, as well as make up for the
weaknesses, of functional and decentralized forms.
302
fi
STRATEGY IMPLEMENTATION
303
fi
STRATEGY IMPLEMENTATION
304
fl
fl
fi
fi
fi
STRATEGY IMPLEMENTATION
• Relevant hierarchical levels required for the organization and need for
relevant structures
305
fi
fi
fi
fi
fi
fi
fi
fi
fi
fl
fi
STRATEGY IMPLEMENTATION
306
fi
fl
fl
STRATEGY IMPLEMENTATION
The policies and guidelines also include ‘code of conduct’ to be signed by all
the employees in the corporate, business and function levels. This also
includes workplace harassment rules to protect the interests of women,
underprivileged or certain communities etc.
9.9 Rewards and Recognition System
Rewards and recognition are important practices that help in effective
implementation of the strategy. A successful execution depends on the
motivation of employees who are ultimately responsible for delivering the
results. Therefore, it is necessary to have a system to recognise superior
performance and reward the star performers, thereby motivate the other
employees to perform better next time. Reward system generally consists of
monetary rewards like sales incentives, bonuses, promotions, commissions,
compensation increase etc. It also includes non-monetary rewards like a
letter of appreciation, special acknowledgement, endorsements etc.
Human resources function works with the business stakeholders and other
functional stakeholders to design an appropriate rewards system within the
purview of the organisational cost structure and such a system forms part of
the organisation strategy to ensure outstanding results performance are duly
acknowledged, people concerned are recognised and rewarded on time.
As strategy implementation involves people belonging to different SBUs,
divisions and functions, there should be a proper performance management
system (PMS) implemented to monitor, measure and evaluate at regular
periods (monthly, quarterly, half-yearly & annually) to assess the
performance of the individuals and advocate improvements and course
corrections to ensure that the nancial and business budgets are achieved
from time to time, as part of the strategy implementation process.
The results of long term strategy will be spread over a period of long time
and it must be also recognised that it might take longer time for effective
implementation of the strategy. It must also include long-time retention of key
talent in the organisation. These rewards are generally referred as Long
Term Incentive Policy (LTIP).
307
fi
STRATEGY IMPLEMENTATION
308
fi
fi
fi
STRATEGY IMPLEMENTATION
309
fl
fi
fi
fi
fi
STRATEGY IMPLEMENTATION
310
fi
fi
STRATEGY IMPLEMENTATION
risks that the strategy can be more conservative and less visionary. And the
negotiation process can take so much time that an organization misses
opportunities and fails to react enough to changing environments.
A more fundamental criticism of the collaborative approach is that it is not
really collective decisions making from an organizational viewpoint because
top management managers often retain centralized control. In effect, this
approach preserves the arti cial distinction between thinkers and doers, and
fails to draw on the full human potential throughout the organization.
Cultural Approach
This approach extends the collaborative approach to lower levels in the
organization as an answer to the strategic management question on how to
inspire the whole organization to get committed to its goals and strategies.
This requires major shift in the culture that requires transformation.
This approach begins to break down the barriers between the thinkers and
doers, a common divide in many organisations. The strategic manager
concentrates on establishing and communicating a clear mission and
purpose for the organization and the allowing employees to design their own
work activities with this mission. He plays the role of a coach or mentor in
giving general direction, but encourages individual decision-making to
determine the operating details of executing the plan.
The implementation tools used in building a strong corporate culture range
from such simple notions as publishing a company credo and singing a
company song to much complex techniques. These techniques involve
implementing strategy by employing the concept of "third-order control."
First-order control is direct supervision; second-order control involves using
rules, procedures, and organizational structure to guide behaviour. Third-
order control is more subtle and potentially more powerful. It consists of
in uencing behaviour through shaping the norms, values, symbols, and
beliefs that managers and employees use in making day-to-day decisions.
The cultural approach has a number of advantages which establish an
organization-wide unity of purpose. It appears that the cultural approach
works best where the organization has suf cient resources to absorb the
cost of building and maintaining the value system over time.
311
fl
fi
fi
STRATEGY IMPLEMENTATION
However, this approach also has several limitations. First, it only works with
informed and intelligent people. Second, it consumes enormous amounts of
time to implement. Third, it can foster such a strong sense of organizational
identity among employees that it becomes a handicap; for example, bringing
outsider in a top management levels can be dif cult because they aren't
accepted by other executives.
The strongest criticism of this approach is that it has such an overwhelming
doctrinal air about it, and foster homogeneity and inbreeding.
Crescive Approach
This approach addresses the question "How can I encourage my managers
to develop, champion, and implement sound strategies?" (Crescive means
"increasing" or "growing"). The strategic manager is not interested in
strategizing alone, or even in leading others through a protracted planning
process. He encourages subordinates to develop, champion, and implement
sound strategies on their own.
The crescive approach differs from the others in several ways:
• First, instead of strategy being delivered downward by top management or
a strategy planning department, it moves upward from the "doers" (sales
team, engineers, production) and, lower and middle-level managers.
• Second, "strategy" becomes the sum of all the individual proposals that
surface throughout the year.
• Third, the top management team shapes the employees' premises, their
notions of what would constitute supportable strategic projects.
• Fourth, the CEO functions more as a judge, evaluating the proposals that
reach his desk, than as a master strategist.
Brodwin and Bourgeois suggest use of the Crescive approach primarily for
managers of large, complex, diversi ed organizations. In these organizations
the strategic managers cannot know and understand all the strategic and
operating situations, facing each division.
If strategies are to be formulated and implemented effectively, the leader
must give up some control to spur opportunism, achievement and a
competitive environment within the company. Therefore, the Crescive
312
fi
fi
STRATEGY IMPLEMENTATION
313
fi
fi
fi
fi
fi
STRATEGY IMPLEMENTATION
314
fi
fi
fi
fi
fi
fi
fi
fi
STRATEGY IMPLEMENTATION
315
fl
fl
fi
fi
fl
STRATEGY IMPLEMENTATION
316
fl
fi
fl
fi
fl
STRATEGY IMPLEMENTATION
Leadership Style
Leadership style of the top management is considered to be an important
factor in uencing the strategy implementation and performance of a
company. The senior management team spends time and resources
developing and promoting a visionary strategy, but their leadership style
does not inspire the employees of the organisation, this will only lead to let
down in its execution.
Leadership is the capacity of a top manager to secure the cooperation of the
people in the organisation in accomplishing organisational goals and to
demonstrate as a role model for others to get inspired and participate in the
strategy execution process. Leadership style is the consistent behaviour of a
leader which he exhibits in the process of leading an organisation, of
governance and decision making to keep the forward momentum in the
strategy adopted.
Every leader has a unique style of leadership. Some leaders are
conservative, and others aggressive while some others amboyant or
reserved. Some leaders are autocratic and take decisions on their own with
very little consultation with his team while some good leaders build
consensus by seeking broad based participation of others while making
decisions and empower them to be leaders.
Participation of employees in the decision making indeed facilitates
employee commitment to the company’s strategy and goals and is generally
seen as a positive approach to decision making.
There are many versions of best leadership, as every leader has a unique
and distinctive leadership style, so there is no single best leadership.
However, there are broadly two basic categories that can be seen in today’s
corporate world. First is that where leaders employ transactional leadership
style and use the authority of their of ce to exchange rewards and incentives
in reciprocity of the employee’s contribution to the company’s performance
steadily, but not dramatically. In contrast, some leaders employ a
transformational leadership style to inspire participation of employees in
mission, by setting a dream or vision thereby seeking more dramatic
changes in the organisational performance.
317
fl
fi
fl
STRATEGY IMPLEMENTATION
318
fl
fi
fi
fi
STRATEGY IMPLEMENTATION
Emotional Intelligence
The probability of success in strategy implementation will be high if the
leader is able to exude emotional intelligence to effect a change
management in the organisation’s culture. In today’s fast changing economy,
a leader’s success is tied to emotional intelligence which is the ability to
inspire the psychological attributes like motivation, empathy, self-awareness,
con dence and social skills etc.
Executives who possess a passion for their work are emotionally and socially
oriented and understand their own needs as well as those of their employees
are more likely to gain the trust, con dence and support necessary to lead
the organisation.
9.13 Top Challenges in Strategy Execution
Strategy is formulated on certain assumptions but the environment may have
changed at some point of time during implementation. The assumptions too
would need periodic revisits and need changes to re ect changes in the
internal and external environment.
Vision, value statements and trust are emphasized during formulation of the
strategy but during implementation it tends to get forgotten or diluted
considerably. An ‘end justi es the means’ approach results in a compromise
of values and eroding ‘trust and shared values’. The answer lies in
transparency and communication and admitting mistakes.
Complacency and overcon dence in leaders can lead to loss of momentum.
The leaders and organizational members generally believe their brand is
more powerful than the competitors leading to complacency in
implementation. Forecasts are based on what may happen in future and are
often based on optimistic estimates of uncertainties. As such the strategic
managers must be careful and realistic while making such forecasts.
Organizational trap is an excessive focus on ef ciency with no exibility to
adapt to changes. A no mistake-syndrome prevails with the top management
not being open to questioning or challenging the current strategy.
319
fi
fi
fi
fi
fi
fl
fl
STRATEGY IMPLEMENTATION
The strategic managers might work with the status quo bias with risk
aversion. It is the entrepreneurial spirit that helps overcome challenges and
take calibrated risk. This has to be built into the organisation culture by
constant encouragement.
Strategy before people: Strategy not aligned to organizational culture will
meet with resistance and opposition. Meaningful communication is the key.
Another thing that inhibits execution of strategy is that the structure of the
organisation is not in synchronisation with the strategy and structure, e.g., a
diversi cation strategy may have a better t with a divisional structure.
Effective leadership: Failure occurs due to weak empowerment and lack of
perseverance. Focus on knowing rather than doing. Things might get worse
before they get better so inspiring the team with the vision and mission is
important.
High emotional intelligence in leaders: This will help eliminate negative
emotions from breeding in the workplace. What are needed are positive
energy and a calm mind to deal with the uid situation.
The sunk cost effect: A familiar problem with investments is called the sunk-
cost effect, otherwise known as “throwing good money after bad.” When
large projects overrun their schedules and budgets, the original economic
case no longer holds, but companies still keep investing to complete them
rather than change.
320
fi
fl
fi
STRATEGY IMPLEMENTATION
9.14 Summary
From this chapter, it is clearly understood that the structure of an
organisation is the single most important component of strategy
implementation. The structure of an organisation can greatly in uence the
likelihood of success in the strategy execution process. Strategic managers
need to focus on evolving the right structure around organisation functions,
business units, divisional units, products and geography etc. Some
organisations choose a matrix structure depending on the type and size of
their business. It is also discussed that each structure has its own
advantages and disadvantages.
In order to increase probability of success in strategy execution, the
leadership style of management and at every level of leadership to inspire
and in uence employee behaviour and actions to move towards achieving
the goals. Leadership style and emotional intelligence is closely linked to a
rm’s ability to implement a given strategy. Each leader has a unique
leadership style, some as transactional, some as transformational and a few
exhibiting a combination of both the leadership styles. Effective leaders use
both styles to appropriate extent. Finally, it is the effective leadership that
ensures to implement a major strategic change in any organisation, amidst
challenging and turbulent times.
321
fi
fl
fl
STRATEGY IMPLEMENTATION
Assessment Questions
1. What is the rst part of strategy implementation?
a) To create appropriate organisation structure that supports the
implementation of the strategy and a overhauling of the current
structure to make it desirable for the strategy
b) To build a team of resources that will be required for implementation
c) To do a SWOT Analysis
d) To implement the business unit strategy
2. A _________ communication process is a prerequisite for successful
implementation of the strategy.
a) A regular
b) Formal and proper
c) Straight forward
d) Consistent
3. The formal means by which work is coordinated in an organisation is
called the
a) Organisation Structure
b) Organisation Culture
c) Organisation dynamic
d) None of the above
4. An increase in the breadth of control of an organisation structure is
known as
a) Centralisation
b) Decentralisation
c) Horizontal growth
d) Vertical Growth
322
fi
STRATEGY IMPLEMENTATION
323
fi
STRATEGY IMPLEMENTATION
References
1. John A. Parnel, Strategic Management, Theory and Practice), Business
Unit Strategy P 145
2. Francis Cherunilam, Strategic Management (L.N. Welingkar Institute of
Management), P 140
3. John A. Parnel, Strategic Management, Theory and Practice), Business
Unit Strategy P 147
4. J Child, Organisation, a guide for Managers and Administrators, NY:
Harper and Row, 1977
5. David Brodwin and L. J. Bourgeois III
------------------------------------------------------------------------------------------------------
A case study on factors leading to successful strategy execution
A brilliant strategy, blockbuster product, or breakthrough technology can put
a company on the competitive map, but only solid execution can keep the
company there. Execution is the result of thousands of decisions made every
day by employees acting according to the information they have and their
own self-interest. You have to be able to deliver on your intent. Unfortunately,
as per an online research the employees at three out of every ve
companies rated their organization weak at execution when asked if they
agreed with the statement “Important strategic and operational decisions are
quickly translated into action,” the majority answered no.
Execution is the result of thousands of decisions made every day by
employees acting according to the information they have and their own self-
interest. In this online research conducted in more than 1000 companies it
has been identi ed that there are four fundamental building blocks
executives can use to in uence those actions—clarifying decision rights,
designing information ows, aligning motivators, and making changes to
structure. (referred as decision rights, information, motivators, and structure.)
324
fi
fl
fl
fi
STRATEGY IMPLEMENTATION
325
fi
fi
STRATEGY IMPLEMENTATION
at this company, not unusual in the industry, had been to promote people
quickly, within 18 months to two years, before they had a chance to see their
initiatives through. As a result, managers at every level kept doing their old
jobs even after they had been promoted, peering over the shoulders of direct
reports who were now in charge of their projects and all too frequently, taking
over
Today, people stay in their positions longer so they can follow through on
their own initiatives, and they’re still around when the fruits of their labours
start to kick in. What’s more, results from those initiatives continue to count
in their performance reviews for some time after they’ve been promoted,
forcing managers to live with the expectations they’d set in their previous
jobs. As a consequence, forecasting has become more accurate and
reliable. These actions did yield a structure with fewer layers and greater
spans of control, but that was a side effect, not the primary focus, of the
changes.
The Elements of Strong Execution
After decades of practical application and intensive research, that envisaged
to gather empirical data to identify the actions that were most effective in
enabling an organization to implement strategy.
What particular ways of restructuring, motivating, improving information
ows, and clarifying decision rights that mattered the most? It was found
that traits like the free ow of information across organizational boundaries or
the degree to which senior leaders refrain from getting involved in
operational decision making mattered the most. The following are the key
factors for strategy execution.
• Everyone has a good idea of the decisions and actions for which he or she
is responsible.
• Important information about the competitive environment gets to
headquarters quickly.
• Once made, decisions are rarely second-guessed.
• Information ows freely across organizational boundaries.
• Field and line employees usually have the information they need to
understand the bottom-line impact of their day-to-day choices.
326
fl
fl
fl
Creating a Transformation Program
Execution is perennial challenge. Even at the companies that are best at
what we call as resilient organizations, only two-thirds of employees agree
that important strategic and operational decisions are quickly translated into
action. As long as companies continue to attack their execution problems
primarily with structural or motivational initiatives, they will continue to fail. As
we’ve seen, they may enjoy short-term results, but they will inevitably slip
back into old habits because they won’t have addressed the root causes of
failure. Such failures can almost always be xed by ensuring that people
truly understand what they are responsible for and who makes which
decisions—and then giving them the information they need to ful ll their
responsibilities.
------------------------------------------------------------------------------------------------------
327
fi
fi
REFERENCE MATERIAL
Click on the links below to view additional reference material for this chapter
Summary
PPT
MCQ
Video1
Video2
328
10
STRATEGY EVALUATION AND
CONTROL
Objectives:
This chapter focuses on strategy control and evaluation. The approach is to
compare the actual performance of an organisation with the established
standards and benchmarks, and also to monitor and review the
implementation process. This is the next logical step during and after the
strategy implementation process. This chapter talks about a number of
challenges and issues that need to be considered well in advance by the
strategic managers during the execution of strategy management process.
At the end of the chapter, you will be able to understand the following:
• Understand the Strategic Control Process
• Cleary de ne what needs to be controlled
• Setting Strategic Control Standards
• Choosing Standards an Con rm Performance to Standards
• Measure the deviation an take corrective actions
• Strategic Control Audits an budgetary controls
• Understand the Contingency and Crisis Management
329
fi
fi
STRATEGY EVALUATION AND CONTROL
Structure:
10.1 Introduction
10.2 Strategic Control Process
10.3 De ne What to Control
10.4 Setting Strategic Control Standards
10.5 Measure Performance
10.6 Con rm Performance to Standards
10.7 Taking Corrective Actions
10.8 Strategic Control Audits
10.9 Budgetary Control
10.10 Contingency an Crisis Management
10.11 Disaster Recovery an Business Continuity Panning
10.12 Summary
10.13 Case Study
330
fi
fi
STRATEGY EVALUATION AND CONTROL
10.1 Introduction
According to R.T.Lenz, “organisations become most vulnerable when they
are at peak of their success”. Complacency sets in the top management, and
it may overlook the obvious mistakes and gaps in the strategy execution.
Wrong strategies can have severe and negative impact on the organisation’s
performance in the long run. The objective is to learn how to mitigate such
impacts through strategic evaluation and control.
Thus, the nal and most critical stage in strategic management process is
strategy evaluation and control. Strategic control consists of evaluating the
extent by which the organisation’s strategies have been implemented
successfully to attain the goals and objectives. The implementation process
is reviewed periodically and adjustments are made as necessary to the
strategy. It is during the process of strategic control that the gaps between
the intended and realised strategies are identi ed and addressed. Even
though strategic control is the nal step in the strategic management
process, it should be an ongoing process.
In any organisation, all strategies are subject to future modi cation because
internal and external factors keep changing constantly. In the strategy
evaluation and control process managers determine whether the chosen
strategy is achieving the organization's objectives. The fundamental strategy
evaluation and control activities are:
• To review internal and external factors that are the underlying base for
current strategies
• To measure performance that conforms to the plans (evaluating the
expected versus actual results)
• To do performance gap analysis and
• To suggest and take corrective actions
The traditional approach to control is to compare the actual performance with
the standards established and take corrective measures if there are any
deviations. This reactive measure is not suf cient to control a strategy that
takes a long period for implementation and to deliver results. The uncertain
future environment makes continuous planning and evaluation of the
331
fi
fi
fi
fi
fi
STRATEGY EVALUATION AND CONTROL
332
fi
fl
STRATEGY EVALUATION AND CONTROL
333
fi
fi
STRATEGY EVALUATION AND CONTROL
FIG 10.2
334
fi
fi
fl
fi
STRATEGY EVALUATION AND CONTROL
335
fi
fi
fi
fi
fi
fl
fi
STRATEGY EVALUATION AND CONTROL
Once the internal factors for strategic control are identi ed as mentioned in
the previous step, it is important to establish standards or benchmarks for
each of the operational metrics. Often, strategic control standards are based
on competitive, industry or global benchmarking, a process of measuring
a company’s performance against that of top performers in the same
industry. After determining the appropriate benchmarks, the strategic
manager should set goals to achieve those benchmarks. The organisation
should follow best practices, processes or activities that have been found
successful in other companies and these practices may be adopted as a
means of improving performance. There are number of sources on
competitive benchmark standards available through reports published by
various industry analysts, consultants and industry forums.
The standards are the criteria that enable managers to evaluate future,
current, or past actions. They are measured in a variety of ways, including
physical, quantitative, and qualitative terms. The ve aspects of the
performance can be managed and controlled are: quantity, quality, time cost,
and behaviour. Each aspect of control may need additional categorizing. An
organization must identify the targets, determine the tolerances for those
targets, and specify the timing of consistent with the organization's goals
de ned in the rst step of determining what to control. For example,
standards might indicate how well a product is made or how effectively a
service is to be delivered.
The performance or benchmark standards may also re ect speci c activities
or behaviours that are necessary to achieve organizational goals. Goals are
translated into performance standards by making them measurable. An
organizational goal to increase market share, for example, may be translated
into a top-management performance standard to increase market share from
10 percent to 12 percent within a twelve-month period. Helpful measures of
strategic performance include: sales (total sales, and by division, by product
category, and by region), sales growth, net pro ts, return on sales, assets,
equity, and investment cost of sales, cash ow, market share, product quality,
valued added, and employees productivity.
Quanti cation of the objective standard is sometimes dif cult. For example,
let us consider the goal of product leadership. An organization compares its
product with those of competitors and determines the extent to which it
pioneers in the introduction of basis product and product improvements.
336
fi
fi
fi
fl
fi
fi
fi
fl
fi
fi
STRATEGY EVALUATION AND CONTROL
Such standards may exist even though they are not formally and explicitly
stated. Setting the timing associated with the standards is also a problem for
many organizations. It is not unusual for short-term objectives to be met at
the expense of long-term objectives.
Management must develop standards in all performance areas holistically
covered by established organizational goals. The various forms of standards
are dependent on what is being measured and on the respective managerial
level responsible for taking corrective action.
Commonly used as an example, the following eight types of standards have
been set by General Electric Company (GE).
• Pro tability standards: These standards indicate how much pro t General
Electric would like to make in a given time period.
337
fi
fl
fi
fi
STRATEGY EVALUATION AND CONTROL
338
fi
fi
fi
fi
fl
fi
fi
fi
STRATEGY EVALUATION AND CONTROL
339
fi
fi
fi
fi
fi
fi
fi
fi
fi
fi
STRATEGY EVALUATION AND CONTROL
340
fi
fi
fl
fi
fi
fi
STRATEGY EVALUATION AND CONTROL
341
fl
fl
fl
fi
fi
fi
fi
STRATEGY EVALUATION AND CONTROL
• Are the standards appropriate for the stated objective and strategies?
• Are the objectives and corresponding still appropriate in light of the current
environmental situation?
• Are the strategies for achieving the objectives still appropriate in light of the
current environmental situation?
• Are the rm's organizational structure, systems (e.g., information), and
resource support adequate for successfully implementing the strategies
and therefore achieving the objectives?
342
fi
fi
fi
fi
fi
STRATEGY EVALUATION AND CONTROL
• Normal mode - follow a routine, no crisis approach; this might take more
time
343
fi
fi
fi
STRATEGY EVALUATION AND CONTROL
The below checklist suggest the following ve general areas for corrective
actions:
• Revise the Standards. It is entirely possible that the standards are not in
line with objectives and strategies selected. Changing an established
standard usually is necessary if the standards were set too high or too low
are the outset. In such cases it is the standard that needs corrective
attention not the performance.
344
fl
fi
fi
STRATEGY EVALUATION AND CONTROL
345
fi
STRATEGY EVALUATION AND CONTROL
3. Identi cation of the directions that can be taken to raise the brand pro le
and generally achieve greater market exploitation by professionalizing
Marketing and Sales
4. Establishment of controlling ratios to ensure sustained throughput in
Marketing and Sales, as well as implementation of a strategic planning
process to improve international decision making
5. General improvement of the understanding of the work of the people
involved and sensitization for intercultural exchange
Management wishes: (1) to ne-tune a successful strategy and (2) to ensure
that a strategy that has worked in the past continues to be in tune with subtle
internal or external changes that may have occurred.
Effective evaluation and control system
In order to have an effective evaluation and control system, there are some
essential requirements, as described in the following parameters
1. Objective based: The purpose of evaluation and the objectives must be
clear to choose the appropriate evaluation system. Such an objective-
based system will provide useful and timely information or effective
control.
2. Objectivity: The standards and targets selected must re ect internal and
external realities. Thus, the evaluation system is not driven by
subjectivity. For example, a recession or boom or changes in competitive
environment must allow due consideration for revising the standards and
targets.
3. Economic: The strategy evaluation system must be economical, that is,
the cost must be justi ed with its utility. It is believed that too much
information can be just as bad as too little information. Also, too many
controls can also do more harm than good. It must be ensured that the
concern about the cost of an evaluation system does not affect the
objective of the evaluation system.
346
fi
fi
fi
fl
fi
STRATEGY EVALUATION AND CONTROL
347
fi
fi
STRATEGY EVALUATION AND CONTROL
348
fi
fi
fl
fi
STRATEGY EVALUATION AND CONTROL
349
fl
fi
fi
fi
STRATEGY EVALUATION AND CONTROL
350
fi
STRATEGY EVALUATION AND CONTROL
351
fi
STRATEGY EVALUATION AND CONTROL
352
fl
fi
fi
fl
fl
fl
fi
fl
STRATEGY EVALUATION AND CONTROL
any rate, DR and/or BCP determine how a company will keep functioning
after a disruptive event until its normal facilities are restored.
All BCP/DR plans need to encompass how the organisation and employees
will communicate, where they will go and how they will keep doing their jobs.
The details can vary greatly, depending on the size and scope of a company
and the way it does business. For some businesses, issues such as supply
chain logistics are most crucial and are the focus on the plan. For others,
information technology may play a more pivotal role, and the BCP/DR plan
may have more of a focus on systems recovery. For example, the plan at
one global manufacturing company would restore critical computer systems
with vital data at a backup site within four to six days of a disruptive event, or
set up a temporary call centre for 100 agents at a nearby training facility to
take care of customer services.
However, the critical point is that neither element can be ignored, and
physical, IT and human resources or nancial plans cannot be developed in
isolation from each other. At its heart, BCP/DR is about constant
communication. Business leaders and IT leaders should work together to
determine what kind of plan is necessary and which systems and business
units are most crucial to the company. Together, they should decide which
people are responsible for declaring a disruptive event and mitigating its
effects. Most importantly, the plan should establish a process for locating and
communicating with employees after such an event. In a catastrophic event
(Hurricane Katrina being an example), the plan will also need to take into
account that many of those employees will have more pressing concerns
than getting back to work.
The rst step is business impact analysis (BIA). It identi es the business's
most crucial systems and processes and the impact an outage would have
on the business. The greater the potential impact, the more money a
company should spend to restore the systems or processes quickly. For
instance, a stock trading company may decide to pay for completely
redundant IT systems that would allow it to immediately start operations from
another location or datacentre. On the other hand, a manufacturing company
may decide that it can wait 24 hours to resume shipping. Thus BIA helps
companies set a restoration process, which is relevant to their business, to
determine which parts of the business should be restored rst.
Here are 10 absolute basics an organisation should focus on:
353
fi
fi
fi
fi
STRATEGY EVALUATION AND CONTROL
354
fi
fi
fl
STRATEGY EVALUATION AND CONTROL
355
fi
STRATEGY EVALUATION AND CONTROL
Assessment Questions
1. Strategic evaluation and control in an organisation is important because:
a) It is dif cult to know how well the rm is performing well without it
b) The organisation’s environment is uncertain and always changing /
challenging
c) The managers need an effective means of providing feedback to the
management
d) a & b only
2. Crisis management involves a series of steps that an organisation should
take before a crisis occurs while it is occurring and after it has passed
a) True b) False
3. Crisis Management refers to efforts made to eliminate the possibility that
the organsiation can be negatively impacted by unforeseen events.
a) True b) False
4. The strategic control process begins by:
a) Identifying appropriate performance measures
b) Establishing standards of performance
c) Measuring performance
d) Taking corrective action as needed
5. The process of measuring a rm’s performance against that of top
performers is known as:
a) Competitive positioning
b) Performance measurement
c) Benchmarking
d) PIMS analysis
356
fi
fi
fi
STRATEGY EVALUATION AND CONTROL
6. Benchmarks should be
a) Broad and not speci c
b) Associated with the strategy’s success
c) Outside the rm’s control
d) All of the above
357
fi
fi
STRATEGY EVALUATION AND CONTROL
References
1. Strategic Management and Business Policy | Essentials of Strategic
Management .Thomas L. Wheelen and J. David Hunger (Prentice Hall
2004)
2. John A. Parnel, Strategic Management, Theory and Practice), Business
Unit Strategy P 163
3. Eight types of standards have been set by General Electric Company
(GE)
4. Strategic Management: Formulation and Implementation by Ryszard
Barnat, LLM, DBA, PHD
5. John A. Parnel, Strategic Management, Theory and Practice), Business
Unit Strategy P 164
358
STRATEGY EVALUATION AND CONTROL
REFERENCE MATERIAL
Click on the links below to view additional reference material for this chapter
Summary
PPT
MCQ
Video
359
11
GLOBALISATION STRATEGY
Objectives:
This chapter focuses on globalisation of strategy. Based on corporate pro le,
an organisation or a corporate group may choose to be involved only in the
domestic market or it may choose to aggressively design a strategy to
compete in the global markets depending on its risk pro le. This chapter
talks about a number of challenges and issues that need to be considered
well in advance by the strategic managers while creating a compelling global
strategy.
At the end of the chapter, you will be able to understand the following:
• The Globalisation an global market pace
• Dimensions of global strategy
• Understand the stages of globalisation
• The challenges and enablers of globalisation
• Globalisation culture
• Case study
360
fi
fi
GLOBALISATION STRATEGY
Structure:
11.1 Introduction
11.2 Global Industry
11.3 Dimensions of Global Strategy
11.4 Stages of Globalisation
11.5 Enablers of Globalisation
11.6 Globalisation Strategies
11.7 Globalisation Culture
11.8 Case Studies
11.9 Summary
11.10 Assessment Questions
361
GLOBALISATION STRATEGY
11.1 Introduction
Based on its corporate pro le and vision, an organisation or a corporate
group may choose to be involved only in the domestic market or it may
aggressively design a strategy to compete in the global markets depending
on its risk pro le. Indian companies are increasingly getting globalised and
so are the other global companies aspiring to invest in India to grow their
businesses. India, next to China, presents a great demographic advantage
with its 1.2 billion populations and potential for the next several decades as a
fast growing economy.
Organisations set up their production, research and development,
engineering, marketing and other relevant functions globally to become more
competitive and create more value for all its stakeholders. Globalisation, in
its true sense, is a way of corporate growth facilitated and nourished by the
trans-nationalisation of the world economy by executing compelling
corporate strategies. Globalisation is an attitude of mind, a mind-set which
views the entire world as a single market so that a corporate strategy is
based on the dynamics of the global business environment. International
marketing or international investment alone does not amount to globalisation
unless it results in economic value and global orientation.
Global strategy, as de ned in business terms, is an organization's strategic
guide to globalization. A sound global strategy should address these
questions: what must be (versus what is) the extent of market presence in
the world's major markets? How to build the necessary global presence?
What must be (versus what is) the optimal locations around the world for the
various value chain activities? How to run global presence into global
competitive advantage?
Academic research on global strategy came of age during the 1980s,
including work by Michael Porter and Christopher Bartlett & Sumantra
Ghoshal. Among the forces perceived to bring about the globalization of
competition were convergences in economic systems and technological
change, especially in information technology, that facilitated and required the
coordination of a multinational rm's strategy on a worldwide scale.
362
fi
fi
fi
fi
GLOBALISATION STRATEGY
A global strategy may be appropriate in industries where rms are faced with
strong pressures for cost reduction but with weak pressures for local
responsiveness in terms of demand for products and services. Therefore, it
allows these rms to sell a standardized products worldwide creating scale of
economies. However, xed costs (capital equipment) are substantial.
Nevertheless, these rms are able to take advantage of scale of economies
and experience curve effects, because it is able to mass-produce a standard
product which can be exported (provided that the demand is greater than the
costs involved).
Global strategies require rms to tightly coordinate their product and pricing
strategies across international markets and locations, and therefore rms
that pursue a global strategy are typically highly centralized and at the same
time bring in cultural diversity and creativity as well as best practices. Thus,
rms change from domestic oriented strategies to a global orientation for
numerous reasons. Pursuing global markets can reduce per-unit production
cost by increasing volume. A global strategy can extend the life cycle of
products whose domestic markets are declining.
There are still challenges that persist when companies pursue global
aspirations. These factors include complex government approval processes,
high costs, sourcing of huge investments, poor infrastructure, poor image of
the countries, sourcing problems, cultural problems etc.
At the same time, there are factors that enable globalisation, like young
population, demographics, vast talent pool, growing entrepreneurship, high
savings rate for investments, innovation and skills – these factors de nitely
help in facilitating the globalization process.
Establishing facilities abroad can also help a rm bene t from comparative
advantage (Tata Steel Case study is being discussed later in this chapter),
the difference in resources among nations that provide cost advantages or
the production of some but not all goods in a given country. For example,
athletic shoes can be produced more ef ciently in parts of Asia where rubber
as the main raw material is plentifully available and cheaper, and also the
labour is less costly.
363
fi
fi
fi
fi
fi
fi
fi
fi
fi
fi
fi
GLOBALISATION STRATEGY
• An industry in which rms must compete in all world markets of that product
in order to survive
• Competing everywhere
• Appreciating that success demands a presence in almost every part of the
world in order to compete effectively
• Making the product the same for each market
• Centralised control
• Taking advantage of customer needs and wants across international
borders
• Locating their value adding activities where they can achieve the greatest
competitive advantage
• Integrating and co-ordinating activities across borders
364
fi
fi
fi
fi
fi
fi
GLOBALISATION STRATEGY
• The greater the strength of competitive drivers the greater the tendency for
globalisation
11.3 Dimensions of Global Strategy
A truly global company views the entire world as a single market. There is
nothing like local market and foreign market, but there is only one market
called the global market. However, they have customised or appropriate
strategies to suit for different geographic regions depending on consumer
needs, sensitivity and local cultures. Companies which adopt global strategy
generally stop thinking of themselves as national marketers who venture
abroad and start thinking of themselves as global marketers. They look for
ideas and best practices from global industry peers and try to innovate new
business ideas on their own to create a unique marketplace in the global
market.
Most of the Indian companies operate global businesses, and identifying a
competitive strategy for the global markets can be challenging and a
complex task. Each market has unique characteristics of domestic
environmental factors and marketing mix. It is not a simple formula for
developing and implementing successful business strategies across multiple
countries and multiple businesses. There are different strategies required for
emerging markets and developed markets. For e.g., Suzuki has strategy of
high-end models in developed markets like Japan and U.S., whereas for
emerging markets like India and Africa, it has a wide range of attractively
priced low and mid-segment cars to enter and gain market share.
Many corporates take an approach and strategy of “think globally, but act
locally” for their businesses, which means developing and customizing
products and services for the local market. This also means the organization
would create a synergy by serving multiple global markets, but formulate
unique competitive strategy for each speci c market that is customized to the
unique requirements of the people there.
The strategic mangers are involved in the global strategy and making
policies related to global manufacturing facilities, marketing, nancial, HR,
logistical processes that help in the execution of the strategies. The global
business units, the operations units report directly to the CEO, or the
Executive Council of the organisation. Executives are trained in world-wide
366
fi
fi
GLOBALISATION STRATEGY
• Forge global strategic alliances to complete the value chain of products and
services
As discussed earlier, a global orientation can also lessen the risk of a
company’s businesses because demand and competitive factors tend to vary
among nations. There are number of parameters to be considered, let us see
some of them.
• Are customer needs abroad similar to those in the rm’s domestic market?
If so, the rm may be able to develop economies of scale (discussed in
detail in the Chapter Business Unit strategies) by producing a higher
volume of the same goods or services for both the markets.
367
fi
fi
fi
fi
fi
fi
GLOBALISATION STRATEGY
• Will managers in one country be able to earn from managers in the other
countries? If so global expansion may improve ef ciency and effectiveness,
both abroad and in the host country.
Corporate growth is often pursued through expansion into fast growing
emerging markets and those nations that have achieved enough
development to warrant further expansion but whose markets are not yet
fully served. The advantages and disadvantages of growth through global
expansion should be considered carefully before pursuing expansion into an
emerging market which lack basic infrastructure or has complex government
policies and tax regimes or hard regulatory regime.
11.4 Stages of Globalisation
A company goes through different stages of development before it becomes
a truly global organisation. An export to another country is generally
considered as the rst step towards starting to do international business.
Later, it may create strategic alliances and partnerships to distribute or
manufacture its products. Then it moves on to establish joint ventures and
subsidiaries abroad to set up production facilities to manufacture its
products. Thus, a company from being an international rm develops into a
multi-national rm and then nally becomes a global organisation.
Kenichi Ohmae identi es ve different stages of development a rm goes
through to become a global organisation.
368
fi
fi
fi
fi
fi
fi
fi
fi
fi
fi
fi
fi
GLOBALISATION STRATEGY
• The company takes over these marketing and distribution activities on its
own by making small presence in those countries of operations
• The company begins to carry out its own manufacturing, marketing and
sales in key foreign markets.
369
fi
fl
GLOBALISATION STRATEGY
370
fi
fi
fi
GLOBALISATION STRATEGY
371
fi
fi
fi
fi
fi
fi
fi
fi
fi
fi
fi
GLOBALISATION STRATEGY
372
fl
GLOBALISATION STRATEGY
373
fi
fl
GLOBALISATION STRATEGY
374
fi
fi
fl
fi
fi
fi
GLOBALISATION STRATEGY
Where?
As visionaries say, ‘’you got to be where you ought to be’’. Thus, Aditya Birla
Group has always looked at entire globe as their opportunity landscape.
When it comes to aluminum production, group is having 50 manufacturing
units across 11 countries. Cement production covers ve countries—India,
UAE, Bahrain, Bangladesh and Sri Lanka. It led the mobile telephony
revolution in India by being one of the pioneer service provider in India –
world’s largest and fastest growing telecommunication market. In Viscose
Staple Fibre, group has 7 manufacturing locations with world class
manufacturing facilities in India, Indonesia, China, Thailand and pulp plants
in Canada, Sweden & India. In apparel industry, Deep partnerships with
global brands: Ted Baker, Forever 21 and Simon Carter as well as developed
Indian brands. Apparel business is powered by nine state-of-the-art
production and design facilities, all fed by an indigenous and global supply
chain. In carbon black business its no 1 position is achieved through
manufacturing presence across Asia, Europe, Africa & Americas having 17
manufacturing plants and 9 of ces across 12 countries. It also has state-of-
the-art technology centres at Marietta, Georgia, USA & Taloja, Maharashtra,
India and well equipped regional satellite laboratories.
How?
Following timeline speci c information will give a complete perspective about
the birth of truly globalized Indian company.
1930-1970
Shaping of a Conglomerate
• Set-up Grasim, Hindalco, Eastern Sp
1970-1995
The making of India’s rst MNC
· Presence in Thailand, Indonesia, Malaysia and Egypt
1995-2000
Entry into Services
375
fi
fi
fi
fi
GLOBALISATION STRATEGY
376
fi
fi
GLOBALISATION STRATEGY
• Exclusive online and of ine rights to market the global brand – ‘Forever 21’
& its existing store network, in the fast-fashion segment
• Vodafone Idea
• Binani Cement Limited
Globally:
377
fl
GLOBALISATION STRATEGY
11.9 Summary
Substantial liberalisation of international trade and investments over the time,
have strengthened the forces of globalisation. Most countries have made
economic reforms and liberalised their economies to allow international trade
to happen freely. It helps the countries to expand the possibilities of
economic cooperation.
Any company that truly aspires to become global leader in their industry can
look forward to different ways of entering the global markets. First and
foremost is that it should look at the whole world for its markets as well as for
sourcing and processing its factors of production. They should develop
capabilities to think global and act local to realise their aspiration.
There are ve stages of development with which an organisation can move
into true globalisation gradually and in a planned manner. It ranges from
exports, to foreign direct investment to mergers an acquisition to strategic
alliance to franchising. We have discussed the details of these stages in this
chapter.
We also discussed about the factors that facilitate the globalisation process
and at the same time impact on the progress of globalisation. There are still
challenges that persist when companies pursue global aspirations. These
factors include complex government approval processes, high costs,
sourcing of huge investments, poor infrastructure, poor image of the
countries, sourcing problems, cultural problems etc. At the same time, there
are enablers like young population, demographics, vast talent pool, growing
entrepreneurship, high savings rate for investments, innovation and skills –
these factors de nitely help in facilitating the globalization process.
From Indian industry perspective, many corporates have expanded their
businesses into many global markets. They have adopted different strategies
such as developing exports markets, foreign investments including joint
ventures, mergers and acquisitions, strategic alliance, franchising and
licencing etc
378
fi
fi
GLOBALISATION STRATEGY
379
GLOBALISATION STRATEGY
References:
1. Vijay Govindarajan and Anil K. Gupta 'The Quest for Global Dominance:
Transforming Global Presence into Global Competitive Advantage'
Jossey Bass. (2008). p. 20-21
2. Michael Porter (ed.) 'Competition in Global Industries' Harvard Business
School Press. (1986)
3. Christopher A. Bartlett and Sumantra Ghoshal 'Managing across Borders:
The Transnational Solution' Harvard Business School Press. (1989)
4. Francis Cherunilam, Strategic Management (L.N. Welingkar Institute of
Management), P 292
5. John A. Parnel, Strategic Management, Theory and Practice), Business
Unit Strategy P 81
6. Kenchi Ohmae, The Borderless World (London: Fontana, 1991)
7. Tata Steel case study from Tata Steel website
8. Francis Cherunilam, Strategic Management (L.N. Welingkar Institute of
Management), P 296
380
GLOBALISATION STRATEGY
381
fi
fl
fi
fi
fi
fl
fi
GLOBALISATION STRATEGY
382
fi
fi
fi
fi
GLOBALISATION STRATEGY
REFERENCE MATERIAL
Click on the links below to view additional reference material for this chapter
Summary
PPT
MCQ
Video
383
12
STRATEGIC LEADERSHIP
Objectives:
This chapter focuses on the importance of strategic leadership and corporate
governance for effective implementation of strategy. The quality of strategic
leadership at the top management level is key to the effective
implementation of strategy. An organisation needs to be a learning
organisation.
Corporate governance is the lifeline of any business that needs to sustain its
existence. This chapter talks about a number of challenges and issues that
need to be considered well in advance by the strategic managers while
complying with corporate governance.
At the end of the chapter, you will be able to understand the following:
• Understand the importance of leadership and corporate governance
• How to build a learning organisation as part of strategy
• Understand the importance of emotional intelligence
• Leadership vision, values and culture
• Organisation and corporate governance
• Corporate ethics and social responsibility
384
STRATEGIC LEADERSHIP
Structure:
12.1 Introduction
12.2 Leadership and Management
12.3 Learning Organisation
12.4 Leadership Skills
12.5 Emotional Intelligence
12.6 Leadership vision and values
12.7 Leadership and culture
12.8 Assessing current leadership culture
12.9 Leadership culture change
12.10 Chaos in Leadership
385
STRATEGIC LEADERSHIP
12.1 Introduction
Jack Welch once said in his book Winning, ‘before you become a leader,
success is all about growing yourself, but when you become a leader,
success is all about growing others and the organisation’. The quality of
leadership at the top management level is key to the effective
implementation of strategy. It is all about providing strategic leadership to the
people and the organisation. Even a best formulated strategy would fail if it is
not implemented properly. In this context, employee communication is highly
important that the strategy gets adopted at all levels of leadership and
employees in the organisation. The ability of leaders to communicate the
organisational goals and clearly chart out a focused plan and guide their
attention to achieving the goals is crucial to success.
It must be recognised that without effective leadership at the top of the
organisation, the individual employees are less likely to be empowered and
therefore less likely to develop their own leadership skills. The leader of an
organisation is ultimately responsible for the successful implementation of
the organisation strategy and therefore he should create an organisational
culture that empowers the employees to respond to challenges and
opportunities on the way to the execution of strategy.
There are many ways to empower the employees like training and
development, appropriate rewards and recognition, leadership development,
systems and processes to guide employees to demonstrate appropriate
behaviour, milestones achievement of strategic goals etc. We might reinforce
that systems and processes, and policies may help in the implementation of
strategy but it must be remembered that ultimately it is the individual
employee who actually implements the strategy. Hence, it is the individuals,
groups and teams in an organisation, who must be ready to accept the
change that the strategy seeks out of them.
In this chapter, we will discuss in detail about the roles and responsibilities of
the top leadership team that plays an important role in the implementation of
strategy. In fact, we will discuss the differences between leadership and
management. How leadership facilitates the direction of change with right
behaviour and institutionalising a culture that fosters change. We also
discuss about the role of leaders in creating a learning organisation.
386
STRATEGIC LEADERSHIP
387
STRATEGIC LEADERSHIP
388
fi
fi
fl
fl
STRATEGIC LEADERSHIP
Leadership creates the systems that managers manage and changes them
in fundamental ways to take advantage of opportunities and to avoid
hazards. It focuses on means as well as the ends. It truly empowers the
employees to take self-directed decisions and actions to perform the
execution of strategy. It deals with preparing the organisation to face
changes and new challenges.
389
fi
fi
STRATEGIC LEADERSHIP
only as strong as its charismatic leader. Most of the time, organizations are
overstaffed with managers, but lacks enough leadership to help them deal
with constant change.
How do organizations change over time?
When they are formed, organizations are often long on leadership and short
on management. The savviest organizations gradually add management
capabilities over time while still preserving that spark of leadership that led
them to rapid growth in the rst place. But inevitably, over time, the most
passionate leaders move on to do something else, while layers of
management build up in their place. Organizations gradually transition to a
complacent mentality, where management reigns supreme and leadership is
in short supply.
One of the critical things about leadership is change management. Change
requires an adjustment in people’s behaviour. Unlike in management where
control mechanisms are used to implement strategy, leadership motivates
and inspires people by empowering them with needs required for
achievement, by fostering a sense of belongingness, and by recognising and
rewarding the performers. An effective leader will ensure that the
organisation’s vision is in line with its employees’ own value system and
culture. As such employees will derive intrinsic satisfaction by working
towards achievement. This satisfaction is likely to increase where individuals
are involved in discussions on how the strategy can be implemented and
vision can be achieved, and in the process they get rewarded for this efforts
and contribution.
As discussed, whereas management involves dealing with organisational
complexity and managing various tasks, leadership involves dealing with
change. Change management includes dealing with change in regulatory
and policy environment, faster technological change, change or shift in
demographics, shifting social trends etc.
The role of leadership is to create a shared vision which the organisation is
trying to achieve and to formulate relevant strategies to bring about the
changes needed to achieve the set vision. Effective leaders encourage
leadership at a level of management and throughout the organisation at
every employee level, by empowering participants to make decisions without
fear of reprisals. The dissemination of leadership allows an organisation to
390
fi
STRATEGIC LEADERSHIP
391
fl
fi
STRATEGIC LEADERSHIP
392
fl
fi
fl
fl
fl
STRATEGIC LEADERSHIP
of the workplace demands and take decisions at their levels to ensure the
forward momentum is sustained at all levels.
12.3 The Learning Organisation
Learning is a key success factor in organisation development. An
organisation will be considered progressive if it has the ability to learn
continually and apply it in business performance. The speed of learning
becomes a competitive advantage and these organisations create great
leaders.
The traditional hierarchical structures that ensure the command and control
of individuals are no longer conducive to competing in more dynamic
environments for creating a learning environment for an organisation. A
learning organisation, according to Senge (1990), comprises of both
adaptive learning and generative learning. Adaptive learning is about the
ability to cope with changes in one’s environment, while generative learning
is about creating change and being prepared to question the way the
organization works.
For example, a transition from adaptive learning to generative learning can
be seen in the total quality management (TQM), as originated in Japan.
Initially the focus was on producing consumer products that were t for the
purpose. In other words, the product would perform according to its
speci cations. This then evolved into understanding the customer’s needs
and reliably creating products that meet those requirements. In modern
economy, the focus has shifted to creating what the customers want but may
not have realized yet. This requires organizations to look at the competitive
environment differently.
This is evidenced in the success of Japanese carmakers such as Toyota and
Honda who had the ability to view issues in manufacturing in a systematic
way. They adopt a way of thinking that does not focus on one aspect of
manufacturing, but look at the issues as part of an integrated ecosystem,
which is a clear evidence of not being stuck in adaptive learning but
transitioning into generative learning.
393
fi
fi
STRATEGIC LEADERSHIP
394
STRATEGIC LEADERSHIP
395
fi
fi
fl
fl
STRATEGIC LEADERSHIP
396
STRATEGIC LEADERSHIP
what is being generalised and what is actually based on facts, thus building
discerning capability in them.
Systemic thinking:
To engage in systems thinking, leaders need to move beyond a blame
culture and should be able to discern the interrelationships between actions.
They should recognise that small well-focused efforts or actions can have
magni ed results for the organisation. A visionary leader who deals only with
events or patterns of behaviour will disseminate reactive culture rather than a
generative one.
Effective decision making:
In today's fast-paced, competitive business climate, executives need to be
prepared to make swift and smart decisions quickly and decisively. Making
calculated strategic business decisions involves weighing and minimising
risks, considering long term implications for the organization. The leader
should make a formal decision making process and learn to make smart
choices with limited time and resources. The employees should also learn
how to apply formal decision-making processes in order to reduce risk and
maximize bene t, and learn best practices and techniques for gathering data
and making critical decisions with limited time and resources, which are
constraints that impede the progress.
Managing Change:
With emerging technologies and expanding global marketplaces, it is
imperative that organizations become highly pro cient in driving their change
agenda to bene t their business and all its stakeholders. Whether
diversifying, downsizing, merging, reorienting or restructuring the business,
or developing new management structures, organizations must be able to
effectively carry out change initiatives to remain productive and competitive
in a dynamic environment. The leader should have personal ability and
charisma to facilitate any strategic change.
The leader should be able to assess organizational readiness, and his own
ability to facilitate change. Working with a comprehensive organizational
change scenario, he should foster a culture of change in the entire
organisation and learn by doing and assessing its own effectiveness in
facilitating change.
397
fi
fi
fi
fi
STRATEGIC LEADERSHIP
The gap between the “as-is” and “to be” states of an organisation presents
the need for a creative change in an organisation. The status quo needs to
be always challenged. This creates a need for learning, to translate this
learning into reality, thereby preparing the organization to achieve the vision.
With creative change, the motivation for change is intrinsic and not extrinsic.
Coaching for engaging and developing others:
Being a proactive coach is a fundamental component to being a good leader
in the workplace. Coaching implies that leaders not only supervise, but
develop the capacities and skills of all employees. A coaching mind-set
implies that leaders approach employees not simply as subordinates, but
protégés, resources to be developed, expanded and challenged. Coaching
actually unlocks the hidden potential of the employees, in order to unleash a
fresh ow of positive energy and actions to the advantage of the organisation
and its people. It fosters enthusiasm and motivation.
Coaching is critical to good workplace leadership. It must be recognised that
not all styles of coaching are suitable for the workplace, being in the best
practices for most appropriate coaching for organizational leaders. This also
emphasizes the importance of supplementing the traditional supervisory
mind-set with the coaching mind-set.
It is believed that corporate executives and managers who are good coaches
could easily inspire and challenge their teams and other employees in their
organizations to grow and develop their leadership capabilities. Ultimately,
such employees/ managers are capable of achieving stronger business
results for their organisations than those less supportive and less
collaborative.
Hence, coaching is a powerful business tool for executives / managers to
become empowered and be more effective, while transforming into
successful business leaders in future and be able to collaborate with other
leaders in the organisation. The leaders should be able to have a coaching
dialogue with effective techniques for listening, asking questions, and
providing feedback. He should also provide tools and processes, including
instruction on how to recognize and use the language of coaching.
398
fl
STRATEGIC LEADERSHIP
Through coaching, leaders are able to support and encourage their team
members to learn skills and acquire knowledge that helps improve job
performance. Coaching works laterally too, in that a leader can apply
coaching techniques when working with colleagues. The organization as a
whole bene ts from a solid coaching culture.
Without the right coaching principles in place, employees may not reach their
full proactive capacity and potential, rendering the organization less able to
execute its goals. Coaching approach maximizes the proactive capacity of
employees by showing leaders how to integrate the coaching mind-set into
their leadership style.
Unlock leadership potential:
Leaders are not born; they are developed. Managers must identify and
enhance, early on, the particular leadership style that matches their personal
strengths. By providing participants with a range of assessment tools,
including an online 360-degree evaluation, the organisation should build
critical leadership competencies essential to career development and
advancement, by doing a 360-degree evaluation designed to identify
participant's management strengths and weaknesses. Participants will create
a Leadership Development Plan (LDP) designed to guide their career
development. This process is called organisation talent review (OTR) and
becomes an integral part of performance management system process
(PMS).
Performance Management:
Strategy and Performance Reporting introduces managers to the basics of
measuring and reporting on the performance of an organization, whether it's
a for-pro t business, not-for pro t, or governmental or a corporate
organization. There are different types of reporting systems an organization
can use, with a focus on performance reporting systems.
The systems that lay out an organization's strategy and report on how well
that strategy is being executed are part of the performance evaluation
system. There are most important tools for performance reporting, the
Balanced Scorecard, which we discussed in an earlier chapter.
399
fi
fi
fi
STRATEGIC LEADERSHIP
400
fi
STRATEGIC LEADERSHIP
401
fi
fi
fl
fi
fl
STRATEGIC LEADERSHIP
402
fi
fi
STRATEGIC LEADERSHIP
403
fi
fi
STRATEGIC LEADERSHIP
• Build Products that are cool, intuitive, simple to use and provide the most
amazing experience
• Take calculated risks and boldly enter new markets / products. E.g. iPod,
iPhone
• Change the playing eld by creating new business models. E.g. iTunes
• Capture the changing landscape and ecosystem of the markets and
customers
• Grow the market share with buyers as they grow and their needs grow
• Target kids, teenagers, young adults, adults, parents....
The strategy is also to provide multiple products and touch points to buyers
so they can buy and subscribe to more products all glued through iTunes.
This includes creation of an innovation culture.
404
fi
fi
STRATEGIC LEADERSHIP
“A lot of companies have chosen to downsize, and maybe that was the right
thing for them. We chose a different path. Our belief was that if we kept
putting great products in front of customers, they would continue to open
their wallets.”
The bottom line is that at Apple the philosophy is “We are absolutely
consumed by trying to develop a solution that is very simple, because as
physical beings we understand clarity”.
12.7 Leadership and culture
An organization is made of a unique culture which is a combination of
values, believes, and behaviour of individuals within the organization. An
understanding of different national cultures and their impact on behaviours is
important for leaders to guide the organization successfully. The culture is
made of different dimensions.
A company’s leadership culture is a distinct and powerful part of its
organizational culture. Speci cally, leadership culture is the system of often
unspoken norms and assumptions that guide how managers take leadership
(or fail to take leadership) in a particular organization. To enjoy sustained
success, an organization needs to operate at a level of agility that matches
the degree of complexity and the pace of change in its business
environment. Leadership culture plays a pivotal role in determining whether
the organization is agile enough to meet this challenge.
An unbiased assessment of an organization’s current leadership culture can
be an extremely helpful step in developing a culture that powerfully supports
agile organizational functioning. Among other things, this assessment
identi es the current and the desired “levels of agility” in the leadership
culture.
Levels of Agility in Leadership Cultures
As with individual leaders, leadership cultures are capable of evolving
through distinct levels of agility. So far, the most common con guration we’ve
found in client organizations is an Achiever-level culture at the executive
levels and an Expert-level culture at the middle levels. Yet, in most instances,
sustained high performance in today’s increasingly complex, fast-paced
business environment requires a Catalyst-level culture at the top levels and
an Achiever-level culture at the middle levels:
405
fi
fi
fi
STRATEGIC LEADERSHIP
406
fi
fi
fi
fl
fi
STRATEGIC LEADERSHIP
• A facilitated forum where the top management group could come to its own
conclusions about what its issues were and how to tackle them. The result
was a strong alignment between and commitment from all members of the
group.
407
fi
fi
STRATEGIC LEADERSHIP
Meeting with them to discuss our report, the top management group
con rmed that the unit was caught in a vicious cycle of non-collaborative
individual behaviour, dysfunctional group dynamics, and problematic
procedures. From an “agility level” perspective, the top group, whose
members had Achiever-level capacities, was operating primarily at the
(previous) Expert level, as was the rest of the division. To be successful,
they needed to transform to the Achiever level and, if possible the (next)
Catalyst level.
This assessment helped them stop the nger-pointing to others, take
collective responsibility for their problems, and decide on the leadership
initiatives needed to solve them. They took action in several areas
simultaneously:
• Under the SVP’s leadership, they facilitated several meetings where his
group made important structural changes that increased the division’s
agility and performance. These changes included new cross-functional
teams of marketing and software design managers.
408
fi
fi
fi
fi
STRATEGIC LEADERSHIP
Through the leadership team’s work, the division experienced a real turn-
around. They developed a strong organizational culture based on teamwork,
communication, and mutual trust, operating at the Achiever-level and
beyond. Even people who had not attended Pivotal Conversations
workshops were behaving in new ways. As a result, both morale and
business performance improved signi cantly. Not only were new products
being installed on time, the quality and innovativeness of their products
increased as well.
The Bottom Line
As the intensive phase of our consulting work with the division concluded,
the SVP described the results of improvement process as follows: “We’ve
now moved to a stage where collaboration has become a part of the
division’s culture. The bottom line is that now we’re more agile, extremely
pro table, and we have more control over our own destiny. Communication
and trust have increased dramatically within my team and the division as a
whole. Employee morale has improved signi cantly. We have achieved a
level of success that otherwise simply would not have been possible without
this intervention.
12.9 Leading Strategic Change
In this chapter, we will discuss the speci c role of business leaders in leading
strategic change. For that, we need to understand the correlation between
the organization’s existing culture and its readiness to accept new ideas for
change in line with its new strategy. We will also look at some of the
leadership skills as discussed above that are necessary to implement
change effectively and identify the barriers that need to be overcome. The
values of an organization will invariably manifest itself in its core and
peripheral culture. The culture may have been long ingrained in the
organization; hence it will take time and sustained effort to change the
course of direction.
It must be recognized that the organization’s culture is a powerful instrument
for facilitating or inhibiting change that a leader wants to implement. Even
good ideas, if in con ict with the existing culture may be dif cult to
implement. Good ideas may fail unless they are aligned with the
organization’s business strategy, its people, and the prevailing culture. For
409
fi
fl
fi
fi
fi
fi
STRATEGIC LEADERSHIP
410
fi
STRATEGIC LEADERSHIP
411
fi
fi
STRATEGIC LEADERSHIP
412
fi
fi
STRATEGIC LEADERSHIP
413
fi
fl
fi
fi
fi
STRATEGIC LEADERSHIP
414
fi
STRATEGIC LEADERSHIP
References
1. Anthony E Henry, Understanding Strategic Management, P 353
2. John Kotter International Change leadership
3. Daniel Goleman's emotional Intelligence
4. EBTIC, Etisalat BT Innovation centre, in partnership with Halifa University
5. Bill Joiner’s article, “Creating a Culture of Agile Leaders”
6. A case study from ChangeWise
7. Anthony E Henry, Understanding Strategic Management, Second Edition,
P 384
8. Anthony E Henry, Understanding Strategic Management, Second Edition,
P 385
415
REFERENCE MATERIAL
Click on the links below to view additional reference material for this chapter
Summary
PPT
MCQ
Video
416
13
CORPORATE GOVERNANCE
Objectives:
This chapter focuses on the importance corporate governance for effective
implementation of strategy. The quality of corporate governance at the top
management level is key to the effective implementation of strategy. An
organisation needs to be compliant organisation in order to gain reputation
as a leader in corporate governance and gain investor con dence.
Corporate governance is the lifeline of any business that needs to sustain its
existence. This chapter talks about a number of challenges and issues that
need to be considered well in advance by the strategic managers while
complying with corporate governance.
At the end of the chapter, you will be able to understand the following:
• Understand the importance of corporate governance
• Understand the de nition of corporate governance
• Understand the purpose of corporation
• Organisation and corporate governance
• Corporate ethics and corporate social responsibility
417
fi
fi
CORPORATE GOVERNANCE
Structure:
13.1 Introduction and Importance of Corporate governance
13.2 De nition of Corporate governance
13.3 Modern Corporation
13.4 Principles of Corporate governance
13.5 Regulation, Codes and Guidelines
13.6 Corporate governance in India
13.7 Purpose of corporation
13.8 Corporate social responsibility
13.9 Summary
418
fi
CORPORATE GOVERNANCE
13.1 Introduction
Governance, in general, is over and beyond law and regulation in the domain
of corporate affairs. It helps to foster transparency and trust amongst
organisational stakeholders. Any good corporate performance must be the
outcome of good corporate governance. In the earlier chapters, we
discussed about the various elements of strategic management process, and
also discussed the evaluation and control of the same. In this chapter, as an
extension of strategic leadership, we shall talk about corporate governance,
various approaches towards good corporate governance. Corporate
governance is re ected on how a business is de ned, conducted, and
business ethics are followed.
If the purpose of a business is de ned as maximizing the bene t and
pro tability for the owners or shareholders of the business, then the role of
corporate governance will be relatively narrow, and will have a restricted
approach. However, if the purpose of the business is de ned as creating
long term value for its stakeholders such as customers, the employees,
partners, and at large, the society, then the role of corporate governance will
be wider and will have an inclusive approach.
Corporate governance is a function of various business decisions which are
strategic in nature, and therefore affects all aspects of the strategic
management process. As discussed in the earlier chapter on strategic
leadership, corporate governance requires change in the attitude of the
leaders, both at the boardroom level, and also at the executive management
level. As we evaluate corporate governance in this chapter, we will explore
the best practices to make it an integral part of the strategic management
process in organizations.
Corporate governance is tightly tied with the purpose of the organization and
how the rm de nes its business. While there are different de nitions of
corporate governance, we look at them in the context of the purpose of the
corporation and how the business is de ned. We discuss the origins of
corporate governance and explain the reasons for following a disciplined
approach to adopting them while executing business strategy.
419
fi
fi
fi
fl
fi
fi
fi
fi
fi
fi
CORPORATE GOVERNANCE
420
fi
fi
fi
fi
fi
CORPORATE GOVERNANCE
Corporate governance has been in existence for many years, but the use of
the term corporate governance gained prominence in the UK following the
publication of the Report Committee on the Financial Aspects of Corporate
Governance in 1992, commonly referred to as the Cadbury Report
(Cadbury 1992) (1 – Anthony E Henry, Understanding Strategic
Management, Second Edition P 392)
For example, in Jan 2009 Satyam Computer Services’, a leading IT Services
company then, stock price plummeted more than 90% in a matter of few
weeks following the admission of wrong doing by its Founder Chairman
Ramalinga Raju in the book of accounts of the company. The annual report
of accounts, signed off by external auditors, showed almost no signs of its
true nancial state, thereby the revelation came as a rude shock to its
shareholders. The Chairman confessed to having perpetrated a huge
accounting fraud in its books to the tune of $1.47 billion and he stepped
down in January 2009. This revelation of corporate fraud heavily damaged
the company’s credibility, brand name and its standing in the industry.
There have been substantial failures of global corporations such as Enron,
Worldcom, Lehman etc which have threatened the stability of world nancial
and stock markets. Corporate governance is all about authority and
accountability. They involve where power lies in the corporate system and
what degree of accountability there is for the leadership to exhibit and
exercise. In other words, corporate governance is concerned with ensuring
that the investors receive value back from the managers to whom they
entrust their investments (i.e. assuring them a return on their investment).
Companies like Infosys Technologies, Tata group are leading examples of
highest level of corporate governance in Indian Industry.
(2 same, P392), As per Organisation of Economic Cooperation and
Development (OECD), there is a set of guidelines that to govern the
principles of corporate governance. It de nes that corporate governance
involves a set of relationships between a company management, board,
shareholders and other important stakeholders like employees, partners,
society etc. It also describes that corporate governance should provide
proper incentives to the board and management to pursue the objectives that
are in the interests of the company and different stakeholders.
421
fi
fi
fi
CORPORATE GOVERNANCE
422
fi
fi
fi
fi
CORPORATE GOVERNANCE
423
fl
fi
fl
fl
fi
fi
CORPORATE GOVERNANCE
424
fi
fi
fi
fi
fi
fi
fi
CORPORATE GOVERNANCE
425
fi
fi
fi
fi
fl
CORPORATE GOVERNANCE
• The Chief Executive Of cer (CEO) and Chief Financial Of cer (CFO) attest
to the nancial statements. Prior to the law, CEO's had claimed in court
they hadn't reviewed the information as part of their defence.
• Board audit committees have members that are independent and disclose
whether or not at least one is a nancial expert, or reasons why no such
expert is on the audit committee.
• External audit rms cannot provide certain types of consulting services and
must rotate their lead partner every 5 years. Further, an audit rm cannot
audit a company if those in speci ed senior management roles worked for
the auditor in the past year.
• Prior to the law, there was the real or perceived con ict of interest between
providing an independent opinion on the accuracy and reliability of nancial
statements when the same rm was also providing lucrative consulting
services.
OECD principles
One of the most in uential guidelines has been the OECD Principles of
Corporate Governance—published in 1999 and revised in 2004. The OECD
guidelines are often referenced by countries developing local codes or
guidelines. Building on the work of the OECD, other international
organizations, private sector associations and more than 20 national
corporate governance codes formed the United Nations Intergovernmental
Working Group of Experts on International Standards of Accounting and
Reporting (ISAR) to produce their Guidance on Good Practices in Corporate
Governance Disclosure. This internationally agreed benchmark consists of
more than fty distinct disclosure items across ve broad categories:
• Auditing
• Board and management structure and process
• Corporate responsibility and compliance in organisation
• Financial transparency and information disclosure
• Ownership structure and exercise of control rights
426
fi
fi
fi
fl
fi
fi
fi
fi
fi
fi
fl
fi
fi
fi
CORPORATE GOVERNANCE
427
fi
fi
fi
fi
fl
fi
CORPORATE GOVERNANCE
428
fi
CORPORATE GOVERNANCE
429
fi
fi
fi
CORPORATE GOVERNANCE
The Sebi board also increased the minimum net worth of mutual funds to Rs
50 crore. It also asked all the fund houses to invest at least 1% of the
amount raised in each open-ended scheme from their own corpus. As of
now, of the 42 fund houses only a select few invest their own money in each
of the funds they manage. Sebi also made it compulsory for fund houses to
disclose separately the breakup of assets under management (AUM) for
various categories of schemes such as equity, debt, etc.
13.7 Purpose of Corporation
As discussed earlier, the purpose of a corporation is not just to meet the
nancial interests and pro tability motive of the shareholders. In today’s
economic world, the expectation is also to serve the society and other
stakeholders in all fairness.
The performance of the organisation can be directly linked to be the direct
result of the ethical or unethical decisions taken by the various strategic
managers at different points of time.
Generally, corporate ethical behaviour can be looked at a number of ways
how the organisation behaves during various challenges.
13.8 Corporate Social Responsibility (CSR)
Societal mission is broader than that of an organisation with a social cause.
As seen in the earlier chapters 4 and 8, for example, Tata organisations
identify the societal needs of the region where the company operates. They
identify what rests underneath the society each individual company operates
within and how it can create hope and value to the society as well as
generating economic value or wealth to its shareholders and other
stakeholders like employees, customers, partners and the like.
Corporate Social Responsibility is generally the expectation that the
corporate organisation should serve both the societal needs and the nancial
interests of the shareholders in a fair manner. A rm’s position towards
social responsibility can be a critical factor in making strategic decisions. If
social responsibility is not considered, decisions of the rm may be aimed
only at pro t or other narrow motives without a concern for the social
objectives.
430
fi
fi
fi
fi
fi
fi
CORPORATE GOVERNANCE
431
fi
fi
fi
fl
fi
fi
fi
fi
fi
CORPORATE GOVERNANCE
432
fi
CORPORATE GOVERNANCE
13.9 Summary
In this chapter we have studied the various aspects of corporate governance
and its impact on the company’s long term sustenance strategy. Corporate
governance is de ned as the way by which a corporation is directed and
controlled or a process by which a corporation is made responsive to the
rights and wishes of its stakeholders by being transparent and making
disclosures regularly.
Corporate governance has also been de ned as "a system of law and sound
approaches by which corporations are directed and controlled focusing on
the internal and external corporate structures with the intention of monitoring
the actions of management and directors and thereby mitigating agency risks
which may stem from the misdeeds of corporate of cers.
We have also seen the importance of corporate governance an about the
various regulations, rules and guidelines. We have also seen how it applies
to Indian corporate governance as guided by Sebi. We also studied the
importance of corporate social responsibility that de nes the company’s
purpose and vision over a long period of time by becoming a societal
organisation beyond just the pro tability motives.
1. State whether the following statement is True or False:
Companies like the Tata Group and Infosys Technologies are great examples
of the highest level of Corporate Governance in the Indian Industry.
2. Satyam Computers Ltd. was acquired by which company after its
accounting scandal in Jan2009 by its founder Chairman, Ramalinga
Raju?
(a) Infosys
(b) Tech Mahindra
(c) Tata Group
(d) Lehman Brothers
433
fi
fi
fi
fi
fi
CORPORATE GOVERNANCE
434
CORPORATE GOVERNANCE
REFERENCE MATERIAL
Click on the links below to view additional reference material for this chapter
Summary
PPT
MCQ
Video
435