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STRATEGIC MANAGEMENT AND

POLICY
MSC STRATEGIC MANAGEMENT
AND
LEADERSHIP

A AGYAPONG (PhD)

COURSE OUTLINE INTRODUCTION NATURE AND EVOLUTION AND

NATURE
Course Objectives: The aim of this course is to OF STRATEGY AND STRATEGIC
enable master students develop the competence MANAGEMENT
to:
•grasp the knowledge on theoretical concepts,
models, ideas and analytical techniques
underpinning strategic management
•analyze the business environment and how
environmental factors impact on the
performance of businesses and
•formulate appropriate corporate strategies in
response to the dynamic turbulent business
environment for survival and competitive
advantage
METHODOLOGY

• A key feature of this course is the amount of EVOLUTION OF STRATEGY

case studies drawn from a real life practical
organizational situations, which includes a rich
database of materials to help students to apply
the theory into practice of strategy within the
world of organizations.
• •The case studies will focus on specific
strategic issues. Lectures would be
complemented by case studies and discussions
• The word strategy derives its origin from the
Greek word ‘strategeia’ which means the art
or science of being a military general.
Effective Greek military generals needed to
lead an army to win wars and protect their
cities from aggression and invasion. A
strategy is therefore defined as the pattern of
actual actions that are designed to counteract
against enemy attack. To the Greeks strategy
was more than fighting battles.

• Effective Greek generals had to
determine the right amount of
logistics needed to fight; where to
fight and where not to fight; the
army’s relationships with citizens,
politicians, diplomat, etc
• Strategy has both decision –making
component and planning component.
Military Generals are therefore
supposed to decide and plan
strategically. These two components
constitute the key elements to any
success.
What is Strategy?
• An America Heritage Dictionarydefines
strategy as the science and art of military
command as applied to the overall
planning and conduct of large scale
combat operations.
Strategy defined….
• John R. Schermerhorn - a comprehensive
plan that sets direction and guides the
allocation of resources to achieve longterm
objectives;
• An action plan that identifies long-term
direction and guides resource utilisation to
accomplish an organization’s mission and
objectives with sustainable competitive
advantage;
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• A plan for using resources with
consistent strategic intent, that is,
with all organizational energies
focused on a unifying and
compelling target Eg. The strategic
intent of Coca-cola is to put a coke
within an arm’s reach of every
consumer in the world.
• A strategy is the plan that integrates an
organization’s major goals, policies and
action sequence into a cohesive whole.
It is a managerial game plan for running
an organisation.
Since competitors often copy
strategies, there is the need to always
search for innovative strategies that
have competitive edge. As a result of
aggressive nature of competition in
recent times, strategies must be
aggressive, bold, and fast-moving.
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• Strategic decisions are normally

• Strategy is the direction and scope about trying to achieve some
of an organisation over the long advantage for the organisation
term, which achieves advantage in over competition. Advantage
a changing environment through may be achieved in different
its configuration of resources and ways and may mean different
competences with the aim of things.
fulfilling stakeholder expectations
(Johnson et al 2007)
The Characteristics of Strategic • However, strategy can also be seen
Decisions as creating opportunities by
building on an organisation’s
- The characteristics usually resources and competences. This is
associated with the words called the resource-based view of
‘strategy’ and ‘strategic decisions’ strategy..
are these:
• Strategy is likely to be concerned
with the long-term direction of an
organisation
• Strategy can be seen as the search
for strategic fit with the business
environment. This could require
major resource changes for an
• Strategic decisions are likely to organisation in the future.
concern with the scope of an
organisation’s activities. For
example, does (and should) the
organisation concentrate on one
area of activity, or should it have
many?

• The strategy of an organisation is
affected not only by environmental
forces and strategic capability, but
also by the values and
expectations of those who have
power in and around the
organisation.
Some consequences of the strategic
decisions
• Strategic decisions are likely to be
complex in nature. This
complexity is a defining feature of
strategy and strategic decisions
and is especially so in
organisations with wide
geographical scope, such as
multinational firms, or wide
ranges of products or services.
• Strategic decisions may also have
to be made in situations of
uncertainty about the future.
• Strategic decisions are likely to
affect operational decisions.
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• Strategic decisions are also likely
to demand an integrated approach
to managing the organisation.
Managers have to cross functional
and operational boundaries to deal
with strategic problems and come
to agreements with other managers
who, inevitably, have different
interest
• Managers may also have to sustain
relationships and networks outside
the organisation, for example with
suppliers, distributors and
customers.
• Strategic decisions usually involve
change in organisations which may
prove difficult because of the
heritage of resources and because
of culture.

Other Dimensions of Strategic
Decisions
• Strategic Issues Require
TopManagement Decisions:
• Strategic Issues Require Large
Amounts of the Firm’s Resources:
• Strategic Issues Require
Considering the Firm’s External
Environment:
Strategic Issues Are Future
Oriented:
• Strategic Issues Usually Have
Multifunctional or Multibusiness
Consequences:
STRATEGY MAKERS
• The ideal strategic management
team includes decision makers from
all the three company levels (the
corporate, business and functional)
for example, the chief executive
officer (CEO), the product
managers, and the heads of
functional areas
LEVELS OF STRATEGY
• Strategies exist at a number of
levels in an organization. At least
four levels are distinguished:
• Corporate Level Strategy
• Business Level Strategy
• Functional Strategy
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• Corporate Strategy:
• this is concerned with the overall
scope and direction of an
organization and how value will be
added t the different parts (business
units) of an organization. It is
formulated by the top management
and corporate decisions affects the
whole organization. This could
include issues of geographical
coverage, diversity of
products/services or business units
and how resources are to be
allocated among the different parts
of the organization. e.g.. Growth,
retrenchment strategies etc
Business Level Strategies
• it is about how to compete
successfully in particular markets
or how to provide best value
services in the public services.
This concerns how product or
services should be developed in
which markets and how to gain
competitive advantage over its
Strategic Business Unit (SBU) or
divisional levels. Business level
strategies flow from the corporate
strategies e.g.. Competitive
strategies are cost, differentiation
and focus strategies, it can also be
termed as generic strategies
Functional Strategies:
• these strategies are formulated at
the functional level from the
Business strategy or corporate
strategy. The main functional
strategies include marketing,
financial, human resources and

• Operational Strategies
Operation Strategies:
• this is at the operating end of the
organization which are concerned
with how the components parts of
an organization deliver effectively
the corporate or business level
strategies in terms of resources,
processes and people
THINKING STRATEGICALLY
• The four Big Strategic questions
are:
• i. Where are we now?
• - That is, what is our current
strategic situation/ position in
terms of strengths, weaknesses,
opportunities and threats?
Where are going ?
• That is, the direction of an
organization
• –Businesses we want to be in and
market positions we want to stake
out
• –Buyers needs and groups we
want to serve
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production strategies for the
implementation of corporate
strategy.
• How do we get there?
(Strategy/means to reach there)
• iv. How do we know that we have
reached? (control and evaluation)
Strategic Thinking enables an
organization to become:
•Proactive and innovative
•Ensure efficient allocation of
resources
•The organization becomes focused
•Capitalize on opportunities
available
•Have control over its own destiny
•To achieve strategic fit and
changed oriented etc
What is Strategic Management
• According to Bowman and Asch
(1987), Strategic Management is
the process of making and
implementing strategic decisions,
it is about the process of strategic
change. Hence, strategy can be
seen as a key link between what
the organization wants to achieve
its objectives and the policies
adopted to guide its activities
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• Strategic management includes

understanding the strategic position
of an organisation, strategic
choices for the future and turning
• Fred David – strategic Management
strategy into action. Johnson et al
can be defined as the art and
(2007)
science of formulating,
implementing and evaluating cross
– functional decisions that enable
an organization to achieve its
objectives
• Three main concepts can be
• Thompson and Strickland: the
identified from the above
Strategic Management refers to the
definition, including strategic
managerial process of forming a
position, strategic choices, and
strategic vision, setting objectives,
strategy into action.
crafting a strategy, implementing
and executing the strategy and then
over time initiating whatever
corrective adjustments in the
vision, objectives, strategy and
execution and deemed appropriate.
• Charles W. L. Hill and Gareth R.
Jonesthe major components of the
strategic management process
include defining the mission and
major goals of the organisation;
analysing the external and internal
environment of the organisation; • According to Johnson et al (2007),
choosing strategies that align; or understanding the strategic position
fit; the organisation’s strength and precede strategic choices, which in
weaknesses with external turn precede strategy into action.
environment opportunities and However, as they point out, in
threats; and adopting practice, the elements of strategic
organisational structures and management do not take this linear
control systems to implement the form, they are interlinked and
organisation’s chosen strategy. inform each other.

IMPORTANCE OF STRATEGIC
MANAGEMENT
• In recent paper by Arthur D. Little
(1998), the multinational
1. The principal benefits of Strategic
Management is to help
organisations make better
strategies through the use of a

consulting company, the writers
made this assertion:
• Many thoughtful people are asking
whether…it makes sense to ‘do’
strategy at all. How useful is it to
engage in strategic reviews,
analysing market positions and
setting goals and tactics, when at
the end of the process the world
will have changed and will
continue changing? Is strategy still
relevant?
• Strategic management allows an
organisation to be more proactive
than reactive in shaping its own
future; it allows an organisation to
initiate and influence activities and
thus to exert control over its own
destiny.
• Small business owners, chief
executive officers, presidents and
managers of many profit and
nonprofit organisations have
recognised and realised the
benefits of strategic
management
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more systematic, logical and
rational approach to strategic
choices.
2. Through strategic management,
managers and employees become
committed to supporting
organisation – understanding and
commitment
3. Managers and employees become
creative and innovative when they
understand and support the firms
mission, objectives and strategies
– empower individual’s sense of
effectiveness
- Greenly stresses that strategic
management offers the following
benefits:
• It allows for identification,
prioritisation and exploitation of
opportunities
• It provides an objective view of
management problems
• It represents framework for
improved coordination and control
of activities

• It minimises the effects of
adversely conditions and changes
• It allows more effective allocation
of time and resources to identified
opportunities
• It creates a framework for internal
communication among personnel
• It provides a basis for the
clarification of individual
responsibilities
• It encourages a favourable attitude
toward change
BENEFITS OF HAVING
STRATEGY
• Specific advantages of having
strategies include the following:
• Co-ordination of divisions,
subsidiaries and other component
parts of the organisation become
easier. The existence of a strategy
provides a focal point towards
which all the firm’s energies may
be directed.
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• It forces management to think
through the possible future
actions of major competitors and
hence, to prepare reactions to
change in competitor behaviour
• Strategies provide the business
with definite criteria against
which to evaluate performance
• The process of formulating a
strategy forces the company to
analyse its position and hence,
identify and remedy internal
weaknesses
• External threats and opportunities
will be identified
• The company can decide in
advance how it will respond to
predictable changes in customer
tastes and spending patterns

CORPORATE MISSION, VISION
OR STRATEGIC INTENT
• MISSION
• A firm’s mission is a broad
statement providing a general
direction for business activities and
a basis for the coherent selection of
desired ends (goals and objectives)
and means to achieve them
(strategies).
• The firm’s mission defines why it
exists and why it competes in
certain selected markets or
industries and not in other. It is an
enduring statement of purpose that
distinguishes one organisation
from other similar enterprise. A
mission statement is sometimes
called a creed statement or
statement of purpose.
• The mission of an organisation
explains the organisation’s purpose
for existence. It is the declaration
of a company’s fundamental
purpose for existence. It explains
among other things how the
company sees itself, and what it
wishes to do. It contains firm’s
beliefs, norms, and ideologies
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• Mission statement is a qualitative
statement of the overall business
position that summarises the key
points with regard to products,
markets, geographic locations, and
unique competencies
• NATURE OF MISSION
STATEMENTS
• It should be customer oriented
rather than product oriented
• A product definition focuses just on
the products sold and markets it
serves. This obscures a company’s
function, which is to satisfy
customer needs
COMPONENTS OF MISSION
STATEMENTS
• A good mission statement should
include most of these essential
elements:
• Customer: who are the firm’s
customers?
• Product or services: what are the
firm’s products or services
• Markets: geographically, where
does the firm compete?
• Is the firm technologically current?
• Concern for survival, growth and
profitability – is the firm committed
to growth and financial soundness

• Philosophy – what are the basic
beliefs, values, aspirations and
ethical priorities of the firm?
• Concern for employees – are the
employees a valuable asset of the
firm?
• Concern for public image – is the
firm responsive to social,
community, and environmental
concern?
• Self concept – what is the firm’s
distinctive competence or major
competitive advantage
CHARACTERISTICS OF GOOD
MISSION STATEMENTS
• It should be feasible – realistic and
achievable
• It should be clear and lead to action
• It should be distinctive
• If IBM defines its mission as being
in the computer business it is
typically a product based
definition.
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• It should be motivating and
inspiring
• It should indicate how objectives
are to be accomplished
• It should indicate major
components of strategy
• 1. A well crafted mission statement:
• Must be narrow enough to specify
real arena of interest
• Serves as beacon of where top
management intends to take the
firm to
• 2. Overly broad mission statements
provide no practical guidance in
strategy making
• Broad Definition
Narrow Definition
• Beverage
Soft drink
• Footwear
Athletic Footwear
• Global mail delivery
Overnight package delivery
• THE NEED TO CHANGE
MISSION STATEMENT
• The environmental changes
demand that companies review

• On the other hand, if IBM defines
its mission as operating in
information and data processing
business, it is a customer based
definition. This is because when a
customer buys IBM computer, the
benefit he or she is expected to
derive from it is information and
data processing.
• Similarly, if an educational
institution defines its mission as
an educational establishment that
provides professional based
courses, it is a product based
definition. However, if it defines
its mission statement as providers
of knowledge and information,
then, this is a customer based
definition.
• IMPORTANCE OF HAVING A
MISSION STATEMENT
• It helps companies to have focus
and direction
• It helps companies to effectively
utilise their resources
• Mission helps firms to be more
ethical in their conduct of business
VISION
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their mission statement frequently
in order to remain competitive and
to meet needs of customers.
Customer taste is not static but
changes with time. To remain
useful, mission must be revised.
WHO DRAFTS COMPANY
MISSION?
• Lead in the drafting of the mission
statement is the chief executive
officer with support of the board
of directors and other senior
management members of the
organisation. In some cases the
chief executive officer may draft
the mission and present it to the
senior management to add or
subtract some information. This
happens when other management
members have insight into what
should constitute a good mission
statement.
COMMUNICATING MISSION
AND VISION STATEMENTS
• After the mission or vision have
been drafted, senior management
owns it a duty to communicate to
the other members of the
organisation. This is because
implementation becomes easy if
they understand the mission and
the vision.
MACRO-ENVIRONMENTAL

• The mission statement deals with
present – that is, what business the
organisation is operating in; but
vision statement talks about the
future – ‘that is where the
organisation wishes to be’’. A
strategic vision provides a big
picture perspective of what the
organisation intends to be
considering the instability of the
business environment.
• DEVELOPING THE MISSION
STATEMENT OF THE BUSINESS
• Definition of time frame
• Determination of the business scope
• Determination of product – market
segment
• Challenges from changes in the
mission statement
• Mission statement
STRATEGIC POSITION
• Strategic position is concerned
with the impact on strategy of the
external environment, an
organisation’s strategic capability
(resources and competencies) and
the expectation and influences of
stakeholders.
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FORCES
• Environmental influences and
trends can be thought of as layers
around an organisation.
• Political
• Key issues might include:
• Increases in taxation, reducing
disposable income
• Environmental protection (a social
and political issue)
• Employment law
• Health and safety
• Foreign trade agreements
• Stability of political systems
• Economic
• Key component measures of the
economy are:
• Inflation rates
• Interest rates
• Income levels
• Gross national product
• Gross domestic product
• Employment levels
• Exchange rates – currency
valuation
• Consumer spending patterns.

• Social
• Social factors include issues such
as:
• Demography – The characteristics
of customers, age sex, class, family
life cycle, etc., trends in age
distribution.
• Society – this reflects upon the
infrastructure of society and its
attitude towards many issues, i.e.
religion, the environment, green
and ethical issues.
• The significance of understanding
consumer power, customer needs
and wants is critical to
organisatonal success, and therefore
failure to react to the outcomes can
have catastrophic implications in
the future.
• Culture – The range of variables
relating to culture include:
– language
– religion
– values and attitudes
– law
– healthcare
– education
– social organisation
• Technological
• Technology has evolved rapidly
over the past 20 years and
particularly in the past 10 years.
Technological developments have
seen improved manufacturing
techniques, new and dynamic
innovations and increases in
efficiency and effectiveness in a
way never previously imagined.
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• Government spending on research
• Identified new research initiative
• Speed of change and adoption of
new technology
• Speed of technology transfer
• However managers need to
understand the drive for
technological change, and the need
to go with the flow, to remain
competitive. Decisions to improve,
change or implement new
technological processes must be
made in order to meet customer
needs and expectations.
• Environmental
• The world is currently in an age
where there is growing industrial
wastage, discharge of effluent,
emissions of fumes and acid rain,
all of which have to be taken
seriously by manufacturers. Due to
the high level of industrialisation in
the modern world, the environment
is under constant threat from global

• Environmental degradation
• Global warming
• Laws on afforestation
• However, organisations need to
become increasingly aware of their
environmental responsibilities and
aim to ensure that inherent within
their corporate mission, vision and
strategy, is the need to be
environmentally aware, and should
position environmentalism as a
principle that should be embedded
within their overall CSR.
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warming. In recent times we have
experienced severe whether effects,
such as heavy rain, gales, and
significant flooding. All of these
relate to environmentalism and as
such means that organisations must
in the future consider their strategy
in relation to these issues.
• Monopolies and mergers
• Competitive activities
• Unfair trading
• Consumer legislation
• Trade descriptions
• Health and safety
• Professional code of conduct
PORTER’S FIVE FORCES –
Competitive Analysis
• It is imperative for you as a
manager to have a clear
understanding not just of your
competitor, but of nature of the
competitive environment,
particularly if you are to succeed in
developing a sustainable
competitive advantage to be able to
respond from a position of strength
to competitor attacks.
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• Legal
• Porter’s five forces model will be
• In a culture bound by regulatory
bodies, legal restraint and an
increasing role played by European
and international legislation,
organisations will clearly need to
understand the legislative nature of
their own marketing environment
and abide by it.
• Every organisation is bound by
controls. For example, there are
regulations concerning:
particularly helpful when
undertaking a competitor analysis
within the existing business
environment. It provides a
framework for an analysis of a
range of micro-factors, which
enables industry attractiveness to
be measured and also helps
organizations understand the
complexity of the markets in which
they operate.

• • Capital investment – It can be cash

• Threat of new entrants intensive to enter into new markets
• Barriers to entry: and require high levels of
• Economies of scale investment – from a competitive
• Product differentiation perspective, this would actually
• Capital requirement weaken your initial position,
• Switching cost unless you are a cash-rich
• Access to distribution organization.
channels
• Government policy
• Entry-deterring price
• Experience
•
• Industry competitors
• Intense rivalry if:
• Numerous of similar-
sized competitors
• Slow industry growth
• High fixed cost
• Lack of
differentiations
• High exit barriers
•
•
• Bargaining power
Bargaining power
• of suppliers
 7/13

of buyers Buyers
Suppliers
•
Powerful if:
Power if:
• Few suppliers
-Large proportion of
sellers sales
• No substitute
-High proportion of
the buyer’s cost
• Industry not import-
-Undifferentiated
product
• ant customer of
-Low buyer switching
cost
• supplier group
-Threat of backward
integration
• Supplier groups
• product are different-
• rated
• Threat of forward
• Substitutes
• integration
Threat of substitute
product or services
• Source:
• M. E Porter,
Competitive Strategy
• The Free Press, 1980
The threat for potential entrants • Competitor retaliation – It is likely
that competitors will follow suit
• This issue looks at the obstacles to quite closely behind, therefore
entering new markets: competitive rivalry intensive.

• Economies of scale – Existing

organizations often have
economies of scale and therefore
new entrants will struggle to

achieve the same competitive
economies in the short/medium
term.
• Access to new distribution channels
– It may be difficult to gain access
to the appropriate distribution
channels, due to competitive
operations and networks in the
marketplace.
• Brand loyalty – In a brand-loyal
market it might be difficult to
attract new customers and therefore
marketing spend could be quite
considerable.
• Switching supplier – The cost of
switching suppliers can be quite
high
• Substitute products of suppliers –
Are there appropriate substitute
products available?
• Forward integration – Is there a
threat of suppliers establishing
their own production facilities?
Bargaining power of buyers
• The bargaining power of buyers is
likely to be quite strong in the
following instances:
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Bargaining Power of suppliers
• Bargaining Power of suppliers
• The key components of this
particular element of Porter’s Five
Forces emphasize the following
points:
• The strength of the supplier brand –
• The supplier’s product is a mass-
market product and not necessarily
differentiated – e.g. where there are
many variations on the same
theme, for example, toothpaste,
soft drinks, etc.
• Strong customer power – This
involves knowledge of the market
and where to attain the best deal.
• Threat of backward vertical
integration –Where the buyer goes
back to the supplier, cutting out the
middle man.
The threat of competitive rivalry
• Competitive rivalry within the
marketplace is highly intense.
Intense competition has, over the

• Where few buyers control a large
volume of the market.
• Where there are a large number of
suppliers fighting for a share of the
market – • The cost of switching
supplier is low –
• Competition can take various
shapes.
Competition can be cutthroat, with
ongoing price wars, as have been
experienced in recent years in the
banking industry, while at the other
end of the scale, competition can
appear to be nonexistent.
However, while rivalry might seem
healthy, it can have both positive
and negative effects.
• Organizations that succeed in
competition, possibly increasing
market share, through a range of
activities, potentially experience a
rise in profit. However, the reverse
may happen; the organization
might increase market share, but at
the expense of their profit margins.
• Key factors influencing
competitive rivalry will be
identified when undertaking the
competitive analysis as already
suggested, but key components
might be:
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years, changed the shape of a
number of industries, and as a
result there have been an increasing
number of mergers and acquisitions
to ensure that major players within
the market place maintain market
share and superior positioning.
• Stage of the product life cycle
(PLC) of competing products
• Liquidity of competitor
• Ability to achieve differentiation
and brand loyalty
• Competitor intentions
• The relative size of the competitor
• Barrier of exit from the industry.
Threat of substitutes
• A new product or service
equivalent– A direct equivalent
product, from a differing brand may
have a competitive influence. This
is typical of the evolution of ‘home
brands’, e.g. supermarket brands as
a substitute in soft drinks breakfast
cereals, etc.
• A new product replacing an existing
product – For example the DVD
player replacing the VHS video
player or cassette tapes being
replaced by compact discs.

• Consumer substitution – COMPETITIVE ENVIRONMENT
Consumer choice can be the basis
of a threat, when the consumer is
willing to search for substitute
products; for example, when the
consumer chooses a new kitchen
over a new car.
• Essentially the porter framework is
an opportunity for the organization
to understand the holistic range of
driving forces in the micro
environment, which they can
clearly link to the macro analysis,
i.e. the SLEPT/PEST analysis.
COMPETITIVE ENVIRONMENT
IS UNATTRACTIVE WHEN:
• Rivalry is very strong
• Entry barriers are low
• Competition from substitutes is
strong
• Suppliers and customers have
considerable bargaining power
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IS ATTRACTIVE WHEN:
• Rivalry is only moderate
• Entry barrier are relatively high
• There are no good substitutes
suppliers and customers are in a
weak bargaining position
• The weaker the competitive forces,
the greater an industry’s profits
INTERNAL ANALYSIS
(RESOURCE BASED
VIEW – RBV)
• The five forces framework is not
the only tool used to undertake the
micro analysis of an organisation.
Successful strategies are also
dependent on the organisation
having the internal strategic
capability required for survival
and success.
• Understanding strategic capability
is very important because an
organisation’s strategic capability
may be the leading edge of
strategic development. New
opportunities may be created by
stretching and exploiting
capabilities either in ways which
competitors find difficult to match
or to create quite new market
opportunities, or both.

• The explanation of competitive
advantage in terms of strategic
capabilities is sometimes called the
resource-based view of strategy:
that the competitive advantage of
an organisation is explained by the
distinctiveness of its capabilities.
• In turn this helps explain why
some businesses are able to
achieve extraordinary profits or
returns compared to others. They
have resources or competences
that permit them to produce at
lower cost or generate a superior
product or service at standard cost
in relation to other businesses with
inferior resource capabilities.
STRATEGIC CAPABILITIES
. Strategic capability can be defined
as the adequacy and suitability of
the resources and competencies of
an organisation for it to survive and
prosper (Johnson et al, 2010).
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• Competitive advantage is achieved
by organisations that are able to
develop strategic capabilities more
appreciated by customers and in
ways that competitors find difficult
to imitate.
• According to Hitt et al (1996)
resources are inputs into a firm’s
production process, such as capital
equipment, the skills of individual
employees’ patents, finance, and
talented managers. Strategic
capabilities comprise tangible and
intangible resources and
competences.
• Tangible resources are the physical
assets of an organisation such as
plant, labour and finance. In
contrast, intangible resources are
non-physical assets such as
information, reputation and
knowledge.

• Organisation’s resources can also
be considered in terms of physical
resources, financial resources,
human resources and intellectual
capital. Intellectual capital is an
important aspect of the intangible
resources of an organisation.
• This includes patents, brands and
customer database. Such
resources are certainly important;
but what the organisation does,
how it employs and deploys its
resources is equally important.
SUSTAINABLE COMPETITIVE
ADVANTAGE
• Hitt et al (2005) argue that,
individual resources alone may
not yield sustainable competitive
advantage. For example, a
sophisticated piece of
manufacturing equipment may
become a strategically relevant
resource only when its use is
integrated effectively with other
aspects of a firm’s operations.
7/13
• But in general, it is through the
combination and integration of
sets of resources that
sustainable competitive
advantages are formed.
COMPETENCES
• The term competence is used to
mean the activities and processes
through which an organisation
deploys its resources effectively
in a way that others cannot
imitate. In understanding strategic
capability the emphasis is, then,
not just on what resources exist
but on how they are used.
• The organisations require such
resources and competences at least
to a threshold level in order to be
able to compete. Threshold
capabilities are those capabilities
essential for the organisation to be
able to compete in a given
market..

• If they are able to achieve
competitive advantage, they require
resources and competences, which
are both valuable to customers and
difficult for competitors to imitate
• Not all of a firm’s resources and
capabilities have the potential to
be the basis of sustained
competitive advantage. This
potential is released when
resources and capabilities are
valuable. Resources are valuable
when they allow a firm to exploit
opportunities and/or neutralise
threats in its external environment;
they are rare when possessed by
few, if any, current and potential
competitors;
• they are imperfectly imitable when
other firms cannot obtain them;
and they are non-substitutable
when they have no strategic
equivalents. When these criteria
are met, resources and capabilities
become core competencies and
serve as the basis of a firm’s
sustained competitiveness, and its
ability to earn above-average
profits (Hitt et al 1996).
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• It is important to emphasise that if
an organisation seeks to build
competitive advantage it must
meet the needs and expectations of
its customers. The importance of
value to the customer may seem to
be an obvious point to make but in
practice it is often overlooked or
ignored.
• Having capabilities in terms of
resources and competences that are
different from other organisations
is, of itself, not a basis of
competitive advantage. There is
little point in having capabilities
that are ‘valueless’ in customer
term; the strategic capabilities
must be able to deliver what the
customer values in terms of
product or service.
UNIQUE RESOURCES AND
CORE COMPETENCES
• Clearly, competitive advantage
cannot be achieved if the strategic
capability of an organisation is the
same as other organisations. It
could however be that a competitor
possesses some unique or rare
capability providing competitive
advantage.

• This could take the form of unique
resources. Unique resources are
those resources that critically
underpin competitive advantage
and that others cannot easily imitate
or obtain.
• It is, however, more likely that an
organisation is able to achieve
competitive advantage because it
has distinctive, or core
competences. The concept of core
competences was developed by
Gary Hamel and C. K. Prahalad.
• While various definitions exist,
core competences are taken to
mean the activities and processes
through which resources are
deployed in such a way as to
achieve competitive advantage in
ways that others cannot imitate or
obtain.
7/13
• For example, a supplier that
achieves competitive advantage in
a retail market might have done so
on the basis of a unique resources
such as a powerful brand, or by
finding ways of providing service
or building relationships with that
retailer in ways that its competitors
find difficult to imitate, a core
competence.
TYPES OF CORE COMPETENCE
• Superior skills in producing high
capability
• Superior system for delivering
customer order accurate and swiftly
• Better after –sale service capability
• More skill in achieving low
operating costs
• Unique formula for selecting good
retail location
• Unusual innovativeness in
developing new products
• Better merchandising and product
display skills
• Superior mastery of an important
technology
• Unusually effective sales force

• Another example is that, a company
may have a powerful brand or retail
stores may have prime locations.
Some organisations have patented
product or services that give them
advantage – resources that may need
to be defended by a willingness to
bring litigation against illegal
imitators
• Competitive advantage could also
based on rare competences such as
the years of experience in, for
example, brand management, or
building relationships with key
customers; or perhaps the way in
which different parts of a global
business have learned to work
together harmoniously
• A wide range of resources and
capabilities can be the foundation for
core competencies. But, in the global
economy, the skills of a firm’s labour
force are increasingly critical to
developing a sustained competitive
advantage.
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• However, employing skilled workers
does not necessarily result in
competitive advantage. Only through
establishing firm specific patterns of
training and combining the human
resources with other resources and
capabilities can firms expect their
workers to become core
competencies.
USING THE RESOURCE BASED
VIEW IN INTERNAL ANALYSIS
To use the RBV in internal analysis, a
firm must identify and evaluate its
resources to find those that provide the
basis for future competitive advantage.
This process involves defining the
various resources the firm possesses
and examining them based on the
above discussion to gauge which
resources truly have strategic value.
SWOT ANALYSIS
• The key ‘strategic messages’ from
both the environment and
concerning strategic capability can
be summarised in the form of a
SWOT analysis. A SWOT analysis
summarises the key issues from the
business environment and the
strategic capability of an
organisation that are most likely to
impact on strategy development.

• A SWOT analysis draws together
key strengths, weaknesses,
opportunities and threats that have
been highlighted as a result of the
environmental audit
• SWOT, alternatively known as
‘WOT’SUP’ analysis, is an
important tool in enabling
organisations to distil the findings
of the audit into a more cohesive
and succinct model. It is essential
that it is used for this purpose and
that it is seen as an addition to the
environmental audit, not a
replacement.
• The aim of the SWOT process is to
enable you to convert weaknesses
into strengths and threats into
opportunities, by taking remedial
action to improve existing
situations and plan a programme of
ongoing continuous change.
• It is, however, essential to realise
that an organisation cannot aim to
address all of the issues raised
within the SWOT analysis and
must ideally prioritise the issues
appropriately.
7/13
• Where an organisation is weak in
respect of a skilled workforce then
it is essential that training is
identified as a key objective of the
internal strategy and this is
underpinned by financial
investment and resource.
• When undertaking a SWOT
analysis, you should be aware of
the differences between
controllable and uncontrollable
factors. Essentially, the
controllable areas are those
relating to internal issues. By and
large your organisation does have
control on micro issues relating to
technology, skills investment,
resources, innovations, morale,
motivation, etc.
• External factors, however, are
often uncontrollable, and while
you might be able to influence
their outcome you will not be able
to control them. When establishing
future opportunities and how to
improve upon weaknesses, you
will be required to work on the
controllable variables.
BUSINESS-LEVEL STRATEGY/
COMPETITIVE STRATEGIES
• Business-level strategy is about
competing better or, in public
services providing best value
services. Organisations consist of a
number of strategic business units

• The SWOT analysis should be used
to distil the critical factors that have
been identified during the auditing
process. Essentially it acts as a
summary of the audit and not a
replacement for it. Therefore the
analysis should aim to identify
highly critical areas, in order to
focus attention on them during
strategy development.
UNIT 3
• STRATEGIC OPTIONS AND
CHOICES
• There may be price sensitive
customers, who cannot afford, or
choose not to buy better-quality
goods. The grocery retail chains
Aldi and Netto in Europe follow
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(SBUs) and business-level strategy
needs to be developed for each of
these SBUs. So identifying
organisation’s SBUs is an important
prerequisite to developing business-
level strategic choices.
• Having identified organisation’s
SBUs, five strategic choices are
available to achieve competitive
advantage.
PRICE-BASED STRATEGIES
• No Frills Strategy
• No frills strategy combines a low
price, low perceived
product/service benefits and a
focus on a price-sensitive market
segment. These segments might
exist for a number of reasons: a
product or services are commodity-
like where customers do not
discern or value differences in the
offering of different suppliers. So
price becomes the key competitive
issue. Basic foodstuffs-particularly
in developing economies are an
example.
• If a business unit aims to achieve
competitive advantage through a
low-price strategy it has two basic
choices. The first is to try to
identify and focus on a market

this strategy. Their stores are basic,
their merchandise range is
relatively limited with few
speciality or luxury products, and
their prices are very low. The
buyers have low switching costs,
so building customer loyalty is
difficult.
• Where there are a small number of
providers with similar market
shares. So the cost structure is
similar and new product/service
features are quickly imitated. Price
becomes the key competitive
weapon.
• Where the major providers are
competing on non-price basis the
low price segment may be an
opportunity for smaller players to
avoid the major competitors.
Low Price Strategy
• Low price strategy seeks to
achieve a lower price than
competitors whilst trying to
maintain similar perceived product
or service benefits to those offered
by competitors.
• Clearly, in the long run, a low-
7/13
segment that is unattractive to
competitors and in this way avoid
competitive pressures to erode
price. A more challenging situation
is where there is competition on
the basis of price. This is common
occurrence in the public sector and
for commodity-like markets.
Moreover, price-cutting helps
market leader stay ahead of its
rivals.
• Despite the various benefits of this
approach, there are several
potential pitfalls when competing
on price margin reduction.
• Although tactical advantages may
be gained, by reducing price is
likely to be followed by
competitors.
• This can lead to an inability to
invest to develop the product or
service and result in a loss of
perceived benefit of the product.
In the public sector this can result
in a drift towards being the
‘provider of last resort’ serving
only those parts of the community
who cannot afford to purchase
better services from the private
sector.
• The extent to which a
 7/13

differentiation approach will be

price strategy cannot be pursued
without a low-cost base. However,
low-cost in itself is not a basis for
advantage. Managers often pursue
low-cost strategies that do not give
them competitive advantage. The
key challenge is how cost can be
reduced in ways, which others
cannot match such that a low-price
strategy might give sustainable
advantage. The evidence is that
this is difficult to achieve.
successful is likely to be
dependent on whether the
organisation has clearly identified
who is the strategic customer. This
is not always straight forward to
determine, for example for a
newspaper business, is the
customer the reader of the
newspaper, the advertiser, or both?
They are likely to have different
needs and be looking for different
benefits. The extent to which the
organisation understands what is
valued by the customer can be
dangerously taken for granted by
managers.

SUSTAINING PRICE-BASED
ADVANTAGE
• Competitiv
e advantage
through low
prices
might be
sustained in
a number of
ways:
• Accept
• Successful differentiation will also
reduced depend on whether the manager
margin has clearly identified who the
• Win price competitors are. For example, is
war the business competing with a wide
• Reduce competitor base or with a much
cost narrower base, perhaps within a
• Focus on particular market segment? In the
specific later case, a strategy of focused
segments differentiation may be appropriate.

DIFFERENTIATION
• In the case of broad-based

STRATEGIES
• This seeks to provide products or
services that offer benefits
different from those of competitor
and that are widely valued by
buyers Johnson et al (2005). The
aim is to achieve competitive
advantage by offering better
products or services at the same
price or enhancing margins by
pricing slightly higher. Here the
success of the strategy depends on
the ability to deliver enhanced
benefits to customers together
with low prices whilst achieving
sufficient margins for
reinvestment to maintain and
develop the basis of
differentiation.
SUSTAINING
DIFERENTIATIONBASED
ADVANTAGE
• Create difficulties for imitation
• Achieve imperfect mobility (of
resources/competences)
– many intangible assets such as
brand, image or reputation are
difficult for a competitor to obtain
– switching cost
• Reinvest margin
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differentiation, it is likely that the
business will have to concentrate
on bases of differentiation
commonly valued by customers in
that market. For example, in the
automobile mass market reliability
is a key customer requirement
(critical success factor) and those
manufacturers who are able to
demonstrate high levels of
reliability have advantage over
others.
• If organisation is still clear about
the activities on which
differentiation can be built it may
then be able to reduce costs on
other activities.
• As an entry strategy in a market
with established competitors, this
is often used when developing
global strategy. The aim is to take
market share, divert the attention
of the competitor, and establish a
foothold from which they could
move further. However, in
following such strategy it is
important to ensure that the overall
cost base is such that low margins
can be sustained; and a clear
follow-through strategy has been
considered after entry has been
achieved.

THE HYBRID STRATEGY
• The hybrid strategy seeks
simultaneously to achieve
differentiation and a price lower
than that of competitors. Here the
success of the strategy depends on
the ability to deliver enhanced
benefits to customers together with
low prices whilst achieving
sufficient margins for investment
to maintain and develop the bases
of differentiation.
• It might be argued that, if
differentiation can be achieved,
there should be no need to have a
lower price, since it should be
possible to obtain prices at least
equal to competition, if not higher.
However, the hybrid strategy could
be advantageous in the following
circumstances.
• If much greater volumes can be
achieved than competitors, then
margins may still be better because
of low cost base.
• Focus strategy may conflict with
stakeholders’ expectations. For
example, a public library service
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FOCUSED DIFFERENTIATION
• A focused differentiation strategy
seeks to provide high-perceived
product/service benefits justifying a
substantial price premium, usually
to a selected market (niche). In
many markets these are described
as premium products and are
usually heavily branded.
• A choice has to be made between a
focus strategy and broad
differentiation if sales are to grow.
This may take on global
proportions, as managers have to
make decisions in increasingly
global markets. Growth may be
achieved by targeting new sales into
the same niche in more
countries/markets rather than by
broadening the appeal in a single
country/market.
• Pursuing a focus strategy may be
difficult when it is only part of an
organisation’s overall strategy. For
example, department stores
attempt to sell a wide range of
products in one store. In so doing
they try to appeal to a range of
different customer types. So focus
strategy for a particular range of
goods may run into problems
because the store itself may not be
appropriate to the needs of the
target group of customers for that
range of goods. This practicality
puts limitations on the degree of
diversity of positioning that an
organisation can sustain.
• These types of strategies are
dangerous and high risk though
firms have tried to follow them.

could probably be run more
costefficiently if it were to pull out
of low-demand parts of its
community and put more resource
into its popular branch libraries. It
might also find that concentrating
its development efforts on ITbased
online information services would
prove popular with some parts of
the community. However, the
extent to which these strategies
would be regarded as within the
library’s remit might be hotly
debated particularly in relation to
its purpose of social inclusion.
FAILURE STRATEGIES
• A failure strategy is one which
does not provide perceived value-
for-money in terms of product
features, price or both. For
example increasing price without
increasing product/service
benefits to the customer. This is,
of course, the very strategy that
monopoly organisations are
accused of following.
• However, unless organisation is
protected by legislation, or high
economic barriers to entry,
competitors are likely to erode
market share. Other failure
strategies are reduction in
product/service benefits whilst
increasing relative price; and
reduction in benefits whilst
maintaining price.
COST LEADERSHIP
• Overall cost leadership strategy is
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Arguably there is another basis of
failure, which is for a business to
be unclear as to its fundamental
generic strategy such that it ends
up being ‘stuck in the middle’ – a
recipe for failure.
MICHAEL PORTER’S GENERIC
STRATEGY
• Michael Porter defined a
competitive Advantage Grid based
upon three generic strategies that
enable an organisation to closely
identify the various competitive
options open to them. Typically
they would include:
• Cost leadership
• Differentiation
• Focus
• Porter himself suggested that
strategy is primarily about creating
and sustaining a profitable position
in the marketplace. The
organisation needs to identify the
competitive scope available to it,
considering the approach to
targeting and segmenting the
market, and ensure that the
organisation is operating in a
closely defined market.
• REASONS
• It can give the firm above average
returns even on the face of strong

to be able to produce and deliver
the product or service at a lower
cost than the competition. Cost
leadership is usually attained
through a combination of
experience and efficiency. One of
the key competitive positions to
achieve in a mass market setting is
that of cost leadership within your
defined industry or sector.
• The focus of marketing and indeed
overall strategic activity at this
level will relate to ensuring that a
low-cost structure is
implemented. In essence the
organisation will be looking to
achieve economies of scale, cost
reduction policies, zero defects,
minimum expenditure on research
and development and very closely
defined cost-effective marketing
strategies. Therefore, the
organisation is likely to be process-
driven and technologically focused.
• The basic drivers of cost
leadership, according to
Drummond, Ensor and Ashford
(2003) are:
• Economy of scale – The single
biggest influence on cost
• Linkages and relationships-Being
able to link activities together and
form long lasting customer
relationship, inclusive of customer
retention programmes.
• Infrastructure – Factors such as
location, availability of skills and
government support
• Over reliance on cost reduction
can lock a firm into both its
present technology and its present
7/13
competitive forces
• It can put the firm in a favourable
position to fend against substitutes
from the firm’s competitors
• The factors contributing to a low
cost position can provide
substantial barriers to entry.
• DRAWBACKS
• Technologically breakthrough can
open up cost reductions for rivals
that nullify a low cost producer’s
pass investments and hard won
gains in efficiency
• Rival firms may find it easy and or
inexpensive to imitate the leader’s
lowcost methods, thus making any
advantage short-lived.
• A company driving hard to push it
cost down can become so fixated
on cost that it may fail to pick up
on such significant market changes
as growing buyers preference for
added quality or service, subtle
shifts in how buyers use the
product, declining buyer
sensitivity to price and thus gets
left behind as buyer interest wings
top quality, performance and
service.
• The product/service should have
unique features, and even benefits.
It should enable the organisation to

strategy, leaving it vulnerable to
new technologies, and growing
customer interest in something
other than cheaper price
• ORGANISATIONAL
REQUIREMENTS
• Key skills
• Labour supervision
• Easily produced products
• Process design (mass production
due to scale and experiential
economies)
• Low cost distribution outlets
• Tight cost control
DIFFERENTIATION STRATEGY
• This particular strategy presents the
opportunity to market products or
services distinctive from those of its
competitors. However, while it
might be distinctive in nature, it is
only competitive and purposefully
different if it ultimately adds value
to the overall customer experience
• The emphasis of focus strategy
primarily implies that the
organisation is focusing effort on
producing products for a closely
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achieve a degree of customer
loyalty and should ultimately be a
competitive response that cannot
be challenged directly by any
competitor.
• The most likely scenario is that as
a result of the differentiation it will
command a premium price that
will essentially reflect the quality
of the brand, design, product and
high service levels.
• Drummond, Ensor and Ashford
(2003) suggest that the common
sources of differentiation will
include:
• Product performance – the product
performance can enhance its
perceived value from customer
perspective.
• Product perception – the perception
of the product is often different
from the performance
FOCUS
• Interestingly the basis of
competitive strategy is both cost
leadership and differentiation, but
instead of competing in a mass
market environment, it is more
likely to compete in a smaller or
narrowly defined area of the
market. In particular the focus will
be on attractive segments or niche
markets.
CORPORATE-LEVEL AND
INTERNATIONAL STRATEGY

defined market. Often the products
will be customised, high quality,
differentiated and potentially
premium priced. For example
specialist clothing, or the high
quality car market, e.g. Rolls-
Royce, Morgan, etc.
• Clearly the more successful the
organisation is within the niche,
the more likely it is to attract
attention. Therefore, the emphasis
of a focus strategy should be on:
• Product and service specialism –
Producing highly differentiated,
possibly exclusive products to a
closely defined target market.
• Geographic segmentation – DIVERSIFICATION
Tailoring products/service needs
to geographic regions, as long as
the markets are commercially
viable, based upon size
• End-user focus – The focus might
be on the end-user, therefore a
customer profile might be more
appropriate to target than an
entire marketplace
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• Corporate strategy specifies the
firm’s overall direction in terms of
its general orientation towards
growth and the management of its
various businesses and product
lines to achieve a balanced
portfolio of products and services.
• The corporate parent refers to the
levels of management above that
of the business units and therefore
without direct interaction with
buyers and competitors. So, a
corporate centre or the divisions
within a corporation which look
after several business units act in a
corporate parenting role.
PRODUCT/MARKET
• Diversification is a strategy that
takes the organisation into both
new markets and products or
services.
• There are two approaches to
diversification – related
diversification and unrelated
diversification.

• REASONS FOR
DIVERSIFICATION
• There may be efficiency gains from
applying the organisation’s existing
resources or capabilities to new
markets and products or services..
• There may also be gains from
applying corporate managerial
capabilities to new markets and
products and services.
• Having diverse range of products or
services can increase market power.
With a diverse range of products or
services, an organisation can afford
to cross subsidise one product from
the surpluses earned by another, in
a way that competitors may not be
able to.
• Organisations often diversify to
respond to environmental change.
Sometimes this can be justified at
least for defending existing value,
for instance where markets or
technologies are converging.
• Organisations might diversify in
order to spread risk across a range
of businesses.
• Organisations diversify because of
the expectations of powerful
stakeholders, including top
managers.
7/13
• RELATED OR CONCENTRIC
DIVERSIFICATION
• Related diversification represents
business development beyond the
existing range of product, service
and markets but still within the
broad limits of the industry which
the firm operates.
• Related diversification can be
defined as a strategy development
beyond current products and
markets, but within the capabilities
or value network of the
organisation. For example Unilever
is a diversified corporation, but
virtually all of its interest are in
fast moving consumer goods
distributed to retailers, and
increasingly in building global
brand in that arena.
• Related diversification can be
vertical integration or horizontal
• Vertical integration- backward or
forward integration
• Backward integration refers to
development into activities
concerned with the inputs into the
company’s current business.

• Forward integration refers to
development into activities which
are concerned with a company’s
outputs, such as transport,
distribution, repairs, and servicing.
• Horizontal integration is where a
firm moves into operations which
are complementary to the firms
current activities.
• UNRELATED
DIVERSIFICATION.
• Unrelated diversification is the
development of products or services
beyond the current capabilities or
value network. Unrelated
diversification is often described as
a ‘conglomerate strategy’
• REASONS FOR
INTERNATIONAL
DIVERSIFICATION
• The globalisation of markets and
competition can be seen as both
cause and consequence of the
internationalisation of individual
organisations
– the internationalisation of value
adding activities allows an
organisation to access and
develop resources and
capabilities in ways not possible
in its home country thereby
enhancing its competitive
advantage and competitive
position
7/13
• Firms acting as suppliers to
industrial companies may follow
their customers when these
internationalise their operations.
• By expanding its markets
internationally a firm can bypass
limitations in its home market.
• There may also be opportunities to
exploit differences between
countries and geographical regions
– exploitation of differences in
culture
– administrative differences allow
firms to take advantage, for
example tax differentials
– Exploitation of specific economic
factors. This could include, for
example, labour or the costs of
capital
– By internationalisation companies
are able to broaden the size of the
market so as to exploit strategic
capabilities
• The extent of political and legal
risks that an organisation might
face when doing business in the
country.
– Sovereign risks arise from the
policies and decisions of host
governments, including changes
in tax laws and restrictions on
expatriate employment.
 7/13

– international diversification
allows firms to reap economies
of scale by expanding the size of
the market they serve
MARKET SELECTION
• Macro-economic conditions
reflected in indicators such as the
GDP and levels of disposable
income which help in the
estimation of the potential size of
the market.
• The political environment may
create significant opportunities for
organisations. It is common for
some countries to provide
investment incentives to foreign
investors.
• The infrastructure of national
markets will also be an important
factor in assessing the
attractiveness of national markets
for entry, in particular:
– existing transport and
communication infrastructure
– availability of necessary local
resources such as appropriately
skilled labour
– tariff and non tariff barriers to
trade
– also from absence of effective
regulations and control
– International risks are linked to
developments in the international
political economy and include the
effects of economic sanctions.
– Security risks to employees
arising from civil unrest, violent
crime and the threat of
kidnapping are of concern to
organisations operating in
countries as diverse as South
Africa and Russia.
– similarity of cultural norms and
social structures with the
organisation’s home country can
provide an indicator of any
changes to established products,
processes and procedures which
may be required.

UNIT 4 MARKET PENETRATION

• Directions and
• The basis of market penetration strategy is primarily to
Methods of
increase sales of existing products in existing markets.
Development To do this the organisation will need to demonstrate a
high level of competitive force; they will need to be
price-competitive, promotionally competitive and
execute a hard-hitting advertising campaign.
 7/13

GROWTH • The focus of market penetration will be on persuading

STRATEGY existing customers to buy more of your products. A
THROUGH number of examples highlight this particular practice.
ANSOFF MATRIX
• Principally the
Ansoff’s matrix
allows you to
consider a range of
four strategic options.
These are Market
penetration, Market
development, Product
development, and
diversification.
•

Ansoff Matrix

• Retailers offering store cards, with

opening discounted rates of
purchase. The broader scope of
this particular strategy is winning
customers from other competitors,
testing out the power of the
buyers, their willingness to
change.

• PRODUCT DEVELOPMENT
• Expanding and developing the
product portfolio is an essential
• MARKET DEVELOPMENT marketing activity, in order that
• Market development is an organisations continue to move
alternative growth strategy that with the times and the new and
focuses on the development of new more challenging expectations
markets for existing products. The of their customers, i.e. the power
aim will be to open up new of the customer/buyer. Product
geographical regions; target new development is required to attract
market segments and find new uses existing customers in existing
for existing products. markets to new products.

• This particular strategy draws on
the creative skills of marketers to
develop alternative uses for
products and then devise creative
and dynamic marketing
programmes to underpin them.
• A good example of this would be
Timberland Boots. In the main
designed for walkers, who stalked
the hill and dales, Timberland
Boots are now a fashion statement.
While existing customers continue
to buy Timberland Boots for leisure
pursuits, others wear Timberland
boots on a day-to-day basis.
• Product development plays an
important role in attracting new
customers, opening up new
markets and providing many new
opportunities, but clearly the main
drawback can be the level of
investment required. So as a
growth objective, it is the one that
provides the greatest strain on
resources.
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• A good example of product
development could relate to the
car market. On a regular basis
most popular brands extend the
life cycle of their existing vehicles
by giving them either a minor or
major facelift.
• The aim is to maintain existing
customers and encourage them to
develop customer loyalty traits in
order that they will purchase the
designed and refined model.
Mercedes have recently revamped
the Mercedes ‘A’ Class and also the
‘C’ Class range, attracting a surge
of interest from the existing
customer base. What about Toyota?
• The organisation would clearly
need to reflect a strong
competitive response, in order that
the product is given credence in
the market place. Therefore the
components of success will rely
upon a good quality product,
associated high service levels, and
a compatible promotional and
pricing strategy to give it a head
start.
 7/13

• Here the organisation would need

to undertake a financial analysis,
• DIVERSIFICATION
including a break-even analysis, to
measure how long it would take for • Diversification potentially poses the

the new product to break even, most significant risk to the

should it be launched into the
market.
• Related marketing activities would
clearly need to reflect a strong
competitive response, in order that
the product is taken to market in
advance of similar competitive
strikes and before the threat of
substitute products arises.
organisation. This strategy is based
on diversifying or moving away
from the core business of the
organisation and looking for an
alternative or complementary
source of income and profit.
• This often results, in today’s
market economy, in mergers and
acquisitions, as organisations seek
to set up compatible business
portfolios, increasing their market
attractiveness and market share
along the way.

• This is a high-risk strategy, a move

into the unknown, and one that may
present threats associated with ‘new
entrants’ in the
marketplace: high investment, lack
of economies of scale, and
difficulties associated with
distribution. Again going back to
the previous point, one of the The growth share (or BCG) matrix
benefits of mergers and
acquisitions in this sense is that
some of the risk is reduced.
However, this is an expensive
alternative option; for many
organisations it is a last resort.

MANAGING THE CORPORATE • The BCG matrix has two key

PORTFOLIO dimensions associated with it,
namely the level of growth in the

• THE GROWTH SHARE (OR BCG)
MATRIX
•It is of primary importance that
organizations continually monitor and
control how their SBUs are doing in
the marketplace, what SBUs are in
growth and what SBUs are in decline.
To assist with this process many
organizations use what is formally
known as portfolio matrix.
• Probably the best-known and most
established matrix is the Boston
Consulting Group matrix known as
BCG. Its main purpose is to provide a
framework for considering future
market growth for both products and
services.
• Each of the four quartiles of the
BCG offers an indication of
potential opportunities or even
potential decline in market share.
Question marks
• Question marks, is alternatively
known as problem children. They
are principally business units that
have a small market share of a
growing market. However, they
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product’s market, and the product’s
market share in comparison to that of
its competitors.
• Market growth is an imperative to
many organizations as it present an
opportunity in the marketplace for
extension and innovation. However, in
low growth markets, it is more about
survival of the fittest, as competition is
highly intensive as each competitor
strives its own portion of a much
smaller market potential.
• The ‘question mark’ arises over
whether one need to invest or
divest in a market
• A question mark requires a lot of
cash because the company has to
spend money on plant, equipment
and personnel to keep up with the
fast-growing market, and because
it wants to overtake the market
leader.
• Stars
• Principally, stars are business units
that command high levels of
market share, with good potential
for growth in the future. Key
components are:

are often subject to high levels of
investment in order for them to
achieve any significant growth in
market share overall. Key
components are:
• The product has a low market
share in a high growth market
• Considerable investment is
required in order to keep up with
market development
• If trying to improve competitive
position, levels of investment
require are high
• The business generates a large
amount of income
• As long as the market share is
maintained, the business should
become a cash cow.
• A star does not necessarily produce
a positive cash flow for the
company. The company must spend
substantial funds to keep up with
the high market growth, and to fight
off competitors’ attacks.
Cash cows
• Cash cows are essentially business
units that have a dominant share of
the market,
but with little potential for growth,
effectively having reached a level
of maturity. Key components are:
• The business unit has a high market
share and low level of market
growth. Stars become cash cow
when the market rate begins to fall.
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• The business has moved to a
position of leadership in a high
growth market
• Income needs are high in order
to maintain market growth and
keep competitors at bay
• The company does not have to
finance expansion because the
market’s growth rate has slowed.
Because the business is the market
leader, it enjoys economies of scale
and higher profit margins. The
company uses its cash cows to pay
bills and support other businesses.
Dogs
• The position of ‘dogs’ in the BCG
is typically one of low market
share, with no real potential for
growth. This can often be an
indication that the business is
nearing the end of its current life,
and should be potentially
considered for repositioning or
deletion from the product life. Key
components of dogs are:

• The term ‘cash cow’ comes from
the principle that product generate
considerable money but use little
cash.
• Economies of scale are strong.
• Strategically, the issue is whether or
not to hold on to the business.
• After plotting its various businesses
in the growth-share matrix, a
company must determine whether
its portfolio is healthy. An
unbalanced portfolio would have
too many dogs or question marks
and too few stars and cash cows.
SBU STRATEGIES
• The company’s next task is to
determine what objective, strategy,
and budget to assign to each SBU.
Four strategies can be pursued:
build, hold, harvest, or divest.
Building is appropriate for
question marks whose market
shares must grow if they are to
become stars. The hold strategy is
appropriate for strong cash cows if
they are to continue yielding large
positive cash flows.
• The objective of the harvest
strategy is to increase short-term
cash flow regardless of long-term
effect. Harvesting involves a
decision to cash in on its ‘’crop’’,
to ‘’milk its business.’’ Harvesting
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• The product has a weak market
share in a low growth market
• A low level of profit or a loss would
be typical in return
• Very often dogs take up more time
in terms of management than can be
justified, so phasing out the product
is likely to be considered
• This strategy is appropriate for
weak cash cows whose future is
dim and from which more cash
flow is needed. Harvesting can also
be used with question marks and
dogs.
• The objective of the divest strategy
is to sell or liquidate the business
because resources can be better
used elsewhere. This strategy is
appropriate for dogs and question
marks that are acting as a drag on
the company’s profits.
• Companies must decide whether
harvesting or divesting is a better
strategy for a weak business.
Harvesting reduces the business’s
future value and therefore the
price at which it could be sold

generally involves eliminating
R@D expenditures, not replacing
the physical plants, not replacing
sales people, reducing advertising
expenditures, and so on.
• As time passes, SBUs change their
position in the growth-share
matrix. Successful SBUs have a
life cycle. They start as a question
marks, become stars, then cash
cows, and finally dogs. For this
reason, companies should examine
not only their businesses’ current
positions in the growth-share
matrix but also their moving
positions.
• The worst mistake a company could
make would be to require all its
SBUs to aim for the same growth
rate or return level. The very point
of SBU analysis is that each
business has a different potential
and requires its own objective.
• Other mistakes include: leaving
cash cows with too little in retained
funds or leaving them with too
much in retained funds; making
major investments in dogs in hopes
of turning them around, but failing
each time; and maintaining too
many question marks and under
investing in each. Question marks
should either receive enough
support to achieve segment
dominance or be dropped.
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later. An early decision to divest,
in contrast, is likely to produce
fairly good bids if the business is
in relatively good shape and of
more value to another firm.
• There are practical difficulties in
deciding what exactly high and
low can mean in a particular
situation.
• In many organisations the critical
resource to be planned and
balanced will not be cash, but the
innovative capacity, which consists
of the time and creative energy of
the organisation’s managers,
designers, engineers, etc. Question
marks and stars are very demanding
on these types of resources.
• The position of dogs is often
misunderstood. Certainly, there
may be some business units which
need immediate deletion.
However, other dogs may have a
useful place in the portfolio. They
may be necessary to complete the
product range and provide a
credible presence in the market.
They may be held for defensive
reasons – to keep competitors out.

• Little is said about the behavioural
implications of such a strategy.
How does central management
motivate the managers of cash
cows, who may see all their hard-
earned surpluses being invested in
other businesses?
• There may be political difficulties if
the decision is taken to delete
‘dogs’ that are the brainchild of
people with power within the
organisation.
• Indeed, perhaps the single factor
which makes the creation and
management of a
balanced portfolio difficult in
practice is the jealousy that can
arise between the various strategic
business units.
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Criteria for evaluating strategic
options
• This section will look at why some
strategies might succeed better
than others by introducing the
concept of success criteria by
which strategic options can be
judged. There are three main
success criteria: suitability,
acceptability and feasibility.
SUITABILITY
• Suitability is concerned with
whether a strategy addresses the
circumstances in which an
organisation is operating – the
strategic position. It requires a
broad assessment of the extent to
which new strategies would fit with
the future trends and changes in the
environment, exploit strategic
capability of an organisation and
meet the expectations of
stakeholders. It attempt to measure
how far proposed strategies fit the
situation identified in the strategic
analysis.
• How far does it address the
difficulties identified in the
strategic analysis
(resource weakness and
environmental threats). Is the
strategy likely to improve the
organisation’s competitive standing
or resolve the company’s liquidity
problems, or decrease dependence
on a particular supplier?

• Does it exploit the company strengths
and opportunities identified in the
SWOT analysis? Will the proposed
strategy help utilise the present, highly
efficient, distribution system?
• Does the strategy fit in with the
organisation’s objectives? For example,
would the strategy be likely to achieve
profit targets, achieve growth
expectations
• To what extent does the new strategy fit
with the future trends/changes in the
environment?
• ACCEPTABILITY
• This is concerned with the expected
performance outcomes of a strategy.
However, strategies also have to be
acceptable to a variety of different
stakeholders. The acceptability of a
strategy can be assessed in three broad
ways: Return, Risk and Stakeholder
reactions.
RETURN
• Returns are the benefits which
stakeholders are expected to receive
from a strategy. So an assessment of
the financial and non-financial returns
likely to accrue from specific strategies
could be a key criterion of
acceptability of a strategy – at least to
some stakeholders. There are number
of different approaches to
understanding return: Forecasting the
return on capital employed, payback
period, and discounted cash flow.
• Plans to merge with other
companies or to trade with new
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• RISK
• The likely return from a particular
strategy is an important aspect of the
acceptability of that strategy. However,
another aspect of acceptability is the risk
that an organisation faces in pursuing a
particular strategy. Risks concerns the
probability and consequences of the
failure of a strategy.
• The risk can be particularly high for
organisations with major long-term
programmes of innovation or where high
levels of uncertainty exist about key
issues in the environment. There has
been a progressive move to incorporate a
formal risk assessment in regular
business plans as well as with the
investment appraisal of major projects.
STAKEHOLDER REACTIONS
• There are many situations where
judgements of stakeholder reactions
could be crucial. For example:
• A new strategy may require a substantial
issue of shares, which could be
unacceptable to powerful groups of
shareholders, since it dilutes their voting
power.
• Break Even Analysis: Break even
analysis is a simple and widely

countries could be unacceptable to
unions, government or some
customers.
• Attempts to gain market share in
static market might upset the status
quo to such an extent that
competitors will be forced to
retaliate in a way that is damaging
to all parties, for example by
instigating a price war.
• FEASIBILITY
• Feasibility is concerned with
whether an organisation has the
resources and competences to
deliver a strategy. A number of
approaches can be useful to
understand feasibility:
• Funds Flow: A valuable piece of
analysis is funds flow forecast,
which seeks to identify the funds
which would be required for any
strategy and the likely sources of
those funds
• Such an analysis should quickly
highlight whether the proposed
strategy is likely to be feasible in
financial terms.
7/13
used technique which is helpful in
exploring some key aspects of
feasibility.
• It can be used to assess the
feasibility of meeting targets of
return (e.g. profit) and as such,
combines a parallel assessment of
acceptability
• Resource Deployment Analysis: It
is often helpful to make a wider
assessment of the resources and
competencies of the organisation in
relation to specific strategies.
• The requirements of alternative
future strategies should be laid out,
indicating the key resources and
competencies for each strategy
• For example, a strategy of
geographical expansion in the
home market might be critically
dependent on marketing and
distribution expertise, together
with the availability of cash to
fund increased stocks
 7/13

• • STRATEGY INTO
ACTION

• STRATEGY
• Recruitment and retention are key ways of improving
IMPLEMENTATION strategic capability in many organisations.
• Succession planning has had to be refocused away
from preparing people for particular jobs in a
hierarchy to simply ensuring that a sufficiently large
pool of talented individuals exists to meet future
leadership requirements.
RESOURCING • Existence of uniquely competent individuals in an
STRATEGY organisation can bring sustainable advantage if those
persons’ knowledge can be spread in the
• MANAGING organisation.
PEOPLE AS A
RESOURCE
• Audits to assess the
HR requirements to
support strategies
and/or identify people
based competences on
which future strategies
might be built.
• • Goal-setting and
performance
assessment of
individuals and teams
• In training and development there has been a
• In many organisations reduction in the use of formal programmes and more
the planning of coaching and mentoring to support self-development.
rewards has had to
take on board the • HR professionals need to be familiar with the
reality of more organisation’s strategies, how these might be
teamwork in changing in the future and the implication to people’s
developing strategy. competences.
 7/13

Financial Aspects of
Value Creation
MANAGING FINANCE

• Finance and the way that it is

managed can be a key determinant
for strategic success. There are
three broad issues that
organisations of all types face:
• managing for value, • funding
strategies and
• financial expectations.
 7/13

Strategy and Finance

Managing
for value

Strategy

Funding Financial
strategies expectations
 7/13

• Investments in assets: the extent to

which assets and working capital
are being
• funds from operations overstretched
: this is is also a key
• MANAGING FOR VALUE determined by consideration. This will affect value
• Managing for value is concerned – sales revenue creation as follows:
with maximising the long-term Cost ofcosts
capital investment or the
– production and– selling
cash-generating capability of an disposal of redundant assets
– overhead or indirect costs
organisation. Value creation is – Management of the elements of
determined by three main issues:
working capital such as stock,
funds from operations, investment
debtors and creditors will
ininterest
assets, and financing
payments costs.
increase or decrease shareholders
value
MANAGING
• Financing costs: costSTRATEGIC
of capital e.g.
CHANGE
• FUNDING STRATEGY
DEVELOPMENT In today’s environment,
• Question marks –equity (venture organisations need to change to
capitalist) survive. Organisational change is
• Stars – equity by public flotation the movement of organisations
• Cash cows – debt capital as well as away from its present state and
equity towards desired future state to
• dog- borrowing against residual
increase effectiveness.
assets of the business, or cost

• FINANCIAL EXPECTATIONS OF
STAKEHOLDERS
• Institutional shareholders
• bankers and other providers of
interest-bearing loans
• suppliers and employees are likely
to be concerned with good prices
but also the liquidity of the
company, which is a measure of its
ability to meet short-term
commitments to creditors and
wages.
• community-jobs, social cost of the
organisation’s strategies such as
pollution, or marketing
• Customers are concerned about
best-value products or services.
• Reconstruction – a type of change
which may be rapid and could
involve a good deal of upheaval in
an organisation, but which does not
fundamentally change the
paradigm. It could be a turnaround
situation where there is need for
major structural changes, or a
major cost-cutting programme to
deal with a decline in financial
performance or changing market
conditions.
• Evolution – change in strategy
which requires paradigm change,
but over time. It may be that
managers anticipate the need for
transformational change. They
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Because the future is uncertain and
may adversely affect people’s
competencies, worth and coping
abilities, organisational members
generally do not support change,
unless compelling reasons
convince them to do so.
• TYPES OF STRATEGIC
CHANGE
• Adaptation – a change which can be
accommodated within the current
paradigm and occur incrementally.
It is the
most common form of change in
organisations.
•
STEPS IN CHANGE
MANAGEMENT
PROCESS
• Determining the need for change:
the first step in the change process
involves determining the need for
change, analysing the organisation’s
current position, and determining
the ideal future state that the
managers would like it to attain.
• Determining the obstacles to
change: The second step in the
change process involves
determining the obstacles to
change. Managers must analyse

may then be in a position of
planned evolutionary change, with
time in which to achieve it.
• Another way in which evolution
can be explained is by conceiving
of organisation as learning
systems, continually adjusting
their strategies as their
environment changes.
• there are two main approaches to
• Revolution – is change which
requires rapid and major strategic
and paradigm change.
• With top-down change, the change
task force analyse how to alter
strategy and structure,
recommends a course of action,
and then moves quickly to
implement change in the
organisation. In the case of
bottom-up change, however, the
process is much more gradual. The
change taskforce consults with
managers at all levels in the
organisation.
• Then, over time, it develops a
detailed plan for change, with a
timetable of events and stages that
the company will go through. The
emphasis here is on the
participation and on keeping
people informed about the
situation, so that uncertainty is
minimised.
• Evaluating change: The last step in
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the factors that may prevent the
company from reaching its ideal
future state. Obstacles to change
are found at four levels in the
organisation corporate, divisional,
functional, and individual levels.
• Implementing change: Change
raises several questions. For
instance, who should actually carry
out change? Internal managers or
external consultants? Generally,
change – top-down change or
bottomup change.
• CHANGE LEVERS
• Clear understanding of the need for
change
• Quality of leadership
• Commitment of sponsorship
• Clear vision of future strategy
• Education and training
• Effective communication
• Measurement system
• Infrastructure aligned
• Reward system aligned
• Skills of change agents
•
MAXIMS TO LIVE BY

the change process is to evaluate
the effects of the changes in
strategy and structure on
organisational performance. A
company must compare the way it
operates after implementing
change with the way it operated
before introducing and managing
change.
FORCES OF CHANGE
• Changes can be brought about in a
variety of ways. The changes may
come from internal and external
forces
• External Forces of Change
• The explosion of new technologies,
producing new industries and
service sectors, while
simultaneously ensuring the
collapse of others
• The move from a national to an
international and ultimately to a
global
economy
• Business relationships, acquisitions,
partnerships, and other significant
developments may require
substantial changes in the
organisational structure in order to
take advantage of new synergies,
value chain linkages or core
competences
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• Communicate, communicate, and
communicate.
• Continuous improvement is critical
for survival.
• Walk the talk
• Keep trying until you get it right
• Celebrate successes
• Create ownership/involvement
• Hold people accountable
• INTERNAL FORCES OF
CHANGE
• New Technology
• Computerisation
• New products
• New working methods
• Better management information
system
Re-organisation
• A company is taken over, and so
has to adopt the organisation
policies of the new parent company
• Growth leads organisation into
divisions, or more specialist
functional departments
• Drive to keep cost down leads to
cost cutting measures

• Environment: shifts in the economy,
competitive pressures and
legislative changes can all lead to
demands for major strategic change
• •
• Attitudes of managers and
employees change over time e.g.
with greater
participation of subordinates in
decision making
• Communications with employees
become more open
• Greater collaboration between
management and trade unions in
labour
• taskforces.
• STYLES OF MANAGING
CHANGE
• Education and communication:
involves the explanation of the
reasons for and
means of strategic change
• Collaboration or participation. This
is the involvement of those who
will be affected by strategic change
in the change agenda; for example,
the identification of strategic
issues, the strategic decision-
making process, the setting of
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• Working Conditions
• New offices
• Shorter working week
More varied work time
• Greater emphasis on occupational
health
• Philosophy of Management
• Introduction of new style of
leadership
• Intervention – is the coordination of
and authority over processes of
change by a change agent who
delegates elements of the change
process. For example, it may be that
particular stages of change, such as
idea generation, data collection,
detailed planning, the development
of rationales for change or the
identification of critical success are
delegated to project teams or
• Direction – involves the use of
personal managerial authority to
establish a clear future strategy and
how change will occur. It is
essentially top-down management
of strategic change. It may be
associated
with a clear vision or strategic
intent developed by someone seen
as a leader in the organisation.
• Coercion – In its extreme form, a
directive style becomes coercion,
involving the imposition of change
or the issuing of edicts about
change. This is the explicit use of
power and may be necessary if the
organisation is facing a crisis, for

priorities, the planning of strategic
change or the translation of stated
strategy into routine aspects of
organisational life.
THE ROLE OF MIDDLE
MANAGERS IN
STRATEGIC CHANGE
Systematic role of implementation
and control: this does reflect the
idea of topdown change in which
they are monitors of that change.
• Translators of strategy
• Reinterpretation and adjustments
of strategic responses as events
unfold e.g.; relationship with
customers, suppliers, workforce
etc.
• They are crucial relevance bridge
between management and members
of the organisation at lower levels.
• Advisors to senior management on
what is likely to be organisational
blockages and requirements for
change.
• notice boards and circulars sent
• round the organisation.
• COMMUNICATING AND
MONITORING CHANGE
• Managers faced with effecting
change typically underestimate
substantially the extent to which
members of the organisation
understand the need for change,
what it is intended to achieve, or
what is involved in the changes.
• communication is important,
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example.
•
• Effective communication may be
the single most important factor in
overcoming resistance to change. In
particular open communication that
builds trust is important in times of
change.
• Importance of clarity and strategic
intent needs to be emphasised
• Choices of media by which to
communicate the strategy
• Choice of media richness vary from
face-to-face, one-to-one or group
communication
• through to routine bulletins on
• The involvement of members of
the organisation in the strategy
development process or the
planning of strategic change is
also, in itself, a means of
communication and can be very
effective.
• Communication needs to be two-
way process. Feedback on
particularly if the change to be
introduced is difficult to

• Emotional aspects of
communication are especially
important for the change agent
since emotions can so readily
induce negative or positive
responses
• STRATEGY EVALUATION AND
CONTROL
• Strategy evaluation is that phase of
strategic management process in
which top management try to
ensure that the strategy formulated
is being properly implemented and
is meeting the objectives of the
enterprise.
• A follow through on strategy and
at implementation requires a
control system and effective
information system, which
provides managers with accurate
and complete feedback in real-time
so that they can act on the data.
Control and evaluation process
help strategic managers monitor
the progress of a plan.
• Managers are require to determine
the appropriateness of their
strategies through the following:
• Suitability of the strategies: does it
match the changing environment
of the organisation? The strategy is
suitable when it meets the
objectives of the organisation and
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understand.
• Strategic evaluation is simply an
appraisal of how well an
organisation has performed.
Adequate and timely feedback is
the cornerstone of effective
strategy.
• However, Strategy evaluation is
becoming increasingly difficult
with the passage of time for many
reasons:
• A dramatic increase in the
environment’s complexity
• The increasing difficulty of
predicting the future with accuracy
• The rapid rate of obsolescence of
even the best plans
• The increase in the number of both
domestic and world events
affecting organisation.
• DESIGNING EFFECTIVE
STRATEGIC CONTROL
SYSTEM
• To ensure the effectiveness of
strategic control, executive should
ensure that they have the following
criteria:
• They are future oriented
• They are closely linked to strategy
evaluation
PROCESS OF STRATEGY
EVALUATION
AND CONTROL
• The evaluation and control
process ensures that the company
is achieving what it is set out to
accomplish. It compares
performance with desired results

its changing environment.
• Acceptability: Does the strategy
meet the needs of the
stakeholders? It is, acceptable
when it suit the expectation of
stakeholders.
• Feasibility: Is the strategy
practicable and implementable
given the resources of the
organisation?
• Advantage: Managers should
determine whether the
strategy give the company a
competitive advantage.
• Consistency: Does the plans,
and programs mutually
supportive and consistent?
•
• The process and results should be
measurable in an objective way
and should focus on the most
important elements in a process –
those that account for the highest
proportion of expense or the
greatest number of problems. One
approach that helps managers
decide what to control takes a
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and provides the feedback
necessary for management to
evaluate results and take
corrective action, as needed. This
process can be viewed as a five
step feedback model.
- Areas to control
- Standards
- Performance
- Performance against standards
- Standards not met-take corrective
actions as necessary
- Standards met or exceeded-
recognise performance
- Adjust standards and measures as
necessary
• Determine what to measure: top
managers and operational
managers need to specify the
implementation process and results
that will be monitored and
evaluated.
• Standard can be set for the initial
input, intermediate stages as well as
the final output.

resource dependence point of
view.
• The resource dependence approach
argues that managers need to
consider controls mainly in areas in
which they depend on for resources
necessary to reach organisational
goals. The chosen areas should
constitute the strategic control
points – performance areas chosen
for control because they are
particularly important in meeting
organisational goals.
• Establish standards of
performance: Standards used to
measure performance are detailed
expressions of strategic objectives.
These are measures of acceptable
performance results. Each standard
typically includes tolerance range,
which defines acceptable
deviations.
• They will include such data as units
produced, monetary amount of
service rendered, amount of
materials used, number of defects
found, scrap rate, steps or processes
followed, profits, quality of output,
etc.
• results are within the desired
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• For one thing, standards enable
employees to understand what is
expected and how their work will
be evaluated. For another,
standards provide a basis for
detecting job difficulties related to
personal limitations of
organisational members.
• MEASURE ACTUAL
PERFORMANCE:
once standards are determined, the
next step is measuring
performance. For a given standard,
a manager must decide both how
to measure actual performance and
how often to do so. Measuring
performance will depend on the
standards that have been set.
COMPARE ACTUAL
PERFORMANCE WITH THE
STANDARD:
• this step consists of comparing the
performance measured in step 3
with standards established in step
2. Managers often base their
comparisons on information
provided that summarise planned
versus actual results. If actual
tolerance range that is if standard
are being met or exceed then the
positive performance should be
recognised.

• Once they have selected the means
of measurement, managers must
decide how often they will measure
performance for control purposes.
In some cases, managers need to
control data on a daily or even more
frequent basis. In other cases,
weekly, monthly, quarterly,
semiannual, or even annual data
may be sufficient.
• The period of measurement
generally depends on how
important the goal is to the
organisation, how quickly the
situation is likely to change, and
how difficult and expensive it
would be to rectify a problem if one
were to occur (Bartol and Martin,
1998).
• middle managers.
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• TAKE CORRECTIVE ACTION: if
actual fall outside the desired
tolerance range, action must be
taken to correct the deviation. The
following must be determined:
• Is the deviation only a chance
fluctuation
• Are the processes being carried out
incorrectly?
• Are the processes appropriate to the
achievement of the desired
standard?
• Action must be taken that will also
prevent its recurrence. Usually top
managers perform the first two
steps better than the last three. Top
management tends to establish
control systems and then delegate
implementation of the systems to