STRATEGI

CMANAGEMENT

LI
STOFCONTENTS

A. STUDENTREQUIREMENT 2
C. SYLLABUS+TRAININGPLAN 6
E. STUDENTNOTES/POWERPOI NTNOTES:
1.ORGANISATI
ONALSTRATEGY. 25
2.ENVIRONMENTALANDI NTERNALRESOURCEANALYSI
S. 35
3.STRATEGYFORMULATION. 42
4.STRATEGICANALYSISANDCHOICE(ALLOCATI
ONOF 47
RESOURCES) 66
5.POLI
CIESINFUNCTIONALAREAS. 69
6.STRATEGICI
MPLEMENTATI ONREVI
EW ANDEVALUATI
ON.
F. QUESTIONPAPERS 77

1
 REQUI
REMENTS

STRATEGI
CMANAGEMENT

Boundst
udymat
eri
al:

St
udent
sshal
lbepr
ovi
dedwi
thpr
int
edhandout
s,spi
ral
l
ybound.

St
udent
sar
eencour
agedt
oreadupt
her
ecommendedbooksandmaket
hei
rownnot
es.

Boundst
udymat
eri
alwi
l
lbeev
aluat
edoncont
ent
,pr
esent
ati
onandpr
ompt
ness.

Assi
gnment
s:

Assi
gnmentsmustbesubmi
tt
edont
hedat
especi
fi
ed.Lat
esubmi
ssi
onswi
l
lnotbe
eval
uat
ed.

Ev
aluat
ion:

Ev
aluat
iont
estt
orev
iewswi
l
lbeconduct
edper
iodi
cal
l
y.

I
nter
nal
test
s TEE Tot
al

30mar
ks 70mar
ks 100

*Mi
nimum passmar
ks40%

Recommendedr
eadi
ng:

 St
rat cmanagementbysr
egi ini
vasan.
 St
rat cmanagementbyJohnAandRi
egi char
dB.
 I
ntr
oduct
iont
oCor
por
ateSt
r egybyRi
at char
dPat
ti
ng
 Har
war
dBusi
nessRev
iewJour
nal
s.

2
 SYLLABUS
&
TRAI
NINGPLAN

3
S.
No Topic Hour
s Weigh Dateof
. tage Accord
1 ORGANISATIONALSTRATEGY 04 15%
A.MI SSION
 Missi onStatementElementsandi
tsi
mpor
tance
B.OBJECTI VES
 Necessi tyofformalobject
ives
 Obj ectiv
eVsGoal
C.STRATEGY
 DEVELOPI NGSTRATEGI ES
-Adapt iveSearch
-I
nt ui
tionsearch
-Strategicfact
ors
-PickingNiches
-Ent r
epreneuri
alApproach

2 ENVI
RONMENTALANDI
NTERNALRESOURCEANALYSI
S 05 15%

A.NEEDFORENVI RONMENTALANALYSI
S
B.KEYENVI RONMENTALVARI ABLE
FACTORSC.OPPORTUNI TIESAND
THREATS
 Internal r
esourceanal
ysi
s
D.FUNCTI ONALAREASRESOURCEDEVELOPMENT
MATRIXE.STRENGTHSANDWEAKNESSES
 Mar keting
 Finance
 Product i
on
 Per sonnel
3 STRATEGYF
 OrgOaR
nMU
isatL
iA
oTI
n ON 08 25%

A.STRATEGY( GENERAL)ALTERNATI VES

 Stabili
tySt r ategies
 Expansi onSt r
ategies
 RetrenchSt rategies
 Combi nationSt rategies
B.COMBI NATI ON
STRATEGI ES
 Forwar di ntegr ation
 Backwar di ntegrat i
on
 Horizont al i
nt egration
 Mar ketpenet r
ation
 Mar ketdev elopment
 Productdev elopment
 Concent ricdi ver
si f
icati
on
 Congl omer atedi versifi
cat
ion
 Horizont al diversifi
cat i
on
 JointVent ur e

4
  Retrenchment
 Divestit
ute
 Liquidati
on
 Combi nati
on
4 STRATEGICANALYSI SANDCHOICE(
ALLOCATI
ONOF 06 20%
RESOURCES)

A.FACTORSI NFLUENCI NGCHOI CE

 St rategyf ormul ati
on
B.I NPUTSTAGE
 I nternal f
actorev aluati
onmat r
ix
 Ext er nalfactorev aluati
onmat rix
 Compet iti
vepr of i
lemat rix
C.MATCHI NGSTAGE
 Thr eatsoppor tuniti
es–weaknesses–st rengths
mat ri
x( TOWS)
 St rategicposi tionandact ionev al
uati
onmat r
ix
(SPACE)
 Bost onconsul tinggr oupmat ri
x( BCGM)
 I nternal –Ext ernal mat ri
x
5 
POLICIEGr
SIandS
NF t
UNrat
CTe
Ig
OyNma
ALt ri
x 03 10%
D.DECI SR
A I
OENS
ASTAGE
 Quant it
ativ
eSt rategicPlanningmat ri
x(QSPM)
A.POLI CY
B.PRODUCTPOLI CIES
C.PERSONNEL
POLICIESD.
FI
NANCI ALPOLI CIES
6 S
ETRATR
.MA EK
GEICI
TIMP
NGPLEOME
LI CNT
I
E ATI
S ONREVI EW AND 04 15%
F.PUBLI CRELA EV
TAL
I
O NPUAOTI
LOI
CN
IES

A.MCKINSEY7-SFRAMEWORK
B.LEADERSHIPANDMANAGEMENTSTYLE
C.STRATEGYREVIEW ANDEVALUATI ON
 Reviewunder
lyi
ngbasesofStrat
egy
 MeasureOrgani
sat
ionalPer
formance
 Takecorr
ect
Ti
v
OeA
Tact
Lions 30 100%

5
STUDENTNOTES

6
7
 TOPI
C1:ORGANI
SATI
ONALSTRATEGY

St
rat
egi
cManagement

Thewordstrat
egyisderi
vedfrom t
heGr eekwor
d“STRATEGI
A”whi
chmeanst
he
ar
tandsci
enceofdi
rect
ingt
hemili
taryf
orces.

Str
ategyisdefinedasauni f
iedcomprehensiveandi ntegrat
edplanoft hef i
rmt o
meett hechall
engesoft heenvir
onment.Themai nchallengesthattheorgani zationsface
from theenvir
onmenti scompet i
ti
on.Competit
ionisatt heheartofstrategyf or
mul at
ion
andi fcompeti
tionisabsenttherewouldbenoneedf orstr
ategy.Hencest rategyi sawell
thoughtoutsy stematicplanofact i
ontodefendonesel fort odefeatri
v als.Strategyis
formulatedinant i
cipati
onoft hepossibl
eposi t
ions,mov es,actionsandr eacti
onsof
ri
v al
s.

Whatar
est
rat
egi
es?

Thetypi
calbusi
nessf
ir
m usual
l
yconsi
der
sthr
eet
ypesofst
rat
egy
:Cor
por
ate,
Busi
ness,
andFuncti
onal
.

1.Corpor atest r
ategydescr i
besacompany ’
sov eralldirectionint ermsofi t
sgener al
atti
tude t owar d growt h and t he managementofi t
sv ari
ous busi nesses and
productl ines.Cor porat estrategycompr i
sesofst abil
ity,growth, r
etrenchment .
2.Businessst rategyusual l
yoccur satt hebusi nessuni torpr oductl evel,andi t
emphasi zesi mpr ov ementoft hecompet i
t i
veposi ti
onofacompany ’
spr oduct sor
servicesi nt hespeci fi
ci ndustry .Busi
nessst rategi esar ecomposedofcompet i
tiv
e
and cooper ative st rategies.ForE. g.Appl e comput eruses a di fferenti
ation
compet i
tiv est r
ategyt hatemphasi zesi nnov at ivepr oduct swi thcreativedesi gn.In
contrast,Br i
tishai rway sf oll
owedacooper at i
v est r
ategybyf orminganal liance
withAmer icanAi rl
inesi nor dert oprov i
degl obal service.
3.Funct i
onalst rategyi st heappr oachtakenbyaf unctionalarea, suchasmar keting
orresear chanddev elopment ,toachi ev ecor por ateandbusi nessuni tobject i
ves
and st rat egies by maxi mizing r esour ce pr oduct ivi
ty.I tis concer ned wi tha
developing and nur turi
ng a di sti
ncti
v ecompet ence t o prov i
dea companyor
businessuni twi thacompet itiveadv ant age.AnE. g.ofaf unctionalst r
ategyi s
Amer i
caOnl i
ne’smar keti
ngst rategyofsat ur atingt heent ir
emar ketwi thal ow
pri
cedpr oduct .

Hi
erar
chyofst
rat
egy

Cor
por
ateSt
rat
egy
8
 Busi
ness

(
Div
isi
onl
evel
)

St
rat
egy

Busi
nessf i
rmsuseal lthreet y
pesofst r
ategysi multaneously.A hi
erarchyof
str
ategyisthegroupingofstrat
egytypesbyl eveli
nt heor ganizat
ion.Thishi
erarchyof
str
ategyshown in Figureisanest ing ofonest rategywithin anotherso thatt hey
complementandsuppor teachother.Funct
ionalstrategiessupportbusinessstrategies,
which,i
ntur
n,supportthecor
poratestr
ategy
.

Whati
sst
rat
egi
cmanagement
?

Itisthatsetofdeci si
onsandact i
onswhi chleadstothedev elopmentofanef fect
ive
str
ategyorstrategiestohel pachievecor porat
eobjecti
ves.Thepr ocessofstrat
egic
managementst art
swi ththef or
mulationofmi ssi
on.Missi
onist hev erypur
poseoft he
exi
stenceoftheor gani
zation.Themi ssi
onf ocusesonthepurposeoft hebusi
nessand
theemployeesshoul dfinditachievableandr el
atabl
e.Themi ssionofI SROistosend
Mant oMoonandal soSpaceTechnol ogyshouldbenefi
tthesociety.

Ther
efor
eor
gani
zat
ionst
odaycomeoutwi
thmi
ssi
onst
atement
s.

MI
SSI
ONSTATEMENT

Whati
smi
ssi
onst
atement
?

I
tisanendur i
ngstatementofpur
poset hatdi
sti
ngui
shesonebusinessf
rom othersi
mi l
ar
businessofdiff
erentfi
rms.A mi ssi
onst at
ementreveal
sthel ongtermv i
sionofan
organizat
ionofwhatitwantstobeandwhom i twantstoserv
ei nthedist
antf ut
ure(
A
9
vi
sionisaverylongtermimaginedvi
ewoft heorgani
zat
ionasitmi ghtbeinthefutur
e).
Themi ssi
onst at
ementdescr i
besanor gani
zati
on’
spurpose,cust omer
s,productsor
servi
ces,marketsand thebasictechnologythatisadopted byt heorganizat
ion.A
mission st
atement is ev ol
ved t
hrough v ari
ous meeti
ngs amongst t he seni or
managementt eam andaft
ercall
i
ngforsuggesti
onsfr
om employees.

Whatar
etheel
ement
sofmi
ssi
onst
atement
s?

1.Itmustbecl ear lyar ti

culated:-I tshoul dbeeasyt ounder standsot hatthev alues
andpur poseoft heor gani zati
onar ecl eart oev erybodyi ntheor ganizati
onandwi ll
beagui det ot hem.
2.Itmustber elev ant :-shoul dbeappr opr iat
et ot heor gani zati
oni ntermsofi ts
history,cult
ur e, andshar edv alues.
3.Itmustbecur rent :-Ami ssionst atementmaybecomeobsol eteaftersomet i
me
becauseofchangei nt heenv ironment alf actorsandor ganizationalfact
ors.Some
compani eshav echangedt heremi ssi onst atement ssev eralt i
mes.Thef actors
whichcal lf
orchangei nt hemi ssionst at ementar echangesi nthemar ket,growt h,
diversif
icati
oni nt onewar eas.
4.Itmustbewr itten in aposi tivetone:-I tmustbecapabl eofi nspir
ing and
encour agingcommi tmentt owar dsfulfil
lingthemi ssion.
5.Itmustbeuni que: -Itshoul dest abl
isht hei ndividuali
tyifnott heuniquenessoft he
companyandi tspr oductsofser vi
ces.
6.Itmustbeendur i
ng:-I tshoul dcont inual lyguideandi nspi
r eandbechal l
engi ngin
thepur suitofi tsmi ssion.
7.Adapt ed t ot he t argetaudi ence:-The mi ssi on statementmustbe di rected
towar dst heconsumer s,gener alpublic, sharehol ders,empl oyees.

10
Whati
sthei
mpor
tanceofmi
ssi
onst
atement
?

1.I
tpr ov i
desar oadt odevelopmentanddr iv
ef orgrowth.
2.I
tpr ov idesaclearsenseofpur pose, dir
ection,anddesiredfuturestat
eandwhen
thi
si magei swi del
ysharedi ndivi
dualsareabl eof indthei
rownr ol
esbothinthe
organi zati
onandi nthesociety.
3.Missi on statementempower si ndivi
duals and conf ers stat
us on employees
becauset heyseet hemselvesasaapar tofawor t
hwhi l
eenterpri
se.
4.I
tr esultsinacl eardefi
nit
ionoft hebusinessofacompany .
5.Missi on statementhel psi n modi f
ying,ext endi
ng and dev el
oping t
heexisti
ng
ongoi ngbusiness.
6.Ami ssionstatementmakesev er y
bodyi mbibet hespir
itandinspi
resemployees.

PeterFDrucker:“wi
thoutaneff
ecti
vestatementtherewi
llbenoper
for
manceit
hast oexpressthecontri
but
iontheorganizat
ionplanst
omaket othesoci
ety
,
customerandtotheeconomy.”

St
akehol
der
sandi
nter
est
edpar
ti
es

St
akehol
der
sori
nter
est
edpar
ti
esofanor
gani
zat
ionar
ethoseaf
fect
edbyi
tandt
hose

11
whoaffectit.Theyhol
dvary
ingty
pesofdegreeofinf
luenceandint
eresti
nit
,it
spr
oduct
andservices;itwasofwor ki
ng,it
sstandardsandout comes,it
ssuccessesandits
fai
l
ures.Theyareasfol
lows.

1)Thestaff:Everyonewhoworksforandi
ntheorgani
sat
ionandwhoisther
efore
dependentuponitfort
heiri
ncomeandspendi
ngpowerand,toagreat
erextent
,
fort
hestandardandstyl
eofl
ivi
ng.

2)Thecommuni
ti
esi
nwhi
cht
hest
affl
i
vesandwor
kandi
nwhi
cht
heor
gani
sat
ion
oper
ates.

3)Soci
alcust
omers:forexample,chari
ti
es,school
s and hospi
tal
it
ywhich may
appr
oachtheorgani
sati
onforsponsorshi
pandsupportforsocial
,educat
ional
,
char
it
abl
eorot
herworthycauses.

4)Sharehol
ders:Theinvest
orsofmoneyi
nanor
gani
sat
ioni
ntheexpect
ati
onand
anti
cipat
ionofret
urns.

5)Ot
herf
inanci
ali
nter
est
sincl
udi
ngbacker
s,cont
ri
but
ors

6)Suppli
ersofcomponent
sandraw mater
ial
s:Thesehav
eav
est
edi
nter
esti
nthe
successoftheor
gani
sat
ioni
nfocus.

Cust
omer
sandcl
i
ent
s

Thecust
omer sandcli
entsofor
gani
zati
onsar
ethosewhoavailt
hemsel
vesofi
tspr
oduct
andser
vices.Afi
nerdi
sti
ncti
onmayalsobedr
awnasfol
lows:

Thecust
omersaretheonewhopay sfort
heoffer
ing;t
hecli
ent
saretheonewhouses
i
t.Thetwomaybethesame( t
hedri
verwhobothpaysforandusesthepet
rolf
ort
hecar)
,
ortheymaynotbe(
theparentbuy
stoys,t
hechil
dusesthem).

Thisal
soappli
estopubl
icser
vicesandthenot–f orprof
itsect
or.I
neachcase,cont
inual
focusonthecli
entgr
oupsinquesti
oniscrit
icalt
othei
reffect
iveoper
ati
on,maxi
mizati
on
andopti
mizat
ionofwhatar
einvari
abl
yscarceresour
ces.

12
 OBJECTI
VES
Whatar
eobj
ect
ives?

Obj
ectivesmaybedef i
nedast hoseendswhichtheorgani
zati
onseekst oachi
evebyits
exi
stenceandoperati
ons.Whatt heorgani
zati
onseekstoachievedmustbequant if
ied
andspecifi
csothatthereisnoconfusionwhenoner eachesther
e.Thechangesi nthe
marketenvir
onment,changesintheorgani
zati
onalf
actorsli
kestrengt
h,weaknessmay
cal
lformodifi
cat
ionofobject
ives.

Whatar
ethef
act
orst
hataf
fectobj
ect
ive?

1.Forcesintheenvi
ronment
2.I
nternalfor
ces
3.Thev al
uesystem oft
opexecut
ives

Forcesintheenvi
ronmentlikethepol
i
ticsofthegov er
nment,compet
it
ion,and
changeincust
omerpr
eferenceofpr
oduct
s/servi
cesaf
fectobj
ect
ives.

Int
ernalforces l
i
ke empl
oyer– employee r
elat
ion,technol
ogy adopt
ed by t
he
or
gani
zation,
commi t
mentoft
hetopmanagementanditsemployees.

Theval
uesyst
em ofthetopExecut
ivesl
i
ket
her
esoci
alandmor
alr
esponsi
bil
i
tiest
o
t
hecust
omer,
sharehol
ders,
soci
eti
esetc.

Necessi
tyoff
ormal
obj
ect
ives(r
ememberacr
ony
m:SMSCODE)

1.Strategy Pl ans:Obj ectives help strategy pl anning and t hus hel p effect i
ve
functioningoft heor ganizationsinagi venenv ironment
2.Managementbyobj ect i
ve:Cl ear
lyformul at
edobj ectivesf ormt hebasi sf ort he
managementt o manage t he organization byobj ectiv
es so t hatt he desi red
object i
vesar eachi ev ed.
3.Standar dsforassessment sandcont rol:Bymaki ngcl eartheobj ectiveswhatt he
resultsshoul dbepr ov idedt hebasisforcont rolandassessmentofor ganizational
performance.
4.Coor dinati
on:Obj ect iveshel pcoordinatedeci sionanddeci sionmaker s.Itreduces
conflictindeci sionmaki ng.
5.Organi zati
on:Obj ect i
v esindicatethepur poseandai m oft heor ganizat i
ont hereby
j
ust i
fyingitsexi stence.
6.Decent rali
zation:Obj ecti
veshel pdecent ral
ization,i
.e.,objectiveswhenassi gned
tolowerl evel empl oy eesint heorganizationithel psfasterdeci si
onmaki ng.
7.Effi
ciency :Obj ect i
v eshel pi ntheov erallefficiencyoft heor ganizat i
ont her eby
helpingt heor gani zat i
onf ort heachi
ev ementoft hest r
ategiesorst rategicpl ans.

Exampl
esofobj
ect
ives:
Obj
ect
ivesmustbeachi
evabl
eandmat
eri
all
yquant
if
iabl
e.

Profi
tobj
ect
ive:Toi
ncr
easepr
ofi
tsf
rom Rs.
10.
00l
akht
odayt
o80.
00l
akhst
eny
ear
s
hence.

13
 Market
ingobj
ecti
ve:Toincreaset
otalcompanysal
esby10% annual
l
ytor
eachRs.
22.
00lakhs10yearsf
rom now.

Hi
erar
chyofobj
ect
ives

Cor
por
ateLev
elobj
ect
ives

Uni
tLev
elobj
ect
ives

Depar
tmentobj
ect
ives

I
ndi
vi
dual
obj
ect
ives

Corporatel
evelobjecti
vef
ormtheover
allobj
ect
ivesoft
heorgani
zat
ionwhi
charelong
range.Iti
sformulatedandpur
suedbythetopmanagement
,BoardofDir
ect
orsandthe
topmostmanager s.

Uni
tlev
elobj
ect
ives:
-Theseobj
ect
ivesoft
hest
rat
egi
cbusi
nessuni
t(SBU)f
ormt
henext
l
evel
.

Departmentlev
elobject
ive:-Thesearetheobject
ivesoft
hedi f
ferentdepar
tmentsli
ke
producti
on,market
ing,f
inance,per
sonal
,resear
chanddev el
opmentwhi chwillhel
pthe
unitl
evelobj
ecti
vewhichinturnwouldhel
pthecorporat
eobject
ive.

I
ndivi
dualobject
ives:-Adepartmentmayhav eseveralsect
ionsunderit
.Eachsect i
on
hasseveral
personnelresponsi
blefort
heachievementofthedepart
mentobj ect
ives.E.
g.:
Asalesmani namar keti
ngdivi
sionwillhav
et oachievespecif
icobject
iveslikesales
tar
gets.

GOALS
CASEFORSTUDENTS:Obj
ect
ivesandgoalset
ti
ngatCanar
aBank

B.Ratnakar
,ex-chair
manofCanar aBank,onbeingint
ervi
ewedbyBusi nessWor ldj
ust
befor
ecompl et
inghissi
x-yeart
erm,expressedt
hepurposeofhisor ganisat
ionas:“Our
missi
oni stobet hemostcompet i
tiv
eandpr ogr
essi
vei nst
it
uti
oni nour (
i.e.
banki
ng)
i
ndustry
.”Thebank’ sst
atedobjecti
vesare:“gr
owth,i
nnovati
veness,highpr ofi
tsasa

14
bar
omet
erofef
fi
ci
ency
,hi
ghl
yinv
olv
edempl
oyeesdi
sti
nct
ivel
ychar
gedwi
thpr
ide…”

Dur
inghissi
x-y
earsuccessf
ult
enur
e,Rat
nakarhasat
tempt
edt
oachi
evet
heabov
e
obj
ect
ivesi
nanumberofway s.

 Growthhasbeenachievedi ntermsofcustomers(20.4mil
li
on),reserves(Rs200
cror
e),aver
agebusi
nessperempl oyee(Rs21.
78l
akh),deposit
sperbr anch(Rs3.
4
cror
e)andpr i
ori
tysect
orl ending(47percentofnetcr editagainstanindustr
y
norm ofonl
y40percent).Allf
iguresrel
atet
o1987.

 I
nnovativ
enessisr
efl
ectedi
nanumberofnewschemesl
ikemutualf
undssuchas
CanstockandCanshare,andset
ti
ngupofCanbankFinanci
alServi
cesLtd,f
or
merchantbanki
ngandportf
oli
omanagement
.

 Highprof
it
sofRs45crorein1987;t
hehighestamongallpubl
icsect
orbanksand
nearl
yequalt
othatoft
heindust
ryl
eader
,StateBankofI
ndia.

 Employee i
nvol
vementhas been soughtt hr
ough del
egati
on ofauthor
it
yand
devol
uti
on ofpowert o gr
assrootlevel
st hr
ough a change i
n admini
str
ati
ve
str
uctur
eandthecreat
ionofci
rcl
eandbr anchmanagementboards.

Observ
ef r
om theabov
ethatbank’
spur
poseissuppor
tedbyobj
ect
ives,whi
chi
ntur
n
ar
eachievedthr
oughgoal
sthatar
emeasurabl
e.

DI
FFERENTI
ATEBETWEENOBJECTI
VESANDGOALS:

ANI
LLUSTRATI
ONOFOBJECTI
VESANDGOALS:

EXAMPLEOFOBJECTI
VES EXAMPLE OF OBJECTI VE CONVERTED
TOGOALS
Toimproveef f
ici
encyoff actory Reduceshutdown10%mont hl
y
Toimprovet heprofi
tabil
i
tyoft heoutl
et Impr oventepr
ofitto 12 % fr
om cur
rent
10%
Topromot egrowthoft hechainofhotels Add250key sthi
syeartothechai
n
To cont ribute t o t he weal th of Pay---
%ofdivi
dend
shar
eholders
Toensureopt i
mal useofr esources I
mpr overet
urnoninvestmentby5% this
fi
nancial
year
15
Tocontr
ibut
etoempl
oyeewel
far
e Annuali
ncrement,PLI,
etc
Topromotetowar
dswel
far
eofsoci
ety Constr
ucti
onofbusst ands,
well
s,
etc.thi
s
budget
edy ear
Tobel
eader
sint
echnol
ogyandknowhow I
nnovati
vet echnol
ogi
es the oper
ational
year
.

STRATEGI
ES:DEVELOPI
NGSTRATEGI
ES

Manyst rat
egies ar
e developed f
ort
he l
ong run f
uture ofthe organi
zati
on.
Str
ategicdecisi
onismadebyt heCEOwhohasabr il
li
anti
nsightandisquicklyableto
convinceothersintheorgani
zati
ont ofol
l
owthei
dea.Somet ypi
calappr
oachesar ethe
fol
lowing.

Adaptivesearch:Asperthisapproachanappropri
atesolut
iontoaprobl
em isformul
ated
bymov inginincrementalstepsformanyy ear
s.EurekaForbesdoortodoorsell
i
ngofits
waterpurif
iertothecustomertosellit
sproductsi
nt hemarketi
sanexampl eofadapt
ive
search.Thi
spr oductwil
lnotsell
unlesstherei
sdoort odoorsel
li
ng.

Int
uit
ionsear
ch:Asperthisappr
oacht heexecuti
veuseshisinsti
tut
ionforstr
ategy
devel
opment.I
tcomesoutofhisinsti
nct.Hethi
nkswit
houtanydataav ai
l
ablebuthis
experi
encei
nthef
iel
dmatter
s.Hei
sv erykeenandhaqui
ckinsi
ght.

St
rategi
cfactor
s:Undert
hisappr
oachtheCEOlooksoutf
orvari
ouscri
ti
calf
actor
sint
he
or
ganizat
ion– likethevari
ousSBUsandi tsbusi
nessintermsofi tsst
rengt
hsand
weaknessthatwoulddet
erminet
hesuccessorf
utur
eoftheorgani
zat
ion.

Pi
cki
ngni
ches:

ANicheisaproduct/serv
icesuitabl
eforasegmentofcust
omers.Fore.
g.Acompany
manufact
uredamachi nef orsmoot hi
ngicef ori
ceskati
ngwhichearli
erwasdone
manuall
y.Nocompanyhasf oundasubst i
tut
e.Thi
scompanyhasfoundanichei
nthe
busi
nessworl
d.Thecustomer sar
eclearl
ydefi
nedandthepr
oduct
sareuni
que.

Entr
epreneuri
alapproach:I
nthisapproachthestr
ategyi
sdev el
opedbyonepowerful
i
ndivi
dual.Thefocusisonopportuni
tyandtheprobl
emsaresecondary
.Thest
rat
egyis
pushedaheadandt hepowerrest
swithonemanwhoi scapabl
eoftaki
ngbol
ddeci
sion.

* * *

MAI
NQUESTI
ONS:
16
1.Def
inest
rat
egi
cmanagement
.St
atet
heel
ement
sinv
olv
ed.

2.Expl
aint
hev
ari
ousappr
oachest
odev
elopi
ngst
rat
egi
es.

3.Whati
sthei
mpor
tanceofset
ti
ngst
rat
egi
cobj
ect
ives?

4.Di
sti
ngui
shbet
ween

a.v
isi
onandmi
ssi
on

b.obj
ect
ivesandgoal
s

5.Whatar
echar
act
eri
sti
csofmi
ssi
onst
atement
?

Or

Whati
sthescopeofami
ssi
onst
atement
?

17
CHAPTER2.
ENVI
RONMENTALANDI
NTERNALRESOURCEANALYSI
S

Businessdeci
si
onsar einfl
uencesbytwosetsoff act
orsvi
zint
ernalf
act
ors(
the
i
nter
nalenvir
onment)andext
ernalfact
ors(
ext
ernal
env
ironment)
.

Themethodsandtechniquesempl oy
edbyanor gani
zati
ontomonitortheenv i
ronment
andtogat
herdatat
odeci siv
ei nfor
mationabouttheopport
uni
ti
esandthreat
st hataff
ect
thei
rbusi
nessandt hepr ocessbywhi chorganizat
ionsmonit
ortheirenvi
ronmenti s
knownasenvi
ronmentalanalysis.

Envi
ronmentalanal
ysi
sisdefinedast heprocessbywhichst
rategi
cmanagersmonit
or
economic,gover
nmental,l
egal
,mar ket
,technol
ogi
cal
,demographicandsoci
alset
ti
ngs
todeter
mineopport
unit
iesandthreatstothei
rfi
rms.

PESTLEANALYSI
S:Keyext
ernalVar
iabl
efact
ors

18
19
Pol
i
ticalEnv
ironment
:

Governmentpol i
ciesalsoimpactthebusi nessclimateofacountry
.Therecentpol
i
cyof
Global
izati
onoft heI ndi
aneconomy ,l
iberal
izat
ionetchascr eat
edagoodcl imat
ef or
pri
vatesectorinvestmentint hecountr
ysev erallawsareenactedtopr
otectcompanies
fr
om eachot herbypr event
ingunfaircompet it
ion.Somelawsar eint
endedtoprotect
workers,consumer sandcommuni ti
esfrom businessfir
ms.

The pol
iti
calat mospher
e of t he countryis si
gnif
icantl
yr el
evant to busi
ness
or
gani
zat
ions.Nobusinesscanthinkofexpandi
ngadiver
sify
ingit
sacti
vit
yifthepol
i
tical
at
mosphereisunstabl
eandinturmoil
.

Economi
cEnv
ironment
:

I
nr ecenty ears,t
hedegr eeofcompet i
ti
onint heworldhasi ncreasedt r
emendously
.
Costscont rol
ledareprof
itsearned.Marketshareofthecompet i
tors,pr
ici
ngofproduct
generallevelofpr
ofit
sarefactorsthataf
fectacompany ’
sproduct/ser v
ice.I
nanaly
zing
thecompet i
ti
veenvir
onment,itshouldbetheprimeconcernoft hemanagementt ofind
outifthereisami ni
mum mar ketshareofit
sproducti
nrelat
iontoitscompet i
tor
s.

Soci
alenv
ironment
:

Demogr aphicfactorsl i
kethesizeofthepopulat
ion,agecompositi
on,sexcomposi
ti
on,
educationall
evels,language,cast
e,andrel
igi
onet careallf
act
orswhicharerel
evantt
o
business.E.g.
,ar apidl
yincreasi
ngpopulati
onindicatesagrowingdemandf ormany
products.

Thesoci
alchangesoccurgr aduall
y.Thesoci alenv i
ronmentconsist
sf orfact
orsrelat
ed
totheconsumpti
onhabi t
soft hepeopl e,customsandt radi
ti
ons,tastes,pr
eferences.
Peopleofvari
edcultureusepr oductsi ndi ff
erentway s. E.g.
:Rice,wheat ,etcare
consumedbypeopl ebycooki ngi tindifferentmet hodsetc.Hencet hebuy i
ngand
consumpt
ionhabit
sdiff
erfrom culturetoculture.

Nat
uralEnv
ironment
:

Geogr
aphicalandecologi
calf
act
orssuchasnat
uralresour
cesweatherandcl
imati
c
l
ocati
onareallrelev
antt
obusi
ness.Cl
i
mateandweat
hercondit
ionsaf
fectt
hel
ocat
ion
ofcer
tai
nindustr
ies.

“ S”
PESTLEANALYSI

20
POLI
TICAL ECONOMI
C
 Regulatorybodi esandpr ocesses  Homeeconomysi t
uation/ Growt
h
 Gover nmentpol i
cies  Homeeconomyt r
ends
 Gover nmentt erm andchange  Ov erseaseconomi esandt rends
 Tradingpol i
cies  Gener altaxat i
oni ssues
 Funding, gr
ant sandi ni
tiativ
es  Lev elofsav ings
 Homemar ketlobby i
ng/pr essur
egroups  Industryproper ties
 I
nternationalpr essuregroups  Taxat i
onspeci fi
ct opr oduct /
ser
v i
ces
 War sandconf l
icts/t
errorism.  Mar ketandt radecy cles
 Speci f
icindust ryfactor s
 Mar ketrout esanddi stri
but i
ontrends
 Cust omer /end-userdr ivers
 Interestandexchanger ates

SOCI
AL TECHNOLOGI
CAL
 Li
fest y
let rends  Compet ingtechnologydev el
opment
 Demogr aphics  Researchf unding
 Consumerat ti
tudesandopi ni
ons  Associated/dependenttechnologi
es
 Medi av i
ews  Replacementt echnology/
soluti
ons
 Brand, company ,technologyimage  Maturityoftechnology
 Consumerbuy ingpat terns  Manuf acturi
ngmat uri
tyandcapacity
 Fashionandr olemodel s  I
nformat ionandcommuni cati
ons
 Majorev entsandi nfluences  Consumer buy
ing
 Buyingaccessandt r
ends mechani sms/ t
echnology
 Ethnic/reli
giousf actors  I
nnov ati
onpot enti
al
 Adver t
isingandpubl icit
y  Globalcommuni cat
ions
LEGAL ECOLOGI
CAL
 Currentlegislat
ionhomemar ket  Weat her/cl
imat
e
 Futurelegislati
on  Sustainabil
it
y?
 Int
ernational l
egislati
on  Ecol
ogi cal/
envi
ronment
ali
ssues
 Lawchangesaf fecti
ngsocialf
actor
s  Ethi
cal i
ssues
 Technologyl egislati
on
 Technologyaccess, li
censi
ng,pat
ents
 Int
ellect
ual proper t
yissues

“
SWOTANALYSI
S”

21
 SWOTi sanacronymforthei nternalstrengt
hsandweaknessesofbusi nessand
environment alopportuni
ti
es and thr eatsf acing t
hatbusi ness.SWOT analysi
si sa
systemat i
ci denti
fi
cat
ionofthef actor sandt hestrat
egyt hatr efl
ectst
hebestmat ch
between t hem.I tis based on the l ogict hatan effect
ive st r
ategymaxi
mizes the
business’sst r
engthsandopportunit
iesbutatt hesamet i
memi nimizesi
tsweaknesses
thr
eat s.

Strengt
hs Strengthisar esource,skil
lorot heradvantager el
ativ
etocompet i
tor
’sand
theneedsoft hemar ket
sandor ganizati
onser vesorant i
cipatesservi
ng.St
rengt
hi sa
disti
nct
ivecompetencethatgivesleadership,
andbuy er-
suppl i
errel
ati
onsareexamples.

Weaknesses A weakness i sal imi

tation ordefici
ency inr esources,ski l
ls,and
capabi
li
ti
esthatseriousi mpedesef fect
iveper f
ormance.Faci l
i
ties,fi
nancialresour ces,
managementcapabi lit
ies,mar keti
ng skill
s and brand i mage could be sour ces of
weaknesses.Understandingt hekeyst rengthsandweaknessesofanor ganizati
oni n
narr
owingthechoiceofal t
ernati
vesandsel ect
iveastrategy.Disti
nctcompet enceand
cri
ti
calweaknessareident i
fi
edinrelati
ont okeydeterminantsofsuccessesf ordifferent
marketsegments;t
hispr ovi
desausef ulframewor kf
ormaki ngthebestst rategi
cchoi ce.

Opportunit
ies An oppor t
unityis a majorf av
orable situati
on in an or
ganizat
ion’
s
envi
ronment .Ident
ifi
cati
onofapr evi
ouslyoverlookedmar ket
ingsegment,changesin
compet i
ti
veorr egulat
orycir
cumstances,t
echnologicalchanges,andimprovedbuyeror
suppli
esrelati
onshipscouldrepr
esentmajoropportunit
ies

Threats At hr
eatisamaj orunf avorablesit
uationinanor
gani
zati
on’senvi
ronment
.The
entr
anceofanew compet it
or,slow mar ket,growth,i
ncr
easedbargai
ningpowerofkey
buyers orsuppliers,majort echnol ogi
calchange,and changing regul
ati
ons coul
d
representmaj
orthreatst
oanor ganizati
on’ssuccess.

STRENGTHS WEAKNESS
 Strongbrandimage  Poorbrandi mage
 Strongdistr
ibuti
onnetwork  Weakdi stri
buti
onnetwork
 Deeppr oductmi x  Narrowpr oductmix
 Highqualit
ypr oduct  Lowpr oductquali
ty
OPPORTUNI TIES THREATS
 Largeandgr owingmar ket  Fi
erceinternati
onalcompeti
ti
on
 Delicensi
ng and impor
t  Pri
cesdown,costofpr oducti
on
22
 l
iberali
zati
on up
 Adv ant
age ofa good pr oduct  High j ob at tri
tion(
employ ees
range l
eaving)rates
 Economi cboom  Politi
calinstabi
lit
y
 Fast i ncrease in income of  Economi crecession
people
SW OTanal ysi
sstudi
esimportantf
actorthataf
fectstheper formanceoft hecompany
i
stheforcest hatconst
it
utethecompany ’
simmedi ateenv i
ronment .Theyincludesome
f
actor
sl i
ke:

Physi
calassetsandf acil
it
ies:Likecapi talequipmentpr oducti
oncapaci ty
,technol
ogy
,
l
ogist
icsetc
R&Dandt echnol
ogicalcapabili
ti
es: Li
keabili
tytoinnovateandcompet e.
Marketi
ngResources:li
kebr and,i
mage, gooddistr
ibuti
onnetworket c.
Fi
nancialf
actors:
li
kef i
nancialpoli
cies,fi
nancialposi
tion,
capitalst
ructureetc.
HumanResour ces:l
ikeskil
l,morale,atti
tude,commi tmentetc.
Fi
nance:

1.Highcr
edi
trat
ing 1.Lowcredi
trat
ing
Large amount of i
nter
nal
l
y accr
ued 2.Poorr
ecei
vablesmanagement
money
Producti
on:

1.St
at eoftheartoftechnol
ogy 1.Obsol
etetechnol
ogy
2.StrongR&Dsuppor t 2.NoR&Dsuppor t
3.Ef
ficientinv
entor
ymanagement 3.Poori
nventorymanagement
Personnel :

1.Qual
if
ied and exper i
enced human 1.Unqual
ifi
ed & i nexper
ienced wor
k
resour
ce force
2.Goodi ndust
ri
alr
elati
ons 2.Poorindustr
ial
relati
ons
3.MotivatedHumanr esour
ces. 3.Lowmor aleworkf or
ce.
Organi
zat i
on:

1.Ef
fi
cientBoar
dofdir
ect
ors 1.I
neff
icientboardofdi
rect
ors
2.Ef
fi
cientandmot
ivat
edmanager
s 2.Conf
lictbetweenmanagers.
* * *

MAI
NQUESTI
ONS:

1.Def
ineEnv
ironment
.St
atet
het
ypes.

Or

Whati
sEnv
ironmentScanni
ng?

23
2.Expl
aint
hecomponent
sofExt
ernal
Env
ironment
.

3.Thr
owl
i
ghtonSWOTanal
ysi
s.

Or

Whatar
ethef
act
orst
hataf
fectt
hedy
nami
csofI
nter
nal
Env
ironment
?

24
 CHAPTER3.STRATEGYFORMULATI
ON

Str
ategi
calternat
ivesev olv
eandr evol
vearoundt hequesti
onofwhetheracompany
mustcontinue orchange t he busi
ness whi
ch itis cur
rent
lydoi
ng orimprovethe
eff
ici
encyandef f
ecti
v enesswithwhicht hefi
rm achi
evesit
scorpor
ateobj
ect
ivesini
ts
chosenbusinesssector……

Accordi
ngt oGLUECK,t her
ear efourgrandstrategi
cal t
ernat
iveswhicharestabil
it
y,
expansi
on,r etr
enchment and any combinati
on of t hese three.These st
rategi
c
alt
ernat
ivesaret medasgr
er andst
rategi
esorbasicstr
ategiesorgener
icst
rat
egi
es.

GRANDSTRATEGI
ESOFGLUECK

1.Stabi
li
tystrat
egy
Itinvol
vesincrementalimprovementi
nf uncti
onalperfor
manceintermsofcustomer
groupsinordertoremainsuccessf
uli
nbusiness.
E.g. Aphot ocopi
ermachinecompanyprov i
desbetteraft
ersal
esser
vicetoit
sexist
ing
customergr oupstoi mproveitscompanyandpr oductimageandincreasesal
esof
accessori
esandconsumabl es.

2.Expansi
onstr
ategy
Whenacompanysubst ant
ial
lybroadensthescopeofi tscustomergr oupsi
norderto
i
mpr oveit
sperfor
manceei t
hersinglyorjoi
ntl
ywi t
hanot herfi
rm.E.g.Apr i
nti
ngfir
m
changesfrom thetradi
ti
onalletterpresspri
nti
ng to desktop publ
i
shinginorderto
i
ncreaseit
sproduct
ionandeffi
ciency.

3.Retrenchmentstrat
egy
Whenacompanysubst ant
ial
lyreducesthescopeofi t
scust omergroupsi norderto
i
mpr oveitsperf
ormanceei t
hersi
nglyorjoi
ntl
y.
E.g.Acor por
atehospit
aldecidestofocusonlyonspeci
altytr
eatmentandr eal
izehi
gher
revenuesbyreducingit
scommi t
mentt ogener
alcaseswhicharetypi
cal
lylessprofi
tabl
e
todeal wit
h.

4.Combi nati
onst r
ategy
Whenacompanyadopt sami xtureofstabi
li
ty,
expansionandr et
renchmenteit
heratthe
samet i
mei nitsdiffer
entbusinessoratdi f
ferentti
mesi nt
hesamebusi nesswiththe
ai
m ofimpr ovingitsperfor
mance.
E.g.apai ntcompanycont inuestoofferdecorati
vepai ntst
oprovideawidervari
etyto
i
ts customer s( stabil
it
y)and expands i t
s productr ange toinclude i
ndust
ri
aland
automotivepai nts(expansion)simult
aneouslyi tdeci
dest oclosedownt hedivi
sion
whichunder t
akesl argescal
epai nt
ingj
obs( r
etr
enchment )
.

COMBI
NATI
ONSTRATEGI
ES

Hor
izont
ali
ntegr
ati
on

25
Inorderto el
i
minateorreducecompeti
ti
onsomecompani
esacqui
reoneormor
e
competi
tor
swhichisknownashor
izont
ali
ntegr
ati
on.

E.
g.a)Hi
ndust
anl
everacqui
resTat
aoi
lmi
l
lscompany“
TOMCO”

b)Jetai
rway
sacqui
resSAHARAAI
R

c)VI
Pacqui
resARI
STOCRATLUGGAGE.

Backwar
dint
egr
ati
on

Somecompani
esacqui
re/pur
chasebusi
nesst
hatsuppl
i
est
hem wi
thr
awmat
eri
alsor
i
nput
s.

E.
g.a)Ar
est
aur
antpur
chasi
ngabaker
y

b)A deter
gentmanufact
urertaki
ngupt hemanufactur
erofLABwhi
chi
sar
aw
mat
eri
alf
orthemanufact
ureofdeter
gents.Thi
sisbei
ngdonebyNIRMA.

For
war
dint
egr
ati
on

Whenacompanyi
nvol
vest
aki
ngupofact
ivi
ti
est
hatwi
l
lbr
ingt
hecompanynear
ert
othe
ul
ti
mat
ecust
omer.

E.
g. a)The manuf
actureroft he r
aw mat
eri
al(
LAB)f
ordet
ergent
stakes up t
he
manuf
act
ureoft
hefi
nishedproduct
s.

b)Ahot
elacqui
ri
ngachai
noft
rav
elagent
s.

Mar
ketpenet
rat
ion

Marketpenetr
ati
onstr
ategystr
ivest
oincreasethesal
eofthecur
rentpr
oduct
sint
he
cur
rentmarket
.Companyfol
lowsthemethodsgiv
enbelow.

a)Increasesal est othecur r

entcustomers.E.g.Ifcustomer softoothpast ewho
brushonceadaynow,habi t
uatetobrusht wi
ceaday ,thesaleofthepr oductto
thecur rentcustomer swouldalmostdouble.
b) Pullcustomer sfrom thecompet i
tor’
sproducts.E.
g.a)i fthecustomer sswitch
from t he compet it
ors brands tothe company ’
s brand while maint
aining i
ts
existi
ngcust omer sintacttherewil
lbeani ncr
easeinthecompany ’
ssales.b)a
televi
sioncompanyof f
eri
ngadditi
onalguarant
eefortwoy ear
s
c) Conv ertnonuser sintousers

I
fther
ei sasi gni
fi
cantnoofnonuser sofapr oductwhocoul dbemadeuser sof
t
heproduct,thatprovidesapotent
ialopport
unityorincreasi
ngthesales.E.g.In
I
ndiathereareal ar
genoofpeopl eintheruralareaswhodonotuset oothpaste
t
hesepeopl ecouldbeencouragedt ostar
tusingt heproduct.Babooltoot
hpaste
mainl
ytargetedthefi
rstti
meusersoftoothpaste.

Mar
ketdevel
opmentst
rat
egy

A companybr
oadeni
ngt
hemar
ketf
orapr
oductbyent
eri
ngi
ntoanew geogr
aphi
cal
26
areas i
.e.
,RegionalExpansi
on,Nat
uralExpansion and I
ndust
rialExpansi
on.Some
companiesaddnewchannelsofdi
str
ibut
ionandtherebyexpandi
ngtheconsumerreach
oftheproduct
.

E.
g.HindustanLeverhasenter
ednew geographicalmar
ket
s,addednew channel
sof
di
str
ibut
ionandalsoent
erednewmarketsegments.

Pr
oductdevel
opmentst
rat
egy

Acompanymaybeabletoincr
easeitscur
rentbusi
nessbypr
oducti
mpr
ovementor
i
ntr
oduci
ngpr
oduct
swi
thnewfeat
ures.

E.g. Japan CompanySONY keeps up the sal

e oft
hei
rconsumergoods t
hrough
conti
nuous feature improv
ement s.

concentri
cdi versif
iction
Whenacompanyt akesupanact iv
ityinsuchamannert hatitisrel
atedtoi
tsexi
sti
ng
businesstheni tiscalledconcent
ri
cdiversi
fi
cati
on
E.g.Raincoatmanuf actur
ermakesotherrubberbasedproduct
sl i
kewaterpr
oofshoes.
Rubberglov esandsel l
ingthesamethroughthesameretai
loutl
ets.
Conglomer atediver sif
icat
ion

Whenacompanyadoptsastr
ategybytaki
ngupthoseacti
vit
ieswhichar
eunr
elat
edt
o
i
tsexi
sti
ngbusi
nesst
heni
t’
scall
edasconglomer
atedi
ver
sif
icati
on.

E.
g.I
TCaci
gar
ett
ecompanydi
ver
sif
yingi
ntoahot
eli
ndust
ry.

Hor
izont
aldi
ver
sif
icat
ion

Whenacompanyi nt
roducesanew pr
oductwhi
chi
stechnol
ogical
l
yunrel
atedtot
he
cur
rentproductli
nebutwhi chhasappealt
oit
scurr
entcustomerst
heni t’
scal
l
ed
hor
izont
aldiv
ersi
fi
cat
ion.

E.g.Caml
inwhichisfamousf
orst
ati
onar
ypr
oduct
shascomeoutwi
thst
it
chi
ngand
fabri
cpai
nti
ngmater
ial
s.

Joi
ntvent
ure
27
Whent woormor eindependentfi
rmsmut ual
l
ydecidet
opar
ti
cipat
einabusi nessi
na
vent
urecontr
ibut
etototalequi
tycapi
talandestabl
i
shanewor
ganizat
ion.I
t’
sknownas
ajoi
ntvent
ure.

E.
g.a)Hal
diapet
rochemi
cal
s(WestBengal
gov
tandR.
P.Goenkagr
oup)

b)Nagar
junaf
ert
il
izer
s(APGOVT&Nagar
junagr
oup)

Di
vest
it
ure

Whenacompanysell
sordivest
sitsel
fofabusi
nessorapar
tofabusinessbecauseof
l
ose,l
esstar
getrat
eofr et
urnurgencytomobil
izef
unds,manager
ialpr
obl
emset cit
t
akesupthedi
vest
it
urest
rat
egy.

Li
quidati
on
Whenanent i
recompanyi
ssoldordissol
vesofl
ossorot
herpr
obl
emsl
i
ket
hecaseof
di
vesti
tur
etheni
tiscal
l
edasli
qui
dat
ion.
* * *

MAI
NQUESTI
ONS:

stGLUECKSf
1.Li ourgr
andst
rat
egi
esandexpl
aini
ndet
ail
.

2.Di
sti
ngui
shbet
ween

a.For
war
dandBackwar
dInt
egr
ati
on.

b.Mar
ketDev
elopmentandPr
oductDev
elopment
.

c.Li
qui
dat
ionandDi
vest
it
ure.

d.Joi
ntVent
ureandMer
ger
.

3.Def
inecombi
nat
ionst
rat
egy
.Li
stexampl
es.

28
 4.Di
ver
sif
icat
ioni
sapopul
arst
rat
egy
.Thr
owl
i
ghtont
het
ypesofdi
ver
sif
icat
ion.

5.Def
inej
ointv
ent
ure.Whatar
ethegai
nsofj
ointv
ent
ure?

6.Whati
sModer
nizat
ionst
rat
egy
?

CHAPTER3.STRATEGI
CANALYSI
SANDCHOI
CE

(
ALLOCATI
ONOFRESOURCES)

St
rategyAnalysis and Choice is a pr
ocess t
hatreconcil
es st
rat
egic act
ions,
mar ketoppor t
uni
ti
es,corporatestr
engt hsandresour
ces,val
uesofmanager s,andlegal
requirementsandsoci alresponsi
bili
ti
estoselecta"best
"mission,st
rat
egicthrust
,and
setofst r
ategicact
ions.

St
rat
egyf
ormul
ati
ngt
echni
quescanbei
ntegr
atedi
ntoat
hree-
stagedeci
sionmaki
ng
29
f
ramewor
k.

I
NPUT MATCH
STAGE

DECI
SIVE
STAGE

I
NTERNALFACTOREVALUATI
ONMATRI
X(I
FE)

Inter
nalFact
orEvaluati
on(IFE)matr
ixisastr
ategi
cmanagementtoolforaudi
ti
ngor
ev
aluat
ingmajorst
rengthsandweaknessesi
nfuncti
onal
areasofabusi
ness.

TheIFEMat r
ixtogetherwi
ththeEFEmatri
xisast r
ategy
-formul
ati
ont oolthatcanbe
uti
li
zed to eval
uate howa companyis per
formi
ng inregards toidentif
ied i
nter
nal
str
engthsandweaknessesofacompany .TheIFEmatri
xmet hodconceptual
lyrel
atesto
theBal
ancedScor ecardmet
hod.

Howt ocreatetheI FEmat r

ix?
TheI FEmat ri
xcanbecr eatedusingthefoll
owingf i
vesteps:
1.Keyi nter
nalfact or
s..
.
Conducti nternalauditandi dent
ifybothstrengthsandweaknessesinallyourbusi
ness
areas.Identif
y10t o20i nt
ernalfact
ors,butthemor eyoucanpr ov
idef
ortheIFEmat r
ix,
thebet t
er .I
tiswi set obeasspeci fi
candobj ect
iveaspossibl
e.(
Youcanf orexample,
expressi npercentages,rat
ios,andcompar ati
venumber s.
)

30
2.Wei ght s..
.
Hav ingi dentifi
edst rengt hsandweaknesses,t hecoreoft heIFEmat r
ix,assignawei ght
thatr angesf rom 0t o100scal e. Aft
ery ouassignweighttoi ndi
vi
dualfactors,makesur e
thesum ofal lwei ghtsequal s100.
Thewei ghtassi gnedt oagi venf actorindi
catest herel
ati
v eimport
anceoft hefactorto
beingsuccessf ul i
nthef irm'sindustry.Weightsareindustrybased.
3. Rat ing...
Assi gna1t o4r ati
ngt oeachf actor.Yourrati
ngscalecanbepery ourpreference.I
fy ou
uset her atingscal e1t o4,t henst r
engthsmustr eceivea4or3r ati
ngandweaknesses
mustr ecei vea1or2r ating.
Rating1=amaj orweakness.
Rating2=ami norweakness.
Rating3=ami norst r
engt h.
Rating4=amaj orstrengt h.
Not e:t he wei ghts det erminedi nthe previous steparei ndust
ry based.Rat ings are
companybased.
4.Mul ti
ply .
..
Nowwecangett ot heI FEmat r
ixmat h.Mul t
ipl
yeachf actor'
sweightbyi t
sr at
ing.This
willgi v
ey ouawei ghtedscor eforeachf act
or .

5.Sum. .
.
Thelastst epinconstr
ucti
ngt
heI
FEmatri
xistosum thewei
ght
edscor
esf
oreachf
act
or.
Thisprovidesthetotalwei
ght
edscor
eforyourbusi
ness.
Exampl eofI FEmatri
x
Thef
oll
owi
ngt
abl
epr
ovi
desanexampl
eofanI
FEmat
ri
x.

Wei
ght
sti
mesr
ati
ngsequal
wei
ght
edscor
e.

Whatv
aluesdoest
heI
FEmat
ri
xtake?
Regardl
essofhowmanyf
act
orsarei
ncl
udedinanIFEMat
ri
x,thetot
alwei
ghtedscore
canrangefr
om al
owof1.
0toahighof4.
0(assumi
ngyouusedthe1to4rat
ingscale)
.
31
Theaveragescor
eyoucanpossibl
ygeti
s2.5.
Totalwei
ght
edscoreswel
lbel
ow2.
5point
toint
ernall
yweakbusiness.Scor
essigni
fi
cant
lyabove2.5indi
cat
east r
ongi
nter
nal
posi
ti
on.

I
tisi
mport
antt
onot
ethatat
horoughunder
standingofindi
vi
dualf
act
orsi
ncl
udedi
nthe
I
FEmatr
ixi
ssti
l
lmor
eimport
antthant
heactualnumbers.

EXTERNALFACTOREVALUATI
ONMATRI
X(EFE)

Exter
nalFactorEvaluat
ion(EFE)matri
xmethodisast r
ategi
c-managementtoolof
ten
usedforassessmentofcur r
entbusi
nesscondi
tons.TheEFEmat
i rixisagoodtoolto
vi
suali
zeandprior
it
izetheopport
uni
ti
esandthr
eatst
hatabusinessisfaci
ng.

TheEFEmat ri
xisver
ysimilartotheIFEmatr
ix.Themajordi
fferencebet
weentheEFE
matrixandtheIFEmatri
xist hetypeoffact
orsthatar
eincl
udedi nt
hemodel.Whil
e
theIFEmatr
ixdeal
swihi
t nternalf
actor
s,t
heEFEmat r
ixi
sconcernedsolel
ywi
thext
ernal
fact
ors.

Externalf
actor
sassessedi
ntheEFEmatri
xaretheonest
hatar
esubj
ect
edt
othewi
l
lof
social,
economic,
poli
ti
cal
,l
egal
,andot
herext
ernal
for
ces.

Howt
ocr
eat
etheEFEmat
ri
x?
1.Li
stfactor
s…..
Thefir
ststepistogatheral
i
stofext
ernalf
act
ors.Di
vi
def
act
orsi
ntot
wogr
oups:
opport
unit
iesandt
hreats.

2.Assignweights………
Assi
gnawei ghttoeachfact
or.Thev alueofeachweightshoul
dbebet
ween0and
100.Thetotalval
ueofall
weightstogethershoul
dequal1or100.

3.Ratefactors…..
Assignar atingt oeachfactor.Rati
ngshouldbebet ween1and4.Rat ingindicat
es
howef f
ectivet hefi
rm’scur
rentstrat
egi
esr espondtothef act
or.1=theresponseis
poor.
2=t heresponsei sbel
owav erage.
3=abov eav erage.
4=super i
or.
Note:thewei ght sdeter
minedi nt
hepreviousst epar
ei ndustr
ybased.Ratingsare
companybased.

4.Multi
plywei
ght
sbyrat
ings….
.
Multi
plyeachf
act
orweightwit
hit
srat
ing.Thi
swi
l
lcal
cul
atet
hewei
ght
edscor
efor
eachfact
or.

5.Totalallwei
ghtedscores….
Addal lwei
ghtedscoresforeachf
act
or.Thi
swi
l
lcal
cul
atet
het
otalwei
ght
edscor
e
forthecompany .
32
EFEmat
ri
xexampl
e

Tot
alweight
edscoreof2.46indicat
est
hatt
hebusi
nesshassl
i
ght
lyl
esst
hanav
erage
abi
l
ityt
orespondt
oexter
nalfactors.

Whatshoul
dIi
ncl
udei
ntheEFEmat
ri
x?
Now thatweknow how toconst
ructorcr
eat
etheEFEmat
ri
x,l
et'
sfocusonf
act
ors.
Ext
ernalf
act
orscanbegroupedi
ntothef
oll
owi
nggr
oups:

 Soci
al,cult
ural
,demographi
c,andenvi
ronment
alvar
iabl
es:
 Economicv ari
abl
es
 Poli
ti
cal,gover
nment,busi
nesstr
ends,andl
egalv
ari
ables

Below youcanfindexampl
esofsomef actor
sthatcaptureaspect
sexternaltoyour
business.(
Notal
lappl
ytoabusi
ness,
butonecanusethi
slist
ingasastar
ti
ngpoint.
..
)

-Agingpopulat
ion,Per-capi
taincome, Educati
on
-Trendsinhousing,shopping,career
s,business
-Numberofbi r
thsand/ ordeaths
-I
mmi grati
on&emi grationrat
es

Economicfact or
s..
.
-Growthoft heeconomy
-Levelofsav i
ngs,i
nvest
ment s,
andcapi
tal
spendi
ng
-Inf
lat
ion
-Forei
gnex changerates
-Stockmar kettr
ends
--Productl
ifecycle………..et
c

COMPETI
TIVEMATRI
X

Def
ini
ton:Achar
i tthatcompar
esy
ourpr
oductorser
vicet
oyourcompet
it
or(
s)

A compet
it
ive mat
ri
xis an anal
ysi
stoolt
hathel
ps y
ou est
abl
i
sh y
ourcompany
's

33
compet i
ti
veadv antage.Itprovi
desaneasy -to-r
eadpor t
raitofy ourcompet it
ivelandscape
andy ourpositi
oni nt hemar ketpl
ace.Themat ri
xcanbej ustasi mpl echar t
.Int heleft
col
umn, youlistthemai nf
eaturesandbenef it
sofy ourproductorser vice.Ont hetopr ow,
youlistyourcompanyandt henamesofy ourcompet itor
s.Thenf i
llinthechar twi t
ht he
appropri
ateinformat i
onf oreachcompany .Forexampl e,i fyouownadr ycleani ng
serv
ice,youmi ghtlistthediff
erentser
vicesy ouofferorthequi ckturnaroundy oupr ovide
onitems( 24hour s)
, andthennot ehowy ourcompet i
torsfai latthesef eatur
es.

Thematri
xcanbesharedwit
hcust
omersasasalest
ool,oryoucandev
elopt
hemat
ri
x
sol
elyf
ori
n-housepur
posest
okeepabr
eastoft
hecompeti
ti
on.
I
nter
nal-
External(I
E)matri
x
TheInter
nal-
Ext
ernal(IE) matri
xis another strat
egic management toolused t o
analy
zeworkingcondi
ti
onsandst rat
egicposi t
ionofabusi ness.TheInt
ernalExt
ernal
Matri
xorshortI
Emat r
ixisbasedonananal ysi
sofinter
nalandexternal
businessf
actor
s
whicharecombinedi
ntoonesuggesti
vemodel .

TheI
Emat
ri
xisacont
inuat
ionoft
heEFEmat
ri
xandI
FEmat
ri
xmodel
s.

HowdoestheInter
nal-
Ext
ernalI
Ematri
xwor k?
TheIEmatr
ixbelongstothegroupofstr
ategi
cportfol
i
omanagementtool
s.I
nasimi
lar
mannerl
i
ket heBCGmat r
ix,t
heIEmatr
ixposit
ionsanorgani
zat
ioni
ntoani
necel
lmat
ri
x.
TheI
Emat r
ixisbasedonthefoll
owi
ngtwocr i
ter
ia:

1.Scor
efr
om t
heEFEmat
ri
x--t
hisscor
eispl
ott
edont
hey
-axi
s

2.Scor efrom theIFEmatrix--pl ot

tedont hex-axi
s
TheI Ematrixwor ksinawayt haty oupl otthet ot
alweightedscorefrom theEFEmat r
ix
ont heyaxisanddr aw ahor izont alli
neacr ossthepl ane.Theny outaket hescore
cal
culat
edi ntheIFEmat ri
x,pl
otitont hexaxi s,anddrawav er
ti
call
i
neacr ossthepl
ane.
Thepointwher eyourhori
zontallinemeet sy ourvert
icalli
neisthedeter
mi nantofyour
str
ategy.Thispointshowsthest r
at egyt hatyourcompanyshoul dfol
low.

OnthexaxisoftheIEMatri
x,anI
FEtot
alweight
edscoreof1.0to1.99repr
esent
sa
weaki
nter
nalposi
ti
on.Ascor
eof2.
0to2.99i
sconsider
edaver
age.Ascor
eof3.0to4.0
i
sstr
ong.

Ont
heyaxi
s,anEFEtot
alwei
ghtedscor
eof1.
0to1.
99i
sconsi
der
edl
ow.Ascor
eof2.
0
t
o2.
99ismedium.Ascor
eof3.0to4.0i
shi
gh.

I
Emat
ri
xexampl
e..
.
Letustakeal
ookatanexampl e.Wecal cul
atedIFEmat r
ixforananony
mouscompany
ontheIFEmatr
ixpage.Thetot
alweightedscorecalculat
edont hi
spageis2.
79which
poi
ntsatacompanywithanabove-
averageinter
nalst
rength.

Wealsocalcul
atedtheEFEmat rixf
orthesamecompanyontheEFEmatr
ixpage.The
t
otalwei
ghtedscorecalcul
atedfort
heEFEmat r
ixi
s2.
46whi
chsuggest
sasli
ghtl
yless
t
hanaverageabi
lit
ytorespondtoext
ernal
fact
ors.
34
Nowwepl
ott
hesev
aluesonaxesi
ntheI
Emat
ri
x.

ThisIEmat ri
xtel
lsust dhol
hatourcompanyshoul dandmaint
aini
tsposit
ion.The
company should pur
sue st
rat
egi
es f
ocused on i
ncr
easi
ng mar
ketpenet
rat
ion and
productdev
elopment

Whatdoest
heI
Emat
ri
xtel
lme?
Yourhor
izont
alandvert
icall
inesmeetinoneoftheninecel
lsintheI
Emat
ri
x.Youshoul
d
fol
l
owast rat
egydependingoninwhichcel
lthosel
inesint
ersect
.

The I
E matr
ix can be di
vi
ded i
ntot
hreemaj
orr
egi
ons t
hathav
e di
ff
erentst
rat
egy
i
mpli
cati
ons.

Cell
sI ,I
I,andII
Isuggestt hegr ow andbuil
d strategy
.Thi s means int
ensive and
aggressi
vet act
icalstrategi
es.Yourst rat
egi
esshoul df ocuson marketpenetrat
ion,
marketdev el
opment ,andpr oductdev el
opment
.Fr om theoperati
onalperspect
ive,a
backwardi nt
egrati
on,f orwardi ntegr
ati
on,and hori
zontalint
egr
ati
on should al
so be
consider
ed.

Cel
lsIV,V,andVIsuggestt
heholdandmai nt
ainstrat
egy.Inthi
scase,y
ourt
act
ical
st
rat
egiesshoul
dfocusonmar
ketpenet
rat
ionandproductdev
elopment
.

Cell
sVI I
,VIII
,andI X arecharact
eri
zedwit
ht hehar
vestorexitst
rategy.Ifcost
sf or
rej
uvenati
ngt hebusi
nessarelow,theni
tshoul
dbeattemptedtorev
ital
izethebusi
ness.
I
not hercases,aggr
essiv
ecostmanagementisawayt opl
aytheendgame.

“
TOWS”mat
ri
x

A TOW i si nvert
ed SWOT …… An acr onym f orthe int
ernalst r
engt hs and
weaknesses ofbusi ness and environmentalopportuni
ti
es and threatsf acing that
business.TOWSorSWOTanal ysi
si sasy st
ematicidenti
fi
cat
ionoft hefactorsandt he
str
ategyt hatref
lect
st hebestmat chbetweent hem.I tisbasedont helogict hatan
eff
ectivestrat
egymaxi mizest
hebusiness’
sst r
engthsandopportuni
tiesbutatt hesame

35
t
imemi
nimi
zesi
tsweaknessest
hreat
s.

Int
ernal
strengths(S) I
nternalweakness( W)
……………………………… …………………………….
……………………………… …………………………….
……………………………… …………………………….
Ext
ernal
opport
unit
ies(
O) SO (Maxi- Maxi ) WO( Mini-
Mini)St
rategy
…………………………… Str
ategy (mini
mi ze weakness and
…………………………… (maximize st rengths maximizeoppor t
uniti
es)
…………………………… andopportunit
ies)
Ext
ernal
Threats(
T) ST (Maxi- Maxi ) WT( Mini
–Mi ni)Str
ategy
…………………………… Str
ategy (mini
mi ze weakness and
…………………………… (maximize st rengths t
hreats)
…………………………… andopportunit
ies)

36
 SPACEMATRI
X

TheSPACEmatrixi
samanagementtoolusedtoanalyzeacompany
.Iti
susedt
o
det
ermi
newhatt
ypeofast
rat
egyacompanyshoul
dunder
take.

TheStr
ategi
cPosit
ion&ACtionEval
uati
onmat
ri taSPACEmat
xorshor ri
xisastr
ategi
c
managementtoolthatf
ocusesonst rat
egyf
ormulat
ionespeci
all
yasrel
atedtothe
competi
ti
veposi
ti
onofanorgani
zati
on.

Whati
stheSPACEmat
ri
xst
rat
egi
cmanagementmet
hod?
ToexplainhowtheSPACEmatri
xwor ks,iti
sbesttorever
se-
engineeri
t.Fi
rst
,let
'st
akea
l
ookatwhatt heoutcomeofaSPACEmat ri
xanalysi
scanbe,takealookatt hepi
cture
bel
ow.TheSPACE mat r
ixisbr oken down tof ourquadr
antswher eeach quadrant
suggestsadif
fer
entty
peoranatureofast r
ategy
:

 Aggressiv
e
 Conservati
ve
 Defensi
ve
 Compet i
ti
ve

Thi
siswhatacompl
etedSPACEmat
ri
xlooksl
i
ke:

Thisparti
cularSPACEmat ri
xtel
lsust hatourcompanyshoul
dpur sueanaggr essive
str
ategy.Ourcompanyhasast r
ongcompet i
ti
veposi
ti
onitt
hemarketwi thrapi
dgr owth.
Itneedst o usei t
si nt
ernalst
rengthst o devel
op amarketpenetrat
ion and mar ket
developmentstrategy.Thiscani ncludeproductdevel
opment
,integrati
onwi thot her
companies,acquisi
ti
onofcompet i
tors,andsoon.

Now,howdowegett othepossi
bleout
comesshownintheSPACEmat r
ix?TheSPACE
Matr
ixanal
ysi
sf unct
ionsupont woint
ernalandt
woexternalstr
ategi
cdimensi
onsin
or
dertodet
erminetheorgani
zat
ion'
sstr
ategi
cpost
urei
ntheindust
ry.TheSPACEmatri
x
i
sbasedonfourareasofanal
ysi
s.

I
nter
nal
str
ategi
cdi
mensi
ons:

37
 Fi
nanci
alst
rengt
h(FS)

Compet
it
iveadv
ant
age(
CA)

Ext
ernal
str
ategi
cdi
mensi
ons:

Env
ironment
alst
abi
l
ity(
ES)

I
ndust
ryst
rengt
h(I
S)

Therear emanySPACEmat r
ixf actorsundert heinternalstr
ategicdimension.These
factorsanaly
zeabusi nessinternalstrategicposit
ion.Thef inancialstr
engthfactors
oftencomef rom companyaccount ing.TheseSPACEmat r
ixfactorscani ncl
udef or
exampl er
eturnoni nvestment,l
ev er
age, t
urnover
, l
i
quidit
y,worki
ngcapi tal
,cashfl
ow,and
others.Compet i
ti
v eadv ant
agef actorsincludeforexampl ethespeedofi nnovat
ionby
thecompany ,mar ketnicheposi ti
on,cust omerloyalt
y,productqual i
ty,marketshare,
productli
fecycle,andot her
s.

Everybusinessisalsoaffectedbyt heenv i
ronmenti nwhi chitoperat
es.SPACEmatri
x
fact
orsr elat
ed to business externalstrategicdimension ar eforexample ov
erall
economiccondi t
ion,GDPgr owth,infl
ati
on,priceelast
ici
ty,technol
ogy,bar
ri
erst
oentry,
competit
ivepressures,
industrygr
owt hpotenti
al,andothers.

TheSPACEmat r
ixcal
cul
atesthei
mport
anceofeachoft
hesedi
mensi
onsandpl
aces
them onaCar
tesi
angraphwithXandYcoor
dinat
es.

Thef
oll
owi
ngar
eaf
ewmodel
techni
cal
assumpt
ions:

 Bydef
ini
ti
on,
CAandI
Sval
uesi
nSPACEmat
ri
xar
epl
ott
edonXaxi
s.

 CAv
aluescanr
angef
rom -
1to-
6.

 I
Sval
uescant
ake+1t
o+6.

 TheFSandESdi
mensi
onsoft
hemodel
arepl
ott
edont
heYaxi
s.

 ESv
aluescanbebet
ween-
1and-
6.

 FSv
aluesr
angef
rom +1t
o+6.

HowdoIconst
ructaSPACEmat
ri
x?
The SPACE matri
xi s const r
uct ed bypl ot
ti
ng cal
cul
ated val
ues forthecompeti
ti
ve
adv
antage(CA)andi ndustrystrength(IS)dimensi
onsont heXaxis.TheYaxisisbased
ontheenvi
ronment alstabil
it
y( ES)andf inanci
alstr
engt
h( FS)di
mensions.TheSPACE
matr
ixcanbecreatedusi ngthef oll
owingsevensteps:

St
ep1:Chooseasetofvari
abl
estobeusedtogaugethecompetit
iveadv
antage(
CA)
,
i
ndust
ryst
rengt
h(I
S),
env
ironment
alst
abi
l
ity(
ES)
,andfi
nanci
alst
rength(
FS).

38
Step2:Rat eindi
vi
dualfact
orsusingrat
ingsyst
em specifi
ctoeachdi mensi
on.Rate
competit
iveadvant
age(CA)andenv i
ronment
alstabi
l
ity(ES)usi
ngrati
ngscalefr
om -6
(worst
)to-1(best)
.Rateindust
rystr
ength(I
S)andfinanci
alstr
engt
h( FS)usi
ngrat
ing
scal
efrom +1(worst
)to+6(best)
.

Step3:Fi
ndtheaveragescoresf
orcompetiti
veadvant
age(
CA)
,indust
ryst
rengt
h(I
S),
envi
ronment
alst
abi
li
ty(ES)
,andfi
nanci
alst
rength(
FS).

Step 4:Plotv
aluesf
rom st
ep 3 f
oreach di
mensi
on on t
heSPACE mat
ri
xon t
he
appropr
iat
eaxi
s.

Step5:Addtheaveragescor
eforthecompeti
ti
veadvant
age(CA)andi
ndust
ryst
rengt
h
(I
S)di
mensions.Thi
swill
beyourfi
nalpoi
ntonaxisXontheSPACEmatr
ix.

Step6:Addt heaver
agescor
efortheSPACEmat ri
xenv i
ronment
alst
abi
l
ity(
ES)and
fi
nanci
alst
rengt
h(FS)di
mensi
onst
of i
ndyourf
inal
pointontheaxi
sY.

St
ep7:Findint
ersecti
onofyourXandYpoint
s.Dr
awalinefr
om t
hecenteroft
heSPACE
matr
ixt
oy ourpoint
.Thisl
i
ner ev
eal
sthet
ypeofst
rat
egythecompanyshoul
dpursue.

SPACEmat
ri
xexampl
e

Thefol
l
owi
ngt
abl
eshowswhatv
alueswer
eusedt
ocr
eat
etheSPACEmat
ri
xdi
spl
ayed
abov
e.

Eachf act
orwithi
neachst r
ategi
cdimensioni
sratedusi
ngappr
opri
ater
ati
ngscal
e.Then
averagesarecalcul
ated.Addingi
ndiv
idualst
rat
egicdi
mensi
onaver
agesprov
idesval
ues
thatareplot
tedontheaxisXandY.

39
 BOSTONCONSULTI
NGGROUP(
BCG)MATRI
X

Boston Consulti
ng Group (BCG)Mat ri
xi saf ourcell
ed mat r
ix(a2 *2 mat ri
x)
developedbyBCG,USA.I ti
st hemostrenownedcor por
atepor t
fol
i
oanal y
sistool.It
provi
desagr aphicrepr
esentat
ionf
oranor gani
zati
ontoexami nedif
ferentbusinesses
i
ni t
spor t
fol
ioont hebasisofthei
rrel
atedmarketshareandi ndust
rygr owthrates.It
i
sat wodi mensionalanal
ysisonmanagementofSBU’ s(
Strat
egicBusi nessUnits).In
otherwords,iti
sacompar ati
veanaly
sisofbusinesspotenti
alandt heev al
uati
onof
envir
onment.

Accor
dingtot
hismatr
ix,
businesscouldbeclassi
fi
edashi
ghorl
owaccor
dingt
othei
r
i
ndust
rygrowt
hr at
eandrel
ati
vemar ketshar
e.

Rel
ati
veMar
ketShar
e=SBUSal
est
hisy
ear
-l
eadi
ngcompet
it
orssal
es.

Mar
ketGr
owt
hRat
e=I
ndust
rysal
est
hisy
ear-I
ndust
rySal
esl
asty
ear
.

BCGmat ri
xhasfourcel
l
s,wit
ht hehori
zontalaxisr
epresenti
ngrelati
vemar ketshareand
the vert
icalaxi
s denot
ing marketgrowthr ate.usi
ng t he Boston Consulti
ng Gr oup
approach,acompanycl assi
fi
esallitsSBUsaccor di
ngt ot hegrowth-sharemat rix.By
div
idingthegrowth-
shar
emat r
ixasindicat
ed,fourt
ypesofSBUscanbedi sti
nguished:

1.Stars-Starsrepresentbusi
nessunitshavinglar
gemar ketshareinafastgrowing
i
ndust ry.Theymaygener atecashbutbecauseoff astgrowingmar ket,st
ars
requirehugei nvest
mentstomai nt
ainthei
rlead.Netcashf l
owi susual
lymodest.
SBU’ slocatedinthi
scellar
eattr
acti
veast heyarelocat
edinar obusti
ndustryand
thesebusi nessunitsarehighl
ycompet it
iveintheindustr
y.Ifsuccessful
,astar
willbecomeacashcowwhent heindustr
ymat ures.

2.CashCows-CashCowsr epresentsbusinessunit
shav ingal ar
gemar ketsharein
amat ur e,
slowgrowi
ngindustry.Cashcowsr equi
reli
ttl
ei nvest
mentandgener ate
casht hatcanbeut i
l
izedforinvestmentinotherbusinessuni t
s.TheseSBU’ sare
thecor porat
ion’
skeysourceofcash,andar especif
icallythecorebusiness.They
aret he base ofan or gani
zat i
on.These businesses usual l
yfoll
ow st abil
ity
str
ategies.Whencashcowsl oset hei
rappealandmov etowardsdet er
iorat
ion,
40
 thenar etrenchmentpol icymaybepur sued.
3.Quest i
onMar ks-Quest i
onmar ksrepresentbusi nessuni tshav i
ngl ow r elati
ve
mar ketshar eandl ocat edinahi ghgrowt hindust r
y.Theyr equi rehugeamountof
casht omai ntainorgai nmar ketshare.Theyr equir
eat tenti
ont odet ermi nei fthe
vent urecanbev iable.Quest i
onmar ksar egener allynew goodsandser vi
ces
whi chhav eagoodcommer ci alprospecti
ve.Ther ei snospeci ficstrategywhi ch
canbeadopt ed.Ift hef ir
mt hinksi thasdomi nantmar ketshar e, t
heni tcanadopt
expansi onst r
ategy ,elser et
renchmentst rat
egycanbeadopt ed.Mostbusi nesses
star tasquest ionmar ksast hecompanyt riest oent erahi ghgr owthmar ketin
whi ch t herei sal readya mar ket
-share.Ifi gnored,t hen quest ion mar ksmay
becomedogs,whi leifhugei nvestmenti smade,andt hent heyhav epot ent i
alof
becomi ngst ars.
4.Dogs-Dogsr epr esentbusi nesseshav i
ng weakmar ketshar esi nl ow-gr owth
mar kets.Theynei thergener atecashnorr equirehugeamountofcash.Duet olow
mar ket shar e, t hese busi ness uni ts face cost di sadv antages. Gener ally
retrenchmentst rategiesar eadopt edbecauset hesef i
rmscangai nmar ketshar e
onlyatt heexpenseofcompet i
tor
’s/r
ivalfi
rms.Thesebusi nessf i
rmshav eweak
mar ketshar ebecauseofhi gh costs,poorqual i
ty,ineffectivemar keti
ng,et c.
Unl essadoghassomeot herst rat
egicaim, i
tshoul dbel iquidatedifther eisf ewer
prospect sfori tt ogai nmar ketshar e.Numberofdogsshoul dbeav oidedand
mi nimizedi nanor gani zati
on.

Li
mitat
ionsofBCGMat r
ix
The BCG Mat r
ix pr
oduces a f
rameworkf oral
l
ocat
ing r
esour
ces among di
ffer
ent
busi
nessunitsandmakesitpossibl
etocomparemanybusi
nessuni
tsataglance.But
BCGMat ri
xisnotf
reefr
om li
mit
ati
ons,suchas-

1.BCGmat rixcl assif

iesbusinessesasl ow andhi gh,butgener all
ybusinessescan
bemedi um al so.Thus, t
het r
uenat ur
eofbusi nessmaynotber efl
ect
ed.
2.Mar ketisnotcl earl
ydefinedinthismodel .
3.Highmar ketshar edoesnotal waysleadst ohighprofi
ts.Therear ehi
ghcost sal
so
i
nv olvedwi thhi ghmar ketshare.
4.Growt hr ateandr elati
vemar ketsharear enott heonlyindicatorsofprofit
abil
i
ty.
Thismodel ignoresandov erlooksotherindicator
sofpr of
it
abili
ty.
5.Att i
mes, dogsmayhel potherbusinessesi ngaini
ngcompet i
ti
v eadvant
age.They
canear nev enmor ethancashcowssomet i
mes.

Thi
sfour
-cel
l
edappr
oachi
sconsi
der
edast
obet
oosi
mpl
i
sti
c.

Ast i
mepasses, SBUschanget hei
rposit
ionsi
nt hegrowth-
sharematrix.EachSBUhasa
l
ifecycl
e.ManySBUsst ar
toutasquest i
onmar ksandmov eintothestarcategoryi
fthey
succeed.Theylaterbecomecashr owsasmar ketgrowthfall
s,thenf
inall
ydieofforturn
i
ntodogst owardt heendoft heirl
i
fecycl
e.Thecompanyneedst oaddnewpr oduct
sand
unit
scontinuouslysot hatsomeoft hem wil
lbecomest arsand,eventuall
y,cashcows
thatwil
lhel
pf i
nanceot herSBUs.

41
42
 GRANDSTRATEGYMATRI
X(GSM)

Grand strategi
es,often call
ed mast erorbusi nessst r
ategiespr ovide basicdirecti
on for
str
ategicact i
ons.Theyar et hebasisofcoor dinatedandsust ainedef fortsdi
rectedt oward
achievi
ngl ong-
ter
m businessobj ecti
ves.Grandstrategi
esindicatet het i
meper iodov erwhich
l
ong- r
ange objecti
ves aret o be achieved.Thus,a gr and st rategycan be def ined as a
compr ehensivegeneralapproacht hatguidesaf i
rm’smaj oract ions.Gr andStrat
egyMat ri
x
hasbecomeanef fecti
vet oolindev i
singalt
ernati
v estr
ategies.Themat r
ixi
sbasedont he
fol
lowingfourimportantelements.

 Rapi
dmar
ketgr
owt
h
 Sl
owmar
ketgr
owt
h

 St
rongcompet
it
iveposi
ti
on

 Weakcompet
it
iveposi
ti
on.

Theabov ef ourelementsf orm afourquadr antmatrixwherei

nev er
yorgani
zationcanbe
pl
acedi nawayt heidenti
fi
cationandselect
ionofappr
opr i
atestr
ategybecomesaneasyt ask.
Withtheresult,t
hemat ri
xcanbeadapt edtochooset hebeststrategybasedont hecurr
ent
growthandcompet i
ti
vestateofthecompany .Ahugecompanywi t
hmanydi vi
sionscanalso
pl
oti tsdivi
sionsint hesef ourquadrantsGr andSt
rategyMat ri
xbyf or
mulat
ingt hebest
st
r at
egyforeachdivisi
on.

Themanagementmustsel ectt
hestr
ategythati
scohesiv
ewi
tht
hemar ketandcompeti
ti
ve
posi
ti
on.Broadl
yspeakingthefourel
ementsofGSSM canbedescr
ibedast woeval
uati
ve
di
mensionsofmarketgr
owt handcompeti
ti
veposit
ion.

Quadr ant1:Thisquadranti
smeantf orcompaniesthatarei
nstrongcompet i
tiv
eposi t
ionand
flour
ishing wit
h mar ketgrowth. Thecompani eshaveanexcel lentstr
ategicpositionand
shouldf ocusoncur r
entmar ketsandpr oductanditsdevelopmentst r
ategy.Wi thresources
theycan al so expand in backward,forward,orhor i
zontali
ntegrati
on. A si ngl
e product
companyher eshoulddiver
sifytoavertri
skswi t
htheslenderproductli
ne.Compani esint hi
s
quadrantcanaf for
dtoexploitexter
nalopportuni
ti
esandenhancet heirf
inancialmuscle.

Quadr antII
:Companiesint hi
squadrantoftheGSSM hav eweakcompet i
ti
veposi
ti
oni naf ast
growingmar ket
.Compani eshereareingrowingmar ketbuttheyarecompet
ingi
neffecti
vely.
Ani ntensiv
eandef f
ecti
vest rat
egymustbeadopt ed.Compani escanadaptt ohor i
zontal
i
ntegration.Iftheycannothav easuit
ablestr
ategy
,thendi vest
it
ureofsomedivi
sionscanbe
considered.Asal astresort,li
qui
dati
oncanbeconsi der
edandanot herbusi
nesscanbe
acquired.

QuadrantII
I:Her
ecompaniesareinaslow growthindust
rywithweakcompet i
tion.Dr ast
ic
changesarerequi
red.Themanagementmustchangei tsphil
osophyandnewappr oachesto
governancearetheneed.Overal
lrev
ampingatacostmaybewar r
anted.Strategicasset
reducti
on,r
etr
enchmentmaybethebestopt
ion.Di v
ersi
fyi
ngbyshift
ingtheresourcesmaybe
anotheropt
ion.Final
opti
oncoul
dbedivest
itureorl
iqui
dati
on.

43
Quadr antI V: The companies ar
ei nstrong competi
ti
ve posit
ion,butin a slow gr owth
i
ndust ry.Compani esmustlookforpromisinggrowthar
easandt oexploi
toppor t
uni
tiesinthe
growingmar ketsast heyhavethestrength.Thesecompanieshav elimit
edr equi
rementof
fundsf orinter
nalgrowthandenjoyhighcashf l
owduetoast rongcompetit
iveposit
ion.They
canl ookf orrelat
edorunrelat
eddiversi
fi
cati
onwi t
hcashfl
owandf unds;theycanal solook
forjointventures.

QUANTI
TATI
VESTRATEGI
CPLANNI
NGMATRI
X(QSPM)

Quanti
tat
iveStrategi
cPlanni
ngMat ri
x(QSPM)i sahi gh-
lev
elst r
ategicmanagement
appr
oachforevaluati
ngpossi
blestr
ategi
es.Quant
it
ati
veStrategi
cPl anningMatr
ixora
QSPM providesan anal
yti
calmethodforcompari
ngf easi
blealter
nat i
veacti
ons.The
44
QSPM met hodf alls wi thinso- cal led st age 3 oft he strategy for mul at i
on anal yti
cal
fr
amewor k.
Whencompanyexecut ivest hinkaboutwhatt odo,andwhi chwayt ogo,t heyusual ly
hav eapr ioriti
zedl i
stofst rategi es.I ftheylikeonest rategyov eranotherone, t
heymov eit
upont hel ist
.Thi spr ocessi sv erymuchi ntuiti
veandsubj ecti
ve.TheQSPM met hod
i
nt roducessomenumber si ntot hi sappr oachmaki ngi talit
tlemor e"exper t"technique.
Whati saQuant it
at i
v eSt r
at egicPl anningMat r i
xoraQSPM?
TheQuant it
ativeSt rategicPl anni ngMat r
ixoraQSPM appr oachat tempt st oobj ecti
vely
selectt hebestst rategyusi ngi nputf r
om ot hermanagementt echniquesandsomeeasy
comput ati
ons.I not herwor ds,t heQSPM met hodusesi nput sfrom st age1anal yses,
mat chest hem wi thr esul t
sf rom st age2anal yses,andt hendeci desobj ect i
vel
yamong
al
t ernat iv
est r
ategies.
WhatdoesaQSPM l ookl ikeandwhatdoesi tt ellme?
First,letust akeal ookatasampl eQuant i
tativeSt rategicPlanningMat r
ixQSPM, seethe
picturebel ow.Thi sQSPM compar est woal ter nati
v es.Basedonst r
at egiesi nthest age1
(I
FE,EFE)and st age2 ( BCG,SPACE,I E),companyexecut i
vesdet ermi ned thatt his
companyXYZneedst opur sueanaggr essi vest rategyai medatdev elopmentofnew
product sandf urt
herpenet rationoft hemar ket .
Theyal soi dentifi
edt hatt hisst rategycanbeexecut edi nt woway s.Onest rategyi s
acqui ringacompet ingcompany .Theot herst rategyi st oexpandi nternally .Theyar enow
aski ngwhi chopt ioni st hebet t
erone.

(At
tracti
veness Scor
e:1 = notaccept
able;2 = possi
blyaccept
abl
e;3 = pr
obabl
y
acceptabl
e;4=mostacceptabl
e;0=notrel
evant
)
45
Doingsomeeasycal cul ationsi nt heQuant itativeSt r at egicPl anni ngMat r
ixQSPM,we
camet oaconcl usi ont hatacqui ringacompet ingcompanyi sabet teropt ion.Thi si s
givenbyt heSum Tot alAt tract ivenessScor ef igur e.Theacqui sit
ionst r ategyy ieldshi gher
scoret hant hei nter nalexpansi onst rategy .Theacqui si ti
onst r
at egyhasascor eof4. 04
i
nt heQSPM shownabov ewher east hei nt ernalexpansi onst rategyhasasmal lerscor e
of2. 70.
HowdoIconst r uctaQSPM?
Youcanseeasampl eQuant itat iveSt rat egicPl anni ngMat r
ixQSPM abov e.Thel eft
columnofaQSPM consi stsofkeyext er nalandi nter nalf act ors( i
dent ifi
edi nst age1) .
Thel eftcol umnofaQSPM l ist sf act or sobt aineddi rect l
yf rom t heEFEmat ri
xandI FE
mat rix.Thet opr ow consi st soff easi bleal ternat i
vest rat egies( prov i
dedi nst age2)
derivedf rom t heSWOTanal ysis,SPACEmat r
ix,BCG mat r
ix,andI Emat r
ix.Thef i
rst
columnwi thnumber si ncl udeswei ght sassi gnedt of act or s.Now l etust akeal ookat
detailedst epsneededt oconst ructaQSPM.
STEP1. .
.
Prov ideal istofi nter nalf act or s- -st rengt hsandweaknesses.Thengener ateal istoft he
fi
rm' skeyext er nalf act or s- -oppor tuni ti
esandt hreat s.Thesewi llbei ncl udedi nt heleft
columnoft heQSPM.Youcant aket hesef act or sf rom t heEFEmat ri
xandt heI FEmat ri
x.
STEP2…st rat egi cmanagementt ool s. ..
Afterwe i dent ify and anal y ze key st rat egicf act or s as i nput sf orQSPM,we can
formul at et het y peoft hest rat egywewoul dl iket opur sue.Thi scanbedoneusi ngt he
stage 2 st rategi c managementt ool s,f orexampl et he SWOTanal ysis( orTOWS) ,
SPACEmat rixanal y sis,BCGmat rixmodel ,ort heI Emat rixmodel .
STEP3. .
.
Hav ingt hef act or sr eady ,i dent i
f yst rat egyal ter nativ est hatwi llbef urtherev al uated.
Thesest rategi esar edi spl ay edatt het opoft het abl e.St r
at egiesev aluat edi nt heQSPM
shoul dbemut ual lyexcl usi vei fpossi ble.
STEP4. .
.
Eachkeyext er nalandi nter nalf act orshoul dhav esomewei ghti nt heov erallscheme.
Youcant aket hesewei ght sf r
om t heI FEandEFEmat ri
cesagai n.Youcanf indt hese
number sinourexampl ei nt hecol umnf ollowi ngt hecol umnwi thf act or s.
STEP5. .
.
Attract i
v enessScor es( AS)i nt heQSPM i ndi cat ehow each f actori si mpor tantor
attr
act ivet o each al t
er nat iv e st rat egy .At t r
act iveness Scor es ar e det er mi ned by
exami ningeachkeyext er nal andi nt er nalf actorsepar at ely,oneatat ime, andaski ngt he
foll
owi ngquest ion:
Doest hisf act ormakeadi f ferencei nourdeci sionaboutwhi chst rategyt opur sue?
Iftheanswert ot hisquest i
oni sy es,t hent hest rat egiesshoul dbecompar edr elat i
vet o
thatkeyf act or .Ther angef orAt tr act ivenessScor esi s1=notat tract ive,2=somewhat
attr
act ive,3=r easonabl yat tract iv e,and4=hi ghl yat tr act i
ve.I ft heanswert ot heabov e
quest ioni sno,t hent her espect ivekeyf act orhasnoef f
ectonourdeci sion.I ft hekey
factordoesnotaf fectt hechoi cebei ngmadeatal l,thent heAt tract ivenessScor ewoul d
be0.
STEP6. .
.
Calcul atet he Tot alAt tract iv eness Scor es ( TAS)i nt he QSPM.Tot alAt tract iveness
Scor es ar e def i
ned as t he pr oductofmul t i
pl yi
ng t he wei ght s( step 3)by t he
46
Attr
acti
venessScor es(step4)i neachr ow.
TheTot alAt t
racti
venessScor esindicatet her el
ativ
eat t
ract
ivenessofeachkeyf actor
andr el
atedi ndivi
dualstrategy.Thehi ghert heTot alAttr
activenessScor e,themor e
att
racti
vet hestrat
egicalt
ernativeorcri
t i
calfactor.
STEP7. .
.
Calcul
atet heSum Tot alAttracti
venessScor ebyaddi ngallTotalAt t
racti
venessScor es
i
neachst r
ategycolumnoft heQSPM.
TheQSPM Sum Tot alAt t
ractiv
enessScor esr evealwhichst r
at egyismostat t
ract
ive.
Higherscor espointatamor eattr
acti
v est r
ategy,consideri
ngal lt
her el
evantexternal
andinternalcri
ti
calfactor
sthatcoul daffectthest rat
egicdeci
sion.

* * *

MAI
NQUESTI
ONS:

1.Thr
owl
i
ghtonBCGmat
ri
xonpor
tfol
i
omanagement
.

2.Expl
aint
hef
act
orsi
nthepr
ocessofmaki
ngast
rat
egi
cchoi
ce.

3.Expl
ainTOWSMat
ri
x–at
ool
forsi
tuat
ional
anal
ysi
s.

47
 CHAPTER5.POLI
CIESI
NFUNCTI
ONALAREAS

Poli
ciesar eguideli
nesdesignedt
oguidethethi
nking,deci
sionsandacti
onsofmanager
s
andthei rsubordinat
esinimplement
inganorganizat
ion’
sstrategy
.Pol
ici
eshel
pmanager
forestablishi
ngandcont roll
i
ngongoingoper
ationsinmannerconsistentwi
ththefi
rm’
s
ofstr
at egicobjecti
ves.

Pur
poseofpol
i
cies:

1.Pol i
ciespr ovideast atementabouthowt hingsaret obedonei nanor ganizat
ion.
Theyhel p cont rol
li
ng deci sions and the conductofact ivit
ies withoutdirect
i
nt ervent
ionbyt opmanagement .
2.Pol i
ciespromot euni
f orm handl i
ngofsimilaracti
vi
tiesinanorganization.
3.Sincepol iciesar ewr itt
enst atementswhi chensur equickerdecisionsandhel ps
reduceuncer tai
ntyinr epeti
ti
v eanddayt odaydeci sionmaking.
4.Pol i
ciesoff erapredet ermi
nedanswert oroutineproblems.
5.Pol i
ciesgiv emanager samechani sm f
orav oi
dinghast ydeci
sions.

Pol
i
ciesi
nfunct
ionalar
eas

I
. ProductPol i
cy :Inapr oductpol icy,t hest atement st hatarei ncludedar et he
product swhi cht hecompanyshoul demphasi ze,thepr oduct sthatcontri
but e
mostt ot hepr ofi
tabil
ity,thei mageoft hepr oductwhi chhast obegi v en
i
mpor tanceandal socont inuousi mpr ov ementoft hepr oduct.
I
I. PersonalPol icy:Per sonalpol icygui dest heef f
ect iveut i
lizati
on ofhuman
resour ces t o achi ev e bot ht he annualobj ectives oft he f i
rm and t he
satisfactionanddev el
opmentofempl oyees.Thev ariousst atementsint he
personalpol i
cyi ncludeempl oy eer ecruit
ment ,select ion,or i
entati
on,car eer
dev elopment ,counsel i
ng,per formanceev aluati
on,t raininganddev el
opment ,
salaryandcompensat i
onet c.
I
II
. Financi alPol i
cies:Fi nancialpol i
cy ofan or gani zation isr elat
ed tot he
availabili
ty,usageand managementoff unds.St at ement si nt hefinanci al
policyi ncludecapi t
ali nvestment ,fixedassetacqui sition,dividenddecisions,
usageoff unds.I fther eisnof inanci alpol icy,thewageoff undswoul dbe
48
 i
nef fi
ci ent,l eadingt olesst hanopt i
mum ut il
izat i
onofr esour ces.Someoft he
otherst atement si nthef inancialpol icyi ncludeast ohow f i
nalsel ectionsof
project sar et obemade,t oobt ainappr ovalf rom t opmanagementr egar ding
capi t
al allocat ion, whatpor tionofear ningsshoul dbepai dnotasdi vi
dend? ,etc.
I
V. Mar ket ingPol icy:Mar ket ingpol icydeal swi tht he4“ P” soft hemar ket ingmi x:
Product ,Pr ice,pl aceandpr omot ion.Pr oductpol i
cyi sal r
eadyment ioned.I n
thepr icepol i
cy ,thev ar
iousappr oachest ot hepr icingoft hepr oductar e
ment ioned.How t he pr oductshoul d be pr iced l ike costor i
ented,mar ket
oriented,compet i
tionor i
ent edet car ement i
onedi nt hemar keti
ngpol i
cyof
whi chpr icei scomponent .I nthepr omot ionpol icy,v ari
ousst at
ement st hat
guidet heuseofadv er ti
singbudget ,medi asel ect i
onar ement i
oned.These
statement shel p managert ot akedeci si
onswhi ch ar ecostef fectiveand
benef icialt ot hecompany .Thepl acecomponenti sconcer nedwi thast ohow
managershoul dappoi ntdeal er ,di stributors,whol esal erset c.ital sogi ves
guidelinest omanager sr egar dingt hesel ectionofchannelofdi str
ibut i
onand
howt hegoods/ser vi
cesshoul dr eacht hef inal cust omer .
V. Publ i
c Rel ations Pol icy:publ i
cr elat i
ons i st he ar tof cr eati
ng mut ual
under st andi ngbet weenanor gani zat i
onandt hev ariousgr ouporgr oupsof
peopl ewhoseopi nionhasadi rectbear ingi nthef unct ioningofanor gani zation.
Inapubl icr elationpol icy,t hev ariousst atement st hatar ement i
onedar ehow
togener ategoodwi l
l,under standi ngandi magebui l
di ngoft heor ganization
throughv ariedcommuni cat i
onst rategi es,thev ar i
ousway st hemedi ashoul d
beusedf orpubl i
city,thei mpor tanceofpr ess.Audi o-v isualchannel s,radioet c
theki ndofaudi encet ober eached, aim ofpubl icr elationset carement ionedi n
thepol icy .How t ouset hePubl icRel at i
onsBudgetbyt hePR manageri s
ment ionedi nast atementf or mint hePubl i
cRel at i
onsPol i
cy

* * *

49
MAI
NQUESTI
ONS:

1.Ment
iont
hef
inanci
alpol
i
ciest
ofaci
l
itat
est
rat
egi
cdeci
sionmaki
ng.

2.Expl
aint
heobj
ect
ivesandchar
act
eri
sti
csofpol
i
cy.

3.Whati
sthei
mpor
tanceofset
ti
ngpr
oduct
ionpol
i
ciesandobj
ect
ives?

4.Gi
veabr
iefonmar
ket
ingpl
ansandpol
i
ciesofandor
gani
zat
ion.

5.Whatfactor
sneedtobeconsi
der
edwhi
l
efr
ami
ngoper
ati
onalandmar
ket
ing
pol
i
ciesofacat
eri
nguni
t?

50
 CHAPTER6.

STRATEGI
CIMPLEMENTATI
ONREVI
EW ANDEVALUATI
ON

MCKI
NSEY7-
SFRAMEWORK

Thi
smodelwasdev el
opedinthe1980'
sbyRobertWat erman,Tom Pet
ersandJulian
Phil
i
pswhilstwor
kingforMcKi
nseyandori
ginal
l
ypresentedinthei
rar
ti
cle“St
ruct
ureis
notOrgani
sati
on"
.Toquotet
hem:

"I
ntel
lectual
l
yal lmanagersand consul tantsknow thatmuch mor egoeson i nthe
processofor gani
zingthant hecharts,boxes,dot
tedlines,posit
iondescr
ipt
ions,and
mat r
icescanpossiblydepi
ct.Butal
ltooof tenwebehaveast houghwedidn’
tknowi t-i
f
wewantchangewechanget hestr
ucture.

Diagnosingandsolvi
ngorgani
zat
ionalpr
obl
emsmeanslooki
ngnotmerel
ytostr
uctural
reorgani
zati
onforanswer
sbuttoaf r
ameworkt
hati
ncl
udesst
ruct
ureandsev
eral
rel
ated
factors.
"

The 7S Modelwhich t
hey devel
oped and presented became extensi
vely used by
manager
sandconsult
antsandisoneoft
hecor nerst
onesofor gani
sat
ionalanal
ysis.

Essent
ial
l
ythemodelsay
sthatanyor
gani
sat
ioncanbebestdescr
ibedbyt
hesev
en

51
i
nter
rel
atedel
ement
sshownabov
e:

McKinseyCompanydevel
opedthe7-Sfr
amework.Thisfr
ameworkhelpsinstr
ategi
c
pl
anningandhel
ptodet
erminet
hefut
urei
mpactofchangeandt
akedeci
sionst
oreacha
desi
gnedfut
ure.

7-Sframe wor k al
so pr
ov i
des i
nsightinto an organi
zati
ons wor ki
ng and hel
pi n
for
mulati
ngplansforimpr
ovement.Thesev enl
ev er
softheorganizat
ionhel
pachievethe
desi
redresul
ts.Thecomplexrel
ati
onshipi
sdiagrammat i
cal
lypresent
edbelow:

Structure:Thest r
uct ureoft heorganizationi sdesi gnedi naccor dancewi t hthestrat
egy
i
nv olv
ed.I ft hest r
uct ureoft heorganizationi salreadyi nplace,i ti
sadv isablethatitis
fl
ex i
bleenought oaccommodat echangesf orimpl ement i
ngt hest rategy .Thewayt he
organization'suni tsr elat
et oeachot her :cent r
alized,funct i
onaldi visions( t
op-down);
decent r
alized( thetrendi nlargerorganizat i
ons);mat ri
x,networ k,holding, etc.Thedesign
oft he str uctureinv olvesal l
ocati
on ofr esponsibili
ti
es,relationship bet ween vari
ous
department soft heor ganizati
ons,andt heway si nwhi cht heor gani zation’stasksar e
i
ntegrated and coor dinated.The st ruct ure oft he or ganization is depi ct
ed by t he
organizational chart
.

System:Itr efer
st othe rul
es and procedures t
hatsupportt he str
uct
ure ofthe
organi
zati
on.Sy stemsincl
udeproducti
on planni
ng and cont
rolsy st
em,recrui
tment
,
select
ion,
trai
ninganddevel
opmentstr
ategychangesthantheorganizat
ionst
ruct
ure.

Styl
e:Topmanager sinor gani
zati
onusest y
letoimplementstrategi
es.Thestyl
eoft he
wor ki
ngoftheorganizationbecomesev i
dentthroughthepatternsofacti
onstakenby
thet opmanagementov eraper iodoftime.Thesest ylesofmanager sar el
ikelyto
i
nfluencethepeopleint helowerlevel
softheor gani
zati
on.Thest yl
eofthemanager s
mustbei nsuchawayt hatitshouldbeadaptabletothechanginginter
nalandexternal
environment
.Themanager i
alstyl
emustbet oteachtheemploy eesthecorr
ectwayt o
thi
nk, t
akecorr
ectdecisi
onsetc.

Staff
:Staffreferstot
hewayorgani
zat
ionsint
roducey
oungrecr
uit
sint
ot hemai
nst
ream
oftheiracti
vit
iesandthemanneri
nwhichtheymanagethei
rcar
eersasthenewent
rant
s
developintofuturemanager
.

Skil
ls:I
trefer
stothecrucialatt
ri
but
esorcapabi
li
ti
esofanorganizat
ion.Thedominant
skil
l
sar ethosechar
act
eristi
cswhichmostpeopleusetodescr
ibeanor gani
zat
ion.E.g.
HindustanLeveri
schar
act eri
sti
cwit
hdi
str
ibut
ion,Rel
i
anceisknownf orthei
rmarketi
ng
skil
l
s.

Strat
egy:Iti
sthedeterminationofbasiclongterm goal
sandobjecti
vesofanenter
pri
se
andtheadopt i
onofcour sesofactionandt heall
ocati
onofr
esourcesforcar
ryi
ngoutof
goalsli
keorganizati
on.Strategycompr i
sesoffourcomponentsProduct-
marketscope,
growth,competi
tiv
eadv antageandr et
urnoninvestment.

Super
-Or
dinat
egoal
s:Superor
dinat
egoal
sref
ert
othef
undament
ali
deasar
oundwhi
ch

52
abusinessinbuilt
.Theyarei t
smai nvalues.Theyarethebr
oadnoti
onsoff
uture
di
rect
ion e.
g.ofsuperor di
nate goal
si ncl
ude str
ong dr
ivet
o“cust
omerser
vice”
,
“i
nnovat
iont
hroughoutt
heorgani
zati
on”.

The7-Sf r
amewor khi
ghli
ght
simport
antorgani
zati
onalint
erconnect
ionsandt heirr
olein
eff
ectingstr
ategi
cchange.Itpr
oducesacheckli
stfortheorganizat
iontojudgewhet her
i
tist i
mef orimplementi
ngastrat
egy.I
thelpsi
nenv i
ronmentscanni ngandal sotofind
outtheorganizat
ionsst
rengt
handweakness.

Howev
ert
hemodel
ismor
ethansi
mpl
yal
i
st.KeyPoi
ntsar
e:

1.Thet op3,st rategy,structureandsy stemsar et hehar delement s.Thebot t

om 4,
skill
s,st aff,st yl
e,and shar ed v al
ues ar et he sof telement s.Prev
iousl y
,any
organizationalst udyf ocusedont het op" hard"el ement sandi gnoredt hebot t
om
"soft"element s.
2.The cur rentv i
ew i st of ocus on al l7,accept ing thatforeach busi ness or
enterprise,twoort hreewi l
lbet heVI TALones.
3.Thekeypoi ntist hatalltheel ement sar eallinter-dependant.Changesi nonewi l
l
hav erepercussi onsont heot hers.Thusi ntroduct i
onofnewsy stemswi llcert
ainly
affectski l
ls,andmaywel leffectst r
uct ure,styl
eandst af
f.Itcouldev enhav ean
impactonst r
ategy .Similarrepercussi onsoccurwi thdecentr
ali
sat i
on.
4.Ifyouj ustt r
yt ochangeoneel ementoni tsown, theotherelementmaywel lresist
thechangeandt r
yt omai ntainthest at usquo.
5. I
nt hissense,anychangei nor ganisat i
oni sbestseenasashi ftint hewhol e
picture.

Themodeli sbasedonthetheor
yt hat
,foranorganizat
iontoperf
orm wel
l,t
heseseven
elementsneedtobeali
gnedandmut ual
lyrei
nfor
cing.So,themodelcanbeusedtohelp
i
dentif
ywhatneedst obereali
gnedt oimproveperformance,ort
omai nt
ainali
gnment
(andperfor
mance)dur
ingot
hertypesofchange.
Whatevert
hetypeofchange–restr
uctur
ing,newprocesses,
organi
zat
ionalmerger
,new
syst
ems,changeofleader
shi
p,andsoon–t hemodelcanbeusedt ounderst
andhow
theorgani
zat
ionalel
ementsareinter
rel
ated,andsoensur ethatthewiderimpactof
changesmadeinoneareaist
akenintoconsider
ati
on.
OBJECTI
VEOFTHEMODEL

 I
mpr
ovet
heper
for
manceofacompany

 Exami
net
hel
i
kel
yef
fect
soff
utur
echangeswi
thi
nacompany

 Al
i
gndepar
tment
sandpr
ocessesdur
ingamer
geroracqui
sit
ion

 Det
ermi
nehowbestt
oimpl
ementapr
oposedst
rat
egy

* * *

LEADERSHI
PANDMANAGEMENTSTYLE

53
Leader ship:Thechai r
man,Pr esi
dent,Managi ngDi r
ector,CEO ofor ganizat
ionsinv
olve
gettingt hingsaccompl ishedt hr
oughandwi thot hersinot her
si nordert omeett he
corpor ateobj ecti
v es.Thet opmani nt heor ganizationmustsuccessf ull
yhandletwo
responsi bi l
it
ies whi ch i sv eryimpor t
antt o effect i
ve strategi
c managementoft he
organi zat i
on.
1.Leader ship
2.Managest rategicplans.
Leader ship i st he di recting of activi
ti
es t owar ds t he accompl i
shment of t he
organi zat i
on’sobj ective.Itsetstheti
mef ortheent ir
eor ganizati
on.Goodl eader
screate
av ision,ar t
iculatet hev i
sion,passi
onatelyownt hev i
sionandr el
entl
esslydriveitto
compl etion.

Leaderswit
hacl earstrat
egi
cvisi
onar eoftenper
ceiv
edasdy namicandchar
ismati
c
l
eaders.Theyareabletocommandr espectandtoinf
luencest
rat
egyfor
mulat
ionand
i
mpl ement
ati
on.Leadershoul
dhavethreekeychar
acter
ist
ics.

1.Leaderar ti
culatesast r at
egicv isi
on.Heenv i
sionstheor gani
zati
onsnotasi t
curr
entl
yisbutasi tcanbecome…. .
2.Leaderpr esentsar ol
ef orotherst oident
it
ywi thandt ofol
low.Theleadersetsan
exampleintermsofbehav ioranddr ess
3.Leadernotonl ycommuni cates high performance standards butalso shows
confi
denceint hefol l
ower ’
sabi l
it
iestomeett hesestandards.
Managementst y l
e:thisisal soknownast heentrepreneuri
alstyl
e.Managementst yl
ein
st
rategicmanagementi ncludesr i
skt aki
ng, pr
oacti
v i
tyandinnovati
on.

Ri
sktaki
ng:t
hemanageri swil
li
ngtopursueopport
uni
ti
esboldlyandaggressivel
y.He
pr
efer
sforhi
gh-
ri
skprojectswit
hchancesofver
yhighret
urnsoverl
owriskprojectswit
h
l
owerandmorepredi
ctablerat
esofret
urn.

Pro-acti
vi
ty:the manager’
s st
yleis hi
s will
i
ngness t
oi ni
ti
ate acti
ons t
o which
competi
tor
sthenrespond.Thepr
oact
ivemanageratt
emptstobefi
rstinthei
ntr
oduct
ion
ofnewproduct
s,serv
icesrat
hert
hanmerel
yrespondi
ngtocompeti
tors.

Innovat
ion:t
hemanager’
sstyl
eistoplacestr
ongemphasisonR&D,newpr
oduct
s,new
servi
ces,i
mprov
edproductl
i
nes,technol
ogi
calimpr
ovementset
c

I
nnovat
ivepr
oduct
sarebei
ngi
ntr
oducedi
ntot
hemar
ketwhi
chi
stheuni
quef
eat
ureof
managementofst
rat
egi
es.

* * *

STRATEGYREVI
EW ANDEVALUATI
ON:

54
Effect
ivestrat
egyevaluati
onal
lowsanor ganizat
iontocapital
izeoninternalstr
engthsas
theydev el
optoi mmediatel
yexploitexternaloppor
tunit
iesast heyemer ge,torecognize
anddef endagainstenvir
onmentalthreatsandt oimproveinternalweaknessbef or
et hey
become bad f orthe organi
zation.Top manager s deli
ber at
ely and systematicall
y
formulate,
implementandev al
uatestrategies.

St
rat
egyev
aluat
ionconsi
stsoft
hreeact
ivi
ti
es:

a.Revi
ewunderly
ingbasesofstr
ategy
b.Measur
ingorgani
zati
onalper
formance
c.Taki
ngcorr
ecti
veacti
ons

Reviewunderl
yingbasesofst r
ategy:Tobegi
nwi t
h,ar ev
iewoft
heexi st
ingbasesofan
organi
zati
on’
scur rentst
rategyoutbecausei nt
ernalandexter
nalfactorsdochange.
Preparearev
isedinter
nalandexternalf
act
orforstr
ategyimpl
ement
ation.

Measuringor ganizati
onalperformance:Or ganizati
onalobject
ivesandgoalsarethekey
component sofanef fecti
vestrategi
cmanagementsy stem.Str
ategyeval
uati
onisbased
onobjecti
vef actors.e.g.
a.Growt hasmeasur edi ntot
alsales,uni
tsales,totalasset
s.
b.Eff
iciencyasmeasur edingrossmar gi
n,netpr of
its.
c.Assetut i
l
izati
onasmeasur edbyr et
urnonequi ty,earni
ngspershar
eetc

TakeCorrecti
veActions:Iftheorganizat
ionalperf
ormancedoesnotmatchthest
andar
ds
setcorr
ectiv
eact i
onsshoul dbet akenwhi chshouldplaceanorgani
zat
ioninabetter
posi
ti
ontocapi t
ali
zeoni nternal
strength,totakeadvant
ageofkeyext
endopport
uni
ti
es.

Cr
it
icali
nfor
mat
ionNeeds(
forachi
evi
ngst
rat
egi
cgoal
s)

Thel
i
febl
oodofanyor
gani
zat
ioni
sinf
ormat
ion.Thusi
tisi
mpor
tantt
hatt
her
ight
55
i
nfor
mationisav ai
l
abl
eattherightti
meandi nt heri
ghtpl
ace.Theint
egrat
ionof
i
nter
nal
lyand exter
nal
l
yfocused i
nfor
mat i
on syst
emsi.e.
,ManagementInf
ormati
on
Syst
em dev
elopedbyanor
gani
zati
onservestheabovepur
pose.

Theschemat
icdi
agr
am i
sgi
venont
henextpage.

MANAGEMENTDECI
SIONMAKI
NG

St
rat
egi
cPl
anni
ngModel

Cr
it
ical
SuccessFact
ors

Cr
it
ical
Inf
ormat
ion I
nter
na
Ext
ernal

56
 Env
ironment
alSub-
Domai
ns

Pol
i
tical Funct
ional
sub-domai
ns
MANAGEMENT
Economi
c Mar
ket
ing
I
NFORMATI
ON
Soci
al Fi
nance
SYSTEMS
Technology Pr
oduct
ion
Env i
ronmental
I
ndustryAnalysi
s Per
sonnel

Resear
ch&dev
elopment

* * *

MAI
NQUESTI
ONS:

1.Di
scussMcKi
nsey
’s7-
Sfr
amewor
kint
hecont
extofhospi
tal
i
tyi
ndust
ry.

2.Expl
aint
hepr
ocessofst
rat
egi
cev
aluat
ionandcont
rol
wit
haneatf
lowchar
t.

57
3.Whati
sthei
mpor
tanceofset
ti
ngst
rat
egi
cobj
ect
ives?

4.Wr
it
eshor
tnot
eson:

a.Leader
shi
pst
yles.

b.GAPanal
ysi
s.

5.Whatar
eLi
ker
t’
sleader
shi
pst
yles?Expl
ainpi
ctogr
aphi
cal
l
y.

58
OLDQUESTI
ONPAPERS

59