STRATEGIC MANAGEMENT

Dr. Shriram Dawkhar.

STRATEGIC MANAGEMENT
1. An Overview of Strategic Management & Business Policy
1. Introduction to Strategic Management & Business Policy
2. Establishment of Strategic Intent
2. Hierarchy of Strategic Intent
3. Strategy Formulation
3. Environmental Appraisal
4. Organizational Appraisal
5. Corporate-level Strategies: Concentration, Integration & Diversification
6. Corporate-level Strategies: Internalization, Cooperation & Digitalization
7. Corporate-level Strategies: Stability, Retrenchment & Restructuring
8. Business-level Strategies
9. Strategic Analysis and Choice
4. Strategy Implementation
10. Activating Strategies
11. Structural Implementation
12. Behavioral Implementation
13. Functional and Organizational Implementation
5. Strategy Evaluation
14. Strategic Evaluation and Control
CHAPTER 1: INTRODUCTION
TO STRATEGIC MANAGEMENT
& BUSINESS POLICY
Part 1:
An Overview of Strategic Management & Business Policy
INTRODUCTION TO STRATEGIC
MANAGEMENT & BUSINESS POLICY
 Strategic Management & Business policy are
overlapping terms that are not clearly distinguishable
from each other
 Strategic management is generally considered as the
process of formulating, implementing and evaluating
strategies for an organization
 Business policy is usually considered as an academic
field of study, an area of specialization or a specifically
named course related to strategic management
EVOLUTION OF STRATEGIC
MANAGEMENT & BUSINESS POLICY
 The genesis of Strategic Management & Business Policy
 Evolution Based on Managerial Practices

 Historical Perspective of Evolution of SM & BP

 Four paradigm shifts or phases of development
1. Ad-hoc policy-making
2. Planned policy formulation
3. Strategy paradigm
4. Strategy process & Responsibilities of general management
 EVOLUTION OF STRATEGIC
MANAGEMENT & BUSINESS POLICY
 Pointers to future
 The general managers of tomorrow may be called upon to shoulder a set of
entirely new responsibilities, necessitating a drastic review of the emerging
concepts & techniques in business policy
 Four fundamental questions which characterize the major concerns in the field of
strategic management.
1. How do firms behave? Or do firms behave like rational actors and, if not what
models of their behavior should be used by researchers and policy makers?
2. Why are firms different? Or, what sustains the heterogeneity in resources and
performances among close competitors despite competition and imitative attempts?
3. What is the function of or value added by the headquarters unit in a diversified
firm? Or, what limits the scope of the firm?
4. What determines success or failure in international competition? Or, what are
the origins of success and what are their particular manifestations in international
settings or global competition?
EVOLUTION OF STRATEGIC
MANAGEMENT & BUSINESS POLICY
 The Indian Scenario
 Indian companies are now acutely aware of the need for
strategic management.
 Companies are now having departments devoted to strategic
planning. Companies are hiring consultants for advising on
strategic matters.
 The process of LPG, is contributing to the increasing
applications of strategic management in Indian organisations
INTRODUCTION TO BUSINESS POLICY
Business policy as defined by Christensen & others is “the
study of the function and responsibilities of senior
management, the crucial problems that affect success in
the total enterprise and the decisions that determine the
direction of the organization and shape its future. The
problems of policy in business, like those of policy in
public affairs, have to do with the choice of purposes, the
moulding of organizational identity and character, the
continuous definition of what needs to be done and the
mobilization of resources for the attainment of goals in
the face of competition or adverse circumstance.”
UNDERSTANDING STRATEGY
 The concept of Strategy
 The term ‘strategy’ is derived from a Greek word ‘strategos’,
which means generalship-the actual direction of military
force, as distinct from policy governing its deployment.
 Literally, the word ‘strategy’ means the art of the general.
 In ‘business parlance’, strategy is often loosely used to mean
 A plan
 A pattern or common thread
 Pursing activities to take the organization to desired state
 Concerned with resources, making trade offs and creating a fit
 Planned & actual coordination of goals & actions
UNDERSTANDING STRATEGY
 The concept of Strategy: Precautions
 The application of the concept in real life situation may tend
to oversimplify things. Actual situations are complex and
contain several variables
 The application of the concept of strategy commits an
organization to the emergent situation as it goes along the
path. It often blinds the organization to the emergent
situations
 UNDERSTANDING STRATEGY
 Levels at which Strategy Operates
Levels of Management Levels of Strategy

Societal strategies

CORPORATE CORPORATE-LEVEL
Corporate
office

SBU SBU SBU SBU BUSINESS-LEVEL

A B C

FUNCTIONAL Finance Marketing Operations HRM Information FUNCTIONAL-LEVEL

Operational level strategies

STRATEGIC DECISION-MAKING
 Decision making is the most important function of any
manager. Strategic decision-making is the primary task
of the senior management. Both these kind of decision-
making are essentially same. The difference lies in the
levels at which they operate.
 Decision making process in general includes steps
1. Objectives to be achieved are determined
2. Alternative ways of achieving the objectives are identified
3. Each alternative is evaluated in terms of objective-achieving ability
4. The best alternative is chosen
STRATEGIC DECISION-MAKING
 Issues in Strategic Decision-Making
1. The key managerial processes are enormously complex and
mysterious, drawing on the vaguest of information and
using the least articulated of mental processes. These
processes seems to be more relational and holistic than
ordered and sequential and more intuitive than intellectual.
STRATEGIC DECISION-MAKING
 Issues in Strategic Decision-Making
1. Criteria for Decision-making: There are three major viewpoints
regarding setting criteria for decision making
a) Concept of maximization: setting objectives at highest point
b) Concept of satisficing: process of optimisation
c) Concept of incrementalism: continually evolving consensus building

2. Rationality in Decision-making: Rationality means exercising a

choice from among various alternative courses of action in such a way
that it may lead to the achievement of objectives in the best possible
manner
 Economist supporting maximization: sees rationality in profit
maximization
 Behaviorists sees rationality in concept of satisficing
 Incrementalist sees rationality in bargaining process
STRATEGIC DECISION-MAKING
 Issues in Strategic Decision-Making
3. Creativity in Decision-making: brainstorming, ability to go beyond and
think

4. Variability in Decision-making: Given an identical conditions two

decision-makers may reach totally different conclusions.

5. Person-related factors in Decision-making: Age, education,

intelligence, personal values, cognitive styles, risk-taking ability and
creativity

6. Individual Versus Group decision-making: As organisation become

bigger and more complex, individuals come together in groups for the
purpose of strategic decision-making
SCHOOLS OF THOUGHT ON STRATEGY
FORMULATION
 The subject of strategic management is in the midst of an
evolutionary process. In the course of its development
several strands are emerging which are gradually leading
to a convergence of views
 Strategic decision making is the core of management
activity, strategic behavior is its manifestation, while the
outcome is the formation of strategy
SCHOOLS OF THOUGHT ON STRATEGY
FORMULATION
 The Prescriptive Schools
1. Design school where strategy formation is a process of conception
2. Planning school where strategy formation is a formal process
3. Positioning school where strategy formation is an analytical process

 The Descriptive Schools

4. Entrepreneurial school where strategy formation is a visionary process
5. Cognitive school where strategy formation is a mental process
6. Learning school where the strategy formation is an emergent process
7. Power school where the strategy formation is a negotiation process
8. Cultural school where the strategy formation is a collective process
9. Environmental process where the strategy formation is a reactive process
4. The Integrative School
4. The Configuration school
SCHOOLS OF THOUGHT ON STRATEGY
FORMULATION
 The design school: perceives strategy as a process of
conception. Strategy is unique which is in the form of
planned perspective
 The planning school: perceives strategy as a plan
divided into sub-strategies and programmes
 The positioning school: perceives strategy as a planned
generic position, chosen on the basis of competition and
industry
 The entrepreneurial school: perceives strategy as a
visionary process with intuition, vision, and deliberation
 The cognitive school: perceives as strategy as a mental
process
SCHOOLS OF THOUGHT ON STRATEGY
FORMULATION
 The learning school: perceives strategy as a pattern that
is unique. The process of strategy formation is emergent,
informal and messy
 The power school: perceives strategy formation as a
negotiation process. It is messy, consist conflicts,
aggression and cooperation
 The cultural school: perceives strategy as a collective
process, collectivity displayed within the organization
 The environmental school: perceives strategy as a
reactive process in relation to environment. The process
is passive and imposed and hence emergent
SCHOOLS OF THOUGHT ON STRATEGY
FORMULATION
 The configuration school: perceives strategy formation
as a transformation process. In this strategy is viewed in
relation to a specific context and thus could be in a form
that corresponds to any process visualized in the other
nine schools
 INTRODUCTION TO STRATEGIC
MANAGEMENT
 Definition of strategic Management
 Strategic management is defined as the dynamic process of
formulation, implementation, evaluation and control of
strategies to realize the organization's strategic intent.

Establishment
Formation of Implementation Strategic
of strategic
strategies of strategies evaluation
intent

Strategic Control
Four phases in Strategic Management process
 INTRODUCTION TO STRATEGIC MANAGEMENT
 Elements in strategic Management Process
A. Establishment of strategic intent 1. Creating & communicating a vision
2. Designing a mission statement
3. Defining the business
4. Adopting the business model
5. Setting objective

B. Formation of strategies 6. Performing environmental appraisal

7. Doing organizational appraisal
8. Formulating corporate-level strategies
9. Formulating business-level strategies
10. Undertaking strategic analysis
11. Exercising strategic choice
12. Preparing strategic plan

C. Implementation of strategies 13. Activating strategies

14. Designing the structure, systems &
processes
15. Managing behavioral implementation
16. Managing functional implementation
17. Operationalzing strategies

D. Performing Strategic evaluation and 18. Performing strategic evaluation

control 19. Exercising strategic control
20. Reformulating strategies
 INTRODUCTION TO STRATEGIC
MANAGEMENT
 Model of Strategic Management process

Strategic Strategic Strategy Strategic

intent Formulation Implementation Evaluation
Vision Environmental Organizational 1. Project Strategic evaluation
Mission Appraisal Appraisal 2. Procedural
Business 3. Resource
definition SWOT Analysis allocation
Business Model Corporate-level startegies 4. Structural
Objectives Business-level strategies 5. Behavioural
Strategic analysis & choice 6. Functional &
Strategic plan Operational

Strategic Control
ESTABLISHING OF STRATEGIC
INTENT
PART: 2
CHAPTER 2: HIERARCHY OF
STRATEGIC INTENT
Part 2:
Establishing of Strategic Intent
STRATEGIC INTENT
 Understanding Strategic Intent:
 By strategic intent we refer to the purposes the organization strives for.
Broadly stated, these could be in the form of a VISION and MISSION
statement for the organization as a corporate whole.
 At a business level of a firm these could be expressed as the BUSINESS
DEFINITION.
 When stated in precise terms, as an expression of the aims to be achieved
operationally, these may be the GOALS & OBJECTIVES.

 Strategic intent lays down the framework within which firms would
operate, adopt a predetermines direction and attempt to achieve
their goals
 STRATEGIC INTENT
 Concept of Stretch, Leverage & Fit:
 STRETCH is ‘a misfit between resources and aspirations’
 LEVERAGE refers to concentrating, accumulating, complementing, conserving, and
recovering resources in such a manner that a meager resource base can be stretched to
meet the aspirations that an organization dares to have
 FIT means positioning the firm by matching its organizational resources to its
environment
 Idea of ‘Stretch’ is diametrically opposite to the idea of ‘Fit’
 Strategic fit is central to the strategy school of positioning. Strategy becomes a
compromise between environment and organisation through SWOT
 Stretch & leverage belong to learning school of strategy where capabilities are
not seen as constraints as given but as something which can be created and
moulded.
 Under ‘Fit’, the strategic intent would seem to be more realistic, Under
‘Stretch’ and ‘Leverage’ it could be idealistic
VISION
 It is what the firm or a person would ultimately like to
become
 Vision articulates the position that a firm would like to
attain in the distant future.
 Vision is dreamt of more than it is articulated. This is the
reason why it is difficult to say what vision an
organisation has unless it is stated explicitly. Sometimes.
It is not even evident to the entrepreneur who usually
thinks of the vision. By nature it could be hazy and
vague just like a dream difficult to recall. Yet it is a
powerful motivator to action. Often from the action, the
vision could be derived.
VISION
 Henry Ford: may have wished to wished to democratize
the automobile when he visualized an affordable vehicle
for masses
 Walt Disney probably wanted to make people happy

 Jamshedji Tata dreamt of a self reliant India after

independence
VISION
 What a vision should and shouldn't be
 A vision should be
 An organisational charter of core values & principles

 The ultimate source of our priorities, plans, and goals

 A puller (not pusher) into the future

 A determination & publication of what makes us unique

 A declaration of independence

 A vision shouldn’t be
 A ‘high concept’ statement, motto or literature or an advertising slogan

 A stratgey or plan and view from the top

 A history of our proud past

 A ‘soft’ business issue

 Passionless
VISION
 Defining Vision
 Kotter (1990) defines Vision as a ‘description of something
(an organisation, a corporate culture, a business, a
technology, an activity) in the future’
 Miller & Dess (1996) view it simply as the ‘category of
intentions that are broad, all-inclusive & forward thinking’
VISION
 The benefits of having a Vision: Parikh & Neubauer
(1993) points out benefits of Vision
 Good vision are inspiring & exhilarating
 Visions represent a discontinuity, a step function & a jump
ahead
 Good vision helps in the creation of a common identity &
shared sense of purpose
 Good vision are competitive, original & unique
 Good vision foster risk-taking & experimentation
 Good vision foster long-term thinking
 Good vision represent integrity, they are truly genuine
VISION
 The process of Envisioning

Well-conceived vision

Core ideology Envisioned future

Core values Long-term audacious goal

Core purpose Vivid description of achievement
MISSION
 While the essence of vision is a forward-looking view of
what an organization wishes to become, mission is what
an organization is and why it exists
 Peter F Drucker raised important philosophical questions
related to business
 What is our business?
 What it will be?
 What it should be?
MISSION
 Understanding Mission
 Organizations relate their existence to satisfying a particular
need of the society. They do this in terms of mission.
 Mission is a statement which defines the role that an
organization plays in the society
 It refers to the particular needs of the society, may be
information need
 A book publisher & a magazine editor are both engaged in
satisfying the information need, but they do it through
different means
MISSION
 Defining Mission
 Thompson (1997) defines Mission as ‘essential purpose of
the organisation, concerning particularly why it is in
existence, the nature of the business(es) it is in and the
customers it seeks to serve and satisfy’
 We always find instances of organisations confusing mission
with vision or objectives
MISSION
 How are mission statements formulated &
communicated?
 Most organizations derive their mission statements from a
particular set of tasks they are called upon to perform in the
light of their individual, national or global priorities.
 Mission statement could be formulated on the basis of the
vision that the entrepreneur decides in the initial stages of an
organization's growth
 Major strategists could also contribute to the development of
a mission statement
MISSION
 How are mission statements formulated &
communicated?
 Scientific Instruments Company Ltd: ‘to be a vibrant
organization set on contributing to the scientific and technical
progress of the country, keeping its customers & employees
satisfied in terms of service and work rewards, giving
adequate returns on investment to the shareholders’
 Either consultancy: well-being of the country
 HCL: for tem building, mutual trust, internal customer-server
equations & empowerment
 Marico: Wanted to be seen as a multi-product, consumer-
oriented company
MISSION
 Characteristic of a Mission Statement
 Mission statement defines the basic reason for the existence
of the organization.
 Such a statement reflects the corporate philosophy, identity,
character and image of an organization
 It may be defined explicitly or it could be deducted from the
management’s action, decisions or the CEO’s press
statements
 It provides enlighten to the insiders & outsiders about what
the organization stands for
MISSION
 Characteristic of a Mission Statement
 Itshould possess following characteristics
 It should be feasible

 It should be precise

 It should be clear

 It should be motivating

 It should be distinctive

 It should indicate the Major components of strategy

 It should indicate how objectives are to be accomplished

BUSINESS DEFINITION
 Defining business
 Products today are more than just a function. They are
becoming more than just a function. Products can also be
reflections of one’s personality and status, a statement, piece
of art etc.
BUSINESS DEFINITION
BUSINESS DEFINITION
 Levels at which Business could be Defined
 Like strategy, business could be defined at the corporate or SBU
levels. A single-business firm is active in just one area, so its
business definition is simple
 A large conglomerate, operating in several businesses, would
have a separate business definition for each of its businesses
 At corporate level, the business definition will concern itself
with the wider meaning of customer groups, customer functions
& alternative technologies
 When a company takes up activities outside the domain of its
business definition, it generally may face crisis of identity
 Contrary, if it adds businesses in line with its business definition
it brings ‘synergy’
BUSINESS DEFINITION
 The Product/Service concept
 A product/service concept is the manner in which a company
addresses the user’s perception of its product or service
 Such a perception is based on how the product or service
provides functions that satisfy customer needs

 According to Mashelkar (former director general of Scientific &

Industrial research) As ‘product-life-cycles’ become shorter, ‘skill-
life-cycles’ becomes longer. In his view, the competitive advantage
in a high-technology business increasingly depends on the
underlying technical skills of the business rather than on particular
products
BUSINESS MODEL
 Business model is ‘creation & marketing of values’
 Successes attributed to business models, like
 Wal-mart as a Retailer
 Google as a Search Engine
 Dell as a Internet-based marketers
 Amazon.com as a virtual bookseller

 Business model can be defined as ‘a representation of firm’s

underlying core logic and strategic choices for creating &
capturing value within a value network’
 Vision, Mission, Business definition, Product/Service concept &
business model serve to determine the basic philosophy that is
adopted by an organization in the long run
GOALS & OBJECTIVES
 Goals denotes what an organization hopes to accomplish in a
future period of time. They represent the future state or
outcome of effort put in now
 Objectives are the ends that state specifically how the goals
shall be achieved
 Objectives make the goals operational

 Goals may be qualitative, objectives tend to be mainly

quantitative is specification
 Any organization always has a potential set of goals. This
choice must be further elaborated and expressed as
operational & measurable objectives
GOALS & OBJECTIVES
 Role of objectives
 Objectives define the Organisation’s Relationship with its
Environment
 Objectives help an organisation pursue its Vision & Mission
 Objectives provide the Basis for Strategic Decision-making
 Objectives provide the Standards for Performance appraisal
GOALS & OBJECTIVES
 Characteristics of Objectives
1. Objectives should be understandable
2. Objectives should be concrete & specific
3. Objectives should be Related to a Time frame
4. Objectives should be Measurable & Controllable
5. Objectives should be challenging
6. Different objectives should correlate with each other
7. Objectives should be set within constraints
GOALS & OBJECTIVES
 Issues in Objective-setting
1. Specificity
2. Multiplicity
3. Periodicity
4. Verifiability
5. Reality
6. Quality
GOALS & OBJECTIVES
 What objectives are set?
 Objectives have to be set in all those performance areas
which are of strategic importance to an organization
 According to Drucker, objectives need to be set in the eight
vital areas of Market standing
1. Innovation
2. Productivity
3. Physical and financial resources
4. Profitability
5. Manager performance & development
6. Worker performance and attitude
7. Public responsibility
GOALS & OBJECTIVES
 What objectives are set?
 In practice most of the organizations set objectives in the
areas of
 Profit (ROI, Return on shareholders’ capital, net profits)

 Marketing (sales volume, market development, new product

development, marketing cost reduction, customer service)

 Growth (output, sales, investment)

 Social responsibility (community services, rural development,

auxiliary industry development, family welfare)

GOALS & OBJECTIVES
 How are objectives formulated?
 Glueck identifies four factors that should be considered for
objective-setting.
1. The forces in the environment
2. Realities of the enterprise resources & internal
power relationships
3. The value system of top executives
4. Awareness by the management
GOALS & OBJECTIVES
 Balances Scorecard approach to objective-setting
 Robert S Kaplan & David Norton of HBS, seeks to improve
organizational performance by focusing attention on
measuring & managing a wide range of non-financial,
operational objectives
 Balance scorecard model requires an evaluation of
organizational performance from four different
perspectives
1. Financial perspective
2. Customers’ perspective
3. Internal Businesses Perspective
4. Learning & Growth perspective
GOALS & OBJECTIVES
 Balances Scorecard approach to objective-setting

Financial Perspective

Objectives Targets

Customer Perspective Internal Process perspective

Vision &
Strategy
Objectives Targets Objectives Targets

Learning/ Innovation Perspective

Objectives Targets
GOALS & OBJECTIVES
 Critical success factors
 Critical success factors (CSFs), sometimes referred to as
strategic factors or key factors for success, are those which
are crucial for organizational success
 Rockart has applied the CSFs approach to several
organisations through a three-step procedure for determining
CSF’s
 What does it take to be successful in business?

 What should the organization's goals & objectives be with

respect to CSF’s?
 How will we know whether the organization has been

successful on this factor?

GOALS & OBJECTIVES
 Critical success factors
 Key Performance Indicators

 KPI’s are the metrics or measures in terms of which the

critical success factors are evaluated

 Benefits of KPI’s:
 Help an organisation define and measure progress toward

its objectives
 KPI’s give clear picture of what is important

 Tool in motivation

 KPI’s are applied in business intelligence

 KPI’s helps in business performance management through

tools like ‘dashboard’

 STRATEGIC MANAGEMENT 3
3

Customer
functions:
Utility / Alternative technologies:
ornamental Mechanical / quartz technology

Customer groups: children,

men or women

Based on: D.F. Abell: Defining the Business: The

Starting Point of Strategic Planning Englewood Cliffs,
N.J. Prentice-Hall, 1980
ABELL BUSINESS DEFINITION
CRITICAL SUCCESS FACTORS
 Critical success factors (CSFs)are crucial for organisational
success.
 Rockart has applied the CSFs approach to several organisations
through a three-step procedure for determining CSFs.
 These steps are:
 to generate the success factors (`what does it take to be
successful in business?’),
 refining CSFs into objectives (`what should the organisation's
goals and objectives be with respect to CSFs?)
 identifying measures of performance (`how will we know
whether the organisation has been successful on this factor?
KEY PERFORMANCE INDICATORS
 Key performance indicators(KPIs) are the metrics or measures
in terms of which the critical success factors are evaluated.
 KPIs help an organization define and measure progress toward
its objectives.
 They give everyone in the organization a clear picture of what
is important and what they need to do to accomplish
objectives.
 They are a helpful tool for organizations to motivate their
employees towards achievement of objectives.
 KPIs are applied in business intelligence to gauge business
trends.
OBJECTIVES OF KPI
KEY RESULT AREA (KRA)
 A key result area (KRA) is an strategic factor either internal
to the organization or external, where strong positive results
must be realized for the organization to achieve its strategic
goal(s), and therefore, move toward realizing the
organization’s longer term vision of success.

 KRA :
 Key = crucial/main

 Result = outcome/end/consequence

 Area = space/range

 KEY RESULT AREA :- crucial outcome space

PORTERS FIVE FORCES MODEL
PORTERS FIVE FORCES
ENTRY AND EXIT BARRIERS
ENTRY BARRIERS
 Economies of scale
 Brand Image, ( eg. PepsiCo, Coca Cola)

 Capital requirement

 Innovation – Patents, IPR

 Government Control/ Intervention

 Limited Access to Channel Members

EXIT BARRIERS
 Employee Lay –off
 Disengagement cost:

( Firm has to pay additional cost like cost for restoring

plant site after exit, Lease for building , even if business
is closed off)
 Customers Loyalty :

( Bundle of products. Shut down few

( unprofitable)products …customers wants it)
Non
 Shared Cost: ( Resource sharing, Same raw material,
waste material as a raw material for another product)
UNIT- 2
ANALYZING COMPANIES
INTERNAL ENVIRONMENT
CONCEPTS OF ENVIRONMENT
 The environment in which an organization exists could
be broadly divided into two parts; the external and
internal environment
 Systematic approach of SWOT can help in
environmental appraisal
 Covered detail in last unit.
RESOURCE BASED VIEW OF A FIRM
 Evolved from Latin word---Resurgere….to rise
 Means that used to accomplish desired goals.

 It can be anything that can be utilized to obtain

something valuable.
VRIO
 Does the resource create value?
 for our customers
 Higher prices
 for the firm
 Lower costs
 Is it rare?
 We can only appropriate if we have a unique advantage
 Is our advantage inimitable?
 i.e., will that unique advantage persist over time?
V.R.I.
CHAPTER 3: ENVIRONMENTAL
APPRAISAL
Part 3:
Strategy Formulation
CONCEPTS OF ENVIRONMENT
 The environment in which an organization exists could
be broadly divided into two parts; the external and
internal environment
 Systematic approach of SWOT can help in
environmental appraisal
 EXTERNAL ENVIRONMENT can be further classified
as GENERAL & RELEVANT ENVIRONMENT
CONCEPTS OF ENVIRONMENT
 We can have EIGHT components of external
environment
 Market
 Technological
 Supplier
 Economic
 Regulatory
 Political
 Socio-cultural
 International
CONCEPTS OF ENVIRONMENT
 The environment of any organization means “the aggregate of all
conditions, events and influences that surround and affect it”

 Characteristics of Environment
 Environment is Complex: Environmental factors do not exist in isolation but
interact with each other
 Environment is Dynamic
 Environment is Multi-faceted: Shape & character an environment will assume
depends on the perception of the observer
 Environment has a Far-reaching Impact
CONCEPTS OF ENVIRONMENT
 External & Internal Environment
 The external environment includes all the factors outside the
organization which provide opportunities or pose threats to
the organization
 The internal environment refers to all the factors within an
organization which impact strengths or cause weaknesses of a
strategic nature
CONCEPTS OF ENVIRONMENT
 SWOT Analysis
 SWOT is also known as WOTS-UP or TOWS analysis
 A simple application of SWOT analysis involves following steps
1. Setting the objectives of the organization or its unit
2. Identifying it strengths, weaknesses, opportunities and threats
3. Asking four questions
a) How do we maximize our strengths?
b) How do we minimize our weaknesses?
c) How do we capitalize on the opportunities in our external environment?
d) How do we protect ourselves from threats in our external environment?
4. Recommending strategies that will optimise the answers from the
four questions
 CONCEPTS OF ENVIRONMENT
 SWOT Analysis: A typical SWOT analysis

STRENGTHS
WEAKNESSES
•Favorable location
•Uncertain cash flow
•Excellent distribution network
•Weak management information system
•Quality certification
•Absence of strong USP for major product lines
•Established R&D center
•Low worker commitment
•Good management reputation

OPPORTUNITIES
•Favourable industry trends
•Low technology options available
•Possibilility of niche target market
•Availability of reliable business partners
THREATS
•Unfavorable political environment
•Obstacles in licensing new business
•Uncertain competitors’ intentions
•Lack of sustainable financial backing
CONCEPTS OF ENVIRONMENT
 General versus Relevant Environment
 General environment:
 International, national and local economy, social changes,
demographic variables, political systems, technology, attitude
towards business; energy sources, raw material and other
resources
 Relevant environment:
 Immediate concerns of organization could be termed as relevant
environment
General environment

ORGANISATION
Relevant environment
 CONCEPTS OF ENVIRONMENT
 Classification of environmental sectors
 There are several sectors into which the external/general
environment could be divided into
 Analysis of research studies is as follows

Environmental Dixit (1987) Subramanium Shah (1996) Overall ranking

sectors (N=24) (1989) (N=16) (N=61)
Market 1 1 1 1
Supplier 2 n.c. 2 2
Technological n.c. 2 3 3
Economic 4 3 4 4
Regulatory 3 4 5 5
Political 6 5 6 6
Socio-cultural 6 6 7 7
International 5 n.c. 8 8
ENVIRONMENTAL SECTORS
1. Economic environment
 Economic environment consists of macro-level factors related to the
means of production and distribution of wealth
 Some of the factors and influences operating in the economic
environment are
 Economic stage at which country exists
 Economic structure adopted such as capitalistic, socialistic or mixed

 Economic policies such as industrial and fiscal policies

 Economic planning such as five-year plans, annual budgets etc

 Economic indices such as national income, rate of savings and investments, value

of export & imports, the balance of payments etc.

 Infrastructural factors such as financial institutes, banks, modes of transportation,

communication facilities
 ENVIRONMENTAL SECTORS
2. International environment
 International environment consists of all those factors that operate at the transnational,
cross-cultural and across the border level, having an impact on the business of an
organization
 Some of the factors and influences operating in the international environment are
 Globalization, its process, content and direction
 Global economic forces, organizations, blocks & forums
 Global trade and commerce, its process and trends
 Global financial system, sources of financing and accounting standards
 Geopolitical situation, equations, alliances and strategic interests of nations
 Global demographic patterns & shifts
 Global human resource, institutions, availability, nature and quality of skills and expertise,
mobility or labor and other skilled personnel
 Global information system, communication networks & media
 Global technological & quality systems & standards
 Global markets & competitiveness
 Global legal system, adjudication mechanisms
 Globalization of management & allied disciplines & diffusion of management techniques in
Industry
 ENVIRONMENTAL SECTORS
3. Market environment
 Market environment consists of factors related to the groups & other
organizations that compete with and have an impact on an organization's
markets & business
 Important factors & influences in the market environment are
 Customer or client factors: Needs, Preferences, Perceptions, Attitudes, Values,
Bargaining power. Buying behavior & Satisfaction of customer
 Product factors: Demand, Image, Features, Utility, Function, Design, Life-cycle, Price,

Promotion, Distribution, Differentiation, and Availability of substitutes of product or

services
 Marketing intermediary factors: Levels & quality of customer services, Middlemen,

Distribution channels, Logistics, Costs, Delivery systems, and Financial intermediaries

 Competitor related factors: Types of competitors, Entry & exit of major competitors,

Nature of competition, and the Relevant strategic position of major competitors

ENVIRONMENTAL SECTORS
4. Political environment
 Factors related to management of public affairs & their
impact
 Political systems & its features like nature of the political systems,
ideological forces, political parties & centers of power
 Political structure, its goals & stability
 Political processes like operation of the party system, elections,
funding of elections & legislation with respect to economic &
industrial promotion & regulation
 Political philosophy, government’s role in business, its policies &
interventions in economic & business development
ENVIRONMENTAL SECTORS
5. Regulatory environment
 Important factors & influences
 Constitutional framework, directive principles, fundamental rights
& division of legislative powers between the Central, State and
local government
 Policies related to licensing, monopolies, forengn investment &
financing
 Import & Export policies
 Other policies related to public sector, small-scale industries, sick
industries, development of backword areas, control of
environmental pollution & consumer protection
ENVIRONMENTAL SECTORS
6. Socio-cultural environment
 Important factors & influences
1. Demographic characteristics: population, density & distribution, changes in
population & age composition, inter-state migration and rural-urban mobility
and income distribution
2. Socio-cultural concerns: environmental pollution, consumerism
3. Socio-cultural attitudes & values: expectation of society from business, social
customs, beliefs, rituals and practices, changing life-style patterns and
materialism
4. Family structure and changes in it, attitude towards and within the family, and
family values
5. The role & position of men, women, children, adolescents, and aged in family &
society
6. Educational levels, awareness and consciousness of rights, the work ethic of the
members of society, and attitude towards minority & disadvantaged groups
ENVIRONMENTAL SECTORS
7. Supplier environment
 Important factors & influences
 Cost, availability & continuity of supply of raw materials,
sub-assemblies, part & components
 Cost & availability of finance for implementing plans &
projects
 Cost, reliability and availability of energy used in resources
 Cost, availability and the existence of sources and means for
supply of plants & machinery, spare parts & after-sale
service
 Infrastructural support & ease of availability of the different
factors of production, bargaining power of suppliers &
existence of substitutes
ENVIRONMENTAL SECTORS
8. Technological environment
 Important factors & influences
 Sources of technology: company sources, External sources
and foreign sources, cost of technology acquisition,
collaboration in & transfer of technology
 Technological development: stages of development, change
& rate of change of technology & R&D
 Impact of technology on human beings: the man-machine
system
 Communication & infrastructural technology in
management
ENVIRONMENTAL SCANNING
 The process by which organisations monitors their
relevant environment to identify opportunities & threats
affecting their business is known as environmental
scanning
 Factors to be considered for Environmental scanning
 Events: are important & specific occurrences taking place in
different environmental sectors
 Trends: are the general tendencies or the courses of action along
which events take place
 Issues: are the current concerns that arise in response to events
& trends
 Expectations: are the demands made by interested groups in the
light of their concern for issues
ENVIRONMENTAL SCANNING
 Approaches to Environmental scanning
 Kubr has suggested three approaches which could be adopted
for sorting out information for environmental scanning
1. Systematic approach: Information is collected
systematically, continuously, through may be used for
operations purpose
2. Ad-hoc approach: information is collected through special
surveys and studies to deal with specific environmental
issue
3. Processed-form approach: organization uses information
in processed form from different sources like government
institutions or private agencies
ENVIRONMENTAL SCANNING
 Sources of information for environmental scanning
 Documentary or secondary sources of information
 Mass media
 Internal sources
 External agencies
 Formal studies
 Spying & surveillance
ENVIRONMENTAL SCANNING
 Methods & Techniques used for environmental scanning
 LeBell & Krasner have outlined nine groups of techniques
 Single variable exploration
 Theoretical limit envelops

 Dynamic modes

 Mapping

 Multivariable interaction analysis

 Unstructured expert opinion

 Structured expert opinion

 Structured inexpert opinion

 Unstructured inexpert speculation

ENVIRONMENTAL SCANNING
 Methods & Techniques used for environmental scanning
 Fahey, King and Narayanan have included ten techniques in
their survey of environmental scanning
 Scenerio-writing
 Simulation

 Morphological analysis

 PPBS

 Game theory

 Cross-impact analysis

 Field anonaly-relation

 Multiechelon co-ordination

 Other methods

 Emerging set of techniques are based on complexity theory

 Among the techniques are Concepts of factals, fuzzy logic, generic algorithms, swarm
stimulation, the Monte carlo method & Chaos theory
APPRAISING THE ENVIRONMENT
CHAPTER 4: ORGANIZATIONAL
APPRAISAL
Part 3:
Strategy Formulation
ORGANIZATIONAL APPRAISAL
 The appraisal of external environment of a firm helps it
to think of what it might choose to do
 The appraisal of the internal environment, on the other
hand enables a firm to decide about what it can do

 The resources, behavior, strengths and weaknesses,

synergy, and competencies constitutes the internal
environment
ORGANIZATIONAL APPRAISAL
 Organizational capabilities could be understood in terms
of strengths and weaknesses existing in the different
functional areas (finance, marketing, operations,
personnel, information management, general
management) of an organization
DYNAMICS OF INTERNAL
ENVIRONMENT
 The interplay of different resources along with the
prevalent behavior produces synergy or dysergy within
an organization.
 This leads to development of strengths & weaknesses

 Some of these strengths make an organization develop

its competencies
 The resources, behavior, strengths and weaknesses,
synergistic effects and competencies of an organization
determine the nature of its internal environment
FRAMEWORK FOR THE DEVELOPMENT OF
STRATEGIC ADVANTAGE BY AN
ORGANIZATION
Strategic advantage

Organizational
capability

Competencies

Synergistic effects

Strengths &
Weaknesses

Organizational Organizational
resources behaviour
 Strategic advantage

DYNAMICS OF INTERNAL
Organizational capability

Competencies

Synergistic effects

ENVIRONMENT Organizational resources

Strengths & Weaknesses

Organizational behaviour

 Organizational resources: according to Barney (1991)

a firm is a bundle of resources- tangible & intangible-
that includes assets, capabilities, organizational
processes, information, knowledge, and so on
 These resources could be classified as physical, human,
and organizational resources
 Barney has said that the resources of an organization can
ultimately lead to a strategic advantage for it if they
possess four characteristics that is if these resources are
valuable, rare, costly to imitate and non-substitutable
 Strategic advantage

DYNAMICS OF INTERNAL
Organizational capability

Competencies

Synergistic effects

ENVIRONMENT Organizational resources

Strengths & Weaknesses

Organizational behaviour

 Organizational behavior
 Organizational behavior is the manifestation of the various
forces and influences operating in the internal environment of
an organization that create the ability for or place constraints
in the usage of resources
 Some of the forces and influences that affect organizational
behavior are, the quality of leadership, management
philosophy, shared values and culture, quality of work
environment and organizational climate, organizational
policies, use of power
 Strategic advantage

DYNAMICS OF INTERNAL
Organizational capability

Competencies

Synergistic effects

ENVIRONMENT Organizational resources

Strengths & Weaknesses

Organizational behaviour

 Strengths & Weaknesses

 Organizational resources and behavior combine in a complex
fashion to create strengths & weaknesses within the internal
environment of an organization
 Strategic advantage

DYNAMICS OF INTERNAL
Organizational capability

Competencies

Synergistic effects

ENVIRONMENT Organizational resources

Strengths & Weaknesses

Organizational behaviour

 Synergistic effects
 The two-plus-two-is equal-to-five-or-three effect
 At functional, the synergistic effect may occur when the
product, pricing, distribution, and promotion aspects support
each other, resulting in a high level of marketing synergy
 At the higher level the marketing and production areas may
support each other leading to operating synergy
 On the other hand marketing inefficiency reduces production
efficiency, the overall impact being negative in which case
dysergy (or negative synergy) occurs
 Strategic advantage

DYNAMICS OF INTERNAL
Organizational capability

Competencies

Synergistic effects

ENVIRONMENT Organizational resources

Strengths & Weaknesses

Organizational behaviour

 Competencies
 Synergistic effects manifest themselves in terms of organizational
competencies.
 Competencies are special qualities possessed by an organizational
that make them withstand pressures of competition in the
marketplace
 Other terms frequently used as being synonymous to competencies
are unique resources, core capabilities, invisible assets, embedded
knowledge etc
 The capability to use the competencies exceeding well turns them
into core competencies
 Strategic advantage

DYNAMICS OF INTERNAL
Organizational capability

Competencies

Synergistic effects

ENVIRONMENT Organizational resources

Strengths & Weaknesses

Organizational behaviour

 Competencies
 When a specific ability is possessed by a particular organisation
exclusively or in a relatively large measure it is called a distinctive
competence
 Core competencies can be developed but can also be lost
 Core competencies has the potential to turn into ‘Core rigidities’
 Core competencies can act as a double-edged sward
 Strategic advantage

DYNAMICS OF INTERNAL
Organizational capability

Competencies

Synergistic effects

ENVIRONMENT Organizational resources

Strengths & Weaknesses

Organizational behaviour

 Organizational capability
 Organizational capability is the inherent capacity or potential
of an organisation to use its strengths and overcome its
weaknesses in order to exploit opportunities and face threats
in its external environment
 As an attribute Capability is sum total of resources and
behavior, strengths & weaknesses, synergistic effects
occurring in and the competencies of any organisation
 Organizational capacity is measured and compared through
the process of organizational appraisal
DYNAMICS OF INTERNAL Strategic advantage

ENVIRONMENT
Organizational capability

Competencies

Synergistic effects

Strengths & Weaknesses

Organizational resources Organizational behaviour

 Strategic advantages
 Strategic advantages are the outcome of organizational capabilities
 Strategic disadvantages are the penalties in the form of financial loss
or damage to market share
 Strategic advantages are measurable in
 Absolute terms using the parameters in which they are expressed. So
profitability could be used to measure strategic advantage. The
higher the profitability the better the strategic advantage
 Competitive advantage is a special case of strategic advantage where
there are one or more identified rivals against whom rewards or
penalties could be measured
 Competitive advantage is relative rather than absolute
ORGANIZATIONAL CAPABILITY
FACTORS
 Capabilities are most often developed in specific
functional areas, such as marketing or operations, or in a
part of functional area, such as distribution or R&D
 It is also feasible to measure and compare capabilities in
functional areas
 Organizational capability factors are the strategic
Strengths & Weaknesses existing in different functional
areas within an organization
 Other synonymous words to Capability factors are
 Strategic factors
 Strategic advantage factors
 Corporate competence factors
ORGANIZATIONAL CAPABILITY
FACTORS
 Let’s decide organizational capability factors on
commonly known functional areas
1. Financial capability
2. Marketing capability
3. Operations capability
4. Personnel capability
5. Information Management capability
6. General management capability
ORGANIZATIONAL CAPABILITY
FACTORS
1. Financial capability
1. Factors related to sources of funds
2. Factors related to usage of funds
3. Factors related to management of funds
ORGANIZATIONAL CAPABILITY
FACTORS
2. Marketing capability
 Product-related factors
 Price-related factors
 Place-related factors
 Promotion-related factors
 Integrative and systemic factors
ORGANIZATIONAL CAPABILITY
FACTORS
3. Operations capability
 Factors related to the production system
 Factors related to operations & control system
 Factors related to R&D system
ORGANIZATIONAL CAPABILITY
FACTORS
4. Personnel capability
 Factors related to personnel system
 Factors related to organizational & employees
 Factors related to industrial relations
ORGANIZATIONAL CAPABILITY
FACTORS
5. Information Management capability
 Factors related to acquisition & retention of information
 Factors related to processing & synthesis of information
 Factors related to retrieval & usage of information
 Factors related to transmission & dissemination
 Integrative, systemic & supportive factors
ORGANIZATIONAL CAPABILITY
FACTORS
6. General management capability
 Factors related to general management systems
 Factors related to general managers
 Factors related to external relationship
 Factors related to organizational climate
CONSIDERATIONS IN ORGANIZATIONAL
APPRAISAL
 The purpose of organizational appraisal is to determine
the organizational capability in terms of the strengths &
weaknesses that lie in the different functional areas
 Factors affecting organizational appraisal
 Ability of strategists
 Size of organization
 Internal environment
CONSIDERATIONS IN ORGANIZATIONAL
APPRAISAL
 Approaches to organizational appraisal
 The approaches may range from highly systematic to an ad-
hoc
CONSIDERATIONS IN ORGANIZATIONAL
APPRAISAL
 Sources of information for organizational appraisal
 Internal sources
 Employees opinions
 Company files & documents
 Financial statements
 MIS
 Other internal sources

 External sources
 Company report magazines
 Journals

 Help of consultants may be sought

METHODS & TECHNIQUES USED FOR
ORGANIZATIONAL APPRAISAL
 The methods & techniques can be broadly classified three
parts
1. Internal analysis
A. Value-chain analysis
B. Quantitative analysis
i. Financial analysis
ii. Non-financial quantitative analysis
C. Qualitative analysis
2. Comparative analysis
A. Historical analysis
B. Industry norms
C. Benchmarking
3. Comprehensive analysis
A. Balanced scorecard
B. Key factor rating
 1. INTERNAL ANALYSIS
A. MICHAEL PORTER’S VALUE CHAIN

12/29/20
Firm infrastructure
Support Activities

Human resource management

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ar

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gi
n
Technology development

Procurement

Inbound Outbound
Operations Marketing Service

n
logistics

gi
logistics And sales

ar
M
The Generic Value chain
1. INTERNAL ANALYSIS
B. QUANTITATIVE ANALYSIS

i. Financial analysis
 Ratio analysis to assess liquidity, profitability, leverage etc
 Economic Value Added (EVA) analysis used for determining wealth of
the organization
 Activity Based Cost (ABC) analysis

ii. Non Financial analysis

 Employee turnover
 Absenteeism
 Market ranking
 Rate of advertising recall
 Total cycle time of production
 Inventory units used per period
 Service call rate
 No of customers registered
1. INTERNAL ANALYSIS
C. QUALITATIVE ANALYSIS
 Quantification has limitations
 A qualitative analysis has to be tampered with qualitative
analysis. Such analysis is based on informed opinion,
judgment, intuition, or hunch
 Qualitative analysis can best express corporate culture,
ability to absorb and assimilate knowledge, or level of
moral
 QUALITATIVE AND QUANTITATIVE ANALYSIS
SHOULD SUPPORT EACH OTHER WELL
2. COMPETITIVE ANALYSIS
A. HISTORICAL ANALYSIS
 Comparing performance and identify strengths &
weaknesses over a period of time
2. COMPETITIVE ANALYSIS
B. INDUSTRY NORMS
 A company might check whether its cost structure, or
advertising budget is comparable to that of its
competitors
 It is more instructive to compare with firms with similar
strategy being followed
2. COMPETITIVE ANALYSIS
C. BENCHMARKING
 “the practice of being humble enough to admit that someone else is better
at something, and being wise enough to learn how to match and even
surpass their at it”
 There are benchmarking
 Benchmarking Performance
 Benchmarking Process
 Strategic Benchmarking: (to compare long termed, significant decisions and
actions undertaken by other organizations to achieve their objectives)
 To find out against whom to benchmark
 Internal benchmarking: (interdepartmental)
 Competitive benchmarking (with competitors)
 Functional benchmarking (processes or functions against non-competitors in
same sector or technology area)
 Generic benchmarking (comparison with best practices)
3. COMPREHENSIVE ANALYSIS
A. BALANCED SCORECARD
 Balanced scorecard
 Balanced scorecard is considered as ‘a set of measures that
gives managers a fast but comprehensive view of the
business’ (Click here to go to diagram)
3. COMPREHENSIVE ANALYSIS
B. KEY FACTOR RATING
 Key factors rating
 For financial capability factors
 For marketing capability factors
 For operations capability factors
 For personnel capability factors
 For information management capability factors
 For general management capability factors
STRUCTURING ORGANIZATIONAL
APPRAISAL
 Glueck proposes a preparation of the Strategic
Advantage Profile (SAP)
 Rowe et al, proposes company capability profile as
SWOT
PREPARING THE ORGANIZATIONAL CAPABILITY PROFILE
 Financial capability factors
 Sources of funds
 Usage of funds
 Management of funds
 Marketing capability factors
 Product-related
 Price-related
 Promotion-related
 Integrative & systematic
 Operations capability factors
 Production system
 Operations & control system
 R&D system
 Personnel capability factors
 Personnel system
 Organizational and employee characteristics
 Industrial relations
 Information management capability factors
 Acquisition of retention of information
 Processing & synthesis of information
 Retrieval & usage of information
 Transmission & dissemination of information
 Integrative, systematic, and supportive
 General management capability factors
 General management system
 External relations
 Organizational climate
 PREPARING THE STRATEGIC
ADVANTAGES PROFILE
Capability Competitive strengths & weaknesses
factor
Finance High cost of capital, reserves & surplus. Position
unsatisfactory
Marketing Fierce competition in industry, company’s position secure
at present
Operations Plant & machinery in excellent condition, captive sources
of plants & components available
Personnel Quality of managers and workers comparable with that in
competitive companies
Information MIS in the process of development

General Qualified & experienced top management, adopts

management proactive stance
CHAPTER 5: CORPORATE-LEVEL
STRATEGIES: CONCENTRATION,
INTEGRATION & DIVERSIFICATION
Part 3:
Strategy Formulation
CORPORATE-LEVEL STRATEGIES
(GRAND STRATEGIES)
 Corporate-level strategies are basically about the choice of direction
that a firm adopts in order to achieve its objectives
 Abell has suggested defining a business along the three dimensions.
The business. Business definition for a small firm would be simple,
while for large firm it would be difficult
 a large firm would consist of several businesses, each of which
could be defined in terms of these three dimensions
 The complexity of large firms arises from the fact that each of its
businesses, defined along the three dimensions, result in a variety of
customer groups, customer functions and alternative technologies
CORPORATE-LEVEL STRATEGIES
(GRAND STRATEGIES)
 Strategic alternatives revolve around the question of
whether to continue or change the business the enterprise
is currently in or improve the efficiency and
effectiveness with which the firm achieves its corporate
objectives in its chosen business sector
 According the Glueck there are four strategic
alternatives
 Expansion
 Stability
 Retrenchment
 Combination
CORPORATE-LEVEL STRATEGIES
(GRAND STRATEGIES)
 Expansion strategies
 Expansion grand strategy is followed when an organization
aims at high growth by substantially broadening the scope of
one or more of its businesses in terms of their respective
customer groups, customer functions, and alternative
technologies- single or jointly- in order to improve its overall
performance
 Expansion strategies have a profound impact on a company’s
internal configuration causing extensive changes in almost all
aspects of internal functions
CORPORATE-LEVEL STRATEGIES
(GRAND STRATEGIES)
 Stability strategies
 Stability strategy is adopted by an organization when it
attempts at an incremental improvement of its functional
performance by marginally changing one or more of its
businesses in terms of their respective groups, customer
functions, and alternative technologies- either singly or
collectively
 The essence of stability strategies is, therefore not doing
nothing but sustaining a moderate growth in line within the
existing trends
CORPORATE-LEVEL STRATEGIES
(GRAND STRATEGIES)
 Retrenchment strategies
 A retrenchment grand strategy is followed when an
organization aims at a contraction of its activities through
substantial reduction or the elimination of the scope of one or
more of its businesses, in terms of their respective customer
groups, customer functions, or alternative technologies-
either singly or jointly- in order to improve its overall
performance
 Retrenchment attempts to ‘trim the fat’ and results in a
‘slimmer organization bereft of unprofitable customer groups,
customer functions, or alternative technologies
CORPORATE-LEVEL STRATEGIES
(GRAND STRATEGIES)
 Combination strategies
 The combination grand startegy is followed when an
organisation adopts a mixture of stability, expansion, and
retrenchment
DYNAMICS OF INTERNAL
ENVIRONMENT
 Strategic advantages
 Strategic advantages are the outcome of organizational
capabilities
 Strategic disadvantages are the penalties in the form of
financial loss or damage to market share
 Strategic advantages are measurable in
 15+15+15 questions
 25 case
 Mission Vison Objective 1 question must