STRATEGIC

MANAGEMENT
Md. Ahsan Ullah
Bangladesh Bank
Strategic Management: Concept

■ The word “Strategy” is derived from the Greek word “Strategos” meaning the
‘general’s view’.

■ A strategy is an action that managers take to attain one or more of the

organization’s goals.

■ A strategy is basically a plan of action ie. Action plan.

■ Strategic management is that set of managerial decisions and actions that

determines the long run performance of a corporation. (T. L. Wheelen & J. D.
Hunger)

■ Strategic Management is about identifying and describing the strategies that

managers can pursue to attain superior performance and a competitive
advantage for their organization.
Contd…..

■ Profitability and sustained competitive advantage are the key to

Strategic Management.

■ The nature of strategic management process is the processes by which

managers choose a set of strategies for a company that will allow it to
achieve superior performance. (W. L. Hill)

■ Strategic Management refers to the managerial process of forming

strategic vision, setting objectives, crafting a strategy, implementing and
executing the strategy, and then over time initiating whatever corrective
adjustments in vision, objectives, strategy, and execution are deemed
appropriate. Thomption)
Contd…..
■ So, five tasks of Strategic management:

■ Forming a strategic vision, mission, values

■ Setting objectives

■ Crafting a strategy

■ Implementing the chosen strategy

■ Evaluating performance and initiative corrective

adjustments

.
Contd……..
Strategic vision is a roadmap of company’s future –

- providing specifics about technology and customer focus,

- the geographic and product market to be pursued,

- the capabilities it plans to develop, and

- the kind of company that management is trying to create

Contd……
■ A company’s strategy consists of the combination of competitive
moves and business approaches that managers employ to please
customers, compete successfully, and achieve organizational
objectives. (Thompson)

■ Strategic Management, in fact, emphasizes monitoring and

evaluating opportunities and threats in the lights of a
corporation’s strengths and weaknesses (SWOT).

■ Broadly Speaking, after developing the vision /mission, strategic

Management dwells on :
Contd…….
■ Environmental scanning ( both external and internal)

■ Strategy formulation

■ Strategy implementation

■ Evaluation and Control

Strategic Process
■ 1. Developing a strategic vision of the company’s long term
direction, a mission that describes the company’s purpose, a set
of values to guide the pursuit of the vision and mission.

■ 2. Setting objectives and using them as yardsticks for measuring

the company’s performance and progress.

■ 3. Crafting a strategy to achieve the objectives and move the

company along the strategic course that management has
aspired for.
Contd……….

■ 4. Executing the chosen strategy efficiently and effectively.

■ 5. Monitoring developments, evaluating performance, and

initiating corrective adjustments in the company’s vision and
mission, objectives, strategy, keeping in view actual changing
conditions, new ideas, and new opportunities.
Contd…….

Environmental Scanning
■It is the monitoring, evaluation and dissemination of information from the
external and internal environments to key people within the organization.

■Its purpose is to identify strategic factors – those external and internal

elements that will determine the future of the organization.

■The simplest way to conduct environmental scanning is through SWOT

analysis.

■External Environment Variables : Opportunities & Threats

■Internal Variables: Strengths & Weaknesses

Vision : A bit elaboration
■ A strategic vision describes management’s aspirations for the future

■ It provides company’s long term direction

■ It charts a strategic path for the company to follow in preparing for

the future

■ It builds commitment to future course of action.

■ Vision is therefore future oriented and distinctive in nature.

■ Vision is in fact a dream – a distant, long term dream: Where we want

to go.

■ Leadership is the capacity to translate vision into reality

Contd…….
■ Dos & Don’ts

■ Be Graphic – Don’t be vague / incomplete

■ Be forward –looking and directional – Don’t dwell on the present

■ Keep it focused – Don’t use overly broad language

■ Have some wiggle room – Don’t state the vision in uninspiring terms

■ Be sure the journey is feasible – Don’t be generic

■ Indicate why the directional path makes good business sense – Don’t
rely on superlatives only

■ Make it memorable (easily communicable) – Don’t run on and on

Vision: Some Examples
■ “ A car in every garage” - Henry Ford

■ “ To be the happiest place on earth” – Disneyland

■ “To be the world’s best quick service restaurant”-McDonalds

■ “ Working for a world that no longer tolerates poverty” – World Vision

■ “To improve the quality of human life by enabling people to do more,

feel better and live longer” – Glaxo Smith kline
Contd……..
■ “To be the financial service provider of first choice” Prime Bank Ltd

■ “To be trend setter for innovative banking with excellence and

perfection.” A B Bank

■ To halt environmental abuse and promote environmental solutions. –

Greenpeace

■ To make London the safest major city in the world. – Scotland Yard

■ To bring innovation and inspiration to every athlete in the world. -

Nike
Difference between Vision & Mission
■ A vision is what it says about the company’s future strategic course- the
direction it is to head as per the company’s aspirations for the future.

■ In contrast, a mission statement describes the enterprise’s current

business and purpose.

■ A strategic vision portrays a company’s aspirations for its future :

( where we are going),

■ A company’s mission describes its purpose and its present business:

“Who we are, what we do, and why we are here”.

■ A well conceived mission statement conveys a company’s purpose in

language specific enough to give the company its own identity.
Vision ( Prepared by Nagorik Committee)

■By 2021, we want to see Bangladesh that meets the hopes and
aspirations of the citizens of the country for an economically inclusive
and politically accountable society. 

■The vision points out a set of measures to achieve eight identified goals
by 2021:

■To become participatory democracy;

■To have efficient , accountable, transparent and decentralized system

of governance;
Vision ( Prepared by Nagorik Committee)

■ To become a poverty-free middle income country;

■ To have a nation of healthy citizens;

■ To have a skilled and creative human resource;

■ To become globally integrated and regional economic and

commercial hub;

■ To be environmentally sustainable and

■ To be a more inclusive and equitable society.

Vision of Bangladesh Bank
■ To develop continually as a forward-looking central bank with competent
and committed professionals of high ethical standards, conducting
monetary management and financial sector’s supervision to maintain
price stability and financial system robustness, supporting rapid broad
based inclusive economic growth, employment generation and poverty
eradication in Bangladesh.

Mission Statement:

■ Formulating monetary and credit policies

■ Managing currency issue and regulating payment system

Vision of Bangladesh Bank
■ Managing foreign exchange reserves and regulating the foreign
exchange market

■ Regulating and supervising banks and financial institutions and

■ Advising the government on interactions and impacts of fiscal,

monetary and other economic policies.
Commitment to stakeholders
■ -For the nation
■ -For the Government
■ -For the depositors & investors
■ -For Banks $ FIs
■ -For Business Community
■ -For Banks Abroad
■ -For Bangladeshis Abroad
■ -For employees of BB
Core Values

■ Professionalism
■ Transparency & Accountability
■ Open Mindedness & Receptivity to new ideas
■ Teamwork
■ Honesty and Integrity
Societal Environment

Economic Technological Political –legal Socio-cultural

GDP Trends Total Govt. Spending Antitrust Regulations Lifestyle Changes

for R & D

Interest Rates Total Industry Environmental Career Expectations

Spending for R & Protection Laws
D

Money Supply Focus on Tax laws Consumer Activism

Technological
Efforts

Inflation Rates Patent Protection Special Incentives Rate of Family

Formation
SOCIETAL ENVIROMNENT
Unemployment New Products Foreign Trade Growth Rate of population
Levels Regulations

Wage/Price New Attitude towards Age Distribution of

Controls Developments in foreign companies Population
Technology
Transfer from
Lab to Market
place
Devaluation/Reval Productivity Laws on Hiring & Regional shifts in
uation Improvements Promotion Population
through
Automation
Energy Internet Stability of Govt. Life Expectancies
Availability Availability

Disposable & Telecommunicati Birth Rates

Discretionary on Infrastructure
Income
Industry Analysis: Analyzing the
Task Environment
Task Environment is also known as :
– Industry Environment or
– Competitive Environment

■ An industry is a group of firms producing a similar

product or service, such as soft drinks or financial
services.
■ An examination of the important stakeholder groups, such
as suppliers and customers, in a particular corporation’s
task environment is a part of industry analysis.
Porter’s Approach to Industry Analysis

■ Collective Strength of Six forces determines the ultimate profit

potential in the industry where profit potential is measured in terms of
long run return on invested capital.

■ The forces are furnished below (next slide)

■ A high force can be regarded as a threat because it is likely to reduce

profits.

■ A low force , in contrast, can be viewed as an opportunity because it

may allow the company to earn greater profits.
Six Forces

1. Threat of new entrants

2. Rivalry among existing firms
3. Threat of substitute products or services
4. Bargaining power of buyers
5. Bargaining power of suppliers
6. Relative power of other stakeholders
1. Threat of New Entrants

– Economies of Scale
– Product Differentiation
– Capital Requirements
– Switching Costs
– Access to Distribution Channels
– Cost Disadvantages Independent of Size
– Government Policy
2. Rivalry Among Existing Firms

– Number of Competitors
– Rate of industry Growth
– Product or Service Characteristics
– Amount of Fixed Costs
– Capacity
– Height of Exit Barriers
– Diversity of Rivals
3. Threat of Substitute
Products or Services
■ Substitute products are those products that appear to be different
but can satisfy the same need as another product
4. Bargaining Power of Buyers
– A buyer purchases a large proportion of the seller’s product
or service
– A buyer has the potential to integrate backward by producing
the product itself
– Alternative suppliers are plentiful because the product is
standard or undifferentiated
– Changing suppliers costs very little
– The purchased product represents a high percentage of a
buyer’s costs, thus providing an incentive to shop around for
a lower price
– A buyer earns low profits and is thus very sensitive to costs
and service differences
– The purchased product is unimportant to the final quality or
price of a buyer’s products or services and thus can be easily
substituted without affecting the final product adversely
5. Bargaining Power of Suppliers

■ The supplier industry is dominated by a few

companies, but it sells to many
■ Its product or service is unique and/or it has built
up switching costs
■ Substitutes are not readily available
■ Suppliers are able to integrate forward and
compete directly with their present customers
■ A purchasing industry busy only a small portion
of the supplier group’s goods and services and is
thus unimportant to the supplier
6. Relative Power of Other
Stakeholders
■ Governments
■ Local communities
■ Trade associations
■ Special interest group
■ Shareholders
 Potential
Entrants

Threat of
Relative Power
New Entrants
of Unions,
Governments etc.

Other Industry
Stakeholders Competitors Bargaining Power
of Buyers Buyers

Suppliers
Rivalry Among
Existing Firms
Bargaining Power
of Suppliers
Threat of Substitute
Products or Services

Substitutes

Figure: Forces Driving Industry Competition

 INTERNAL SCANNING : Organizational analysis

■ Scanning & Analyzing external environment i.e.

opportunities and threat is not enough to provide an
orgn. a competitive advantage.
■ Analysis must look within the corporation itself to
identify the internal strategic factors.
■ We must also look into the internal strengths and
weaknesses .
■ This internal scanning is often referred to as
Organizational Analysis.
■ Basically Organizational analysis is concerned with
identifying and developing an organization’s resources.
CONTD…

■ A resource is an asset, competency, process, skill

or knowledge controlled by the orgn.
■ A resource is a strength if it provides a company
with a competitive advantage.
■ A resource is a weakness if it is something the
corporation does poorly compared to its
competitors.
■ Mr. Barney developed a resource-based
approach to Organizational analysis.
■ His analysis is known as VRIO Framework of
analysis.
■ In VRIO, he proposes four questions to evaluate
each of a firm’s key resources.
Contd…

VRIO Stands for:

■Value : Does it add value to be competitive?
or
Does it provide competitive advantage?
■Rareness: Do other competitors hardly possesses it?
■Imitability: Is it costly for others to imitate?
■Organization: Is the firm organized to exploit the resource?
If the answer is “yes” for a particular resource, that resource is
considered a strength and a distinctive competence.
Evaluate the importance of these resources to ascertain if they
are internal strategic factors.
GRANT’S 5 - STEP RESOURCE BASED
APPROACH
Proposition: A company’s sustained competitive advantage
is primarily determined by its resource endowments.
1. Identify and classify the firm’s resources in terms of
strengths and weaknesses.
2. Combine the firm’s strengths into specific capabilities.
- Corporate capabilities ( often called core
competencies) are the things that a corporation can do
exceedingly well.
- When these capabilities / competencies are superior to
those of competitors , they are often called distinctive
competencies.
Contd.

■ 3. Appraise the profit potential of these resources and

capabilities in terms of their potential for sustainable
competitive advantage.

■ 4. Select the strategy that best exploit the s the firm’s

resources and capabilities relative to external
opportunities.

■ 5. Identify resource gaps and invest in upgrading

weaknesses.
Forecasting
■ Environmental Scanning provides reasonably
hard data on the present situation and current
trends;
■ But intuition is needed to predict accurately if
these trends will continue
■ The resulting forecasts are usually based on set of
assumptions
■ Faulty underlying assumptions are the most
frequent cause of forecasting errors
■ Nevertheless, many long range plans are simply
based on projections of current situations.
Useful Forecasting Techniques
1. Trend Extrapolation :
■ It is the extension of present trends into the future
■ It rests on the assumption that the world is reasonably
consistent & changes slowly in the short run
■ Time series data are used for forecasting
■ It is something like a rule of thumb
2. Brainstorming:
■ It is a non-quantitative approach requiring simply the presence
of people with some knowledge of the situation to be predicted
■ The basic ground rule is to propose ideas without first mentally
screening them.
■ Ideas tend to build on previous ideas until a consensus is
reached
Forecasting contd.
3. Expert opinion:
■It’s a non-quantitative in which experts in a particular area attempt
to forecast likely developments
■This kind of forecast is based on the ability of knowlegable person
(s) to construct probable future developments based on the
interaction key variables
■One application of this technique is commonly known as Delphi
technique
■In Delphi technique experts are separated to make their assessments
/express their views independently
■These assessments are sent back to each expert for readjustment /
fine tuning until an agreement is reached.
Contd.
4. Scenario Writing: Originated by Royal Dutch Shell
■ Scenarios are focused descriptions of different likely futures
presented in a narrative fashion
■ An industry scenario is a forecasted description of a particular
industry’s likely future
■ The scenario may be merely a written description of some future
state or
■ It may be generated in combination with other forecasting
techniques.
■ Such a scenario is developed by analyzing the probable of future
societal forces on key groups in a particular industry.
5. Statistical Modeling:
It’s a quantitative technique that attempts to discover causal
relationships by using normally time series data
It applies regression analysis and other econometric methods.
INTERNAL SCANNING : Organizational analysis

■ Scanning & Analyzing external environment i.e.

opportunities and threat is not enough to provide an orgn. a
competitive advantage.
■ Analysis must look within the corporation itself to identify
the internal strategic factors.
■ We must also look into the internal strengths and
weaknesses .
■ This internal scanning is often referred to as Organizational
Analysis.
■ Basically Organizational analysis is concerned with
identifying and developing an organization’s resources.
CONTD…

■ A resource is an asset, competency, process, skill or knowledge

controlled by the orgn.
■ A resource is a strength if it provides a company with a
competitive advantage.
■ A resource is a weakness if it is something the corporation does
poorly compared to its competitors.
■ Mr. Barney developed a resource-based approach to
Organizational analysis.
■ His analysis is known as VRIO Framework of analysis.
■ In VRIO, he proposes four questions to evaluate each of a firm’s
key resources.
GRANT’S 5 - STEP RESOURCE BASED
APPROACH

Proposition: A company’s sustained competitive

advantage is primarily determined by its resource
endowments.
1. Identify and classify the firm’s resources in terms of
strengths and weaknesses.
2. Combine the firm’s strengths into specific capabilities.
- Corporate capabilities ( often called core
competencies) are the things that a corporation can
do exceedingly well.
- When these capabilities / competencies are superior
to those of competitors , they are often called
distinctive competencies.
Contd…

3. Appraise the profit potential of these resources &

capabilities in terms of their potential for sustainable
competitive advantage &
- The ability to harvest the profits resulting from the use of
these resources and capabilities.
4. Select the strategy that best exploits the firm’s resources
and capabilities relative to external opportunities.
5. Identify resource gaps and invest in upgrading
weaknesses.
Determining the sustainability of an advantage

■ Two Characteristics determine the sustainability

of a firm’s distinctive competency:
- Durability and Imitability
Durability is the rate at which a firm’s underlying
resources & capabilities (core competencies)
depreciate or become obsolete.
Imitability is the rate at which a firm’s underlying
resources & capabilities (core competencies) can
be duplicated by others.
Value Chain Analysis

■ A good way for org. analysis is to ascertain whether a firm’s

products are located in in the overall value chain.
■ A value chain is a linked set of value- creating activities beginning
with basic raw materials coming from suppliers, moving on to a
series of value-added activities involved in producing &
marketing a product or service, and ending with distributors
getting the final goods into the hands of the ultimate consumer.
■ A systemic examination of individual value activities of an
industry / corporation can better lead to a corporation’s strengths
& weaknesses.
■ According to porter, “ Differences among competitor value chains
are a key source of competitive advantage.
Industry Value Chain Analysis

■ The value chains of most industries can be split

into two segments : upstream & downstream
halves.
■ For example: In petroleum industry,
- upstream refers to oil exploration, drilling, and
moving the crude oil to the refinery;
- downstream refers to refining the oil plus
transporting and marketing of gasoline & refined
oil to distributors and gas station retailers.
Contd…

■ An industry can be analyzed in terms of the profit

margin available at any 1 point along the value chain.
■ For example: US auto industry’s revenues & profits
are divided among many chain activities like -
• manufacturing, new and used car sales, gasoline
retailing, insurance, after sales service and parts, and
lease financing;
• From a revenue standpoint auto manufacturers
account for almost 60% of total industry revenues;
• But auto leasing is the most profitable activity in the
value chain followed by insurance & auto loans.
Contd…

■ As a result , manufacturers have moved

aggressively into auto financing.
■ Ford, for example, generates nearly half of its
profits from financing, even though financing
accounts for less than 20% of the company’s
revenues.
VALUE CHAIN ANALYSIS

■ A value Chain is a linked set of value-

creating activities beginning with basic raw
materials coming from suppliers , moving
on to a series of value –added activities
involved in producing and marketing a
product or service , and ending with
distributors getting the final goods into the
hands of the ultimate consumer.
– Industry Value Chain Analysis
– Corporate Value Chain Analysis
Corporate Value Chain Analysis

■ Each corporation has its internal value chain activities

■ According to Porter, a manufacturing firm’s has two
types of activities –
- Primary Activities
- Support Activities
Primary activities may be grouped into 5 generic
categories:
1. Inbound Logistics 2. Operations, 3. Outbound Logistics,
4.Marketing & Sales 5. Service
Primary Activities

■ Inbound Logistics: Raw Materials Handling

& Ware housing
■ Operations: Machining, Assembling, Testing
■ Outbound Logistics: Warehousing &
Distribution of finished products
■ Marketing & Sales: Advertising, promotion,
pricing, Channel relations
■ Service: Installation, Repair, Parts
Support Activities

■ Procurement: Purchasing of Raw

Materials, Machines, supplies
■ Technology development: R& D, Product
& Process development
■ HRM : Hiring, Training, Development
■ Firm Infrastructure: General Mgt.
accounting, Finance, Strategic Planning
Corporate value Chain Analysis: 3 Steps

■ Examine each product line’s value chain in

terms of various activities involved in
producing that product or service.
■ Examine the Linkages within each product
line ‘s chain.
■ Examine the potential synergies among the
value chains of different product lines or
business units.
SWOT ANALYSIS
Identification:

Strengths Weaknesses Opportunities Threats

■S1: W1: O1: T1:
■S2: W2: O2: T2:
■S3: W3: O3: T3:

■S4: W4: O4: T4:

 SWOT FRAMEWORK
Particulars (External ) Weight Scale(1-5) Score Comments

T1: There is pressure from the international community to increase

wages of the labourers .50 4 2.00

T2: A good number of small garments factories are not compliant as per
international standard .30 3 .90 debarred from getting work
order from international buyers which entails problem for big factories to supply in due time because they used to subcontracting
to the small factories to cover lead time. .

T3: Withdrawal GSP facility by the USA .20 3 .,60

1.00 3.50
Calculation:
Positives negatives
Strengths: 3.50 Weaknesses: 3.30
(Internal) (Internal)

Opportunities: 3,60 Threats: 3.50

(External) (external)
Scanning Functional Resources

■ To begin an analysis of a corporation’s value chain is by

examining its traditional functional areas for potential strengths
& Weaknesses.
■ Functional resources include: financial, physical & human
assets in each area.
■ The ability of the people in each area to formulate necessary
functional objectives, strategies and policies.
■ The knowledge of analytical concepts and procedural techniques
common to each area.
■ If used properly, these resources serve as strengths to carry out
value added activities and support strategic decisions.
Basic Organizational Structures

■ Almost infinite variety of structural forms exists,

but the following are the most predominant :

■ Simple Structure
■ Functional structure
■ Divisional structure
■ Strategic Business Unit (SBU)
■ Conglomerate structure
 Contd…

■ Simple structure : appropriate for a small ,

entrepreneur- dominated company with 1 0r 2
product lines;
■ It operates in reasonably identifiable market
niche;
■ Employees tend to be generalists i.e. jack of all
trades.
■ Functional Structure: appropriate for a medium
-sized firm with several related product lines in
one industry.
■ Employees tend to become specialists in the
business functions important to that industry, such
as manufacturing, marketing, finance, HRD.
Contd…

■ Divisional Structure: appropriate for a large

corporation with many product lines in several related
industries.
■ Employees tend to be functional specialists organized
according to product/market distinctions.
■ Example: General Motors groups its various auto lines
into separate divisions like Chevrolet, Saturn, Buick,
Cadillac.
■ Management attempts to fins some synergy among
divisional activities through the use of committees &
horizontal linkages.
Contd…

■ Strategic Business Unit (SBU): A recent

modification to the divisional structure.
■ SBUs are divisions or groups of divisions
composed of independent product market
segmentsl;
■ SBUs are given primary responsibility & authority
for management of their own functional areas.
■ An SBU may be of any size, but it must have –
a) A unique mission , b) identifiable competitors, c)
an external market focus & d) control of its own
functions.
Contd…

■ The idea is to decentralize on the basis of strategic

elements rather than on the basis of size, product
characteristics or span of control, and
■ to create horizontal linkages among units
previously kept separate.
■ Example: Rather than organize products on the
basis of packaging technology like frozen foods,
canned foods, and bagged foods, General Foods
organized its products into SBUs on the basis of
consumer oriented menu segments: Breakfast
food, beverage, main meal, dessert, and pet foods.
Contd…

■ Conglomerate Structure: appropriate for a large

corporation with many product lines in several
unrelated industries.
■ It is sometimes called holding companies
■ It is typically an assemblage of legally independent
firms (subsidiaries) operating under one umbrella
but controlled the subsidiaries’ boards of
directors.
Corporate Culture: The Company Way

■ It is said that there 3 ways to do any job

■ 1. the right way, 2. the wrong way 3. the company
way.
■ In most organizations, the company way is the
corporation’s culture.
■ Corporate culture is the collection of beliefs,
expectations and values learned and shared by
corporation’s members & transmitted from one
generation to another.
■ The corporate culture generally reflects the values
of the founder and the mission of the firm.
Contd

■ Corporate culture has two distinct attributes :

intensity & integration.
■ Cultural intensity is the degree to which members
of unit accept the norms, values or other cultural
contents associated with the unit.
■ This shows the culture’s depth.
■ Employees in an intensive culture tend to exhibit
consistent behavior, i.e. they tend to act similarly
over time.
Contd…

■ Cultural integration is the extent to which units

throughout the organization share a common
culture.
■ This is the culture’s breath
■ Organizations with pervasive dominant culture may
be hierarchically controlled and power oriented,
■ Example: military unit
■ All employees tend to hold the same cultural norms
and values.
Contd….

■ Corporate culture shapes the behavior of the people

in the corporation.
■ It fulfills several important functions:
1. Conveys a sense of identity for employees
2. Helps generate employee commitment to something
greater than themselves
3. Adds to stability of the organization as a social
system
4. Serves as a frame of reference for employees to use to
make sense out of organizational activities
Contd….

■ Cultures have powerful influences on the behavior of

people at all levels.
■ A strong culture create the basis for a superior
competitive position.
■ A change in mission, objectives, strategies etc. is not
likely to be successful if it is in opposition to the
accepted culture of the firm.
■ If an organization’s culture is compatible with a new
strategy, it is an internal strength;
■ If the corporate culture is not compatible with the
proposed strategy, it is a serious weakness.
Strategic Marketing Issues

■ The marketing manager is the company’s primary link to

the customer and the competition.
■ The manager, therefore, must be especially concerned with
the market position and marketing mix of the firm.
■ Market Position & Segmentation:
- Market position deals with the question – ‘who are our
customers?
- It refers to the selection of specific areas for marketing
concentration.
- It can be expressed in terms of market product &
geographical locations.
Contd…

■ Market Segmentation: It deals with various products and

services found out through market research.
■ It helps managers to discover what niches to seek, which new
type of products to develop.
■ It also helps to ensure that a company’s many products do not
directly compete with one another.
■ Marketing Mix: It refers to the particular combination of key
variables under the corporation’s control that can be used to
affect demand and to gain competitive advantage.
■ These variables are: product, place, promotion & price with a a
number of sub-variables as listed in the table that follows:
■ The variables and sub variables should be analyzed in terms of
their effects on divisional & corporate performance.
 Marketing Mix Variables

Product Place Promotion Price

Quality Channels Advertisin List price
Features Coverage g Discounts
Options Personal
Locations Allowance
Style selling
Inventory s
Brand name
Transport Sales Payment
Packaging
promotion periods
Sizes
Services Publicity Credit
Warranties items
Returns
Strategic financial Issues
■ The financial manager must ascertain the best sources of fund,
uses of funds, and control of funds.
■ Cash can be raised from internal or external sources.
■ The flow of funds in the operation of the organization must be
monitored.
■ If a corporation is involved in international activities, currency
fluctuations must be dealt with to ensure that profits are not
wiped out by the rise & fall of Dollar.
■ All these tasks are to be handled in a way that complements and
supports overall corporate strategy.
■ A firm’s capital structure can influence its strategic choices.
■ Example: Increased debt tends to risk aversion & decrease the
willingness of management to invest in R & D.
Financial Leverage

■ It refers to total debt to total assets

■ It is used to increase the earnings available to
common shareholders.
■ Example: when the company finances its activities by
sales of bonds instead of stock, the earnings per share
are boosted.
■ High leverage may therefore be perceived as a
corporate strength in times of prosperity, and ever
increasing sales.
■ It may be seen as a weakness in times of recession
and a falling sales.
Strategic Research & Development (R & D) Issues
■ R & D manager’s job involves:
1. Choosing among alternative new technologies to
use within the corporation.
2. Developing methods of embodying new technology
in new products & processes.
3. Deploying resources so that the new technology can
be successfully implemented.
There are also other strategic issues like- operations
issues, HRM issues, Information
systems/technology issues, Audit issues.
Two General Approaches : Evaluating Firm’s Performance

■ Financial ratio analysis (According to Balance sheet & Income

statement)
■ The balanced scorecard – stakeholder perspective
■ Financial Ratio Analysis: traditionally grouped into :
1. Short –term solvency or liquidity ratios
2. Long-term solvency or financial leverage ratios
3. Asset management or turn over ratios
4. Profitability ratios
5. Market value ratios
Short –term solvency or liquidity ratios
■ Sometimes called liquidity measures.
■ Primary concern is the firm’s ability to pay the its bills over the
short run without undue stress.
■ These ratios focus on current assets and current liabilities.
■ Current ratio = current assets/current liabilities
■ Example: CR = $708 / 540 = 1.31 times, meaning $1.31 in
current assets for every $1 in current liabilities.
■ Quick Ratio = CA – Inventory/CL
■ Cash Ratio = Cash / CL
■ Note: There are a lot of ratio analysis; you please read them
yourself. List of them follows-
Some Common Ratios

■ Long tem solvency ratios:

■ Total debt ratios= Total assets – Total equity
■ Debt- equity ratio= total debt/ Total equity
■ Asset turnover ratio:
■ Inventory turnover = Cost of goods sold / inventory
■ Total asset turnover= Sales / Total assets
■ Profitability ratios:
■ Profit margin = Net income / Sales
■ Return on Assets (ROA) = Net Income / Total Assets
■ Return on equity (ROE)= Net income / Total Equity
Market value Ratios

■ Price earning ratio = Price per share / Earnings

per share
■ Market to book ratio = Market value of per share /
book value of per share
■ Note : To make the financial analysis more
meaningful, one must also address the following
issues:
■ Historical comparisons
■ Comparison with industry Norms
■ Comparisons with key competitors.
The Balanced Scorecard
■ To evaluate a firm’s performance more meaningfully
Kaplan & Norton developed a “Balanced Scorecard”.
■ This is a set of measures that provide top managers with a fast
but comprehensive view of the business.
■ It includes financial measures that reflects the results of actions
already taken.
■ It complements these indicators with operational measures of
customer satisfaction, internal processes, and the organization’s
innovation improvement activities.
■ Operational measures means the measures that drive future
financial performance.
Contd..
■ The balanced scorecard enables managers to consider their
business from four key perspectives:
1. How do customers see us (customer perspective)
2. How must we excel at (internal perspective)
3. Can we continue to improve and create value (innovation &
learning perspective)
4. How do we look to shareholders (financial perspective)
■ Balance Scorecard helps managers simplify & operationalize
the vision at the top of the firm
■ It sets goals that are measurable.
■ Example of a semiconductor manufacturer- ECI follows:
ECI’s Balanced Business Scorecard
Financial Perspective
GOALS Measures
Survive Cash flow
Succeed Quarterly sales growth &

operating income by division

 Prosper Increased market share & ROE

Customer Perspective
Goals Measures
New products % of sales from new products
Responsive supply On-time delivery

Customer partnership  # of cooperating engineering efforts

 Contd..

Internal Business Perspective

Goals Measures
 Manufacturing excellence  Cycle time
 Unit cost
 Yield
 Design productivity  Silicon efficiency
 Engineering efficiency
 New product introduction  Actual introduction
schedule VS plan
Contd..

Innovation & Learning Perspective

Goals Measures
Technology leadership  Time to develop new generation
Manufacturing learning  Process time by maturity

 % of products that equal to

Product focus
80% of sales
Time to market
 New product introduction vs

competition
CORPORATE STRATEGY
■ Corporate Strategy is primarily about the choice of direction for the firm as a whole.
■ It is important to a firm’s survival and success.
■ Corporate Strategy includes decisions regarding the flow of financial and other resources from a company’s product lines
and business units.
■ Through a series of coordinating devices, a company transfers skills and capabilities developed in one unit to other units
that needs such resources.
■ In this way, it attempts to obtain synergies among numerous product lines and business units so that the corporate whole is
greater than the some of its individual unit parts.

■ Corporate Strategy deals with three key issues:

Contd..
■ Directional Strategy: The firm’s overall
orientation toward growth , stability or
retrenchment.
■ Portfolio Strategy: The Industries or markets in
which the firm competes through its product s
and business units.
■ Parenting Strategy: The manner in which
management coordinates activities , transfers
resources , cultivates capabilities among product
lines and business units.
Directional Strategy
■ A corporation’s directional strategy is
composed of 3 general orientations
(sometimes called grand strategies):
– Growth strategies expand the company’s
activities.
– Stability strategies make no change to the
company’s current activities.
– Retrenchment strategies reduce the
company’s level of activities.
Growth Strategies
Corporate Directional Strategies
GROWTH : Concentration
- Vertical Growth
- Horizontal Growth
: Diversification
- Concentric
- Conglomerate
STABILITY :
- Pause/Proceed with Caution
- No Change
- Profit
RETRENCHMENT:
- Turnaround
- Captive Company
- Sell-Out/Divestment
- Bankruptcy/Liquidation
contd
■ Vertical Growth:
■ Vertical growth can be achieved by taking over a
function previously provided by a supplier or by a
distributor.
■Concentration
The company, in effect, grows by making its own
supplies and/or by distributing its own products.
This may be done in order to reduce costs, gain
control over a scarce resource, guarantee quality
of a key input, or obtain access to potential
customers.
■ This growth can be achieved either internally by
expanding current operations or externally
through acquisitions.
Contd..

■ Vertical growth is a logical strategy for a

corporation or business unit with a strong
competitive position in a highly attractable
industry- especially when technology is
predictable and markets are growing.
Contd..
 Horizontal Growth:
 Horizontal growth can be expanding the firm’s
products into other geographic locations
and/or by increasing the range of products and
services offered to current markets.
 For example, Dell Computers followed a
horizontal growth strategy when it extended its
mail order business to Europe and to China.
Diversification Strategies

Concentric (Related) Diversification:

■ Growth through concentric diversification into a related
industry may be a very appropriate corporate strategy when
a firm has a strong competitive position but industry
attractiveness is low.

Conglomerate (Unrelated) Diversification:

■ When management realizes that the current industry is
unattractive and that the firm lacks outstanding abilities or
skills that it could easily transfer to related products or
services in other industries, the most likely strategy is
conglomerate diversification – diversifying into industry
unrelated to its current one.
International Entry Options

■ Exporting
■ Licensing
■ Franchising
■ Joint Ventures
■ Acquisitions
■ Green-Field Development
■ Production Sharing
■ Turnkey Operations
■ BOT Concept
■ Management Contracts
 Stability Strategies
Pause/Proceed with Caution Strategy:
■A pause/proceed with caution strategy is, in effect, a timeout
– an opportunity to rest before continuing a growth or
retrenchment strategy.
No Change strategy:
■ An any change strategy is a decision to do nothing new – a
choice to continue current operations and policies for the
foreseeable future.
Profit Strategy:
■ A profit strategy is a decision to do nothing new in a
worsening situation but instead to act as though the
company’s problems are only temporary.
Retrenchment Strategies
■ Turnaround Strategy: The turnaround strategy
emphasizes the improvement of operational
efficiency and is probably most appropriate when a
corporation’s problems are pervasive but not yet
critical.
■ Captive Company Strategy: A captive company
strategy is the giving up of independence in exchange
for security. A company with a weak competitive
position may not be able to engage in a full-blown
turnaround strategy.
■ Sell-Out/Divestment Strategy: If a corporation with
a weak competitive position in its industry is unable
either to pull itself up by its bootstraps or to find a
customer to which it can become a captive company,
it may have no choice but to sell out.
Contd..
■ Bankruptcy/Liquidation Strategy: When a
company finds itself in the worst possible situation
with a poor competitive position in an industry
with few prospects, management has only a few
alternatives – all of them distasteful.
■ In contrast to bankruptcy, witch seeks to
perpetuate the corporation; liquidation is the
termination of the firm. Because the industry is
unattractive and the company too weak to be sold
as a going concern, management may choose to
convert as many saleable assets as possible to cash,
which is then distributed to the shareholders after
all obligations are paid.
 PORTFOLIO ANALYSIS
■ One of the most popular aids to developing corporate
strategy in a multibusiness corporation.
■ In portfolio analysis , top management views its product
lines and business units as a series of investments
■ Management expects profitable return from each of
them.
■ Two popular approaches :
■ BCG ( Boston Consulting Group) Growth share Matrix.
■ GE ( General Electric) Business Screen.
BCG GROWTH-SHARE MATRIX

■ Simplest way to portray a corporations portfolio of

investment.
■ Each of the corporation’s product lines or business units is
plotted on the matrix.
■ It is done on the basis of growth rate of the industry &
■ Its relative market share
■ The business growth rate is the percentage of market
growth.
■ Relative market share means the relative competitive
position of a production unit in the industry.
Contd…
■ Common with product life cycle
■ It is categorized into 1 of 4 types for the purpose of
funding decisions
1. Question Marks (also called problem children or
wildcats):
■ New products with the potential for success
■ They need a lot of cash for development.
2. Stars are market leaders typically at the peak of their
product life cycle.
■ They are usually able to generate enough cash to
maintain their high share of the market.
 Contd..
3. Cash Cows : It typically bring in far more money than is
needed to maintain their market share.
■In this declining stage of life cycle, these products are
milked for cash that will be invested in new question marks.
4. Dogs have low market share and do not have potential to
bring in much cash
■As per BCG Growth Share Matrix , dogs should either be
sold off or managed carefully .
Contd..
■ The key to success is assumed to be market share
■ Firms with highest market share tend to be a cost
market leader based on economies of scale
■ Once the product become a star, it is destined to be
very profitable, considering its inevitable future as a
cash cow.
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