THESIS ON

“STRATEGIC
MANAGEMENT”

International Institute of Planning &

Management
(IIPM)
Submitted by:- Submitted to:-
Aakash Tripathi Col. N.R. Vaid
Harneet Singh
Heena Singhla
Mahesh Jagannathan
Mandeep Singh
Nishi Saxena
1
Ronik Dhar
INDEX

Introduction to Strategic Management (Submitted by: Aakash Tripathi, 1450 words)

- Evolution of Strategic Management
- Importance of Strategic Management
Understanding Strategy (Submitted by: Nishi Saxena, 1581 words)
- Strategic Business Unit
- Levels of strategy
- Issues in Strategic Decision Making
- Strategists and their role in Strategic Management (Submitted by: Mandeep Singh, 2689

words)
The Strategic Management Process
- The Strategic Planning Process
- Company Vision and Mission
- Strategic Intent (Submitted by: Heena Singhla, 2557 words)
- Goals and Objectives
- Critical Success Factor
Business Unit Strategic Planning (Submitted by: Mahesh Jagannathan, 1695 words)
- The Business Mission
- The SWOT Analysis
Corporate Level Strategies (Submitted by: Harneet Singh, 1466 words)
- Grand Level Strategy
- Business level strategy
Implementation Strategy (Submitted by: Ronik Dhar, 3297 words)
- Decision Making
- Organization Structure and System
- Social Responsibilities of a Business

2
- Personal Values And Ethics
- Supply Chain Management
- Knowledge Management System

3
 INTRODUCTION TO STRATEGIC MANAGEMENT

The term “STRATEGIC MANAGEMENT” has been used traditionally through new titles such as

Business Policy, Business Policy and Strategic Management, Corporate Strategy and Policy,

Corporate Planning and Policy, and so on. Essentially all are now used extensively and mean more or

less the same concepts and coverage.

Evolution of Strategic Management

In the initial days, typically in early 1920’s till the 1930’s, managers used to do day-to day planning

methods. However, after that, managers have tried ton anticipate the future. They have used tools like

preparation of budgets and by using controls systems like capital budgeting and management by

objectives, and various other tools. However, as these techniques and tools were unable to emphasize

the role of the future adequately.

The next step was to try and use long-range planning, which was soon replaced by strategic

management – a term that is currently being used to describe the process of strategic decision-making.

The first phase, which, can be traced back to the mid-1930’s. Mainly due to the nature of the business

of that period, the way planning was done was on the premise of ad hoc policy-making. The need for

policy making arose, as many of the businesses had just about started operations and were mostly in a

single product line. The ranges of operations were in a limited area. Most of them were catering to a

small and identifiable set of customers. As companies grew, they expanded their products, catered to

more customers and also increased their geographical coverage.

4
The method of using informal control and coordination was not enough and became somewhat

irrelevant as these companies expanded. The expansion brought in complexity and lot of changes in

the external environment. Thus, there was then a need to integrate functional areas. This integration

was brought about by framing policies to guide managerial action. Policies helped to have predefined

set of actions, which helped the people to make decisions. Policy-making became the way owners

managed their business and it was considered their prime responsibility. They later assumed the role of

senior management. Thus, with the increasing environment changes in the 1930’s and 40’s, planned

policy formulation replaced ad hoc policy-making, which shifted the emphasis to the integration of

functional areas in a rapidly changing environment.

As the years progressed , there was more complexity and significant changes in the environment,

especially after the Second World War. This made the management lead through planned policy, as a

way of management, increasingly difficult. Businesses had grown much larger and were targeting

larger markets geographically, serving more number and types of customers and also were

manufacturing and selling more types of products. Competition had also increased with many

companies entering the markets. Policy-making and functional-area integration only did not suffice for

the complex needs of a business. By the 1960s, there was a demand for a critical look at the basic

concept of business, due to increasing competition.

The environment had a crucial role of the business. The effect and relationship of the business with the

environment led to the concept of strategy. This helped the management of managing both the

business and the environment, thus leading to the third phase, based on a strategy paradigm, in the

early sixties.

In the earlier 80’s, the patterns again changed, with many companies going global and also facing

competition from rivals across the world. Japanese companies unleashed a force across the world
5
along with other Asian companies and posed threats for the U.S. and European companies. This led to

the current thinking – which emerged in the eighties. It is on the premise of strategic management.

Strategic Management focus is toward two aspects – first on the strategic process of business and –

second on the responsibilities of general management. Unlike earlier, in this phase the role of the

senior management is vital and utmost importance. Their role would be important in decisions like:

• Whether a company either promotes a joint venture or a new division.

• Or decides to exit or sell some of its business.

• Or decides to go on an expansion.

• Or takes other similar important actions.

All these actions and decisions have a long-term impact on its future operations and status of the

company. They are a result of senior management decision-making. It is the senior management,

which is primarily responsible for charting and deciding the future course of action. As per many

eminent authors and management thinkers, strategic management/business policy is both about the

present and about the future in respect of the following:

• The study of the function and responsibilities of senior management.

• The crucial problems that affect success in the total enterprise.

• The decisions that determine the direction of the organization and shape its future.

• The choice or purposes of the organization and the molding of its character and its identity.

• The mobilization of resources and their allocation.

Managers face a wide variety of choices when looking at the future and thus decisions could be based

on given circumstances, which in their opinion, would take the company in a specific direction. Thus

this could lead to the attaining the planned identity.

6
The Importance of Strategic Management

Strategic Management is wide and encompasses all functions and thus it seeks to integrate the

knowledge and experience gained in various functional areas of management. It enables one to

understand and make sense of the complex interaction that takes place between different functional

areas.

In real life there are constraints and complexities, which strategic management deals with. In order to

develop a theoretical structure of its own, strategic management cuts across the narrow functional

boundaries. This in turn helps to create an understanding of how policies are formulated and also in

creating an appreciation of the complexities of the environment that the senior management faces in

policy formulation.

Managers need to be in control and therefore begin by gaining an understanding of the business

environment. They then can become more receptive to the ideas and suggestions of the senior

management. When they become capable of relating environmental changes to policy changes within

an organization, and what the top management are thinking, managers feel themselves to be a part of a

process, which helps to reduce their feeling of isolation.

Looking at the above let us look at what Indian managers need to do. As per Mr. Kamat of

ICICI, some of the characteristics that the Indian manager will require in the current scenario

will be as follows:

• Managing and understanding Information Technology, which is changing the face of business.

7
• As public and common investors own more and more companies, managers need to be oriented

towards shareholder value. Managers would need to acquire skills to maximize shareholder

value.

• It is essential for managers to foresee the future and track changes in customer expectations

thus take a strategic perspective. Intuitive and conceptual ways using sound reasoning and

logic as well as instinct and perceptions in decision-making would be needed.

• Increasingly the success of companies depends on its people, thus people management would

be a requirement of management. They would have to create capability for initiating and

managing change through leadership and personal qualities of patience, commitment, and

perseverance.

• Due to the rapid changes in the environment and scenarios that the business faces,

responsiveness would be important. Managers would have to provide speedy responses to

environmental changes through information systems and organizational processes.

• As companies are becoming more integrated with public life and their impact on society

increases, corporate governance practices.

• Lateral thinking. Managers would have to learn to deal with chaotic situations and the complex

relationship between decision variables

• Boundaries across business and countries are shrinking. Thus the need for global sensitivity

and experience. Managers have to develop the sensitivity to deal with global managers and

cultural preferences, business protocols, and market conditions.

• As situation become complex and uncertain, managers will need courage in decision-making.

Managers would have to develop the courage to make unconventional decisions.

8
 • Social responsibility. Managers would have to maintain high ethical standards in business and

focus on social responsibility.

Thus we can say that purpose of strategic management is many fold. For success in the business, it is

necessary to have a holistic view and thus the need for integration of knowledge gained in various

functional areas of management. This requires managers, especially senior management. This requires

managers, especially senior management to adopt a generalist approach to problem solving. This

would require understanding the complex inter-linkages operating within an organization through the

use of a system approach to decision – making and relating these to the changes taking place in the

external environment.

9
 UNDERSTANDING STRATEGY

To understand the process of strategic management the concept should be understood and controlled.

The term strategy is derived from the Greek word “STRATEGOS”Generalship .The actual direction

of military force, as distinct from governing its deployment. The word strategy means “THE ART OF

GENERAL”. Based on the studies and views by various experts and management gurus Strategy in

business has taken various connotations.

Stated simply, strategy is a road map or guide by which an organization moves from a

current state of affairs to a future desired state. It is not only a template by which daily decisions are

made, but also a tool with which long-range future plans and courses of action are constructed.

Strategy allows a company to position itself effectively within its environment to reach its maximum

potential, while constantly monitoring that environment for changes that can affect it so as to make

changes in its strategic plan accordingly. In short, strategy defines where you are, where you are

going, and how you are going to get there.

STRATEGY:

1. Before making a decision managers have to look into the course of deciding since

Strategy involves situations like

a) How to face the competition.

b) Whether to undertake expansions/diversification

10
 c) To be focused/ broad based

d) How to chart a turn around

e) Ensuring stability/should we go in for disinvestments etc

2. An establishment and successful company would start to face new threats in the environment.

This is due to its success and emergence of new competitors. It has to rethink the course of

action it has been following. This is called strategy.

3. With such rethinking and environment analysis, new opportunities may emerge and be

identified.

4. To make use of these opportunities, the company might fundamentally rethink and reason the

ways and means, the actions it had been following in the past. These are called “ strategies “.

5. For a company to survive and to be successful strategy is one of the most significant concepts

to emerge in the field of management. According to Alfred chandler the determination of

basic long-term goals and objectives of an enterprise and the adoption of the course of action

and the allocation of resources for carrying out these goals.

William Gluck defines strategy as “a unified, comprehension and integrated plan designed to

assure that the basic objectives of the enterprises are achieved”.

6. Michael Porter views strategy as the “ core of general management is strategy”.

Managers must make companies flexible, respond rapidly, benchmark the best practices,

outsource aggressively, develop core competencies; Infact should know how to play new roles

everyday. Hyper competition is a common phenomenon that rivals copy very fast.

7. Companies can outperform rivals only if it can establish a difference it can preserve and

deliver greater value at a reasonable cost.

11
 8. Strategy rests on unique activities –“The essence of strategy is in the activities – choosing to

perform things differently and to perform different activities than rivals”.

9. Strategy is long term. If company focus is only on operational effectiveness. It can become

good and not better. Overemphasis on growth leads to the dilutions of strategy. Growth is

achieved by deepening strategy.

10. Strategy is the future plan of action, which relates to the companies activities and its

mission/vision i.e. when it would like to reach from its current position.

11. It is concerned with the resource available today and those that will be required for the future

plan of action. It is about the trade off between its different activities and creating a fit among

these activities.

STRATEGIC BUSINESS UNIT

DEFINITION:

“A strategic business unit is a significant organization segment that is analyzed to develop

organizational strategy aimed at generating future business or revenue”.

 Strategic business unit varies from organization to organization.

 In larger organizations, an SBU could be a company division, a single product, or a

complete product line.

 In smaller organizations, it might be the entire company. Although Strategic

business units vary drastically in form they have some common characteristics.

 All Strategic business units are a single business (or collection of businesses), have

their own competitors and a manager accountable for operations, and can be independently

planned for.
12
When a company has different business/portfolio of product, one of the most common will organize

itself will be in the form of strategic business units or SBU s as they are popularly known. In order to

segregate different units or segments, each performing a common set of activities, many companies

are organized on the basis of operating divisions or simply divisions. These divisions may also be

known as profit centers or strategic business unit ( SBUs )

SBU s are normally formed when there are multiple businesses , each which are unique in some way –

either in terms of product , in the customers they serve or in the markets they operate .The division is

such a way that they are involved in a unique way of business ,which can be segregated.

Corporate level

Functional level strategies [Corporate]

SBU 1 SBU 2 SBU 3[SBU Level]

13
 Functional level strategies

LEVELS OF STRATEGY

1. When a company performs different business/ has portfolio of products, the company will

organize itself in the form of strategic business units (SBU’s).

2. In order to segregate different units each performing a common set of activities, many

companies are organized on the basis of operating divisions/decisions. These are known as

strategic business units.

CORPORATE LEVEL

FUNCTIONAL LEVEL STRTEGIES [CORPORATE]

SBU1 SBU2 SBU3 (SBU LEVEL)

FUNCTIONAL LEVEL STRATEGIES

14
3) Strategies are looked at:

 CORPORATE LEVEL

 STRATEGIC BUSINESS LEVEL

4) There exists a difference at functional levels like marketing, finance, productions etc. Functional

level strategies exist at both corporate and SBU level. It has to be aligned and integrated.

5) CORPORATE LEVEL STRATEGY: It’s a broad level strategy and all its plan of actions

is at corporate level i.e. what the company as a whole. It covers the various strategies performed by

different SBU’s. Strategies needs should be in align with the company objective.

6) Resources should be allocated to each SBU and broad level functional strategies. To ensure things

there would need to have co-ordination of different business of the SBU’s.

7) For most companies strategies plans are made at 3 levels.

a) FUNCTIONAL STRATEGY

b) SOCIETAL STRATEGY

c) OPERATIONAL STRATEGY

d) FUNCTIONAL STRATEGY:

As the SBU level deals with a relatively. Smaller area that provides objectives for a specific function

in that SBU environment are marketing, finance, production, operation etc.

SOCIETAL STRATEGY:

15
Larger Companies like conglometers with multiple business in different countries needs larger level

strategy.

1) A relatively smaller company may require a strategy at a level higher than corporate level.

2) It’s how the company perceives itself in its role towards the society/ even countries in terms of

vision/ mission statement/ a set of needs that strives to fulfill corporate level strategies are then

derived from the societal strategy.

OPERATIONAL STRATEGY:

In the dynamic environment & due to the complexities of business strategies are needed to be set at

lower levels i.e. one step down the functional level, operational level strategies.

There are more specific & has a defined scope. E.g. Marketing Strategy could be subdivided into sales

Strategies for different segments & markets, pricing, distribution etc.

Some of them may be common & some unique to the target markets.

It should contribute to the functional objectives of marketing function. These are interlinked with other

strategies at functional level like those of finance, production etc.

16
MISSION/VISION LEVEL

CORPORATE LEVEL

FUNCTIONAL LEVEL STRATEGIES [CORPORATE]

SBU1 SBU2 SBU3 (SBU LEVEL)

FUNCTIONAL LEVEL STRATEGIES

17
 OPERATIONAL LEVEL

 Corporate level is divided from the societal level strategy of a corporation.

 S.B.U Level are put in to action under the corporate level strategy.

 Functional Strategies operate under SBU Level.

 Operational Level is derived from functional level strategies.

ISSUES IN STRATEGIC DECISION-MAKING

1. While making a decision the company might have different people at different periods of time.

2. Decision requires judgments; a personal related factors are important in decision-making.

Hence decision ma y differs as person change.

3. Decisions are not taken individually, but often there is a task in decisions which could be

Individual Vs Group decision making. There will be a difference between the individual and

group decision-making.

4. On what Criteria a company should make its decision, for evaluation of the efficiency &

effectiveness of the decision making process, a company has to set its objectives which serves

as main bench mark.

5. A Company would need to decide on what criteria it should make its decision.Thus it need a

process of objective setting, which serve as benchmarks for evaluation of the efficiency and

effectiveness of the decision making process.

18
 There are three Major Criteria in decision Making are

a. The concept of Maximization.

b. The concept of satisfying.

c. The concept of instrumentalism.

Based on the concept chosen the strategic decisions will differ.

6. Generally decision-making process is logical and there will be rationality in decision-making.

7. When it comes to Strategic decision making point of view there would be proper evaluation &

then exercising a choice from various available alternative resource , which leads to attain the

objectives in a best possible way.

8. Creativity in decision-making is required when there is a complete situation & the Decision

taken must be original & different.

9. There could be variability in decision-making based on the situation & Circumstances

Strategists and their role in strategic management

The senior management is involved in strategic management. Let us look at the role of each briefly.

1. Role of board of directors-

They are the supreme authority in the company, who represent the owners/shareholders, sometimes

lenders. They are supposed to direct and are responsible for the governance of the company. The

Companies Act and other laws also bind them and their actions. The board though is supposed only to

direct, they do get involved in a lot of operational issue also. Professionals on the BOD help to get new

perspectives and provide guidance. They are the link between the company and the environment.

2. Role of Chief Executive Officer-

19
 The most important strategist and responsible for all the aspects right from formulation /

implementation to review of strategic management. The CEO is chief architect of organizational

purpose, the leader and builder, motivator and mentor. CEO is the link between the company and the

BOD and also is responsible for managing the external environment and relationships.

3. Role of Entrepreneurs-

They are the ones who start new business, are independent in thought and action. Often even

internally, a company could promote the entrepreneurial sprit. Thus this view and attitude can also be

inside an organization. Often they provide a sense of direction and are active in implementation.

4. Role of senior management-

They would either look after strategic management as responsible for certain areas or as a part of

teams and are answerable to the BOD and the CEO.

5. Role of SBU-level executives-

They would be more focused on their product line/business and also on co-ordinate with other SBU

and with senior management. They would be more in the implementation role.

6. Role of corporate planning staff-

Would normally provide administrative support, tools and techniques and be a co-ordinates function.

7. Role of consultant-

Often consultants may be hired for a specialized new business or expertise or even to get an unbiased

opinion on the business and the strategy.

8. Role of middle level managers-

20
They are the vital link in strategizing and implementation. Though they are not actively involved in

formation of strategy, they are often developed to be the future top management.

THE STRATEGIC MANAGEMENT PROCESS

Definitions of strategic management.

Glueck

Strategic management is a stream of decisions and action that lead to the development of an affective

strategy or strategies to help achieve corporate objective.

Ansoff

Strategic management is the systematic approach to a major and increasingly important responsibility

of general management to position and relate the firm to its environment in a way that will assure its

continued success and make it secure from surprises.

Sharplin

Strategic management is the formulation and implementation of plans and carrying out of activities

relating to the matters which are of vital, pervasive or continuing importance, to the total organization.

21
Hofer

Strategic management is a process, which deals with the fundamentals organizational renewal and

growth with the development of strategies, structures and systems necessary to achieve such renewal

and growth, and with the organizational systems needed to effectively manage the strategy formulation

and implementation process.

The simple process is as follows:

COMPANY VISION &MISSION/ REQUIREMENTS

OF MAJOR STOCK HOLDERS STRATEGIC
INTENT

EXTENAL & INTERNAL ANALYSIS /

SWOT ENVIRONMENT ANALYSIS

DEFINE STRENGTHS/WEAKNESS/ CORE

COMPENTENCIES

GENERATE STRATEGIC ALTENATIVES/

EVALUATE & SELECT

IMPLEMENT/ FEEDBACK/CONTROL

22
So from the definitions of strategic management, we see that,

• It is a process.

• Leads to formulation of strategy or set of strategy.

• Managing the organizational systems.

• For achievement of mission, vision, goals and objectives.

• There is the relation between organization and the environment.

• Environment management is necessary for success.

• Satisfaction of stakeholder is important.

• Learning is needed.

The strategic planning process

The component tasks of strategic planning are:

1. Clarifying the mission of the corporation

This is the first task of the strategic planning process. The mission is the expression of the

corporate intent. The mission justifies the organization and legitimizes the corporate’s role in the

society. It tells insiders and outsiders what the corporate stand for. The mission would carry the

grand design of the firm and communicate what it wants to be. It will indicate broadly the

businesses it will be in and out the customer needs it seeks to satisfy. The mission is shaped by the

capabilities and vision of the corporation’s leaders.

Defining the business

23
This is a pre-requisite for selecting the right opportunities and steering the firm on the correct path.

For formulating the strategy too, the proper definition of the business is essential. For environment

study and search, the business in which it operates should be defined clearly.

2. Surveying the environment-External and internal

This is central to strategic planning. Basically a firm gathers all relevant information relating to the

environment and analyzes them in detail. It analyses the macro-environmental factors as well as

environmental factors that are specific to the business concerned. Under the macro-environmental

factors, it studies the demographic, socio-cultural, economics, political and legal environment.

Business specific environment factors include emerging trends in the industry, structure of the

industry, nature of the competition and the scope for invasion by substitute products.

Internal appraisal of the firm

This the process of assessing the corporation’s capabilities and resources, strengths and

weaknesses, core competencies and competitive advantages. The firm also has to examine which

of its perceived strengths actually constitutes the competitive advantage for the firm. The firm

compares itself against the competition and develops its competitive advantage profile (cap). The

process of internal appraisal also throws up the capability gaps of the firm; ie. The gap between its

existing capabilities and the needed capabilities for trapping the opportunities spotted through the

environmental survey.

3. Generate strategic alternatives, evaluate and select – setting the corporate

objectives
24
The main task in setting the corporate objectives is to decide the extent of the growth the firm

wants to achieve. Balancing the opportunities with organization’s capabilities and ambitions, the

firm figures out its growth objectives. In addition to growth, there are certain other key

determinants of corporate success, which apply to other firms: profitability, productivity,

technology, competitive position, human resources, social responsibility and corporate image. The

objectives are set in measurable and time bound manner.

4. Formulating the corporate strategy

The most crucial task is formulating the corporate strategy. The effectiveness of the entire strategic

planning process of a firm is tested and proved by the effectiveness of the corporate strategy it

chalks out. While the objectives clarify where the firm wants to go, the strategy provides the

design to getting there. The main function of the corporate strategy is to provide strategic direction

to firm. It is corporate strategy that ensures the fit between the firm and its environment. It finally

sets the pace of the corporation’s total growth, and thereby it’s future and overall prospects. It can

be stated that primary corporate strategy denotes the firm product market posture. It is the route

map chosen for navigating the firm through all the fluctuations and turbulence the firm may face.

5. Implement, monitoring, feedback and control of the strategy

The strategy has to be monitored and adjustments that become necessary have to be brought.

Essentially the thing had to be compatibility of the strategy with the environment as well as

internal realities.

Company vision and mission

These terms are often misunderstood. Typically a vision is what a company wishes to become or

aspires to be and mission is what the company is and why it exists.

25
Jerry Porras and James Collins in their book-“Built to Last..” have given a good framework for

developing a vision and a mission. They divide this into two part-core ideology and envisioned

future. Core ideology is the unchanging part of the organization, its character. It would not change

for a long time, even if it were a disadvantage. Envisioned future is a goal to be reached.

Core ideology in turn has two components, core values and core purpose.

Core value

The core values are the few values that are central to the firm. Core values reflect the deeply held

values of the organization and are independent of the current industry environment and

management fads.

One way to determine whether a value is a core value to ask whether it would continue to be

supported if circumstances changed and caused it to be seen as a liability. If the answer is that it

would be kept, then it is core value. Another way to determine which values are core is to imagine

the firm moving into a totally different industry. The values that would be carried with it into the

new industry are the core value of the firm.

26
Core value will not change even if the industry in which the company operates changes. If the

industry changes such that the core values are not appreciated, then the firm should seek new

markets where its core values are viewed as an asset.

For example, if innovation is a core value but then 10 years down the road innovation is no longer

valued by the current customer, rather than change its values the firm should seek new markets

where innovation is advantageous.

The following are a few examples of values that some firms has chosen to be in their core:

Excellent customer service- Pioneering technology – Creativity – Integrity – Social responsibility.

Core purpose

The core purpose is the reason that the firm exists. The core purpose is expressed in a carefully

formulated mission statement. Like the core values, the core purpose is relatively unchanging and

for many firms endures for decades or even centuries. This purpose sets the firm apart from the

other firm in its industry and sets the direction in which the firm will proceed.

The core purpose is an idealistic reason for being. While firm exist to earn profit, the profit motive

should not be highlighted in the mission statement since it provides little direction to the firm’s

employee. What is more important is how the firm will earn its profit since the “how” is what

defines the firm.

Initial attempts at stating a core purpose often result in too specific of a statement that focuses on a

product or service. To isolate the core purpose, it is useful to ask “why” in response to first-pass,

product-oriented mission statement. For example, if a market research him initially states that its

purpose is to provide market research data to its customers, asking “why” leads to the fact that the

data is to help customers better understand their markets. Continuing to ask “why” may lead to the

27
revelation that the firm’s core purpose is to assist its clients in reaching their objectives by helping

them to better understand their market.

The core purpose and value of the firm are not selected- they are discovered. The stated ideology

should be a goal or aspiration but rather, it should portray the firm as it really is. Any attempt to

state a value that is not a already held by the firm’s employees is likely not to be taken seriously.

Most visionary goals fall into one of the following categories:

Target: quantitative or qualitative goals such as a sales target or ford’s goal to “democratize the
automobile”.

Common enemy: centered on overtaking a specific firm such as the 1950’s goal of Philip

Moris to displace RJR.

Role model: to become like another firm in different industry or market. For example, a cycling

accessories firm might strive to become “the NIKE of the cycling industry.”

Internal transformation: especially appropriate for very large corporations. For example, GE

set the goal of becoming number one or number two in every market it serve.

While visionary goals may require significant stretching to achieve, many visionary companies

have succeeded in reaching them. Once such a goal is reached, it needs to be replaced; otherwise,

it is unlikely that the organization will continue to be successful. For example, ford succeeded in

placing the automobile within the reach of everyday people, but did not replace this goal with a

better one and general motors overtook ford in the 1930’s.

Microsoft-

Vision ‘Empower people through great software anytime, any place, and on any device.’(1990)

Intel-

28
“Our vision: Getting a billion connected computer worldwide, million servers, and a trillion of

dollar of e-commerce. We are vision- catalyst the chemical reaction, the starter motor that kicks

the high performance engine to life. Key to action, implementation and result- the paintbrush that

gives the subsequent strategy shape, form and purpose.”

Benefits of a Vision

A vision helps to create a common identity for the entire company and helps to develop a shared

sense of purpose. It helps to bond the employee together. They are usually inspiring. Because they

are futuristic, they encourage looking far ahead into the future. Thus they also foster risk taking,

and focus on building skills and competencies to achieve the vision. It gives the direction of where

the company wants to go.

Characteristics of a mission statement

A mission as defined by the peter Drucker says that mission is stating what a company will be,

why it exists. So it is the reason for the existence of the organization. So the mission should be

feasible, realistic and achievable. Tisco wanted to become the world’s lowest cost producer.

Mission should be clear and precise, so the employees have clarity on what to achieve.

Key elements in developing a mission statement:

Three key elements must be taken into account in developing mission statements:

1. History of the organization: critical characteristics and events of the past must be considered in

formulating and developing a mission statement.

2. Organization’s distinctive competencies: the organization should seek to do what it does best.

Once this has been determined, it can incorporate its competency into the mission statement.

29
 3. The organization environment: the management should identify the opportunity provided and

threats/challenges posed by the environment before formulating a mission statement.

Characteristics/Features of mission statement:

Market focus rather than product focus: customer are a key factor in determining an

organization’s mission

Achievable: the mission statement should realistic/feasible i.e. it should be practically achievable.

Motivational: a well defined mission provides a shared sense of purpose.

Specific: the mission statement should be precise and specific and provide direction and guidelines

for management’s choices between alternative courses of action.

Clear: the mission statement should be stated in clear terms.

Distinctive: the mission statement of one organization should be different from those of similar

organization.

Indicate major components of strategy objectives: the mission statement without the objectives

and strategies is incomplete.

Achievement of the policies: the mission statement of organization’s should include major

policies they plan to follow in the pursuit of their mission.

Function of a mission statement:

1. It should define what the organization is and what the organization aspires to be.

2. It should be limited enough to exclude some ventures and broad enough to allow for

creative growth.

3. It should distinguish a given organization from all others.

4. It should serve as a framework for evaluating both current and prospective activities.

30
 5. It should be stated in terms sufficiently clear to be widely understood throughout the

organization.

Need for a written mission statement:

1. To ensure unanimity of purpose within the organization.

2. To provide a basis for motivating the use of organization resources.

3. To develop a basis, or standard for allocating organizational resources.

4. To establish a general tone or organizational climate.

5. To serve as a focal point for those who can identify with the organization’s purpose and

direction.

6. To facilitate the translation of objectives and goals into a work structure involving the

assignment of tasks of responsible elements within the organization.

Contents of mission statements

1. Company product or serve : identifies the goods or services produced by the

organization.

2. Market: describe the markets and customers that the organization intends to serve.

3. Technology: techniques and processes by which the company produces goods

and/or renders services.

4. Philosophy/core values: a statement of organizational philosophy commonly

appears as part of the mission statement. It reflects the basic belief and values that should guide the

organizations business.

31
 5. public image: mission statement normally contain some reference to the type of

impression that the organization wants to leave with its public.

STRATEGIC INTENT

To develop an effective strategy- you need to have strategic intent. Invariably- companies look at

competition traditionally- i.e. focus on existing position & recourses, rather than at the resourcefulness

of competition and their pace at which they building competencies. Accessing the current tactical

advantages of known competitors will not help to understand the resolution, stamina and inventiveness

of potential competitors.

Strategic intent envisions a desired leadership position and establishes the criterion the organization

will chart its progress – it is simply something more than just unfettered ambition. It captures the

essence of winning and is stable over time. It sets a target that requires personal effort and

commitment and also a bit of luck- it is not a soft target. The important question that companies ask is

not “How will next year be different?” – but they ask, “What must we do differently next year to get

closer to our strategic intent?” Most companies look at change and innovation in isolation – i.e. try and

keep a few people isolated and let them free – but real innovation comes from everywhere – top

management role is to add value.

Strategic intent is clear about the ends, but flexible about the means- it leaves room for improvisation

and creativity and the top management gives the direction. The difference is recourse as a constraint

versus resources as leverage. In both, it is implicit that there must be balanced in the scope so as to

reduce risk. In the first you do it through building a balanced portfolio of cash generating and cash

consuming business, in the order you ensure a well balanced and sufficiently broad portfolio of

advantages.

32
Strategic intent implies a sizeable for an organization. Current capabilities and resources will not

suffice. This will force inventiveness to make the most of existing resources. It will create a sense of

urgency and force a competitor focus at all levels through widespread use of competitive intelligence.

The competitor will invest and train employees with the skills they need to work effectively. The

management will keep on invoking challenges, but also not overwhelm the employees with

unreasonable pressures and demands. They give the organization time to digest one challenge before

launching another challenge. There are clear milestones, which are communicated without any

ambiguity and also review mechanisms to monitor the milestones.

One important parameter is reciprocal responsibility. Invariably in bad times, the blame I put at the

operating levels- i.e. the workers and juniors managers would lose their jobs, take pay cuts, etc., but in

the good times it is the top management which would take the credit and reward themselves with hefty

bonuses, increased salaries, etc. but reciprocal responsibility means equal blame and credit. It goes a

long way in building credibility and motivation. Instead of attacking competitors blindly and taking

them head-on, companies must leverage their recourses.

Thus they look for ways to build competitive innovation. The first common way is to build layers of

advantage- i.e. to build on strengths and apply them to the next/adjoining process and improve the

links and keep on extending it. The next way is to search for loose bricks- clusters of business, groups

of customers that competition has ignored/not noticed – gap in the market waiting to be exploited that

gives you a foothold in the market. Quite often changing the rules of engagement help as it puts the

entire way of doing business into a fresh perspective. You can start on relatively equal footing rather

than being at a disadvantage. Sometimes you compete with collaborations, instead of a straight fight.

There is a similarity like in judo – you may be small - but you can use the size of your rivals against
33
them. This mapping implies a new view of strategy. It ensures consistency in resources allocation in

the long run, focuses efforts in the medium term and reduces risk in the short run. Quite often blindly

following the leader or playing by the industry leader’s rule is competitive suicide.

Companies with good strategic intent know the importance of documenting failure - but instead of

blame fixing and nailing people- they are more interesting in the management reasons and the

orthodoxy that may have led to the failure. Sounds simple but some how not practiced. In bad times

the simplest way is to sell a business doing badly. This is the common method, but then you hand over

markets and profits on a platter to the competition. The challenge is to survive and turn around and

also to find niches within the market and create new spaces uniquely suited to the strengths, space that

quite off the map.

Today for practically all companies, the threat is global and diverse, even industry boundaries are

becoming blurred. Typical competition as understood is being redefined and unlikely competitors are

coming up. But this also has the positive spill off- in the sense that even opportunities are larger and

global. Typical SBU structure through helpful may prove to be a constraint in such conditions. The

reasons are that it could narrowly divide resources and thus loose their leverage and flexibility.

One of the dangers that companies impose on themselves is a belief that, if an executive is out through

a lot of career moves fast - it would help him to be better person. But in the industry where the amount

of knowledge and expertise required is very vast – this may be counterproductive. The managers may

lack the deep strength required in their areas. Thus there could be tendency for “denominator

management”. Most companies would appraise their managers on the basis of some ratios and

financials. These measures would have a numerator – typically turnover/sales – i.e. the figures

showing the position externally. The denominator would be costs, profits, and mainly internal
34
parameters. To show better results – there is a short cut available which is tempting – i.e. focus on the

internal parameters – so restructure – cut costs – and do things that may hurt a company.

Looking at the denominator may bring short-term results, but there may be serious long-term

sacrifices. So unless a company does both simultaneously – focus in increasing the numerator and also

focus on reducing the denominator, there could be a serious problem in the future. It would lead to a

downward spiral, as again when the next problem occurs, you look inward and shrink again and again

till finally somebody else gobbles you up. Thus in many situations, managers follow a code of silence,

ignoring the signals send and keeping silent. It is better to bring the problems to the surface and

discuss them, rather than increase the level of anxiety, which everybody knows of.

Thus strategic intent is what the organization strives for, Komatsu wanted to “Encircle Caterpillar” in

the earthmoving business. Carbon wanted to “Beat Xerox”. These are some of the strategic intents. It

is an obsession with an organizing – an obsession with having ambitions that may even be out of

proportion to their existing resources and capabilities. This obsession is to win at all levels of the

organization which sustaining that obsession in the quest for global leadership.

STRETCH, LEVERAGE AND FIT

To achieve strategic intent - you need to Stretch. As of today there is a misfit between resources and

aspirations. So instead of looking at resources, you will look at resourcefulness. To achieve you will

stretch and make innovation use of your resources.

This leads to leveraging your resources. Leverages refers to concentrating your resources to your

strategic intent, accumulating learning, experiences and competencies, in manner that a source

35
resource base can be stretched to meet the aspirations that an organizational resources to its

environment.

The strategic fit is the traditional way of looking of strategy. Using techniques such as SWOT

analysis, which are used to assess organizational capabilities and environmental opportunities,

Strategy is taken as a compromise between what the environment has got to offer in terms of

opportunities and the counter offer that the organization makes in the form of its capabilities.

Under fit, the strategic intent is conservative and seems to be more realistic, buy you may not be aware

of the potential; under stretch and leverage it could be improbable, even idealistic, but then you look at

something far beyond present possibilities and look at the potential possibilities.

Goals and objectives

Goals are targets than an organization hopes to/ wants to accomplish in a future oerios of time. Goals

are clear and unambiguous and often an organigation sets a combination of goals, financial and non-

financial, quantitative and qualitative. Goals are more on an organizational level and thus in this sense

they are broad in nature. So an organization could set goals on turnover, profit, returns on assets/

equity, it could also have market share, customer satisfaction, employee satisfaction, etc as goals. The

important thing to remember is that too many goals can be confusing and can often lead to

contradictions. So goals should be limited and manageable, clear and consistent with each other.

Objectives are the ends that state specifically how the goals shall be achieved. They are concrete and

specific in contrast to goals, which are generalized at the wide level.

Role of objectives

Objective are set, and in a way they define what the organization has to achieve for its employee,

shareholder, customer, etc. since objectives are set with the environment in mind they define its

36
relationship with its environment. This consistency helps the organization to pursue its vision and

mission. Objective become the basis for strategic decision making, as the right strategies need to be

formulated and implemented for achieving the objectives. Objectives are the invariable quantitative.

Characteristics of objectives

In order that objectives be understood, so that the employee will be able to pursue them, objectives

should have the following characteristics

1. Understandable.

2. Have a clearly defined time frame.

3. Concrete and specific.

4. Actionable

5. Measurable

6. Controllable

7. Challenging, not easily achievable.

8. Correlate with different objectives.

Factor to be considered objective-setting

When setting objectives the following factors need to carefully evaluated

Specificity-they should be specific for the level at which they are being set. If they are too broad,

they will be confused with goals and if too narrow, will be confused with targets.

Multiplicity-Objectives invariably are for different performance areas, hence they need to be

multiplicity of objectives.

37
 Periodicity-Need to be formulated for different time frames, typically short term, medium term

and long term and should linked and consistent.

Verifiability-Ability to check whether achieved or not is important. Thus need the right measures

for quantification.

Environment-are the objective taking into account the environment. Also need to check whether

they are fulfilling the needs of the stakeholder in the business, like customers, shareholders,

employees, suppliers, etc.

Reality-are the objectives looking at the reality of the organization’s resources and internal

constraints, including politics and power relationships.

CRITICAL SUCCESS FACTOR

Critical success factor (CSFs) are sometimes referred to as strategic factors or key factors for success.

These are those factors, resources, skills, etc, which are required for success and hence are crucial for

the organization. CSFs ( or key factors for success) should be treated as a basic business strategy for

competing wisely in any industry. For example, a company in the consumer durable industry should

have a very good distribution channel and good market coverage. Without this, the company will not

have greater success in the market.

Policies:-

Policies are also plans but they are general statements or understanding, which guide thinking in

decision-making. Not all policies are “statements”; they often are merely implied from the actions of

managers. The president of a company, for example, may strictly follow-perhaps for convenience – the

practice of promoting from within; the practice may then be interpreted as a policy and carefully

followed by subordinates. Thus policies define an area within which a decision is to be made and

38
ensure that the decision will be consistent with, and contribute to, an objective. Policies help decide

issues before they become problems, make it unnecessary to analyze the same situation every time it

come up, and unify other plans. Policies ordinarily exist at all organization, ranging from major

company policies to minor policies applicable to smallest segment of the organization. There are many

types of policies. Examples include policies of hiring only university-trained engineers or of

encouraging employee suggestions for improved cooperation, promoting from within, setting

competitive prices etc.

Since policies are guides to decision making, it follows that they must allow for some discretion.

Otherwise they would be rules.

Procedures:-

Procedures are plans that establish a required method of handling future activities they are guides to

action, rather than to thinking, and they detail the exact manner in which certain activities must be

accomplished. They are chronological sequences of required actions. Procedures often cut across

department lines. For example, in a manufacturing company, the procedure for handling orders will

involve sales department (for the original order), the production department (for the order to produce

goods or authority to them from stock), the accounting department (for recording the transaction).

There, however exists a relationship between procedures and policies. Company policies may grant

employee vacation; procedures to implement this policy will provide for scheduling vacations to avoid

disruption of work, setting methods and rates of vacation pay, maintaining records to assure each

employee of a vacation and spelling out means for applying for the vacation.

Rules:-

39
Rules spell out specific actions or non-actions, allowing no discretion. A procedure might be looked

upon as sequence of rules. For example, a procedure governing the handling of orders may

incorporated the rule that all orders must be confirmed the day they are received. This rule allows no

deviation from a stated course of action and in no way interferes with the rest of the procedures for

handling orders. The essence of a rule is that it reflects a managerial decision that some certain action

must or must not be taken.

Programs:-

Programs are combination of goals, policies, procedures, rules, task assignment steps to be taken,

resources to be employed, and other elements necessary to carry out a given course of action. They

may be as major as an airline’s program for acquiring a $400 million fleet of jets or the 5-year

program embarked upon by the Ford Motor Company several years ago to improve the status and

quality of thousands of its foremen. A primary program may call for many supporting programs and

may require many supporting programs. Consider a program for an airport updation. A program for

providing the maintenance and operating bases with spare parts and components. Special maintenance

facilities must be prepared and maintenance personnel trained. Pilots and flight engineers must also be

trained, flight personnel must be recruited. Advertising programs must give adequate publicity to the

new service.

Budgets:-A budget is a statement of expected results expressed in numerical terms. It may be

referred to as a “numberized” program. Budget is often called a “profit plan”. Although a budget

usually implements a program, it may in itself be a program. One company in difficult financial straits

installed an elaborate budgetary control program designed not only to control expenditures but also

instill cost consciousness in management. Infact, one of the major advantages of budgeting is that it

makes people plan, because a budget is in the form of numbers, it forces precision in planning.
40
 BUSINESS UNIT STRATEGIC PLANNING

The business unit strategic-planning process consists of the steps given below. We examine each step

in the sections that follow.

The Business Mission

41
Each business unit needs to define its specific mission within the broader company mission. Thus, a

television studio-lighting-equipment company might define its mission as, "The Company aims to

target major television studios and become their vendor of choice for lighting technologies that

represent the most advanced and reliable studio lighting arrangements." Notice that this mission does

not attempt to win business from smaller television studios, win business by being lowest in price, or

venture into nonlighting products.

Powerful sample mission statements

PEPSI - "Beat Coke"

HONDA - "We will crush, squash, and slaughter Yamaha"

NIKE - "Crush Reebok"

Older sample mission statements that is quite grandiose in scale

Wal-Mart (1990) "Become a $125 billion company by the year 2000"

Sony (1950's) "Become the company most known for changing the worldwide poor-quality image of

Japanese products"

Boeing (1950) "Become the dominant player in commercial aircraft and brings the world into the jet

age"

Ford Motor Company (early 1900's) "Ford will democratize the automobile"

One-line sample mission statements

Wal-Mart "To give ordinary folk the chance to buy the same thing as rich people."

Mary Kay Cosmetics "To give unlimited opportunity to women."

3M "To solve unsolved problems innovatively"

42
But notice how these one-line samples are supported by value statements that show how the mission

will be accomplished and measured.

Merck "To preserve and improve human life."

• Corporate social responsibility

• Unequivocal excellence in all aspects of the company

• Science-based innovation

• Honesty & integrity

• Profit, but profit from works that benefits humanity

• Walt Disney "To make people happy."

• No cynicism

• Nurturing and promulgation of "wholesome American values"

• Creativity, dreams and imagination

• Fanatical attention to consistency and detail

• Preservation and control of the Disney "magic"

Keys to a Meaningful Mission Statement

43
 • Pass the Mother Test: A mission statement must be a concise paragraph describing what your

company does and for whom. Show your mission to your mother, if she does not understand it,

start again.

• Self-Igniting: Your mission is for you and your business. It does not have to be an earth

moving statement. It can be whatever inspires you.

• Value Alignment: Forget the money. A meaningful mission goes beyond the dollars and cents.

If your small business is creative, focus your mission on creativity. Try to be what your core

competency is.

Sample Mission Statements:

The Elephant Sanctuary: "A Natural-Habitat Refuge Where Sick, Old and Needy Elephants Can Once

Again Walk the Earth in Peace and Dignity." One powerful statement that evokes emotion and instant

attachment to the cause of this organization.

Sun Microsystems: "Solve complex network computing problems for governments, enterprises, and

service providers." A simple mission statement identifying who their market is and what they do.

Writing a Mission Statement

Your mission statement is an opportunity to define your business at the most basic level. It should tell

your company story and ideals in less than 30 seconds: who your company is, what you do, what you

stand for, and why you do it.

Do you want to make a profit, or is it enough to just make a living? What markets are you serving, and

what benefits do you offer them? Do you solve a problem for your customers? What kind of internal

work environment do you want for your employees? All of these issues may be addressed in a mission

statement.

44
Basic guidelines in writing a mission statement

Your mission statement is about you, your company, and your ideals. Read other companies’

mission statements, but write a statement that is about you and not some other company. Make sure

you actually believe in what you’re writing; your customers and your employees will soon spot a lie.

Don’t “box” yourself in. Your mission statement should be able to withstand the changes that come

up over time in your product or service offerings, or customer base. A cardboard box company isn’t in

the business of making cardboard boxes; it’s in the business of providing protection for items that need

to be stored or shipped. The broader understanding helps them see the big picture.

Keep it short. The best mission statements tend to be three to four sentences long.

Ask for input. Run your mission statement draft by your employees. It should be clear and easily

understood.

Aim for substance, not superlatives. Avoid saying how great you are, what great quality and what

great service you provide.

How to Write Your Mission Statement

Answering the following questions will help you to create a verbal picture of your business's mission:

• Why are you in business? What do you want for yourself, your family and your customers?

Think about the spark that ignited your decision to start a business. What will keep it burning?

• Who are your customers? What can you do for them that will enrich their lives and contribute

to their success--now and in the future?

• What image of your business do you want to convey? Customers, suppliers, employees and the

public will all have perceptions of your company. How will you create the desired picture?

45
 • What is the nature of your products and services? What factors determine pricing and quality?

Consider how these relate to the reasons for your business's existence. How will all this change

over time?

• What level of service do you provide? Most companies believe they offer "the best service

available," but do your customers agree? Don't be vague; define what makes your service so

extraordinary.

• What roles do you and your employees play? Wise captains develop a leadership style that

organizes challenges and recognizes employees.

• What kind of relationships will you maintain with suppliers? Every business is in partnership

with its suppliers. When you succeed, so do they.

• How do you differ from your competitors? Many entrepreneurs forget they are pursuing the

same dollars as their competitors. What do you do better, cheaper or faster than other

competitors? How can you use competitors' weaknesses to your advantage?

• How will you use technology, capital, processes, products and services to reach your goals? A

description of your strategy will keep your energies focused on your goals.

SWOT Analysis

The usefulness of SWOT analysis is not limited to profit-seeking organizations. SWOT analysis may

be used in any decision-making situation when a desired end-state (objective) has been defined.

Examples include: non-profit organizations, governmental units, and individuals. SWOT analysis may

also be used in pre-crisis planning and preventive crisis management. SWOT analysis may also be

used in creating a recommendation during a viability study/survey.

46
The overall evaluation of a company's strengths, weaknesses, opportunities, and threats is called

SWOT analysis. It involves monitoring the external and internal marketing environment.

EXTERNAL ENVIRONMENT (OPPORTUNITY AND THREAT) ANALYSIS A business unit

has to monitor key macro environment forces (demographic-economic, natural, technological,

political-legal, and social-cultural) and significant microenvironment actors (customers, competitors,

suppliers, distributors, dealers) that affect its ability to earn profits. The business unit should set up a

marketing intelligence system to track trends and important developments. For each trend or

development, management needs to identify the associated opportunities and threats.

A major purpose of environmental scanning is to discern new opportunities. In many ways, good

marketing is the art of finding, developing, and profiting from opportunities. A marketing opportunity

is an area of buyer need and interest in which there is a high probability that a company can profitably

satisfy that need. There are three main sources of market opportunities. The first is to supply something

that is in short supply. This requires little marketing talent, as the need is fairly obvious. The second is

to supply an existing product or service in a new or superior way. There are several ways to uncover

possible product or service improvements: by asking consumers for their suggestions {problem

detection method); by asking consumers to imagine an ideal version of the product or service {ideal

method); and by asking consumers to chart their steps in acquiring, using, and disposing of a product

{consumption chain method). The third source often leads to a totally new product or service.

The usefulness of SWOT analysis is not limited to profit-seeking organizations. SWOT analysis may

be used in any decision-making situation when a desired end-state (objective) has been defined.

47
Examples include: non-profit organizations, governmental units, and individuals. SWOT analysis may

also be used in pre-crisis planning and preventive crisis management. SWOT analysis may also be

used in creating a recommendation during a viability study/survey.

LIMITATIONS OF SWOT ANALYSIS

One major problem with the SWOT analysis is that while it emphasizes the importance of the four

elements associated with the organizational and environmental analysis, it does not address how the

company can identify the elements for their own company. Many organizational executives may not

be able to determine what these elements are, and the SWOT framework provides no guidance. For

example, what if a strength identified by the company is not truly strength? While a company might

believe its customer service is strong, they may be unaware of problems with employees or the

capabilities of other companies to provide a higher level of customer service. Weaknesses are often

easier to determine, but typically after it is too late to create a new strategy to offset them. A company

may also have difficulty identifying opportunities. Depending on the organization, what may seem like

an opportunity to some may appear to be a threat to others. Opportunities may be easy to overlook or

may be identified long after they can be exploited. Similarly, a company may have difficulty

anticipating possible threats in order to effectively avoid them.

While the SWOT framework does not provide managers with the guidance to identify strengths,

weaknesses, opportunities, and threats, it does tell managers what questions to ask during the strategy

development process, even if it does not provide the answers. Managers know to ask and to determine

a strategy that will take advantage of a company's strengths, minimize its weaknesses, exploit

opportunities, or neutralize threats.

48
 CORPORATE LEVEL STRATEGIES

Corporate strategy is the selection and development of the markets (or industries) in which a firm

competes. Therefore, corporate strategy deals with what industries (or markets) a firm seeks to

compete in

Describing Corporate Strategy

There are two basic descriptive dimensions of corporate strategy, how diversified and how vertically

integrated an organization is. It may be helpful to think of both of these dimensions as a continuum.

Diversification occurs when a firm enters a new industry or market. However, it is critical when doing

your analysis to carefully define industries in describing firm diversification. For example, was Coca-

Cola's move from carbonated beverages into bottled water an instance of diversification? Depending

on how you define the industry, it could be yes or no.

How diversified a firm is can be determined by what portion of its sales are derived from different

markets. The larger a percentage of sales are derived from different markets/industries the more

diversified the firm can be said to be.

Related vs. Unrelated. Diversification can be either related or unrelated. The key issue here is if the

operations of the firm in the new industry share some link in with the firm's existing value chain. Is

there some value adding activity that can be shared? For example, is there a production facility, a

distribution network, or a marketing competence that both can use? Historically it was thought that

related diversification would be better than unrelated diversification. However, the coordination costs

of related diversification appear to consume a lot of the expected benefits. Therefore, while most firms

seem to engage in related diversification its benefits are only slightly, if at all, better than unrelated.

49
Vertical integration occurs when a firm takes on activities that were formally done by others on its

behalf. In a way, vertical integration is just a special case of diversification, a firm is diversifying into

either its suppliers' or its buyers' industries. For example if a company starts to make components for

its products on its own or if it starts to distribute products directly to customers it is engaged in vertical

integration. Ford Motor Company under Henry Ford was extremely vertically integrated going so far

at one time as to own the iron ore mines that fueled its steel mills that fed its automobile assembly

operations.

However, recently vertical integration has fallen out of favor in preference to contract manufacturing

and outsourcing. It will be interesting to see how the expansion of the internet creates opportunities for

firms to vertically integrate downstream into direct distribution. A firm's level of vertical integration

can be modeled using an industry (rather than a firm) value chain. An industry value chain models all

the significant value adding steps that occur in an industry from the most basic raw materials to the

final consumers. The more of these activities a firm encompasses the more vertically integrated it is. A

firm that enters activities to its left on the industry value chain, replacing a supplier, is said to be

vertically integrating "upstream". A firm entering activities to its right, supplanting a buyer, is said to

be moving "downstream". So continuing the historical Ford example, Ford buying coal mines would

be upstream while him buying a dealership would be downstream vertical integration.

Business level strategy

Business level strategies are derived from corporate level strategies. Let us look at the generic

strategies that a firm can pursue as suggested by Micheal Porter. The three generic strategies suggested

by him are – cost leadership and focus.

50
Cost Leadership

This involves a company attaining the lowest cost of producing a product or a service. Over important

thing to remember here is that this is not the same as price leadership. A cost leader may or may not be

a cost leader. To be cost leader, a company puts a large investment in cost saving technologies and

automation in manufacturing, thus may have startup losses. To utilize these, the company must have

economics of scale – thus requires relatively high market share. They need good forecasting to plan

well and reduce costs. The entire focus is on costs and thus companies have a high degree of

supervision and tight control. The products are designed for ease of manufacturing and the focus is on

a large base of customers. Cost leadership is used when there is demand for functional products and

there is a price competition in the markets.

Cost leadership is a defense against competition as competition can lower prices only to their cost of

production, which will be higher than the cost of the cost leader. Customers will bargain only to the

nearest price competitor, which again leaves a margin for the cost leader. Supplier would be under

control due to large volumes and also due to the fact there is margin to play around with. Substitutes –

unless they can match the price and utility may not be a major threat.

However there are risks with cost leadership. The biggest is rapid and sudden technological change,

which can erode the cost advantage and the investment made in earlier technology. Other companies

can copy the methods and narrow down the cost differential.

Differentiation

This is giving something unique and different to a customer, which the customer values and thus is

willing to pay for it. Differentiation may be tangible or perceived. To attain differentiation, a company

must incorporate features that offer utility and value to a customer matching with tastes and

51
preferences. For this company must have very good marketing skills. Differentiation could be offered

in various ways, the product itself, features, quality, service, distribution, etc.

Differentiation also has risks. Products which were differentiated tend to become common and lost

there uniqueness and then customers are willing to pay a premium. The premium charges may not be

sustainable as rivals may match the differentiation at a lower price.

Focus

Here the company would choose a small market – either geographically or customer segment. The

company would then serve market so well that it is willing to pay a premium for the services. Thus it

is similar to capturing niche. Companies need to identify this niche where the cost leader and

differentiators are not present and operating.

Focused company is protected from competition, as other are not looking immediately at the small

market the focused player is targeting focus also has its risks. There is high dependence or small

markets. It requires unique skills and competencies to be built and sustained.

Relation between Corporate level strategy and Business unit of firm

Corporate level strategy concerned, with questions about what business to compete in and business

level strategy concerned, with questions of how to compete within a particular business. At the

corporate level, you are responsible for creating value through your businesses. You do so by

managing your portfolio of businesses, ensuring that your businesses are successful over the long

term, developing business units, and sometimes ensuring that each business is compatible with others

in your portfolio. Products and services are developed by business units. The role of the corporation is

to manage its business units, products and services so that each is competitive and so that each

contributes to corporate purposes.

52
SBU Executive as Strategies

If a firm is organized into SBUs, the head of the SBU plays the general manager role at business level.

If corporate strategists encourage it, SBU manager set the strategies for their units or businesses.

Essentially, the SBU strategists perform roles similar to those of top managers for their businesses and

attempt to get best results in their business segment given their resources and the corporate objective.

In the first generation planning, they create multiple strategies on a contingency basis.

Earlier we indicated that entrepreneurs are involved with starting their own businesses. But the

corporate world has recognized some value in establishment an entrepreneurial climate within some of

their SBUs. The world often heard to describe this is “intrapreneurship”. In essence, the SBU manager

is encouraged to develop new venture, or the SBU itself may a new venture establish within the

existing corporation. For example, Macintosh computer was developed by a separate newly created

unit with in the Apple organization. Apple did not want to stifle the creativity or enthusiasm of this

new product development by housing it within the mainstream. However creations of internal ventures

are ultimately expected to be consolidated into the ongoing organization. As ventures grow and require

new level of investment, corporate involvement increases. Corporate procedures and the objectives

may conflict with the independent start-up environment of new ventures-more structure and control is

introduced. Hence, the SBU manager under these circumstances plays the role of entrepreneur and

strategist. As with the independent entrepreneurs, SBU managers may have to replaced when the

entrepreneurial functions are completed as the venture becomes more important to corporate level.

53
 IMPLEMENTATION STRATEGY

Over the past three decades, information systems have revolutionized worldwide businesses by

coordinating and transforming data into a tremendously valuable strategic asset: Information.

Technology made storing and distributing information economical and immediate, especially given the

recent use of global standards and Internet technologies. Corporations have literally achieved their

reputations and business success based on their ability to bring timely and accurate information to their

employees.

Success in today’s fast-changing, increasingly competitive marketplace demands the next step.

Information is vital, but if employees are not properly trained and prepared to do their jobs, then

success is fleeting. There is a higher premium than ever on skilled employees. Jobs are constantly

evolving to fit the market requirements. “Internet time” affects the speed of change, product life cycles

and learning curves; and the influx of skilled candidates from the educational system is problematic at

best. Skill gaps are widening and businesses have to respond.

Strategy implementation is an internal, operations-driven activity involving organizing, budgeting,

motivating, culture-building, supervising, and leading to “make the strategy work” as intended!

Huge resources are often devoted to a course or a program, but if it is not properly implemented, the

money is wasted. Implementation is not glamorous, it is hard work. It is also rarely in a person’s job

title, so it is easy to ignore. It is everyone’s responsibility and, therefore, no ones. But successful

implementation skills are vitally important to the success and value of any technical training program.

Successful Implementation Strategies is organized around four major topics. The first is a discussion

of the Business Context for a new approach to education and training. It presents industry data, quotes

54
and references that you may find useful as these issues are discussed within your company. The

second topic is the New Learning Model and its core principles. The foundation of the New Learning

Model is that training must become more than an event, it has to become a “closed loop learning

system” that is dedicated to improving the knowledge, skills and performance of people. The third

topic is the heart of the book and it is entitled “Critical Success Factors for Implementing Training.”

These CSFs are based on experience in working with major organizations; and they underscore that

fact that implementation takes dedicated, focused energies. Successful programs aren’t based on

magic, they emanate from hard work. And the fourth topic is a grouping of tools and job aids that

demonstrate the critical success factors.

Strategy implementation includes:

• Building a firm capable of carrying out strategy successfully

• Allocating ample resources to strategy-critical activities

• Establishing strategy-supportive policies

• Instituting best practices and programs for continuous improvement

• Installing support systems

• Trying reward structure for achievement of results

• Creating a strategy-supportive corporate culture

• Exerting strategic leadership

55
Decision Making

Decision making can be regarded as the mental processes (cognitive process) resulting in the selection

of a course of action among several alternatives. It is the core of planning. It can be defined as the

selection of a course of action from among alternatives. Every decision making process produces a

final. The output can be an action or an opinion of choice. From a psychological perspective, it is

necessary to examine individual decisions in the context of a set of needs, preferences an individual

has and values they seek. From a cognitive perspective, the decision making process must be regarded

as a continuous process integrated in the interaction with the environment. From

a normative perspective, the analysis of individual decisions is concerned with the logic of decision

making and rationality and the invariant choice it leads to.

Yet, at another level, it might be regarded as a problem solving activity which is terminated when a

satisfactory solution is found. Therefore, decision making is a reasoning or emotional process which

can be rational or irrational, can be based on explicit assumptions or tacit assumptions.

Decision Making is a Recursive Process

A critical factor that decision theorists sometimes neglect to emphasize is that in spite of the way the

process is presented on paper, decision making is a nonlinear, recursive process. That is, most

decisions are made by moving back and forth between the choice of criteria (the characteristics we

want our choice to meet) and the identification of alternatives (the possibilities we can choose from

among). The alternatives available influence the criteria we apply to them, and similarly the criteria we

establish influence the alternatives we will consider.

56
Kinds of Decisions

There are several basic kinds of decisions.

1. Decisions whether. This is the yes/no, either/or decision that must be made before we proceed with

the selection of an alternative. Should I buy a new TV? Should I travel this summer? Decisions

whether are made by weighing reasons pro and con.

It is important to be aware of having made a decision whether, since too often we assume that decision

making begins with the identification of alternatives, assuming that the decision to choose one has

already been made.

2. Decisions which. These decisions involve a choice of one or more alternatives from among a set of

possibilities, the choice being based on how well each alternative measures up to a set of predefined

criteria.

3. Contingent decisions. These are decisions that have been made but put on hold until some

condition is met.

Three decision contexts

We may make decisions under three circumstances with regard to decision circumstances.

• Certainty- A certainty decision situation exists when the decision maker knows all of the

available alternatives and the outcomes which will result from each.

57
 • Risk- A risk decision situation exists when the decision maker faces more than one

alternative, but he/she knows all of the alternatives, knows all of the possible outcomes

associated with each of the alternatives, and can assign probabilities to each possible outcome.

• Uncertainty- An uncertainty decision situation exists when the decision maker lacks

knowledge of what all the alternatives are, what the outcomes associated with each alternative

are, or cannot assign probabilities to each of the possible outcomes.

Organization Structure

Organization Process

Steps in organizing process:

• Formulate objectives, strategies, plans and policies.

• Determine activities (work) needed to execute these plans and policies and accomplish these

objectives.

• Classify and group these activities in the best possible way;

• Grouping tasks (activities) to form individual jobs.

• Grouping of jobs and people into sections and departments into higher administrative

units such as divisions.

• Assign and delegate to the head of each group, section, department, etc., the authority needed

to perform these activities.

58
 • Co-ordinate or tie these group of activities:

• Through authority relationships- horizontally, vertically and laterally

• Through organized information or communication.

Three factors of organizing structure

Three ways to determine the organization structure for any business:

• Activity Analysis can fid out what work has to be performed, what work belongs together and

how each activity should be emphasized in the organization structure.

• Decision Analysis determines what kind of decisions are needed, where in the organization

they should be made and how each managers should be involved in them.

• Relation Analysis involves finding the contribution each manager must make to programs, with

whom he works and what contribution other managers must take to him.

Organization Levels And The Span Of Management

Organization with narrow spans:-

Advantages:

• Close supervision

• Close Control

• Fast communication between subordinates and superiors

59
Disadvantages:

• Superiors tend to get too involved in subordinates’ work.

• Many levels of management.

• High costs due to many levels.

• Excessive distance between lowest level and top level

Organization with wide spans:-

Advantages:

• Superiors are forced to delegate.

• Clear policies must be made.

• Subordinates must be carefully selected.

Disadvantages:

• Tendency of overloaded superiors to become decision bottlenecks.

• Danger of superiors’ loss of control.

• Requires exceptional quality of managers.

Social Responsibilities of a Business

Concept of Social Responsibility

60
We all know that people engage in business to earn profit. However, profit making is not the sole

function of business. It performs a number of social functions, as it is a part of the society. It takes care

of those who are instrumental in securing its existence and survival like- the owners, investors,

employees, consumers and government in particular and the society and community in general. So,

every business must contribute in some way or the other for their benefit. For example, every business

must ensure a satisfactory rate of return to investors, provide good salary, security and proper working

condition to its employees, make available quality products at reasonable price to its consumers,

maintain the environment

properly etc.

Why should business be socially responsible?

• Public Image - The activities of business towards the welfare of the society earn goodwill and

reputation for the business. The earnings of business also depend upon the public image of

its activities.

• Government Regulation - To avoid government regulations businessmen should discharge

their duties voluntarily.

• Survival and Growth - Every business is a part of the society. So for its survival and growth,

support from the society is very much essential. Business utilizes the available resources

like power, water, land, roads, etc. of the society. So it should be the responsibility of every

business to spend a part of its profit for the welfare of the society.

• Employee satisfaction - Besides getting good salary and working in a healthy atmosphere,

employees also expect other facilities like proper accommodation, transportation, education

61
 and training. The employers should try to fulfill all the expectation of the employees

because employee satisfaction is directly related to productivity and it is also required for

the long-term prosperity of the organization.

v. Consumer Awareness - Now-a-days consumers have become very conscious about their

rights. This has made it obligatory for the business to protect the interest of the consumers by

providing quality products at the most competitive price.

Responsibility towards Society

A society consists of individuals, groups, organizations, families etc. They all are the members of the

society. They interact with each other and are also dependent on each other in almost all activities.

There exists a relationship among them, which may be direct or indirect. Business, being a part of the

society, also maintains its relationship with all other members of the society. Thus, it has certain

responsibilities towards society, which may be as follows:

• to help the weaker and backward sections of the society

• to preserve and promote social and cultural values

• to generate employment

• to protect the environment

• to conserve natural resources and wildlife

• to promote sports and culture

• to provide assistance in the field of developmental research on education,

medical science, technology etc.

62
Personal Values And Ethics

Life is full of little choices. There is an old saying: “What is popular is not always right; what is right

is not always popular.” We don’t always make the right choices or do the right thing. Mistakes are a

normal part of living and to be expected. All people make mistakes; it’s part of living. When we make

a mistake, we gain more self-awareness and, hopefully, learn a life’s lesson. It’s true! We can learn by

our mistakes. What is more important, we can avoid some mistakes if we take the time to identify our

personal values and ethics.

WHAT ARE VALUES AND ETHICS anyway? They are not fancy words to be thought of

carelessly, or worse, not thought of at all!

VALUES are attitudes and beliefs about things we think are important in life.

ETHICS are the rules of personal behavior accepted by society.

Values and ethics are one of the most important characteristic of an individual. They basically define

who we are and what we believe. There are many factors that determine our values and ethics. Culture,

religion, and many other factors affect our beliefs. Many times are values and ethics can clash with

different people who hold different views and beliefs. This doesn't mean our values or ethics are

wrong it just means we think differently than others. Most people have a good sense of ethics and

values. Knowing between right and wrong is a good foundation to practicing good ethics and morals.

How we develop ethics and values starts from the time we are born and mostly developed by the

people were major influences in our life. Family members, Grandparents, friends, and school teachers

are a big part of our lives as we are growing up and they all influence our thoughts and beliefs. We

develop many values and ethics through past experiences whether it is a positive or negative

63
experience. These thoughts and beliefs are what guide us through our life time in making decisions,

thoughts, and judgments. Culture has a great deal of influence also on our values and ethics. Most

nations are different in their beliefs and thoughts of what is socially accepted. Many cultures have

been around for thousands of years and their thoughts and beliefs are just as old.

“BE THE BEST YOU CAN BE!”

Supply Chain Management

Supply chain management (SCM) is the management of a network of

interconnected businesses involved in the ultimate provision of product and service packages required

by end customers (Harland, 1996). Supply Chain Management spans all movement and storage of raw

materials, work-in-process inventory, and finished goods from point of origin to point of consumption

(supply chain).

Another definition is provided by the APICS Dictionary when it defines SCM as the "design,

planning, execution, control, and monitoring of supply chain activities with the objective of creating

net value, building a competitive infrastructure, leveraging worldwide logistics, synchronizing supply

with demand, and measuring performance globally."

64
Supply chain management is a cross-function approach including managing the movement of raw

materials into an organization, certain aspects of the internal processing of materials into finished

goods, and the movement of finished goods out of the organization and toward the end-consumer. As

organizations strive to focus on core competencies and becoming more flexible, they reduce their

ownership of raw materials sources and distribution channels. These functions are increasingly being

outsourced to other entities that can perform the activities better or more cost effectively. The effect is

to increase the number of organizations involved in satisfying customer demand, while reducing

management control of daily logistics operations. Less control and more supply chain partners led to

the creation of supply chain management concepts. The purpose of supply chain management is to

improve trust and collaboration among supply chain partners, thus improving inventory visibility and

the velocity of inventory movement.

Several models have been proposed for understanding the activities required to manage material

movements across organizational and functional boundaries. SCOR is a supply chain management

model promoted by the Supply Chain Council. Another model is the SCM Model proposed by the

65
Global Supply Chain Forum (GSCF). Supply chain activities can be grouped into strategic, tactical,

and operational levels. The CSCMP has adopted The American Productivity & Quality Center

(APQC) Process Classification Framework a high-level, industry-neutral enterprise process model that

allows organizations to see their business processes from a cross-industry viewpoint.

Strategic

• Strategic network optimization, including the number, location, and size of

warehousing, distribution centers, and facilities.

• Strategic partnerships with suppliers, distributors, and customers, creating communication

channels for critical information and operational improvements such as cross docking, direct

shipping, and third party logistics.

• Product life cycle management, so that new and existing products can be optimally integrated into

the supply chain and capacity management activities.

• Information Technology chain operations.

• Where-to-make and what-to-make-or-buy decisions.

• Aligning overall organizational strategy with supply strategy.

• It is for long term and needs resource commitment.

Tactical

• Sourcing contracts and other purchasing decisions.

• Production decisions, including contracting, scheduling, and planning process definition.

• Inventory decisions, including quantity, location, and quality of inventory.

66
• Transportation strategy, including frequency, routes, and contracting.

• Benchmarking of all operations against competitors and implementation of best practices

throughout the enterprise.

• Milestone payments.

• Focus on customer demand.

Operational

• Daily production and distribution planning, including all nodes in the supply chain.

• Production scheduling for each manufacturing facility in the supply chain (minute by minute).

• Demand planning and forecasting, coordinating the demand forecast of all customers and sharing

the forecast with all suppliers.

• Sourcing planning, including current inventory and forecast demand, in collaboration with all

suppliers.

• Inbound operations, including transportation from suppliers and receiving inventory.

• Production operations, including the consumption of materials and flow of finished goods.

• Outbound operations, including all fulfillment activities, warehousing and transportation to

customers.

• Order promising, accounting for all constraints in the supply chain, including all suppliers,

manufacturing facilities, distribution centers, and other customers.

Knowledge Management System

67
Knowledge Management System (KM System) refers to a (generally IT based) system for managing

knowledge in organizations for supporting creation, capture, storage and dissemination of information.

It can comprise a part (either necessary or sufficient) of a knowledge management initiative.

The idea of a KM system is to enable employees to have ready access to the organization's

documented base of facts, sources of information, and solutions. For example a typical claim justifying

the creation of a KM system might run something like this: an engineer could know the metallurgical

composition of an alloy that reduces sound in gear systems. Sharing this information organization

wide can lead to more effective engine design and it could also lead to ideas for new or improved

equipment.

A KM system could be any of the following:

• Document based i.e. any technology that permits creation/management/sharing of formatted

documents such as lotus notes, web, distributed databases, etc.

• Ontology/Taxonomy based: these are similar to document technologies in the sense that a

system of terminologies (i.e. ontology) are used to summarize the document e.g. Author, Subj,

Organization etc. as in DAML & other XML based ontologies

• Based on AI technologies which use a customized representation scheme to represent the

problem domain.

• Provide network maps of the organization showing the flow of communication between

entities and individuals

• Increasingly social computing tools are being deployed to provide a more organic approach to

creation of a KM system.

68
KMS systems deal with information (although Knowledge Management as a discipline may extend

beyond the information centric aspect of any system) so they are a class of information system and

may build on, or utilize other information sources. Distinguishing features of a KMS can include:

• Purpose: a KMS will have an explicit Knowledge Management objective of some type such as

collaboration, sharing good practice or the like.

• Context: One perspective on KMS would see knowledge is information that is meaningfully

organized, accumulated and embedded in a context of creation and application.

• Processes: KMS are developed to support and enhance knowledge-intensive processes, tasks or

projects of e.g., creation, construction, identification, capturing, acquisition, selection,

valuation, organization, linking, structuring, formalization, visualization, transfer, distribution,

retention, maintenance, refinement, revision, evolution, accessing, retrieval and last but not

least the application of knowledge, also called the knowledge life cycle.

• Participants: Users can play the roles of active, involved participants in knowledge networks

and communities fostered by KMS, although this is not necessarily the case. KMS designs are

held to reflect that knowledge is developed collectively and that the “distribution” of

knowledge leads to its continuous change, reconstruction and application in different contexts,

by different participants with differing backgrounds and experiences.

• Instruments: KMS support KM instruments, e.g., the capture, creation and sharing of the

codifiable aspects of experience, the creation of corporate knowledge directories, taxonomies

or ontologies, expertise locators, skill management systems, collaborative filtering and

handling of interests used to connect people, the creation and fostering of communities or

knowledge networks.
69
70