STRATEGIC MANAGEMENT S.Y.BMS PROF.

VIJAY BIRAJDAR

UNIT II
STRATEGIC FORMULATION
INTRODUCTION:

Strategic Formulation can also be referred to as Strategic Planning. A strategy is a broad plan developed
by an organization to take it from where it is to where it wants to be. A well-designed strategy will help
an organization reach its maximum level of effectiveness in reaching its goals while constantly allowing it
to monitor its environment to adapt the strategy as necessary. Strategy formulation is the process of
developing the strategy.

Strategy formulation refers to the process of choosing the most appropriate course of action for the
realization of organizational goals and objectives and thereby achieving the organizational vision.

Strategic Formulation is considered to be the first stage of Strategic Management Process.

The process of strategy formulation basically involves six main steps:

1. Framing Mission and Objectives.

A Mission id is the reason for the organization existence; A well conceived mission statement
defines the company's operation in terms of the products offered and markets Served.
Objectives are the end result of planned activity They state what is to be accomplished by when
and should be quantified if possible. The achievement of corporate objective should result in the
fulfillment of a corporate mission. The Mission & Objectives must be clearly defined.

2. Analysis of Internal Environment :

After setting the objectives or goals, the management needs to make an analysis of the Internal
environment. The Internal Environment refers to manpower, machinery, methods, procedures
and other resources of the organization. A proper analysis of the Internal environment revels
strengths and weakness of the organization.

3. Analysis of External Environment :

The Management must conduct an analysis of the external environment. The external
environment refers to government, competition, consumers, technological developments and
other environmental factors that affect the organization. . The purpose of such a review is to
make sure that the factors important for competitive success in the market can be discovered so
that the management can identify their own strengths and weaknesses as well as their
competitors’ strengths and weaknesses.

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STRATEGIC MANAGEMENT S.Y.BMS PROF. VIJAY BIRAJDAR

4. Gap Analysis
The management must also conduct gap analysis, For this purpose, the management must
compare and analyze its present performance level and the desired future performance level.
Such a comparison would reveal the extent of gap that exists between the present performance
and future expectations of the organization. If there is sufficient gap, the management must think
of suitable measure to bridge or close the gap.

5. Framing Alternative strategies:

After making SWOT analysis and the gap analysis, the management needs to frame alternative
strategies to accomplish the objectives of the firm. There is need to frame alternative strategies,
as some strategies may be put on hold, and other strategies may be implemented.

6. Choice of strategy:
The organization cannot implement all the alternative strategies. Therefore, the firm has to be
selective. The organization must select the best strategy, the organization needs to conduct cost-
benefit analysis of the alternative strategies. The strategies, which give the maximum benefits at
minimum cost, would be selected.

OBJECTIVES OF STRATEGIC FORMULATION

1. Strategy makes clear what the organization aims to achieve. Only when the destination is known
that the journey can be initiated.
2. Communication-strategy defines what the organization aims to achieve in the long run. So, this
sets a specific pattern to start with.
3. Direction provider strategy clears the doubts one may harness due to being ignorant of the
ambitions of the organization.
4. Awareness creation-Some of the employees may be oblivious regarding the position the
company sees itself at.

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 STRATEGIC MANAGEMENT S.Y.BMS PROF. VIJAY BIRAJDAR

DEVELOPING VISION & MISSION STATEMENT

Mission & purpose:

Many organizations define the basic reason for their existence in terms of mission statement. An
organization’s mission includes both a statement of organizational philosophy & purpose. The mission can
be seen as a link between performing some social function and attaining objectives of the organization.
A mission statement tells “who we are, and what we would like to become”.

It provides the framework and context to help guide the company's strategies and actions by spelling out
the business's overall goal. Ultimately, a mission statement helps guide decision-making internally while
also articulating the company's mission to customers, suppliers and the community

Purpose of Mission statement

A mission statement is not the same as your company's slogan, which generally serves as marketing tool
designed to grab attention quickly. The mission statement is also not necessarily the same as your vision
statement, which defines where you want your company to go. While you may include the statement in
your business plan, a mission statement is not a substitute for the plan itself.

Who frames Mission Statement?

In small organizations, the owner or CEO establishes the mission of the organization without consultation
of others. In some organizations, the founder of the business establishes the mission, and this mission is
normally maintained throughout the life of the organization.
In some organizations, the CEO’s with strong personalities influence their organizations mission
throughout their tenure with the organization. However, in many large organizations, a group of top
managers is involved in the process of formulating mission statement.

Essentials of Mission Statement

1. Clarity:
An effective mission statement should be clear and easy to understand the philosophy and
purpose of the organization. It should be clear to everyone in the organization so that it act as a
guide to action. However it to be noted that a clear mission statement by itself does not ensure
success; it only provides a sense of purpose and direction.
2. Feasible:
A mission statement should not state impossible tasks. A mission statement should always aim
higher, but not impossible goals. It should state purpose, which should be realistic and attainable.
For instance, it would be meaningless for a small company to make a mission statement like “To
be a No 1 industry in the world within a decade”. For a small company the mission statement
may be worded as “To be a leading company in India in 10 years time”.
A company should always consider its abilities and resources before making a mission statement.
3. Current :
A Mission statement may become outdated after sometime. A mission statement may hold good
for certain number of years. Peter Drucker states “very few definitions of purpose and
mission of a business have anything like a life expectancy of 30 let alone 50 years. To be
good enough fr 10 years is probably all one can normally expect”. Revised taken into
consideration the changes in the internal & external environment.

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 STRATEGIC MANAGEMENT S.Y.BMS PROF. VIJAY BIRAJDAR

4. Enduring:
A Mission statement should be a motivating force, guiding and inspirational to the employees of
the organization.
5. Distinctive:
The Mission statement should be distinctive and unique. It should not appear similar as compared
to other competitors or companies. It is true that the mission statement of many companies aim
higher in terms of market share, service to customers, quality products & services, but the
drafting of mission statement must be done in such words that it brings uniqueness to the mission
statement.
6. Comprehensive:
A mission statement should be comprehensive in nature; it should indicate the philosophy, the
purpose, and the strategy to be adopted to accomplish it. It should not only state philosophy or
only purpose. For instance, the Mission of Godrej soaps states “We shall operate in existing
and new business which profitably capitalize on the Godrej brand and our corporate
image of reliability and integrity. Our objective is to delight our customers both India and
abroad. We shall achieve these objectives through continuous improvement in quality,
cost and customer services.”

Vision statement

Employees, shareholders and others need to believe that the company’s management knows where it is
trying to take the company and what challenges lie ahead. Ideally executives should present their vision for
the company in language that reaches out and grabs people attention, that creates a vivid image in their
minds and that provokes positive attitudes and excitement.

Importance of Vision statement.

 It helps an organization to prepare for future.

 It reduces the risk of directionless decision-making.
 It conveys organizational purpose in ways that motivate organization members to perform to their
optimum
 It clarifies top management views about the firm’s long term direction.
 It provides a base for lower level managers to form departmental missions, set departmental
objectives and design functional and departmental strategies that are in line with firms overall
strategy.

Business Objectives
Business planning starts with setting of objectives. Objectives are the ends, which the
organization intends to achieve through its existence and operations.

The two terms ‘Objectives and Goals’ are normally used inter-changeably. However,
Objectives are considered to be as broad aims whereas; goals are more specific in nature.
Objectives are further subdivided to goals.
For Instance, a company may state one of its objectives as ‘increase in market share’, whereas,
a goal may be stated as ‘To increase market share of Brand A by 10% during the current
year, and that of Brand B by 20%’

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STRATEGIC MANAGEMENT S.Y.BMS PROF. VIJAY BIRAJDAR

ENVIRONMENTAL SCANNING & ANALYSIS

Organizational environment consists of

both external and internal factors. The
environment refers to the macro
environment which comprises
industries, markets, companies, clients
and competitors; consequently, there
exist corresponding analyses on the
micro-level. Suppliers, customers and
competitors. Environmental scanning
can be defined as ‘the study and
interpretation of the political,
economic, social and technological events and trends which influence a business, an
industry or even a total market’.

Environmental analysis is a strategic tool. It is a process to identify all the external and internal
elements, which can affect the organization’s performance. The analysis entails assessing the level
of Strengths, Weakness, Opportunities & threats. Proper environment analysis helps a firm to
formulate effective strategies in the various functional areas.

Role / Importance of Environmental Analysis

1. Identification of strength:

Strength of the business firm means capacity of the firm to gain advantage over its
competitors. Analysis of internal business environment helps to identify strength of the firm.
After identifying the strength, the firm must try to consolidate or maximise its strength by
further improvement in its existing plans, policies and resources.

2. Identification of weakness:

Weakness of the firm means limitations of the firm. Monitoring internal environment helps to
identify not only the strength but also the weakness of the firm. A firm may be strong in
certain areas but may be weak in some other areas. For further growth and expansion, the
weakness should be identified so as to correct them as soon as possible.

3. Identification of opportunities:

Environmental analyses helps to identify the opportunities in the market. The firm should
make every possible effort to grab the opportunities as and when they come.

4. Identification of threat:

Business is subject to threat from competitors and various factors. Environmental analyses
help them to identify threat from the external environment. Early identification of threat is
always beneficial as it helps to diffuse off some threat.

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5. Optimum use of resources:

Proper environmental assessment helps to make optimum utilisation of scare human, natural
and capital resources. Systematic analyses of business environment helps the firm to reduce
wastage and make optimum use of available resources, without understanding the internal
and external environment resources cannot be used in an effective manner.

6. Survival and growth:

Systematic analyses of business environment help the firm to maximise their strength,
minimise the weakness, grab the opportunities and diffuse threats. This enables the firm to
survive and grow in the competitive business world.

7. To plan long-term business strategy:

A business organisation has short term and long-term objectives. Proper analyses of
environmental factors help the business firm to frame plans and policies that could help in
easy accomplishment of those organisational objectives. Without undertaking environmental
scanning, the firm cannot develop a strategy for business success.

8. Environmental scanning aids decision-making:

Decision-making is a process of selecting the best alternative from among various available
alternatives. An environmental analysis is an extremely important tool in understanding and
decision making in all situation of the business. Success of the firm depends upon the
precise decision making ability. Study of environmental analyses enables the firm to select
the best option for the success and growth of the firm.

SWOT ANALYSIS

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STRATEGIC MANAGEMENT S.Y.BMS PROF. VIJAY BIRAJDAR

A SWOT analysis is a method used to evaluate

the strengths, weaknesses, opportunities and
threats involved in a project or in a business venture. A SWOT
analysis can be carried out for a product, place, industry
or person. A SWOT analysis is an organized list of your
business’s greatest strengths, weaknesses,
opportunities, and threats.

An overview of the four factors (Strengths, Weaknesses,

Opportunities and Threats) is given below-

1. Strengths - Strengths are the qualities that

enable us to accomplish the organization’s
mission. These are the basis on which
continued success can be made and continued/sustained. Strengths can be either tangible
or intangible. These are what you are well-versed in or what you have expertise in, the traits
and qualities your employees possess (individually and as a team) and the distinct features
that give your organization its consistency. Strengths are the beneficial aspects of the
organization or the capabilities of an organization, which includes human competencies,
process capabilities, financial resources, products and services, customer goodwill and
brand loyalty. Examples of organizational strengths are huge financial resources, broad
product line, no debt, committed employees, etc.
2. Weaknesses - Weaknesses are the qualities that prevent us from accomplishing our mission
and achieving our full potential. These weaknesses deteriorate influences on the
organizational success and growth. Weaknesses are the factors which do not meet the
standards we feel they should meet. Weaknesses in an organization may be depreciating
machinery, insufficient research and development facilities, narrow product range, poor
decision-making, etc. Weaknesses are controllable. They must be minimized and eliminated.
For instance - to overcome obsolete machinery, new machinery can be purchased. Other
examples of organizational weaknesses are huge debts, high employee turnover, complex
decision making process, narrow product range, large wastage of raw materials, etc.
3. Opportunities - Opportunities are presented by the environment within which our
organization operates. These arise when an organization can take benefit of conditions in its
environment to plan and execute strategies that enable it to become more profitable.
Organizations can gain competitive advantage by making use of opportunities. Organization
should be careful and recognize the opportunities and grasp them whenever they arise.
Selecting the targets that will best serve the clients while getting desired results is a difficult
task. Opportunities may arise from market, competition, industry/government and
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technology. Increasing demand for telecommunications accompanied by deregulation is a

great opportunity for new firms to enter telecom sector and compete with existing firms for
revenue.
4. Threats - Threats arise when conditions in external environment jeopardize the reliability and
profitability of the organization’s business. They compound the vulnerability when they relate
to the weaknesses. Threats are uncontrollable. When a threat comes, the stability and
survival can be at stake. Examples of threats are - unrest among employees; ever changing
technology; increasing competition leading to excess capacity, price wars and reducing
industry profits; etc.

Advantages of SWOT Analysis

SWOT Analysis is instrumental in strategy formulation and selection. It is a strong tool, but it involves
a great subjective element. It is best when used as a guide, and not as a prescription. Successful
businesses build on their strengths, correct their weakness and protect against internal weaknesses
and external threats. They also keep a watch on their overall business environment and recognize
and exploit new opportunities faster than its competitors.

SWOT Analysis helps in strategic planning in following manner-

a. It is a source of information for strategic planning.

b. Builds organization’s strengths.
c. Reverse its weaknesses.
d. Maximize its response to opportunities.
e. Overcome organization’s threats.
f. It helps in identifying core competencies of the firm.
g. It helps in setting of objectives for strategic planning.
h. It helps in knowing past, present and future so that by using past and current data, future
plans can be chalked out.

Limitations of SWOT Analysis

SWOT Analysis is not free from its limitations. It may cause organizations to view circumstances as
very simple because of which the organizations might overlook certain key strategic contact which
may occur. Moreover, categorizing aspects as strengths, weaknesses, opportunities and threats
might be very subjective as there is great degree of uncertainty in market. SWOT Analysis does
stress upon the significance of these four aspects, but it does not tell how an organization can
identify these aspects for itself.

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STRATEGIC MANAGEMENT S.Y.BMS PROF. VIJAY BIRAJDAR

There are certain limitations of SWOT Analysis which are not in control of management. These
include-

a. Price increase;
b. Inputs/raw materials;
c. Government legislation;
d. Economic environment;
e. Searching a new market for the product which is not having overseas market due to import
restrictions; etc.

Internal limitations may include-

a. Insufficient research and development facilities;

b. Faulty products due to poor quality control;
c. Poor industrial relations;
d. Lack of skilled and efficient labour; etc

THE TOWS MATRIX --- A TOOL FOR SITUATIONAL ANALYSIS

Identifying and analyzing the threats (T) and opportunities (O) in the external environment and
assessing the organization's weaknesses (W) and strengths (S), For convenience, the matrix that
will be introduced is called TOWS, or situational analysis.

The sets of variables in the matrix are not new as compared to SWOT Analysis however the fashion
of presenting is. This matrix is proposed as a conceptual framework for a systematic analysis that
facilitates matching the external threats and opportunities with the internal weaknesses and
strengths of the Organization.

Preparation of the enterprise profile, Step 1, deals with some basic questions pertaining to the
internal and external environments. Steps 2 and 3, on the other hand, concern primarily the present
and future situation in respect to the external environment. Step 4, the audit of strengths and
weaknesses, focuses on the internal resources of the enterprise. Steps 5 and 6 are the activities
necessary to develop strategies, tactics and more specific actions in order to achieve the
enterprise's purpose and overall objectives. During this process attention must be given to
consistency of these decisions with the other steps in the strategy formulation process. Finally, since
an organization operates in a dynamic environment, contingency plans must be prepared (Step 7)

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There are different ways of analyzing the situation The question may be raised whether one should
start with the analysis of the external environment or with the firm’s internal resources. There is no
single answer. Indeed, one may deal concurrently with the two sets of factors: the external and the
internal environment.
1. The WT Strategy (mini-mini).
In general, the aim of the WT strategy is to minimize both weaknesses and threats. A
company faced with external threats and internal weaknesses may indeed be in a precarious
position. In fact, such a firm may have to fight for its survival or may even have to choose
liquidation. But there are, of course, other choices. For example, such a firm may prefer a
merger, or may cut back its operations, with the intent of either overcoming the weaknesses
or hoping that the threat will diminish over time (too often wishful thinking). Whatever strategy
is selected, the WT position is one that any firm will try to avoid.
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2. The WO Strategy (mini--maxi).

The second strategy attempts to minimize the weaknesses and to maximize tile opportunities.
A company may identify opportunities ill the external environment but have organizational
weaknesses which prevent the firm from taking advantage of market demands. For example,
an auto accessory company with a great demand for electronic devices to control the amount
and timing of fuel injection in a combustion engine, may lack the technology required for
producing these microprocessors. One possible strategy would be to acquire this technology
through cooperation with a firm having competency in this field. An alternative tactic would be
to hire and train people with the required technical capabilities. Of course, the firm also has
the choice of doing nothing, thus leaving the opportunity to competitors.
3. The ST Strategy (maxi-mini).
This strategy is based on the strengths of the organization that can deal with threats in the
environment. The aim is to maximize the former while minimizing the latter. This, however,
does not mean that a strong company can meet threats in the external environment head-on,
as General Motors (GM) realized. In the 1960s, mighty GM recognized the potential threat
posed by Ralph Nader, who exposed the safety hazards of the Corvair automobile. As will be
remembered, the direct confrontation with Mr. Nader caused GM more problems than
expected. In retrospect, the initial GM response from Strength was probably inappropriate.
The lesson to be learned is that strengths must often be used with great restraint and
discretion.
4. The SO Strategy (maxi-maxi).
Any company would like to be in a position where it can maximize both, strengths and
opportunities. Such an enterprise can lead from strengths, utilizing resources to take
advantage of the market for its products and services. For example, Mercedes Benz, with the
technical know-how and the quality image, can take advantage of the external demand for
luxury cars by an increasingly affluent public. Successful enterprises, even if they temporarily
use one of the three previously mentioned strategies, will attempt to get into a situation where
they can work from strengths to take advantage of opportunities. If they have weaknesses,
they will strive to overcome them, making them strengths. If they face threats, they will cope
with them so that they can focus on opportunities.

BHARAT COLLEGE OF COMMERCE, BADLAPUR

STRATEGIC MANAGEMENT S.Y.BMS PROF. VIJAY BIRAJDAR

BHARAT COLLEGE OF COMMERCE, BADLAPUR

STRATEGIC MANAGEMENT S.Y.BMS PROF. VIJAY BIRAJDAR

CORPORATE LEVEL STRATEGY

A Strategy may be framed at different levels:

1. A Strategy is needed for the

company as a whole(Corporate
Strategy)
2. A Strategy is needed for each
Business of the company (Business
Strategy)
3. A Stategy is needed for each
functional unit of the organization
(Functional Strategy)

According to Glueck & Jauch, There are four

grand strategic alternatives:

A. Stability Strategy
B. Expansion/Growth Strategy
C. Retrenchment Strategy
D. Combination Strategy

A. Stability Strategy

Firms using stability strategy try to hold on to their current position in

the product-market. The firms concentrate on the same products and
in the same markets. The stability strategy is followed by those firms,
which are satisfied with their present position. This strategy is less
risky as it offers safe business to the organization, unless there are
major changes in the environment. Stability strategy refers to the
company’s policy of continuing the same business and with the same objectives

Stability does not mean any growth at all. Firms adopting this strategy plan for business growth and
profit. The firms make an attempt to improve functional efficiencies through better allocation and
utilization of resources. However the firms expect a modest growth.

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When a product is well accepted and has a brand value in the market, the company would want to
expand its market base in that particular product segment to win over its competitors.

Suitability of Stability Strategy.

1. When firms serve a well-defined market or a market segment, in a stable environment.
2. When the firm continuous to achieve same objectives a before. For instance, the firm
may intend to achieve growth in sales of about 10% in each year
3. When there is scope for functional improvement through better allocation and utilization
of resources.
The Need for Stability Strategy:
1. It continues to serve the customers in the same product or service, market and functional
sectors.
2. Its main strategic decisions `focus on incremental improvement of functional
performance.’
3. The focus is on maintaining and developing competitive advantages consistent with the
present resources and market requirements.

Stability strategy suits medium-sized growing firms which have to first get well established in the
market and wait for the right time to invest and divest.

Companies do not go beyond what they are presently doing; they serve the same market with the
present products using the existing technology. The essence of stability strategy is, therefore, not
doing anything but sustaining a moderate growth in line with the existing trends.

Types of Suitability Strategy:

1. Paused/Proceed Strategy:

It is employed by the firm that wish to test the ground before moving ahead with a full fledged
grand strategy, or by firms that have an intense pace of expansion and wish to rest for a
while before moving ahead. The purpose is to allow all the people in the organization to
adapt to the changes. It is a deliberate and conscious attempt to postpone strategic changes
to a more opportune time.
E.g:
In the India shoe market dominated by Bata and Liberty, Hindustan Levers better known
for soaps and detergents, produces substantial quantity of shoes and shoe uppers for the
export market. In late 2000, it started selling a few thousand pairs in the cities to find out the

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market reaction. This is a pause proceed with caution strategy before it goes full steam into
another FMCG sector that has a lot of potential

2. No Change Strategy

It is a conscious decision to do nothing new. The firm will continue with its present business
definition. When a firm has a stable internal and external environment the firm will continue
with its present strategy. The firm has no new strengths and
weaknesseswithin the organization and there are no opportunities or threats in the externale
nvironment. Taking into account this situation the firm decides to maintain its strategy.
Several small and medium sized firm operating in a familiar market- more often a niche
market that is limited in scope – and offering products or services through a time tested
technology rely on the No – Change Strategy.

3. Profit Strategy

No firm can continue with the No – Change Strategy.

Sometimes things do change and the firm is faced with the situation where it has to do
something. A firm may assess the situation and assume that its problem are short lived and
will go away with time. Till then a firm tries to sustain its profitability by adopting a profit
strategy For instance in a situation when the profit is becoming lower firm takes measures
toreduce investments, cut costs, raise prices, increase productivity and adopt other measure
s to solve the temporary difficulties. The problem arises due to unfavorable situation like
economic recession, government attitude, and industry down turn, competitive pressures and
like. During this kind of situation that the firm assumes to be temporary it would adopt profit
strategies some firms to overcome these difficulties would sell off assets such as prime land
in a commercial area and move to suburbs. Others have removed some of its non-
core business to raise money, while others have decided to provide outsourcing service to
other organizations.

B. Growth Strategy

Most small companies have plans to grow their business and increase sales and profits. However,
there are certain methods companies must use for implementing a growth strategy. The method a
company uses to expand its business is largely contingent upon its financial situation, the
competition and even government regulation. Some common growth strategies in business include
market penetration, market expansion, product expansion, diversification and acquisition.

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When a firm aims at substantial growth, it adopts growth strategy. According to William Glueck “ A
Growth Strategy is one that an enterprise pursues when it increases its levels of objectives upward
in significant increment, Much Higher than of its past achievement level. The most frequent increase
indicating a growth strategy is to raise the market share and or sales objectives than before such as
substantial increase in market share and/or increase in sales target.

Growth is a way of life. Almost all organizations plan to expand. This strategy isfollowed when an

organization aims at higher growth by broadening its one or more of
its business in terms of their respective customer groups, customers functions, andalternative
technologies singly or jointly – in order to improve its overall performance.
E.g.:
A chocolate manufacturer expands its customer groups to include middle aged andold persons
among its existing customers comprising of children and adolescents.

Types of Growth Strategies

1. Market Penetration:
 A business will utilize a market penetration strategy to attempt to enter a new market. The
goal is to get in quickly with your product or service and capture a large share of the
market. You can also achieve market penetration through  aggressive marketing
campaigns and distribution strategies. 
Rapid Market Penetration: It is based on two assumptions, to lower the price &
promotional activities to be increased.
Slow Market penetration: It is also based on two assumptions, to lower the price but
promotional activities are not changed
2. Market Expansion:

It involves selling the same products to new markets by attracting new users to its existing
products. Market development can be geographic wise and demographic wise. E.g.: XEROX
Company educated small business entrepreneurs to create new markets. A company might
decide to increase its territorial reach and therefore enter a new market.
3. Product Expansion
Product expansion is a strategy that seeks increased sales improving or modifying present
products or services. A product expansion growth strategy works well when technology starts
to change. A small company may also be forced to add new products as older ones become
outdated. It involves selling new products to the same markets by introducing newer
products in existing markets. E.g.: the tourism industry in India has not been able to attract
new customers in significant numbers. New products such as selling India as a golfing or

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STRATEGIC MANAGEMENT S.Y.BMS PROF. VIJAY BIRAJDAR

ayuerveda-based medical treatment destination are some of the product development efforts
in the tourism industry to attract more tourists.

ANSOFFS MATRIX

The product market expansion grid is used for planning by a company when the company is looking
to increase the sale of its products either by expanding product range or entering new markets.
Thus, there are various strategies that the company can develop when it compares the product with
the current market.

4. Diversification Strategies

It is done where the company attempts to widen the scope of its business definition in such a
manner that it results in serving the same set of customers. It is a type of internal growth
strategy. It involves entry in new products or services or markets, involving different skills
and technology.

Diversification is a corporate strategy to enter into a new market or industry which the

business is not currently in. diversification usually requires a company to acquire new skills,
new techniques and new facilities.

Types of Diversification strategies

a. Vertical Diversification: A Business strategy that seeks to own and control all the
activities including production, transportation, and marketing of a product. In this case the
company goes backward of its production cycle or moves forward to subsequent stages
of the same cycle. When an organization starts making new products that serve its own
needs vertical integration takes place. Vertical integration could be of two types Back
ward and forward integration.
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Backward integration means moving back to the source of raw materials while forward
integration moves the organization nearer to the ultimate customer.

b. Horizontal Diversification: Horizontal strategy simply means a strategy to increase your

market share by taking over a similar company. This can be done in the same geography
or probably in other countries to increase your reach. Horizontal diversification is
desirable if the present customers are loyal to the current products and if the new
products have a good quality and are well promoted and priced. When a luggage
company takes over its rival luggage company, it is horizontal integration. Horizontal
integration strategy may be frequently adopted with a view to expand geographically by
buying a competitors business, to increase the market share or to benefit from
economies of scale.
c. Concentric Diversification : In this type of diversification, the firm undergoes into such
products which are indirectly related to the existing line of business. In this strategy the
old business is linked with new business.
Example : A Car dealer may start a finance company to finance hire purchase of cars.
d. Conglomerate Diversification : it Involves entry into totally new area or business. In other
words there is no link of the new business with the existing business. It is moving to new
products or services that have no technological or commercial relation with current
products, equipment, distribution channels, but which may appeal to new group of
customers.
For Example : A Shoe making company may enter into Insurance Business.

C. Retrenchment Strategy
A retrenchment grand strategy is followed when an organization aims at a contraction of its
activities through substantial reduction or the elimination of the scope of one or more of its
businesses in terms of their respective customer groups, customer functions, or alternative
technologies either singly or jointly in order to improve its overall performance.
E.g: A corporate hospital decides to focus only on special treatment and realize higher
revenues by reducing its commitment to general case which is less profitable.
Retrenchment Strategy can be divided into following categories:

a. Turnaround Strategy : Turnaround strategy means backing out, withdrawing or retreating

from a decision wrongly taken earlier in order to reverse the process of decline. There
are certain conditions or indicators which point out that a turnaround is needed for an
organization to survive. They are

 Persistent Negative cash flows

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 Negative Profits
 Declining market share
 Deterioration in Physical facilities
 Over manning, high turnover of employees, and low morale
 Uncompetitive products or services
 Mismanagement
An organization which faces one or more of these issues is referred to as a ‘sick’ company

b. Divestment Strategy : When turnaround has proved unsuccessful Divestment strategy is

adopted, it involves the sale or liquidation of a portion of business, or a major division,
profit center, or SBU. An organization divests when it selld a business unit to another firm
that will continue to operate it. It is usually a restructuring plan.

Reasons for Divestment

 The business that has been acquired proves to be a mismatch and cannot be
integrated within the company. Similarly a project that proves to be in viable in
the long term is divested
 Persistent negative cash flows from a particular business create financial
problems for the whole company, creating a need for the divestment of that
business.
 Severity of competition and the inability of a firm to cope with it may cause it to
divest.
 Technological up gradation is required if the business is to survive but where it
is not possible for the firm to invest in it. A preferable option would be to divest
 Divestment may be done because by selling off a part of a business the
company may be in a position to survive
 A better alternative may be available for investment, causing a firm to divest a
part of its unprofitable business.
 Divestment by one firm may be a part of merger plan executed with another
firm, where mutual exchange of unprofitable divisions may take place.
 Lastly a firm may divest in order to attract the provisions of the MRTP Act or
owing to oversize and the resultant inability to manage a large business.

E.g: TATA group is a highly diversified entity with a range of businesses under its
fold. They identified their non – core businesses for divestment. TOMCO was
divested and sold to Hindustan Levers as soaps and a detergent was not
considered a core business for the Tatas. Similarly, the pharmaceuticals companies
of the Tatas- Merind and Tata pharma – were divested to Wockhardt. The
cosmetics company Lakme was divested and sold to Hindustan Levers, as besides
being a non core business, it was found to be a non- competitive and would have
required substantial investment to be sustained.

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c. Liquidation Strategies: liquidation strategy, which involves closing down a firm and selling
its assets. It is considered as the last resort because it leads to serious consequences such
as loss of employment for workers and other employees, termination of opportunities where
a firm could pursue any future activities and the stigma of failure

The psychological implications

 The prospects of liquidation create a bad impact on the company’s reputation.

 For many executives who are closely associated firms, liquidation may be a
traumatic experience.

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STRATEGIC MANAGEMENT S.Y.BMS PROF. VIJAY BIRAJDAR

BUSINESS LEVEL STRATEGY

This type of strategy is concerned more with how a business competes successfully in particular
market. It concerns Strategic Decisions about choice of products, Meeting needs of customers,
Gaining advantage over competitors, exploiting or creating new opportunities, etc.

According to Michael Porter, a firm must formulate a business strategy that incorporates either cost
leadership, diffrentiation or focus in order to achieve a sustainable competitative advantage and long
term success in its chosen arenas or industries.

At the business unit level, the strategic issues are less about the coordination of operating units and
more about developing and sustaining a competitive advantage for the goods and services that are
produced. At the business level, the strategy formulation phase deals with:

 Positioning the business against rivals

 Anticipating changes in demand and technologies and adjusting the strategy to
accommodate them
 Influencing the nature of competition through strategic actions such as vertical integration
and through political actions such as lobbying.

Michael Porter identified three generic strategies (cost leadership, differentiation, and focus) that can
be implemented at the business unit level to create a competitive advantage and defend against the
adverse effects of the five forces

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There are different types of Business unit Strategies

Porters Generic Competitative Strategies(Way of Competing)

A. Cost Leadership:
In cost leadership, a firm sets out to become the low cost producer in its industry. The firm sells
its products either at average industry prices to earn a profit higher than that of rivals, or below
the average industry prices to gain market share. The cost leadership strategy usually targets a
broad market.
Some of the ways that firms acquire cost advantages are by improving process efficiencies,
gaining unique access to a large source of lower cost materials, making optimal outsourcing
and vertical integration decisions, or avoiding some costs altogether. If competing firms are
unable to lower their costs by a similar amount, the firm may be able to sustain a competitive
advantage based on cost leadership.
There are two types of cost leadership strategies:
a. A low cost strategy offers products to a wide range of customers at the lowest price
available on the market.
b. A best value strategy offers products to a wide range of customers at the best value
available on the market.

An example is the success of low-cost budget airlines who despite having fewer planes than the
major airlines, were able to achieve market share growth by offering cheap, no-frills services at
prices much cheaper than those of the larger incumbents. At the beginning for low-cost budget
airlines choose acting in cost focus strategies but later when the market grow, big airlines
started to offer same low-cost attributes, cost focus became cost leadership.

B. Differentiation Strategy

In this strategy the firm seeks to be unique in its industry along some dimensions that are widely
valued by the buyers. It selects one or more attributes that are perceived as important by the
buyers, and uniquely position it to meet those needs.

A successful differentiation strategy allows a firm to charge higher prices for its products to gain
customer loyalty because consumers may become strongly attached to the differentiation
strategy.

A differentiation strategy calls for the development of a product or service that offers unique
attributes that are valued by customers and that customers perceive to be better than or
different from the products of the competition.

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Examples of the successful use of a differentiation strategy are Hero, Honda, Asian Paints, and
HUL.

C. Focus Strategy

The focus strategy concentrates on a narrow segment and within that segment attempts to

achieve either a cost advantage or differentiation. The premise is that the needs of the group
can be better serviced by focusing entirely on it.
A low cost focus strategy offers products or services to a small range (Niche) of customers at
the lowest price available on the market.
A best value focus strategy offers products to a small range of customers at the best price-value
available in the market called as focused differentiation

Generic Strategies
Industry
Force Cost Leadership Differentiation Focus
Ability to cut price in Focusing develops core
Entry Customer loyalty can discourage
retaliation deters competencies that can act as an
Barrier potential entrants.
potential entrants. entry barrier.
       
Large buyers have less power to Large buyers have less power to
Buyer Ability to offer lower
negotiate because of few close negotiate because of few
Power price to powerful buyers.
alternatives. alternatives.
       
Suppliers have power because
of low volumes, but a
Supplier Better insulated from Better able to pass on supplier
differentiation-focused firm is
Power powerful suppliers. price increases to customers.
better able to pass on supplier
price increases.
       
Can use low price to Customer's become attached to Specialized products & core
Threat of
defend against differentiating attributes, competency protect against
Substitutes
substitutes. reducing threat of substitutes. substitutes.
       
Rivals cannot meet
Better able to compete Brand loyalty to keep customers
Rivalry differentiation-focused
on price. from rivals.
customer needs.

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FUNCTIONAL LEVEL STRATEGY

No matter how well corporate level strategies are designed and formulated but if the execution of
corporate level strategy fails in meeting the expected standard all the effort will go in vain. The
success of strategy is largely determined at the functional level.  Functional level checks the reality
of corporate level and business level strategy and brings the desired result by turning strategies and
planning into realities. It is the responsibility of the strategist to provide direction to functional
managers regarding the execution of plan and strategies for the successful implementation. The role
of functional strategy is very crucial for the existence of an organization. Functional strategy provides
support to overall business strategy Departments like marketing, finance, production and HR are
based on the functional capabilities of an organization.

Functional strategies are primarily concerned with:

 Efficiently utilizing specialists within the functional area.

 Integrating activities within the functional area (e.g., coordinating advertising, promotion, and
marketing research in marketing; or purchasing, inventory control, and shipping in
production/operations).
 Assuring that functional strategies mesh with business-level strategies and the overall corporate-
level strategy

Functional strategy therefore focuses on issues of resources, process, people, etc. Functional
Strategies include Marketing strategies, new product development strategies, Human resource
Strategies, financial strategies, legal strategies, supply chain strategies, IT & Management
Strategies.
Functional level strategies are informed by Business level strategies which, in turn, are informed by
corporate level strategies.

Types of Functional Level Strategies:

1. Marketing Strategies :
a. Marketing Strategy deals with pricing, selling & distribution of Product.
b. Here the companies use 2 of strategies:
i. Market Development
ii. Product Development
c. In market development the company capture larger market share in existing market
d. In market Development company develop new market for current products
e. Eg. Unilever, Colgate-Palmolove, Proctor & Gamble etc

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f. Firstly these companies are experts at using advertising and promotion to implement
market penetration
g. Secondly, they extend PLC by introducing “ New and Improved” mvariations of the
products.
h. Thirdly, They follow second level strategy
i. In product Development Strategy a company of SBU can,
i. Develop new products for existing market
ii. Develop new products for new markets
j. For eg. Gujrat Cooperative Milk marketing federation
i. Develop new products to sell to its existing customers
ii. Then through Amul, it introduced varieties of products
iii. Used a successful brand name to market other products
2. Research & Development Strategy:
a. R & D Strategy deals with two important things
i. Product Innovation
ii. Process Improvement
b. It also deals with question Like :
i. How the new technology can be accessed
ii. Internal Development
iii. External acquisition
c. Now here the company has two choices
i. Either be technological leader by innovation
ii. Or be a technological follower by producing Substitutes
d. Now according to porter, depending on the choice the company makes it can either
achieve
i. Diffrentiation
ii. Or Low cost
3. Human Resource Strategy : These strategies are basically planned and implementes for the
most important resource of any organization. The decisions of various aspects like
recruitment of right person at a right time and at a right position, development and training of
the staff, motivation, compensation, etc are taken and implemented.
4. Financial Strategies : These strategies are framed for long term & short term needs of the
organization. It is concerned with how do we secure fincnancial resources necessary to carry
our competitive strategy. Finance is considered to a lifeblood of any organization as all the
activities performed by the orgnanisation require finance. Propper planning must be done for
the utilisatin of this important resource.

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The financial strategies lead to properallocation of financial needs to different departments of

the organization also keep a check on the additional sources of funds.

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STRATEGIC ANALYSIS, CHOICES & IMPLEMENTATION

TOOLS OF STRATEGIC MANAGEMENT

A. Porters Five forces model of competition

Michael Porter provided a framework that models an industry as being influenced by five
forces. The strategic business manager seeking to develop an edge over rival firms can use
this model to better understand the industry context in which the firm operates .

1. Rivalry among current Competetitors: Rivalry refers to the competative struggle for
market share between firms in a inductry. Extreme rivalry among established firms pose
strong threat to the profitability.

The intensity of rivalry is influenced by the following industry characteristics:

a. A larger number of firms increases rivalry because more firms must compete for the
same customers and resources. The rivalry intensifies if the firms have similar
market share, leading to a struggle for market leadership.
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b. Slow market growth causes firms to fight for market share. In a growing market,
firms are able to improve revenues simply because of the expanding market.
c. High fixed costs result in an economy of scale effect that increases rivalry. When
total costs are mostly fixed costs, the firm must produce near capacity to attain the
lowest unit costs. Since the firm must sell this large quantity of product, high levels
of production lead to a fight for market share and results in increased rivalry.
d. High storage costs or highly perishable products cause a producer to sell goods as
soon as possible. If other producers are attempting to unload at the same time,
competition for customers intensifies.
e. Low switching costs increases rivalry. When a customer can freely switch from one
product to another there is a greater struggle to capture customers.
f. Low levels of product differentiation is associated with higher levels of rivalry. Brand
identification, on the other hand, tends to constrain rivalry.
g. Strategic stakes are high when a firm is losing market position or has potential for
great gains. This intensifies rivalry.

2. Barganing power of Buyers : Buyers refers to the customers whi finaly consume product
or the firms whio distribute the industry’s product to the final consumers.

Buyers are Powerful if:

Buyers are concentrated - there are a few buyers with significant market share
Buyers purchase a significant proportion of output - distribution of purchases or if the product is standardized
Buyers possess a credible backward integration threat - can threaten to buy producing firm or rival
Buyers are Weak if:
Producers threaten forward integration - producer can take over own distribution/retailing
Significant buyer switching costs - products not standardized and buyer cannot easily switch to another product
Buyers are fragmented (many, different) - no buyer has any particular influence on product or price
Producers supply critical portions of buyers' input - distribution of purchases

3. Barganing power of Suppliers : A producing industry requires raw materials - labor,

components, and other supplies. This requirement leads to buyer-supplier relationships
between the industry and the firms that provide it the raw materials used to create
products. Suppliers, if powerful, can exert an influence on the producing industry, such
as selling raw materials at a high price to capture some of the industry's profits. The
following tables outline some factors that determine supplier power.

Suppliers are Powerful if:

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Credible forward integration threat by suppliers

Suppliers concentrated
Significant cost to switch suppliers
Customers Powerful 
Suppliers are Weak if:
Many competitive suppliers - product is standardized
Purchase commodity products
Credible backward integration threat by purchasers
Concentrated purchasers
Customers Weak

4. Risk of entry oby pootential competitors: Potential competitors refer to the firms which
are not currently competing in the industry but thae the potential to do so of given a
choice. Entry of new players increase the inductry capacity, beginns a competition for
market share and lowers the current costs. The threat of entry by potential competitors is
partially a funtion of extent of barries to entry.

Easy to Enter if there is: Difficult to Enter if there is:

 Common technology  Patented or proprietary know-

 Little brand franchise how
 Access to distribution channels  Difficulty in brand switching
 Low scale threshold  Restricted distribution
channels
 High scale threshold

Easy to Exit if there are: Difficult to Exit if there are:

 Salable assets  Specialized assets

 Low exit costs  High exit costs
 Independent businesses  Interrelated businesses

5. Threat of Substitute products: Substitute produtcs refer top the products having ability of
satisfying customers need effectively. Substitutes pose a celing(upper limit) on thee
potential returns of an industry bu putting or setting a limit on the price that firms can
charge for throie product in an industry. Leseer the number of Close substitutes a
product has, greater is the opportunity for the firms in the industry to raise therir product
prices and gearn greater profits.
B. Boston Consulting Group (BCG Matrix)
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BCG matrix is a four celled matrix developed by BCG, USA. It ios the most renowned
corporate portfolio analysis tool. It provided a graphic representation for an organisationa to
examine different business in its portfolio on te basis of their related market dhare and
insdustry growth rates. According to this technique, business or products are classified as
low or high performers depending upoun their market growth rate and relative market share.

The elements of BCG matrix are briefly described as follows:

a. Boston consulting Group Matrik based budgeting : The BCG matrix can be used
got resource allocation. In a BCG matrix, products or business units are identified
as question marks, stars, cashcows and dogs
b. The question Marks are also called as wild cats are new products with potential
for success, but they need a lot of cash for development. If such a product is to
gain enough market share to become a leader and thus a star, Money must be
taken from more mature products and spent on a question mark
c. The stars are market leaders and are usually able to generate enough cash to
maintain their high market share. When their market growth rate slows, stars
become cash cows.
d. The cash cows bring in far more money than is needed to maintain their market
share. In their declining ligfe cycle, the money of cash cows is invested in new
question marks.

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e. The dogs have low market share and do not have the potential to bring in much
cash. Accrdong to BCG matrix, dogs should be either sold off or managed
carefully for the small amount of cash they generate.

C. GE/Mckinsey Matrix: This matrix was actually designed to determine an investment stragey
for business units of an organisation. Product categories can also be considered as business
units, as product managers run theor products like business.

In consultation with General Electric Company in the 1970s, McKinsey & Company
developed a nine cell portfolio matrix as a tool for screening GEs large portfolio of strategic
Business Units.

The Idea behind the model is to look at two dimensions-

a. How attractive is the market

b. How stromg is the competitaitve strength of the portfolio

In the above picture, we can see three main colors

Sky blue consist , Build selectively, Protect Position & Invest to Build.
Protect & Refocus, Manage for Earnings, Build selectively falls under yellow category
& Manage for earnings, Divest & Limited expansion falls under Pink.
Resource allocation recommendation can be made to grow, hold or harvest an SBU based
on its position on the matrix as follows:
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Grow strong business Units (Sky blue) in attractive industries, average business units in
attractive insustries, and Strong business units in average industries.
Hold Avarage business in average industries, string business in week industries, and weak
business in attractive industries.
Harvest weak business units in unattractive industries, average business units in
unattractive industries And weak business unts in average industries

STRATEGIC IMPLEMENTATION

Strategic implementation is the process that puts plan & strategis into action to reach goals.
The implementation makes the companys plan happen. The activity is performed according
to a plan in order to achieve an overall goal.
Strategic Implementation involves a systematic process which involves few steps which are:

Step1 : Institiutionalisation of Strategy

Step 2 : Formulation of Action Plans

Step 3 : Designing of Organisational Structiure

Step 4 : Infusing values & ethics

Step 5: Motivation & Training

Step 6: Resource Allocation

Step 7 : Procedural Requirements

Step 8 : Review of performance

1. Institutionalisation of Strategy: Institutionalisation of strategu is the first activity involved

in activating the strategy. Institutionalisation of strategy involves two aspetcs.
 Communication of strategy : Once the strategy is formulated., it must be
cokmmunicated to those persons who would implement it. Stragey
communication is a process of transferring the strategy information from the
formulators to the implementers. The commujunication oins normally in
writing.. The communication should include purpose of the strategy, and
activities required to implement the strategy.
 Securing Acceoptance of strategy: It is not enough to communicate the
strategy to the members of the organisations, but it is equally imporetant to
secure their acceptance of the strategy. So that they implement the strategy

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effectively. Normally a mojor problem in strategy acceptance is that the

organisational members often resist a strategy, particularly when it requires
special efforts to implement it. Therefore it is advisable to prepare a
preliminary draftof strategy, and it is circulated among all those who are
expected to implement it. Another alternative is that before framing the
strategy, the management may ask for suggestion for strategy formulation.
This is because; theie constructive criticisms and suggestions would be
valuable in framing the final draft of strategy.
2. Formulation of action plans: Once the strategy is institutionalised through its
communication and acceptance., the management proceed to formulate action plans. The
management has to frame action plan. The managementhas to frame action plans in
respect of several activities requiured to implement a strategy. The action plans may be in
respect of purchasing new machinert, appointing additional personnel, developng a new
process. Etc. while framing action plans , the managers must consider trhe following
factors:
 The objectives of action plan
 The activities required to perform the action plan
 The resources required to perform the various activities
3. Designing of Organisation Structure : The organisation has to be designed according to
the needs of the strategy implementation. Any change in corporate strategy may require
some changes in the organisational structure and in the skills required in certain positions.
Management must find answers to certain questions such as:
 Should activities be grouuped diffrently?
 Should the authority to make key decisions be centralized or decentralized?
 Should the organisation be organisaed into a few levels to give more freedom
to subordinates or into many levels to ensure better control over
subordinates?
Proper answers to the above questions will help the managers to obtain the resources
from the right sources, overcome the problemc in resource allocation, and allocate the
resources properly so that there can be effective implementatiuon strategy.
4. Infusing Values & ethics: Business ethics is concerned with mortali-ty in business. In
todays world, Business communicty forms an important part of the society and its actions
are bound to have a direct impact on the well being and welfare of the society. Business
affects society in terms of what it does, i.e., what prodyucts it supplies. Therefore, it is
necessary that the business communicity conduct its activities with self check, and self
control keeping in mind the intrest of community at large.

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5. Motivation & training: There is a need to motivate the empoloyees to implement the
strategy effectivel;y. The company design proper compensation policiies to motivate the
empoloyees. The employees may be provided with adequate training, not only to develop
knowledge and skills, but also to develop positive attitude towards work, and the
organisatin. The Motivation and trainjing woulod enable result in effecticve implementation
of the strategy.
6. Resource Allocation : For Succesful implementation of strategy, there must be proper
resource allocation to various units and actiovities . The resources can be broadly clasified
into three groups: financial, Physical and human. The various resources are required for
the conduct of strategic Tasks so as to accomplish the organisational objectives.
7. Procedural Requirements: After alocating of resources , the managers must get the
strategy implemented. An organisation must follow various procedural requirements to
implement the strategy. The variouys procedural requirements that may be followed,
wherever requitred:
 Licensing requirements
 FEMA requirements
 Provisions of Cpompanies act.
 Labour legislations
 Provisions regariding joint ventures or collaborations, etc.
8. Review of performance: The managemebt must review the performance of the strategy.
The performance must be revievedPeriodically. If requirted, correcteive measures need to
be taken, so as to ensure the achievement of desired objectives.

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EVALUATION & CONTROL

Strategic Evaluation & control is that phase of Strategic Management, which ensures whether or not
a particular strategy contributes to the objectives of the enterprise. With the help of Strategic
Evaluation, mangers measure the results of Strategic action. And strategic control helps to take
corrective action, if deviations take place.

William Glueck & Lawrence Jauce defines strategic evaluation as follows:

“Evaluation of Strategy is that phase of the strategic management process in which the top
managers determine whether their strategic choice as implemented is meeting the objectives
of the enterprise.”

PROCESS OF EVALUATION AND CONTROL

1. Fixing benchmark of performance - While fixing the benchmark, strategists encounter

questions such as - what benchmarks to set, how to set them and how to express them. In
order to determine the benchmark performance to be set, it is essential to discover the
special requirements for performing the main task. The performance indicator that best
identify and express the special requirements might then be determined to be used for
evaluation. The organization can use both quantitative and qualitative criteria for
comprehensive assessment of performance. Quantitative criteria includes determination of
net profit, ROI, earning per share, cost of production, rate of employee turnover etc. Among
the Qualitative factors are subjective evaluation of factors such as - skills and competencies,
risk taking potential, flexibility etc.
2. Measurement of performance - The standard performance is a bench mark with which the
actual performance is to be compared. The reporting and communication system help in
measuring the performance. If appropriate means are available for measuring the
performance and if the standards are set in the right manner, strategy evaluation becomes
easier. But various factors such as managers contribution are difficult to measure. Similarly
divisional performance is sometimes difficult to measure as compared to individual
performance. Thus, variable objectives must be created against which measurement of
performance can be done. The measurement must be done at right time else evaluation will
not meet its purpose. For measuring the performance, financial statements like - balance
sheet, profit and loss account must be prepared on an annual basis.
3. Analyzing Variance - While measuring the actual performance and comparing it with
standard performance there may be variances which must be analyzed. The strategists must
mention the degree of tolerance limits between which the variance between actual and
standard performance may be accepted. The positive deviation indicates a better
performance but it is quite unusual exceeding the target always. The negative deviation is an

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issue of concern because it indicates a shortfall in performance. Thus in this case the
strategists must discover the causes of deviation and must take corrective action to
overcome it.
4. Taking Corrective Action - Once the deviation in performance is identified, it is essential to
plan for a corrective action. If the performance is consistently less than the desired
performance, the strategists must carry a detailed analysis of the factors responsible for such
performance. If the strategists discover that the organizational potential does not match with
the performance requirements, then the standards must be lowered. Another rare and
drastic corrective action is reformulating the strategy which requires going back to the
process of strategic management, reframing of plans according to new resource allocation
trend and consequent means going to the beginning point of strategic management process.

CONTROLLING TECHNIQUES

The controlling functiuon includes activities undertaken by managers to ensure that actual results
conform to planned results. Control tols and techniques help managers pinpoiunt the organizational
strengths & weakness on which useful control strateguy must focus.

Techniques of
Controlling

Financial Non Financial

A. Non Financial Control Techniques

1. The Program Evaluation and Review Technique (PERT) : PERT is planning and control
technique that allows managers to decompose a project into specific activities and to
plan far in advance when it is to be completed. The main function of PERT is to
determine the time required to complete a particular project.
2. Critical Path Method (CPM) : The CPM is an algorithm for scheduling a set of project
activities. It is an important tool for effective project management. The CPM is a project
modeling technique commonly used with all forms of project, including consutuction,
aerospace and defense, software development, research projects, product development,
engineering, and plant maintenance
BHARAT COLLEGE OF COMMERCE, BADLAPUR
STRATEGIC MANAGEMENT S.Y.BMS PROF. VIJAY BIRAJDAR

3. Reward / Motivation Techniques: Motivation is a process of Stimulating people to action

to accomplish the desired goals. Motivation Results from the interactions among
conscious and unconscious factors.
Motivation is the driving force by which human achieves their goals. Motivation is said to
be Intrinsic or Extrinsic
Intrinsic Motivation refers to motivation that comes from inside individual rather then from
any external or outside rewards.
Extrinsic Motivation refers to motivation that comes from outside an individual. The
motivating factors are external, or outside, rewards such as money or grades. These
rewards provide satisfaction and pleasure that the task itself may not provide.
Motivational Factors/Incentives:
Monetary incentives:
Payment of wages and salaries
Payment of Bouns, Special incentives etc
Non Monetary Incentives
Recognition
Applause
Job titles
Good Work Environment
On-The-Spot Praise etc.

B. Financial Control Techniques

1. Break even Analysis: BE analysis helps managers determine how many units must
be sold before a product is profitable. It is a point where the firm will be at no profit no
loss situation.
2. Budgetary Control: Budgeting is a process by which management specifies the
resources it will employ to achieve the organizations objectives. It also provides the
means of measuring the successful accomplishment of the stated objectives within a
specific time period.
A Budget can cover any of the following:
 Profit Planning-Forecast of revenues & expenses
 Cash Budgeting-Forecast of cash needs and sources
 Balance Sheet forecasting-Anticipating future assets, Liability and net worth
position of the business.
3. Ratio Analysis : Ratio analysis is the process of computing and presenting the
relationshiops between the items in the fincnaial statements. It is an Iimportant tool of

BHARAT COLLEGE OF COMMERCE, BADLAPUR

STRATEGIC MANAGEMENT S.Y.BMS PROF. VIJAY BIRAJDAR

financial analysis, Because it helps to study the financial performance and position of
the organization.
4. Cost Benefit Analysis: A cost benefit analysis is done to determine how well, or how
poorly, a planned action will turn out. Although, a cost benefit analysis can be used
for almost anything; it is most commonly done on financial questions. Since the Cost
benefit analysis relies on the addition of positive factors and the subtraction of
negative ones to determines a net result, it is also known as running the numbers
5. Return on Investment : ROI are appropriate for evaluating the corporations ability to
achieve profitability objectives. Tis type of measure, However, is adequate for
evaluating additional corporate objectives. Such as social responsibility or employee
development. A firm therefore needs to develop measures that presict likely
profitable. These are referred to as steering controls because they measure those
variables that influence future profitability

BHARAT COLLEGE OF COMMERCE, BADLAPUR