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MCO 23 EM SP - Course Notes

Strategic Management (Indira Gandhi National Open University)

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STRATEGIC MANAGEMENT
MCO-23

Santosh Kumar Sharma

(MCOM / MBA / BED)
Email: [email protected]

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Contents
Units Topics Page
No
1 Concept of Strategy 2
2 Strategy Framework 5
3 Strategy in Global Context 8
4 External Environmental Analysis 11
5 Competitive Analysis 12
6 Internal Environmental Analysis 15
7 Business Level Strategy 17
8 Competitive Strategy 19
9 Corporate Level Strategy 21
10 Implementation- Behavioral Dimensions 23
11 Corporate Governance 25
12 Control 27
13 Evaluation 29

(*) This implies the weightage of the question

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MCO-23
STRATEGIC MANAGEMENT

UNIT-1: Concept of Strategy

Meaning of Strategy *
The strategy is defined as a plan to attain the objective and long-term goals of the organization. In management, the
concept of strategy is taken in broader terms. Strategies are used to acquire a competitive advantage over others in
any field. There can be general or specific strategies depending upon the situation. Organization deploys strategies
for several purposes such as for satisfying customers, surviving in the market, expanding the business, improving
market share, increasing profitability and ultimately to attain objectives of the organization.
Three types of actions involved in strategy:
• Determination of long-term goals/objectives
• Adoption of course of action
• Allocation of resources.
Features or characteristics of Strategy *
Mintzberg has given 5 Ps for strategy which are the important features of strategy. These 5Ps are:
1. Pattern
2. Plan
3. Position
4. Perspective
5. Ploy
1) Pattern: Every strategy follows a certain pattern or trend. It means the organization has been consistent
following a particular course of action. Pattern shows the past behaviours. This becomes the realized strategy.
2) Plan: When we see strategy as a plan, it means preparing for future or looking ahead. This becomes an intended
strategy. Usually, the organizations witness quite a contrast between the intended strategy and the realized
strategy. For example, an organization plans to diversify but it does not take the decision of diversification at
one go instead it moves towards diversification in a step-wise manner.
3) Position: In certain cases, especially in the competitive markets, strategy is a position. For example, fast food
chain wants to locate particular products in specific markets.
4) Perspective: Strategy looks at the vision of the organization. In position it looks at the external environment
whereas in perspective it looks at the internal environment.
5) Ploy: Ploy is the tactic used by the organization to defeat its competitors. It is generally based on fixing price,
quality, marketing strategy, etc.
Nature of Strategy *
1. Strategy involves both organisation and environment which are inseparable.
2. Strategy cannot be structured, routine and repetitive.
3. Strategy is futuristic in nature.
4. Strategy is a combination of both content and process.
5. Strategies are formulated at different levels of organisation.
6. Strategies are meant for taking decisions.
Importance of Strategy*
Strategy provides various benefits to its users. These are:
1. Strategy helps an organization to take decisions on long-term decisions.
2. It allows the organization to deal with a new trend and meet competition in an effective manner.
3. Strategy helps the management to be flexible and meet the uncertain situations.
4. Efficient strategy formulation result in financial benefits to the organization in the form of increased profits.
5. Strategy provides clarity of direction for achieving the objectives.
6. Organizational effectiveness is ensured and will be more conscious of their environment.
7. It provides motivation to employees to put in their best efforts to achieve the goals.

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8. Strategy formulation & implementation gives an opportunity to the management to involve different levels of
management in the process.
9. It improves corporate communication, coordination and allocation of resources.

Concept of Strategic Management *

Strategic management involves making strategic decisions at various levels of the organization. However, strategic
decisions are taken at the top level of management and then transferred to lower-level management. These decisions
are related to moving from the present state of an organization to a future state. It basically develops a framework
within which an organization function. In other words, strategic management defines organizational capability,
forms of value addition and the purpose of the existence of an organization.
Features of Strategic management:
i) It is a medium and long-term process.
ii) It begins with the formulation of a desirable future position for the organization, followed by decisions
regarding what is at the core of the organization;
iii) It helps in setting up targets for reaching the future state;
iv) It enables an organization to obtain an edge over its competitors in the market
v) It helps in formulating strategies for efficient utilization of resources;

Difference between Strategy and Policy **

Strategy Policy
Strategy is a plan of action for achieving Policy is the guidelines or instructions for certain
organizational goals. actions.
Generally, strategy is flexible and can be changed Policy of an organisation is generally fixed for some
according to the circumstances. period of time.
A strategy is related to decision making of the A policy is related to the rules of the organization for
organization for future situations; which may the repetitive activities.
occur in future.
Strategies are formed at the top and middle level of Plans are formulated at the top level of management
management. only.
Strategies govern external environment. It covers internal environment only.

Distinguish between Strategy and Tactics **

Strategy Tactics
Strategy determines the major plans to be Tactics is the means by which previously
undertaken. determined plans are executed.
Strategic decisions cannot be delegated to lower Tactics can be delegated to all the levels of an
levels in the organization. organization
Strategy has a long-term perspective usually. But in case of tactics, it is short run and definite.
term duration. Thus, the time horizon in terms of
strategy is flexible
The decisions taken as part of strategy formulation In contrast tactical decisions are more certain as
have a high element of uncertainty. they work upon the framework set by the strategy.
Evaluation of strategy is difficult. Evaluation of tactics is not very difficult.

Levels of Strategy ***

There are mainly three levels of strategy. These are:
1. Corporate Level
2. Business Level
3. Functional Level
1) Corporate level strategy
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At the corporate level, strategies are formulated as per the policies of the organization. The important
characteristics of this level include:
a) These are value oriented, conceptual and less concrete than decisions at the other two levels.
b) These are characterized by greater risk, cost and profit potential as well as flexibility.
c) Mostly, corporate level strategies are futuristic, innovative and pervasive in nature.
d) They occupy the highest level of strategic decision making and cover the actions dealing with the
objectives of the organization.
e) Such decisions are made by top management of the organization. The example of such strategies includes
acquisition decisions, diversification, structural redesigning etc.
f) The board of Directors and the Chief Executive Officer are the primary groups involved in this level of
strategy making.
2) Business level strategy
The strategies formulated by an organisation to make the best use of its resources come under the category of
business level strategies. The important characteristics include:
a) Strategy is a comprehensive plan providing allocation of resources among functional areas and
coordination between them for achievement of corporate level objectives.
b) These strategies operate within the overall organizational objectives set by the corporate strategy.
c) The managers are also involved in this level of strategy.
d) The strategies are related with a unit within the organization.
3) Functional level strategy
This strategy relates to a single functional operation and the activities of the organization. The important
characteristics include:
a) The decisions at this level are described as tactical.
b) The strategies are concerned with how different functions of the enterprise like marketing, finance,
manufacturing etc. can be integrated to achieve the goals.
c) Functional strategy deals with a relatively restricted plan providing for specific function and allocation of
resources among different operations.

What are SBUs? *

• There are basically two categories of organizations- one, which have different businesses organized at
different directions or product groups known as strategic business units (SBUs) and other, which consists of
organizations which are single product organizations.
• The example of first category can be organizations which are highly integrated units like textile, yarn, and a
variety of Petro-chemical products and the example of the second category could be an organization which is
engaged in the manufacturing and selling of heavy commercial vehicles.
• The SBU concept was introduced by General Electric Organization (GEC) of USA to manage product business.
Features of SBU
1. A SBU is created for each independent product/ segment.
2. Each and every SBU is different from another SBU due to the distinct business areas it is serving.
3. Each SBU has a clearly defined product/market segment and strategy. It develops its strategy according to
its own capabilities and needs with overall organizations capabilities and needs.
4. Each SBU allocates resources according to its individual requirements.
5. The single product organizations have single Strategic Business Unit. In these organizations, corporate level
strategy serves the whole business.

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UNIT-2: STRATEGIC FRAMEWORK

Concept of Strategic Intent * *
Strategic intent is the direction which an organization adopts to achieve the expected goals. This term was
formulated by Hamel and Prahalad in 1989 and is concerned with the allocation of available resources, organizing
the individual efforts of employees, collaborating with the workforce in a team and motivating them towards
organizational goals. It is the basic strategic input of the strategic management process. It explains the purpose for
which an organization exists and what an organization as a whole wants to achieve. The strategic intent of an
organization consists of:
1. Vision *
2. Core Values
3. Mission *
4. Objectives
1) Vision: A vision of an organization is the expectation that the organization wants to fulfil. The important
features of vision are:
a. It is a position which an organization wants to achieve in future.
b. It shows a futuristic picture of an organization.
c. It acts as a guide for an organization.
d. An organization which has a formally written vision is able to concentrate better on its functional abilities.
e. An organizational vision depicts the desirable future position that an organization wants to achieve in the
coming years.
f. It involves movement from the current position to the future position.
g. A vision is a long-term concept as it remains the same for several years.
h. The aim of the vision statement is to provide an answer to the questions – ‘What an organization wants to
become?’
i. A vision statement defines the ‘strategic path’ of an organization.
j. The vision statement should possess the following characteristics in order to be effective:
• Directional – It should provide a clear direction as to where the organization will be heading in future.
• Feasible – It should be such that it is achievable.
• Flexible – It should be able to change in response to the changes in external as well as the internal
environment of the organization.
• Unique – A vision statement differs for different organization as it is based on an organization’s core
value which is unique to an organization. Hence, it should be distinctive for every organization.
• Inspiring – It must be able to inspire and motivate the entire workforce of an organization.
• Core Values – It should depict the core values of an organization. It must reflect the purpose for which
the organization exists.
• Clear – It should bring clarity to the minds of managers as how to make decisions and allocate resources
for achieving success.
k. Advantages of Vision are:
• Fosters experimentation.
• Promotes long-term thinking.
• Fosters risk taking.
• Makes organizations competitive, original and unique.
• They are inspiring and motivating to people working in an organization.
2) Core Values: Core Values are the essential beliefs of an organization. These may be beliefs of top management
regarding employee’s welfare, customer’s interest and shareholder’s wealth. The entire organization structure
revolves around the philosophy coming out of core values. Purpose is the reason for existence of the
organization. The characteristics of core purpose are as follows:
• It is the overall reason for the existence of organization.
• It is ‘why’ of an organization.
• This mainly addresses to the issue which organization desires to achieve internally.

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• It is the broad philosophical long-term rationale.

• It is the linkage of organization with its own people.
3) Mission: Mission may be defined as the “essential purpose of the organization, concerning why it is in
existence, the nature of the business it is in, and the customers it seeks to serve and satisfy.” It is the basis of
awareness of a sense of purpose. The mission of an organization incorporates the activities undertaken by an
organization. It highlights the market target by the organization, technologies adopted and product and
services offered. A mission distinguishes the organization from the other organizations in an industry. The aim
of the mission statement is to answer the question – ‘What an organization does?’ In other words, it discusses
the extent and spread of an organization’s operations. The mission of an organization should be based on its
core values. The core value of an organization is nothing but the fundamental beliefs, philosophy and principles
of the organization.
In order to be effective a mission statement should possess the following features:
i) Achievable – It should be constructed in a manner that it can be fulfilled with the available resources.
ii) Easy to Understand – It should not be complex. A mission statement is meant for employees and hence
the language should be appropriately framed. It should be brief and positive.
iii) Clear and Specific – It should be precise and not vague. It should clearly indicate the business activities
so that employees can remain focused.
iv) Aspire – It should be able to inspire the employees to adapt to the basic values and belief of the
organization.
v) Individuality – It should be able to define the character of an organization.
4) Objectives: Objectives provide yardstick to measure performance of a department or organization. It serves
as a motivating force. All people work to achieve the objectives. Objectives help the organization to pursue its
vision and mission. Long-term perspective is translated in short-term goals. It defines the relationship of
organization with internal and external environment. It provides a basis for decision-making. All decisions
taken at all levels of management are oriented towards accomplishment of objectives.
Characteristics of objectives
a) They form a hierarchy. It begins with broad statement of vision and mission and ends with key specific goals.
These objectives are made achievable at the lower level.
b) A specific time horizon must be laid for effective objectives. This timeframe helps the strategists to fix targets.
c) Objectives must be within reach and is also challenging for the employees. Attainable objectives act as a
motivator in the organization.
d) Objectives should be understandable. Clarity and simple language should be the hallmarks. Vague and
ambiguous objectives may lead to wrong course of action.
e) Objectives must be concrete therefore they need to be quantified. Measurable objectives help the strategists
to monitor the performance in a better way.
f) There are many constraints internal as well as external which have to be considered in objective setting. As
different objectives compete for scarce resources, objectives should be set within constraints.
Types of Objectives
i) Profit objective is the most important objective for any business enterprise. In order to earn a profit, an
enterprise has to set multiple objectives in key result areas such as market share, new product development,
quality of service etc.
ii) Marketing objective aims to increase market share and sales of the organisation.
iii) Productivity objective may be expressed in terms of ratio of input to output. This objective may also be
stated in terms of cost per unit of production.
iv) Product objective may be expressed in terms of product development, product diversification, branding
etc.
v) Social objective may be described in terms of social orientation. It may be tree plantation or provision of
drinking water or development of parks or setting up of community centres.
vi) Financial objective relates to cash flow, debt equity ratio, working capital, new issues, stock exchange
operations, collection periods, debt instruments etc.

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vii) Human resource objective may be described in terms of absenteeism, turnover, number of grievances,
strikes and lockouts etc.
Process of Setting Objectives
Four factors that should be considered for setting the objectives. These factors are:
1. Environmental forces, both internal and external environmental forces, should be considered while
setting objectives. These forces are dynamic in nature and may influence the interests of various stake
holders.
2. As objectives should be realistic and attainable. the efforts be made to set the objectives in such a way so
that objectives may become attainable. For that, existing resources of enterprise and structure should be
examined carefully.
3. The values of the top management influence the choice of objectives. A philanthropic attitude may lead
to setting of socially oriented objectives while economic orientation of top management may force them
to go for profitability objective.
4. Past is important for strategic reasons. Organizations cannot deviate much from the past. Management
must understand the past so that it may integrate its objectives in an effective way

A short on Strategic Analysis *

Strategic analysis involves the analysis of the internal and external environment of the organization. It is conducted
to ascertain the circumstance under which the organization is operating for the purpose of strategy formulation.
Environmental analysis involves assessing all the forces and factors which surrounds the organization. They are
divided into internal and external environment analysis.
The internal environment of an organization comprises of the factors which only affects that particular organization
whereas external environment comprises of all the factors which affect the whole industry and all the organizations
of that industry. There are various techniques used for analysing the environment. A SWOT analysis is the most
preferred technique for assessing the internal environment of an organization with respect to the external
environment.
Components of Strategic Analysis
1. Conducting the environmental analysis.
2. Assessing the existing strategies to check whether they fulfil the goals.
3. Evaluation of various strategic alternatives.
4. Adopting the most viable strategy.

Concept of Strategic Implementation *

Strategic implementation is the stage where the formulated strategies are executed. This is the phase of activating
the strategies. Implementation of strategies involves
1. Setting goals
2. Developing plans
3. Structuring the organization
4. Allocating resources
5. Communicating the plans and goals
6. Motivating the employees
7. Establishing leadership

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UNIT-3: STRATEGY IN GLOBAL CONTEXT

Processes of Environmental Analysis

The process of analysing the business environment includes several steps. These are:
1. Factor Identification
2. Factor Selection
3. Variable Analysis
4. Strategic Positioning
1) Factor Identification: The first step in the process of analysing the environment is identifying the factors
prevailing in the environment. The environmental factors differ from nation to nation.
2) Factor Selection: The next step involves selecting the relevant factors and analysing the related variables to
forecast the effect of such factors on the business.
3) Variable analysis: This is followed by profiling the factors according to the positive and negative aspects it
can create for the business.
4) Strategic Positioning: The last step in the process of environmental analysis is determining a strategic
position based after analysing the environmental threats and opportunities and organizational strengths and
weakness.

Concept of Pestle Analysis ***

Pestle analysis is an important tool used for analysing the external environment, especially in foreign markets.
PESTLE stands for political, economic, social, technological, legal and environmental factors which exist in an
international business environment. It helps in gaining insights on the external threats and opportunities faced by
an organization.
PESTLE analysis helps in planning strategic alternatives based on the desired strategic position which an
organization wants to attain. A business organization has to function in dynamic environment and therefore, the
need to analyse different factors arises which is important to sustain in the market. For example, the manager needs
to plan strategies based on the domestic labour laws, economic conditions and government policies before entering
the market of that nation.
There are three steps involved in conducting a PESTLE analysis. These are:
a. The first step involves considering the factors which are relevant to the organization.
b. Next step is concerned with identifying the information which can give a clear picture about the relevant
factors.
c. The final step involves analysing the data and drawing conclusions from the selected information. The
various factors covered under PESTLE analysis are depicted

Factors that influence PESTLE Analysis *

1. Political factors: Political factors are related to the government regulations, policies and laws with regards
to the trade, commerce, economy, human resources and environment of a nation. It includes all the laws the
government of a nation passes. It also includes the trade treaties which a nation enters into with the nations
across globes such as trade treaties between ASEAN nations. Political factors also include the rules setup by
the legislation which binds the working environment in a nation such as working hours and working
conditions. A few examples for international political factors can be-
• Stability of the political environment
• Foreign trade policies
• Local taxation rules
• Membership of international summits and groups such as ASEAN, G20
2. Economic Factors: Economic factors can affect the way an organization does its business in a market. These
factors are responsible for the demand and supply of a commodity, rate of inflation, interest rate, foreign
exchange rate, etc.
3. Social Factors: Social factors are related to the social behaviour and culture prevalent among the people of
a nation. It includes local languages, religious beliefs and cultural practices. It also includes the manner in

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which the population of the nation responds to the laws, rules and regulations. The demand for the product
and services of an organization can also be affected by the attitude of the customers towards them. Therefore,
organizations should take into consideration the social values of a nation before launching their products
into the foreign market. Social factors also include the demographic aspects of the nation.
4. Technological factors: In the present competitive world, technology is the most important asset for any
organization for achieving competitive advantage in a market or industry. The new and advanced
technologies enable an organization to develop better products and services for the target markets. It may
allow an organization to innovate new products, processes or services which can ultimately lead to creation
of new markets for the organization. Technological factors include patents, research and development,
technological advancements and automation technology owned by an organization.
5. Legal Factors: Legal factors are related to the rules, regulation and laws of a nation. These factors can impact
the micro and macro environment of an organization. Moreover, an organization needs to obtain various
permissions from the regulatory bodies and adhere to the legal requirements. Legal factors include
environmental laws, industry regulations, consumer protection laws and other statutory requirements.
6. Environmental factors: These factors include all the factors related to physical environment of the nation
and the rules related to the protection of the environment. Environmental factors include climate, weather
conditions, environmental laws, geographical location and global environmental conventions. For instance,
organization based in tourism sector or agricultural produce are highly influenced by environmental factors.

Entering Global Markets *

A firm can enter into international market in the following ways:
1. Direct Exporting
2. Licensing
3. Joint Venture
4. Direct Investment
1) Exporting:
Exporting involves marketing of goods in a foreign nation. This is considered to be a traditional and well-
established method of entering foreign markets. It does not entail new investment since exporting does not
require separate production facilities in the target nation. Most of the costs incurred for exporting products
are marketing expenses.
2) Licensing
Licensing gives permit to an organization in the target nation to use the property of the licensor. Such property
usually is intangible, such as trademarks, patents, and production techniques. The licensee pays a fee in
exchange for the rights to use the intangible property and possible for technical assistance. Licensing has the
potential to provide a very large ROI since this mode of foreign entry also requires additional investments.
3) Joint Venture
There are five common objectives in a joint venture such as, market entry, risk/reward sharing, technology
sharing, joint product development, and conforming to government regulations. Other benefits include
political connections and distribution channel access that may depend on relationships.
4) Direct Investment
Direct investment is taking ownership of an asset in a foreign country. It involves the transfer of resources
including capital, technology, and personnel to other nation. Direct investment may be made through the
acquisition of an existing firm or the establishment of a new enterprise. Direct ownership provides a high
degree of control in the operations and the ability to better know the customers and competitive environment.

EPRG Framework
EPRG framework is concerned with four strategic orientations which an organization can adopt for managing its
international business. EPRG stands for Ethnocentric, Polycentric, Regiocentric and Geocentric orientation.
1. Ethnocentric Approach
Under this approach, the entire process of strategic decision-making and control is vested in the domestic or
local nation where headquarter of the organization is situated. The organization believes that the products
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manufactured in the domestic nation are suitable for selling in the foreign markets. In other words, the
products or services offered in the local markets are to be sold in the global markets without any alterations
made to suit the customers of global markets. Further, under ethnocentric approach an organization adopts
single marketing strategy which implies that same marketing strategy is followed in the international
markets which has been deployed in the local markets. The organization following this approach ignores the
needs and demands of the global customers.
2. Polycentric approach
Under this approach, the process of managing the global business is based in the different foreign markets
where an organization wants to sell their products or services. This approach is opposite to ethnocentric
approach. In this approach, the strategic control is given to the subsidiaries situated in the foreign nations.
These subsidiaries are allowed to develop strategies based on the needs and demands of the customers
residing in that foreign nation. The production process is also situated in the foreign nation. Hence, the
products, services and the marketing strategies vary from nation to nation.
3. Regiocentric Approach
Regiocentric approach is based on the division of global markets into particular regions, such as South-Asian
region, European region or American region. In other words, the entire world is divided into different regions
based on certain similarities. Under this approach, an organization formulates different strategies for
different regions. This implies that the different nations pertaining to one region will follow the same
strategy. The markets located in different nations of a region are assumed as one single international market
based on common traits. The same range of products and services are offered to the customers of a particular
regions.
4. Geocentric Approach
Under this approach, the entire world is depicted as one single market. This implies that there is no difference
between domestic nation and foreign nations. An organization following geocentric approach formulates
strategy based on the global needs of the consumer. The same products and services offered in all the
markets throughout the globe. The production process can be situated anywhere in the world depending
upon low-cost of production and availability of raw material. This approach enables effective adaptation to
the changing needs across the different nations. Such an approach is suitable for an organization which
makes high-end products with unique features such as luxury car-makers.

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UNIT-4: EXTERNAL ENVIRONMENT

Process of analysing external environment
This consists of three steps which are as follows:
1. Environmental scanning
2. Assimilation
3. Evaluation
1) Environmental Scanning: In the first step the organization should gather all the information related to
political, economic, socio-cultural, technological, legal and environmental factors. This can be done using
internet, magazines, newspapers etc. A periodic scanning report of these factors can be submitted for
performing the external audit.
2) Assimilation: The second step involves assimilation of all the information gathered. This involves assessing
the opportunities and threats available with the organization.
3) Evaluation: The last step in this process is evaluating. In this the key external factors need to be identified and
evaluated so that management can take key decisions based on this information. These key factors should be
important in helping long term objectives of the organization and should be measurable in nature.

Industrial Organisation Model *

The Industrial Organization Model adopts an external perspective on strategic decision- making. This model assumes
that the features and conditions of the external environment affects the strategic activities of an organisation. The
industrial organization model follows a process for achieving competitive advantage which are as follows:
a. To examine the external environment which includes general, industrial, and competitive environment.
b. The second step is to choose the industry which has potential of high returns.
c. Strategies associated with above-average returns should be developed based on the features of the industry
in which the organization plans to operate.
d. To develop the key resources required for successful implementation of the formulated strategies and plans.
e. The model indicates that competitive advantage will be achieved if an organization successfully implements
the strategic actions which enable an organization to utilize its resources for meeting the demands of external
environment.
External Factor Evaluation Matrix **
The External Factor Evaluation Matrix (EFE) is a tool which helps strategists to summarize and evaluate the PESTEL
factors. This involves five steps which are as follows:
a. List key external factors.
b. Assign weight to each factor
c. Assign a rating to each factor
d. Determine a weighted score
e. Determine the total weighted score.
a) List key external factors: Once the PESTEL is performed, key external factors are identified. In this all the factors are
included which determine the opportunities and threats for the organization. Then the listing of all the opportunities
and threats is done using percentages, ratios etc.
b) Assign weight to each factor: This is the second step where each factor is assigned weight ranging from 0.0 (not so
important) to 1.0 (very important). These weights depict the relative importance to each factor.
c) Assign rating to each factor: A rating of 1 to 4 factors is assigned. This is done to show the effectiveness of the
organization’s present strategic response to the factor. The rating scale is depicted as below:
1 = Poor response
2 = Average response
3 = Above average response
4 = Superior response.
d) Determine a weighted score: This is the fourth step and it involves multiplying weight of each factor by its rating.
e) Determine the total weight score: This is the last step to be performed and in this step a score of the weighted
score of each variable is

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UNIT-5: COMPETITIVE ANALYSIS

Competitive Forces *
Competition in any industry is usually intense. Therefore, it is very important to understand the forces which are
important for a competitive analysis. These are:
1. Strengths of the competitors.
2. Weaknesses of the competitors.
3. Objectives and strategies of the competitors.
4. Response of the competitors towards PESTLE factors.
5. Vulnerability of the competitors to alternative strategies of other organization.
6. Positioning of the products / services relative to major competitors.
7. The status of entry and exit of new and old business organizations respectively.
8. Trends of the sales and profits ranking of major competitors in the industry.
9. Supplier and distributor relationships in the industry.
10. Threat to the competitors due to the substitute products/ services.

Porter’s 5 Forces Framework ***

Competitive analysis is one of the most critical parts of an organization’s strategic plan. This involves identifying the
strategies of the competitors to assess their strengths and weaknesses. The five forces framework developed by
Michael Porter is the most widely known tool for analysing the competitive environment, which helps in explaining
how forces in the competitive environment. These competitive forces are as follows:
1. The rivalry among competitors
2. The potential entrants
3. The substitute products
4. The bargaining power of suppliers
5. The bargaining power of buyers

i) The rivalry among competitors

In the present market, there is a stiff competition among sellers. There is an existence of severe rivalry among
them. Therefore, a firm should understand the strengths and weaknesses in order to sustain in the market.
This is the foremost force to be analysed by a firm.

ii) Threat of New Entrants

Entry of a new business organization in a market is seen as a threat to the established business organizations
in that market. The competitive position of the established business organizations is affected because the
entrants may add new production capacity or it may affect their market shares. They may also bring additional
resources with them which may force the existing business organizations to invest more than what was not
required before. Altogether the situation becomes difficult for the existing business organizations. Therefore,
they resort to raising barriers to entry of new firms:
a. Economies of Scale: Business organizations which operate on a large scale get benefits of lower cost
of production because of the economies of scale. Since the new business organization normally would
start its operation at a smaller scale and therefore will have a relatively higher cost of production, its
competitive position in the industry gets adversely affected.
b. Learning or Experience Effect: The experience curve or the learning curve suggests that as business
organizations produce more, they grow more efficient and this brings them cost benefits. The
efficiency levels achieved is an outcome of the experience, which teaches the organization better ways
of doing things. This again keeps any new entrant at a disadvantage.
c. Brand benefits: Buyers are often attached to established brands. The new entrants have to really
work hard to beat such brands and change the mindset of the customers.
d. Capital Requirements: High investments required for a start up in any business is another problem
for new entrants bringing down the possibility of increased competition.

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e. Access to Distribution Channel: Any such critical activity like distribution channel in the business
can be a barrier for the entrants when accessibility to them is found to be difficult. Most existing
business organizations in FMCG industry are found to have a strong favourable distribution channel
which is very difficult to penetrate.

iii) Bargaining Power of Suppliers

Business organizations largely depend on suppliers. Suppliers’ decisions on prices, quality of goods and
services and other terms and conditions of delivery and payments have significant impact on the profit trends
of an industry. However, suppliers’ ability to do all these depends on the bargaining power over buyers.
Suppliers’ bargaining power would normally depend on:
a. Importance of the Buyer to the Supplier: The quantity of goods bought by a particular buyer is
likely to put the buyers in a relatively advantageous position. When the buyer is not so important to
the supplier, he is not in an advantageous position to bargain. and the latter then is less likely to offer
favourable terms to win or retain the customer.
b. Importance of the Supplier’s Product to Buyers: If the products of the supplier are of utmost
importance to buyer, then he has to accept the terms of the supplier.
c. High Switching Costs for Buyers: In this case buyers suffer because of the suppliers’ advantageous
position or by the nature of supplies itself, the buyers have to face a higher switching cost.

iv) Bargaining Power of Customers: Customers with a stronger bargaining power relative to their suppliers
may force supply prices down or demand better quality for the same price and may demand more favourable
terms of business. For instance, there will always be a difference in the bargaining power between an
individual’s buying different construction material like cement, steel or bricks and a real estate builder buying
them for the number of properties he may have been building over so many years.

v) Threat of Substitutes
Often business organizations in an industry face competition from outside industry products, which may be
close substitutes of each other. For example, the electronic publishing are the direct substitutes of the texts
published in print. However, the competitive pressure, which any industry may face, depends primarily on
three factors:
1. Whether the substitutes available are attractively priced.
2. Whether buyers view substitutes available as satisfactory in terms of their quality and performance.
3. How easily buyers can switch to substitutes.

Concept of Competitive Intelligence

It is the information which is relevant to strategy formulation regarding the environmental context within which a
business organization competes. Such intelligence has several uses and these are:
1. Providing description of the competitive environment.
2. Common assumption about the competitive environment.
3. Forecasting future development in the competitive environment.
4. Identifying competitive weaknesses and strengths.
5. Determining when a strategy is no longer viable or sustainable;
6. Indicating when and how strategy should be adjusted to changing competitive environment.

What is Scenario Planning?

Scenarios are tools for ordering one’s perceptions about future environments on the basis of which decisions can be
made. Scenarios are powerful planning tools precisely because the future is unpredictable. Using scenarios is
rehearsing the future. By recognizing the warning signals, the threats and opportunities one can avoid surprises,
adapt, and act effectively.
Scenario planning can be useful in the following ways:
1. Creating alignment between business organization’s vision and purpose.
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2. Sparking innovation and new forms of value creation

3. It will involve many people with ability-to-perceive and/or ability-to-act as effective participants in the
process.
4. It will provide space for multiple interpretations to make sense of what is happening.
5. By including people from a broad spectrum of backgrounds, scenario planning will be capable of creating
early breakthroughs in perception and understanding, allowing the business organization to get grip of the
new environment it can’t escape from.

Implementation or process of Scenario Planning

1. Identification of the Issues
2. Classification of the Issues
3. Analysing and Problem Solving

A short note on social media Competitive Analysis

Social media competitive analysis is one way to stay ahead of the competitors and identify new opportunities. Social
media competitive analysis helps in:
a. Identifying competitors on social media.
b. Knowing the social platforms, the competitors are using.
c. Knowing the ways, they are using these platforms.
d. Understanding the response towards the social strategy of the competitors.
e. Benchmarking the social results against the competition;

Competitive Profile Matrix (CPM) **

Competitive Profile Matrix (CPM) is a strategic management tool used to compare the organization with its
competitors. It tries to highlight the strong and weak points of the organization relative to its competitors. This tool
is used to understand the external environment in a better way. This involves four steps which are as follows:
1. Identify critical success factors
2. Assign a weight to each critical success factor
3. Assign the ratings to each organization
4. Assign a score to each organization.
1. Identify Critical Success Factors (CSFs): CSFs as the name suggests are the key focus areas which determine
the success of an organization. These areas can be internal as well as external in nature. These factors vary
among industries and also in the strategic groups. Since these factors include internal as well as external issues,
the ratings include the strengths and weaknesses.
2. Assign a weight to each critical success factor: The weights are assigned to each CSF from 0.0 (least
important) to 1.0 (highly important). This indicates the degree of importance to a particular factor.
3. Assign the ratings to each organization: The ratings as mentioned earlier means the range from 4-1. The
rating scale and its meaning is given below:
4= Major strength,
3= Minor strength,
2 = Minor weakness,
1 = Major weakness.
4. Assign a score to each organization: The last step in performing CPM is assigning a score to each organization.
This is done by multiplying the rating with the assigned weights.
Score = Weights assigned x rating assigned.
Then the total score of the organization is calculated. Total score is the sum total of all the individual scores of
organizations. Then the scores of each organization are compared and the one with the highest total score is
perceived to be stronger than its competitors. CPM in general provides more internal strategic information and
helps the organization in design- making

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UNIT-6: INTERNAL ANALYSIS

Different types of Resources **
An organisation has a number of resources which are useful in strategic management. These are:
1. Available Resources
2. Threshold Resources
3. Unique Resources
4. Core Competencies

1) Available Resources: Those resources that are basic to the capability of any organization are known as
available resources. These resources can be further classified as:
a) Physical Resources: These can be buildings, machinery or operational capacity. However, the specific
condition and capability of each resource determines their usefulness.
b) Human Resources: Traditionally or in today’s knowledge economy both, people are considered as ‘the
most valuable asset’ of an organization. Knowledge and skill of people together prove to be a great asset.
c) Financial Resources: These can be capital, cash, debtors and creditors and providers of money.
d) Intellectual capital: These are intangible resources which include the knowledge that has been captured
in patents, brands, business systems and relationships with associates.
2) Threshold Resources: Organizations need a set of threshold resources to survive in any market. There is a
continuous need to improve such resources to stay in business. This becomes inevitable because of the
competitors.
3) Unique Resources: Unique resources are those resources, which give competitive advantage. They provide
value in product which makes their products unique form competitors’ products. Some organizations have
patented products or services that give them advantage for some service organizations. Unique resources may
be particularly the people working in that organization
4) Core Competencies: It refers to the ability to perform. The difference in performance between organizations
in the same market is due to differences in their resource. Superior performance is actually determined by the
way in which resources are deployed to create competences in the organization’s activities. An organization
needs to achieve a threshold level of competence in all of the activities and processes. Core competencies can
be done by testing for scarcity, inimitability, durability and superiority.
• Scarcity: This is a very basic test to understand its resource value. Just in case any resource is widely
available, then it is not likely to be a source of competitive advantage.
• Inimitability: A resource that is easy to imitate is of little competitive advantage because it will be
widely available from a variety of sources.
• Durability: Hyper competitive market conditions have a tendency to make competitive advantage less
and less sustainable. Durability in such situations becomes a more stringent test for valuing resources,
capabilities and competencies.
• Superiority: Competencies are valuable only if they manifest themselves as competitive advantages
and this means that they are superior to those held by rivals. Being good is not enough and an
organization must be better than its competitor.

VRIO framework
The important characteristics of resources are:
1. Valuable
2. Rare
3. Inimitable
4. Organize
1) Valuable: A resource is considered to be valuable if it either reduces the cost of production or provides any
differential advantage. For instance, any innovative process of producing a product reduces the overall cost of
production, and then such a process will be considered as a valuable resource.

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2) Rare: A resource is considered to be rare if it is distinctive and unique in nature. For a resource to be unique,
it should be exclusive to the organization. For example, an organization making products based on a specific
metal ore which are very scarce in the world will be a rare resource.
3) Inimitable: A resource is considered to be inimitable if it is difficult for other to imitate or acquire. This can be
possible if the resource is expensive to copy, requires specific knowledge to operate or has been built or
developed over a considerable time period. For example, a production machine built by an organization by
investing huge cost and time will be considered to be an inimitable resource.
4) Organize: A valuable, inimitable or rare resource can only be useful for the organization only if the
organization knows how to exploit or utilize it for its own advantage. Therefore, organizing a resource properly
is important for gaining strategic advantage.

A short note on The Value Chain Framework **

• This framework is commonly used to guide analysis of any organization’s strengths and weaknesses.
• In this framework, any business is seen as a number of linked activities, each producing value for the customer.
• By creating additional value, the organization may charge more or is able to deliver same value at a lower cost,
either of this leading to a higher profit margin.
• This ultimately adds to the organization’s financial performance.
• Using this framework, it is possible to analyse the organization’s contributions and how they add up to the
overall level of customer value.
• The organization activities are divided into two parts such as primary activities and service or support
activities.
• The primary activities constitute of the following:
a. Inbound Logistics are activities concerned with receiving, storing and distributing the inputs to the
product or service. They include materials handling, stock control, transport etc.
b. Operations transform various inputs into the final product or service like manufacturing, packaging,
assembly testing etc.
c. Outbound Logistics collect, store and distribute the product to customers.
d. Marketing and Sales makes consumers/ users aware of the product or service so that they are able to
purchase it. This includes sales administration, advertising, selling and so on.
• A services activity helps to improve the efficiency of primary activities. Each of the groups of primary
activities is linked to support activities which are as follows:
a. Procurement: This is a process for acquiring the various inputs to the primary activities.
b. Technology Development: It includes activities relating to technology. As we know, technology is fast
changing and an organisation needs to adopt the latest technology.
c. Human Resource Management: This is an area involved with recruiting, managing, training, developing
and rewarding people within the organization.

SWOT ANALYSIS **
SWOT stands for Strengths, Weaknesses, Opportunities and Threats. A SWOT analysis is done to find the key issues
from internal and external of an organisation for strategic decisions. The aim through this is to identify the extent to
which the strengths and weaknesses are relevant to and capable of dealing with changes in the business
environment. Internal environment includes S & T (Strengths and Weakness). Whereas, external environment
includes O & T (Opportunities and Threats). A SWOT analysis is done on the basis of following factors:
Some of the strengths of an organisation may be: High quality products, good reputation, learning from mistakes
and producing better products, highly competitive, Competitive pricing, Low production cost
Some of the weaknesses of an organisation may be: Into loss making, Sales slowing down, no sense of direction,
Decrease in productivity, No proper collaboration within the functional departments

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UNIT-7: BUSINESS LEVEL STRATEGIES

Concept of Differentiation * *
Every individual customer is unique in itself so is his/her preferences regarding tastes, preferences, attitudes, etc.
These needs of the customers are fulfilled by the organizations by producing differentiated products. Most of the
fast-moving consumer goods like biscuits, soaps, toothpastes, oils, etc. come under the category of differentiated
products. To satisfy the diverse needs of the customers, it becomes essential for the organizations to adopt a
differentiation strategy. To make this strategy successful, it is necessary for the organizations to do extensive
research to study the different needs of the customers.

Need and Importance of Differentiation

There are a number of reasons depending on the nature of organization to adopt a differentiation strategy. There
are a number of factors which result in differentiation. Some of them are as follows:
1. To compete against the rivals.
2. To create entry barriers for newcomers by building a unique product.
3. To reduce the threats arising from the substitutes.
4. To develop a differentiation advantage.

Types of Differentiation *
Differentiation can be classified into two basic types vis a vis.
1. Tangible differentiation: The differentiation which can be seen, felt and touched is called tangible
differentiation. A customer can easily see the difference between two products and can make a comparison
before buying.
2. Intangible differentiation: Intangible is invisible differentiation. It creates in customers’ mind. It is
psychological in nature.

COST OF DIFFERENTIATION**
Differentiation is usually costly. The differentiation adds costs as it involves added features to cater to the needs of the
customers. Usually, the cost is incurred in the following cases:
1. Increased expenditure on training;
2. Increased advertising spends to promote the product;
3. Cost of hiring highly skilled sales force;
4. Use of more expensive material to improve the quality of the product, etc.
.
Advantages of Differentiation **
1. It helps to get premium price for the organization
2. It increases the sales volume.
3. It helps to increase brand loyalty.
4. It helps to achieve competitive advantage over competitors.

Disadvantages of Differentiation **
1. Uniqueness of the product not valued by buyers: There are a number of cases where the differentiated
product has not gained importance by the customers, hence failed to position itself in the market.
2. Excess amount of differentiation: Too much of anything is bad. Same is the case with differentiation. If the
organization is unable to understand the customer needs and preferences but goes on differentiating the
product, then the organization loses its market value. Unnecessary differentiation results in failure.
3. Loss due to differentiation: Differentiation involves expenses. As a result, a company adds up all these
expenses in the price of the product which makes the product costly.

Focus Strategy ***

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The third business level strategy is focus. This strategy involves the selection of a market segment, or group of
segments and meeting the needs of a particular group of buyers. This is also known as a niche strategy. In focus
strategy, the competitive advantage can be achieved by optimizing strategy for the target segments. Focus strategy
has two variants such as Cost Focus and Differentiation Focus.
Cost focus is where an organization seeks a cost advantage in the target segment; and Differentiation focus is where
an organization seeks differentiation in the target segment.
Focus strategy can be effective in certain situations only they are:
1. Market segment large enough to be profitable
2. Market segment has good growth potential
3. Market segment is not significant to the success of major competitors
4. Focuser has efficient resources
5. Focuser is able to defend against challenges
6. High costs are difficult to the competitors to meet the specialized needs of the niche
7. Focuser is able to choose from different segments.

Advantages of Focus Strategy

1. Focuser can defend against competitors.
2. Focuser can reduce competition from new organizations by creating a niche of its own.
3. Threat from producers producing substitute products is reduced.
4. The bargaining power of the powerful customers is reduced.
5. Focus strategy increases market share and profitability.

Disadvantages of Focus Strategy

1. Market segment may not be large enough to generate profits.
2. Segment’s need may become less distinct from the main market.
3. Competition may take over the target-segment.

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UNIT-8: COMPETITIVE STRATEGY

Competitive Strategy *
Developing a competitive strategy is technically developing a formula for success. It depends on the goals of the
organization and policies to achieve these goals. There are four key factors which an organization must take into
consideration while framing competitive strategy:
i) Internal Consistency
ii) Environmental Fit
iii) Resource Fit
iv) Implementation

Framework for Competitor Analysis *

Competitor analysis is one of the major components of strategy formulation. Therefore, it is important for
organization to perform a competitor analysis. There are four components which need to be covered in a competitor
analysis. These are:
1. Future Goals
2. Assumptions
3. Current Strategy
4. Capabilities
1) Future goals: It is very important to diagnose the goals of the competitors as it helps in predicting the current
financial position of the organization, the strategic moves of the competitors, the reaction of the competitor to
the external environment and to strategic changes.
2) Assumptions: This is the second component in the competitor analysis and is quite critical in nature. There are
two categories when the competitor’s assumptions are identified such as:
• Self-Assumption of the competitor,
• Competitors’ assumption about the industry.
3) Current Strategy: The third component is assessing the current strategy of the competitors. This includes the
policies in the functional areas. In competitor analysis it is necessary to assess both the internal and external
strategies of the competitor.
4) Capabilities: This is the last component in the competitor analysis. This includes assessing the competitors’
strengths and weaknesses which is done by using Porters five forces. The capabilities include the core
competencies of the organization.

Dimensions of Competitive Strategy

The various dimensions of competitive strategy are as follows:
1. Specialization: This focuses on the efforts of the organization to specialize in product line, market segments
and the niche markets.
2. Branding: This dimension focuses on the brand identification of the products. This can be done through
promotional techniques adopted by the organization.
3. Push vs Pull: This dimension focuses on the degree to which brand identification can be done. It may be
selling directly to the customer or through other distribution channels like online platforms. Push strategy
involves pushing the product or brand to the target consumers whereas pull strategy is about attracting the
interest of the consumers towards the product or brand.
4. Distribution channel: Selecting an appropriate distribution channel is important. The organization needs to
decide which channel it has to use. It can be company owned, retail outlets, online platforms, specialty outlets
etc.
5. Quality of product: Quality of product matters a lot and it depends on the type of raw material, specifications,
features etc. for making a finished product.
6. Technological leadership: It focuses on the degree to which an organization seeks leadership in the
technology. These are organizations which tend to imitate the product.

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7. Pricing policy: This is one of the important dimensions as it describes the price position of the organization
in the market. This is a distinct strategic variable and should be considered separately.

A short on Declining Industries

Declining industries are those which are experiencing complete decline in sales and profit for a considerable period
of time. In short, these industries are continuously incurring losses consistently. Declining industry is characterized
by low or declining markets, trimming product line, lack of R&D and no promotional policy leading to reducing
competitors. Decline may be due to many reasons. Some of them are listed below:
1. Low economic growth
2. Rapid cost inflation
3. Rapid technological advancements

Determinants or factors that impact Declining Industry

The determinants which have a major impact on the declining industry can be generalized as follows:
1. Uncertainty
2. Declining pattern
3. Pockets of demand
4. Reasons for decline
5. Exit barriers
6. Rivals/ volatility
1. Uncertainty: This is one of the major factors which affect the end game competition. It determines the degree
of uncertainty which is perceived by the competitors about the demand that whether demand will continue
to decline or not. Some may visualize that the demand will increase and such organizations tend to continue.
Some organization may not think so and may take the decision to exit.
2. Declining pattern: The pattern of decline whether it is steady, slow or high depicts the volatility of this
phase. The rate of decline determines the withdrawal capacity of the organization.
3. Demand pockets: The demand pockets are the areas where the demand still exists in declining industry.
The demand pockets play an important role in determining the profitability of the competitors who are left
in the business.
4. Reasons for decline: There can be many reasons for decline and they have an impact on competition during
the decline phase. These factors can be substituting technology, demographics, shifts in customer perception
etc.
5. Exit barriers: The exit barriers force the organizations to keep competing in the declining industry. The
higher the exit barrier, higher is the in hospitability in the industry.
6. Rivals’ volatility: As the sales decline, there can be a situation of price warfare among the competitors. This
price war arises because the product is perceived as commodity, fixed costs tend to rise, and organizations
get stuck due to exit barriers and uncertainty.

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UNIT-9: CORPORATE LEVEL STRATEGY

Types of Corporate Strategy *
Corporate level strategies are also termed as grand strategies. There are four types of corporate strategies. They are:
1. Stability strategies (make no change to the organization’s current activities)
2. Growth strategies (expand the organization’s activities)
3. Retrenchment strategies (reduce the organization’s level of activities)
4. Combination strategies (a combination of above strategies)
1. Stability Strategy
Stability strategy is a strategy in which the organization retains its present strategy at the corporate level and
continues focusing on its present products and markets. The organization stays with its current business and
product markets. It does not seek to invest in new factories and capital assets, gain market share, or invade
new geographical territories. Organizations choose this strategy when the industry faces slow or no growth
prospects. They also choose this strategy when they go through a period of rapid expansion and need to
consolidate their operations before going for another phase of expansion.
2. Growth Strategy
Organizations choose expansion strategy when its past financial performance is high. The most common
growth strategies are diversification at the corporate level and concentration at the business level.
Diversification is defined as the entry of an organization into new lines of activity. The primary reason an
organization pursues increased diversification are value creation through economies of scale and scope, or
market dominance. In some cases, organizations choose diversification because of government policy,
performance problems and uncertainty about future cash flow.
3. Retrenchment Strategy
Many organizations experience declining financial performance or continuous losses. Here, a company either
tries to improve its competitive position or wind up the business. Retrenchment strategy focuses on
operational improvement when the state of decline is not severe.
4. Combination Strategy
This strategy is a combination of all the above three strategies. Combination Strategy is designed to mix growth,
retrenchment, and stability strategies and apply them across a corporation’s business units. An organization
adopting the combination strategy may apply the combination either simultaneously or one by one.

Concept of Diversification *
Diversification involves moving into new lines of business. When an industry becomes mature and needs more
growth it has to adopt diversification by expanding their operations. Diversification strategies include spreading
market risks; adding products to the existing lines of business, expanding production capacities, entering new
markets, etc.
Routes or ways to Diversification *
There are four broad ways to implement diversification strategies:
1. Mergers and Acquisitions
2. Joint Venture
3. Long-term Contracts
4. Strategic Alliances
1. Mergers & Acquisitions: A merger is a legal transaction in which two or more organizations combine
operations through an exchange of stock. Whereas, an acquisition is a purchase of one organization by another.
These acquisitions are referred to as hostile takeovers. If a company wants to diversify its business, it can go for
either merger or acquisition.
2. Joint Ventures
In a joint venture, two or more organizations form a separate, independent organization for strategic purposes.
Such partnerships are usually focused on accomplishing a specific market objective. They may last from a few
months to a few years and often involve a cross-border relationship. One organization may purchase a
percentage of the stock in the other partner, but not a controlling share.
3. Long-Term Contracts
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In this arrangement, two or more organizations enter a legal contract for a specific business purpose. Long-term
contracts are common between a buyer and a supplier. Many strategists consider them more flexible and less
inhibiting than vertical integration. It is usually easier to end an unsatisfactory long-term contract than to end
a joint venture.
4. Strategic Alliances
In a strategic alliance, two or more organizations share resources, capabilities, or competencies to pursue some
business purpose. These alliances may be aimed at world market dominance within a product category. While
the partners cooperate within the boundaries of the alliance. But they often compete fiercely in other parts of
their businesses.

A short note on Retrenchment Strategies *

There are three major types of retrenchment strategy which are:
1. Turnaround strategy
2. Survival strategy
3. Liquidation strategy.
1. Turnaround strategy
A turnaround situation exists when an organization encounters multiple years of declining financial
performance. Turnaround situations are caused by combinations of external and internal factors. The strategic
causes of performance downturns include increased competition, raw material shortages, and decreased profit
margins, strikes and labour problems, excess plant capacity and depressed price levels.
2. Survival strategy
When the organization is on the verge of extinction, it can follow several routes for renewing the fortunes of
the organization. These are:
• Divestment: An organization divests when it sells a business unit to another organization that will
continue to operate it.
• Spin-Off: In a spin-off, an organization sets up a business unit as a separate business through a
distribution of stock or a cash deal. This is one way to allow a new management team to try to do better
with a business unit.
• Restructuring the Business Operations: The organization tries to survive by restructuring its
management team, financial reengineering or overall business reengineering. Business reengineering
involves throwing aside all old business processes and starting from scratch.
3. Liquidation strategy
Liquidation is the final resort for a declining organization. This is the ultimate stage in the process of renewing
organization. Sometimes a business unit or a whole organization becomes so weak that the owners cannot find
an interested buyer. In such a situation, liquidation is the best option. Bankruptcy is a last resort when the
business fails financially. The court will liquidate its assets. The proceeds will be used to pay off the
organization’s outstanding debts.

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UNIT-10: IMPLEMENTATION – BEHAVIOURAL DIMENSIONS

Concept of Leadership **
Leadership may be defined as the process of influencing group activities to achieve a certain goal. A leader is a person
in a group who is capable of influencing the group. He guides and directs other people. Thus, a manager influences,
guides and directs the behaviour of his subordinates. The success of a leader depends on the acceptance office
leadership by the subordinates.

Importance of Leadership **
a. Initiates action- Leader is a person who starts the work by communicating the policies and plans to the
subordinates from where the work actually starts.
b. Motivation- A leader proves to be playing an incentive role in the concern’s working. He motivates the
employees with economic and non-economic rewards and thereby gets the work from the subordinates.
c. Providing guidance- A leader has to not only supervise but also play a guiding role for the subordinates.
Guidance here means instructing the subordinates the way they have to perform their work effectively and
efficiently.
d. Creating confidence- Confidence is an important factor which can be achieved through expressing the work
efforts to the subordinates, explaining them clearly their role and giving them guidelines to achieve the goals
effectively. It is also important to hear the employees with regards to their complaints and problems.
e. Building morale- Morale denotes willing co-operation of the employees towards their work and getting
them into confidence and winning their trust. A leader can be a morale booster by achieving full co-operation
so that they perform with best of their abilities as they work to achieve goals.
f. Builds work environment- Management is getting things done from people. An efficient work environment
helps in sound and stable growth. Therefore, human relations should be kept into mind by a leader. He should
have personal contacts with employees and should listen to their problems and solve them. He should treat
employees on humanitarian terms.
g. Co-ordination- Co-ordination can be achieved through reconciling personal interests with organizational
goals. This synchronization can be achieved through proper and effective co-ordination which should be
primary motive of a leader.

Types of Leadership Styles

1. Autocratic style
2. Democratic style
3. Laissez-faire leadership style

1. Autocratic or authoritative style: In this style, subordinates are compelled to follow the orders of the
leader under threat or penalties. they cannot take part in decision making. The leader has little interest in
the well-being of employees. It results in low morale of the employees and ultimately decreases their
productivity.
2. Democratic style: In this style the decisions are taken by the leader in consultation with subordinates. You
understand the problems and needs of the subordinates. The leader helps to build a good relationship with
his subordinates. Employees feel motivated and job satisfaction.
3. Laissez-faire leadership style: It is just opposite of autocratic style. the subordinates are allowed to take
decisions. the role of any leader is absent. the group members enjoy full freedom. this style is suitable where
subordinates are well trained and competent.

Qualities of an effective Leader **

1. He should have a sound physical and mental health.
2. He must have the capacity to appreciate others performance.
3. He should have self confidence in himself.
4. They should have adequate knowledge and intelligence to handle the problems and take decisions.
5. He should have a sound communication skill.
6. A leader must have clarity of purpose and responsibility.
7. He must have enthusiasm, courage, judgment, courtesy and integrity.

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Concept of Corporate Culture

The culture of the organization very much depends on the behaviour of the employees. If the employees have a strong
commitment towards their organizations, the organization is said to have a strong culture and vice versa. It is not
easy to have a strong culture in the organization. Lot of it depends on how the leaders of the organization handle
their employees.
Corporate culture is the values and beliefs accepted and practiced by all the employees of the organization. To have
an appropriate corporate culture, the strategy of the organization should match with it. A leader in any organization
has to handle people in the following three directions:
• The first is downwards-his own team which he has to build as an effective and cohesive group to achieve the
goals of the organization.
• The second is lateral, which involves winning the support and cooperation of colleagues over whom the
leader has no control.
• The third is a purposeful, constructive and harmonious relation with the higher authority.

How a leader can develop Corporate Culture? / Techniques of developing Corporate Culture *
A leader should use the following techniques to develop a good culture:
1. Human nature: In order to handle people effectively it is useful for a leader to understand human nature. For
developing leadership potential, it is useful to focus our attention on two concepts which have a lasting and
practical value for learners. Once people are convinced that he is a person who knows them well and truly
cares about them then they would do anything for the leader. However, it requires a very major effort to know
people and know them better than even their own mothers.
2. Communication: The ability to know people is the starting point to handle them and communication skill
plays an important role in this ability. These help a leader to tell what he wants done. The ability has two sides
such as the skill of expression and the skill of listening. Experience shows that effective communication means:
50% listening, 25% speaking, 15% reading and 10% writing.
3. Self-control: No team leader can hope to control and inspire his team unless he learns to control and discipline
himself. This is a difficult task, but without it there is little chance for a man to become a successful leader. Self-
control does not only add to the leadership potential, it also is a source of great happiness.
4. Correcting Mistakes: A leader often corrects the people who show signs of weakness or fail. It is better to say
"This is not what is expected of a person of your calibre and ability" rather than words to the effect "what else
one could expect from a clot like you". The first approach enhances a man's self-respect even in failure. The
second approach makes him your enemy.
5. Accessibility: It is a leader's responsibility to ensure that he is accessible. A good leader makes it a point to
find time for seeing men who have difficult problems to tackle.
6. Anger: A good leader does not lose his temper. However, righteous anger is very different from uncontrolled
rage and should not be suppressed. However, special care should be taken to uphold the honour and dignity of
an individual in the presence of his colleagues and family members.
7. Recognition: Good and effective leaders have used recognition to foster interpersonal bonds with their people
and to motivate them. They have used the principle of 'praise in public and reprimand in private' to create an
organizational culture.

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UNIT-11: CORPORATE GOVERNANCE

Meaning of Corporate Governance

It is a set of standards, which aims to improve the organization’s image, efficiency, effectiveness and social
responsibility. The concept of corporate governance primarily relies on complete transparency, integrity and
accountability of the management to focus on investor protection and public interest. It mainly highlights the
composition of management structure at various levels. All corporate governance systems depend on 5 key pillars
these are, accountability, fairness, transparency, integrity and social responsibility

5 Pillars of Corporate Governance

Corporate governance is a combination of five pillars. The objectives of these pillars help an organization in the
implementation of strategy. These pillars are:
1. Accountability
2. Fairness
3. Transparency
4. Integrity
5. Social responsibility
1. Accountability: Accountability should be applicable at all levels from the lower management to the top
management, and then only it works.
2. Fairness: This means treating all the stakeholders equally without any demarcation of caste, status etc. This
involves effective communication as well.
3. Transparency: This is one of the most important pillars of corporate governance as it gives credibility to an
organization. Transparency means, disclosing all the information which are relevant and important for all the
shareholders and stakeholders so that they are not in dark about the performance of an organization.
4. Integrity: It is important for any organization and this comes through a professional culture where each
employee is given importance which makes him/her to perform at their best.
5. Social responsibility: This applies at the top management level. The decision taken at the top should be such
that they benefit the organization as a whole. Therefore, it is important that the organization should have a
clear understanding of these pillars and practice there accordingly.

Models of Corporate Governance

There are seven basic models of corporate governance. These are:
1. Canadian Model
2. UK and American Model
3. German model
4. Italian model
5. France model
6. Japanese model
7. Indian model
1. Canadian Model: Canada is country which has a large influence of French culture. This is because it was a
colony of France and Britain. Till 19th century, the industries in Canada were basically family businesses but
for the past five decades the scenario has changed and now it resembles the US industry structure.
2. UK and American model/ Anglo-American model Sarbanes Oxley Act (SOX) were passed in July 2002 with
the aim to provide more transparency and accountability to US corporate. This act focuses on the following:
• Re-establish investor confidence through good corporate governance practices.
• Improve accuracy and transparency in financial reporting;
• Accounting service of listed organizations.
• Increased corporate responsibility.
• Auditing independently;

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3. German Model: Since 19th century Germany is known as the hub of industrialization. For the past five decades
Germany has been exporting sophisticated machinery. The financing of the German industries is being done
by rich German families, small shareholders, bankers and foreign investors. Since the second half of 19th
century Germany has been taking steps towards corporate governance. The company law was introduced in
1870 and 1884 company law highlighted on making the information transparent. As of now Germany has a
greater number of family-controlled businesses.
4. Italian Model: Since a long time, the Italian business has been dominated by the family holdings. This trend
continued till the 20th century. In the second half of the 20th century, the stock market gained importance. In
1931, all the Italian investment banks collapsed which led to the fascist government taking over of all the
industrial shares and imposing a legal separation of investment from the commercial banks since World War
II. Since long the corporate governance lied with bureaucrats and rich families. In the last two decades, the
corporate governance is in an organized form. Now the investors in Italy are aware of their rights and
importance of corporate governance.
5. France Model: The financial system in France was controlled by religion and the state was the main borrower.
The basic form of lending was mortgage and coins were the major part of money transaction. The French
industry was based on a consecutive outlook. The corporate governance was introduced in France in a stage-
wise manner with economic development activities.
6. Japanese Model: Japan has been a conservative county where the business families were at the bottom of the
pyramid. This led to the stagnation of the businesses. After World War II the change in business took place and
the entry of American traders was allowed. A new culture started building up and Japanese industry started
gaining which was a mix of private and state capitalization.
7. Indian Model: India has a long history of commercial activities. The formal structure of corporate governance
was given by CII in 1998 which was termed as “Desirable corporate governance code”.

Challenges of Corporate Governance

The issues and challenges of corporate governance can be listed as follows:
1. There may be chances of appointing wrong board members due to pressure of promoters
2. There may be cases where the evaluation of the performance of the directors may not be allowed.
3. Accountability towards stakeholders is a major challenge on part of the organizations. There may be various
reasons where the organizations overlook the welfare of the stakeholders. Organizations have adopted
unethical practices to make more profits.
4. If the promoters look after their own interests only then it became a major challenge for the organizations.
5. Many organizations get stuck into the unethical practices which leads to transparency issues.
6. The conflict inside the organization creates a major challenge. If the conflict is not resolved then it is
presumed that the organization may not succeed and will lead to ill practices like bribe etc.
7. If the organization loses its credibility, then it is very difficult to build it again. Regaining the trust of
stakeholders and shareholders becomes a major challenge.

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UNIT-12: CONTROL STRATEGIC CONTROL PROCESS

The evaluation of the strategy of an organization can be done qualitatively as well as quantitatively. The word
meaning of ‘control’ itself means ‘to regulate’ or ‘to check’. This means that the top management needs to keep check
on how well the strategy is being implemented to achieve the objectives of the organization. The strategic control
process is closely related to strategic planning process. The process consists of three phases, which are as follows:
1) Evaluation criteria
2) Performance evaluation
3) Control methods.
Types of control *
There can be two types of controls, such as:
1. Operational Control
2. Strategic Controls
Operational Controls *
It refers to evaluation and control for short period of time like less than one year. There are several types of
operational controls such as:
1. Financial controls,
2. Time controls
3. Management by objectives
1. Financial controls: There are many methods/techniques used in strategic control systems. Every organization
has its own way of using a particular technique according to the requirement of the organization. Most of the
methods related to the strategic management are regarding the financial control systems. DuPont’s system of
financial control is universally accepted and is used by many organizations throughout the world. Other
methods include budgets, audits, etc.
• Budgets: Budgets are one of the most widely used control methods. Budget means ‘a plan of income and
expenditure’. It usually deals with allocation of resources to different organizational units. Budget gives an
idea about the future expenditures and income. Since budget is actually a forecast, its revision would be
required from time to time depending upon the requirement of the organization. It is one of the key
elements in implementing the strategy successfully.
• Audits: This is another method of control. As per American Accounting Association (AAA), auditing is
defined as “a systematic process of objectively obtaining and evaluating evidence regarding assertions
about economic actions and events to ascertain the degree of correspondence between those assertions
and established criteria and communicating the results to interested users”. Auditing is done by
independent, government and internal auditors.
Independent auditors are professionals who provide their services to the organization. Government
auditors the agencies who perform government audits for organizations and Internal auditors are
employees within the organization and perform their function from within.
2. Time-related Control Methods: This includes useful graphical and analytical methods which serve as a tool in
the strategic control process. The most popular methods include Critical Path Method (CPM) and Programme
Evaluation and Review Technique (PERT). These are graphical network depicting the different segments of
work that must be completed within a given span of time to complete a project or task. These provide
information for both project planning and control and are helpful for the management in allocating its limited
resources.
3. Management by Objectives (MBO): This is one of the methods, which is used both in strategic planning and
control. In this the objectives are established separately for the organization as a whole, departments and finally
individuals of the organization. It has three minimum requirements which are as follows:
• Objectives for individuals.
• Individuals are evaluated.
• Individuals are rewarded on the basis of their performance.

Strategic Controls **

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Strategic control is a term that describes the process by which organizations control the formation and
implementation of the strategies. These are done for a long period of time like five or more than five years. There are
four types of strategic controls which are described below:
1. Premise Control: Every strategy is founded on certain planning premises or assumptions. Premise control is
intended to examine whether the premises on which a strategy is based are still valid in a systematic and
continuous manner.
2. Special Alert Control: A particular alert control is the rigorous and quick reconsideration of an organization’s
plan in response to an instant, unanticipated incident. An acquisition of your competition by an outsider is an
example of such an occurrence. Such an occurrence will result in an urgent and thorough rethinking of the
organization’s strategy.
3. Implementation Control: Implementation of a strategy means a sequence of processes, activities,
investments, and acts that take place over time. As a manager, you will mobilize resources, complete special
initiatives, and hire or reassign employees.
4. Strategic Surveillance: Strategic surveillance is intended to monitor a wide variety of events both within and
outside your organization that are likely to have an impact on the direction of business’s strategy. It is founded
on the premise that by monitoring several information sources, you might find significant yet unexpected
information. Trade periodicals, journals, trade conferences, talks, and observations are examples of such
sources.

Difference between Operational and Strategic Control

Operational Control Strategic Control

Routine operations as per the goal of the Formulation and implementation of strategy
organization.
These controls are exercised by functional heads. These are performed by top management.
These are action oriented. These are futuristic.
It controls internal environment. It controls external environment.
Its aim is to measure efficiency. Its object is to measure effectiveness.
It is done for a short period. It is done for a long period.

Performance Standards
The standards of performance can be classified into three categories such as:
1. Historical Standards
2. Industry Standards
3. Present Standards
1) Historical Standards: In this type, comparison of present performance is made with the past performance.
Though it is the simplest of all, this type does not take into account the changes in environmental conditions
between the two periods.
2) Industry Standards: In this type of standard, the comparison of an organization’s performance is made
against similar other organizations in the industry. The difficulty here is that all the organizations may not be
exactly the same for purpose of comparison.
3) Present Standards: Present standards take into account environmental conditions. These are more realistic
and also consider the organizations’ capacity to achieve them. These, however, require thorough analysis.
Problems of Control System
1. There may not be a accurate criteria for measuring the effectiveness and efficiency of the strategy.
2. The reporting data may be invalid.
3. Employees may consider the system to be unfair and therefore may not accept it.
4. Overemphasis on measuring short-term performance may make managers forget about the strategy.
5. It is very difficult to set “good”, “average” and “poor” levels of performance in situations where the outputs
are not very tangible.

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UNIT-13: EVALUATION

Meaning of Evaluation
The evaluation process of control mechanism, which helps in taking corrective actions. After the completion of a
particular job, it is evaluated to find out whether it is being performed as per the instructions. If the actual
performance is deviated from the expected, then corrective measures are taken.

What is Business Portfolio Analysis? *

The business may be in the forms of organizational units, such as different subsidiaries or divisions of a parent
organization. Thus, portfolio analysis looks at the corporate investments in different products or different types of

Types of Business Portfolio Analysis *

The different types of portfolio analysis are:
1. Display Matrices
The purpose of this analysis is to optimally allocate resources for the best total return, with focus on the
corporate strategies. Many different approaches involving different display matrices have evolved over the
years. Some of the common display matrices are:
a) BCG’s Growth-share Matrix
b) McKinsey Matrix
c) Strategic Planning Institute’s Matrix
d) Arthur D. Little Organization’s Matrix
e) Hofer’s Product/Market Evolution Matrix

BCG’s Growth-Share Matrix ***

• BCG’s Portfolio Analysis is based on the premise that majority of the companies carry out multiple business
activities in a number of different product-market segments.
• The BCG model proposes that for each business activity, a separate strategy must be developed.
• The BCG matrix classifies the business activities into two categories, such as ‘Business Growth Rate” and the
‘Relative Market Share’.
• The BCG matrix is divided into four quadrants and each of these quadrants are sub-divided into four parts such
as cows, dogs, question marks and stars. These are discussed below:
a) Cash Cows: The businesses with low growth rate and high market share are classified in this quadrant.
High market share leads to high generation of cash and profits. The low rate of growth of the business
implies that the cash demand for the business would be low. Thus, Cash Cows normally generate large cash
surpluses. Cows can be ‘milked’ for cash to help to provide cash required for running other diverse
operations of the organization. Cash Cows provide the financial base for the organization. These businesses
have superior market position and invariably low costs.
b) Dogs: If the business growth rate is low and the organization’s relative market share is also low, the
business is classified as DOG. The low market share normally also means poor profits. Thus, the cash
required to maintain a competitive position exceeds the cash generated, and there is a net negative cash
flow. Under such circumstances, the strategic solution is to either liquidate or divest the DOG business.
c) Question Marks: Sometimes, businesses with low market share have a high growth rate. Because of their
high growth, the cash requirement is high, but due to their low market share, the cash generated is also
low. As the business growth rate is high, one strategic option is to invest more to gain market share, pushing
from low share to high.
d) Star: Business having high growth rate and market share are called stars. They have high profits and cash
flow. They have good investment opportunities for growth. In this quadrant, has the potential to become
cash low, when the business growth rate reduces to a lower level.

Limitations of BCG Matrix

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i) BCG analysis assumes that profits depend on growth and market share. Some other sophisticated approaches
have been evolved to overcome such limitations. There have been specific research studies which illustrate
that the well-managed Dog businesses can also become good cash generators.
ii) There is a heavy dependence on the market share of a business as an indicator of its competitive strength.
The calculation of market share is strongly influenced by the way the business activity and the total market
are defined.
iii) In the BCG approach, businesses in each of the different quadrants are viewed independently for strategic
purposes. Thus, Dogs are to be liquidated or divested. But, within the framework of the overall corporation,
useful experiences and skills can be acquired by operating low-profit Dog businesses which may help in
lowering the costs of Star or Cash Cow businesses. And this may contribute to higher corporate profits.
iv) The BCG analysis, while considering different businesses does not take into consideration the human aspects
of running an organization. Cash generated within a business unit may come to be symbolically associated
with the power of the concerned manager.

A short note on Balanced Score Card (BSC) ***

• The BSC is a management system that enables organizations to clarify their vision and strategy and translate
them into action.
• It provides feedback around both the internal business processes and external outcomes so as to improve the
strategic performance and results continuously.
• This theory was developed by Kaplan & Norton.
• According to them “The balanced scorecard retains traditional financial measures. But financial measures tell
the story of past events, an adequate strong for industrial age companies for which investments in long-term
capabilities and customer relationships were not critical for success. These financial measures are inadequate,
however, for guiding and evaluating the journey that information age companies must make to create future
value through investment in customers, suppliers, employees, processes, technology, and innovation.”
• According to BSC we view the organization from four perspectives and they are:
a) The Learning and Growth perspectives
b) The Business Process perspective
c) The Customer perspective
d) The Financial perspective
• The learning and growth perspective includes employee training and corporate cultural attitudes which are
related to both individual and corporate self-improvement.
• The business process perspective refers to paternal business processes. This includes the strategic
management process.
• The customer perspective, as the name suggests, aims at satisfying the customers’ needs and wants as the
customer satisfaction is one of the performance indicators for any organization.

Characteristics of an effective evaluation strategy

There are certain basics which should be followed for making the strategic evaluation effective. These characteristics
are as follows:
a) The activities of evaluation must be economical.
b) The information should neither be too much nor too little.
c) The control should neither be too much nor too less. It should be balanced.
d) The evaluation activities should relate to the organization’s objectives.
e) It should be designed in such a manner so that a true picture is portrayed.

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