Strategic management

Paper-6th (100 marks)

Financial management (50 Marks) Strategic management (50 Marks)

Subjective (70%) → 35 Marks Objective (30%) → 15 Marks

Ch. 1st: Introduction of strategic management

Ch. 2nd: Strategic Analysis [External environment]

Ch. 3rd: Strategic Analysis [Internal environment]

Ch. 4th: strategic choice

Ch. 5th: strategic implementation and Evaluation

Strategic Management
• SM is a process which is used to achieve Goals and objectives of a business firm

• Process of SM:
1. Determination of Vision, Mission and Objectives
Strength (S)
2. Strategic Analysis → business environment Internal
Weakness (W)
Opportunity (O)
External
Threat (T)
3. Strategic formulation → (Intellectual Process)
4. Strategic implementation → (Operational Process)
5. Strategic Evaluation and Control
• What is process: Sequence of steps and flow of activities that is systematic followed by the producer to convert
inputs into outputs.

Strategic Analysis (Environmental scanning) 2.3

 It is Natural and continuous activity for every business either in formal or informal basis to collect
meaningful information.
 A systematic approach to environmental assessment is essential for managing risk and uncertainty.
 It is component of business planning that has a methodical approach, makes the right resource
investments and may assist business in achieving its objectives.

 It has two Important situational considerations are:

(i) Industry and competitive conditions
(ii) Organization’s own capabilities, resources, internal strengths, weakness, and market position.
  Accurate diagnosis is necessary for sound long-term direction, setting appropriate objectives and
formulating a winning strategy.
 There are two major problem with strategic analysis:
i. it gives lot of innovative options but doesn’t tell which one to pick (options can be overlapping,
confusing or difficult to implement).
ii. It can be time-consuming that hurts overall function of organization.

• Issues to consider for strategic analysis:

(I) Strategy evolves over a period of time:

o A key element of strategic analysis is the probable outcomes of everyday decisions.
o So, a management radically changes strategy when they try to speed up the organisational growth.
o It influenced by experience but updated time to time for better outcome.

(II) Balance of external and internal environment:

o strategic analysis necessitates creating a reasonable balance between many and conflicting
challenges, because a perfect fit between them is unlikely.

o Management must consider opportunities, influences, and constraints while taking a strategic
decision.

(III) Risk:
o The complexity and intermingling of variables in the environment reduces the strategic balance in
the organisation. Competitive markets, liberalization, globalization, booms, recessions,
technological advancements, inter-country relationships all affect businesses and pose risk at
varying degrees.
o Strategic analysis is to identify potential imbalances or risks and assess their consequences.
 o Internal risk: occurs on account of forces that are either within the organization or directly interacting
with organization on a routine basis.
o External risk: on account of inconsistencies between strategies and the forces in environment.

STRATEGIC ANALYSIS
External analysis Internal analysis
 Customer analysis: segments, motivations,  Performance analysis: profitability, sales,
unmet needs customers satisfaction, new products,
products quality relative cost, human
 Competitor analysis: strategic groups,
resource.
performance, objectives, strategies, culture,
 Determinants analysis: past and current
cost structure
strategies, strategic problems,
 Market analysis: Size, growth, profitability, organizational capabilities and constraints
entry barriers. financial resources, strengths and
weakness
 Environment analysis: technological,
government, economic, culture,
demographic.

Opportunity, threats, Trends Strategic strengths, weakness,

And problems, constraints and
Strategic uncertainties uncertainties

➢ Strategic analysis and business environment: 2.8

• Business environment refers to all the external factors, influence and situations that
affect some way to business decisions, plans and operations.

• “The Environment includes factors outside the firm which can lead to opportunities
or threats to the firms”

• Organizational success is determined by the business environment and from its

relationship with it.
• Business environment is highly dynamic and continuously evolving.

• Interaction between organization and its environment helps in strengthening the

business firm and using its resources more effectively.

• It helps the business following way:

 DETERMINES
OPPORTUNITY
AND THREATS

GIVES
MEETING
DIRECTION
COMPETITION
FOR GROWTH

IMAGE CONTINUES
BUILDING LEARNING

(i) Determine opportunity and threats:

✓ It helps to find new needs and wants o the consumers, changes in laws, changes in social
behaviour and tells about new products of competitors.

(ii) Give direction for growth:

✓ It enables the business to identify the areas for growth and expansion of their activities.

(iii) Continuous learning:

✓ The mangers are continuously updated their knowledge, understanding, and skills to meet the
predicted changes.

(iv) Image building:

✓ It helps the business organization to improve their image by showing their sensitivity to the
environment in which they operate.
✓ It creates a positive image and helps it to prosper and win over the competitors.

(v) Meeting competition:

✓ It has the business to analyse the competitors’ strategies and formulate their own strategies
accordingly. The idea is to flourish and beat competition for its product and services.

Types of business environment analysis

Business Environment

Internal Environment External Environment

Inside business → direct effect → controllable

Micro Environment Macro Environment
Includes: Management, BOD, Employees,  Small area (particular  Wider area (Aggregate)
policy, resources, corporate culture etc. company/industry)  Indirect effect
 Immediate periphery  Completely uncontrollable
(surrounding)
  Effect regular or direct to  Demographic, political,
Org. economical, social, legal,
 Partially controllable technological, global
 Consumer, competitors,
suppliers, creditors,
distribution channel

Micro Environment:
 A business environment which is related with small area or immediate periphery of an
organization.
 It can regular influence the business decisions and policy on direct basis.
 It consists: customers, suppliers, marketing intermediaries, competitors, creditors etc.
 Issues associated with Micro environment:
I) Employees: characteristics & how they are organized.
II) Customer: their demand pattern, perceptions, taste & preferences.
III) Financial Institutions: determine the cost of borrowing and risk related to finance.
IV) Suppliers: determines the cost of inputs as well as consistency of supply.
V) Local community: determines the operation of firm.
VI) Direct competitors: influence the performance.

Macro Environment:
 The Macro Environment is the portion of the outside world that significantly affects how an
organization operates but is typically much beyond its direct control and influence.
 It has broader dimension as it consists of Economic, Socio-culture, Technological, Political and
Legal factors.
 Factors of Macro Environment:

1) Demographic Environment:
 Demography refers to the characteristics of population.
 Demographic analysis considers Size of Population & distribution, Intensity, Ethnic Mix,
Age, Gender, Income, Education, Possession of assets, house Ownership, Region, and
Degree of Education and so on.
 Demographic analysis helps to address following issues:
i) What demographic trends will affect the market size of the industry.
ii) What demographic trends represents opportunities and threats.

2) Social-cultural Environment:
 It represents social traditions, Values and beliefs, culture, literacy, ethical standards,
state of society, social stratification, conflict and cohesiveness so on.
 It is the behaviour and belief system of the population.
 It is difficult to change the social and cultural environment by an organization but
the businesses have to adjust to social norms and beliefs to operate successfully.

3) Economic Environment:
 It refers to the overall economic situation around the business and include
conditions at the regional, national and global levels.
 This environment determines the Strength and size of market
 Purchasing power in an economy depends on current income, prices, saving,
circulation of money, debt and credit availability.
  Economic environment includes:
GDP, Per Capita Income, markets for goods and services, capital, Foreign exchange
reserve and rate, Growth of Foreign trade, stock market, interest rates, dfisposable
income, unemployment rate, inflation, money supply and so on.

4) Political-legal Environment:
 It includes general level of political development, degree to which business and
economic issues have been politicised, political morality, Law and Orders, political
stability, political ideology and practices of ruling party, effectiveness and
purposefulness of government, government intervention and so on.
 A business has to consider the changes in the regulatory framework and their
impact on the business.
 Business must have a good knowledge of the major laws protecting consumers,
competition and organization.

5) Technological Environment:
 Technology has changed the ways of how business operate now.
 Outcomes of technology are R&d and raising living standard.
 Business use new discoveries to adapt themselves for the advancement of society.
 It helps to reduce the cost of companies and shrink time consumption and distance
and creates competitive advantage.

Types of Analysis

SWOT Portfolio Value Chain PESLE

Analysis Analysis Analysis Analysis
Internal & External Strategic Option
Envirinment Analysis Analysis Helpful to Set the Helpful to understand
helpful in future order of activities or External Environment
decision making step based on Values in simple framework
Questions: Meaning &
Uses0

Important for analysis and formulation

 Strategic business unit:

o A profit centre which focuses on specific product, specific marketing plan and
specific market segment.
o It operates as a separate unit but it is also an important part of the company and
report to headquarter.
o It operates independently and is focused on a target market.
o Example: product, product line, division, and branch etc.

 Experience curve: 2.35

 o Meaning: Experience akin to a learning curve which explains the efficiency increase gained by
workers through repetitive productive work.
o Observed Idea: unit cost decline as a firm accumulates experience in the terms of cumulative
volume of production.
o Based on: “We Learn as we grow”.
o It Gives competitive advantage to the large firms over the smaller firms.
o Results From: learning effect, economies of scale, product redesign and technological
improvement.

o Features:
(i) As business organizations grow they gain experience.
(ii) Provide competitive advantage
(iii) Important barrier to entry
(iv) Large and successful organization possess stronger ‘experience effect’

2.22
 Product life cycle:
o Meaning: PLC is an S-shaped curve which is exhibits the relationship of sales with respect of time
for a product.
o Usefulness: concept for guiding strategic choice.
o Stages: there are four successive stages of PLC:

I. Introduction stage:
o The growth in sales at a lower rate because of lack of awareness on the part of customers.
o Competition is almost negligible and product market is limited.
o Firm charges relatively high prices.
o Strategic choice: high advertisement and promotion expenditure and expansion.

II. Growth stage:

o the customer has knowledge about the product and shows interest in purchasing.
o Rapid market acceptance (demand rapidly expands)
 o Competition starts to increase and prices tends to fall.
o Strategic choice: expansion
III. Maturity stage:
o The competition gets tough and market gets stabilized.
o Market growth rate slows down
o Profit comes down due to stiff competition.
o Organization have to work for maintaining stability.
o Strategic choice: invest in new business opportunities, initiatives and innovative ideas should
be taken.

IV. Decline stage:

o Sharp downward drift in sales due to some new product replaces the existing product.
o Profits are also sharply decline.
o Combination of strategies have to adopt like diversification and retrenchment.
o Strategic choice: harvest, retrenchment

1. SWOT Analysis: 3.22

 Meaning: it is the analysis of business strength, weakness, opportunities and threats from internal and
external environment.
 Primary objective: develop a full awareness of all the internal and external factors involved in business
decision making.
 It is implemented before all company actions like: new initiative, revamping internal policies, grow and
alter a plan midway.
 Widely Used: by business owners to grow their companies.
 Shows: areas when an organization is performing well and the areas that need improvement.

 Benefits: it identifies the complex issues for and organization and puts them into a simple framework.

 Criticism/Limitation: it does not provide for evaluation of strength, weakness, opportunities and
threats in competitive context.
2. Portfolio Analysis: [Ch-4]

BCG Analsysis Ansoff product - ADL Matrix

Market Growth
Analysis General Electic
•Used for investment •Impoertant to find Model
Decision. •Important for Growth competitive position in
and Expansion Extend or Similar to
business environment.
Decision. BCG Matrix.
•Developed on the Inspired From traffic
basis of SBU •Matrix i based on lights/Stop-Lights
Product Life Cycle.

i) Boston Consulting Group Growth-Share Matrix (BCG Analysis):

✓ It is the simplest way to portray a corporation’s portfolio of investment.

✓ It is also known for its Cow and Dog Metaphors.
✓ Mostly, Used for resource allocation in a diversified company.
✓ In this company classifies its business in Two Dimensional Matrix:

a) Vertical Axis: Market growth rate and market attractiveness.

b) Horizontal Axis: Market share and company’s strength in Market.

✓ By using the matrix, Organization van identify four different types of products or
SBU.
 (i) Star:
 High market growth rate and high market share result SBU’s or
product growing rapidly.
 Need of heavy investment to maintain position and growth.
 Best opportunities for expansion.
(ii) Cash Cow:
 Market growth rate is low but market share of product is high.
 Product or SBU is well established, successful and need less
investment.
 Though, product generates cash with low cost.
 In Long run when the growth rate slows down then stars become cash
cow.
(iii) Question Mark:
 Low market share in highly growing market.
 Require a lot of cash to hold their market share.
 Need heavy investments with low potential to generate cash.
 If left unattended are capable of becoming cash traps or become Dog.
 Some times it is also known as problem of children or wildcat.
(iv) Dog:
 Low market share and low growth of product or SBU.
 Generate enough cash to maintain but don’t have much future.
 May need cash to survive.
 It should be minimised by divestment or liquidation.

❖ BCG: Post identification strategies:

used for star position, Objective is to increase Market share and

BUILD short term earning in favour of building a strong future.

Used for Cash Cow Position. Objective is to preserve market share.

HOLD
used for Question Mark position. Objective is to increase short-
HARVEST term cash flow regardless of long-term effect.

for Dog position. Objective is to sell or liquidate the SBU because

DIVEST resources can be better used for elsewhere.
 ❖ Limitations of BCG Matrix:

SUBJECTIVI
TY

COMPLEX & LIMITATIO FOCUS ON

COSTLIER NS OF BCG PRESENT

OVEREMPH
ASIS ON
GROWTH

1. Complexity and Cost: The matrix can be difficult, time-consuming, and costly to implement.

2. Subjectivity: Defining SBUs and measuring market share or growth can be challenging and
subjective.

3. Focus on Present: It emphasizes current business scenarios but provides limited guidance for
future strategic planning.

4. Overemphasis on Growth: This may lead to unwise investments in high-growth markets or

premature divestment of established products.

ii) Ansoff Product-Market growth matrix:

 Meaning: It is useful tool that has business decide their product and market growth strategy.

 Useful: It is useful device for identifying growth opportunities for the future is the product market
expansion grid.

 A business can get a fair idea about how its growth depends upon its markets in new or existing
products in both new and existing markets.
  Options: there are four options for it:

(a) Market penetration:

✓ Business focuses on selling existing product into existing market.
✓ It is achieved by making more sense to present customers without changing products in
any major way.
✓ it requires greater spending on advertising or personal selling, promotional campaign,
price strategy for market unattractive for new entrants.
✓ Have to increase the use of existing product

(b) Market development:

✓ A growth strategy where the business seeks to sell its existing product into new markets.
✓ Company identifying and developing new market for current company’s products.
✓ Achieved: Through new geographical markets new product dimensions or packaging new
distribution channels or different pricing policies.

(c) Product development:

✓ Growth strategy via the business aims to introduce new products into existing markets.
✓ his strategy may require the development of new competencies and require the business
to develop modified products which can appeal to existing markets.

(d) Diversification:
✓ A growth strategy where a business market’s new products in new markets.
✓ Starting up or acquiring business outside the company’s current product and market.
✓ This strategy is much risky because it does not rely on either companies successful
product or its position and Business is moving into markets in which it has little or no
experience.

iii) ADL Matrix (Arthur D. Little):

 It is a Portfolio Analysis technique that is based on product life cycle.
 It is two Dimensional Matrix based on:
(I) Stage of Industry Maturity: An Environmental measure that represents a position in
industry’s life cycle.
 (II) Competitive position: A measure of business strengths that helps in categorization of
products or SBU’s.

 Matrix:

 Five Competitive Positions:

1) Dominant: A rare position that either enjoy Monopoly or strong and protected technological
leadership.
2) Strong: the firm has considerable degree of freedom over its choice of strategies.
The firm is able to act without its market position being unduly threatened by its competitors.
3) Favourable:
When the industry is fragmented and no one competitors stand out clearly.
The market leaders have reasonable degree of freedom.
4) Tenable:
The firms are able to perform satisfactorily and can justify staying in industry.
They become vulnerable when the face stronger competition from more proactive companies.
5) Weak:
Firms are unsatisfactory although the opportunities for improvement do exist.
iv) General Electric Matrix [Stop-Light Strategy Model]: -
 Model is used by General Electric Company (developed with assistance of the Mckinsey and
company).
 It is also known as Business Planning Matrix, GE Nine-Cell Matrix and GE Model.
 A strategic planning approach which is inspired from Traffic Control Lights.
 Green light for Go, Amber or Yellow for caution and Red for Stop.

 This model uses two factors for decision making:

(I) Market Attractiveness:
 ▪ Size of the market
▪ Market growth rate
▪ Industry profitability
▪ Competitive intensity
▪ Availability of technology
▪ Pricing trends
▪ Overall risk of returns in the industry.
▪ Opportunity for differentiation of products and services.
▪ Demand variability.

(II) Business strength

▪ Market share
▪ Market share growth rate
▪ Profit margin
▪ Distribution efficiency
▪ Brand image
▪ Ability to compete on price and quality
▪ Customer loyalty
▪ Production capacity
▪ Technological capability
▪ Relative cost position
▪ Management calibre

 Matrix:

 Green Section:
• Business is at advantageous position.
• To reap the benefits decisions can be Expand, Invest and Grow

 Amber or Yellow Section:

• Needs caution and managerial discretion is called for making the strategic choices.

 Red Section:
• Eventually lead to losses that would make things difficult for organization.
• Strategy should be retrenchment, divestment or liquidation.
 This model is similar to BCG-Matrix. (market attractiveness replaces market growth and competitive strength
replaces market share)

3. Value chain Analysis:

Manufacturing Firms

Primary Activity Supporting Activity

➢ Inbound logistic ➢ Procurement (Machine/Equipment/tools/
technology)
(Raw material/ storing/Warehousing) [Supports efficiency of operation]
➢ Operation ➢ Technological development
(WIP/ Finished Goods/ Packaging/ Assembling/ testing/ Makes the process smooth
pricing/ labelling) Set the systematic process
➢ Outbound logistic ➢ Recruitment
(Distribution channel/ storing/ warehousing/ (selecting/ training/ payroll)
transportation)
➢ Marketing & Sales ➢ Infrastructure:
(Advertisement/ promotion/ publicity) (Funds/ Finance/ Accounts/ Banks/
Information/ insurance)
➢ After Sales Services
(Guarente/ Warrantee/ installation/ product
servicing/ customer care)

 Meaning: It is a method of examining each activity in value chain of a business in order to identify
areas for improvements.
It is a method Used by strategists to break down each process that their business employs.
Originally, it was introduced as an accounting analysis that determine where cost improvement
could be made value creation.

 Use:
✓ Help to Analyse how each stage in the process adds or subtract value from the end product or
subsidy.
✓ Improve the sequence of operation, enhancing efficiency, and creating a competitive
advantage.
✓ Used as a means of describing the activities within and around the organization and
assessment of competitive strength.
 Useful: all size of business like: sole proprietorship, corporates and MNC’s.
 The two basic steps of identifying separate activities and assessing the value added:
(1) Primary Activities: (Five main areas)

i. Inbound logistic: Activities concerned with receiving, storing and distributing the inputs
to the product/ services. Like: Material handling, stock control, transportation,
warehousing etc.

ii. Operations: Activity related to transforming inputs into the outputs. Like: machining,
packaging, assembling, packaging, testing and labelling etc.

iii. Outbound logistic: collect, store and distribute the output/ product to customers.
Example:
Tangible goods-Warehousing, Material handling in distribution channel, transportation.
Services- All the arrangements for bringing customers to the services at fixed location.

iv. Marketing and Sales:

Consumers/users are made aware of the product/services and able to purchase it.
Example: Advertising, Sales promotion, public service, communication network etc.
v. After Sale services:
Enhance or maintain the value of a product services.
Example: Installation, repair, Guarente, warrantee, training and spares.

(2) Supportive activities: (four main areas)

i. Procurement:
process of acquiring the various resource inputs.
It occurs in many parts of the organization.

ii. Technology development:

Even it is simply know- how.
The Key Technology Concerned With:
▪ Product (R&D, product redesign).
▪ Process (Process development).
▪ Resource (raw material improvement)

iii. Human Resource Management:

 Particularly important area which transcends all primary activities.
It is related with recruitment, managing, training, developing and rewarding people.

iv. Infrastructure:
It consists of the structure and routines of the organization which sustains its culture.
Example: planning, finance, quality, control, information, management etc.

4. PESTLE Analysis:
 It is an analytical tool often used to describe a framework for analysis of macro environmental factors.
 Past name was PEST however later has been expanded to include environmental and legal factors.

 It is a way of scanning the environmental influences that have affected or are likely to affect an organization or its
policy.
 Advantages:
(a) It is simple to understand and quick to implement.
(b) Encourage management into proactive.
(c) Structured thinking in its decision making.

 The key factors:

(1) Political Factors:
▪ Measures extent of government intervenes in the economy and business activities.
▪ It influences the production of goods and services that the government wants to provide or
not want to be provided.
▪ Government concern for health, education and infrastructure of the nation.

(2) Economical factors:

▪ It measures how business operate and take decision.
▪ Example: interest rate, cost of capital, business growth, expansions, exchange rate, export,
import, money supply, inflation credit flow, per capita income, growth rate etc.
(3) Social factors:
▪ It affects the demand for a company’s product and how company operates.

(4) Technological factors:

▪ Determines barrier to entry, minimum efficient production level and outsourcing decisions.
▪ It affects cost, quality and price
▪ Leads to innovation.

(5) Legal factors:

▪ It affects operation of company, cost and demand of products.
▪ Determines ease of doing business.
 (6) Environmental factors:
▪ Mostly affects to industries like tourism, farming, and insurance.
▪ Growing awareness to climate change influences the operations, demand, creation of
new markets and distortion.

Types of strategy

Corporate level Business level Functional/programmed

level

 Top level management  Middle level strategy (Executive  Lower level management
(Administrative level) level) (operative level)
 (BOD/CEO/MD/Chairman)  (Departmental/ divisional/  (branch manager/ supervisors/
General manager) Superintendents/ Foreman)
 Corporate Level Strategy (Case study base question)

Stability Expansion & Growth Retrenchment Combination

 Used: When firm is at  Used: firm at Introduction  Used: when firm at dog,  Mixed condition all
Maturity & Cash Cow stage. weak, Red position. of the strategies.
 Firm wants to remain  Firm wants to expand the scop  Firm wants to cut down  Used: When single
in existing market and of business the scope strategy could not
product. be benefited.
 Questions:  Questions:  Methods:
1. Meaning 1. Meaning 1. Turnaround
2. Characteristics 2. Characteristics 2. Divestment
3. Reason 3. Reasons 3. Liquidation
 Questions:
1. Meaning
2. Action Plans
3. Reasons

(1.) Strategy of stability:

 It may be opted to safeguard its existing interests and strengths to pursue well established and tested
objectives to continue in the chosen business path to maintain operational efficiency on a sustained
basis to consolidate the commanding position already reached and to optimize return on the resources
committed in the business.

 Strategy is pursued when:

1. Continue to serve in the same market and deals in same product and services.
2. the product have reached the maturity stage of PLC or who have a sufficient market share but need
to retain or preserve market share.
 Stability does not mean ‘do nothing strategy’.
 Small organization may also follow stability strategy to consolidate their market position.

 Features/ Characteristics:
i. Stay with the same business, same product-market posture and functions.
ii. Endeavor is to enhance functional efficiencies in an incremental way through better deployment
and utilization of resources.
iii. Does not involve a redefinition of business corporation.
iv. It is a safe strategy to ‘Status Quo’ (Existing state).
v. Does not need of much fresh investments.
vi. Risk is very less.
vii. Organizations can concentrate on its resources and existing business/products and markets that
leads to buildings of core competencies.
viii. Modest Growth strategy.

 Reasons:
1. The product has reached at the maturity stage of PLC.
2. The staff feels comfortable with the status quo (Existing state) as it involves less change and less
risks.
3. The environment in which organization is operating is relatively stable.
4. When expansion may be perceived as threatening.
 5. After rapid expansion a firm might want to stabilize and consolidate itself.

(2.) Strategy of Expansion and Growth:

 Meaning: Redefining the business by enlarging the scope of business and substantially increasing
investment in the business.
 Strategy can be equated with Dynamism, Vigour, promise, success.
 Reformulation of goals and direction, major initiatives and moves involving investment, exploration
and Onslaught into new products, technology and new markets, innovative decisions and action
programs.
 It is relatively unknown and Risky path, full of promises and Pitfall.

 Characteristics:
(i) Requirement of redefinition of business.
(ii) Opposite of stability: [where stability rewards limited on other hand expansion rewards high,
expansion is matter of risk but stability is not].
(iii) It leads to business growth and mammoth growth ambition can be meet.
(iv) Fresh investment and new business/ products/ markets is facilitated.
(v) Highly versatile strategy because it offers several permutation and combinations of growth.
(vi) Two major Routes of expansion: intensification and diversification

 Reason:
i) When Environment demands increase in pace of activity.
ii) Chief executive may take pride in presiding over organizations perceived to be growth oriented.
iii) Lead to greater control over the market as well as competitors.
iv) Advantage from experience curve and scale of operation may accrue.

Types of Expansion
Internal Expansion External Expansion

Intensification Diversification Merger & Strategic alliance

Acquisition
Penetration Product Market Concentric Conglomerate Innovation Meaning
development development
Advantage &
Disadvantage
Vertical Horizontal

Backward Forward Horizontal Vertical Conglomerate Co-Generic

(A) Intensification:
 The organization tries to grow internally by intensifying its operation.
 It tries to cash on its internal capabilities and internal resources.
 There are three strategies for intensifying:
(a) Market Penetration: (Highly common strategy)
▪ The firm directs its resources to the profitable growth of its existing product in the existing
market.
▪ Expansion Grid:
(i) Increase market share.
(ii) Increase product usage.
(iii) Increase frequency used.
(iv) Increase the quantity used.
 (v) New application for current users.
(b) Market Development:
▪ It consists increase the market of present product by adding different channels of distribution,
changing the content of advertising, promotional media.
▪ Expansion Grid:
(i) Expand geographically target new segments.
(c) Product Development:
▪ Substantial modification of exiting product or creation of new but in the same market, to same
customers and same channels.
▪ Expansion Grid:
(i) Add features, product refinement.
(ii) Develop a new generation product.
(iii) Completely new product.

(B) Diversification:
▪ Meaning: It is defined as an Entry into new products or product lines, new services or new market,
involving substantially different skills, technology and knowledge.
▪ the firm grow and expand by diversify into various products or fields.
▪ Generally, it is done by the innovative and creative firms to grab opportunities and growth options.
▪ Diversification is a means of utilizing their existing facilities and capabilities in more efficient
manner.

▪ Reasons:
(i) If the firms have excess capacity in facilities, funds, marketing channels, competitive stand,
market prestige, manpower, R&D, and raw-material etc.
(ii) Its synergistic advantage.
▪ There are three broad categories of diversification on the basis of relation with existing
business:
(a) Concentric diversification
(b) Conglomerate diversification
(c) Diversification through innovation

(a) Concentric Diversification:

 When diversification is related with existing business.
 New business linked to the existing business through process, technology and marketing.
 The new product is spin-off from the existing facilities.
 Benefit: Synergy with the current operation.
 there are two categories of it:
(i) Vertically integrated diversification:
▪ The firm remains vertically within the same process sequence moves forward or backward in
the chain.
▪ The firm vertically linked with product process chain.

▪ There are two types of vertical integration:

a) Forward Vertical Integration:
▪ Business is moving forward in the value chain and entering business lines use existing
products.
▪ Organization enters into business of distribution channel.

b) Backward Vertical integration:

▪ Business creates effective supply by entering business of input providers.
 ▪ Strategy is used to expand profits and gain greater control over the
production/supply of inputs.
▪ Business will increase its own supply capabilities or lessen its costs of production.

(ii) Horizontal integration diversification:

▪ When business enters into the one or more similar business operating at the same stage
of production-marketing chain.
▪ Firm can also produce complementary products or by-products or by taking the over
competitors’ products.

(b) Conglomerate Diversification:

▪ No linkages related to product, market and technology exist.
▪ The new business/ products are disjoined from the existing business/products in
every way.
▪ Totally unrelated diversification.
▪ It has no common thread at all with the firm’s present position.
▪ Advantages of conglomerate diversification:
o Access of a new pool of customers.
o Expanding customers base.
o Allow access to markets and cross-selling new products.
o Increase in firm’s revenue
o Eases the management of losses & risks in a business.
(c) Diversification through Innovation:
▪ Upgradation of existing product lines or process, leading to increased market share,
revenue, profitability, and most important customer satisfaction.
▪ In short term, innovation leads to unnecessary expenses that do not gives much return but
in long term, it offers:
1) Help to solve complex problems:
o A business strives to find opportunities in existing problems of the society.
o It helps to develop customer centric sustainable solutions.
2) Increases productivity:
o Simplification and in most cases automation of existing task.
o Automating repetitive tasks and simplifying the long chain of process adds to
productivity of teams.
3) Gives competitive advantage:
o The faster a business innovates that farther it goes from its competitor’s reach.
o Innovative products need less marketing as they aim to provide added
satisfaction to consumers thus creating a competitive advantage.

(C) Merger and Acquisition: diversifying by making alliances with external organization.

(I) Expansion through mergers and acquisition:

 Organizations consider merger and acquisition proposals in a systematic manner, so
that the marriage will be mutually beneficial, a happy and lasting affair.
 Merger and acquisition are defined as a process of combining two or more
organizations together.
 They are resorted to for purposes of achieving a measure of synergy between the
parent and the acquired enterprises.
  Synergy may result from such bases as physical facilities, technical and managerial
skills, distribution channels, general administration, research and development so
on.

 There is some difference between Merger & acquisition:

(i) Merger:
• A process when two or more companies come together to expand their
business operations.
• Deals Get finalized on friendly terms and both the organizations share
profits in the newly created entity.
• Increase their strength and financial gains along with breaking of the trade
barriers.
(ii) Acquistion:
• One organization takes over the other organization and control all its
business operations.
• It often happens during recession in economy during decline profit
margins.
• In this process, stronger one overpowers the weaker one but Operations
run under the name of the powerful one.
• Acquisition is often done in an unfriendly manner.

✓ Types of merger:

(A) Horizontal Merger:

▪ Combination of firms engaged in same Industry
▪ Merger with a direct competitors.
▪ Principle objective: Achieve economies of scale in the production process by
shedding duplications and functions, widening the line of products, decrease in
working capital, fixed assets investment, getting rid of competition etc.

(B) Vertical Merger:

▪ Two organization working in the same industry but at different stages of
production.
▪ Increased synergies with the merging firms.
▪ If organization takes over its supplier/producers of raw material then it is
backward integration.
▪ If organization takes over the buyer organizations/distribution channel then it is
known as forward integration.
▪ Advantages:
It results operating and financial economies.
Restricts the supply of inputs to other players
Or higher cost for others

(C) Conglomerate:
 ▪ Combination of organizations that are unrelated to each other.
▪ No linkages with respect to customer groups, customer function and technology.
▪ No important common factors between organization in production, marketing,
research and development and technology.
▪ But there is some degree of overlap in one or more of these factors.

(D) Co-Generic Merger:

▪ Two or more organizations are associated in some way or other related to the
production processes, business market, or basic required technologies.
▪ Includes: product line or acquiring components that required in the daily
operations.
▪ Diversify around common set of resources and strategic requirements.

(II) Strategic alliance:

▪ It is a relationship between two or more business that enables each to achieve
certain strategic objectives which neither would be able to achieve on its own.
▪ The strategic partners maintain their status as independent and separate entities
share the benefits and control over the partnership and continue to make
contributions to the alliance until it is terminated.
▪ It is often formed in the global market place between that are based in different
regions of the world.
▪ Advantages:
(1) Organizational:
o Helps to learn necessary skills and obtain capabilities of strategic
partner.
o Strategic partner may provide complements and thereby creating a
synergy.
o Well known and respected partner also helps add legitimacy and
credibility.
(2) Economic:
o Reduction in costs and risks by distribution them across members of
the alliance.
o Greater Economies of scale due to production volume increases and
per unit costs decline.
o Co-specialization between trading partners.

(3) Strategic:
o Rivals can join together.
o It may also be useful to create a competitive advantage by the pooling
of resources and skills.
o Offers business opportunities and development of new products and
technologies
o Access new technologies and pursue joint research and development.
 (4) Political:
o when alliance is formed between local and foreign companies then
politically influential partners may also help to improve your own influence
position.

(3.) Strategy of Retrenchment (Strategic Exit):

 Meaning: Business organization substantially reduces the scope of its activity.
 it is done through:
find out the problem areas.
diagnose the causes of problems.
Solve the problem by adopting different retrenchment strategy.
 There two types of retrenchment strategy: Internal and External
 There three strategies:

(I) Turnaround Strategy:

• When retrenchment to take place, emphasis is laid on improving internal efficiency.
• It is used when the organization chooses to focus on ways & means to reverse the process of
decline.
• Certain condition/Indicators/Danger signals that shows the requirement of turnaround:
✓ Persistent negative cash flow
✓ Uncompetitive product
✓ Declining market share
✓ Deterioration in physical facilities
✓ Over staffing, high turnover of employees and low moral
✓ Mismanagement

• Action Plan for Turnaround:

1. Stage one – Assessment of current problems:
o Assess the current problems and get to the root causes and the extent of damage.
o Once problems are identified the resources should be focused on correcting and
repairing any immediate issues.

2. Stage second – analysis the situation and develop a strategic plan:

o Before any action, determine the chances of the business survival.
o Analyse the strengths and weakness in the areas of competitive position.
o Identify appropriate strategies and develop a preliminary action plan.

3. Stage three – Implementation an emergency action plan:

o If the organization is in a critical stage, an appropriate action plan must be
developed to stop the negative cash flow and enable the organization to survive.
o The plan includes: Human resource, financial, marketing and operations actions to
restructure debts, improve working capital, reduce costs, improve budgeting
practices, prune product lines and accelerate high potential products.

4. Stage four – restructuring the business:

o If the core business is irreparably damaged, then the outlook for the entire organization
may be bleak.
 o Prepare cash forecasts, analyse assets and debts, review profits and analyze other key
financial functions.
o During the turnaround:
 Product mix may be changed
 Core product my require immediate attention
 Some facilities might be closed & withdraw from certain markets.
 Niche may adopt.
 Morale building through reward and compensation system.

5. Stage five – returning to normal: (final stage)

o The organization should begin to show signs of profitability.
o Enhancing return on investment & value added
o Emphasized on:
 Adding new products
 Improving customer services
 Creating alliances
 Increasing market share.

• Important Elements of Turnaround Strategy:

o Changes in the top management
o Initial credibility-building actions
o Neutralising external pressures
o Identifying quick payoff activities
o Quick cost reductions
o Revenue generation
o Asset liquidation for generating cash
o Better internal coordination.

(II) Divestment strategy:

 It involves the sale or liquidation of a portion of business, major division, profit centre or SBU.
 It is the rehabilitation & restructuring plan.
 Strategy is adopted when turnaround has been attempted but has proved to be unsuccessful.

 Reasons of strategy:
 A business that had been acquired proves to be a mismatch and cannot be integrated within the
company.
 Persistent negative cash flows from a particular business create financial problems for the whole
company.
 Severity of competition and the inability of a firm to cope with it may cause it to divest.
 It is not possible for the business to do Technological upgradation that is required for the
business to survive.
 A better alternative may be available for investment.

 Characteristics of Divestment:
 Divest some of the activities in the firm or sell-out of some of the businesses as such.
 It is to be viewed as an integral part of corporate strategy without any stigma attached.

➢ Major Reason for Retrenchment/ Turnaround:

✓ The management no longer wishes to remain in business either partly or wholly due to continuous
 losses and unviability.
✓ Business could be made viable by divesting some of the activities or liquidation of unprofitable
activities.
✓ A business that had been acquired proves to be a mismatch and cannot be integrated within the
company.
✓ Persistent negative cash flows from a particular business create financial problems for the whole
company.
✓ Severity of competition and the inability of a firm to cope with it may cause it to divest.
✓ Technological upgradation is required if the business is to survive but where it is not possible
for the firm to invest in it.
✓ A better alternative may be available for investment.

Michal Porter’s Generic strategies (Business level Strategy)

• Porter’s strategies allow an organization to gain competitive advantage on three basis: cost leadership,
differentiation, and focus.
• These are generic strategy because they can be pursued by any type or size of business firm and even by
not-for-profit organisations.
• It implies organizational arrangement, control procedure and incentive system.

• Adoption of strategy depends on type of industry, size of firm and nature of competition.
• Porter stresses the need for strategists:
(i) Cost benefit analysis to evaluate “sharing opportunities”.
(ii) ‘Transfer skills and expertise’ among autonomous business units (to gain competitive advantage).

Business Level Strategy

Cost Leadership Strategy Differentiation Strategy Focus Strategy

1) Cost Leadership:
• Low-cost competitive strategy that aims broad mass market.
• It is used for price sensitive consumers.
 • It emphasized on producing standardized products at a very low per unit cost for consumer.
• Basic idea is to underprice-competition and some of the competitors get out of the markets.
• Example: JIO (At first JIO reduces the prices that resulted many companies go out from market and
JIO became leader).
• Example: JIO (At first JIO reduces the prices that resulted many companies go out from market and
JIO became leader).

• Risks of cost leadership:

(i) Competitors may imitate the strategy.
(ii) Technological breakthrough.

• Achieving through:
1. Promote forecasting of demand.
2. Optimum utilization of resources
3. Economies of scale
4. Standardisation of products for mass production.
5. Invest in smart and cost saving technology
6. Resistance to differentiation till it becomes essential

• Advantage:
1. Rivalry: competitors may avoid the price war and get away from market.
2. Buyer: Powerful customer could not be able to exploit cost leader and have to continue their
purchases.
3. Suppliers: cost leaders are able to absorb greater price increase from suppliers before they need
to raise prices for customers.
4. Entrants: Cost leader may create barrier on entry of new firms.
5. Substitutes: cost leader invest in developing substitutes and purchase patents to retain
customers.

• Disadvantage:
1. Competitors may imitate cost reduction techniques.
2. It only succeeds if the firm can achieve higher sales volume.
3. Cost on advertising, market research and R & D can be expensive Long-run.
4. Technological advancement causes threat.
2) Differentiation strategy:
• This strategy is aimed at broad mass market and involves the customer of a product or service that
is perceived by the customers as a unique.
• Uniqueness consists: Product design, brand image, features, technology, dealer network, customer
services etc.

• Risks:
1) Unique product may not be valued high enough by customers to justify the higher prices.
2) When other firms copy the unique feature quickly.

• Features:
✓ Business can charge higher and premium price because strategy often opted when customers
are less price sensitive.
✓ It does not guarantee competitive advantage (because rapid imitation is possible but durable
goods are protected with quick imitation).
✓ Greater product flexibility, compatibility, convenience, lower cost, less maintenance and
improved services etc. are some the advantages received by the customers.
✓ Product development is an example of differentiation.
 ✓ Strategy should be perused after carefully study of buyers need and preferences.

➢ Basis of differentiation:

1. Product:
• Innovative products that meet customer needs can be an area where a company has an
advantage over competitors.
• Product can be costlier due to: the cost of research and development, production, and
marketing so on.
• But customer get ready to pay with the idea they are great if they first to have the new
product.
• Example: Apple iPhone, has invested huge amounts of money in R&D, and the customers’
value.

2. Pricing:
• Firm can differentiate the product by changing the price on the basis of demand, supply and
customer’s ideal value for a product.
• Differentiation either by lowest price or can attempt to establish superiority through higher
prices.
• Example: Apple charges relatively higher prices to keep its product premium.

3. Organization:
• Differentiation by the Maximizing the power of a brand or using the specific advantages that
an organization possesses can be instrumental to a company’s success.
• Through: Location advantage, name recognition and customer loyalty.

➢ Achieving:
1. Offer utility to the customers and match products with their tastes and
preferences.
2. Elevate/Improve performance
3. Offer the high-quality product/service.
4. Rapid product innovation to keep up with dynamic environment.
5. enhancing brand image and brand value.
6. Fixing product prices based on the unique features along with buying capacity of the
customer.

➢ Advantages:

1. Rivalry - Brand loyalty acts as a safeguard against competitors.

2. Buyers – can’t negotiate for price because get special features and fewer options in the
market.
3. Suppliers – due to premium price, they can afford to absorb higher costs of supplies
4. Entrants – Innovative features are an expensive offer. So, new entrants generally avoid these
features.
5. Substitutes – Substitute products can’t replace differentiated products which have high
brand value and enjoy customer loyalty.
 ➢ Disadvantages:
1. In the long term, uniqueness is difficult to sustain.
2. Due to high a price, the customer may switch-off to another alternative.
3. Differentiation fails to work if its basis is something that is not valued by the customers.

3) Focus Strategy:
• It is used for small groups of consumers with very specific taste and preferences.
• In this strategy organization target specific segment of overall market.
• It is based on Niche Marketing concept.
• It is most effective when consumers have distinctive preferences or requirements and when the rival
firms are not attempting in the same target segment.
• A successful focus strategy depends on an industry segment that is of sufficient size, has good
growth potential, and is not crucial to the success of other major competitors.
• Midsize and large firms can effectively pursue focus-based strategies only in conjunction with
differentiation or cost leadership- based strategies.
• concentrate on a particular group of customers, geographic markets, or on particular product-line
segments in order to serve a well-defined.

• Risks:
I. The possibility of numerous competitors recognizing the successful focus strategy and
imitating it.
II. Consumer preferences may drift towards the product attributes desired by the market as a
whole.

• There are two types of focus strategy:

(1) Focused cost-leadership – It requires competing based on price to target a narrow market and firm
charges relatively lower prices.
(2) Focused differentiation -It requires offering unique features that fulfil the demands of a narrow
market. Example- (Rolls-Royce).

• Achieving:
1. Selecting specific niches which are not covered by cost leaders and differentiators.
2. Creating superior skills for catering such niche markets.
3. Generating high efficiencies for serving such niche markets.
4. Developing innovative ways in managing the value chain.

• Advantages:
1. Premium prices can be charged by the organisations for their focused product/services.
2. rivals and new entrants may find it difficult to compete.

• Disadvantage:
1. The firms lacking in distinctive competencies may not be able to pursue focus strategy.
2. Due to the limited demand of product/services, costs are high, which can cause problems.
3. In the long run, the niche could disappear or be taken over by larger competitors by acquiring the
same distinctive competencies.
 Strategic Drivers
 It is an internal analysis is assessing the current performance of the business.
 the strategic drivers consider what differentiates an organisation from its competitors.
 It involves analysis of the key market, key customers, products or services, distribution channel and
competitive advantage.
 it is highly subjective based on the managements metrics and ways of doing business.
 There are four strategic driver which are interlinked with each other:
(i) Industry and market What is strategic group mapping (SGM)/ what is SG/ process of SGM
(ii) Customers
(iii) Products/services Meaning / product marketing strategic techniques
(iv) Channels

1) Industry and Market:

Industry:
• Similar companies are grouped together into industries.
• Based on the primary product that a company makes or sell

Market:
• the sum total of all the buyers and sellers in the area or region under consideration.
• value, cost and price of items traded are as per forces of supply and demand in a market.
• market may be a physical or virtual (E-commerce).

Strategic Group Mapping [SGM]:

 Meaning: strategic group mapping is a tool/technique that is used to identify company’s position as
compared to the competitors and find out who can be of equal size and value or bigger in size or
smaller in size and grouping them into them into like position.
 A strategic group: consists of those rival firms which have similar competitive approaches and
positions in the market.
 Several ways to resemble same strategic group: comparable product-line breadth, price/quality range,
price/quality range, same product attributes, types of buyers, technological approaches, services and
technical assistance etc.
 An industry contains only one strategic group when all sellers pursue essentially identical strategies
and have comparable market positions.
 Or many strategic groups as there are competitors when each rival pursues a distinctively different
competitive position and approaches.

 Process/Procedure:
(I) Identify the competitive characteristics: on the basis of product-line breadth, price/quality range,
price/quality range, same product attributes, types of buyers, technological approaches, services
and technical assistance etc.
(II) Plot the firms: two-variable map using pairs of these differentiating characteristics.
(III) Assign firms: that fall in about the same strategy space to the same strategic group.
(IV) Draw circles: around each strategic group making the circles proportional to the size of the
group’s respective share of total industry sales revenues.
2) Customer:
• Customer is the one buys a product/services on other hand consumer is one who buys the goods and
services and finally use them to satisfy the wants.
• Customers can be grouped under three categories based on the amount they are willing to spend on a
product:
i) High value buyers
ii) Medium value buyers
iii) Low value buyers
• Importance of customer as a strategic driver:
o Helps to understand key customers
o Focus area of improvement.
o Customers are responsible for the generating profits.
o It gives data to show customer trends and profitability.
o Target area of growth.
o Value creation and design/ usability.

3) Product:
• Product stands for the combination of goods and services that the company offers to the target market.
• Strategies are needed for managing existing product over time adding new ones, dropping failed
products, branding, packaging, and other products feature.
• Products are classified on the basis of Industrial or consumer, products essential or luxury products,
durable or perishable products.
• some products have consistent customer demand over a long period of time while other have short life
spans.
• Products can be differentiated on the basis of size, shape, colour, packaging, brand, name, after sales
services and so on(no matters differentiation is real or imaginary, quite often it is psychological).
• For a new product, pricing strategies for entering a market needed to be designed.

Three objectives:
1. Have customer centric approach while marketing a product.
2. Produce sufficient returns through a reasonable margin over cost.
3. Increasing marketing share.

Different marketing techniques:

(1) Social Marketing: It refers to the design, implementation, and control of programs seeking to increase
the acceptability of a social ideas, cause, or practice among a target group to bring in a social change.
For instance, the publicity campaign for prohibition of smoking in Delhi explained the place where one
can and can’t smoke and also indicates that smoking is injurious to health.

(2) Augmented Marketing: This type of marketing includes additional customer services and benefits that
a product can offer besides the core and actual product that is being offered. It can be in the form of
introduction of hi-tech services like movies on demand, online computer repair services, secretarial
 services, etc. Such innovative offerings provide a set of benefits that promise to elevate customer
service to unprecedented levels.

(3) Direct Marketing: Marketing through various advertising media that interact directly with consumers,
generally calling for the consumer to make a direct response. Direct marketing includes catalogue
selling, e-mail, telecomputing, electronic marketing, shopping, and TV shopping.

(4) Relationship Marketing: The process of creating, maintaining, and enhancing strong, value-laden
relationships with customers and other stakeholders. For example, Airlines offer special lounges at
major airports for frequent flyers. Thus, providing special benefits to select customers to strengthen
bonds. It can go a long way in building relationships.

(5) Services Marketing: It is applying the concepts, tools, and techniques, of marketing to services.
Services is any activity or benefit that one party can offer to another that is essentially
intangible. This marketing requires different marketing strategies since it has peculiar
characteristics of its own such as inseparability, variability etc.

(6) Person Marketing: People can also be marketed. Person marketing consists of activities undertaken
to create, maintain or change attitudes and behaviour towards particular person. For example,
politicians, sports stars, film stars, etc. i.e., market themselves to get votes, or to promote their
careers.

(7) Organization Marketing: It consists of activities undertaken to create, maintain, or change attitudes
and behaviour of target audiences towards an organization. Both profit and non-profit organizations
practice organization marketing.

(8) Place Marketing: Place marketing involves activities undertaken to create, maintain, or change
attitudes and behaviour towards particular places say, marketing of business sites, tourism
marketing.

(9) Enlightened Marketing: It is a marketing philosophy holding that a company’s marketing should
support the best long-run performance of the marketing system that is beyond the prevailing
mindset; its five principles include customer-oriented marketing, innovative marketing, value
marketing, sense-of-mission marketing, and societal marketing.

(10)Differential Marketing: It is a market-coverage strategy in which a firm decides to target several

market segments and designs separate offer for each. For example, Hindustan Unilever Limited
has Lifebuoy, Lux and Rexona in popular segment and Dove and Pears in premium segment.

(11)Synchro-marketing: When the demand for a product is irregular due to season, some parts of the
day, or on hour basis, causing idle capacity or overworked capacities, synchro-marketing can be used
to find ways to alter the pattern of demand through flexible pricing, promotion, and other
incentives. For example, products such as movie tickets can be sold at lower price over weekdays to
generate demand.

(12) Concentrated Marketing: It is a market-coverage strategy in which a firm goes after a large share
of one or few sub-markets. It can also take the form of Niche marketing.

(13) Demarketing: It includes marketing strategies to reduce demand temporarily or permanently. The
aim is not to destroy demand, but only to reduce or shift it. This happens when there is overfull
demand. For example, buses are overloaded in the morning and evening, roads are busy for most of
 times, zoological parks are over-crowded on Saturdays, Sundays and holidays. Here demarketing can
be applied to regulate demand.

4) Channel:
• Channels are the distribution system by which an organisation distributes its product or provides its
service.
• The wider and stronger the channel the better position a business has to fight and win over
competition.
• robust channels of business distribution help keep new players away from entering the industry (barrier
on entry).
• Channel analysis is important when the business strategy is to scale up and expand beyond the current
geographies and markets.

• There are three channels of distribution:

(1) The sales channel: These are the intermediaries involved in selling the product through each
channel and ultimately to the end user.
(2) The product channels: The product channel focuses on the series of intermediaries who
physically handle the product on its path from its producer to the end user
(3) The service channels: the entities that provide necessary services to support the product, as it
moves through the sales channel and after purchase by the end user.
products that are complex in terms of installation or customer assistance.

Core competencies
• C.K. Prahalad and Gary Hamel have advocated a concept of core competency (widely used concept in
management theories).

• An organization’s combination of technological and managerial know-how, wisdom and

experience are a complex set of capabilities and resources that can lead to a competitive
advantage compared to a competitor.
• Competency is defined as a combination of skills and techniques rather than individual skill or separate
technique.
• The optimal way to define core competence is to consider it as sum of 5- 15 areas of developed
expertise.

• Three major competencies areas:

1. Competitor Differentiation:
• the competence is unique and it is difficult for competitors to imitate.
• the company to provide better products or services to market with no fear that competitors can
copy it.
• these skills in order to sustain its competitive position.

2. Customer Value:
• purchasing a product or service it has to deliver a fundamental benefit for the end customer.
• product has to have real impact on the customer as the reason to choose to purchase them.

3. Application to other markets:

• Core competence must be applicable to the whole organization.
• it cannot be only one particular skill or specified area of expertise.

• Criteria for building core competencies:

 1. Valuable:
• Capabilities that allows the firm to exploit opportunities or avert the threats in its external
environment.
• A firm created value for customers by effectively using capabilities to exploit opportunities.

2. Rare:
• very few of the competitors possess this and valuable capabilities that differ from those
shared with competitors.
• It is source of competitive advantage.

3. Costly to imitate:
• capabilities that competing firms are unable to develop easily if they try do so it become
costlier.

4. Non-substitutable:
• Capabilities that do not have strategic equivalents are called non-substitutable capabilities.
• This final criterion for a capability to be a source of competitive advantage.

Competitive Advantage
➢ Meaning: the achieved advantage over rivals when a company’s profitability is greater than the average
profitability of firms in its industry. (firm to gain an edge over rivals)
➢ Jack welch: “If you don’t have a competitive advantage, don’t compete”
➢ Achieve:
• the firm successfully formulates and implements the value creation strategy and other firms are unable to
duplicate it or find it too costly to imitate.
• Set of unique features of a company and its products that are perceived by the target market as
significant and superior to the competition.

Sustainability of competitive advantage: four major characteristics of resources and capabilities

1. Durability:
• Sustainability of competitive advantage depends on the rate of deterioration of the firm’s resources and
capabilities.
• the rate of product innovation is fast, product patents are quite likely to become obsolete.

2. Transferability:
• The ability of rivals to attack position of competitive advantage relies on their gaining access to the
necessary resources and capabilities.
• The easier, transfer resources and capabilities between companies the less sustainable will be the
competitive advantage which is based on them.

3. Imitability:
• Resources and capabilities cannot be purchased by a would-be imitator.

4. Appropriability:
• the ability of the firm’s owners to appropriate the returns on its resource base.

M. Porter’s Five Forces model for competitive analysis

 ▪ Competitive state of an industry applies a strong influence on how firms develop their strategies.
▪ It is a powerful and widely used tool to systematically diagnose the significant competitive pressures in a
market and assess the strength and importance of each.
▪ helps to boost profitability, and stay ahead of the competition.

▪ five areas of the overall market:

1. Competitive pressures associated with the market manoeuvring and jockeying for buyer patronage
that goes on among rival sellers in the industry.
2. Competitive pressures associated with the threat of new entrants into the market.
3. Competitive pressures coming from the attempts of companies in other industries to win
buyers over to their own substitute products.
4. Competitive pressures stemming from supplier bargaining power and supplier-seller
collaboration.
5. Competitive pressures stemming from buyer bargaining power and seller- buyer Collaboration.\

▪ Steps to determine the competition:

Step 1: Identify the specific competitive pressures associated with each of the five forces.
Step 2: Evaluate how strong the pressures comprising each of the five forces are (fierce, strong,
moderate to normal, or weak).
Step 3: Determine whether the collective strength of the five competitive forces is conducive to
earning attractive profits.

➢ Forces are divided in three categories:

1. 2 problems of bargaining power [customer (middleman) and supplier].
2. 2 threats [new entrants** and substitute products ]
3. Current players →behaviour of rivals**

(1) Bargaining power of buyers:

• The bargaining power of the buyers influences not only the prices that the producer can charge but also
influences in many cases, costs and investments.
• Reasons behind the bargaining power of buyer:

1. Buyers have full knowledge of the sources of products and their substitutes.
2. They spend a lot of money on the industry’s products i.e. they are big buyers.
3. The industry’s product is not perceived as critical to the buyer’s needs and buyers are more concentrated
than firms supplying the product. They can easily switch to the substitutes available.
• This force will become heavier depending on the possibilities of the buyers forming groups or cartels.

(2) Bargaining power of suppliers:

• The bargaining power of suppliers determines the cost of raw materials and other inputs of the industry
and, therefore, industry attractiveness and profitability.
• Reasons of supplier’s bargaining:
1. Their products are crucial to the buyer and substitutes are not available.
2. They can erect high switching costs.
3. They are more concentrated than their buyers.

(3) The Threat of New Entrants:

 • New entrants can reduce industry profitability because they add new production capacity leading to an
increase supply of the product even at a lower price and can substantially erode existing firm’s market share
position.
• a limit on prices and affect the profitability of existing players.
• To discourage new entrant: Barriers to entry represent economic forces (or ‘hurdles’) that slow down or
impede entry
• Common entry barriers:
a. capital requirements
b. economies of scale (Refer to the decline in the per unit cost of production as volume grows)
c. product differentiation
d. switching costs
e. brand identity
f. access to distribution channels
g. possibility of aggressive retaliation by existing players.

(4) Threat of Substitutes:

• Substitute products are a latent source of competition in an industry.
• Substitute products offering a price advantage and/or performance improvement to the consumer.
• A final force that can influence industry profitability is the availability of substitutes for an industry’s
product.
• Examples: Real estate, insurance, bonds and bank deposits for example are clear substitutes for common
stocks, because they represent alternate ways to invest funds.

(5) The Nature of Rivalry in the Industry:

• the competitors influence strategic decisions at different strategic levels.
• Impacts: functional level in the prices being charged, advertising, and pressures on costs, product and so on.
• directly affect the profitability.
• Rivalry among competitor tends to be cutthroat and industry profitability lower under various conditions

(1) Industry leader: (discourage price war and a leader can outlast small rivals in a price war).
(2) Number of competitors: Even when an industrial leader exists the leader ability to exert pricing
discipline diminishes with the increased number of rivals in the industry as a communicating
expectation to players become more difficult.
(3) Fixed costs: When rivals operate with high fixed cost they feel a strong motivation to utilize their
capacity and therefore our inclined to cut prices when they have excess capacity.
(4) Exit barriers: rivalry among the competitors decline if some competitors leave an industry but some
firms have very specialised assets which less valued by others so it is difficult to sale.
(5) Product differentiation: Profitability tends to be higher in industry that offer opportunity for
differentiation but profitability tends to be lower in industries involving undifferentiated commodities.
(6) Slow growth: Industries whose growth is slowing down tend to face more intense rivalry because
arrivals must often fight harder to grow or even to keep their existing market share.

Key-success factors [KSF]

• Meaning: those things that most affect industry members’ ability to prosper in the marketplace
Like: particular strategy element, product attributes, resources, competencies, capabilities and business
outcomes.
• These spell the difference between profit and loss and, ultimately, between competitive success or
failure.
• KSF may vary from industry to industry and time to time within same industry.
• Rarely any industry have more than three or four KSF at any one time.
• There are three major factors of KSF:
 1. On what basis do customers choose between the competing brands of sellers (brand selection
basis)?
2. What resources and competitive capabilities does a seller need to have to be competitively
successful, better human capital, quality of product or quantity of product, cost of service, etc.?
3. What does it take for sellers to achieve a sustainable competitive advantage, something that can
be sustained for long term?

Example: in apparel manufacturing, the KSFs are appealing designs and colour combinations (to
create buyer interest) and low-cost manufacturing efficiency (to permit attractive retail pricing
and ample profit margins).

Competitive Strategy
➢ The competitive strategy of a business is concerned with how to compete in the business areas in which
the organization operates.
➢ competitive strategy defines how a firm expects to create and sustain a competitive advantage over
competitors.
➢ Having a competitive advantage over competitors gives more profitable in the long run.
➢ two criteria of competitive strategy:
1. creation of competitive advantage
2. the protection of competitive advantage.
➢ Important component of industry and competitive analysis: discover what the main sources of
competitive pressure are and how strong each competitive force is.
➢ Porter’s five forces model is useful in understanding the competition.

Competitive landscape:
• business analysis which identifies competitors, either direct or indirect.
• identifying and understanding the competitor’s: their vision, mission, core values, niche market,
strengths and weaknesses.
• It requires “competitive intelligence”. → (MCQ)
• allows it to assess the competitor’s strengths and weaknesses and built competitive advantage.
• Steps to understand competitive landscape
1. Identify the competitor:
• Identify the competitors in the firm’s industry and have actual data about their respective market
share.
• Who are the competitors and how big are they?

2. Understand the competitors:

• Through market research report, internet, newspapers, social media, industry reports, and various
other sources
• What are their product and services?

3. Determine the strengths of the competitors:

a. What are their financial positions?
b. What gives them cost and price advantage?
c. What are they likely to do next?
d. How strong is their distribution network?
 e. What are their human resource strengths?

4. Determine the weaknesses of the competitors:

• through consumer reports and reviews appearing in various media.
• Where are they lacking?

5. Put all of the information together:

• Study about what they are not offering and what the firm can do to fill in the gaps.
• What will the business do with this information?
• What improvements does the firm need to make?
• How can the firm exploit the weaknesses of competitors?

Internationalization of business
❖ Advantages of internationalization: (MCQ)
➢ It enables a business to enter new markets in search of greater earnings and less expensive resources.
➢ business to achieve greater economies of scale and extend the lifespan of its products.

❖ Characteristics of a global business: (MCQ)

1. It is a conglomerate of multiple units (located in different parts of the globe) but all linked by
common ownership.
2. Multiple units draw on a common pool of resources, such as money, credit, information, patents,
trade names and control systems.
3. The units respond to some common strategy. Besides, its managers and shareholders are also
based in different nations.

❖ Developing internationally:
1. Evaluate global opportunities and threats and rate them with the internal capabilities.
2. Describe the scope of the firm's global commercial operations.
3. Create the firm's global business objectives.
4. Develop distinct corporate strategies for the global business and whole organisation.

Why do businesses go global? → (subjective)

• Technological developments and evolving political views are two important factors in the rapid rise of
multinational organisations. (MCQ)

• REASONS:
1. First and foremost reason is the need to grow: finding opportunities in the other parts of the globe.
2. Time and distance across the globe: faster communication, speedier transportation, growing
financial flow of funds and rapid technological changes
3. Domestic markets are no longer adequate: competition present domestically may not exist in some
of the international markets.
4. Reliable or cheaper source of raw-materials, cheap labour: some of their operations to take
advantage of availability of vast pool of talent.
5. Reduce high transportation costs: cheaper to produce near the market to reduce the time and
costs.
6. Generate higher sales and Better cash flow: foreign markets to open up or grow big.
7. Associate with largest economies as well as certain developing economies: promotes regional
integration.
 8. International trade barriers redefine: Because the trade tariffs and custom barriers are getting
lowered, resulting in increased flow of business.
9. Strategic Alliances: ward off economic and technological threats and leverage their respective
comparative and competitive advantages.

❖ International Environment:
• Social, Cultural, Demographic, Environmental, Political, Governmental, Legal, Technological factors
causes complexity.
• An assessment of the external environment is the first step toward internationalisation.
• international environment can be done at three levels:

1. Multinational environmental analysis:

 identifying, anticipating, and monitoring significant components of the global environment on a
large scale.
 Governments may have free or interventionist tendencies in economies that needs to be
carefully considered.

2. Country environment analysis:

 Study of economic, legal, political, and cultural dimensions is required in order for planning to
be successful.
 develop effective market entrance strategies.

3. Regional environmental analysis:

 The emphasis would be on discovering market opportunities for a goods, services, or
innovations in the chosen location.

Value creation 2.36

➢ Meaning: Value creation was introduced primarily for providing products and services to the
customers with more worth.
➢ Value is measured by a product’s features, quality, availability, durability, performance and by its
services for which customers are willing to pay.
➢ the value creation is an activity or performance by the firm to create value that increases the worth
of goods, services, business processes or even the whole business system.
➢ It gives competitive advantage in the industry and helps them earn above average profits/returns.

➢ How profitable a company becomes depends on three factors:

1. the value customers place on the company’s products
2. the price that a company charges for its products.
3. the costs of creating those products.
 ➢ The value customer place on a product reflects the utility they get from a product.
➢ Here, utility refers to happiness and satisfaction gained from consuming or owing the product.

Customer behaviour
➢ Customer analysis:
• Meaning: the identification of customers to explain how they purchase products.
• Examines: Elements shopping frequency, product preferences, and the perception of your marketing,
sales, and service offerings.
• Use: businesses to establish effective marketing and advertising campaigns, provide products and
services that meet their needs, and retain customers for repeat sales.

• Three conceptual domains:

1. External influences:
• Advertisement, peer recommendations or social norms, have a direct impact on the
psychology of factors.
• aspects are divided into two groups – the company's marketing efforts and the numerous
environmental elements.
Internal influences: internal processes that influence various consumer decisions.

2. Decisiona Making:
• A rational consumer would seek information and knowledge about product.
• After weighing the advantages and disadvantages they would make a decision.
• Process of decision making:
I. Problem recognition, i.e., identify an existing need or desire that is unfulfilled
II. Search for desirable alternative and list them
III. Seeking information on available alternatives and weighing their pros and cons.
IV. Make a final choice
• the product could have a significant influence on their health or self-image.

3. Post-decision Processes:
• the final phase in the decision-making process is evaluating the outcome.
• Customer reaction may vary depending upon the satisfaction.
• Happy customer may make repeat purchase and recommend to others but don’t do in
case of dissonance.
 Key Stakeholders

• All those individuals and entities that have a stake in its success and can impact it as well.
• The stake holder can be a person/group of individuals, internal or external that has an interest in, or
impact on the business or corporate strategy of the organization.
• For example: shareholder, management, employees, customers, suppliers, intermediaries,
government, labour union, local groups, media houses etc.
• Each stakeholder exerts a different level of influence and can have different levels of interest in the
organization.
• Expectations of key stakeholders can influence the organization’s strategy, a clash of objectives may
have unfavourable consequences for the organization.

Stakeholders Requirements
Shareholders  Innovation and continuous creative
 Returns on investment
 Corporate social responsibility
 Top ranking of the organization.
 Highest market share
CEO and BOD  Prestige
 Market share
 Revenue and profit
 Market ranking
Major vendors  Growth
 Stability of ordering
 Stable
Consumers  New content
 Better deals
 Value for money
 Continues supply
Employees  Wages and benefits
 Job security
 Pride of working

➢ Medlow’s Metrix [Stakeholder analysis matrix/Power-interest matrix]:

• It is a simple framework to help manage key stake holders.
• Mendelow suggests that one should analyse stakeholder groups based on power and interest.
o Power: the ability to influence organization strategy and resources.
o Interest: how interested they are in the organisation succeeding.
• Matrix suggests to identify which stakeholders are incredibly important.
• It defines the importance being high power and high interest which management would need to
manage closely, while investing a lot of time and resources.
1) Key Player:
 These entities have high power and high interest.
 Organization’s aim should be:
✓ fully engage this group of stakeholders in decision making,
✓ Greatest effort to satisfy them
✓ Take their advice
✓ Build actions
✓ Keep them informed on regular basis.
 Example: Major shareholders, CEO, BOD, MD and chairman etc.

2) Keep satisfied:
 These entities have high power but less interested in organization’s success.
 Organization should be put:
Enough work with these people.
Keep them satisfied with their intended information on a regular basis.
 Example: banks, government, customers etc.

3) Keep informed:
 These entities have low power but highly interested in organization’s success.
 Organization should be:
Adequately informed
Communicate with them to ensure, no major issues arise.
 This audience can also help with real time feedback and areas of improvement.
 Example: employees, vendors, suppliers, legal experts, etc.

4) Low Priority:
 These entities have low power and less interested in organization’s success.
 Organization should only monitor them with no action to satisfy their expectations.
 Minimal efforts and keeping an eye to check if their levels of interest or power change.
 Example: business magazines, media houses etc.

Note: Business environment is highly dynamic so that certain things might happen that can
cause stakeholder to suddenly move between quadrants.
 Chapter-1st

Introduction of SM
➢ Basic asked questions:
1. What is strategy? strategy is partly proactive and partly reactive
2. What is SM ? benefits and limitations of SM.***
3. What is strategic intent (basis)**
4. Vision mission and objectives***

➢ CONCEPT OF STRATEGY:
• Meaning: ‘Strategy’ relates to the ways, the business decides to respond to dynamic and often hostile
external forces while pursuing their vision, mission and ultimate objectives.
• Strategy is the game plan that the management of a business uses to take market position, conduct its
operations, attract and satisfy customers, compete successfully, and achieve organizational objectives.
• Definition: ‘Strategy’ as a long-range blueprint of an organization’s desired image, direction and
destination, i.e., what it wants to be, what it wants to do, how it wants to do things, and where it
wants to go.
William F. Glueck: A unified, comprehensive and integrated plan designed to assure that the basic
objectives of the enterprise are achieved.

➢ Levels of strategy formulations:

1. Corporate level
[expansion, growth, vertical and horizontal integration, diversification, takeover, and mergers, new
investment and divestments, R&D projects]
2. Business level or divisional level
3. Operational level or functional level
[product lines, production volumes, quality ranges, prices, product, promotion, market penetration,
purchasing sources, personnel development and so on].

➢ Strategy is partly proactive and partly reactive (blend strategy):

(A) Proactive actions: on the part of managers to improve the company’s market position and financial
performance.
Proactive strategy is planned strategy.
Reactions to unanticipated developments and fresh market conditions in the dynamic business
environment.
competitive conditions take an unexpected turn or
New initiatives plus ongoing strategy elements continued from prior periods

Features:
• Strengthening Brand Identity: Proactively building a strong ecofriendly image to appeal to
environmentally conscious consumers.
• Innovative Marketing Campaigns: Crafting impactful and creative campaigns to enhance market
visibility and differentiate its products.
• Product Innovation: Consistently introducing new and innovative eco-friendly products to meet
evolving customer demands and maintain a competitive edge.

(B) Reactive: Adaptive reactions to changing circumstances

a company’s current strategy flows previously initiated actions and business approaches that are working
well enough to merit continuation.
 adapting pieces of successful reactions as circumstances surrounding the company’s situation change or
better options emerge
Features:
• Adapting to Market Changes: Responding to the entry of large retailers in the eco-friendly segment
by quickly adjusting strategies.
• Competitor Analysis: Studying competitors’ strategies to counteract their actions effectively.
• Dynamic Marketing: Implementing varied marketing techniques to respond to competitors’
campaigns.
• Pricing Adjustments: Adopting counter-pricing strategies to remain competitive without
compromising profitability.

• a company uses both proactive and reactive strategies to cope up the uncertain business environment:
• Future Strategy for Competitive Advantage To remain competitive and gain a sustainable blended approach of
proactive and reactive strategies:
1. Sustainable Differentiation: Focus on continuous innovation and exclusive eco-friendly product lines to
strengthen its unique position.
2. Customer-Centric Approach: Use data analytics to understand consumer preferences and tailor offerings.
3. Operational Efficiency: Optimize supply chain and reduce costs to balance affordability and quality.
4. Strategic Alliances: Partner with eco-certification organizations to build credibility and trust.

➢ The overall objectives of strategic management are two-fold:

1. Create competitive advantage: through something unique and valued by the customer that outperforms
competitors.

2. guide the company successfully: through all changes in the environment. That is to react in the right
manner.

Meaning of Strategic management:

• It refers to the managerial process of developing a strategic vision, setting objectives, crafting a strategy,
implementing and evaluating the strategy, and finally initiating corrective adjustments were deemed
appropriate.
• It is a Cyclical process.
• It involves developing the company’s vision, environmental scanning (both external and internal),
strategy formulation, strategy implementation and evaluation and control.

Benefits/importance of SM

1. Gives a direction to the company: define the goals and missions.

2. organisations to be proactive instead of reactive in shaping its future: Organisations are able to analyse and
take actions instead of being mere spectators.
3. Provides frameworks for all major decisions: on businesses, products, markets, manufacturing facilities,
investments and organisational structure.
4. Seeks to prepare the organisation to face the future and act as pathfinder to various business
opportunities.
5. Corporate defence mechanism against mistakes and pitfalls: Avoid costly mistakes in product market
choices or investments.
6. Enhance the longevity of the business: It helps the organization to take a clear stand in the related industry
and makes sure that it is not just surviving on luck.
7. Organisation to develop certain core competencies and competitive advantages: ensure survival and
growth.
 Limitations of SM

1. It is difficult to understand the complex environment and exactly pinpoint how it will shape-up in future.
2. its future shape may awfully go wrong and jeopardise all strategic plans
3. a time-consuming process
4. Strategic management is a costly process: Expert strategic planners need to be engaged and they are
costly resource.
5. it is difficult to clearly estimate the competitive responses to a firm’s strategies: because most of these
decisions are taken within closed doors.

STRATEGIC INTENT
• It refers to purposes of what the organisation strives for senior managers must define “what they want
to do” and “why they want to do”.
• Strategic intent can be understood as the philosophical base of strategic management.
• Strategic intent gives an idea of what the organisation desires to attain in future.
• It provides the framework within which the firm would adopt a predetermined direction and would
operate to achieve strategic objectives.

➢ Vision:
• the blueprint of the company’s future position (what the organisation would like to become in future).
• Top management’s views about the company’s direction and the product- customer-market-technology focus
constitute.
• Strategic vision delineates management’s aspirations for the business, providing a panoramic view of the
“where we are to go” and a convincing rationale for why this makes good business sense for the company.
• Example: HDFC Bank Ltd., one of the largest banks in India has clearly defined its Vision of being a world
class Indian bank. This vision helps them keep in mind, “where we want to go”, as the central thought of their
strategic decision making.
Apple Inc.’s CEO Tim Cook defined the vision of the company as - “We believe that we are on the face
of the earth to make great products, and that’s not changing.”

• Essentials of a strategic vision:

1. think creatively about how to prepare a company for the future.
2. exercise in intelligent entrepreneurship.
3. A well-articulated strategic vision creates enthusiasm among the members of the
organisation.
4. The best-worded vision statement clearly illuminates the direction in which organisation
is headed.

➢ Mission:
• an answer to the basic question ‘what business are we in and what we do’.
• Mission statement should reflect the philosophy of the organisations that is perceived by the senior
managers.
• The corporate mission is an expression of the growth ambition of the firm. It is, in fact, the firm’s future
visualised.
• A good mission statement should be precise, clear, feasible, distinctive and motivating.
• Useful while writing a mission of a company:
1. give the organisation its own special identity, business emphasis and path for
development –sets it apart from other similarly positioned companies.
 2. what needs it is trying to satisfy, which customer groups it is targeting and the
technologies and competencies
3. Good mission statements are – unique to the organisation for which they are developed.
• Example: HDCF Bank has two-fold mission: first, to be the preferred provider of banking services for target
retail and wholesale customer segments. The second is to achieve healthy growth in profitability, consistent
with the bank’s risk appetite.
Apple’s mission has been defined as - “to bring the best user experience to its customers through
innovative hardware, software, and services.”

• Why should an organisation have a mission?

1. To ensure unanimity of purpose within the organisation.
2. To develop a basis, or standard, for allocating organisational resources.
3. To provide a basis for motivating the use of the organisation’s resources.
4. To establish a general tone or organisational climate, to suggest a business- like
operation.
5. To serve as a focal point for those who can identify with the organisation’s
purpose and direction.
6. To facilitate the translation of objective and goals into a work structure involving the
assignment of tasks to responsible elements within the organisation.
7. To specify organisational purposes and the translation of these purposes into goals in
such a way that cost, time, and performance parameters can be assessed and
controlled.

• What is our mission? And what business are we in?

1. What is our mission?
2. What is our ultimate purpose?
3. What do we want to become?
4. What kind of growth do we seek?
5. What business are we in?
6. Do we understand our business correctly and define it accurately in its broadest
connotation?
7. Whom do we intend to serve?
8. What human need do we intend to serve through our offer?
9. What brings us to this particular business?
10. What would be the nature of this business in the future?
11. In what business would we like to be in, in the future?

➢ Objectives:
• Meaning: Objectives are organisation’s performance targets – the results and outcomes it wants to achieve.
• They function as yardsticks for tracking an organisation’s performance and progress.
• All organisations have objectives. The pursuit of objectives is an unending process such that organisations
sustain themselves.
 • Characteristics:
1. Objectives should define the organisation’s relationship with its environment.
2. They should be facilitative towards achievement of mission and purpose.
3. They should provide the basis for strategic decision-making.
4. They should provide standards for performance appraisal.
5. They should be concrete and specific.
6. They should be related to a time frame.
7. They should be measurable and controllable.
8. They should be challenging.
9. Different objectives should correlate with each other.
10. Objectives should be set within the constraints of organisational resources and external environment.

• Difference between long and short term objectives:

A need for both short-term and long-term objectives: As a rule, a company’s set of financial and strategic
objectives ought to include both short-term and long-term performance targets. Having quarterly or
annual objectives focuses attention on delivering immediate performance improvements. Targets to be
achieved within three to five years’ prompt considerations of what to do now to put the company in
position to perform better down the road. A company that has an objective of doubling its sales within
five years can’t wait until the third or fourth year to begin growing its sales and customer base. By spelling
out annual (or perhaps quarterly) performance targets, management indicates the speed at which longer-
range targets are to be approached.

• long-term objectives in seven areas

1. Profitability
2. Productivity
3. Competitive Position
4. Employee Development
5. Employee Relations
6. Technological Leadership
7. Public Responsibility

➢ Values:
✓ A company’s value sets the tone for how the people of think and behave, especially in situations of
dilemma (problem).
✓ Build a strong foundation and focus on longevity of the company’s success.
✓ Examples of values are – Integrity, Trust, Accountability, Humility, Innovation, and Diversity.
✓ Difference between intent and values:
Intent is the purpose of doing business while values are the principles that guide decision making of
business. They both go hand in hand, while the intent is sometimes driven by values. So values more or so
is wider than Intent.

STRATEGIC LEVELS IN ORGANISATIONS

• large organization is a multi-divisional organisation that competes in several different businesses.

• It has separate self-contained divisions to manage each of these businesses.
• three main levels of management:
 1. Corporate level:
• includes CEO, other senior executives, Board of directors, and Corporate staff.
• It is to oversee the development of strategies for the whole organization.
• Functions: Defining the mission and goals, what businesses it should be in, allocating resources,
formulating and implementing strategies and providing leadership for the organization as a whole.

2. Business level:
• Divisional managers & staff
• it is not their specific responsibility to develop strategies for competing in the individual business
areas
• The development strategies is the responsibility in charge of different businesses.
• Corporate and business strategies of the company are consistent with maximizing shareholders’
wealth.

3. Functional level:
• Functional managers (marketing, finance, etc.).
• They responsible for the specific business functions or operations (human resources, purchasing,
product development, customer service, and so on) that constitute a company or one of its divisions.
• general managers oversee the operation of a whole company or division.

Network of relationship between three levels of management

• The corporate level decides what the business wants to achieve, while the business level draws ideas and plan
to execute the same, which eventually flow down to functional level to execute and achieve results.
• There three major network relationship:

1. Functional and divisional relationship:

✓ An independent relationship, where each function or a division is run independently headed by the
function/division head.
✓ Business level manager, reporting directly to the business head corporate level manager.
✓ Functions like: finance, marketing, Human resource management.
✓ Division like: for electronic appliances manufacturer it may be television, refridgerstor, A.C., Washing
Machine etc.

2. Horizontal relationship:
✓ All positions, from top management to staff-level employees, are in the same hierarchical position.
✓ Also known as flat structure
✓ Openness and transparency in work culture and focused more on idea sharing and innovation.
✓ This relationship is more suitable for startups.

3. Matrix relationship:
✓ A grid-like structure of levels in an organisation, with teams formed with people from various
departments that are built for temporary task-based projects.
✓ This relationship helps manage huge conglomerates with ease where it is nearly impossible to
track and manage every single team independently.
✓ complex for smaller organisations, but extremely useful for large organisations.
 Chapter-5th

Strategy Implementation and Evaluation

➢ Overview of chapter:
1. Strategic management process: (5-steps).
2. Difference, Relationships and linkages (backward or forward) between strategy formulation and
implementation.
3. Strategic change process→ 3 steps (with writer and without writer)
4. Types of structure → 8 structures***
5. Organization culture
6. Strategic leadership: role, responsibility and leadership style (2**).
7. Strategic controls: operational, management (difference) and strategic (types-4**).

Strategic management process (stages)

 It is the process of determining the goals and visions, organizational analysis, crafting the strategy,
implementing the strategy, evaluation and controlling the strategy.
 It is the dynamic and continues process which is opted by all kinds of organization.
 There are five distinctive stages of strategic management process:

• Stage-1st [Determination of vision, mission and objectives]:

✓ First step of strategic management is to determine the what directional path the company should take
and what changes in the company’s product-market-customer-technology-focus would improve its
current market position and its future aspects.
✓ A strategic vision: delineates management’s aspirations for the organization and highlights a particular
direction or strategic path for it to follow in preparing for the future position.
✓ Strategic Mission: managers need too be clear about what they see as the role of their organization and
this is often expressed in the terms of a statement of mission.
✓ Strategic Objectives: they represent the quantum of growth the firms seeks to achieve in the given time
frame.

• Stage-2nd [Environment and organizational Analysis]:

✓ This stage of Strategic management refers to careful analysis or diagnose the business internal and
external environment.
✓ There are two types of analysis:
1) Environmental analysis
2) Organizational analysis
✓ Environmental Analysis:
It consists economic, social, technological, market and other external factors that can influence the
organization’s operation policy and strategies. It determines the opportunity and threat for
organization.

✓ Organizational Analysis:
 It involves the review of financial sources, human resource, technology being used, marketing and
distribution network and R&D so on. That helps to determine strength and weakness.

• Stage-3rd [Formulation of Strategy]:

✓ It is the process of developing strategic alternatives in the light of organization strength and weakness,
opportunities and threat in the environment.
✓ An organization may be confronted with several alternatives like: stability strategy, growth/expansion
strategy and retrenchment strategy.
✓ Sometimes a company can choose the combination of these strategy.

• Stage: 4 [Implementation of Strategy]:**

✓ Implementation and execution are an operations-oriented activity aimed at shaping the performance
of core business activities in a strategy-supportive manner.
✓ strategy-execution process includes the following principal aspects:
(i) Developing budgets that steer ample resources into those activities critical to strategic success.
(ii) Staffing the organisation with the needed skills and expertise, consciously building and strengthening
strategy-supportive competencies and competitive capabilities and organising the work effort.
(iii) Ensuring that policies and operating procedures facilitate rather than impede effective execution.
(iv) Using the best-known practices to perform core business activities and pushing for continuous
improvement.
(v) Installing information and operating systems that enable company personnelto better carry out
their strategic roles day in and day out.
(vi) Motivating people to pursue the target objectives energetically.
(vii) Creating a company culture and work climate conducive to successful strategy implementation
and execution.
(viii) Exerting the internal leadership needed to drive implementation forward and keep improving
strategy execution.

• Stage-5th:
✓ Evaluating the company’s progress, assessing the impact of new external developments, and
making corrective adjustments.
✓ trigger point for deciding whether to continue or change the company’s vision, objectives, strategy,
and/or strategy-execution methods..
✓ the company’s direction and strategy seem well matched to industry and competitive conditions and
performance targets are being met, company executives may decide to stay the course.
✓ If any changes occur in business environment then the company’s direction, objectives, and strategy
have to be revisited anytime external or internal conditions warrant.

➢ Difference between strategic formulation and strategic implementation :

Strategy Formulation Strategy Implementation

 Strategy Formulation includes Strategy Implementation involves allthose
planning and decision-making means related to executing the strategic
involved in developing organization’s plans.
strategic goals and plans.
In short, Strategy Formulation In short, Strategy Implementation
is placing the Forces before the is managing forces during the action.
action.
An Entrepreneurial Activity based An Administrative Task based on
on strategic decision-making. strategic and operational decisions.

Emphasizes on effectiveness. Emphasizes on efficiency.

Primarily an intellectual Primarily an operational process.

and rational process.
Requires co-ordination among few Requires co-ordination among many
individuals at the top level. individuals at the middle and lower levels.

Requires a great deal of initiative, Requires specific motivational and

logical skills, conceptual intuitive leadership traits.
and analytical skills.
Strategic Formulation precedes Strategy Implementation follows
Strategy Implementation. Strategy Formulation.

➢ Relationship between strategic formulation and implementation:

• Square-A: .
✓ Meaning: it is the situation where a company apparently has good strategy but suffered from weak
implementation.
✓ Reason: lack of experience (e.g. for startups), the lack of resources, missing leadership and so on.
✓ Result: showing difficulties in implementing it successfully.

• Square-B:
✓ is the ideal situation where a company has succeeded in formulating a sound and competitive
strategy and has been successful in implementing it.

• Square-C: is denotes for companies that haven’t succeeded in coming up with a sound strategy
formulation and in addition are bad at implementing.
✓ Their path to success also goes through business model redesign and implementation/execution
readjustment.
✓ Reason: lack knowledge, lack of resources, lack of analytical skill and lack of motivation & advises
 • Square-D: is the situation where the strategy formulation is flawed, but the companyis showing excellent
implementation skills.
✓ Reason: lack of experience, lack of resour0ces, and lack analytical skill

MCQ: important matrix:

➢ Linkages in strategy implementation:

1. Backward linkage:
• While dealing with strategic choice, remember that past strategic actions also determine the choice of
strategy.
• to adopt those strategies which can be implemented with the help of the present structure of resources
combined with some additional efforts.
• incremental changes, over a period of time, take the organization from where it is to where it wishes
to be.

2. forward linkage:
• objective setting through environmental and organizational appraisal,strategic alternatives and choice
to the strategic plan determine the coursethat an organization adopts for itself.
• new strategies or reformulation of existing strategies, many changes have to be affected within the
organization.
• the organizational structure has to undergo a change in the light of the requirements of the modified or
new strategy.

➢ Strategic change process:

1. Kurt Lewin’s model of change:

(A) Unfreezing the situation:

• Individuals aware of the necessity for change and prepares them for such a change. Lewin proposes
that the changes should not come as a surprise to the members of the organization.
• Sudden and unannounced change would be socially destructive and morale lowering.
• The management must pave the way for the change by first “unfreezing the situation”.

(B) Changing to the new situation:

• Once the unfreezing process has been completed and the members of the organization recognise the
need for change and have been fully prepared to accept such change.
• H.C. Kellman has proposed three methods for reassigning new patterns:
 a) Compliance: It is achieved by strictly enforcing the reward and punishment strategy for good or
bad behaviour.

b) Identification: when members are psychologically impressed upon to identify themselves with
some given role models whose behaviour they would like to adopt and try to become like
them.

c) Internalization: They have given freedom to learn and adopt new behaviour in order to succeed
in the new set of circumstances.

(C) Refreezing:
when the new behaviour becomes a normal way of life. The new behaviour must replace the former
behaviour completely for successful and permanent change to take place.
Change process is not a one-time application but a continuous process dueto dynamism and ever-
changing environment.

2. Steps to initiate strategic change:

(A) Recognize the need for change:

• diagnose which facets of the present corporate culture are strategy supportive and which are not.
• It means going for environmental scanning involving appraisal of both internal and external
capabilities may be through SWOT analysis
• Determining where the lacuna lies and scope for change exists.

(B) Create a shared vision to manage change:

• Objectives of both individuals and organization should coincide.
• This is possible only if the management and the organization members followa shared vision.
• Senior managers need to constantly and consistently communicate the vision to all the
organizational members
• They have to convince all members change in business culture is not superficial or cosmetic.

(C) Institutionalise the change:

• An action stage which requires implementation of changed strategy.
• Capacity for self-renewal should bea fundamental anchor of the new culture of the firm.
• Change process must be regularly monitored and reviewed to analyse the after-effects of change.
• Any discrepancy or deviation should be brought to the notice of persons concerned so that the
necessary corrective actions are taken.

➢ How does digital transformation work?

• The use of digital technologies to develop fresh, improved, or entirely new company procedures,
goods, or services.
• Organizations can plan, prepare for, and carry out changes to their operations, including digital
transformations, with the aid of the discipline of change management.
• A process of organizational change that enables an organization to use technology to create new value
for customers, employees, and other stakeholders.

• Digital transition consists of four essential elements:

1) Defining the goals and objectives of the transformation.
2) Assessing the current state of the organization and identifying gaps.
3) Creating a roadmap for change that outlines the steps needed to reach the desired state.
 4) Implementing and managing the change at every level of the organization

• The role of change management in digital transformation:

1) Specify the parameters and goals of the digital transformation.
2) Determine which procedures and tools need to be modified.
3) Make a plan for implementing the improvements.
4) Involve staff members and parties involved in the transformation process.
5) Track progress and make required course corrections.

• The five best practices for managing change in small and medium-sized businesses
are:

1) Begin at the top:

✓ The culture that will motivate the rest of the organisation to accept change can only be generated
and promoted in this way.

2) Ensure that the change is both necessary and desired:

✓ Of decision-makers are unaware how to properly handle a digital transformation and the effects it
will have on their firm is one of the main causes of this

3) Reduce disruption:
✓ It is possible to reduce workplace disruption by:
1. Getting the word out early and preparing for some interruption.
2. Giving staff members the knowledge and tools, they need to adjust tochange.
3. Creating an environment that encourages transformation or change.
4. Empowering change agents to provide context and clarity for changes,such as project
managers or team leaders.
5. Ensuring that IT department is informed of changes in technology or infrastructure and is
prepared to support them.

4) Encourage communication:
✓ Create channels so that workers may contact you with queries or complaints.
✓ Encourage departmental collaboration to propagate ideas and innovations as new procedures take
root.

5) Recognize that change is the norm, not the exception:

Change readiness may be defined as “the ability to continuously initiate and respond to change in
ways that create advantage, minimize risk, and sustain performance.”

• How to manage change during digital transforming:

1. Specify the digital transformation’s aims and objectives:
2. Always, always, always communicate:
3. Be ready for resistance:
4. Implement changes gradually:
5. Offer assistance and training:

➢ ORGRANISATIONAL FRAMEWORK:
• McKinsey 7S Model refers to a tool that analyzes a company’s “organizational design.”
• it studies the how effectiveness is achieved through Hard and Soft elements:

Hard Elements:
 a) Strategy:
• What steps does the company intend to take to address current and futures challenges
• organizational culture or influence the code of ethics of the management.

b) Structure:
• How is work divided, how do different departments work and collaborate?
• the degree of centralisation or decentralization.

c) System:
• Which formal and informal processes is the company’s structure based on?
• the goals and objectives in the most efficient and effective manner.

Soft Elements:
a) Shred values (idea communicated credibly)
b) Staff (performance and feedback)
c) Skill (competencies)
d) Style (leadership)

• Limitations of this model:

1. Ignores the importance of the external environment.
2. Model does not clearly explain the concept of organizational effectiveness or performance.
3. model is considered to be more static and less flexible for deicion making.
4. Missing out the reals gaps in conceptualization and execution of strategy.

Types of organization structure

1. Simple structure:
• It is most appropriate for companies that follow a single-business strategy and offer a line of products
in a single geographic market.
• A simple structure is an organizational form in which the owner-manager makes all major decisions
directly and monitors all activities, while the company’s staff merely serves as an executor.
• A simple organizational structure may result in competitive advantages for some small companies
relative to their larger counterparts.
• In the simple structure, communication is frequent and direct, and new products tend to be introduced
to the market quickly, which can result in a competitive advantage.
• if they are successful, small companies grow larger.

2. Functional structure:
• A widely used structure in business organisations is functional type because of its simplicity and low
cost.
• It groups tasks and activities by business function, such as production/operations, marketing,
finance/accounting, research and development, and management information systems.
 • It promotes specialization of labour, encourages efficiency, minimizes the need for an elaborate
control system, and allows rapid decision making.

3. Divisional structure:
• As a firm, grows year after year it faces difficulty in managing different productsand services in
different markets.
• Benefit: motivate employees, control operations, and compete successfully in diverse locations.
• the four ways: by geographic area, by product or service, by customer, or by process.
• functional activities are performed both centrally and in each division separately.

• Advantages:
1. Accountability is clear
2. Divisional managers can be held responsible for sales and profit levels.
3. Managers and employees can easily see the results of their good or bad.
4. Employee morale is generally higher.
5. It creates career development opportunities for managers.
6. Allows local control of local situations and allows new businesses and products in be added easily.

• Limitations:
1. divisional structure is costly
2. division requires functional specialists
3. there exists some duplication of staff services, facilities, and personnel.
4. managers must be well qualified results higher salary cost.
5. products, or customers may sometimes receive special treatment, and It may be difficult to
maintain consistent, companywide practices.

4. Multi divisional structure (M-Form):

 • It is composed of operating divisions where each division represents a separate business to which the
top corporate officer delegates responsibility for day-to-day operations and business unit strategy to
division managers.
• M-form structure was developed in the 1920s: in response to coordination- and control-related
problems in large firms.

• Multidivisional structure calls for (Reason):

1. Creating separate divisions, each representing a distinct business.
2. Each division would house its functional hierarchy.
3. Division managers would be given responsibility for managing day-to-day operations
4. A small corporate office that would determine the long-term strategic direction of the firm and
exercise overall financial control over the semi- autonomous divisions.

• Benefits:
1. firm to more accurately monitor the performance
2. simplifying control problems
3. facilitate comparisons between divisions.
4. improving the allocation of resources
5. stimulate managers of poorly performing divisions to seek ways to improve performance.

5. SBU structure:
• An SBU is a grouping of related businesses, which is amenable to composite planning treatment for
distinct business units in a scientific way.
• The purpose is to provide effective strategic planning treatment to each one of its products/businesses.
• three most important characteristics of a SBU**:
1. It is a single business or a collection of related businesses which offer scope for independent
planning and which might feasibly standalone from the rest of the organization.
2. It has its own set of competitors.
3. a manager who has responsibility for strategic planning and profit, performance, and who has
control of profit-influencing factor.
• An SBU structure consists of at least three levels:

Top level: corporate headquarter

Second level: SBU Groups
Third level: Divisions grouped by relatedness within each SBU
• Benefits: (Same as multi divisional structure).
• Attributes:
1. Each SBU is a separate business from the strategic planning standpoint: mission, objectives,
competition and strategy-one SBU will be distinct from another.
 2. Each SBU will have its own distinct set of competitors and its own distinct strategy.
3. Each SBU will have a CEO. He will be responsible for strategic planning for the SBU and its profit
performance.
4. A scientific method of grouping the businesses of a multi-business corporation which helps the
firm in strategic planning.
5. An improvement over the territorial grouping of businesses and strategic planning based on
territorial units.
6. An SBU is a grouping of related businesses that can be taken up for strategic planning distinct from
the rest of the businesses. Products/businesses within an SBU receive same strategic planning
treatment and priorities.
7. The task consists of analysing and segregating the assortment of businesses/portfolios and
regrouping them into a few, well defined, distinct, scientifically demarcated business units
8. Unrelated products/businesses in any group are separated.
9. strategic planning by removing the vagueness and confusion generally seen in grouping businesses

6. Matrix structure:
• It is used when business is combined with horizontal linking mechanisms like strategic business units,
are right for the implementation of their strategies.
• In matrix structure, functional and product forms are combined simultaneously at the same level of
the organization.
• A matrix structure is the most complex of all designs because it depends upon both vertical and
horizontal flows of authority and communication.
• A matrix structure can result in higher overhead because it has more management positions.
• Example: widely used in many industries, including construction, healthcare, research and defence.

• Advantages:
i) Objectives are clear.
ii) Many channels of communication workers can see the visible results
iii) Shutting down a project is accomplished relatively easily.

• Disadvantage:
i) Complexity: Dual reporting relationships can lead to confusion and conflict between project and
functional managers.
ii) High Coordination Costs: It results in higher overhead cost and requires significant planning and
communication efforts.
iii) Power Struggles: Potential for conflicts over resource allocation and priorities.
 • Phases of Matrix structure:

1) Cross-functional tasks forces: Temporary cross-functional task forces are initially used when a new
product line is being introduced. A project manager is in charge as the key horizontal link.

2) Product/brand management: If the cross-functional task forces become more permanent, the
project manager becomes a product or brand manager and a second phase begins. In this arrangement,
function is still the primary organizational structure, but product or brand managers act as the
integrators of semi permanent products or brands.

3) Mature matrix: It involves a true dual-authority structure. Both the functional and product structures
are permanent. All employees are connected to both a vertical functional superior and a horizontal
product manager. Functional and product managers have equal authority and must work well together
to resolve disagreements over resources and priorities.

7. Network structure:
• A radical organizational design, what could be termed a “non-structure” by its virtual elimination of in-
house business functions.
• Instead of having salaried employees, it may contract with people for a specific project or length of time.
• The network structure becomes most useful when the environment of a firm is unstable and is expected
to remain so.

• Example: Airtel use the network structure in their operations function by subcontracting manufacturing to
other companies in low-cost.
• Advantages:
2) Resource Optimization: Efficient utilization of resources across multiple projects.
3) Flexibility: Shutting down a project is accomplished relatively easily because it quickly adapts to changes
in project needs or external environments.
4) Enhanced Communication: Encourages collaboration and knowledge sharing across projects and
functions through many channels of communication.

• Disadvantages:
i) Complexity: Dual reporting relationships can lead to confusion and conflict between project and
functional managers.
ii) High Coordination Costs: It results in higher overhead cost and requires significant planning and
communication efforts.
iii) Power Struggles: Potential for conflicts over resource allocation and priorities.

8. Hourglass structure:
• This structure consists of three layers with constricted middle layer.
 • The structure has a short and narrow middle-management level.
• Information technology links the top and bottom levels in the organization taking away many tasks that are
performed by the middle level managers.
• A shrunken middle layer coordinates diverse lower-level activities.
• Contrary to traditional middle level managers who are often specialist, the managers in the hourglass
structure are generalists and perform wide variety of tasks. They would be handling cross-functional
issues emanating such as those from marketing, finance or production.

• Benefits:
I. Reduced costs
II. Enhancing responsiveness by simplifying decision making.
III. Decision making authority is shifted close to the source of information so that it is faster

➢ Organizational culture: (What is corporate culture? How is it both strength and weakness of an
organisation?)
• Meaning: organizational culture has its own philosophyand principles, its own history, values, and rituals,
its own ways of approaching problems and making decisions, its own work climate.
• Its own ingrained beliefs and thought patterns, and practices that define its corporate culture.
• Corporate culture refers to a company’s values, beliefs, business principles, traditions, ways of
operating, and internal work environment.

• Culture as a strength: As a strength culture can facilitate communication, decision making and control and
create corporation and commitment. An organisation’s culture could be strong and cohesive when it
conducts its business according to a clear and explicit set of principles and values, which the management
devotes considerable time to communicating to employees and which values are shaped widely across the
organization.

• Culture as a weakness: culture may obstruct the A smooth implementation of strategy by creating
resistance to change. An organisation’s culture could be characterized as a weak when many subcultures
exist few values and behavioural norms are shared and traditions are rare. In such organizations employee
do not have a sense of commitment and loyalty with the organization.

❖ Role of culture in strategy execution:

 Strong culture promotes good strategy execution.

 A culture grounded in values, practices, and behavioural norms that match what is needed for good
strategy execution
 jobs in a strategy-supportive manner, adding significantly to the power and effectiveness.
 A culture where creativity, embracing change, and challenging the status quo are pervasive themes is
very conducive to successful execution of a product innovation and technological leadership strategy.
  Business principles as listening to customers, encouraging employees to take pride in their work, and
giving employees a high degree of decision-making

➢ Strategic leadership: .
• Strategic leadership sets the firms direction by developing and communicating vision of future, formulate
strategies in the light of internal and external environment, brings about changes required to
implement strategies and inspire the staff to contribute to strategy execution.

• Managers have five leadership roles to play in pushing for good strategy execution:
1. Staying on top of what is happening, closely monitoring progress, solving out issues, and learning
what obstacles lie in the path of good execution.
2. Promoting a culture of esprit de corps that mobilizes and energizes organizational members to execute
strategy in a competent fashion and perform at a high level.
3. Keeping the organization responsive to changing conditions, alert for new opportunities, bubbling with
innovative ideas, and ahead of rivals indeveloping competitively valuable competencies and
capabilities.
4. Exercising ethical leadership and insisting that the company conduct its affairs like a model corporate
citizen.
5. Pushing corrective actions to improve strategy execution and overall strategic performance.

• Example: N. R. Narayan Murthy, is known as a celebrated business leaderbecause of the values he had
institutionalised over his tenure as CEO of Infosys.
Dhirubhai Ambani, pioneer of Reliance Group, was an icon in himself.

• A Strategic leader has several responsibilities, including the following:

1. Making strategic decisions.
2. Formulating policies and action plans to implement strategic decision.
3. Ensuring effective communication in the organisation.
4. Managing human capital (perhaps the most critical of the strategic leader’s skills).
5. Managing change in the organisation.
6. Creating and sustaining strong corporate culture.
7. Sustaining high performance over time.

Leadership style
1. Transformational leadership style:
✓ leadership motivates followers to do more than originally affected to do by stretching their abilities
and increasing their self-confidence, and also promote innovation throughout the organization.
✓ They inspire involvement in a mission, giving followers a ‘dream’ or ‘vision’.
✓ uses charisma and enthusiasm to inspire people to exert them for the good of the organization.
✓ This style may be appropriate in turbulent environments.

2. Transactional leadership style:

✓ focuses more on designing systems and controlling the organization’s activities and are more likely
to be associated with improving the current situation.
✓ More formalized approach to motivation, setting clear goals with explicit rewards or penalties for
achievement or non-achievement.
✓ This style may be appropriate in static environment.

➢ Strategic control:
✓ It is a function intended to ensure and make possible the performance of planned activities and to
achieve the pre- determined goals and results.
 ✓ It involves monitoring the activity and measuring results against pre-established standards, analysing and
correcting deviations as necessary and maintaining/adapting the system.
✓ There are three types of control:

1. Operational Control:
✓ Individual tasks or transactions as against total or more aggregative management functions.
✓ there should be a clear-cut and somewhat measurable relationship between inputs and outputs which
could be predetermined or estimated with least uncertainty.
✓ Examples: Stock control (maintaining stocks between set limits), production control (manufacturing to
set programmes), quality control (keeping product quality between agreed limits), cost control
(maintaining expenditure as per standards), budgetary control (keeping performance to budget).

2. Management Control:
✓ compared with operational control, management control is more inclusive and more aggregative.
✓ embracing the integrated activities of a complete department, division or even entire organisation.
✓ The basic purpose of management control is the achievement of enterprise goals: short range and
long range.

3. Strategic Control:
✓ questions of whether: (1) the strategy is being implemented as planned; and (2) the results produced
by the strategy are those intended.” And (3) time gap between the stages of strategy formulation and
its implementation
✓ Strategic control is the process of evaluating strategy as it is formulated and implemented.
✓ It is directed towards identifying problems and changes in premises and making necessary adjustments.

✓ Types of strategic control:

1) Premise control:
✓ It is formed on the basis of certain assumptions or premises about the complex and turbulent
organizational environment.
✓ It is a tool for systematic and continuous monitoring of the environment to verifythe validity
and accuracy of the premises on which the strategy has been built.
✓ there are two types monitoring factors:
o Environmental factors such as economic (inflation, liquidity, interest rates), technology, social
and legal-regulatory.
o Industry factors such as competitors, suppliers, substitutes.

2) Strategic surveillance:
✓ the strategicsurveillance is unfocussed
✓ It involves general monitoring of various sources of information to uncover unanticipated
information having a bearing on the organizational strategy.
✓ Reading financial and other newspapers, business magazines, attending meetings, conferences,
discussions and so on.
✓ it may be loose form of strategic control but is capable of uncovering information.

3) Special alert control:

✓ At times, unexpected events may force organizations to use this control.
✓ Sudden changes in government, natural calamities, terrorist attacks, unexpected
merger/acquisition by competitors, industrial disasters and other such events.
✓ trigger an immediate and intense review of strategy.
 ✓ organisations form crisis management teams to handle the situation.

4) Implementation:
✓ implement strategy by converting major plans into concrete, sequential actions that form
incremental steps.
✓ is directed towards assessing the need for changes in the overall strategy in light of unfolding
events and results associated with incremental steps and actions.
✓ The two basic forms of implementation control are:

1. Monitoring strategic thrusts: Monitoring strategic thrusts helps managers to determine

whether the overall strategy is progressing as desired or whether there is need for
readjustments.

2. Milestone Reviews: All key activities necessary to implement strategy are segregated in terms
of time, events or major resource allocation. It also assesses the need to continue or refocus the
direction of an organization.

➢ Strategic performance measures:

• A company's performance depends heavily on execution of strategy. Companies that continuously
outperform their competitors are those who execute well.
• SPM is a method that increases line executives' understanding of an organization's strategic goals and offers
a continuous system for tracking progress towards these objectives using clear-cut performance
measurements.
• SPM helps to eliminate silos by establishing a common language among all divisions ofthe organisation
so they may communicate openly and productively.
• SPMare key indicators that organizations use to trackthe effectiveness of their strategies and make
informed decisions about resource allocation.
• Key performance measures and indicators must be created, selected, combined into reports and acted
upon so that strategy implementation can have tangible outcomes.
Firstly, there needs to be a clear cause and effect relationship between the indicators and strategic
outcomes.
Secondly, KPIs need to be carefully chosen because they will influence the behaviour of people within the
organisation.

• Types of Strategic Performance Measures:

 Financial Measures: Financial measures, such as revenue growth, return on investment (ROI), and profit
margins, provide an understanding of the organization's financial performance and its ability to
generate profit.

 Customer Satisfaction Measures: Customer measures, such as customer satisfaction, customer

retention, and customer loyalty, provide insight intothe organization's ability to meet customer needs
and provide high-quality products and services.

 Market Measures: Market measures, such as market share, customeracquisition, and customer referrals,
provide information about the organization's competitiveness in the marketplace and its ability to
attract and retain customers.
  Employee Measures: Employee measures, such as employee satisfaction, turnover rate, and employee
engagement, provide insight into the organization's ability to attract and retain talented employees and
create a positive work environment.

 Innovation Measures: Innovation measures, such as research and development (R&D) spending, patent
applications, and new product launches, provide insight into the organization's ability to innovate and
create new products and services that meet customer needs.

 Environmental Measures: Environmental measures, such as energyconsumption, waste reduction, and

carbon emissions, provide insight into the organization's impact on the environment and its efforts to
operate in a sustainable manner.

➢ The Importance of Strategic Performance Measures:

 Goal Alignment: Strategic performance measures help organizations align their strategies with their goals and
objectives, ensuring that they are on track to achieve their desired outcomes.
 Resource Allocation: Strategic performance measures provide organizations with the information they need
to make informed decisions about resource allocation, enabling them to prioritize their efforts and allocate
resources to the areas that will have the greatest impact on their performance.
 Continuous Improvement: Strategic performance measures provide organizations with a framework for
continuous improvement, enabling them to track their progress and make adjustments to improve their
performance over time.
 External Accountability: Strategic performance measures helporganizations demonstrate accountability
to stakeholders, including shareholders, customers, and regulatory bodies, by providing a clear and
transparent picture of their performance.

➢ Choosing the right strategic performance measure

1. Relevance: The measure should be relevant to the organization's goals and objectives and provide
information that is actionable and meaningful.

2. Data Availability: The measure should be based on data that is readily available and can be collected
and analysed in a timely manner.

3. Data Quality: The measure should be based on high-quality data that isaccurate and reliable.

4. Data Timeliness: The measure should be based on data that is current and up-to-date, enabling
organizations to make informed decisions in a timely manner.