Strategic MGMT II

STRATEGIC
MANAGEMENT II
Puonlinenotes.blogspot.com
GLOBAL BUSINESS
ENVIRONMENT
CONCEPT
Globalization refers to the strategy of
approaching
worldwide
markets
with
standardized products.
Worldwide markets are created by end
consumers
that
prefer
lower-priced,
standardized products over higher priced,
customized products etc.
Global corporations that use their worldwide
operations to compete in local markets.
Global firms headquartered in one country with
subsidiaries in other countries.
Any company that aspires to industry leadership in the

21st century must think in terms of global, not domestic,
market leadership
The world economy is globalizing at an accelerating
pace as countries previously closed to foreign companies
open up their markets.
As the internet shrinks the importance of geographic
distance, and as ambitious, growth minded companies
race to build stronger competitive positions in the
markets of more and more countries.
Companies in industries that are already globally
competitive are under the gun to come up with a strategy
for competing successfully in foreign markets.
GLOBAL CORPORATIONS
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Coca-Cola (Beverage)
Zara (Apparel)
Microsoft (Software)
Apple (Smartphone)
IBM (Personal Computers)
Toyota (Automobiles)
McDonald (Fast Food Restaurant)
Starbucks (Coffee Chain)
Nestle (FMCG)
FedEx (Courier Service)
WHY FIRMS GLOBALIZE

Additional Resources
Various
inputsincluding
natural
resources,technologies,skilled personnel, and materialsmay be obtained more readily outside the home
country.
Lowered Costs
Various costs-including labor, materials, transportation,
and financing-may be lower outside the home country.
Incentives
Various incentives may be available from the host
government or the home government to encourage
foreign investment in specific locations.
New Expanded Markets

New and different markets may be available outside
the home country; excess resources-including
management, skills, machinery, and money-can be
utilized in foreign locations.
Exploitation of Firm-Specific Advantages
Technologies, brands, and recognized names can all
provide opportunities in foreign locations.
Taxes
Differing corporate tax rates and tax systems in
different locations provide opportunities for
companies to maximize their after tax worldwide
profits.
Economies of Scale
National markets may be too small to support efficient production,
while sales from several combined allow for larger scale
production.
Synergy
Operations in more than one national environment provide
opportunities to combine benefits from one location with another,
which is impossible without both of them.
Power and Prestige
The image of being international may increase a companys power
and prestige and improve its domestic sales and relations with
various stakeholders group.
Protect Home Market Through Offense in Competitors Home
A strong offense in a competitors market can put pressure on the
competitor that results in a pull-back from foreign activities to
protect itself at home.
Trade Barriers
Tariffs, quotas, buy-local policies, and other
restrictive trade practices can make exports to
foreign markets less attractive; local
operations in foreign locations thus become
attractive.
International Customers
If a companys customer base becomes
international, and the company wants to
continue to serve it, then local operations in
foreign locations may be necessary.
International Competition
If a companys competitors become international,
and the company wants to remain competitive,
foreign operations may be necessary.
Regulations
Regulations and restrictions imposed by the home
government may increase the cost of operating at
home; it may possible to avoid these costs by
establishing foreign operations.
Chance
Chance occurrence results in a company deciding to
enter foreign locations.
To Capitalize on its Core Competencies

A company may be able to leverage its competencies
and capabilities into a position of competitive
advantage in foreign markets as well as just domestic
markets.
To Spread its Business Risk Across A Wider Market
Base
A company spreads business risk by operating in a
number of different foreign countries rather than
depending entirely on operations in its domestic
markets.
STRATEGIC ORIENTATION
OF GLOBAL FIRMS
Multinational Corporations
Typically display one of four orientations towards their
overseas activities.
They have certain set of beliefs about how the
management of foreign operations should be handled.
Ethnocentric Orientation
Believes that the values and priorities of the parent
organization should guide the strategic decision
making of all its operations.
Polycentric Orientation
The culture of the country in which the strategy is to
be implemented is allowed to dominate the decision
making process.
Regiocentric Orientation
Exists when the parent attempts to blend its
own predispositions/preferences with those of
the region under consideration, thereby
arriving at a region sensitive compromise.
Geocentric Orientation
Adopts a global systems approach to
strategic
decision
making,
thereby
emphasizing global integration.
ANALYSIS OF GLOBAL
BUSINESS ENVIRONMENT
External and Internal

Assessments are conducted before a firm enters
global markets.
External assessment involves careful examination of
critical features of the global environment.
Firm should concern the host nations in such areas as
economic progress, political
control, and
nationalism.
Other major areas of concern are industrial facilities,
favorable balances of payments, and improvement of
technological capabilities over the past decade along
with host nations economic progress.
Internal Assessment
Involves identification of the basic strengths of a
firms operations.
Strengths are more important in global operations
because the these characteristics are given host nation
values most and host nation can offer significant
bargaining leverage.
The internal assessment of a global firm is concerned
with technical and managerial skills, capital, labor,
and raw materials.
The global capabilities that should be analyzed
include the firms product delivery and financial
management systems.
ENVIRONMENTAL CONSIDERATIONS
Economic Factors
Size of GNP and projected rate of growth
Foreign exchange position
Size of markets for the firms products: rate of
growth
Political Factors
Form and stability of the government
Attitude toward private and foreign investment
by government, customers, and competition
Degree of antiforeign discrimination
Geographic Factors
Proximity of site to export market
Availability of local raw materials
Availability of power, water and gas.
Labor Factors
Availability of managerial, technical, and
office personnel able to speak the language of
the parent company.
Degree of skill and discipline at all levels
Degree and nature of labor voice in
management.
Tax Factors
Tax rate trends
Joint tax treaties with home country and others
Availability of tariff protection
Capital Sources Factors
Cost of local borrowing
Modern banking system
Government credit aids to new businesses
Business Factors
State of marketing and distribution system
Normal profit margins in the firms industry
Competitive situation in the firms industry: do cartels
exists?
COMPLEXITY OF THE GLOBAL

BUSINESS ENVIRONMENT
1. Global
firms
face
multiple
political,economic,legal,social and cultural
environments as well as various changes.
. Sometimes foreign governments work in
performance with their militaries to
advance economic aims even at the
expense of human rights.
. International firms must resist the
excitement to benefit financially from such
immoral opportunities.
2. Interactions between the national and foreign

environments are complex, because of national
sovereignty issues and widely differing economic and
social conditions.
3. Geographical separation, cultural and national
differences, and variation in business practices all tend
to make communication and control efforts between
headquarters and the overseas affiliates difficult.
4. Global firms face extreme competition, because of
differences in industry structures within countries.
5. Global firms are restricted in their selection of
competitive strategies by various regional blocks and
economic
integrations
such
as
NAFTA,SAFTA,SAARC,ASIAN and EU etc.
INTL VS GLOBAL
COMPETITION
Global Competitor
International
Competitor
Company markets
Company operates
products in 50 to 100
in a selected few
countries and
foreign countries,
is expanding operations
with modest
into
additional
country
ambitions to
markets annually
expand further
MULTICOUNTRY VS GLOBAL
COMPETITION
Multicountry Competition
Multicountry competition exists when competition in
one national market is not closely connected to
competition in another national market-there is no
global or world market, just a collection of selfcontained country markets.
Features
Buyers in different countries are attached to different
product attributes.
Sellers vary from country to country
Industry conditions and competitive forces in each
national market differ in important respects.
Rivals firms battle for national championships and winning in

one country does not necessarily signal the ability to farewell
in other countries (SCBL vs. Nabil).
The power of companys strategy and resource capabilities in
one country may not enhance its competitiveness to the same
degree in the other countries where it operates (KFC in
Nepal).
Any competitive advantage a company secures in one
country may not guarantee that such competencies are
minimal or nonexistent in another country (MTV viewers in
Nepal).
For example TV broadcasting, consumer banking, life
insurance,apparel,metals fabrication, many types of food
products like (coffee,cereals,breads,canned goods, frozen
foods) and retailing etc.
Global Competition
Global competition exists when competitive
conditions across national markets are linked
strongly enough to form a true international market
and when leading competitors compete head to head
in many different countries.
Same group of rivals companies competes in many
different countries, but especially so in countries
where sales volumes are large and where having a
competitive presence is strategically important to
building a strong global position in the industry.
A companys competitive position in one

country both affects and is affected by its
position in other countries.
A firms overall competitive advantage grows
out of its entire worldwide operations.
Rival firms in globally competitive industries
fight for worldwide leadership.
Global competition exists in motor vehicles,
television sets, tires, mobile phones, personal
computers, copiers, watches, digital cameras,
bicycles, and commercial aircraft.
LOCALIZED MULTICOUNTRY
OR A GLOBAL STRATEGY
The issue of whether to vary the

companys competitive approach to fit
specific market conditions and buyer
preferences in each host country or
whether to employ essentially the same
strategy in all countries is perhaps the
foremost strategic issue that companies
must address when they operate in two
or more foreign markets.
This approach to strategy making a company

tailors
its product
offerings
andLOCAL
perhaps its basic
THINK
LOCAL
ACT
competitive strategy to fit buyer tastes and market
APPROACHES TO STRATEGY
conditions in each country where it opts to
MAKING
compete.
The strength of employing a set of localized or
multicountry strategies is that the companys
actions and business approaches are deliberately
crafted to accommodate the differing tastes and
expectations of buyers in each country and to
stake out the most attractive market positions viavia local competitors.
This approach means giving local managers

considerable strategy making latitude.
Moreover having plants produce different
product versions for different local markets,
and adapting marketing and distributions to
local customs and cultures.
The bigger the country to country variations,
the more that a companys overall strategy is
a collection of its localized country strategies
rather than a common or global strategy.
WHEN THIS STRATEGY WILL

BE SUITABLE?
Significant country to country differences in
customer preferences and buying habits.
Significant cross-country differences in distribution
channels and marketing methods.
Stringent regulations requiring that products sold
locally meet strict manufacturing specifications or
performance standards.
Trade restrictions of host governments are so diverse
and complicated that they preclude a uniform,
coordinated world wide market approach.
LIMITATIONS
1. They hinder transfer of a companys competencies and
resources across country boundaries (since the strategies in
different host countries can be grounded in varying
competencies and capabilities)
2. They do not promote building a single, unified competitive
advantage-especially one based on low cost.
3. Companies employing highly localized or multicountry
strategies face big hurdles in achieving low-cost leadership
unless they find ways to customize their products and still be
in
position
to
capture
scale
economies
and
experience/learning curve effects.
For example like Dell Computers and Toyota, because they
have mass customization production capabilities, can cost
effectively adapt their product offerings to local buyer tastes.
THINK GLOBAL, ACT GLOBAL

APPROACHES TO STRATEGY
MAKING
Global strategies are best suited for globally
competitive industries.
A global strategy is one in which the companys
approach is predominantly the same in all
countries
It sells the same products under the same brand
names everywhere, uses much the same
distribution channels in all countries, and
competes on the basis of the same capabilities
and marketing approaches worldwide.
Although the companys strategy or product offering may be

adapted in very minor ways to accommodate specific
situations in a few host countries, the companys fundamental
competitive approach (low-cost,differentiation,best-cost,or
focused) remains very much intact worldwide, and local
managers stick close to the global strategy.
This strategic theme prompts company managers to integrate
and coordinate the companys strategic moves worldwide and
to expand into most if not all nations where there is
significant buyer demand.
It puts considerable strategic emphasis on building a global
brand name and aggressively pursuing opportunities to
transfer ideas, new products, and capabilities from one
country to another.
DIFFERENCE BETWEEN LOCALIZED

MULTICOUNTRY AND GLOBAL STRATEGY
THINK GLOBAL, ACT

LOCAL APPROACHES TO
STRATEGY MAKING
In this strategy a company can accommodate cross country

variations in buyer tastes, local customs, and market
conditions.
This strategy uses the same basic theme such as low cost,
differentiation, best-cost, or focused
This provides the local managers full latitude to
1. Incorporate whatever country specific variations in products
attributes are needed to best satisfy local buyers
2. Make whatever adjustments in production, distribution, and
marketing are needed to be responsive to local market
conditions and compete successfully against local rivals.
3. Slightly different product versions sold under the same brand
name may suffice to satisfy local tastes.
Foreign Market Analysis
CROSS COUNTRY DIFFERENCES IN

CULTURAL, DEMOGRAPHIC AND MARKET
When any firm wants to enter into the foreign market, the
CONDITIONS
strategies uses by these firms to compete in foreign markets

must be situation driven.
Cultural, demographic and market conditions vary
significantly among the countries of the world.
Cultures and lifestyles are the most obvious areas in which
countries differ; market demographics and income levels are
close behind.
For example consumers in Spain do not have the same tastes,
preferences, and buying habits as consumers in Norway;
buyers differ yet again in Greece, Chile, New Zealand and
Taiwan etc.
Sometimes product designs suitable in one

country are inappropriate in another.
For example in the USA electrical devices can
run on 110 volt systems but in some EU the
standard is a 240 volt system.
Market growth varies from country to
country.
For example in emerging markets like BRICS
countries market growth potential is far
higher than in the more mature economies of
developed nations such as UK,Canada or
Japan etc.
One of the biggest concerns of companies

competing in foreign markets is whether to
customize their offerings in each different
country market to match the tastes and
preferences of local buyers or whether to offer
a mostly standardized product worldwide.
The tension between the market pressures to
localize a companys product offerings
country by country and the competitive
pressures to lower costs is one of the big
strategic issues that participants in foreign
markets have to resolve.
GAINING COMPETITIVE ADVANTAGE

BASED ON WHERE ACTIVITIES ARE
LOCATED
Differences in wage rates, worker productivity, inflation
rates, energy costs, tax rates, government regulations, and
the like create sizable variations in manufacturing costs
from country to country.
Plants in some countries have major manufacturing cost
advantages because of lower input costs(especially labor),
relaxed government regulations, the proximity of
suppliers, or unique natural resources.
The low cost countries become principal

production sites, with most of the output
being exported to markets in other parts of the
world.
Companies that build production facilities in
low-cost countries have a competitive
advantage over rivals with plants in countries
where costs are higher.
The competitive role of low manufacturing
costs is most evident in low wage countries
like China, India, Pakistan, Cambodia,
Vietnam, Mexico and Brazil etc.
The quality of a countrys business

environment also offers locational
advantages-the government of some
countries are attracting more FDI by
lowering corporate tax rates (Ireland).
Another locational advantage is the
clustering of suppliers of components
and capital equipment; infrastructure
suppliers such as universities, vocational
training providers, research enterprises,
trade associations etc.
THE RISK OF ADVERSE

EXCHANGE RATE SHIFTS
The volatility of exchange rates greatly
complicates the issue of geographic cost
advantages.
Currency exchange rates often move up or down
20 to 40 percent annually.
Changes of this magnitude can either totally wipe
out a countrys low cost advantage or transform a
former high cost location into a competitive cost
location.
Companies with manufacturing facilities in a

particular country are more cost competitive in
exporting goods to world markets when the local
currency is weak (or declines in value relative to
other currencies); their competitiveness erodes when
the local currency grows stronger relative to the
currencies of the countries to which the locally made
goods are being exported.
Fluctuating exchange rates pose significant risks to a
companys competitiveness in foreign markets.
Exporters win when the currency of the country
where goods are being manufactured grows weaker
and they lose when the currency grows stronger.
Domestic companies under pressure

from lower cost imports are benefited
when their governments currency
weaker in relation to the countries where
the imported goods are being made.
HOST GOVERNMENT POLICIES

National government enact all kinds of measures affecting
business conditions and the operation of foreign
companies in their markets.
Host governments may set local content requirements on
goods made inside their borders by foreign based
companies, have rules and policies that protect local
companies from foreign competition, put restrictions on
exports to ensure adequate local supplies, regulate the
prices of imported and locally produced goods, enact
deliberately burdensome procedures and requirements for
imported goods to pass customs inspection, and impose
tariffs or quotas on the imports of certain goods.
Governments may or may not have burdensome tax

structures, stringent environmental regulations, or
strictly enforced labor standards.
Sometimes outsiders face a web of regulations
regarding technical standards, product certification,
prior approval of capital spending projects,
withdrawal of funds from the country, and required
minority ownership of foreign company operations
by local companies or investors.
Some government provide subsidies and low interest
loans, market access and technical assistance etc.
STRATEGY OPTIONS FOR ENTERING

AND COMPETING IN FOREIGN
MARKETS
1.
2.
3.
There are a host of generic strategic options for a company that

decides to expand outside its domestic and compete internationally or
globally
Maintain a national (one-country) production base and export goods
to foreign markets, using either company-owned or foreigncontrolled forward distribution channels.
License foreign firms to use the companys technology or to produce
and distribute the companys products.
Employ a franchising strategy
4. Follow a multicountry strategy varying the

companys strategic approach (perhaps a little,
perhaps a lot) from country to country in accordance
with local conditions and differing buyer tastes and
preferences.
5. Follow a global strategy using essentially the same
competitive strategy approach in all country markets
where the company has a presence.
6. Use strategic alliances or joint ventures with foreign
companies as the primary vehicle for entering
foreign markets and perhaps also using them as an
ongoing strategic arrangement aimed at maintaining
or strengthening its competitiveness.
Strategies for firms that are attempting to move

toward globalization can be categorized by the
degree of complexity of each foreign market being
considered and by the diversity in a companys
product line.
Complexity refers to the number of critical success
factors that are required to prosper in a competitive
arena.
When a firm must consider many such factors, the
requirements of success increase in complexity.
Diversity refers to the breadth of a business firms
business lines.
When a company offers many product lines,
diversity is high. Puonlinenotes.blogspot.com
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Market Complexity
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Exporting
Using domestic plants as a production base for
exporting goods to foreign markets is an excellent
initial strategy for pursuing international sales.
The amount of capital needed to begin exporting is
often quite minimal
Existing production capacity may well be sufficient
to make goods for export.
A manufacturer involvement in foreign markets by
contracting with foreign wholesalers experienced in
importing to handle the entire distribution and
marketing function in their countries or regions of
the world.
A manufacturer can establish its own distribution

and sales organizations in some or all of the target
foreign markets.
These strategies are primarily favored by Chinese,
Korean and Italian companies-products are designed
and manufactured at home and then distributed
through local channels in the importing countries.
The primary functions performed abroad relate
chiefly to establishing a network of distributors and
perhaps conducting sales promotion and brand
awareness activities.
In some industries, firms gain additional scale economies and

experience/learning curve benefits from centralizing
production in one or several giant plants whose output
capability exceeds demand in any one country market.
This strategy will be inappropriate in the following situations
1. Manufacturing costs in the home country are substantially
higher than in foreign countries where rivals have plants,
2. The costs of shipping the product to distant foreign markets
are relatively high.
3. Adverse shifts occur in currency exchange rates.
. Unless an exporter can both keep its production and shipping
costs competitive with rivals and successfully hedge against
unfavorable changes in currency exchange rates, its success
will be limited.
Licensing
If a firm has a valuable technical know-how or a unique
patented product has neither the internal organizational
capability nor the resources to enter foreign markets can use
this strategy.
Advantages
It can avoid the risks of committing resources to country
markets that are unfamiliar, politically volatile, economically
unstable, or otherwise risky.
By licensing the technology or the production rights to
foreign based firms, the firm does not have to bear the costs
and risks of entering foreign markets on its own, yet it is able
to generate income from royalties.
Disadvantages
The big disadvantages of using this strategy is the risk of
providing valuable technological know how to foreign
companies and thereby losing some degree of control over its
use.
Monitoring licensees and safeguarding the companys
proprietary know how can prove quite difficult in some
circumstances.
The companies to whom the licenses are being granted
should be both trustworthy and reputable so that the
organization can generate maximum level of royalty.
Many software and pharmaceutical companies use this
strategy
FRANCHISING
A special form of licensing is franchising.
It is suitable for service and retailing enterprises.
It allows a franchisee to sell a highly publicized product or
service using the parents brand name or trademark, carefully
developed procedures, and marketing strategies.
In exchange the franchisee pays a fee to the parent company,
typically based on the volume of sales of the franchiser in its
defined market area.
The franchise is operated by the local investor who must
adhere to the strict policies of the parent.
World most champion of franchising is McDonalds, which has
70 percent of its company-owned stores as franchisees in
foreign markets.
The franchisee bears most of the costs and risks

of establishing foreign locations.
A franchisor has to expend only the resources to
recruit,train,support,and monitor franchisees.
The big problem a franchisor faces is
maintaining quality control
Foreign franchisees do not always exhibit strong
commitment
to
consistency
and
standarization,especially when the local culture
does not stress the same kinds of quality
concerns.
Another problem that can arise is whether to

allow
foreign
franchisees
to
make
modifications in the franchisors product
offering so as to better satisfy the tastes and
expectations of local buyers.
Should McDonalds allow its franchised units
in Japan to modify Big Macs slightly to suit
Japanese tastes?
Foreign Branching
A foreign branch is an extension of the company in its foreign
market
It is a separately located strategic business unit directly
responsible for fulfilling the operational duties assigned to it
by corporate management including sales, customer service
and physical distribution.
Host countries may require that the branch be domesticated
i.e. have some local managers in middle and upper level
positions.
The branch most likely will be outside the domestic countries
legal jurisdiction.
Equity Investment
Small and medium size enterprises with strong growth
potential frequently have the need for additional funds to be
able to grow further before deciding to trade their stock
publicly in the marketplace.
These firms often enlist the support of a venture capital firm
or private equity company that invests its shareholders
money in start ups and other risky but potentially very
profitable small and medium sized enterprises.
In exchange for a private equity stake, which is sometimes a
majority or controlling position, private equity company
provides investment capital and a range of business services,
including management expertise.
Wholly Owned Subsidiaries

Wholly owned foreign subsidiaries are considered
by companies that are willing and able to make the
highest investment commitment to the foreign
market.
These companies insist on full ownership for reasons
of control and managerial efficiency.
Policy decisions about local product lines,
expansion, profits, and dividends typically remain
with in the headquarter top managers.
Fully owned subsidiaries can be started either from
scratch or by acquiring established firms in the host
country.
Joint Venture
Joint venture is a popular strategy that occurs
when two or more companies form a temporary
partnership or consortium for the purpose of
capitalizing on some opportunity.
In this strategy two or more sponsoring firms
form a separate organization and have shared
equity ownership in the new equity.
It
allocates
ownership,
operational
responsibilities, and financial risks and rewards to
each member while preserving their separate
identity/autonomy.
This strategy occur because the companies involved

do not want to or cannot legally merge permanently.
Joint ventures provide a way to temporarily combine
the different strengths of partners to achieve and
outcome of value to all.
Extremely popular in international undertakings
because of financial and political-legal constraints,
forming joint ventures is a convenient way for
corporations to work together without losing their
independence.
Loss of control, lower profits, probability of

conflicts with partners, and the likely transfer of
technological advantage to the partner.
Joint ventures are often meant to be temporary,
especially by some companies that may view them
as a way to rectify a competitive weakness until they
can achieve long term dominance in the partnership.
Joint ventures tend to be more successful when both
partners have equal ownership in the venture and are
mutually dependent on each other for results.
Strategic Alliances
A strategic alliance is a long term cooperative
arrangement between two or more independent firms
or business units that engage in business activities
for mutual gain.
Alliances between companies or business units have
become a fact of life in modern business.
Reasons for forming strategic alliances
1. To obtain or learn new capabilities
2. To obtain access to specific markets
3. To reduce financial risk
4. To reduce political risk
The End
Strategic analysis and

Choice in a Multi
Business Company
The Corporate Parent Role

Realizing synergies from shared
capabilities and core competencies
is a key way value is added in
multibusiness companies.
The corporate managers has to
analyze those synergies and find out
ways to capture.
Corporate parent can add value to
its businesses by the following two
ways.
1. The parenting
framework
The Parenting Framework

This approach sees multibusiness companies as
creating value by influencing or parenting the
businesses they own.
The best parent companies create more value
than any other businesses do if they owned the
same businesses.
To add value a parent must improve its
businesses.
This
approach
call
the
potential
for
improvement within the business a parenting
opportunities.
Here are some ten places to look for parenting
opportunities.
1. Size and age

. Old, large, successful businesses frequently
produce well-established bureaucracies and
overhead structures that are hard to take
apart from inside the business.
. It could add value because of an external
catalyst the parent.
. Some SMEs may lack some key functional
skills, managerial capabilities or lack of
capital to deploy in resources so as to
accelerated growth potential.
. Parenting opportunities may add value in
these circumstances.
Management
Some of the issues in the businesses are
the use inefficient manpower, high labor
turnover, and use of low level of skills
workers in the job.
Some managers have less objectives
perspectives.
The parenting opportunities ensure and
address these issues objectively and assist
in any resolution in the coming period.
These parenting opportunities could direct
and
provide
new
shape
for
the
organization.
Business Definition
Business unit managers may have a
erroneous vision of what their business
should be.
Some managers may employ vertical
integration not to others.
However
accelerated
trends
toward
outsourcing and strategic alliances are
changing
the
definitions
of
many
businesses.
These creates parenting opportunity to help
redefine a business unit in a way that
creates greater value.
Predictable Errors
Managers are responsible for previous strategic
decisions are vested in the success of those
decisions which may prevent openness to new
alternatives.
Older or mature businesses often accumulate a
variety of products and markets, which becomes
excessive diversification within the particular
business.
Cyclical markets can lead to underinvestment during
downturns and overinvestment during upswing.
Lengthy life cycles can lead to overreliance on old
products.
All of these are predictable errors a parent can
monitor and attempts to create value.
Linkages
Business units may be able to
improve
market
position
or
efficiency by linking with other
businesses.
Linkages among business units
within or outside the parent
company may be complex or difficult
to establish without parent company
help.
An opportunity to add value may
exist.
Common Capabilities
Fundamental
to
successful
diversification is the notion of
sharing
capabilities
and
competencies needed by multiple
business units.
Parenting opportunities may arise
time to time through regular scrutiny
of opportunities to share capabilities
or add shared capabilities that would
otherwise go unnoticed by business
unit managers closer to daily
business operations.
Specialized Expertise
There may be situations where the parent
company possesses specialized or rare
expertise that may benefit a business unit and
add value in the process.
Unique legal, technical, or administrative
expertise critical in a particular situation or
decision point, which is quickly and easily
available can prove very valuable.
External Relations
If a business have external stakeholders such
as governments,regulators,unions, suppliers
and shareholders the parent company can
manage more effectively than individual
business units.
Major Decisions
A business unit may face difficult
decisions in areas which it lacks
expertise for example, making an
acquisition, entering China, a major
capacity expansion, divesting and
outsourcing a major part of the
business operations.
Obtaining capital externally to fund
a major investment may be much
more difficult than doing so through
the parent company.
Major changes
Sometimes a business needs to
make major changes in ways critical
to the business future success yet
which
involves
areas
or
considerations in which the business
units management has little or no
experience.
The patching approach

Patching/area is the process by which
corporate executives routinely restore
businesses to match rapidly changing
market opportunities.
It can take the form of adding,
spitting/discharging, transfering,exiting or
combining chunks of businesses.
Patching is not seen as critical in stable,
unchanging market.
When markets are turbulent and rapidly
changing, patching is seen as critical to the
creation of economic value in a multibusiness company.
This strategy particularly used in the

volatile markets.
In this market patchers strategic analysis
focuses on making quick, small frequent
changes in parts of businesses and
organizational
processes
that
enable
dynamic strategic repositioning rather than
building long term defensible positions.
To be successful with a patching approach
to corporate strategic analysis and choice
in turbulent markets, the managers should
flexibly seize opportunities-as long as that
flexibility is disciplined.
The basic argument of this approach is that

no one can predict how long a competitive
advantage
will
past,
particularly
in
turbulent, rapidly changing markets.
Managers in stable markets may be able to
rely on complex strategies built on detailed
predictions of future trends, managers in
complex, fast moving markets where
significant growth and wealth creation may
occur face constant unpredictability
Thus strategy must be simple, responsive,
and dynamic to encourage success.
The Synergy Approach: Leveraging

Capabilities and Core
Competencies
Opportunities to build value via

diversification, integration, or joint
venture strategies are usually found
in market related, operating related
and management activities.
Each businesss basic value chain
activities or infrastructure becomes
a source of potential synergy and
competitive advantage for another
business in the corporate portfolio.
Strategic analysis is concerned with whether

or not the potential competitive advantages
expected to arise from each opportunity have
materialized.
Corporate strategists must take care to
scrutinize possible obstacles to achieving the
synergy or competitive advantage before
diversification strategy.
Capitalize on core competencies
The basic reason to diversify is core
competencies-key value building skills-can be
leveraged with other products or into markets
that are not a part of where they were
created.
Each core competency should provide a

relevant competitive advantage to the
intended businesses.
The core competency must assist the
intended business in creating strength
relative to key competitors.
The core competency can be transferable.
Businesses in the portfolio should be
related in ways that make the
companys
core
competencies
beneficial
Any combination of competencies must
be unique or difficult to re-create
Behavioral
Considerations
Affecting Strategic
Strategic choice isChoice
a decision.
At both the corporate and business levels, this
decision determines the future strategy of the firm.
It is the decision to adopt one of the alternative
scrutinized.
If the currently used alternative is sufficient and
can address the future success of the company the
decision will be the simple.
Several external and market variables will provide
the pressure over the firm and make the strategic
decision more challenging.
The following factors influence the strategic

choice decisions
1.
2.
3.
4.
5.
6.
Role of past strategy

Degree of the firms external dependence
Attitudes toward risk
Internal political considerations and the CEO
Timing
Competitive reaction
Role of Past Strategy

A review of past strategy is the point at
which
the process of strategic choice
begins.
Past strategy exerts considerable influence
on the final strategic
choice.
Current strategies are often the architects of past

strategies.
They have invested substantial time,resources,and
interest in these strategies, the strategists would
logically be more comfortable with a choice that
closely parallels past strategy or represents only
incremental alternatives.
Lower level management reinforces the top
managers inclination toward continuity with past
strategy during the choice process.
The older and more successful a strategy the
harder it is to replace.
A strategy once initiated is very difficult to change
because organizational momentum keeps it going.
Some firms will replace their CEO if past strategy
will fail so as to improve on that strategy.
Degree of Firms External Dependence

A comprehensive strategy is meant to effectively
guide a firms performance in the larger external
environment.
Owners,
suppliers,
customers,
government,
competitors, and unions are a few of the elements
in a firms external environment.
A major constraint on strategic choice is the power
of environmental elements supporting this
decision.
If a firm is highly dependent on one or more
environmental factors its strategic alternatives and
ultimate
choice
must
accommodate
this
dependence.
The greater a firms external dependence, the
lower its range and flexibility in strategic choice.
Attitude Toward Risk

Risk attitudes may vary from eager risk taking to
strong aversion to risk, and they influence the
range of available strategic choices.
Where attitudes favor risk, the range and
diversity of strategic choices expand.
High risk strategies are acceptable and desirable.
where management is risk averse, the diversity
of choice is limited, any risky alternatives are
eliminated before strategic choices are made.
Risk oriented managers prefer offensive,
opportunistic strategies.
Risk averse managers prefer defensive, safe
strategies.
Managerial Risk Propensity and

Strategic Choices
Risk averse
Risk prone
Decrease choices
Defensive strategies
Stability
Incremental
Minimize company
weaknesses
Strong ties with past
strategy
Stable industry
Maturing product/market
evolution
Expand choices
Offensive strategies
Growth
Innovation
Maximize company
strengths
Fewer ties with past
strategy
Volatile industry
Early product/market
evolution
Internal Political Considerations

Power/political factors influence strategic choice.
The existence and use of power to further individual
or group interests is common in organizational life.
A major source of power in most organizations is the
chief executive officer.
In smaller and big organization if the CEO is strong
or dominant and he will begins to favor a particular
choice it is unanimously selected.
In some large organizations, subunits and individuals
particularly key managers have to reason to support
some alternatives and oppose others.
The costs are likely to be increased time spent on
decision making and incremental (as opposed to
drastic) change if there is the possibility of formal
and informal negotiation.
Timing Considerations
Strategic choice will be strongly
influenced by the match between
managements current time horizon
and the lead time associated with
different choices.
Time dimensions involves the lead
time required for alternative choices
and the time horizon management is
contemplating.
Managements primary attention
may be on the short or long run,
Competitive Reaction
Top
management
frequently
incorporates perceptions of likely
competitor reactions to different
options.
If
management
chooses
and
aggressive strategy that directly
challenges a key competitor, that
competitor can be expected to
mount aggressive counterstrategy.
The capacity of the competitor to
react and the probable impact on
the chosen strategys success.
Diversification
A diversified company is a collection of
individual businesses.
The strategy making task will be more complex
than individual businesses.
In diversified company strategy making involves
assessing multiple industry environments and
developing a set of business strategies.
In
diversified
company
corporate
level
executives delegate considerable strategy
making authority to the heads of each business
units.
They provide latitude to craft a business
strategy suited to their particular industry.
In diversification the corporate managers task is

to finding the followings
1. Picking new industries to enter and deciding on
the means of entry
.The particular concern are new industries to get
into and whether to entry by starting a new
business from the ground up, acquiring a
company already in the target industry, or
forming a joint venture or strategic alliance with
another company.
2. Initiating actions to boost the combined
performance of the businesses the firm has
entered.
.Corporate strategists must strengthen the long
term competitive positions and profits of the
businesses the firm
has invested in.
Corporate parents can help to their

business subsidiaries by providing financial
resources, by supplying missing skills or
technological know-how or managerial
expertise to better perform key value
chain activities and by providing new
avenues for cost reduction.
A company can pursue rapid growth
strategies
in
its
most
promising
businesses, initiate turnaround efforts in
weak performing businesses with potential
and divest businesses that are no longer
attractive or dont fit into managements
long range plans.
3. Pursuing opportunities to leverage crossbusiness value chain relationships and

strategic fits into competitive advantage
. A company that diversifies into businesses
with competitively important value chain
match up and can get competitive advantage
than totally unrelated.
. A company can transfer its skills on another
business units and can reduce the costs.
4. Establishing investment priorities and steering
corporate resources into the most attractive
business units.
. A companys different businesses are usually
not equally attractive from the perspective of
investing additional funds.
Corporate management has to

1. Decide on the priorities for investing
capital in the companys different
businesses
2. Channel resources into areas where
earnings potential are higher and
away from areas where they are
lower
3. Divest business unit that chronically
poor performers or are in an
increasingly unattractive industry.
When to Diversify
If a company has potential growth opportunities in
its present industry there is no urgency to pursue
diversification
The big risk of a single business company is having
all the eggs into one basket.
If the demand for the industrys product is eroded by
the
appearance
of
alternative
technologies,
substitute
products, or fast
shifting
buyer
preferences, unattractive or unprofitable, then the
companys future prospect will be dim.
Diversifying into new industries always merits strong
consideration whenever a single business company
encounters diminishing market opportunities and
stagnating sales in the principal business.
In the following situations the company may

consider the diversification
1. When it spots opportunities for expanding into
industries whose technologies and products
complement its business
2. When it can leverage existing competencies and
capabilities by expanding into businesses where
these same resource strengths are key success
factors and valuable competitive assets
3. When diversifying into closely related businesses
opens new avenues for reducing costs.
4. When it has a powerful and well known brand
name that can be transferred to the products of
other businesses and thereby used as a lever for
driving up the sales and profits of such
businesses.
Related Vs Unrelated
Diversification
Once a company makes a decision to
diversify the big question is whether to
diversify into related businesses or in
unrelated businesses or some mix of both.
Businesses are said to be related when
their value chains posses competitively
valuable cross business relationships that
present opportunities for the businesses to
perform better under the same corporate
umbrella than they could by operating as
stand alone entities.
The
big
appeal
of
related
diversification is to build shareholder
value by leveraging these cross
business
relationships
into
competitive
advantage,
thus
allowing the company as a whole to
perform better than just the sum of
its individual businesses.
Businesses are said to be unrelated
when the activities comprising their
respective value chains are so
dissimilar that no competitively
valuable cross business relationships
Related Diversification
A related diversification strategy involves building
the company around businesses whose value chains
possess competitively valuable strategic fits.
Strategic fit exists whenever one or more activities
comprising the value chains of different businesses
are sufficiently as to present opportunities for
1. Transferring
competitively
valuable
expertise,
technological know-how,or other capabilities from
one business to another.
2. Combining the related value chain activities of
separate businesses into a single operation to
achieve lower costs.
3. Exploiting common use of a well known and potent
brand name
4. Cross business collaboration to create competitively
valuable resource strengths and capabilities.
Unrelated Diversification
An unrelated diversification strategy
focuses on entering and operating
businesses in industries that allow
the company as a whole to grow its
revenues and earnings.
The basic of this strategy is that any
company or business that can be
acquired on good financial terms
and that has satisfactory growth and
earnings potential represents a good
acquisition and a good business
The corporate manager has to consider following criteria

while taking unrelated diversification strategy
1. Whether the business can meet corporate targets for
profitability and return on investment
2. Whether the business is in an industry with attractive
growth potential
3. Whether the business is big enough to contribute
significantly to the parent firms bottom line
4. Whether
the
business
has
burdensome
capital
requirements
5. Whether the business is plagued with chronic union
difficulties and labor problems
6. Whether
there
is
industry
vulnerability
to
recession,inflation,high interest rates, tough government
regulations concerning product safety or the environment
and other potentially negative factors.
Advantages of
Unrelated
Diversification
Business risk can be minimized

Financial resource can be employed to
maximum advantage in best profit
prospects and in firms which have high
profit potential.
Bargaining position of the company can
established and can set up to upper
limit if turnaround firm can be acquired
Stable/balanced financial conditions can
be created
Disadvantages of
Diversification
The difficulties of competently managing

many different businesses and being
without the added source of competitive
advantage that cross business strategic fit
provides.
Relying solely on the expertise of corporate
executives to wisely manage a set of
unrelated businesses is a much weaker
foundation for enhancing shareholder value
than is a strategy of related diversification
where corporate performance can be
boosted by competitively valuable cross
business strategic
fits.
Building Shareholder
Value
Creating added value for shareholders via

diversification requires building a multibusiness
company where the whole is greater than the sum of
its parts.
Diversification must do more for a company than
simply spread its business risk across various
industries.
Diversification can not be considered a success
unless it results in added shareholder value.
To raise the value of the shareholders economically
the following tests should have passed before
diversify.
1.
2.
3.
The industry attractiveness test

The cost of energy test
The better off test
The industry attractiveness test

The industry to be entered must be attractive enough to
yield good ROI or Net Profit than in present businesses.
The cost of entry test
The cost to enter the target industry must not be so high
as to erode the potential for good profitability.
However the more attractive an industrys prospects are
for growth and good long term profitability, the more
expensive it can be to get into.
Entry barriers for start up companies are likely to be
high in attractive industries where as low in other
industries.
If entry barriers are low profit potentials can be shared
among the new entrants.
Buying a well positioned company in an appealing
industry often entails a high acquisition cost that makes
passing the cost of entry test less likely.
The better off test

Diversifying into a new business
must
offer
potential
for
the
companys existing businesses and
the new business to perform better
together under a single corporate
umbrella than they would perform
operating as independent stand
alone businesses(1+1=3).
Thank You
Operationalizing
Strategy
Strategy Implementation
Strategy implementation is the sum total of the
activities and choices required for the execution of
a strategic plan.
It is the process by which objectives, strategies,
and policies are put into action through the
development
of
programs,
budgets,
and
procedures.
Though implementation is usually considered after
strategy has been formulated, implementation is a
key part of strategic management.
Strategy formulation and strategy implementation
should thus be considered as two sides of the
same coin.
Strategy
implementation
is
concerned with the following points
1. Who are the people who will carry
out the strategic plan?
2. What must be done to support the
companys operations in the new
intended direction?
3. How is everyone going to work
together to do what is needed?
Problems associated with implementation of strategic change

1. Implementation may take more time than originally
planned
2. Unanticipated major problems may arise
3. Activities are ineffectively coordinated
4. Competing activities and crises may take attention away
from implementation
5. The involved employees may have insufficient capabilities
to perform their jobs.
6. Lower level employees may inadequately trained
7. Uncontrollable external environmental factors can create
problems
8. Departmental
managers
may
provide
inadequate
leadership and direction.
9. Key implementation tasks and activities may poorly defined
10.The information system may inadequately monitored
activities.
Who Implement
Strategy
Depending on how a corporation is

organized, those who implement strategy
will probably be a much more diverse set
of people than those who formulate it.
In
most
large,
multi
industry
corporations, the implementers are
everyone in the organization.
Vice presidents of functional areas and
directors of divisions or strategic
business units (SBUs) work with their
subordinates to put together large scale
implementation
plans.
Plant managers, project managers, and unit

heads put together plans for their specific
plants, departments, and units.
Every operational manager down to the first
line supervisor and every employee is
involved in some way in the implementation
of
corporate,
business
and
functional
strategies.
What must be done?
The managers of divisions and functional
areas work with their fellow managers to
develop programs, budgets, and procedures
for the implementation of strategy.
They also work to achieve synergy tends to
result in betterPuonlinenotes.blogspot.com
organizational performance.
Nature of Strategy
Implementation
Successful strategy formulation does not
guarantee
successful
strategy
implementation.
1. Requires managerial forces during the
action
2. Focuses on efficiency
3. Primarily is an operational process
4. Requires special motivation and leadership
skills
5. Requires
coordination
among
many
individuals Puonlinenotes.blogspot.com
Short Term Objectives

Short
term
objectives
are
measurable outcomes achievable or
intended to be achieved in one year
or less.
They
are
specific,
usually
quantitative,
results
operating
managers set out to achieve in the
immediate future.
For example
Objectives
1. More inventory
Less inventory
3. Fast order processing

Cheap order
processing
4. Fast delivery
Lowest cost routing
5. Field warehousing
Less
warehousing
Plant warehousing
Importance of short term
objectives
6. Short term objectives operationalize
long term objectives.
.For example if we commit to a 20
percent gain in revenue over five
years, what is our specific target or
objective in revenue during the
2. Short term objectives help raise

issues and potential conflicts within
an organization that usually require
coordination to avoid otherwise
dysfunctional consequences.
3. Short term objectives assist strategy
implementation
by
identifying
measurable outcomes of action
plans or functional activities, which
can be used to make feedback,
correction, and evaluation more
relevant and acceptable.
. We have to design action plan so as
The action plan specify what exactly

is to be done inside the organization.
The action plan also clear about
time frame for completion i.e. when
the effort will begin and when its
results will be accomplished.
Moreover the action plan also
identify
the
person
who
is
responsible to perform the task.
The accountability is very much
important to ensure actions plans
are acted upon.
Qualities of Effective
Short Term Objectives
1. Measurable
. Short term objectives are more consistent
and concerned with
1. What is to be accomplished
2. When it will be accomplished
3. How
its
accomplishment
will
be
measured.
. It is far easier to quantify the objectives
of line units (production) than of certain
staff areas (personnel).
. Difficulties in
quantifying objectives often
2. Priorities
. Short term objectives requires
priority because of a timing
consideration or their particular
impact on a strategys success.
. If we are not establishing priorities
conflicting assumptions about the
relative
importance
of
annual
objectives may inhibit progress
toward strategic effectiveness.
. We can prioritize
based on the
discussion and negotiation during
the planning process.
3.Linked to long term objectives

.Short term objectives can add
breadth and specificity in identifying
what must be accomplished to
achieve long term objectives.
The value added benefits of short
term objectives and action plans
1. It provides operating personnel a
better understanding of their role in
the firms mission.
.Moreover it also provides clarity of
purpose and the use of people
assets of the organization.
2. Short term objectives and action plans

become the forum for raising and
resolving conflicts between strategic
intention and operational realities.
3. It provides a basis for strategic control.
. It provides a clear, measurable basis for
developing budgets, schedules and other
mechanisms
for
controlling
the
implementation of strategy.
4. It provides the motivational payoff.
. It clarify the personnel and group roles in
a firms strategies and are also
measurable, realistic, and challenging can
be powerful motivators of managerial
Long Term Objectives

The results that an organization
seeks to achieve over a multiyear
period is called long term objectives
It represents the results expected
from pursuing certain strategies
Strategies represent the actions to
be taken to accomplish long term
objectives.
The time frame for objectives and
strategies should be consistent,
usually from two to five years.
Qualities of Long Term Objectives

1.
2.
3.
4.
5.
6.
7.
Acceptable
Flexible
Measurable over time
Motivating
Suitable
Understandable
Achievable
Acceptable
Long term corporate objectives frequently are
designed to be acceptable to groups external to
the firm.
For example the efforts to decrease air pollution
that are undertaken at the resolve of the
Environmental Protection Agency.
Flexible
Objectives should be adaptable to
unforeseen or extraordinary changes in
the
firms
competitive
or
environmental forecasts.
For example the personnel department
objective of providing managerial
developing training for 15 supervisors
per year over a next five year period
might be adjusted by changing the
number of people to be trained.
Measurable
Objectives must clearly and concretely
state what will be achieved and when it
For example the objective of

substantially improving our return on
investment would be better stated
as
increasing
the
return
on
investment on our line of paper
products by a minimum of 1% a year
and a total of 5% over the next three
years.
Motivating
The objectives should be productive
and have to set at a motivating level
i.e. one high enough to challenge
but not so high as to frustrate or so
A broad objective that challenges

one group frustrates another and
minimally interests a third.
The objectives be tailored to specific
groups
Suitable
Objectives must be suited to the
broad aims of the firm, which are
expressed in its mission statement.
Each objective should be a step
toward the attainment of overall
goals.
Understandable
Strategic managers at all levels
must understand what is to be
achieved.
Objectives must be clear meaningful
and unambiguous.
Achievable
Objectives must be possible to
achieve
However turbulence in the remote
and operating environments affects
a firms internal operations, creating
Areas of long term objectives

1.
2.
3.
4.
5.
6.
7.
Profitability
Productivity
Competitive position
Employee development
Employee relations
Technological leadership
Public responsibility
Policies
Policies are directives designed to
guide the thinking,decisions,and
actions of managers and their
subordinates in implementing a
firms strategy.
Policies are also called
these
standard operating procedures.
Policies
increase
managerial
effectiveness by standardizing many
routine decisions and clarifying the
direction
managers
and
Policies are derived from functional

tactics with a key purpose of aiding
strategy execution.
Policies facilitate solving repetitive
problems
and
guide
the
implementation of strategy.
Moreover it refers to specific
guidelines,methods,procedures,rules
,forms,and administrative practices
established
to
support
and
encourage work toward stated goals.
These are the instruments of
strategy implementation.
These
are
boundaries,constraints,and
limits
on
the
kinds
of
administrative actions that can
be taken to reward and sanction
behavior.
Policies clarify what can and
cannot be done in pursuit of an
organizations objectives.
For example corporate relate to
surfing the web while at work.
Importance of policies
1. Policies establish indirect control
over independent action
. It states how things are to be done
and empower employees to conduct
activities without direct intervention
by top management.
2. Policies promote uniform handling of
similar activities
. It facilitates the coordination of work
tasks
and
helps
to
reduce
friction/resistance
arising
from
3. Policies ensures quicker decisions

. It standardizes answers to answers
to previously answered questions
that otherwise would recur and be
pushed
up
the
management
hierarchy again and again.
4. Policies institutionalize basic aspects
of organization behavior
. It minimizes conflicting practices
and establishes consistent patterns
of action in attempt to make the
strategy work.
5. Policies
reduce
uncertainty
in
repetitive and day to day decision
making
. It provides necessary foundation for
coordination, efficient efforts and
freeing operating personnel to act.
6. Policies counteract resistance to or
rejection of chosen strategies by
organization members.
. When major strategic change is
undertaken unambiguous operating
policies clarify what is expected and
facilitate acceptance, particularly
7. Policies
offer
predetermined
answers to routine problems
. It provides more time to review
previously applied answers for
ordinary
and
extraordinary
problems.
8. Policies
afford
managers
a
mechanism for avoiding speedy and
ill conceived decisions in changing
operations.
Policies may be written and formal

or unwritten and informal.
Informal unwritten policies are
usually associated with a strategic
need for competitive secrecy.
Formal written policies have at least
following advantages.
1. They require managers to think
through
the
policys
meaning,
content and intended use.
2. They reduce misunderstanding
3. They make equitable and consistent
4. They
ensure
unalterable
transmission of policies
5. They communicate the authorization
or sanction of policies more clearly
6. The supply of convenient and
authoritative reference
7. They
systematically
enhance
indirect control and organization
wide coordination of the key
purposes of policies.
Functional Tactics to
Operationalize Strategy
Functional tactics are the key, routine
activities that must be undertaken in
each
functional
areas
such
as
marketing, finance, POM,R&D and HRM
to provide the goods and services.
Functional tactics translate grand
strategy into action designed to
accomplish
specific
short
term
objectives.
Every value chain activity in a
company executes functional tactics
POM
Functional
Tactic
Typical questions that the functional tactic should

answer
Facilities
and
equipment
One big facilities or several small facilities

Integration of separate processes
Mechanization or automation level
Size and capacity toward peak or normal level
Sourcing
Suppliers sources
Suppliers selection, retention and development
Use of hedging tools (forward buying)
Operation
planning
and control
Make to order or make to buy

Inventory level
Inventory used, controlled and replenished
Quality control, labor cost, product use
Maintenance of assets or breakdown
Job specialization, plant safety, safety standards
Marketing
Functional
tactic
Typical questions that the functional tactic should

answer
Product/
service
Products and service emphasized

Products and service contribution to profitability
Product and service image we seek to project
Consumer needs does the product seek to meet
Changes in the product and service to influence
customer
Price
Price base competition

Discounts
Standard pricing or regional control
Price segments we target
Gross profit margin
Competition based pricing or cost/demand based
pricing
Place
Market coverage, geographic areas, channels of

distribution
Channel objectives, structure and management
Relationships of marketing managers with distributors,
sales reps and direct sellers
Organization we want
Sales force organized around territory,market,or
product Puonlinenotes.blogspot.com
Finance and
Accounting
Functional
tactic
Typical questions that the functional tactics should

answer
Capital
acquisition
Cost of capital
Long term and short term debt, preferred and
common stock
Internal and external financing
Risk and ownership restrictions
Leasing
Capital
allocation
Priorities for capital allocation

Selection of projects
Operations manager autonomy for capital allocation
Dividend and
working
capital
management
Dividend payout ratio

Dividend stability (importance)
Cash or stock dividend
Cash flow requirement, minimum and maximum cash
flow
Credit policies
Limits, payment terms, and collection procedures
Payment timing and procedure
R&D
Functional
tactic
Typical questions that the functional tactics should

answer
Basic
research
versus
product and
process
development
Innovation and breakthrough research

Product development,refinement,and modification
Time horizon
Short term or long term

Marketing and production strategy
Organizationa In build R&D or contracted R&D

l fit
Centralized or decentralized R&D
Relationships of R&D units with product managers,
production managers and marketing managers
Basic R&D
posture
Offensive posture to lead innovation

HRM
Functional
tactic
Typical questions that HRM tactics should answer
Recruitment,
selection and
orientation
Human resources to chosen strategy

Recruitment, selection and socialization
Career
development
and training
Demand for future human resource needs

Training and development
Compensation
Pay
Motivation and retention
Payment,incentive,benefits and seniority policy
Evaluation,dis
cpline and
control
Evaluation of people formally or informally

Disciplinary actions
Control of individual and group behavior
Labor relations Labor management cooperation

and equal
Hiring policies
opportunity
requirements
Difference between
business strategies and
functional tactics
Functional tactics are different from

business strategies in three ways
1. Time horizon
2. Specificity
3. Participants who develop them
1.Time horizon
Functional tactics
Functional tactics identify activities
to be undertaken now in or in the
immediate future.
Functional tactics focuses on now
and it adjusts to changing current
situations.
Business strategies
Business strategies focus on the
firms posture three to five years
out.
2. Specificity
Functional tactics
Functional tactics are more specific than
business strategies
Business strategies
Business strategies are more general than
functional tactics.
3. Participants
Functional tactics
Functional tactics are developed by business
managers and operating managers.
Business strategies
Business strategies are developed by
corporate managers
and business
managers
Resource Allocation
Strategic management enables resources
to be allocated according to priorities
established by annual objectives.
All organizations have at least four types
of resources that can be used to achieve
desired objectives: financial resources,
physical resources, human resources and
technological resources.
Allocating
resources
to
particular
divisions and departments does not
mean that strategies will be successfully
implemented.
The following factors may influence in the

resource allocation decisions
1. An overprotection of resources
2. Too great an emphasis on short-run
financial criteria
3. Organizational politics
4. Vague strategy targets
5. A reluctance to take risks
6. A lack of sufficient knowledge
.The real value of any resource allocation
program
lies
in
the
resulting
accomplishment
of
an
organizations
objectives.
Effective resource allocation does

not guarantee successful strategy
implementation
because
programs,personnel,controls,and
commitment must breathe life into
the resources provided.
Strategic management itself is
sometimes referred to as a resource
allocation process.
Managing Conflict
Interdependency of objectives and
competition for limited resources
often leads to conflict.
Conflict can be defined as a
disagreement between two or more
parties on one or more issues.
Establishing annual objectives can
lead to conflict because individuals
have different expectations and
perceptations,schedules
create
pressure,
personalities
are
incompatible, and misunderstandings
Establishing objectives can lead to

conflict because managers and
strategists must make trade offs in
the areas of
1. Short term profits or long term
profits
2. Profit margin or market share
3. Market
penetration
or
market
development
4. Growth or stability
5. High risk or low risk
6. Social responsiveness or profit
Conflict
is
unavoidable
in
organizations.
It should be managed and resolved
before dysfunctional consequences
affect organizational performance.
Conflict can serve to energize
opposing groups into action and
may
help
managers
identify
problems.
Approaching to
managing conflict
1. Avoidance
2. Diffusion
3. Confrontation
Avoidance
.Avoidance includes such actions as
ignoring the problem in hopes that
the conflict will resolve itself or
physically separating the conflicting
individuals or groups.
Diffusion
Diffusion
can include playing down
differences between conflicting parties
while emphasizing
similarities and
common interests, compromising so that
there is neither a clear winner nor loser,
resorting to majority rule, appealing to a
higher authority, or redesigning present
positions.
Confrontation
It is exemplified by exchanging members
of conflicting parties so that each can
gain an appreciation of the others point
of view, or Puonlinenotes.blogspot.com
holding a meeting at which
Employee
empowerment
Empowerment
is the act of allowing an individual
or team the right and flexibility to make decisions

and initiate action.
It is being expanded and widely advocated in
many organizations today.
Some of the employee empowerment techniques
are training, self managed work groups,
eliminating whole layers of hierarchy, and use of
automation.
The effort of employee empowerment should
have ensure and consistent with mission, strategy
and tactics.
The employee should have get considerable
latitude to take a decision.
The End
Institutionalizing
Strategy
Organizational structure refers to the

formalized arrangement of interaction
between and responsibility for the
tasks, people, and resources in an
organization.
It is a chart often a pyramidal with
positions or titles and roles in
cascading fashion.
Institutionalizing of strategy refers to
the getting work of the business done
efficiently and effectively so as to the
strategy work.
It is concerned with the best way to

organize people and tasks to execute the
strategy effectively.
It also denotes the activities that are
done
inside
the
organization
and
activities that are done outside the
organization (outsourcing).
It is also concerned with the structure of
the organization we want to aspire.
Moreover it refers to the degree of
control, coordination, openness, and
innovation in implementing a strategy as
per the company situation
1.
2.
3.
4.
5.
6.
7.
Types of Organization
Structures
Simple organizational structure

Functional organizational structure
Divisional structure
Strategic business units
Holding company
Matrix organizational structure
Product team structure
Simple organizational structure

Structure in which there is an owner and
a few employees and where the
arrangement of tasks, responsibilities,
and communication is highly informal
and
accomplished
through
direct
supervision
is
called
simple
organizational structure.
The very smallest business enterprise
follow this organization structure.
All strategic and operating decisions are
made by the owner, or a small owner
partner team.Puonlinenotes.blogspot.com
In this structure there will be limited

scope,
little
formalized
roles,
communication and procedures.
One bad strategic decision could provide
threatened to the continuance of the
business.
This structure provides high degree of
owners control.
It also allows rapid response to product/
market shifts and ability to accommodate
unique customer demands without major
coordination difficulties.
This structure encourage employees to
multitasking as
well.
Functional
organizational
structure
Structure
in
which
the
tasks,people,and
technologies
necessary to do the work of the
business are divided into separate
functional
group
(e.g.
marketing,operations,and
finance)
with increasingly formal procedures
for coordinating and integrating their
activities to provide the businesss
products and services.
CEOEngineering
Functional Organizational Structure
Strategic Advantages
Strategic
Disadvantages
1. Achieves efficiency through

specialization
2. Develop functional
expertise
3. Differentiates and
delegates day to day
operating decisions
4. Retains centralized control
of strategic decisions
5. Tightly links structure to
strategy by designating key
activities as separate units
1. Promotes narrow specialization

and functional rivalry or conflict
2. Creates difficulties in functional
coordination and interfunctional
decision making
3. Limits development of general
managers
4. Has a strong potential for
interfunctional conflict priority
placed on functional areas, not
the entire business
5. May cost more to do a function
than it does outside the
company, unless outsourced.
Divisional Structure
When a firm diversifies its product/service
lines, covers broad geographic areas,
utilizes unrelated market channels, or
begins to serve heterogeneous customer
groups, a functional structure rapidly
becomes inadequate.
A divisional organizational structure is one
in which a set of relatively autonomous
units, or divisions, are governed by central
corporate office but where each operation
division has its own functional specialists
who provide products or services different
from those of other divisions.
A
divisional
structure
allows
corporate management to delegate
authority
for
the
strategic
management of distinct business
entities-the division.
This enables decision making in
response to varied competitive
environments
and
corporate
management to concentrate on
corporate
level
strategic
level
decisions.
The division usually is given profit
Divisional
Organizational
Structure
Chief Executive
Officer
VP Administrative
Services
General
Manager
Division A/SBU
A
Manager HR
Manager
Account and
Finance
Manager R&D
Manager
Marketing and
Sales
Manager POM
VP Operating
Support
General
Manager
Division B/SBU
B
Person
nel
Accounting
and Control
Division
Plannin
g
Marketi
ng
POM
General
Manager
Division C/SBU
C
Person
nel
Accounting
and Control
Division
Plannin
g
Marketi
ng
POM
Advantages and disadvantages

Strategic advantages
Strategic
disadvantages
1. Forces coordination and

1. Fosters potentially dysfunctional
necessary down to the
competition for corporate level
appropriate level for rapid
resources
response
2. Presents the problem of
2. Places strategy development and
determining how much authority
implementation in closer
should be given to divisional
proximity to the unique
managers
environments of the division
3. Creates a potential for policy
3. Frees chief executive officer for
inconsistencies among divisions
broader strategic decision making
4. Presents the problem of
4. Sharply focuses accountability for
distributing corporate overhead
performance
costs in a way that is acceptable
5. Retains functional specialization
to division managers with profit
within each division
responsibility
6. Provides good training good for
5. Increases costs incurred through
strategic managers
duplication functions
7. Increases focus on products,
6. Creates difficulty maintaining
markets, and quick response to
overall corporate image.
change
Strategic Business Unit

The SBU is an adaptation of the divisional
structure where by various divisions or parts
of divisions are grouped together based on
some common strategic elements usually
linked to distinct product market differences.
For example General Foods has its own SBUs
such as Breakfast foods, beverages, main
meals, and pet foods etc.
Some
firms
encounter
difficulty
in
controlling their divisional operations as the
diversity,size,and number of these units
continues to increase and add the SBU
layers in their hierarchy.
Holding Company
Structure in which the corporate
entity is a broad collection of often
unrelated businesses and divisions
such that it (the corporate entity) acts
as financial overseer holding the
ownership interest in the various parts
of the company, but has a little direct
managerial involvement.
It reduces the cost and one of the
drawback of this structure is lack of
control over decisions to make timely
corrections and adjustments.
Matrix Organization Structure

The matrix organizational structure is one
in which functional and staff personnel
are assigned to both a basic functional
area and to a project or product manager.
It provides dual channels of authority,
performance responsibility, evaluation,
and control.
The matrix form is intended to make the
best use of talented people within a firm
by
combining
the
advantages
of
functional specialization and product
project specialization.
The matrix organization structure increases the

number of middle managers who exercise
general management responsibilities through
the project manager role.
It broadens the middle managers exposure to
organization wide strategic concerns.
It overcomes a key deficiency of functional
organizations while retains the advantages of
functional specialization.
It is difficult to implement.
Dual chains of command challenge fundamental
organizational problems.
Negotiating shared responsibilities the use of
resources
and
priorities
can
create
misunderstanding
or
confusion
among
subordinates.
Chief Executive
Officer
Project
Manager
A
VP
Engineeri
ng
VP
Productio
n
Engineeri
ng Staff
Productio
n
Staff
Project
Manager
B
Engineeri
ng Staff
Project
Manager
C
Engineeri
ng Staff
VP
Purchasin
g
VP
Administrati
on
Purchasin
g Agent
Administrati
on
Coordinator
Purchasin
g Agent
Administrati
on
Coordinator
Productio
Purchasin
n
g Agent
Staff
Administrati
on
Coordinator
Productio
n
Staff
Advantages and
Strategic
Disadvantages
Strategic advantages
disadvantages
1. May result is
1. Accommodates a wide
variety of project oriented
business activities
2. Provides good training
ground for strategic
managers
3. Maximizes efficient use of
functional managers
4. Fosters creativity and
multiple sources of
diversity
5. Give middle management
broader exposure to
strategic issues
confusion and
contradictory policies
2. Necessitates
tremendous
horizontal and
vertical coordination
3. Can reproduce
information and
excess reporting
4. Can cause
neighborhood battles
and loss of
accountability
Product Team Structure

The product team structure seeks to
simplify and increase the focus of
resources on a narrow but strategically
important
product,
project,
market,
customer, or innovation.
The product team structure assigns
functional managers and specialists to a
new product, project, or process team that
is empowered to make major decision
about their product.
The team is created at the inception of the
new product idea and they stay with it
indefinitely if it becomes a viable business.
Instead of being assigned on a

temporary basis as in the matrix
structure
team
members
are
assigned permanently to that team
in most cases.
This
result
in
much
lower
coordination costs and because
every function is represented usually
reduces the number of management
levels above the team level needed
to approve team decisions.
Chief Executive
Officer
Research
and
Developme
nt
Engineering
Operations
Product
or
Process
Team
Finance
Sales and
Marketing
Structuring an Effective
Organization
Major efforts to improve traditional
organizational structures seek to
reduce unnecessary control and
focus
on
enhancing
core
competencies, reducing costs, and
opening organizations more fully to
outside involvement and influence.
Today
and
tomorrow,
organizational
structure reflects an external focus,
flexible interaction,interdepedency, and a
bottom up approach, just to mention a few
characteristics associated with strategy
execution and success.
The fundamental trends are driving
decisions about effective organizational
structures in the twenty first century are
1. Globalization
2. Internet
3. Speed of decision making
4. Match structure
with strategy
Globalization
The need for global coordination and
innovation
is
forcing
constant
experimentation and adjustment to
get the right mix of local initiative,
information flow, leadership, and
corporate culture.
Global
firms
have
to
locate
operations in numerous countries.
Today it will call on talents and
resources wherever they can be
found around the globe, just as it
For example some MNCs based in the

USA,do its software programming in New
Delhi, its engineering in Germany, and
its manufacturing in Indonesia.
Organizations
structures
are
revolutionary day by day.
Internet
The internet gives everyone in the
organization, or working with it, from
lowest clerk to the CEO to any supplier
or customer, the ability to access a vast
array of information-instantaneously,
from anywhere.
We can access ideas,requests,instructions from the

global in the blink of an eye.
It allows the global enterprise with different
functions, offices, and activities spread around the
world to be flawlessly connected so that far
customers, employees and suppliers can work
together in real time.
Speed
Technology or digitization means removing human
minds and hands from an organizations most
routine tasks and replacing them with computers
and networks.
Digitizing everything from employee benefits to
accounts receivable to product design cuts cost,
time, and payroll resulting in cost savings and vast
improvements in speed.
Match structure with strategy

1. A single product firm or single dominant
business firm should employ a functional
structure
2. A firm in several lines of business that are
somehow related should employ a functional
structure
3. A firm in several unrelated lines of business
should be organized into strategic business units
4. Early achievement of a strategy structure fit can
be a competitive advantage
Here are some efforts which helps to make

structuring an effective organization.
1. Redefine the role of corporate headquarters

from control to support and coordination
.Every multibusiness companies are in trouble
regarding resource exploitation, market
responsiveness and creativity.
.Rigorous financial controls and reporting
enable cost efficiency, resource deployment
and autonomy across different units.
.Flexible
controls
are
conducive
to
responsiveness, and innovation
.The creation of new resources and
capabilities will generate future competitive
advantage.
Aggressive portfolio management

provides
maximum
shareholder
value
through
independent
businesses.
It needs cross coordination and
recognition between these business
interdependencies
2. Balance
the
demands
for
control/differentiation with the need
for coordination/integration
Specialization of work and effort
allows a unit to develop greater
Organizations strategy depends on

dividing different activities within
the firm into logical, common
groupingssales,operations,administration,
or
geography-so that each set of
activities
can
be
done
most
effectively.
Control of sets of actitivities is at a
premium.
Dividing each set of activities is an
important structural decision.
3. Restructuring to emphasize and support

strategically critical activities
.Restructuring is redesigning an organizational
structure with the intent of emphasizing and
enabling activities most critical to the firms
strategy to function at maximum effectiveness.
.At the heart of the restructuring trend is the
notion that some activities within a businesss
value chain are more critical to the success of
the businesss strategy than others.
.For example Wal-Mart organizational structure
is designed to ensure that its impressive
logistics
and
purchasing
competitive
advantages operate flawlessly.
4. Reengineer strategic business processes

.A popular method by which organizations
worldwide undergo restructuring efforts to
remain competitive.
.It involves fundamental rethinking and radical
redesigning of a business process so that a
company can best create value for customer
by eliminating barriers that create distance
between employees and customers.
.It
reduces
fragmentation
by
crossing
traditional departmental lines and reducing
overhead to compress formerly separate steps
and tasks that are strategically intertwined in
the process of meeting customer needs.
Critical areas under BPR

Scratch the flowchart of business with
value chain activities
Streamline the performance (eliminate
unnecessary tasks and steps)
Business process automation/introduction
of new technologies
Focus on strategically critical activities/
benchmak with top leaders
Consider outsourcing for non critical
activities
design a new organization structure and
arrange tasks, people and resources
5. Downsize and self manage :force decision to

operating level
.Eliminate
the
number
of
employees,
particularly middle management in a
company.
.Allow work groups or work teams to supervise
and administer their work as a group or team
without a direct supervisor exercising the
supervisory role.
.The team set parameters of their work, make
decisions about work related matters, and
perform most of the managerial functions
previously done by their direct supervisor.
6. Allow
multiple
structures
to
operate
simultaneously within the organization to
accommodate products, geography, innovation
and customers
. Follow matrix and product team structure
7. Take advantage of being a virtual organization
. This organization structure is primarily formed in a
temporary manner.
. It is defined as a network of independent
companies-suppliers, customers, subcontractors
or even competitors.
. This network links via information technology to
share skills, access to markets, and costs
. Outsourcing and strategic alliances are two major
areas of virtual organization.
Strategic
Alliances
Saab
io
t
ra
o
b
la
y
l
g
o
o
C on ol
n chn
nt
e
e
t d
on
n
S
p
u
a m pplies
co small c
ars
s
GM
Makes
t
componelln
a
s
sm
lie
p
p
u
S rs
ca
Suzuki
s
ke
Ma
car
Daewoo
M
va ake
n s
Jo
Pr int
od
uc
ti
on
Su
ca pplie
r
ss
tru s,
ma
ll
pa cks
rts an
d
Isuzu
Fiat
Fuji
Toyota
New
United
Motor
Manufactu
ring
8. Web based
organization
Custo
mer
Driven
Service
Enhanc
ed
Custo
mizatio
n
Virtual
Corporation
extended
Value
Creation
Supplie
r
Driven
Mass
Product
ion
B-Web
Internetw
orked
enterprise
Industrial
Age
Corporation
Vertical
Integrated
Physical
Scarce
Resources
Digital
Abunda
nt
9. Remove structural barriers

boundryless organization
10.Knowledge centric
11.Boundless
12.Learning organization
and
Organizational Culture
Organizational culture is the set of
important
assumptions
often
unstated that members of an
organization share in common.
It is intangible in nature.
It provides the basic theme as well
as meaning,direction,and the basis
for function.
The organizations shared norms and
values or beliefs can influence
organizations members opinions and
These
values
aware
the
organizational members and guide
to appropriate behavior in the
organization.
If the actions of the members are
according to the organizational
values the employees get satisfied.
The
organizations
assumptions
become shared assumptions through
internalization
among
an
organization's individual members.
1.
2.
3.
4.
Techniques to manage
culture
Leaders typically
attempt to manage and
create distinct cultures through a variety
of ways
Some of the common ways are as follows.
Emphasize key themes or dominant
values
Encourage dissemination of stories and
legends about core values
Institutionalize
practices
that
systematically reinforce desired beliefs
and values
Adapt some very common themes in their
own unique ways
Emphasize key themes or dominant

values
Quality,differentiation,cost
advantage, and speed are four key
success of competitive advantage
Key theme or dominant values may
centre around wording in an
advertisement.
They are often found in internal
company communications.
This try to address who we are.
For
example
Xerox-respect
for
Encourage dissemination of stories and

legends about core values
Companies with strong cultures are
enthusiastic collectors and tellers of
stories and legends/traditions in support
of basic beliefs.
Institutionalize practices that systematically
reinforce desired beliefs and values
Companies with strong cultures are clear
on what their beliefs and values need to
be and take the process of shaping those
beliefs and values very seriously.
Adapt some very common themes in their

own unique ways
The most typical beliefs that shape
organizational culture include
1. A belief in being the best
2. A belief in superior quality and services
3. A belief in the importance of people as
individuals and a faith in their ability to
make a strong contribution.
4. A belief in the importance of the details
of execution, the nuts and bolts of
doing the job well.
5. A belief that customers should

(supremacy) supreme
6. A belief in inspiring people to do
their best, whatever their ability.
7. A belief in the importance of
informal communication
8. A belief that growth and profits are
essential to a companys well being.
Managing organizational culture in a

global organization
The global organizational culture
must recognize cultural diversity in
the areas of
a. Social norms
b. Values and attitude
c. Religion
d. Education etc.
Managing the strategy culture relationship
Many
Changes
in key
organizati
onal
factors
that are
necessary
to
implemen
Few
t the new
strategy
Link changes to
basic mission
and
fundamental
organizational
norms
Synergistic
focus on
reinforcing
culture
High
1
2
Reformulate
strategy or
prepare
carefully for
long term,
4 difficult cultural
change
3
Manage around
the culture
Low
Potential compatibility of changes with
existing culture
Link to mission
A firm in cell 1 requires several changes in
structure,systems,managerial
assignments,
operating procedures or other fundamental
aspects of the firm.
The following considerations are appropriate
a. Key changes should be visible linked to the
basic company mission
b. Emphasis should be placed on the use of
existing personnel
c. Care should be taken if adjustments in the
reward system are needed
d. Key attention should be paid to the changes
that are least compatible with the current
culture
Maximize synergy
A firm in cell 2 needs only a few
organizational changes to implement its
new strategy, and those changes are
potentially quite compatible with its
current culture
The firm can apply two broad themes
a. Take advantage of the situation to
reinforce and solidify the current culture
b. Use this time of relative stability to
remove organizational road blocks to
the desired culture
Manage around the culture

A firm in cell 3 must make a few major organizational
changes to implement its new strategy
But these changes are potentially inconsistent with
the firms current organizational culture.
A firm can manage around the culture in various ways
For example
a. A separate firm or division
b. Use task forces
c. Teams
d. Program coordinators
e. Subcontract
f. Bring in an outsider
g. Sell out
Reformulate the strategy or culture

A firm in cell 4 faces the most
difficult challenge in managing the
strategy culture relationship
A firm in this situation faces the
complex, expensive and often long
term challenge of changing its
culture.
Organizational
Leadership
Organizational
leadership
is
concerned
with
providing
the
direction to the followers.
It is cope with change
It guides the organization to deal
with constant change
It clarifies the strategic intent and
shape
the
culture
to
fit
organizational
opportunities
and
challenges change affords.
It identifies and supplies the
organization
with
operating
Strategic Leadership :Acceptance Change

Change has become an integral part of what
leaders and managers deal with daily.
The leadership challenge is to galvanize
commitment
among
people
within
organization as well as outside stakeholders.
Leaders galvanize/stimulate commitment to
embrace change through three interrelated
activities.
1. Clarifying strategic intent
2. Building an organization
3. Shaping organizational culture
Clarifying strategic intent

Leaders help stakeholders accept change by
setting clear vision where the organization
needs to head.
Building an organization
Leaders spend considerable time shaping and
refining their organizational structure and
making it function effectively to accomplish
strategic intent.
All managers adapt structures, create teams,
implement systems, and otherwise generate
ways to coordinate,integrate,and share
information about what their organization is
doing and might do.
Shaping organization culture

Leaders know well that the values
and beliefs shared throughout their
organization will shape how the work
of the organization is done.
Leaders
use
reward
systems,symbols,and
structure
among other means to shape the
organization culture.
Recruiting and developing talented operational

leadership
Accelerated pace and complexity of business
will increase pressure on corporations to push
authority down to their organization.
Every line manager will have to exercise
leaderships prerogatives to an extent
unthinkable a generation earlier.
Every line managers are global managers,
change
agents,strategists,motivators,strategic
decision makers,innovators,and collaborators
if the business is to survive and prosper.
The required competencies the

managers should have possess
The leadership needs of
organizations
The ability to:
Build confidence
Build enthusiasm
Cooperative
Deliver results
Form networks
Influence others
Use information
The required
competencies of
business leaders
Build literacy
Creativity
Cross cultural
effectiveness
Empathy/understandin
g
Flexibility
Proactively
Problem solving
Relation building
Teamwork
vision
Building Resource
Strengths and
Organizational
Capabilities
Implementing and executing strategy is

an operation driven activity revolving
around the management of people and
business processes.
The
managerial
emphasis
is
on
converting strategic plans into actions
and good results.
When the company achieves the
targeted
strategic
and
financial
performance and shows good progress in
making its strategic vision a reality.
Shortfalls in performance signal weak
strategy, weak execution, or both.
A good assessment of strategy

execution depends upon the task we
do differently and better to carryout
the strategy successfully.
Executing strategy is a job for a
companys
whole
management
team.
Top level managers have to rely on
the active support and cooperation
of middle and lower managers to
push
strategy
changes
into
functional and operating units.
The following are the managerial tasks used by

the organization to good strategy execution
1. Building
an
organization
with
the
competencies,capabilities,and
resource
strengths to execute strategy successfully.
2. Organizing sufficient money and people behind
the driver for strategy execution.
3. Instituting policies and procedures that facilitate
rather than hamper strategy execution
4. Adopting best practices and pushing for
continuous improvement in how value chain
activities are performed.
5. Installing information and operating systems
that enable company personnel to carry out
their strategic roles
proficiently.
6. Tying rewards directly to the

achievement
of
strategic
and
financial targets and to good
strategy execution
7. Shaping the work environment and
corporate culture to fit the strategy
8. Exercising strong leadership to drive
execution forward, keep improving
on the details of execution, and
achieve operating excellence as
rapidly as feasible.
Building an organization capable of good

strategy execution entails three types of
organization building actions:
1. Staffing the organization
.Assembling a talented, can do management
team,
and
recruiting
and
retaining
employees with the needed experience,
technical skills, and intellectual capital.
2. Building core competencies and competitive
capabilities
.That will enable good strategy execution and
update the external environment change
3. Structuring the organization and work effort

.Organization value chain activities and
business processes and deciding how much
decision making authority to push down to
lower level managers and front line
employees.
Building core competencies and competitive
capabilities involves these stages
1. Developing the ability to do something
2. Coordinating group efforts to learn how to
perform the activity consistently well at an
acceptable cost
3.
continue to polish and refine the
organizations know how.
Structuring the organization and

organizing the work effort in a
strategy supportive fashion
1. Deciding which value chain activities
to perform internally and externally
2. Making
internally
performed
strategy critical activities
3. How much authority to centralize
and how much to decentralize
4. Providing for internal cross unit
collaboration
5. Coordination and collaborating with
Managing the internal

organization to promote
better strategy execution
Managers have to identify the resource requirements

and
budget
to
suitable
to
the
strategy
implementation and execution
Managers have to review the existing policies and
operating procedures proactively to the new strategy
execution.
Newly or freshly revised policies and operating
procedures aids the task execution.
These procedures provide top down guidance to
operating managers.
Enforcing consistency in how particular strategy
critical
activities
are
performed
inside
the
organization.
Promote the creation of new work climate and
corporate culture that promotes good strategy
execution
Benchmarking,TQM and BPR will

help to improve efficiency, lower
costs, better product quality, and
greater customer satisfaction.
These initiatives are important tools
for learning how to execute
a
strategy more proficiently.
Installing support
system and supportive
reward system
The information system will support to

the execution process
Strategy
supportive
motivational
practices and reward systems are
powerful management tools for gaining
employee commitment
The monetary and non monetary reward
system also helps to execute the strategy
For incentive compensation system to
work well
1. The monetary payoff should be a major
percentage of the compensation package
2. The use of incentives should expand to all

managers and workers
3. The system should be administered with care
and fairness
4. The
incentive
should
be
linked
to
performance targets spelled out in the
strategic plan
5. Each individual performance targets should
involve outcomes the person can personally
affect
6. Rewards
should
promptly
follow
the
determination of good performance
7. Monetary rewards should be supplemented
with liberal use of nonmonetary rewards
The End
Strategic Control and

Evaluation
Concept of control in strategic

management
Strategic efforts to track a strategy as
it
is
being
implemented,detect
problems or changes in its underlying
premises
and
make
necessary
adjustments.
Strategic control is concerned with
guiding action on behalf of the strategy
as that action is taking place and when
the end result is still several years off.
The prime concern of managers in
strategic controls
are:
1. Are we moving in the proper

direction? Are key things falling into
place? Are our assumptions about
major trends and changes correct?
Are we doing the critical things that
needs to be done? Should we adjust
or abort the strategy?
2. How we are performing? Are
objectives and schedules being met?
Are costs, revenues and cash flows
matching projections? Do we need
to make operational changes?
Types of control
1. Premise control
2. Strategic surveillance
3. Special alert control
4. Implementation control
Premise control
.Every strategy is based on certain planning
premises-assumptions or predictions
.Premise control is designed to check systematically
and continuously whether the premises on which
the strategy is based are still valid
.If a vital premise is no longer valid, the strategy
may have to be changed.
.Planning premises are primarily concerned with
environmental and industry factors.
Environmental factors
A firm has little or no control over environmental factors.
These factors influence over the success of the companys
strategy
Strategies are based on key premises such as
inflation,technology,interest
rates,regulation,and
demographic/social changes etc.
Industry factors
The performance of the firms in a given industry is
affected by industry factors.
Competitors,suppliers,product subtitutes,and barriers to
entry are some of them in which strategic assumptions are
made.
Tracking all of these premises is expensive and time
consuming.
Managers must select premises whose change is likely and
have major impact on the firm and its strategy.
Strategic surveillance/supervision control

Strategic surveillance is designed to monitor a
broad range or events inside and outside the firm
that are likely to affect the course of its industry
The basic idea behind strategic surveillance is
that important yet unanticipated information may
be uncovered by general monitoring of multiple
information sources
Strategic surveillance must be kept as unfocused
as possible.
It should be a loose environmental scanning
Strategic surveillance provides an ongoing broad
based awareness in all daily operations that may
uncover information relevant to the firms
strategy.
Special alert control

A special alert control is the through and often
rapid reconsideration of the firms strategy
because of a sudden, unexpected event
The tragic event of September 11,2001, an
outside firms sudden acquisition of a leading
competitor; an unexpected product difficulty
In many firms, crisis teams handle the firms
initial response to unforeseen events that may
have an immediate effect on its strategy.
Firms have developed contingency plans along
with crisis teams to respond to circumstances.
Implementation control
Implementation control is designed to
assess whether the overall strategy
should be change in light of the results
associated with the incremental actions
that implement the overall strategy.
The two basic types of implementation
control are
1. Monitoring strategic thrusts/forces or
projects
2. Milestone review
Monitoring strategic thrusts/forces or

projects
Special efforts that are early steps in
executing a broader strategy usually
involving significant resource commitments
yet where predetermined feedback will help
management determine whether continuing
to pursue the strategy is appropriate or
whether it needs adjustment of major
change
Milestone reviews
The milestone reviews take place a full scale
reassessment of the strategy and of the
advisability of continuing or refocusing the
firms direction.Puonlinenotes.blogspot.com
The milestone may be critical events

,major resource allocation or simply
the passage of a certain amount of
time.
Characteristics of the four types of strategic control

Characterist Premise
Implementa Strategic
Special alert
ics
control
tion control
surveillance control
Objects
control
of Planning
premises
and
projections
Key
strategic
thrusts and
milestones
Potential
threats and
opportunitie
s related to
the strategy
Occurrence
of
recognizable
but unlikely
events
Degree
focusing
of High
Low
Low
High
High
Medium
Low
Low
High
High
Yes
Yes
Seldom
Seldom
Yes
Yes
Yes
Yes
No
Yes
Seldom
Yes
Data
acquisition:
Formalizatio Medium
n
Low
Centralizatio
n
Use with:
Environment
al factors
Industry
factors
Strategy
Specific
factors
No
yes
Seldom
Seldom
Strategic
Surveillance
Premise Control
Special Alert Control
Implementation Control
Strategy
Time
1
formulation
Strategy
Implementation
Time 2
Time 3
Role of Strategic Information

System
SIS is computer based

manual, formal or
informal IS, which is applied in the formulation
and implementation of strategic plans.
The information system allows all business
processes automatically by computers in some
organizations, without any managerial input.
The following are the some types of strategic
information system practiced by multinational
companies in this world.
1. Enterprise resource planning
2. Radio frequency identification
3. Divisional and functional is support
Enterprise Resource Planning (ERP)

ERP is a software that unites all of a
companys major business activities from
order processing to production, within a
single family of a software modules.
The system provides instant access to
critical information to everyone in the
organization from the CEO to the factory
floor worker.
It is the business information system in
global standard
The major providers of this software are
SAP
AG,Oracle
(including
People
Soft),J.D.Edwards,Baan,
and SSA.
One of the limitations of this software is

that it is not suitable to every company
It demands a high level of standardization
throughout the corporation and is
extremely complicated.
The failure chance while installing this
system is also very high because of the
following reasons
1. Insufficient tailoring of the software to fit
the company
2. Inadequate training
3. Insufficient implementation support
This software has the following key coverage areas

1. Distribution management
2. Supply chain management
3. Centralized procurement
4. Vendor management
5. Cash cycle
6. Centralized accounting
7. Project management
8. Budgeting and monitoring
9. Plant defect notification
10.Work order management
11.HR organizational and personnel administration
12.Customer management
13.Bill processing
The major benefit via installing this

software is for gaining competitive
advantage, streamlining operations,
and managing a lean manufacturing
system.
Radio
Frequency
Identification
(RFID)
Radio frequency identification is an
electronic tagging technology used
in a number of companies to
improve supply chain efficiency
By tagging containers and items
RFID technology is currently in wide use as

wireless
computer
passes
for
toll
roads,tunnels,and bridges.
Divisional and Functional IS support
The information system should be used to
support, reinforce, or enlarge its business
level strategy through its decision support
system.
An SBU pursuing a strategy of overall cost
leadership could use its information system
to reduce costs either by improving labor
productivity or improving the use of other
resources such as inventory or machinery
(Merrill Lynch)
However , some SBU might want to

pursue a differentiation strategy.
They can use information system to
add uniqueness to the product or
service and contribute to quality,
service or image through the
functional areas.(FedEx)
Quality Control
Total quality management is an
umbrella management for the quality
programs.
The concept of TQM was developed by
American W. Edwards Deming and J.M.
Juran after the World War II
The
concept
gained
the
huge
popularity by 1970s.
During
this
time
Japanese
manufacturers acquired unquestioned
reputations for their superior quality.
TQM is viewed as virtually a new

organizational culture and way of
thinking
It is build around an intense focus
on:
a. Customer satisfaction
b. Accurate measurement of every
critical variable in a businesss
operation
c.
Continuous
improvement
of
products, services and processes.
d. Work relationships based on trust
Essentials Qualities TQM

1. Define quality and customer value
.The organization should have define
quality in the job,department,and
throughout the company.
.It has to developed from the
customers perspective and has to
issue a written policy.
.The customer value can be found in
the combination of all the three such
as quality, price and speed.
2. Develop a customer orientation

. Develop a 80/20 rule and define customer
value from internal side.
. Focus on internal /external customer value
with quality, efficiency and responsiveness
etc.
3. Focus on the companys business processes.
.The ways customer value is enhanced across
business processes in several functions are:
marketing,operations,research
and
development, accounting, purchasing and
personnel etc.
4. Develop customer and supplier partnership

.This concept says that suppliers are partners in
meeting customer needs, and customers are
partners by providing input so the company and
suppliers
can
meet
and
exceed
those
expectations.
5. Take a preventive approach
.Management has to identify errors and seek to
eliminate non value added work.
6. Adopt an error free attitude
.This concept hold the notion that every
individuals performance standard has to set and
manager has to demonstrate and communicate
error free attitude at every level and work.
7. Get the facts first

. Continuous improvement oriented companied
make decisions based on facts and statistics
not on opinions
8. Encourage every manager and employee to
participate
. We can add customer value via employee
participation,empowerment,participative
decision making, extensive training and
statistical techniques in quality.
9. Create atmosphere of total involvement
. Maximum customer value cannot be achieved
unless all areas of the organization apply
quality concepts simultaneously.
10.Strive for continuous improvement

Organizations quickly find that
continually
improving
quality,
efficiency, and responsiveness in
their
processes,products,and
services is not just good business;
it's a necessity for long run survival.
Activity Based Costing
Activity based costing is a accounting

method.
This method allocates indirect and fixed
costs to individual products or product
lines.
It is based on the value-added activities
going into that product.
Traditional accounting method focuses on
valuing a companys inventory for
financial reporting purposes.
The per unit cost will be calculated with
the summation of direct as well as indirect
cost to number of units produced.
ABC costing allows accountants to charge

more reasonable cost than traditional one.
For instance imagine a production line in a
pen factory where black pens are made in
high volume and blue pens in a low volume.
Assume that it takes 8 hours to retool to shift
production from one kind of pen to the other.
In this case the significant cost is also
observed by retooling activities.
If the company produces 10 times as many
black pens as to the blue pens, 10 times the
cost of reprogramming expenses will be
allocated to the black pens as to the blue pens
under the traditional cost accounting method.
However, ABC method breaks down

pen manufacturing into its activities.
The accountants calculates an
average cost of setting up the
machinery and charges it against
each batch of pens that requires
retooling regardless the size of the
run.
Thus a product carries only those
costs for the overhead it actually
consumes.
Measures of Corporate
Performance
The traditional corporate financial

performance measures were ROI,EPS
and ROE etc.
However there are numerous other
measures such as:
1. Stakeholder measures
2. Shareholder value
3. Balanced scorecard measures
.The other major modern methods are
innovation
and
new
product
development as they are non financial
measures.
Traditional Financial Measures

ROI
Advantages
Disadvantages
ROI includes all revenues, costs

and expenses etc.
ROI is sensitive with

depreciation.
It is calculated to evaluate the

corporate manager, division or
SBU.
It discourage further investment

or upgrading new ones due to
older depreciation asset value
will increase the ROI
It is used to compare with other

firms
Manager will use ROI as a short

term over its long term
If profit is significant then current ROI will depend on the economic

assets can be used to acquire
condition of the country
fixed assets.
LIFO,FIFO and inflation will
influence ROI
EPS
It has following limitations
1. It is based on accrual income, the real
conversion of income into cash will be
delayed.
2. It does not consider the time value of
money.
ROE
.It has following limitations
1. It is derived from accounting based data
2. EPS and ROE are often unrelated to a
companys stock price.
Operating Cash Flow

It is the amount generated by a company before the cost
of financing and taxes.
It
is
the
companys
net
income
plus
depreciation,depletion,amortization,interest expense and
income tax expense.
Free cash Flow
It is the net income plus depreciation,depletion,and
amortization less capital expenditures and dividends.
It is harder to manipulate than earnings, the number can
be increased by selling accounts receivable, classifying
outstanding checks as accounts payable, trading
securities, and capitalizing certain expenses, such as
direct response advertising.
Now a days these traditional financial measures are out of
practice because these measures have also limitations.
The companies are practicing different financial and non
financial measures as well.
Stakeholder Measures
Each stakeholder has its own set of
criteria to determine how well the
corporation is performing.
These criteria typically deal with the
direct and indirect impacts of corporate
activities on stakeholder interests.
Top management should establish one or
more stakeholder measures for each
stakeholder category so that it can keep
track of stakeholder concerns.
The following figure outlines a sample
scorecard with stakeholders.
Stakehold
er
category
Possible near term measure
Possible long term

measures
Customers
Sales ,New customers, number of

new customer needs met/tries
Growth in sales, turnover of

customer base, ability to
control price
Suppliers
Cost of raw material, delivery

time,inventory,availability of raw
materials
Growth rates of: raw material

costs, delivery time, inventory
New ideas from suppliers.
Financial
community
EPS,stock price, number of buy lists, Ability to convince Wall Street

ROE
of strategy, Growth in ROE
Employees
Number of
suggestions,productivity,number of
grievances
Number of internal promotions

Turnover
Congress
Number of new pieces of legislation

that affect the firm
Number of new regulations that

affect industry ,ratio of
cooperative vs. competitive
encounters
Consumer
advocates
Number of meetings, number of

hostile encounters, number of times
coilation formed, number of legal
actions
Number of changes in policy

due to CA,Number of CA
initiated calls for help
Environme
ntalists
Number of meetings, number of

Number of changes in policy
hostile encounters, number of times due to environmentalists,
coilations formed,Puonlinenotes.blogspot.com
number of EPA
number of environmentalist
Shareholder value
Accounting based methods such as ROI,ROE
and EPS are not reliable indicators of a
corporations economic value
The organizations now a days use shareholder
value to measure of corporate performance
and strategic management effectiveness.
Shareholder value represent the anticipated
future stream of cash flows from the business
plus the value if the company is liquidated.
Shareholder value analyses the cash flow or
increment of shareholders wealth.
The value of a corporation is the present value
of future cash flow at the cost of capital.
As long as the returns from a business exceed
its cost of capital,
the business will create
Types of Shareholder Measures

1. Economic Value Added
2. Market Value Added
.The basic motive of EVA and MVA is that
businesses do not invests in projects unless they
can generate a profit above a cost of capital.
Economic Value Added
.EVA=after tax operating income- investment in
assets*weighted average cost of capital (WACC)
.+ if positive the strategy is creating
shareholder value.
.- if negative the strategy is destroying
shareholder value.
We can increase the shareholder value in

three ways
1. Earning more profit without using more
capital
2. Using less capital
3. Investing capital in high return projects
Market Value Added
.It is the difference between the market
value of a corporation and the capital
contributed by shareholders and lenders.
.It measures the stock markets estimate of
the net present value of a firms past and
expected capital investment projects.
MVA=current market value of stock

and debt-capital invested by the
company i.e. shareholders fund,
bondholders fund, retained earnings
and R&D etc.
One of the limitation of these
measures is that these measures
only touch the financial interests of
the shareholders.
However they ignore the other
stakeholders
such
as
environmentalists and employees
Balanced Scorecard Approach: Using

Key Performance Measures
Balanced scorecard uses the financial as
well as non financial techniques to
measure the corporate performance
The
balanced
scorecard
combines
financial measures that tells the results
of actions already taken with operational
measures on customer satisfaction,
internal processes, and the corporations
innovation and improvement activities.
The non financial areas are the drivers of
future financial performance.
In the balanced scorecard the

management develops the goals
and objectives in the following given
areas
1. Financial: how do we appear to
shareholders?
2. Customer: how do customers view
us?
3. Internal business perspective: what
must we excel at?
4. Innovation and learning: can we
continue to improve and create
The above mentioned elements are known as key

performance measures.
The overall goal of these measures are to avoid
corporate bankruptcy.
A company could include cash flow, quarterly
sales growth, and ROE as measures for success in
the financial area.
The market share,customer satisfaction, and
percentage of new sales coming from new
products as measure under the customer
perspective.
The cycle time and unit cost of manufacturing are
measures under the internal business perspective.
The time to develop next generation products
(technology leadership objective) under the
innovation and learning perspective.
Evaluating top management and the BODs

Through its strategy,audit,and compensation
committee, a board of directors closely evaluates
the job performance of the CEO and the top
management team.
Majority of MNCs boards review the CEOs
performance using a formalized process.
The objective of CEOs performance evaluation are
very important given that CEOs tend to evaluate
senior managements performance significantly
more positively than do other executives.
The board will review the overall corporate
profitability as measured by ROI,ROE,EPS and
shareholder value.
The absence of short term profitability certainly
contributes to the firing of any CEO.
The compensation committee of the BOD will

claim that a CEOs ability to establish strategic
direction, build a management team, and
provide leadership are more critical in the long
run than are a few quantitative measures.
The BOD will evaluate top management not
only on the typical output oriented quantitative
measures, but also on behavioral measures.
The BOD also monitors the individual directors
performance.
The BOD committee will evaluate the board in
three areas such as monitoring management
performance and development/compensation
and statutory compliance and good corporate
governance.
The compensation committee will

evaluate
executive
and
nonexecutive directors.
They
overlook
the
annual
performance and evaluate the
individual performance and submit
the report to the chairman
The audit committee will also
formed to monitor overall corporate
performance in the competition.
Primary measures of divisional

and functional performance
Companies
use
a
variety
of
techniques to evaluate and control
performance in divisions, Bus, and
functional areas.
If the corporation is composed of
SBUs or divisions, it will use many of
the same performance measures as
ROI,ROE or EPS etc.
For the separate isolated unit such
as R&D unit the corporation
established the responsibility centre.
During strategy formulation and

implementation, top management
approves a series of programs and
supporting operating budgets from
its business units.
During evaluation and control,
actual expenses are contrasted with
planned expenditures, and the
degree of variance is assessed.
The top level management will
develop
to
assess
different
responsibility centers to evaluate
divisional
and
functional
Responsibility centers
Control systems can be established to
monitor
specific
functions,projects,or
divisions.
Budgets are one type of control system
that is typically used to control the
financial indicators of performance.
Responsibility centers are used to isolate a
unit so that it can be evaluated separately
from the rest of the corporation.
Each responsibility centre has its own
budget and is evaluated on its use of
budgeted resources.
The centre uses resources to

produce a service or a product.
There are five types of responsibility
centers
1. Standard cost centers
.Standard cost centers are primarily
used in manufacturing facilities.
.The standard cost is the average
historical cost of the particular
product and be used to compare
with actual cost of the product.
2.Revenue centers
Revenue centers is concerned with the
unit sales or dollar sales volume.
The centre is judged in terms of
effectiveness rather than efficiency.
The actual sales are compared with
projected sales i.e. previous years sales.
3. Expense centers
The expense centers are administrative,
service and R&D etc.
These costs company but they only
indirectly contribute to revenue.
4.Profit centers
Performance is measured in terms of the
difference
between
revenues
and
expenditures.
A profit center is typically established
whenever an organizational unit has
control over both its resources and its
products or services.
A company can be organized into
divisions of separate product lines.
The manager of each division is given
autonomy to keep profits at a
satisfactory level.
5.Investment centers
An investment centers performance
is measured in terms of the
difference between its resources and
its services or products.
The
best
used
measure
of
investment center performance is
ROI.
Using benchmarking to evaluate

performance
The continual process of measuring
products,services,and
practices
against the toughest competitors or
those companies recognized as
industry leaders is known as
benchmarking.
Benchmarking
involves
openly
learning how others do something
better than ones own company so
that the company not only can
It has the following steps

1. Identify the area or process to be examined.
2. Find the behavioral and output measures of the
area or process and obtain measurements.
3. Select an accessible set of competitors and best
in class companies against which to benchmark.
4. Calculate the difference among the companys
performance measurements and those of the
best in class and determine why the difference
exist
5. Develop
critical
programs
for
closing
performance gap
6. Implement the programs and then compare the
resulting new measurements with those of the
best in the class companies.
Problems in Measuring Performance
The measurement of performance is

a crucial part of evaluation and
control.
The lack of quantifiable objectives or
performance standards and the
inability of the information system to
provide timely and valid information
are two obvious control problems.
Without
objective
and
timely
measurements,
it
would
be
extremely
difficult
to
make
However,
the
use
of
timely,
quantifiable standards does not
guarantee good performance.
The very act of monitoring and
measuring performance can cause
side effects that interfere with
overall corporate performance.
Among the most frequent negative
side effect are a short term
orientation and goal displacement.
Short term orientation

Top executives report that they analyze neither
the long term implications of the present
operations on the strategy nor the operational
impact of a strategy on the corporate mission.
Long run evaluation is not appropriate because
executives
1. Dont realize their importance
2. Believe that short run considerations are more
important than long run considerations
3. Are nor personally evaluated on a long term
basis
4. Dont have the time to make a long run
analysis
Goal displacement
If
not
carefully
work
done,
monitoring
and
measuring
of
performance can actually result in a
decline
in
overall
corporate
performance.
Goal displacement is the confusion
of means with ends and occurs when
activities originally intended to help
managers
attain
corporate
objectives
becomes
ends
in
themselves-or are adapted to meet
ends other than those for which they
Behavior substitution
Behavior substitution refers to a
phenomenon
when
people
substitute activities that do not lead
to goal accomplishment for activities
that do lead to goal accomplishment
because the wrong activities are
being rewarded.
Managers like most other people,
tend to focus more of their attention
on behaviors that are clearly
measurable than on those that are
Employees often receive little or no reward for

engaging in hard to measure activities such as
cooperation and initiative.
However easy to measure activities might
have little or no relationship to the desired
good performance.
People tend to substitute behaviors that are
recognized and rewarded for behaviors that
are
ignored,
without
regard
to
their
contribution to goal accomplishment.
For example when we tie employees
productivity to reward system, the employees
would alter their behavior to fit reward system.
For example sales man commission in
percentage on the sales volume etc.
Suboptimization
Suboptimization refers to the phenomenon of a unit
optimizing its goal accomplishment to the detriment of
the organization as a whole.
The responsibility centers sometimes refuse to cooperate
with other units or divisions in the same corporation if
cooperation could in some way negatively affect its
performance evaluation.
For example suboptimization occurs when a marketing
department approves an early shipment date to a
customer as a means of getting an order and forces the
manufacturing department into overtime production for
that one order.
Production costs are raised, which reduces the
manufacturing departments overall efficiency.
The end result might be that, although marketing
achieves its sales goals, the corporation as a whole fails
to achieve its expected profitability.
Guidelines for proper control

1. Control should involve only the minimum amount of
information needed to give a reliable picture of the
events.
Too many controls create confusion
Monitor 20% of the factors that determine 80% of the
results.
2. Controls should monitor only meaningful activities and
results, regardless of measurement difficulty.
If we are measuring cooperation between the divisions
to monitor the corporate performance we have to
establish the qualitative and quantitative measures.
3. Control should be timely so that corrective action can
be taken before it is too late
Controls that monitor or measure the factors
influencing performance, should be stressed so that
advance notice of problems is given.
4. Long term and short term controls should

be used
. If only
short term
measures are
emphasized a short term managerial
orientation is likely.
5. Control
should
aim
at
pinpointing
exceptions
. Only activities or results that fall outside a
predetermined tolerance range should call
for action.
6. Emphasize the reward of meeting or
exceeding
standards
rather
than
punishment for failing to meet standards
Strategic Audit to
Evaluate and Control
Perforce
A strategic audit
provides a checklist
of
questions, by area or issue, that enables a
systematic analysis to be made of various
corporate functions and activities.
A strategic audit is a type of management
audit and is extremely useful as a diagnostic
tool to pinpoint corporate wide problem areas
and to highlight organizational strengths and
weaknesses.
A strategic audit can help determine why a
certain area is creating problems for a
corporation and help generate solutions to the
problem.
Analysis
Strategic Audit Heading
(+)Factors (-) Factors
I. Current Situation
A. Past Corporate Performance Indexes
B. Strategic Posture:
Current Mission
Current Objectives
Current Strategies
Current Policies
SWOT Analysis Begins:
II. Corporate Governance
A. Board of Directors
B.Top Management
III.External Environment(EFAS)
Natural Environment
Societal Environment
Task Environment
IV. Internal Environment (IFAS)
A. Corporate Structure
B.Corporate Culture
C.Corporate Resources
1. Marketing
2. Finance
3. R&D
4. Operations and Logistics
5. Human Resources
6. Information Technology
V. Analysis of Strategic Factors (SFAS)
A. Key Internal and External Strategic Factors(SWOT)
B.Review of Mission and Objectives
SWOT Analysis Ends:Recommendation Begins:
VI. Alternatives and Recommendations
A. Strategic Alternatives-pros and cons
B. Recommended Strategy
VII. Implementation
VIII.Evaluation and Control
Comments
The End
Contemporary Strategic
Issues
Internet Era
Internet is an integrated network of

users connected with computers,
digital
switches,
routers
and
telecommunication equipments.
It involves millions of interconnected
computer networks that include
billions of host computers.
Internet is an information system
that
offers
information
on
business,science,government
and
others.
It provides communication flows
Internet
technology
transmits
information quickly and at lower cost
than other communication means
such as telephone, fax, postal and
currier service
It helps to store gather,retrive,
format and display information
quickly and efficiently.
The users of information are
students, businesses, academicians,
researchers, scientists etc.
Demand for internet services

There are an estimated 400 million people
worldwide using internet in 2000.
167 million in North America,105 million in
Europe,122 million in Asia Pacific,2 million in
Latin America and about 7 million in rest of
the world.
Internet users have been growing day by day.
People
use
internet
technology
for
communication,
information
gathering,
shopping, entertainment etc.
Majority
of
internet
users
are
students,academicians,researchers,businessm
en,scientists,government and its agency etc.
Suppliers of internet technology and services

The major suppliers of internet technology are as
follows
1. Makers of the specialized internet related
communication components and equipments
.Digital switches,routers,cables etc
.Cisco System
2. The providers of internet communication services
.These are known as ISPs (internet service
providers)
.These include local telephone company, cable
company, wireless communications providers, they
provide dialup, cable and wireless internet.
British
Telecom,Broadband,Worldcom,Merca
ntile,World
Link,
Nepal
Telecom,Ncell,UTL etc.
Suppliers
of
computer
its
components
and
computer
hardware
There are several companies engage
in manufacturing and assembling of
computers,servers,data storage, and
peripheral devices.
Intel,IBM,Dell, Sony, Apple HP,
Developers of specialized software

Computer software makes peoples day to
day works simple,quick,accurate,effective
and efficiency.
Microsofto,IBM,Oracle,Novell,Macromedia,
Linux,Java etc.
Ecommerce Enterprises
B2B:Cisco,Intel,Oracle
B2C:eBay,Amazon
Media enterprises:Disney,Sony,EA sports
Content Providers:Yahoo,MSN,Google,AOL
etc.
Strategic Challenge of Computing

Technology
During last years the suppliers of
internet technology and equipments
have enjoyed the booming demand.
Lots of opportunities have been
increasing
They have been facing lots of
challenges as well.
They have been facing tough
competition
among
alternative
technologies for building various
They have to establish a globally connected

internet
infrastructure,
building
telecommunication system, install millions
of servers, develop necessary software, and
provide internet connection to individuals
and business houses at cheaper price to
gain competitive advantage in this industry.
The following are the techniques to manage
technological challenges
1. Investing aggressively in R&D to win
innovation race against rivals
2. Forming strategic alliances with suppliers,
potential customers and complementary
technology builders
3. Differentiating
the
companys
products by investing sufficient
resources to best fit the needs of the
customers
4. Acquiring other companies with
complementary
technological
expertise to broaden and penetrate
the companies technological base.
5. Broadening the area or scope of the
company so that the company can
shift
its
capability
and
core
competencies
to
another
6. Standardizing the products to realize

economies of scale and learning
effects
7. Shifting
production
facility
at
optimum location to realize location
economies
Impact
of
internet
on
competitive
environment
The internet highly influences the competitive
environmental forces
It helps to alter the strength and balance of
competitive
rivalry,
barriers
to
entry,
bargaining power of buyers and suppliers.
Impact on competitive rivalry
Internet has increases the competitive rivalry.
Producers
are
offering
their
products
worldwide from internet.
It is replacing traditional middlemen and cost
It is making price competition rather than
quality
Impact on barriers to entry

Entry barriers into ecommerce are
relatively low.
It does not require large amount to
set up the business.
specialized services and knowhow
can be easily outsourced.
The relatively low entry barriers push
companies in intensive rivalry.
The software required for ecommerce
is readily and widely available
The impact on buyers bargaining

power
Internet
makes
it
easy
and
convenient for buyers to gather
extensive
information
about
competing and substitute products
and brands.
Customers can use internet to
search
products,
its
features,quality,price
and
specification of products.
The buyers bargaining power will be
Impact on suppliers bargaining power

Internet allows companies to identify and then
integrate foreign suppliers into their supply chain.
Local companies also get access to global market
via internet for searching the best suppliers.
Internet reduces the bargaining power of suppliers.
Impact on threats of substitute products
The domestic product can access into foreign
market and foreign product into domestic market.
Customers can get necessary information about
various alternative products via internet.
The choices of customers become wide.
The threats of substitute products rise due to
internet and ecommerce
The End
Managing Technology
and Innovation
Technology Sourcing
Technology sourcing typically a make or
buy decision.
It is important in a firms R&D strategy
In-house R&D has traditionally been an
important source of technical knowledge
for companies.
Firms can also tap the R&D capabilities of
competitors,suppliers,and
other
organizations
through
contractual
agreements
such
as
licencing,R&D
agreements,
joint
ventures
and
acquisitions.
When should a firm buy or license

technology from others instead of
developing it internally?
A company should buy technologies
that are commonly available but
make (and protect) those that are
rare,valuable,and hard to imitate
and that have no close substitutes.
Outsourcing technology may be
appropriate when:
1. The technology is of low significance
to
competitive
advantage.(nonPuonlinenotes.blogspot.com
2. The
supplier
has
proprietary
technology
3. The suppliers technology is better
and or cheaper and reasonably easy
to integrate into the current system.
4. The companys strategy is based on
system
design,marketing,distribution,and
service-not on development and
manufacturing.
5. The
technology
development
process
requires
new
special
Product Portfolio
This matrix was developed by Hofer
based on the product life cycle.
It
is
also
called
15cell
product/market evolution matrix.
It depicts the types of developing
products that cannot be easily
shown on other portfolio matrixes.
Products are plotted in terms of their
competitive positions and their
stages of product/market evolution.
As on the GE Business Screen, the

circles represent the sizes of the
industries involved, and the pie
wedges represent the market shares
of the firms business product lines.
Present and future matrixes can be
developed to identify strategic
issues.
For example, we could ask why
Product B does not have a greater
share of the market, given its strong
competitive position.
A limitation of this matrix is that the

product life cycle does not always
hold for every product.
Many products do not inevitably fall
into decline but (Tide and Colgate)
are revitalized and put back on a
growth track.
Strong
Weak
Developm
ent
Stage of Product/Market
Evolution
Competitive Position
Average
B
Growt
h
D
Shakeou
t
Maturity
Saturati
on
G
Declin
e
Evaluation and Control

For
innovations
to
succeed,
appropriate evaluation and control
techniques must be used to ensure
that the end product is what was
originally planned.
Appropriate measures
are also
needed to evaluate the effectiveness
of the R&D process.
Global information technology enables
executives to continually assess
performance as a product moves from
the idea to the finished product stage
Evaluation and control techniques

The following techniques are applied to
evaluate and control
1. Stage gate process
2. House of quality
Stage gate process
.The stage gate process is a method of
managing new product development to
increase the likelihood of launching new
product quickly and successfully.
.The process is a series of steps to move
product through the six stages of new
product development.
A new concept cannot move beyond

any stage until it has been
evaluated thoroughly.
The stage gate process reduces
development
times,
allows
identification
of
questionable
projects, and increases the ratio of
internally generated products that
result in commercially successful
products.
It is especially useful for a major
platform project such as line of new
Six stages of new product development

1. Idea generation
.New products concepts are identified and
refined
2. Concept evaluation
.Screening
techniques
are
used
to
determine the concepts validity and
market opportunity
.Preliminary market research is conducted,
and a strategy is developed.
.A business plan is developed to present to
management.
3.Preliminary design
.A new venture team is formed to prepare desired
product specifications
4.Prototype build and test
.A functioning model of the product is build and
subjected to numerous tests.
5.Final design and pilot production
.Final products and process designs are developed to
produce small numbers of the product for use in test
marketing.
.Suggestions from the users are fed back to the
design team for possible addition in the final product.
6.New business development
.The entire company is energized to launch the
product
House of quality
The house of quality is method of
managing new product development
It was developed at Mitsubishis Kobe
shipyards.
It is a tool to help project teams make
important design decisions by getting
them to think about what users want and
how to get it to them most effectively.
It
enhances
communication
and
coordination
among
engineering,
marketing, and manufacturing and ensures
better product/customer fit.
The house of quality is a matrix that maps

customer
requirements
against
product
attributes.
House of quality process
1. Identify product requirements and to weight
their relative importance from the customers
perspective.
2. Identify
the
engineering
attributes
in
measurable terms.
3. Establish the relationships between engineering
attributes with customer requirements.
4. Fill out the roof of the house by interaction with
design parameters
5. Compare existing products with competitors
Importance
The house of quality provides a
common framework within which the
project team can interact.
It makes the relationships between
customer requirements and product
attributes.
It emphasizes design trade offs,
competitive shortcomings of current
products, and help identify the steps
needed to improve the design.
It tries to forecast the product
Evaluation and control measures

Companies want to gain more productivity
at a faster pace from their R&D activities.
How do we measure the effectiveness or
efficiency of a companys R&D?
Some companies measure via proportion of
sales to new products
However some judge the quality of
research by counting how many patents
they file annually.
Some companies measure the R&D
effectiveness by dividing the percentage of
total revenue spend on R&D into new
product profitability.
Some MNCs focused on three

measures of R&D success
1. Improving technology transfer from
R&D to business units
2. Accelerating time market for new
products and processes
3. Institutionalizing cross-functional
participation in R&D.
.A benchmark for a companys R&D
activities are listed below
.The following points highlights the 13
best practices for improving R&D.
1. Corporate
and
business
units
strategies are well defined and
clearly communicated
2. Core technologies are defined and
communicated to R&D
3. Investments are made in developing
multinational R&D capabilities to tap
ideas throughout the world.
4. Funding for basic research comes
from corporate success to ensure a
long term focus; funding for
development comes from business
5. Basic and applied research are

performed either at a central facility
or at a small number of labs each
focused on a particular discipline of
science and technology.
.Development
work
is
usually
performed at business unit sites.
6. Formal cross functional teams are
created
for
basic,applied,and
developmental projects.
7. Formal mechanisms exist for regular
interaction among scientists, and
8. Analytical tools are used for selecting

projects as well as for ongoing project
evaluation
9. The transfer of technology to business
units is the most important measure of
R&D performance
10.Effective measures of career development
are in place at all levels of R&D
11.Recruiting of new people is from diverse
universities and from other companies
when specific experience or skills are
required that would take a long time to
develop internally
12.Some basic research is performed

internally, but there are also many
university
and
third
party
relationships
13.Formal mechanisms are used for
monitoring external technological
developments.
The End
Entrepreneurial
Ventures and Small
Businesses
Definition of Small Business Firms

A small business firm is independently
owned and operated, is not dominant in
its field, and does not engage in
innovative practices.
One that employs fewer than 500 people and has sales
of < $20 million annually.
Definition of entrepreneurial ventures

An entrepreneurial venture is any business
whose primary goals are profitability and
growth and that can be characterized by
innovative strategic practices.
Entrepreneurial Venture vs.

Small Business Firms
Small Business Firms
Entrepreneurial Ventures
1. Independently
owned and
operated
2. Not dominant in
its field
3. Not engaged in
innovative
practices
1. Primary goals
profit and growth
2. Innovative
strategic practices
Entrepreneur as Strategist
An entrepreneur as a person who organizes
and manages a business undertaking and
who assumes risk for the sake of a profit.
He is known as the ultimate strategist.
He or she makes all the strategic as well as
operational decisions.
All three levels of strategy- corporate,
business, and functional-are the concerns
of this founder and owner-manager of a
company.
Entrepreneurs
are
strategic
planners
without realizing it.
Importance of Small Businesses and

Entrepreneurial Ventures
1. 22 million
2. >95% of all businesses
3. 85% new jobs created by small firms
4. 2X R&D dollars on fundamental
research compared to large firms
5. 50% of businesses found in any
given year, not in business w/i 5
years
Use of strategic planning and strategic

management
Strategic planning is strongly related to
small business financial performance.
The reason of not using strategic
planning and management in small
businesses and entrepreneurial ventures
are as follows.
1. Not enough time
2. Unfamiliar with strategic planning
3. Lack of skills
4. Lack of trust and openness
Degree of formality
Strategic planning will be more informal
than in large corporation in small
businesses and entrepreneurial ventures
Too much formalization also reduces
productivity of the organization
Strategic planning can be used by banks
and venture capitalists when the
entrepreneur is searching for capital
It is dysfunctional to small firms to make
structured plans and written document
because small firms are far more flexible
As entrepreneurial firm matures, its

strategic planning process tends to
become more formal.
These firms use entrepreneurial
mode at very first stage then
planning mode at growth stage and
adaptive mode at a
established
stage to
choose stability over
growth.
Usefulness of the strategic

management model
Environmental
Strategy
Formulation
Scanning
External
Societal
Environment
General Forces
Task
Environment
Industry Analysis
Internal
Structure
Chain of Command
Culture
Beliefs, Expectations,
Values
Strategy
Implementation
Evaluation
and
Control
and Control
Mission
Reason for
existence
Objectives
What results
to
accomplish
by when
Strategies
Plan to
achieve the
mission &
objectives
Policies
Broad
guidelines for
decision
making
Programs
Activities
needed to
accomplish
a plan
Resources
Assets, Skills
Competencies,
Knowledge
Budgets
Cost of the
programs
Procedures
Sequence
of steps
needed to
do the job
Feedback/Learning
Process
to monitor
performance
and take
corrective
action
Performance
Informal Questions to Begin the

Strategic Management Process in
a
Small
Company
or
Formal
Informal
Entrepreneurial
Venture
Define mission
What do we stand for?
Set objectives
What are we trying to achieve?
Formulate strategy
How are we going to get there? How can we beat the

competition?
Determine policies
What sort of ground rules should we all be following

to get the job done right?
Establish programs
How should we organize this operation to get what

we want done as cheaply as possible with the
highest quality possible?
Prepare pro forma budgets
How much is it going to cost us and where can we

get the cash?
Specify procedures
In how much detail do we have to lay things out, so

that everybody knows what to do?
Determine performance measures
What are those few key things that will

determine whether we can make it? How can we
keep track of them?
Usefulness of strategic decision

making process
Strategic Decision-Making Process

1. Develop the basic business idea
A product and/or service having target customers and/or markets
2. Scan the external environment
Locate factors in the societal and task environments that pose
opportunities and threats
3. Scan the internal factors
Objectively consider personal assets, expertise, abilities, and experience
4. Analyze the strategic factors
SWOT and SFAS Table
5. Decide go or no go
Feasibility to go or further development
6. Generate a business plan
Specify how the idea will be transformed into reality/(Strategic audit)
Framework oriented toward future
7. Implement the business plan
Action plans and procedures
8. Evaluate the implemented business plan
Compare actual performance against projected performance results
Corporate Governance
1. Simpler in entrepreneurial firms
2. Owner as manager
3. No board unless incorporated
4. Closely-held firms have passive
boards
Advisory board
A group of external business people
voluntarily meeting with owner to
discuss strategic issues
Issues in Environmental Scanning and

Strategy Formulation
Environmental
scanning
in
small
businesses is much less sophisticated
than it is in large corporations
The business is too small to justify hiring
someone to do only environmental
scanning and strategic planning.
Top managers, especially if they are the
founders, tend to believe that they know
the business and can follow it better
than anyone else.
Most
small
business
ownermanagers rely more on internal as
opposed to external sources of
information.
Five forces of competition analysis is
impossible because small local
business do not analyze the
competitors remained in wider
geographic scope.
Small business owner or managers
personal and family needs strongly
affect a small businesss mission and
A small company choose a stability strategy

because the entrepreneur is interested
mostly in
1. Generating employment for family members
2. Providing the family a decent living
3. Being the boss of a firm small enough that
he or she can manage it comfortably.
.Some business owners dont like a growth
strategy because of loss of control or bank
debt or sale of stock to the public
.Some managers believe that the company
will buyout by competitors if it goes to the
public
SWOT analysis will be more focused

on
towards
entrepreneurs
characteristics-his
or
her
assets,expertise,abilities,and
experiences.
The success and growth of the
business
are
assumed
on
competencies,
motivations
and
connections etc.
Intangible
assets
such
as
leadership,strategy,human
and
intellectual
capital
are
more
Sources of innovation
Peter Drucker proposes seven sources for
innovation that should be monitored in
starting an entrepreneurial venture.
1. The unexpected
.An unexpected success, an unexpected
failure, or an unexpected outside event can
be a symptom of a unique opportunity
2. The incongruity /unease
.A discrepancy between reality and what
everyone assumes it to be or between
what is and what ought to be can create an
opportunity for innovation.
3. Innovation based on process need

.When a weak link is evident in a
particular process but people work
around it instead of doing something
about it an opportunity is present for
the person or company willing to
build a stronger one
4. Changes in industry or market
structure
.A business is ready for an innovative
product,service,or approach to the
business
when
the
underlying
5. Demographics
. Changes in the populations size, age structure,
composition, employment, level of education,
and income can create opportunities for
innovation.
6. Changes in perception,mood,and meaning
. Opportunities for innovation can develop when a
societys
general
assumptions,attitudes,and
beliefs change.
7. New knowledge
. Advances
in
scientific
and
nonscientific
knowledge can create new products and new
markets
. Advances in two different areas can sometimes
be integrated to form the basis of a new product.
Factors affecting a new ventures

success
Three factors have a substantial
impact
on
a
new
ventures
performance.
These are
1. The structure of the industry entered
2. The new ventures business strategy
3. Behavioral characteristics of the
entrepreneur
Industry structure
The chances for success are more in
rapidly changing industries than
stable industries.
Prospects are better in early, high
growth stages of development.
Competition is often less intense
Fast growth market also provides the
mistakes without serious penalty.
The patents does not provide
competitive advantage in a high
tech or in hypercompetitive industry.
Most ventures enter into industries where

low degree of industry concentration is
present/no dominant competitors.
New venture will success with heterogeneous
products than homogeneous products.
In heterogeneous market the venture can
differentiate
its
products
with
its
competitors.
The venture will be successful when the
product is unimportant to the customers
total purchasing need.
Because the customer will test the product in
low cost manner.
Business strategy
The keys to success for most new ventures
are
1. To differentiate the product from those of
other competitors in the areas of quality
and service
2. To focus the product on customer needs in a
segment of the market in order to achieve a
dominant share of that part of the market.
.Adopting guerrilla warfare tactics, these
companies go after opportunities in market
niches too small or too localized to justify
retaliation/reject from the market leaders.
A
new venture analyzes its
competitors to assess their likely
response to the companys entry
into the market.
To continue its growth once it has
found a niche, an entrepreneurial
firm can emphasize continued
innovation and pursue natural
growth in its current markets.
The firm can also expand into
related markets in which the
companys core skills, resources,
and facilities offer the keys to
Entrepreneurial Characteristics
The
followings
are
the
entrepreneurial characteristics to a
new venture success
1. The ability to identify potential
venture opportunities better than
most people
.Focus on opportunities not on
problems
.Try to learn from failures
.Goal oriented
.Visionary
2. A sense of urgency that makes them

action oriented
.High need for achievement
.Motivation
.Internal locus of control
.Capacity to tolerate ambiguity and stress
.Strong need for control
3. A detailed knowledge of the keys to
success in the industry and the physical
stamina to make their work their lives
.Better than average education
.Significant work experience on industry
4. Access
to
outside
help
to
supplement
their
skills,knowledge,and abilities
.Networking, making friends who
have key skills and knowledge
.Close
relationships
with
investors,partners,creditors,and
employees.
Some Guidelines for New Venture

Success
Focus on industries facing substantial technological or regulatory changes,
especially those with recent exits by established competitors.
Seek industries whose smaller firms have relatively weak competitive positions.
Seek industries that are in early, high-growth stages of evolution.
Seek industries in which it is possible to create high barriers to subsequent entry.
Seek industries with heterogeneous products that are relatively unimportant to the
customers overall success.
Seek to differentiate your products from those of your competitors in ways that are
meaningful to your customers.
Focus such differentiation efforts on product quality, marketing approaches, and
customer serviceand charge enough to cover the costs of doing so.
Seek to dominate the market segments in which you compete. If necessary, either
segment the market differently or change the nature and focus of your
differentiation efforts to increase your domination of the segments you serve.
Stress innovation, especially new product innovation, that is built on existing
organizational capabilities.
Seek natural, organic growth through flexibility and opportunism that builds on
existing organizational strengths.
Issues in strategy implementation

1. Organizing and staffing the growing
company
2. Transferring ownership of the company to
the next generation
Organizing and staffing the growing company
(sub stages of small business development)
.Implementation issues arises when small
business changes as the company grows
and develops over time.
.The managerial problems arises when
companies grow from one stage to the next
stage.
How a company can move through the

entrepreneurial stage I into a functionally
oriented, professionally managed stage II
Stage A : Existence
An entrepreneurial venture faces the
problems of obtaining customers and
delivering the promised product or service.
The organization culture is simple
The entrepreneur does everything and
directly supervises subordinates
Systems are minimal
The owner is the business
Stage B : Survival
Those ventures able to satisfy a sufficient
number of customers enter in this stage
The rest close when their owners run out
of startup capital.
Those reaching out this stage are
concerned about generating cash flow
needed to repair and replace capital
assets.
They are concerned to finance the growth
to continue satisfying the market segment
they have found
The organization structure is simple
The major problem is finding a

manager
in
the
absence
of
entrepreneur at a modest salary
The entrepreneur will search family
member instead of hiring someone
from outside
Because we cannot found the
dedication
or
outsiders
as
entrepreneurs.
We also called lifestyle company in
this stage
Because the firm will run as per the
Stage C : Success
The firm is not only profitable but has
sufficient cash flow to reinvest in itself.
The issue in this stage is whether the
company should be used as a platform
for growth or as a means of support for
the owners.
The company will transformed into
functional organization
The entrepreneur still will have full
control over the firm
The two options are
1. Disengagement
.The company will follow stability strategy
.The company will remain in this stage
forever
.The environmental changes does not
destroy its niche
.Poor management reduce its competitive
abilities
.The company will be incorporated
.The BODs will be rubber stamp
.The strategic management decisions are
based on personal desires and the
founders background
2. Growth
.The entrepreneur risks all available cash
and borrowings to finance further growth
.Strategic and operational planning are
extensive and deeply involve the owner
.Visionary managers are hired
.The firm wants to remain at fortune 500
lists
.The company will follow team work rather
than entrepreneurs personal desires
.The personal values and philosophy of the
founder are transformed to the culture.
Stage D : Take off

The key problem in this stage are how to
grow rapidly and to finance the growth
The firm is incorporated and has sold for or
is planning to sell stock in its company via
an IPO.
The company
will formed professional
team to manage top level management
Operational and strategic planning greatly
involve the hired managers, but the
company is still dominated by the
entrepreneurs presence and stock control.
The big issue is whether the entrepreneur will

have full control even he has lack of managerial
skills
The succession plan will be developed so as to
replace the current managers
Stage E: Resource maturity
In
this
stage
the
firm
adopted
some
characteristics of large one.
It is small and SMEs and recognized as an
important force in the industry and possible
candidate for Fortune 500.
The main problem is to incorporate the
entrepreneurial spirit of the entrepreneur in the
organization.
The firm will enter into Stage II
Transfer of power and wealth in family

business
The small businesses will have
problem when they
transfer
managerial control to the outsiders.
The outside managers will charge
more amount than the company
expected.
The founder will handover the
ownership to the family.
Some
of
the
reasons
family
businesses may fail to successfully
1. Inherited wealth destroys entrepreneurial drive

2. The entrepreneur does not allow for a
changing firm
3. Emphasis on business means the family is
neglected
4. The business financial growth cant keep up
with rising family lifestyles
5. Family members are not prepared to turn a
business
6. The business becomes an arena for family
conflicts
7. The succession planning will not succeed due
to siblings rivalry, familys refusal etc.
Transfer of power in family business

1. Phase I : Owner Managed Business
.The founder and the business are one
2. Phase II : Training and Development of New
Generation
.The family begins to identify itself with the business
3. Phase III : Partnership Between Generations
.A son or daughter of the founder will involved in
key managerial and business decisions
4. Phase 4 : Transfer of Power
.The founder will sell the company to its family
members
.The founder will be Chairman and son or daughter
will be CEO
Issues in Evaluation and Control

1. Line between debt and equity is blurred
. The retained earning column will not be shown in the
balance sheet because it will be used to acquire fixed
assets so as to reduce the burden of tax.
2. Lifestyle is part of financial statements
. Some assets are used by the family
3. Standard financial formulas dont always apply
. Short term debt is used to finance fixed assets
4. Personal preference determines financial policies
. Dividend policies are based on personal desires and
lifestyles
5. Banks combine personal and business wealth
. Personal assets are put as collateral by the bank
. If collateral is not available the owner has to pay high
interest rate.
The End
Not for Profit

Organization
Concept and Nature of Not for Profit

Organization
The not for profit sector of an economy is
important for several reasons
1. Society desires certain goods and services
that profit making firms cannot or will not
provide.
.These goods are known as public or
collective goods
.Paved roads, police protection,museums,and
schools are examples of public goods.
.Once a public good is provided anyone can
use or enjoy it
Certain aspects of life do not appear to be served

appropriately by profit making business firms.
These aspects include areas in which society as a
whole benefits from a particular service.
2. A private nonprofit organization tends to receive
benefits from society that a private profit making
firm cannot obtain.
.The not for profit organization can get tax
advantage from the government tax authorities.
We use term patient,student,client,case or simply
the public instead of customer as in profit
organizations.
Importance of revenue sources

A profit making firm depends on
revenues obtained from the sale of
its goods and services to customers,
who typically pay for the costs and
expenses of providing the product or
service plus a profit.
A not for profit organization depends
heavily
on
dues,assessments,or
donations from its membership, or
on funding from a sponsoring
agency, to pay for much of its costs
Sources of not for profit revenue

Revenue is generated from a variety of
sources not just from clients receiving the
products or service from the not for profit.
It can come from people who do not even
receive the services they are subsidizing.
The following are the revenue sources
1. Donations
2. Government grants
3. Service fees/ Client charges
4. Membership fees/dues
5. Sponsors
Patterns of influence on strategic

decision making
The pattern of influence on an
organizations
strategic
decision
making derives from its sources of
revenue.
A private university (B) is heavily
dependent on student tuition and
other client generated funds.
The students desires are likely to
have a stronger influence on the
universitys decision making.
A public university (C) is more heavily

dependent on outside sponsors.
Student tuition and other client generated
funds from a small percentage of total
revenue.
The universitys decision making is heavily
influenced by the sponsors and only
marginally
influenced
directly
by
the
students.
The client has the no direct influence on the
organization because the client pays nothing
for the services received (D).
The organization (D) tends to measure its
effectiveness in terms of sponsor satisfaction.
It has no real measure of its efficiency other than

its ability to carry out its mission and achieves its
objectives within the dollar contributions it has
received from its sponsors.
Organization D actually might be able to increase
its revenue by heavily lobbying its sponsors while
reducing the level of its service to its clients.
If the recipients of the service pay only a small
proportion of the total cost of the service,
strategic managers are likely to be more
concerned with satisfying the needs and desires of
the funding sponsors or agency than those of the
people receiving the service.
The acquisition of resources can become an end in
itself.
The Effects of Sources of Revenue on Patterns of ClientOrganization Influence
Usefulness of strategic management

concepts and techniques
Some strategic management concepts
can be applied to not for profit
organizations as business organizations
The concept of portfolio approach
under which client satisfaction and
revenues are linked.
Industry analysis and competitive
strategy are primarily relevant to not
for profits that obtain most of their
revenue from user fees rather than
from donors or taxpayers.
A not for profit can be said to have

institutional advantage when it
performs its tasks more effectively
than
other
comparable
organizations.
SWOT,
mission
statements,
stakeholders analysis and corporate
governance are relevant as profit
organizations.
Portfolio analysis is also used
The BOD will prepare the good
mission statement so as to attract
Limitations
of
Strategic
Management
Not profit organizations concepts,
techniques and recommendations do
not lend themselves to situations
where sponsors, rather than the
marketplace determine the revenue.
The
concept
of
strategic
management will be more useful
when these organizations would
become more market oriented.
Strategic piggybacking
It refers to the development of a new activity
that would generate the funds needed to
make up the difference between revenues and
costs
The new activity should have any link with
the mission
Its primary purpose is to help subsidize the
primary service programs.
It likes concentric diversification and is
involved in money generating value
It is also social entrepreneurship and not for
profit organization starts a new venture to
achieve social goals
The End

Strategic MGMT II

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Strategic MGMT II

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STRATEGIC

Any company that aspires to industry leadership in the

WHY FIRMS GLOBALIZE

New Expanded Markets

To Capitalize on its Core Competencies

External and Internal

COMPLEXITY OF THE GLOBAL

2. Interactions between the national and foreign

Rivals firms battle for national championships and winning in

A companys competitive position in one

The issue of whether to vary the

This approach to strategy making a company

This approach means giving local managers

WHEN THIS STRATEGY WILL

THINK GLOBAL, ACT GLOBAL

Although the companys strategy or product offering may be

DIFFERENCE BETWEEN LOCALIZED

THINK GLOBAL, ACT

In this strategy a company can accommodate cross country

Foreign Market Analysis

CROSS COUNTRY DIFFERENCES IN

strategies uses by these firms to compete in foreign markets

Sometimes product designs suitable in one

One of the biggest concerns of companies

GAINING COMPETITIVE ADVANTAGE

The low cost countries become principal

The quality of a countrys business

THE RISK OF ADVERSE

Companies with manufacturing facilities in a

Domestic companies under pressure

HOST GOVERNMENT POLICIES

Governments may or may not have burdensome tax

STRATEGY OPTIONS FOR ENTERING

There are a host of generic strategic options for a company that

4. Follow a multicountry strategy varying the

Strategies for firms that are attempting to move

A manufacturer can establish its own distribution

In some industries, firms gain additional scale economies and

The franchisee bears most of the costs and risks

Another problem that can arise is whether to

Wholly Owned Subsidiaries

This strategy occur because the companies involved

Loss of control, lower profits, probability of

Strategic analysis and

The Corporate Parent Role

The Parenting Framework

1. Size and age

The patching approach

This strategy particularly used in the

The basic argument of this approach is that

The Synergy Approach: Leveraging

Opportunities to build value via

Strategic analysis is concerned with whether

Each core competency should provide a

The following factors influence the strategic

Role of past strategy

Role of Past Strategy

Current strategies are often the architects of past

Degree of Firms External Dependence

Attitude Toward Risk

Managerial Risk Propensity and

Internal Political Considerations

In diversification the corporate managers task is