BBA- 302 Business Policy & Strategy

(I. P.University).

Unit I: Introduction Nature, Scope & Importance of the course of Business Policy ; Evolution of the course Forecasting , Long range planning, Strategic planning & Strategic management. Strategic Management Process Formulation phase vision, mission, environmental scanning, Objectives & Strategy ; Implementation phase Strategic activities, Evaluation & Control. Business is an important requirement in society for : Supply of goods & services. Creation of employment opportunities. Offer better quality of life & higher standard of living. Contribution to economic growth of a country, etc. As such society cannot do without business & business needs society as well. Therefore, Business may be summarized as : Business is an economic activity Business firm is an economic unit Business decision making is an economic process Nature & Scope : The business policy is based on the experience of corporate enterprises and the history of success & failure of business over time. Business policy is the outcome of top management decisions bearing on the future of the ongoing enterprise. A formal approach to such policy making requires conceptualization and systematic application of knowledge & skill. These include top management responsibilities of defining business mission & objectives, formulation of strategic alternatives, choice of strategy and its implementation. Business policy study enables development of skills required to identify, analyze & solve all the problems of the organization in totality irrespective of the nature of problem like marketing, finance, production or maintenance. Knowledge of strategies & policies set at higher levels of management and the underlying reasons thereof enable lower-level managers to interpret the same more accurately ensuring more effective implementation. Besides with the awareness of strategies, policies & values of top management, managers feel more confident in functioning with minimum communication gap. In other words, Business Policy provides an integrated view of management broadly based on business mission & objectives, goals, ethics, social responsibility, knowledge & experience.
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This may be specified as the guidance, outlines, direction & rules framed and circulated by the management for information & adherence by the employees attached to the organization. This is dynamic & should be flexible depending on both internal & external environment. Importance : 1. It provides an integrated view of management based on knowledge & experience gained in various functional areas of management. 2. The complexities & the constraints of managing business in a competitive & dynamic environment are identified, analyzed & solved by understanding the complex inter-linkages operating within an organization and the external environment. 3. It provides a broader perspective in totality without considering boundaries of functional management i.e. adopt a generalist approach to problem solving. 4. With a transparent culture of business policy, the mangers function more efficiently, effectively & with higher level of confidence. Objectives : In Terms of Knowledge: 1. In business policy various concepts like strategy, policies, plans & programs are explained. 2. Knowledge of external & internal environment and how it affects the functioning of the organization. Information about the environment helps in determination of the mission, objectives & strategies of the firm. 3. To visualize implementation of strategy. The confidence level of problem solving & decision-making is elevated. 4. To survey the literature & keep up-dated about the latest development. In Terms of Skills: 1. The attainment of knowledge lead to development of skills for application. 2. The business policy enables to develop analytical ability to understand the situation in a given case and improve communication skills both oral & written. 3. The business policy leads to the skill of identifying the factors relevant in decision-making. The analysis of the strength & weaknesses of an organization, the threats & opportunities present in the environment helps in decision-making. In Terms of Attitude: 1. The attainment of knowledge & skills lead to improvement of attitude especially as a generalist. The generalist attitude helps to approach & assess a situation from all possible angles.
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2. It is observed that in real life situation mangers have to work with incomplete information. A generalist is able to function with partial ignorance by using own judgment & intuition. A specialist may postpone or avoid a decision in absence of complete information. Thus generalist is a performer rather than a perfectionist. 3. Develop a creative & innovative attitude of a manager who looks for continuous improvement without being bound by precedents & stereotyped decisions. POLICIES : Implementation of strategy involves a wide range of policy decisions to be made relating to the functional areas. A carefully selected policy sharpens the strategy & guides specific decisions. Thus policies may be regarded as decisional guides to action that make the strategies work.. In a large organization there are many policy issues to be considered in each functional area in the context of multiple decision variables. The interrelated nature of policies becomes significant as decisional guides are required for managers at different levels in a number of depts. In other words policy may be defined as specific guides to managerial actions & decisions in the implementation of strategy. Significance of designing appropriate policies: By limiting discretion & clearly specifying the manner in which things are to be done, indirectly controls decision-making & actions of functional managers without direct intervention of top management. By promoting uniformity of handling similar activities facilitate coordination of operations & thus reduce frictions which might arise due to discrimination, favoritism, and handling of common functions in different ways. Consistent patterns of action reflecting the basic aspects of organizational behavior. With standard guides decisions can be taken expeditiously without reference to higher level of management By reducing uncertainties in repetitive decisions provide a foundation for efficient operation and efforts. Managers on the basis of prevailing policies can avoid hasty and rash decisions. Routine matters and ordinary problems are quickly disposed off due to predetermined answers to routine problems. Thus managers have more time to deal with non-routine and extraordinary problems.

The exact nature of policies required for strategy implementation is different for different organizations but the major policy issues in industrial enterprises are examined for key functional areas as follows: Marketing has received increasingly greater attention in the competitive business world as old concept is replaced by new concept, which focuses on firms existing and potential customers and seeks to earn profit through customer satisfaction with an integrated marketing program. The decision variables, which are significant in marketing activities, can be categorized as follows: Product line and product mix policy Product life cycle Introduction-Growth, Maturity, Saturation, Decline. Number and variety of products. Offering a large variety. Concentrating on a few items. Optimal product mix. Product positioning strategy. Market segmentation. Customer to be served and channels of distributions Categorizing consumers to be served. Identification and location of consumers. Types of channels between Producers & Consumers (intermediaries, wholesalers & retailers). Pricing of products/ services Prices of competing products. Cost of production and distribution. Discriminatory prices for different customer goods. Prices for different items in product line. Scope of changing prices. Sales promotion and Marketing mix Publicity and Advertising. Finance and Accounting : The financial policy issue relates to procurement and utilization of funds. The total volume of finance will be influenced by the kind of investment opportunities available as well as by conditions of the sources from which finance is arranged. Sources of finance and capital structure Shares-preference, equity, debentures. Public deposits. Short term finance- Trade credit, Bill discounting, Bank loans, Overdraft, Cash credit. Capital Structure, Debt equity ratio. Investment decision - Cost of Capital. NPV, IRR, Profitability index Financing decisions and Dividend policy Legal regulations Production and operations: Major issues in Production and Operation policies may include the following. Involvement in Production Process Choice of Production Process Technology to be used, Size and location of the plants, human resources, mechanization of operations. Production capacity finalisation Requirement and peak demands of the product. Provision for growth. Balanced facilities.
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 Maintenance / Replacement of existing production facilities TQM

Research and Development: In the preset day competitive world attention is focused on R & D activities to upgrade, update & and improve the existing system with latest innovations. This is with a view to increase efficiency, cost effective, replacement of obsolete technology, etc. Identify areas & foreign collaboration requirement Allocation of budget Realistic time frame Human Resource: This encompasses employer employee relations as well as industrial relations. This is crucial as it involves all the functional areas Recruitment, Promotion and Transfer Recruitment Policy, Sources of Recruitment, Promotion policy, Transfer policy. Training and Development Compensation and Supplementary benefits Level of pay with adequacy and justification Internal structure of compensation and alignment of pay for different category of jobs to ensure equitable pay rates. Industrial wage policyCollective Bargaining. Recognition of relative efficiency of performance and incentive. Relation with Employee Unions Laws and Regulations Evolution of Business Policy & Strategy : Business Policy aroused from the use of planning techniques by managers. Starting from day to day planning in earlier times, managers till recently tried to anticipate the future by using control mechanisms like Capital Budgeting, Management by Objectives, etc. However, as these techniques were unable to predict the future scenario adequately, long range planning came into use. But soon long range planning was replaced by strategic planning & later by strategic management. Thus strategic management forms the theoretical framework for business policy. Strategy : Strategy is the direction & scope of an organization over the long term which achieves advantage for the organization through the available resources within a challenging environment to meet the needs of markets and to fulfill stakeholders expectations.
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Thus, Strategy of a business enterprise consists of what management decides about the future direction & scope of the business. It entails managerial choice among alternative action programs, commitment to specific product markets, competitive moves & business approaches to achieve enterprise objectives. In short it may be called the Game Plan of management. The strategic decisions involve matching of enterprise resources to the changing environment & determining future engagement of the enterprise to take advantages of the future market opportunities. Strategic issues are characterized by 1. Involvement of top management as it covers several areas of firms operations. 2. Require allocation of large quantities of company resources. 3. Have significant impact on long-term prosperity of the firm or future oriented. 4. Have major multi-functional consequences viz. customer mix, competitive emphasis, organizational structure, etc. 5. Consider factors in the firms external environment as business firms exist in open system. Levels of Strategy: Strategies may exist in 3 levels in an organization Corporate, Business & Operating. Corporate level The Board of Directors & the Chief Executive Officer are the primary groups involved in this level of strategy making. They are responsible for the financial performance of the corporation as a whole as well as for achieving non-financial goals like corporate image, social responsibility, etc. Business level composed principally of business & corporate managers. These managers translate the direction & intent generated at the corporate level into concrete, functional objectives and strategies for individual business units. Functional level the third level is composed principally of managers of product, geographic & functional areas and their responsibilities are in the execution or implementation of companys strategic plans. While Corporate or Business level are concerned on doing the right things the Functional level put stress on doing the things right.

Forecasting :
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A forecast is an estimate of an event which will happen in future. The event may be demand of a product, rainfall, population, etc. The forecast value is not a deterministic quantity as it is only an estimate based on past data related to a particular event. As such proper care should be taken in estimation. Importance - The responsibility of managers will be ensuring the firms capacity for survival & growth. Anticipating & adapting to environmental changes that provide new opportunities for growth & profitability can do this. For example U.S. auto giants incurred huge losses as they failed to forecast rapidly increasing fuel prices, uncertain supplies of crude oil, etc. in 1973. On the contrary the Japanese anticipated the future need for fuel efficiency, quality & service through careful market research & environmental forecasting and gained additional market share. Accurate forecasting of changing elements in the environment is an essential part of strategic management. Responsibility for environmental forecasting generally lies with top management, although executives may assist in obtaining forecast data. Environmental forecasting starts with identification of factors external to the firm that might provide critical opportunities or pose threats in the future. Both qualitative & quantitative strategic forecasting techniques are used for projection. Techniques - To aid in the search for future opportunities & constraints, the following steps are outlined:-1. Select those environmental variables that are critical to the firm . Management experts have argued that most important cause of the turbulent business environment is the change in population structure & dynamics that in turn affects other major changes in the economic, social & political environment. Limits of money, time & skill in forecasting prevent a firm from predicting many variables in the environment. 2. Select the sources of significant environmental information . Appropriate & reliable sources of environmental information should be identified like business magazines, media, govt. publications, in-house data, experience, etc. 3. Evaluate forecasting approaches or techniques. The choice of techniques depend on many parameters like nature & importance of forecast decision, accuracy required, time available, cost aspects, etc. A combination of qualitative & quantitative techniques suiting the requirements may be used. Different forecast techniques are Economic - general economic conditions, disposable personal income, consumer price index, wage rates, productivity, etc. Social - identify trends & underlying attitudes. Political - govt. rules, regulation & approach, budget, tax rates, etc.
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Technological knowledge of technological development helps strategic managers prepare their firms to benefit from change. 4. Integrate forecast results into strategic management process. The techniques selected and the forecasts made are then integrated into strategic management process. Dealing with the uncertainity of future is a major function of strategic management. Apart from systematic information gathering coupled with ability to utilize a variety of forecasting approaches, a high level of intuitive insight is essential to integrate risks & opportunities in formulating strategy. Synthesis of External Factors : A host of external & often uncontrollable factors influence a firms choice of direction & action. The external factors may be political, economic, social, technological & industry factors. It presents opportunities, threats & constraints for the firm. Designing corporate strategies that will enable a firm to effectively interact with dynamic external factors is multi-faced, complex & dependent on intuitive assessments. However synthesis of external factors can provide a valuable planning based on the following : Environmental data should be collected for a meaningful range of factors. The personal perceptions of strategic managers should be combined with data from public sources. Impact studies should be undertaken to convert the data into relevant information for determining overall consequences of implementing the available alternative strategies. Flexibility should be incorporated in the strategy to allow for unexpected variations from the environmental forecasts. The synthesis of external factors shall help a firm to anticipate future business scenario to improve its performance & profitability. Strategic Planning & Management : Strategic planning refers to the formulation of unified, comprehensive & integrated plan aimed at relating the strategic advantages of the firm to the challenges of the environment. Strategic planning contributes positively to the performance of the enterprises. Thus companys which have undertaken strategic planning not only outperformed the nonplanners on return on equity, earning per share, etc. but also significantly outperformed their own past results as well. This focuses on problems of the total enterprise & not just functional problems of marketing, finance or personnel areas. The advantages of systematic approach to Strategic planning & management include :
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Provide necessary guidance to entire organization about what is expected to be achieved & how. Making managers more alert to new opportunities & potential threats. Unifying organizational efforts leading to greater harmony. Creating a more proactive management posture. Strategic planning is a necessary though not sufficient condition for success. Achievements of corporate enterprises are effected by multiple factors like adequate resources, competent managers, specialist services, product market conditions, etc. Basic Concept of Strategic Management : Strategy is a well defined road map of an organization. Different authors have forwarded a number of definitions of Strategic Management i.e. formulating & managing strategy Strategy consists of the combination of competitive moves & business approaches that managers employ to satisfy customers, compete successfully & achieve organizational objectives. Determination of the mission & long-term objectives of an organization and the policies necessary for achieving the mission & objectives within a timeframe. Pattern of an organizations responses to its environment over time. Set of decisions & actions resulting in formulation & implementation of strategies designed to achieve the objective of an organization or route to the destination. The complexity & sophistication of business decision-making requires strategic management. Strategies evolve as problems & opportunities are identified, resolved & exploited. The environment includes competitors, scarce resources, government agencies monitoring adherence to ever-growing number of regulations, satisfaction of customers, etc. Besides economic conditions, social changes, political priorities, technological development, etc. must be anticipated, monitored, assessed & incorporated in top-level decision-making.

Strategy Environment organization

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C-ustomer focus O-rganizational pride M-utual respect & trust I-nitiative & speed T-otal quality Benefits of Strategic Management: As the strategic management process stimulates future thinking, the strategic managers will be prepared to respond to uncertain environments. It provides an organization with consistency of action without allowing to drift in different directions. It involves different levels of management to encourage commitment on the part of participating managers & reduces resistance to proposed changes. The benefits may be summarized as follows : Improved financial performance in terms of profit & growth. Encouraging & rewarding employees enhance problem prevention capability. Improved quality of strategic decisions through group interaction. Greater employee motivation leading to better understanding of priorities & operation thereby reducing gaps & overlaps in activities. Thus increases employees productivity. Minimum resistance to change. PHASES IN STRATEGIC MANAGEMENT PROCESS: There are 5 essential phases in the strategic management process. Each phase of the strategic management process consists of number of elements that are discrete & identifiable activities performed in logical & sequential manner. Establishment of strategic intent: 1. Creating & communicating a vision. 2. Designing a mission statement. 3. Defining the business. 4. Setting objectives. Formulation of strategies: 1. Performing environmental appraisal. 2. Doing organizational appraisal. 3. Considering corporate & business level strategies. 4. Undertaking strategic analysis. 5. Exercising strategic choice. 6. Preparing strategic plan.
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 Selection or choice of strategies: 1. Best alternative matching organizational requirements subject to resources available. Implementation of strategies: 1. Designing structures & systems. 2. Managing functional & behavioural implementation. 3. Operationalising strategies. Performing strategic evaluation & control: 1. Performing strategic evaluation. 2. Exercising strategic control. 3. Reformulating strategies. [ Refer Exhibit 2.5 Comprehensive Model of Strategic Management Process in Page 42 of Azhar Kazmi. ] Limitations of Strategic Management : Complex & dynamic environment poses difficulty for effective strategic management. Ignorance of the employees about strategies conceived due to lack of transparency in the organization. Lack of involvement of employees in strategic management being busy in routine activities. Time consuming process. Strategic Management Process : Vision is defined as a mental perception of the kind of environment that an organization aspires to create within a broad time frame. The aspirations expressed as strategic intent, should lead to a meaningful end. The meaningful end of ideas, dreams or imaginations is the vision of the organization. Thus vision is the position the firm like to attain in the distant future. Advantages of a Vision : Helps in creation of common identity & sense of purpose. Inspiring & generates long term thinking. Original, creative & unique. Foster risk taking & experimentation. Vision Statement Examples --U.S. Geological Survey : The Vision is to be a world leader in the natural sciences through our scientific excellence and responsiveness to societys needs. Vision Statement Examples U.S. Poultry & Egg Association
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A national organization which represents its members in all aspects of poultry and eggs on both a national and international level. Mission Organizations relate their existence to satisfy need of the society. Mission is a statement which defines the role that an organization plays in a society. Thus, a companys mission is a long term view of what the organization is striving to become in future covering the basic thrusts like the products, business & markets. The identification of a mission is the basis of awareness of a sense of purpose, the competitive environment,& the degree to which the firms mission fits its capabilities and the opportunities the environment offers. The mission statement contain 3 broad elements Definition of companys business. Statement of major goals of the company. Statement of corporate philosophy. It should be precise, clear, feasible, motivating, indicate major components of strategy, indicate how objectives to be achieved, distinctive, etc. Mission Statement Examples -- California Energy Commission It is the California Energy Commissions mission to assess, advocate, and act through public/private partnerships to improve energy systems that promote a strong economy and healthy environment. Mission Statement Examples -- The Bellevue Hospital The Bellevue Hospital, with respect, compassion, integrity, and courage, honors the individuality and confidentiality of our patients, employees, and community, and is progressive in anticipating and providing future health care services.
Environmental Scanning

Environment means the surroundings, external objects, influences or circumstances under which something exists. The environment of any organization is the aggregate of all conditions, events & influences that surround & affect it. Thus the future of an organization is closely related to the happening in the environment. The process by which organizations monitor their relevant environment to identify opportunities & threats affecting their business is known as environment scanning. The environment scanning comprises information processing, & forecasting of social, economic, political, technological, market conditions and even international conditions. This provides a broader perspective to the corporate planners in formulating plans & strategies. Internal environment Within an organization imparts strength or cause weaknesses. External environment Outside the organization provide opportunity or pose threats. Market Technology supplier Economic Regulatory Political Sociocultural International. Features of external environment:
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1. Concept: Surroundings & external objects. Influences & circumstances under which anything exists. As the environment affects the organization it is of crucial importance to understand it. 2. Characteristics: Complex consists of number of factors, events, conditions & influences arising from different sources. These are not in isolation but interact with each other & consider total view of the environment rather than viewing the trends in piecemeal. 3. Dynamic: Constantly changing. 4. Multi-faced: Depends on perception of the observer. 5. Far reaching effect: Existence, growth & profitability of an organization depends critically on the environment. An opportunity is a favourable condition in the organizations environment which enables it to consolidate & strengthen its position viz. growing demands of the products or services of the company. A threat is an unfavourable condition in the organizations environment which creates risk or cause damage to the organization viz. emergence of new competitors. A strength is an inherent capacity which an organization can use to gain strategic advantages viz. superior research & development skills which can be used for new product development. A weakness is an inherent limitation or constraint which creates strategic disadvantages viz. overdependence on a single product line which is potentially risky.

UNIT II : Environmental Analysis : Need, Characteristics & Categorization of Environmental Factors ; Approaches to the Environmental Scanning Process Structural Analysis of Competitive Environment ; ETOP a diagnosis Tool. Characteristics & Categorization of Environmental Factors : The broad environment factors are: Marketing factors : Customer factors such as the needs, preferences, perceptions, attitudes, values, bargaining power, buying behaviour, satisfaction, expectation, etc. Product factors such as demand, features, utility, function, design, life cycle, price, promotion, distribution, availability of substitute products, etc. Political factors : Stability of political conditions, possibility of any unrest, law & order scenario, etc. and may have regional, national or international implications.

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 Social factors: Population density, inter-state migration, rural-urban mobility, growth of educational opportunities, change in life style, marriage age of men & women, values, attitude & culture of people, consumer behaviour, etc. Economic factors: Existing state of economy, rate of growth of GNP & per capita income, rates of saving & investment, volume of imports & exports of different items, balance of payments & foreign exchange reserves, agricultural & industrial production trends, distribution of income & wealth, expansion of infrastructure facilities, rate of inflation, etc. Legal /Regulatory factors: Enforced by govt. towards regulation of market economy like Industrial licensing, import restrictions, differential tax pattern, FEMA, MRTP, etc. However after revision of industrial policy & structural reforms announced by govt. in1991 lot of regulatory measures are withdrawn to expedite the rate of economic growth and generate competitive environment. Technological factors: In future improvement of technology & the scope of technical collaboration with foreign enterprises are likely to improve efficiency and competitiveness in industrial units of India in addition to introduction of new products. Environmental scanning for changing technology is crucial as it may offer new opportunities or threaten very existence of firms. The analysis should aim at identifying sectors susceptible to technological change & forecasting changes likely to affect processes & operations, supply of raw materials, sources of energy, product life cycle, etc. Business factors: Product markets in different industries may be characterized by monopoly, oligopoly, competitive conditions, etc. and the price is governed by market structure. Introduction of new products which may affect the life cycle of the other products & their market demand are vital factors that is considered by planners as a part of environmental scanning. The supply of critical inputs in industry is of great significance for environmental scanning. The reliability of the sources of supply of essential ingredients & the costs involved depend upon the number of suppliers & their control over the market. The power of supplier to raise prices are greater where there are no acceptable substitutes or the buyer is not an important customer. Approaches to Environmental Scanning Process Sources of Information
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The various sources of information for collecting data on environment could be classified in different ways viz. formal or informal, written or verbal, external or internal depending on the source of origin and so on. Some of the important sources of information are as follows: Documentary or secondary sources of information, like different types of publication. These could be newspapers, magazines, journals, books, newsletters, govt. publications, annual reports, internet, etc. Mass media such as radio, television, etc. Internal sources like company files & documents, M.I.S., databases and so on. External Agencies like customers, suppliers, trade associations, govt. agencies, marketing intermediaries and so on. Formal studies conducted by employees, market research agencies, consultants, educational/research institutions, etc. Spying & surveillance through ex-employees of competitors, industrial espionage agencies, planting moles in rival companies, etc. It is important to scan the environment before planning exercise is carried out. Managers must systematically analyze the environment as environmental factors influence the strategy. Industry Analysis : An industry is defined as a group of companies offering similar or close substitute products or services viz. Soap industry, Tea industry, etc. The similar or substitutes are products or services that satisfy same basic customer needs. Michael E Porter has made great contribution to industry analysis which are relevant to the formulation of competitive strategies. A model consisting of five forces have been put forward :Model of Forces driving Industry competition

Threats of New Entrants. Rivalry among Competitors

----------_______ Bargaining Power of Customers

_______

Industry Competition

_______ Threats of Substitute Product

Bargaining Power of Suppliers

Of Suppliers

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 The threat of new entrants Any industry that is profitable attract new entrants. New entrants to an industry bring new capacity & the desire to gain market share. The chances that new entrants enter into an industry depend on the entry barriers and the expected reactions from existing firms e.g. an existing firm with large stake in an industry may lower prices temporarily creating a difficult situation for the new entrants. The entry barriers imply that there are substantial costs involved in entering a new industry. Higher the entry barriers in an industry the new entrants are less likely to enter that industry. So higher entry barriers are significant demotivators for new entrants and keep potential entrants away from an industry. The entry barriers may be summarized as follows o Economics of Scale in production & sale of products to have cost advantage. o High Capital Requirements may prevent new entrants from making investments. o Product Differentiation Brand identification force entrants to spend heavily to overcome customer loyalty. o Cost Disadvantages may arise from proprietary technology, access to best raw material sources, assets purchased earlier at lower prices, favorable location, government subsidies, etc. o Access to Distribution Channels can be monopolized by the existing firms on the basis of their long term relationship with distributors. o Switching Costs from the existing products or services to a new one may discourage venturing. o Government Policies control through licensing, pollution standards, safety regulations, etc. The rivalry among competitors in competition one player gains at the expense of the other. The desire to be the market leader leads to rivalry amongst competitors. The extent of the rivalry among competitors in an industry affects the competition within that industry viz. when the rivalry is weak there is likely to be lesser competition. The factors constituting the force of competitive rivalry within an industry are - competitive structure, demand conditions & exit barriers that determine the business strategies a firm is likely to adopt. 1. Competitive Structure refers to the number of competitors, their size & their diversity. Different types of competitive structures have different implications for the existing firms & new entrants. In some industries the competitors may adopt a policy of live & let live while in others there may be cut-throat competition leading to under-pricing or other steps.
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2. Demand Conditions refer to the nature of customer demand existing in an industry. A high or growing demand tends to moderate competitions as each firm has enough for itself & need not grab from others. Stagnant or declining demand lead to competitive strategies to snatch market share from others. 3. Exit Barriers restrict & prevent the firms in an industry from leaving even though the returns are low. The exit barriers may be economic or emotional factors, which prevent companies from closing the business. Economic factors can be high investment committed to plant & equipment that have no alternative use and high costs of exit like retrenchment costs. Emotional factors can be sentimental attachments to business. The bargaining power of customers constitute the ability to force a reduction of prices of products or services, demand a higher quality or better service or seek more value of their purchases. High bargaining powers constitute a negative feature for existing firms or new entrants of an industry. A low bargaining power enables a firm to pass on cost increases to buyers or make the buyers accept a lower quality product or service at a higher price. The bargaining powers of buyers are high under following circumstances 1. Buyers are few in number. 2. Buyers place large orders. 3. Alternative suppliers are available at a favorable price. 4. Switching costs from one supplier to other is low. 5. Ability to create own supply source. The bargaining power of suppliers - constitute the ability to force an increase in prices of the products & services or make the buyer accept lower quality of products or services. High bargaining powers constitute a negative feature for existing firms or new entrants of an industry. The bargaining powers of suppliers are high under following conditions 1. 2. 3. 4. 5. Suppliers are few in number & Buyers are many. The products or services are not easily available. Switching costs from one buyer to other is low. Buyer is not important to the supplier who purchases small quantity. The suppliers have the ability to use their own supplies for production of end products or service.

The threat of substitute products or services - Substitute products or services are apparently different but satisfy the same set of customer needs viz. tube lights or bulbs, alternative modes of transportation or communication, etc.
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The availability of close substitutes constitute a negative competitive force as level of price charged cannot exceed that of substitutes. Competitive Environment : about the strategies rivals are deploying, their latest moves, their resource strengths & weaknesses are essential to anticipate their future course of action. In other words, successful strategies put serious effort in gathering competitive intelligence about competitors strategies, monitoring their actions, sizing their strengths & weaknesses and their anticipated moves. Thus it can help a company determine whether it needs to defend against specific moves taken by rivals. Gathering competitive information is essential & should not be considered as espionage. This can be collected through newspapers, magazines, govt. agencies, databases, internet, customers, suppliers, competitors & former employees. The company that consistently has more & better information about its competitors is better positioned to prevail other things being equal. Managers who fail to study competitors closely are blindfolded by surprise actions of rivals. ETOP Study : (Environmental Threat & Opportunity Profile) The identification of environmental issues is helpful in structuring environmental appraisal so that strategists have ideas of where the environmental opportunities& threats lie. There are many techniques available to structure the environmental appraisal. One such technique suggested by Glueck, is that of preparing an ETOP for an organization. The preparation of ETOP involves dividing the environment into different sectors and then analyzing the impact of each sector on the organization. The ETOP provides the strategists a clear picture of the sectors which have favourable impact on the organization. By means of an ETOP the firm can see where it stands with respect to its environment. ETOP Study for a Bicycle Company
Environmental Nature of Sector Impact Impact of each Sector

___________________________________________________________________
Market Industry growth rate is 7 to 8 % per year. Sports cycle growth rate is 30%. Unsaturated demand. Technological up gradation of industry in progress. Import of machinery simple. 18

Technological

Economic

Growing affluence among urban consumers. Export Potential promising.

Regulatory Political International

Bicycle industry of Exports No significant factor. Emerging threats due to cheap imports from China.

( Ref. 125-126 Business Policy & Strategic Management Azhar Kazmi

UNIT III : Analysis of Internal Resources : Strengths & Weaknesses ; Resource Audit ; Strategic Advantage Analysis ; Value Chain Approach to Internal Analysis ; Methods of Analysis & Diagnosing Corporate Capabilities Functional Area Profile and Resource Deployment Matrix : Strategic Advantage Profile ; SWOT Analysis. ___________________________________________________________________ Analysis of Internal Resources External environment is analyzed with respect to opportunities & threats. This is capability of the company with respect to available resources i.e. strength & weakness. In other words resource audit or capability audit. Necessity of resource analysis: All organization may not be equally strong in all their functional areas viz. a financially sound firm may be lagging in R & D activities, a strong production team is available but lacking in marketing & so on. The effect of deficiencies is evidenced over a period of time. Corporate strategy formulation is based on both external environment i.e. opportunities & threats and internal environment i.e. strength & weakness. Resource audit may be useful in understanding the internal capabilities of an enterprise. Broad items of resource audit: Physical resources: Inventory of assets & properties. Financial resources: Potential sources and uses of long term capital, Changes in working capital, Cash flow, Suppliers credit, Outstanding credit, etc. Human resources: Number of employees in different categories, Skill, Experience, Moral & Motivation level, etc. Intangible resources: Goodwill, Values, Customer service, Image, Brand name, etc.

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Strategic Advantage Analysis is the process by which strategists examine a firms resources & capabilities in the key functional areas to determine where the firm has significant strengths & weaknesses so that it can exploit the opportunities and meet the threats of the environment. The broad factors for assessment are: Marketing & Distribution: Interface & communication link between organization & external environment, Competitive position, nature of market & market share, Product line & product life cycle, Pricing strategy, Brand image, Packaging & channels of distribution, Marketing research & policy, etc. Financial & Accounting: Financial resources & strength, Capital structure & cost of capital, Relation with owners & share holders, Financial planning & budgeting, Accounting system & audit procedure, Tax planning & advantage, etc. Production & Operations : Operating procedure & cost of operations, Capacity utilization, Production facilities, Cost & availability of materials, Inventory control, Production planning & control, Management information, etc. R & D: Facilities available, Allocation & expenditure, Nature & results obtained, etc. Human Resources: Personnel policies & practices, Employees performance record, Union management relation, Corporate image, etc. General Management: Organizational climate culture & competence, Distribution of authority freedom of action & power of managers, etc. Value Chain Approach to Internal Analysis : An alternative approach to strategic analysis of internal resources across distinct functional areas was suggested by Michael Porter. Value chain approach suggested by Michael Porter consists of identifying the series of activities which are undertaken by the firm & are relevant for meeting customer demand. These are in respect to areas where firm has edge over its competitors. There are two broad categories of value activities: Primary activities This include activities connected with the physical creation of firms product or service, marketing, delivery & after sales service. These can be divided into 5 basic categories: 1. Inbound logistics-These are activities associated with procurement, storage & flow of inputs to the product viz. materials handling, warehousing, inventory control, etc. 2. Operations-Activities involved in the transformation of inputs to final product like machining, assembly, packaging, etc. 3. Outbound logistics-These include activities associated collection, storage & physical distribution of finished goods to customers viz.
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storage/warehousing of finished goods, order processing, scheduling deliveries, etc. 4. Marketing & sales-Activities as advertising, sales promotion, sales force management, channel selection, pricing, etc. 5. Service-Activities aimed at providing service to enhance or maintain the value of the product like installation, repair, training, etc. All the primary activities deserve attention in the process of internal analysis in a systematic manner but particular activities may require more detailed analysis depending upon the nature of industry; viz. in food processing industry generally inbound & outbound logistics constitute critical activities. Support Activities: Support activities provide the infrastructure for primary activities which may be as follows: 1. Procurement-this include purchase of materials & service inputs, equipment & machinery, etc. 2. Technology development-technology in product designing & manufacturing processes require optimization & up-gradation. 3. Human resource management-recruitment, training & development of manpower. 4. Firm infrastructure-relate to general management, finance & accounting, legal affairs, etc. USEFULNESS OF VALUE-CHAIN APPROACH: The framework of value-chain provides guidance for a systematic internal analysis of the firms existing or potential strength & weakness. METHODS OF ANALYSIS & DIAGNOSING CORPORATE CAPABILITIES: Several methods have been suggested by analysts to facilitate a systematic assessment of the internal resources & identifying the areas of strategic advantages (strengths) and disadvantages (weaknesses) of an organization. Some of the methods are Functional Area Profile & Resource Deployment Matrix : This method requires preparation of a matrix of functional areas with common characteristics like focus of financial outlay, physical resource position, organization system, technological capability, etc. An illustration of a manufacturing company is furnished below where resource outlay & focus of efforts over time in the respective functional areas is presented in the form of matrix. Such a profile indicates how the key functional areas stand in relation to
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each other and as compared with the competitors with respect to deployment of resources & the focus of efforts in the respective areas. The Functional Area Profile & Resource Deployment Matrix interprets & diagnoses the data and constitutes the basis on which strengths & weaknesses are to be identified. The present position should be examined in the light of past achievements, future expectations and internal requirements. Thus analysis takes into account position over a period of time. This would enable the strategist to see whether areas of advantage are being further strengthened or getting dissipated. Piecemeal analysis of capabilities in each functional area may be misleading. As such the relative strengths & weaknesses of the key functional areas should be considered together. If a company has developed competencies in one functional area, it needs to be examined whether the capabilities in other areas have compatible potentialities. Otherwise, the imbalance may lead to a position of weakness for the company as a whole.
Functional Areas Resource Deployment & 1992-93 Focus of Efforts Development Outlay (%) Marketing Amount (Rs.) Focus of Effort Development Outlay (%) Production Amount (Rs.) Focus of Effort Development Outlay (%) Finance Amount (Rs.) Focus of Effort Development Outlay (%) R&D Amount (Rs.) Focus of Effort Management Development Outlay (%) Amount (Rs.) Focus of Effort 1993-94 1994-95 1995-96

Another important aspect of capability analysis is the comparison of strengths vis--vis weaknesses. Emphasizing strengths rather than weaknesses is often justified as it may be useful to take advantage of an opportunity on the basis of identified strengths rather than viewing weaknesses as impediments. SAP Analysis (Strategic Advantage Profile):

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A profile of strategic advantage is a summery statement, which provides an overview of the advantages & disadvantages in key areas likely to affect future operations of the firm. It is a tool for making a systematic evaluation of the strategic advantage factors significant for the company in its environment. The preparation of such a profile requires detailed analysis & diagnosis of the factors of each functional areas like marketing, Production, Finance. Personnel & Human resources, R& D, etc. In other words, SAP is a summery statement of corporate capabilities. For example-a company may identify relative strength in personnel areas with highly skilled workmen and technical staff manning the production dept. but the production dept. may be old & backdated. As such the technical competence in the personnel area can hardly be regarded as strength unless company removes the weakness of outdated production facilities. Strategic Advantage Profile (SAP) of ABC India Ltd. Internal areas (+) Strength (--) Weakness Marketing Operations R&D Finance Corporate (+) Capable sales force. Sales agents dispensed with. (--) Shrinking market for most products. (+) Profit picking up ; (--) Plant facilities old (+) Backing of parent US co. available ; (--) No effort (+) Parent US co. interested in expansion (--) Reliance in fixed deposits & bank loans ; (+) Young & ambitious management team.

What IS SWOT ? Strength: Inherent capacity to gain superiority & advantage. Weakness: Inherent limitation or constraints creating disadvantages or inferiority. Opportunities: Favorable condition in an organizational environment consolidate & strengthen its position viz. growing demand of products & services. Threats: Unfavorable condition creates risks or damage viz. competition. SWOT Analysis : The diagnosis of a firms strengths & weaknesses can be fruitful only if the environmental factors and market conditions are considered along with internal capabilities. SWOT (strengths & weaknesses, opportunities & threats) analysis involves matching of internal capabilities with environmental opportunities & threats. Matching strengths & weaknesses with opportunities & threats requires that a firm
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should direct its strengths towards exploiting opportunities & blocking threats while minimizing exposure of its weakness at the same time. SWOT analysis may provide the basis of a comprehensive approach to strategy, which can be applied in different ways: 1. It provides a logical framework to be used for systematic discussion of various issues bearing on business situation. The choice of strategy takes place through an interactive process in a dynamic setting. 2. Structured approach where key external threats & opportunities may be systematically compared with internal strengths & weaknesses. 3. A business may have several opportunities but also face some serious threats in the environment. Similarly several weaknesses with one or two major strengths. In such situations, SWOT analysis guides the strategist to visualize overall position of the firm & helps to identify the major purpose of the strategy being considered. Strengths These are resources, skills or other advantages relative to competitors and needs of the markets. A strength is a distinct competence that gives the firm comparative advantages in the market place. Major strengths may be as follows: Skill or expertise technological know-how, defect free manufacture, experience, etc. Physical assets modern plants & equipment, attractive location, etc. Human assets experienced & capable work force, etc. Intangible assets Reputation, Good-will, Brand loyalty, etc. Weaknesses Weaknesses are deficiencies or limitations of resources, skills & capabilities that affects performance. Understanding the key strengths & weaknesses of the firm further aids in narrowing the choice of alternatives and selection of strategy. Opportunities Managers cannot properly tailor strategy without first identifying opportunity, growth & profit potential. Depending on the prevailing circumstances companys opportunities can be plentiful or scarce and can range from attractive to marginal. Threats Certain factors in companys external environment pose threats to its profitability & competitive well-being. Threats can emerge from cheaper or better substitutes, cheaper superior technology, new products, lower cost foreign competitors, new burdensome regulations, etc. Opportunities & threats not only affect the attractiveness of a companys situation but they point to the need for strategic action. After SWOT analysis is completed, a profile can be generated to use as the basis of goal setting, strategy formulation & implementation.

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Strengths 1. 2. ---------------------------------Opportunities 1. 2. ----------------------------------

Weaknesses 1. 2. ---------------------------------Threats 1. 2. ----------------------------------

Limitations of SWOT Analysis: Although useful for reducing a large quantity of situational factors into a more manageable profile, SWOT framework oversimplifies the situation. Sometimes the classification is arbitrary a company culture may be either strength or weakness, a technological change may be either opportunity or threat. UNIT IV : Formulation of Strategy : Approaches to strategy formation ; Major strategy options Stability, Growth & Expansion ; Diversification ; Retrenchment ; Mixed strategy ; Choice of strategy BCG model ; Stop light strategy model ; Directional policy matrix (DPM) model ; Product / Market evolution matrix ; Profit impact of Market strategy (PIMS) model. Major issues involved in the implementation of strategy : Organization structure; Leadership & resource allocation. Approaches to strategy formation : Possible approaches to strategy formulation are many. The traditional approach developed in first part of nineteenth century covers : Situation of the company as a whole generally on the basis of the functional departments. Determination of objectives. Development of a program of action encompassing the various activities of the company in the light of direction provided by the objectives. It was an open ended process. The traditional approach was characterized by a concern for short term problems, sporadic diagnosis & adaptability to meet changes in current conditions. The modern approach evolved during 1950s emphasis on reappraisal of existing strategy in the light of changing external conditions, constant surveillance of the environment to identify & capitalize on long term opportunities, formulation of alternative strategies as per requirement and choosing an appropriate strategy all within a formalized system.
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The method of strategy formulation is a rational proposition. Different approaches to strategy making may be distinguished on the basis of thrusts which generates strategic alternatives. This may examined with following approaches : 1. Intuition In this approach the strategy evolves in the mind of chief executive without being explicitly stated & without the aid of formal procedure. Along with intuition, personal judgment based on experience is also a necessary element in this approach. Lala Sri Ram, J.R.D. Tata, G.D. Birla to name a few among the pioneer Industrialists who are always remembered for their imagination, drive & vision which led to corporate growth, & prosperity in different fields. The strategies developed by each of them over the years may be attributed to their intuition & judgment. 2. Disjointed Incrementalism This approach reflects an attitude of management for acting only when forced to with minimum changes in the organization. The decisions made are of remedial nature. 3. Entrepreneurial Approach The thrust of this approach is related to role of the manager as an entrepreneur. The role of an entrepreneur is opportunity focused & not problem focused. 4. Inside Out Planning Strategies is to be first conceived in a thought process arising out of the unique talents & resources possessed by a company. 5. Key Factor Approach This approach consists of determining the really significant factors that are important in the success of a particular business & concentrating major decisions on it. 6. Integrated Approach This provides a framework consisting of the following : Analyzing the present internal & external conditions. Identifying & evaluating the present strategy the major objectives, policies & plans currently guiding the firm. Search for strengths & weaknesses viewed within the present strategy and environment. Considering changes in the present strategy. Generating alternatives to resolve the problems & exploit the opportunities. Corporate Strategy : In corporate strategy the top management is the primary groups involved in strategy making. They are responsible for the financial performance of the corporation as a whole as well as for achieving non-financial goals like corporate image, social responsibility, etc. At the corporate level, strategic decisions relate to organizationwide policies and are most useful in case of multi-unit & multi-location companies having wide range of business interests. The choice of strategies being wide shall depend on how an organization perceives its strength & weaknesses vis--vis the opportunities & threats in external environment.
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Corporate strategy has 2 main aspects:

Formulation of Strategy or Strategic Planning involves deciding about the strategy or decision-making by corporate management. It is determination of long-term goals in an enterprise, adoption of courses of action & allocation of necessary resources for carrying out these goals. Strategy formulation requires identification of opportunities & threats in the companys environment along with estimate of risks attached with different alternatives and assessment of companys strength & weaknesses. Formulation of strategy also includes consideration of corporate obligation to society & stakeholders. Strategy Implementation primarily comprise of administrative policies regarding mobilization of resources, designing appropriate organization structure, establishing performance measurement, compensation, etc. so as to accomplish the objectives.

Characteristics of Corporate Strategy: 1. Top management function. 2. Related to total organization viz. major change in the direction or scope of the business activity. 3. Futuristic having long-term implications. 4.Use critical resources towards perceived opportunities in a changing environment. 5.Continuous & dynamic process and not just one time exercise. Major Strategy Options : The major options in strategy formation are Stability Strategy: Stability strategy implies that the company will continue in the same or similar business as being pursued with the same or similar objectives. However, stability strategy also implies focusing on improvements of functional performance & maintaining the level of achievement. Organizations with conservative outlook prefer a stability strategy. The distinctive elements of a stability strategy are As there is no major change in the product or service line, markets or functions, it is lees risky and employees feel comfortable with existing things generally being resistant to change. The environment surrounding the firm is relatively stable, predictable and certain. As such there appears to be no serious threat nor any opportunity worth exploring. The focus is on maintaining & developing competitive advantages consistent with the present resources & market requirements.
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 The policy thrust is aimed at not only the maintenance of the present level of performance but also to ensure that the rate of improvement continuing in the past is sustained. Regulatory restrictions / controls on the companys business. Examples are : Steel (SAIL), Cement (ACC), Coal (CIL), etc. industries are adopting stability strategy without going for expansion concentrating on improving their operational efficiency. Cigarettes and Alcohol industries are subject to restrictions having control over expansion. So ITC have gone for growth and diversification in other businesses like hospitality, agro-business, etc. Public sector companies like BPCL, IOC, HP, etc. are forced to adopt stability strategy due to Govt. policy of curtailing budgetary support for expansion program. Growth or Expansion Strategy: In the stability strategy there is no major change in the product or service line, markets or functions and policy is aimed at maintenance of present level of performance consistent with present resources & market requirements. The stability strategy is considered desirable when external conditions are not favorable for pursuing growth strategy due to resource or opportunity constraints. Growth or expansion in the volume of business of a company implies stepping up of sales volume, market share or net earnings. A growth strategy of a firm signifies level of objectives higher than the present level of operation viz. market share, sales revenue, etc. Besides growth strategy is achieved when new products are added to the existing line or expanded through acquisition, merger or amalgamation of firms. In India particularly after liberalization in July, 1991 executives of successful companies are engaged in planning for growth. The basic reasons for pursuing growth strategies may be outlined as follows Sometimes stigma is attached to a company that is not growing. A growth company is better known & attracts better management. The industries subject to frequent changes in technology & other external conditions, growth is necessary for survival. Expansion is rewarding phenomenon in several ways like increased market share, higher executive compensation, sense of achievement, satisfy power & recognition needs, etc. Growth strategy can be achieved by different approaches. Accordingly, the strategists may consider different ways & means of growth or expansion.
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Growth strategy ___________________________________ Internal External _________ __________ ________ _____ __________ Market Dev. Product Dev. Acquisition Merger Joint Venture

______ Alliance

Internal growth which consists of increasing the sales revenue, profits & market share of the existing products or services is generally known as Intensive growth strategy. Sales may be increased by: Pushing existing products in unexplored markets. Encouraging new uses of the existing products in the same markets. Introducing minor modifications of the product & entering new market segments. New pricing policy. External growth which is expansion through co-operation of more than one firm. o Acquisition one financially strong firm acquire the other firm to expand business, avoid competition, take advantage of distress sale, etc. In this case the assets & liabilities of the acquired firm is totally taken over. o Merger generally two or more firms having common interests may decide to combine together for mutual benefits. The name of either of the firm may be kept or both dissolve their identity to create a new firm. o Joint Ventures is temporary partnership of 2 or more for a specified purpose. In this case neither of the firms loses its identity. There are different types of joint ventures followed for new business activities. One firm may look for joint ventures without doing alone due to the reasons:1. uneconomical 2. lack of required resources &competence 3. avoid competition o Alliances - Two or more firms unite to pursue a set of agreed goals but remain independent subsequent to formation of alliance. In other words, co-operation between two or more independent firms involving shared contribution & control. A common strategy is developed pooling the resources & a win-win attitude is adopted with reciprocal relationship.

Diversification Strategy: An organization can grow only by adding new products or services or markets when the market is saturated in the existing range. This approach towards growth is known as diversification.
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Diversification Strategy is thus defined as a strategy in which the growth objective is achieved by adding new products or services in the existing product or service line or marketing zones which can be accomplished in different ways: Diversification Strategy ________________________________________ Horizontal Vertical ___________________ __________________ Concentric Conglomerate Forward Backward Horizontal Diversification: Concentric Diversification involves introduction of new products or services to serve similar customers in similar markets - e.g. Maggi introduced tomato ketch-up in addition to noodles. Conglomerate Diversification involves addition of dissimilar product or services to the existing line of business. Thus it differs from Concentric Diversification, which also involves introduction of new products or services but in a related field e.g. DCM diversified from textiles to fertilizers, chemicals, rayon, sugar, etc. Vertical Diversification involves introduction of new products or services that are complimentary to existing product or service line. It may be forward or backward integration: 1. Backward integration: This strategy also known as upstream development involves addition of activities to ensure supply of firms present inputs e.g. many sugar mills have developed captive sugarcane farming. [ Advantages & Disadvantages of Backward Integration P.K. Ghosh] 2. Forward integration: This strategy also known as downstream development involves addition of activities to ensure use of firms existing outputs e.g. timber merchants extending in the business of furniture makers. [ Advantages & Disadvantages of Forward Integration P.K. Ghosh] Further diversification can be segmented into related & unrelated diversification. In related diversification, a business adds or expands the existing product lines or markets. In this strategy there is advantage of understanding the business better & knowing industry opportunities & threats. In unrelated diversification, a business adds a new or unrelated product lines or markets. However, diversification analysis may under-estimate issues like change management, integrating diversified cultures, handling employees, etc. or over estimate the anticipated benefits. These are undertaken for cost efficiencies with low risk investment with high potential of return.
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Retrenchment Strategy : Retrenchment Strategy is often called reduction strategy. These are strategies adopted to cut down the sales, production &/or investment to reduce losses. It is essentially a defensive strategy adopted as a reaction to operating problems like internal mismanagement, unanticipated actions by competitors or changes in market conditions. These strategies are adopted out of necessity to eliminate weaknesses that are dragging the company down. Reasons for using the retrenchment strategy : Poor performance when a firm suffers from poor performance in terms of lower earnings & profits and is unable to recover its position by any other means. Threat to survivalwhen the survival of the firm is threatened by unanticipated problems in the market. Redeployment of resourceswhen alternative investment opportunities promise higher returns, there are chances of diversion of resources for increased profitability & growth. Insufficiency of resourcesAvailability of adequate funds to sustain the activity. Improve efficiency to cut down some of the existing operations to simplify the range of activities to achieve higher efficiency. Some of the important retrenchment strategies are 1.0 Turnaround Strategy : This is aimed at halting the present declining trend in performance while improving the long run efficiency of operations by focusing on the following : 1.1 Cost reduction cutting down redundant expenses, lay-off & retrenchment of personnel, etc. 1.2 Revenue increase better collection of receivables, inventory control, etc. 1.3 Reduction of assets selling of obsolete or inefficient plant facilities & assets, etc. The necessity of turnaround strategy is predicted on managements ability to anticipate impending business failure. Industrial or economic recession, changes in social variables, increased competition, technological advances, etc. may be responsible for business reverses. In the face of declining trend in the business performance, the objective of turnaround strategy should be to halt the declining trend while improving efficiency of performance, stabilization & return to growth. 2.0 Divestment strategy : This involves selling of business units to redeploy the resources recovered for other purposes. The basic objective is to prevent any segment of business become an impediment on the total profitability of the enterprise particularly when alternative investment opportunities promise
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higher return. 3.0 Liquidation strategy : This involves selling off or closing down a firm to avoid bankruptcy & securing a better deal for shareholders than running at a loss. Mixed or Combination Strategy: This involves using number of strategies at the same time in different segments of the organization. The purpose of mixed strategy is to allocate resources to the high growth & high potential areas of business while reducing investments in less profitable endeavors. This strategy is frequently used in multi- product & multilocation companies pursued for following reasons Different products in different stages of life cycle. Industrial recession. Size of the firm. Choice of Strategy : A choice from alternative strategies is most critical step in the strategic planning process. What needs to be guarded while choosing a strategy is imperfect decision making which may result from Not analyzing the impact of the decision on organization objectives. Tendency to ignore problems in the hope they may disappear. Insufficient evaluation of alternatives. Avoidance of risk. Choice of strategy is the outcome of a systematic evaluation of alternatives based on facts & analyzed by experts. Ideally, the strategy should be chosen which fits to the objectives in the light of environmental opportunities & threats and organizational strengths & weaknesses. Various steps involved in strategic choice process are : 1. Focusing on strategic alternatives. 2. Evaluating these alternatives. 3. Considering decision factors both objective & subjective. 4. Choice of strategy in the light of various factors. Factors Influencing Strategic Choice A dynamic environment that changes continuously but irregularly with wide variation in the rate of change. The operating system of the organization which seeks to stabilize its activities despite the characteristics of the environment it serves.
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 The role of leadership mediating between two forces to maintain stability of the operating system while adopting to environmental change. Selection Factors of Strategic Choice Managerial perception of external dependence. Managerial attitude toward risk. Managerial awareness of past enterprise strategies. Evaluating Strategic Alternatives Analytical Models A number of models have been developed to evaluate strategic alternatives before making a choice. These are : 1. Boston Consulting Group (BCG) Model. 2. Stop-Light Strategy Model. 3. Directional Policy Matrix (DPM) Model. 4. Product / Market Evolution Matrix. 5. Profit Impact of Market Strategy. 1. BCG matrix Developed by Boston Consulting Group, this classifies the various businesses in a firms portfolio on the basis of relative market share and relative market growth rate as shown below: Market share High Low _____________________________ Market growth rate High Stars ? _____________________________ Low Cash Cows Dogs _____________________________

Stars - Businesses which enjoy a high market share & a high growth rate. They earn high profits but require additional commitment of funds for expansion of their activities. Eventually as growth declines & additional investment needs diminish, stars become cash cows. Cash Cows Businesses which enjoys a relatively high market share but low growth potential. They generate substantial profits & cash flows but their investment requirements are modest. The cash surpluses provided by them are available for use elsewhere in the business. Question Marks Businesses with high growth potential but low present market share. Additional resources are required to improve their market share & potentially convert them into stars. As there is no guarantee of this, that is why they are called Question Mark.
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Dogs Businesses with low market share & limited growth potential. Since the prospects for such products are bleak, it is advisable to phase them out rather than continue with them. As reflected above, it is apparent that cash cows generate funds and dogs, if divested, release funds. On the other hand, stars & question marks require further commitment of funds. Limitations of BCG model The 4 cell matrix is not sophisticated enough to take care of all possible factors affecting the performance of business segments. Moreover, with the simple high / low classification scheme, the matrix does not cover for the average growth / share categories. The model is based on relationship between cash generation & market share which are long term relationship. As such it does not provide for a short term adjustment. Another problem relates to the determination of potential growth rate of a market segment, particularly with the impact of inflation. It does not provide any clue for assessing the relative investment opportunities across different SBUs in the corporate portfolio. The levels used dog, question mark, cash cow & star have been found illsuited for appropriate managerial motivation. Executives prefer levels as build, hold, harvest, withdraw, etc. which are more dynamic & action oriented. 2. Stop-Light Strategy or General Electric Co. Model This model emphasizes that strategic decisions are to be made on the basis of 2 key variables (a) Business strength & (b) Industry attractiveness. Business strength is rated considering size, growth rate, market share, profitability, technological status, image & people. Industry attractiveness is similarly rated considering size, market growth, pricing, profitability, technical role, competitive, environmental conditions, etc. The rating may be high, medium or low in respect to Business strength & Industry Attractiveness. If the business position is strong & industry is at least medium in Attractiveness, the strategic decision should be to expand, to invest & grow. If the business strength is low but industry attractiveness is high, then it needs caution and managerial discretion is required for strategic choice. If business strength & industry attractiveness are low, then appropriate strategy should be retrenchment, divestment or liquidation. The Industry attractiveness index is plotted along the vertical axis of the matrix divided into low, medium & high scores. On the horizontal axis the Business strength is plotted in 3 segments strong, average & weak.

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Strong Average Weak Competitive Business Strength [P-315:Ghosh] For each business, the size of industry is represented by a circle & the market share of the concerned business by shaded part of the circle. It is improvement from BCG model by expanding the matrix from 4 to 9 cells. The high / low classification is replaced by high / medium / low and weak / average / strong classifications to have finer distinction. 3. Directional Policy Matrix (DPM) Model This model aims at placing each SBU on a matrix according to Business sector prospects & Companys competitive capabilities. The application of this model hinges on identification of prospects of business sector as favorable or unfavorable and companys competitive position as strong or weak. Business Sector Unattractive Weak Divestment Phased Withdrawal Cash Generation Average Phased Withdrawal Custodial Growth Prospects Attractive Double or Quit Try Harder Leader

Average Strong

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[P-316:Ghosh] Divestment: The business running in losses with uncertain cash flows suggest divestment strategy so that resources released may be put to better use. Phased Withdrawal: Such businesses may be divested in phases as they are not likely to earn enough & the value of assets received may be invested in more profitable business. Double or Quit: Products in this zone have attractive prospects but weak competitive ability. There may be two alternatives either strengthen the business by allocating additional resources or if it is not possible then quit. Custodial: The company should bear with the situation & make good the overall position with the help of other product units. Try Harder: This position indicates attractive prospects but average competitive capability. Products located in this zone need necessary resources to support them to move to the position of equality. Cash Generation: The business which has strong capability but unattractive prospects may be used for cash generation but further investment should be avoided. Growth: The business with strong capability with average business prospects requires additional investment towards product innovation through R & D and creation of additional capacity to increase market share Leader: The largest producer with the lowest unit cost having superior technology may be regarded as leader in the business sector. In such position, the products needs to have priority of resource allocation to hold the market share. 4. Product / Market Evolution Matrix This consists of a 3- by-5 matrix where business units are classified on the basis of product / market evolution of the units and their competitive position. The relative size of respective industries is represented by circles and the relative market share of the concerned business by shaded part of the circle. The stages in product / market evolution are plotted on the vertical axis divided into 5 segments as development, growth, shake out, maturity to saturation & decline. The competitive position is plotted along the horizontal axis in 3 segments strong, average & weak.

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Development Growth Shake out Maturity to Saturation Decline Strong Average Weak

Competitive position [Page-318 Ghosh] 5. Profit Impact of Market Strategy (PIMS Model) This model is based on the analysis of data provided by the companies to derive strategies in different competitive environments producing different profit results. Strategic Planning Institute, USA launched the study PIMS to identify the most important variables affecting profits. It is observed that there is linear relationship between market share & profitability. However the optimum market share shall be the level where ROI is highest. Thus PIMS technique suggests that the most appropriate strategy may be expansion of the same product line up to optimum level and beyond that diversification is more appropriate.

Major Issues Involved in the Implementation of Strategy :

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Strategies are to be activated through implementation. This involves actions in different phases as described below. There may be considerable gap between the time when a strategy is formulated & the time when it is implemented. Besides the process of implementation is itself time consuming. During the intervening period, there is a possibility that the assumptions made during formulating a strategy will not remain valid or not so relevant. Strategic controls take into account the changing assumptions that determined a strategy, continuously evaluate the strategy during implementation and take necessary steps to adjust the strategy to new requirements. As such strategic controls are early warning systems & differ from post-action controls, which evaluate only after the implementation is complete. Organizing for Action: The needs of an organization can be derived from its mission & objectives. These needs are the key activities, which have to be performed to achieve objectives & realize the mission. Organizational design therefore starts with the identification of such key activities. The sequences of steps followed in organizing for action are 1. Identification of strategic key activities necessary to be performed for the achievement of objectives & realization of mission differentiating from routine & support activities viz. maintenance, safe store keeping, handling pay rolls, training of manpower, etc. 2. Grouping of critical activities along with routine & support activities that are similar in nature needing a common set of skills to perform. 3. Choice of structure that could accommodate the different group of activities creating departments, divisions, etc. suiting requirements. 4. Establishing inter-relationship between different departments for the purpose of co-ordination & communication. It is difficult to decide which type of structure would satisfy the requirements of a particular strategy. Organization structure has to be based on those functions & activities that are required from the viewpoint of strategy. How Strategy to be Implemented ? Developing alternative strategies & making the strategic choice constitute important steps in the process of strategic management. Implementation of strategy is the next vital stage in the process as the chosen strategy must be put into action. A good strategy without effective implementation can hardly be expected to succeed. Implementation of strategy involves a number of interrelated decisions, choices and a broad range of activities. There are 2 interrelate task systems involved in the process :(a) Differentiation or organizing task is related with segmentation or dividing up the total strategic plan into components parts to be carried out by divisions, departments & units. On the basis of the segmentation of strategic plan and assignment of tasks & responsibilities for each primary unit of the activity resources are allocated to various units.
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(b) Integration of functions & programs among organization units is concerned with unifying the diverse segments of the activities in conformity with strategic goals of the enterprise as a whole. Developing Programs: Strategic choice is essentially a decision making process from different alternatives available after strategic analysis. As soon as the strategic choice is finalized, the program or plan for implementation & control are to be initiated. Developing programs are specific action plans including resource requirements drawn up to accomplish any established objective within a time frame. Budgets & Procedures: Budgets - A major issue in strategy implementation is the allocation of resources available with the organization or which can be mobilized by it. Organizational units need sufficient budgets & resources to carry out their parts of strategic plan effectively & efficiently. Changes in strategies usually require significant budget reallocations. Procedures Procedures are a set of rules, which provides guidance in decision making to members of an organization. The procedures provide guidelines for deciding & guiding a course of action in the organization establishing regularity, stability & dependability of performance. Thus help align action & behavior throughout the organization placing limits on independent action and channeling the efforts along the intended path. Generally expressed in a qualitative & conditional way.

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