MB0052 SLM Unit 12

Strategic Management and Business Policy
Unit 12
Unit 12
Selection and Activation of Strategy
Structure
12.1 Introduction
12.2 Caselet
Objectives
12.3 Process of Strategic Choice
12.4 Strategy Selection Factors or Criteria
12.5 Selection of Final Strategy
12.6 The Strategic Plan
12.7 Preparation of Strategic Budget
12.8 Allocating and Managing Resources
12.9 Case Study
12.10 Summary
12.11 Glossary
12.12 Terminal Questions
12.13 Answers
12.14 References
12.1 Introduction
In the last unit, we moved closer to selection of strategy by an organization.
Various industry types and structures were analysed and important aspects of
competitive strategies in these industries were discussed. Most companies belong
to one of these types of industries. Competition analysis was undertaken in detail,
which enables a company to understand clearly competitor signals, moves and
actions which can pose competitive threats to companies. Finally, various factors
which determine or affect competitive advantage or disadvantage of companies
were analysed. All these give vital guidelines to companies for selection of an
appropriate strategy, or a combination of strategies, under given conditions.
The present unit is more like an extension of the previous one. We will
discuss some additional factors or criteria here. These factors or criteria should
guide a company in selecting a final strategy from among the various alternative
strategies discussed in Unit 7 (stability strategies), Unit 8 (strategies for managing
change) and Unit 9 (expansion strategies) or a combination of some of these
strategies depending on the particular company situation and the competitive
environment. These factors include the process of strategic choice, evaluation
of strategic alternatives, criteria for selection of strategy, benchmarking and
best practices and critical success factors (CSFs). We shall also discuss in this
Sikkim Manipal University
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chapter various factors or issues involved in activating strategies and organizing

for success.
12.2 Caselet
An organization can determine whether its current capabilities represent
strengths or weaknesses in industry competition by analysing industry
structure, industry competitors, cost structure, customer needs, availability
of substitutes, barriers to entry, etc.,.A good example of this is the General
Cinema Corporation, the largest US movie theatre operator for many years.
The company reassessed that its internal capabilities in site analysis, creative
financing, marketing and management of geographically dispersed
operations were key strengths compared to major success factors in the
soft drink bottling industry. This assessment proved correct and timely for
the company. Within 10 years of entering the soft drinks bottling industry,
General Cinema became the largest franchised bottler of soft drinks in the
US. It was handling jobs for Pepsi, 7UP, Dr. Pepper and Sunkist.1
Objectives
After studying this unit, you should be able to:
Analyse the process of strategy choice or selection
Discuss strategy selection factors or criteria
Highlight different benchmarking practices
Analyse the process of activation of strategies
Discuss the process of preparation of strategic budget
Focus on allocating and managing resources
12.3 Process of Strategic Choice

Choice of a final strategy or strategies from the alternative strategies available
is the most critical and, also the most difficult job in the strategic planning process.
Glueck and Jauch (1984) have defined strategic choice in terms of selecting
the best among the alternatives.
Strategic choice is the decision which selects from among the alternative
grand strategies which will best meet the enterprises objectives. The
choice involves consideration of selection factors, evaluation of the
alternatives against these criteria, and, the actual choice.2
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Many companies go through the process of strategic choice or decision

making, but not in a very organized or systematic way. They do not guard against
the possible pitfalls, and, as a result, imperfection or mistakes may creep in.
Imperfection may creep in because of four major reasons:
(a) Not analysing carefully the impact of the strategic choice or decision
on organizational objective.
(b) Tendency to ignore problems in the false hope that those would
disappear or resolve themselves.
(c) Incomplete evaluation of strategy alternatives.
(d) Avoidance of risk which may usually be associated with strategic
planning and decision-making process.
In a more positive sense, strategy choice or selection should consist of
four interrelated steps. These steps actually follow from the definition given
above:
1. Focussing on strategy alternatives
2. Evaluating strategy alternatives
3. Considering/using the selection factors or criteria
4. Selecting the final strategy or strategies
Selection of factors or criteria should be generally objective. But, many
times, subjective factors also play dominant roles. Including these factors, the
process of strategic choice may be schematically shown as given in Figure
12.1.
Figure 12.1 Process of Strategic Choice
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12.3.1 Focusing on Strategy Alternatives

As discussed in the previous units, strategy alternatives available to a company
are many. Most companies are faced with a dilemma: should they consider all
possible alternative strategies or should they limit themselves to selected
alternatives on the basis of certain given guidelines. Consideration of all possible
alternatives makes the process very broad based, and, it may be theoretically
recommended. But, the practical problems may be many. There is also the
question of time and resources. On the other hand, if only few alternatives are
considered, there is the possibility or risk of omission of some important
strategies.
This clearly indicates the need for a middle course in terms of the number
of alternatives. A reasonable number of alternatives should be chosen initially
on the basis of certain company considerations. First, every organization has a
corporate mission or philosophy. This would dictate elimination of some of the
strategy choices. For example, Reliance Industries, as a corporate policy, does
not consider any project with outlay of less than `1000 crore. Similarly, Tata
Group has decided on a policy that group companies will operate only in those
industries in which they can occupy one of the first three positions. Second,
investment requirements may eliminate some choices, i.e., strategy alternatives
with very high investment requirements may not be considered. Third, gap
analysis (discussed in Unit 6) also helps in the initial selection of some probable
alternatives and exclusion of others. The gap analysis essentially shows or
measures the gap between present performance and desired performance based
on organizational goals or priorities. Only those strategies which are relevant
for bridging the performance gap should be considered to begin with. The final
selection of strategy would be made on the basis of other factors or
considerations.
Self-Assessment Questions
1. Strategic choice is the decision which selects from among the alternative
grand strategies which will best meet the enterprises objectives.
(True/ False)
2. Companies must consider all possible alternative strategies before making
a strategic choice. (True/ False)
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12.4 Strategy Selection Factors or Criteria

Contingency strategies are exceptional strategies for exceptional situations or
circumstances. Under normal circumstances, the choice of strategy has to
proceed in a logical sequence or step-wise process. After evaluating various
strategic alternatives in terms of company and industry/market characteristics,
the next step is to use appropriate selection factors or criteria. For further
evaluation of the alternatives or narrowing down the choices to more specific
strategies, we shall consider two selection factors or criteria:
1. SPACE technique or approach
2. Benchmarking and best practices
12.4.1 Space Framework or Technique

Strategic Position and Action Evaluation (SPACE) matrix or framework can be
considered an improvement over the portfolio analysis (various models discussed
before) and more comprehensive as a technique for evaluating or selecting
strategies. Compared to the two dimensions of the portfolio matrices/models,
SPACE framework consists of four dimensions two internal and two external
factors.
Internal
External
Financial strength
Industry strength
Competitive advantage
Environmental stability
Each of these factors can be rated on a 5-point scale (05) to determine its
relative effectiveness. Based on the relative effectiveness of these factors and
their different combinations, different strategies can be selected (See Figure 12.2).
Four quadrants in the figure represent four different postures: conservative,
aggressive, defensive and competitive. The ideal quadrant is 2 (aggressive)
where both the internal factors are strong and both industry strength and
environmental stability are high. Companies/businesses in this quadrant should
follow expansion strategies like diversification and integration. Actual or final
form of the strategy may be decided based on additional factors or considerations
(discussed later). Companies/businesses in quadrant 4 (competitive) possess
high financial strength but, low competitive advantage; environmental stability
is high but industry strength is low. Such companies/businesses should adopt
merger strategy through amalgamation or consolidation to improve synergy.
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They may also undertake corporate restructuring or turnaround strategies to

improve competitive advantage and become more competitive. Similarly,
businesses in quadrant 1 (conservative) should predominantly adopt stability
strategies. Companies/businesses in quadrant 3 are in the worst situation with
both internal and external factors very weak. They should adopt strategies for
divestment and liquidation.
Figure 12.2 SPACE Matrix/Framework

Source: Adapted from H Rowe et al. Strategic Management and Business Policy:
Methodological Approach (Reading, Massachusetts: Addison-Wesley Publishing Co.,
1983), 155.
SPACE matrix/framework considers several individual factors for

determining financial strength, competitive advantage, industry strength and
environmental stability. These are shown in Table 12.1.
Table 12.1 SPACE Factors: Internal and External
Internal Factor
External Factor
Financial Strength
Industry Strength
Cash flow
Growth potential
Working capital
Profit potential
Liquidity
Financial stability
Return on investment
Technological know-how
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Leverage
Resource utilization
Ease of exit
Capital intensity
Risk in the business
Ease of market entry

Productivity, capacity utilization
Competitive Advantage
Environmental Stability
Technological know-how
Technological change
Product quality
Competitive pressure
Product life cycle
Demand variability
Market share
Rate of inflation
Customer loyalty
Price change of competing products
Competitors strengths/weaknesses
Price elasticity of demand
Control over suppliers and distributors
Entry barriers
Note: Each individual factor is rated to arrive at an average or overall score between 0
and 5 for two internal factors and two external factors.
Source: H Rowe et al., Strategic Management and Business Policy: Methodological
Approach (Massachusetts: Addisson-Wesley Publishing Co., 1982), 15556.
12.4.2 Benchmarking and Best Practices

An organizations strategic capability or strategic choice is to be always
understood in relative terms because it involves comparison with competitors
or industry norms. This implies that organizations need to understand and analyse
performance standards, i.e., what constitutes good and bad performance. Since
performance is intrinsically related to strategy formulation and implementation,
the relativity factor should be kept in mind during the process of selection of
the strategy itself. A strategy, along with resource base, should be so selected
that it can deliver results of high standards or standards which can compare
with the best in the industry. This necessitates an analysis of benchmarking and
best practices.
Benchmarking is comparison with, and adherence to, prescribed norms,
standards or practices. Benchmarking can also be defined in a more functional
way:
Benchmarking is a process of identifying, understanding, and adopting
outstanding practices from the same organization or from other
businesses to help improve performance.3
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Based on the above definitions, five important features or characteristics

can be identified:
(a) Benchmarking enables an organization to analyse where it stands
in comparison to other organizations, where it excels or lags behind.
So, benchmarking is a useful diagnostic tool.
(b) Benchmarking involves identification of two things: first, what is to
be compared, i.e., product, process, performance, etc.; and, second,
whom to compare with, i.e., competitors, organizations in the same
industry, organizations outside the industry, etc.
(c) Benchmarking is applicable to all facets of business products,
processes, services, methods, etc. It goes beyond traditional
competitor analysis and focusses on understanding what are the
best practices and, how the best practices can be emulated, if not
improved upon further.
(d) Benchmarking is not confined to comparison only with direct product
competitors but, all those businesses or organizations which are
recognized as industry leaders or the best.
(e) Benchmarking is a continuous process and not just one-off initiative.
Industry standards and practices constantly change, and an effective
benchmarking initiative has to regularly monitor these changes and
accordingly adapt itself.
Types of Benchmarking
Benchmarking can be broadly divided into two major types or categories: the
first category is primarily based on what is to be benchmarked, and the other
type is dominantly based on whom to benchmark against.
What is to be benchmarked
(Dominant factor)
Whom to benchmark against

(Dominant factor)
Product benchmarking
Internal benchmarking
Process benchmarking
Competitive benchmarking
Functional benchmarking
Generic benchmarking
Performance benchmarking
Strategic benchmarking
Product benchmarking is a comparison of product(s) with competitors or

industry leader to ascertain what customers value most. Process benchmarking
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means emulating best processes, i.e., corporate practices and methods.

Functional benchmarking involves comparison of major functions production,
marketing, logistics, distribution, etc., with competitors or non-competitors.
Performance benchmarking is overall comparison of organizational performance
including processes, functions, and results with competitors or industry
participants. Strategic benchmarking is the adoption of strategybuilding system,
planning process, strategic decision making, etc. Internal benchmarking involves
comparison among units and developments within the same organization to
improve unit level or departmental performance. Competitive benchmarking is
a direct comparison of an organizationss competitive strengths and weaknesses
with the best of competitors. Generic benchmarking means comparing
organizational methods and practices with the best practices anywhere in any
type of organization within or outside the industry.
More common forms of benchmarking, however, are based on comparison
with competitors and success factors within the same industry. Organizations
which are more progressive and strive for excellence adopt generic
benchmarking. In practice, benchmarking often involves combining different
types (or more than one type) to improve organizational performance and results.
Benchmarking: Comparison with Competitors
A major, and very common, benchmarking practice is to develop an organizations
resources and competences in comparison with existing and potential
competitors. Different companies in the same industry have different financial
resources, technical know-how, managerial talent, marketing skills, operating
facilities, etc. These resources and competences can become relative strengths
or weaknesses depending on the strategy a company chooses. In selecting a
strategy, the management should compare the organizationss key capabilities
with those of competitors for securing competitive advantage.
Sears and GE are major competitors in home appliance industry in the
US. Sears principal strength is its retail networks. But, for GE, the distribution
systemthrough independent franchised dealershas been a relative
weakness. On the other hand, GEs resource base, particularly financial
resources, to support its modern production system, has enabled the company
to maintain both cost and technological advantage over its competitors,
particularly Sears. This major strength of GE is a relative weakness of Sears.
Maintenance and repair services are important in the appliance business. Sears
always had strength in this area because it maintains fully staffed service
components and distributes the cost of components over various departments
in different retail locations. GE, in contrast, has to depend on regional service
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centres and franchised local dealers. The comparison between Sears and GE
shows that benchmarking efforts of the two companies should focus on
distribution network, technological capabilities, operating costs and service
facilities. Management in both companies, in fact, developed successful
strategies based on relative benchmarking. By benchmarking each other, they
have developed ways to build on relative strengths, and at the same time,
avoiding dependence on capabilities in which the other company excels.4
Comparison with key competitorsessentially process benchmarking or
competitive benchmarkingcan be very useful in ascertaining whether resources
and capabilities of an organization are competitive strengths or weaknesses.
Identification of differences (strengths and weaknesses) with competitors provide
important inputs for choice and development of strategy. Also, through
competitive benchmarking, a company can concentrate on those strategies which
it can effectively use to its advantage. Box 11.1 illustrates how UPS used
competitor comparison with FedEx to assess its strengths and weaknesses in
the package transportation and delivery industry for selection of its strategy.
Benchmarking against Success Factors in the Industry
Industry analysis (presented in the previous unit) enables a company to identify
factors which account for strategic success in a particular industry. Key
determinants of success in an industry can be used to assess an organizations
competitive strengths and weaknesses. By analysing industry structure, industry
competitors, cost structure, customer needs, availability of substitutes, barriers
to entry, etc., an organization can determine whether its current capabilities
represent strengths or weaknesses in industry competition. Porters 5-forces
model (discussed in the previous unit) of competitive levels/threats in an industry
provide a useful framework for such analysis.
A good example of this is General Cinema Corporation (see Caselet).
Many other companies have successfully benchmarked industry success factors
for development of competitive strategy. Avery Dennison is another example.
Avery Dennison used industry evolution benchmarking against 3M to create a
new successful strategy.
Best-in-class Benchmarking
Comparison with competitors or benchmarking against industry success factors
has a major shortcoming. They only help an organization to succeed or excel
within the industry. But, best methods or practices need not be confined to only
within ones own industry. These can easily exist in some other business or
industry which may be really exemplary. As mentioned earlier, organizations
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which aspire to be comparable to the best among all businesses or strive for
excellence should adopt generic or best-in-class benchmarking.
Best-in-class benchmarking is a comparison of an organizations methods
and practices or performance against the best in any business or industry and
adoption of the same. Best-in-class benchmarking urges organizations to search
for best practices wherever those may be found. In best-in-class benchmarking,
the potential for change is enhanced, and the forces and direction of change
are facilitated by locating practices or forming partnerships across industries or
sectors. For example, British Airways improved aircraft maintenance, refuelling
and turnaround time by studying the processes used in Formula One Grand
Prix motor racing pit stops.5 A police force wanting to improve the way it responds
to emergency telephone calls studied call centre operations in the banking and
IT sectors for benchmarking the response pattern.6
Best-in-class benchmarking becomes particularly relevant for service
organizations. A characteristic feature of service organizations is that improved
performance in one sectorparticularly in factors like speed and reliability
raises the general level of expectations among customers about the same (speed
and reliability) from all companies in all sectors. So, in the service sector, bestin-class benchmarking urges organizations to stretch their core competence or
develop newer capabilities to exploit opportunities in different fields or markets.
Benchmarking Practices in Indian Corporates
With the increase in competitive intensities and exposure to globalization, Indian
companies, like many others in different parts of the world, are constantly seeking
to improve their performance. Benchmarking, therefore, is becoming a logical
strategic initiative. Different companies are trying to benchmark themselves in
different ways to suit their performance requirements and benchmarking
objectives.
Benchmarking practices followed by majority of the Indian companies
can be broadly divided into three types: product or quality benchmarking,
customer service benchmarking (an extension of competitive benchmarking)
and comprehensive or combination benchmarking.
Quality benchmarking has been adopted by companies like BHEL, NTPC,
IOC, Tata Motors, JCT Electronics and Johnson & Nicholson. Companies which
have used benchmarking to improve customer service are HDFC, Infosys,
ModiXerox, Titan and Airtel, among others. These companies focus on those
practices which help them to serve their customers better. Companies like
Reliance Industries, Ranbaxy, Maruti Suzuki, Hero Honda and Honda Motors
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have resorted to comprehensive or combination benchmarking, i.e., emulating

good or best practices in different areas to improve overall performance.
These companies have not confined themselves to benchmarking only
against Indian organizations. Many of them have gone for global benchmarking.
Some, like Maruti Suzuki have benchmarked their technology suppliers; others
like Hero Honda and ModiXerox have benchmarked their joint venture partners;
and some others like Honda Motors (India) have benchmarked their overseas
parents.
Some of these companies have adopted benchmarking practices as they
exist. Some others have modified or improved upon the existing practices for
better results or competitive advantage; Reliance and Infosys are among such
companies. Reliance has this to say about their global benchmarking: Global
benchmarking has always been a mantra for all of us here at Reliance. We
have now geared ourselves up to raise our levels of productivity and efficiency
for capital, assets, people and the entire organization well beyond comparable
global benchmarks.
12.4.3 Best Practices at Nike7

Nike can be studied as a good model of how companies grow to excellence in
corporate practices through organizational evolution. Nike evolved from a poster
child for irresponsibility to a leader in progressive practices. We analyse here
the content of this evolution or the path to corporate responsibility.
Nikes business model, like that of many othersto market high-end
consumer goods produced in cost-efficient value chainswas not enough.
During the past decade, the company has been grappling with complex
challenges of responsible business practices trying to strike a balance between
purely organizational and societal dimensions or objectives. Zadek (2004)
explains this in terms of five stages of organizational learning or growth. The
five stages of evolution are:
Stage 1 : Its not our job to fix that; this is the defensive stage
characterized by outright rejection of allegation or denial of links
between the companys practices and the alleged negative
outcome.
Stage 2 : We will do just as much as we have to, this is the compliance
stagea stage of recognition that a corporate policy must be
evolved and pursued for improving practices. Compliance may
be understood as a cost of doing business.
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Stage 3 : Its the business...; this is the managerial stagethe company

realizes that it is facing a long-term problem which cannot be
passed off with attempts at simple compliance or a public
relations strategy. The company needs more fundamental
changes in strategy and practices.
Stage 4 : It gives us a competitive edge; this is the strategic stagethe
company learns how realigning its strategy to conduct
responsible business practices can give it an edge in competition
and contribute to the organizations long-term success.
Stage 5 : We need to make sure everybody does it: this is the civil or
implemention stagethe company promotes collective action
to address societys concerns. Generally, it is linked directly to
organizational strategy.8
Nikes transition from corporate irresponsibility to excellence in progressive
practices has been made possible through a series of measures and sequential
developments. These have been well summarized by Zadek:
Nikes business is based exclusively on global outsourcing. Labour
activists in the early 1990s were exerting tremendous pressure on
premium brand companies to incorporate proper codes of conduct
in their global supply chains (appalling working conditions in some
of the suppliers factories). These groups targeted Nike because of
its high profile brand and not because its business practices were
worse than its competitors.
Labour activists actions were already affecting Nikes core and highly
profitable youth markets in north America and Europe. To prevent
further damage, Nike went professional in 1996 by creating its first
department specifically responsible for managing its supply chain
partners compliance with labour standards. And, in 1998, Nike
established a Corporate Responsibility department.
The CEO assembled a team of senior managers and consultants/
experts to be led by Nikes VP, Corporate Responsibility. Nike realized
that it had to manage corporate responsibility as an integral or
inseparable part of its business. It was also not difficult to re-engineer
procurement incentives. The review team proposed that Nike should
grade all factories according to their labour conditions and, then
penalize or reward procurement teams based on the grade of the
supplier they used. But, commercially and culturally, it was not so
simple.
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Nikes efforts to secure satisfactory labour conditions were serving

its immediate financial objective which was the sole focus of the
majority of the companys investors. Nikes challenge was to adjust
its business model to reflect responsible practicesbuilding
tomorrows business success without compromising todays financial
bottom line. And, to do this, it had to offset any first-mover
disadvantage it had by getting both its competitors and its suppliers
involved in the process.
Nike is a business and is accountable to its shareholders. But, the
company has taken significant steps in evolving a strategy and
practice which transforms itself from being a target of civil activism
to a key participant in civil society initiatives and processes. Nike
has perfectly positioned itself to deal with the challenges of corporate
responsibility. It rightly views the issue as integral to the realities of
globalization and, a vital learning process pertinent to its core
business strategy and organizational practices.
Activity 1
Use the SPACE framework and analyse the strategy selection process of a
company of your choice.
3. A comparison with, and adherence to, prescribed norms, standards or
practices is called __________.
4. An organizations strategic capability or strategic choice is to be always
understood in _______ terms because it involves comparison with
competitors or industry norms.
5. A comparison of an organizations methods and practices or performance
against the best in any business or industry and adoption of the same is
called ________ benchmarking.
12.5 Selection of Final Strategy

The final selection of strategy by an organization may depend on judgement,
bargaining or analysis.9 Evaluation of different strategy alternatives through
quantitative techniques and models and application of some selection criteria
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eliminate many inappropriate alternatives. This greatly facilitates the process of

strategic choice. But, the final choice of strategy still does not become easy or
automatic because subjective factors (in addition to objective factors) play a very
major role in any organization. Interplay of various organizational forces sometimes
lead to predominance of subjective factors (judgement or bargaining) and, in
some other cases, to dominance of objective or analytical factors (Figure 12.3).
Figure 12.3 Final Choice of Strategy: Interplay of Objective and Subjective Factors
Because final decision is taken by the management or the managers,

strategic choice cannot be governed only by objective considerations. If strategies
were selected only on the basis of objective criteria, a company would have
considered the organizations mission and goals, internal competences and
resources, environmental opportunities and threats analysis and evaluation of
alternatives and the selection criteria discussed above. But, in actual practice,
personal factors are inevitable in the choice processperceptions, biases and
preferences. So, the final choice becomes the outcome of interplay of different
and, sometimes, opposing forces. The resultant choice process narrows down
like this:
With individual group, organizational and environmental pressures
restricting strategic choice, a clear implication for the management is
the necessity for strenuous efforts to maintain choice. If 360 can be
conceived of as representing full choice, then previous strategic choice
may have eliminated 200 degrees, environmental conditions another
80 degrees, and, management values 50 degrees leaving a potential
choice range of 30 degrees or less.10
Mintzberg et al., have analysed 25 strategic decisions and arrived at certain

conclusions about strategy choice by judgement, bargaining or analysis.
According to them, choice by judgement is determined by decision makers
power equations. Choice by bargaining also depends on similar factors, but,
the choice process is more complex; the top management or the decision-making
power in the organization is divided and the issue may be contentious. Choice
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of strategy by analysis is a more logical process. There is agreement among

the top management on organizational goals or objectives. Choice by analysis
is more commonly adopted by larger organizations with better data/information
base and organizational size, and structure tends to support a more objective
approach. But, even in this approach, analysis and evaluation of alternatives
are influenced by managerial attitude towards risk, internal power equations,
organizational culture, etc.11
Between formulation and implementation of strategy, there exists another
major step. This is activation of strategies. Activation of strategy means
institutionalizing the strategy and mobilizing, allocating and managing resources
for execution of strategy. The starting point of activation of strategy is preparation
of a strategic plan. We had mentioned about strategic planning and strategic
plan in Unit 1. The actual use of a strategic plan becomes more contextual at
this stage. Strategy choice or selection, preparation of a strategic plan, activation
of strategy and implementation form interrelated steps or stages:
Strategy selection
Strategic plan
Activation of strategy
Implementation of strategy
6. Strategic choice cannot be governed only by _______ considerations.
7. Institutionalizing the strategy and mobilizing, allocating and managing
resources for execution of strategy is known as _______ of strategy.
12.6 The Strategic Plan

Strategists sometimes differ on whether strategy comes first or plan comes
before strategy. Logically speaking, organizations first decide on a broad strategy
or the strategic direction. It may be a stability strategy (for pause or caution),
growth or diversification strategy or a strategy for change (restructuring,
turnaround, etc.). This broad strategy or strategic direction is decided by the
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CEO or the board of directors based on organizational policy or philosophy and

the current company situation. Once the broad strategic move has been decided,
a strategic plan is required to work out or formulate the actual form or elements
of the strategy, the resource implications/allocations, environmental constraints,
etc. For example, a companys strategic choice may be diversification. It may
be related diversification or unrelated diversification; it may be external
diversification like joint venture, takeover, or acquisition or merger. The strategic
plan examines/evaluates each of these strategic options in terms of costs and
benefits before the strategy in its final form is actually decided. So it can be said
that the strategic plan precedes formulation of final strategy.
A strategic plan is a comprehensive document and, is developed in clear
sequential steps. It should contain the following (as shown in Figure 12.4).
Figure 12.4 Strategic Plan, Activation of Strategy, and Implementation
Implementation of strategy will be discussed in Units 13, 14 and 15. Steps

2 and 3 have already been dealt with in unit 5 and 6. We shall analyse here
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issues connected with activating or organizing strategy for competitive advantage

or success. For activating or organizing strategy, three major factors are to be
considered:
1. Preparation of strategic budget
2. Allocating and managing resources
3. Integrating resources and organizing for success
8. The strategic plan ________ formulation of final strategy.
9. Which of the factors are considered for activating or organizing strategy?
(a) Preparation of strategic budget
(b) Allocating and managing resources
(c) Integrating resources and organizing for success
(d) All the above
12.7 Preparation of Strategic Budget

Budget is the instrument for resource allocation. For strategic planning and
executing strategies, an organization needs strategic budgeting. A strategic
budget is different from the conventional accounting budget. In the accounting
budget, emphasis is on various financial entries for expenditure of a company
many of which are of an operational or routine nature; some may be of
developmental nature. A strategic budget, in contrast, is prepared with particular
reference to a strategic plan and its implementation. Certain assumptions are
made; a number of steps and factors are involved; and strategic budget
preparation is often an iterative process. A typical strategic budgeting process
is illustrated in Figure 12.5.
As shown in Figure 12.4 a number of steps or stages are involved in the
strategic budgeting process. The starting point is the preparation of different
position paperson environment, internal competence/resources and
performance of past strategies. The CEO/top management may also issue some
guidelines for preparation of position papers. These become inputs to the
budgeting process. Based on these inputs and corporate policy or philosophy,
planning objectives are set by the CEO/top management. In the next stage,
strategic plan is prepared by the planning/strategy team. The next step is the
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preparation of the strategic budget subject to certain resource availability. The

budget would be submitted to the CEO/top management for approval. They
would also allocate resources. The budgeting process is now complete and the
plan/strategy is ready for implementation. During implementation, there may be
a need for budgetary review which may result in revision of the budget proposals.
Figure 12.5 Strategic Budgeting Process
In large multi-business organizations, strategic budgeting often becomes

an interactive or iterative process between the corporate organization and the
SBUs. The budgetary process is initiated at the corporate level with corporate
goals and objectives. The SBU goals and objectives follow from, or have to be
compatible with or complementary to, corporate or organizational objectives.
But, the SBUs give their own planning and feedback inputs and the budgetary
process starts. Both the corporate organization and the SBUs become equal
partners or participants in the preparation of the final SBU budgets. The
interactive budgetary process is shown in Figure 12.6.
Figure 12.6 Interactive Strategic Budgeting: Corporate and SBU Levels
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10. A strategic budget is the same as the conventional accounting budget.
(True/False)
11. In large multi-business organizations, strategic budgeting often becomes
an interactive or iterative process between the corporate organization
and the SBUs. (True/False)
12.8 Allocating and Managing Resources

Allocation and management of resources are major factors in activation and
implementation of strategy. In Figure 12.5, we have shown resource allocation
as a decision of the CEO/top management. In practice, resource allocation
proposals may originate from the planning/strategy team or the SBUs (as shown
in Figure 12.6) based on the strategy and implementation programmes.
Sometimes, the planning/strategy team may seek views of the functional/
operational managers which form important inputs in the resource allocation
process. But, final approval or allocation will be always by the CEO/top
management.
In allocating and managing or organizing resources, three types of
resources have to be considered: financial, human or managerial and technology
or innovation. Some strategic management analysts feel that information
resources should be considered as the fourth resource factor while organizing
and managing organizational resources.12 So, issues relating to allocation and
management of resources are not confined to financial resources only as is
commonly perceived.
We shall, however, start with management of the financial resources or
strategy. All organizations face a basic decision problem as to how their
businesses will be financed. An organization will have a particular financial
requirement if it is planning fast growth of its business through diversification
product/market development or acquisition. The funding requirement will be
different if a company is trying to consolidate its business, i.e., pursuing a stability
strategy. The funding requirement would also be different during different stages
of development of an SBU. Ward (1993) has analysed funding strategy along
with business risk and financial risk of an SBU. He has conducted the analysis
by using the BCG growth share matrix (discussed in Unit 7). Wards analysis is
presented in Figure 12.7.
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Figure 12.7 Funding Strategy Analysis: Use of BCG Framework

Source: Adapted from K Ward Corporate Financial Strategy (Butterworth/Heinemann,
1993), Chapter 2.
The essential point emphasized in Figure 12.7 is the relationship between

business risk, financial risk and funding policy or strategy of an organization. In
other words, the analysis focusses on the need for matching financial risk and
financial return (linked to business risk) to investors. The greater the risk to
shareholders or lenders, the higher the return they expect. Debt (borrowing)
has a higher financial risk than equity because of interest and also repayment
obligations. If financing is through internal accruals (reserves/retained earnings)
as may be in the case of cash cows (maturity phase), shareholders may not be
so concerned. Businesses in maturity stage with high market share (cash cows)
usually generate enough surplus which can contribute to retained earnings,
which, in turn, can be reinvested. Financing can also be through a combination
of equity and debt, which through surplus generation, augment retained earnings/
reserves. Debt servicing also becomes easy. If financing is through equity for
growth as may be in the case of stars, the investors look for immediate returns/
profits. If it is equity in the form of venture capital which may be required for
development of new business (question marks) with high business risk, the
investors expect high returns. If a business is in decline, characteristically a
dog, equity funding is difficult because investors may not like to risk their capital
in a declining or sinking business. Financing through debt may be the only
option. Terms of credit is an important factor here.
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All this makes mobilization, allocation and management of financial

resources a complex job. Scarcity of investible resources is a common
phenomenon and SBUs make competing demands whether for equity funds or
debt funds. In practice, overstatement of resource requirements by SBUs is
quite common. Also, all businesses of a company do not strictly fall in the BCG
categories of stars, cash cows, question marks and dogs. For many FMCGs
and consumer durables, the market may be in the maturity stage of PLC, but,
all products/brands are not cash cows. There are many examples in soaps,
detergents, refrigerators, etc. These businesses follow stability or incremental
growth strategy. In such cases, the organization may have alternative financing
options available, and, the management may have to carefully weigh the
alternative costs of financing and commensurate returns. There is also a choice
between short-term and long-term financing and the issue of debt servicing. An
organization has to consider all these and related factors in organizing and
managing financial resources.
Next to finance, human resources are the most important factor in
activating strategies. People can make a major difference between success
and failure of a corporate strategy. Knowledge, skill and experience of people
can significantly contribute to strategic success as poor human resource can
hinder adoption or implementation of successful strategies. HR systems play a
vital role in organizing and managing human resources. For various functional/
operational strategies to support a chosen organizational strategy, the right
kind of people should be deployed in right positions or recruited to fill up the
resource gap. For example, if a companys chosen strategy is diversification,
and, if it involves innovative products and processes, requisite skills or expertise
may not be available in the company. Here the HR department has an important
role to play in hiring the right talent, providing or creating proper work environment
and helping to increase managerial productivity.
Talking about the role of HR, it is also necessary to distinguish between
hard and soft approaches to human resource management. Hard and soft
approaches in HR are like hard and soft Ss in organizations. Hard human
resource approach is about how the structure, systems and procedures can be
used to acquire, utilize, develop and retain people to secure strategic advantage
for the organization. Organizational needs are the predominant factor here, not
the people. In soft human resource management, dominant focus is on the
people, individually and collectively culture, style, behaviour, etc., and how
these help or hinder organizational strategies. Many organizations concentrate
on the hard approach leaning too much on the structures and systems and
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Unit 12
overlooking or showing lack of concern for the soft factors. They tend to forget
the fundamental fact of complementarity between the hard and soft approaches
necessary for strategic success. In practice, HR approaches and strategies in
many companies reflect adhocism because of internal and external pressures.
But, this is a very shortsighted measure/solution and invariably affects activation
and implementation of strategies. A more balanced approach is necessary.
To ensure such an approach and to be effective, HR professionals also
need to orient themselves. They should familiarize themselves with the
organizations strategic process or a particular strategic initiative and human
resource requirements in terms of competence and commitment. HR activities
or human resource management can help in the pursuit of successful strategies
in many ways. Some of the more important ones are mentioned below:
HR audit to assess resource requirements and availability in terms
of competence and also to analyse skills and capabilities of individual
managers which can form useful inputs to the future planning and
strategy building process.
Fostering team-building attitude and rewarding team work approach.
Individual incentives and rewards often undermine teamwork. But,
most strategies require a team approach rather than individual
approach.
Performance assessment of individuals and teams should have a
clear focus on strategic inputs rather than pure functional or
operational inputs. Some have suggested a 360 degree appraisal
system, i.e., appraisals from multiple perspectives or different parts
or functional areas of the organization so that the full impact of an
employees contribution to success or otherwise of a strategy can
be more meaningfully assessed.
Devising appropriate training and development programmes. Of late,
there has been a shift in focus in terms of reduction of formal training
programmes and increase in coaching and mentoring for selfdevelopment. These become important developmental inputs for
individual managers if the organizations strategies are changing
more regularly.
Institutionalization of individual competence. Individual experts or
highly competent people may leave the organization or retire. So,
one of the objectives of HR policies should be to institutionalize such
competence or expertise through proper succession planning.13
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Unit 12
Finance and people are two basic resources of an organization. These

two are the prime drivers of operations and strategies. Technology or
technological innovation renders credibility or completeness to these operations
or strategies. So, as organizations have to match and manage financial and
human resources, they also need to acquire, organize and manage technology
to activate strategy, particularly if the strategy pertains to product innovation or
new product development. Technology affects product quality, productivity and
cost efficiency and can significantly contribute to strategic advantage of an
organization. Coping with technological advances is necessary even if a company
pursues a stability strategy, let alone a growth strategy. The relationship between
corporate strategy, technology and innovation is illustrated in Figure 12.8.
Figure 12.8 Relationship between Strategy, Technology, and Innovation

Source: Adapted from G Johnson, and K Scholes (2005), p. 514 (Exhibit 10.10).
12.8.1 Integrating Resources

Owning resourcesfinancial, managerial or technologicaland deploying them
in isolated ways are not enough because these do not ensure strategic capability.
Strategic capability, in the real sense, is concerned with how the resources are
deployed, managed and controlled in a harmonious way to produce a synergistic
effect. Financial planning is done primarily by the finance people; human resource
deployment is by HR department; technology development/management is by
R&D/production group. It is, therefore, essential to coordinate or link these
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Unit 12
resources and groups at the organizational level. This means integration of

resources for competence building.
The starting point in resource development is to obtain the threshold levels
in individual resourcesfinance, human and technology. In a highly competitive
environment, the threshold levels are shifting upwards. To maximize the
contribution of resources, i.e., to create a unique strategic capability (core
competence or distinctive competence), resources have to be combined in right
proportion to create the required synergy. Enterprise resource planning (ERP)
is a good method for integrating and optimizing resources. In fact, many
companies are using ERP solutions to optimize resource allocation in an
integrated way. To conclude, we can say that it is not enough to be competent in
different resources. It is the ability of an organization to integrate these resources
effectively which determines the success or failure of a particular strategy or a
set of strategies.
Activity 2
As discussed in the unit, every company prepares a strategic plan. Choose
a company and prepare a strategic plan and analyse the same.
12. In allocating and managing or organizing resources, three types of
resources have to be considered: financial, human or managerial
and __________.
13. In ________ human resource management, dominant focus is on the
people, individually and collectively culture, style, behaviour, etc., and
how these help or hinder organizational strategies.
14. Many companies are using ______ solutions to optimize resource
allocation in an integrated way.
12.9 Case Study

Crompton Greaves is a pioneer in the field of electric energy. It is Indias
largest private sector enterprise in the business of electrical engineering
operating for more than 50 years. Operations of the company are divided
into four strategic business units (SBUs)
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Unit 12
1. Power systems (transformers, switchgears, etc.)

2. Industrial systems (motors, alternators, etc.)
3. Consumer products (lighting, fans, appliances, etc.)
4. Digital (industrial electronices, telecommunication informatics, etc.)
Strategic choice of business of the company emanates from its vision

statement which covers implementation as well as organizational learning.
The vision statement:
To achieve for Crompton Greaves, the status of world class company so as
to ensure
Customer satisfaction
Stakeholder satisfaction and pride
Profitable growth
Fulfilment of social obligation
Perpetuity
To achieve through the implementation of the best practices and continuous
improvement of processes focussed on:
Technology upgradation
Cost effectiveness
Total quality
Speed
Resource productivity
To create an environment which encourages organizational learning and
team effort where:
Each individual understands his or her responsibility, makes contribution
and is recognized for the same.
Each individual gives his or her best to achieve the shared vision.
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Unit 12
During 199596, business strategy of CGL was reformulated keeping in

view the increasing competition and entry of MNCs who were equipped
with better technology and resources. The company changed its orientation
from a business organization to a technology organization and a new
corporate policy came into being with a thrust on technology organization.
As a result of this orientation towards technology organization, three new
facilities were established at Mandideep near Bhopal. The most important
aspect of these new facilities is that they belong to that business area of
CGL which the company thinks is its core competence area and wants
dedicated centres to nurture and develop a technology area on which
management can focus for long-term planning.
Other key features of the new corporate strategy focus on the following:
(a) Information technology implementation
(b) Technology innovation and perpetuity
(c) SBU technology cell
(d) Customer satisfaction
(e) Operational efficiency
Right strategic choice and implementation have enabled the company to
maintain robust financial health and sustain steady long-term growth.
* Based on S Lomash and P K Mishra, Business and Strategic Management, New
Delhi: Vikas Publishing House, 2009
12.10 Summary
Let us recapitulate the important concepts discussed in this unit:
Choice of a final strategy or strategies from alternative strategies available
is the most critical and the most difficult job in the strategic planning
process. Many companies go through the process of strategic choice or
decision making but not in a very organized or systematic way.
After evaluating various strategy alternatives in terms of company and
industry/market characteristics, the next step is to use appropriate selection
factors or criteria for narrowing down the choice to more specific strategies.
Two important selection factors or criteria are: SPACE technique or
approach, and benchmarking and best practices
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Unit 12
An organizations strategic capability or strategic choice is to be always

understood in relative terms because it involves comparison with
competitors or industry norms. This shows the relevance of benchmarking
and best practices. Benchmarking means comparison with and adherence
to prescribed norms, standards or practices.
Final selection of strategy by an organization may depend on judgement,
bargaining or analysis.
Activation of strategy means institutionalizing strategy and mobilizing,
allocating and managing/balancing resources for execution.
12.11 Glossary
Activation of strategy: Institutionalizing the strategy and mobilizing,
allocating and managing resources for execution of strategy.
Benchmarking: Comparison with, and adherence to, prescribed norms,
standards or practices.
Contingency strategies: Exceptional strategies for exceptional situations
or circumstances
12.12 Terminal Questions

1. Explain the process of strategic choice. What are the four steps involved
in the process of strategic choice?
2. What is SPACE technique or framework? Explain by using a diagram.
3. What is benchmarking? What are the different types of benchmarking?
Explain with some examples.
4. Discuss the best practices at Nike.
5. What is strategic budgeting? Explain the steps involved in the process of
strategic budgeting.
6. Explain Wards analysis of funding strategy along with business risk and
financial risk of an SBU. Use the BCG framework.
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Unit 12
12.13 Answers
Answers to Self-Assessment Questions
1. True
2. False
3. Benchmarking
4. Relative
5. Best-in-class
6. Objective
7. Activation
8. Precedes
9. (d) All the above
10. False
11. True
12. technology or innovation
13. soft
14. Enterprise resource planning (ERP)
Answers to Terminal Questions

1. Choice of a final strategy or strategies from the alternative strategies
available is the most critical, and, also the most difficult job in the strategic
planning process. Refer to Section 12.3 for further details.
2. Strategic Position and Action Evaluation (SPACE) matrix or framework
can be considered more comprehensive as a technique for evaluating or
selecting strategies. Refer to Section 12.4.1 for further details.
3. Benchmarking is comparison with, and adherence to, prescribed norms,
standards or practices. Refer to Section 12.4.2 for further details.
4. Nike can be studied as a good model of corporate best practice. Refer to
Section 12.4.3 for further details.
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Unit 12
5. For strategic planning and executing strategies, an organization needs

strategic budgeting. Refer to Section 12.7 for further details.
6. Allocation and management of resources are major factors in activation
and implementation of strategy. Refer to Section 12.8 for further details.
12.14 References
1. Cook, S. 1995. Practical Benchmarking: A Managers Guide to Creating
Competitive Advantage. London: Kogan Page.
2. Gupta, V, K Gollakota, and R Srinivasan. 2005. Business Policy and
Strategic Management: Concepts and Applications. New Delhi: Prentice
Hall of India.
3. Hofer, C W, and D Schendel. 1978. Strategy Formulation: Analytical
Concepts. St. Paul, Minnesota: West Publishing.
4. Murdoch, A. Lateral Benchmarking or What Formula One Taught an
Airline. Management Today, November, 1997.
5. Ward, K. 1993. Corporate Financial Strategy. Oxford: ButterworthHeinemann.
6. Zadek, S. The Path to Corporate Responsibility. Harvard Business Review
(Best Practice), December, 2004.
Endnotes
1
J A Peace II, and R B Robinson Jr (2005), 17374. The bottling operations were, however,
subsequently sold to Pepsico.
F Glueck and L R Jaunch, Business Policy and Strategic Managemet (New York: McGrawHill, 1984), 279
S Cook, Practical Benchmarking: A Managers Guide to Creating Competitive Advantage

(London: Kogan Page, 1995).
J A Pearce II, and R B Robinson Jr, Strategic Management: Formulation, Implementation,

Control, 9th ed. (New Delhi: Tata McGraw Hill, 2005), 172.
A Murdoch, Lateral Benchmarking or what Formula One Taught an Airline, Management

Today (November, 1997), 6467.
G Johnson, and K Scholes, Exploring Corporate Strategy, 6th ed. (Pearson Education,
2005), 174.
This section is based on S Zadek, The Path to Corporate Responsibility, Harvard Business
Review (December, 2004).
S Zadek, The Path to Corporate Responsibility (Best Practice), Harvard Business Review
(December, 2004), 126-27.
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Unit 12
P K Ghosh, Strategic Planning and Management (New Delhi: Sultan Chand & Sons,
2003), 290.
10
C Saunders, The Process of Strategic Choice in W F Glueck, and L R Jauch, Business

Policy and Strategic Management (McGraw Hill, 1984), 301.
11
H Mintzberg, et al., The Structure of Unstructured Decision Process, Administrative

Science Quarterly, 21 (1976), 24675.
12
G Johnson, and K Scholes, Exploring Corporate Strategy (2005), 490500.
13
G Johnson, and K Scholes, Exploring Corproate Strategy (2005), 48081.
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Strategic Management and Business Policy

Selection and Activation of Strategy

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Strategic Management and Business Policy

chapter various factors or issues involved in activating strategies and organizing

12.3 Process of Strategic Choice

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Strategic Management and Business Policy

Many companies go through the process of strategic choice or decision

Figure 12.1 Process of Strategic Choice

Sikkim Manipal University

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12.3.1 Focusing on Strategy Alternatives

Sikkim Manipal University

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12.4 Strategy Selection Factors or Criteria

12.4.1 Space Framework or Technique

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They may also undertake corporate restructuring or turnaround strategies to

Figure 12.2 SPACE Matrix/Framework

SPACE matrix/framework considers several individual factors for

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Risk in the business

Ease of market entry

Product life cycle

Price change of competing products

Price elasticity of demand

Control over suppliers and distributors

12.4.2 Benchmarking and Best Practices

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Based on the above definitions, five important features or characteristics

Whom to benchmark against

Product benchmarking is a comparison of product(s) with competitors or

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means emulating best processes, i.e., corporate practices and methods.

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Strategic Management and Business Policy

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have resorted to comprehensive or combination benchmarking, i.e., emulating

12.4.3 Best Practices at Nike7

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Stage 3 : Its the business...; this is the managerial stagethe company

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Nikes efforts to secure satisfactory labour conditions were serving

12.5 Selection of Final Strategy

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eliminate many inappropriate alternatives. This greatly facilitates the process of

Because final decision is taken by the management or the managers,

Mintzberg et al., have analysed 25 strategic decisions and arrived at certain

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