Professional Documents
Culture Documents
AND
STRATEGIC MANAGEMENT
UNIVERSITY OF PUNE
MBA (301)
1
Syllabus - MBA: BPSM - Semester III
(301)
BUSINESS POLICY & STRATEGIC MANAGEMENT
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Business Policy and Strategic Management
Without Business Policy and Strategy, an organisation
is like a ship without rudder, going around in circles. Its
like a tramp; who has no place to go Joel Ross and
Michael Kami.
Business Policy definition by Christensen :
Business Policy is the study of the function and
responsibilities of Senior Management, the crucial
problems that affect success in the total enterprise, and
the decisions that determine the directions of the
organisation and shape of its future.
The problems of policy in the business, like those of
policy in public affairs, have to do with choice of
purposes, the moulding of organisational identity and
character, the continuous definition of what needs to be
done, and the mobilisation of resources for the
attainment of organisational Goals in the face of
competition or adverse circumstance.
3
Evolution of Business Policy as discipline.
Origin 1911- Harvard Business School Integrated
Course in Management aimed at providing general
management capability.
Hofer: Strategic Management A Casebook in Policy
and Planning: The Business Policy evolution has
undergone four Paradigm Shifts. This transition is of
overlapping nature.
Development of subject of Business Policy has always
followed the demands of real life business.
7
The Indian Scenario:
However, the evolution of this fourth phase is still
continuing and is yet not formed into a theory of how to
manage an enterprise. But Strategic Management is a
very important tool for and way of thinking to resolve
strategic issues.
8
Evolution of Strategic Management in India is divided in three periods.
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Aspects of Strategic Management
Vision Statement
Mission Statement indicating methodology for achieving the
objectives, purposes and Philosophy of organisation as reflected
in vision statement.
Company Profile, its internal culture, strengths and capabilities.
Critical study of external environmental factors, threats and
opportunities.
Finding out way and deciding the desirable course of actions for
accomplishing the Mission statement.
Selecting long term objectives and deciding corresponding
strategies.
Evolving short term objectives, defining corresponding
strategies in tune with Mission and Vision Statements.
Implementing chosen strategies in planned way, based on
budgets, allocating resources, outlining action plan and tasks.
Installation of a continuous review system, creating a control
mechanism and Data generation for selecting future course of
action.
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Five Tasks of Strategic Management
Forming a strategic Vision of what the companys future
business make up will be and where the organisation is
headed. (A long term vision to infuse the organisation
with a sense of purposeful action.)
Setting objectives: converting Strategic vision into
specific measurable performance outcomes.
Crafting a Strategy to achieve desired outcome.
Implementing & Executing chosen strategy efficiently
and effectively.
Evaluating performance & initiating corrective
adjustment in Vision, Long term directions, Objectives,
Strategy in light of actual experience, changing
conditions, new ideas & new opportunities.
24
Who performs these five tasks of Strategic Management?
CEO is most important Strategy Manager, who is most visible also. He
performs various roles such as, Chief direction setter, Chief objective
setter, Chief strategy maker, Chief Strategy implementer.
Vice Presidents of various functions have role to play in strategy making
and implementing. Functional heads like Production, Marketing, Finance,
HR etc have responsibilities to deliver measurable performance as per
Strategic Planning.
All major organisational units, business units, divisions, Staff, Plant
support groups, district offices have leading and supporting roles in
companys strategic game plan.
CEO & Senior Corporate executives have responsibility & personal
authority for major strategic decisions.
Managers with Profit & Loss responsibilities for individual business units
or divisions.
Functional Heads & Departmental heads with direct responsibility over a
major business areas.
Managers of operating plants: Strategy making is a job for all the line
managers. Doers should be strategy makers. It should not be left to staff
of Planners. Strategic Planning is not a stand alone function. It is an
integrated team effort. 25
Aspects of Strategic Planning - 1
Strategic Planning provides the route map for the
enterprise. It lends a framework which can ensure that
decisions concerning future are taken in a systematic and
purposeful way.
Strategic Planning provides a hedge against uncertainty,
against totally unexpected developments.
Strategic Planning helps in understanding trends in a better
way and generates a reference frame for investment
decisions.
Strategic Planning provides the frame work for all major
business decisions, decisions on business, products,
markets, manufacturing facilities, investments, and
organisational structure. It is a path finder for business
opportunities and it is also a defence mechanism to avoid
costly mistakes in choice of product market or investments.
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Aspects of Strategic Planning - 2
The more intense the environmental uncertainty, more critical
is the need for strategic planning.
The success of the efforts and activities of the enterprise
depends heavily on the quality of strategic planning.
Considerable thought and effort must go in vision, insight,
experience, quality of judgement and the perfection of
methods and measures.
Strategic Planning is a management task concerned with
growth and future of the business enterprise.
As a management tool, Strategic Planning utilises both
intuition and logic. Logic is through Planning and information
process and intuition is through experience, knowledge and
vision of top people in Management.
All vital aspects of corporate governance are perfected
through strategic planning, starting from corporate mission,
philosophy and core values, down to choice of businesses
and strategies. 27
Aspects of Strategic Planning - 3
Through analytical process aspect, involved in Strategic
Planning, corporation understands where its core
competencies are, identifies the competitive advantages,
pinpoints the gaps, formulate steps to bridge them.
Main aspects of Strategic Planning are Future, Growth,
Environment, basket of businesses of the firm for additions
and deletions, Strategy and not day to day routine matters,
creation of core competency and competitiveness and finally
integration. It views the organisation / business in its totality
and not a particular function. Thus Strategic Planning is
Corporate Strategy.
Strategic Planning differs from other operative and
administrative functions of management. Strategic Planning
provides objective strategy design: A) Growth Objective
Performance levels, Profitability target, B) Product Market
scope, its penetration, C) Growth Vector Product Market
posture, development or diversification, D) Competitive
Advantages, E) Synergy, strength obtained from new
product-market selections.
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Mintzbergs 5Ps of strategy
Henry Mintzberg, in his 1994 book, The Rise and Fall of
Strategic Planning, points out that people use "Strategy"
in several different ways, the most common being these
five:
1. Strategy is a Plan, a "how," a means of getting from here
to there.
2. A strategy can be a Ploy too; really just a specific
manoeuvre intended to outwit an opponent or competitor.
3. Strategy is a Pattern in actions over time; for example, a
company that regularly markets very expensive products
is using a "high end" strategy.
4. Strategy is Position; that is, it reflects decisions to offer
particular products or services in particular markets.
5. Strategy is Perspective, that is, vision and direction.
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Mintzberg argues that strategy emerges over time as
intentions collide with and accommodate a changing
reality.
Thus, one might start with a perspective and conclude
that it calls for a certain position, which is to be
achieved by way of a carefully crafted plan, with the
eventual outcome and strategy reflected in a pattern
evident in decisions and actions over time.
This pattern in decisions and actions defines what
Mintzberg called "realized" or emergent strategy.
30
Henry Mintzberg (pictured above,) Bruce Ahlstrand and
Joseph Lampell, in their 2005 book Strategy Bites Back,
present 5 "P's" as a way to define strategy. Each "P" shines a
spotlight on what strategy is / means / encompasses from a
different angle, to provide a comprehensive overview that is
probably more useful than definitions that try to fit all into a
couple of sentences.
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Mintzbergs 5Ps of strategy
37
A Companys Situation
External Factors:
Industry & Competitive
conditions. Adopt / Abandon Strategy
features
Buyer Preferences
PESTEL Political,
Economical, Socio-cultural, New Initiatives &
Technological, Environmental & Ongoing Strategy
legal factors Features continued
Internal Factors like from prior periods
Companys
Resources, Competitive
strengths & Capabilities, Strategy
Weaknesses & Threats. Adoptive reactions
to Changing
circumstances
38
Strategy
It is a simple and undeniably relevant matter for managers
to periodically ask the following questions of the
employees reporting to them:
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Some Concluding Remarks - 3
The Pattern of
Actions &
Actions to strengthen Business Actions to enter new
competitive capabilities & Approaches that geographic or product
correct competitive define a markets or exit existing
weaknesses Companys market
Strategy
Actions to
Actions & approaches
merge with or
that define how the Efforts to Actions to form
acquire rival
company manages, pursue new Strategic
companies.
research & market alliances &
development, opportunities & collaborative
production, sales & defend against partnerships
marketing, finance & threats to the
other key activities Companys
well-being 48
The Strategy Hierarchy
In most (large) corporations there are several levels of strategy. Strategic
management is the highest in the sense that it is the broadest, applying to all
parts of the firm. It gives direction to corporate values, corporate culture,
corporate goals, and corporate missions. Under this broad corporate strategy
there are often functional or business unit strategies
Different Levels of Strategy
Levels Structure Strategy
Functional
Finance Marketing Operations Functional Level
Personnel Information 49
Corporate Strategy: The companywide game plan for managing a set of
businesses. The levels involved are CEO and other Senior Executives.
Business & Corporate Strategy
Business strategy, which refers to the aggregated operational strategies
of single business firm or that of an SBU in a diversified corporation, refers
to the way in which a firm competes in its chosen arenas.
Corporate strategy, then, refers to the overarching strategy of the
diversified firm. Such corporate strategy answers the questions of "in which
businesses should we compete?" and "how does being in one business
add to the competitive advantage of another portfolio firm, as well as the
competitive advantage of the corporation as a whole
Business Strategy for Strategic Business Units: One for each business,
the company has diversified into. Actions to build competitive capabilities
and strengthen market position. Executed by General Mangers, Plant
Heads, Division heads of each business with inputs from Corporate and
Functional levels.
Many companies feel that a functional organizational structure is not an
efficient way to organize activities so they have re engineered according
to processes or strategic business units (called SBUs). A Strategic
Business Unit is a semi-autonomous unit within an organization. It is
usually responsible for its own budgeting, new product decisions, hiring
decisions, and price setting. An SBU is treated as an internal profit centre
by corporate headquarters. Each SBU is responsible for developing its
business strategies, strategies that must be in tune with broader corporate
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strategies
Functional Strategies
Functional strategies include Marketing Strategies, New product
development strategies, Human resource strategies, Financial strategies,
Legal strategies, Supply-chain strategies, and Information technology
management strategies. The emphasis is on short and medium term plans
and is limited to the domain of each departments functional responsibility
and is executed by Functional heads. Each functional department
attempts to do its part in meeting overall corporate objectives, and hence
to some extent their strategies are derived from broader Corporate &
Business strategies.
Operational Strategy
The lowest level of strategy is operational strategy. At this level,
detailing is done to add completeness to Business & Functional
Strategies. It is very narrow in focus and deals with day-to-day operational
activities such as scheduling criteria. It must operate within a budget but is
not at liberty to adjust or create that budget. Operational level strategy
was encouraged by Peter Drucker in his theory of Management By
Objectives (MBO). Operational level strategies are informed to business
level strategies which, in turn, are informed to corporate level strategies.
These strategies are executed by Brand Managers, Operating
Managers, Plant managers. Important activities like Advertising, Web site
operations, distributions are involved at this level. 51
Dynamic Strategy
Since the turn of the millennium, there has been a tendency in some firms
to revert to a simpler strategic structure. This is being driven by information
technology. It is felt that Knowledge Management Systems should be used
to share information and create common goals. Strategic divisions are
thought to hamper this process. Most recently, this notion of strategy has
been captured under the rubric of Dynamic Strategy, popularized by the
strategic management textbook authored by Carpenter and Sanders. This
work builds on that of Brown and Eisenhart as well as Christensen and
portrays firm strategy, both business and corporate, as necessarily
embracing ongoing strategic change, and the seamless integration of
strategy formulation and implementation. Such change and
implementation are usually built into the strategy through the staging and
pacing facets.
Strategists - Their Roles & Levels:
Strategists are individuals or groups who are primarily involved in the
formulation, implementation, and evaluation of Strategy.
In a limited sense, all managers are Strategists. But we may have outside
agencies involved in various aspects of Strategic Management, who are
also Strategists. 52
Board of Directors:- Board is an ultimate legal authority of an
organisation. Board is responsible to owners, share holders,
government, controlling agencies, and financial institutes. They get
elected and appointed by holding or parent company. Board is requires
to direct and is involved in reviewing and screening executive decisions
in light of their environmental, business and organisational implications.
Role of Board of Directors is to guide the senior management in setting
and accomplishing objectives, reviewing and evaluating organisational
performance, and appointing senior executives. Board is involved in
setting strategic direction, establishing objectives & strategy, monitoring
and reviewing achievement.
Chief Executive Officer:- is responsible for all aspects of strategic
management from the formulation to evaluation of strategy. CEO plays
a pivotal role in setting mission, objectives and goals. He formulates and
implements strategy and ensures that organisation does not deviate
from a predetermined path. CEO is primarily responsible for strategic
management of the organisation
Entrepreneur:- is the person who starts a new business, is a venture
capitalist. He has to play a proactive role to provide sense of direction,
set objectives and formulate strategies. He is different from formal
system and plays all strategic roles simultaneously.
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Senior management:- consists of higher management level starting
from CEO to functional managers and profit centre or SBU heads. They
are responsible for implementing the strategies and plans and for a
periodic evaluation of their performance. Organisationally they come
together in the form of committees, task forces, work groups, think tanks
and play a very important role in Strategic management.
SBU level Executives:- SBUs are formed with each business having a
clearly defined product market segment and a unique strategy. They
are CEOs for their SBUs and hence SBU level strategy formulation and
implementation is their main role.
Corporate Planning:- It assists management in all aspects of strategy
formulation, implementation and evaluation. They are responsible for
preparation and communication of strategic plans, provides
administrative support and plays a measurement and controlling role.
They do not from strategy and do not initiate a process on their own.
Consultants:- in absence of a Corporate planning many organisation
take an outside help in the form of a consultants or consulting
companies. Besides providing corporate strategy and strategic planning,
they are specialist, knowledgeable, outsider, unbiased and provide
objective evaluation. E.g. AF Ferguson, PWC, KPMG, Billimoria,
Mckinsey etc.
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Middle Level Managers:- They relate to operational
matters and are seldom play active role in Strategic
Management. They form departmental / functional plan in
light of broad objectives and goals of organisation
provided in vision, mission, goals and objective
statements of the organisation. They are implementers,
followers of guide lines, receivers of communication about
strategic plans. They are basically involved in in the
implementation of functional strategies.
Strategy sets direction, but can also serve as a set of blinders to hide
potential dangers.
Strategy focuses efforts, there may be no peripheral vision and can
become heavily embedded into the fabric of the organization.
Strategy defines the organization, but defining it too sharply results in
the rich complexity of the system being lost.
Strategy provides consistency, but could hinder creativity.
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Kinds of Corporate Strategy -1
There are four Grand Strategic alternatives:
a) Stability Strategy: Main aim here is Stabilising and
improving Functional Performance.
a.1) No Change Strategy.
a.2) Profit Strategy.
a.3) Pause / Proceed with caution Strategy.
b) Expansion Strategy: Main aim is here High Growth.
b.1) Concentration.
b.2) Integration.
b.3) Diversification.
b.4) Cooperation.
b.5) Internationalisation.
Mergers, Takeovers, Joint Ventures, Strategic Alliances, Global
Strategy, Trans-national Strategy, International Strategy,
Multi-domestic Strategy. 57
Kinds of Corporate Strategy - 2
c) Retrenchment Strategy: Main aim here is contraction of its
activities. It is done through Turnaround, divestment and
liquidation in modes like
c.1) Compulsory winding up.
c.2) Voluntary winding up.
c.3) Winding up under supervision of Court.
d) Combination Strategies: It is combination of all above three
policies simultaneously in different businesses or at different
times. e.g.:
i) Merger of TTK Chemicals with TTK pharma.
ii) TT industries and Textiles Ltd. expanded through JV.
iii) TTK Ltd., diversified into cooking utensils.
iv) TTK maps and publications into the general publishing
business after a turn-around. 58
Schools of Thought on Strategy Formation-1
The fourth paradigm (1980 onwards) says that subject of
Strategic Management is still under evolution. Strategic decision
making is at the core of Managerial activity, their Strategic
behaviour is outcome of Formation of Strategy.
Mintzberg and other doyens in field of Strategy have formed
various perspectives called as Schools of Thought:
The Perspective Schools:
1. Design School-(Sleznic & Andrews): Strategy is unique. The
process of Strategy formation is based on Judgement and
Thinking.
2. Planning School-(Ansoff): Strategy is seen as a plan divided into
sub-strategies and programmes. The lead role in Strategy
formation is played by Strategy Planners.
3. The Positioning School-(Schendel Hatten & Porter): Under this
school Strategy is seen as set of planned generic positions
chosen by a firm on the basis of an analysis of the competition
59
and the industry in which they operate.
Schools of Thought on Strategy Formation-2
The Descriptive Schools:
4. Entrepreneurial School -(Schumpeter & Cole): Strategy
formation is mainly intuitive, visionary & deliberate. Strategy
is an outcome of a personal & unique perspective to create a
niche.
5. Cognitive School -(Simon & March): Strategy formation is
mental process. The lead role is played by thinker
philosopher.
6. Learning School -(Weick, Quinn, Senge & Lindblom): This
school perceives Strategy formation as an emergent process.
The process is informal and messy and lead role is played by
the learner.
7. Power School - (Allison & Astley): Strategy is seen as
political & cooperative process or pattern. This school
perceives Strategy formation as negotiation process. The
process of Strategy formation is messy, emergent &
deliberate. 60
Schools of Thought on Strategy Formation-3
8. Cultural School - (Rhenman & Normann): Strategy is seen as
collective perspective. The process of Strategy formation is
ideological, constrained & deliberate.
9. Environmental School -( Hanan, Freeman & Pugh): The lead
role in strategy formation is played by environment as an
entity. The process of Strategy formation is reactive, passive
& imposed and hence deliberate.
The Integrative School: -(Chandler, Miles & Snow):
10. The Strategy is viewed in relation to a specific context and
any of the nine schools mentioned above can be used to
form the Process. The Strategy formation process is
integrative, episodic & sequential.
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Strategic Management Process - an Overview
Definition of Strategic Management: Strategic management
is defined as the dynamic process of formulation,
implementation, evaluation and control of strategies to realise
the Organisations Strategic intent.
Strategic Management is a continual, evolving, iterative
process. It is not rigid, stepwise activities arranged in a
sequential order. It is repeated over time as situation
demands.
Strategic Control 62
Strategic Management Process-1
Strategic Intent:
1. Creating & Communicating the Vision.
2. Defining the Business.
3. Designing a Mission Statement.
4. Adopting the Business Model.
5. Clarifying the business mission, purpose & setting broad
Objectives and Goals.
Formulation of Strategies:
6. External Environment Survey. SWOT Analysis.
7. Internal Appraisal of the firm.
8. Setting Corporate Objectives.
9. Formulating the Corporate objectives.
10. Formulating the Corporate strategies.
11. Exercising Strategic Choice.
12. Preparing a Strategic Plan. 63
Strategic Management Process-2
Implementation of Strategies:
13. Activating Strategies.
14. Designing Structure, Systems and processes.
15. Managing Behavioural Implementation.
16. Managing Functional Implementations.
17. Operationalising Strategies.
Performing Strategic evaluation & Control:
18. Performing Strategic evaluation.
19. Exercising Strategic Control.
20. Reformulating Strategies.
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Syllabus
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65
Strategic Intent
Strategic Intent is combination of four levels in the Management.
It involves discussions of Vision, Mission, Business Definition &
Goals and Objectives.
Strategic Intent refers to the purposes the Organisation strives
for.
Strategic Intent lays down the frame work within which firms
would operate, adopt a predetermined direction, and attempt to
achieve the Goals.
Hamel & Prahalad considered Strategic Intent as an obsession
with an Organisation.
Strategic Intent envisions a desired leadership positioning and
establishes the criterion the Organisation will use for charting its
progress. In addition to ambitions of the Organisation; it
encompasses active Management Process that includes
focussing the organisations attention on winning. It covers
motivating the people by communicating the values, targets. The
intent encourages individual and team contributions and
attempts sustaining enthusiasm by providing new operational
definitions. The Strategic Intent guides the organisation through
changing circumstances and guides use of resource allocations.
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Strategy Formulation-
Vision, Mission and Purpose,
A vision is more dreamt of than it is. Vision Statement is permanent
statement of a company. Vision is future aspirations that lead to an
inspiration. It defines the very purpose of existence of a company.
"Year after year, Westin and its people will be regarded as the best
and most sought after hotel and resort management group in North
America." (Westin Hotels)
"To be recognized and respected as one of the premier associations
of HR Professionals." (HR Association of Greater Detroit)
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Example of Strategic Vision
The San Antonio Express News developed this
Strategic Vision,
"EXPAND our customer base and enhance the
franchise by pursuing multimedia opportunities.
DELIVER an award-winning level of journalistic
excellence, building public interest, trust and pride.
PROVIDE vigorous community leadership and support.
INSTILL an environment of internal and external
excellence in customer service.
EMPOWER and recognize each employee's unique
contribution.
ACHIEVE the highest standards of quality.
IMPROVE financial strength and profitability."
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Mission
Thompson(1997) defines Mission as the essential
purpose of the organisation, concerning particularly, why it
is in existence, the nature of businesses it is in, and the
customers it seeks to serve and satisfy
Hunger and Wheelen(1999) say that mission is the
purpose and reason for the organisations existence
Mission statements could be formulated on the basis of
vision that an entrepreneur decides on in the initial stages.
A business mission helps to evolve an executive action.
Mission of organisation is what it is and why it exists. It
represents common purpose which the entire organisation
shares and pursues. It is a guiding principle.
73
Mission Statement
Mission of a company is expressed it terms of products and
geographical scope. It includes a methodology of attaining
the desired goal in vision. It defines the competitive strength
of a company and it emanates from corporate vision and
strategic posture of a company.
Thus the mission of a business is a statement, a build-up
philosophy of its current and future expected position with
regards to its products, market leadership.
Mission is statement which defines the role of organisation
plays in a society.
The corporate mission is growth ambition of the firm.
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Mission
Characteristics of a Mission Statement
3. It should be motivating.
75
Mission Statement Creation
To create your mission statement, first identify your
organizations winning idea.
This is the idea or approach that will make your organization
stand out from its competitors, and is the reason that
customers will come to you and not your competitors.
89
Some Business definitions:
Society
Business
95
Corporate Governance : Social Responsibility
Sole aim of a business is and should be maximisation of
Shareholders value, as stated by Milton Friedman, does not
hold good anymore.
All modern large corporate have attained their present size
due to support of society in terms of shareholders, suppliers,
lenders, employees, government, local community and
society at large.
Every business unit of the country must aim at becoming
good corporate citizen of the country and the world as whole.
World Class Quality of goods and services, reasonable prices
is minimum requirement. With this companies would enjoy
excellent image within area, country and world. Indian
examples are Tatas, Birlas, Reliance, Bajaj, L&T, Hero
Honda, HDFC, Dr. Reddy Laboratories. TCS, etc.
Industrial Corporate Citizens are trustees and should utilise
their wealth for the welfare of the society / community.
Trusteeship invokes code of discipline, ethical behaviour and
strong principle of accountability. Capital and Labour have to
have mutual, peaceful co-existence. 96
Corporate Governance : Social Responsibility
Common feature they all posses is their image not only as
value creator but more as Top Class Corporate citizen of
India and of the world. They are asset to the share holders,
country and society at large by creating world class products
at competitive prices and price and providing these products
to society at desired time and space. Many of them provide
non-core social activities for benefit of society in quest of
their becoming good Corporate Citizens.
They realise their dependence on Society for their needed
inputs like money, men and skills, society as a market for
their outputs and realise that they cannot exist without
unreserved support from Society. The more closely a
company concentrates on solving societal problems, the
better it is able to solve its own problem of growth and
prosperity.
97
Corporate Governance : Social Responsibility
Capital and labour should supplement and assist each other.
Capital being trustees should look after welfare of labour not
only material but also moral welfare. Principle of mutually
cherishing each other should be developed. Capital should
look after the workers and workers should look after
productivity and profit of the organisation. Presently, capital
has been replaced by knowledge in newer industries like IT
& Pharma. Knowledge workers (professionals) like Bill
Gates, Narayan Murthy are paving the way towards social
responsibilities.
Social Responsibilities have foundation of Business Ethics,
the moral principles of good & bad, right & wrong or Just &
unjust. Peter Drucker has stated that there are no separate
ethics of business. What is unethical and immoral in society
is also applicable to business. The trick is to put your-self in
shoes of those, against whom a particular action is being
planned / taken, which is known as empathy. Corporate
ethics refers to set of rules, code of conduct acceptable to
society at large without any reservations. The concept of
Business ethics is global phenomenon and is recognised 98
throughout the world.
Corporate Governance : Social Responsibility
Code of Ethics for Indian Business (by PHD
Chambers)
It is believed that the best way to promote high
standards of business practice is through self regulation.
Business should be conducted in a manner that earns
the goodwill of all concerned through Quality, efficiency,
transparency & good values with objectives as under:
a) Be faithful and realistic in stating claims.
b) Be responsive to customer need and concerns.
c) Treat all stakeholders fairly and with respect
d) Protect and promote the Environment and
Community interests
99
Stakeholder Definition
Stakeholders are defined as "those groups without whose
support the organization would cease to exist.
A corporate stakeholder is a party that affects or can be
affected by the actions of the business as a whole.
Person, Group, or Organization that has direct or indirect
Stake in an organization because it can affect or be affected
by the Organisations actions, Objectives, and Policies.
Key stakeholders in a Business Organization include
Creditors, Customers, Directors, Employees, Government
(and its Agencies) Owners, Shareholders, Suppliers, Unions,
and the Community from which the business draws its
Resources.
Although stake-holding is usually self-legitimizing (those who
Judge themselves to be stakeholders are de facto so), all
stakeholders are not equal and different stakeholders are
entitled to different Considerations.
For example, a firm's customers are entitled to fair trading
practices but they are not entitled to the same consideration
as the firm's employees. 100
101
External Stakeholder : Definition:
Entities such as Customers, Suppliers, Lenders, or the
wider society which influence and are influenced by an
Organisation but are not its 'internal part'
Stakeholder: Any party that has an interest in an
organization. Stakeholders of a company include
stockholders, bondholders, customers, suppliers,
employees, and so forth.
"The stakeholders in a corporation are the individuals and
constituencies that contribute, either voluntarily or
involuntarily, to its potential wealth-creating capacity and
activities, and that are therefore its beneficiaries and/or risk
bearers."
102
Stakeholders
Any individual, group or business with a vested interest (a
stake) in the success of an organization is considered to be
a Stakeholder. A Stakeholder is typically concerned with an
organization delivering intended results and meeting its
financial objectives. In general, a Stakeholder can be one of
two types: internal (from within an organization) or external
(outside of an organization). Examples of a Stakeholder are
an owner, manager, Shareholder, Investor, employee,
customer, partner and/or supplier, among others. A
Stakeholder may contribute directly or indirectly to an
organizations business activities. Other than traditional
business, a Stakeholder may also be concerned with the
outcome of a specific project, effort or activity, such as a
community development project or the delivery of local
health services. A Stakeholder usually stands to gain or lose
depending on the decisions taken or policies implemented.
103
Types of stakeholders
People who will be affected by an endeavour and can influence it
but who are not directly involved with doing the work. In the Private
Sector,*People who are (or might be) affected by any action taken
by an organization or group. Examples are parents, children,
customers, owners, employees, associates, partners, contractors,
suppliers, people that are related or located near by. Any group or
individual who can affect or who is affected by achievement of a
group's objectives.
An individual or group with an interest in a group's or an
organization's success in delivering intended results and in
maintaining the viability of the group or the organization's product
and/or service. Stakeholders influence programs, products, and
services.
Any organization, governmental entity, or individual that has a stake
in or may be impacted by a given approach to environmental
regulation, pollution prevention, energy conservation, etc.
A participant in a community mobilization effort, representing a
particular segment of society. School board members,
environmental organizations, elected officials, chamber of
commerce representatives, neighbourhood advisory council
members, and religious leaders are all examples of local
stakeholders
104
Examples of a company stakeholders
Stakeholder Examples of interests
106
Competitive Strategy According to
Michael Porter
In a 1996 Harvard Business Review article and in an
earlier book, Porter argues that competitive strategy is
"about being different." He adds, "It means
deliberately choosing a different set of activities to
deliver a unique mix of value.
In short, Porter argues that strategy is about competitive
position, about differentiating yourself in the eyes of the
customer, about adding value through a mix of activities
different from those used by competitors.
In his earlier book, Porter defines competitive strategy as
"a combination of the ends (goals) for which the firm
is striving and the means (policies) by which it is
seeking to get there." Thus, Porter seems to embrace
strategy as both plan and position. (It should be noted
that Porter writes about competitive strategy, not about
strategy in general.) 107
Identification and Assessment of firms
Competitive Edge & Core Competencies
A Competence is something an Organisation is good at
doing. It results out of accumulated learning and built-up
proficiencies. Examples are Proficiency in
Merchandising, Working with Customers, Proficiency in
specific technology, Proven capabilities.
A Core Competence is a proficiently performed activity
that is central to the Organisation Strategy. These are
important activities in which Company is better than
other internal activities. Examples are : Good after sale
service, Skills in Manufacturing, High quality product at
low Cost.
A Core Competence is knowledge & skill based residing
in people, and in Companys intellectual capital. (Does
not appear in Balance Sheet)
108
Distinctive Competence
A Distinctive Competence is a competitively valuable
activity that Company performs better than its rivals. It is
Competitive superiority in performing Core activity
generating competitively superior resource strength.
A strength that is superior / distinctive to competition is
competitive advantage.
Competitive advantage is a back-up for strategy without
which strategy will not work.
Competitive advantage finally results in either cost
advantage or differentiation advantage.
Creating entry barrier is also a way to built up competitive
advantage.
Building Competitive advantage is a conscious and long
term process.
Preparing Competitive Advantage Profile for the
organisation is based on internal appraisal and industry-
competition.
109
Core Competency
: Bench marking
110
Internal Appraisal of the firm:
Purpose:
1. To know ones organisational capabilities, Strengths
and Weaknesses.
2. To select the most suitable Opportunities as per already
appraised capabilities.
3. To assess the Capability GAP for the opportunity in
hand and also for the Objectives and Goals.
4. To take steps to elevate the capability to achieve
Objectives and Goals.
5. To select the Product / business in which organisation
can grow as per potentials appraised.
Factors considered for Internal Appraisal:
Assessment of the Strengths-Weaknesses in different
functions/areas
Identification and assessment of firms Competitive
Edge and Core Competencies.
Appraisal of the individual business, product lines of the
firm and firms know-how status. 111
Assessing strengths and weaknesses:
How well is the companys present Strategy working?
Strength &
Weaknesses
Synergistic
Effects
Competencies
Organisational
Capabilities
Strategic
Advantages
119
OCP & SAP
Strength & Weaknesses
OR & OB creates S & W. Strength is an inherent capability
of organisation used to gain Strategic Advantage. It could
be finance, Technology etc. A Weakness on other hand is
inherent limitation or constraint creating Strategic
Disadvantage. It could be Plant Location, Layout, Obsolete
machinery, Uneconomical operations etc.
Synergistic Effects
Two or more attributes of S & W, do not add up
mathematically but combine to produce an dramatic,
enhanced or reduced effect. This is Synergy or Dysergy.
e.g. when product, pricing, distribution, promotion support
each other a synergistic effect will occur on marketing
120
Competencies
OR & OB develop S & W, which when combined with
Synergistic Effects manifest themselves in terms of
Competencies. This helps Organisations to withstand
pressures of competition. This is ability to compete with
rivals.
Organisational Capability
Organisational Capability is inherent capacity or potential of
an organisation to use its Strengths and overcome
Weaknesses to exploit Opportunities & face Threats. It is a
skill for coordinating resources and putting them to
productive use. Without capability, resources, even though
valuable & unique, will be worthless. Organisational
Capability, though measurable, remains a subjective
attribute. 121
Strategic Advantage
Strategic Advantage is result of Organisational
Capabilities. The advantages can be measured in terms
of Profit, Market Share, Growth etc. Negative results
indicate Strategic Disadvantages. When compared with
known identified rivals, the Strategic Advantage is also
known as Competitive Advantage. In an abundantly
profit making company, Competitive Advantage is used
as stimulus.
122
Organisation Capability Profile (OCP): 1
Organisation capability is nothing but sum total of
capabilities of various functional areas. Largely accepted
main functional areas could be named as Finance,
Marketing, Operations, Personnel, Information and General
Management. These could be different for different types of
organisations.
Operations Capability: includes Production of Products
and Services. Use of material resources, some factors are:
Production System: Capacity, Location, Layout, Product
Design, Work systems, Automation, etc.
Operations & Control: Production Planning, Material
Supply, Inventory, Cost control, Quality control,
Maintenance System, Procedures, Standards etc.
R&D or Design: Facilities, Product development, Patent
rights, Technology, Collaboration, etc.
123
Organisation Capability Profile (OCP): 2
Financial Capability: is basically, availability, sourcing,
usage and management of Funds. It depends upon various
factors for example:
Sources of funds:- Capital Structure, Capital procurement,
controllership, financing pattern, working capital availability,
borrowings, reserves & surpluses, relations with banks, audit
authorities.
Usage of funds:- Capital Investment, Fixed asset
acquisition, Current assets, Loans & advances, Dividend
distributions, Relations with Share Holders.
Management of funds:- Financial Accounting & Budgeting
Systems, Management control systems, State of Financial
health, Cash inflation, Credit & Risk management, Cost
reduction & Control, Tax planning.
Organisational Strength & Weaknesses related to above
factors is a measure of Financial Capability.
124
Organisation Capability Profile (OCP): 3
Marketing Capability: is basically, pricing, promotion,
penetration and distribution of Product or Service.
Marketing Capability Factors are: 4 Ps of Marketing:
Product: Quality, Variety, Product Mix, Differentiation,
Positioning, Packaging etc.
Price: Pricing objectives & policies, Changes, Protection
etc.
Place: Distribution, Transportation, Logistics, Marketing
Channels, marketing intermediaries etc.
Promotion: Tools used for promotion, Sales Promotion,
Advertising, Public Relations etc.
Systemic: Marketing Mix, Market Standings, Company
Image, marketing System, Marketing Management
Information System etc.
125
Organisation Capability Profile (OCP): 4
Personnel Capability: is related to use of Human
resources & skills, aspects about ability to implement
strategies. Some of the Factors are:
Personnel System: Manpower planning, selection,
development, compensation, communication, appraisal,
Position of Personnel Dept. in organisation, etc.
Organisational Characteristics: Corporate Image & Image
as Employer, Quality of Managers, Staff & workers,
Working conditions, Developmental opportunities, etc.
Industrial Relations: Union-Management Relations,
Collective bargaining, Safety, Welfare, Employee
satisfaction and moral, etc.
126
Organisation Capability Profile (OCP): 5
Information Management Capability: relate to design
& management of flow of information for decision
making. Some factors are:
Acquisition and retention of information: Sources,
Quantity, Quality, Timeliness, retention, security, etc.
Processing of Information: Database Management,
Computer Systems, Software Capability, Ability to
synthesise.
Transmission & Dissemination: Speed, Scope, Width,
depth of coverage,
Integrative, Systemic, Supportive factors: IT
infrastructure, its relevance & compatibility to
organisational needs, Up-gradation, Computer
Professionals, Top management Support, etc
127
Organisation Capability Profile (OCP): 6
General Management Capability: relates to integration,
co-ordination and direction of the functional capabilities.
Some factors are:
General Management System: Strategic management
system, Strategy formulation, Strategy implementation
machinery, MIS, Corporate planning, Rewards,
Incentives, etc.
General Managers: Orientation, Risk-propensity, values,
norms, competence, track records, etc.
External Relationship: Influence & rapport with Govt.,
Financial institutions, social responsibilities,
Organisational Climate: Organisational cultures, political
processes, balance of vested interests, Acceptance of
management of change, Organisational Structure &
Control, etc.
128
Organisation capability Profile (OCP) : 7
The Organisation capability Profile (OCP) can be
prepared by systematically assessing the various
Functional areas and subjectively assign values to the
different functional capability factors and sub-factors
along a scale ranging from the values -5 to +5.
Capability Factor Rating
--------------- ------------------------------------------------
Factor Weakness Normal Strength
-5 0 +5
-----------------------------------------------------------------
Sources of Funds -5-4-3-2-1-0+1+2+3+4+5 = +3
After completion of charts for all the factors and sub-
factors mentioned above, Strategists can assess
Weaknesses and Strengths of the organisation in each
of the six functional areas.
129
Preparing the Strategic Advantage Profile (SAP):
OCP capability Factor Rating chart becomes a base for SAP.
132
Company and Environment
External Environment: PESTEL: Political,
Economical, Socio-Cultural, Technological,
Environmental, Legal,
Visions
Missions,
Objectives,
Goals,
Business-
Definition Feedback
Corrective Strategy
Action Systems
Structures
Targets
133
Corporate Scenario Planning
Corporate Scenarios are proforma balance sheets and
income statements that forecast the effect of alternative
strategy and its various programs will likely to have on
division and on corporate return on investment.
Recommended scenarios are simply extension of the
Industry Scenarios developed earlier. This should be done
for every product and for every country.
Develop common size financial statements for the
companys or business units previous years which are basis
for the trend analysis projections of proforma financial
statements.
Construct detailed proforma financial statements for each
strategic alternatives.
Compare the assumptions underlying the scenarios with
these financial statements and ratios to determine the
feasibility of the scenarios.
134
Scenario Box for use in Generating Financial Pro Forma Statements.
Factor Last Historical Trends 2 0 07 2 0 09 2 0 11 Comments
Year average
O P ML O P ML O P ML
GDP
CPI
SALES
FOREX
PLR
Expnsn
Div.
Profits
EPS
ROI
ROE
Others
135
Scenario Planning
Scenarios are tools for strategists to express their views
about alternative future environment for which todays
decisions are framed.
Scenarios resemble a set of stories, built around carefully
constructed plots. The stories express multiple view points,
paradigms on complex events taking place in world.
Scenarios present alternative future images, instead of
extrapolating current trends.
Creating scenarios requires decision makers to question
their broadest assumptions about the way the world works to
foresee a decision, which could have been missed or denied
For an organisation, scenarios provide a common
vocabulary giving effective basis for communicating complex
conditions and options.
By recognising the warning signals, the threats &
opportunities of future, one can avoid surprises, adapt and
act effectively. 136
Implementation of Scenario Planning
A cross function team is constituted for identifying and
monitoring issues. Employees are encouraged to participate
by offering some incentives.
Step 1: Understand effects of external factor on the business.
These can be Technology driven (New Product, IT
integration), or Political (Deregulation, instability), or
Economic ( Sudden downturn, boom), Competitive
positioning ( moves of Competitors)
Step -2 :Classification of issues by the supportive record or
documents. Then determine the uncertainty and kind of
impact of these issues.
Step 3 : Analysing and Problem Solving as per A, B, C & D
categories as per given figure.
137
High
A. Can be B. Keep a
Discarded close watch
Un-
Certainty
C. Can be used
D. Are of Highest
for Long term Concern
Planning
Low
140
ETOP Environment Threat and Opportunity Profile
Select the best Strategy & Business Model for the Company
141
Environment Survey : Purpose:
1. To learn about events and trends in the environment
and project the future of the environment.
2. To identify the favourable and unfavourable factors
in the environment from standpoint of the firm.
3. To figure out the opportunities and threats hidden in
environmental events and trends.
4. To assess the scope of various opportunities and find
out the ones having potential of becoming promising
businesses and pursue them.
5. To draw up the opportunity-threat profile.
6. To formulate strategy in line with opportunities.
142
Scope of Survey - 1
Macro- environmental factors
Demographic Environment Size of population, age
distribution, literacy levels, religious composition,
composition of workforce, household patterns, regional
characteristics, population shifts.
Socio-cultural, Environment Culture-language-
education, traditions, beliefs, values, lifestyle, social
class,
Economic Environment General Economic conditions
and conditions for the targeted population segment,
purchasing power, consumer spending pattern, rate of
growth of economy and the growth of economy of
targeted sector, rate of inflation, interest rates, tax rates,
price of materials and energy, labour scene cost, skill,
availability.
Political Environment Regulating legislation, stability of
the government, media, social and religious
organisations, pressure groups-lobbies,
143
Scope of Survey - 2
Natural Environment ecology, climate, endowment of
natural resources, raw material, energy,
Technology Environment Technology options
available, their cost effectiveness, technology at
International level. Govt. approach in respect of
technology, technology selection.
Legal- Business legislation Corporate affairs,
Consumer protection, Employee protection, Corporate
protection, Regulation on products, controls on trade
practices, protecting national firms.
Government Policies Organisations have to
understand govt. policies while setting and operating
units, especially MNCs who operate in various countries.
For example, many MNCs prefer India over China due to
Indias legal environment.
144
Environmental factors specific to the business
concerned -1
The Market / Demand Nature of Demand whether it
is seasonal, related to specific event, repetitive etc.,
Demand Potential, Current level of Demand, Changes
in demand, consumption pattern, buying habits,
invasion of substitute products,
The Consumer - Consumer tastes and preferences
keep fluctuating and need to be monitored. A perpetual
analysis of customer analysis is required. Who is the
customer, what needs are served by product and what
needs are envisaged by customer is to be analysed.
Other factors are Purchasing power, buying motive,
buying Habits, Attitudes, lifestyle, brand Awareness,
brand loyalty, nearest competitor, customers reaction
to upcoming new products.
145
Environmental factors specific to the business
concerned -2
The Industry & competition Knowledge of Industry and
competition is a fundamental requirement in developing
strategy and industry analysis. The study of demand,
consumer, industry and competition is normally a on-
going activity.
Government Policies More important in regulated
economies but even in free economy, Govt. plays role as
large purchaser, offers subsidies, protect home
producers, ban fresh entry, ban products. Some time
Govt. itself is large supplier and regulates the market.
Govt. policies have a great effect on socio-economic
conditions.
The Supplier related factors Suppliers as a group have
their own bargaining power and can influence cost.
Scarcity of raw materials can affect output and
deliveries. Supplier becoming manufacturer is always a
threat. Monitoring supplier environment helps in making
a decision of integrating or outsourcing. 146
Porters Five Forces Model
Source: Porter, Michael E, - Competitive Strategies -1985
Potential
Entrants
Threat of new
Entrants
Industry
Suppliers Competitors Buyers
Rivalry among
existing firms
Bargaining Power of Bargaining Power
Suppliers of Buyers
Threat of substitute
products or suppliers
Substitutes
147
Forces Shaping Competition in an industry - 1
According to Porter, a firm develops its business
strategies in order to obtain competitive advantage (i.e.,
increase profits) over its competitors. It does this by
responding to five primary forces:
1. Rivalry amongst existing firms and jockeying for
position - i.e. competition
2. Threat of new entrants
3. Bargaining power of buyers / customers
4. Threat form substitute products and
5. Bargaining power of suppliers 148
Forces Shaping Competition in an industry - 2
These five factors shape competition and determine
Attractiveness / Profitability in an industry.
Sizing up competition within factory is not enough; all
forces shaping competition and survival of industry must
be sized up. We should know which of these forces are
strong and how they work in its industry, how will they
affect the firm in particular and how to adjust ones
position to defend or overcome or take advantage of
these forces.
The company positions itself so as to be least vulnerable
to competitive forces while exploiting its unique advantage
(say - cost leadership). A company can also achieve
competitive advantage by altering the competitive forces.
149
Forces Shaping Competition in an industry - 3
These five forces of competition influence the firms
strategy. The five competitive forces model provides a
solid base for developing business strategies that
generate strategic opportunities. In fact the strategy
should be formed in such a way to influence all these
forces in favour of the firm. Strategy should be formed to
build defence against these forces and finding a position
in industry where the influence of these forces is weakest.
In his recent study, Porter (2001) reemphasized the
importance of analyzing the five competitive forces in
developing strategies for competitive advantage:
Analyzing the forces illuminates an industrys fundamental
attractiveness, exposes the underlying drivers of average
industry profitability, and provides insight into how
profitability will evolve in the future. 150
Rivalry amongst existing firms and jockeying
for position - i.e. competition
1. Industry members undertake more aggressive and more
frequent actions to boost their market standing &
performance. This makes rivalry stronger.
2. Rivalry is stronger in slow growing markets.
3. More nos. of competitors and competitors who are equal
in size and capability makes rivalry stronger.
4. Rivalry increases as products of rival competitor
becomes more standardised giving good reliability.
5. Rivalry increases as it becomes less costly for buyers to
switch the brand.
6. Rivalry increases as competitors play a price war and
other competitive weapons to boost their market share.
7. Rivalry is strong when nos. of competitors are less than
five.
151
8. Rivalry increases when strong companies outside
the industry acquire weak firm in the industry and
launch well-funded, aggressive moves to transform
the acquired company in to a major contender.
9. Rivalry is weak in fast growing markets.
10. Rivalry is weak when, there are so many rivals, that
impact of ones action is thin on spread over span.
Typical weapons to combat rivalry are:
1. Lower Prices.
2. More or different features.
3. Better product performance with higher Quality.
4. Stronger Brand image & appeal.
5. Wider selection to customers to choose from
Models & styles.
6. Better & bigger dealer network.
7. Better Customer service capabilities.
152
2. Threat of new entrants
Entry threats are stronger when:
Candidates have resources that make them a formidable
contender.
Entry barriers are low.
Newcomers can expect good returns.
Buyer demand is growing rapidly.
Industry is unwilling / unable to stop new entrants.
155
5. Bargaining power of suppliers
Major suppliers can have sufficient bargaining power to
influence the terms & conditions in their favour.
Item supplied is a commodity that is not readily available
from other suppliers in market.
When few large suppliers are primary suppliers of a
particular item. (Suppliers can have a cartel)
When it is costly or difficult for buyer to switch to new
brand or alternate items.
When needed items are in short supply.
When supplied item has a differentiation, which
enhances performance of final product.
When certain supplier supplies item has possibilities of
cost savings to industry members on account of its
added quality feature or service.
Bargaining Power of Supplier is weak when: backward
integration is possible, when buyer is a major customer,
when there are many suppliers available.
156
SWOT Analysis:
Identify Company Resource Strengths and Competitive
capabilities.
158
Factors to look for in SWOT analysis:
Potential Resource Strengths & Capabilities
# A powerful Strategy. # Core competencies.
# Distinctive Competence. # A strongly differentiated
Product.
# Competencies & Capabilities matching with Key Success
Factors of Industry.
# A strong financial condition providing ample resources.
# Strong brand image # An attractive Customer base.
# Superior Technological skills / Product Quality/ Patents /
intellectual Capital / Innovation capabilities.
# Cost advantage. # Strong advertising & Promotion.
# Supply Chain Management Capabilities.
# Customer service capabilities.
# Wide geographical coverage / strong Global distribution
capabilities.
# Alliances / joint ventures / collaborations.
159
Potential Resource Weaknesses & Competitive
Deficiencies.
No clear Strategic Direction.
Resources not matching KSFs
Lack of Core & Distinctive competencies.
Weak balance Sheet / heavy debt / low resources.
Too narrow product line compared to rivals.
Weak Brand image.
Weaker dealer network.
Low product Quality, lack of R&D and Technological
know-how.
Lack of Management depth.
Loosing market share because
Behind rivals in e-commerce capabilities.
Internal operation problems / obsolete facilities.
Underutilised Plant capacity.
160
Potential Market Opportunities
Sharply rising buyer demand.
Serving new market segments / new set of customers.
Expanding to new geographic markets.
Expanding product line & range of products to meet
market demand.
Online sales, e-business.
Forward or backward integration.
Overcoming Trade barriers and capturing new foreign
markets.
Acquire rival firms.
Enter into alliances.
Exploit new technologies.
161
Potential External Threats
Increasing intensity of competition among rivals.
Slowdown of market.
Entry of new potent rivals.
Loss of sales to substitute products.
Growing bargaining power of Customers / Suppliers.
A shift in buyer needs and tastes.
Adverse demographic change curtailing demand.
Restrictive trade policies on the part of foreign
Governments.
Costly new regulatory requirements.
162
Strengths Weaknesses
Technological Skills Absence of important skills
Internal Leading Brands Weak Brands
Factors Distribution Channels Peer access to distribution
Consumer Loyalty Low Customer retention
Production Quality Unreliable Product / Service
Scale Sub-scale
Management Management
Opportunities Threats
Changing customer tastes Changing customer tastes
External Geographical Liberalisation Geographical Closures
Technological advances Technological advances
Factors
Government Policies changes Government Policies changes
Lower personal Taxes Lower personal Taxes
Population age structure Population age structure
New Distribution Channels New Distribution Channels
163
Positive Negative
Syllabus
5. Corporate Portfolio Analysis:
Business Portfolio Analysis Synergy and
Dysergy
BCG Matrix
GE 9 Cell Model
Concept of Stretch, Leverage and fit
(3)
164
Synergy v/s Dysergy -1
The whole is greater or lesser than sum of its parts.
1 + 1 could be 2 or 11 or 111.
This effect is known as Synergy.
In any organisation, Resources, Strengths, Weaknesses,
behaviours do not exist independently but they act
together. If these strengths, and resources and
behaviour in the Organisation are directed properly, then
a Synergistic Effect could be seen. The Organisation
should cultivate Win-Win and open communication with
philosophy of Seek to understand first and then to be
understood.
In such an atmosphere, two or more strong points add
up to something more than its arithmetic sum. This is
Synergy. Similarly, two or more weaknesses acting in
tandem can damage more than its arithmetic sum. This
is Dysergy.
165
Synergy v/s Dysergy -2
In practice if functions like Product, Pricing, Distribution
and Promotion, work in harmony and support each other,
then, synergistic effect could be seen in Marketing.
Similarly, if Marketing and Production areas support
each other, then synergistic effect could be seen in
Operating Efficiency. Marketing inefficiencies could
result in reduction of operating efficiency as dysergistic
effect.
Synergistic Effects are results of quality and type of
internal environment existing within organisation. These
effects will only lead the organisations to develop
competencies and ward off external threats.
166
Business Portfolio Analysis
Definition : Analyzing Elements of a firm's Product
Mix to determine the Optimum Allocation of its
Resources. Two most Common Measures used
in a Portfolio Analysis are Market Growth and
Relative Market Share.
The strategic units that make up the company and the
attempts to evaluate current effectiveness and
vulnerabilities (McDonald et al, 1992)
Business Portfolio Management enable strategic
planners to select the optimal strategies for the individual
products whilst achieving overall corporate objectives
(McNamee, 1985)
167
When a Business Portfolio comprises of Multi-business
Units and / or operating at multi-location, then the Strategist
often ask two questions to take a decision on Business
Strategy.
How much of our time and money should we spend
on our best products to ensure that they continue to
be successful?
How much of our time and money should we spend
developing new costly products, most of which could
never be successful?
Examples of Portfolios:
Unilever: ice cream, tea, spreads,
Proctor & Gamble: Detergents, nappies,
Gillette: batteries, Shaving products
Virgin : trains, planes, cola, music stores, mobiles
Wipro : Computers, Vanaspati, Veg. Oils, Soaps,
ITC : Tobacco, Soaps, Biscuits 168
Business Portfolio Analysis
Portfolio Analysis is an analysis of the Corporation as a
portfolio of different businesses with the objective of
managing it for optimum return on its resources.
Portfolio analysis looks at the corporate investments in
different products or industries under common corporate
jurisdiction. It involves, analysing future implications of
presents resource allocation and continuously deciding,
adding, curtailing or disposing, operations or products, so
that overall portfolio balance is maintained or improved.
Portfolio analysis takes into considerations aspects such as
Companies Competitive Strength, Resource Allocation
Pattern & Industry Characteristics.
All businesses have to balance, three basic aspects of
running the business :
1. Net Cash Flow.
2. State of Development.
3. Risk. 169
Boston Consulting Group BCGs Growth Share Matrix
170
BCGs Growth Share Matrix
Different businesses which forms the Business Portfolio
can be characterised by two parameters:
1. Companys Relative Market share for the business,
representing the firms competitive position and
2. The overall growth rate of the business.
For each activity in the portfolio, a separate strategy must
be developed depending upon its position in 2 X 2 matrix.
Higher Market share will mean, higher profits and higher
cash flows. Relative market share is defined as the market
share of the relevant business divided by the market share
of its largest competitor. i.e. A = 10%, B = 20% & C = 60%,
then, As relative market share is 1/6 & Cs share is 3.
Higher Growth rate will mean profitable investment /
expansion opportunities and easier to increase market
share. Earned Cash can be ploughed back to enhance
ROI.
171
BCGs Growth Share Matrix - Methodology
Step-by-step procedure to develop the business portfolio
matrix and identify appropriate strategies for different
businesses:
1. Classify various activities of the Company into different
business segments or SBUs. (Strategic Business Units)
2. For each business segment, determine the growth rate of
the market. Plot it on linear scale.
3. Compile assets employed for each business segment and
determine the relative size of the business within the
company.
4. Estimate the relative market shares for the different
business segments. This is done on logarithmic scale.
5. Plot the position of each business on a matrix of business
growth rate and relative market share.
172
BCGs Growth Share Matrix - illustration
Relative market Share
20
STARS QUESTION MARKS
18
16
14
Business
Growth
12
rate %
10
CASH COWS DOGS
8
2 2
10 X 4X 0.1 X
1.5 X 1X 0.5 X 173
Product Life Cycle
174
Strategies as per Product Life Cycle-1
Expansion Strategy : Stars are the businesses
which have high growth rate & high market share. At times
they are not self sufficient in cash flow, but need to be
supported in view of their potential. This is Growth phase
of Product Life Cycle (PLC). Such businesses generate as
well as use large amount of cash. The Star generate high
profits and represent the best investment opportunities for
growth. We need to reaffirm the Companys Competitive
Edge at this phase by sufficient doses of resources for
expansion. The best strategy regarding stars is to make
necessary investments and consolidate the companys high
relative competitive position.
e.g. Tiles, Electronics & Communications, Pharmaceuticals,
are Star industries. 175
Strategies as per Product Life Cycle-2
Hold Strategy - Cash Cows are the businesses with low
growth rate and high market share. High market share leads
to high generation of cash and profits. Cash Cow is a
business that generates cash flows over & above its internal
needs. Cows can be milked to provide a corporate parent
with funds for investing in star / Question Mark businesses,
financing new acquisitions or paying dividends.
Cash cows provide the financial base for the company.
A strong cash flow resulting out of relatively high market
share / low market growth rate Cash Cow opportunities
should be able to maintain market share at or around existing
levels.
In this state of business, Corporate can adopt mainly Stability
Strategies. Expansions & investments can be thought only if
the long term prospects are exceptionally bright.
These are generally mature businesses reaping benefits of
experience and expertise. Funds generated are to be used
for Question Mark or Star businesses as Cash Cow's are
destined to slow down. A phased retirement need to be 176
planned.
Strategies as per Product Life Cycle- 3
Build Strategy Question Mark : The Businesses
with high industry growth but low market share are
Question Marks. In the business. These Question Mark
opportunities need investment in order to grow and gain
market share.
Because of their high growth, the cash requirement is
high, but due to their low market share cash generation is
low.
These are sometimes known as Problem Child as
someone with huge potential, but not clicking. Here, a
large amount of Cash inflow is required to stabilise and
enter into Star phase. Companies must obtain early lead
to strengthen the business and capture growth
opportunities.
A question Mark business can either become a Star or
can go to Dogs depending upon funds & competitive
edge.
177
Strategies as per Product Life Cycle - 4
The business is called Dogs, if business growth rate is low
and the companys relative market share is also low.
The lower market share means poor profits and as market
growth is low, any investment is prohibitive as cash
demanded will exceed the cash generation, causing
negative cash flow.
Under such circumstances, the Strategic solution is to either
liquidate, or if possible harvest or divest the DOG business.
Harvest Strategy : To develop short term cash flow
irrespective of the long term damaging effect to the product
or business. This strategy is appropriate for any weak
products where disposal in the form of a sale is unavailable
or not preferred due to high exit barriers
Divest Strategy : To change the capital of the business and
allow resources to be used elsewhere of industries that have
a very slow or negative market growth rate and where a
company has low market share. These are products in late
maturity or declining stage as mostly substitutes start taking
over these products. They stop generating large amount of
Cash and face a cost disadvantage owing to low market
share. Sometimes to reduce the high costs involved, a 178
Retrenchment Strategy is also adopted.
Cash Positions of Various Businesses
Circle denotes the size of Industry , while blue colour portion corresponds to Market183
Share.
General Electrics Business Screen
The vertical axis represents Industry Attractiveness. This
is weighted composite rating based on eight different
factors. These factors are:
1. Size of Market 10%
2. Rate of Growth of Sales & Cyclicality 10%
3. Industry Profit Margin. 40%
4. Competitive intensity including vulnerability to foreign
competition. 15%
5. Seasonality. 5%
6. Economics of Scale. 5%
7. Susceptibility to Technological obsolesce 5%
8. Entry conditions, Social, legal, environmental & human
impacts. 10%
Against each of these factors, the concerned business is
rated on a scale of 1 to 10 and then the weighted score is
determined from maximum of 10. This gives the Industry
Attractiveness Index. 184
General Electrics Business Screen
The horizontal axis represents business strength
competitive position. This is a weighted composite rating
based on eight factors. These factors are:
1. Relative market Share.
2. Relative cost position.
3. Profit margins relative to competitors.
4. Ability to compete on Price & Quality.
5. Knowledge of Customer & Market.
6. Competitive Strengths & Weaknesses.
7. Technological Capability
8. Calibre of Management.
The two composite values for Industry Attractiveness and
Business Strength are plotted for each business in a
Companys Portfolio. The pie charts denote the proportional
size of the industry white colour & blue segment represent
company share. 185
General Electrics Business Screen
The horizontal axis represents business strength competitive position.
This is a weighted composite rating based on seven factors. A typical
scoring of Companys Competitive position
Factor Weightage Rating Score
(1 to 10)
Market Share and Capacity 20% 7 1.4
Gap
Performance
Achieved
Performance
Time -1 Time -2
189
Gap analysis -2
Gap analysis is done for focussing on strategic
alternatives.
On dimension of time various alternatives are evaluated
in different phases to get a clear picture for selection of
strategies.
What is the result of the present strategy?
What should be new strategy?
What should be methodology of implementation?
If the gap is narrow, policy is to stabilise the strategies.
If the gap is due to consistent past bad performance;
which is also expected in future, then retrenchment /
withdrawal strategies may be more suitable.
190
Gap Analysis - 3
First step is to identify alternatives. Companies find it
difficult to change their strategies because strategic
thinking is not the core competency of managers. Hence
lot of brain storming, situational analysis need to be
done.
A correct definition of the problem is the Second step. A
hypothesis is developed after brain storming and
situation analysis. This hypothesis must be tested to
developing clear understanding of the forces that
actually work.
Next step is to formulate the strategy and address the
driving forces in a cause and effect relationship. Find
the 80:20 Pareto Principle and attack the most important
one.
Prioritise the strategies and a plan for the projects to
implement strategies on time scale is created for future
guidance and analysis.
191
From Fit to Stretch:
Vertical Fit: If a Business house has a strategy to be Cost
Effective Leader in the business, then resources and
activities in all functional areas are to be focussed on
adopting low cost structures and reducing costs.
When all functional areas like Marketing, Finance,
Operations, HRD, and Information Management etc.
contribute to this objective to create a low cost structure,
then it is a congruence of all functional strategies and
coordination between functions operating at different levels
in Organisation, toward a common Objective. Such
congruence is the Vertical Fit.
Horizontal Fit: Along with Vertical Fit, a need is there to
have congruence and co-ordination amongst all the different
activities taking place at same level. This is Horizontal Fit.
192
Horizontal Fit is operational implementation. It is an
approach adopted by organisation to achieve operational
effectiveness. All functions operate optimally by
performing value creating activities. This is also a value
chain. To support value chain activities various staff
function departments are involved and put along
operations. For e.g. Procurement Department is placed
along with Operations department.
Horizontal fit means integration of all operational activities
undertaken to provide a product or service to customer.
Strategy & Structure for Generating Results in
Organizations : The traditional strategic planning seeks a
fit between resources and aspirations. You set realistic
goals based on what you think you can achieve with the
resources at hand and then construct strategies and
tactics to achieve them.
Fit means positioning the firm by matching its resources
to its environments as per SWOT analysis. It could be a
compromise formula with regards to Firms objectives and
Competitive posture of the Company. 193
Strategy as Stretch and Leverage
Hamel and Prahalads (1993) assertion that competitiveness is
born in the gap between a companys resources and its
managers goals has entered the mainstream of strategy
thinking. This is one of the concepts of Stretch. Hamel and
Prahalad began their deconstruction of conventional wisdom
by challenging common understandings of the meaning of
strategy.
Hamel and Prahalad added duel concept of Stretch and
Leverage to Strategic Intent. Stretch is a gap between
resources and aspirations. Stretch is diametrically opposite to
Fit. Since Fit means positioning the firm to match its
resources to its environment.
The concept of Leverage is concentrating, accumulating,
complementing, conserving and recovering resources in such
a manner that the meagre resources (Gap or Stretch) stretched
to meet the aspirations that organisation has envisaged.
The idea of Stretch & Leverage belongs to Learning School
of Strategy. Capabilities are not seen as constraints to
achieving. Environment is not seen as given but something
which can be created and moulded. 194
Strategy as Stretch and Leverage
Hamel and Prahalad considered that many managers
understood strategy to mean: " fit, or the relationship
between the company and its competitive environment; the
allocation of resources among competing investment
opportunities; and a long-term perspective in which resource
money figures prominently. They stressed that being
strategic implies a willingness to take the long view, and
strategic investments mean betting bigger and betting
earlier.
This view obscures the merits of alternatives in which the
ideas of Stretch, Leverage, and Consistency of effort
feature. Creating stretch, " a misfit between resources and
aspirations is the single most important task Senior Manager.
Under Fit, Strategic intent would seem more realistic; under
Stretch & Leverage Strategic Intent is more idealistic. In
both cases it is essentially a desired aim to be achieved.
195
Porter on Strategy
- "What is strategy? It is, he wrote " the creation of a
unique and valuable position, involving a different set of
activities."
But choosing a unique position is not enough to
guarantee a sustainable advantage. Sustainability
requires trade-offs with other possible positions - for
three reasons:
1. To eliminate or minimise inconsistencies.
2. To maximise and concentrate the benefits of a chosen
position.
3. To recognise and accept the limits of coordination and
control.
The essence of strategy is choosing what not to do.
"Without trade-offs there would be no need for choice,
and thus no need for strategy."
196
Porters Three Types of Fit:
Porter considers Strategic Fit, as the way various
components of a strategy interlink, or fit together. In this
context Fit locks out imitators by creating a value chain
that is as strong as its strongest link, and is a more
potent, and central, strategic concept.
Porter recognised three types of fit:
Fit:- First order or simple consistency between activities
Stretch:- Second order, or reinforcing activities
Leverage:- Third order, or activities which optimise
organisational effort
In all three, the whole is more than any individual part.
Competitive advantage grows out of the entire system of
tightly linked activities.
197
Thus defined, strategic fit is fundamental not only to
competitive advantage, but also to the sustainability of that
advantage, and the more an organisations positioning rests
on activity systems with second- and third-order fit, the more
sustainable its advantage will be. The definition of strategy
then becomes Creating fit among a companys
activities."
The success of a strategy depends on doing many things
and integrating them.
The strategic agenda is defining a unique position, making
clear trade-offs, and tightening fit. The strategic agenda
demands discipline and continuity.
198
For challenges of this sort to be effective, top
management has to:
A) Create a sense of urgency.
B) Develop a competitor focus at every level through
widespread use of competitor intelligence.
C) Provide employees with the skills they need to work
effectively.
D) Give the organisation time to digest one challenge
before launching another.
E) Establish clear milestones and review mechanisms.
199
---------------------------------------------------------
Syllabus
6. Generic Competitive Strategies:
Low cost,
Differentiation,
Focus (3)
---------------------------------------------------------
200
Competitive Strategy
Competitive Strategy is about being different. It means
deliberately choosing to perform activities differently or to
perform different activities than rivals to deliver unique mix
of value Michael F Porter.
Competitive Strategy is about analysing and then
experimenting, trying, learning, and experimenting some
more. Ian C. McMillan & Rita Gunther Mcgrath.
The essence of Competitive Strategy lies in creating
tomorrows competitive advantages faster than the
competitors mimic the one you posses today. Gary
Hammel & C K Prahalad.
A Competitive Strategy concerns the specifics of
management game plan for competing successfully and
achieving a competitive edge over rivals.
201
Generic Competitive Strategies
1. A low-cost provider Strategy : Appealing to a broad spectrum
of customers by being the overall Low Cost Provider of a
Product or Service.
2. A broad-differentiation strategy : Seeking to differentiate the
companys Product/service by offering different from Rivals to
broad spectrum of Customers.
3. A best-cost provider strategy : Giving customers more value
for money by incorporating good to excellent product
attributes at lower cost than rivals.
4. A focussed or market niche strategy based on Lower Cost :
Concentrating on Narrow buyer segment and out competing
rivals by offering at lowest cost than rivals
5. A focussed or market niche strategy based on differentiation :
Concentrating on Narrow buyer segment and out competing
rivals by offering customised attributes to niche member at
lowest cost than rivals
The basis of competitive strategy lies in Low-cost or
Differentiation and finding out our own focus on market niche.
202
Revamp Value Chain
A Low-cost advantage can be achieved by re-vamping
the Value Chain activities and controlling all factors
that drive the costs. Revamping of Value Chain is
aimed at increasing efficiencies to out-manage rivals
on costs. Re-vamping of value Chain is also done by
examining the elements of value chain eliminating or
bypassing the activities which are adding costs but not
value to the product. (Waste elimination)
Re-vamping the value Chain:
1. Use of internet Technology applications.
2. Approaching direct to end user in Sales & Marketing.
3. Purchasing directly from manufacturer.
4. Simplifying product design.
5. Using simpler, less capital intensive, flexible
technologies. Using CADs.
6. Substituting high cost/imported raw materials with
indigenous ones (Value Engineering)
7. Relocation of facilities. 8. Dropping the dead weight.203
The value chain
The value chain is a systematic approach to examining
the development of competitive advantage. It was
created by M. E. Porter in his book, Competitive
Advantage (1980). The chain consists of a series of
activities that create and build value. They culminate in
the total value delivered by an organisation. The 'margin'
depicted in the diagram is the same as added value. The
organisation is split into 'primary activities' and 'support
activities.'
204
205
Primary Activities.
Inbound Logistics: Here goods are received from a
company's suppliers. They are stored until they are needed on
the production/assembly line. Goods are moved around the
organisation.
Operations: This is where goods are manufactured or
assembled. Individual operations could include room service in
a hotel, packing of books/videos/games by an online retailer, or
the final tune for a new car's engine.
Outbound Logistics: The goods are now finished, and they
need to be sent along the supply chain to wholesalers, retailers
or the final consumer.
Marketing and Sales: In true customer orientated fashion, at
this stage the organisation prepares the offering to meet the
needs of targeted customers. This area focuses strongly upon
marketing communications and the promotions mix.
Service: This includes all areas of service such as installation,
after-sales service, complaints handling, training and so on.
206
Support Activities -1.
Procurement: This function is responsible for all
purchasing of goods, services and materials. The aim is
to secure the lowest possible price for purchases of the
highest possible quality. They will be responsible for
outsourcing (components or operations that would
normally be done in-house are done by other
organisations), and e-Purchasing (using IT and web-
based technologies to achieve procurement aims).
Technology Development: Technology is an important
source of competitive advantage. Companies need to
innovate to reduce costs and to protect and sustain
competitive advantage. This could include production
technology, Internet marketing activities, lean
manufacturing, Customer Relationship Management
(CRM), and many other technological developments.
207
Support Activities -2.
Human Resource Management (HRM).
Employees are an expensive and vital resource.
An organisation would manage recruitment and
selection, training and development, and
rewards and remuneration. The mission and
objectives of the organisation would be driving
force behind the HRM strategy.
Firm Infrastructure.
This activity includes and is driven by corporate
or strategic planning. It includes the
Management Information System (MIS), and
other mechanisms for planning and control such
as the accounting department.
208
Five Generic Competitive Strategies
Type of Competitive Advantage Desired
Lower Cost Differentiation
213
Aspects of industry for Differentiation Strategy-1
The essence of broad differentiation strategy is to be
unique in ways that are valuable to a wide range of
customers. and at the same it should be noted that
Easy to copy differentiators cannot provide sustainable
competitive advantages. As a rule,
Differentiation yields a longer lasting effect and more
profitable competitive edge, when it is based on:
1. Product innovation by R&D, 2. Technical superiority,
3. Product quality with superior manufacturing abilities.
4. Reliability. 5. Comprehensive customer service,
6. Unique competitive capability
7. Superior supply-chain activities.
8. Maintaining the cost of differentiation in line. 214
Aspects of industry for Differentiation Strategy-2
Such differentiation should result into:
Perceived & actual delivered value for customers
Command a premium price for its products
Increase unit sales & Gain buyer Brand loyalty
Approaches for achieving Cost Differentiation
1. Incorporate product attributes & user Features that
lowers the buyers overall costs of using the companys
product.
2. Incorporate features that raise product performance like
quality, reliability, durability etc.
3. Incorporate features that enhance buyer satisfaction in
non-economic or intangible ways.
4. To deliver value to customers via competitive
capabilities that rivals do not have or cannot afford to
match.
215
Factors of Differentiation Strategy
The Product can be differentiated in many ways and buyers
perceive these differences as having value.
Buyers needs and uses are diverse.
There is less head to head competition. Few rival firms are
following differentiation approach.
Technological change is fast paced and competition revolves
around evolving product features.
Any differentiation that works well gets imitated and there is
need for constant up gradation.
Differentiating something that does not lower buyers cost or
improves perceived value is a mistake.
Over differentiating increasing service needs or usage
constraints is a mistake.
Trying to charge a too high a premium price.
Being timid & not striving to open up about competitors defect
and differentiating that is not visible to buyers is a pitfall. 216
Best Cost Provider Strategies
Best Cost Provider Strategies are for giving customer
more value for money'.
It is middle path between pursuing a low cost advantage
and differentiation strategy.
Best Cost Provider Strategies are hybrid Strategies
balancing emphasis on Low Cost & Differentiation.
Target market is Price & Value conscious buyer, with
diversity of products, where differentiation is a norm.
To be successful, Best Cost Strategy must offer, buyers
significantly better product attributes, so that they can
justify higher price above Low Cost leaders and with
sufficient differentiation can win over high-end
Differentiation Leaders.
217
Focussed or Market Niche Strategies
Focussed Strategies have concentrated attention on a
narrow piece of the total Market. Target market segment is
called as niche. e.g. Rolls Royce- a status symbol,
Porsche for sports cars, e-Bay for e-auctions.
Focussed Low Cost Strategy:
Serving buyers in the target market niche at lower cost &
lower price than rivals.
Producing Private-Label imitating Brand name
merchandise & selling directly to retail chains.
Focussed Differentiation Strategy:
Serving a buyer segment that is looking for special product
attributes or seller capabilities.
By offering niche members a product perceive as well
suited for their own unique tastes & preferences and be at
top of Market pyramid due to their strength of
differentiation.
e.g. Gucci, Rolls Royce, Armani, Rolex, Reliance Fresh,
Kesari Tours 218
Low Cost Provider
Strategic Target A broad cross section of the market
224
Strategic Option Menu
226
Business Dimensions
Any Business is defined along three dimensions and
combinations thereof. These three dimensions are:
Customer Group
Customer Functions and
Alternative Technologies.
As the organisations becomes large & diversified, the
business definition also becomes complex. According to
Glueck, there are four Grand Strategies, which are used as
alternatives and in a combined way. These Strategies are:
Stability Strategies.
Expansion Strategies.
Retrenchment Strategies.
Combination Strategies.
These Strategies are pure and depending upon various
dimensions of the businesses, many mixed strategies do
take place. Glueck has described four dimensions, such as:
227
Business Dimensions 1 & 2
1. Internal / External Dimensions:
a) When the Organisation is an independent entity, it is
operating under Internal Dimensions
and
b) When the Organisation adopts a strategy in association
with another entity, it operates under External Dimension.
230
1. Stability Strategies:
1.a) No-Change Policy: It is a conscious decision of not
doing anything new and continue with present business
definition. When environment is stable and predictable with
no new significant threats & opportunities in the
environment, it may not be worthwhile to alter strategy in
present situation. Also no new strengths have been
generated and no new weaknesses have been developed.
No new threat of substitutes and new entrants. However,
this should be a conscious decision and should not arise
out of in-activity and owing to inertia. It is dangerous to be
complacent.
1.b) Profit Strategy: No change policy cannot sustain for
long and situations keep changing. However if company
believes that the changes like economic recession, govt.
rules, industry downturn, competitive pressures are
231
temporary and will turn favourable after some time,
then firm opts for maintain profit policy by artificial
measures like cut costs, hold investments /
replacements, raise prices, increase productivity and
some such measures to tide over the difficult days.
However, if the problems are not temporary, the
company position deteriorates.
238
3. Retrenchment Strategies.
Retrenchment Strategy is followed when an organisation
substantially reduces scope of its activities. The
organisation need to find out problem areas and
diagnose the causes of the Problems, accordingly,
various types of Retrenchment Strategies are adopted.
External Developments, Government Policies, Substitute
Products, Changing Customer needs, Wrong Strategies,
Obsolete Products, could be reasons for decline.
Symptoms are noticed in poor performance, declining
profits, dwindling Cash flow, falling sales, Shrinking
markets, Shrinking market share, increasing debt.
The organisation with proper monitoring controls can
sense impending danger and position itself to find
alternatives.
239
Retrenchment Strategy Situations for Recovery
Slatter has described four types of Retrenchment Strategy
situations for recovery
Realistically non recoverable situation with little chance of
Survival :
Not competitive company, Low potential for Improvement,
Company with cost dis-advantage, Products or Services are in
terminal decline..
Temporary recovery situation but no sustained turn-around:
Possible product re-positioning, new forms of Competitive
advantage, cost reduction, revenue generation is possible.
Sustained survival situation but no potential for future growth:
Turnaround is possible but Industry is in slow decline, which
cannot be revived. Therefore, a very little potential for growth is
possible. Divestment is possible or Turn-around is possible by
finding niche market, where organisation can be a leader.
Sustained recovery situation with genuine possibility of Turn-
around:
A possible new developed product, Possible market development
or a possible market re-positioning. Industry has attractiveness is
still available and decline was caused more by internal factors.240
3.a) Retrenchment Strategies: Turnaround Strategies:
245
Timing Tactics the Companys Strategic move in marketplace:
A Tactic is a sub Strategy. A specific operating plan how & when a
Strategy to be implemented.
When is often as important as what.
1st mover has advantage of taking inroads and establishing in
market as leader being remembered (Bisleri), creating image as
pioneer.
Can capture raw material suppliers, distribution channels.
First time consumers are likely to remain loyal.
Disadvantage: could be costlier to be first. Apart from cost of
technique, creating awareness in consumers is also costly.
Late mover can come up with superior product by imitating & has
fewer risks as market is already developed. They can be successful
if they have staying power.
First mover risks obsolescence due to technological advancements,
smart late mover can turn apple cart & beat first mover. Sometime
fence sitter moves in by fine tuning on mistakes of first mover. 246
1. Strategic Alliances & Collaborative Partnerships?
In the present era of Privatisation & Globalisation,
Industries have to face altogether different challenges not
faced hitherto. Rapid advances in technology, free
economy, new markets in developed & under developed
countries, and invasion of foreign companies are forcing
Industries to enter into race of building Global presence
and into race of adopting new technologies.
Industries also find that they do not have expertise for
running the race of Global leadership. The global
environment requires diverse & expensive skills,
resources, technological skills. The fastest & surest way
to fill up the gap is Alliances with enterprises having
desired strengths.
Strategic Alliances are collaborative partnerships where
two or more companies join forces to achieve mutually
beneficial strategic outcomes. These alliances are more
than company to company give & take dealings but fall
short of Merger or JV. These alliances are mainly for
bridging gap of resources and technology. 247
Advantages of Alliance:
Alliance is basically between equals, but alliances are
also done with suppliers, distributors as partners by
many big business houses. These alliances are mostly
done with Value chain contributors.
It is now common for companies to pursue their
strategies in collaboration with suppliers, distributors,
makers of complimentary product and some select
companies. e.g. IBM & DELL.
Advantages of Alliance:
Get into critical country markets quickly.
Gain, in-side information & knowledge about unknown /
unfamiliar markets & cultures.
Access valuable skills & competencies.
Get a handle to participate in target technology or
industry.
Master new technology; build new expertise &
competencies faster.
Open up broader opportunities. 248
Stability of Alliances:
Alliances have a very high rate of divorce. In US only about
39% of Alliances are found to be stable. Others are either
outright failures or are limping along.
Alliances to be successful should have partners working
together. Stability of alliances depend upon their success in
adopting to changing internal & external conditions,
willingness to bargain on issues, real collaboration and not
merely arm length exchange of ideas. Each partner must
bring in high value allied skills, resources and contributions
and respect each other. They should have co-operative
arrangements working for win-win solutions.
Causes for failures of alliances could be, diverging objectives
and priorities, inability to work together, changing conditions
which make initial reason for alliance as obsolete, more
attractive technologies and / or rivalry at marketplace.
Alliance partners should guard themselves from undue
dependence. Over a period the partners must learn skills and
technology. To be a market leader companies must develop
their own capabilities or alliance will ultimately lead to Merger
or Acquisition.
249
Merger & Acquisition Strategies:
The phrase Mergers and Acquisitions (abbreviated
M&A) refers to the aspect of corporate strategy,
corporate finance and Management dealing with the
buying, selling and combining of different Companies
that can aid, finance, or help a growing company in a
given industry to grow rapidly without having to create
another business entity.
256
Types of Offensive Strategies-1
1. Initiatives to match or exceed the competitor strengths:
When rivals have strong competitive advantage, then
firms are forced to take an initiative and take an
offensive stand to whittle away from pressure.
In second instance, when competitor is very strong
and established, an offensive strategy to offer alternate
products at faster pace and at cheaper price
sometimes works and afterwards people get used to
alternate product. e.g. AMD & Intel.
One of the options is to offer equally good product at
lower price.
Other option could be to outsmart competitor by
bringing in latest version of product in market before
him and making his product obsolete.
Adding new features, running Comparison ads, having
plant in backyard of rival, superior customer service
capability are some other options.
257
Types of Offensive Strategies-2
2. Initiatives to capitalise on weaknesses of the
competitor: This option has better chance than
challenging strengths of competitor.
Options could be going after rival whose product lag in
quality & features, or making special sales campaign,
Service camps where rival lacks in service department,
or Win away customers with your strong brand appeal
over his weak brand,
or take advantage of geographic reasons, where rival
has weak presence in market,
or paying special attention to market segment which
your rival is neglecting.
258
Types of Offensive Strategies-3
3. Simultaneous initiatives on many fronts: Company
may launch a Grand Offensive on many fronts
simultaneously and compel rivals to take defensive
actions,
Such offensive may include, price cuts, increased
advertising, additional performance features, new models
& styles, customer service thrust & improvements, free
samples, coupons, rebates, in store displays, etc.
When a product has sufficient Brand image & when a new
specifically attractive product or service is being launched,
such an offensive measure has more chances of success
259
Types of Offensive Strategies- 4
4. End-run offensives: involves going around competitors
instead of taking them head on and change rules of game
& competition.
This may include, introducing new products that redefine
the market & terms of competition, e.g. digital camera,
wireless communication.
It could also include launching initiative in geographic
area where competitors have not yet reached or introduce
products in new market segments for selected buyers
with different attributes & performance features, e.g.
sport-utility-vehicles of Honda Accura or ford Lexus.
Taking a jump ahead- leapfrogging by using next
generation technology, which support existing business &
technology such as 3 G hand sets, blackberries, i-phone,
LCD screens
260
Types of Offensive Strategies- 5
5. Guerrilla offensives: This is adopted by small
challenger companies, who do not have resources or
market visibility to challenge the leaders. This is hit &
run technique.
Challenger Companies attack in areas neglected by
biggies or where they have become vulnerable.
Offering quality, when leaders have some quality
problems
or having a big discount sale week,
or offering products at shortest & confirmed deliveries
when leaders are facing delivery problems,
a short offensive and win away selected client account,
prompt technical support when clients are frustrated
with leaders. etc.
261
Types of Offensive Strategies - 6
6. Pre-emptive strikes: This is one of a kind offensive move.
Whosoever is first gains maximum competitive advantage!
Pre-emptive strategies involve being first to secure an
advantageous position, where rivals are kept away and
cannot duplicate and then strike competitors by
a) May be securing a big renowned distributor,
b) New geographic area, new shopping mall,
c) Good location for to cheap transportation & raw materials,
etc,
d) Choose which rivals to attack. It could be leaders, who are
always vulnerable or
e) Second run firm with weaknesses, here the challenger
must be strong to strike weak company,
f) Struggling enterprises who are on the verge of going under,
g) Small local & regional firms with limited capabilities.
The pre-emptive strikes are done on the basis of
core competency of challenger, where they are best in
areas like Resource strengths and competitive capabilities,
otherwise chance of success are dim.
262
Defensive Strategies:
In competitive environment every successful company has to
face the threat of challenges from rivals and new entrants.
The defensive strategies are used to lower the risk of being
attacked and weakening the impact of attack.
The defensive strategies do not improve competitive edge but
they help to fortify companys competitive position, protect
valuable resources and prevent possibilities of imitation. Two
forms of Defensive Strategies are:
1. Blocking the avenues open to Challengers:
Defender can participate in alternative Technology to reduce
attack of better Technology which may be offered by rivals.
New Products, new features, broaden the product range, close
vacant niches,
263
Have economy priced product range to ward off price wars.
Lengthening warranty periods, free service training or camps.
Developing capability to provide spare parts.
Providing free coupons, give away samples, sponsoring gift
hampers,
Search & appoint creditable distributors & book them with
volume discounts & other finance terms so as to discourage
them from trying other suppliers.
2. Signalling Challengers that retaliation is likely & let
challengers know that the battle will cost more than its worth.
Publicly announcing managements commitment to maintain the
firms present share.
Publicly committing the company to match competitors terms &
prices.
Maintaining a war chest & marketable securities.
Making an occasional strong reaction on moves of weak
competitor to enhance the companys image of tough defender.
264
Strategies for Using Internet as distribution channel
The internet era has brought second wave of Internet
entrepreneurship.
Companies need to address how best to make internet as
part of the business to use as distribution channel.
How much emphasis to be placed for use of internet?
Managers must decide how to use the Internet in positioning
the company in marketplace?
Using Internet Just to Disseminate Product Information:
and use internet to direct customers to distribution channel
partners for sales transaction or indicate locations retail
stores. This is to avoid conflict with already existing
distribution channel partners. Direct sale on net will indicate
weakening commitment to distributors.
Dealers are considered better positioned to deal with brick &
click Strategy for Company products / services. Company
considers that strong support and goodwill of dealer network
is essential. Web is considered in partnership with dealers
and not in competition. 265
Using Internet as Minor Distribution Channel:
Here, the strategy is to use Internet to gain online sale
experience, doing market research, testing product,
getting feed back from web surfers and create
sufficient interest about Companys Product and
Services in web community.
e.g. Nike selling some footwear on line, giving buyers
option for colour & features so as to gain more & first
hand knowledge about customers choices.
This path will be beneficial to dealers & will not create
resistance.
266
Using Brick and Click Strategy:
Sell directly to customers on line and at the same time use
traditional whole sale & retail channels.
This policy is beneficial in certain circumstances. e.g.
Software Programmes, where direct downloading is more
comfortable than going to shop and getting a CD.
Internet has more reach and geographic constraints are
taken care of with help of dealers in that area, though
Distribution channels are necessary and customer need to
have a physical contact with Product / Services,
On-line sell improves profitability as dealer commission
could be up to 35 40% of retail price.
Customers visiting web site are automatic prospective
buyers.
Also where the technology is more suitable for build to
order strategy.
267
First / Fast / Late Mover Strategy
When to make a Strategic move is equally important as
what move to make. It will depend upon the product life
cycle, technology requirement. First mover has many
advantages, but fast & late mover can also be a profitable
move.
First mover builds up reputation & image. (Bisleri)
First movers early commitment to new technology, new
features, new distribution channels can give a cost
advantage over rivals.
Being first mover is an offensive move of pre-emptive
strike. Rivals are not ready & this makes imitation difficult.
Bigger the first mover advantage, more attractive the
move is.
268
First movers customers are likely to retain brand loyalty
giving him firm footage in market. However, first mover has
to have good financial resources, important competencies,
competitive capabilities and high quality management.
The first move cannot be for name sake. First mover must
time his product entry with precise combination of features,
customer value & sound revenue cost profit economics
to sustain the edge over rivals and maintain market
leadership.
Being the first mover need competency and cost. It may be
cheaper to copy. If the product life cycle is long, the initial
advantages of first mover can be nullified over a time and
with safety. A follower and late mover assume that first
mover to be slow in learning and updating his products.
269
First mover risks obsolescence due to technological
advancements, smart late mover can turn apple cart & beat
first mover. Sometime fence sitter moves in by fine tuning on
mistakes of first mover
Being a Fast follower and late starter can also be an
advantageous move with wait and see policy. It may be
easier to copy first mover and improve upon by learning from
errors on part of first mover and de-bug the problems.
Late mover can come up with superior product by imitating &
has fewer risks as market is already developed. They can be
successful if they have staying power.
270
Syllabus
===============================
8. Tailoring strategy to fit specific
industry:
Life Cycle Analysis
Emerging, Growing, Mature & Declining
Industries. (4)
===============================
271
Tailoring strategy to fit specific industry
Strategies for:
Competing in Emerging Industries.
Competing in turbulent, high-Velocity Markets.
Competing in Mature Industries.
Firms in Stagnant or Declining Industries.
Competing in Fragmented Industries.
Sustaining Rapid Company Growth.
Industry Leaders.
Runner-Up Firms.
Weak and Crisis-Ridden Businesses.
272
Strategies for : Competing in Emerging Industries:
1. Strategy deals with risks & opportunities.
2. Try for winning early race to Industry leadership, Risk
taking entrepreneurship.
3. Broad or focussed differentiation Strategy with
technological superiority.
4. Strategy to go all out for perfecting the Technology,
improved product quality with additional performance
features.
5. Form strategic alliance with key suppliers for gaining
technological expertise, specialised skills, and critical
material component.
6. Pursue new customer groups, new user applications,
new geographical areas.
7. Acquire, merge, form JVs with companies having
complementary technology.
8. Make it easy & cheap for first time buyers for them to
experience industrys first generation product.
273
Strategies for: Competing in Turbulent, High-
Velocity Markets
The Strategy could be offensive or defensive, depending
upon where you react to change or you lead the change. A
middle path is anticipating change.
Strategies to invest aggressively in R & D for leading edge
of technical know how.
Develop quick response capability.
Have strategic partnerships with suppliers making tie in
products.
Initiate fresh actions regularly in every few moths without
waiting for situations compelling change, thereby
keep companys product & services fresh & exciting to
withstand changing environment.
274
Strategies for : Competing in Mature Industries:
At matured stage, check your portfolio and prune added
products & models being in list for name sake.
Concentrate on Value Chain, trim costs, & do not allow
Fat additions.
Concentrate on increased sales to present customers..
Acquire rival firms.
Expand Internationally.
Build new or more flexible capabilities.
Strategies for : Firms in Stagnant or Declining
Industries:
Concentrate on Value chain, drive down your costs and
strategise to become industry leader as low cost
provider.
Even in declining industry, some segments are growing.
Know the needs of buyers in that segment & fulfil them.
Concentrate on product differentiation with quality
improvement & innovation. 275
Strategies for: Competing in Fragmented
Industries:
276
Strategies for : Sustaining Rapid
Company Growth:
Short span strategy could be to expand in present business
and obtain increased revenue. Time span 1 to 3 years.
Medium span Strategy: use existing resources and
capabilities and enter into new business having a growth
potential. Time span 3 to 5 years
Long Span Strategy: Look at businesses that do not exist
today. Use present resources for venture investment.
Present cash flow reduces, some loss expected on new
business but strategy is longevity & significant future gains
277
Strategies for : Industry Leaders:
Stay on Offensive Strategy : Strategy is to be first mover and
a proactive market leader. Keep rivals in reactive mode or
scrambling to keep up your pace. Grow faster than the
Industry as whole and wrestle marker share from rivals.
Fortify and defend Strategy: Increased spending on
advertisement, bigger R & D outlay. Add personalised
services. Keep prices reasonable. Patenting feasible
alternative technologies.
Muscle flexing strategy : Overkill : Quickly matching and
exceeding challenges from rivals. Use Promotional
campaigns to keep rivals away from gaining. Use arm
twisting tactics. Display displeasure on customer for trying
others and offer some specific benefits for Brand Loyalty.
278
Strategies for: Runner-Up Firms: These are second tier
companies with lesser market share than the leader. These
are also up-coming market challengers.
Offensive Strategy to build market share.
Strategy to grow through acquisition.
Strategy to fill up vacant niche.
Strategy to be a specialist, or to have superior product or to
have a distinct image (Differentiation)
Strategy to be a content follower no trendsetting moves but
steal customers aggressively by copying and with special
privileges.
Strategies for: Weak and Crisis-Ridden Businesses.
These are Retrenchment & Turn around strategies.
Selling off Assets.
Revising the existing Strategy.
Launching efforts to boost revenues.
Pursuing cost reduction.
Using a combination of these efforts. 279
Crafting a successful Business Strategy: 1 :
Take a long term view for Companys Competitive position
and take those Strategic moves on top priority.
Be alert about unmet customer needs, buyers wishes for
something better, emerging technological alternatives and
be prompt in adapting to changing market conditions.
Be alert needs of non consumers, which is a very large
share of the Market.( e.g.- Wall Mart at 14%)
Invest in creating sustainable competitive advantage.
Do not assume most optimistic circumstances while
forming Strategies. Avoid Strategies which can be
successful only in optimistic circumstances. (if not, then
what?)
Do not under-estimate rivals in their reactions or
commitment to do better.
Attacking competitive weakness is always safer and
profitable than attacking competitive strength.
280
Crafting a successful Business Strategy: 2 :
Check possible cost advantages before cutting prices.
You need to cut costs before cutting prices. You need
to be Low cost provider for winning Price cutting war.
If you have a differentiation Strategy as a base, then
we should really strive meaningful jump in quality /
services / performance. Any minor variation in rivals
product will not be noticed by buyer and will not be
important to them.
It should be noted that a middle path strategy and
compromise strategy are two different matters.
Compromise Strategies are not sustainable. Best cost
provider Strategy is not a compromise, it must be a
well thought & well executed.
Be aware that offensive Strategies will always invite
retaliation. Aggressive moves to capture market share
from rivals will invite a price war which will be
detrimental to every body. Prepare your defences
before being aggressive.
281
Syllabus
9. New Business Models and strategies for
Internet Economy:
Shaping characteristics of E-Commerce
environment
E-Commerce Business Model and Strategies
Internet Strategies for Traditional Business
Key success factors in E-Commerce
Virtual Value Chain. (6)
282
What is E-commerce?
E-Commerce from Communication point of view: It is the
ability to deliver products, services, information, payments
via network like internet.
E-commerce from Interface point of view means
information and transaction exchange: Business to
Business (B2B), Business-to-Consumer (B2C), Consumer
to Consumer (C2C) and Business to Government (B2G).
E- Commerce as Business Process means activities that
support commerce electronically by networked
connections, for example, business process like
manufacturing and inventory and business to business
process like supply chain management are managed by
the same networks as business to consumer processes.
E-Commerce as Online process: E-commerce is an
electronic environment that allows sellers to buy and sell
products / services and information on the internet. The
products may be physical, like cars or services like news
or consulting.
283
What is E-commerce?
293
McCarthys Promotion Strategies
Mass marketing and sales promotions result in
expensive, inefficient brand management. To manage e-
brands effectively and efficiently, companies have to
employ promotion strategies different from those used by
traditional marketing
To manage e-brands effectively and efficiently,
companies have to employ promotion strategies like
building a direct link with consumers and enter into a
dialogue with them about products (dialogue-based
marketing or one-to-one marketing).
Build a base of loyal and profitable customers by
formulating customer-centric promotion strategies and
respond to this new customer power.
A revenue-sharing marketing strategy is an affiliated
marketing program with partners based on commissions.
For example, www.amazon.com launched its affiliate
program and now has some 400,000 affiliates
294
McCarthys Place Strategies
For most companies, place refers to the supply chain (or
value chain). The place aspects of the marketing mix are
closely related to the distribution and delivery of products or
services. The Internet and its associated application
software have significantly changed the way companies
products or services are delivered by reducing transaction
and distribution costs. One way for companies to
differentiate their products from rival companies is faster and
more efficient delivery of products to their customers
Integrate online (Click) and bricks-and-mortar businesses
(clicks-and-mortar strategy). E-businesses (particularly e-
retailers) need fully automated distribution warehouses to
meet demand from shoppers on the Internet. For example,
Amazon.com leased a new 322,560 sq. ft. distribution centre
in Fernley, Nevada. By Investing in physical assets such as
a warehouse, Amazon.com can compete more effectively
with Barnes & Noble.
295
Porter's Five Competitive Forces Model
According to Porter, a firm develops its business strategies in
order to obtain competitive advantage (i.e., increase profits)
over its competitors. It does this by responding to five primary
forces: (1) the threat of new entrants, (2) rivalry among
existing firms within an industry, (3) the threat of substitute
products/services, (4) the bargaining power of suppliers, and
(5) the bargaining power of buyers.
The company positions itself so as to be least vulnerable to
competitive forces while exploiting its unique advantage (cost
leadership). A company can also achieve competitive
advantage by altering the competitive forces.
The five competitive forces model provides a solid base for
developing business strategies that generate strategic
opportunities. The Internet dramatically affects these
competitive forces. Companies should take effect of internet
on these forces into account while formulating their strategies.
Analyzing the forces illuminates an industrys fundamental
attractiveness, exposes the underlying drivers of average
industry profitability, and provides insight into how profitability
will evolve in the future.
296
Impact of the Internet on Marketing Mix and
Competitive Forces
The Internet can dramatically lower entry barriers for new
competitors. Entering into e-commerce has become very
easy for new entrants.
The number of people with Internet access has reached an
estimated 304 million worldwide, an increase of almost 78
percent. The Internet also brings many more companies
into competition by expanding geographic markets.
The Internet also changes the balance of power in
relationships with buyers and suppliers by increasing or
decreasing the switching costs of these buyers and
suppliers.
297
By reducing customers' search costs, the Internet makes
price comparison easy for customers, and thus
increases price competition and shifts bargaining power
of customers new promotion venues. The Internet
creates new substitution threats by enabling new
approaches to meeting customer needs and performing
business functions (Porter 2001). World Wide Web
(www) technology itself has produced new promotion
venues. The Internet also facilitates an electronic
integration of the supply chain activities, achieving
efficient distribution and delivery. It also facilitates
partnerships or strategic alliances by networking
partners or allies.
298
E-Business Strategies for Competitive Advantage:
Product, Price, Promotion, and Place Strategies
299
Product Price Promotion Place
Threat of Product Price Clicks
Substitutes Differentiation discrimination and
like bundling Cost Mortar
Strategy
Innovation and leadership.
or Niche Product Value added
Customer products /
centric strategy services
327
Issues in implementation:
Project Implementation.
Procedural Implementation.
Resource Allocation.
Structural Implementation.
Behavioural Implementation.
328
Strategy Implementation
Strategy Implementation is managerial exercise of putting
freshly chosen Strategy into place.
Action orientation: Strategy implementation entails action, it is
putting formulated Strategies into action through the
management processes.
Strategy Implementation is comprehensive in scope. It
includes everything that is included in the discipline of
management studies.
Strategist must have somebody with a wide range of
knowledge, skills, attitudes and Attributes for Implementation.
Actual Implementation demands varied Skills
Wide range of involvement. Along with CEO every employee
is involved in Strategy implementation.
The various tasks in strategy cannot stand alone. They are
interrelated. Each task performed is related to other and thus
create an interconnected network.
329
Adopting a clear model of Strategy Implementation: A Clear
unambiguous Strategy, Clear Responsibilities & Accountabilities,
Comprehending, how various elements are interconnected.
Effective management of change in complex situations: Behavioural
changes, leadership style changes,
Strategy Implementation is Activating Strategies, preparing ground
for managerial tasks & activities. ( Project implementation,
Procedural Implementation & Resource Allocation)
The core of strategy implementation is Managing Change.
(Structural Implementation, Leadership Implementation and
Behavioural Implementation). It involves Degree of change, Timing
of change & Activity areas of the change.
The outcome of Strategy Implementation is to Achieve
Effectiveness through Functional and Operational Implementation.
Goal Model, Resource based Model, Internal process Model and
the Conflicting Values Model. (Attempt to consolidate different
view points & using diverse indicators of performance)
330
Mintzbergs
Conception of the Implemented
Formulated Type of Strategies Strategy
Strategy
331
Strategies
Plans
Program
Projects
Budgets
332
Strategies
A
n
F B n
Corporate Plan u
Corporate u r Long Term /
n o al
c a Medium Term
t Sector Plan d O Objectives :
io p
n O e Market Share,
al bj r ROI, ROE, New
Business
Divisional Plan e a
sector ct Markets.
Pl t
a I I These are
v o
n
Product / e n
integrated and
technology s
Division coordinated,
Plan B
u
consistent,
d prioritised and
Product g
Level e
measurable
ts objectives.
Medium Short
Long Term
Term Term
(5-10 years)
(3 Yrs) (1 Year)
333
Advantages of Annual Objectives:
Tangible Growth targets.
Focus on Growth.
Role clarity to managers and sub-ordinates.
Mobilise people and enable them to participate in
direction of growth.
Unifying all groups in one direction.
Basis for strategic control.
Motivate employees.
Provide challenges for functional groups
Tool to Operationalising strategies.
334
1. Project Implementation:
Strategic Management Process
Project Control
Objectives Measures
Strategic
budget
Minimising P
R
gaps O
P
Core Competencies, O
Executive Marketing & past S
Performance, A
Management Environment, culture L
S
Targets /
Operation Implementa
Operating tion
Budgets
Management
340
Types of Strategic Budgets
Functional CEO
CEO
Divisional / Product
Corporate Finance Legal / PR
345
Matrix CEO
Head A
Location /
Product /
Plant
Head B
Location /
Product /
Plant
Head C
Location /
Product /
Plant
346
Network
Corporate
HQ
347
Product based Structures: In large volume scenario it
makes a sense to have a separate organisation
dedicated to a product. This enables optimum use of
specialised skills. Product separation helps organisation
in addition /deletion decisions.
Customer based Structures: Assuming that sales volume
justifies the need of separate setup; it enables
organisation to concentrate on specific customer group
and provide exclusive attention required for that
particular product / services. It helps in creating
specialised skills and timely response to changing needs
of the customers.
Geographic Structures: Set ups at different sites
sometimes evolve due to expansions and mergers. It
also offers advantage of nearness to raw materials or to
markets / customers. It helps in fair degree of de-
centralisation. It needs a very good top level co-
ordination and communication amongst all locations and
corporate office.
348
Intrapreneurial Structure: This is a cluster of various owner
driven set-ups. It encourages entrepreneurial abilities of its
employees. Employees as entrepreneurs with support of
parent organisation can apply its full attention to his part of
business for development of new ideas for products and
services.
There are also Horizontal Organisations and Delaminated
matrices.
In horizontal type; the structure corresponds to process of
providing products or services directly served to customer
thereby eliminating special corporate functions like
marketing, finance etc. Executives have to be multi-
functional in such a case as the core process is managed by
cross functional teams.
Delaminated Matrices are combination of Horizontal
organisations with a Functional structure. The firm employs
both process oriented horizontal teams and functional
departments. These two layers of matrix organisation are
separated providing depth of expertise and capabilities to
the organisation. 349
Organisational Design: Structural Dimensions:
Formalisation: Written Documents, Procedures, Job
Descriptions, Regulations & Policy Manuals.
Specialisation: Specialised tasks are subdivided into
separate groups.
Hierarchy of Authority: Span of Control of Managers,
Reporting structure, Nos. of Sub-ordinates.
Centralisation: Decision making process, Delegation of
decision making authority.
Professionalism: Formal Education & Training
requirements.
Personnel Ratios: Deployment of people to various
functions & Departments, Administrative Ratio, Clerical Ratio,
Indirect v/s Direct labour Ratio.
Contextual Dimensions: Environment, Goals & Strategy,
Culture, Technology and size of Organisation are factors that
influence the shape the structural dimensions.
350
Organisations are structured to implement strategic plan in
best possible way. All functions and activities that are
critical from strategy view point are required to be
considered. Thus key activities performed to achieve
Objectives and realise the Mission are required to be
considered in Organisational design.
Establish
Standards
Determine Measure
corrective Performance
performance
Evaluate
Performance
against
Standards
353
Organisational Systems
Information Systems The Organisational
Arrangements that provides information to managers
to perform their tasks and relate their works to others.
This is also known as MIS
Appraisal Systems Evaluating managerial
performance. Appraisals are used for salary fixation,
awards, incentives, management development, etc.
Motivation Systems to enforce desirable behaviour.
Motivation can be monetary such as Salary, Bonus,
Rewards and non monetary such as recognition,
designation, perks
354
Organisational Systems
355
Development systems is a process of gradual,
systematic improvement in knowledge, skills and
performance of mangers to enable them to perform
their duties.
The process of management Development
Management
Development
356
5. Behavioural Implementation.
Leadership.
Corporate Culture.
Corporate Politics.
Use of Power.
361
Corporate Politics and Power: Power is an ability to
influence others and politics is carrying out activities
though not prescribed by any Policy to gain advantages
and influence distribution.
Corporate politics is not good or bad but it creates
divisiveness which is not good.
Sources of Power : Reward Power ability of Manager
to reward people of his choice. Coercive Power Ability
to penalise negative results. Legitimate Power Ability of
Mangers to influence behaviour of sub ordinates.
Referent Power is Managers to create liking among
subordinates due to charisma or knowledge. Expert
Power is due to competence, knowledge and experience
of Managers.
362
Personal Values and Business Ethics
Value is a view of life and a judgement of what is
desirable and what is correct. These views forms
personality of a leader and creates a groups morale.
Business ethics are traditionally been considered as core
values like honesty, trust, respect & fairness.
To inculcate these value and ethics:
Consider Values & Ethics of a person during recruitment.
Incorporate in new comer trainees and in training
programme.
Top management to set examples.
Communicate Values & Ethics through wide publicity.
Consistently monitor and nurture values and build ethics.
363
Social Responsibility and Strategic Management
Social Responsibility along with ethics becomes a stated or
un-stated requirement. It gets attended in Strategic Planning
through environmental appraisals. It has differing views, while
some do not want it to be considered in business operations,
others boast around it. However, most business houses
observe a balance and undertake to deliver social
responsibility and business objectives without contradicting
each other.
Social Responsibility extends beyond the workforce and
stakeholders and many business houses take up activities for
community welfare, rural development, sports etc.
Presently, with ISO:14001:2004 which concerns Environment
Management Systems, it has become a necessity to address
the mode and means of delivering social responsibility.
Like any other strategic functions, for successful
implementation, Organisations need to allocate resources,
create Organisation Structure and evaluate its effectiveness.
But all said and done, the society in large remains a major
stake holder and we cannot escape our dues to society and
towards social responsibility.
364
Functional and Operational Implementation.
Enterprise Vision, Mission, Objectives and Goals are of
generic nature.
Various functions like Marketing, Operation, Finance,
HRD etc. are created for effective implementation of the
Strategic Plans.
Functional Plans and Policies are developed.
Functional Strategy deals with limited restricted plan
which provides objectives for a specific function.
Resources are allocated function wise for their optimal
contribution to the achievement of Business and
Corporate level Objectives.
365
Functional Plans and Policies:
Functional Strategies are implemented through defined
plans and policies for various functions.
1. The strategic decisions are implemented by all the
functions of the organisations.
2. A basis is created for controlling activities of all different
functional areas of business.
3. Plans are laid down clearly for all functional
departments and Policies provide discretionary
framework. Thus functional mangers do not spend time
groping in dark.
4. Functional mangers can handle similar situations
effectively.
5. Co-ordination across the different functions takes place
where necessary.
366
Strategy Formulation
Operational
Operational
System
System
Objective
Structure
Operational
Policies and
plans
367
Syllabus
11. Behavioural issues in implementation:
Corporate culture
Mc Kinseys 7s Framework
Concepts of Learning Organization
(3)
368
Description of the 7-S Frame work of MC Kinsey
369
Description of the 7-S Frame work of MC Kinsey
The 7-S framework of McKinsey is a Value Based Management
(VBM) model. Together these factors determine the way in which a
corporation operates.
Shared Value: The interconnecting centre of McKinsey's model is:
Shared Values. What does the organization stands for and what it
believes in. These are Central beliefs and attitudes.
Strategy: Strategy is a Plan for the allocation of a firms scarce
resources, over a time to reach identified goals. Strategy considers
Environment, Competition and Customers.
Structure: The way the organization's units relate to each other:
centralized, functional divisions (top-down); decentralized (the trend
in larger organizations); matrix, network, holding, etc.
System: The procedures, processes and routines that characterize
how important work are to be done: financial systems; hiring,
promotion and performance appraisal systems; information
systems.
Staff: Numbers and types of personnel within the organization.
Style: Cultural style of the organization and how key managers
behave in achieving the organizations goals.
Skill: Distinctive capabilities of personnel or of the organization370
as
a whole. (Core Competencies).
The McKinsey 7S Framework
Ensuring that all parts of your organization work in
harmony
While some models of organizational effectiveness go in and
out of fashion, one that has persisted is the McKinsey 7S
framework. Developed in the early 1980s by Tom Peters and
Robert Waterman, two consultants working at the McKinsey
& Company consulting firm, the basic premise of the model is
that there are seven internal aspects of an organization that
need to be aligned if it is to be successful.
The McKinsey 7S model can be applied to elements of a
team or a project as well. The alignment issues apply,
regardless of how you decide to define the scope of the
areas you study
* The 7S model can be used in a wide variety of situations
where an alignment perspective is useful, for example:
Improve the performance of a company;
Examine the likely effects of future changes within a
company;
Align departments and processes during a merger or
acquisition;
371
The Seven Elements
Hard Elements Soft Elements
Strategy Shared Values
Structure Skills
Systems Style
Staff
373
How to Use the Model
The model is based on the theory that, for an
organization to perform well, these seven elements need
to be aligned and mutually reinforcing. So, the model can
be used to help identify what needs to be realigned to
improve performance, or to maintain alignment (and
performance) during other types of change.
Whatever the type of change - restructuring, new
processes, organizational merger, new systems, change
of leadership, and so on - the model can be used to
understand how the organizational elements are
interrelated, and so ensure that the wider impact of
changes made in one area is taken into consideration.
You can use the 7S model to help analyze the current
situation (Point A), a proposed future situation (Point B)
and to identify gaps and inconsistencies between them.
It's then a question of adjusting and tuning the elements
of the 7S model to ensure that your organization works
effectively and well once you reach the desired endpoint.
374
However, it is not simple. Changing your organization
probably will not be simple at all! Whole books and
methodologies are dedicated to analyzing organizational
strategy, improving performance and managing change.
The 7S model is a good framework to help you ask the
right questions - but it won't give you all the answers. For
that you'll need to bring together the right knowledge,
skills and experience.
When it comes to asking the right questions, we've
developed a Mind Tools checklist and a matrix to keep
track of how the seven elements align with each other.
Supplement these with your own questions, based on
your organization's specific circumstances and
accumulated wisdom.
375
7S Checklist Questions
Here are some of the questions that you'll need to explore to
help you understand your situation in terms of the 7S
framework. Use them to analyze your current (Point A) situation
first, and then repeat the exercise for your proposed situation
(Point B).
Strategy:
What is our strategy?
How to we intend to achieve our objectives?
How do we deal with competitive pressure?
How are changes in customer demands dealt with?
How is strategy adjusted for environmental issues?
Structure:
How is the company/team divided?
What is the hierarchy?
How do the various departments coordinate activities?
How do the team members organize and align themselves?
Is decision making and controlling centralized or decentralized?
Is this as it should be, given what we're doing?
Where are the lines of communication? Explicit and implicit?376
Systems:
What are the main systems that run the organization? Consider
financial and HR systems as well as communications and
document storage.
Where are the controls and how are they monitored and
evaluated?
What internal rules and processes does the team use to keep on
track?
Shared Values:
What are the core values?
What is the corporate/team culture?
How strong are the values?
What are the fundamental values that the company/team was
built on?
Style:
How participative is the management/leadership style?
How effective is that leadership?
Do employees/team members tend to be competitive or
cooperative?
Are there real teams functioning within the organization or are377
they just nominal groups?
Staff:
What positions or specializations are represented within
the team?
What positions need to be filled?
Are there gaps in required competencies?
Skills:
What are the strongest skills represented within the
company / team?
Are there any skills gaps?
What is the company / team known for doing well?
Do the current employees/team members have the
ability to do the job?
How are skills monitored and assessed?
378
7S Matrix questions
Using the information you have gathered, now examine
where there are gaps and inconsistencies between elements.
Remember you can use this to look at either your current or
your desired organization.
Check off alignment between each of the elements as you go
through the following steps:
Start with your Shared Values: Are they consistent with your
structure, strategy, and systems? If not, what needs to
change?
Then look at the hard elements. How well does each one
support the others? Identify where changes need to be made.
Next look at the other soft elements. Do they support the
desired hard elements? Do they support one another? If not,
what needs to change?
As you adjust and align the elements, you'll need to use an
iterative (and often time consuming) process of making
adjustments, and then re-analyzing how that impacts other
elements and their alignment. The end result of better
379
performance will be worth it.
Key points:
The McKinsey 7Ss model is one that can be applied to
almost any organizational or team effectiveness issue.
If something within your organization or team isn't working,
chances are there is inconsistency between some of the
elements identified by this classic model.
Once these inconsistencies are revealed, you can work to
align the internal elements to make sure they are all
contributing to the shared goals and values.
The process of analyzing where you are right now in terms
of these elements is worthwhile in and of itself.
But by taking this analysis to the next level and determining
the ultimate state for each of the factors, you can really move
your organization or team forward. 380
Concepts of Learning Organization
Organisational Learning vs. Learning Organisation
There is a difference between Organisational Learning
and Learning Organisation. Argyris (1977) defines
Organisational Learning as the process of "detection and
correction of errors"
while Senge (1990) defines Learning Organisation as "a
group of people continually enhancing their capacity to
create what they want to create". Senge further remarks
that "the rate at which organizations learn may become
the only sustainable source of competitive advantage".
Organisational Learning is a Process and Learning
Organisation is a Structure.
A Learning Organisation is an Organisation that learns
and encourages learning among its people in an effort to
create a more knowledgeable and flexible workforce
capable to adapt to cultural changes.
381
A Learning Organization is the term given to a company that
facilitates the learning of its members and continuously
transforms itself. Learning Organizations develop as a result of
the pressures facing modern organizations and enables them to
remain competitive in the business environment. A Learning
Organization has five main features; systems thinking,
personal mastery, mental models, shared vision and team
learning.
Donald Schon. He provided a theoretical framework linking the
experience of living in a situation of an increasing change with the
need for learning.
The loss of the stable state means that our society and all of its
institutions are in continuous processes of transformation. We
cannot expect new stable states that will endure for our own
lifetimes. We must learn to understand, guide, influence and
manage these transformations. We must make the capacity for
undertaking them integral to ourselves and to our institutions.
We must, in other words, become adept at learning. We must
become able not only to transform our institutions, in response to
changing situations and requirements; we must invent and develop
institutions which are learning systems, that is to say, systems
capable of bringing about their own continuing transformation.
382
(Schon 1973: 28)
Subsequently, we have seen very significant changes in
the nature and organization of production and services.
Companies, organizations and governments and we
have to operate in a global environment and that has
altered its character in significant ways.
Productivity and competitiveness are, by and large, a
function of knowledge generation and information
processing. Firms and Territories are organized in
networks of production, management and distribution.
The core economic activities are global that is they
have the capacity to work as a unit in real time, or
chosen time, on a planetary scale. (Castells 2001: 52)
A failure to attend to the learning of groups and
individuals in the organization spells disaster in this
context. As Leadbeater (2000: 70) has argued,
companies need to invest not just in new machinery to
make production more efficient, but in the flow of know-
how that will sustain their business. Organizations need
to be good at knowledge generation, appropriation and
exploitation
383
Why do Learning Organizations develop?
Organizations do not organically develop into Learning
Organizations; there are usually factors prompting their change.
It has been found that as organizations grow, they lose their natural
capacity to learn as company structures and individual thinking
becomes rigid.
When problems arise in the company, the solutions that are
proposed often turn out to be only short term (single loop learning)
and re-emerge in the future.
To remain competitive, many organizations have restructured,
which has resulted in fewer people in the company. This means
those who remain need to work more effectively.
To create a competitive advantage, companies need to be able to
learn faster than their competitors and also develop a customer
responsive culture.
Modern organizations need to maintain knowledge about new
products and processes, understand what is happening in the
outside environment and produce creative solutions using the
knowledge and skills of all employed within the organization.
This requires co-operation between individuals and groups, free
and reliable communication, and a culture of trust. These needs
can be met through embracing the tenets of the Learning 384
Organization.
Learning Organisation : Definitions
The Learning Company is a vision of what might be possible. It
is not brought about simply by training individuals; it can only
happen as a result of learning at the whole organization level.
(Pedler et. al. 1991: 1) Pedler et al, later redefined this concept
to an organization that facilitates the learning of all its
members and consciously transforms itself and its
context, reflecting the fact that change should not happen just
for the sake of change, but should be well thought out.
"Organisations where people continually expand their capacity
to create the results they truly desire, where new and expansive
patterns of thinking are nurtured, where collective aspiration is
set free, and where people are continually learning to learn
together" (Peter Senge, 1990).
Learning organizations are characterized by total employee
involvement in a process of collaboratively conducted,
collectively accountable change directed towards shared values
or principles. (Watkins and Marsick 1992: 118)
According to Sandra Kerka (1995) most conceptualisations of
the learning organisations seem to work on the assumption that
learning is valuable, continuous, and most effective when
shared and that every experience is an opportunity to learn. 385
Characteristics of a Learning Organization-1
Learning Organization exhibits five main characteristics;
Systems thinking, Personal mastery, Mental models, a
Shared vision and Team learning.
Systems thinking
This is a conceptual framework that allows people to study
businesses as bounded objects.
Learning Organizations employ the method of thinking when
assessing their company and develops information systems
that measures the performance of the organization as a
whole and of its various components.
Systems thinking also state that all the characteristics listed
must be apparent at once in an organization for it to be a
Learning Organization. If any of these characteristics is
missing, then the organization will fall short of its goal.
However OKeeffee believes that the characteristics of a
Learning Organization are factors that are gradually
acquired, rather than developed simultaneously. 386
Characteristics of a Learning Organization-2
Personal Mastery
Personal mastery is the commitment by an individual to
the process of learning. There is a Competitive
Advantage for an organisation whose workforce can
learn quicker than the workforce of other organisations.
Individual learning is acquired through staff training and
development. However learning cannot be forced upon
an individual if he or she is not receptive to learning.
Research has shown that most learning in the workplace
is incidental, rather than the product of formal training;
therefore it is important to develop a culture where
personal mastery is practiced in daily life.
A Learning Organisation has been described as the sum
of individual learning, but it is important for there to be
mechanisms by which individual learning is transferred
into Organisational Learning.
387
Characteristics of a Learning Organization-3
Mental models
Mental Models are the terms given to ingrained assumptions
held by individuals and organisations.
To become a Learning Organisation, these mental models
must be challenged.
Individuals tend to espouse theories, which they intend to
follow, and theories-in-use, which is what they actually do.
Similarly, organisations tend to have memories which
preserve certain behaviours, norms and values. In the
creation of a learning environment it is important to replace
confrontational attitudes with an open culture that promotes
inquiry and trust.
To achieve this, the Learning Organisation will have
mechanisms for locating and assessing organisational
theories of action. If there are unwanted values held by the
organisation, these need to be discarded in a process called
unlearning Wang and Ahmed refer to this as triple loop
learning.
388
Characteristics of a Learning Organization-4
Shared vision
The development of a shared vision is importantly provides
incentive to the workforce to learn as it creates a common
identity that can provide focus and energy for learning.
The most successful visions are built on the individual visions
of the employees at all levels of the organisation
The creation of a shared vision is likely to be hindered by
traditional structures where a company vision is imposed
from above. Therefore
Learning Organisations tend to have flat, decentralised
organisational structures.
The topic of shared vision is often to succeed against a
competitor, however Senge states that these are transitory
goals and suggests that there should also be long term goals
that are intrinsic within the company. 389
Characteristics of a Learning Organization-5
Team learning is the accumulation of individual learning.
The benefit of sharing individual learning is that employees
grow more quickly and the problem solving capacity of the
organisation is improved through better access to knowledge
and expertise.
Learning Organisations have structures that facilitate team
learning with features such as boundary crossing and
openness.
Team learning requires individuals to engage in dialogue
and discussion, therefore it is important that team members
develop open communication, shared meaning and
understanding.
Learning Organisations also have excellent knowledge
management structures, which allow creation, acquisition,
dissemination, and implementation of this knowledge
throughout the organisation. 390
Characteristics of a Learning Organization-6
The basic rationale for such organisations is that in
situations of rapid change, only those that are flexible,
adaptive and productive will excel.
For this to happen, it is argued that organisations need to
discover how to tap peoples commitment and capacity to
learn at all levels (Peter Senge, 1990)
And that the pressure of change in the external
environments of organisations... is such that they need to
learn more consciously, more systematically, and more
quickly than they did in the past...
They must learn not only in order to survive but also to thrive
in a world of ever increasing change (Pearn, 1997).
The key ingredient of the Learning Organisation is in how
organisations process their experiences and how they learn
from their experiences rather than being bound by their past
experiences. 391
Learning Organisation Concepts
The concept of organisational learning evolved from the
individual learning process, but organisational learning is
not simply the collectively of individual learning
processes, but it engages interaction between:
Individuals in the organisation
Interaction between organisations as an entity
Interaction between the organisation and its environment
The major Learning Organisational concepts focus on
Continuous Improvement, Culture and Innovation
and Creativity.
392
Focus The concept of Learning Organisation Practices
1. Continuous A learning organisation should consciously and
Improvement
The adoption of
intentionally devote to the facilitation of individual
learning in order to continuously transform the Total Quality
entire organisation and its context (Pedler et al. Management
1991) practices
2. Culture
A learning organisation should be viewed as a Creation and
metaphor rather than a distinct type of structure, maintenance of
whose employees learn conscious communal learning culture:
processes for continually generating, retaining and adopting to cultural
leveraging individual and collective learning to change, collaborati
improve performance of the organisational system ve team working,
in ways important to all stakeholders and by employee
monitoring and improving performance (Drew & empowerment and
Smith, 1995) involvement, etc.
3. Innovation
and Creativity Facilitation of
Organisation learning is the process by which
learning and
the organisation constantly questions existing
knowledge
product, process and system, identify
creation; focus
strategic position, apply various modes of
on creative
learning, and achieve sustained competitive
quality and value
advantage
innovation
393
Problems / issues that may be encountered in a Learning
Organisation:
Even within a Learning Organisation, problems may be
encountered that stall the process of learning or cause it to
regress.
Most of the problems arise from an Organisation not fully
embracing all the facets outlined above that are necessary in
a Learning Organisation.
If these problems can be identified, work can begin on
improving them.
Organisational barriers to learning:
Some organisations can find it hard to embrace personal
mastery because as a concept it is intangible and the benefits
cannot be quantified. Additionally, personal mastery can be
seen as a threat to the organisation.
This threat can be real, as Senge points out, that to empower
people in an unaligned organisation can be counterproductive.
394
Organisational barriers to learning: (Contd.)
In other words, if individuals do not engage with a shared
vision, personal mastery could be used to advance their
own vision.
In some organisations a lack of a pro-learning culture can
be a barrier to learning.
It is important that an environment is created where
individuals can share learning without it being devalued and
ignored.
So more people can benefit from their knowledge and the
individual becomes empowered.
A Learning Organisation needs to fully embrace the removal
of traditional hierarchical structures. These are a barrier to
the development of shared vision and to the sharing of
knowledge.
395
Individual barriers to learning
Resistance to learning can occur within a Learning
Organisation if there is not sufficient buy in at an individual
level.
This is often encountered by people who feel threatened by
change or believe that they have the most to lose.
The same people who feel threatened by change are likely to
have closed mind sets are not willing to embrace
engagement with mental models.
Unless implemented coherently across the whole
organisation, learning can be viewed as elitist and restricted
to more senior levels within the organisation.
If this is the case, learning will not be viewed as a shared
vision.
If training and development is compulsory, it can be viewed
as a form of control, rather than a form of personal
development.
Learning and the pursuit of personal mastery needs to be an
individual choice, therefore enforced take up will not work.
396
Ideas on the "Why Learning Organisation?"
Because we want superior performance and competitive
advantage
For customer relations
To avoid decline
To improve quality
To understand risks and diversity more deeply
For innovation
For our personal and spiritual well being
To increase our ability to manage change
For understanding
For energized committed work force
To expand boundaries
To engage in community
For independence and liberty
For awareness of the critical nature of interdependence
Because the times demand 397
Syllabus
=====================================
12. Functional issues:
Functional plans and policies
Financial,
Marketing,
Operations,
Personnel,
IT, (2)
======================================
398
Functional Plans & Policies:
Functional Strategies are derived from Business &
Corporate Strategies and are implemented through
Functional & operational Implementation.
Functional Strategies deal with limited plan designed to
achieve Objectives in a specific Functional area, allocation
of resources for that functional area and coordination
among different functional operations to achieve Functional
Objectives.
Functional Plans & Policies are developed for:
1. The Strategic decisions are implemented by all parts of an
Organisation.
2. There is a basis available for controlling activities in
different functional areas of Operation.
3. Plans are laid down for what is to be done and Policies
provide guideline for discretions and Functional Managers
time in decision making is reduced.
4. Required Coordination amongst different functions takes
place. 399
Financial Plans & Policies
Sources of Funds:
1. Capital Mix Decisions.
2. Capital Structure.
3. Procurement of Capital.
4. Working Capital Borrowings.
5. Reserves & Surpluses as source of Funds.
6. Relationships with Lenders, Banks & FIs.
Plans & Policies related to sources of funds determine how
financial resources will be made available for implementation of
Strategies.
Usage of Funds:
1. Investment or Asset mix decisions.
2. Capital Investments,
3. Fixed Asset acquisitions,
4. Current Assets, Loans & Advances, 400
5. Dividend decisions,
6. Relationship with Shareholders,
Usage of Funds relates to efficiencies & effectiveness of
resource utilisation in the process of Strategy Implementation.
Management of Funds:
1. System of Finance,
2. Accounting & Budgeting,
3. Management Control Systems,
4. Cash, Credit and Risk Management,
5. Cost control, cost reduction and Tax planning
6. Aiming at Conservation and Optimum utilisation of Funds.
Organisations which implement business strategies of
Cost leadership must practice proper management of Funds.
Good management of funds often creates the difference
Between strategically successful or unsuccessful Company.
401
Marketing Plans & Policies
These are 4Ps of Marketing
Product: Goods & Services offered by Organisation to its
Target market. (Choice of Models, Quality, Features, Brand
names, Packaging etc.)
Pricing : Money that Customers pay in exchange of Goods &
Services. (Discounts, Mode of payment, Allowances,
Payment period, Credit terms)
Promotion: Marketing communications intended to convey
the company and product or service image to prospective
buyers. (Advertising, Personal Selling, Sales Promotion and
Publicity)
Place: Distribution process by which goods or services are
made available to the customers. (Transportation, logistics,
inventory storage management, coverage of markets, etc.,)
402
Integrative & Systematic Factors:
This part of the plans & policies related to Marketing
Management. (Marketing mix, Segmentation, Targeting,
Positioning, Market Standing, Company Image, Marketing
Organisation, Marketing System, Marketing Management
Information System)
Operations Plans & Policies:
Production System Capacity, Location, Layout, Product or
Service design, Work systems, Degree of Automation, extent
of vertical integration. Operation Plans & Policies deals with
vital issue affecting the capability of the Organisation to
achieve objectives.
Operational Planning & Control Production Planning,
Materials supply, inventory, Cost, Quality Management,
Maintenance of Plant and Equipment.
403
Research & Development
Personnel Plans & Policies:
HRM Plans & Policies relate to providing & maintaining
human resources:
Personnel System: Manpower Planning, Selection,
Development, Compensation, Communication and Appraisal
Organisational & Employee Characteristics: Corporate
image, Quality of Managers, Staff & Workers, Image of
Organisation as an Employer, availability of Development
opportunities for employees, working conditions etc.,
Industrial Relations: Union Management relationship,
Collective bargaining, Safety & Security, Employee
satisfaction & morale.
Information management Plans & Policies:
Information capability factors relate to design & management
of the flow of information within and from outside. The value of
information is source of Strategic Advantage. 404
Acquisition and Retention of Information: Sources,
Quantity, Quality, and timeliness of Information, retention
capacity and security of information.
Processing and Synthesis of Information: Database
management, Computer Systems, Software capability and
ability to synthesise information.
Retrieval & Usage of Information: Availability and
appropriateness of Information formats and the capacity to
assimilate and use information.
Transmission & Dissemination of Information: speed,
scope, width & depth of coverage of information with
willingness to accept the information.
Integrative, Systematic and Supportive Factors: availability
of IT infrastructure and its relevance, compatibility to
organisational needs, up gradation facilities, investing in state
of art systems, Computer professionals, top management
support.
405
Syllabus
==================================
406
407
Balanced Score Card (BSC)
The Balanced scorecard (BSC) is a
strategic Performance Management tool for measuring
whether the smaller-scale operational activities of a
company are aligned with its larger-scale objectives in
terms of vision and strategy.
Balance Card focuses not only on financial outcomes but
also on the operational, marketing and developmental
inputs to these. Organizations measure, those factors
which influenced the financial outputs. For example,
process performance, market share / penetration, long
term learning and skills development, and so on.
The Balanced Scorecard helped organizations achieve a
degree of Balance" in selection of performance
measures Balanced Scorecard helps provide a more
comprehensive view of a business
This tool is also being used to address business
response to Environmental Changes.
408
Organizations must also control those factors which
influences the financial outputs, such as, process
performance, market share / penetration, long term learning
and skills development, and so on.
Organisations cannot directly influence Financial Outcomes
as they relate to past. There is a "lag" between actions and
Financial Outcome. Also to use of financial measures alone
for the strategic control of the firm is unwise. Organizations
should also measure those areas where direct management
intervention is possible.
Balanced Scorecard helps organizations achieve a degree of
"balance" in selection of performance measures. Scorecards
achieve this balance by selecting measures from three
additional categories or perspectives: "Customer," "Internal
Business Processes" and "Learning and Growth."
Phrase Balanced Scorecard" was coined in the early 1990s.
In 1992, by Dr. Robert Kaplan and David P Norton. They
added another innovation, the Strategy Map. This new tool,
which provided a visual way to craft business strategies.
409
Balanced Score Cards helps managers, in focussing their
attention on strategic issues and the management of the
implementation of strategy, it is important to remember
that the balanced scorecard itself has no role in the
formation of strategy. In fact, balanced scorecards
comfortably co-exist with strategic planning systems and
other tools.
Implementing Balanced Scorecards typically includes four
processes:
1. Translating the vision into operational goals;
2. Communicating the vision and link it to individual
performance;
3. Business planning; index setting;
4. Feedback and Learning, and adjusting the Strategy
accordingly
410
Methodology of Strategy Mapping
Measures are selected based on a set of "strategic
objectives" plotted on a "strategic linkage model" or
Strategy Map".
The strategic objectives are distributed across the four
measurement perspectives, so as to "connect the dots" to
form a visual presentation of strategy and measures.
To develop a Strategy Map, managers select a few
strategic objectives within each of the perspectives, and
then define the cause-effect chain among these objectives
by drawing links between them.
A balanced scorecard of strategic performance measures is
then derived directly from the strategic objectives. This type
of approach provides greater contextual justification for the
measures chosen, and is generally easier for managers to
work through.
Strategy Mapping:A strategy map is a visual
representation of the strategy of an organization. It
illustrates how the organization plans to achieve its mission
and vision by means of a linked chain of continuous
411
improvements.
Strategy Mapping
For a commercial business, the strategy map illustrates the
long-term game plan or competitive strategy to achieve
increased profitability. For a non-profit or governmental
organization, it illustrates the plan by which the organization
intends to improve performance of its mission. In either case
it illustrates the cause-and-effect relationships between
different strategic objectives and their measures, or Key
Performance Indicators (KPIs) that are included in a
Balanced Score Card.
Strategy maps are communication tools used to tell a story
of how value is created for the organization. They show a
logical, step-by-step connection between strategic objectives
(shown as ovals on the map) in the form of a cause-and-
effect chain. Generally speaking, improving performance in
the objectives found in the Learning & Growth perspective
(the bottom row) enables the organization to improve its
Internal Process perspective Objectives (the next row up),
which in turn enables the organization to create desirable
results in the Customer and Financial perspectives (the top
two rows). 412
413
Kaplan and Norton found that companies are using
Balanced Scorecards to:
Drive strategy execution;
Clarify strategy and make strategy operational;
Identify and align strategic initiatives;
Link budget with strategy;
Align the organization with strategy;
Conduct periodic strategic performance reviews to learn
about and improve strategy.
428
6. Propose comprehensive plan for Strategy Implementation
considering resources and manageability of implementation.
7. Evaluate you proposal. State quantitative & qualitative criteria,
you assumptions for arriving at your conclusion.
8. Keep the written analysis simple, but do not overlook major
issues.
9. Adopt nice style of writing. Do not copy word to word from Case.
Use headings,, Labels, Topic issues. Present whole written
structure to be in one logical & integrated way.
10. Include analysis based on techniques like ETOP, SWOT, SAP,
Value Chain, Industry analysis, competitive analysis.
11. Specifically state you assumptions when making
recommendations. Provide supporting evidence and benchmarks
used for evaluation.
12. Provide a summary, in a page, for major issues and
recommendations made by you.
429