Startegic Management Notes

UNIT-III & IV
Corporate, Business &

Functional Level Strategies
Introduction
Strategies for an organization may be categorized by
the level of the organization addressed by the strategy.
Corporate-level strategies involve top management and
address issues of concern to the entire organization.
Business-level strategies deal with major business units
or divisions of the corporate portfolio. Business-level
strategies are generally developed by upper and middle-
level managers and are intended to help the organization
achieve its corporate strategies.
Functional strategies address problems commonly
faced by lower level managers and deal with strategies for
the major organizational functions (e.g., marketing,
finance, and production) considered relevant for achieving
the business strategies and supporting the corporate-level
strategy.
Introduction
Business-level strategies thus support
corporate-level strategies.
Corporate-level strategies attempt to
maximize the wealth of shareholders through
profitability of the overall corporate portfolio.
But business-level strategies are concerned
with (1) matching their activities with the
overall goals of corporate-level strategy while
simultaneously (2) navigating the markets in
which they compete in such a way that they
have a financial or market edge a competitive
advantage-relative to the other businesses in
their industry.
Functional level
strategies
Functional-level strategies are concerned with
coordinating the functional areas of the
organization (marketing, finance, human
resources, production, research and
development, etc.) so that each functional area
upholds and contributes to individual business-
level strategies and the overall corporate-level
strategy. This involves coordinating the various
functions and operations needed to design,
manufacturer, deliver, and support the product
or service of each business within the corporate
portfolio.
Purpose of Functional
Strategies
Functional strategies are primarily
concerned with:
1. Efficiently utilizing specialists within
the functional area.
2. Assuring that functional strategies
mesh with business-level strategies
and the overall corporate-level
strategy.
Modern strategic approaches in functional level strategies
Achieving Superior Efficiency

Economies of scale
Learning effects and the experience
curve
Flexible manufacturing
Marketing, human resource
management and infrastructure
JIT issues
IT issues
Significance of Functional Level
Strategies
These functional level strategies
achieve competitive advantage at
the functional level:
By Increasing efficiency
By Improving quality
By Sustaining innovation
By improving customer
responsiveness
Business Level
Strategies
Business Level Strategies focus on only one rather than
a portfolio of businesses. Business units represent
individual entities oriented toward a particular industry,
product, or market. In large multi-product or multi-
industry organizations, individual business units may
be combined to form strategic business units (SBUs).
An SBU represents a group of related business
divisions, each responsible to corporate head-quarter
for its own profits and losses. Each strategic business
unit will likely have its own competitors and its own
unique strategy. A common focus of business level
strategies are sometimes on a particular product or
service line and business-level strategies commonly
involve decisions regarding individual products within
this product or service line.
Purpose of Business Level
Strategies
Business-level strategies are thus primarily
concerned with:
Coordinating and integrating unit activities so they
conform to organizational strategies (achieving
synergy).
Developing distinctive competencies and competitive
advantage in each unit.
Identifying product or service-market niches and
developing strategies for competing in each.
Monitoring product or service markets so that
strategies conform to the needs of the markets at the
current stage of evolution.
Corporate Level Strategy
Corporate level strategy fundamentally is concerned with the selection
of businesses in which the company should compete and with the
development and coordination of that portfolio of businesses.
Corporate strategy is primarily about the choice of direction for a firm
as a whole and the management of its business or product portfolio
The importance of corporate strategy to a firms survival and success.
Corporate strategy deals with three key issues facing the
corporation as a whole:
1. The firms overall orientation toward growth, stability, or retrenchment
(directional strategy)
2. The industries or markets in which the firm competes through its
products and business units (portfolio analysis)
3. The manner in which management coordinates activities and transfers
resources and cultivates capabilities among product lines and business
units (parenting strategy)
Purpose of Corporate Level Strategy
Corporate level strategy is concerned with:
Reach - defining the issues that are corporate responsibilities; these
might include identifying the overall goals of the corporation, the types of
businesses in which the corporation should be involved, and the way in
which businesses will be integrated and managed.
Competitive Contact - defining where in the corporation competition is
to be localized.
Managing Activities and Business Interrelationships - Corporate
strategy seeks to develop synergies by sharing and coordinating staff and
other resources across business units, investing financial resources across
business units, and using business units to complement other corporate
business activities.
Management Practices - Corporations decide how business units are to
be governed: through direct corporate intervention (centralization) or
through more or less autonomous government (decentralization) that
relies on persuasion and rewards.
Corporations are responsible for creating value through their
businesses. They do so by managing their portfolio of businesses,
ensuring that the businesses are successful over the long-term,
developing business units, and sometimes ensuring that each business is
compatible with others in the portfolio
For Business-level managers some critical
questions answered by corporate-level
strategists
What should be the scope of operations; i.e.; what businesses
should the firm be in?
How should the firm allocate its resources among existing
businesses?
What level of diversification should the firm pursue; i.e., which
businesses represent the companys future? Are there additional
businesses the firm should enter or are there businesses that
should be targeted for termination or divestment?
How diversified should the corporations business be? Should we
pursue related diversification; i.e., similar products and service
markets, or is unrelated diversification; i.e., dissimilar product and
service markets, a more suitable approach given current and
projected industry conditions? If we pursue related diversification,
How will the firm leverage potential cross-business synergies?
How will adding new product or service businesses benefit the
existing product/service line-up?
Levels of Strategy
Directional Strategy
Just as every product or business unit must follow
a business strategy to improve its competitive
position, every corporation must decide its
orientation toward growth by asking the following
three questions:
1. Should we expand, cut back, or continue our operations
unchanged?
2. Should we concentrate our activities within our current
industry, or should we diversify into other industries?
3. If we want to grow and expand nationally and/or
globally, should we do so through internal development or
through external acquisitions, mergers, or strategic
alliances?
Directional Strategy
A corporations directional strategy is
composed of three general
orientations (sometimes called grand
strategies):
a) Growth strategies expand the
companys activities.
b)Stability strategies make no change to
the companys current activities.
c) Retrenchment strategies reduce the
companys level of activities.
Directional Strategy (Growth
Strategy)
Corporate directional strategies are those designed
to achieve growth in sales, assets, profits, or some
combination.
Growth is a popular strategy because larger
businesses tend to survive longer than smaller
companies due to the greater availability of
financial resources, organizational routines, and
external ties.
A corporation can grow internally by expanding its
operations both globally and domestically, or it can
grow externally through mergers, acquisitions, and
strategic alliances.
Directional Strategy (Growth
Strategy)
A merger is a transaction involving two or more corporations
in which stock is exchanged but in which only one corporation
survives. Mergers usually occur between firms of somewhat
similar size and are usually friendly.
An acquisition is the purchase of a company that is
completely absorbed as an operating subsidiary or division of
the acquiring corporation.
Growth is a very attractive strategy for two key
reasons:
a) Growth based on increasing market demand may mask flaws
in a companyflaws that would be immediately evident in a
stable or declining market.
b) A growing firm offers more opportunities for advancement,
promotion, and interesting jobs.
Directional Strategy (Growth-
Concentration Strategy)
The two basic growth strategies are:
a) concentration on the current
product line(s) in one industry and
b)diversification into other product
lines in other industries.
Concentration Strategies: If a companys current product lines
have real growth potential, concentration of resources on those
product lines makes sense as a strategy for growth. The two basic
concentration strategies are vertical growth and horizontal
growth. Growing firms in a growing industry tend to choose these
strategies before they try diversification.
Vertical Growth: Vertical growth can be achieved by taking
over a function previously provided by a supplier or by a
distributor. The company, in effect, grows by making its own
supplies and/or by distributing its own products.
Horizontal Growth: A firm can achieve horizontal growth by
expanding its operations into other geographic locations and/or by
increasing the range of products and services offered to current
markets. Research indicates that firms that grow horizontally by
broadening their product lines have high survival rates
Vertical growth results in vertical integrationthe degree
to which a firm operates vertically in multiple locations on an
industrys value chain from extracting raw materials to
manufacturing to retailing.
More specifically, assuming a function previously provided by a
supplier is called backward integration (going backward on
an industrys value chain). The purchase of Carrolls Foods for its
hog-growing facilities by Smithfield Foods, the worlds largest
pork processor, is an example of backward integration.
Assuming a function previously provided by a distributor is
labeled forward integration (going forward on an industrys
value chain). FedEx, for example, used forward integration when
it purchased Kinkos in order to provide store-front package
drop-off and delivery services for the small-business market.
Forward Integration: Forward integration
involves gaining ownership or increased control
over distributors or retailers. Increasing numbers
of manufacturers (suppliers) today are pursuing
a forward integration strategy by establishing
Web sites to directly sell products to consumers.
This strategy is causing turmoil in some
industries. For example, Microsoft is opening its
own retail stores, a forward integration strategy
similar to rival Apple Inc., which currently has
more than 200 stores around the world.
Backward Integration: Both manufacturers and retailers purchase needed
materials from suppliers. Backward integration is a strategy of seeking
ownership or increased control of a firms suppliers. This strategy can be
especially appropriate when a firms current suppliers are unreliable, too
costly, or cannot meet the firms needs. When you buy a box of Pampers
diapers at Wal-Mart, a scanner at the stores checkout counter instantly zaps
an order to Procter & Gamble Company
Horizontal Integration: Horizontal integration refers to a strategy of
seeking ownership of or increased control over a firms competitors. One of
the most significant trends in strategic management today is the increased
use of horizontal integration as a growth strategy. Mergers, acquisitions, and
takeovers among competitors allow for increased economies of scale and
enhanced transfer of resources and competencies.
Horizontal integrationthe degree to which a firm operates in multiple
geographic locations at the same point on an industrys value chain. For
example, Procter & Gamble (P&G) continually adds additional sizes and
multiple variations to its existing product lines to reduce possible niches
competitors may enter. In
Directional Strategy (Growth-Concentration
Strategy) or (Global Strategies)
International Entry Options for Horizontal Growth (Global Strategies)
Exporting: A good way to minimize risk and experiment with a specific product is
exporting, shipping goods produced in the companys home country to other
countries for marketing.
Licensing: Under a licensing agreement, the licensing firm grants rights to another
firm in the host country to produce and/or sell a product. The licensee pays
compensation to the licensing firm in return for technical expertise.
Franchising: Under a franchising agreement, the franchiser grants rights to another
company to open a retail store using the franchisers name and operating system. In
exchange, the franchisee pays the franchiser a percentage of its sales as a royalty.
Joint Ventures: Forming a joint venture between a foreign corporation and a
domestic company is the most popular strategy used to enter a new country.
Companies often form joint ventures to combine the resources and expertise needed
to develop new products or technologies.
Acquisitions: A relatively quick way to move into an international area is through
acquisitions purchasing another company already operating in that area. Synergistic
benefits can result if the company acquires a firm with strong complementary product
lines and a good distribution network.
Management Contracts: A large corporation operating throughout the world is likely
to have a large amount of management talent at its disposal. Management
contracts offer a means through which a corporation can use some of its personnel to
assist a firm in a host country for a specified fee and period of time. Management
contracts are common when a host government expropriates part or all of a foreign-
owned companys holdings in its country. The contracts allow the firm to continue to
earn some income from its investment and keep the operations going until local
Directional Strategy (Growth-Concentration Strategy)
Green-Field Development: If a company doesnt want to purchase another

companys problems along with its assets, it may choose green-field development and
build its own manufacturing plant and distribution system. Research indicates that
firms possessing high levels of technology, multinational experience, and diverse
product lines prefer green-field development to acquisitions. This is usually a far more
complicated and expensive operation than acquisition, but it allows a company more
freedom in designing the plant, choosing suppliers, and hiring a workforce. For
example, Nissan, Honda, and Toyota built auto factories in rural areas of Great Britain
and then hired a young workforce with no experience in the industry. BMW did the
same thing when it built its auto plant in Spartanburg, South Carolina, to make its Z3
and Z4 sports cars.
Production Sharing: Coined by Peter Drucker, the term production sharing means
the process of combining the higher labor skills and technology available in developed
countries with the lower-cost labor available in developing countries. Often called
outsourcing. Many companies have moved data processing, programming, and
customer service activities offshore to Ireland, India, Barbados, Jamaica, the
Philippines, and Singapore, where wages are lower, English is spoken, and
telecommunications are in place.
Turnkey Operations: Turnkey operations are typically contracts for the
construction of operating facilities in exchange for a fee. The facilities are transferred
to the host country or firm when they are complete.
BOT Concept: The BOT (Build, Operate, Transfer) concept is a variation of the
turnkey operation. Instead of turning the facility (usually a power plant or toll road)
over to the host country when completed, the company operates the facility for a fixed
period of time during which it earns back its investment plus a profit. It then turns the
Diversification Strategy)
Diversification Strategies: According to strategist Richard
Rumelt, companies begin thinking about diversification when
their growth has plateaued and opportunities for growth in
the original business have been depleted. This often occurs
when an industry consolidates, becomes mature, and most of
the surviving firms have reached the limits of growth using
vertical and horizontal growth strategies. Unless the
competitors are able to expand internationally into less
mature markets, they may have no choice but to diversify
into different industries if they want to continue growing.
The two basic diversification strategies are:
a) Concentric (Related) and
b) Conglomerate (Unrelated)
Diversification Strategy)
Concentric (Related) Diversification: Growth
through concentric diversification into a related
industry may be a very appropriate corporate strategy
when a firm has a strong competitive position but
industry attractiveness is low.
Conglomerate (Unrelated) Diversification. When
management realizes that the current industry is
unattractive and that the firm lacks outstanding
abilities or skills that it could easily transfer to related
products or services in other industries, the most likely
strategy is conglomerate diversification
diversifying into an industry unrelated to its current
one.
Directional Strategy (Stability
Strategy)
STABILITY STRATEGIES: A corporation may choose
stability over growth by continuing its current activities
without any significant change in direction. Although
sometimes viewed as a lack of strategy, the stability family
of corporate strategies can be appropriate for a successful
corporation operating in a reasonably predictable
environment. They are very popular with small business
owners who have found a niche and are happy with their
success and the manageable size of their firms. Stability
strategies can be very useful in the short run, but they can
be dangerous if followed for too long.
Some of the more popular of these strategies are the
pause/proceed-with-caution, no-change, and profit
strategies.
Strategy)
Pause/Proceed with Caution Strategy: A
pause/proceed-with-caution strategy is, in effect, a
timeoutan opportunity to rest before continuing a
growth or retrenchment strategy. It is a very deliberate
attempt to make only incremental improvements until a
particular environmental situation changes. It is typically
conceived as a temporary strategy to be used until the
environment becomes more hospitable or to enable a
company to consolidate its resources after prolonged
rapid growth.
No-Change Strategy: A no-change strategy is a
decision to do nothing newa choice to continue current
operations and policies for the foreseeable future.
Strategy)
Profit Strategy: A profit strategy is a decision to do nothing
new in a worsening situation but instead to act as though the
companys problems are only temporary. The profit strategy is
an attempt to artificially support profits when a companys
sales are declining by reducing investment and short term
discretionary expenditures. Rather than announce the
companys poor position to shareholders and the investment
community at large, top management may be tempted to
follow this very seductive strategy. Blaming the companys
problems on a hostile environment (such as anti-business
government policies, unethical competitors, finicky customers,
and/or greedy lenders), management defers investments
and/or cuts expenses (such as R&D, maintenance, and
advertising) to stabilize profits during this period.
Directional Strategy (Retrenchment
Strategy)
RETRENCHMENT STRATEGIES: A company may
pursue retrenchment strategies when it has a weak
competitive position in some or all of its product
lines resulting in poor performancesales are down
and profits are becoming losses. These strategies
impose a great deal of pressure to improve
performance.
In an attempt to eliminate the weaknesses that are
dragging the company down, management may
follow one of several retrenchment strategies,
ranging from turnaround or becoming a captive
company to selling out, bankruptcy, or liquidation.
Strategy)
Turnaround Strategy: Turnaround strategy emphasizes the
improvement of operational efficiency and is probably most
appropriate when a corporations problems are pervasive but
not yet critical. Research shows that poorly performing firms in
mature industries have been able to improve their performance
by cutting costs and expenses and by selling off assets.
The two basic phases of a turnaround strategy are
contraction and consolidation.
Contraction is the initial effort to quickly stop the bleeding
with a general, across-the board cutback in size and costs.
The second phase, consolidation, implements a program to
stabilize the now leaner corporation. To streamline the company,
plans are developed to reduce unnecessary overhead and to
make functional activities cost-justified.
Strategy)
Captive Company Strategy: A captive company
strategy involves giving up independence in exchange for
security. A company with a weak competitive position may
not be able to engage in a full-blown turnaround strategy.
The industry may not be sufficiently attractive to justify
such an effort from either the current management or
investors. Nevertheless, a company in this situation faces
poor sales and increasing losses unless it takes some
action. Management desperately searches for an angel
by offering to be a captive company to one of its larger
customers in order to guarantee the companys continued
existence with a long-term contract. In this way, the
corporation may be able to reduce the scope of some of
its functional activities, such as marketing, thus
significantly reducing costs.
Strategy)
Sell-Out/Divestment Strategy: If a corporation with a
weak competitive position in an industry is unable either
to pull itself up by its bootstraps or to find a customer to
which it can become a captive company, it may have no
choice but to sell out. The sell-out strategy makes sense if
management can still obtain a good price for its
shareholders and the employees can keep their jobs by
selling the entire company to another firm. The hope is
that another company will have the necessary resources
and determination to return the company to profitability. If
the corporation has multiple business lines and it chooses
to sell off a division with low growth potential, this is
called divestment. This was the strategy Ford used when
it sold its struggling Jaguar and Land Rover units to Tata
Motors in 2008 for $2 billion.
Strategy)
Bankruptcy/Liquidation Strategy: When a company finds itself
in the worst possible situation with a poor competitive position in
an industry with few prospects, management has only a few
alternativesall of them distasteful. Because no one is interested
in buying a weak company in an unattractive industry, the firm
must pursue a bankruptcy or liquidation strategy. Bankruptcy
involves giving up management of the firm to the courts in return
for some settlement of the corporations obligations.
In contrast to bankruptcy, which seeks to perpetuate a
corporation, liquidation is the termination of the firm. When the
industry is unattractive and the company too weak to be sold as a
going concern, management may choose to convert as many
saleable assets as possible to cash, which is then distributed to
the shareholders after all obligations are paid. Liquidation is a
prudent strategy for distressed firms with a small number of
choices, all of which are problematic.
Portfolio Analysis
Companies with multiple product lines or
business units must also ask themselves
how these various products and business
units should be managed to boost overall
corporate performance:
How much of our time and money should we
spend on our best products and business units
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 will never be successful?
Portfolio Analysis
In portfolio analysis, top management views its
product lines and business units as a series of
investments from which it expects a profitable
return. The product lines/business units form a
portfolio of investments that top management
must constantly juggle to ensure the best
return on the corporations invested money.
Two of the most popular portfolio techniques
are the
a) BCG Growth-Share Matrix and
b) GE Business Screen Matrix
ADVANTAGES OF PORTFOLIO ANALYSIS
Portfolio analysis is commonly used in strategy

formulation because it offers certain advantages:
a) It encourages top management to evaluate
each of the corporations businesses
individually and to set objectives and allocate
resources for each.
b) It stimulates the use of externally oriented data
to supplement managements judgment.
c) It raises the issue of cash-flow availability for
use in expansion and growth.
d) Its graphic depiction facilitates communication.
LIMITATIONS OF PORTFOLIO ANALYSIS
Portfolio analysis does, however, have some very real
limitations that have caused some companies to
reduce their use of this approach:
a) Defining product/market segments is difficult.
b) It suggests the use of standard strategies that can
miss opportunities or be impractical.
c) It provides an illusion of scientific rigor when in
reality positions are based on subjective
judgments.
d) Its value-laden terms such as cash cow and dog
can lead to self-fulfilling prophecies.
e) It is not always clear what makes an industry
attractive or where a product is in its life cycle.
Corporate Parenting
Corporate parenting, in contrast, views a corporation in
terms of resources and capabilities that can be used to
build business unit value as well as generate synergies
across business units.
According to Campbell, Goold, and Alexander: Multi
business companies create value by influencingor
parentingthe businesses they own. The best parent
companies create more value than any of their rivals would
if they owned the same businesses. Those companies have
what we call parenting advantage.
Corporate parenting generates corporate strategy by
focusing on the core competencies of the parent
corporation and on the value created from the relationship
between the parent and its businesses. In the form of
corporate headquarters, the parent has a great deal of
power in this relationship
DEVELOPING A CORPORATE
PARENTING STRATEGY
Campbell, Goold, and Alexander recommend
that the search for appropriate corporate
strategy involves three analytical steps:
1. Examine each business unit (or target firm
in the case of acquisition) in terms of its
strategic factors.
2. Examine each business unit (or target
firm) in terms of areas in which performance
can be improved.
3. Analyze how well the parent corporation
fits with the business unit (or target firm).
Two Types of Corporate Parenting Strategy
1. A horizontal strategy is a corporate strategy that cuts across
business unit boundaries to build synergy across business units and
to improve the competitive position of one or more business units.
When used to build synergy, it acts like a parenting strategy. When
used to improve the competitive position of one or more business
units, it can be thought of as a corporate competitive strategy.
2. In multipoint competition, large multi-business corporations
compete against other large multi-business firms in a number of
markets. These multipoint competitors are firms that compete with
each other not only in one business unit, but also in a number of
business units. At one time or another, a cash-rich competitor may
choose to build its own market share in a particular market to the
disadvantage of another corporations business unit. Although each
business unit has primary responsibility for its own business strategy,
it may sometimes need some help from its corporate parent,
especially if the competitor business unit is getting heavy financial
support from its corporate parent. In this instance, corporate
headquarters develops a horizontal strategy to coordinate the
various goals and strategies of related business units.
Grand Strategies
Grand strategies, which are often called master or business strategies, are
intended to provide basic direction for strategies actions. Thus, they are
seen as he basic of coordinated and sustained efforts directed towards
achieving long-term business objectives.
12 principal grand strategies could serve as the basis for achieving
major long-term objectives of a single business:
1. concentration,
2. market development,
3. product development,
4. innovation,
5. horizontal integration,
6. vertical integration,
7. joint venture,
8. concentric diversification,
9. conglomerate diversification,
10.retrenchment/turnaround,
11.divestiture, and
12.liquidation.
Grand Strategies
1. Concentration: The most common grand strategy is
concentration on the current business. The firm directs its
resources to the profitable growth of a single product, in a single
market, and with a single technology.
2. Market Development: Market development commonly ranks
second only to concentration as the least costly and least risky of
the 12 grand strategies. It consists of marketing present products,
often with only cosmetic modifications, to customers in related
market areas by adding different channels of distribution or by
changing the content of advertising or the promotional media.
3. Product Development: Product development involves
substantial modification of existing products or creation of new but
related items that can be marketed to current customers through
established channels. The product development strategy is often
adopted either to prolong the life cycle of current products or to
take advantage of favorable reputation and brand name. The idea
is to attract satisfied customers to new products as a result of their
positive experience with the companies initial offering
Grand Strategies
4. Innovation: In many industries it is increasingly risky not to
innovate. Consumer as well as industrial markets have come to
expect periodic changes and improvements in the products
offered. As a result, some businesses find it profitable to base
their grand strategy on innovation. They seek to reap the
initially high profits associated with customer acceptance of a
new or greatly improved product. The underlying philosophy of
a grand strategy of innovation in creating a new product life
cycle, thereby making any similar existing products obsolete.
5. Horizontal Integration: When the long-term strategy of a
firm is based on growth through the acquisition of one of more
similar businesses operating at the same stage of the
production-marketing chain, its grand strategy is called
horizontal integration. Such acquisitions provide access to new
markets for the acquiring firm and eliminate competitors.
Grand Strategies
6. Vertical Integration: When the grand strategy of a firm involves the
acquisition of businesses that either supply the firm with inputs (such as raw
materials) or serve as a customer for the firms outputs (such as warehouses for
finished products), vertical integration is involved. For example, if a shirt
manufacturer acquires a textile procedure-by purchasing its common stock, buying
its assets, or through an exchange of ownership interests- the strategy is a vertical
integration. In this case it is a backward vertical integration since the business
acquired operates at an earlier stage of the production/marketing process. If the
shirt manufacturer had merged with a clothing store, it would have been an
example of forward vertical integration-the acquisition of a business nearer to the
ultimate consumer.
7. Joint Venture: Occasionally two or more capable companies lack a necessary
component for success in a particular competitive environment. This approach
admittedly presents new opportunities with risks that can be shared. On the other
hand, joint ventures often limit partner discretion, control, and profit potential
while demanding managerial attention and other resources that might otherwise
be directed toward the mainstream activities of the firm. Nevertheless, increasing
nationalism in many foreign markets may require greater consideration of the joint
venture approach if a firm intends to diversify internationally.
Grand Strategies
8. Concentric Diversification: Grand strategies
involving diversification represent distinctive departures
form a firms existing base of operations, typically the
acquisition or internal generation (spin-off) of a separate
business with synergistic possibilities counterbalancing
the two businesses strengths and weaknesses.
9. Conglomerate Diversification: Occasionally a firm,
particularly a very large one, plans to acquire a business
because it represents the most promising investment
opportunity available. This type of grand strategy is
commonly known as conglomerate diversification. This
principle and often sole concern of the acquiring firm is
the profit pattern of the venture.
Grand Strategies
10. Retrenchment/Turnaround: For any of a large number of
reasons a business can find itself with declining profits.
Economic recessions, production inefficiencies, and innovative
breakthroughs by competitors are only three causes. In many
cases strategic managers believe the firm can survive and
eventually recover if a concerted effort is made over a period of
a few years to fortify basic distinctive competencies. This type
of grand strategy is known as retrenchment. It is typically
accomplished in one of two ways, employed singly or in
combination:
a. Cost reduction. Examples include decreasing the work
through employee attrition, leasing rather than purchasing
equipment, extending the life of machinery, and eliminating
elaborate promotional activities.
b. Asset reducing. Examples include the sale of land,
buildings, and equipment not essential to the basic activity of
the business, and elimination of perks like the company
airplane and executive cars.
Grand Strategies
11. Divestiture: A divestiture strategy involves the sale of a business or a
major business component. When retrenchment fails to accomplish the
desired turnaround, strategic managers often decide to sell the business.
However, because the indent is to find a buyer willing to pay a premium
above the value of fixed assets for a going concern, the term marketing for
sale is more appropriate. Prospective buyers must be convinced that
because of their skills and resources, or the synergy with their existing
businesses, they will be able to profit from the acquisition.
12. Liquidation: When the grand strategy is that of liquidation, the
business is typically sold in parts, only occasionally as a whole, but for its
tangible asset value and not as a going concern. In selecting liquidation,
owners and strategic managers of a business are admitting failure and
recognize that this action is likely to result in great hardships to themselves
and their employees. For these reasons liquidation is usually seen as the
least attractive of all grand strategies. However, as long-term strategy it
minimizes the loss to all stakeholders of the firm. Usually faced with
bankruptcy, the liquidation business tries to develop a planned and orderly
system that will result in the greatest possible return and cash conversion
as the business slowly relinquishes its market share.
Combination Strategies
Essentially, combination strategies are a mixture of stability, expansion

or retrenchment strategies applied either simultaneously (at the same
time in different business) or sequentially (at difference times in the
same business).
Consider these cases of companies which have adopted
multipronged strategies to deal with the complexity of the
environment they face:
1. ITC decide to maintain a corporate portfolio consisting of four
businesses: cigarettes, hotels and tourism, paperboards, and packing
and printing. A turnaround strategy was adopted for the specialty
paper business, Triveni Tissues, while the financial services and agri-
business were to be divested.
2. Pidilite Industries, the maker of Fevicol adhesives, contemplated
expansion by related diversification through extension of its product
portfolio across three business segments: adhesives and sealants,
construction paints and chemicals, and art materials. It divested its
specially chemicals business and acquired M-Seal from the
Mahindras.
Corporate Restructuring
Restructuring is a popular term and is used

in different contexts. Let us first try to
quickly understand the various
meanings of the term restructuring
so that we do not confuse between the
different usages of the term. Literature
in management and allied discipline also
uses other terms synonymous with
restructuring, such as, revamping,
regrouping, rationalisation, or consolidation.
Rationale for Restructuring
We could try to understand the rationale for
restructuring at two levels. The first is a deeper level
reasoning relating to the fundamental ways in which
organisation work. The second is a more practical
reasoning that attempts to analyse the changes in the
environment and the organisation, and relate such
changes to strategies action that organisations need
to take.
Peter Drucker states that organisations have to
implicit or explicit theories for their business,
incorporating assumptions about:
(a) the environment, specifically markets, customers,
and important technologies
(b) the mission or purpose
(c) core (content) competencies required to fulfill the
mission
Strategy Implementation
Strategy implementation is the sum total of the activities and choices
required for the execution of a strategic plan. It is the process by which
objectives, strategies, and policies are put into action through the
development of programs, budgets, and procedures.
Implementing strategies requires such actions as altering sales
territories, adding new departments, closing facilities, hiring new employees,
changing an organizations pricing strategy, developing financial budgets,
developing new employee benefits, establishing cost-control procedures,
changing advertising strategies, building new facilities, training new
employees, transferring managers among divisions, and building a better
management information system. These types of activities obviously differ
greatly between manufacturing, service, and governmental organizations.
To begin the implementation process, strategy makers must consider
these questions:
1. Who are the people who will carry out the strategic plan?
2. What must be done to align the companys operations in the new intended
direction?
3. How is everyone going to work together to do what is needed?
Strategy Implementation
The corporations experienced the following 10 problems
when they attempted to implement a strategic change.
These problems are listed in order of frequency:
1. Implementation took more time than originally planned.
2. Unanticipated major problems arose.
3. Activities were ineffectively coordinated.
4. Competing activities and crises took attention away from
implementation.
5. The involved employees had insufficient capabilities to perform
their jobs.
6. Lower-level employees were inadequately trained.
7. Uncontrollable external environmental factors created
problems.
8. Departmental managers provided inadequate leadership and
direction.
9. Key implementation tasks and activities were poorly defined.
10. The information system inadequately monitored activities.
Who Implements Strategy?
Depending on how a corporation is organized, those who
implement strategy will probably be a much more diverse
set of people than those who formulate it. In most large,
multi-industry corporations, the implementers are everyone
in the organization. Vice presidents of functional areas and
directors of divisions or strategic business units (SBUs) work
with their subordinates to put together large-scale
implementation plans.
Plant managers, project managers, and unit heads put
together plans for their specific plants, departments, and
units. Therefore, every operational manager down to the
first-line supervisor and every employee is involved in some
way in the implementation of corporate, business, and
functional strategies.
Activities Involved in Strategy
Implementation
1. Project implementation
2. Procedural implementation
3. Resource allocation
4. Structural implementation
5. Behavioural implementation
6. Functional and operational
implementation
Difference between Strategy Formulation
and Strategy Implementation
Strategy formulation and implementation can be

contrasted in the following ways:
1. Strategy formulation is positioning forces before the action.
Strategy implementation is managing forces during the
action.
2. Strategy formulation focuses on effectiveness. Strategy
implementation focuses on efficiency.
3. Strategy formulation is primarily an intellectual process.
Strategy implementation is primarily an operational process.
4. Strategy formulation requires good intuitive and anaylytical
skills. Strategy implementation requires special motivation
and leadership skills.
5. Strategy formulation requires coordination among a few
individuals. Strategy implementation requires coordination
among many persons.
ISSUES INVOLVED IN STRATEGY
IMPLEMENTATION
Strategy implementation involves several issues.
Some of the important issues are
1. Annual Objectives
2. Policies
3. Resource allocation
4. Managing conflict
5. Matching structure with strategy
6. Managing resistance to change
7. Creating a Strategy-Supportive Culture
8. Production / Operations Concerns
9. Human Resource Concerns
STAGES IN IMPLEMENTING STRATEGY /
ACTIVATING STRATEGY
Activating strategy is a process of putting strategy into action. In
actual implementation of strategy following steps are followed.
1. Institutionalization of strategy This is the first step involved
in activating the strategy. It involves two aspects
(a)Communication of Strategy- Once the strategy is formulated,
it must be communicated to those people who would implement
it. Strategy communication is a process of transferring the
strategy information from the formulators to the implementers.
The communication is normally in writing. The communication
should include the purpose of the strategy, and the activities
required to implement the strategy.
(b)Securing acceptance of strategy - It is not enough to
communicate the strategy to the members of organizations, but
it is equally important to secure their acceptance of the strategy,
so that they implement the strategy effectively.
STAGES IN IMPLEMENTING STRATEGY /
ACTIVATING STRATEGY
2. Formulation of Action plans and programmes - Once the
strategy is institutionalized through its communication and
acceptance, the management proceeds to formulate action plans and
programmes.
(a) Action Plans - The management has to frame actions plans in
respect of several activities required to implement a strategy. The
action plan may be in respect of purchasing new machinery,
appointing additional personnel, developing a new process, etc. The
type of action plans depends upon nature of strategy. While framing
action plan, the manager must consider the following factors.
The purpose of action plan
The activities required to perform the action plan
The person(s) who would be performing the activities
The resources required to perform the various activities.
(b) Programmes - The manager must also decide about the
programmes in respect of the strategy. A programme is a single use
plan designed to accomplish a specific objective. It clearly indicates
the steps to be taken, the resources to be used, and the time period
within which the task is to be completed.
STAGES IN IMPLEMENTING STRATEGY / ACTIVATING STRATEGY
3. Translating General Objectives into Specific Objectives - The top

management frames the general objectives. In order to make these
objective operative, functional managers must set specific objectives within
the framework of the general objectives. Most of the specific objectives are
of short-term in nature, with a definite time period for their accomplishment.
Translation of general objectives into specific objectives must fulfill two
important criteria:
(a) The specific objectives must be realistic, achievable and time bound. The
specific objectives must be set in such a way that the performance can be
easily measured and evaluated. Setting generalized objectives does not
lead to effective action. For example it has no meaning in stating objectives
like to increase sales" but it should be " to increase sales by 10 % " which is
more specific.
(b) The specific objective should contribute to the accomplishment of
general objectives. So all the functional department like production,
marketing, finance etc., should set such specific objectives which are in line
with the general objectives of the organization. Further , every individual
employee should have his own set of objectives in line with his
departmental objectives.
STAGES IN IMPLEMENTING STRATEGY / ACTIVATING
STRATEGY
4. Resource allocation - For successful implementation of
strategy, there must be proper resource allocation to various units
and activities. The resources can be broadly classified into 3 groups
Financial resources
Physical resources
Human resources
The management need to answer several questions in resource
allocation, such as
What are the sources for obtaining resources ?
What factors affect resource allocation ?
What are the means for resource allocation ?
What are the problems in resource allocation ?
Proper answer to the above questions will help to obtain the
resources from the right sources, overcome the problem in resource
allocation, and allocate the resources properly so that there can be
effective implementation of strategy.
STAGES IN IMPLEMENTING STRATEGY
/ ACTIVATING STRATEGY
5. Procedural Requirements - An organization must follow various
procedural requirements to implement the strategy. The various
procedural requirements may include the following, if applicable
Licensing requirements
Import and export requirements
Foreign exchange Management Act, 2000 requirements
Monopolies and Restrictive Trade Practices Act, 1969.
Labour legislations
Securities and Exchange Board of India requirements
Foreign Collaborations requirements etc.
6. Other activities - The implementing strategy requires other activities
such as:
Creating or modifying a proper organizational structure.
Developing or modifying leadership styles.
Building a suitable organizational climate.
CONCEPT OF CORPORATE CULTURE
Corporate culture is the collection of beliefs, expectation and values learned
and shared by an organization's members and transmitted from one generation
of employees to another. The organization's culture generally reflects the
values and beliefs of the founder(s) and the mission of the firm. It gives a sense
of identity to the organization's members - This is who we are. This is what we
stand for. The main features of organizational culture are as follows:
1. Organizational culture is a combination of social, cultural, physical,
psychological, and other conditions within an organization.
2. It influence the motivation, attitudes, behaviour and performance of the
members of an organization.
3. It gives a separate identity to the organization as compared to other
organizations as each organization has its own set of values, beliefs,
practices customs etc.
4. The organizational culture evolves over a fairly long period of time.
5. It can be relatively stable over a period of time. However, there can be
changes in the organization culture, with a change in top management, or
management's philosophy.
6. It is invisible and abstract, although it is perceived and experienced by the
the members of an organization.
7. Organization culture can bring name and goodwill to the organization.
8. It can provide opportunities and threats to its members.
CONCEPT OF CORPORATE
CULTURE
Corporate culture is an organizations
value system and its collection of
guiding principles
Values are often seen in conjunction
with mission or vision statement
Culture is reflected by management
policies and actions
Culture and values are strongly
influenced by the top executive
Purpose of Culture
Organizational socialization
a) Formal
b) Informal
) Behavioral conformity
a) Values and beliefs
b) Behaviors
Impact of Culture of
Corporate Life
The fact that organisations may have a strong or
weak culture affects their ability to perform strategic
management. Culture affects not only the way
managers behave within an organisation but also the
decisions they make about the organisations
relationships with its environment and its strategy.
Culture is a strength that can also be a weakness.. As
a strength, culture can facilitate communication,
decision-making and control, and create cooperation
and commitment. As a weakness, culture may
obstruct the smooth implementation of strategy by
creating resistance to change.
Impact of Culture of
Corporate Life
An organisations culture could be strong and cohesive
when it conducts its business according to a clear and
explicit set of principles and values, which the
management devotes considerable time to communicating
to employees, and which values are shared widely across
the organisation.
There are three factors that seem to contribute to the
building up of a strong culture. These are:
(a) a founder or an influential leader who established
desirable values,
(b) a sincere and dedicated commitment to operate the
business of the organisation according to these desirable
values, and
(c) a genuine concern for the well-being of the
organisations stakeholders.
Relationship between Strategy and
Corporate Culture
Since each strategy creates its own unique set of
managerial tasks, strategy implementation has to
consider the behavioural aspects and ensure that
these tasks are performed in an efficient and
effective manner.
Managerial behaviour arising out of corporate
culture, can either facilitate or obstruct the smooth
implementation of strategy.
The basic question before strategists, therefore, is
how to create a strategy-supportive corporate
culture. In other words a major role of the
leadership within an organisation is to create
an appropriate strategy-culture fit.
Strategy supportive culture
The strategists have four approaches to create a
strategy supportive culture:
1. To ignore corporate culture. The first approach may be
followed when it is nearly impossible to change culture. This
is advisable because it is really difficult to change a nebulous
phenomenon such as corporate culture. Besides, cultural
changes, when enforced in a short duration, may be
traumatic for members of an organisation.
2. To adapt strategy implementation to suit corporate
culture. It is easier to change implementation to suit the
requirements of corporate culture. This is possible because
the behavioural aspects of implementation offer a range of
flexible alternatives to strategists in terms of structure,
systems of corporate culture. However, each situation in the
organisation would call for an innovative solution and would
test the capabilities of managers as strategists.
Strategy supportive culture
3. To change the corporate culture to suit strategic requirements. As
said earlier, it is extremely difficult to change corporate culture. But in some
cases it may be imperative. For instance, the post-liberalisation spate of
takeovers and acquisitions in the Indian industry led to a situation where
many erstwhile multinational subsidiaries were taken over by family business
groups. This led to a process often prolonged and painful-of cultural
transition. But such a transition may be brought about by a careful
understanding of existing culture, making strategic tasks explicit, assessing
risks of cultural change, enhancing managerial capability to imbibe changes,
and, most importantly, exhibiting a strong, assertive leadership.
4. To change the strategy to fit the corporate culture. Rather than
changing culture to suit strategy, it is better and more economical to consider
the cultural dimension while formulating strategy in the first place. One of the
important factors is commitment to past strategic actions which should take
care that strategic changes are not drastic but incremental, allowing the
cultural ripple effects to settle down to create a more conducive environment
for strategy implementation. However, if an impregnable cultural barrier is
faced after strategy implementation, it may be better to abandon the
strategy or use a combination of the above three approaches.
Guidelines for changing an existing culture to
effectively match a new strategy
Schwartz and Davis suggest four specific

guidelines for changing an existing culture
to effectively match a new strategy:
1. Identify the relevant culture and
subcultures in the organization through
individual and small-group-meetings.
Develop a list of simply stated beliefs abut the
way it is in the organization and of current
imperatives for how to behave. Review these
until there is a consensus about the central
norms in the culture.
Guidelines for changing an existing culture to
effectively match a new strategy
2. Organise these statement about the firms culture in

terms of managers tasks and key relationships.
3. Assess the risk that the organisations culture
presents to the realization of the planned strategic
effort. This is done by first determining the importance of the
culture products and then determining their compatibility with
the intended strategy.
4. Identify and focus on those specific aspects of the
organizations culture that are highly important to
successful strategy formulation, implementation, and
evaluation. It may then be possible to develop alternative
organizational approaches that better fit the existing culture,
as well as to design planned programs to change those
aspects of culture that are the source of the problem.
Dominant Orientation of Culture
Market and financial-oriented:
defined in terms of customers needs
and financial performance
Materials- or product-oriented:
defined in terms of the material it
works with or the product it makes
Technology-oriented: defined in
terms of the technology that it uses
People-oriented: defined in terms of
how employees are hired and treated
Essentials of Linking Culture with
Strategy
Schein indicates that the following elements are most useful in
linking culture to strategy:
1. Formal statements of organizational philosophy, charters, creeds,
materials used for recruitment and selection, and socialization.
2. Designing of physical spaces, facades, buildings.
3. Deliberate role modeling, teaching, and coaching by leaders.
4. Explicit reward and status system, promotion criteria.
5. Stories, legends, myths, and parables about key people and events.
6. What leaders pay attention to, measure, and control.
7. Leader reactions to critical incidents and organizational crises.
8. How the organization is designed and structured.
9. organizational systems and procedures.
10. Criteria used for recruitment, selection, promotion, leveling off,
retirement, and ex-communication of people.
What is Leadership?
Ability to persuade others to do things for the good of

the organization make difficult decisions make unpopular
decisions deliver results create long-term commitments
Why is the Leader Important?
Establishes vision
Develops and implements strategies
Allocates and controls resources
Chooses key employees
Shapes culture
Affects organizational performance
Projects image to the public
Qualities of an Effective Leader
On the basis of its present state of knowledge, it can be
said that the leader must:
develop new qualities to perform effectively
be a visionary, willing to take risks, and be highly adaptable to
change
exemplify the values, goals, and culture of the organisation, and
be aware of the environmental factors affecting the organisation
pay attention to strategic thinking and intellectual activities
adopt a collective view of leadership in which the leaders
influence is dispersed across all levels of the organisation.
lead by empowering others and place an increasing emphasis
on statesmanship
adopt a new perspective on power to build subordinates. skills
and confidence to make them agents of change
create leadership at lower levels and facilitate the
transformation of followers into leaders
delegate authority and place emphasis on innovation
Qualities and Skills for Effective Leadership
It is useful to shortlist the qualities and skills for effective

leadership. These are:
A vision, articulated through the culture and value systems.
The ability to build and control an effective team of managers.
The ability to recognize and synthesize important developments, both
within and outside the organization. Requires strategic awareness, the
ability to judge the significance of an observed event, and
conceptualization skills.
Effective decentralization, delegation and motivation.
Credibility and competence: knowing what you are doing and having this
recognized.
Requires the ability to exercise power and influence and to create change.
Implementation skills: getting things done, requires drive, decisiveness,
and dynamism.
Perseverance and persistence in pursuing the mission or vision, plus
mental and physical stamina.
Entrepreneurial qualities
Leadership Implementation
The role of appropriate leadership in strategic success is
highly significant. It has repeatedly been observed that
leadership plays a critical role in the success and failure of
an enterprise and it has been considered one of the most
important elements affecting organisational performance.
For the manager, leadership is the focus of activity through
which the goals and objectives of the organisation are
accomplished. While dealing with the role of strategists
we learnt about the roles that different strategist paly in
strategic management. In particular, the role of chief
executives as organisational leaders was discussed with a
view to highlight the importance that is accorded to them
since they are the most important of all strategists.
Examples of Leadership Impact on Strategies
This also marks a clear distinction between Japanese strategic
leadership and that of the West, in particular the USA. Most
Japanese industrial organizations still have their first generation
entrepreneurs as CEOs who have successfully imprinted their
personal values and attitudes on the organizations concerned and
been able to impart sustained dynamism to them.
The significant difference between Japanese and Western leadership
is, however, elsewhere. Generally speaking, Japanese firms do not
have individual leadership but group leadership. What is very
important is how individual followership is transformed into group
leadership and through this organizational process individual
passiveness is transformed into collective dynamism.
We cannot induce a dynamic and innovative set of organizational
decision sets from a simple aggregation of a set of non-innovative
and reserved individual decision codes. What is required is some
form of quality transformation process, in turn requiring an
organizational device to effect it, so that the passive decision codes
of individual members can be changed into active codes of the firm.
Examples of Leadership Impact on Strategies
The most significant aspect of Japanese strategic leadership is the
development and use of this transformation device. This is reflected
in a chain of leadership based on merit in apparent contradiction to
the concept of seniority embedded in the Japanese management
system. The Japanese reward system has two distinct
characteristic.
While respect for seniority remains undisturbed as does lifetime
employment as the backdrop, there is a bifurcation at senior levels.
Those with requisite merit are promoted within the organization and
those lacking it are diverted out of the organization into subsidiaries
or supplier organizations under the firms umbrella.
Summarizing, Japanese culture and value are reflected in:
a) Consensus in decision-making;
b) respect for seniority;
c) individual suggestions converted to group recommendations;
d) meritocracy;
e) entrepreneurial and innovative leadership;
f) discipline.
Structural Considerations (73
mcom) (257 mdu) and 373
ORGANIZATIONAL STRUCTURE: The
organization structure refers to established
pattern of relationship among the components
or parts of an organization. It is through the
structure that the various parts of an
organization are interrelated or interlinked.
Organization structure involves issues such as
division of work among various units or
departments, and the coordination of activities
to accomplish organizational objectives.
Relationship between organization structure and
strategy
The organization has to be designed according to the needs of
the strategy implementation. Any changes in corporate
strategy may require some changes in the organization
structure and in the skills required in certain positions.
Managers must, therefore closely examine the way their
company is structured in order to decide what ( if any ),
changes should be made in the way work is accomplished.
Although it is agreed that the organizational structure must
change with environment conditions, which in turn, affect an
organizational strategy, there is no agreement about an
optimal structural design.
Firms in the same industry do, however, tend to organize
themselves likewise. For instance, automobile firms tend to
emulate General Motors divisional concept, whereas consumer
good firms tend to adopt the brand-management concept
introduced by Proctor & Gamble. The general conclusion seems
to be that following similar strategies in similar industries tend
to adopt similar structures.
Structural Mechanism to implement strategy
The implementation of strategy requires

performance of tasks. To perform task ,
there should be various structural
mechanism. The structural mechanism
help to undertake the various activities
required to implement the strategy. The
various structural mechanism can be
broadly divided into two groups :
A. Organizational Structure
B. Organizational Systems
A. Organizational Structure : In order to implement strategy,
an organization must : Identify the major tasks required to
implement strategy Group the tasks into departments or units
Make arrangement of necessary resources to undertake tasks
Assign the duties to employees Define and delegate the
authority and responsibility Establish superior-subordinate
relationship Provide a system of coordination of interlink the
various tasks
The above process would lead to creation of a structure. A
firm must design a suitable structure to undertake activities
required to implement strategy. The structure may range from
simple organization structure to a major complex one matrix
or network structure. The type of structure depends upon :
The size of the organization
The number of product lines
The number of plants or factories
The number of markets local, national or international
B. Organizational system: These are many
types of organizational systems each one playing
its own role in the implementation of a strategy.
An organization has to perform a preset tasks in
order to achieve the goals and objectives. It is
therefore very important to evolve systems that
will combine these divisions and departments in a
well coordinated way. Communications between
various sections are also specifically laid down.
1. Information System: For any strategy to be
properly implemented, communication channels
are essential so that information from one
manager can be sent to another.
2. Motivation System: The motivation system is
essential as it plays a positive role in getting the
desired and required behaviour of an individual or a
group of individuals. This is required so tat managers
are encouraged to work efficiently and effectively
towards the achievement of the corporate goals.
3. Control System: The main function of the control
system is to enforce a particular desired behaviour.
Here the top management measures the performance
of each section / departments and determines
corrective action on those that are away from the
duration. This is done keeping in view the goals and
objectives of the company so that they can effectively
attained.
4. Appraisal System: The appraisal system is required to
evaluate the performance of an individual / section so that
the required behaviour can be made best use of. This system
evaluates an individuals / sections / management
performance with respect to the organizational objectives. It
serves as an auditing system. It is through appraisal that
personal salary, rewards, promotions are fixed.
5. Planning Systems : Planning systems are essential for
the formulation of the strategy only. In some companies
planning of strategies are done as a staff function and they
provide the strategies to the line personnel to be executed. In
other, companies those managers who are responsible for the
achievement of the goals are also part of the formulation of
plans. This is essential as they alone will know which plan /
goal is feasible and will try their best to achieve their targets.
6. Development Systems: Development of skills,
knowledge of top management is a must in todays
fast competitive world. Here the systematic
improvement of the attitude, skills, knowledge,
performance of top managers is done systematically
through class sessions, seminar and out stations
trips. Career planning of managers to prepare them
for future strategic tasks. This is required as if the
managers are unhappy, then their unhappiness can
percolate to those in his section also. These
managers should also be updated with the latest
development in the organization. This is done
through training and education of managers through
internal and external training programme.
MATCHING ORGANIZATIONAL STRUCTURE
WITH BUSINESS STRATEGY
Changes in strategy often require changes in the way

an organization is structured for two major reasons.
1. First, structure largely dictates how objectives
and policies will be established. For example,
objectives and policies established under a
geographical organizational structure are couched in
geographic terms. Objectives and policies are stated
largely in terms of products in an organization whose
structure is based on product groups. The structural
format for developing objectives and policies can
significantly impact all other strategy-implementation
activities.
MATCHING ORGANIZATIONAL STRUCTURE WITH BUSINESS STRATEGY
2. The second major reason why changes in strategy

often require changes in structure is that structure
dictates how resources will be allocated. If an
organization structure is based on customer groups, then
resources will be allocated in that manner. Similarly, if an
organizations structure is set up along functional business
lines, then resources are allocated for functional areas. Unless
new or revised strategies place emphasis in the same areas as
old strategies, structural reorientation commonly becomes a
part of strategy implementation.
Therefore, Changes in strategy lead to changes in
organizational structure. Structure should be designed to
facilitate the strategic pursuit of a firm and therefore, follows
strategy. Without a strategy or reasons for being ( mission ),
companies find it difficult to design an effective structure.
STAGES OF DEVELOPMENT OF ORGANIZATIONAL
STRUCTURE
Successful companies tend to follow
a pattern of structural development
as they grow and expand. Beginning
with the simple structure used by
entrepreneurial firm characterized
decision making moves on to
divisional structure to mange
different product lines. The following
are the different stages in
organizational development and
strategy structure:
STRUCTURE
Stage I : Simple Structure: Stage I firms are small enterprises managed
by the founder. The entrepreneur makes all the important decisions and is
involved in every detail and phase of the organization. The strategies
adopted may be of expansion type. The greatest advantage of Stage I firm
are its flexibility and dynamism. The greatest disadvantages is its extreme
reliance on the entrepreneur to decide general strategies as well as detailed
procedures. The problems of managing the organization all by himself and
therefore, he may go for functional structure.
Advantages of such firms are:
Since there is only one decision maker, the decisions are taken faster.
Quick and timely on the spot decisions are taken depending on the
environmental changes and competition.
These firms are very simple in nature.
These firms are very informal in nature.
Disadvantages of such firms are :
Since the owner has to do nearly everything including taking decisions has
time can be demanded by almost everyone. He concentrates so much on
day to day activities that major expansion decisions are left pending.
When the owner is on holiday or such the firms operations usually fall due
to lack of supervision. Excessive reliance on the owner.
Future expansion only depends on the owners ability to invest money.
STAGES OF DEVELOPMENT OF ORGANIZATIONAL STRUCTURE
Stage II : Functional Structure: Stage II is the point when a team of
managers who have functional specializations replaces the entrepreneur. The
transition to this stage requires a substantial managerial style change for the
chief executive, especially if he was the Stage I entrepreneur. He must learn to
delegate, otherwise having a team of managers bring no benefit. The
organizational structure is functional type divided into various departments such
as finance, marketing, personnel and production. There can be further
departmentalization such as area wise , process wise product wise, etc.
depending upon the size and business operations. The strategies is adopted may
range from stability to expansion. The greatest advantages is that the firm can
effectively concentrate and specialize in one industry. However, concentration in
one industry may not help the firm, as it may no longer remain attractive.
Therefore, firm may move in diversified product lines.
Advantages of such firms are :
The day to routine work is delegated to people thus the owner/chief executive
can concentrate on strategic business decisions.
Efficient distribution of work through specialization. Hence work is done faster.
Disadvantages of such firms are :
Co-ordination between different departments is difficult. Everyone wants to
work in watertight compartments.
Line and staff departments usually conflicts.
This creates specialists which results in narrow specialization.
Stage III : Divisional Structure / Departmental Structure
As a small organization grow, it has more difficulty managing
different products and services in different markets. Some
form of divisional structure generally becomes necessary to
motivate employees, control operations and compete
successfully in diverse locations. The functional structure may
not work well for large firms with diverse product lines.
Managers managing diversified product lines need more
decision making powers than the top management is willing to
provide to them. The company needs to move to a different
structure, i e. divisional structure. Each division is semi-
autonomous and linked to the headquarters but functionally
independent. Divisional Structure is the result of grouping of
jobs, processes and resources into logical units to perform
some organizational task. Large organizations divides its
organizational structure into units and sub-units so as to
effectively and efficiently plan, organize, direct and control its
activities to achieve desired objectives.
(Function Wise)
STAGES OF DEVELOPMENT OF ORGANIZATIONAL STRUCTURE (Product wise)
STRUCTURE (Geographical Area/Country wise)
STAGES OF DEVELOPMENT OF
ORGANIZATIONAL STRUCTURE (Process wise)
STRUCTURE
In 1970s and 1980s divisions of large organizations have been developed into
Strategic Business Units (SBU) to better reflect product marker considerations. Each
SBU may look after the production and marketing of a particular product / brand or a
group of products / brands. The units are not tightly controlled but are held responsible
for the their own performance. The greatest advantages of a Stage III firm is its almost
unlimited resources. Its greatest weakness is that it is usually so large and complex
that it tends to become relatively inflexible. General Motors, Ford Motors, and DuPont
are Stage III corporations. The strategies adopted may range from stability and
expansion.
The advantages of such firms are :
This structure encourages the grouping of various functions which are required for the
performance of activities with respect to a particular division.
Here the top management can concentrate on strategic business policies and
decisions while the day to day operations are conducted by those in the lower rung of
the ladder.
This structure generates quick response to environmental changes affecting the
businesses of different divisions.
The Disadvantages are:
Company overheads increase duplication of work in each unit is also there.
Policy inconsistencies between the different divisions.
The divisional structure can be organized in one of 4 ways :
By Geographic Area
By Customer
By Product or Service
By Process
Stage IV : Strategic Business Unit (SBU): The SBU

structure groups similar divisions into strategic business
units and delegates authority and responsibility for each
unit to a senior executive who reports directly to the chief
executive officer. This change in strategy can facilitate
strategy implementation by improving coordination
between similar divisions and channeling accountability
to distinct business units. An SBU has three
characteristics:
It is a single business or collection of related business
that can be planned separately from the rest of the
company.
It has its own set of competition.
It has a manager who is responsible for strategic
planning and profit performance and who controls most
of the factors affecting profit.
The purpose of identifying the companys strategic business units is to

assign to these units strategic planning goals and appropriate tending.
These units send their plans to company headquarters which
approves them and sends them back for revision. The head office
reviews these plans in order to decide which of its SBU to BUILD ,
MAINTAIN , HARVEST and DIVEST.
The advantages of SBU are :
Establishes co-ordination between divisions having common strategic
interests.
Facilitates strategic management and control of large , diverse
organizations.
Fixes accountability at very distinct business units.
The Disadvantages are:
There are too many different SBUs to handle affectively in a large
diverse organizations.
Difficulty in assigning responsibility and defining autonomy for SBU
heads.
By adding another layer of management it means it takes longer to
take a corporate decision.
ORGANIZATIONAL STRUCTURE
Stage V : Matrix Structure: This type of organization structure
was first developed in the United States in the early 1960s to solve
management problems emerging in the aerospace industry. It uses
two or more co-existing structures. It can combine project
organization with functional organization structure. In such a
structure the project managers work in close and co-operation with
functional or departmental heads. Authority of departmental heads
flows downwards, and the authority of the project manager flows
across, thereby forming a grid or rectangular array and is called
Matrix Structure.
Matrix Management is also known as product management/
market management organization. Companies that produce many
products flowing into many markets face a dilemma. They could
use a product management system which requires product
managers to be familiar with highly divergent markets.
STRUCTURE
A matrix organization would seem desirable in a multi-product, multi-
market company. Such a type of structure is created by assigning functional
specialists, who normally work in a department in their area of
specialization to work on a special project or a new product or service. For
the duration of the project, the specialists from different areas form a group
or team to report to the team leader. Simultaneously they also work in their
respective parent departments. Once the project is completed, the team
members fully revert to their parent departments
Advantages
Individual specialists are assigned where their talent is needed most.
Fosters creativity because of pooling of diverse talents.
Provides good exposure to specialists in general management
Disadvantage
Dual accountability creates confusion and thus difficulty to individual team
members.
This system is costly and conflictual.
There are questions about where authority and responsibility should reside.
Shared authority creates communication problem Requires a high level of
vertical and horizontal co-ordination.
ORGANIZATIONAL STRUCTURE (Matrix)
Strategy Evaluation
NATURE OF STRATEGY EVALUATION: The strategic
management process results in decisions that can have
significant long-lasting consequences. Erroneous
strategic decisions can inflict severe penalties and can
exceedingly difficult, if not impossible, to reverse. Most
strategists agree, and therefore, that strategy evaluation
is vital for an organizations well-being; timely
evaluations can alert management to problems or
potential problems before a situation becomes critical.
Strategy evaluation includes three basic activities :
1. Examining the underlying bases of a firms strategy.
2. Comparing expected results with actual results
3. Taking corrective actions to ensure that performance
conforms to plans.
NATURE OF STRATEGY EVALUATION
1. Adequate and timely feedback is the cornerstone
of effective strategy evaluation.
2. Strategy evaluation can be no better than the
information on which it operates.
3. Too much pressure from top managers may result
in lower managers contriving numbers they think
will be satisfactory.
4. Strategy evaluation can be a complex and
sensitive undertaking.
5. Too much emphasis on evaluating strategies may
be expensive and counterproductive.
6. Strategy evaluation is essential to ensure that
stated objectives are being achieved.
NATURE OF STRATEGY EVALUATION
Strategy evaluation is important because organizations face dynamic environments
in which key external and internal factors often change quickly and dramatically.
Success today is no guarantee of success tomorrow ! An organization should never
be lulled into complacency with success. Countless firms have thrived one year
only to struggle for survival the following year. Strategy evaluation is becoming
increasing difficult with the passage of time, for many reasons.
Reasons why strategy evaluation is more difficult today include the
following trends
A dramatic increase in the environment's complexity
The increasing difficulty of predicting the future with accuracy
The increasing number of variables
The rapid rate of obsolescence of even the best plans
The increase in the number of both domestic and world events affecting
organizations
The decreasing time span for which planning can be done with any degree of
certainty.
Richard Rumelt offered four criteria that could be used to evaluate a
strategy :
a. Consistency
b. Consonance
c. Feasibility
d. Advantage
IMPORTANCE OF STRATEGIC EVALUATION AND CONTROL
The purpose of strategic evaluation and control is to ensure

that the objectives are accomplished For, this purpose
strategic are formulated implemented, and then evaluated and
if necessary control measures are taken. The need and
importance of strategic evaluation and control is briefly
stated follows:
1. Facilitates coordination : Strategic evaluation and control
facilitates coordination among the various departments of the
organization. Whenever, there are any deviations the activities
of the concerned departments are coordinated so as to take
collective and corrective measures. The collectives efforts on the
part of concerned departments enable to correct the deviations
and to accomplish the objective.
2. Facilitates optimum use of resources : Evaluation and
control enables optimum use of resources physical, financial
and human resources. The resources are properly allocated and
utilized which in turn generates higher productivity and
efficiency.
IMPORTANCE OF STRATEGIC EVALUATION AND
CONTROL
3. Guide to operations : Evaluation and control guides the

actions of the individuals and departments in the organization.
Activities are undertaken in the right direction and as such the
organization would not be able to accomplish its objectives.
4. Check on validity of strategic choice : Evaluation and
control helps the management to keep a check on the validity of
the strategic choice. The process of evaluation and control would
provides feedback on the relevance of the strategic choice made
during the formulation stage. This is due to the efficacy of the
strategic evaluation to determine the effectiveness of the strategy.
5. Facilitates performance appraisal : Evaluation and control
facilitates employees appraisal. The actual performance is
measured in the light of the strategic planning. The managers
measure the performance and provide necessary feedback to the
employees. This facilitates them to improve their performance.
IMPORTANCE OF STRATEGIC EVALUATION AND CONTROL
6. Motivates employees : Employees are aware that their

performance is reviewed periodically. Therefore, they put in
their best possible efforts to improve their performance. The
employees are motivated as those employees who show
better performance are normally rewarded.
7. Fixes responsibility : Evaluation and control fixes
responsibility on the managers. It is the duty of the
managers to correct the deviations, when the actual
performance is not taking place as per the targets. Managers
cannot ignore their responsibility for evaluation and control.
8. Creates inputs for future strategic planning :
Strategic evaluation and control provides a good amount of
information and experience to managers, which can be
utilized in future strategic planning. Therefore, future
strategic planning can be better than before.
STRATEGIC EVALUATION AND CONTROL PROCESS
Evaluation of strategy is that phase of the strategic management
process in which managers try to assure that the strategic choice is
properly implemented and is meeting the objectives of the
enterprises. The strategy evaluation involves the following
steps:
1. Determine what to measure Top managers as well as operational
managers need to specify what implementation processes and results
will be monitored and evaluated. The processes and results must be
capable of being measured in a reasonably objective and consistent
manner. The focus should be on the most significant elements in a
process the ones that account for the highest proportion of expense
or the greatest number of problems.
2. Setting of Standards The strategists need to establish
performance targets, standards and tolerance limits for the objectives,
strategy, and implementation plans. The standards can be established
in terms of quantity, quality , cost and time. Standard need to be
definite and they must be acceptable to employees. One cannot just
fix high targets and low targets or standards to be avoided.
3. Measuring actual performance The next step is to measure
the actual performance. For this purpose, the manager may ask
for performance reports from the employees. The actual
performance can be measured both in quantitative terms as well
as qualitative terms. The actual performance also need to be
measured in terms of time and the cost factor.
4. Comparing actual performance with Standards The
actual performance need to be compared with the standards.
There must be objective comparison of the actual performance
against the predetermined targets or standards. Such comparison
is required to find out deviations, if any.
5. Finding out Deviations After comparison, the managers may
notice the deviations. For instance if the actual sales are only
9000 units as compare to standards targets of 10,000 units of
sales, then deviations are to the extent of 1000 units of sales. If
actual performance results are within the desired tolerance range,
the measurement process stops here.
6. Analyzing deviations The deviations may be
reported to the higher authorities. The higher
authorities analyze the cause of deviations. For
this purpose, the higher authorities may hold
necessary discussion with the functional staff. The
causes of deviations should be identified.
7. Taking corrective Actions If actual results fall
outside the desired tolerance range, corrective
action must be taken to correct the deviation.
Some times there may be need for re-setting goals
or objectives or re-framing plans, policies and
standards. The corrective steps must be taken at
the right time so as to accomplish the objectives.
TECHNIQUES OF EVALUATION AND CONTROL
STRATEGIC CONTROL AND OPERATIONAL CONTROL
Strategic control takes into account the changing assumptions
that determine the strategy by continuously evaluating the
strategy during the process of implementation and it also takes
the required corrective action as and when needed. Thus
strategic control is like an alarm long before the calamity can
happen.
Operational control is the process of ensuring that specific
tasks are carried out effectively and efficiently. The operational
control aims at evaluating the performance of the organization.
Most of the control system in organization are operational in
nature. Some examples of operational control are : Budgetary
control, Quality control, Inventory control, Production Control,
Cost control etc.
Operational control are programmed or decided in advance. They
are self-regulatory in nature. They are impersonal in nature.
Techniques, tools, procedures are used as means of control.
Considerations of environmental influences and adapting
accordingly play little role in operational control system.
STRATEGIC CONTROL AND OPERATIONAL
CONTROL
Strategic Control Operational Control
1. Aim The main aim of strategic The main aim of operational
control is continuously control is allocation and use of
questioning of the basic direction organizational resources
of strategy. Its aim is find out
whether or not strategy is being
implemented properly
2. Environment It is concerned It considers only the internal
with internal as well as external environment.
environmental factors.
3. Techniques used The main The main techniques involved are
techniques involved are budgets, Schedules, inventory
environmental scanning, control and MBO.
information gathering,
questioning and review.
4. Time period The strategic The operational control is only for
control considers long-term short period say maximum for 1
impact of strategy on the year.
STRATEGIC CONTROL AND OPERATIONAL
CONTROL
Strategic Control Operational Control
5. Exercise control The The operational control is
strategic control is exercised only exercised by top management
by top management through the middle level
management and lower level
management.
6. Database The database for The database for operational
strategic control is both historical control is mostly historical in
and future oriented nature.
7. Main concern The main The operational control is
concern of strategic control is concerned with the actions as it is
pushing the company in the based on plans, standards and
correct future direction. procedures.
8. Flexibility The strategic Operational control lacks
control is flexible in nature, flexibility as those whose
depending upon the situation. implement operational control
have to strictly follow the
structured pattern of control.
Evaluation techniques for Strategic Control
Strategic control takes into account the changing assumptions
that determine the strategy by continuously evaluating the strategy
during the process of implementation and it also takes the required
corrective action as and when needed. Thus strategic control is like
an alarm long before the calamity can happen. It is undertaken to
find out whether or not the strategy is implemented properly.
1. Premise Control Strategies are based on certain premises, on
certain assumptions with respect to the organization as well as the
environment. Any change in either of them affect the strategy itself
to a very large extent. For this reason one must keep watch and
control over these premises /assumptions. Premise control is required
to identify the main assumptions on which the strategy is based and
keep a close watch on them, to see if there is any change in the
assumptions and if these changes are making an impact on the
strategy to be adopted. The corporate planning staff are kept
responsible for the supervision and control of the premises, they are
thus required to regularly check the validity of the premises
constantly.
2. Implementation control Only strategy implementation gives
result to plans, projects and programmes being set up. The
strategist has to lay down the resources to be allocated all every
stage. Implementation control deals with the evaluation whether
the plans, projects and programmes one leading the organization
towards its predetermined goal. This is done through identification
and close monitoring of each plan.
3. Strategic Surveillance Strategic surveillance is done to
oversee the organization as a whole. It sees whether any event
either within or outside the company threatens the strategies
course of action in any way.
4. Special alert control In case of emergencies the company
needs to take quick and correct decision in order to save the
strategy in operation. Special alert control can be exercised
through the formulation of contingency strategies by giving the
job immediately to the crisis management teams who is capable
and experienced in handling such emergencies e.g. unfortunate
floods , share prices crash or real estate prices crash etc.
5. Strategic leap control Today modern industry is highly competitive, volathe
and unstable. Companies are required to make strategies leaps so that they can
make significant changes. Strategic lead control can assist companies by helping
to define the new strategic requirements and to cope with emerging
environmental realities. There are four different techniques used in ensuring
strategic leap control in the organization.
a. Strategic issue management It is aimed at identifying one or more strategic
issues and assessing their impact on the organization. A strategic issue is a
forthcoming development either inside or outside of the organization which is
likely to have an impact on ability of the company to meet its objectives. By
managing on the basis of strategic issues, the strategists can avoid being
overtaken by surprising environmental changes and design contingency plans
to shift strategies whenever needed.
b. b. Systems modeling Computer based models simulate the essential features
of the company and its environment. Through systems modeling organizations
may exercise pre-action control by assessing the impact of the environment
on the company by adopting a specific strategy.
c. c. Strategic field analysis It is a method of examining the nature and extent of
synergies that exist or are lacking between the components of a company.
Whenever synergies exist, the strategists can assess the ability of the
company to take the advantage. Alternatively, the strategists evaluate the
companys ability to generate synergic where they do not exist.
d. d. Scenarios These are different perceptions about the likely environment a
firm would face in the future.
6. Responsibility centres Central centres can be established to monitor specific
functions, projects or divisions. Responsibility centres are used to isolate a unit so
that it can be evaluated separately from the rest of the corporation. Each
responsibility centre therefore has its own budget and is evaluated on its use of
budgeted resources. A responsibility centre is headed by the manager responsible
for the centres performance. They are of various types:
a. Standard cost centres Primarily used in manufacturing facilities, standard
costs are computed for each operation on the basis of historical data. In evaluation
of the centres performance, its total standard costs are multiplied by the units
produced ; the result is expected cost of production, which then compared to the
actual cost of production.
b. Revenue Centres Production in terms of units or rupee sales, is measured
without consideration of resource costs (e.g. salaries ). The centre is thus judged in
terms of effectiveness rather than efficiency. The effectiveness of a sales region is
determined by the comparison of its actual sales to its projected years sales.
c. Expense centres Resources are measured in rupees without consideration of
service or product costs. Thus, budgets will have been prepared for engineered
expenses ( those costs that can be calculated ) and for discretionary expenses
( those costs that can only be estimated ).
d. Profit centres Performance is measured in terms of the difference between
revenues ( which measure production ) and expenditures ( which measure
resources ). A profit centre is typically established whenever an organizational unit
has control over both resources and its products or services.
e. Investment centres Investment centres is measured in terms of the
differences between its resources and its services or products. Investment centres
can also be measured in terms of its contribution to shareholder value.
Evaluation techniques for Operational Control
Operational control is the process of ensuring that specific tasks are
carried out effectively and efficiently. The operational control aims at
evaluating the performance of the organization. Most of the control
system in organization are operational in nature.
1. Internal Analysis: The internal analysis deals with the strengths and
weakness of the firm. It involves following techniques:
a. Value chain analysis: It places emphasis on inter-related activities
performed in a sequence for production and marketing of a product or
service. It divided the total task of a firm into identifiable activities, which
can then be evaluated for judging their effectiveness.
b. Quantitative analysis: It considers the financial and non-financial
quantitative parameters such as physical units or volume for the purpose
of judging effectiveness. The quantitative analysis techniques are widely
used for evaluation , as they are easy to administer. Some of quantitative
techniques are ratio analysis, market ranking, advertising recall rate etc.
c. Qualitative analysis: They support the quantitative analysis by
including those factors, which are not measurable in terms of numbers.
Some of the qualitative techniques are market surveys, experimentation
and observation etc.
2. Comprehensive Analysis: This analysis adopts a total approach of judging
the performance of a firm and it does not focus on a specific area or function.. It
includes following techniques:
a. Key factor rating In this case, the key areas of the organization are
identified and then the performance in such areas is evaluated.
b. Balanced scoreboard In this techniques, the four key performance measures
are identified customer perspective, internal business perspective,
innovation and learning perspective and the financial perspective. This
techniques adopts a balanced approach to evaluate performance of the
organization as a whole as a wide range of parameters are considered.
c. Network techniques In this normally PERT ( Programme Evaluation Review
Technique ) and CPM ( Critical Path Method ) are used for the purpose of
planning and scheduling activities. This techniques focus on the critical path
or the sequence of events, which requires the maximum possible time, so that
the critical path can be properly monitored for the purpose of completion of
the project or activities in time.
d. Management by Objectives (MBO) It involves subordinate managers in
planning and controlling activities. In this case the superior and subordinate
managers jointly decide common goals, and jointly frame plans. The
subordinate then implements the plan, and finally the performance of the plan
is jointly reviewed by the superior and subordinate managers.
3. Memorandum of Understanding
(MOU):Memorandum of Understanding is an
agreement between a public enterprise and the
Government where clearly specify their
commitments and responsibilities.
4. Budgetary control: It is used to indicate the
appraisal of performance by a comparison of the
actual with the budget and corrective action for the
same. Here budgets are used as an instrument of
control.
5. Zero-based Budgeting: Here annual budgets,
revaluation of plans, projects and programmes
decide whether any change in resource allocation is
required to achieve the companys goals.
Need For Balanced Scorecard
Strategic management is a necessary part of any
organizations success, but adding the balanced
scorecard can allow businesses to see exactly where they
are going, and what needs to be changed to meet their
long-term goals.
What is the Balanced Scorecard?
The balanced scorecard (BSC) is a tool that allows
managers to better follow and understand not only how
their staff is performing, but also how that performance
relates to the overall growth of the organization. The
information gained from balanced scorecard provides
deeper insight into how the current actions within the
company affect the long term goals of strategic
management, allowing managers to make the changes
needed to ensure that the organizations goals are met.
The Balanced Scorecard was introduced as one of
the newest management tools. The purpose was
to allow organizations to be better able to use
their intangible assets. The balanced scorecard is
to be used as a supplement to traditional financial
measures. It measures performance from three
additional perspectives; customers, internal
business processes, and learning and growth. The
scorecard can help top-level management
link the long-term strategy with the short-
term actions. Managers using a balanced
scorecard do not only have to rely on the short-
term financial results as indicators of the
companys progress.
Four Processes of Balanced Scorecard: The balanced
scorecard includes four processes that integrate the goals of
strategic management with the actions of the employees, rather
than strictly focusing on financial measures to gauge performance.
1. Translating the Vision
2. Communication and Linking
3. Planning
4. Learning and Feedback
. These processes, when incorporated with current strategic
management practices, allow managers to provide the guidance
and information needed by their employees to better meet long-
term goals.
Translating the Vision: Translating the vision brings the goals
and strategies of the organization to the employees in a manner
that helps them better understand how their actions affect the
overall success of the company. This is done by formulating
objectives at the employee level that will help them understand
what is needed for long-term success.
Communication and Linking: Strategic planning requires
communication, and this balanced scorecard process helps managers
tie their strategic goals in with individual and departmental objectives.
This integration ensures that all employees within an organization
have a better understanding of strategic goals, and how their abilities
to meet the objectives line up with them.
Planning: Business planning allows managers to align the financial
initiatives of the company with employee level goals. The balanced
scorecard goals help managers make better allocation and prioritizing
decisions, enabling them to see exactly which initiatives are necessary
for meeting organizational goals.
Learning and Feedback: The fourth aspect of balanced scorecard
incorporates reviews and feedback from customers, internal processes,
and growth. These perspectives assist managers in the performance
evaluation of current strategies, helping them understand which
objectives require modification.
These balanced scorecard processes promote better results from the

strategic management goals, driving the success of the organization.
The balanced scorecard supplies three essential items to strategic
learning:
1. It articulates the vision. The holistic vision is communicated to the entire

organization, and the individual efforts are linked to business unit objectives.
2. The scorecard supplies a strategic feedback system. This system views the
strategies as hypotheses, and should be able to test, validate, and modify these
hypotheses.
3. The balanced scorecard facilitates strategy review. Instead of using

periodic meetings to evaluate past performances as the traditional financial review
process does, scorecard users review the feedback in a way to gain a better
understanding of if the strategy is being reached, how is it being reached, and
should the strategy be modified based on new information. This gives the
organization a forward focus.
The balanced scorecard facilitates an organization's plan to align management

processes and focuses with the long-term strategy of the company. Without the
scorecard it would be nearly impossible to maintain a consistency of vision and
action while attempting to introduce new strategies and processes. The balanced
scorecard provides a framework for managing the implementation of a strategy,
while also allowing the strategy to evolve in response to changes in the companys
competitive, market, and technological environments.
Managing Mergers &
Acquisitions
Mergers and acquisitions that are usually referred to as M&As are an
important part of corporate restructuring. The basic concept
behind mergers and acquisitions is that two companies together are
of more value than those two companies when they are separate
entities. It is basically a consolidation of two companies.
Merger: A merger is a strategy of joining two businesses. Basically a
merger occurs when two companies join or merge to form one single
company but with a new name.
This is because a merger often takes place between two companies
that are equal in size and stature and with their cooperation, thus the
term merger of equals. This may not be true always or for all the
companies that merge. Sometimes a merger is not a marriage
between two equals. Hence: When two companies differ significantly
in size, they usually merge.
A merger takes place when two companies combine their operations,
creating in effect, a third company.
Managing Mergers &
Acquisitions
Acquisition refers to a situation where one firm acquires
another and the latter ceases to exist.
Simply put in what happens in an acquisition is that one
business buys another usually smaller business that
might be absorbed within the parent organization or run
as a subsidiary.
A company / organization that attempts to merge /
acquire with some other company / organization is
generally referred to as the acquiring firm. On the other
hand the company / organization that is being acquired
is known as the target company / organization.
An acquisition is a situation in which one company buys,
and controls another company.
Managing Mergers &
Acquisitions
Horizontal mergers or acquisitions are the combining of two or
more organizations that are direct competitors.
Concentric merges or acquisitions are the combining of two or

more organizations that have similar products or services in terms
of technology, product line, distribution channels, or customer base.
Vertical merges or acquisitions are the combining of two or

more organizations to extend an organization into either supplying
products or services required in producing its present products or
services or into distributing or selling its own product and services.
Conglomerate mergers or acquisitions involve the combining

of two or more organizations that are producing products or
services that are significantly different from each other.
Managing Mergers &
Acquisitions
Organizations seek mergers and acquisitions for
many reasons.
1. The primary reason for large mergers and acquisitions
is the potential benefit that can accrue to the stockholders
of both companies. Synergy is often cited as a rationale for
mergers. Synergy occurs as the result of a merger, when
two operating units can be run more efficiently (i.e.: with
lower costs) and / or more effectively (i.e.: with appropriate
allocation of scarce resources given environmental
constrains) together than apart.
2. Other reason for merging with or acquiring another

company include improving or maintaining competitive
position in a particular business in order to enter new
markets or acquire new products rapidly, to improve
financial position, or to avoid a takeover.
Reasons for Mergers and Acquisitions
1. Financial synergy for lower cost of capital
2. Improving company's performance and accelerate growth
3. Economies of scale
4. Diversification for higher growth products or markets
5. To increase market share and positioning giving broader market access
6. Strategic realignment and technological change
7. Tax considerations
8. Under valued target
9. Diversification of risk
Managing Mergers & Acquisitions
Mergers & Acquisitions can take place:
by purchasing assets
by purchasing common shares
by exchange of shares for assets
by exchanging shares for shares

Types of Mergers and Acquisitions:
Merger or amalgamation may take two forms: merger through
absorption or merger through consolidation. Mergers can also be
classified into three types from an economic perspective depending
on the business combinations, whether in the same industry or not,
into horizontal ( two firms are in the same industry), vertical (at
different production stages or value chain) and conglomerate
(unrelated industries). From a legal perspective, there are different
types of mergers like short form merger, statutory merger,
subsidiary merger and merger of equals.
Managing Mergers & Acquisitions
Mergers and acquisitions can be carried out in either a friendly or a
hostile environment.
Friendly mergers and acquisitions are accomplished when the
stockholders and management of both organizations agree that the
combination will benefits both firms and the work together to ensure
its success.
Hostile (or, as they are frequently called, takeover) mergers
and acquisitions result when the organizations to be acquired (also
sometimes called the target company) resist the attempt. Several
methods are available for carrying out mergers and acquisitions:
One is, the tender offer, is well - publicized bid made by a corporation
to all or a prescribed amount of the stock of another organizations.
Another option for one company is to purchase stock of the target
organization in the open market.
The acquiring company can also purchase the assets of the target
company.
Finally, the two firms may agree to an exchange of stock.
Managing Mergers &
Acquisitions
Several factors need to be avoided to
ensure a successful merger or acquisition.
These factors include:
1. Paying to much
2. Straying too far a field
3. Marrying disparate corporate cultures
4. Counting on key managers staying
5. Assuming that a boom market will not crash
6. Leaping before looking
7. Swallowing too large company
MERGERS AND ACQUISITIONS AND
STRATEGICMANAGEMENT
Initially, that is in the past decades mergers and acquisitions were merely
financial transactions aiming to control undervalued assets and the
target was an industry or business very different from the acquirers core
business. Cash flows merely sufficient for debt repayment was the main
goal. Mergers and acquisitions in recent times are very different.
Today, the typical merger or acquisition is quite strategic and operational
in nature. This implies that today, managers are not just buying
undervalued assets as discussed above but what they are buying are
installed customer bases, better distribution channels, greater
geographical boundaries, organizational competencies and a variety of
new talent.
All of these acquired factors in turn offer more strategic opportunities to
organizations so that they can gain an edge over their competitors
products and services. Such organizations are successful in consolidating
business units in an attempt to maximize revenues and share prices.
Therefore, Strategic Planning has long been emphasized by
organizations as an important tool leading to business success.
THE IMPORTANCE OF MERGERS AND
ACQUISITIONS
1. Mergers and acquisitions generally referred to as M&A are a
very important means whereby companies respond to the ever-
changing strategic environment.
2. Simply put when organizations have no chance of survival they
give themselves a last chance by merging or by being acquired.
3. The basic goal of businesses in todays world is to grow or
death is destined for you. Companies that are successful that is
those companies that are growing will snatch market share
from their competitors, will generate high economic profits and
provide reasonable returns to shareholders. On the other hand
companies that experience stagnant growth lose both their
customers and market share in addition to destroying
shareholder value. Mergers and acquisitions (M&A) play a
critical role in both sides of this cycle.
THE IMPORTANCE OF MERGERS AND
ACQUISITIONS
4. Mergers and acquisitions enable successful companies to
grow faster than their competition by combining the strengths
of the companies that have merged. On the other hand, they
lead to total extinction of the weaker companies by having
them acquired by other large and successful companies.
5. Mergers and acquisitions are a vital part of any healthy
economy and importantly, the primary way that companies are
able to provide returns to owners and investors. and also that
Merger and acquisitions are among the most powerful and
versatile growth tools employed by companies of all sizes and
in all industries.
6. This also signifies the importance of mergers and
acquisitions in that they are highly efficient growth tools
employed by organizations of all sizes and virtually in all
industries. This depicts as M&As being a global trend.
The Reasons behind Mergers and
Acquisitions
Companies and businesses use mergers and acquisitions for
many reasons. Some are mentioned below:
1. Mergers and acquisitions can pave ways for entering new markets,
Adding new product lines and increasing the distribution reachthat is
gaining a core competence to do more combinations.
2. Mergers and acquisitions are used to increase / enhance shareholder
value. This is done by:
. Cost reductions that are achieved by combining departments,
operations, and trimming the
. Workforce this cost reduction in turn leads to increased profitability.
. Increasing revenue by absorbing a major competitor and thereby
increasing market share.
. Cross-selling of products / services
. Tax savings that are achieved when a profitable company merges with
or takes over a money loser.
. Diversification that can stabilize earnings and boost investor
confidence.
The Reasons behind Mergers and
Acquisitions
3. Some mergers and acquisitions take place when
management of any business recognizes the need to
transform corporate identity.
4. Mergers and acquisitions are also used for risk
spreading
5. Acquisitions are undertaken to achieve vertical
and horizontal operational synergies where synergies
signify that the whole is greater than the parts.
6. Some mergers and acquisitions take place for
market dominance and reaching economies of scale.
Rationale behind Mergers and
Acquisitions
There are many rationales that determine the nature of a
proposed merger or acquisition. They are discussed as follows:
1. Strategic Rationale: To achieve a set of strategic objectives, the
strategic rationale plays an important role. Mergers and acquisitions
are usually not central to achieve strategic objectives, as usually there
are other alternatives available. A merger to secure control of capacity
in the chosen sector is an example.
2. Speculative Rationale: This rationale takes place when the
acquirer takes the acquired organization as a commodity. The
organization only will acquire another if it feels that it is a potential
target and that it could benefit from this acquisition. A major risk in
this type of acquisition is that the acquirer can do anything with the
other organization which is acquired. It could either split it up or sell it
in parts. The speculative rationale is very much vulnerable to changes
happening in the environment.
Rationale behind Mergers and
Acquisitions
3. Management Failure Rationale: Sometimes, mergers and
acquisitions may be forced due to failure on the managements side.
Strategies might me wrongfully aligned or market conditions may
change significantly while implementing the timescale. The result may
be that the initial strategy becomes misaligned.
4. Political Rationale: In todays world, the impact of political
influences is becoming increasingly significant with respect to mergers
and acquisitions. Mergers under this rationale usually take place on
governmental levels.
5. Business Redefining Rationale: Business redefinition is
sometimes possible through mergers and acquisitions. This is an
appropriate strategic rationale when an organizations mission and
vision grow stale due to for example, a major technological change.
When this is the case, the organization cannot immediately update its
technology by internal investments so the organization seeks to
acquire to redefine its business.
Life Cycle of Mergers and
Acquisitions
1. Almost all mergers and acquisitions begin with the inception phase. In this
phase, the process is initiated by the senior managers of the organization.
2. This step is usually followed by the feasibility stage where the financial and
land logistics area is analyzed. The merger or acquisition may be taking place for
the improvement of the financial position and market value. The feasibility phase
includes a detailed analysis of the financial characteristics of the proposed
merger while considering timescales, synergy generation and other variables.
3. During some point or towards the end of the feasibility phase, a proper
decision is made on how to take things to the next level. At this point, the
organization commits its self to the merger or acquisition and starts allocating
the funds and resources as needed.
4. The next phase is known as the pre-merger phase and it starts immediately
after the commitment to proceed. In this phase, the senior managers of both the
organizations enter into negotiations to form a structure of the new combined
organization. The services of external professional consultants are also needed in
this phase. After the negotiations are made, The deal takes form of a merger.
The contract sets out the rights, duties and obligations of both the organizations
under the terms of the deal. As soon as the contract is in place, the
implementation process begins. This process includes the mechanics of actually
making the merger happen.
Life Cycle of Mergers and Acquisitions
Stages involved in any M&A
Phase 1: Pre-acquisition review: this would include self assessment of the

acquiring company with regards to the need for M&A, ascertain the valuation
(undervalued is the key) and chalk out the growth plan through the target.
Phase 2: Search and screen targets: This would include searching for the
possible apt takeover candidates. This process is mainly to scan for a good
strategic fit for the acquiring company.
Phase 3: Investigate and valuation of the target: Once the appropriate

company is shortlisted through primary screening, detailed analysis of the
target company has to be done. This is also referred to as due diligence.
Phase 4: Acquire the target through negotiations: Once the target

company is selected, the next step is to start negotiations to come to
consensus for a negotiated merger or a bear hug. This brings both the
companies to agree mutually to the deal for the long term working of the
M&A.
Phase 5:Post merger integration: If all the above steps fall in place, there
is a formal announcement of the agreement of merger by both the
participating companies.
Reasons for the failure of M&A - Analyzed during the
stages of M&A
Poor strategic fit: Wide difference in objectives
and strategies of the company
Poorly managed Integration: Integration is often

poorly managed without planning and design. This
leads to failure of implementation
Incomplete due diligence: Inadequate due

diligence can lead to failure of M&A as it is the crux
of the entire strategy
Overly optimistic: Too optimistic projections about

the target company leads to bad decisions and
failure of the M&A
Recent Examples of M&A
IMPORTANT TACTICS FOR MERGERS AND ACQUISITIONS
There are five overarching areas that all CEOs and

strategists should address to ensure a successful
M&A journey:
1. Internal capabilities: The process of assessing and
integrating of a target company should be carried by a
business development team.
2. Strategic goals and alignment: It is very important
to evaluate a companys strategic and financial goals
determining if they can be achieved faster or more easily
via organic growth or an acquisition.
3. Selection criteria: Selection should be based on
post-acquisition market share, cost reduction and synergy
opportunities. Flexibility should be maintained as criteria
in one industry may not apply to another.
4. Target selection: The target selection process needs
to be carried out quickly keeping in mind that it should be
explicit and transparent.
Strategic Alliances
Strategic Alliances are agreements among
firms in which each commits resources to
achieve a common set of objectives.
Companies may form Strategic Alliances with
a wide variety of players: customers,
suppliers, competitors, universities or
divisions of government. Through Strategic
Alliances, companies can improve competitive
positioning, gain entry to new markets,
supplement critical skills and share the risk or
cost of major development projects.
How Strategic Alliances work
To form a Strategic Alliance, companies

should:
Define their business vision and strategy in order
to understand how an alliance fits their objectives
Evaluate and select potential partners based on
the level of synergy and the ability of the firms to
work together
Develop a working relationship and mutual
recognition of opportunities with the prospective
partner
Negotiate and implement a formal agreement
that includes systems to monitor performance
Why Strategic Alliance?
Companies use Strategic Alliances to:
1. Reduce costs through economies of scale
or increased knowledge
2. Increase access to new technology
3. Inhibit competitors
4. Enter new markets
5. Reduce cycle time
6. Improve research and development
efforts
7. Improve quality

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UNIT-III & IV

Corporate, Business &

Achieving Superior Efficiency

Green-Field Development: If a company doesnt want to purchase another

Portfolio analysis is commonly used in strategy

Essentially, combination strategies are a mixture of stability, expansion

Restructuring is a popular term and is used

Strategy formulation and implementation can be

3. Translating General Objectives into Specific Objectives - The top

Schwartz and Davis suggest four specific

2. Organise these statement about the firms culture in

Ability to persuade others to do things for the good of

It is useful to shortlist the qualities and skills for effective

The implementation of strategy requires

Changes in strategy often require changes in the way

2. The second major reason why changes in strategy

Stage IV : Strategic Business Unit (SBU): The SBU

The purpose of identifying the companys strategic business units is to

The purpose of strategic evaluation and control is to ensure

3. Guide to operations : Evaluation and control guides the

6. Motivates employees : Employees are aware that their

These balanced scorecard processes promote better results from the

1. It articulates the vision. The holistic vision is communicated to the entire

3. The balanced scorecard facilitates strategy review. Instead of using

The balanced scorecard facilitates an organization's plan to align management

Concentric merges or acquisitions are the combining of two or

Vertical merges or acquisitions are the combining of two or

Conglomerate mergers or acquisitions involve the combining

2. Other reason for merging with or acquiring another

1. Financial synergy for lower cost of capital

2. Improving company's performance and accelerate growth

4. Diversification for higher growth products or markets

5. To increase market share and positioning giving broader market access

6. Strategic realignment and technological change

8. Under valued target

by purchasing common shares

by exchange of shares for assets

by exchanging shares for shares

Phase 1: Pre-acquisition review: this would include self assessment of the

Phase 3: Investigate and valuation of the target: Once the appropriate

Phase 4: Acquire the target through negotiations: Once the target

Poorly managed Integration: Integration is often

Incomplete due diligence: Inadequate due

Overly optimistic: Too optimistic projections about

There are five overarching areas that all CEOs and

To form a Strategic Alliance, companies

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