CENTRE FOR CONTINUING EDUCATION

EXECUTIVE MBA
(OIL & GAS MANAGEMENT)
ASSIGNMENT - 1
BATCH:

2011 JAN

SEMESTER:

4th SEMESTER

NAME:

ROLL NO:

__

ASSIGNMENT
FOR
Business Policy and Strategy
MBCG 743

UNIVERSITY OF PETROLEUM & ENERGY

STUDIES

SECTION-A
ATTEMPT ANY FOUR QUESTIONS FROM Q1 TO Q6. [4 x 5 = 20 Marks]
Q1. What are the unique features and attributes of a project?
A resource that can only be in use by at most one process at any one time. A common example is a
section of code that deals with the allocation or release of a shared resource, where it is imperative that
no more than one process at a time is allowed to alter the data that defines which processes have been
allocated parts of the resource.
Where several asynchronous processes are required to coordinate their access to a critical resource,
they do so by controlled access to a semaphore. A process wishing to access the resource issues a P
operation that inspects the value of the semaphore; the value indicates whether or not any other process
has access to the critical resource. If some other process is using the resource then the process issuing
the P operation will be suspended. A process issues a V operation when it has finished using the critical
resource. The V operation can never cause suspension of the issuing process but by operating on the
value of the semaphore may allow some other cooperating process to commence operation.
Critical path analysis or critical path method is a project management technique used to predict project
duration and, therefore, is useful for both project scheduling and resource planning. The Critical path
represents the sequence of tasks or events that directly impact project completing. Project managers can
shorten or at the least control a project's schedule by focusing on critical path tasks. This is referred to as
critical path management. Critical path depends on allocation of Critical resources.
Understanding the critical path sequence provides you with information on where you have flexibility and
where you do not. On every project there are activities or tasks that have flexibility. The task can start
earlier or later without jeopardizing the completion date. The flexibility between the earliest time that an
activity can be completed and the latest time that it must be completed is referred to as float. By
definition if an activity has float it is not on the critical path.
If your project falls behind schedule you will not want to assign additional resources to non-critical
activities, as this will not result in the project completing earlier. Critical path analysis identifies the tasks
that are dependent upon one another. When the dependent tasks times are added together, you can
predict the longest time necessary to complete the project, which is the critical path. To estimate overall
project duration it is important to know the tasks that can happen independently of one another and
those that must be done in a certain sequence. Therefore, the critical path is the longest sequence of
activities with zero float. If an activity on the critical path is late the entire project will be delayed.

For example, assume that a project is 10 months long. After scheduling the work, you identify the critical
path. There are 15 activities in the critical path of various durations and effort hours. The third activity on
the critical path was estimated to be completed in five days but actually took nine. The project will now
take 10 months and 4 days to complete. Delaying the activity by 4 days caused the entire project
deadline to go over by 4 days.
02. Team hiring
Today's world big challenge - hiring and retaining the torrent of skilled people needed to keep your
organization going. So what can you do to succeed in this challenge; other than worry, complain a lot,
and frantically spend money and time? One approach relies on the belief that HR can't do it all alone,
that the people who are actually going to use new recruits better be involved in the hiring process from
start to finish.
Structuring the Team
One of the most unusual aspects of approach is the structure of the team. At Rapid forms 5-6 people are
assigned to each new hire team. These will include the manager to whom the person will report, several
peers, perhaps even a subordinate or two of the new hire. It might include other managers or someone
from HR. This flexible approach has many benefits. First, there is a lot more energy in a group - five or
six people can accomplish a lot more than one. The judgment of a group helps make more informed and
balanced decisions. And, in this day of changing work assignments, having many managers buy in to the
hiring decision makes for better success in the long term. That's because in six months the new hire
might end up working for a different manager, and chances are that relation will be more successful if the
new boss is someone who was part of the original hiring team.
Problems... and Solutions
Consider all these problems, and how the team approach can help. First, finding the right candidates.
One manager or a stretched out HR department often just doesn't have the resources to explore all the
avenues to find enough qualified candidates. A big challenge is to identify prospects that aren't looking.
Enter the group solution: working together, the group can brainstorm new avenues, expand the network
to find more candidates, and generally put more energy into finding a big enough pool of the right people.
Job criteria essential
A critical part of the team hiring process at Rapid forms is the development of the key criteria essential to
success in the job, along with a solid job description. These people are used to working for and with the
folks who are going to be in these positions, and they know what it takes to be successful. By
brainstorming together they are able to pin down the qualifications and aptitudes that are likely to result
in a successful hire. And as we shall see, this group commitment to these criteria has another big payoff.
Interviewing and evaluation by the group

First all the team interviews the prospective candidates, either individually or in groups. The candidates
have been examined from many perspectives, and through that process the advantages and
disadvantages they offer as a new hire become apparent. Then, to decide who is going to be given an
offer, the team meets to critically examine each candidate. A critical step is to discuss how each one
stacks up against the list of attributes the team agreed were essential to success. The group process
ensures that hidden biases and missed signals emerge, and the best candidate is selected.
Selling and orientation
The team approach keeps paying dividends after the final selection is made. That's because these days
making an offer to a terrific candidate is hardly the end of the process. Even after the candidate accepts,
the team's job continues. Rapid forms has it set up so the team is responsible for helping orient, coach
and buddy up with new hires. The company has found this helps insure that new employees get off to a
good start and resolve early problems - getting through the first few months without problems usually
guarantees long-term retention.
04. Mission statement.
A mission statement is a statement of the purpose of a company or organization, its reason for existing.
The mission statement should guide the actions of the organization, spell out its overall goal, provide a
path, and guide decision-making. It provides "the framework or context within which the company's
strategies are formulated." Effective mission statements start by cogently articulating the organization's
purpose.
Mission statements often include the following information:

Aim(s) of the organization

The organization's primary stakeholders: clients/customers, shareholders, congregation, etc.

How the organization provides value to these stakeholders, for example by offering specific types
of products and/or services

A declaration of an organization's sole core purpose. A mission statement answers the question,
"Why do we exist?"

According to Bart, the commercial mission statement consists of 3 essential components:

1. Key market who is your target client/customer? (generalize if needed)
2. Contribution what product or service do you provide to that client?
3. Distinction what makes your product or service unique, so that the client would choose you?
Examples of mission statements that clearly include the 3 essential components:
For example:

McDonalds - "To provide the fast food customer food prepared in the same high-quality manner
world-wide that is tasty, reasonably-priced & delivered consistently in a low-key dcor and friendly
atmosphere.
o

Key Market: The fast food customer world-wide

Contribution: tasty and reasonably-priced food prepared in a high-quality manner

Distinction: delivered consistently (world-wide) in a low-key dcor and friendly

atmosphere.

Courtyard by Marriott - "To provide economy and quality minded travelers with a premier,
moderate priced lodging facility which is consistently perceived as clean, comfortable, wellmaintained, and attractive, staffed by friendly, attentive and efficient people"
o

Key Market: economy and quality minded travelers

Contribution: moderate priced lodging

Distinction: consistently perceived as clean, comfortable, well-maintained, and attractive,

staffed by friendly, attentive and efficient people

The mission statement can be used to resolve trade-offs between different business stakeholders.
Stakeholders include: managers & executives, non-management employees, shareholders, board of
directors, customers, suppliers, distributors, creditors/bankers, governments (local, state, federal, etc.),
labor unions, competitors, NGOs, and the community or general public. By definition, stakeholders affect
or are affected by the organization's decisions and activities.
According to Vern McGinis, a mission should:

Define what the company is

Limited to exclude some ventures

Broad enough to allow for creative growth

Distinguish the company from all others

Serve as framework to evaluate current activities

Stated clearly so that it is understood by all

A mission statement defines in a paragraph or so any entity's reason for existence. It embodies
its philosophies, goals, ambitions and mores. Any entity that attempts to operate without a
mission statement runs the risk of wandering through the world without having the ability to
verify that it is on its intended course.
It is our hope that the mission statements that we've collected from some of the world's largest
and smallest organizations and families will provide you with ideas and inspirations for defining
your own mission statement

05. Core competencies.

A unique ability that a company acquires from its founders or develops and that cannot be easily
imitated. Core competencies are what give a company one or more competitive advantages,
in creating and delivering value to its customers in its chosen field. Also called core
capabilities or distinctive competencies.
Core competencies are those capabilities that are critical to a business achieving competitive
advantage. The starting point for analyzing core competencies is recognizing that
competition between businesses is as much a race for competence mastery as it is for
market position and market power. Senior management cannot focus on all activities of a
business and the competencies required to undertake them. So the goal is for management
to focus attention on competencies that really affect competitive advantage.
The Work of Hamel and Prahalad
The main ideas about Core Competencies were developed by C K Prahalad and G Hamel through a
series of articles in the Harvard Business Review followed by a best-selling book - Competing for the
Future. Their central idea was that over time companies may develop key areas of expertise which are
distinctive to that company and critical to the company's long term growth.
'In the 1990s managers will be judged on their ability to identify, cultivate, and exploit
the core competencies that make growth possible - indeed, they'll have to rethink the
concept of the corporation itself.' C K Prahalad and G Hamel 1990
These areas of expertise may be in any area but are most likely to develop in the critical, central areas of
the company where the most value is added to its products.
For example, for a manufacturer of electronic equipment, key areas of expertise could be in the design of
the electronic components and circuits. For a ceramics manufacturer, they could be the routines and
processes at the heart of the production process. For a software company the key skills may be in the
overall simplicity and utility of the program for users or alternatively in the high quality of software code
writing they have achieved.
Core Competencies are not seen as being fixed. Core Competencies should change in response to
changes in the company's environment. They are flexible and evolve over time. As a business evolves
and adapts to new circumstances and opportunities, so its Core Competencies will have to adapt and
change.
Identifying Core Competencies
Prahalad and Hamel suggest three factors to help identify core competencies in any business:
What does the Core Comments / Examples

Competence Achieve?
Provides
potential

The key core competencies here are those that enable the creation of new

access

products and services.

to

wide

variety of markets

Example: Why has Saga established such a strong leadership in

supplying financial services (e.g. insurance) and holidays to the older
generation?
Core Competencies that enable Saga to enter apparently different
markets:
- Clear distinctive brand proposition that focuses solely on a closelydefined customer group
- Leading direct marketing skills - database management; direct-mailing
campaigns; call centre sales conversion

Makes

significant

contribution

the

fundamental customer benefit - in other words: what is it that causes

customer

customers to choose one product over another? To identify core competencies

benefits of the end

in a particular market, ask questions such as "why is the customer willing to

product

pay more or less for one product or service than another?" "What is a

perceived

to

- Skills in customer relationship management

Core competencies are the skills that enable a business to deliver a

customer actually paying for?

Example: Why have Tesco been so successful in capturing leadership of
the market for online grocery shopping?
Core competencies that mean customers value the Tesco.com experience so
highly:
- Designing and implementing supply systems that effectively link existing
shops with the Tesco.com web site
- Ability to design and deliver a "customer interface" that personalizes online
shopping and makes it more efficient
- Reliable and efficient delivery infrastructure (product picking, distribution,
Difficult

for

competitors to imitate

customer satisfaction handling)

A core competence should be "competitively unique": In many industries,
most skills can be considered a prerequisite for participation and do not
provide any significant competitor differentiation. To qualify as "core", a
competence should be something that other competitors wish they had within
their own business.
Example: Why does Dell have such a strong position in the personal
computer market?
Core competencies that are difficult for the competition to imitate:

- Online customer "bespoking" of each computer built

- Minimization of working capital in the production process
- High manufacturing and distribution quality - reliable products at competitive
prices
A competence which is central to the business's operations but which is not exceptional in some way
should not be considered as a core competence, as it will not differentiate the business from any
other similar businesses. For example, a process which uses common computer components and is
staffed by people with only basic training cannot be regarded as a core competence. Such a process is
highly unlikely to generate a differentiated advantage over rival businesses. However it is possible to
develop such a process into a core competence with suitable investment in equipment and training.

It follows from the concept of Core Competencies that resources that are standardized or easily available
will not enable a business to achieve a competitive advantage over rivals.

Section B
Answer any THREE of the following. (3 X 10)

01. Strategy formulation, implementation and evaluation are not separate water tight
compartments. Justify.
02. Define Information Systems.
Information systems (IS) is the study of complementary networks of hardware and software that people
and organizations use to collect, filter, process, create, and distribute data.[1][2][3][4] The study bridges
business and computer science using the theoretical foundations of information and computation to
study various business models and related algorithmic processes within a computer science discipline.
Computer Information System(s) (CIS) is a field studying computers and algorithmic processes, including
their principles, their software and hardware designs, their applications, and their impact on society while
IS emphasizes functionality over design.
The history of information systems coincides with the history of computer science that began long before
the modern discipline of computer science emerged in the twentieth century. Regarding the circulation of
information and ideas, numerous legacy information systems still exist today that are continuously
updated to promote ethnographic approaches, to ensure data integrity, and to improve the social
effectiveness & efficiency of the whole process. In general, information systems are focused upon
processing information within organizations, especially within business enterprises, and sharing the
benefits with modern society.

Overview
Silver et al. (1995) provided two views on (IS) and IS-centered view that includes software, hardware,
data, people, and procedures. A second managerial view includes people, business processes and
Information Systems.
There are various types of information systems, for example: transaction processing systems, office
systems, decision support systems, knowledge management systems, database management systems,
and office information systems. Critical to most information systems are information technologies, which
are typically designed to enable humans to perform tasks for which the human brain is not well suited,
such as: handling large amounts of information, performing complex calculations, and controlling many
simultaneous processes.

The Impact on Economic Models

Microeconomic theory model

Transaction cost theory

Agency Theory

Differentiating IS from Related Disciplines

Information Systems relationship to Information Technology, Computer Science, Information Science,

and Business. Similar to computer science, other disciplines can be seen as both related disciplines and
foundation disciplines of IS. The domain of study of IS involves the study of theories and practices
related to the social and technological phenomena, which determine the development, use and effects of
information systems in organizations and society. But, while there may be considerable overlap of the
disciplines at the boundaries, the disciplines are still differentiated by the focus, purpose and orientation
of their activities.
In a broad scope, the term Information Systems (IS) is a scientific field of study that addresses the
range of strategic, managerial and operational activities involved in the gathering, processing, storing,
distributing and use of information, and its associated technologies, in society and organizations. The
term information systems is also used to describe an organizational function that applies IS knowledge in
industry, government agencies and not-for-profit organizations. Information Systems often refers to the
interaction between algorithmic processes and technology. This interaction can occur within or across
organizational boundaries. An information system is not only the technology an organization uses, but
also the way in which the organizations interact with the technology and the way in which the technology
works with the organizations business processes. Information systems are distinct from information

technology (IT) in that an information system has an information technology component that interacts
with the processes components.
Types of information systems

A four level pyramid model of different types of Information Systems based on the different levels of
hierarchy in an organization
The 'classic' view of Information systems found in the textbooks of the 1980s was of a pyramid of
systems that reflected the hierarchy of the organization, usually transaction processing systems at the
bottom of the pyramid, followed by management information systems, decision support systems and
ending with executive information systems at the top. Although the pyramid model remains useful, since
it was first formulated a number of new technologies have been developed and new categories of
information systems have emerged, some of which no longer fit easily into the original pyramid model.
the major role of the management of the plan.
Some examples of such systems are:

data warehouses

enterprise resource planning

enterprise systems

expert systems

geographic information system

global information system

Office automation.

Information systems career pathways

Information Systems have a number of different areas of work:

Information systems strategy

Information systems management

Information systems development

Information systems

Information systems iteration

Information system organization

There are a wide variety of career paths in the information systems discipline. "Workers with specialized
technical knowledge and strong communications skills will have the best prospects. Workers with
management skills and an understanding of business practices and principles will have excellent
opportunities, as companies are increasingly looking to technology to drive their revenue."
Information systems development
Information technology departments in larger organizations tend to strongly influence information
technology development, use, and application in the organizations, which may be a business or
corporation. A series of methodologies and processes can be used in order to develop and use an
information system. Many developers have turned and used a more engineering approach such as the
System Development Life Cycle (SDLC) which is a systematic procedure of developing an information
system through stages that occur in sequence. An Information system can be developed in house (within
the organization) or outsourced. This can be accomplished by outsourcing certain components or the
entire system.[32] A specific case is the geographical distribution of the development team (Offshoring,
Global Information System).
A computer based information system, following a definition of Langefors, is:

a technologically implemented medium for recording, storing, and disseminating linguistic

expressions,

As well as for drawing conclusions from such expressions.

This can be formulated as a generalized information systems design mathematical program.

Geographic Information Systems, Land Information systems and Disaster Information Systems are also
some of the emerging information systems but they can be broadly considered as Spatial Information
Systems. System development is done in stages which include:

Problem recognition and specification

Information gathering

Requirements specification for the new system

System design

System construction

System implementation

Review and maintenance.

Information systems research

Information systems research is generally interdisciplinary concerned with the study of the effects of
information systems on the behavior of individuals, groups, and organizations. Hevner et al. (2004)
categorized research in IS into two scientific paradigms including behavioral science which is to develop
and verify theories that explain or predict human or organizational behavior and design science which
extends the boundaries of human and organizational capabilities by creating new and innovative
artifacts.
Salvatore March and Gerald Smith proposed a framework for researching different aspects of
Information Technology including outputs of the research (research outputs) and activities to carry out
this research (research activities). They identified research outputs as follows:
1. Constructs which are concepts that form the vocabulary of a domain. They constitute a
conceptualization used to describe problems within the domain and to specify their solutions.
2. A model which is a set of propositions or statements expressing relationships among constructs.
3. A method which is a set of steps (an algorithm or guideline) used to perform a task. Methods are
based on a set of underlying constructs and a representation (model) of the solution space.
4. An instantiation is the realization of an artifact in its environment.
Also research activities including:
1. Build an artifact to perform a specific task.
2. Evaluate the artifact to determine if any progress has been achieved.
3. Given an artifact whose performance has been evaluated, it is important to determine why and
how the artifact worked or did not work within its environment. Therefore theorize and justify
theories about IT artifacts.
Although Information Systems as a discipline has been evolving for over 30 years now, the core focus or
identity of IS research is still subject to debate among scholars such as. There are two main views
around this debate: a narrow view focusing on the IT artifact as the core subject matter of IS research,
and a broad view that focuses on the interplay between social and technical aspects of IT that is
embedded into a dynamic evolving context.[43] A third view provided by

[44]

calling IS scholars to take a

balanced attention for both the IT artifact and its context.

Since information systems is an applied field, industry practitioners expect information systems research
to generate findings that are immediately applicable in practice. However, that is not always the case.
Often information systems researchers explore behavioral issues in much more depth than practitioners

would expect them to do. This may render information systems research results difficult to understand,
and has led to criticism.
To study an information system itself, rather than its effects, information systems models are used, such
as EATPUT. The international body of Information Systems researchers, the Association for Information
Systems (AIS), and its Senior Scholars Forum Subcommittee on Journals, proposed a 'basket' of
journals that the AIS deems as 'excellent', and nominated: Management Information Systems Quarterly
(MISQ), Information Systems Research (ISR), Journal of the Association for Information Systems (JAIS),
Journal of Management Information Systems (JMIS), European Journal of Information Systems (EJIS),
and Information Systems Journal (ISJ).
A number of annual information systems conferences are run in various parts of the world, the majority of
which are peer reviewed. The AIS directly runs the International Conference on Information Systems
(ICIS) and the Americas Conference on Information Systems (AMCIS), while AIS affiliated conferences
include the Pacific Asia Conference on Information Systems (PACIS), European Conference on
Information Systems (ECIS), the Mediterranean Conference on Information Systems (MCIS), the
International Conference on Information Resources Management (Conf-IRM) and the Wuhan
International Conference on E-Business (WHICEB). AIS chapter conferences include Australasian
Conference on Information Systems (ACIS), Information Systems Research Conference in Scandinavia
(IRIS), Conference of the Italian Chapter of AIS (itAIS), Annual Mid-Western AIS Conference (MWAIS)
and Annual Conference of the Southern AIS (SAIS).

03. As company gets bigger, it must not only change the way it operates; it must also put ahead
its time horizon. Elaborate
Not all decisions made within an organization contribute equally to its strategy at all time. A strategic
decision should be changed accordingly time and company growth. A strategic decision can be
distinguished from other types of decision in three ways:
o

Magnitude

Strategic decisions are big decisions. They affect an entire organization or a large part of it, such as a
whole division or a major function. And they entail a signicant degree of interaction with the world
around itthe organizations competitors, suppliers, and customers.
o

Time-scale

Strategic decisions set the direction for the organization over the medium to long term. But they will have
a short-term impact as wellthe medium term may nish in several years time, but it starts at the end of
this sentence! What constitutes medium or long term will depend on the organization and the industries

in which it operates. In a fast-moving industry, such as computer software or consumer goods, 18

months may be a long time to think ahead. In capital goods industries like electricity generation or oil
production, where new facilities take several years to plan and bring on stream, 1015 years may be a
realistic time horizon. It is helpful to measure time-scales in terms of product life-cycles, with the short
term being one product life-cycle and the medium term two. For most industries, this gives a time horizon
for the strategist of around 35 years.
o

Commitment

Strategic decisions involve making choices, and committing resources in ways that cannot be reversed
cheaply or easily. This may mean investing large amounts of money in buildings or high-prole, longterm, marketing campaigns, or large amounts of management time in changing the way an organization
operates.
It is not always easy to tell what is and what not a strategic decision is. When a clothing company
launches a new line of clothing, as H&M did when it started a new designer brand in conjunction with
Madonna that is not necessarily a strategic decision. Companies like H&M launch new product ranges all
the time, and are not surprised if some of them do not nd favour with the customer. The investment in
advertising and new manufacturing skills may be tens of thousands of euros, but this may be small
change to a rm like H&M. The failure of that one product is unlikely seriously to affect its prots or future
viability. This is a short-term decision requiring little commitment.
However, for a relatively small clothing company with only one established line of products, as H&M was
in 1968, launching itself into the mens and childrens clothing markets certainly was a strategic decision.
In absolute terms, the smaller rm might have spent less on these new product launches than H&M
would today on its product extension. But, measured in relation to the size of the rm, the degree of
impact of commitment is far higher.
Similarly, when an aircraft manufacturer such as Airbus or Boeing decides to launch a new product, that
is a strategic decision. The investment in design, new manufacturing facilities and marketing will be
millions of euros or dollars. The product will be expected to make returns over ten years or morethe
Boeing 747 has been in service for over thirty years. If this type of product fails in the market-place, it will
hit the organizations reputation as well as its nancial security. Customers, banks, and shareholders
may start to have doubts about the future of the company, which will affect the sales of their other
products, and also their ability to raise funds. So, these are examples of long-term, high-commitment
decisions.
Deliberate, emergent, imposed, and realized strategies

A strategy is something thought out in advance by a chief executive and his or her top management
team, and passed down the organization for carefully planned implementation. After all, the word
strategy is derived from the Greek term strategos, meaning a carefully formulated military style plan of
campaign. Deliberate, planned, or intentional strategies of this kind occur in organizations as well. But,
there has been increasing recognition that strategic direction of the whole organization can be shaped by
opportunistic decisions that can happen at any level in the organization. These have been termed
emergent strategies.
There are two signicant problems with the deliberate/planned view of strategy development:
Not all the strategies that the top team wants to happen will happen in practice. Products may not sell
because of changing customer tastes; economies may go into recession; and political environments
can change suddenly.
The strategies that are actually implemented are often not those that are developed through the
planning processes.
And sometimes the strategies that an organization adopts are not what it would have wanted to do itself,
but have been forced on it. Strategies that are decided on in advance by the leadership of the
organization are intended strategies. Those that are put into operation are deliberate strategies.
For example, H&Ms expansion into new geographical markets has happened in a systematic and
deliberate way, and its move into the cosmetics business was clearly an intentional one. These were
deliberate strategies that were carefully planned in advance.
Those intended or deliberate strategies that do not happen become unrealized strategies. Strategies
which are not intentionally planned, and which can come about from lower levels in an organization, are
emergent strategies. For example, an enterprising salesperson may discover that a product that is
intended to be sold to schools is also attractive to banks or hospitals, and passes this information on to
some of his colleagues. This is recognized
to be a good idea, and as a result the rm ends up entering the nancial services or medical markets.
New strategies can also be the unintended consequences of organizational policies such as control or
rewards systems. For example, if branch managers are given prot targets and start to cut corners on
quality, then the company may accidentally move down-market.

As company gets bigger, different strategy needs to be used as per it way operate including
consideration of Time horizon. Different strategy modes as per different time horizon have been
discussed in below table.

How strategy happens

Studies of how organizations actually go about developing and implementing strategies have now, in
Europe particularly, developed into a major stream of research relating to micro-strategy and strategy as
practice. Researchers have identied several modes of strategy-making, summarized in Table. They also
found that few organizations were locked into a single way of strategizing: in most cases, a number of
modes tended to operate in parallel.

The rational mode

Perhaps the most traditional view on strategy is that of a rational, thought-out, planned process. Strategic
planning involves a process of analysis, the setting of goals and targets as a result, and the
measurement of performance outcomes against these. Analytical tools, many of which we shall cover in
this book, are used to identify suitable opportunities or problem areas that need to be tackled, leading
eventually to a nal selection of strategy. This style allows as much data as possible to be taken into
account when devising strategy. The organizations functional and geographic units will submit data on
their sales, costs, quality, and other important aspects of performance, alongside their assessment of
environmental conditions and future market prospects. Central planning units may add their own data
about key markets, and sometimes consultants will be asked to gather or collate the information.
9 There then follows a period of contemplation, discussion and negotiation between the team whose job
it is to write the plan and the operational managers who will be expected to implement it. Following this,
the new plan will be written and communicated to unit managers.
These strategic plans set out what the organization intends to achieve over, typically, a ve-year period.
They are often an important guide to what the senior management believe are the priorities for the
organization, and act as an aid to nancial planning and budgeting for large-scale projects.
Although planning processes like this are less fashionable than in the 1970s, many large rms or public
sector units still have planning departments, and almost all organizations will have some sort of strategic
or business plan that sets in place what they intend to do and how they will do it. Many strategy courses
and textbooks (including this one, even though we think that planning is not necessarily the most
important element in strategic management) implicitly or explicitly accept the importance of planning
techniques.
Strategic plans have a role in helping an organizations managers to make sense of what is happening
around them and plan for major items of expenditure, but they work best in predictable, stable
environments where things do not change much from one year to the next. They are often too bulky to be
used as a guide for managers in their day-to-day activities, and become out of date as soon as there is
any major unexpected development in the organization or its environment.
The command mode
Another traditionally important view of strategy, the command mode, focuses on the role of the leader or
top management team. The earliest thinkers on strategy took it for granted that strategy development
was the prerogative of the chief executive who would make a decision that had been evaluated against
alternatives in a rational manner, its outcomes assessed down to the last detail. In other words, they
assumed strategy-making was a combination of the command mode and the rational mode we
discussed in the previous section.

It is natural to expect top managers to play a signicant role in deciding, at least, what the overall
intended strategy ought to be, so that the command mode is likely to feature in many organizations. But
research shows that it is not just the chief executive and the top management team who shape strategy,
while many top managers spend very little time thinking about it (less than 10 per cent, by one estimate).
Much of senior managers time is devoted to other high-prole tasks, like communicating inside and
outside the organization, and solving operational problems. And not all leaders see it as their role to
make strategy. Some, for example, believe that if they focus on bringing the right people into the
organization, or on framing the right kinds of rules and values to help those people in their decisions, the
strategy will essentially take care of itself.
So the extent to which the command mode inuences strategic decision-making will depend upon the
nature of the rm, and the personality of the leader. In a small or a young rm, it would be usual for the
founding entrepreneurs to exert a dominant inuence on strategy, but this happens in larger rms as well.
In H&M the inuence of the founder remained strong until his recent death. Sometimes, when a rm is
drifting strategically, a new leader arrives who nds that he has to impose his strategic view in order to
turn the organization around, as did Michael Eisner when he became CEO of the Walt Disney Company
in 1984.
The symbolic mode
We showed in Section 1.6.4 how the people in an organization come over time to share a set of core
values. These values typically stem from, and are sustained by, the organizations 13 founder and
leaders, but may be much more widespread than this. In the symbolic mode of strategy-making, an
organization possesses clear and compelling values that are so widely shared that they exert a major
inuence over which strategies are adopted.
The name symbolic mode derives from the important role played by the symbols of these values: the
organizations vision and mission. Although the denitions of values, vision, and mission given here will
be recognizable to most managers, the three concepts overlap, and different authors use conicting
terminology. Americans James Collins and Jerry Porras, who are two of the most prolic writers in this
area, use vision as an overall term that encompasses mission and values. You may also encounter
other terms, such as strategic intent (for vision) and super ordinate goals (for core values).
Many organizations make great play of their mission and vision statements in their annual reports. Here
is a sample:
If an organizations mission, vision, and values are clear and inspiring, as is clearly the intention in the
statements reproduced above, they will help drive the organization forward by giving employees a shared

objective to which all can aspire. It also gives them a clear reference point for their decisions, both short
term and long term. This helps to avoid unnecessary costs that might arise if objectives were constantly
being renegotiated or if policies on products, service levels, customers, and markets were continually
being altered. This means that formal, written strategies become less necessarythe organization
progresses more or less spontaneously. And the organizations values in respect of ethics and social
responsibility will strongly inuence the extent to which employees act with honesty and compassion
when carrying out their work written rules and procedures are not sufficient to ensure this.
Many writers suggest that a strong sense of mission and corporate purpose is important for an
organizations success. However, if a rm develops a very strong sense of purpose, it paradoxically may
risk blinding itself to opportunities that are outside this remit.
The transactive mode
Next mode is very much about emergent strategy. In the transactive mode, the organization is feeling its
way forward, trying out different strategies to nd out what works best for it in its particular environment,
a process that has been described as logical incrementalism. This mode of strategy-making depends
crucially on input from lower-level and middle managers. They feed detailed technological and market
knowledge into the strategy process, and inuence top managers strategic thinking by making them
aware of issues that operational staff think are important. They also use their inuence to promote
proposals made by junior employees, perhaps to be adopted in a mainstream way when they are shown
to work on a smaller scale. Strategies built this way are often the result of employees sharing ideas and
practices among themselves, through the organizational and individual learning processes.
Henry Mintzberg wrote a number of articles in the 1990s in which he suggested that strategies developed
in this way were more likely to take root and succeed than those developed using rational planning
processes. However, more recent research has suggested that organizations benet from using both
modes: that planning leaves organizations better prepared to learn about their environment, and that
learning, in turn, feeds back into better plans.
The generative mode
In the transactive mode, strategic change comes about as the result of small, quite cautious moves.
Strategy-making in the generative mode, on the other hand, is characterized by more substantial,
innovative leaps that emerge spontaneously from all levels in the organization. For this mode to operate,
the organization must have a culture and architecture that foster innovation and corporate
entrepreneurship individuals acting, on the organizations behalf, as though they were entrepreneurs
working for themselves.

This means that strategy-making in the generative mode has a deliberate as well as an emergent
element. The deliberate part involves putting in place, and nurturing, the appropriate cultural norms and
the control and reward systems, so that employees feel able to pursue projects on their own initiative and
to take risks on the rms behalf without fearing punishment if those risks do not pay off. A number of
authors, including Tom Peters and Robert Waterman, have suggested that this form of strategy-making is
inherently superior to others, because of the degree of innovation that it stimulates.
Some theorists believe that, given the right culture and architecture, organizations can become selforganizing, resulting in a constant ow of innovative 19 competitive moves, while reducing the need for
costly monitoring and control structures. However, even highly innovative rms eventually need to get
down to the dull but important business of making and selling their innovative products in the most
efficient manner. For this, strategy-making in one of the other modes may be more appropriate.
Muddling through mode
This mode of strategy-making, like the transactive mode, involves the organization feeling its way
forward in small incremental steps, but here the driving force tends to be political manoeuvring by
powerful individuals and groups, who may be pursuing their own aims rather than those of the
organization. The use of power and inuence by stakeholders at all levels both inside and outside an
organization is what allows strategies to emerge, so that this mode of strategy-making is commonly
found alongside the others. Which ideas are adopted by the organization as a whole depends on
whether the person initiating the idea has the power to make others buy into it and take it up. A persons
power affects how many decisions they can take, or how much they can control a decision that someone
else takes, and therefore how important they are to the strategy development processes in an
organization.
All stakeholders in an organization have some degree of power, but some have more power than others.
Power often comes from factors such as the ability to do some critically important things better than other
people can, or control of access to funds or other vital resources, but it is often very closely associated
with authority. The most powerful people in most organizations tend to be the board of directors, the chief
executive, and the senior management team. However some peopleperhaps those with strong
personalities, or those who have been with the organization a long time, and have earned the respect of
othershave inuence over their colleagues even though they may have little formal authority.
Although power and politics are part of everyday life in most organizations, there are dangers if muddling
through becomes the dominant mode of strategy-making. In such cases, strategies tend to persist

unchanged for long periods, while power holders squabble over the correct direction to take.
Furthermore, the organization tends to look inwards, focusing on its own internal routines rather than the
outside world, so it may lose touch with its environment; Real-life Application provides an example.
Externally dependent mode
Outside stakeholders, such as governments or trades unions, also frequently have a degree of power
over an organization. In the externally dependent mode of strategy-making, this power is exerted,
resulting in the imposed strategies we discussed in section. It is quite commonly found alongside other
modes. Many public sector units, or organizations that receive a proportion of their income from public
sources, such as the orchestra described in Real-life Application, are subject to the control of
government agencies. Commercial organizations can also be limited in what they do, or may be forced to
do things they would not otherwise have done. British Airways is constrained by UK and European
legislation and by international treaties that dictate to some extent where it can y, as well as to what
extent it can collaborate with other airlines.
The externally dependent mode becomes particularly noticeable when the organizations environment is
unstable or hostile, reducing its scope for strategic manoeuvre. Legislation on greenhouse gas emissions
has forced some companies to restructure their manufacturing processes. Even competitors can
sometimes inuence matters. British Airways has had to respond to the low-price strategies of no-frills
competitors such as Ryanair, while Sony has needed to nd a response to competitors developments of
TVs with LCD and plasma screens.
04. Strategic management is not a single, simple action but a series of related decisions and
actions. Explain.
As organizations grow and sometimes diversify, the levels at which strategic decisions are taken can
multiply. When the first airlines started operating in the early days of flying, many would have had a
single plane, with a single person who might have been responsible for advertising the rms services,
piloting the aeroplane, and possibly servicing it as well. However, as the number of destinations and
passengers multiplied, and the technology became more complicated, the need arose for the different
specialized functions that can be seen in most modern airlines: ticketing, reservations, and marketing
staff to sell the services; specialist planners to schedule them; engineers to maintain them; aircrew to y
them; purchasing staff to obtain the food needed in-flight; finance staff to keep control of costs; human
resources specialists to make sure that appropriate staff are recruited and trained; IT specialists to run
the computing services, etc. Often these individuals work together in the same functional department.

For them, the strategic decisions that they take will be functional ones. But organizations also operate as
businesses, where all the functions act together to achieve a particular objective. Such decisions relate
to the types of customers that are served, or the geographical markets where the companys products
are sold. These are business level strategic decisions. Over time, businesses often diversify into different
areas; perhaps they develop a new type of product or move into a number of different geographical
areas, each of which may have the need for a slightly different type of management. Sometimes these
businesses are related to one another, sometimes they are not. Sometimes they are separate legal
entities, sometimes not. But when an organization has a range of different types of business within its
portfolio, its managers have to take decisions about how these businesses work together, and how many
and what sort of businesses should be in its portfolio. These are corporate level strategic decisions.
Functional-level strategy
Each of an organizations individual functions will have its own functional strategy. For example, British
Airways might have a marketing strategy to increase customer recognition of its Club World brand with
specific targets to be achieved over the next two years, or to increase direct mail activity to certain
market segments. A maintenance strategy might be to reduce the frequency of unplanned aircraft
breakdowns, again with specific targets to be achieved in a given time period.
Business-level strategy
A modern airline such as British Airways has all the functions outlined in Section 2.3, and more. The
crucial task of its managers is to knit these disparate groups of specialists together into a coherent whole
that delivers an all-round service to its customers. The planes must be ready to y at the scheduled time,
with motivated, helpful, and well-trained staff on board, serving palatable food in planes which are as full
as possible of fare-paying passengers. A failure by any one function, however remote from the user, can
lead to poor service and customer dissatisfaction: for example, an IT failure can lead to long check-in
queues. This linking together of different activities to add value to users is the essence of business level
strategy. Business-level strategies relate to:
o

Choosing which users an organization should serve and which services it should offer them. They
may decide to develop specialized outputs so as to focus on the needs of a small group or niche of
customers. Alternatively, they may opt for less specialized products that serve a larger, mass market,
hoping to gain economies of scale. They may choose to differentiate their products on the basis of a
low price relative to competitors or to offer levels of service or features that competing products do

not have;
obtaining inputs through an effective supply chain and then utilizing the organizations resources

within a value chain that delivers those services effectively and reasonably efficiently;
Developing an architecture that enables information to ow into, out of and around the organization,
to allow the value chain to function effectively and the organization to learn and adapt. A supply chain

is the way that the organization is congured to obtain the inputs it needs at the place and time that it
needs them to operate efficiently and effectively. For many organizations this requires close linkage
with the value chain of key suppliers, often extending to the development of common computer
systems that exchange information on the sales of specic products or ranges. For industries, such
as retailing or manufacturing, obtaining supplies quickly and reliably can be an important source of
competitive advantage. Contemporary theory places a lot of emphasis on business-level strategies,
since they determine how well an organization competes in its chosen markets (they are sometimes
referred to as competitive strategies).
Corporate-level strategy
Many organizations diversify their activities as they grow. They gather a portfolio of more or less related
businesses. Sony started off as a single business company which sold rice makers, voltmeters, and
other basic electronic products. It soon diversied into wireless, audio, and telecommunications
equipment, and has since steadily increased in size and scope. It now has ve main business areas
(electronics, games, music, pictures, and nancial services), and numerous subdivisions in each of
these.
A rm with a diverse portfolio of business units is referred to as a corporation, and it has an additional
level of strategies that do not relate directly to serving users in individual markets. These corporate-level
strategies, the uppermost level in Figure 2.2, relate mainly to establishing appropriate architectures,
looking at which businesses to enter and exit, and managing relationships between them. Each of the
businesses may be a signicant concern in its own right, pursuing its own business-level strategies.
However, resources may be shared across a number of businesses, and there may be common
elements in the different businesses architectures as a result of their common ownership.
Not all organizations diversify to the extent that they have or need corporate-level strategies. Some very
large rms, such as McDonalds, are essentially single businesses.
What makes for a good strategy
Organizations can have a number of reasons for existing and what types of strategy are chosen will
depend on the organizations key stakeholders objectives. Nonetheless, there are three tests that we
believe can be applied to most strategies. These are whether they t the environment in which the
organization nds itself, so that they correspond to the survival factors in that environment. They should
also allow the organization to be distinctiveto provide something different that customers will want to
buy, or to function more efficiently than its competitors. They should also ensure that the organization is
able to survive and thrive over the long termthey should be sustainable.
Fit

The concept of t actually has two elements. The rst of these relates to t with the environment.
Different environments have different characteristics: some, for example, are faster changing than
others, or more vulnerable to government interference. A rms strategy must be compatible with that
environment. H&Ms customers expect a new look at least twice a year, and its strategy necessarily
involves making sure that it is constantly alert to Changes in taste. Sonys world changes as quickly as
H&Ms, but for different reasons: new technologies are constantly emerging. If Sony is to avoid being
driven out of business by Matsushita or Samsung, it has to have a strategy which enables it quickly to
incorporate those technologies into new, desirable productsand perhaps to invent some technologies
for itself.
BAs world changes more slowly in some ways: people do not expect to see a new type of aircraft or
airline seat every time they y, although their willingness or ability to y is dependent on changing
economic circumstances or perceptions of how safe air travel is. But BAs business is very sensitive to
governmental policies on safety, and to inter-governmental agreements that set down, for example,
which US airlines are allowed to y to Heathrow,
Whether other European airlines are allowed to compete in the UK market (they are), and whether BA
and other European airlines are allowed to carry passengers internally within the worlds largest airline
market, the US (they are not). So it makes sense for BAs strategy to involve building strong links with the
UK, EU, and US authorities, and to lobby them strongly and constantly. For a rm like H&M to match
BAs effort in this area would be Largely a waste of time and resources.
So a rms strategy must be adapted tomust tthe context in which it nds itself. But it must also be
internally consistent. Every one of the many products sold under the Sony brand must be of a standard
that matches the companys carefully nurtured reputationit cannot sell unreliable and outdated
televisions or mobile phones at the same time as it prides itself on producing innovative laptops. In fact,
Sony makes a point of ensuring not just that these products are built to similarly high standards, but that
they work together as well. But this need for consistency extends to its other ventures, such as the
nancial services it sells in Japanit should not launch any product that might damage its brand values.
There is another dimension to internal consistency, or t: the need for the organizations architecture to
match its strategy. Research has shown that rms that are successful over a sustained period of time link
three decisions in a coherent way:
o

the marketing decision about which products to sell in which marketswhat we have called

o
o

competitive stance;
the manufacturing decisionbroadly equivalent to the choice of value chain;
The administrative decisionbroadly equivalent to what we have called architecture.

For example, if, like H&M or Sony, you are trying to foster creativity or innovation, then you must create
an atmosphere in which creative people feel at home. You cannot burden them with too many
bureaucratic procedures, for example. On the other hand, for McDonalds whose strategy emphasizes
efficiency and value for money, tight cost controls and strict procedures for preparing and serving food
are essential.
Distinctiveness
It is not enough for an organizations strategy just to t the environment and to be internally consistent,
however, if it is to stand any chance of success or long-term survival. Our second vital test of whether a
strategy is a good one is whether it gives the organization something different from its competitors.
Having a distinctive position in the market-place allows a rm to develop an identity that customers can
notice, and which will save them time and money when looking for products. The whole of the theory of
brands is based on this notion of distinctiveness. Choosing specic market segments to focus on, or
levels of technology to build into products, also allows an organization to become specialized in fullling
the needs of its chosen customer groups. So distinctiveness relates to the parts of the strategy that the
organizations customers can seeits competitive stance.
But distinctiveness can also be hiddenin the conguration of its value chain and in the way that a rm
brings its divisions or external partners together. Being distinctive in how it organizes itself can allow a
rm to be more efficient or effective at what it does, and because these elements are often hidden from
competitors, they may not be able to imitate it and appropriate any good ideas for themselves. A wellcongured organization can lead to a number of benets:
o

It can allow an organization to reduce its costs, for example by reducing the amount of stock it holds.

o
o
o

This enables it to reduce prices, or keep the same prices and enhance prot margins.
It allows an organization to get its products to its customers where and when they want them.
It enhances exibility in sourcing its raw materials from suppliers.
It can help an organization to develop innovative technologies by bringing together different types of
knowledge both from within the organization and from other rms outside.

In the end, all the different ways in which organizations can be distinctive boil down to two things: they
may make an organization more efficient, so that it gains cost advantage and/or they give its products or
services a degree of differentiation in the market-place. These are two fundamental concepts in the
understanding of competitive success and failure. There is a widely publicized theory that organizations
must choose between cost and differentiation advantagethat if they do not opt for one or the other,
they risk being stuck in the middle. However, empirical studies have shown that successful rms can,
and in fact do, mix the two. An important combined test of t and distinctiveness lies in the rms
performance. A strategy may look plausibleif it did not, the rms management would not consider it

but unless it is leading to good performanceabove all, a good return on capital employed then either
t or distinctiveness is lacking.
Sustainability
Cost and differentiation advantage only explain how an organization can achieve competitive advantage
at one moment in time. The third, and toughest, test of a good strategy is whether it leads to the
organization developing the attributes that will allow it to survive and thrive over the long term. The four
companies that we have used as our examples have all passed this testeach has a history that
reaches back for 40 years or more. But the average life-span of a commercial rm is less than 30 years.
And each of our companies could point to competitors (see Real-life Application 2.3 and What Can Go
Wrong 2.1) that ourished as a signicant force in the industry, only to be undone, either by their own
internal problems, by having an inappropriate business model, or by changes in their environment. We
discuss in more detail some of the reasons why strategies can go wrong in Section below.
A strong reputation is one example of an asset that is likely to deliver advantage over a long period. And
the ability constantly to develop new products or ways of workingto be innovativeis another, which in
industries such as biotechnology and pharmaceuticals is critical to a rms success. Some innovative
rms, like Sony, periodically come up with new, blockbuster innovations; while in other cases innovation
shows up as consistent small improvements that keep the organization just that little bit ahead of its
competitors. Both reputations and innovation capabilities are examples of what are known as strategic
resources. Others include competences and capabilities that allow the rm to develop new areas and
perceive new opportunities.
Strong reputations depend upon an organization possessing the routines and knowledge that enable it to
deliver good products or service, time after time. Similarly, sustained innovation and other strategic
resources come back to the organization has possessing the right routines and knowledge, and using
them effectively day after day. This means that in the end, many aspects of sustainable advantage can
be traced back to the way it operates as a social system. In particular:
o

Its culture. The particular habits and ways of interacting that a social system develops over time are
unique. So any capabilities or knowledge that depends particularly on these social interactions are
likely to be difficult to copy. Alternatively, sustainable advantage may come from a culture in which
people are motivated to make extra effort, giving their rm lasting superiority in areas like customer

service or innovation;
Its architecture. By helping people communicate and share knowledgeand therefore learn from
architecture can foster knowledge assets that can give enduring advantage.

The management of risk, trade-offs, commitment, and paradox

Practicing managers face many sources of uncertainty in their strategic decisions. They are trying to
make decisions that enable their organizations to cope with an uncertain environment and the
unpredictable reactions of human beings inside their organization. And they have to face the near
certainty that they will be wrong, at least some of the time. Successful organizations therefore need
some way of addressing risk. There is an important difference between managing risk and avoiding it. In
the 1960s, several rms developed corporate-level strategies that were aimed at diversifying away their
risk.
They deliberately bought businesses that they thought would generate high prots in economic
circumstances that would reduce returns from their core businesses. This strategy was intended to let
the corporation generate stable, high returns from its portfolio. These risk-avoidance strategies were
rarely successful. They were based on earlier strategic theories that tended to overestimate the ability of
managers to add value to unrelated businesses, and to underestimate the costs of diversication. These
strategies also overlooked the economic relationship between risk and rewardby diminishing their
exposure to risk, these rms also reduced the probability of their making exceptionally high returns.
Risk management strategies, by contrast, involve acquiring a detailed knowledge of the risks involved in
a range of businesses. Managers then try to ensure that the rm has sufficient cash and other resources
to remain viable when the environment is unfavourable, and that it can make exceptional prots in
favorable circumstances. One factor that distinguishes successful risk management from risk avoidance
is making the right strategic commitments. The right level of strategic commitment, and the degree of
diversication of risk that is appropriate, will vary across different rms in different industries. Strategic
decisions involve commitment in the following ways:
o

They lock in resources so that they cannot easily be redeployed. For example, when rms decide to
launch a new generation of products or introduce new technologies, they will commit cash, expertise,
and management time. They may need to build new, specialized research and production facilities. If
the original product or technology concept is wrong, then this time and money is likely to have been
wasted (although there may occasionally be protable spin-offs from the research activity) and
another rm will take the market. This kind of commitment can be seen in its most extreme form in
rms like Intel, the microprocessor manufacturer, or Boeing, the aircraft maker. In both cases, the
investment required for a new generation of products is so large that a product failure might bankrupt

the rmyet if they do not make the investment; rivals are likely to emerge to threaten their position.
They lock out alternative opportunities. A decision not to do somethingto pull back from an
investment, or to exit from an industryis as strategic as a decision to go ahead. For example,
automobile rms that had not entered the Chinese market by 1997 knew that they would not be able
to do so for the foreseeable future. The Chinese government had already announced that no new
entrants would be permitted after that time, and Chinese culture tends to favour people and

organizations that are prepared to build relationships over a long period. Although China represents a
vast potential market for cars, rms are nding it difficult to operate there at present. It is quite
possible that a decision to stay out of the market there is correctbut it is certain that it is
o

irrevocable.
They commit resources to changing the organization. This may involve cash spent on training and
consultancy, management time spent developing and implementing change programmes, and
staking the organizations reputation with customers and employees on getting the change right. If
the change fails, the cash and time will have been wasted and the rms reputation damaged. Here
we see a paradox. On the one hand exibilitythe avoidance of premature commitmentscan be
valuable in reducing risk, and authors such as Hamel and Prahalad (1994) advocate a phased
approach to investment in key capabilities and technologies. On the other hand, some form of
commitment is essential to a viable strategy (Real-life Application). There are two main reasons for

this:
Without commitment of time, cash, or other resources, it is impossible for an organization to do
anything that cannot easily and quickly be copied by a competitor. Strategies that are simple to copy

afford no prospect of lasting advantage.

Commitment sends important messages to stakeholders. It tells customers, employees, and host
governments that the organization is committed to a long-term presence. It tells competitors that the
rm will not easily be brushed aside, or that it is intent upon taking a major slice of a market.
Simulations show that sometimes, by signaling intent in this way, a rm may persuade less
committed competitors to withdraw from a sector. Many theorists, most notably Michael Porter,
believe that in order to arrive at a sustainable competitive position an organization has to make tradeoffs. It must decide which users it wishes to focus its efforts upon, and set up all its systems and
processes, and its structure to deliver the services that those users desire, in the way that they want
to receive it.
The organization may have to decide that it cannot serve users whose needs are different from those
of its core customers, or that it will only take them on its own termsat a premium price, or by
making them wait longer for service than the primary clients. This tailoring of organizational
resources and value chains is a form of commitment. Sometimes it may be possible for a rm to
straddle a number of customer groups, using the same resources to serve them all. But it must be
very careful, in trying to satisfy everyone, that it does not end up diluting its service to its core
customers and satisfying no one. Not all theorists accept Porters ideas about trade-offs, and even
where they do exist, advances in technology and theory may enable organizations to nd ways
around them.

For example, for at least fty years people believed that there was a trade-off between production costs
and number of defects. Improvements in product quality were thought to require more elaborate and
expensive production and quality control procedures. However, the total quality movement established

that it was often possible to have both highly reliable production processes and low production costs. The
savings from not having to nd and rectify faulty output more than paid for any extra costs associated
with the newer manufacturing procedures. Similarly, some authors now believe that the trade-off
described in Table 2.2 between global operations and local cultural sensitivity is similarly a false one
that it is possible for transnational corporations to get the best of both worlds.
How strategies go wrong
Although sometimes managers can behave in ways that lead to the demise of their rm, or the loss of
their own jobs, this is not common, and almost all of the previous discussion in this chapter has
considered strategic processes that are intended to be benecial for the organization and its main
stakeholders. Unfortunately, they do not always end up that way in practice. In this nal section we
consider how well-intentioned strategies can sometimes go wrong; how good intentions can lead to
competitive disadvantage, and how strategies which once were a source of considerable strength to a
rm can lead to its decline and even death.
An organization can be considered to be the outcome of previous strategies that have proved successful.
Future strategies are selected at least in part because of:
o
o

the organizations culture, which has developed over time and become increasingly homogeneous;
the organizations considerable investment of time and resources in learning how to do some things

very well;
the organizations information and gathering systems, which are focused on specic, previously

important, environmental features;

The organizations existing stake- and power-holders, who are likely to want to retain their status quo.
The interplay between these various factors means that organizations strategies sometimes become
inappropriate to their environment if it changes. We will now look at some of the ways in which this
can happen.

Organizational inertia
One important reason why strategies can go wrong concerns the size and systematization of many
organizations. Over time they develop structures and systems which are intimately intertwined with other
systems and structures. For example, organizations often have processes for assessing monthly
performance gures. These are dependent on other systems that gather raw data (perhaps from
customers own computer systems) and pass these to those responsible for doing the calculations.
These performance gures are then entered into a system that eventually collates all twelve months
gures and puts this information into an annual report. This is just one, relatively simple and easy to
understand example. Other organizational systems can be much more complex. But even this straight
forward example illustrates how each part of these systems is part of a chain of dependencies that may

be quite hard to break or restructure without major disruption or cost. The recognition that it is extremely
hard to move large organizations far from the path that they are already on has led to some theorists
questioning whether organizations can change at all. If they cannot, they will only survive if they happen,
by chance, to be suited to their environment. The clear parallels with the Darwinian theory about the
survival of species led some researchers to study patterns in the birth and death of organizations in the
same way that biologists study patterns in populations of plants and animals. These writers, notably
Michael Hannan, John Freeman, and their associates, are known as the population ecology school.
Bounded decision-making
The bounded rationality of decision-makers (see Section 1.6.4) means that the decisions they take are
always limited by their ability to perceive the options that are available. Inevitably, therefore, some of the
best strategic options are not considered. Worse than this, sometimes even options that would enable a
rm to survive are not noticed or are ignored, even though colleagues may make strenuous efforts to
bring these to the attention of the decision-maker (see What Can Go Wrong 2.1).
Strategic drift
The process by which a companys strategies become increasingly distanced from the needs of its
customers or the environment in which it operates is called strategic drift or strategic slip.
Strategic drift happens gradually for three reasons. First, an organizations homogeneous values and
belief system shut out deviant strategies, which are rejected as being not what the organization does.
These deviant strategies, however, may be those which would allow the organization to adjust to its
customers changing needs or seek out new customers.
Second, managers are constrained in their reactions to changes they perceive in their environment by
their own limited expectations of what change should be. Third, existing power holders within the
organization are likely to reject novel strategic suggestions, since any changes involved might undermine
their own power positions.
Some changes may be implemented and improve performance to some extent, thus deluding the
companys managers that they are managing change effectively. Over time, however, the rms nancial
performance becomes increasingly weak and it becomes apparent that something radical needs to be
done. Sometimes the necessary change is achieved through the takeover of the rm, Occasionally
existing managers can themselves bring about this change, as they realize the seriousness of their
position. However, because their beliefs will be strongly shaped by the organizations belief system,
which is, after all, one of the reasons why the company found itself in its predicament in the rst place,
this can be quite hard for them to achieve. This state of affairsperiods of relative organizational stability
interspersed with periods of signicant changeis known as punctuated equilibrium, a term that comes
from chaos theory. Research suggests that it is quite common in organizations. However, certain high

technology organizations have been found to proceed through a process of time-paced evolution, a form
of continuous product and organizational development which results in regular, but quite radical, strategic
leaps.
Competency traps, core rigidities, and the Icarus paradox
Another distinguished academic, who has written on the apparent inevitability of strategic decline and the
increasing inappropriateness of strategic decisions over time, is Danny Miller. He suggests that the
seeds of decline are actually sown in the very success of past strategies. These successes have the
potential to lead to a lack of diversity in an organizations skills base and organization structures or belief
systems, which can lead to failure.
Miller termed this decline the Icarus paradox, in acknowledgement of the Greek myth which tells of
Icarus, whose father Daedalus built them both wings of wax and feathers in order to escape their
imprisonment on the island of Crete. Because the wings were so successful Icarus used them to y too
close to the sun: the wax melted and he fell to earth. The parable is clear: organizations which are
successful can fall from grace, seduced into excess or complacency by their very strengths.
This process happens as an extension of strategic drift. Success appears able to add a layer of
complacency or arrogance to the desire to repeat what has worked well in the past. Thus the rejection of
deviant strategies is strengthened to the point where even sensible suggestions which identify external
threats are rejected. Another way of describing this is in terms of competency traps or core rigidities.
Both occur when an organization gets good results as a result of doing something in a particular way,
leading it to persist with, or overuse, those routines. As a result, the perception builds that it is difcult or
risky for the rm to adopt better routines that competitors, or even
people within the organization, might have developed.

Section C
Read the case below and answer the questions that follow. (50)
Deys Lab
Dr. Sukumar inherited his fathers Deys Lab in Delhi in 1995. Till 2002, he owned 4 labs in the National
Capital Region (NCR). His ambition was to turn it into a National chain. The number increased to 7 in
2003 across the country, including the acquisition of Platinum lab in Mumbai. The number is likely to go
to 50 within 2-3 years from 21 at present. Infusion of Rs. 28 crores for a 26% stake by Pharma Capital
has its growth strategy.

The lab with a revenue of Rs. 75 crores is among top three Pathological labs in India with Atlantic (Rs. 77
crores) and Pacific (Rs. 55 crores). Yet its market share is only 2% of Rs. 3,500 crores market. The top 3
firms command only 6% as against 40-45% by their counterparts in the USA.
There are about 20,000 to 1,00,000 stand alone labs engaged in routine pathological business in India,
with no system of mandatory licensing and registration. That is why Dr. Sukumar has not gone for
acquisition or joint ventures. He does not find many existing laboratories meeting quality standards. His
six labs have been accredited nationally whereon many large hospitals have not thought of accreditation;
The College of American pathologists accreditation of Deys lab would help it to reach clients outside
India.
In Deys Lab, the bio-chemistry and blood testing equipments are sanitized every day. The bar coding
and automated registration of patients do not allow any identity mix-ups. Even routine tests are
conducted with highly sophisticated systems. Technical expertise enables them to carry out 1650 variety
of tests. Same day reports are available for samples reaching by 3 p.m. and by 7 a.m. next day for
samples from 500 collection centers located across the country. Their technicians work round the clock,
unlike competitors. Home services for collection and reporting is also available.
There is a huge unutilized capacity. Now it is trying to top other segments. 20% of its total business
comes through its main laboratory which acts as a reference lab for many leading hospitals. New mega
labs are being built to Encash preclinical and multi-centre clinical trials within India and provide
postgraduate training to the pathologists.

Questions:
(i) What do you understand by the term Vision? What is the difference between Vision and
Mission? What vision Dr. Sukumar had at the time of inheritance of Deys Lab? Has it been
achieved? (15)
What do you understand by the term Vision?
Vision is of what or how you would like things to be. A picture of the future youre working to create, what
you want to be when you grow up, what you want your business to become. Without a vision of where
youre going how can you develop a plan to get there and how will you know when youve arrived?

Without a vision of where we would like to be, we can continue hiking various trails through life, climbing
mountain after mountain, only to discover each time that weve arrived somewhere we really dont want
to be.
Nothing was ever created without a vision. It guides us, gives us direction and purpose, and can serve
as a powerful motivator for those around us and ourselves.
In order to truly guide and motivate a vision must:
1. Be aligned with the core values of both the individuals and the business.
2. Be effectively communicated to and accepted by everyone involved in the business.
The more precise and detailed you can be in writing a description of your vision of the future, the easier it
will be to communicate it to others and gain their commitment to it, and the more likely you will be to
achieve it. Being able to articulate a clear vision of the future is essential if you expect employees and
service consultants to help you get there.

Success comes through bringing aboard people as

partners, employees or consultants with core values that fit well with the business, and who
understand and accept the business mission and vision as matching closely with their own.
Developing visions and missions that are truly shared takes time, effort, energy and commitment. You
cant expect that just because you develop mission and vision statements, read them at a staff meeting
and even hand them out in printed form that everyone will immediately accept and work toward achieving
them. You need to walk the talk and be totally committed to them yourself first, and then discuss them
with your employees and consultants at least eight or ten times before they will believe youre really
serious and begin to internalize these statements.

What is the difference between Vision and Mission?

DIFFERENCE BETWEEN VISION & MISSION

S.
No.

Vision

Mission

Vision is like destination

mission the path

vision can change

But not mission

Vision statement comes first

Mission statement comes next

Vision statement is like a Short term goal

Mission statement is like a long term goal

Vision is where the company should go

from here in terms of volumes, product
markets etc. this is also long term, but
perhaps a shorter term than the mission.

Mission is what the business exists for the broad

purpose of the business, what the promoters created
the company for, or what the current people in charge
of the affairs BOD and shareholders think of it. For
example, what broad consumer needs the company
should be serving in the long run. The time frame
here is the longest.

vision
is
a
statement
of
some desired future state (as an
example Microsoft's vision was a
computer on every desk and in every
home).

The mission statement (which

originates with the military) should be informational. It
should
talk about what you do how you deliver it and who
your clients are.

always start with values....which then and then the mission

drive the vision

Vision as something you want to achieve

or create. It's a way of implementing in
the world that you are and want to be
(your mission).

Vision talks about the future aspiration

10

I think Mission comes before Vision. I like Stephen

Covey's approach to Mission Statements in his book
First Things First. And from his approach, a Mission
Statement is a statement of who you are and want to
be -- whether as an individual or a company. It is a
statement of your core values that guide you, how
you see your purpose for being -- as a human being
or an organization.

Mission states our reasons for existence as an

orgniasation or purpose.
Vision comes first. Vision is a mental Mission is the way you go about achieving what you
picture of what I want to get or see. This want to get or see. (Vision.) Mission is the Action
could pertain to anything in life, money, Plan, the Game Plan, the Methodology.
property, health, profession, society, etc.,
absolutely anything you can think of.
Vision is a Concept. Vision is an Idea.

11

Vision = long term goal, like e.g. after Mission is how you reach there to achieve your vision.
10-20 years where you will be or what it mission will be : get edge in technology agriculture
the ultimate result you want. e.g. vision and education
of India for 10 years is: to become a
developed
country

12

Vision is the visible horizon, power of Mission is to accomplish the vision with a time frame.
seeing
the
future
to
achieve,
Organization's future plan, to decide

what to achieve with an Action-Plan.

13

A vision is a realistic, credible, attractive

and inspiring future view for your
organization; A compelling dream as
clearly
stated,
challenging
and
meaningful

An action oriented statement of an organizations

reason for being. The overall purpose of the
organization and why it is in business. Says what we
do, who we serve and where.

14

Vision: its what organization aims or

hope to reach and it should be
challenge for them and some time
leaders in organization who set the
vision also it short sentence 5 to 7
words. Vision comes first.
Vision is "WHERE" the organization
wants to go.

Mission: sentence describe what is the organization

and there
activities and whose there customer, what they
produce for them

15

16

Mission is "HOW" does the organization want to go.

The Vision is the ideal picture of what Generally, the mission describes the goal and
that looks like and can include the way to expected outcome (i.e. "To be the #1 provider of
get there (i.e. "I'm a guest on all the coaching services in India")
popular media stations in India, I have a
busy client list of 35 people a week, I'm
asked to do presentations for large
organizations,
etc.
etc.
etc.)
The Vision is where the mind gets to
play with the best ingredients and see
things as you would like them to be...this
is the creative force in action.
When people say "My vision for this
company is that we are #1"...to
me...that's the mission...the vision is very
specific and requires daily practice to
create.
So...to
me...the
Mission
comes
first...followed by the specific Vision that
makes it a creatable reality.

17

Vision is infinity. "Creating a better Mission is a goal. Mission is "to become a market
quality of life" is a vision. "Education for leader in 2007" , "Providing education to all the rural
all"
is
a
vision.
masses in Eastern part of India", .Mission helps us to
reach the vision. To reach that mission, the short term
goals or objectives can be laid down.

Vision is first, when its iterated (reduced) to Mission.

18

Vision is a broad and an inspiring

statement of what the organization
intends to become in the future. It is
usually the aspiration or the dreams of
an entrepreneur/ founder/chairman and
is largely expressed in competitive
terms, though without clearly specifying
the means to achieve those aspirations.
In other words, vision is the ability to
foresee the future.

19

'Vision': Where an individual

organization want to be in future.

And, a mission statement is the reason for the

existence of the organization. In other words, a
mission statement answers "what the company
stands for?". It enlists various objectives which
suggest the reasons for the existence of the firm,
besides outlining various ways through which the
organization could be able to actualize its vision, and
move toward attainment of a sustainable competitive
advantage.

or 'Mission': The strategy/ action to achieve the vision by

an individual/ organization.

Mission is often an action or group of individuals that are formed with the intent of action. Vision however,
in at least one sense, is a conceptual thing similar to the ideal of a real thing. These two both have place
and often have place together in the realization of goal.
Mission can refer to a group of individuals, the act that a group or individual is to carry out, or to the
actions involved in the completion. In general these groups or organizations fit one or two classifications.
Among the more common is the group that enters into a foreign area. The other is a group that is
stationary and generally these are religious outreach to a community in need. The basic concept is
similar the outreach; whether through entering a foreign land or a separated fraction of a community.
Mission can also refer to the specific act that is to be carried out, as in the case of a mission statement.
The particular actions involved in completion of the mission statement may also be referred to as
missions. Generally these will be clearly defined, and many missions may be involved in the
accomplishment of an overall goal. There are multiple definitions of mission that arent related to these
concepts.
Vision generally refers to a concept. The idea that an individual holds as the ultimate goal is that
individuals vision. Some visions may be more or less clear. Visions may also change during the course
of efforts toward a vision, but due to their conceptual nature they are not necessarily realistic and
therefore may not change. The reality of a group of organization may seem to meander or depart from
the vision as a result of this. These are not the only definitions of vision some are rather medical or
biological in nature and mostly unrelated.

What vision Dr. Sukumar had at the time of inheritance of Deys Lab? Has it been achieved?
Dr. Sukumar wants to turn Deys Lab business into a National chain. He has been adopted good growth
strategy. The number increased to 7 in 2003 across the country, including the acquisition of Platinum lab
in Mumbai. The number is likely to go to 50 within 2-3 years from 21 at present. Infusion of Rs. 28 crores
for a 26% stake by Pharma Capital has its growth strategy. The lab with a revenue of Rs. 75 crores is
among top three Pathological labs in India.
So, One way we can say vision is achieved in nos. of lab increasing every year but in other way we can
say still it is not achieved as the lab revenue in India with Atlantic (Rs. 77 crores) and Pacific (Rs. 55
crores). Yet its market share is only 2% of Rs. 3,500 crores market. The top 3 firms command only 6% as
against 40-45% by their counterparts in the USA.

(ii) For growth, what business strategy has been adopted by Dr. Sukumar? (10)
Following Growth Strategy has been adopted by Dr. Sukumar

(1) Vertical Integration ( forward or backward integration):

(a) Backward integration:
Provide postgraduate training to the pathologists, which can directly hire talented & trained
post graduate pathologists into his chain business.
Invest in 26% stake in Pharma Capital
(b) Forward integration:
Main laboratory which act as a reference lab for many leading hospitals. 20% of its total
business comes through main laboratory.
500 collection centers located across the country.
New mega labs are being built for preclinical and multi-center clinical trials.
(2) Diversification:

(a) Related diversification :

Infusion of Rs.28 Crores for a 26% stake by Pharma Capital
New mega labs are being built for preclinical and multi-center clinical trials.
(b) Concentric diversification : (Adding new, but related products or services)
Technicians work round the clock, unlike competitors
Home services for collection and reporting also available
The bar coding and automated registration of patients, that do not allow any identity mix-up.
(c) Moderate level diversification: all businesses share product, technological and
distribution linkage

 Provide postgraduate training to the pathologists by New Mega labs, which can directly hire
talented & trained post graduate pathologists into his chain business.

(3) Acquisition:
Acquisition of Platinum lab in Mumbai.
Infusion of Rs.28 Crores for a 26% stake by Pharma Capital

(4) Expansion:
In 1995: Only 1 Deys Lab in Delhi.
Till 2002: 4 labs in the National Capital Region (NCR).
In 2003: 7 labs across the country.
Presently : 21 labs
Next 2-3 years: Likely to go to 50 labs
Following are the main key features contribution to the growth of the Deys Lab.

Increasing no. of lab year by year

Acquisition of Platinum lab in Mumbai

26% stake by Pharma Capital

Having proper license and registration

Having Quality Standard

His labs has been accredited nationally

Blood testing equipments are sanitized everyday

Having technology of bar coding and automated registration of patients

Technical experts with 1650 variety of tests

Same day lab test report

Round the clock work by technician

Special Home Service for sample collection & reporting

Trying to top other segments

Main laboratory acts as a reference lab for many leading hospitals

New mega labs are being built for preclinical and multi-centre clinical trials within India

Provide postgraduate training to the pathologists

(iii) What is the marketing strategy of Dr. Sukumar to overtake its competitors? (10)
Following is the marketing strategy of Dr. Sukumar to overtake its competitor

1. Quality of service:
Six labs have been accredited nationally
All labs have proper license and registration with local govt. authority
The bio-chemistry and blood testing equipments are sanitized every day.

2. Uniqueness Technological:
The bar coding and automated registration of patient done to avoid mix-ups of identity.
Technical expertise to carry out 1650 variety of tests
3. Quick services:
Same day reports are available for sampling reaching by 3 p.m.
500 collection centers across the country for sample collection, its report on next day of
sample collection.
4. Differentiation, accreditation:
Technicians work round the clock, unlike competitors.
Six labs have been accredited nationally
The college of American pathologists accreditation of Deys lab.
Routine tests are conducted with highly sophisticated systems.
5. Trying to top other segments:
New mega lab are being built to encash preclinical and multi-center clinical trials within India
New mega lab provide postgraduate training to the pathologists.
6. Main laboratory acts as a reference lab for many leading hospitals:
Main laboratory co-ordinate to many leading hospital for pathological tests.
Collect samples from 500 collection centers located across the country.
7. Focus on satisfying the needs of customers:
home service collection of sample & report
Marketing strategies may differ depending on the unique situation of the individual business. However
there are a number of ways of categorizing some generic strategies.

(1) Strategies based on market dominance: In this scheme, firms are classified based on their market
share or dominance of an industry. Typically there are four types of market dominance strategies:
1) Leader
2) Challenger
3) Follower
4) Nicher

Here in this case we can say Dr. Sukumar is adopting to achieve Leader strategy in the next few years
based on growth.
(2) Strategies based on Michael Porter :
Michael Porter has described a category scheme consisting of three general types of strategies that are
commonly used by businesses to achieve and maintain competitive advantage. These three generic
strategies are defined along two dimensions: strategic scope and strategic strength. Strategic scope is a
demand-side dimension and looks at the size and composition of the market you intend
to target. Strategic strength is a supply-side dimension and looks at the strength or core competency of
the firm. In particular he identified two competencies that he felt were most important: differentiation and
product cost (efficiency).
Differentiation Strategy: A differentiation strategy calls for the development of a product or service that
offers unique attributes that are valued by customers and that customers perceive to be better than or
different from the products of the competition. The value added by the uniqueness of the product may
allow the firm to charge a premium price for it. The firm hopes that the higher price will more than cover
the extra costs incurred in offering the unique product. Because of the product's unique attributes, if
suppliers increase their prices the firm may be able to pass along the costs to its customers who cannot
find substitute products easily.

Here in this case we can say Dr. Sukumar is adopting differentiation strategy as per Michael Porter
generic strategy.
Marketing strategy is a process that can allow an organization to concentrate its limited resources on
the greatest opportunities to increase sales and achieve a sustainable competitive advantage. Marketing
strategy includes all basic and long-term activities in the field of marketing that deal with the analysis of
the strategic initial situation of a company and the formulation, evaluation and selection of marketoriented strategies and therefore contributes to the goals of the company and its marketing objectives.
Porter generic strategies - strategy on the dimensions of strategic scope and strategic strength.
Strategic scope refers to the market penetration while strategic strength refers to the firms sustainable
competitive advantage. The generic strategy framework (porter 1984) comprises two alternatives each
with two alternative scopes.
These are Differentiation and low-cost leadership each with a dimension of Focus-broad or narrow.

(1) Product differentiation

(2) Cost leadership
(3) Market segmentation:
Innovation strategies:
This deals with the firm's rate of the new product development and business model innovation. It asks
whether the company is on the cutting edge of technology and business innovation.
There are three types:
(1) Pioneers
(2) Close followers
(3) Late followers
Growth strategies:
In these strategies we ask the question, How should the firm grow? There are a number of different
ways of answering that question, but the most common gives four answers:

Horizontal integration

Vertical integration

Diversification

Intensification

Here in this case we can say Dr. Sukumar is adopting growth strategy with diversification as per Michael
Porter generic strategy.
(iv) In your opinion what could be the biggest weakness in Dr. Sukumars business strategy? (15)

As per my opinion following could be the biggest weakness in Dr. Sukumars business strategy
(1) Market Share lower only 2%
It means Dr. Sukumars need to increase market penetration. It requires effort to increased market share
for present products or services in present markets through greater marketing efforts.
As already Dr. Sukumar having 500 collection centers across the country which indicates the availability
of proper chains for his laboratory pathological analysis service.

By adopting following expansion

strategy via hub and spoke model he can increase market share.
Hub and Spoke Model
Different approaches have included expansion via hub and spoke models (one reference lab - many
collection centers), PPP initiatives, IPOs, and receiving funding from private equities.
Model description: Hub and spoke expansion Tier II and III cities present an attractive opportunity for
large corporate players. These cities represent an area of underserved need, with a growing need for
improved health infrastructure. From the standpoint of large players, seeking to establish presence,
expansion into these unexplored regions is associated with certain drivers and challenges, as listed
below:

It is thus easier for large players, to partner with a renowned local lab in the region which has got a good
brand, accreditations, good quality and service. Thus, a hub and spoke model is a popular strategy and
is typically established in the following manner:
1.

Reference labs, which act as regional hubs, are set up in large metropolitan areas. They offer

comprehensive and specialized testing capabilities.

2. Satellite labs feed reference labs, and offer a limited test menu. These can be either owned or
franchised.
3. Collection centers are located in hospitals, nursing homes, pathology labs, doctors clinics, etc. Here
samples are collected and forwarded to either a satellite/reference lab.

(2) No strategic alliances with others:

It is indicate same as above that to increase market share Dr. Sukumar need to do strategic alliances
with others. Following are some of the examples.

(3) A huge unutilized capacity:

It also indicates same that Dr. Sukumar need to utilized these by strategic alliance with others, which
ultimately leads to increase in growth.
(4) No Joint Ventures into new areas:
As Dr. Sukumars Lab meeting quality standard along with accredited nationally. By adopting /
acquiring / mergering local lab across country he can improve the standard of those labs.
Also He can go outside the country, as The College of American pathologists accreditation of Deys
lab would help it to reach clients outside India.

******