Strategic Management PDF

Strategic Management
This book is a part of the course by Jaipur National University, Jaipur.

This book contains the course content for Strategic Management.
JNU, Jaipur
First Edition 2013
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content whenever the need arises, and to vary it at any time without prior notice.
Index
I. Content....................................................................... II
II. List of Figures........................................................VIII
III. List of Tables...........................................................IX
IV. Abbreviations........................................................... X
V. Case Study.............................................................. 137
VI. Bibliography.......................................................... 142
VII. Self Assessment Answers................................... 145
Book at a Glance
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Contents
Chapter I........................................................................................................................................................ 1
Introduction to Business policy.................................................................................................................... 1
Aim................................................................................................................................................................. 1
Objectives....................................................................................................................................................... 1
Learning outcomes.......................................................................................................................................... 1
1.1 Introduction to Business Policy............................................................................................................... 2
1.2 Evolution of Business Policy as a Discipline........................................................................................... 2
1.2.1 The Genesis of Business Day.................................................................................................. 2
1.2.2 Evolution based on Managerial Practices................................................................................. 2
1.2.3 Historical Perspective of the Evolution of Business Policy..................................................... 2
1.2.4 Pointers to the Future................................................................................................................ 3
1.3 Meaning of Business Policy...................................................................................................................... 3
1.3.1 Definitions................................................................................................................................ 3
1.3.2 Need of Business Policy........................................................................................................... 3
1.3.3 Essentials of a Good Business Policy....................................................................................... 4
1.3.4 Role of Business Policy............................................................................................................ 4
1.3.5 Different Types of Business Policy........................................................................................... 5
1.3.6 Strategic Business Unit ( SBU)................................................................................................ 7
1.4 Importance of Business Policy.................................................................................................................. 7
1.4.1 For Learning the Course........................................................................................................... 7
1.4.2 For Understanding the Business Environment......................................................................... 8
1.4.3 For Understanding the Organisation......................................................................................... 8
1.4.4 For Personal Development........................................................................................................ 8
1.5 Purpose of Business Policy....................................................................................................................... 8
1.6 Objectives of Business Policy................................................................................................................... 9
1.6.1 In Terms of Knowledge............................................................................................................ 9
1.6.2 In Terms of Skills.................................................................................................................... 10
1.6.3 In terms of Attitude................................................................................................................. 10
Summary.......................................................................................................................................................11
References.....................................................................................................................................................11
Recommended Reading...............................................................................................................................11
Self Assessment............................................................................................................................................ 12
Chapter II.................................................................................................................................................... 14
An Overview of Strategy Management..................................................................................................... 14
Aim............................................................................................................................................................... 14
Objectives..................................................................................................................................................... 14
Learning outcomes........................................................................................................................................ 14
2.1 An Overview of Strategy Management.................................................................................................. 15
2.1.1 Definition of Strategy............................................................................................................. 15
2.1.2 Types of Strategy.................................................................................................................... 15
2.1.3 Organisation and Strategy....................................................................................................... 16
2.1.4 Forms of Strategy.................................................................................................................... 17
2.1.5 Strategic Environment............................................................................................................ 19
2.1.6 Meaning of Strategy Management.......................................................................................... 19
2.1.7 Strategic Management Process............................................................................................... 20
2.1.8 Facets of Strategic Management............................................................................................. 21
2.2 Strategic Decision Making Process........................................................................................................ 22
2.3 Functional Strategic Decisions............................................................................................................... 23
2.3.1 Financial Decisions................................................................................................................. 24
2.3.2 Marketing Decisions............................................................................................................... 24
2.3.3 Production and Operations Decisions..................................................................................... 24
2.3.4 Pricing Decisions.................................................................................................................... 24
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2.3.5 Distribution Decisions............................................................................................................ 24
2.4 Strategic Planning................................................................................................................................... 25
2.4.1 Dimensions of Planning.......................................................................................................... 25
2.4.2 Strategic Planning and Control............................................................................................... 25
2.4.3 Strategic Choice...................................................................................................................... 25
2.4.4 Strategic Forecasting............................................................................................................... 26
2.5 Levels of Strategic Management............................................................................................................ 27
2.6 Strategic Audit : Aid to Decision Making............................................................................................... 27
2.7 Globalisation and Environmental Sustainability: Challenges to Strategic Management....................... 28
2.7.1 Impact of Globalisation ......................................................................................................... 28
2.7.2 Impact of Environmental Sustainability................................................................................. 29
Summary...................................................................................................................................................... 30
References.................................................................................................................................................... 30
Recommended Reading.............................................................................................................................. 31
Self Assessment............................................................................................................................................ 32
Chapter III................................................................................................................................................... 34
Hierarchy of Strategic Intent .................................................................................................................. 34
Aim............................................................................................................................................................... 34
Objectives..................................................................................................................................................... 34
Learning outcome......................................................................................................................................... 34
3.1 Introduction to Strategic Intent............................................................................................................... 35
3.1.1 Concept of Stretch, Leverage and Fit..................................................................................... 35
3.1.2 Hierarchy of Strategic Intent................................................................................................... 35
3.2 Vision...................................................................................................................................................... 35
3.2.1 Definitions of Vision............................................................................................................... 36
3.2.2 Benefits of Vision................................................................................................................... 36
3.2.3 Process of Envisioning............................................................................................................ 36
3.2.4 Characteristics of Vision ........................................................................................................ 36
3.3 Mission.................................................................................................................................................... 36
3.3.1 Need of Mission...................................................................................................................... 37
3.3.2 Usefulness of Mission............................................................................................................. 37
3.3.3 Formulating Mission............................................................................................................... 37
3.3.4 Characteristics of Mission Statement..................................................................................... 37
3.3.5 Elements of an Ideal Mission Statement................................................................................. 38
3.3.6 Newest Trends in Mission Components................................................................................. 39
3.3.7 Difference between Vision and Mission................................................................................. 40
3.4 Business Definition................................................................................................................................. 40
3.4.1 Dimensions of Business Definition........................................................................................ 40
3.4.2 Levels at which Business could be Defined........................................................................... 40
3.5 Business Model....................................................................................................................................... 41
3.6 Goal and Objectives................................................................................................................................ 41
3.6.1 Importance of Objectives........................................................................................................ 41
3.6.2 Roles of Objectives................................................................................................................. 41
3.6.3 Characteristics of Objectives ................................................................................................. 42
3.6.4 Issues in Objective-Setting .................................................................................................... 42
3.6.5 Types of Objectives................................................................................................................. 43
3.6.6 Areas in Objectives................................................................................................................. 43
3.6.7 How are Objectives Formulated?.......................................................................................... 44
3.6.8 Importance of Goal Setting . .................................................................................................. 44
3.6.9 Balance Scorecard in Objective Settings................................................................................ 45
Summary...................................................................................................................................................... 48
References.................................................................................................................................................... 48
Self Assessment............................................................................................................................................ 49
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Chapter IV................................................................................................................................................... 51
Strategy Formulation and Planning.......................................................................................................... 51
Aim............................................................................................................................................................... 51
Objectives..................................................................................................................................................... 51
4.1 Introduction to Strategy Formulation...................................................................................................... 52
4.2 Steps in Strategy Formulation Process................................................................................................... 52
4.3 Formulation of Strategy.......................................................................................................................... 53
4.3.1 Strategy Formulation in Large Company or Organisation..................................................... 53
4.3.2 Strategy Formulation in the SME........................................................................................... 53
4.3.3 Basis of Strategy Formulation................................................................................................ 54
4.4 Strategic Planning................................................................................................................................... 56
4.4.1 Differences between Operational Planning and Strategic Planning...................................... 56
4.5 Strategic Planning Process...................................................................................................................... 57
4.6 Corporate Level Strategy........................................................................................................................ 58
4.6.1 Stability Strategies ................................................................................................................. 58
4.6.2 Growth Strategies................................................................................................................... 59
4.6.3 Expansion Strategies............................................................................................................... 59
4.6.4 Merger Strategy...................................................................................................................... 59
4.6.5 Takeovers or Acquisitions Strategy........................................................................................ 60
4.6.6 Retrenchment Strategies......................................................................................................... 61
4.6.7 Portfolio Restructuring........................................................................................................... 61
4.7 Strategic Planning in MNEs (Multinational Enterprises)...................................................................... 61
4.7.1 Types of MNEs...................................................................................................................... 62
4.7.2 Planning Needs of MNEs...................................................................................................... 62
4.7.3 Planning Focus of MNEs....................................................................................................... 63
4.7.4 Planning Modes of MNEs..................................................................................................... 64
4.7.5 MNEs Planning in Practice.................................................................................................... 65
4.7.6 Subsidiary Development Path................................................................................................. 66
4.7.7 Pitfalls in Planning.................................................................................................................. 67
Summary...................................................................................................................................................... 69
References.................................................................................................................................................... 69
Self Assessment............................................................................................................................................ 71
Chapter V..................................................................................................................................................... 73
Strategic Analysis and Choice.................................................................................................................... 73
Aim............................................................................................................................................................... 73
Objectives..................................................................................................................................................... 73
5.1 Introduction - Strategic Choice............................................................................................................... 74
5.1.1 Choice Process........................................................................................................................ 74
5.1.2 Process of Strategic Choice.................................................................................................... 76
5.1.3 Balanced Scorecard................................................................................................................. 76
5.2 Strategy Analysis.................................................................................................................................... 78
5.2.1 Tools and Techniques for Strategy Analysis........................................................................... 78
5.2.2 Corporate Portfolio Analysis.................................................................................................. 79
5.2.3 SWOT Analysis...................................................................................................................... 79
5.2.4 Experience Curve Analysis..................................................................................................... 80
5.2.5 Life Cycle Analysis................................................................................................................. 81
5.2.6 Industry Analysis.................................................................................................................... 81
5.2.7 Strategic Groups Analysis....................................................................................................... 83
5.2.8 Competitor Analysis............................................................................................................... 83
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Summary...................................................................................................................................................... 85
References.................................................................................................................................................... 85
Self Assessment............................................................................................................................................ 87
Chapter VI................................................................................................................................................... 89
Strategy Implementation............................................................................................................................ 89
Aim............................................................................................................................................................... 89
Objectives..................................................................................................................................................... 89
Learning outcomes........................................................................................................................................ 89
6.1 Introduction . .......................................................................................................................................... 90
6.1.1 Nature of Strategy Implementation......................................................................................... 90
6.1.2 Issues in Strategy Implementation . ....................................................................................... 91
6.1.3 Barriers to Strategy Implementation....................................................................................... 91
6.1.4 Interrelationship between Formulation and Implementation of Strategy............................... 92
6.2 A Model of Strategy Implementation...................................................................................................... 92
6.2.1 Major Themes in Strategy Implementation ........................................................................... 93
6.2.2 Theme of Activating Strategy................................................................................................. 93
6.2.3 Theme of Managing Change................................................................................................... 94
6.2.4 Theme of Achieving Effectiveness ........................................................................................ 94
6.3 Project Implementation........................................................................................................................... 95
6.3.1 Projects and Project Management........................................................................................... 95
6.3.2 Project Management and Strategy Implementation................................................................ 95
6.4 Procedural Implementation..................................................................................................................... 96
6.4.1 Regulatory Mechanism in India.............................................................................................. 96
6.4.2 Procedural Implementation in Action..................................................................................... 97
6.5 Resource Allocation................................................................................................................................ 97
6.5.1 Strategic Budgeting................................................................................................................. 97
6.5.2 Aligning Resource Allocation to Strategy.............................................................................. 98
6.5.3 Factors Affecting Resource Allocation................................................................................... 99
6.5.4 Difficulties in Resource Allocation......................................................................................... 99
Summary.................................................................................................................................................... 100
References.................................................................................................................................................. 100
Recommended Reading............................................................................................................................ 101
Self Assessment.......................................................................................................................................... 102
Chapter VII............................................................................................................................................... 104

Functional and Operational Implementation......................................................................................... 104
Aim............................................................................................................................................................. 104
Objectives................................................................................................................................................... 104
Learning outcomes...................................................................................................................................... 104
7.1 Introduction to Functional Strategies.................................................................................................... 105
7.1.1 Vertical Fit............................................................................................................................. 105
7.1.2 Horizontal Fit........................................................................................................................ 105
7.2 Functional Plans and Policies............................................................................................................... 105
7.2.1 Nature of Functional Plans and Policies............................................................................... 105
7.2.2 Need for Functional Plans and Policies................................................................................ 106
7.2.3 Development of Functional Plans and Policies.................................................................... 106
7.3 Financial Plans and Policies.................................................................................................................. 106
7.3.1 Sources of Funds................................................................................................................... 107
7.3.2 Usage of Funds..................................................................................................................... 107
7.3.3 Management of Funds.......................................................................................................... 107
7.4 Marketing Plans and Policies................................................................................................................ 107
7.4.1 Product.................................................................................................................................. 108
7.4.2 Pricing................................................................................................................................... 108
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7.4.3 Place...................................................................................................................................... 108
7.4.4 Promotion.............................................................................................................................. 108
7.4.5 Integrative and Systemic Factors.......................................................................................... 108
7.5 Operations Plans and Policies............................................................................................................... 109
7.5.1 Production System................................................................................................................ 109
7.5.2 Operations Planning and Control.......................................................................................... 109
7.5.3 Research and development................................................................................................... 109
7.6 Personnel Plans and Policies..................................................................................................................110
7.6.1 Personnel System...................................................................................................................110
7.6.2 Organisational and Employee Characteristics.......................................................................110
7.6.3 Industrial Relations................................................................................................................110
7.7 Information Management Plans and Policies........................................................................................111
7.7.1 Factors related to Acquisition and Retention of Information................................................111
7.7.2 Factors related to Processing and Synthesis of Information..................................................111
7.7.3 Factors related to Retrieval and Usage of Information..........................................................111
7.7.4 Factors related to Transmission and Dissemination..............................................................111
7.7.5 Integrative, Systematic and Supportive Factors....................................................................112
7.8 Integration of Functional Plans and Policies.........................................................................................112
7.8.1 Consideration in Integration .................................................................................................113
7.8.2 Mechanism to Integrate Functional Plans and Policies.........................................................113
7.9 Operational Implementation..................................................................................................................113
7.9.1 Operational Effectiveness......................................................................................................114
7.9.2 Areas of Operational Effectiveness........................................................................................114
7.9.3 Productivity............................................................................................................................114
7.9.4 Processes................................................................................................................................115
7.9.5 People.....................................................................................................................................115
7.9.6 Pace........................................................................................................................................115
7.9.7 Choice of Operational Implementation Practices..................................................................115
7.9.8 Applying Operational Implementation Practices...................................................................116
Summary.....................................................................................................................................................117
References...................................................................................................................................................117
Recommended Reading.............................................................................................................................118
Self Assessment...........................................................................................................................................119
Chapter VIII.............................................................................................................................................. 121

Strategy Evaluation and Control............................................................................................................. 121
Aim............................................................................................................................................................. 121
Objectives................................................................................................................................................... 121
Learning outcomes...................................................................................................................................... 121
8.1 An Overview and nature of Strategic Evaluation and Control............................................................. 122
8.1.1 Importance of Strategic Evaluation...................................................................................... 122
8.1.2 Participants in Strategic Evaluation...................................................................................... 122
8.1.3 Barriers in Evaluation........................................................................................................... 123
8.1.4 Requirements for Effective Evaluation................................................................................. 123
8.1.5 Characteristics of an Effective Evaluation Strategy............................................................. 123
8.2 Strategic Control................................................................................................................................... 123
8.2.1 Purpose of Strategic Control................................................................................................. 124
8.2.2 Types of Strategic Control.................................................................................................... 124
8.2.3 Operational Control.............................................................................................................. 124
8.2.4 Difference between Strategic Control and Operational Control........................................... 125
8.3 Techniques of Strategic Evaluation and Control................................................................................... 125
8.3.1 Evaluation Techniques for Strategic Control........................................................................ 125
8.3.2 Evaluation Techniques for Operational Control................................................................... 126
8.3.3 Special Purpose Techniques.................................................................................................. 126
8.3.4 Auditing Techniques............................................................................................................. 127
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8.4 Process of Strategic Control.................................................................................................................. 127
8.4.1 Steps in Process of Strategic Control.................................................................................... 127
8.4.2 Managing Strategic Control.................................................................................................. 130
8.4.3 Successful Maintenance of Strategic Control....................................................................... 130
8.5 Role of Organisational Systems in Evaluation..................................................................................... 132
8.5.1 Role of Information System.................................................................................................. 132
8.5.2 Role of Control System......................................................................................................... 132
8.5.3 Role of Reward System........................................................................................................ 132
Summary.................................................................................................................................................... 134
References.................................................................................................................................................. 134
Recommended Reading............................................................................................................................ 134
Self Assessment.......................................................................................................................................... 135
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List of Figures
Fig. 1.1 Types of business policy.................................................................................................................... 5
Fig. 1.2 Purpose of business policy................................................................................................................ 9
Fig. 2.1 Flat structure.................................................................................................................................... 17
Fig. 2.2 Increasing use of technology........................................................................................................... 17
Fig. 2.3 Functional form............................................................................................................................... 18
Fig. 2.4 A modern version of the multi-divisional organisation................................................................... 18
Fig. 2.5 Matrix form...................................................................................................................................... 19
Fig. 2.6 Facets of strategic management....................................................................................................... 22
Fig. 2.7 Strategic decision-making process.................................................................................................. 23
Fig. 3.1 Hierarchy of strategic intent............................................................................................................ 35
Fig. 3.2 Contents of ideal mission statements............................................................................................... 38
Fig. 3.3Dimensions of business definition.................................................................................................... 40
Fig. 3.4 Types of objectives.......................................................................................................................... 43
Fig. 3.5 Areas of setting objectives............................................................................................................... 44
Fig. 3.6 The 'Cause and Effect' relationships among the four perspectives.................................................. 46
Fig. 3.7 The balance scorecard model.......................................................................................................... 46
Fig. 4.1 Steps in strategy formulation........................................................................................................... 52
Fig. 4.2 Different kinds of grand strategic alternatives................................................................................ 58
Fig. 5.1 Strategic choice process................................................................................................................... 74
Fig. 5.2 Gap analysis..................................................................................................................................... 74
Fig. 5.3 Balanced scorecard.......................................................................................................................... 77
Fig. 5.4 SWOT matrix.................................................................................................................................. 80
Fig. 5.5 Porters five forces model of competition in an industry................................................................ 81
Fig. 6.1 A model of strategy implementation................................................................................................ 92
Fig. 6.2 The pyramid of strategy activation.................................................................................................. 93
Fig. 6.3 Strategy implementation through project management................................................................... 96
Fig. 6.4 Making of a strategic budget........................................................................................................... 98
Fig. 7.1 The configuration of functional plans and policies....................................................................... 106
Fig. 7.2 Integration of functional plans and policies...................................................................................112
Fig. 7.3 The framework of strategy implementation...................................................................................114
Fig. 8.1 Four interrelated organisational variables..................................................................................... 131
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List of Tables
Table 2.1 Strategic management process...................................................................................................... 21
Table 2.2 Characteristics of dimension......................................................................................................... 25
Table 3.1 Difference between vision and mission........................................................................................ 40
Table 3.2 Examples of strategic and financial objectives............................................................................. 43
Table 4.1 Differences between operational planning and strategic planning............................................... 57
Table 4.2 Evolution of structure and strategy............................................................................................... 63
Table 4.3 Planning evolution........................................................................................................................ 64
Table 4.4 Planning modes............................................................................................................................. 64
Table 4.5 Subsidiary involvement................................................................................................................. 65
Table 4.6 Long range planning..................................................................................................................... 66
Table 4.7 Subsidiary development path........................................................................................................ 67
Table 8.1 Differences between strategic control and operational control................................................... 125
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Abbreviations
AACSB - American Assembly of Collegiate Schools of Business
BCG - Boston Consulting Group
BI - Business Intelligence
CEO - Chief Executive Officer
CPM - Critical Path Method
CRM - Customer Relationship Management
DWC - Days of Working Capital
ERP - Enterprise Resource Planning
EVA - Economic Value Added
FMCG - Fast Moving Consumer Goods
HPCL - Hindustan Petroleum Corporation Ltd.
MBO - Management by Objectives
MDF - Multi-divisional Form
MNEs - Multinational Enterprises
MoEFs - Ministry of Environment and Forests
MoU - Memorandum of Understanding
MRTP - Monopolies and Restrictive Trade Practices
PERT - Programmed Evaluation and Review Technique
POS - Points of Sale
RETREAT - Retreat for Environmental Awareness and Training
RFID - Radio Frequency Identification
ROI - Return on Investment
SBU - Strategic Business Unit
SCM - Supply Chain Management
SEBI - Securities and Exchange Board of India
SWOT - Strengths, Weaknesses, Opportunities and Threats
TERI - Tata Energy Research Institute
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Chapter I
Introduction to Business policy
Aim
The aim of this chapter is to:
introduce the concept of business policy
explain the nature of business policy
discuss the purpose and objectives of business policy
Objectives
The objectives of this chapter are to:
identify the essentials of good business policy
classify the types of business policies
describe the term strategic business unit
Learning outcomes
At the end of this chapter, you will be able to:
explain the role of business policy
understand the evolution of business policy
comprehend the importance of business policy
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1.1 Introduction to Business Policy

Business policy is a predetermined course of action, which is established to provide a guide toward accepted business
strategies and objectives. Policies identify the key activities and provide a general strategy to decision-makers on how
to handle issues as they arise. This is accomplished by providing the reader with limits and a choice of alternatives
that can be used to guide their decision making process as they attempt to overcome problems.
1.2 Evolution of Business Policy as a Discipline

Business policy is a mandatory course, which is usually included in a typical management studies curriculum.
Almost all management education programmes offered by the universities and management institutes in India
include a business policy course.
1.2.1 The Genesis of Business Day

The origin of business policy can be tracked back to 1911, when the Harvard Business School introduced an integrative
course in management aimed at providing general management capability. This course was based on case studies,
which had been in use at the School for instructional purposes since 1908.
The actual movement for introducing business policy in the curriculum of business schools came with the publication
of two reports in 1959. The Gordon and Howell report, sponsored by the Ford Foundation, had recommended a
capstone course of business policy, which would give students an opportunity to pull together what they have learned
in the separate business fields and utilise this knowledge in the analysis of complex business problems. The Pierson
report that has published simultaneously had made similar recommendations.
In 1969 the American Assembly of Collegiate Schools of Business (AACSB), a regulatory body for business
schools, made the course of business policy a mandatory requirement for the purpose of recognition. In the last
two decades, business policy has become an integral part of management education curriculum. The practice of
including business policy in the management curriculum has spread from the US, to other parts of the world. The
contents of the course, teaching methodology and so on, vary from institution to institution. The term Business
Policy has been used traditionally, though new titles such as strategic management, corporate strategy and policy
and so on are now used extensively for the course.
1.2.2 Evolution based on Managerial Practices

Starting from day-to-day planning in earlier times, managers recently tried to anticipate the future through the
preparation of budgets and by using control systems like capital budgeting and management by objectives. However,
as these techniques were unable to emphasise the role of the future adequately, long-range planning came into
use. But, soon, long-range planning was replaced by strategic planning, and later by strategic management- a term
that is currently being used to describe the process of strategic decision-making. Strategic management forms the
theoretical framework for business policy courses today.
1.2.3 Historical Perspective of the Evolution of Business Policy

The evolution of business policy was viewed in terms of four paradigms shifts. These shifts can be considered as
four overlapping phases in the development of the subject of business policy. The first phase can be traced back to
the mid 1930s, rested on the paradigm of ad hoc policy making. The need for policy making arose due to the nature
of the American firms of that period. The firms, which had originally commenced operations in a single product line
catering to a unique set of customers in a limited geographical area, expanded in one or all of these three dimensions.
Informal control and coordination became partially irrelevant as expansion took place and the need to integrate
policies to guide managerial action. Policy making became the prime responsibility of erstwhile entrepreneurs who
later assumed the role of senior management.
Due to the increasing environmental changes in the 1930s and 40s in the US, planned policy formulation replaced
ad hoc policy-making. Based on this second paradigm, the emphasis shifted to the integration of functional areas
in a rapidly changing environment.
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Increasing complexity and accelerating changes in the environment made the planned policy paradigm irrelevant
since, the needs of a business could no longer be served by policy making and functional area integration only.
By the 1960s, there was a demand for a critical look at the basic concept of business and its relationship to the
environment. The concept of strategy satisfied this requirement and the third phase, based on a strategy paradigm,
emerged in the early sixties. The current thinking, which emerged in eighties, is based on the fourth paradigm of
strategic management. The initial focus of strategic management was on the intersection of two broad fields of
enquiry: the strategic processes of business firms and the responsibilities of general management.
1.2.4 Pointers to the Future

The resolution of strategic issues that affect the future of a business firm has been a continual endeavour in the
subject of business policy. The endeavour is based on the development of strategic thinking. The general principles
undergirding strategic thinking have been the focus of the efforts of researchers and academicians in the field of
business policy.
The direction in which strategic management is moving can be anticipated from an emerging comprehensive
approach of management of discontinuous change, which takes account of psychological, sociological, political
and systematic characteristics of complex organisations.
With the emergence of futuristic organisations, the demands on business policy are expected to rise tremendously.
Responding to the need for evolving new approaches to the teaching of business policy, the AACSB no longer insists
on the provision of just one course in this area. Now there is an emerging trend to have several courses, such as, the
theory of strategy, competitive strategy, industry dynamics and so on in the curriculum.
1.3 Meaning of Business Policy

According to William F Glueck:
Development from business policy arose from the use of planning techniques by managers. Starting from day-to-day
planning in earlier times, managers tried to anticipate the future through preparation of budgets and using control
systems like capital budgeting and management by objectives. With the inability of these techniques to adequately
emphasise the role of the future, long range planning came to be used. Soon, Long range planning was replaced
by strategic planning, and latter by strategic management: a term that is currently used to describe the process of
strategic decision making.
1.3.1 Definitions
Many other experts define business policy as follows:
Terry, George: A business policy in an implied overall guide setting up boundaries that supply the general
limits and direction in which managerial action will take place
Rodgers, David C.: A business policy is one which focuses attention on the strategic allocation of scarce
resources: human, financial, physical, or intangible. Conceptually speaking, strategy is the direction of such
resource allocation while planning is the timing of allocation.
Hickman C.R.: Business policy is a device which is used to execute the alternate solution to the second
plan
A general definition: It is a principle or a group of related principles, along with their consequent rules of action
that provide for the successful achievement of specific organisation or business objectives.
1.3.2 Need of Business Policy

Business policies tend to serve as precedents and, thus, reduce the repetitive rethinking of all the factors of individual
decisions by saving time. Policies aid in coordination, if a member of individuals are guided by the same policies,
they can predict more accurately the actions and decisions of others.
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Policy provides the stability in the organisation, a certainty of action is assured even though the top management
may change. The policies continue and this continuity promotes stability in the organisation and, thus, reduces
frustrations of members.
Clear policies encourage definite individual decisions. Each functional manger has clear understanding of the
range policy within the organisation, which helpful to make decision and, thus, feel less uncertain as to whether
he\she can give answers to subordinates without getting into trouble.
Policies clearly specify routes towards the related goals of the organisation. Policies serve as a standard or
measuring yard for performance evaluation in the organisation.
Sound policies help to build up employee enthusiasm and loyalty for the organisation. This is specifically true
when they reflect established principles of fair play and justice and when they help people to know that within
an organisation.
They setup the pattern of behaviour and permit to participants to plan with a greater degree of confidence and
lead to better co-operation in the organisation.
Policies are monitored and controlled, which guides for delegated decision-making. They seek to ensure
consistency and uniformity in decisions relating to problems that recur frequently and under similar. But not
identical circumstances.
Policies with clarity, relevance and reasonableness enable a firm to make the optimum utilisation of scarce
available resources and, thereby, bring about an efficient level of operations, which lead to minimisation of
wastage.
Corporate policies always build-up an image of the business in the eyes of the public and this brings in more
reputation, goodwill, sale and profits so that more and more acts of social responsibilities may be undertaken
by organisation.
Proper administration and implementation of policies that encourage initiative in the employees is necessary.
It will encourage the employees to act with full responsibility, within the framework of the orgainsational
policies. This naturally improves the working environment like very good-labour management relations within
the organisation.
1.3.3 Essentials of a Good Business Policy

A good business policy require following things:
A good business policy should be based on objectives of the business.
It should be able to relate the objectives to physical factors and company personnel.
It must be prepared on facts and sound judgement.
It should be able to expect uncertainties in the future.
It must be in conformity with the government rules.
It should be made in accordance with the ethics and social responsibility of business.
It should be easy to understand and simple to follow.
It must assist and help top level management in framing rules and regulations for the organisations.
It should be feasible to implement.
A flexible and stable policy should be in conformity with the organisational goals.
1.3.4 Role of Business Policy

A sound business policy makes the contribution in the following aspects:
Objectives: A business policy plays a vital role in formulation of the objectives of the business. Objectives and
policies are interrelated.
Linkage between physical factors and personnel: A business policy relates the objectives to physical factors
and company personnel. Thus, employees and physical factors will work on the basis of business policy.
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Communication: A good policy is easy to communicate with all categories of the organisation. It can be
supplementary to overall corporate planning.
Comprehensiveness: Business policy gives comprehensiveness to achieve organisational goals.
1.3.5 Different Types of Business Policy

The different types of business policy are:
On the basis of level of

management
On the basis of
functional areas
On the basis of
expression
Fig. 1.1 Types of business policy
On the basis of level of management

Business policies are framed at different levels of the management, and classified as given below.
Top management level: These policies are derived from the top management for planning and decision making.
The top management principally comprises of the board of directors, chairman, vice president, managing director,
general manager and so on, and the top management frames the policies by themselves and it is, therefore,
responsible for these. These people are the ultimate level of authority in the operation of the enterprise. The
policy makers plan to set the objectives, define the goals, establish the policies, see that these policies are put
into effect and judge the results.
The top management policies involves the long range product selection extent of its diversification, acquisitions
and mergers of two or more units, spin-offs-their nature, extent and liability-sales forecasting, sizing the
enterprise, process of selection, machine selection, determining site, location and needs of the plant, decisions
regarding investment of available resources in capital and human research development, settlement of problems
of executives regarding their promotion, transfer, retirement and so on, and accomplishment of the organisation
objectives.
Middle level management policies: These policies are the outcome of the deliberations taken by executives
at the upper middle and middle level. The upper middle management consists of the head of the personnel
administration department like production manager, sales manager, marketing manager, financial manager,
deputy general manager and assistant manager and so on, their executives are responsible for research, finance,
accounting, marketing and so on.
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They lay down the policies regarding the establishment of organisation, selection of the best-suited executives,
staff and employees to carry out the plans, installation of proper departments, designing of operating policies
and operating routines, deciding processes, methods and techniques of production which explore new markets
and decisions about channels of distribution for assignment of duties to each department and to each individual,
who are deciding about source of manpower, resources and their selection, deciding about wage, salary and
incentive plans for them, obtain necessary finances, controlling costs and solving problems of actual sales
activities and so on.
Lower level management policies: The lower level management people are men and women who have direct
supervision over the working force in office, factory, sales field, and other areas of activity of the organisation.
They are directly related to the accomplishment of the task for the small sub-divisions of the whole enterprise.
They chalk out policies or the assignment of the jobs to the best suited persons in the organisation. The lower
level management policies guidelines of the provision of adequate tools, raw materials, training of the workers,
issuing of orders, maintenance of quality, improving working conditions, morale, maintaining discipline and
controlling absenteeism and so on.
Operating Force Policies: These are the rules or a code for doing the job which enrich the performance of
a particular worker. These are usually written down in the notebooks of the organisation. Operating policies
emphasises how long each job work should take time, what tricks of the trade are required, and what quality
feature are emphasised.
On the basis of functional areas

On the basis of functional areas, business policies may be classified as production policies, marketing and sales
polices financial policies and human resource development policies.
Production Department Policies: Production policies are framed and concerned with the following issues:
The product to be produced (product line, type of product)
The type of technology, processes, equipment and tools, to be used.
The selection of factory\office\plant site, location, and layout.
The decisions regarding the scale of production.
Making of production budgets, manufacturing costs and deciding about total cost and cost of installation
and its maintenance.
The selecting of junior executives.
Inventory control
Collective bargaining and labour relations
Organisation and co-ordination of their activities
Selection of systems of quality, cost production control.
Production policies are the basic determinants of the total policy making procedure.
Marketing and Sales Department policies: These policies relate to policies in market analysis, business law,
display, salesmanship and advertising and so on, i.e. they are concerned with total process of marketing, which
covering both product mix and market mix. The product mix includes decisions regarding the type, quantity
and quality of product design, contents shape, methods and techniques of production and so on.
Financial Department Policies: Financial policies may be regarded as the most important business policies
of the organisation. It depends on the entire success and failure of a business unit of the organisation. Properly
and careful framed financial policies help in effective utilisation of the resource like men, machine, market,
method, materials and long term survival of the business while improper framed financial policies ruin the
business activities of an organisation.
Human Resource Development Department Policy: Personal policy are concerned with human resource
utilisation, its recruitments and selection, source of supply, training of employment, training of the employees
at whole cost; the promotion and transfer policy, the issues regarding compensation to the employees, wage
incentive and other perks, benefits and services and so on.
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On the basis of expression
On the basis of expression, policy may be classified into express policies, oral policies and written policies.
Express Policy: Express policies are those policies, which expressed in terms in clear words either orally or
in writing.
Oral Policies: Oral policies are those, which are issued or stated by the management in terms of word of
mouth to their subordinates. Such policies are generally adopted when an organisation is small and face-to-face
communication is desired. Since they are direct, they are more effective and, hence, can be understood easily and
implemented smoothly. They are more flexible and can be adjusted as per different organisational conditions.
Written Policy: Written policies are those, which are normally, put in black and white, and stated in clear terms
so that persons whom they are addressed to understand it easily. For putting the policies in written, much care
has to be taken. However, written policies cannot be easily changed and perfect secrecy, when desired cannot
be maintained. Further, writing of good policies needs fluency in English that every person does not possess.
Even then, in all large organisations, written policies are a rule rather than exception.
1.3.6 Strategic Business Unit ( SBU)

Strategic Business Unit (SBU) is any part of a business organisation which is treated separately for strategic
management purposes. When organisations face difficulty in managing divisional operations due to an increasing
diversity, size and number of divisions, it become difficult for the top management to exercise strategic control.
SBU is an organisation of diversified businesses, multi-product, multi-service, multi-divisionalised firms. The head
of each SBU is its chief executive. If the company is structured and based on modern principles of organisation,
like autonomy, responsibility and empowerment, corporate strategies encourage the SBU level chief executives in
formulating their strategies.
SBU plays a vital role in strategic management. The chief of SBU performs the role similar to that of managing director
and attempts to achieve the best results in the business units within the facilities and resources provided, autonomy
and freedom sanctioned and under the overall guidelines of the corporate objectives and policies. SBU is encouraged
to start new ventures, or the SBU itself may be a new venture established within the present corporation.
1.4 Importance of Business Policy

Business policy is important as a course in the management curriculum and as a component of executive development
programmes for middle-level managers who are preparing to move up to the senior management level. A study of
business policy fulfils the needs of management students as well as those of middle-level managers.
1.4.1 For Learning the Course

Business policy seeks to integrate the knowledge and experience gained in various functional areas of management.
It enables the learner to understand and make sense of the complex interaction that takes place between different
functional areas.
Business policy deals with the constraints and complexities of real-life businesses. In contrast, the functional area
courses are based on a structured, specialised and well-developed body of knowledge, resulting from a simplification
of the complex overall tasks and responsibilities of the management.
To develop a theoretical structure of its own, business policy cuts across the narrow functional boundaries and draws
upon a variety of sources viz.other courses in the management curriculum and a wide variety of disciplines, like
economics, sociology, political science, and so on. Through this business policy offers a very broad perspective to
its students.
Business policy makes the study and practice of management more meaningful as one can view business decision-
making in its proper perspective.
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1.4.2 For Understanding the Business Environment

Irrespective of the level of management a person belongs to, business policy helps to create an understanding of
how policies are formulated. This helps in creating an appreciation of the complexities of the environment that the
senior management faces in policy formulation.
By gaining an understanding of the business environment, managers become more receptive to the ideas and
suggestions of the senior management. Such an attitude on the part of the management makes the task of policy
implementation simpler.
When they become capable of relating environmental changes to policy changes within an organisation, managers
feel themselves to be a part of a greater design.
1.4.3 For Understanding the Organisation

Business policy presents a basic framework for understanding strategic decision-making while a person is at the
middle level of management. Such a framework, combined with the experience gained while working in a specialised
functional area, enables a person to make preparations for handling general management responsibilities.
Business policy brings the benefit of years of distilled experience in strategic decision-making to the organisation
and also to its managers.
An understanding of business policy may also lead to an improvement in job performance. As a middle-level
manager, a person is enabled to understand the linkage between the different subunits of an organisation and how
a particular subunit fits into the overall picture.
1.4.4 For Personal Development

A study of business policy offers considerable scope for personal development. It is a fact of organisational life that
the different subunits within an organisation have a varying value and importance at different times. It often happens
that a company, which has followed a production-orientation as a matter of policy, gradually shifts its emphasis to
marketing, maybe due to increasing competition. An understanding of business policy enables the executives to
avail an opportunity or avoid a risk with regard to career planning and development.
While making a career choice, the study of business policy provides an adequate grounding for understanding the
macro factors and their impact at the micro level. By gaining an understanding of such an impact, an executive is
better placed to identify the growth areas.
Business policy offers a unique perspective to executives to understand the senior managements viewpoint. With such
an understanding the chances are that a proposal made by an executive will be appreciated by senior managers.
The importance of business policy stems from the fact that it offers advantages to an executive from multiple
sources. Apart from the intangible benefits, an executive gains an understanding of the business environment and
the organisation. Such an understanding can help considerably in career planning and development.
1.5 Purpose of Business Policy

A business policy course seeks to integrate the knowledge gained in various functional areas so as to develop a
generalist approach in management students. Such an approach is helpful in viewing organisational problems in
their totality.
The viewpoint adopted in business policy is different from that adopted in functional area courses. A course in
business policy helps in understanding a business as a system consisting of a number of sub-systems. Any action
taken in one sub-system has an impact on other sub-systems, and on the system as a whole. It is very essential for
the top management in any organisation to adopt a systems approach for decision-making.
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The problem of declining sales volume is apparently a marketing problem. Declining sales volume may be due to
a rising level of competition, inefficient distribution, faulty sales promotion, inappropriate recruitment policies,
misdirected training, inadequate sales promotion, limited commission to sales personnel, falling quality standards,
a decrease in the variety of products offered, out-dated design, and so on. A problem, which apparently seems to be
a marketing problem, may be due to factors not necessarily within the control of marketing department. A solution
to the problem would necessitate transgressing the artificial boundaries between the functional areas, each of which
is looked after by a team of specialists. The purpose of business policy can be summarised as:
To integrate the knowledge gained in various functional areas of management.
To adopt a generalist approach towards problem-solving.
To understand the complex inter-linkages operating within an organisation through

the use of a systems approach to decision-making and relating these to changes taking
place in the external environment.
Fig. 1.2 Purpose of business policy
1.6 Objectives of Business Policy

The objectives of the business policy have been stated by authors in terms of knowledge, skills and attitudes. These
objectives can be derived from the purpose of business policy.
1.6.1 In Terms of Knowledge

Objectives of business policy in terms of knowledge are listed below:
The learners of business policy have to understand the various concepts involved. Many of these concepts, like,
strategy, policies, plans and programmes are encountered in the functional area courses too. It is imperative to
understand these concepts specifically in the context of business policy.
Knowledge of the external and internal environment and how it affects the functioning of an organisation is vital
to the understanding of business policy. Through the tools of analysis and diagnosis, a learner can understand
the environment in which a firm operates.
Information about the environment helps in the determination of the mission, objectives and strategies of a firm.
The learner appreciates the manner in which strategy is formulated.
The implementation of a strategy is a complex issue and is invariably the most difficult part of strategic
management. Through the knowledge gained from business policy, the learner will be able to visualise how the
implementation of strategic management can take place.
To learn that the problems in real-life business are unique and so are the solutions, is an enlightening experience
for the learners. The knowledge component of such an experience stresses the general approach, to be adopted in
problem-solving and decision-making. With a generalised approach, it is possible to deal with a wide variety of
situations. The development of this approach is an important objective to be achieved in terms of knowledge.
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To survey the literature and learn about the research taking place in the field of business policy is also an
important knowledge objective.
1.6.2 In Terms of Skills

Objectives of business policy in terms of skills are listed below:
The attainment of knowledge will lead to the development of skills through its application. Such an application
can take place by an analysis of case studies and their interpretation, and by an analysis of the business events
taking place around us.
The study of business policy should enable a student to develop analytical ability and use it to understand the
situation in a given case.
Further, the study of business policy should lead to the skill of identifying the factors relevant in decision
making. The analysis of the strengths and weaknesses of an organisation, the threats and opportunities present
in the environment, and the suggestion of appropriate strategies and policies form the core content of general
management decision-making.
The above objectives, in terms of skills, increase the mental ability of the learners and enable them to link theory
with practice. Such ability is important in managerial decision-making where a large number of factors have to
be considered at once to suggest appropriate action.
As a part of business policy study, case analysis leads to the development of oral as well as written communication
skills.
1.6.3 In terms of Attitude

Objectives of business policy in terms of attitude are listed below:
The attainment of the knowledge and skill objectives should lead to the inculcation of an appropriate attitude
among the learners. The most important attitude that develops through this is that of a generalist, which enables
the learners to approach and assess a situation from all possible angles.
By acting in a comprehensive manner, a generalist is able to function under conditions of partial ignorance by
using their judgement and intuition. Experience has shown that managers, especially in the area of long-range
planning, have to work with incomplete information. A specialist would tend to postpone a decision under such
conditions but a generalist would go ahead with whatever information is available.
For a general manager, information and suggestions are important and he /she must possess a liberal attitude and
be receptive to new ideas. Dogmatism with regard to techniques should be replaced with a practical approach
to decision-making for problem-solving.
It is important to have the attitude to go beyond and think while facing a problematic situation. Developing
a creative and innovative attitude is the hallmark of a general manager who refuses to be bound by precedents
and stereotyped decisions.
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Summary
Business policy is a predetermined course of action which is established to provide a guide toward accepted
business strategies and objectives.
The origins of business policy can be tracked back to 1911, when the Harvard Business School introduced an
integrative course in management aimed at providing general management capability.
The actual movement for introducing business policy in the curriculum of business schools came with the
publication of two reports in 1959: The Gordon and Howell report and The Pierson report.
In 1969 the American Assembly of Collegiate Schools of Business (AACSB), a regulatory body for business
schools, made the course of business policy a mandatory requirement for the purpose of recognition.
The resolution of strategic issues that affect the future of a business firm has been a continual endeavour in the
subject of business policy. This endeavour is based on the development of strategic thinking.
Business policy has been defined as a principle or a group of related principles, along with their consequent
rules of action that provide for the successful achievement of specific organisation or business objectives.
Business policies clearly specify routes towards the related goals of the organisation. Policies serve as a standard
or measuring yard for evaluation performance in the organisation.
The different types of business policy depends on the basis of level of management; on the basis of functional
areas; and on the basis of expression.
Strategic Business Unit (SBU) is any part of a business organisation which is treated separately for strategic
management purposes. SBU is an organisation of diversified businesses, multi-product, multi-service, multi-
divisionalised firms.
Business policy is important as a course in the management curriculum and as a component of executive
development programmes for middle-level managers who are preparing to move up to the senior management
level.
A business policy course seeks to integrate the knowledge gained in various functional areas so as to develop a
generalist approach in management students. Such an approach is helpful in viewing organisational problems
in their totality.
References
Wheelen, T. and Hunger, J., 2009. Concepts in Strategic Management & Business Policy, 12th ed., Prentice
Hall.
Owens, R., 1954. Introduction to business policy. R.D.Irwin.
courseonline3000, 2007. Strategic Management-Part 1 to 7 [Video Online] Available at: <http://www.youtube.
com/watch?v=5_Uu1f0tSak>. [Accessed 7 August 2011].
DrDragseth, 2008. Business Policy: Week 1 [Video Online] Available at: <http://www.youtube.com/
watch?v=RRVU1Uf64RA>. [Accessed 7 August 2011].
oppapers .com, 2011. Introduce To Business policy [Online] Available at: <http://www.oppapers.com/essays/
Introduction-To-Business-Policy/482365>. [Accessed 7 August 2011].
Hiriyappa, B.2011. Business Policy and Strategic Management [Online] Available at: <http://www.scribd.
com/doc/31524796/isbn-978-1448604333-Business-Policy-and-Strategic-Management>. [Accessed 7 August
2011].
Recommended Reading
Sekhar, G., 2010. Business Policy and Strategic Management. I.K.International Publishing House Pvt. Ltd.
Kazmi, A., 2002. Business Policy and Strategic Management, 3rd ed., Tata Mcgraw-Hill.
Luffman, G. and Sanderson, S., 1991. Business Policy: An Analytical Introduction, 2nd ed., Blackwell Pub.
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Self Assessment
1. ______________________policies may be regarded as the most important policies of an organisation.
a. Financial
b. Business
c. Production
d. Demand
2. Match the following:

A. These are the policies, which are normally, put in black and white and stated in
1. Express policies
clear terms so that persons whom they are addressed to easily understand them.
2. Oral policies B. These are the policies, which expressed in clear words either orally or in writing.
C. Is defined as a principle or a group of related principles, along with their

3. Written policies consequent rules of action that provide for the successful achievement of specific
organisation or business objectives.
D. These are the policies, which are issued or stated by the management verbally to
4. Business policy
their subordinates.
a. 1-A, 2-D, 3-B, 4-C
b. 1-D, 2-B, 3-A, 4-C
c. 1-D, 2-B, 3-C, 4-A
d. 1-B, 2-D, 3-A, 4-C
3. Which of the following statements is false?

a. Business policy is a mandatory course which is usually included in a typical management studies
curriculum.
b. Strategic management forms the practical framework for business policy courses today.
c. The resolution of strategic issues that affect the future of a business firm has been a continual endeavour in
the subject of business policy.
d. Sound policies help to build up employee enthusiasm and loyalty for the organisation.
4. Business policy presents a basic framework for understanding strategic _____________ while a person is at
the middle level of management.
a. policies
b. issues
c. decision-making
d. management
5. The _______level management people have direct supervision over the working force in office, factory, sales
field, and other areas of activity of the organisation.
a. top
b. middle
c. lower
d. operational
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6. Which of the following statements is true?
a. A good business policy should be based on ethics of business.
b. Business policy must be able to assist and help lower level management in framing rules and regulations
for the organisations.
c. Business policy should be made in accordance with the ethics and social responsibility of business.
d. Business policy should be able to expect certainties in the future.
7. Which of the following are the rules or codes for doing the job, which enrich a particular workers
performance?
a. Operational force policies
b. Written policies
c. Oral policies
d. Express policies
8. __________________is a part of a business organisation, which is treated separately for strategic management
purposes.
a. Strategic Management (SM)
b. Strategic Business Unit (SBU)
c. Strategic Policy (SP)
d. Strategic Planning (SP)
9. Policies are monitored and controlled in the organisation, which guides for ___________ decision-making.
a. delegated
b. individual
c. flexible
d. efficient
10. ____________policies always build-up an image of the business in the eyes of the public which brings in more
reputation and goodwill.
a. Business
b. Strategic
c. Corporate
d. Organisational
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Chapter II
An Overview of Strategy Management
Aim
introduce the term strategy
describe the strategic decision making process
explain strategic planning
Objectives
describe functional strategic decisions
explain the type of strategies
explicate the levels of strategic management
Learning outcomes
discuss strategic choice and strategic forecasting
understand globalisation and environmental sustainability
comprehend the facets of strategic management
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2.1 An Overview of Strategy Management
The word strategy came from the Greek word strategos, which means a general. At that time, strategy literally meant
the art and science of directing military forces. Today, strategy is used in business to describe how an organisation
achieves its objectives. Strategic management may be defined as a systematic approach to positioning the business
in relation to its environment to ensure continued success and offer security from surprises. Strategic managers
should always aim at achieving pre-determined goals of the organisation.
2.1.1 Definition of Strategy

Strategy is defined as a unified, comprehensive and integrated plan designed to assure that the basic objective of
the enterprise is achieved According to Ansoff, Strategy is a rule for making decisions. Definitions by other
authors are given below.
Alfred D. Chandler: Strategy can be defined as the determination of the basic long-term goals and objectives
of an enterprise and the adoption of courses of action and the allocation of resources necessary for carrying out
these goals.
Kenichi Ohame: Strategy is the way in which a corporate endeavours to differentiate itself positively from
its competitors, using its relative strengths to better satisfy customer needs.
William F. Glueck: Strategic management is a stream of decisions and actions which leads to the development
of an effective strategy, which helps to achieve corporate objectives.
2.1.2 Types of Strategy

Strategy can be broadly classified into three types namely:
Corporate Strategy
Corporate Competitive Strategy
Operational Strategy
Corporate strategy
Corporate strategy is concerned with broad issues, such as, which types of business the company should be in. It
explains overall direction, in terms of its general attitude toward growth and the management of its various business
and product lines. Strategies have an important role to play here. Corporate strategies may fit within main categories
of stability, growth and retrenchment.
Corporate strategy is the way in which corporate endeavours differentiate itself positively from its competitors,
using its relative strengths to better satisfy customer needs.
Corporate strategy applies to large companies, which are divided into a number of discrete and fairly autonomous
units. Holding companies are the best examples of corporate strategy, in which a number of companies are grouped
together, usually for financial reasons, such as the efficient allocation of capital and investment.
Corporate strategy of an organisation is a concept expressed or implied by the organisations leader for:
The long-term objectives.
The broad constraints and policies either self-imposed by the leader or accepted by him from his superiors that
currently restrict the scope of organisation activities.
The current set of plans and near-term goals that have been adopted in their expectations of contributing to the
achievement of organisation objectives.
The corporate strategic manager should always aim at achieving pre-determined goals of the organisation. Further,
organisations have to work with brevity and variety. Thoughts should become actions. Actions will lead to results.
Result-oriented action is the need of the hour.
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Corporate strategy has two main aspects:

Formulation of strategy: Strategy formulation is the process of deciding on objectives, changes in objectives,
the resources used to attain these objectives and the policies that are to govern the acquisition, use and disposition
of resources. Formulation of strategy involves decision-making by corporate management that help in the
following aspects:
Objectives, goals and aim of organisation can be determined.
Preparation of long-term and short-term plans to achieve aim and goals.
Strategy implementation: The decisions of organisations, which are based on formulated strategies, should
be implemented in proper manner. These decisions primarily comprise of administrative polices regarding
resources, structure and performance measurement. The essence of strategy implementation may be said to
lie in the choice of organisational structure, organisational process and pattern of leadership appropriate for
accomplishing the chosen strategy.
Corporate competitive strategy

Business policy deals with how strategic business units compete in different markets. This occurs at the business unit
level or product level. These strategies influence the allocation of resources to these units. This allocation may be
based on the attractiveness of the markets in which Strategic Business Units (SBU) operate and the firms competitive
strengths. Business strategies may fit within the overall categories of competitive or comparative strategies.
Operational strategy
Operational strategy explains about functional level contribution to corporate and business strategies. These types of
strategies require various functional decisions like financial, marketing, human resource management and so on.
2.1.3 Organisation and Strategy

While organising a matter of decision-making we decide to arrange the people, jobs, and positions that are available
to meet managements needs. The task, the technology, and our knowledge of what has worked have influenced
our choice of organisational design. The classic theorists, Taylor, Fayol and Weber contributed to the architectural
perspective on organisations by focusing in their structural attributes:
Size
Number of personnel, output, resources, or capacity provides measures of an organisation of an organisations size.
As organisations grow there is a greater need to regain the coordination that could be accomplished informally in
a small group, and there is a tendency for division of labour with more and more specialists and departments. To
achieve greater coordination, layers of management may be added to create hierarchy.
As hierarchy increases power to lower managers. Decentralisation can occur as lower level managers assume decision-
making, but to retain some degree of standard operational procedures, the organisation relies on written policies
and procedures. This formalisation of organisation rules helps to maintain order across the growing organisation
and ensures conformity and continuity in practices.
Also with growth, organisations begin to divide the work into ordered units that perform specialised work. Increased
specialisation of work into departments is term differentiation. The extent to which an organisation is departmentalised,
divisionalised, and hierarchically layered characterises the organisations complexity.
Span of control
Span of control has interesting implications for work, how work is performed, and the organisational structure. A
narrow span of control describes a low number of workers under a manager. The structure that is created is tall, or
mechanistic. The tall pyramid structure is created by the hierarchical layering required to maintain a low manager-
to-employee ratio. The tight supervision inherent in the mechanistic structure is characteristic of bureaucracy.
Work is performed under tight controls, little variability of tasks is permitted, and there is high specialisation or
departmentalisation.
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Flat (Organic) Structure
Span of Control = 4
Number of Employees = 14
Fig. 2.1 Flat structure

(Source: Satya Sekhar, G. V., 2009. Business Policy and Strategic Management, I. K. Publishers)
When a manager overseas a large number of employees, the high span of control produces a flat organisation called
organic structure. The flat pyramid is a characteristic of organisations with low hierarchy, with larger number of
employees per manager means that workers have more autonomy to perform their tasks.
Technology
The technology of how work is to be performed affects how the work is organised. For instance: if the work is
creative, such as research and development, creativity is required and the organisation is not formalised, division
of labour is not clear, and decision-making is highly decentralised.
Technology can be classified as:
custom
mass production
continuous production
Successful firms matched their technology base with the structural type. Low level technology (custom) requires an
organic structure; mass production that combines labour resources with machines requires mechanistic structures;
and, high level technology is matched with an organic structure.
Span of control
Hierarchy
Custom Mass production Continuous

(Job Order) process
Increasing Use of Technology
Fig. 2.2 Increasing use of technology

2.1.4 Forms of Strategy

The forms of strategy are discussed below.
Functional form
This simple form is organised around a division of labour into specialised functions that interrelate to create,
deliver and manage a product. This form is often characterised as organising inputs for transformation into a single
output.
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Functional (Unitary) Form
Departments or Functional Units
Fig. 2.3 Functional form

Multi-divisional form (MDF)

The MDF structure organises businesses under headquarters that functions as banker, strategist and coordinator
for multiple business units. This form is often characterised as organising by outputs. The theoretical problem with
MDF is that once functional resources are decentralised to strategic business units, they are controlled and managed
by division managers, not by corporate headquarters. Therefore, a diversified corporation may manage businesses
as decentralised under the MDF organisation.
Board of directors
Chief Executive Officer

(CEO)
Headquarters
Corporate
Chief Chief Chief Chief Corporate Corporate

Information Finance Operations Marketing HRM Purchasing
Officer (CIO) Officer (CFO) Officer (COO) Officer Officer Officer
Division Manager Division Manager Division Manager

Business
Units
Functional activities Functional activities Functional activities

are organised as are organised as are organised as
departments departments departments
Fig. 2.4 A modern version of the multi-divisional organisation

Matrix form
To retain direct control of each business units functions, the matrix form has been suggested by some theorists
and has been embraced by a few corporations. As shown in the following figure, there is a problem with the matrix
form: a manager located within a division has two lines of reporting. A first line manager reports to the corporate
product manager and to the corporate functional manager.
This, in reality, creates conflicts as well as takes time to work under this form. Most firms are not willing to invest
so much time in training, and the matrix is often adopted by businesses. The exception is international businesses.
For a global firm the ability to organise around geographical markets is an advantage.
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Matrix Organisational Form
Functional Divisions
Product of Market Divisions

Second-level Managers report to
a First-Line Manager for Function and
a first-Line Manager for Product/Market
Fig. 2.5 Matrix form

2.1.5 Strategic Environment

The environment represents factors outside the organisation to which management reacts. There is a simple correlation
between environment and structure: organic structures are found in changing environments; mechanistic structures
are found in static environments. The interpretation of this relationship is that in dynamic environments, such as in
the software development industry, organisations need to promote creativity and interpersonal communication for
problem solving. Industries, such as textile manufacturing, have static environments, not much innovation and not
many changes to the way the product is made, and have mechanistic structures. Tall hierarchical structures afford
the controls necessary to manufacture a product that is well understood.
The mechanism that connects the organisation to its environment is important as it helps us understand why and
how organisational structures respond to the changes in external forces.
2.1.6 Meaning of Strategy Management

Strategic management is that set of managerial decisions and actions that determine the long-run performance of
a corporation. It includes environmental observation, strategic planning, formulation, implementation, evaluation
and control. Strategic mission consists of a long-term vision of what an organisation seeks to do and what kind of
organisation it intends to become. Development of organisation completely rests on the efficiency of the decision-
makers. They have to take decisions based on present policies for achievement of future goals. Strategic management
always concentrate on the anticipated aim. Future is uncertain therefore, strategic decisions are always incomplete
and are sometimes based on hypothetical information.
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2.1.7 Strategic Management Process

Strategic management process consists of nine steps as given below:
The first step in the strategic management process is to get

agreementnot only to carry out the process but also to get
agreement on how and when and by whom it will be carried
Step 1: Agreement on the process out. Since the strategic management process is not a one-
shot exercise, commitment to the long haul is vital; without
commitment, the exercise will be sterile and likely regarded as
a waste of time.
Once an organisation has agreed to engage in a strategic process,
the first task is to determine what and where the organisation
is. Clarification of the mission, objectives, and strategies is
Step 2: Identification and clarification
fundamental to initiation of the strategic process. It amounts
of the organisations mission,
to a statement of where the organisation is, what it does and
objectives and current strategies
how it goes about its business. It should also help clarify which
policies or demands can be facilitated by the organisation and
which will be impeded.
One way to examine these is to look at the organisations

resource base. Analysis of resources by itself is not sufficient;
the organisation must also look at its task performance. This
will give a better idea of how the organisations resources are
Step 3: Identification of the
organised and how effectively those resources are put to use.
organisations internal strengths and
An organisation may well have excellent research skills, but if
weaknesses
its primary tasks are in service delivery, then such skills may be
more a weakness than strength. Such skills may well be quite
useful if the organisation should need to make changes in order
to be more compatible with its environment.
While there is frequently a tendency on the part of managers

to focus on the internal dimensions of the organisation, policy
change and the often volatile nature of politics in countries
Step 4: Assessment of threats undergoing major policy changes requires conscious exploration
and opportunities in the external of the environment outside the organisation. Political, economic,
environment social, and technological changes will influence the direction
and shape of an organisations policies and objectives. An
important factor in the organisations external environment is
its bureaucratic and institutional setting.
The expectations and demands of constituents are key ingredients

Step 5: Identification of key for decisions about what an organisation will do and how it goes
constituents and stakeholders, their about carrying out its tasks. Stakeholders or constituents are
expectations and resources those who have a direct interest in and are capable of influencing
in some measure the outcomes or actions of the organisation.
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Strategic issues are the principal problems that must be dealt
with effectively or the organisation can expect undesirable
results. The effective treatment of strategic issues can signify
Step 6: Identification of key strategic fundamental change in how the organisation goes about
issues its business. Such issues may generate conflict within the
organisation since their resolution will produce winners and
losers both internally and externally. The organisation must be
prepared to deal with that conflict.
Once issues and problems have been identified, strategies to

Step 7: Design, analysis, and selection solve those problems need to be identified. Generally, more
of strategy alternatives and options to than one option for dealing with the problem will be identified;
manage issues then options must be examined for their comparative viability,
feasibility, and desirability.
Implementation of a strategy is not an automatic process;

there are two major parts to the process. The first step is the
development of an action plan, which is a statement of what,
who, when, and how the actions necessary to carry out the
Step 8: Implementation of the
strategy will be done. Performance goals and objectives will
strategy
also be specified. Much of the information needed to develop
the action plan will have been generated in Step 7. The second
part of implementation consists of actions aimed at marshalling
and applying resources.
Strategic management assumes continual change. Therefore,
mechanisms must be developed for monitoring and analysing
the performance of the organisation with respect to achieving
the goals and objectives set in the action plan. The monitoring
Step 9: Monitoring and review of process should be continuous, regular, and capable of feeding
performance into the decision- making process. The manager should develop
control mechanisms to gauge the efficiency of resources used
and impact mechanisms to gauge the effectiveness of its actions.
Finally, it is vital that the monitoring process be timely and
usable.
Table 2.1 Strategic management process
2.1.8 Facets of Strategic Management

The five facets of strategic management are:
Goal-setting: Goal-setting enables to articulate the vision, identify what needs to be accomplished, define short
and long-term objectives, and relate them to what the organisation needs to do. A mission statement summarises
purpose and goals in terms easily understood by both staff and external stakeholders.
Analysis: Analysis guides us to collect and consider information so that we fully understand the situation. Assess
external environments and internal situations to identify the strengths and weaknesses of the organisation and
the opportunities and threats we seek to reach our goals.
Strategy formation: To determine a strategy, we reflect, prioritise, develop options, and make decisions. Review
the results of the analyses, identify the issues that you and your implementing partners need to address, and
prioritise them in terms of their urgency and magnitude. Use these results to design alternative strategies and
plans that to address the key strategic issues.
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Strategic implementation: To implement the strategy, assemble the necessary resources and apply them. Put the
chosen plans into practice, organise the resources and committments necessary for moving ahead, tap existing
capacity and build new capacity, and seek to achieve results.
Strategy Monitoring: Monitoring allows us to check our progress toward achieving our goal and assess whether
any changes in the environment necessitate alterations to the strategy. Modify plans and actions to adjust to
the impact of changes in the operating environment. Effective monitoring allows us to react and anticipate.
Monitoring also feeds back into analysis, strategy design, and implementation in the immediate term and into
goal-setting over the longer term.
Goal-setting
Strategy
Analysis
Monitoring
Strategic
Management
Strategy Strategy
Implementation formation
Fig. 2.6 Facets of strategic management

(Source: Scribner, S., Introduction to Strategic management)
2.2 Strategic Decision Making Process

Decision making is one of the primary responsibilities of a manager. The quality of a managers decision is important
for two principal reasons:
First, it directly affects their career opportunities, rewards, and job satisfaction.
Secondly, managerial decisions contribute to the success or failure of an organisation.
Decision-making is a means to an end. It entails identifying and choosing alternative solutions that lead to a desired
state of effects. The process begins with a problem and ends when a solution is chosen. Managerial decision-making
depends on strategic planning. It may be defined as a systematic approach to formulate strategies for positioning
the business in relation to its environment to ensure continued success and offer security. While no approach can
guarantee continuous success and offer security, an integrated approach to strategy formulation, involving all levels
of management, can go some way in this direction.
The purpose of strategic decision-making is to develop strategies by which an organisation will be able to achieve its
objectives. The time horizon for strategic decisions tends to be fairly long, so that fundamental shifts in the organisation
may be made. Strategic decisions do not have to occur on a periodic cycle as other management activities.
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3(a) 3(b)
Scan and Analyse
Assess external
External factors:
Environment: Opportuni
Natural ties
Societal Threats
Task
1(a) 1(b) 2 5(a)

Examine and Review Select
Evaluate evaluate the corporate strategic
current current: governance: factors
performance Mission Board of (SWOT)
results Objectives Directors in light of
Strategies Top Man current
Policies agement situation
4(a) 4(b)
Scan and Analyse
assess internal
internal factors
environment: Strengths
Structure Weak
Culture nesses
Resources
Strategy
formulation
steps 1-6
Fig. 2.7 Strategic decision-making process

Types of decisions
Programmed decisions: Programmed decisions tend to be repetitive and routine. Through time and experience,
organisations develop specific procedures for handling these decisions. Habit and standard operating procedures
are the most frequently used techniques for making these decisions.
Non- Programmed decisions: These are novel and unstructured. Hence, there are no cut dried procedures for
dealing with problems at hand. These decisions lead to important consequences. To solve non-programmed
decisions, managers tend to rely on judgement, intuition and creativity.
2.3 Functional Strategic Decisions

Management means doing things and getting things done by others. It is concerned with objectives, policies,
procedures strategies and so on. Management consists of the following important stages:
Planning: It is a stage of Strategic formulation. Strategic formulation includes forecasting, formulating
objectives, policies and goals.
Organising: It is the strategy implementation process. It includes all those managerial activities that result in
a structure of task, authority and responsibility relationship.
Directing: It also comes under strategy implementation process. Directing involves efforts directed towards
shaping human behaviour. It includes: leadership, communication, motivation, morale, organisational change
and so on.
Staffing: Recruitment of staff is an important function. Manpower is required to implement strategies.
Controlling: Controlling refers to all those activities directed towards assuring that actual results are consistent
with planned targets.
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2.3.1 Financial Decisions

Financial decision, investment decision and dividend decisions are major considerations in determining the capability
of the entity. Financial plans and policies of an organisation are related to recurring financial plans and policies like
planning for funds, raising of funds, allocation of funds, allocation of income, and monitoring of funds.
2.3.2 Marketing Decisions

Efficiency in product launching and success of product in the market can be treated as a measure for performance
of marketing management. Marketing is all about finding out what consumers want, then planning and developing
a product or services to satisfy them. Plans and policies are based on four important elements of marketing:
Product
Distribution
Promotion
Pricing
2.3.3 Production and Operations Decisions

Product planning is important for business decisions. Market research and analysis trends provide a good indication
of the future market changes. Therefore, successful business must rely upon the very close relationship of marketing
to specified requirements and engineering design and provide features and facilities within the technological art,
and the manufacturing function to produce at a specified volume and cost. All the product mix elements should be
carefully considered before the product actually goes into commercial production.
2.3.4 Pricing Decisions

Price level of business goods are more stable than those of consumer goods. Most of the firms follow the pricing
objectives such as the rate of return on the capital invested, meeting competition and so on. The various factors
considered are grouped under the 3 C of pricing:
Customer demand: It is a vital factor in any market. The price of a product ultimately depends on the value
the consumer gets from the product.
Competition: It generally sets a limit on the price. It is this fact that compels the manufactures to revise
price.
Cost: This is the limiting factor below which no one can fix the price.
2.3.5 Distribution Decisions

After deciding the price, a manufacturer has to decide the channel through which his goods are to be moved to the
buyers. The three major types of middlemen in the business are:
Manufacturers and sales agents
Manufacturers, sales branches and sales offices
Manufacturers, regional distributors, wholesalers and retailers
A manufacturer is guided by four Cs in selecting the channel of distribution:

Customer buying habits
Coverage of geographical area
Cost of getting product to the market
Control over the channel and sales efforts
The essential element required here is quick delivery, which could be offered only through this arrangement.
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2.4 Strategic Planning
Strategic planning may be defined as a systematic approach to formulate strategies for positioning the business
in relation to its environment to ensure continued success and offer security from surprises. Strategic planning is
that set of managerial decisions and actions that determines the long-run performance of a corporation. Strategic
mission consists of a long-term vision of what an organisation seeks to do and what kind of organisation it intends
to become.
2.4.1 Dimensions of Planning

Role of CEO: Strategic plan relate with various functional levels of an organisation. Hence, it is necessary that
these decisions must be made in consultation with the CEO.
Preparation of budget: Strategic plans involve budget allocation to various aspects of a decision. Budget may
be allocated to various sectors of production.
Future development: Strategic plans are usually expected to have a significant impact on future prosperity of
the organisation.
Orientation: Strategic planning should keep in view the competition existing in the market.
Environment: Plans are always influenced by business environment. There may be external or internal factors
that influence business.
Risk: Strategic plans mostly face the problem of risk; they should have risk-bearing capacity.
2.4.2 Strategic Planning and Control

Strategic planning is referred to the strategies for the achievement of organisational development. Strategic control
is continuous evaluation of implementing strategies at various stages. The strategic planning and control are usually
the responsibility of top management team such as the Board of Directors. It involves three dimensions namely:
Strategic
Tactical
Operational control
The characteristics of these three dimensions are illustrated in the following table.
Characteristic Strategic Tactical Operational

Time frame Long-term Medium-term Short-term
Aggregation High Moderate Low
Scope Broad Medium Narrow
Level of organisation High Middle Low
Complexity High Moderate Low
Risk High Moderate Low
Table 2.2 Characteristics of dimension
2.4.3 Strategic Choice

Strategic choice is nothing but selection of the best strategy. It can be defined as the decisions to select from among
the grand strategies considered, the strategy which will best meet the enterprises objectives. The decision involves
focusing on a few alternatives, considering the selection factors, evaluating the alternatives against criteria, and
making actual choice.
Vital steps for strategic choice

Alternatives: First step is the determination of alternatives for the problems of the organisation. The strategist
should always try to find all possible alternatives and select the best ones.
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Selection factors: Second step is to find selection factors. These will help to analyse and examine alternatives.
These factors can be objective or subjective.
Evaluation: After selection of factors, applying these to alternatives is an important step. Evaluation process
reduces the burden of the strategist while selecting the strategy.
Making strategic choice: The final decision making step is in accordance with the conditions of the organisation,
after a clear analysis and evaluation of choices. A plan of action is made, which describes strategies to be adopted
by the organisation.
Crucial considerations
Mission: Mission is the purpose for which an organisation is established. The first step of strategic choice
depends on well-defined mission statement. The mission may be described as the scope of the operation in
terms of nature of business.
Objectives: Objectives are defined as ends, which an organisation seeks to achieve by its existence and
operation.
Goals: Goals are specific and time-based points of measurement. Generally, goals are determined by the owner
of the business organisation.
Policies: The process of strategic choice sometimes encompasses the formulation of important policies. Policies
help to ensure that all units of an organisation operate under the same rules. They also facilitate coordination
and communication between various organisational units.
Environment: Business environment is always an influencing factor for decision-making. There may be external
or internal factors that influence business.
Formulation of strategies: Strategies can be formulated after diagnosing the environment. Each strategy with
suitable sub-strategies and alternative strategies should be available to top management.
SWOT analysis: Every organisation should go through SWOT analysis. It is important tool for evaluating
organisational capabilities. This is necessary for making strategic choice.
Financial consideration: The strategist should evaluate each strategy after implementing them.
2.4.4 Strategic Forecasting

Expecting future strategies for a business is called strategic forecasting. This estimate is made considering various
factors like controllable and non-controllable, and present and anticipated market conditions. Accurate forecasting
is essential for a firm to enable it to produce the required quantities at the right time, and arrange well in advance
for the various factors of production. It gives reliable information, and estimation of future business. It is a based
on mathematical law of probability. Forecasting depends upon the nature of the business.
Factors involved in strategic forecasting are as follows:

Time factor: Forecasting can be done for short-term as well as long-term.
Level factor: Strategic forecasting may be undertaken at three different levels.
Macro level: It is concerned with business conditions over the whole economy.
Industry level: Prepared by different industries.
Firm level: Firm level forecasting is the most important from managerial view point.
General or specific purpose factor: The firm may find either general or specific forecasting or both useful
according to its requirement.
Product: Forecasting varies according to the type of product i.e. new product or existing product or well
established product.
Nature of the product: Goods are classified into consumer goods and producer goods. Business for a product
will be mainly dependent on nature of the product. Forecasting methods for producer goods and consumer
goods will differ accordingly.
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Competition: While forecasting, market situation and the product position in a particular market should be
analysed.
Consumer behaviour: What people think about the future, their own personal prospects and about products
and brands are vital factors for firms and industries.
Advantages of strategic forecasting

Analysing: Business analysis is the first and foremost application of strategic forecasting. Price of a product is
the key factor which influences business for the product. Apart from price, there are several other factors which
influence business for the product like income, taste, preferences, consumer behaviour and so on.
Estimation of supply: By making strategic forecasting of a business, one can understand the needs of
business.
Capital outlay: Capital outlay is to ascertain the investment requirements for the organisation. Strategic
forecasting includes the responsibility of determining capital requirements for business.
Market conditions: Several market conditions like monopoly, oligopoly and monopolistic competition always
exist in the market. Competitive market conditions vary according to the nature of product and the number of
sellers in the market.
Price of a product: Cost-volume-profit analysis is an important tool to analyse cost to determine target profit
for the organisation. Firm can decide appropriate price for the product on the basis of forecasting.
Advertising policy: Forecasting helps the management and it has to act as adviser to the management. It can
advise about advertising policy, as it is necessary for product promotion.
Market segmentation: The strategist can be an adviser to the marketing department.
Feasibility report: The reports of forecasting help in the preparation of feasibility reports. These reports can
be classified into three types: technical feasibility, operational feasibility and economic feasibility.
2.5 Levels of Strategic Management

The levels of strategic management can be divided into three categories:
Corporate-level management: It consists of board of directors, chief executive officer, and senior executives
responsible for staff functions such as planning, finance, human resources, legal, and general administration.
The corporate CEO is the chief strategist responsible for the success of the total enterprise. In that capacity he or
she determines the firms overall strategic direction: the businesses in which the firm will compete, the business
of which it will divest itself, the long-term objectives the firm will pursue, and the distinctive competencies it
will develop and share among its businesses.
Business-level management: It consists of general manager of that business unit, functional managers, and
staff specialists. The business unit CEO is the chief strategist for that particular business and is responsible
for its success. Mutli-business firms generally allow sufficient freedom to the business-level CEP in strategy
formulation and implementation in exchange for business unit performance.
Functional-level management: It consists of a functional head to whom subordinate manager reports. Functional
heads are responsible pertaining to their function. For example, the head of marketing would decide what strategy
should be employed to achieve the firms marketing goal of, say, increased brand awareness. Functional strategies,
thus, focus on the operational competencies necessary to support a firms business-level and corporate level.
2.6 Strategic Audit : Aid to Decision Making

The strategic decision-making process is put into action through a technique known as the strategic audit. A strategic
audit provides a checklist of questions, by area or issue that enables a systematic analysis necessary for various
corporate functions and activities.
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Note that the numbered primary headings in the audit are the same as the numbered blocks in the strategic decision-
making process as shown in the figure 2.7. Beginning with an evaluation of current performance, the audit continues
with environmental scanning, strategy formulation, and strategy implementation, and it concludes with evaluation
and control. A strategic audit is type of management audit, and is extremely useful as a diagnostic tool to pinpoint
corporate world-wide problem areas and to highlight organisational strengths and weaknesses. It can help determine
why a certain area is creating problems for a corporation and help generate solutions to the problem.
A strategic audit is not an all-inclusive list, but it presents many of the critical questions needed for a detailed strategic
analysis of any business corporation.
2.7 Globalisation and Environmental Sustainability: Challenges to Strategic Management

Not too long ago, a business corporation could be successful by focusing only on making, and selling goods and
services within its international boundaries. International considerations were minimal. During the 1960s, for
example, most U.S. companies organised themselves around a number of product divisions that made and sold
goods only in the United States. All manufacturing and sales outside the United States were typically managed
through one international division.
Similarly, until the later part of the 20th century, a business firm could be very successful without being environmentally
sensitive. Companies dumped their waste products in nearby streams and freely pollute the air with smoke containing
noxious gases.
Responding to complaints, government eventually passed laws restricting the freedom to pollute the environment.
Lawsuits forced companies to stop old practices. Until the dawn of the 21st century, most executives considered
pollution abatement measures to be a cost of business that should be either minimised. Rather than clean up a
polluting manufacturing site, they often closed the plant and moved manufacturing offshore to a developing nation
with fewer environmental restrictions.
2.7.1 Impact of Globalisation

Globalisation, the integrated internationalisation of markets and corporations, has changed the way modern
corporations do business. The world-wide availability of the internet and supply-chain logistical improvements,
such as containerised shipping, means that companies can now locate anywhere and work with multiple partners to
serve any market. To reach economies of scale necessary to achieve the low costs, and, thus, the low prices, needed
to be competitive, companies are now thinking of a global market instead of national markets. Instead of using
one international division to manage everything outside the home country, large corporations are now using matrix
structures in which product units are interwoven with country or regional units. International assignments are now
considered key for anyone interested in reaching top management.
As more industries become global, strategic management is becoming an increasingly important way to keep track
of international developments, and position a company for long-term competitive advantage. For example, General
Electric moved a major research and development lab for its medical systems division from Japan to China in order
to learn more about developing economies.
Recently, pharmaceutical companies have also started eying India as a means for gaining long-term competitive
advantage. Indian companies can reap huge cost savings and as a result pharma companies relieve some pressure
on developing new drugs to replace the older ones.
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2.7.2 Impact of Environmental Sustainability
Environment sustainability refers to the use of business practices to reduce a companys impact on natural and
physical environment.
Indias first ever eco-friendly building is the Resource Efficient TERI Retreat for Environmental Awareness and
Training (RETREAT) located in Gurgoan. A complex of Tata Energy Research Institute (TERI) is powered by
renewable energy system, which uses waste biomass and solar radiation as a sources of energy. It also boasts the
first solar roof in India.
Climate change is playing a growing role in these companies business decisions. The effects of climate change on
industries and companies throughout the world can be grouped into six categories of risks: regulatory, supply chain,
product and technology, litigation, reputation, and physical.
Regulatory risk: Most of the companies of the world are already subjected to Kyoto Protocol, which requires
the developed countries to reduce carbon dioxide and other greenhouse gases by an average of 6% from 1990
levels by 2012. The European Union has an emissions trading program, which allows companies that emit
greenhouse gases beyond a certain point to buy additional allowances from other companies whose emissions
are lower than the prescribed limit. Companies can also earn credits toward their emissions by investing in
emissions abatement projects outside their own firms.
Supply chain risk: Suppliers will be increasingly vulnerable to government regulationsleading to higher
component and energy costs as they pass along increasing carbon-related costs to their customers. Global supply
chain will be at risk from an increasing intensity of major storms and flooding. Higher sea levels resulting from
the melting of polar ice will create problems for seaports. China, where much of the worlds manufacturing is
currently being outsourced, is becoming concerned with environmental degradation. The increasing scarcity of
fossil-based fuel is already shooting up the transportation costs significantly.
Product and technology risk: Environmental sustainability can be a prerequisite to profitable growth. For
growth, worldwide investments in sustainable energy more than doubled to $70.9 billion from 2004 to 2006.
Carbon-friendly products using new technologies are becoming increasing popular with customers. Those
automobile companies, for example, that were quick to introduce hybrid or alternative energy cars gained a
competitive advantage.
Litigation risk: Companies that generate significant carbon emissions face the threat of lawsuits similar to those
in the tobacco, pharmaceutical, and building supplies industries. India looses around 4% of its gross domestic
product as a result of environmental damage. The ministry of Environment and Forests (MoEFs) recognises the
need to strike a balance between development and protecting the environment. As a result government passes
the Environment Protection Act 1986 to increase the power of ministries.
Reputation risk: A companys impact on the environment can heavily affect its overall reputation. It is found
that in some sectors the value of a companys brand could be at risk because of negative perceptions related
to climate change. In contrast, a company with a good record of environmental sustainability may create a
competitive advantage in terms of attracting and keeping loyal consumers, employees and investors.
Physical risk: The direct risk posed by climate change includes the physical effects of droughts, floods, storms,
and rising sea levels. Average Arctic temperatures have risen four to five degrees Fahrenheit in the past 50 years,
leading to melting glaciers and sea levels rising one inch over decade. Industries most likely to be affected are
insurance, agriculture, fishing, forestry, real estate, and tourism. Physical risk can also affect other industries,
such as oil and gas, through higher insurance premiums paid on facilities in vulnerable areas.
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Summary
Strategic management may be defined as a systematic approach to positioning the business in relation to its
environment to ensure continued success and offer security from surprises.
Strategy is defined as a unified, comprehensive and integrated plan designed to assure that the basic objective
of the enterprise is achieved.
Strategy can be broadly classified into three types namely; corporate strategy, corporate competitive strategy,
and operational strategy
Corporate strategy is the way in which corporate endeavours to differentiate itself positively from its competitors,
using its relative strengths to better satisfy customer needs.
Business policy deals with how strategic business units compete in different markets.
Operational strategy explains about functional level contribution to corporate and business strategies.
There are three forms of strategy namely: functional, multi-divisional and matrix form.
The Multi-divisional form (MDF) structure organises businesses under a headquarter that functions as banker,
strategist, and coordinator for multiple business units. This form is often characterised as organising by
outputs.
To retain direct control of each business units functions, the matrix form has been suggested by some theorists
and has been embraced by a few corporations.
The facets of strategic management are goal-setting, analysis, strategy formation, strategic implementation,
and strategic monitoring.
The quality of a managers decision is important for two principal reasons. First, it directly affects their career
opportunities, rewards, and job satisfaction, and secondly, managerial decisions contribute to the success or
failure of an organisation.
Management consists of the following important stages: planning, organising, directing, staffing, and
controlling
Plans and policies of an organisation are based on four important elements of marketing: product, distribution,
promotion, and pricing
Strategic planning may be defined as a systematic approach to formulate strategies for positioning the business
in relation to its environment to ensure continued success and offer security from surprises.
The strategic decision-making process is put into action through a technique known as the strategic audit.
Environment sustainability refers to the use of business practices to reduce a companys impact on natural and
References
Network3E, 2010. The essence of strategy - Michael Porter [Video Online] Available at: <http://www.youtube.
com/watch?v=u6zv3dLGx0c&feature=related >. [Accessed 11 September 2011].
London School of Business and Finance online Course. Strategic planning [Video Online] Available at: <http://
freevideolectures.com/Course/2747/Strategic-Planning/11>. [Accessed 11 September 2011].
Kozami, A, 2006. Buisness policy and strategic management, 2nd ed., Tata McGtaw-Hill.
Parthasarthy, R., 2008. Fundamentals of Strategic Management. Himal Impressions.
oup.com. What is Strategic Management? [Online] Available at: <http://www.oup.com/uk/orc/bin/9780199216468/
haberberg_ch02.pdf>. [Accessed 12 September 2011].
media.wiley.com. Strategic Management [Online] Available at: <http://media.wiley.com/product_data/excerpt/70/
EHEP0007/EHEP000770.pdf>. [Accessed 12 September 2011].
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Recommended Reading
Wheelen, T. and Hunger, J., 2010. Strategic Management and Business Policy, 12th ed., Dorling Kindersley
(India) Pvt. Ltd.
Pearce, J. and Robinson, R., 2008. Strategic Management, 10th ed., Tata McGraw-Hill.
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Self Assessment
1. Operational strategy explains about ___________ level contribution to corporate and business strategies.
a. functional
b. strategic
c. operational
d. competitive
2. ____________policy deals with how strategic business units compete in different markets.
a. Company
b. Organisation
c. Production
d. Business

a. Corporate strategies may fit within main categories of stability, growth and retrenchment.
b. Strategic control is a continuous evaluation of implementing strategies at various stages.
c. Strategic planning is that set of managerial decisions and actions that determines the short-run performance
of a corporation.
d. Price level of business goods are more stable than those of consumer goods.
4. Which of the following strategy is applies to large companies, which are divided into a number of discrete and
fairly autonomous units?
a. Competitive
b. Corporate
c. Global
d. Business
5. Competitive market conditions vary according to the nature of _______and the number of sellers in the
market.
a. company
b. product
c. price
d. demand

a. Strategic plans involve budget allocation to various aspects of a decision.
b. Strategic planning should keep in view the demand existing in the market.
c. Marketing is all about finding out what companies want, then planning and developing a product or services
to satisfy them.
d. To solve programmed decisions, managers tend to rely on judgement, intuition and creativity.
7. __________ sustainability refers to the use of business practices to reduce a companys impact on natural and
a. Legal
b. Environment
c. Pollution
d. Corporate
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8. Match the following.
A. It iss a structure which organises businesses under a headquarter that

1. Functional form of strategy functions as banker, strategist, and coordinator for multiple business
units.
2. The Multi-divisional form of B. It is a set of managerial decisions and actions that determines the
organisation long-run performance of a corporation.
C. It can be defined as the decisions to select from among the grand
3. Strategic planning strategies considered, the strategy which will best meet the
enterprises objectives.
D. This is a simple form, which is organised around a division of labour
4. Strategic choice into specialised functions that interrelate to create, deliver and
manage a product.
a. 1-D, 2-C, 3-B, 4-A
b. 1-A, 2-D, 3-B, 4-C
c. 1-B, 2-A, 3-D, 4-C
d. 1-D, 2-A, 3-B, 4-C
9. A narrow span of control describes a _______number of workers under a manager.

a. large
b. low
c. minimum
d. maximum
10. When a manager overseas a large number of employees, the high span of control produces a flat organisation
called ________structure.
a. weak
b. big
c. organic
d. feasible
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Chapter III
Hierarchy of Strategic Intent
Aim
define the concept of strategic intent
introduce the hierarchy of strategic intent
explain the term vision and mission
Objectives
enlist the elements of an ideal mission statement
elucidate business model
explain the objective setting tool called balanced scorecard
Learning outcome
comprehend the issues in objective setting
differenciate between mission and vision
discuss the process of envisioning
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3.1 Introduction to Strategic Intent
The strategic intent refers to the purpose of the organisation. Setting of organisational vision, mission and objectives
is the starting point of strategy formulation. The organisations strive to achieve the end results which are vision,
mission, purpose, objective, goals, targets and so on. The hierarchy of strategic intent lays the foundation
for the strategic management of any organisation. The strategic intent makes clear what an organisation stands for.
It is reflected through vision, mission, business definition and objectives.
Vision serves the purpose of stating what an organisation wishes to achieve in long run. The process of assigning
a part of a mission to a particular department and then further sub dividing the assignment among sections and
individuals creates a hierarchy of objectives. The objectives of the sub unit contribute to the objectives of the larger
unit of which it is a part. From strategy formulation point of view, an organisation must define why it exists, how
it justifies that existence, and when it justifies the reasons for that existence. The answers to these questions lie
in the organisations mission, business definition, objectives and goals. These terms become the base for strategic
decisions and actions.
3.1.1 Concept of Stretch, Leverage and Fit

Concept of stretch, leverage and fit are described below.
Stretch: It is a misfit between resources and aspirations.
Leverage: It refers to concentrating, accumulating, complementing, conserving, and recovering resources in such
a manner that the meagre resource base is stretched to meet the aspirations that an organisation dares to have.
Fit: It means positioning the firm by matching its organisational resources to its environment.
3.1.2 Hierarchy of Strategic Intent

The specific relationship between the long-term and short-term intentions is described in the hierarchy of strategic
intent.
Most integrative Fewest in number
Vision
Mission
Goals
Objectives
Plans Greatest in
Most specific
number
Fig. 3.1 Hierarchy of strategic intent

(Source: Gupta, V., Gollakota, K.and Srinivasan,R., 2007. 2nd ed., PHI Learning Pvt. Ltd.)
3.2 Vision
The vision of the organisation refers to the broad category of long-term intentions that the organisation wishes to
pursue. It is broad, all inclusive, and futuristic. As the word vision suggests, it is an image of how the organisation
sees itself. It is in most cases, a dream; the aspirations the organisation holds for its future; a mental image of the
future state. It might therefore be difficult for the organisation to actually achieve its vision even in long-term, but
it provides the direction and energy to work towards it.
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A vision is often expressed in a unique way to combine competitive influences in a way that directs a firm to pursue
a revolutionary strategy. A vision statement presents the firms strategic intent that focuses the energies and resources
of the company on achieving a desirable future.
3.2.1 Definitions of Vision

Kotter defines it as description of something (an organisation, corporate culture, a business, a technology, an
activity) in the future.
El-Namaki considers it as a mental perception of the kind of environment an individual, or an organisation, aspires
to create within a broad time horizon and the underlying conditions for the actualisation of this perception.
3.2.2 Benefits of Vision

The benefits accruing to an organisation having a vision are:
Good visions are inspiring and exhilarating. Visions represent a discontinuity, a step function and a jump ahead
so that the company knows what it is to be.
Good visions help in the creation of a common identity, and a shared sense of purpose. They are competitive,
original and unique. They make sense in the market place as they are practical.
Good visions foster risk-taking and experimentation. They represent integrity; they are truly genuine and can
be used for the benefit of people.
3.2.3 Process of Envisioning

The process of envisioning is a difficult one. A well-conceived vision consists of two major components which are
given below.
Core ideology: It defines the enduring character of an organisation that remains unchangeable as it passes
through the vicissitudes of vector, such as, technology, competition, or management fads. The core ideology
rests on the core values and core purposes.
Envisioned future: It also consists of two components: a 10-30 years audacious goal, and a vivid description
of what it will be like to achieve that goal. The process of envisioning is indeed fascinating.
3.2.4 Characteristics of Vision

The characteristics of vision are:
Shared view: A vision statement is developed through sharing views across an organisation. However, the
founder will have a powerful impact on others.
Convincing nature: A vision statement should be able to convince others in the organisation.
Reflect new realities: A vision statement should recognise the complexity of changing business trends, and it
should be able to reflect new realities.
3.3 Mission
An organisations mission is the purpose for the organisations existence. A well conceived mission statement
defines the fundamental and unique purpose that sets a company apart from other firms of its type and identifies the
scope of the companys operations in terms of products offered and markets served. A mission statement promotes
a sense of shared expectations in employees and communicates a public image to important stakeholder groups in
the companys task environment.
Mission is defined as an essential purpose of the organisation, concerning particularly why it is in existence, the
nature of the businesses it is in, and the customers it seeks to serve and satisfy.
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3.3.1 Need of Mission
The mission statement is a message designed to be inclusive of the expectations of all stakeholders for the companys
performance over the long run. The executives and board who prepare the mission statement attempt to provide a
unifying purpose for the company that will provide a basis for strategic objective setting and decision making.
3.3.2 Usefulness of Mission

Mission is an important component of strategic intent. Mission serves the following purposes:
Shaping of vision: Mission tangibilises vision of an organisation. Remember that vision is a dream or a set
of broad aspirations; it does not specify how a firm will achieve its vision. This job is done by the mission
statement.
Provide guidelines for formulating objectives and goals: Functional objectives and goals are drawn from the
mission. Thus, mission plays a pivotal role in integrating the roles of top management with that of the functional
management. This is achieved by tangibilising vision on one hand and providing guidelines to formulate functional
goals and objectives on the other.
Unanimity of purpose: Mission ensures unanimity of purpose within an organisation. Mission integrates
the roles of top management with the functional management; this results in unanimity of purpose within an
organisation.
Allocation of resources: Mission helps people identify their goals with the organisational goals within the
organisational resources.
3.3.3 Formulating Mission

The process of defining the company mission for a specific business can perhaps be best understood by thinking
about the business at its inception. The typical business begins with the beliefs, desires, and aspirations of a single
entrepreneur. Such an owner-managers sense of mission usually is based on the following fundamental beliefs:
The product or service of the business can provide benefits at least equal to its price.
The product or service can satisfy a customer need of specific market segments that is currently not being met
adequately.
The technology that is to be used in production will provide a cost- and quality-competitive product or
service.
With hard work and the support of others, the business can not only survive but also grow and be profitable.
The management philosophy of the business will result in a favourable public image and will provide financial
and psychological rewards for those who are willing to invest their labour and money in helping the business
to succeed.
The entrepreneurs self-concept of the business can be communicated to and adopted by employees and
stockholders.
3.3.4 Characteristics of Mission Statement

Organisations legitimise themselves by performing some function that is valued by society. A mission statement
defines the basic reason for the existence of that organisation. In order to be effective, a mission statement should
possess the following seven characteristics:
It should be feasible: A mission should always aim high but it should not be an impossible statement. It should
be realistic and achievable - its followers must find it to be credible.
It should be precise: A mission statement should not be so narrow as to restrict the organisations activities
nor should it be too broad to make itself meaningless.
It should be clear: A mission should be clear enough to lead to action. It should not be a high-sounding set of
platitudes meant for publicity purposes. Many organisations do adopt such statements but probably they do so
for emphasising their identity and character.
It should be motivating: A mission statement should be motivating for members of the organisation and of
society, and they feel it worthwhile working for such an organisation or being its customers.
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It should be distinctive: A mission statement which is indiscriminate is likely to have little impact. For instance,
if all scooter manufacturers defined their mission in a similar fashion, there would not be much of a difference
among them. But if one defines the statement as 'scooters that would provide value for money for years to come'
then it will create an distinctive impression in the public mind.
It should indicate major components of strategy: A mission statement, along with the organisational purpose
should indicate the major components of the strategy to be adopted.
It should indicate how objectives are to be accomplished: Besides indicating the broad strategies to be
adopted a mission statement should also provide clues regarding the manner in which the objectives are to be
accomplished.
3.3.5 Elements of an Ideal Mission Statement

An ideal mission statement of any firm should have the following elements in it:
Products or services it would like to offer: Mission should broadly include the products or services the firm
would like to offer. For instance mission statement of BHEL is To be an Indian multinational engineering
enterprise providing total business solutions through quality products, systems and services in the fields of
energy, industry, transportation, infrastructure and other potential areas.
Customers it desires to serve: It should include the buyers or users of the products or services it would offer,
for example: doctors, researchers, patients, students and so on.
Markets it desires to cater to: It should state the geographical territories a firm would desire to service.
Technology it would adopt: It consists of a broad description of production techniques or a mention of technology
that is suited to the availability of manpower or technology that is environment friendly.
Concern for survival: It reflects the economic motive of the firm; some firms exhibit a desire for profits quickly
or in short-term, and some firms exhibit their desire to be profitable in the long-term.
Philosophy it would adhere to: It is the reflection of basic beliefs and values that guide the people in conduct
of the firms business.
Self concept: It describes what the firm is. For example, a firm may like to state that it is a multi-locational,
large in size, multi-product and so on.
Concern for public image: It shows a firms concern for its stakeholders such as stock holders, employees,
suppliers, communities or society at large.
'
Markets
Technology
Customer it desires
to serve
Products MISSION Concern for survival
Philosophy
Concern for public

image
Self concept
Fig. 3.2 Contents of ideal mission statements

(Source: Phadtare, M., 2011. Strategic Management Concepts and Cases. PHI Learning Private Limited.)
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3.3.6 Newest Trends in Mission Components
Recently, three issues have become so prominent in the strategic planning for organisations that they are increasingly
becoming integral part for the development and revisions of mission statements:
sensitivity to consumer wants
concern for quality
statements of company vision
Consumer: A focus on customer satisfaction causes managers to realise the importance of providing quality customer
service. Strong customer service initiatives have led some firms to gain competitive advantages in the marketplace.
Hence, many corporations have made the customer service initiative a key component of their corporate mission.
Quality: Management experts fostered a worldwide emphasis on quality in manufacturing. They have summarised
their approach in 14 points:
Create constancy of purpose.
Adopt the new philosophy.
Cease dependence on mass inspection to achieve quality.
End the practice of awarding business on price tag alone. Instead, minimise total cost, often accomplished by
working with a single supplier.
Improve constantly the system of production and service.
Institute training on the job.
Institute leadership.
Drive out fear.
Break down barriers between departments.
Eliminate slogans, exhortations, and numerical targets.
Eliminate work standards and management by objective.
Remove barriers that rob workers, engineers, and managers of their right to pride of workmanship.
Institute vigorous program of education and self-improvement.
Put everyone in the company to work to accomplish the transformation.
Vision statement: A company vision statement is sometimes developed to express the aspirations of the executive
leadership. A vision statement presents the firms strategic intent that focuses the energies and resources of the
company on achieving a desirable future. A vision is often expressed as a unique way to combine competitive
influences in a way that directs a firm pursue a revolutionary strategy.
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3.3.7 Difference between Vision and Mission

Following table tabulates the differences between vision and mission of an organisation.
Vision Mission
Category of intentions that are broad, all Mission is the fundamental, unique purpose
inclusive and forward thinking that sets a business apart from other firms
States aspirations for the firm without stating of its type and identifies the scope of its
the means to achieve them operations in product and market terms.
Dream, little hazy or intangible It states how it would achieve the vision of
the firm.
Guides in formulation of mission
Clear, tangibalises vision
Futuristic in nature
Guides in formulation of business definition,
goals and objectives
Current in nature
Table 3.1 Difference between vision and mission

3.4 Business Definition

Business definition along with objectives and goals contributes to concretise the mission of an enterprise. Business
definition gives clarity of thought while formulating grand strategies. Business of an enterprise is defined by what
needs it is trying to satisfy, which customer group it is targeting, and which technologies and competencies it uses
and activities it performs. Business definition captures what, whose and how, i.e., what needs, whose needs and
how to service the needs. It is advisable to specify what, whose and how in broader connotations without losing
focus. This will help include newer what whose and how that would emerge tomorrow.
3.4.1 Dimensions of Business Definition

There are three dimensions of business definition namely,
Customer groups which are created according to the identity of customers.
Customer functions are based on what the products or services provide for the customers.
Alternative technologies describe the manner in which a particular function can be performed for a customer.
Customer functions
Customer group Alternative technologies
Fig. 3.3Dimensions of business definition

3.4.2 Levels at which Business could be Defined

Business can be defined at the corporate and SBU level. A single-business firm is active in just one area, so its
business definition is simple. A large conglomerate, operating in several businesses, would have a separate business
definition for each of its businesses.
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At the corporate level, the business definition will concern itself with the wider meaning of customer groups, customer
functions and alternative technologies. A highly diversified company organised on a divisional basis could benefit
by having a business definition covering all the three dimensions. Each division could again have a more accurate
business definition at the SBU-level.
3.5 Business Model

Business model can be defined as a representation of a firms underlying core logic and strategic choices for creating
and capturing value within a value network.
Business models have an intimate relationship with the strategy of an organisation. Strategies result in choices;
a business model can be used to help analyse and communicate these strategic choices. Companies in the same
industry, competing with each other, can rely on different models as a matter of strategic choice. For instance, Tata
Consultancy Services adopts a traditional fixed-price, fixed-time business model, where payments by the clients
are based on time related milestones.
From the abstraction that strategies actually are, business models are down-to-earth prescriptions to implement the
strategies. The following example illustrates the concept of business model and its relations to an organisations
strategies.
Bharti Airtels business strategy is to differentiate itself in Indias highly competitive communications environment
by ensuring customer delight through personalised customer service and accomplishing this through a highly cost-
effective model. It implemented this business model through a strategic alliance with Nortel India that hosts contact
centre services for subscribers to Bhartis mobile services, as well as the broadband and fixed-line service. By doing
so, Bharti frees itself from the day-to-day responsibilities associated with operating, maintaining and evolving it
contact centre network, to focus on its core business.
Nortel earns revenue on a par call basis or on a pay as you go business model and foresees opportunities of offering
call centre services to other clients. Enhancing customer service, thus, becomes a value proposition that seeks to
differentiate Bharti from other telecommunication service providers in the competitive Indian market.
3.6 Goal and Objectives

Goals denote what an organisation hopes to accomplish in future. They represent the future state or outcome of effort
put in now. A broad category of financial and non-financial issues are addressed by the goals that a firm sets.
Objectives are the ends that specifically state how the goals shall be achieved. They are concrete and specific in contrast
to goals that are generalised. In this manner, objectives make the goals operational. While goals may be qualitative,
objectives tend to be mainly quantitative in specification. This way they are measurable and comparable.
3.6.1 Importance of Objectives

The managers should use objectives to guide their organisations and it can also be used for the following:
decision making
increasing organisational efficiency
performance appraisal
3.6.2 Roles of Objectives

Objectives play an important role in strategic management. The various facets of such a role are described below:
Objectives define the organisations relationship with its environment: By stating its objectives, an
organisation commits itself to what it has to achieve for its employees, customers and the society at large.
Objectives help an organisation pursue its vision and mission: By defining the long-term position that
an organisation wishes to attain and the short-term targets to be achieved, objectives help an organisation in
pursuing its vision and mission.
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Objectives provide the basis for strategic decision-making: By directing the attention of strategists to those
areas where strategic decisions need to be taken, objectives lead to desirable standards of behaviour and, in this
manner, help to coordinate strategic decision-making.
Objectives provide the standards for performance appraisal: By stating targets to be achieved in a given
time period and the measures to be adopted to achieve them, objectives lay down the standards against which
organisational as well as individual performance could be judged. In the absence of objectives, an organisation
would have no clear and definite basis for evaluating its performance.
3.6.3 Characteristics of Objectives

Objectives, as measures of organisational behaviour and performance, should posses certain desirable characteristics
in order to be effective. The seven characteristics of objectives are as such:
Objectives should be understandable.
They should be concrete and specific.
They should be related to a time frame.
They should be measurable and controllable.
They should be challenging.
Different objectives should correlate with each other.
They should be set within constraints.
3.6.4 Issues in Objective-Setting

There are many issues which have a bearing on different levels of objective-setting. Few of such issues are discussed
below:
Specificity: Objectives may be stated at different levels of specificity. At one extreme, they might be very broadly
stated as goals, while at the other, they might be specifically stated as targets. The issue of specificity is resolved
through stating objectives at different levels and prefixing terms such as corporate, general and particular so
they serve the needs of performance and its evaluation.
Multiplicity: Since objectives deal with a number of performance areas, a variety of them have to be formulated
to cover all aspects of the functioning of an organisation. No organisation operates on the basis of a single or a
few objectives. The issue of multiplicity deals with different types of objectives with respect to organisational
levels, importance, ends functions and nature.
Periodicity: Objectives are formulated for different time periods. It is possible to set long-term, medium-term
and short-term objectives. Long-term objectives are, by nature, less certain and are, therefore stated in general
terms. Short-term objectives, on the other hand, are relatively more certain, specific and comprehensive. One
long-term objective may result in several short-term objectives; many short-term objectives converge to form
a long-term objective.
Verifiability: Each objective has to be tested on the basis of its verifiability. Only verifiable objectives can be
meaningfully used in strategic management. The issue of verifiability could be resolved through the judicious
use of a combination of quantitative and qualitative objectives.
Reality: It is a common observation that organisations tend to have two sets of objectives: official and operative.
Official objectives are those which the organisations profess to attain, while operative objectives are those which
the organisation seek to attain in reality.
Quality: Objectives may be both good as well as bad. The quality of an objective can be judged on the basis of
its capability to provide a specific direction and tangible basis for evaluating performance.
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3.6.5 Types of Objectives
Objectives may be classified on the basis of time frame and nature as shown in the figure below.
Type of objective
Time-based Nature-based
Short-term Long-term Financial Strategic
Fig. 3.4 Types of objectives

Short-term and long-term objectives: Short-term objectives have a time frame of 3 months to on year;
long-term objectives have a time frame of 3 to 5 years. Short-term objectives should be logically consistent.
There must be congruence between the two types of objectives, and short-term objectives should serve as stair
steps toward the achievement of long-term and define the pace at which top management wants to progress.
For instance, a firm wants to become a market leader from its existing position of market follower within a
time frame of 3 years. The market share of the leader is 38% while that of this firm is 25%. It is clear that this
increase of 13% has to be achieved in steps as it would be impossible to bridge this gap during the third year.
The marketing department would suggest the plan as 7% in the first year, 4% in the second year and 2% in the
last year.
Financial and strategic objectives: Strategic objectives of a firm are objectives that are competition focused
and aimed to dislodge the best player in its industry. While it is highly advisable that a firm should have both
financial and strategic objectives, situations do arise wherein a firm has to strike a trade-off between financial
and strategic objectives. The table below shows some examples of financial and strategic objectives.
Strategic objectives Financial objectives

1. Bigger market share, new segments
1. Growth in turn-over
2. Differentiation
2. Better margins
3. Cost rationalisation, improve supply chain,
3. Higher return on investment
electronic commerce
Table 3.2 Examples of strategic and financial objectives
3.6.6 Areas in Objectives

The objectives may be set in the following areas:
Market position: It looks into how a firm should stand relative to its competitors.
Innovation: A firm should identify the areas of innovation and decide metrics say for process improvement,
alternative materials, new product launching, improved technology, innovation in selling.
Productivity: Improve the output level to resource used ratio.
Resource allocation: A firm should specify what resources are to be acquired in what quantities. It must strive
to acquire these resources at optimum costs.
Profitability: Profit in terms of return on investment (ROI).
Managerial performance and development: The quality of performance and the rate of improvement; this is
critical for success especially in service business.
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Worker performance and attitude: It focuses on performance at job, a positive feeling about work and an
inclination to commit to the organisational vision.
Social responsibility: It contributes to the welfare of community society and so on.
Innovation
Productivity
Resource acquisition
Market position OBJECTIVE Profitability
Social responsibility Managerial performance

and development
Worker performance
and attitude
Fig. 3.5 Areas of setting objectives

3.6.7 How are Objectives Formulated?

The factors that should be considered for objective setting are mentioned below.
The forces in the environment: These take into account all the interests, sometimes coinciding but often
conflicting, of different stakeholders in an organisation. Each group of stakeholders has claims, which have
to be considered while setting objectives. It is important to note that the interests of the various stake-holders
may change from time to time, necessitating a corresponding shift in the importance attached to different
objectives.
Realities of the enterprises resources and internal power relationships: This means that objective are
dependent on the resources capability of a company as well as the relative decisional power that different
groups of strategists wield with respect to each other in sharing those resources. A dominant group of strategists
such as the board of directors may wield considerable power so as to set objectives in consonance with their
respective views.
Value system of top executives: This has an impact on the corporate philosophy that organisations adopt with
regard to strategic management in general and objectives in particular. Values, as an enduring set of beliefs,
shape perceptions about what is good or bad, desirable or undesirable.
Awareness in management of the past objectives of the firm: Awareness of the past objectives may lead the
organisation to a choice of objectives that has been in the past due to different reasons.
Keeping in view the four factors described above, it is observed that objective-setting is a complex task, which is
based on consensus-building and has no beginning or end. Vision and mission provide a common thread to bind
together the different aspects of the objective-setting process, by providing a specific direction along which the
organisation can move.
3.6.8 Importance of Goal Setting

Importance of goal setting is discussed below.
Goals will decide the targets of the employees in the organisation.
Goals are necessary to increase productivity.
Goals play a vital role in decision-makingquantitative as well as qualitative.
Goals will give direction for strategic planning for the better future.
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Goals perform an integrating function by linking different organisations.
Achievement of the organisation can be enhanced through setting of goals.
Goals and objectives also constitute as a source for legitimacy.
Goals can be formed as a base for long-term as well as short-term objectives.
Multiple objectives are useful to achieve the sole goal of profit maximisation.
3.6.9 Balance Scorecard in Objective Settings

The long-term success of any organisation is determined by the capabilities and the competencies it has developed.
One of the tools for organisational appraisal that is gaining immense popularity is the Balanced Scorecard, developed
by Robert S Kaplan and David P Norton in 1992. This innovative tool is unique in two ways compared to the
traditional performance measurement tools. The two ways are:
It considers the financial indices as well the non-financial ones in determining the corporate performance level
and
It is not just a performance measurement tool but is also a performance management system.
The aim of the balanced scorecard is to direct, help manage and change in support of the longer-term strategy in
order to manage performance. The scorecard reflects what the company and the strategies are all about. It acts as
a catalyst for bringing in the change element within the organisation. This tool is a comprehensive framework,
which considers the following perspectives and tries to get answers to the following questions:
Financial Perspective - How do we look at shareholders?
Customer Perspective - How should we appear to our customers?
Internal Business Processes Perspective - What must we excel at?
Learning and Growth Perspective - Can we continue to improve and create value?
The tool has given stress on the other areas, which are required to balance the financial perspective in order to get
a total view about the organisational performance and improve the same. The framework tries to bring a balance
and linkage between the following:
Financial and the Non-Financial indicators
Tangible and the Intangible measures
Internal and the External aspects
Leading and the Lagging indicators
The four perspectives: Cause and effect relationship

The four perspectives as mentioned above are highly interlinked. There is a logical connection between them. It
can be explained as, if an organisation focuses on the learning and the growth aspect, it is definitely going to lead
to better business processes.
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Learning and growth
Better processes
Increased customer value
Improved financial performance
Fig. 3.6 The 'Cause and Effect' relationships among the four perspectives
(Source: 6 Balanced Scored A Strategic Management Tool. PDF)
This in turn would be followed by increased customer value by producing better products, which ultimately gives
rise to improved financial performance.
Financial
To succeed
objectives
initiatives
measures
financially, how
targets
we should
appear to our
shareholders?
Customer Internal business

To achieve processes
objectives
initiatives
objectives
Vision initiatives
measures
To satisfy our
measures
our values,
targets
and shareholders
targets
how should we
Strategy and customers,
appear to our
customer? what business
processes must
we excel at?
Learning and
growth
objectives
initiatives
measures
To achieve our
targets
vision, how will

we sustain our
ability to
change and
improve?
Fig. 3.7 The balance scorecard model

(Source: 6 Balanced Scored A Strategic Management Tool. PDF)
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Hence, from the aforesaid model, it is clear that the following are to be done so as to utilise the balanced scorecard
as a strategic management tool:
The major objectives are to be set for each of the perspectives.
Measures of performance are required to be identified under each of the objectives which would help the
organisation to realise the goals set under each of the perspectives. These would act as parameters to measure
the progress towards the objectives.
The next important step is the setting of specific targets around each of the identified key areas, which would
act as a benchmark for performance appraisal. Hence, a performance measurement system is build around these
critical factors. Any deviation in attaining the results should raise a red signal to the management, which would
investigate the reasons for the deviation and rectify the same.
The appropriate strategies and the action plans that are to be taken in the various activities should be decided so
that it is clear as to how the organisation has decided to pursue the pre-decided goals. Because of this reason,
the balanced scorecard is often referred to as a blueprint of the company strategies.
Advantages of using the balanced scorecard

This tool is being used by several organisations throughout the world because of certain advantages this scorecard
has been able to deliver, which are cited below:
It translates vision and strategy into action.
It defines the strategic linkages to integrate performance across organisations.
It communicates the objectives and measures to a business unit.
It aligns the strategic initiatives in order to attain the long-term goals.
It aligns everyone within an organisation so that all employees understand how they support the strategy.
It provides a basis for compensation for performance.
The scorecard provides a feedback to the senior management if the strategy is working.
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Summary
Stretch is a misfit between resources and aspirations.
Leverage refers to concentrating, accumulating, complementing, conserving, and recovering resources in such
a manner that the meagre resource base is stretched to meet the aspirations that an organisation dares to have.
Fit means positioning the firm by matching its organisational resources to its environment.
The vision of the organisation refers to the broad category of long-term intentions that the organisation wishes
to pursue.
Vision is defined as mental perception of the kind of environment an individual, or an organisation, aspires to
create within a broad time horizon and the underlying conditions for the actualisation of this perception.
Vision consists of two components: core ideology and envisioned future.
The characteristics of vision are: shared view, convincing nature, and reflect new realities
Mission is defined as essential purpose of the organisation, concerning particularly why it is in existence, the
nature of the businesses it is in, and the customers it seeks to serve and satisfy.
Mission is an important component of strategic intent and its purpose is to shape the vision, provide guidelines
for formulating objectives and goals, unanimity of purpose, and allocation of resources.
Business of an enterprise is defined by what needs it is trying to satisfy, which customer group it is targeting,
and by the technologies and competencies it uses and activities it performs
The three dimensions of business definition are: customer groups, customer functions and alternative
technologies
Business model can be defined as a representation of a firms underlying core logic and strategic choices for
creating and capturing value within a value network.
Goals denote what an organisation hopes to accomplish in a future period of time.
Balanced Scorecard is one of the tools which is used for organisational appraisal.
References
virtualstrategist, 2008. How to Write a Mission Statement [Video Online] Available at: <http://www.youtube.
com/watch?v=XtyCt83JLNY&feature=related>. [Accessed 14 September 2011].
bizaccelerator, 2010. Whats the Difference Between Mission and Vision? [Video Online] Available at: <http://
www.youtube.com/watch?v=b2MyaR0gMo0&feature=related>. [Accessed 14 September 2011].
Sekhar, G., 2010. Business Policy and Strategic Management. I.K. International
Publishing House Pvt. Ltd.
Kozami, A., 2006. Business Policy and Strategic Management, 2nd ed., Tata McGraw-Hill Publishing Company
Limited.
Sinha, A., 2006. BALANCED SCORECARD : A STRATEGIC MANAGEMENT TOOL [PDF] Available at: <http://
vidyasagar.ac.in/journal/Commerce/6%20Balanced%20Scorecard%20%20A%20Strategic%20Management%20
Tool.pdf> . [Accessed 14 September 2011].
Prahalad, C. and Hamel, G., 1989. Strategic Intent [PDF] Available at: <http://www3.uma.pt/filipejmsousa/ge/
Hamel%20and%20Prahalad,%201989.pdf>. [Accessed 14 September 2011].
Recommended Reading
(India) Pvt. Ltd.
Phadtare, M., 2011. Strategic Management Concepts and Cases. PHI Learning Private Limited.
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Self Assessment
1. A vision statement presents the firms __________that focuses the energies and resources of the company on
achieving a desirable future.
a. strategic choice
b. strategic policy
c. strategic intent
d. strategic management
2. The strategic intent refers to the __________of the organisation.

a. business
b. purpose
c. resources
d. culture

a. Mission ensures unanimity of purpose within an organisation.
b. Organisations legitimise themselves by performing some function that is valued by society.
c. A focus on customer satisfaction causes managers to realise the importance of providing quality customer
service.
d. Business definition gives ambiguous of thought while formulating grand strategies.
4. Which of the following has the aim to help manage and change in support of the longer-term strategy in order
to manage performance?
a. Mission
b. Balance scorecard
c. Vision
d. Core ideology
5. Objectives are the ends that state specifically how the ________shall be achieved.
a. targets
b. goals
c. profits
d. mission

a. Good visions help in the creation of a common identity and a shared sense of purpose.
b. A focus on customer turnover causes managers to realise the importance of providing quality customer
service.
c. A mission statement presents the firms strategic intent that focuses the energies and resources of the company
on achieving a desirable future.
d. Strategy definition along with objectives and goals contributes to concretise the mission on an enterprise.
7. Business definition along with objectives and goals contributes to concretise the _________on an enterprise.
a. mission
b. vision
c. objectives
d. goals
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8. Strategic objectives of a firm are objectives that are _________focused and aimed to dislodge the best player
in its industry.
a. business
b. strategy
c. competition
d. product
9. Which of the following can be defined as a representation of a firms underlying core logic and strategic choices
for creating and capturing value within a value network?
a. Leverage
b. Strategic intent
c. business model
d. business definition

A. Refers to the broad category of long-term intentions that the organisation wishes
1. Fit
to pursue.
B. It means positioning the firm by matching its organisational resources to its
2. Stretch
environment.
3. Leverage C. Is defined as a misfit between resources and aspirations.
D. Refers to concentrating, accumulating, complementing, conserving, and

4. Vision recovering resources in such a manner that the meagre resource base is stretched
to meet the aspirations that an organisation dares to have.
a. 1-B, 2-C, 3-D, 4-A
b. 1-A, 2-C, 3-D, 4-B
c. 1-C, 2-B, 3-D, 4-A
d. 1-D, 2-C, 3-B, 4-A
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Chapter IV
Strategy Formulation and Planning
Aim
define the concept of strategy formulation
explain the process of strategic planning
introduce the corporate level strategy
Objectives
differentiate between operational planning and strategic planning
explain the basis of strategy formulation
explicate the type of multinational enterprises (MNEs)
Learning outcome
enlist the types of corporate level strategy
understand the pitfalls in strategic planning
comprehend the strategy formulation process
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4.1 Introduction to Strategy Formulation

Strategy formulation produces a clear set of recommendations with supporting justification that revise the mission
and objectives of the organisation, and supply the strategies for accomplishing them. In formulation, we are trying
to modify the current objectives and strategies in ways to make the organisation more successful. This includes
trying to create sustainable competitive advantages, although most competitive advantages are eroded steadily
by the efforts of competitors.
A good recommendation should be:

effective in solving the stated problem(s)
practical (can be implemented in this situation, with the resources available)
feasible within a reasonable time frame
cost-effective
not overly disruptive
acceptable to key stakeholders in the organisation
4.2 Steps in Strategy Formulation Process

The process of strategy formulation basically involves six main steps. Though these steps do not follow a rigid
chronological order, they are very rational and can be easily followed in this order.
Setting Organisations objectives
Evaluating the Organisational Environment
Setting Quantitative Targets
Aiming in context with the divisional plans
Performance Analysis
Choice of Strategy
Fig. 4.1 Steps in strategy formulation
Step 1: Setting organisation's objectives

The key component of any strategy statement is to set the long-term objectives of the organisation. It is known that
strategy is generally a medium for realisation of organisational objectives. Objectives stress the state of being there
whereas strategy stresses upon the process of reaching there. Strategy includes both the fixation of objectives as
well the medium to be used to realise those objectives. Thus, strategy is a wider term, which believes in the manner
of deployment of resources so as to achieve the objectives.
While fixing the organisational objectives, it is essential that the factors, which influence the selection of objectives
must be analysed before the selection of objectives. Once the objectives and the factors influencing strategic decisions
have been determined, it is easy to take strategic decisions.
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Step 2: Evaluating the organisational environment
The next step is to evaluate the general economic and industrial environment in which the organisation operates. This
includes a review of the organisations competitive position. It is essential to conduct a qualitative and quantitative
review of an organisation's existing product line. The purpose of such a review is to make sure that the factors
important for competitive success in the market can be discovered so that the management can identify their own
strengths and weaknesses as well as their competitors strengths and weaknesses. After identifying its strengths
and weaknesses, an organisation must keep a track of competitors moves and actions so as to discover probable
opportunities of threats to its market or supply sources.
Step 3: Setting quantitative targets

In this step, an organisation must practically fix the quantitative target values for some of the organisational objectives.
The idea behind this is to compare with long term customers, so as to evaluate the contribution that might be made
by various product zones or operating departments.
Step 4: Aiming in context with the divisional plans

In this step, the contributions made by each department or division or product category within the organisation
is identified and, accordingly, strategic planning is done for each sub-unit. This requires a careful analysis of
macroeconomic trends.
Step 5: Performance analysis

Performance analysis includes discovering and analysing the gap between the planned or desired performance. A
critical evaluation of the organisations past performance, present condition and the desired future conditions must be
done by the organisation. This critical evaluation identifies the degree of gap that persists between the actual reality
and the long-term aspirations of the organisation. An attempt is made by the organisation to estimate its probable
future condition if the current trends persist.
Step 6: Choice of strategy

This is the ultimate step in strategy formulation. The best course of action is actually chosen after considering
organisational goals, organisational strengths, potential and limitations as well as the external opportunities.
4.3 Formulation of Strategy

Strategy formulation is second phase of strategy management. Discussed below is the strategy formulation for large
companies as well as small and medium enterprises.
4.3.1 Strategy Formulation in Large Company or Organisation

It may be convenient to divide strategy formulation in the large company into two inter-related components. These
components are:
Corporate strategy: It deals with issues of strategic management at the level of the enterprise as a whole. Such
issues will include the basic character, capability, and competence of the enterprise; the direction in which it
should develop its activity; the nature of its internal architecture, governance and structure; and the nature of
its relationships with its sector, its competitors, and the wider environment.
Business strategy: By this the enterprise establishes strategies for specific business or organisational activities,
specific sectors and markets, and specific divisions or business units into which operations are allocated.
4.3.2 Strategy Formulation in the SME

Strategy formulation in the small to medium sized enterprise or SME is unlikely to differentiate corporate and
business strategy. The corporate strategy of the enterprise is its business strategy, at least until the SME grows to a
sufficient size to have to think about issues of corporate development and external relationships.
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4.3.3 Basis of Strategy Formulation

The basis of strategy formulation is done under following headings:
the forced or self-imposed
the required
the rationalistic
the deliberate
the logically incremented
the emergent and the opportunistic
Forced or Self-Imposed Strategies

Strategies may be forced on enterprise decision-makers or of necessity imposed upon them (self-imposed) as a result
of the internal or external conditions described below.
Internal conditions: These are are for instance characterised by:
A significant lack of leadership expertise and managerial continuity, or an unsustainable turnover of senior
managerial staff, or an unclear strategic intent and direction, or excessive short-termism.
A significant lack of effective strategic management capability or competence.
A significant level of institutional weakness, or lack of capability or competence.
A significant lack of competitive advantage.
An enforced recognition of the need for significant enterprise change, as in conditions of inadequate value
generation (or actual value loss), operational crisis, re-centralisation, or turnaround.
Example: Limitations on strategic choice predicated by a lack of the necessary technological, operational, financial
or managerial capacity and competence. The enterprise is simply not capable of doing certain things. Shortages of
finance may in particular force require the self-imposition of certain strategy limitations on the firm. Unavoidable
external conditions or threats that are characterised for instance by:
Significant market or environmental development and change.
Significant change in prevailing competition policy, competitive context, competitive strategy, or competitive
conditions.
Significant technological change or the emergence of the technological discontinuities.
Pressure from environmentalist, single interest groups.
Determined or aggressive political behaviour; perhaps leading to Legislative or regulatory developments and
change; or to significant change in prevailing macro level fiscal and economic management; or to change
in prevailing social, consumer behaviour, cultural, or ethical contexts.
For example, external and legislative pressures for environmentally responsible behaviour. Enterprise
management may be forced by legislation to adopt environmentally responsible policies; or instead may
consider that external perceptions of unethical behaviour would be highly damaging to the market reputation
of the company.
Required strategies
A particular choice of strategies or strategic decision may be perceived to be required; require to be self-imposed,
for instance. As a result of a perceived need for consistency with the enterprises capability and competence, choice
of mission, strategic intent, purpose, perspective and objectives as described above; and as a result of the need to
meet the requirements of its shareholders or its stakeholders.
As a result of the choice of position and positioning within the relevant external, market, operational, or
competitive environments.
As a result of the choice of competition strategies or ploys.
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Because of the prevailing organisational attitudes to risk aversion and uncertainty avoidance. Strategic
choice might vary on a continuum from highly risk averse and short-termist at one extreme, to the risk
maximisation of the highly opportunistic entrepreneur at the other.
Because of the effect or influence of prevailing critical success factors, limiting factors, or contingencies
and constraints to which the enterprise is subject, or with which it must deal.
As a result of the need to use power or to undertake political behaviour.
Because of the character and influence of enterprise values, value set, and culture.
Because of prevailing perceptions of the issues and influence of ethics, environmentalism, and social
responsibility.
Because of the need to bring about adaptation in reacting to changing internal or external conditions.
Example: Shareholder corporations may select a variety of strategies whose objective is to meet stockholder
expectations over any particular number of years. These strategies will cover the generation of the appropriate
financial returns. They will also aim to create an institutional reputation for being aware of the need consistently to
meet the wider demands of the financial community. They will develop the ability to communicate with shareholders
and financial institutions in a manner, which most effectively supports the fulfilment of the stewardship obligations
they perceive to be required of them as recipients of investment finance.
Rationalistic approaches to strategy formulation

Rationalistic strategy formulation implies a planned, systematic, and centralised approach where,
the chief executive officer (CEO) or president of the organisation, and his or her colleagues at the corporate
centre are dominant forces in the process of strategic management.
strategic and business plans tend to be handed down (or thrown over the wall) from the corporate centre
to subordinates for implementation. Subordinates may be consulted but their lack of status or their lack of
relevant information precludes them from detailed participation in the process of strategy formulation and
strategic decision-making.
This approach is sometimes described as corporate planning or strategic planning. Rationalistic approaches to
strategy formulation are characteristic of traditional French management style.
Deliberate approaches to strategy formulation

Under this approach, there is an attempt to realise strategies exactly as intended because management perceives
that:
the enterprise can formulate precise intentions and unambiguous objectives.
organisational staff and resources can be shaped exactly to fit the realisation of these objectives (that is, they
can be led and managed so as to be totally congruent with them).
external environmental or competitive forces are unlikely to be able to distort any of the processes of strategy
formulation, implementation and realisation.
Example : The widespread use of acquisition and takeover as a strategy for market share protection, business
growth, and diversification. This strategy has dominated the thinking of boardrooms in Anglo-Saxon companies
during recent decades. A takeover is made. It is then up to others to make it work. If it is unsuccessful then that is
a fault of implementation. There are chances that it may have been a bad idea in the first place, with no synergies
likely between the parties to the acquisition, however, hard one tries to develop them.
Logically incremental approaches to strategy formulation

Strategy is described under this heading as evolving on a dynamic basis over time in response to the internal and
external contingencies that emerge to confront the enterprise. Strategy evolves in response to what decision makers
perceive to be the best course or choice of action at the time. Strategies may for the time be consistent with enterprise
mission or objectives. Or instead, mission, strategic intent, and enterprise objectives may themselves be adapted on
an evolutionary basis to meet new challenges that are emerging to confront the organisation.
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Logical incrementalism is a step-by-step approach to strategy formulation. The approach recognises the existence
of:
the risk, uncertainty, inconsistency, and unpredictability of the event characteristics.
limitations on forecasting capability and foresight.
the need for flexibility of response to changing circumstances, and the necessity to be prepared to change
directions.
The existence of multiple (and potentially inconsistent) values and goals; and the potential impact on strategic
choice of internal bargaining processes, internal negotiation, management power plays, and organisational
politics.
The strategy involves forces of such great number, strength and combinatory powers that one cannot predict events in
a probabilistic sense. Hence, logic dictates that one proceeds flexibly and experimentally from broad concepts towards
specific commitments, making the latter concrete as late as possible in order to narrow the bands of uncertainty and
to benefit from the best available information. This is the process of logical incrementalism.
Emergent and opportunistic approaches to strategy formulation

Strategic choices and strategic moves may be contingent upon the corporate and business opportunities that emerge
and become available to the enterprise. The use of an emergent or an opportunistic approach to the strategic
management process implies that the organisation continuously scans the business and market environment for
emerging opportunities; and as a consequence maintains a flexible resource base and an agile capability (for instance
by making use of external sub-contracting, or the outsourcing of operational, manufacturing or service activities)
such that the enterprise can quickly adjust to take advantage of those opportunities it finds attractive.
Example: Former Second World War pilots suddenly found in late 1940s and early 1950s that transport planes
being sold off cheaply by the military could be converted to carry European holiday makers to sunshine destinations,
such as, Spain or Italy. Thus, was the air package tour industry born from an opportunity seized by airmen turned
entrepreneurs.
4.4 Strategic Planning

Strategic planning has become a very important part of the top management function due to the influence of
external environmental factors and systems approach to the business management. Long range strategic planning
is a systematic approach to decision-making about issues, which are fundamental and of crucial importance to its
continuing long term effectiveness. Long range strategy is designed to provide information about an organisations
vision, mission, purpose, direction and objectives.
Strategic plan
Strategic plan provides a means to deal explicitly and systematically with matters of fundamental importance.
Strategic plan is, the process of selecting an organisations goals, determining the policies and strategic programmes
necessary to achieve specific objectives en-route to the goals and establishing the methods necessary to assure that
the policies and strategic programmes are achieved. Thus, business planning is derived from strategic planning
and strategy.
Planning at lower levels is called operational planning. It focuses on present operations and its prime concern is
efficiency rather than effectiveness.
4.4.1 Differences between Operational Planning and Strategic Planning

The differences between operational planning and strategic planning are presented in the table below. It is clear
from the table that there is a great deal of difference between strategic planning and operational implementation
planning.
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Operational planning Strategic planning
Focus Operational problems Long term, survival and developmental
Objectives Present profit Future profit
Constraints Present resources, environment Future resources, environment
Rewards Efficiency, stability Development of future potential
Information Present business Future opportunities
Organisation Bureaucratic/stable Entrepreneurial/flexible
Leadership Conservative Inspires radical changes
Relies on past experience,
Problem-solving Anticipates, finds new approaches, High risk
Low risk
Table 4.1 Differences between operational planning and strategic planning
4.5 Strategic Planning Process

The steps involved in strategic planning process are as follows:
Establishing verifiable goals or set of goals to be achieved: The business plan is based on the enterprise
objectives. These objectives are mostly formulated by the top management, the values and beliefs held by the
top management are reflected in these goals.
Establishing planning premises: Planning premises means assumptions about the future on the basis of, which
the ultimately formulated. Planning premises include:
Internal and external premises: Internal premises include sales forecasts, policies and programmes of the
organisation, capital investment, managerial competency, human resource skills, and other organisational
resources. External premises include general business and economic environment, technological changes,
Government policies and regulations, population growth, political stability, and social factors.
Tangible and intangible premises: The premises which can be quantifiable are called tangible premises.
The tangible premises include population growth, product demand, past sales, capital invested and the like.
The intangible premises are those which cannot be measured quantitatively. These premises include political
factors, social factors, technological factors, natural factors and so on.
Controllable and non controllable premises: Some factors are controllable and some are uncontrollable.
Business plans are to be modified and sometimes reformulated due to the presence of and interaction
of uncontrollable premises. Uncontrollable premises include strikes, lockouts, wars natural calamities,
emergency situations and so on. Controllable premises include companys labour policy, investment policy,
advertising policy, level of technology competency of managerial personnel, quality of human resources,
and availability of financial resources and so on.
Deciding the planning period: After formulating planning premises and long-term goals, the manager have to
decide the length of business plan period. The plan of the period should be based on the nature of the business,
the vision and mission of the company. Other factors, which influence the planning period are lead time in the
development of a new idea business/product, time required to get back the original investment and the length
of commitments already made.
Finding alternative courses of action: After formulating the business plans, the top-level management should
find out the alternative courses of actions available in order to accomplish the companys mission. For example,
availability of alternative technologies, alternative sources of capital, highly skilled employees abroad, and so
on.
Evaluating the alternative plans and selecting a course of action: The management has to evaluate the
available courses of action through SWOT analysis (Strengths. Weaknesses, Opportunities and Threats) and
rank the alternatives. After ranking the alternatives, the management has to select the best business plan.
Developing derivative plans: The management after selecting the best business plan, should formulate the
other policies and plans, which are the sub plans to the main plan. Management should involve and consult the
lower level managers while formulating the derivative plans.
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Implementation of the business plans: After the development and selection of the plans and derivative plans,
management has to take initiative to implement the business plan.
Measuring and controlling: After the business plan is put into action, the management has to measure the progress
of the plan and compare it with the standards, observe the deviations, if any, and correct the deviations.
4.6 Corporate Level Strategy

After analysing the environment and assessing the internal environment, the next step in the strategic planning
process is to develop strategic alternatives to help the organisation in achieving its objectives. Different kinds of
strategic alternatives are presented in the figure below. Strategic alternatives revolve around the question whether to
continue or change the current business enterprise or improve the efficiency and effectiveness with which the firm
achieves its corporate objectives in its chosen business sector. The four grand strategies are: stability, expansion,
retrenchment and combination of these three strategies.
KINDS OF GRAND STRATEGIES
Stability Growth Retrenchment Restructuring

Strategy Strategies strategies strategies
Maintenance of Internal growth Turnaround Portfolio
Status Quo Concentration Captive company restructuring
Sustainable strategies Transformation
growth Mergers Divestment
Takeover/ Liquidation
Acquisition
Horizontal
Integration
Conglomerate
diversification
Vertical integration
Joint ventures
Fig. 4.2 Different kinds of grand strategic alternatives
4.6.1 Stability Strategies

Some firms adopt stability strategy instead of using growth strategies. Firms attempt to maintain their size, level of
production and sales, serving almost the same customer groups, performing the same customer functions, produces
with same technologies and operate the current lines of business. These firms do not attempt to grow either through
increased sales or through the development of new products or markets. This strategy can be of two types:
Maintenance of status quo: Firms adopt this strategy to maintain the same level of operations. Small business
firms desire satisfactory level of operations rather than growth.
Sustainable Growth: Slow growth is more desired rather than maintenance of status quo. In fact, it is very difficult
to maintain status quo. Therefore, a sustainable growth strategy is more optimistic than the zero growth.
Reasons for adopting stability strategies

Firms adopt the stability strategies due to the following reasons:
Managers of small business desire a satisfactory level of profits rather than increased profits.
Maintenance of status quo involves less risk than a more growth strategy.
Change of any form may disrupt the current working relationships and the consequences may be detrimental
to the organisation.
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Change may upset the smooth operations and result in poor performance especially, if the firm considers itself
successful with the present level of operations.
Changing operations to pursue a more aggressive growth strategy usually requires an increased investment and
managerial support. Firms, which cannot provide resources, may continue with the stability strategy.
Some executives maintain with the stability strategy due to inertia for change.
Despite these reasons for adopting stability strategy, there is a danger of pursuing the stability strategy. The danger
is that the environment may change and cause the firm or its product line obsolete. Hence, firms plan to adopt
growth strategies.
4.6.2 Growth Strategies

Organisations may select a growth strategy to increase their profits, sales and/or market share. They also pursue
growth strategy to reduce cost of production per unit. Growth strategies involve a significant increase in performance
objectives. These strategies are adopted when firms remarkably broadens the scope of their customer groups, customer
functions and alternative technologies either singly or in combination with each other.
4.6.3 Expansion Strategies

Internal growth is achieved by increasing the firms production capacity, employees and sales. Some firms prefer
this strategy to the strategy of external growth as internal growth preserves their efficiency, quality and image unlike
in external growth.
Firms pursue concentration strategies to grow while remaining relatively simple. The total efforts of the firm
are concentrated on a limited combination of customer groups, customer functions, alternate technologies and
products.
Advantages
A firm can gain a competitive advantage by concentrating on a specific technology, product or market. Firms pursuing
this strategy are frequently able to identify new developments and trends within the industry and respond to them.
Problems
There are certain potential problems of concentration strategies. Some of them are mentioned below.
One of the greatest problems is the risk associated with putting all the corporate eggs in one basket.
The introduction of substitute products may also be very detrimental to a firm following a concentration strategy.
Substitute products can make a firms product obsolete particularly when the firm concentrates on only one
product or product line.
Company pursuing concentration strategy may also be affected by disruption in the supply of essential and
crucial raw material.
Sometimes, the market segment becomes unattractive owing to limited growth opportunities, substitute products
or absence of essential resource availability. In such a case, a firm pursuing a concentration strategy may become
locked into an area of business and become unable to move into another line of business.
4.6.4 Merger Strategy

Many firms prefer to grow through mergers. Combination of two or more firms is known as a merger. When the
firms of similar objectives and similar strategies combine into one firm, such combinations are called mergers. A
merger is a combination of two or more businesses in which one acquires the assets and liabilities of the other in
exchange for stock or cash or both. Companies are dissolved and assets and liabilities are combined and new stock
is issued. Mergers can take place within one nation or across nations.
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Types of mergers
Mergers can be classified into the following types:
Horizontal mergers: Horizontal mergers are combinations of firms engaged in the same business.
Vertical mergers: Vertica1 mergers are combination of different firms engaged in activities complimentary to
each other like supply of raw materials, production of goods and marketing. For example, combination of firm
engaged in mining of iron ore, and iron and steel company.
Concentric mergers: Concentric mergers are combination of firms related to each other in terms of customer
groups or customer functions or alternative technologies. For example, combination of firms producing televisions,
washing machines, and kitchen appliances.
Conglomerate mergers: Conglomerate mergers are the combination of firms unrelated to each other in terms
of customer groups, customer functions and alternative technologies. For example, combination of a publishing
company and an automobile company.
Advantages of merger
Mergers as growth strategy are more popular in many countries. There are certain advantages of mergers for both
the buying and selling firms. These advantages include:
The firm after merger will enjoy the economies of large scale operations.
The firm after merger can utilise the funds to the maximum extent and get the benefit of profit growth.
The firm will be in a position to diversify the activities, increase the level of operations and level of profits.
The more effective and efficient utilisation of resources will result in higher productivity. Revival of sick units
and avoidance of mortality of loss making organisation can be possible through merger.
Entrepreneurs often find it easy to buy an existing firm with established markets rather than establishing a new
company.
Disadvantages of merger
The psychological problems of the top management of the merging firms after merger may result in disbanding
of merger.
Negative attitude of the senior partner towards the junior firm may result in the failure of the merger.
Executives of acquired firm may get low status, low level authority and power.
Research studies find that the performance and profitability of combined firms tend to decline compared with
that of the merging firms before merger.
The mergers will lead to concentration of economic power, monopolistic conditions and, thereby, resulting in
political issues, higher prices, and restricted supply, black marketing and so on.
4.6.5 Takeovers or Acquisitions Strategy

Sometimes firms want to grow through the strategy of takeover or acquisition. Takeover (or acquisition) is defined
as, the attempt (often sprung as a surprise) of one firm to acquire ownership or control over another firm against the
wishes of the latters management (and purchase some of its stakeholders). But, in practice, takeovers can be hostile
(against the wishes of the acquired firm) or friendly (through mutual consent of buyer and seller like in merger).
Takeover strategy is currently the most popular strategy in India, particularly after the economic liberationsation.
Advantages of takeovers
Takeovers ensure management accountability.
Takeovers provide easy growth opportunities.
They create mobility of resources from one activity to another activity.
They avoid gestation periods and problems involved in new projects.
They provide the chance of survival to the sick units and provide alternatives to the disinvestment strategy.
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Disadvantages of takeovers
Professionalisation of management may be replaced by money power.
Takeovers do not create any real assets to the society.
They result in monopoly and concentration of economic power.
They are detrimental to the society.
Interests of the minority shareholders are not protected.
4.6.6 Retrenchment Strategies

The third major class of strategic alternatives available to a firm is retrenchment strategies. Growth strategies and
stability strategies are generally adopted by firms that are in satisfactory competitive positions. But, when a firms
position is disappointing or, at the extreme, when its survival is at stake, then retrenchment strategies may be
appropriate. Retrenchment strategies include turnaround strategies, captive company strategy, divestment strategy,
transformation strategy and liquidation strategy.
Reasons for adopting retrenchment strategies: As stated earlier, the firms poor performance is the major reason
for adopting retrenchment strategies. To be specific, the reasons include:
Prevalence of poor economic conditions.
Competitive pressures may also cause firms to curtail their operations.
Operating and production inefficiencies may also cause firms to pursue retrenchment strategies.
Inability of the firm to implement latest technology caused by technological revolution.
The company is not doing well or perceives itself as doing poorly.
The company has not met its objectives and there is pressure from shareholders, customers or others to improve
performance.
The external environment poses threats and internal strengths are insufficient to face the threats.
Better opportunities in the environment are perceived in other area of business/other markets where a firms
strengths can be utilised.
4.6.7 Portfolio Restructuring

This strategy is the combination of stability, growth and retrenchment strategies. Combination strategies may involve
implementation of two or more strategies. In some cases, particularly during the periods of rapid environmental
change, adoption of combination strategy would be necessary. Firms may liquidate one unit, develop another unit
and allow the third unit to survive simultaneously to improve the efficiency of the business and maximise the
profitability.
Once the companys profitability is satisfactory, it may adopt growth strategy. This strategy is common for large
scale organisations with multiple units, diversified products and national or global markets. Combination of survival,
growth and retrenchment strategies may be either simultaneous or sequential. This strategy is also called portfolio
restructuring strategy as it is the mix and percentage make up of the different types of businesses in the portfolio.
It involves both divestment and acquisition/takeover.
4.7 Strategic Planning in MNEs (Multinational Enterprises)

Strategic planning is an important tool used by the MNEs for meeting their strategic objectives, expansions, and so
on. The planning concept changes with the change in the stage of development of an MNE. The focus accordingly,
may change from purely financial planning to strategic planning. The planning process depends on various factors.
There are some differences in the planning pattern of the MNEs of different country origins. However, one can
identify the kind of relationship that exists between the parent company and subsidiaries in as far as planning is
concerned. In spite of instituting a formal planning process, many MNEs are prone to pitfalls.
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One of the major concerns in strategic planning is environmental volatility. Different industries are affected by
different factors with varying intensity. This necessitates an MNE to identify the scope of environment scanning
and the appropriate mode of collection of information.
4.7.1 Types of MNEs

Most of the MNEs are multi-plant firms. The MNEs try to make full use of (special) `firm-specific advantages,
which are usually intangible, viz., technology know-how, management and marketing skills. They create an internal
market by establishing property rights over their specific advantages. The firm specific advantages help them in
offsetting additional costs and risks, which are associated with foreign operations. We will appreciate that a multi-
national firm, compared to a local firm, incurs certain inherent disadvantages, which arise due to natural market
imperfections or uncertainties. It has to incur additional costs (i.e., transaction costs to obtain or collect information
about overseas markets) and risks from cross-cultural operations. The MNEs attempt to minimise transaction costs by
the process of internalisation, i.e. by setting up their offices or units or by transferring their own people abroad.
In this way, they try to extend their own direct operations rather than simply use the external market. Many
intermediate product markets, particularly for types of knowledge and expertise embodied in patents and human
capital, are difficult to organise and costly to use. In such cases the firm has an-incentive to create internal markets
whenever transaction can be carried out more efficiently within the firm than through external market.
The creation of an internal market permits the firm to transform an intangible piece of research into a valuable
property specific to the firm. The firm can exploit its advantage in all available markets and still keep the use of the
information internal to the firm in order to recoup its internal expenditure on research and knowledge generation.
The internalisation process may result in three types of the MNEs namely:
Horizontally integrated MNEs

The horizontally integrated MNEs have firm specific advantages in technological know-how, management, skills
and marketing know-how. Such an MNE tries to maintain and utilise its unique advantages as a competent edge
over other MNEs in the global markets. Most of these MNEs exploit their firm specific advantages to overcome the
market imperfection such as buyer or market uncertainties through internalisation. Such MNEs expand horizontally.
This kind of phenomenon is observed in pharmaceutical industries.
Vertically integrated MNEs

The second type of MNEs are vertically integrated, examples of these can be found in oil and mineral industries.
Firms in these industries try to establish control and minimise transaction costs. For example, in oil industry, an
MNE may try to integrate from extraction to transportation to refining and distribution of oil. This creates internal
market within the MNE.
Diversified MNEs
The third type of the MNE's are diversified MNE's, which are diversified into different products. The advantages to
the MNEs arise from utilising the market imperfections in terms of information cost and government regulations
in different countries, reducing its cost of information and search cost.
4.7.2 Planning Needs of MNEs

The planning needs of the MNEs may differ among different types of companies. One can differentiate on the
basis of two criteria:
stages of growth on the basis of products
management style (whether it is broad or narrow in scope)
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Three stages have been identified in the growth-evolution or organisation structure and strategy, which are presented
in table below.
Stage Structure Strategy
I Functional Single product line

II Product Related product line
III Divisional Unrelated product line
Table 4.2 Evolution of structure and strategy
The emphasis under these stages may vary. It may be either narrow or broad in scope for the corporate planning.
One can classify Polaroid company-being at stage I, and narrow in scope. For instance, Proctor and Gamble has
diversified from its basic soap and detergents into related consumer goods. Thus, it can be said that the company
has moved to stage II from narrow to broad category.
Colgate Palmolive, which is much diversified and has a broad management style, is at stage III. Depending upon
the companys emphasis, narrow or broad, different kinds of planning approaches are required. If one takes a
narrow scope management under different stages, the traditional planning model may be alright at stage I. The
emphasis will be on functional planning. The planning is budget oriented.
In stage II, when-an MNE diversifies into more than one product, a specialist in staff functions is required in
the planning process. In stage III the specialist will dominate in the planning process of diversification.
In contrast to this, in broad scope management there will be an additional role for Generalist style in all the
stages of development. The main, difference between the narrow and broad scope planning is the receptivity to
change. The latter accepts the high risk in diversification and associated activities.
The location of an MNE on the planning matrix prepared on the basis of the stage and degree of diversification will
determine the type of corporate planning needs. Accordingly, the planners with appropriate training and orientation
have to be assigned with the task in the corporate planning function. The mismatch may result in either `over-killing
by creating a new planning department or in lack of creative planning due to a traditionalist being appointed when
actually a specialist is required.
4.7.3 Planning Focus of MNEs

Planning focus can be analysed in terms of types, time horizon and formality. The basic orientation of the MNEs
can be classified into three groups as mentioned below:
Strategy unit programming: Strategic planning involves overall missions, objectives, goals and, policies. It
identifies strengths and weaknesses of the company vis--vis macro-environment and the time horizon is 5-10
years.
Business unit programming: Business unit planning unit programming deals with selected strategic business
units. It may include market selection, product planning, and marketing strategies. The time horizon is 1-3
years.
Operations planning: It is mainly concerned with short term operational activities. Depending on the
organisational set up and the nature of planning, one can classify planning focus into four phases of planning
evolution as given below.
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Phase Objective Plan orientation Plan attribute

Financial planning Annual budgets, Functional focus
I Meet budget
Forecast based Multi year budgets
II Predict Future
planning
Externally oriented Thorough situation analysis and competitive
III Think
planning assessment
strategically
Well-defined strategic framework strategically
Strategic focused organisation. Supportive value system and
IV Create future
Management climate.
Table 4.3 Planning evolution
4.7.4 Planning Modes of MNEs

One way to view strategic planning process is to look at the structural relationship in a large organisation between the
user and the planner. Corporations have tried various ways to tackle the issue of agency in a complex organisation.
They have attempted structural or cultural solutions as control mechanisms. The structural solutions have resulted
in multi-divisional structure in a large and diverse corporation.
Here, an attempt is made to divide the corporation into manageable units and assign responsibility and accountability
to each unit. The cultural solution assumes shared values and goals. The corporation tries to grow on a set of `core
skills, and invest heavily in socialising the members. The principals are those who receive, review and approve
plans, monitor and reward the performance. The agents are those who prepare, propose and implement plans and
manage the business. In a large organisation, normally those managers who prepare plans will know more than the
managers who have the authority to revise or approve.
Due to their superior information, the former, who are a sort of agents can avoid or defeat control by the latter.
There are two dimensions in this agency relationship between the principals and those who prepare plans: shared
values and skills and experience, and information asymmetry. Based on this thinking the planning modes have been
classified into five types shown in the table below.
Modes Agents Shared Values

Leader driven planning L H
Culture driven planning H H
Line driven planning M M
Number driven planning H L
Staff driven planning L L
Table 4.4 Planning modes

Here,
L= Low
H= High
M= Medium
Most of the companies, which depend on the leader-founder have in fact, one-system corporation. Whenever the
leader-founder is replaced by a professional manager(s), the company may move either to culture driven or line
driven management. The culture driven planning is mostly observed when the product and geographically diverse
requirements have a major centre of gravity in terms of goals, skills and values of the company.
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IBM has a single centre of gravity under worldwide design, manufacturing and marketing computer systems.
Similarly, 3M regards itself in bonding and coating packages, Proctor and Gamble in market development and
distribution of consumer packages. These companies have created a culture driven planning, and their plans are
simple and action oriented. All this has created a functional culture supported by tangible means of promotion and
reward systems. Here, culture predominates over plans or budgets.
Line-driven planning: In line-driven planning, attempts to specify some key requirements such as legitimacy-
and credibility of numbers, relative information plans between agents and principals, small set of corporate
values and unifying themes as there may be diversity in the social context and in the geographic diversification
of the MNEs. The incentive systems have to be adaptive and flexible. This type of planning depends on line
managers for both strategic thinking and implementation.
Number-driven planning: When the MNEs diversify into different fields, both product and geographically based
control through the planning process becomes long and detailed. The management tries to control the different
activities of its subsidiaries through numbers. The number-driven planning is based on two premises:
belief in market control
control by incentives
Strategic business units (SBUs) are set up, and their performance is monitored through quantitative indicators,
such as market share, ROI and cash flows. In some concentrated industries, there could be a lagged response
from the market.
Staff-driven planning: It normally means top-down planning with corporate planners playing an active role. A
great deal of information is accumulated to control and catch the line people. The line personnel start thinking
that their fate depends on their ability to control pressure from the headquarters. This results in a cat and mouse
chase between the staff planners and the line managers. Though a corporation may have a fancy for planning
with scenarios, the actual events may bring many surprises.
4.7.5 MNEs Planning in Practice

Because of the nature of growth and the complexity involved in the multinational operations, strategic planning has
become almost inevitable. Several studies reveal that there has been tendency on the part of more and more MNEs,
after 1970s, to resort to strategic planning. Table 4.5, based on some research studies, gives a comparative view of
long range planning adopted by American, German and Japanese companies.
American German Japanese
Nature of communication
Formal 81 54 50
Ad hoc 19 46 50
Information exchange
Extensive
42 33 34
One-way from HQ 58 67 66
Table 4.5 Subsidiary involvement
Though the sample size is limited to a few MNEs and their various subsidiaries, it indicates that both American and
German companies have a strategic planning of 3-5 years at the headquarters. It was found that only 72 per cent of
the Japanese companies have yearly resorted to strategic planning and the rest of the Japanese companies worked
on the ad hoc planning by the headquarters. The strategic planning of 3-5 years for subsidiaries is more prevalent
in the American companies than in the German and Japanese. While German companies mostly emphasise mostly
on yearly operational planning, Japanese companies adopt both yearly and ad hoc planning of subsidiaries.
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HQ. 9 7 14
Sample size:
Sub. 24 43 22
Planning
Headquarters
3-5 years 100 100 72
Yearly -- -- 14
Ad hoc -- -- 14
Subsidiaries
3-5 years 46 33 18
Yearly 16 63 46
Ad hoc 38 4 36
Table 4.6 Long range planning
Of the same sample, the nature of subsidiary involvement in strategic planning is given in the above table. The
table indicates the nature of communication between the headquarters and subsidiaries. Communication is more
frequent and more prevalent among the American the MNEs than the German or Japanese. German and Japanese
subsidiaries adopt ad hoc informal communication in the planning process.
In terms of the extent of information exchange, the majority of communication in all the three countries consists of
one way communication from the headquarters to the subsidiaries. This indicates that the MNEs from all the three
countries, i.e., the US, Germany and Japan use strategic long-range planning and environmental scanning for the
integration and coordination of their global activities. As such, communications are very much headquarters-oriented.
The subsidiaries have a marginal role in determining the goals are target-setting of their operations.
4.7.6 Subsidiary Development Path

The strategic planning at subsidiary level helps MNEs to localise the global strategy according to the local market
conditions. Here, one has to differentiate between the subsidiary operating as an autonomous functioning unit and
a mere branch with no autonomy. The latter more or less is a foreign affiliate, and is meant to work as a public
relations office (may be to appease the local government). It will be a `paper subsidiary.
If it is an autonomous business entity, it would act to localise the global strategy of its parent company. It can also
maximise the subsidiarys added value to the parent company. Strategic planning process would try to provide a
forum for the development of subsidiaries consistent with the companys global mission, objectives and culture. It
will build up the confidence of the local management and also help them in aligning their plans, goals and activities
for the common viable purpose.
Localisation of global strategy

Many MNEs have attempted to adapt the differences in market segments. This has been done by Microsoft
Corporation, which allows its European subsidiaries to develop their own strategy to meet the local needs. This may
maximise the subsidiaries added value. The firm looks after the subsidiary, and its plans are designed to complement
the global strategy. The subsidiarys added value is planned to increase in several functional areas.
Growth and development of the subsidiaries

The growth of the subsidiary can be measured in terms of the sales volume, asset volume or number of the employees.
The growth of a subsidiary can be classified into three stages. The relationship of the subsidiary with the parent
company would depend upon the stage at which the subsidiary finds itself. In other words the relationship would
correspond to the stage of growth. Table 4.7 summarises the three growth stages and the corresponding subsidiary
culture.
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In the initial stages, subsidiary is concerned with the product and sales of the products. As it grows in the market, it
may develop the mentality to act as a branch to the MNE. Once this happens, there is the likelihood of the subsidiary
becoming a self-contained business where planning, control and management become integral parts of the subsidiary.
Subsequently, the subsidiarys dependence on the parent company may diminish.
Growth stage Subsidiary culture

Childhood Product and sales mentality
Adolescence Branch mentality
Adulthood Self-contained business mentality
Table 4.7 Subsidiary development path
In the initial stages, the planning effort is that of top-down from the headquarters to the subsidiaries. As the subsidiary
matures, it increases its autonomy in planning it's future business. This was the basis of the Digital European
Headquarters in Geneva where it has been decentralised since early 1980s. Involving the subsidiaries in strategic
planning by the headquarters increases the confidence of the subsidiary managers in the overall global strategy.
Proctor and Gamble have started using this approach in recent years.
Similarly, Colgate has created a global market. The parent company is involved more in giving the direction, setting
global vision, and allocating the companys resources and capabilities, while encouraging entrepreneurship among
its foreign subsidiaries. Finally, strategic planning also gives the subsidiary the means to integrate its plan with
corporate plans and goals to accomplish its purpose.
4.7.7 Pitfalls in Planning

There are some critical pitfalls in strategic planning, which have been classified into four key categories as given
below:
Pitfalls in getting started.
Pitfalls related to misunderstanding the nature of long range planning.
Pitfalls in doing long-range planning.
Managerial involvement
Process of planning
Credibility of result
Pitfalls in using long range plans

At each stage of the process, there are several pitfalls in multinational long range planning. There are some pitfalls,
which are considered less important depending on whether the company can easily avoid, or whether they have a
limited negative impact on the effectiveness. Such pitfalls relate to assumptions about planning that it is hard or
easy, or that techniques are not useful. However, these pitfalls can be easily overcome.
According to the survey, the major pitfall is that top management becomes so engrossed in current problems that
it spends insufficient time on long range planning, and the process becomes discredited among the managers and
staff. This may have the greatest negative impact on planning effectiveness.
Ten important pitfalls in planning are as under:

Engrossed in current problems
Delegation to a planner
Developing suitable company goals
Climate (resistant to planning)
Lack of involvement
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Assuming planning as separate from the management process

Not using plans as standards for performance
Failure to review by top management with other levels
Failure to locate the planner in the hierarchy
Failure to understand the nature of planning by the top management
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Summary
Strategy formulation produces a clear set of recommendations, with supporting justification, that revise as
necessary the mission and objectives of the organisation, and supply the strategies for accomplishing them.
Strategy formulation process involves six steps: setting organisations objectives, evaluating the organisational
environment, setting quantitative targets, aiming in context with the divisional plans, performance analysis,
and choice of strategy.
Strategy formulation in large companies is divided into two interrelated components and these are: corporate
strategy, and business strategy.
Strategy formulation in the small to medium sized enterprise or SME is unlikely to differentiate corporate and
business strategy.
The basis of strategy formulation in the small and medium enterprises is done under following headings: the
forced or self-imposed, the required, the rationalistic, the deliberate, the logically incremented, and he emergent
and the opportunistic.
Strategic planning has become a very important part of the top management function due to the influence of
external environment till factors and systems approach to the business management.
Strategic plan is, the process of selecting an organisations goals, determining the policies and strategic
programmes necessary to achieve specific objectives en-route to the goals and establishing the methods necessary
to assure that the policies and strategic programmes are achieved.
Strategic planning process involves the following steps: establishing verifiable goals or set of goals to be
achieved, establishing planning premises, deciding the planning period, finding alternative courses of action,
evaluating the alternative plans and selecting a course of action, developing derivative plans, implementation
of the business plans, and measuring and controlling.
Strategic planning is an important tool used by the MNEs for meeting their strategic objectives, expansions,
and so on.
The internalisation process may result in three types of the MNEs namely: horizontally integrated MNEs,
vertically integrated MNEs, and diversified MNEs.
The planning needs of the MNEs may differ among different types of companies. One can differentiate on the
basis of two criteria: stages of growth on the basis of products, and management style (whether it is broad or
narrow in scope).
Planning focus can be analysed in terms of types, time horizon and formality. The basic orientation of the
MNEs can be classified into three groups namely: strategy unit programming, business unit programming,
and operations planning.
References
Morden, T., 2007. Principles of Strategic Management. Ashgate Publishing Group.
Lawrie, G., 2004. Strategic performance management. Emerald Group Publishing.
managementstudyguide.com. Steps in Strategy Formulation Process [Online] Available at: <http://www.
managementstudyguide.com/strategy-formulation-process.htm>. [Accessed 16 September 2011].
Heller, I., 2008. The Benefits of Strategic Planning [Video Online] Available at: <http://www.youtube.com/wa
tch?v=Gu2ImfIjN7o&feature=related>. [Accessed 16 September 2011].
Michael, 2008. Strategic Planning Model Video Online] Available at: <http://www.youtube.com/
watch?v=QkWZrNLic-s&feature=related>. [Accessed 16 September 2011].
Shapiro, J. Strategic Planning [Online] Available at: <http://www.civicus.org/new/media/Strategic%20Planning.
pdf>. [Accessed 16 September 2011].
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Recommended Reading
Subha, P., 2010. Strategic Management. Global Media.
Hill, C., 2008. Strategic Management: An Integrated Approach, 2nd ed., John Wiley and Sons Ltd.
Alkhafaji, A., 2003. Strategic Management: Formulation, Implementation, and Control in a Dynamic Environment
(Promotional Management). Routledge.
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Self Assessment
1. The planning premises which can be quantifiable are called __________.
a. intangible premises
b. controllable premises
c. tangible premises
d. productive premises
2. Strategic planning at lower levels in an organisation is called ___________planning.

a. operational
b. business
c. production
d. vertical

a. Strategy formulation in the small to medium sized enterprise or SME is likely to differentiate corporate and
business strategy.
b. Performance analysis includes discovering and analysing the gap between the planned or desired
performance.
c. Rationalistic strategy formulation implies a planned, systematic, and centralised approach.
d. Logical incrementalism is a step-by-step approach to strategy formulation.
4. Which of the following provides a means to deal explicitly and systematically with matters of fundamental
importance?
a. Corporate strategy
b. Strategic plan
c. Strategic formulation
d. Merger strategy
5. The key component of any strategy statement is to set the _______objectives of the organisation.
a. organisations
b. business
c. production
d. long-term

a. The intangible premises include population growth, product demand, past sales, capital invested and the
like
b. The plan of the period should be based on the nature of the business, the vision and mission of the
company.
c. Small business firms desire satisfactory level of operations rather than profit.
d. External growth is achieved through increasing the firms production capacity, employees and sales.
7. Which of the following strategy is the combination of stability, growth and retrenchment strategies?
a. Portfolio
b. Acquisition
c. Expansion
d. Merger
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8. ___________planning normally means top-down planning with corporate planners playing an active role.
a. Long-term
b. Vertical
c. Horizontal
d. Staff-driven
9. ____________planning depends on line managers for both strategic thinking and implementation.
a. Leader driven
b. Culture driven
c. Number driven
d. Line driven
10. Match the following:

A. These mergers are combination of different firms engaged in activities
1. Horizontal mergers complimentary to each other like supply of raw materials, production of
goods and marketing.
B. These mergers are combination of firms related to each other in terms of

2. Conglomerate mergers
customer groups or customer functions or alternative technologies.
3. Vertica1 mergers C. These mergers are combinations of firms engaged in the same business.
D. These mergers are the combination of firms unrelated to each other in terms
4. Concentric mergers
of customer groups, customer functions and alternative technologies.
a. 1-D, 2-C, 3-A, 4-B

b. 1-C, 2-A, 3-D, 4-B
c. 1-C, 2-D, 3-A, 4-B
d. 1-D, 2-C, 3-B, 4-A
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Chapter V
Strategic Analysis and Choice
Aim
introduce the concept of strategic choice
define strategic analysis
explain the process of strategic choice
Objectives
explain the tools and techniques for strategic analysis
describe SWOT analysis
explicate life cycle analysis
Learning outcome
understand corporate portfolio analysis
discuss industry analysis
comprehend strategic group analysis
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5.1 Introduction - Strategic Choice

Each strategy is marked by risk and limitation depending upon environmental analysis and organisational appraisal.
Choice of a strategy involves an understanding of choice mechanism and issues involved in it. Strategic choice is
defined as the process of selecting the best strategy out of all available strategies.
5.1.1 Choice Process

Choice process involves decision making process, which includes steps discussed below.
Objective
factors
Focusing on Evaluating Considering Choice of

strategic strategic decision strategy
alternatives alternatives factors
Subjective
factors
Fig. 5.1 Strategic choice process

(Source: Dr. Jeyarathnam. Strategic Management, Himalaya Publishing House)
Step 1: Focusing on strategic alternatives

Theoretically this step involves identification of all alternatives. In practice, managers consider those alternatives
which are relevant and feasible. Hence, the number of alternatives are restricted.
Gap analysis: In gap analysis, the strategist examines what the organisation wants to achieve (desired performance)
and what it has really achieved (actual performance). The gap between the two positions constitutes the background
for various alternatives and diagnosis. The gap between what is desired and what is achieved widens as the time
passes if no strategy is adopted.
Desired Performance
Performance
Present Performance gap

Performance
T1 Time T2
Fig. 5.2 Gap analysis

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Step 2: Evaluation of strategic alternatives and considering decisions factors
The next step is to assess the pros and cons of various alternatives and their suitability. Portfolio analysis is one
such tool, which is popularly used in order to evaluate strategic alternatives. The information collected for SWOT
analysis serves as a basis for portfolio analysis. Portfolio analysis is a two dimensional technique.
Portfolio planning: The purpose of portfolio techniques is to help top officers of diversified corporations to
better manage their portfolio of businesses. BCG Matrix is one such portfolio technique.
BCG matrix: BCG growth matrix developed by Boston Consulting Group has two dimensions namely, market
growth rate and relative market share. The main objective of BCG matrix is to help top management to identify
the cash flow requirements of different businesses in their portfolio. Construction of a BCG matrix involves
three steps.
Dividing the company into strategic business units (SBU) and assessing the long-term prospects of each.
Comparing SBUs against each other by means of a matrix that indicates the relative prospects of each.
Developing strategic objectives with respect to each SBU.
Corporate parenting: In corporate parenting, the corporate headquarters tries to get synergy among business
units by allocating resources, transferring critical skills and capabilities among various units and coordinating
the activities of shared units in order to attain economies of scope.
In portfolio analysis, attractiveness of industries and cash flow of mature units that could be diverted to new
product lines, investment opportunities and financial aspects are studied. The scope of corporate parenting
is much more than that of portfolio analysis.
In multi business companys corporate parenting enables the headquarters to focus on core competencies
and tries to create value among various business units by establishing relationship and a good fit between
needs and opportunities of units and resources and capabilities within the firm.
Step 3: Strategic choice

The choice of a strategy is influenced by variety of factors. These factors may be classified as subjective and
objective factors.
Step 4: Objective factors

They are grouped into two categories such as environmental factors and organisational factors. Environmental
factors include volatility of environment, input supply from environment and powerful stakeholders. Organisational
factors to be considered are organisations mission, the strategic intent, its business definition and its strengths and
weaknesses.
Step 5: Subjective factors

Various subjective factors are classified as under:
Organisations past strategies: When huge investments have been committed to strategies adopted in previous
period, they prove to be a stumbling block for the organisation to take a new direction and the strategists become
ultimately responsible for the results.
Personal factors: The value system of top management influences the type of strategy pursued by organisation.
The personal preference of decision makers again influences the choice of strategy. For instance, Dhirubai
Ambanis desire to be number one business group has brought Reliance to a prominent place.
Attitude to risks: The attractiveness of a strategy is closely related to the risks embedded into it. Risk in a
strategy is said to be high when the assets to be committed and the period of time the assets will be locked up
for achieving the strategy are very high and lengthy. Firms which are involved in global operations, the risks
are very high due to the variation among countries in terms of customs, regulations and resources.
A wrong decision is likely to kill the company. Studies have pointed out that small firms take more risk and
many innovations occur in small firms compared to established corporations managed by professionals. Joint
stock companies owned by diversified groups often face the risk of being taken over by acquisition hungry
competitors whenever the share price falls. So they take all efforts to maintain the price.
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Internal political consideration: Politics is a universal phenomenon and no organisations can escape from
politics. The term politics means exercise of power. Depending on the power relationship within organisation,
several groups of individuals exercise influence upon strategic decision. Consequently coalition building,
lobbying and bargaining takes place within organisations. Whenever power is divided among several decision
groups, bargaining takes place. Perception of risks on the part of different groups again influences the choice
of strategy.
Analysis of facts and different organisational variables are filtered through the perception of managers attitudes
depending upon the groups they belong to. So the choice is heavily influenced by the political behaviour of
managers and their groups.
Pressure from stakeholders: The key stakeholders exert influence on strategic alternative. Employees pressure
for fair wages and job security; creditors require prompt payment of loans; Government and other interest groups
expect the firm to take up social responsibility activities; Shareholders want periodical dividends. Strategic
managers should pose the four crucial questions in this regard.
How this alternative is going to affect stakeholders?
How much of wants of each stakeholder is likely to be fulfilled with this choice?
If it is not fulfilled, what will they do?
What is the probability that they will do?
Strategists choose strategies in such a way that the external pressures are minimised and the stakeholders support
is gained.
5.1.2 Process of Strategic Choice

Strategic choice involves evaluation of the pros and cons of each strategic alternative and selection of the best
alternative. Three techniques are used in the process of strategy selection, namely,
Devils advocate
Devils advocate has got its origin in the medieval Roman Catholic Church practice, which scrutinised impostors so
that they will not be canonised as saints. Devils advocate in strategic decision making is responsible for identifying
potential pitfalls and problems in a proposed strategic alternative by making a formal presentation.
Dialectical enquiry
Dialectical enquiry involves making two proposals with contrasting assumptions for each strategic alternative.
The merits and demerits of the proposal will be argued by advocates before the key decision makers. Finally, one
alternative will emerge viable for implementation.
Strategy shadow committee

A strategy shadow committee consists of members drawn below executive level. They serve the committee for
two years. They inspect all materials and attend all meetings of executive strategy. The members generate views
regarding constraints faced by management. Their report is submitted to Board of Directors.
5.1.3 Balanced Scorecard

Balanced scorecard has been proposed and popularised by Robert S. Kaplan and David P.Norton. It is a performance
measurement tool, which provides executives with a comprehensive framework that translates a companys strategic
objectives into coherent set of performance measures. It is a management system, which can motivate breakthrough
improvements in critical areas such as product, process, customer and market development. The scorecard consists
of four different perspectives such as:
Financial perspective
Customer perspective
Internal business perspective
Innovation and learning perspective
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These measures, according to Norton and Kaplan, are superior to traditional financial indicators. The scorecards
measures are closely related to organisations strategic objectives and competitive demands. The managers are
expected to select a few critical indicators within each of the four perspectives, which are supposed to focus on
strategic vision. The traditional financial statements are post-mortem reports whereas the scorecard functions like
the cornerstone of a companys current and future success.
The balanced scorecard can serve as a focal point for the organisations efforts, defining and communicating
priorities to managers, employees, investors and even customers. Balanced scorecard cannot be used in general for
any business or any industry. It should be customised on the basis of a firms mission, strategy, technology and
culture. It uniquely combines management and measurement in organisations. The five elements of strategy are:
Services that surpass customers expectation
High level of customer satisfaction
Continuous improvement of safety equipment reliability, responsiveness and cost effectiveness
High quality employees
Realisation of shareholder expectation
These elements of strategy are converted to strategic objectives.
Financial Perspective
Return-on-capital-employed
Cash flow
Project profitability
Profit forecast reliability
Sales backlog
Customer perspective Internal Business perspective

Pricing Index Tie II customers Hours with customers on new work
Customer ranking survey Tender success rate
Customer satisfaction index Rework
Market share Safety incident index
Business segment, Tier I Project performance index
customers, key accounts Project closeout cycle
Innovation and learning

perspective
% Revenue from new services
Rate of improvement index
Staff attitude survey
Employee suggestions
Revenue per employee
Fig. 5.3 Balanced scorecard

Balanced scorecard in Indian companies

The study has been conducted among 53 Indian firms and this study concludes that there is likely to be greater
acceptance of the balanced scorecard as a strategic management and performance measurement tool. The standard
costing technique has been widely used by corporate India. Twenty three out of 53 respondent firms have adopted
balanced scorecard as a performance management tool.
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Some of the reasons for adopting balanced scorecard among the firms are initiating change process in the organisations,
broadening of the performance measures, facilitating the integration of business plans with financial plans, translating
corporate vision and strategy into integrated set of objectives and measures, benchmarking and making visible trade
off between growth and short term improvements for implementation of balanced scorecard in corporate India.
The companies consider environmental and social perspectives and employees perspectives in addition to the
usual five perspectives. The study units measure customer perspectives and customer satisfaction in terms of
quality, delivery schedule, service, corporate image, brand, percentage of sales from new products, responsive
after sales service and the number of customer suggestions as important key performance indicators.
The study units measure internal business perspectives in terms of number of defects per million, stock
out percentage, new products introduction interval, distribution reach and cycle time, as key performance
indicators.
The sample units have measured innovation and growth perspectives in terms of market share, growth in market
share, percentage of sales to new customers, developing raw material substitutes, vendor development, reduction
in cycle time and growth rate in knowledge assets.
The financial perspective has been studied by respondent firms in terms of ROI, days of working capital (DWC),
cash flow, economic value added, current ratio and growth rate in tangible assets as key performance indicator.
The shareholders perspective has been measured in terms of EVA as key performance indicator.
The main problems faced by the companies are pertaining to the difficulties in assigning weightage to different
perspectives and establishing cause and effect relationship towards that. Again assigning weightage to different
measures within the perspectives also poses problems for the study units.
The implementation of balanced scorecard as a performance measurement tool has led to the identification of cost
reduction opportunities in the organisation, which has resulted in the improvement of bottom-line. The standard
costing technique has been widely used by corporate India. The sales volume and selling price variance, material
price and material usage variance, expense centre budgets, brand revenue and profit centre and transfer price
mechanism are tools used by the firms.
5.2 Strategy Analysis

Strategic analysis is part of overall management process, which is concerned with attempts to understand the
strategic position of the organisation, to consider environmental happenings and judge how these happenings can
affect the organisation. It also considers the organisations strengths and weaknesses with respects to the natural
happenings and assesses the feelings of the stakeholders. Strategic analysis actually helps to form a picture of the
factors that influence the organisation so that it can be informed of the strategic choice element of the overall strategic
management process. The three factors in strategic analysis are:
environment
values and objective
resources
Strategies analysis largely involves making subjective decisions based on objective information. It seeks to determine
alternative course of action that could best enable the firm to achieve its mission and objectives. The firms present
strategies, objectives, and mission, coupled with the external and internal audit information, provide a basis for
generating and evaluating feasible alternative strategies.
5.2.1 Tools and Techniques for Strategy Analysis

Strategic analysis is a dynamic area of strategic management where new tools and techniques are continually being
developed, often replacing some of the older techniques.
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Information technology has provided the benefit of having ready-made strategic planning software that provides
spreadsheets and templates for data, various types of reports and plan formats.
There are myriad tools and techniques to perform strategic analysis. Environmental appraisal, for instance, uses
the techniques of forecasting, SWOT analysis and scenario-writing. Organisational appraisal is done by internal,
comparative and comprehensive analysis using techniques such as financial and non-financial analysis, value chain
analysis, benchmarking and balanced scorecard.
Strategic analysis can be done at two levels:

the corporate level
the business level
Corporate-level strategic analysis focuses on techniques for analysing businesses under the same corporate umbrella.
Business-level strategic analysis focuses on individual businesses under the corporate umbrella from the perspective
of the industry to which each of those businesses belong and on the unique competitive situations they face in their
respective industries.
5.2.2 Corporate Portfolio Analysis

Corporate portfolio analysis could be defined as a set of techniques that help strategists in taking strategic decisions
with regard to individual products or businesses in a firms portfolio. It is primarily used for competitive analysis
and strategic planning in multi-product and multi business firms. They may also be used in less diversified firms,
if these consist of a main business and other minor complementary interests. The main advantages in adopting a
portfolio approach in a multi-product; multi-business firm is that resources could be targeted at the corporate level
to those businesses that possess the greatest potential for creating competitive advantage.
Corporate portfolio techniques evolved during the mid-1960s and several of these soon became quite popular. During
the 1970s, there arose a tendency to discredit the techniques when it was realised that the assumptions underlying
them did not always hold good. Currently, however, it is accepted that these techniques are useful, not as being
purely prescriptive, but as an important and decisive part of a set of criterianormative as well as descriptivethat
assist strategists in exercising a strategic choice.
There are number of techniques that could be considered as corporate portfolio analysis techniques. Among them
we have the Boston Consulting Group (BCG), General Electrics Nine-cell, Hofers Product-Market Evolution,
Directional Policy and the Strategic position and Action Evaluation Matrices.
5.2.3 SWOT Analysis

Every organisation is a part of an industry. Almost all organisations face competition, either directly or indirectly.
Thus, the industry and competition are vital considerations in making a strategic choice. The industry provides the
context in which an organisation operates, while competitors vie for the same set of customers by offering more or
less identical products. Apart from the external forces that are present in the industry and in the competitor analyses,
it is useful to look inward and perform a SWOT analysis.
Organisations perform SWOT analysis to understand their internal and external environments. SWOT, which is the
acronym for strengths, weaknesses, opportunities and threats, is also known as WOTS-UP or TOWS analysis. An
effective organisational strategy, therefore, is one that capitalises on the opportunities through the use of strengths
and neutralises the threats by minimising the impact of weaknesses, to achieve pre-determined objectives.
A simple application of the SWOT analysis technique involves these steps:

Setting the objectives of the organisation or its unit.
Identifying its strengths, weaknesses, opportunities and threats.
Asking these four questions:
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How do we maximise our strengths?

How do we minimise our weaknesses?
How do we capitalise on the opportunities in our external environment?
How do we protect ourselves from threats in our external environment?
Recommending strategies that will optimise the answers from four questions
The SWOT analysis is usually done with a help of a template in the form of a four-cell matrix, each cell of the matrix
representing the strengths, weaknesses, opportunities and threats. The analysis for preparing the SWOT matrix could
be done by a group of managers in a workshop session. A typical SWOT matrix is shown in the figure below.
Strengths Weakness
I Gets support from society Fluctuation of silkworm quality
Family is available Irrigation not possible at farmers side
N
Availability of foreign investment capital Cocoon volume production is still lower
T Existence of cooperation with other Limitation of funds
E institutions from within the country as well Availability of expertise in marketing are
as from aboard still low
R Existence of program training to develop
N employees skills
Complete of machine processing and high
A capacity
L Hand made silk products
Opportunities Threats
E Interest of farmers to sericulture is high Farmer knowledge is low
X Improvement in silkworm eggs through Monopoly of silk eggs production from
government research or university government
T Existence of training offers from local Cheaper cocoons from other countries
E government and all donors The lower price of synthetic silk-like
R Available market for selling fresh cocoons fabrics
The opening of show room of cloth sutra in The image, forming of societys opinion
N
trade centre about product and level of silk softness
A Artless silk cloth development become the
L home made batik silk cloth
Fig. 5.4 SWOT matrix
5.2.4 Experience Curve Analysis

The experience curve is based on the commonly observed phenomenon that unit cost declines as a firm accumulates
experience in terms of the cumulative volume of production. The implication is that larger firms in an industry would
tend to have lower unit costs as compared to small companies, thereby gaining a competitive cost advantage. An
experience curve results from a variety of factors such as; learning effects, economies of scale, product redesign
and technological improvements in production.
According to the experience effects theory, if a business produces and sells more units than its competitors, it should
also be honing its ability to produce them better than its competitors. By producing better means that the products are
of a better quality and are also produced at a lower comparative cost. In this manner, a beneficial, self-perpetuating
cycle brings in more sales to the experienced producer.
The concept of experience curve is relevant for a number of areas in strategic management. For instance, the
experience curve is considered to be a barrier for new firms contemplating entry in an industry.
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5.2.5 Life Cycle Analysis
Lifecycle is a conceptual model that suggests that products, markets, businesses and industries evolve through
sequential stages of introduction, growth, maturity, and decline.
The main advantage of the life cycle concept is that it can be used to diagnose a portfolio of products in order to
establish the stage at which each of them exists. Particular attention is to be paid on the businesses that are in the
declining stage. Depending on the diagnosis, the appropriate strategic choice could be made. A combination of
strategies like selective harvesting, retrenchment and so on may be adopted for declining businesses.
The life cycle concept provides a useful framework for analysis of business-level strategies. The benefit of the life
cycle concept lies in its ability to provide strategists a convenient method of devising a broad approach to business
strategy formulation on the basis of the understanding the stage of life cycle a business is in at a particular point of
time. Lifecycle concept is not to be used as a guide for 'when a change occurs in the life cycle' rather it is useful to
'what changes might occur over a period of time with regard to the market conditions'.
5.2.6 Industry Analysis

An industry is defined as a group of companies offering products and services that are close substitutes of each other.
Close substitutes are those products and services that satisfy the same basic customer needs. Michael E. Porter has
made immense contribution in the development of the ideas of industry and competitor analysis and their relevance
to the formulation of competitive strategies.
The five forces framework developed by Michael Porter is the most widely known tool for analysing the competitive
environment, which helps in explaining how forces in the competitive environment shape strategies and affect
performance. The framework as shown in the figure below suggests that there are competitive forces other than
direct rivals, which shape up the competitive environment. These competitive forces are as follows:
The rivalry among competitors in the industry
The potential entrants
The substitute products
The bargaining power of suppliers
The bargaining power of buyers
Potential
entrants
Threat of
new entrants
Industry
competitors
Bargaining power Bargaining power
of suppliers of buyers
Suppliers Buyers
Rivalry among
existing firms
Threat of
substitute products
or services
Substitutes
Fig. 5.5 Porters five forces model of competition in an industry

(Source: http://www.referenceforbusiness.com/management/images/eom_0005_0001_0_img0142.jpg)
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However, these five forces are not independent of each other. Pressures from one direction can trigger off changes
in another, which is capable of shifting sources of competition.
Threat of new entrants

Entry of a firm in a market is seen as a threat to the established firms in that market. The competitive position of
the established firms is affected because the entrants may add new production capacity or it may affect their market
shares. They may also bring additional resources with them, which may force the existing firms to invest more than
before. Altogether the situation becomes difficult for the existing firms if not threatening always and, therefore, they
resort to raising barriers to entry. These barriers are intended to discourage new entrants and this may be done by
organisations, in one or more ways, as discussed below:
economies of scale
learning or experience effect
cost disadvantage independent of scale
brand benefits
capital requirements
switching costs
access to distribution channel
anticipated growth
Bargaining power of suppliers

Business organisations have a large dependency on suppliers and the latter influence their profit potential significantly.
Suppliers decisions on prices, quality of goods and services and other terms and conditions of delivery and payments
have significant impact on the profit trends of an industry. However, suppliers ability to do all these depends on the
bargaining power over buyers. Suppliers bargaining power would normally depend on:
importance of the buyer to the supplier group
importance of the suppliers product to buyers
greater concentration among suppliers than among buyers
high switching costs for buyers
credible threat of forward integration by supp
Bargaining power of customers

Customers with a stronger bargaining power relative to their suppliers may force supply prices down or demand
better quality for the same price and may demand more favourable terms of business. For instance, there will always
be a difference in the bargaining power between an individuals buying different construction material like cement,
steel or bricks and a real estate builder buying them for the number of properties he may have been building over
so many years. Few of the following facts attach greater power to buyers:
undifferentiated or standard supplies
customers price sensitivity
accurate information about the cost structure of suppliers
greater concentration in buyers industry than in suppliers industry and
relatively large volume purchase
credible threat of backward integration by buyers
Threat of substitutes
Often firms in an industry face competition from outside industry products, which may be close substitutes of each
other. For example, with the new technologies in place now the electronic publishing is the direct substitutes of the
texts published in print. Similarly, newspapers find their closest substitutes in their online version, though it may
be a smart strategic move to position them as complementary products.
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However, the competitive pressure, which any industry may face, depends primarily on three factors:
whether the substitutes available are attractively priced
whether buyers view substitutes available as satisfactory in terms of their quality and performance
how easily buyers can switch to substitutes
Generally it is observed that the availability and acceptability of substitutes determine an upper price limit to a
product. When relative prices of the product in question rise above that of the substitute products, customers tend
to switch away from them.
Competitive rivalry
The level of rivalry is low in a perfectly competitive market where there are large number of buyers and sellers,
and the product is uniform for everyone. Same is true for a monopoly market where there is only one player and
the type of product is also one. However in case of oligopoly or monopolistic competition, where you will find few
players and the market conditions allow them to differentiate their products and services, competition if found to
be fierce. Few of the following factors explain the level of rivalry:
the stability of environment
the life expectancy of competitive advantage
characteristics of the strategies pursued by competitors
Lower threats to entry or a higher possibility for substitutes have the potential of increasing rivalry. A lower
engagement between suppliers will result into a lesser rivalry. So will be the effect when buyers face higher switching
costs. In an overall assessment, two critical observations regarding rivalry can be made here.
First a powerful competitive strategy employed by one rival can greatly intensify the competitive pressure on
other rivals.
Second, the frequency and rigor with which rivals use any or all competitive weapons at their disposal can be
a major determinant of whether the competitive pressures associated with rivalry are cutthroat, fierce, strong,
moderate or weak.
The purpose of an industry analysis, in the context of strategic choice, is to determine the industry attractiveness
and to understand the structure and dynamics of the industry with a view to finding out the continued relevance to
strategic alternatives that are there before a firm. Using the five forces model of industry competition, a firm can
analyse its critical strengths and weaknesses, its position within the industry, the areas where strategic changes may
yield the maximum profits and the significant opportunities and threats.
5.2.7 Strategic Groups Analysis

Strategic groups are conceptually defined clusters of competitors that share similar strategies and, therefore, compete
more directly with one another than with other firms in the same industry. Strategic group analysis serves the
purpose of identifying the strategic groups and then analysing the industry from the viewpoint of the differences
in the business strategies employed. This facilitates the direct comparison among the group of firms that compete
directly with each other.
Strategic group analysis identifies and classifies the firms on a basis that really matters. Industry and competitor
analysis become meaningful when done on the basis of strategic groups identification.
5.2.8 Competitor Analysis

Competitor analysis deals with the actions and reactions of individual firms within an industry or strategic group.
It becomes especially important in the case of oligopolistic industries where there are a few powerful competitors
and each needs to keep track of the strategic moves of the others.
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The purpose of conducting a competitor analysis is to:

determine each competitors probable reaction to the industry and environmental changes
anticipate the response of each competitor to the likely strategic moves by the other firms
develop a profile of the nature and success of the possible strategic changes each competitor might undertake
Components of competitor analysis are:

future goals of competitor
current strategy of competitor
key assumptions made by competitor
capabilities of competitor
Competitor analysis is important because competitive forces shape the strategies adopted by rivals and because these
strategies of rivals firms, shape the competitive forces. It is useful for a firm if it takes the results of the competitor
analysis into account while exercising a strategic choice.
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Summary
Strategic choice is defined as the process of selecting the best strategy out of all available strategies.
Choice process choice involves decision making process and it includes various steps: focussing on strategic
alternatives, evaluating strategic alternatives, considering decision factors, objective factors, subjective factors,
and strategic choice
Strategic choice involves evaluation of the pros and cons of each strategic alternative and selection of the
best alternative. Three techniques are used in the process of selection of a strategy namely: Devils Advocate,
Dialectical Enquiry, and Strategy Shadow Committee
Balanced score card is a performance measurement tool, which provides executives with a comprehensive
framework that translates a companys strategic objectives into coherent set of performance measures.
Strategic analysis is part of overall management process, which is concerned with attempts to understand the
strategic position of the organisation, to consider goings-on in the environment and judge how the happenings
can affect the organisation.
Strategic analysis is a dynamic area of strategic management where new tools and techniques are continually
being developed, often replacing some of the older techniques.
Corporate portfolio analysis could be defined as a set of techniques that help strategists in taking strategic
decisions with regard to individual products or businesses in a firms portfolio.
Organisational perform a SWOT analysis to understand their internal and external environments. SWOT, which
is the acronym for strengths, weaknesses, opportunities and threats, is also known as WOTS-UP or TOWS
analysis.
The experience curve is based on the commonly observed phenomenon that unit cost declines as a firm
accumulates experience in terms of the cumulative volume of production.
Lifecycle is a conceptual model that suggests that products, markets, businesses and industries evolve through
sequential stages of introduction, growth, maturity, and decline.
The purpose of an industry analysis, in the context of strategic choice, is to determine the industry attractiveness
and to understand the structure and dynamics of the industry with a view to finding out the continued relevance
to strategic alternatives that are there before a firm.
Strategic group analysis serves the purpose of identifying the strategic groups and then analysing the industry
from the viewpoint of the differences in the business strategies employed.
Competitor analysis deals with the actions and reactions of individual firms within an industry or strategic
group.
References
Olsen, E, 2008. SWOT Analysis: How to perform one for your Organisation [Video Online] Available at: <http://www.
youtube.com/watch?v=GNXYI10Po6A&feature=related>. [Accessed 19 September 2011].
LSBFGlobalMBA, 2010. LSBF Global MBA - Case Study: Strategic Choice [Video Online] Available at: <http://
www.youtube.com/watch?v=3X-19rvpOq0&feature=relmfu>. [Accessed 19 September 2011].
David, F., 2006. Strategic Management, 5th ed., Prentice Hall.
Thompson, J., 2010. Strategic Management, 6th ed., Cengage Learning Inc.
NetMBA.com, 2002. Strategic Management [Online] Available at: <http://www.netmba.com/strategy/>.
[Accessesd 19 September 2011]. scribd.com, 2011.
Strategy Analysis and Choice [Online] Available at: <http://www.scribd.com/doc/43455441/1-Strategy-Analysis-
and-Choice>. [Accessed 19 September 2011].
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Recommended Reading
Sadler, P., 1993. Strategic Management. Kogan Page Ltd.
Emerald Insight Staff, 2005. Strategic Management. Emerald Group Publishing Ltd.
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Self Assessment
1. The experience curve is based on the phenomenon that unit cost declines as a firm accumulates experience in
terms of the cumulative volume of _____________.
a. demand
b. production
c. supply
d. product
2. Which of the following involves making two proposals with contrasting assumptions for each strategic
alternative?
a. Dialectical enquiry
b. Devils advocate
c. Strategy shadow committee
d. Balanced scorecard

a. The purpose of portfolio techniques is to help top officers of diversified corporations better manage their
portfolio of businesses.
b. The gap between what is desired and what is achieved narrows as the time passes if no strategy is
adopted.
c. The value system of top management influences the type of strategy pursued by organisation.
d. Politics is a universal phenomenon and no organisations can escape from politics.
4. The main objective of _________is to help top management to identify the cash flow requirements of different
businesses in their portfolio.
a. competitors analysis
b. strategic choice
c. BCG matrix
d. SWOT analysis

a. Balanced scorecard can be used in general for any business or any industry.
b. Strategies analysis largely involves making subjective decisions based on subjective information.
c. The industry provides the context in which an organisation operates, while competitors vie for the same set
of customers by offering more or less identical products.
d. The life cycle concept provides a useful framework for analysis of corporate-level strategies.
6. The main advantage of the ___________concept is that it can be used to diagnose a portfolio of products in
order to establish the stage at which each of them exists.
a. life cycle
b. strategic analysis
c. competitors analysis
d. industry analysis
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7. The level of rivalry is low in a perfectly _________market where there are large number of buyers and sellers
and the product is uniform with everyone.
a. uniform
b. new
c. corporate
d. competitive
8. Which of the following provides executives with a comprehensive framework that translates a companys
strategic objectives into coherent set of performance measures?
a. Value chain analysis
b. Benchmarking
c. Balanced scorecard
d. Swot analysis
9. Devils advocate in strategic decision making is responsible for identifying potential _________and problems
in a proposed strategic alternative by making a formal presentation.
a. pitfalls
b. markets
c. analysis
d. decisions
10. Which of the following is primarily used for competitive analysis and strategic planning in multi-product and
multi business firms?
a. Strategic group analysis
b. Corporate portfolio analysis
c. Industry analysis
d. SWOT analysis
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Chapter VI
Strategy Implementation
Aim
introduce the concept of strategy implementation
explain the interrelation between formulation and implementation of strategy
define the concept of resource allocation
Objectives
elucidate strategic budgeting
explain the issues in strategic implementation
explicate the barriers to strategy implementation
Learning outcomes
discuss project implementation
enlist the factors affecting the resource allocation
understand the major themes in strategy implementation
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6.1 Introduction
Strategy implementation is an essential part of strategic management process. Bad implementation often results in
strategic failures. A survey indicates that business organisations face the following ten problems while implementing
strategy:
Implementation takes longer time than required.
Unanticipated major problems crop up.
Ineffective coordination of activities.
Crisis management takes lot of time.
Employees have less than required capabilities.
Inadequate training of lower level employees.
Problems arising from uncontrollable external environment.
Inadequate leadership on part of departmental environment.
Lack of precise definition of implementation of tasks and activities.
Inadequate monitoring of activities through information system.
Strategy implementation process requires development of programmes, budgets and procedures. All managers down
to supervisors are involved in strategy implementation. Strategy implementation deals with the way in which a firm
creates the organisational arrangements that allow it to pursue its strategy. Strategy is mainly implemented through
appropriate structure and control. Selecting the right combination of organisational structure and control system is
known as organisational design.
The purpose of organisation structure and control is to coordinate employees activities and to motivate them for better
performance. The organisation structure has got definite bearing on the behaviour of employees in organisational
setting. Good structure allows the organisation to improve its ability, to create value and develop competitive
advantage. Organisational structure and control shape the way people behave and determine how they will act in
the organisational set up.
The structure also provides a mechanism through which managers coordinate the activities of various functions and
divisions to fully exploit their skills and capabilities. Right kind of organisation structure facilitates the management
of resources and capabilities between departments and divisions. Changes in corporate strategy would lead to changes
in organisation structure. The sequence of activities is as follows:
Creation of new strategy
Emergence of administrative problems
Economic performance declines
Invention of new appropriate structure
Profits return to its previous level
Changes in the environment get reflected in strategy and it leads to changes in structure. Organisations performance
will suffer if structure, strategy and environment are not aligned.
6.1.1 Nature of Strategy Implementation

It is possible to turn strategies and plans into individual actions, necessary to produce a great business performance.
But its not easy. Many companies repeatedly fail to truly motivate their people to work with enthusiasm, all together,
towards the corporate aims. Most companies and organisations know their businesses, and the strategies required
for success.
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However many corporations - especially large ones - struggle to translate the theory into action plans that will
enable the strategy to be successfully implemented and sustained. Here are some leading edge methods for effective
strategic corporate implementation. The characteristics of strategy implementation are listed below, which highlight
the essential nature of strategy implementation:
action orientation
comprehensive in scope
demanding varied skills
wide-ranging involvement
integrated process
6.1.2 Issues in Strategy Implementation

A number of issues are normally involved in strategy implementation. The important issues are project, procedural,
organisational structural, behavioural considerations, production and operations, human resources, financial and
marketing.
Project implementation
Project is defined by the Project Management Institute as, A one-shot, time limited, goal-oriented, major undertaking,
requiring the commitment of varied skills and resources. Thus, a project is a highly specific programme for which
the time schedule and specific costs are determined in advance. Projects create all necessary conditions and facilities
for the strategy implementation.
Procedural implementation
Strategy implementation also requires executing the strategy, based on the rules, regulations and procedures formulated
by the government. Though, many procedures are simplified with the liberalisation, privatisation and globalisation
of Indian economy, certain procedures are still applicable in the process of strategy implementation. Therefore,
the strategists should study the following procedural aspects before implementing the strategy. They are licensing
procedures, foreign collaboration procedures, Foreign Exchange and Regulation Act requirements, environmental
requirements, Monopolies and Restrictive Trade Practices requirements, import and export requirements, incentives
and benefits, requirements of labour laws and other legislations.
Organisational growth
Organisational structure is a means to an end of achieving organisational mission and objectives. Thus, it is an
important means for strategic implementation. Organisational structure refers to the methods of allocating duties
and responsibilities to individuals, and the ways that individuals are grouped together into units, departments and
divisions. The formal organisational structure represents the relationships between people and functions as designated
by management and conveyed in the organisational chart. It also defines the number of levels in the organisational
hierarchy. The informal organisational structure represents the web of social relationships among various members
of a company.
6.1.3 Barriers to Strategy Implementation

Barriers to strategy implementation are listed as under:
An inability to manage change
Poor or vague strategy
Not a model to guide implementation efforts
Inadequate information sharing
Unclear responsibility and accountability
Working against the organisational power structure
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The means to overcome the barriers to strategy implementation usually revolve around the following two main
suggestions:
Adopting a clear model of strategy implementation: Such a model should lay down the elements or the major
themes of the implementation process so that, there is a high level of understanding about how the process has
to proceed.
Effective management of change in complex situations: Implementation almost always creates the need to
manage change in complex organisational contexts. Many of these areas of change are behavioural in nature
and are, therefore, multifaceted and messy in nature.
6.1.4 Interrelationship between Formulation and Implementation of Strategy

The strategy formulation and the relationship between strategy formulation and strategic implementation should
be studied. This is necessary because the formulation and implementation process are intertwined in real life. The
two linkages exist between strategy formulation and strategy implementations are:
Forward linkage: The forward linkage deals with preparing the organisational activities including organisational
structure, leadership, culture and so on, necessary for the strategic implementation.
Backward linkage: The backward linkage deals with the influence of implementation on strategy formulation. In
other words, once the strategy is selected and implemented, it is found in reality that there are certain deviations
due to the different ground realities.
These deviations force the strategist to reformulate the strategy based on ground realities. Therefore, the past
strategic actions and experiences should be taken into consideration while formulating strategies.
6.2 A Model of Strategy Implementation

A model of strategy implementation attempts to capture the major themes in strategy implementation and the
activities that make up each theme. The forward linkage from strategic plan guides the implementation process
and connects it to the preceding phase of strategy formulation. The feedback flowing in reverse from the step of
strategy evaluation and control moves through the implementation phase and goes back to strategy formulation
establishing the backward linkage.
ACTIVATING MANAGING
STRATEGIES ACHIEVING
CHANGE EFFECTIVENESS
PROJECT
IMPLEMENTATION
STRUCTURAL FUNCTIONAL
IMPLEMENTATION IMPLEMENTATION
STRATEGIC PROCEDURAL
PLAN IMPLEMENTATION LEADERSHIP
EVALUATION &
IMPLEMENTATION
CONTROL
BEHAVIORAL OPERATIONAL
IMPLEMENTATION IMPLEMENTATION
RESOURCE
ALLOCATION
FEED BACK
Fig. 6.1 A model of strategy implementation
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6.2.1 Major Themes in Strategy Implementation
The model of strategy implementation depicts three major themes:
Activating strategies: The theme of activating strategies serves to prepare the ground for managerial tasks
and activities of strategy implementation. Three sets of activities have been identified, which are believed to be
relevant for Indian organisations and these are
project implementation
procedural implementation
resource allocation
Managing change: This theme is the core of strategy implementation and deals with managing change in
complex situations. Three sets of activities identified under this theme are
structural implementation
leadership implementation
behavioural implementation
Achieving effectiveness: This theme will cover two sets of activities of functional and operational
implementation.
6.2.2 Theme of Activating Strategy

The activation of strategies are shown in the form of pyramid. Strategy sits at the top of the pyramidits
implementation being supported by an elaborate administrative structure within the organisation.
Strategy
Plans
Programmes
Projects
Budgets
Policies, Procedures, Rules & Regulation
Fig. 6.2 The pyramid of strategy activation
Strategy: Strategy should lead to plans. For, instance, if stability strategies have been formulated, they may
lead to the formulation of various plans.
Plans: Plans result in different kinds of programmes.
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Programmes: A programme is a broad term, which includes goals, policies, procedures, rules and regulations
and other steps that need to be taken for putting a plan into action. Programmes are usually supported by funds
committed for plan implementation. An example of a programme is a research and development programme
for the development of a new product. They lead to the formulation of projects.
Project: A project is highly specific programme for which the time schedule and costs are predetermined. It
requires an allocation of funds based on capital budgeting by organisations.
Projects create the needed infrastructure for the day-to-day operations in an organisation. They may be used for
setting up new plants, modernising the existing facilities, installation of newer systems and for several other
activities that are needed for the implementation strategies.
The administrative mechanisms of policies, procedures and rules and regulations are ubiquitous in any organisation.
Policies are guidelines to action. An example of a policy is: Our Company will accept all defective products from the
customer without any question being asked. Procedures are sequential steps described in sufficient detail, required
to implement policy. Rules and regulations are the prescribed mode of conduct in a given situation the dos and
dontsthat serve to make the policies and procedures explicit.
6.2.3 Theme of Managing Change

Management of change requires an understanding of the process of change. The process usually starts with the
triggers of change that set off within or outside the organisation. The managers diagnose organisational problems,
future challenges and opportunities, and then process to plan for change. They identify the need for change, prepare
the organisation for implementing the change and take process. The managers then set a monitoring system to check
whether the planned changes are indeed taking place. They may take corrective measures if the change process is
deviating from the set course.
Innovation and learning are considered as parts of any change process. Innovation is generally considered as new
ways of doing things. A change programme often relies on new ways of doing things to tackle problematic situations.
Learning from mistakes and not repeating them is also an essential feature of the change process. The change
process offers valuable learning opportunities to managers and quite often, they will emerge wiser after they have
undergone a change programme.
The three key issues in management of change are:

Degree of change: Changes are usually classified as radical or incremental, the difference being in the degree of
change that occurs. Radical changes are big changes that involve a major transformation within the organisation.
Incremental changes are small, slow-moving and routine changes that take place over a long period of time and
usually, are limited to one part of the organisation.
Timing of change: The timing of change focuses on when to change. Organisations have a choice. They
can change either as a reaction to a crisis within or an eventful happening outside. In this case it will be called
as reactive change. When organisation chooses to foresee change and prepare to face it, it is an anticipatory
change. Planned strategic implementation would be expected to deal with radical and anticipatory change.
Activity areas of change: For strategic implementation the concerned activities areas are: structure, leadership
and behaviour. The reason for this choice is that these three areas might be of greater relevance to radical,
anticipatory changes in the contemporary Indian context, which are more likely to come up while strategy
implementation.
6.2.4 Theme of Achieving Effectiveness

Organisational effectiveness means the degree to which an organisation is able to achieve its objectives. There are
several models available to help us understand what is organisational effectiveness, which measures can we use to
assess it, what are the different methods of achieving it and what can be done to improve organisational effectiveness.
There are four models of organisational effectiveness:
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Goal model
Resource-based model
Internal process model
Conflicting values model
The measures of organisational effectiveness depend on the model used. Common measures in the goal model of
organisational effectiveness include profitability, growth, market share, quality and efficiency. The resource-based
model may use measures such as the ability of the organisation to obtain finance, raw materials, human resources,
information and other resources. The internal process model may employ indicators of internal health and efficiency
such as the quality of corporate culture, organisational climate, team-work and communication.
6.3 Project Implementation

As markets get more competitive, senior managers realise that to implement the strategy, they need to make sure
that the right projects get done on time, within budget provisions and to specifications. Projects are not something
that are an appendage to strategy implementation but need to be a significant part of the overall strategy, supported
by the right approach, processes, tools and techniques.
6.3.1 Projects and Project Management

Project is defined as a temporary endeavour undertaken to achieve a particular aim and to which project management
can be applied, regardless of the projects size, budget or timeline. Project management is the application of
knowledge, skills, tools and techniques to a broad range of activities in order to meet the requirements of a particular
project.
Project management generally comprises five sequential processes as listed below:

Initiation: Projects are initiated as part of a programme used to execute a plan to implement strategies.
Planning: A project plan document is prepared, providing details of identification of activities, sequence of
activities, cost estimates, time schedules, resource requirements and risk assessment. A formal plan document
may also be necessary in case it is required for submission to financial institutions for funding purpose.
Executing: The major part of project management where the activities are identified in the project plan, are to
put the plan into action.
Controlling: It keeps track of the execution process through controls exercised on cost, resource utilisation
and risk.
Closing: The formal end of the project involving an administrative closure and handing over it to the operative
personnel.
6.3.2 Project Management and Strategy Implementation

Project management is the key enabler of strategy implementation within an organisation. The figure below presents
a schematic representation of how strategy implementation might be done through project management. The project
management process shown relates to one project to demonstrate the manner in which strategy implementation
could help initiate the project by providing a set of clear project targets to be achieved. The succeeding step of
strategic evaluation and control would support the controlling stage of the project process by providing a set of
control measures. These control measures are the performance criteria on the basis of which project effectiveness
would be assessed.
The linking of the project management process with strategy implementation helps in creating a project-oriented
organisation. Creating such a linkage may, however, pose a complex organisational challenge before managers as
this requires a high level of coordination. Overall, this exercise could enhance the ability of the organisation for
successful project management, thereby augmenting the effectiveness of the strategy implementation process.
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STRATEGIC MANAGEMENT PROCESS
STRATEGY EVALUATION AND

STRATEGY IMPLEMENTATION
CONTROL
PROJECT CONTROL
OBJECTIVES MEASURES
INITIATING PLANNING EXECUTING CONTROLLING CLOSING
PROJECT MANAGEMENT PROCESS
Fig. 6.3 Strategy implementation through project management
6.4 Procedural Implementation

Regulation is a fact of life for businesses and industries. Despite deregulation, an intent to loosen control within which
any industry operates and let the market forces determine supply and demand for products and services, regulation
is practiced around the world. For organisations, there are costs of compliance with regulation and usually higher
costs of non-compliance too. Yet, regulation is necessary as businesses and industries have to operate within the
limits set by the society. Regulation is a sort of contact between the businesses and society.
6.4.1 Regulatory Mechanism in India

Any organisation which is planning to implement strategies must be aware of the procedural framework within
which the plans, programmes and projects have to be approved by the government at the central, state and local
levels. The procedural framework consists of a number of legislative enactments and administrative orders besides
policy guidelines issued by different levels of the government from time to time.
The regulatory mechanisms for trade, commerce and industry in India span a wide legal framework consisting in
the Constitution of India, the Directive Principles, central laws, state laws, general laws, sector-specific laws and
industry-specific laws and the rules and procedure prescribed by the implementing authorities at various levels of
the government.
The procedures laid down for project implementation constitutes an important component of strategy implementation
in the Indian context. The government has an elaborate set of procedures depending on the type of project to be
implemented. A government agency at the central and state levels plays a major role, while some procedures require
the involvement of the local governmental agencies too. The various regulatory elements are:
Formation of company
Licensing procedures
Securities and Exchange Board of India (SEBI) requirements
Monopolies and Restrictive Trade Practices (MRTP) requirements
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Foreign collaboration procedures
Import and export requirements
Patenting and trade marks requirements
Labour legislation requirements
Environmental protection and pollution control requirements
Consumer protection requirements
Incentives and facilities benefits
6.4.2 Procedural Implementation in Action

Strategists may adopt submissive, confrontational or collaborative stance while dealing with regulations. At the same
time, they can adopt an existentialist view and continually look for opportunities within the business environment as
such an environment is substantially affected by government plans, priorities and actions. Regulatory environment,
just like other environmental sectors, is dynamic. Governments respond to the developments within and outside the
country, to adapt the regulatory framework, to the changing times. This places an additional burden on strategists
to not only follow the existing framework but also anticipate the likely future changes and be prepared to deal with
them.
Strategy formulation and implementation within organisations have to closely follow the ground rules laid by the
government. Project and procedural implementation results in the necessary infrastructure and required permissions
for an organisation to proceed with other aspects of strategy implementation.
6.5 Resource Allocation

A strategic plan documents the aspirations of the strategists. Project implementation is meant for the creation of the
infrastructure required to put such a plan into action.
Resource allocation deals with procurement, commitment and distribution of financial, human, informational and
physical resources to strategic tasks for the achievement of organisational objectives. The importance of resource
allocation can be observed from the fact that strategic management itself is sometimes referred to as a resource
allocation processes.
Resource allocation is both a one-time and continuous process. When a new project is implemented, it would
require allocation of resources. An on-going concern would also require a continual infusion of resources. Strategy
implementation should deal with both these types of resources allocation. Resource allocation, especially for financial
and physical resources, could be done through budgeting.
6.5.1 Strategic Budgeting

The main instrument for resource allocation is a budget. Budgeting is a common technique used as a planning,
coordination and control device in management.
There are three approaches to resource allocation through budgeting and these are as follows:
First type: The first type is a top-down approach where resources are distributed through a process of segregation
down to the operating levels. The corporate management, consisting of the Board of Directors, chief executive
officer and executive committee could decide the requirements and distribute accordingly. The top-down approach
is usually adopted in an entrepreneurial mode of strategy implementation.
Second type: The second type is a bottom-up approach where resources are allocated after a process of
aggregation from the operating level. The bottom-up approach could be used in a participative mode of strategy
implementation.
Third type: A third type of approach is a mix of these two and involves an iterative form of strategic decision-
making between different levels of management. This approach has been termed as strategic budgeting.
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Making of a strategic budget
Levels of management
Resources Approval
Desired long -and - availability and
short -run goals sanction
Top Corporate
management Policy
guidelines Strategic
budget
Minimising gaps
Executive Proposals
management Position papers
(e.g. Environment ,
core
competencies
marketing and Targets /
past performance ) Implementation
operations
Operating plans
management
Fig. 6.4 Making of a strategic budget
The difference between strategic and traditional top-down budgeting lies in the way the budgeting exercise is carried
out in an iterative manner between different managerial levels and the assumptions made before the formulation
of budgets.
As can be seen from the above figure, strategic budgeting is an iterative process involving a multi-level, organisation-
wide effort and, therefore, needs to carry the approval of all concerned. More importantly, it takes into account
strategic factors such as environmental changes and their likely impact on the implementation of strategies and the
corporate core competencies, and their probable effect on the objective-achieving capability of the organisation.
6.5.2 Aligning Resource Allocation to Strategy

A major task of top managers is resource allocation. Strategy guides the implementation making decisions about
resource allocation. In the absence of guidance from the strategy, managers can easily end up misallocating resources.
Such misallocation of resources can take place in two ways:
First, resources might get allocated to tasks that are really not necessary from the strategic point of view.
Secondly, tasks that are strategically important may be starved of resources.
Another challenge before managers in resource allocation is that of trade-offs. Since resources are scarce and
organisational tasks that demand resources are often too many. In such a scenario, managers end up making difficult
trade-offs.
In aligning resource allocation to strategy, the basic challenge before the strategists is how to allocate scarce resources
to competitive strategic tasks that will lead to the accomplishment of organisational objectives and the realisation
of strategic intent. It would be easier for the strategists to allocate resources if the strategic priorities are clear.
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6.5.3 Factors Affecting Resource Allocation
The factors that affect resource allocation are:
The objectives of the organisation
Preference of dominant strategists
Internal politics
External influences
From the above factors it is clear that in the absence of clear strategic priorities, the process of resource allocation
could be distorted to a great extent. The value of explicit strategies at different levels, clearly lay down objectives
and setting down of strategic priorities lies in a balanced allocation of resources.
6.5.4 Difficulties in Resource Allocation

The major difficulties in resource allocation are:
Scarcity of resources
The major difficulty arises due to a scarcity of resources. Financial, physical and human resources are hard to find.
Firms will usually face difficulties in procuring finance. Even if finance is available, the cost of capital is a constraint.
In a developing country like India, many capital goods have to be imported. The government may no longer impose
many conditions but it does place a burden on the firms finances and this places a restriction on firms wishing to
procure physical resources.
Restrictions on generating resources

Within organisations, there are several difficulties encountered during resource allocation. The usual budgeting for the
existing SBUs, divisions and departments places restrictions on generating resources for newer units and those with
a greater potential for growth. This is often seen in the case of bureaucracies such as government departments.
Overstatement of needs
It is a frequent problem in a bottom-up approach to resource allocation and is of overstatement of the need for
resources. The budgeting and corporate planning departments may have to face the ire of those executives who
do not get resources according to their expectations. Such negative reactions may hamper the process of strategic
planning itself. When strategic budgeting is used for resource allocation, powerful units may be divested of resources
for reallocation to potential units.
Tendency to initiate competitors

It is interesting to observe that companies in an industry tend to imitate their competitors in terms of resource
allocation. There might be strong reasons in the beginning to do so when the competitive strategies might have
been similar. But as companies move from one strategy to the next, often the resource allocation fails to respond to
the strategic changes. This hurts the capability to develop competitive advantage, especially when differentiation
strategies are being followed.
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Summary
Strategy implementation deals with the way in which a firm creates the organisational arrangements that allow
it to pursue its strategy.
The characteristics of strategy implementation are action orientation, comprehensive in scope, demanding varied
skills, wide-ranging involvement and integrated process
A number of issues are normally involved in strategy implementation. The important issues are project,
procedural, organisational structural, behavioural considerations, production and operations, human resources,
finance and marketing.
Barriers to strategy implementation are as follows: an inability to manage change, poor or vague strategy, not a
model to guide implementation efforts, inadequate information sharing, unclear responsibility and accountability,
and working against the organisational power structure.
The means to overcome the barriers to strategy implementation usually revolve around two main suggestions:
adopting a clear model of strategy implementation, and effective management of change in complex
situations.
There are two linkages between strategy formulation and strategy implementations, namely, forward linkage
and backward linkage
The forward linkage deals with preparing the organisational activities including organisational structure,
leadership, culture and so on, necessary for the strategic implementation
The backward linkage deals with the influence of implementation on strategy formulation.
A model of strategy implementation attempts to capture the major themes in strategy implementation and the
activities that make up each theme.
The model of strategy implementation depicts three major themes: activating strategies, managing change and
achieving effectiveness.
Project is defined as a temporary endeavour undertaken to achieve a particular aim and to which project
management can be applied, regardless of the projects size, budget or timeline.
Project management is generally thought of as comprising of five sequential processes: initiation, planning,
executing, controlling and closing
The linking of the project management process with strategy implementation helps in creating a project-oriented
organisation.
Any organisation which is planning to implement strategies must be aware of the procedural framework within
which the plans, programmes and projects have to be approved by the government at the central, state and local
levels.
Resource allocation deals with the procurement, commitment and distribution of financial, human, informational
and physical resources to strategic tasks for the achievement of organisational objectives.
References
zainbooks.com, 2009. The nature of strategy implementation [Online] Available at: < http://www.zainbooks.
com/books/management/strategic-management_31_the-nature-of-strategy-implementation.html>. [Accessed
20 September 2011].
Olsen, E., 2008. The Secret to Strategic Implementation [Video Online] Available at: <http://www.youtube.com/
watch?v=ndCexCPLNdA&feature=related>. [Accessed 20 September 2011].
InnovationPartners, 2009. Rapid Strategy Development and Implementation Get Engagement and Results Quicker!!!
[Video Online] Available at: <http://www.youtube.com/watch?v=oQaISAihZSY&feature=related>. [Accessed
20 September 2011].
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beginnerguide.com. What is Strategic Implementation? [Online] Available at: <http://www.beginnersguide.com/
executive-coaching/strategic-implementation/what-is-strategic-implementation.php>. [Accessed 20 September
2011].
Recommended Reading
(India) Pvt. Ltd.
Hiriyappa, B., 2010. Business Policy and Strategic Management. CreateSpace.
Williamson, D. and Cooke, P. and Jenkins, W., 2003. Strategic Management and Business Analysis. Butterworth-
Heinemann.
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Self Assessment
1. The forward linkage from ________guides the implementation process and connects it to the preceding phase
of strategy formulation.
a. business policy
b. project management
c. strategic plan
d. activating strategies
2. Which of the following deals with the influence of implementation on strategy formulation?
a. Backward linkage
b. Forward linkage
c. Project linkage
d. Strategic linkage

a. Strategy implementation is an essential part of strategic management process.
b. Strategy is mainly implemented through appropriate structure and resources.
c. Organisational structure and control shape the way people behave and determine how they will act in an
organisational set up.
d. Strategy implementation deals with the way in which a firm creates the organisational arrangements that
allow it to pursue its strategy.
4. The purpose of organisation ____________and control is to coordinate employees activities and to motivate
them for better performance.
a. strategy
b. plan
c. management
d. structure
5. Which of the following is a means to an end of achieving organisational mission and objectives?
a. Organisational structure
b. Organisational plan
c. Organisational linkages
d. Organisational strategy
6. Project __________is the key enabler of strategy implementation within organisations.

a. implementation
b. formulation
c. management
d. planning
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a. The linking of the project management process with strategy implementation helps in creating a process-
oriented organisation.
b. Management of change requires an understanding of the process of management.
c. The administrative mechanisms of policies, procedures and rules and regulations are ubiquitous in an
organisation.
d. Projects create the needed infrastructure for the entire year operations in an organisation.
8. Which of the following leads to the formulation of projects?

a. Strategy
b. Plan
c. Budgeting
d. Programmes
9. A project is highly specific ___________for which the time schedule and costs are predetermined.
a. programme
b. plan
c. strategy
d. process
10. The ______________model may employ indicators of internal health and efficiency such as the quality of
corporate culture, organisational climate, team-work and communication.
a. internal process
b. the goal model
c. resource-based model
d. conflicting values model
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Chapter VII
Functional and Operational Implementation
Aim
define the concept of functional strategies
describe the need of functional plans and policies
introduce the terms vertical fit and horizontal fit
Objectives
elucidate the operational plans and policies
highlight the nature of functional plans and policies
explicate the operations planning and control
Learning outcomes
discuss the mechanism to integrate functional plans and policies
enlist the areas of operational effectiveness
understand the application of operational implementation practices
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7.1 Introduction to Functional Strategies
Functional strategy deals with a restricted plan designed to achieve objectives in a specific functional area, allocation
of resources among different operations within that functional area and coordination among different functional
areas for optimal contribution to the achievement of the business and corporate-level objectives.
Business-level strategies are implemented through day-to-day decisions made at the operating level of the firm.
The competitive advantages and distinctive competences that are sought by firms are often embedded in the skills,
resources, and capabilities at the functional level. Functional strategies are the plans for matching those skills,
resources, and capabilities to the business and corporate strategies of the organisation.
The collective pattern of day-to-day decisions made and actions taken by employees responsible for value activities
create functional strategies, detailed action plans for implementing the growth and competitive strategies of the
company.
7.1.1 Vertical Fit

The consideration of vertical fit leads us to defining functional strategies in terms of their capability to contribute to
creating advantage for the organisation. The functional strategies we can have under vertical fit are:
Strategic marketing management: It focuses on the alignment of marketing management within an organisation
with its business and corporate strategies to gain strategic advantage.
Strategic financial management: It focuses on the alignment of financial management within an organisation
Strategic operations management: It focuses on the alignment of operations management within an organisation
Strategic human resource management: It focuses on the alignment of human resource management within
an organisation with its business and corporate strategies to gain strategic advantage.
Strategic information management: It focuses on the alignment of information management within an
organisation with its business and corporate strategies to gain strategic advantage.
7.1.2 Horizontal Fit

The consideration of horizontal fit means that there has to be an integration of all operational activities undertaken
to provide a product or service to a customer. This has to take place in the course of operational implementation.
Operational implementation is the approach adopted by an organisation to achieve operational effectiveness. When
an organisation performs value-creating activities optimally and in a better way than its competitors can perform,
it results in operational effectiveness.
7.2 Functional Plans and Policies

For effective implementation, strategists have to provide directions to functional managers regarding the plans and
policies to be adopted.
7.2.1 Nature of Functional Plans and Policies

Functional strategies defined in terms of functional plans and policies plans or tactics to implement business
strategiesare made within the guidelines set at higher levels. Plans are made to select a course of action, while
policies are required to act as guidelines to action. Functional plans and policies, therefore, are in the nature of
tactics to make a strategy work.
Functional managers need guidance from the corporate and business strategies in order to make decisions. Functional
plans tell the functional managers what has to be done while functional policies state how the plans are to be
implemented.
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7.2.2 Need for Functional Plans and Policies

Functional plans and polices are developed to ensure that:
The strategic decisions are implemented by all parts of an organisation.
There is a basis available for controlling activities in the different functional areas of business
The time spent by functional managers in decision-making is reduced as plans lay down clearly what is to be
done and policies provide the discretionary framework within which decisions need to be taken.
Similar situations occurring in different functional areas are handled in a consistent manner by the functional
managers.
Coordination across the different functions takes place where necessary.
7.2.3 Development of Functional Plans and Policies

The development of functional plans and policies is aimed at making the strategies formulated at the top management
level, practically feasible at the functional level. Strategies need to be segregated into viable functional plans and
policies that are compatible with each other, thereby augmenting the horizontal fit this way; strategies can be
implemented by the functional managers.
The process of development of functional plans and polices may range from the formal to informal. The process of
development of functional plans and polices is similar to that of strategy formulation. Environmental factors relevant
to each functional area have an impact on the choice of plans and policies. Organisational plans and policies affect
the choice of functional plans and policies. Finally, the actual process of choice is influenced by objective as well
as subjective factors.
Traditionally, functional areas have been segregated into finance, marketing, production and personnel.
Financial plans Operational plans

And policies And policies
Marketing plans Integration of Personnel plans

functional plans and and policies
And policies policies
Information
management plans
And policies
Fig. 7.1 The configuration of functional plans and policies
7.3 Financial Plans and Policies

The financial plans and polices related to the sources of funds are related to the availability, usage and management
of funds. Strategists need to formulate plans and policies in these so that strategies are implemented effectively.
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7.3.1 Sources of Funds
Plan and policies related to the sources of funds deal with financing or capital mix decisions. The major factors
regarding which plans and policies have to be made are: capital structure; procurement of capital and working
capital borrowing; reserves and surplus as sources of funds; and relationship with lenders, banks and financial
institutions.
Organisations have a range of alternatives regarding the sources of funds like: external borrowing, internal financing,
venture capital and so on.
7.3.2 Usage of Funds

Plans and policies for the usage of funds deal with investment or asset-mix decisions. The important factors regarding
which plans and policies are to be made are capital investment, fixed asset acquisition, current assets, loans and
advances, dividend decisions, and relationship with shareholders. Usage of funds is important since it relates to the
efficiency and effectiveness of resource utilisation in the process of strategy implementation.
Implementation of projects in pursuance of expansion strategies typically results in increase of capital, work-in-
progress and current assets. If plans and policies are not clear, the usage of funds is inefficient, leading to less than
optimum utilisation of resources.
Dividend decisions are an important aspect of corporate financial policy since they can have an effect on the
availability as well as the cost of capital. Dividend policies in the public sector are governed by the guidelines set
by the government.
7.3.3 Management of Funds

The management of funds is an important area of financial plans and policies. It basically deals with decisions related
to the systematic aspects of financial management. The major factors regarding which plans and polices related to
the management of funds have to be made are:
the systems of finance
accounting and budgeting
management control systems
cash
credit and risk management
cost control and reduction
ax planning and advantages
The management of funds can play a pivotal role in strategy implementation as it aims at the conservation and
optimum utilisation of fundsobjectives which are central to mnay strategic actions. Organisations that implement
business strategies of cost leadership cannot escape the rigours of a proper management of funds. In fact, good
management of funds often creates the difference between a strategically successful and unsuccessful company.
7.4 Marketing Plans and Policies

Plans and policies related to marketing have to be formulated and implemented on the basis of the 4Ps of the
marketing mix, i.e. product, pricing, place and promotion. The major issues and decisions relate to these marketing
mix factors are as follows.
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7.4.1 Product
Product denotes the goods and services that an organisation offers to its target markets. Plans and polices related
to the products and markets need to be formulated and implemented on the basis of characteristics such as quality,
features, choice of models, brand names, packaging and so on. Strategies dictate the manner in which product and
market characteristics would be defined. Thus, competitive strategies may be implemented by stressing on high
quality, better and more features.
A white goods company, for instance, needs to be constantly on the move in terms of new product offerings. The
appliance division of Godrej is well aware of this and it introduced nearly 100 new and variant products in 2007.
This was done through product innovation and customisation policies based on feedback from market research aided
by back up support from R and D.
7.4.2 Pricing
Price denotes the money that customers pay in exchange for goods and services. It is important to the seller because
it represents the returns on efforts. To a buyer, price is the value that is assigned to the satisfaction of needs and
wants. Several price characteristics such as discount, mode of payment, allowances, payment period, and credit
terms and so on, affect pricing plans and policies.
The policy of setting high or low prices for their products is extensively used by companies as a competitive tool.
7.4.3 Place
Place or distribution is the process by which goods or services are made available to the customers. Distribution plans
and policies address themselves to issues such as the channels to be used, transportation, logistics and inventory
storage management and coverage of markets and so on.
The use of distribution plans and policies in the marketing function as well as strategy implementation is important. The
success of market-oriented strategies, especially in a competitive environment, rests on the efficiency and effectiveness
of the distribution system. Supply-chain management and customer relationship management have developed in
recent years to help companies in performing their distribution activities more efficiently. The distribution policy is
an extension of the companys reported strengths in the area of procurement and supply chain management.
7.4.4 Promotion
Promotion deals with marketing communication intended to convey the company and product or service image to
prospective buyers. The promotional mix consists of four activities: advertising, personal selling, sales promotion
and publicity.
Promotional plans and policies have to consider the basic question of what promotional mix needs to to be adopted so
that promotional activities can be used to implement strategies. The increasing competitiveness in several industries
in India has prompted companies to adopt promotion as a strategic tool. The nature of the product and industry also
determines the type and mix of promotional methods used. In a crowded competitive market, organisations struggle
to make their presence felt. They sometimes resort to unconventional means to grab the attention of prospective
customers.
7.4.5 Integrative and Systemic Factors

This part of the plans and policies related to marketing management deals with factors such as marketing mix,
segmentation, targeting, positioning, market standing, company image, marketing organisation, marketing system,
marketing management information system and so on.
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Several companies that are admired for their marketing prowess have built integrative and systematic factors
painstakingly over a period of time. Targeting newer segments is often aimed at through promotional policies designed
to attract new customers or to offer new uses for existing products as a part of market and product development
tactics. Corporate reputation is becoming critical in a milieu where customers are becoming more aware of company
activities through the different media, including the Internet.
The environmental trends that impact marketing plans and policies in India are:
The continuous entry of new competitors is exploding choice for the consumer.
Competitors are making enormous investments for gaining long-term market shares.
Fast-falling margins are cutting into the profitability of many marketers.
Global quality standards are forcing companies to deliver better products.
Both high-spenders and budget-shoppers are demanding value for their money.
7.5 Operations Plans and Policies

The plans and policies for operations are related to the production system, operational planning and control, and
research and development. The corporate and business level strategies adopted determine the bases of competion
that in turn, affect the nature of product, the markets to be served and the manner in which the markets are to be
served. The operations plans and policies are classified into three components of production system, operations,
planning and control, and research and development.
7.5.1 Production System

The production system is concerned with the capacity, location, layout, product or service design, work systems,
degree of automation, extent of vertical integration and such factors. Plans and policies related to productions system
are significant as they deal with vital issues affecting the capability of the organisation to achieve its objectives.
Strategy implementation would have to take into account the production system factors as they involve decisions
which are long-term in nature and influence not only the operations capability of an organisation, but also its ability
to implement strategies and achieve objectives.
7.5.2 Operations Planning and Control

Plans and policies related to operations planning and control are concerned with aggregate production planning;
materials supply; inventory; cost and quality management; and maintenance of plant and equipment. Here, the
aim of strategy implementation is to see how efficiently resources are utilised and in what manner the day-to-day
operations can be managed in the light of long-term objectives.
Operations planning and control provides an example of an organisation activity that is aimed at translating the
objectives into reality. For instance, at Instrumental Ltd. a public sector company engaged in the business of process
control and automation, operations planning and control was based on the policy of ancillarisation. There were about
259 ancillary units that supplied sub-assemblies and components. The companys centralised production at Kota in
Rajasthan integrated its operations plans with the plans of its ancillary units. The centralised production provided all
the basic inputs to ancillaries and performed the functions of testing, standardising and fabricating the equipment.
7.5.3 Research and Development

Plans and policies for R&D deal with product development, personnel and facilities, level of technology used,
technology transfer and absorption, technological collaboration and support, and so on. R&D occupy an important
position in operations management in the Indian context as companies have access to multiple sources of technology,
including foreign sources. India is becoming a base for R&D for many foreign companies too as they are attracted
by the highly qualified and low cost engineering and technical skills.
For strategy implementation, R&D is used as a foundation for implementing strategies such as product development
and diversification.
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7.6 Personnel Plans and Policies

Personnel plans and policies relate to the personnel system, organisational and employee characteristics and
industrial relations. Management of human resource has been undergoing profound changes in the post-liberalisation
environment in India. These changes are impacting all the three components of personnel plans and policies: personnel
system, organisational and employee characteristics, and industrial relations.
7.6.1 Personnel System

Plans and policies related to the personnel system deal with factors like manpower planning, selection, development,
compensation, communication and appraisal. The importance of such plans and policies resides in the role personnel
systems play in providing and maintaining human resources.
While implementing strategies, companies often rely on personnel systems. Hindustan Petroleum Corporation Ltd.
(HPCL) faced new challenges of oil sector deregulation and found itself to be a bureaucratic organisation not suited
to dealing with competitive markets. As a part of the reformulation of the human resources systems, HPCL created
transparency in appraisal systems, reduced transfers to encourage specialisation as a formidable competitor in a
highly competitive market.
7.6.2 Organisational and Employee Characteristics

Organisational and employee characteristics include factors such as the corporate image, quality of managers, staff
and workers, perception about the image of the organisation as an employer, availability of development opportunities
for employees, working conditions, and so on. Plans and policies related to these factors have to be formulated if
strategies have to be implemented properly. The real value of the organisational and employees' characteristics lie
in the creation of an appropriate environment for strategy implementation.
In the contemporary business environment in India, where attracting and retaining good quality employees is a
formidable challenge for organisations, corporate image and reputation play a vital role in letting prospective
employees assess the suitability of employees.
7.6.3 Industrial Relations

Plans and policies related to industrial relations deal with issues such as union-management relationship, collective
bargaining, safety, welfare and security, employee satisfaction and morale and so on. Industrial relations assume a
special significance in an environment where there are several factors such as
pro-labour attitude of government
plethora of legislation
rules and regulations related to union workers
multiplicity of unions
political interference, and so on
Things however are changing in the industrial relations scenario in India. There has been a steady improvement in
the industrial relations environment as evidenced by several parameters like the number of strikes, lockouts and
man day lost. Recent years have seen a drastic change in the managements attitude towards workers and their
unions. Employers have started adopting a tough attitude and consequently, industrial relations policies have become
stringent.
Owing to the changing nature of industrial relations, now the focus of human resource management is on training
and development, rewards and incentives, performance management and like. A redeeming feature of the industrial
relations environment in India is the proactive stance taken by companies to improve the working conditions.
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7.7 Information Management Plans and Policies
Information capability factors relate to the design and management of the flow of information within and from
outside into an organisation. The value of information as tangible resource and a source of strategic advantage have
been recognised by organisations. The development of information technology and the emergence of information
management as a specialised function have helped the organisation derive benefits out of the vast amount of data
that is typically present in most organisations.
From being a peripheral function dealing with routine activities like payroll accounting and bulk accounting,
information management is now being viewed as a distinct functional area within organisations that, if managed
properly, can augment their capability to develop strategic advantage.
7.7.1 Factors related to Acquisition and Retention of Information

Plans and policies with regard to the processing and synthesis of information deal with factors such as sources,
quantity, quality and timeliness of information, retention capacity and security of information. Customer relationship
management (CRM) and supply chain management (SCM) systems have become tremendously popular owing to
their ability to provide a platform for acquisition and retention of information related to an organisations customers
and suppliers. This facilitates further processing and synthesis of information for the benefit of decision-making,
particularly that related to marketing management that can prove immensely useful to organisations operating in
competitive sectors like the FMCG industry.
7.7.2 Factors related to Processing and Synthesis of Information

Plans and policies with regard to the processing and synthesis of information deal with factors such as data-base
management, computer systems, software capability and ability to synthesise information. The booming retailing
industry has seen many and varied applications of the IT system, aimed at processing and synthesising information
for better decision-making.
Retailing companies have moved ahead from enterprise resource planning (ERP) to explore supply chain management
(SCM), business intelligence (BI), customer relationship management (CRM), radio frequency identification (RFID),
and innovative models of points of sale (POS).
7.7.3 Factors related to Retrieval and Usage of Information

The retrieval and usage of information deal with factors such as the availability and appropriateness of information
and the capacity to assimilate and use information. Information retrieval in organisation can be done at various levels.
Usage of information is usually in the form of report generation. Useful reports based on the personnel information
system can be generated, for instance, for the purpose of finding out the employee strength, distribution of number
of employees along different demographic variables and so on.
Such reports can be used for various purposes like human resource planning and framing policies for various human
resource management functions. Information retrieval via Internet search is now an indispensable tool for billions
of people worldwide. Data warehousing and data mining techniques are common analytic processes for exploring a
mass of data, identifying trends, predicting future trends and generally extracting useful information for the purpose
of business decision-making.
7.7.4 Factors related to Transmission and Dissemination

The plans and policies with regard to the transmission and dissemination of information deal with factors such as
speed, scope, width and depth of coverage of information and with the willingness to accept information.
Digitalisation of the service for citizens is the theme of e-governance. The aim is to establish systems that facilitate
smooth retrieval and usage of information that can help the citizens to deal with the government more effectively.
There is an increasing trend among government departments at different levels of governance to set up information
portals for the users to access information easily. Some of the key areas where e-governance initiatives are working
at present in India include the following:
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land records
property registration
treasuries
municipalities
7.7.5 Integrative, Systematic and Supportive Factors

The last set of factors deal with the integrative, systematic and support factors such as availability of IT infrastructure,
its relevance and compatibility to organisational needs, up-gradation of facilities, willingness to invest in state-of-
arts systems, availability of computer professionals and top management support.
IT is an area that is one of the fastest growing areas in terms of technological sophistication. It is difficult for
organisations to keep pace with the dynamic nature of information management. The contemporary IT environment
consists of many inter-related components leading to complexity. Such complexity arises from the interdependencies
among these components, which increase exponentially as business demands the addition of hardware and software
to the IT architecture. Legacy systems are upgraded with additions as new technologies emerge.
Industries such as consumer durables, sophisticated industrial products and the IT industry have special organisational
needs to deal with consumers that are informed and demanding; coupled with the fact that firms in these industries have
to adopt competitive business strategies that require efficiency in customer response. The information management
system within organisation has to be designed in such a way that the customers are provided with satisfactory and
timely response.
7.8 Integration of Functional Plans and Policies

Functional tasks are derived from the key activities that have to be performed for the implementation of the corporate
and business strategies. The functional areas in any organisation are, therefore, based on the segregation of the
key activities. But what has been segregated will have to be brought together since all activities are performed to
achieve the overall objectives of any organisation. Integration of functional plans and policies provides the means
for such an aggregation.
The figure below shows the interrelationship of the functional plans and policies.
Financial plans
And policies
Information
Management
Marketing plans
Plans and policies And policies
Personnel plans Operations plans

policies And policies
Integration of
Functional plans
And policies
Fig. 7.2 Integration of functional plans and policies
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7.8.1 Consideration in Integration
Plans and policies formulation is a major task for strategists. They have to formulate the various functional plans
and policies and integrate them as well. There are five considerations in integrating functional plans and policies
namely:
Need for internal consistency: It ensures that the different functional areas do not work as cross-purpose but
operate in consonance. Absence of internal consistency may lead to a sub-optimal implementation of strategy.
Relevant for the development of organisational capability: The development of organisational capability,
especially in terms of strategic or competitive advantages, is relevant to the integration of functional plans
and policies. Synergistic effect occurs across functional areas and core competencies emerge as a result of the
concentration of resources in the areas where an organisation wishes to build up strategic advantages.
Making trade-offs decisions: The formulation and implementation of functional plans and policies involve
trade-offs decisions. This is due to the inherent nature of the functional areas. Strategists have to realise that
some sacrifice in the form of trade-off in one ore more functional areas is imperative if emphasis is laid on
other functional areas.
Determination of intensity of linkages: The intensity of linkages that exist between the different functional
areas is of important consideration in determining the level of coordination that should exist between the different
functional areas.
Timing of implementation of plans and policies: Integration of functional plans and policies is dependent on
the timing of their implementation. The different plans and policies have to be implemented at the appropriate
time so that they dovetail with each other.
7.8.2 Mechanism to Integrate Functional Plans and Policies

Strategists have to arrange for mechanisms that will ensure integration among the different functional plans and
policies. These mechanisms are in the form of horizontal information linkages to augment horizontal fit among
different functional areas in an organisation.
There are five types of mechanisms used for integrating functional plans and policies through horizontal information
linkages:
Information systems: The information system serves as a horizontal information linkage that enables
implementation of policy changes simultaneously at all locations, elimination of duplication in work and
consolidation of information for decision-making.
Direct contact: Personal interaction between personnel involved in a project or discharging related functions is
achieved through direct contact. One way for organisations to create direct contact is to create a special liaison
role and assign it to a person who is responsible for communicating and achieving coordination.
Task forces: A temporary organisational unit created to discharge a particular function or to resolve a special
problem is a task force. A task force draws members from all the departments that are involved in the performance
of a particular task.
Full-time integrator: A stronger horizontal linkage is established through the creation of a full-time position
or even a department solely for the purpose of cross-functional coordination. Full time integrators are found
in a matrix organisation structure.
Teams: A team is the strongest horizontal linkage mechanism as it is a permanent task force and often used
in conjunction with a full-time integrator. Large-scale projects within organisations are implemented through
project teams.
7.9 Operational Implementation

Operational implementation is the approach adopted by an organisation to achieve operational effectiveness. It
deals with the nitty-gritty of strategy. The figure below explains the overall framework of strategy implementation.
Operational implementation plays the key role in helping an organisation achieve effectiveness, which is monitored
by the evaluation and control process.
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STRATEGIC
PLAN
FUNCTIONAL
IMPLEMENTATION
ACTIVATING
STRATEGIES
OPERATIONAL
IMPLEMENTATION
MANAGING
CHANGE
OPERATIONAL
:
EFFECTIVENESS FEEDBACK
PRODUCTIVITY
PROCESSES
ACHIEVING PEOPLE
EFFECTIVENESS PACE
EVALUATION AND MONITORING

CONTROL
Fig. 7.3 The framework of strategy implementation
7.9.1 Operational Effectiveness

Operational effectiveness includes efficiency but is not limited to it. It refers to any number of practices that allows
a company to better utilise its inputs, for example, reducing defects in products or developing better products
faster.
Differences in operational effectiveness between organisations are omnipresent. Some organisations out-perform
their competitors by extracting more out of their resources because they are able to perform a range of activities
better than rivals.
One of the fundamental objects of the discipline of management has been to enlighten and guide organisation on
how to improve their operational effectiveness.
7.9.2 Areas of Operational Effectiveness

The four areas of operational effectiveness we deal with are:
Productivity: It is the measure of the relative amount of input needed to secure a given amount of output.
Processes: These are courses of action used for operational implementation.
People: These are the stakeholders of the organisation.
Pace: It is the speed of operational implementation and is measured in terms of time.
7.9.3 Productivity
The modern practices of productivity enhancement are an amalgam of the traditional methods, variations made upon
the traditional methods and new methods. The significant modern practices observed are:
Just-in-time manufacturing
Cycle time reduction
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Group technology
Mass customisation
Concurrent engineering and processing
Optimised production technology
Flexible manufacturing system
Cellular manufacturing
Total productive maintenance
Lean manufacturing
Productivity, as a practice for operational implementation, is significant for all types of strategies, but is especially
relevant for business strategies of cost leadership, differentiation and focus.
7.9.4 Processes
Processes have an overwhelming presence in management. Modern practices related to processes are several. Among
them, the major comprehensive processes are business process reengineering, enterprise-wide resource planning,
quality management processes, benchmarking, and value chain and supply chain management.
Processes as practices for operational implementation, are significant for all types of strategies. Since process
improvements is the basic purpose of all new processes, there are several benefits viz. quality, lesser wastage, lower
production time and higher productivity. So processes are relevant for operational implementation of all types of
business strategies.
7.9.5 People
Operational implementation with regard to people management assumes a wider scope when strategies have to
address an extended body of stakeholder. The coverage includes not only peoplethe employees within but
also those outside, such as the customers, suppliers and the society at large. The people factor becoming a critical
contributor to operational effectiveness is indicated by plethora of terms such as job enrichment, empowerment,
team-building, organisational learning and so on. Some of the major practices related to people management in the
contemporary context are:
strategic recruitment and selection
performance management
training and development
performance appraisal and retention management
7.9.6 Pace
By pace we mean the speed of operational implementation. This area is important since time is now recognised as
being of essence to strategy implementation. In terms of value-chain, pace can be seen as performing every activity
faster than rivals so that strategic advantage results. Operational implementation makes it possible to speed up the
activities. The most significant technology that quickens the pace of operational implementation is information
technology.
7.9.7 Choice of Operational Implementation Practices

There are large number of tools and techniques that have emerged in the area of management. The high demand
for new approaches and techniques of management has resulted in the emergence of a phenomenon that is referred
to as management fashion or fad. With such a wide array of practices, methods and techniques for enhancing
operational effectiveness, in the areas of productivity, processes, people and pace, the choice before managers to
pick up those to use in operational implementation is indeed difficult.
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7.9.8 Applying Operational Implementation Practices

There are essential pre-requisites for applying a technique and then there are the consequences. A proper understanding
of all these aspects is necessary to apply a technique.
Application of techniques is facilitated through the help of books and journals, manuals, in-house experts and
consultants related to the management techniques. A dedicated and patient approach can help managers in
applying the practices, methods and techniques for enhancing operational effectiveness and effective operational
implementation.
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Summary
Functional strategy deals with a restricted plan designed to achieve a specific functional area, allocation of
resources among different operations within that functional area and coordination among different functional
areas for optimal contribution to the achievement of the business and corporate-level objectives.
Vertical fit leads us to define functional strategies in terms of their capability to contribute in creating advantage
for the organisation.
Horizontal fit means that there has to be an integration of all operational activities undertaken to provide a
product or service to a customer.
Functional strategies defined in terms of functional plans and policies plans or tactics to implement business
strategiesare made within the guidelines set at higher levels.
The development of functional plans and policies is aimed at making the strategies formulated at the top
management level, practically feasible at the functional level.
The financial plans and polices related to the sources of funds are related to the availability, usage and management
of funds.
Plans and policies for the usage of funds deal with investment or asset-mix decisions.
Product denotes the goods and services that an organisation offers to its target markets.
Plans and polices related to the products and markets need to be formulated and implemented on the basis of
characteristics such as quality, features, choice of models, brand names, packaging and so on.
Price denotes the money that customers pay in exchange for goods and services.
Distribution plans and policies address themselves to issues such as the channels to be used, transportation,
logistics and inventory storage management and coverage of markets and so on.
Promotional plans and policies have to consider the basic question of what promotional mix needs to be adopted
so that promotional activities can be used to implement strategies.
The plans and policies for operations are related to the production system, operational planning and control,
and research and development.
The development of information technology and the emergence of information management as a specialised
function have helped the organisation derive benefits out of the vast amount of data that is typically present in
most organisations.
Plans and policies with regard to the processing and synthesis of information deal with factors such as sources,
quantity, quality and timeliness of information, retention capacity and security of information.
The plans and policies with regard to the transmission and dissemination of information deal with factors such
as speed, scope, width and depth of coverage of information and with the willingness to accept information.
Functional tasks are derived from the key activities that have to be performed for the implementation of the
corporate and business strategies.
Operational implementation is the approach adopted by an organisation to achieve operational effectiveness. It
deals with the nitty-gritty of strategy.
References
ilexFS, 2009. Financial Planning Introduction [Video Online] Available at: <http://www.youtube.com/
watch?v=BtbfbuFkuE8>. [Accessed 22 September 2011].
Kotler, P., 2008. Marketing Strategy with Philip Kotler [Video Online] Available at: <http://www.youtube.com/w
atch?v=bilOOPuAvTY&feature=related>. [Accessed 22 September 2011].
scdl.net. Aspects of Strategy Implementation [Online] Available at: <http://www.scdl.net/E-Learning/strMgt/
t4/t4_7.swf>. [Accessed 22 September 2011].
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slideshare.net, 2009. Functional Strategies [Online] Available at: <http://www.slideshare.net/suresh.singh/

functional-strategies-presentation>. [Accessed 22 September 2011]
Recommended Reading
Hill, C. and Jones, G., 2009. Strategic Management Theory: An Integrated Approach. Cengage Learning.
Tata, P., 2008. Strategic Management, 10th ed., Tata McGraw-Hill Education.
Dess, G. and Lumpkin, G., 2009. Strategic management:creating competitive advantages, 5th ed., McGraw-
Hill Irwin.
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Self Assessment
1. Implementation of projects in pursuance of _______strategies typically results in increase of capital, work-in-
progress and current assets.
a. business
b. expansion
c. financial
d. management
2. Operational _________is the approach adopted by an organisation to achieve operational effectiveness.

a. implementation
b. plans
c. policies
d. strategy

a. Functional managers need guidance from the corporate and business strategies in order to make decisions.
b. The process of development of functional plans and polices may range from the formal to informal.
c. Situational factors relevant to each functional area have an impact on the choice of plans and policies.
d. Processes as practices for operational implementation are significant for all types of strategies.
4. Which of the following leads us to define functional strategies in terms of their capability to contribute in creating
advantage for the organisation?
a. Horizontal fit
b. Vertical fit
c. Functional fit
d. Strategic fit
5. Operational effectiveness refers to any number of _______that allows a company to better utilise its inputs.
a. resources
b. practices
c. objectives
d. plans

a. Organisations that implement business strategies of cost leadership can escape the rigours of a proper
management of funds.
b. The management of policies is an important area of financial plans and policies.
c. Organisations that implement business strategies of cost leadership cannot escape the rigours of a proper
management of funds.
d. The policy of setting high or low prices for their products is extensively used by companies as a promotion
tool.
7. What does RFID stands for?

a. Radio Function Identification
b. Radio Frequency Input
c. Radio Factor Identification
d. Radio Frequency Identification
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8. ________planning and control is an example of an organisation activity that is aimed at translating objectives
into reality.
a. Operations
b. Resources
c. Management
d. Functional
9. _____________policies in the public sector are governed by the guidelines set by the government.
a. Planning
b. Functional
c. Operations
d. Dividend
10. ___________denotes the goods and services that an organisation offers to its target markets.
a. Services
b. Products
c. Resources
d. Quality
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Chapter VIII
Strategy Evaluation and Control
Aim
introduce the concept of strategic evaluation and control
define the characteristics of an effective evaluation strategy
describe the types of strategic control
Objectives
explicate the evaluation techniques of strategic control
explain the process of strategic control
elucidate the role of organisational systems in strategic control
Learning outcomes
enlist the barriers in strategic evaluation
differentiate between strategic control and operational control
discuss the evaluation techniques for operational control
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8.1 An Overview and Nature of Strategic Evaluation and Control

The purpose of strategic evaluation is to evaluate the effectiveness of a strategy in achieving organisational objectives.
Thus, strategic evaluation and control could be defined as the process of determining the effectiveness of a given
strategy in achieving the organisational objectives and taking corrective action wherever required.
From the above definition, we could infer that the purpose of strategic evaluation and control process is to test the
effectiveness of strategy as well as to take corrective action to keep it continually effective. During the two preceding
phases of the strategic management process, the strategists formulate the strategy to achieve a set of objectives and
then implement the strategy. Now, there has to be a way of finding out whether the strategy being implemented is
guiding the organisation towards its intended objectives. Strategic evaluation and control, therefore, performs the
crucial task of keeping the organisation on the right track.
8.1.1 Importance of Strategic Evaluation

The process of strategic management requires that strategists lay down the objectives of the organisation and then
formulate strategies to achieve them. The process of implementation of strategy starts with the identification of
key managerial tasks which form the basis for the creation of organisational structure and design of systems. The
segregation of key managerial tasks leads to a situation where individual managers are required to perform a small
portion of the overall tasks required to implement a strategy.
The fact that individually, a manager performs a set of functions, which are interrelated to the other tasks - that
managers elsewhere in the organisation are doing, makes it clear that the tasks have to be coordinated. The importance
of strategic evaluation lies in its ability to coordinate the tasks performed by individual managersand also groups,
division or SBUsthrough control of performance. In the absence of coordinating and controlling mechanisms,
individual managers may pursue goals, which are inconsistent with the overall objectives of the department, division,
SBU or the whole organisation.
Besides the basic reason of coordinating tasks there could be several other motives for strategic evaluation as
described below:
Need for feedback, appraisal and reward
Check on validity of strategic choice
Congruence between decisions and intended strategy
Successful culmination of the strategic management process
Creating inputs for new strategic planning
8.1.2 Participants in Strategic Evaluation

It is important to know who the participants are and what role they play in strategic evaluation and control. The
major participants in strategic evaluation and their role is given as under:
Every organisation is ultimately responsible to its shareholder: Owners, lenders and the public in the case of
private companies and the government in the public sector companies. There role is limited and is concerned about
the security and returns on their shareholding rather than in a long-term assessment of strategic success.
Board of directors: They enact a formal role of reviewing and screening executive decisions in the light of
their environmental, business and organisational implications.
Chief Executives: They are ultimately responsible for all the administrative aspects of strategic evaluation and
control.
SBU or profit centre heads: They may be involved in performance evaluation at their levels and may facilitate
evaluation by corporate-level executives.
Financial controllers, company secretaries and external and internal auditors: They form the group of
persons, who are primarily responsible for operational control based on financial analysis, budgeting and
reporting.
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Middle-level managers: They may participate in strategic evaluation and control as providers of information
and feedback, as well as recipients of direction to take corrective action.
8.1.3 Barriers in Evaluation

The barriers which are created due to performance evaluation are categorised into five types namely,
Limits of controls: It is never an easy task for strategists to decide the limits of control. Too much control may
impair the ability of managers and too less control may create difficulties in coordination, right balance comes
with experience.
Difficulties in measurement: The difficulties mainly relate to the reliability and validity of measurement
techniques used for evaluation, lack of quantifiable objectives and the inability of the information system to
provide timely and valid information.
Resistance to evaluation: The evaluation process involves controlling the behaviour of individuals and like
any similar organisational mechanism, is likely to be resisted by managers.
Short-termism: Mangers often tend to rely on short-term implications of activities and try to measure the
immediate results, on the other hand long-term implications reduces bias in evaluation.
Relying on efficiency versus effectiveness: There is often a genuine confusion among managers as to what
constitute effective performance? The solution lies in creating a sharp focus on effectiveness as opposed to
mere efficiency.
8.1.4 Requirements for Effective Evaluation

The basic issue in evaluation should be dictated by strategy. There needs to be a vertical fit between the strategy
requirements, and the valuation and control exercised over performance. The guidelines below are suggested in
order to make controls effective.
Control should involve only the minimum amount of information.
Control should monitor only managerial activities and results.
Controls should be timely.
Long-term and short-term controls should be used.
Controls should aim at pinpointing exceptions.
Rewards for meeting or exceeding standards should be emphasised.
8.1.5 Characteristics of an Effective Evaluation Strategy

There are certain basics, which should be followed for making the strategic evaluation effective. These characteristics
are as follows:
The activities of evaluation must be economical.
The information should neither be too much nor too little.
The control should neither be too much nor too less. It should be balanced.
The evaluation activities should relate to the firms objectives.
It should be designed in such a manner so that a true picture is portrayed.
There can be many more such requirements. Large organisations require a more elaborate system than the smaller
ones.
8.2 Strategic Control

The process of strategic management makes it clear that strategy is formulated on the basis of several assumptions.
These relate to the environmental and organisational factors that are dynamic and eventful. There is a considerable
gap between the time a strategy is formulated and when it is implemented. Strategic controls take into account the
changing assumptions that determine a strategy, continually evaluate the strategy as it is being implemented and
take the necessary steps to adjust the strategy to the new requirements.
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8.2.1 Purpose of Strategic Control

The basic purpose of strategic control is to help top management achieve strategic goals as planned. To be specific,
the purposes of strategic control are to answer questions, such as the following:
Are our internal strengths still holding good?
Have we added other internal strengths?
Are our internal weaknesses still holding well?
Do we have other weaknesses?
Are our opportunities still opportunities?
Are there new opportunities?
Do our threats still exist?
Are there new threats?
Are the decisions being made consistent with policy?
Are there sufficient resources to achieve the objectives?
Are events in the environment occurring as anticipated?
Are goals and targets being met?
Should we proceed with plans as we have formulated?
Are the organisational vision, mission and objectives appropriate to the changing environment factors?
Thus, strategic control provides feedback about various steps of strategic management to know, whether the strategic
management processes are appropriate, compatible and functioning in the desirable direction.
8.2.2 Types of Strategic Control

The four basic types of strategic controls are:
Premise control: It is necessary to identify the key assumptions and keep track of any change in them so as to
assess their impact on strategy and its implementation. It serves the purpose of continually testing the assumptions
to find out whether they are still valid or not.
Implementation control: Implementation control is aimed at evaluation whether the plans, programmes and
projects are actually guiding the organisation towards its predetermined objectives or not. It may be put into
practice through identification and monitoring of strategic thrusts, such as an assessment of the marketing success
of a new product after pre-testing or checking the feasibility of a diversification programme after initial attempts
at seeking technological collaboration.
Strategic surveillance: Strategic surveillance is aimed at a more generalised and overarching control designed
to monitor a broad range of events inside and outside the company that are likely to threaten the course of a
firms strategy. It can be done through a broad-based, general monitoring, on the basis of selected information
sources to uncover events that are likely to affect the course of the strategy of an organisation.
Special alert control: Special alert control is based on a trigger mechanism for rapid response and immediate
reassessment of strategy in the light of sudden and unexpected events. Special alert control can be exercised
through the formulation of contingency strategies and assigning the responsibility of handling unforeseen events
to crisis management teams.
8.2.3 Operational Control

Operational control deals with monitoring and evaluating the operations to ensure that organisational issues and
operations function in the right direction. Operational control aims at achieving the results as planned operational
control focuses on various routine aspects of the production, marketing, human resource and financial issues in the
company.
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Operational control mostly deals with performance of the company in the direction decided in advance. Similarly
it deals with the allocation and utilisation of various organisational resources like materials, spare pants human
resources machinery, technology, financial resources and so on. Managers at the middle level and lower level execute
the operational control at the direction of the top level management.
8.2.4 Difference between Strategic Control and Operational Control

The difference between strategic control and operational control is shown in the table below.
Attribute Strategic control Operational control
1.Basic question Are we moving in the right direction? How are we performing?
Proactive, continuous questioning of basic Allocation and use of organisational
2.Aim
direction of strategy resources
3.Main concern Steering the organisations future direction Action control
4. Focus External environment Internal organisation
5. Time horizon Long-term Short-term
Mainly by executive or middle level
Exclusively by top management, may be
6. Exercise management on the direction of the top
through lower-level support
management
Environment scanning, information
7. Main techniques Budgets, schedules and MBO
gathering, questioning and review
Table 8.1 Differences between strategic control and operational control
8.3 Techniques of Strategic Evaluation and Control

It is necessary for strategists to have an idea about the techniques of strategic evaluation and control in order to make
a choice from among the many available and to use them. Several of the techniques of evaluation are traditional and
have been in usage for long, while there are some other techniques that are of recent origin.
8.3.1 Evaluation Techniques for Strategic Control

Techniques for strategic control could be classified into two groups on the basis of the type of environment faced
by the organisations. The organisations that operate in a relatively stable environment may use strategic momentum
control, while those face a relatively turbulent environment may find strategic lead control more appropriate.
Strategic momentum control: These types of evaluation techniques are aimed at assuring that the assumptions
on the basis of which strategies were formulated are still valid and what needs to be done in order to allow the
organisation to maintain its existing strategic momentum. For achieving these aims there are three techniques
which could be used:
Responsibility control centres: These form the core of management control systems and are of four
types: revenue, expense, profit and investment centres. Each of these centres is designed on the basis of the
measurement of inputs and outputs.
The underlying success factors: It enable organisations to focus on the critical success factors.
Generic strategies: This approach to strategic control is based on the assumption that the strategies adopted
by firms similar to another firm are comparable.
Strategic leap control: Organisations are required to make strategic leap in order to make significant changes
when the environment is relatively unstable. Strategic leap control can assist such organisations by helping to
define the new strategic requirements and to cope with emerging environment realities. There are four techniques
of evaluation used for exercising strategic leap control:
Strategic issue management: It is aimed at identifying one or more strategic issues and assessing their
impact on the organisation.
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Strategic field analysis: It is a way of examining the nature and extent of synergies that exist or are lacking
between the components of an organisation.
Systems modelling: It is based on computer-based models that simulate the essential features of the
organisation and its environment.
Scenarios: These are perceptions about the likely environment a firm could face in the future.
8.3.2 Evaluation Techniques for Operational Control

Evaluation techniques for operational control are based on organisational appraisal rather than environmental
monitoring, as it is the case with strategic control. These techniques are used for operational control as well. The
classification of evaluation techniques is done in three classes:
Internal analysis: It consists of VRIO framework, value chain analysis, quantitative analysis and qualitative
analysis, and deals with the identification of the strengths and weakness of a firm in absolute terms.
VRIO framework: The basic idea behind the VRIO framework is that sustainable strategic advantage results
through the use of capabilities that are valuable, rare, inimitable and organised for usage. The performance
evaluation for operational control can make use of this framework to focus on evaluating the capabilities
so as to examine whether these are present.
Value chain analysis: It focuses on a set of inter-related activities performed in a sequence, for producing
and marketing a product or service.
Quantitative analyses: It takes up the financial parameters and the non-financial quantitative parameters,
such as physical units or time in order to assess performance.
Qualitative analysis: It supplements the quantitative analysis by including those aspects, which are not
feasible to measure on the basis of figures and numbers.
Comparative analysis: It consists of historical analysis, industry norms and benchmarking, which compares
the performance of a firm with its own past performance or with other firms.
Historical analysis: It is a frequently used method for comparing performance of a firm over a given period
of time.
Industry norm: It is a comparative method for analysing performance that brings with it the advantage of
making a firm competitive in comparison to its rivals in the same industry.
Benchmarking: It is a comparative method where a firm finds the best practices in an area and then attempts
to bring its own performance in that area in line with the best practice.
Comprehensive analysis: This includes balanced scorecard and key factor rating. This analysis adopts a total
approach rather than focusing on one area of activity or department.
Balanced scorecard: This method is based on the identification of four key performance measures of
customer perspective, internal business perspective, innovation and learning perspective, and the financial
perspective. This method is a balanced approach to performance measurement as a range of parameters is
taken into account for evaluation.
Key factor rating: It is a method that takes into account the key factors in several areas, and then sets out
to evaluate performance on the basis of these.
8.3.3 Special Purpose Techniques

Special purpose techniques are used in particular situations by some organisations, to assess performance and
exercise operational control. These are:
The parta system: It is an indigenous system adopted usually by Marwari firms to keep track of daily cash
generations. Parta is the pre-determined budget of the net cash inflows from operations before tax and
dividend.
Network techniques: Programmed evaluation and review technique (PERT), critical path method (CPM),
and their variants, are used extensively for the operational controls of scheduling and resource allocation in
projects.
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Management by objectives (MBO): It is a system, based on a regular evaluation of performance against
objectives, which are decided upon mutually by the superior and the subordinate.
Memorandum of understanding: It is a commitment to objectives between individuals, a memorandum of
understanding (MoU) is an agreement between a public enterprise and the government, represented by the
administrative ministry in which both parties clearly specify their commitments and responsibilities.
8.3.4 Auditing Techniques

Auditing is basically a watchdog function in organisations, which is used to evaluate the soundness of organisational
systems, such as the accounting system. It can play an indirect role in exercising operational control as it helps in
finding lacunae in the organisational systems, the correction of which can aid in performance improvement. The impact
of organisational activities is not limited to the confines of the organisation itself. Strategic evaluation and control
needs to take account of the impact of the organisational activities on the society and the physical environment.
Corporate social audit: Corporate social audit is a commitment to systematic assessment of and reporting on
some meaningful, definable domain of the companys activities that have social impact. It can help organisation
to assess the impact of its operational performance on the contiguous community as well as on the larger
society.
Environment audit: It is a method used to obtain accurate, comprehensive and meaningful information on the
environmental impact of a company, on which management decisions can be based. Every financial year, the
companies have to submit an environmental statement to the respective state pollution control boards in which
their production units are situated.
8.4 Process of Strategic Control

The strategic control process consists of six steps. Top management, initially must decide what elements of the
environment and the organisation need to be monitored, evaluated and controlled. The three key areas to be monitored
and controlled are:
the macro-environment
the industry environment
internal operations
8.4.1 Steps in Process of Strategic Control

There are six steps in the strategic control process as described below:
Step 1: Key result areas to be monitored

Macro-environment: One of the key areas to be monitored is the macro-environment of the company. This area
should be focused first. Normally, individual companies cannot influence the environment significantly. But, the
external environmental forces must be continuously monitored as the changes in the environment influence the
strategic implementation process of the company. Continuous strategic fit between the company and its external
environment is necessary. Therefore, strategic control is essential.
Strategic monitoring and control includes: Modifying anyone or more of the areas like companys mission,
objectives, goals, strategy formulation and strategy implementation. The modification depends upon the nature
and degree of changes and shifts in the environment.
Industry environment: The strategist also monitors and control the industry related environment. The
environmental forces may not be as they were planned. The changes in the environment may provide new
opportunities or pose new threats. The strategy, therefore, should be modified accordingly. Thus, the purpose is
to modify the companys strategy, goals and operations in order to capitalise the new opportunities and defend
against the new threats effectively. The industry environment of the future should be considered by the top
management for the purpose of strategic evaluation and control.
Internal operations: The strategist has to evaluate the internal operations continuously in view of the changes in
the macro-environment and industry environment. The strategist has to introduce changes in internal operations
when the changes in the environment affect the strategy.
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Step 2: Establishing standards

Evaluating an organisational performance is normally based on certain standards. These standards may be the previous
years achievements or the competitors records or the fresh standards established by the management. Qualitative
judgements like the qualitative features of the product or service in the last year may be used. Quantitative measures
like Return on Investment, Return on sales may also be used for judging the performance. Companies should establish
the standards for evaluating the performance of the strategies taking several factors into consideration.
The standards may include:

Quality of products or services
Quantity of products to be produced
Quality of management
Innovativeness or creativity
Long term investment value
Volume of sales and/or market share
Financial soundness in terms of the following:
return on investment
return on equity capital
market price of the share
earning per share and so on
Community and environmental responsibility in terms of amount spent on community development, variety of
facilities provided to the community, programmes undertaken for the environmental protection and ecological
balance and so on.
Soundness of human resource management in terms of number of employee grievances, employee satisfaction
rate, employee turnover rate, industrial relations situation and so on.
Ability to attract, develop and retain competent and skilled people.
Use of companys assets.
Production targets, rate of capacity utilisation, design of new products, new uses of existing products, rate of
customer complaints about the product quality, suitability of ingredients and so on.
Corporate image among the customers and general public.
Market place performance.
Standards relating the organisational variables include freedom and autonomy, level of control, responsibility,
formal organisation and degree of formality, informal organisation.
Step 3: Measuring performance

The strategist has to measure the performance of various areas of the organisation before taking an action. Strategic
audits and stakeholder audit are useful to measure the organisational performance.
Strategic audit
A strategic audit is an execution and evaluation of organisations operations affected by the strategy implementation.
Strategic audit may be very comprehensive, emphasising all facets of a strategic management process. It may also
be narrowly focused, emphasising only on a single part of the process, such as, environmental process.
Strategic audit may be quite formal adhering to organisational rules and procedures. It may be quite informal providing
freedom and autonomy to the managers to take decisions. The strategic audit must work to integrate related functions.
Hence, the strategic audits are carried out by cross-functional teams of managers. There is no universally accepted
single method of strategic audit. Each organisation can formulate its own method depending upon its need. ,
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Stakeholders audit
Stakeholders are the people who have stake in the company. They are interested in the companys activities as they
are significantly affected by the companys objectives. The organisational stakeholders include:
Shareholders or owners of the company who are interested in dividend and market price of the share.
Trade unions and employees, who are interested in favourable wages, benefits, conditions of employment and
better quality of work life.
Creditors are interested in companys liquidity position and ability to repay the debts with interest in right
time.
Suppliers are interested in retaining the organisation as a good customer.
Government is interested in keeping the organisation as a good tax payer, maintaining the congenial industrial
relations, maintaining the ecological balance, and contributing to solve the social and economic problems of
the country.
Social interest groups, such as, consumer protection associations and environmental protection associations.
Customers, who expect a qualitative product or service at a reasonable price, prompt service and favourable
conditions of sales.
Step 4: Compare performance with standards

Once the performance of the different aspects of the organisation is measured, it should be compared with the
predetermined standards. Standards are set to achieve the already formulated organisational goals and strategies.
Organisational standards are yardsticks and benchmarks that place organisational performance in perspective. The
strategists should set standards for all performance areas of the organisation based on the organisational goals and
strategies. Normally, the standards vary from one company to the other company. The standards developed by
General Electric can be used as model standards. These standards include.
Profitability standards: These standards include how much gross profit, net profit, return on investment, earning
per share, percentage of profit to sales the company should earn in a given time period.
Market position standards: These standards include total sales, sales-region-wise and product-wise, market
share, marketing costs, customer service, customer satisfaction, price, customer loyalty shifts from other
organisations products and so on.
Productivity standards: These standards indicate the performance of the organisation in terms of conversion of
inputs into outputs. These standards include capital productivity, labour productivity, and material productivity
and so on.
Product leadership standards: These standards include the innovations and modifications in products to
increase the new uses of the existing product, developing new products with new uses and so on.
Human resource standards: Human resource standards include providing competitive salaries, benefits and
different aspects of quality of work-life. These standards also include human resource performance, productivity,
turnover rates, and absenteeism rates and so on.
Employee attitude standards: Employee attitude, standards include employees favourable attitude towards
the nature of work, organisation, salaries, benefits, working environment, quantity of work-life, treatment by
superiors and so on.
Social responsibility standards: All organisations discharge their responsibilities towards different sections
of the society. These standards are related to the services of the organisations towards community, government,
employees, suppliers, creditors and so on.
Standards reflecting balance between short-range and long-range goals: Short-range and long-range
strategies should be balanced successfully. Standards in these areas should bring balance between short-range
and long-range goals.
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Step 5: Take no action if performance is in harmony with standards

If the performance of various organisational areas matches with the standards, the strategist need not take any
action. They should just allow the process to continue. However, they can try to improve the performance above
the standards, if it would be possible, without having any negative impact on the existing process.
Step 6: Take corrective action, if necessary

Strategist should take necessary corrective action, if performance is not in harmony with standards.
8.4.2 Managing Strategic Control

Strategic control is the primary responsibility of the strategist who formulated the strategy. However, it is the
responsibility of all members of the organisation. All employees participate in the strategy implementation. Therefore
all employees can contribute to the control of strategic implementation process.
Role of the strategy planning staff

Normally the role of strategy planning, formulation, implementation and control go hand-in-hand. But, in some
companies the roles of planning and control of strategy are separated. This practice is unfortunate as performing
these two functions separately by two managers and is too often inflexible and bureaucratic. Planning without control
eliminates feed forward, and control without planning eliminates feedback.
The best results of strategic control are achieved when the planning and control staff works as a team. When a
strategic control team member represents a cross-section of the organisation, a number of advantages are likely
to occur. Better judgements and insights should result from a diverse group. The team serves as a sounding board
for the ideas of individual managers. Involvement in implementation and control gives other members a better
comprehension of the problems associated with the new strategy.
Role of top management

Top level managers are primarily responsible for strategy formulation, analysis and implementation. Therefore,
they should understand strategic control and take actions imply in the control process. Top managers should have
a vision about the possible changes in the environment and their possible affect on the current strategy and feed
this information forward to the staff at the ground. They must be committed to the strategic control process. Top
managers are in leadership position and as such they should influence the organisational members in strategic
control process.
8.4.3 Successful Maintenance of Strategic Control

Successful maintenance of strategic control is important from the long-run point of view. According to this model, top
managers must ensure that four interrelated organisational variables are consistent and complementary. They are:
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Organisational
Structures
Organisational Interrelated Reward

Value Systems Organisational System
or Culture variables
Information
Systems
Fig. 8.1 Four interrelated organisational variables
Implementing strategy and controlling its progress are actually a series of incremental steps. The managers should
do the following to implement strategic and control the strategy successfully.
Create pockets of commitment: Executives provide broad goals, a proper climate, and flexible resource
support. By allowing various groups to develop and present proposals for strategies, managers are able to build
commitment among the groups to support the strategy finally selected.
Maintain objectivity: Managers should avoid taking a stand on issues too early in the generation and evaluation
process. When managers take a position, the generation of new alternatives often ceases and the evaluation of
existing, alternatives is often biased by the position of the top manager.
Eliminate options two levels down: Managers can maintain their position of neutrality and avoid rejecting
proposals by encouraging, discouraging, or killing options through subordinates.
Crystallise focus and consensus: By controlling membership on committees, managers are able to influence,
and if desired, receive the proposals wanted. Properly selected committees can broaden support for and increase
commitment to new strategies.
Empower champions: Managers are given responsibility for developing new ideas and programmes early. As
the programme is evaluated and gains support, these individuals tend to become committed to the programme
or strategy, once it is given final approval, these managers are then willing to champion the strategy and to guide
it through whatever hurdles are necessary to get it operating effectively.
Develop strategies incrementally, but not piecemeal: Part of managements responsibility is to make certain
that strategies are integrated and appropriate for the environment in which the firm is operating. Strategies may
be developed in incremental steps, but they must be made to fit together in a unified, integrated, and cohesive
whole.
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Recognise continuing dynamics: Strategies do not remain constant and for long periods. Part of the executives
responsibility is to gain consensus support for the new strategy, but at the same time room must be maintained
modify or terminate the strategy. Managers should use discretion in making certain that the organisation does
not become overcommitted to the new strategy and unwilling to change at some future point.
8.5 Role of Organisational Systems in Evaluation

The process of strategic evaluation and control does not operate in isolation; it works on the basis of the different
organisational systems that are used to implement strategies. The role of the organisational systems in evaluation
is briefly discussed below:
8.5.1 Role of Information System

The use of computerised information systems in organisations has opened up countless possibilities for using
them for performance monitoring and reporting. In the control process, evaluation is done by comparing actual
performance with standards.
The measurement of performance can be done on the basis of reports generated through information system.
There are some essential conditions to be satisfied before information systems can play an effective role in
strategic evaluation. First, all stakeholders of the organisation must agree on the objectives and strategies to
achieve them. Indicators for measuring performance must be defined and data sources must be identified clearly
for those indicators.
Collection of data must then systematically and collated and aggregated to be reported in user-friendly formats.
Finally, the data must be used by managers to assess and improve performance.
One big benefit of using computerised information systems is the availability of real-time information to managers.
For the purpose of evaluation this is significant as assess to real-time information can enable managers to take
timely corrective action, rather than wait to find out the variance of the actual from standard performance at
the end of the evaluation process.
Techniques, such as, data warehousing and data mining enable organisations to delve deep into their internal
systems and come up with information that can be useful for evaluation and control purposes. Business
intelligence software is becoming a popular IT application in helping organisations in accessing data for the
purpose of performance evaluation.
8.5.2 Role of Control System

The control system is at the heart of any evaluation process for setting standards, measuring performance, analysing
variances and taking correct measures. The development system in an organisation prepares the managers for
performing strategic and operational tasks. The most important aim of development is to match a person with the
job to be performed. This matching can be done provided it is known what a manager is required to do and what is
deficient in terms of knowledge, skills and attitude.
Such a deficiency is found out through the appraisal system. The role of the development system in evaluation
is, therefore, to help strategists to initiate and implement corrective action i.e. to take steps that would lead to the
development of individuals, so as to enable them to perform as required. Employee performance management
systems used through applications of IT, play a helpful role in the development of a system for exercising control
in organisations.
8.5.3 Role of Reward System

Organisations design and operate their reward systems on the basis of the appraisal of performance of individuals.
The appraisal system performs the critical role of evaluating managerial performance in the light of organisational
objectives.When the performance of managers is appraised, it is their contribution to the organisational objectives
that is sought to be measured. The evaluation process, through the appraisal system, measures the actual performance
and provides the basis for the control system to work.
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The relevance of reward systems to strategy implementation can be seen from the fact they are to be linked to the
control system at one end and to motivation at the other end. The central role of the motivation systems is to induce
strategically desirable behaviour so that managers are encouraged to work towards the achievement of organisational
objectives.
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Summary
Strategic evaluation and control could be defined as the process of determining the effectiveness of a given
strategy in achieving the organisational objectives and taking corrective action wherever required.
The process of strategic management requires that strategists lay down the objectives of the organisation and then
formulate strategies to achieve them. The process of implementation of strategy starts with the identification of
key managerial tasks, which form the basis for the creation of organisational structure and design of systems.
Participants in strategic evaluation are shareholders, board of directors, chief executives, profit centre heads,
financial controllers, and middle-level managers.
Barriers in performance evaluation are limit of controls, difficulties in measurement, resistance to evaluation,
short-termism, and relying on efficiency versus effectiveness.
Strategic controls take into account the changing assumptions that determine a strategy, continually evaluate
the strategy as it is being implemented and take the necessary steps to adjust the strategy to the new
requirements.
The basic purpose of strategic control is to help top management achieve strategic goals as planned.
Comparative analysis consists of historical analysis, industry norms and benchmarking, which compares the
performance of a firm with its own past performance or with other firms.
Comprehensive analysis includes balanced scorecard and key factor rating. This analysis adopts a total approach
rather than focusing on one area of activity or department.
Corporate social audit is a commitment to systematic assessment of and reporting on some meaningful, definable
domain of the companys activities that have social impact.
Environment audit is a method used to obtain accurate, comprehensive and meaningful information on the
environmental impact of a company, on which management decisions can be based.
The top managers must ensure that four interrelated organisational variables are consistent and complementary
and they are: organisational structure, reward system, information systems, and organisational value systems
or cultures.
References
Bradford, R., 2009. Strategic Planning - Setting and Reaching Your Goals with Robert Bradford [Video Online] Available
at: <http://www.youtube.com/watch?v=Zx98zrGfpvM&feature=related>. [Accessed 26 September 2011].
Holman, V. Strategic Management Planning [Video Online] Available at: <http://vimeo.com/20687457>.
[Accessed 26 September 2011].
Subha, R., 2010. Strategic Management. Global Media.
Jeyarathmm, M., 2008. Strategic Management. 2008. Global Media.
Barnat, R., 2005. Control Tools and Techniques [Online] Available at: <http://www.introduction-to-
management.24xls.com/en240>. [Accessed 26 September 2011].
Barnat, R., 2005. Management Control [Online] Available at: <http://www.strategic-control.24xls.com/en116>.
Recommended Reading
Harrison, J., 2009. Foundations in Strategic Management, 5th ed., South-Western College Pub South-Western
College Pub
Stahl, M. and Grigsby, D., 1997. Strategic management: total quality and global competition. Wiley.
(India) Pvt. Ltd.
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Self Assessment
1. _____________focuses on a set of inter-related activities performed in a sequence for producing and marketing
a product or service.
a. Balanced scoreboard
b. Qualitative analysis
c. Quantitative analysis
d. Value chain analysis
2. Which of the following method takes into account the key factors in several areas and then sets out to evaluate
performance?
a. Key factor rating
b. Benchmarking
c. VRIO framework
d. Corporate audit
3. A __________audit is an execution and evaluation of organisations operations affected by the strategy

implementation.
a. strategic
b. corporate
c. performance
d. evaluation

a. Top level managers are primarily responsible for strategy formulation, analysis and implementation.
b. Evaluating strategy and controlling its progress are actually a series of incremental steps.
c. Top managers are in leadership position and as such they should influence the organisational members in
strategic control process.
d. The best results of strategic control are achieved when the planning and control staff works as a team.
5. __________control deals with monitoring and evaluating the operations to ensure that organisational issues and
operations function in the right direction.
a. Performance
b. Audit
c. Operational
d. Strategic
6. Which of the following is a system, based on a regular evaluation of performance against objectives, which
are decided upon mutually by the superior and the subordinate?
a. The parta system
b. Memorandum of understanding
c. Management by objectives
d. Network techniques
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A. It is a method used to obtain accurate, comprehensive and
1. Corporate social audit meaningful information on the environmental impact of a company,
on which management decisions can be based.
B. It is an agreement between a public enterprise and the government,
2. Environment audit represented by the administrative ministry in which both parties
clearly specify their commitments and responsibilities.
C. It is a commitment to systematic assessment of and reporting on
3. Strategic audit some meaningful, definable domain of the companys activities that
have social impact.
D. It is an execution and evaluation of organisations operations

4. Memorandum of Understanding
affected by the strategy implementation.
a. 1-C, 2-A, 3-D, 4-B
b. 1-A, 2-C, 3-D, 4-B
c. 1-C, 2-B, 3-D, 4-C
d. 1-D, 2-C, 3-A, 4-B

a. The measurement of performance can be done on the basis of reports generated through information
system.
b. Strategist should take necessary corrective action, if performance is in harmony with standards.
c. Organisational objectives are yardsticks and benchmarks that place organisational performance in
perspective.
d. Corporate audit may be very comprehensive, emphasising all facets of a strategic management process.
9. ____________ is a comparative method where a firm finds the best practices in an area and then attempts to
bring its own performance in that area in line with the best practice.
a. Auditing
b. Benchmarking
c. Evaluation
d. Management by Objectives
10. Organisations are required to make strategic _______ in order to make significant changes when the environment
is relatively unstable.
a. issues
b. objectives
c. methods
d. leaps
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Case study I
Doordarshan
Doordarshan (DD) is the Indias premier public service broadcaster with more than 1,000 transmitters covering 90%
of the countrys population across on estimated 70 million homes. It has more than 20,000 employees managing its
metro and regional channels. Recent years have seen growing competition from many private channels numbering
more than 65, and the cable and satellite operators (C and S). The C and S network reaches nearly 30 million homes
and is growing at a very fast rate. DDs business model is based on selling halfhour slots of commercial time to
the programme producers and charging them a minimum guarantee.
For instance, the present tariff for the first 20 episodes of a programme is Rs.30 lakhs plus the cost of production
of the programme. In exchange, the procedures get 780 seconds of commercial time that he can sell to advertisers
and can generate revenue. Break-even point for procedures, at the present rates, thus is Rs.75, 000 for a 10 second
advertising spot. Beyond 20 episodes, the minimum guarantee is Rs.65 lakhs for which the procedures has to charge
Rs.1,15,000 for a 10 second spot in order to break-even. It is at this point the advertisers face a problem the
competitive rates for a 10 second spot is Rs.50, 000. Procedures are possessive about buying commercial time on
DD. As a result the DDs projected growth of revenue is only commercial time on DD.
As a result the DDs projected growth of revenue is only 6- 10% as against 50-60% for the private sector channels.
Software suppliers, advertisers and audiences are deserting DD owing to its unrealistic pricing policy. DD has
options before it. First, it should privates, second it should remain purely public service broadcaster and third, a
middle path. The challenge seems to be exploiting DDs immense potential and emerge as a formidable player in
the mass media.
Source: PCC Exam, 2007. CASE STUDIES IN STRATEGIC MANAGEMENT [Online] Available at: <http://www.
hindustanlink.com/career-discuss-forum/thread-131.html>. [Accessed 7th October 2011].
Questions
1. Which is the best option, in your view for DD?
Answers
For several years Doordarshan was the only broadcaster of television programmes in India. After the opening
of the sector to the private entrepreneur (cable and satellite channels), the market has witnessed major changes.
The number of channels has increased and also the quality of programmes, backed by technology, has improved.
In terms of quality of programmers, opportunity to advertise, outreach activities, the broadcasting has become a
popular business. Broadcasters too have realised the great business potential in the market. But for this, policies
need to be rationalised and be opened to the scope of innovativeness in term of quality of programmes. This
would not come by simply going to more areas or by allowing bureaucratic set up to continue in the organisation.
Strategically the DD needs to undergo a policy overhaul. DD, out of three options, namely privatisation, public
service broadcaster or a middle path, can choose the third one, i.e. a combination of both. The whole privatisation
is not possible under the diversified political scenario. Nor it would be desirable to hand over the broadcasting
emotively in the private hand as it proves to be a great means of communication of many socially oriented public
programmers. The government could also think in term of creating a corporation (as it did by creating Prasar
Bharti) and provide reasonable autonomy to DD. So far as its advertisement tariff is concerned that can be made
fairly competitive. However, at the same time cost of advertising is to be compared with the reach enjoyed by
the Doordarshan. The number of viewers may be far more to justify higher tariffs.
2. Analyse the SWOT factors DD has.

Answers
The SWOT analyses involve study of strengths, weaknesses, opportunities and threats of an organisation. SWOT
factors that are evidently available to the Doordarshan are as follows:
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S Strength
More than 1000 transmitters
Covering 90% of population across 70 million homes against only 30 million homes by C & S
More than 20,000 employees
W Weakness
Rigid pricing strategy
Low credibility with certain sections of society
Quality of programs is not as good as compared to C & S network
O Opportunities
Infrastructure can be leased out to cable and satellite channel
Digital terrestrial transmission
Regional focused channels
Allotment of time, slots to other broadcasters
T Threats
Desertion of advertisers and producers may result in loss of revenues
Due to quality of program the reach of C & S network is continuously expanding
As the C& S network need the trained staff, some employees of DD may switchover and take new jobs
Best of the market-technology is being used by the private channels
3. Why do you think that the proposed alternative is the best?

Answers
It is suggested that the DD should adopt a middle path. It should have a mix of both the options. It should
economised on its operational aspects and ensure more productivity in term of revenue generation and optimisation
of use of its infrastructure. Wherever, the capacities are underutilised, these may be leased out to the private
operations. At the same time quality and viewer-ship of programmes should be improved. Bureaucracy may
reduce new strategic initiatives or make the organisation less transparent. Complete privatisation can fetch a
good sum and may solve many of the managerial and operational problems. However, complete public monopoly
is not advisable because that denies the government to fully exploit the avenue for social and public use. The
government will also lose out as it will not be able to take advantage of rising potential of the market.
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Case study II
McDONALD's PLAN TO WIN
After 50 years of operation, McDonalds is revitalising its products, and pushing innovation through a variety of
initiatives. This foodservice giant with more than 30,000 restaurants in 100 countries provides food to nearly 50
million customers each day, but decades of expansion, sales growth, and profits made the burger giant complacent.
By focusing on getting bigger, not better, the company stumbled in 2002, recording its first losing quarter. By 2003,
U.S. sales had flattened, as many consumers were turning to healthier options and restaurants with more upscale
menu items, a segment sometimes referred to as fast - casual. Morgan Spurlock s film Super Size Me , released
in 2004, also seriously diminished the public image of the quick - service chain, as moviegoers watched Spurlock
become ill and gain 25 pounds after eating only McDonald s food for one month.
With pressure to get back on track, it was time for McDonalds to rethink the business.
The chain devised a recovery strategy that included new menu items, redesigned restaurants, and a focus on the
consumer experience. Through a program titled Plan to Win, McDonalds focused on making a deeper connection
with customers through the five business drivers of people, products, place, price, and promotion. Using its own five
Ps, the company is developing and refining new strategies to deliver value, offering product variety, developing
updated and contemporary stores, balancing the delivery of value pricing with more expensive items, and marketing
through bold and innovative promotions.
Execution of this strategy has included mystery shoppers and customer surveys, along with grading restaurants to help
the company deliver on its people goals. New menu items like the Fruit & Walnut Salad in the United States and deli
sandwiches in Australia are part of the commitment to serve high - quality products to satisfy customer demand for
choice and variety. Restaurants are staying open longer, accepting credit and debit cards, enabling wireless internet
access, and even providing delivery service in parts of Asia. As part of the program, franchisees and suppliers are
asked to provide their opinions and ideas on facility design, while the company benchmarks retail leaders, such as
Crate & Barrel, to help produce cleaner and smarter restaurants. The company is testing small handheld devices
to use on what it calls travel paths, a process for checking operational failures such as the temperature inside
the refrigerators. Experiments with a new grilling concept from Sweden, which grills burgers vertically instead of
horizontally, offers space - saving possibilities for the chain. Product offerings like the McCaf, a concept developed in
the Australian market that provides gourmet coffee inside 500 existing restaurants, are proving to be successful.
The trouble experienced in the early part of the millennium has abated, and executives at McDonalds have declared
success after several years of progress under the Plan to Win.
Company revenues are up, and the firm plans to remain focused on its core business. One indication of its commitment
to fast food was the divestiture of its seven - year ownership stake in Chipotle Mexican Grill, a highly successful
fast - casual burrito chain. With the sale of around 5 million shares of Chipotle stock, the burger maker is now
refocusing on Brand McDonald s.
Attracting more customers to McDonalds remains its goal for growth. In the U.S. market, the strategy is to
leverage menu innovation; in Europe, upgrading the customer experience and enhancing local relevance have
driven management efforts; and the Asia/Pacific, Middle East, and Africa markets have focused on building sales
through extended hours. The question remains whether focusing on the core business will yield maximum return.
At McDonalds, the executives are betting on the core brand and hoping that this strategy will pay off.
139/JNU OLE
(Source: media.wiley.com. Strategic Management [PDF] Available at: <http://media.wiley.com/product_data/

excerpt/70/EHEP0007/EHEP000770.pdf>. [Accessed 7th October 2011].
Questions
1. Will the decision to focus on brand McDonalds yield best returns?
2. What was the problem faced by McDonald?
3. Can the premium coffee McCaf concept expect to compete seriously with Starbucks? Or will McDonalds,
like the market leaders in many other industries in the past, struggle?
4. How many times can McDonalds reinvent itself and continue to grow?
140/JNU OLE
Case study III
Credit flow to Housing Sector Stays Stagnant despite Rate Cats: Sector witnessed Credit Growth of only
2.49% between November 7, 2008 and January 16, 2009.
Credit to housing sector is not growing at the desired rate despite a number of steps taken by the Reserve Bank of
India (RBI), the finance ministry and the state-run-banks to augment fund flow to this sector.
According to data available with the finance ministry, the sector witnessed a credit growth of only 2.49% between
November 7, 2008 and January 16, 2009. This is in sharp contrast to an average credit growth of about 10-20% in
almost all quarters before the global financial turmoil started showing its impact since September last year.
The sector has witnessed deceleration in credit growth (from the public sector banks) despite the fact that PSBs have
cut home loan rates by up to 300 basis points between October and December 2008. PSBs have a total exposure
of about Rs. 162,500 crore as housing loan at the end of December 2008, according to finance ministry data. All
commercial banks in total has an exposure of Rs. 2, 71,683 crore as housing loan as on December 19, 2008, according
to RBI data.
The finance ministry has asked the public sector banks (PSBs) to explain reasons behind the low deployment of
credit to this sector said an official in the finance ministry. The interest rate or home loan from the PSBs was in the
range of 9.25% and 12% as on September 30, while it was in the range of 8.75% and 11% as on December 1. The
home loan rates have come down further in the month of January and February.
During mid-December, the Indian Banks Association (IBA) also announced a special package for home loan
borrowers offering those home loans at a uniform rate of 8.5% for loans up to Rs. 5 lakhs and at a rate of 9.25% for
loans up to Rs. 20 lakhs. The IBA has also announced relaxation in norms for taking home loan.
Further, the Countrys biggest lender State Bank of India last week froze new home loans, at 8% for one year. It also
reduced 300 points during the last three months in order to make cheaper loans available to the borrowers. BPLR is
the rate at which banks offer loans to their prime borrowers. Usually banks offer home loans upto 2.5% below their
BPLR. Home loans constitute the largest share among all types of retail loans provided by banks.
(Source: Economic Time)
Questions
1. Carry out environmental analysis (SWOT) for housing sector in India.
2. Develop strategies for Public Sector Banks to boost the sluggish demand in housing sector.
3. List down the steps taken by banks to attract customers.
141/JNU OLE
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Alkhafaji, A., 2003. Strategic Management: Formulation, Implementation, and Control in a Dynamic Environment
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Self Assessment Answers
Chapter I
1. a
2. d
3. b
4. c
5. c
6. c
7. a
8. b
9. a
10. c
Chapter II
1. a
2. d
3. c
4. b
5. b
6. a
7. b
8. d
9. b
10. c
Chapter III
1. c
2. b
3. d
4. b
5. b
6. a
7. a
8. c
9. c
10. a
Chapter IV
1. c
2. a
3. a
4. b
5. d
6. b
7. a
8. d
9. d
10. c
145/JNU OLE
Chapter V
1. b
2. a
3. b
4. c
5. c
6. a
7. d
8. c
9. a
10. b
Chapter VI
1. c
2. a
3. b
4. d
5. a
6. c
7. c
8. d
9. a
10. a
Chapter VII
1. b
2. a
3. c
4. b
5. b
6. c
7. d
8. a
9. d
10. b
Chapter VIII
1. d
2. a
3. a
4. b
5. c
6. c
7. a
8. a
9. b
10. d
146/JNU OLE

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Strategic Management

This book is a part of the course by Jaipur National University, Jaipur.

The content in the book is copyright of JNU. All rights reserved.

II. List of Figures........................................................VIII

III. List of Tables...........................................................IX

V. Case Study.............................................................. 137

VI. Bibliography.......................................................... 142

VII. Self Assessment Answers................................... 145

Chapter VII............................................................................................................................................... 104

Chapter VIII.............................................................................................................................................. 121

introduce the concept of business policy

explain the nature of business policy

discuss the purpose and objectives of business policy

identify the essentials of good business policy

classify the types of business policies

describe the term strategic business unit

explain the role of business policy

understand the evolution of business policy

comprehend the importance of business policy

1.1 Introduction to Business Policy

1.2 Evolution of Business Policy as a Discipline

1.2.1 The Genesis of Business Day

1.2.2 Evolution based on Managerial Practices

1.2.3 Historical Perspective of the Evolution of Business Policy

1.2.4 Pointers to the Future

1.3 Meaning of Business Policy

1.3.2 Need of Business Policy

1.3.3 Essentials of a Good Business Policy

1.3.4 Role of Business Policy

1.3.5 Different Types of Business Policy

On the basis of level of

Fig. 1.1 Types of business policy

On the basis of level of management

On the basis of functional areas

1.3.6 Strategic Business Unit ( SBU)

1.4 Importance of Business Policy

1.4.1 For Learning the Course

1.4.2 For Understanding the Business Environment

1.4.3 For Understanding the Organisation

1.4.4 For Personal Development

1.5 Purpose of Business Policy

To integrate the knowledge gained in various functional areas of management.

To adopt a generalist approach towards problem-solving.

To understand the complex inter-linkages operating within an organisation through

Fig. 1.2 Purpose of business policy

1.6 Objectives of Business Policy

1.6.1 In Terms of Knowledge

1.6.2 In Terms of Skills

1.6.3 In terms of Attitude

2. Match the following:

C. Is defined as a principle or a group of related principles, along with their

3. Which of the following statements is false?

introduce the term strategy

describe the strategic decision making process

explain strategic planning

describe functional strategic decisions

explain the type of strategies

explicate the levels of strategic management

discuss strategic choice and strategic forecasting

understand globalisation and environmental sustainability

comprehend the facets of strategic management

2.1.1 Definition of Strategy

2.1.2 Types of Strategy