CA Intermediate Paper-7B

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Paper 7B
Strategic Management
Chapterwise Weightage (Marks)

70% Descripve & 30%
100% Descripve
MCQs GRAND
CHP.
NO. CHAPTER NAME May-18 Nov-18 AVG May-19 Nov-19 AVG Total AVG
B Strategic Management
Introducon to Strategic
1 Management 7 9 8 0 5 2.50 21.00 5.25
Dynamics of Compeve
2 Strategy 7 3 5 5 5 5.00 20.00 5.00
3 Strategic Management Process 7 4 5.5 8 5 6.50 24.00 6.00
4 Corporate Level Strategies 9 4 6.5 0 5 2.50 18.00 4.50
5 Business Level Strategies 7 7 7 10 5 7.50 29.00 7.25
6 Funconal Level Strategies 7 12 0 0 5 2.50 24.00 6.00

Organisaon and Strategic
7 Leadership 9 12 10.5 8 10 9.00 39.00 9.75
Strategy Implementaon and
8 Control 10 12 11 7 5 6.00 34.00 8.50
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Paper 7 Section-B
Strategic Managmenet
1. Introduction of Strategic Management .................................................................. 1
2. Dynamic of Competitive Strategy .............................................................................. 19
3. Strategic Management Process .................................................................................... 69
4. Corporate Level Strategies ............................................................................................... 83
5. Business Level Strategies .................................................................................................. 99
6. Functional Level Strategy ............................................................................................... 115
7. Organisation and Strategic Leadership ................................................................ 149
8. Strategic Implementation and Control ......................................................... 67-190

CHAPTER1 :INTRODUCTION OF STRATEGIC MANAGEMENT 2
CHAPTER1
INTRODUCTION OF STRATEGIC MANAGEMENT
Only firms who are able to continually build strategic assets faster and cheaper than competitors will earn
superior returns over the long term – C.C. Markides
Without a strategy the organization is like a ship without a rudder – Joel Ross
Management’s job is not to see the company as it is but as what it can become John W. Teets
Policies are the oral or written submission which forms the limits of the company – Dr. George R. terry
INTRODUCTION
This is an attempt to show the concepts and importance of ‘business policy’ and ‘strategic management’.
With the increased competition, the management of business has acquired strategic dimension. All
executives and professionals working towards growth of their business must possess sound knowledge of
business policy and strategic management.
LONG QUESTIONS
Q1 What is business policy?
Ans.
Â The origins of business policy can be traced back to 1911, when Harvard business school introduced an
integrative course in management aimed at the creation of general management capability. This course
was based on interactive case studies which had been in use at the school for instructional purposes
since 1908. In 1969, the American assembly of collegiate schools of business a regulatory body for
business schools made the course of business policy, a mandatory requirement for the purpose of
recognition of business schools/management institutes.
Â Business policy tends to emphasize on the rationalanalytical aspect of strategic management. It
represents a framework for understanding strategic decision making. Such a framework enables a
person to make preparations for handling general management responsibilities.
Â DEFINITION OF BUSINESS POLICY:
According to Christensen and others,
“The study of the functions and responsibilities of senior management, the crucial problems that
affect success in the total enterprise, and the decisions that determine the direction of the organization
and shape its future.”
According to William F Glueck, evolution of business policy arose from the developments in the use of
planning techniques by managers. From day to day planning management started doing future
prediction to do long term planning. The managers were using control system like capital budgeting
and management by objectives to predict the future which were not adequate. Therefore, longrange
planning was replaced by strategic planning, and later by strategic management a term that is currently
used to describe the process of strategy formulation, Implementation and control.
NAVKAR INSTITUTE | CA INTERMEDIATE | PAPER 7B : STRATEGIC MANAGEMENT 3

Q2 What is business strategy with its Elements?
Ans. Word strategy has a dictionary meaning which is related to war. Business also need to deal with lots of
enternal and internal environement factors. Today competiton is such that that business is also same
as a war in current situation.
Â Strategy may be defined as a longrange blue print of an organization’s desired image, direction
and destination. In other words, strategy decides for an organization what it wants to be, what it
wants to do and where it wants to go.
Â Strategy, is a game plan the management of business uses to take market position, conduct its
operation, attract and satisfy customers, compete successfully and achieving organization
objectives.
Thus, strategy means an action plan prepared by an organization to achieve effectiveness, to mobilize
resources, to handle events and problems, to forecast and utilize opportunities, to meet challenges
and threats vital to the survival and growth of the enterprise.
DEFINITION OF STRATEGY :
According to Igor H. Ans off,
The common thread among the organization’s activities and productmarkets that defines the essential
nature of business that the organization has or planned to be in future.
According to William F. Glueck,
A unified, comprehensive and integrated plan designed to assure that the basic objectives of the
enterprise are achieved.
ELEMENTS OF STRATEGY :
Â Strategy is consciously considered and flexibility designed scheme of corporate intent.
Â That is action to mobilize resource, to direct human efforts and behavior, to handle events and
problems, to perceive and utilize opportunities, and meet challenges and threats for corporate
survival and success.
Â It is flexible and dynamic.
Â Strategies give dynamic direction, focus and cohesiveness to the efforts of the enterprise
Â Objectives and goals alone do not fill in the need.
Â It is formulated at the top level management, though middle and lower level managers are
associated in their formulation and in designing substrategies.
Â However, one must remember that even a best and faultlessstrategy is not substitute for alert,
sound and responsible management.
Â It is action oriented and is more specific than objectives.
Â It is multi dimensional and integrated.
Â Strategy includes the determination of the plans for the expansion and growth, vertical and
horizontal integration, diversification, takeover and mergers, new investment areas, R & D projects
and so on.
Â The corporate wide strategies need to be operationalized by divisional and functional strategies
regarding product line, production volumes, product promotions, quality range, prices, market
penetration, purchasing sources, personnel development.
Q3 What is meant by Strategic management? What are the importance and benefits of Strategic
management?

Ans. Introduction of strategic management:
Strategic planning, an important component of strategic management, involves developing a strategy
to meet competition and ensure longterm survival and growth of the company.
Strategic management is a modern version of business policy and involves the managerial actions of
scanning the environment to formulate implement and evaluate business strategies to achieve long
term objective.
It includes:
Â Charting a long term direction of the firm.
Â Setting realistic goals and objectives.
Â Analyzing both internal and external environment.
Â Formulating & executing strategies.
Â Creating a long term value for stakeholder.
The term ‘strategic management’ refers to the managerial process of developing a strategic vision, setting
objectives, crafting a strategy, implementation and evaluating the strategy, and initiating corrective
adjustments were deemed appropriate.
IMPORTANCE OF STRATEGIC MANAGEMENT:
Strategic management is very important for the survival and growth of business organization in dynamic
business environment. Other major benefits of strategic management are as follows:
1. Direction: It gives a direction to the company to move ahead. It defines the goals and mission. It helps
management to define realistic objectives and goals which are in line with the vision of the company.
2. Futuredriven: It helps organization to be proactive instead of reactive in shaping its future in its
favour. Organizations are able to analyse and take action. Thereby they are able to control their own
destiny in a good manner. It helps them in working within vagaries of environment and shaping it,
instead of getting carried away by its turbulence or uncertainties.
3. Decisionmaking: It provides framework for all major decision of an enterprise such as decisions on
businesses, products, markets, manufacturing facilities, investments and organizational structure. It
provides better guidance to entire organization on the crucial point – what it is trying to do.
4. Pathfinder: It seeks to prepare the organization to face the future and act as pathfinder to various
business opportunities also serve as a corporate defense mechanism against mistakes and pitfalls. It
helps organizations to avoid costly mistakes in product market choices or investments.
5. Longevity: It helps to enhance the longevity of the business with the state of competition and dynamic
environment it may not be possible for organization to survive in long run. It helps the organization to
take a clear stand in the related industry and makes sure that it is not just surviving on luck.
6. Corporate Defence mechanism: Strategic management serves as a corporate defence mechanism against
mistakes and pitfalls. It helps organisations to avoid costly mistakes in product market choices or
investments.
7. Core competencies: It helps the organization to develop certain core competencies and competitive
advantages that would facilitate assist in its fight for survival and growth.
Q4 Describe the strategic levels in organizations. OR Distinguish between three strategic levels.
Ans. A typical large organization is a multi divisional organization that competes in several different
businesses. It has separate selfcontained divisions to manage each of these. There are three main
levels of management:

1. Corporate level management
2. Business level management
3. Functional level management
General Managers are found at the first two of these levels, but their strategic roles differ depending
upon their sphere of responsibility.
An organization is divided into a number of segments that work together to bring a particular product
or service to the market. The general managers of these divisions then become responsible for their
particular product line. The overriding concern of divisional managers is healthy growth of their
divisions. They are responsible for deciding how to create a competitive advantage and achieve higher
profitability with the resources and capital they have at their disposal. Such divisions are called strategic
business units (SBUs).
Levels of Strategic Management
Corporate Level
CEO, other senior executives, Head
board of directors, Office
and corporate staff
Business Level
Divisional Managers Division A Division B Division C
and Staff
Functional Level Business Business Business
Functional managers functions functions functions
Market A Market B Market C
CORPORATE LEVEL Â It consists of the chief executive officers and other top
OF MANAGENMENT: level executives.
Â These individuals occupy the apex of decision making within
organization.
Â The role of corporate level managers is to oversee the
development of strategies for the whole organization.
Â This role includes defining the mission and goals of the
organization, determining what businesses
it should be in, allocating resources among the different
businesses and as on rests at the corporate level.
BUSINESS LEVEL Â Development of strategies for an individual business area

OF MANAGEMENT: is the responsibility of the general managers in these
different businesses or business level managers.
Â A business unit is a selfcontained division with its own
functions e.g. finances, production and marketing.
Â The strategic role of business level manager, head of the
division, is to translate the general statements of direction
and intent that come from the corporate level into
concrete strategies for individual business.
Â Business level managers are concerned with strategies that
are specific to a particular business
FUNCTIONAL LEVAL Â Managers are responsible for the specific functions or
OF MANAGEMENT operations such as human resources, purchasing, product
development, and customer service and so on.
Â Therefore a functional manager’s sphere of responsibility
is generally confined to one organizational activity,
whereas general managers oversee the operation of a
whole company or division.
Â Functional managers provide most of the information
that makes it possible for business and corporate level
managers to formulate realistic and attainable strategies.
SHORT QUESTIONS :
Q1 What is Management?
Ans. Management is an influence process to make things happen, to gain command over phenomena, to
induce and direct events and people on a particular manner.
A. It is used with reference to a key group in an organization in charge of its affairs. In relation to an
organization, management is the chief organ entrusted with the task of making it a purposeful
and productive entity.
It is by undertaking the task of bringing together and integrating the disorganized resources of
manpower, money, materials and technology into a functioning whole.
An organization becomes a unified functioning system when management systematically
mobilizes and utilizes the diverse resources efficiently and effectively.
B. The term ‘management’ is also used reference to a set of interrelated functions and processes
carried out by the management of an organization to attain its objectives.
These functions include planning, organizing, directing, staffing and control and the functions or
subprocesses of management are wideranging but closely interrelated.
Q2 “Strategy is partly proactive and partly reactive.” Do you agree? Give reasons for your answer. Yes,
strategy is partly proactive and partly reactive. A company’s strategy is basically a combination of
proactive actions of the managers and reactive actions.
Ans.
PROACTIVE Â In proactive strategy, organizations will analyze possible environmental
ACTIONS scenarios and create strategic framework after proper planning and set
procedures and work on these strategies in a predetermined manner.

Â However, in reality no company can forecast both internal and external
environment exactly. It is not possible to anticipate moves of rival firms,
consumer behavior, evolving technologies and so on.
Â Proactive actions are the efficient planning to :
I. Improve the company’s position.
II. Improve the company’s financial performance.
REACTIVE Â Reactive strategies trigged by the changes in the environment and
ACTIONS provide ways and means to cope with the negative factors or take
advantage of emerging opportunities.
Â There can be significant deviations between what was visualized and
what actually happens. Strategies need to attuned or modified in the
light of possible environment changes.
Â Reactive actions are the responses to the environmental changes in
order to :
I. Face unforeseen developments and changes.
II. Adjust and adapt to unanticipated risks.
Q3 Describe the use of strategic management techniques in Educational institutions.

Ans. Education is considered to be a noble profession. Educational institutions are using strategic
management techniques and concepts more frequently. Richard Cyert, president of CarnegieMellon
University, says, “I believe we do a far better job of strategic management than any company I know.”
The significant change in the competitive climate has taken place in the educational environment.
Hence, they are adopting different strategies for attracting best student.
Â The academic institutions have also joined hands with industries in order to deliver education to
make graduates more employable.
Â The educational delivery system has also undergone considerable changes with the introduction
of computers and internet technologies.
Â The first allinternet law school, Concord University school of law, boasts nearly two hundred
students who can access lectures anytime and chat at fixed times with professors.
Â Online college degrees are becoming common and represent a threat to traditional colleges and
universities.

Q4 Limitation of strategic management.
Ans. The presence of strategic management cannot counter all hindrances and always achieve success.
These are limitations attached to Strategic management. These can be explained in the following
lines:
1. Highly complex and turbulent: It is difficult to understand the complex environment and exactly
pinpoint how it will shapeup in future. The organizational estimate about its future shape may
awfully go wrong and jeopardize all strategic plans. The environment affects as the organization
has to deal with suppliers, customers, governments and other external factors.
2. Time consuming process: It is a time consuming process. Organization spend a lot of time in
preparing, communicating the strategies that may impede daily operations and negatively impact
the routine business.
3. Costly process: It adds a lot of expense to an organization. Expert strategic planners need to
engaged, efforts are made for analysis of external and internal environments devise strategies
and properly implement. These can be costly for organization with limited resources particularly
when small and medium organization creates strategies to compete.
4. Competitive response: in the era of competition its really difficult to estaimte competitive
response of strategy.
Q5 Describe the role of strategic management in nonprofitorganization.
Ans. Strategic management refers to the managerial process of forming a strategy vision, setting objectives,
crafting a strategy implementing and executing the strategy, and then overtime initiating whatever
corrective adjustments in the vision, objectives strategy and execution are deemed appropriate
therefore, the steps are required in all types of organization whether profit oriented or not as profit is
not the sole motive of strategic management.
The role of strategic management in NPO :
Â Developing mission of the organization.
Â Strategic management then helps in defining objectives and goals.
Â Strategic management structures the business portfolio and incorporates the functional goals.
Â Helps meet opportunities and threats with challenges.
Q6 What are the areas of strategic management in relation to medical organizations?
Ans. A successful hospital strategy for the future requires wide and very close collaboration with physicians
who are central to their business and it also needs a reallocation of resources from general kind of
health facilities to more accurate and chronic care areas.
Backward integration strategies pursued by hospitals include acquiring ambulance services, waste
disposal services and diagnostic services.
Many people undertake research on internet and thus are able to get an online advice regarding their
ailments. This has led to a dramatic shift in the balance of power between doctors, patients and
hospitals.
Most advanced medical services are also available whereby the patients can conduct sensitive business
on the internet, such as sharing results of medical tests and can approach doctors for prescribing
medicine.
The successful hospital strategies include
Â Freestanding outdoor surgery centers
Â Outdoor surgery and diagnostic centers

Â Physical rehabilitation centers
Â Home health services
Â Cardiac rehabilitation centers
Â Preferred provider services
Â Industrial medicine services
Â Woman’s medicine services
Â Skilled nursing units and
Â Psychiatric services
QUESTION ANSWERS (23 MARKS)
Q1 How is strategic management useful to nonprofit and government organization?
Ans. Now a days the strategic management process is widely used even by nonprofit and government
organizations. The strategic management process provides them an excellent vehicle for developing
and justifying requests for financial support that they need.
Q2 How is strategic management useful to government agencies and departments?
Ans. Various central, state and municipal agencies, public sector units and government departments are
responsible for formulating, implementing and evaluating strategies that use taxpayer’s money. The
strategic management helps them in discovering and developing the most costeffective ways of
providing services and conducting social welfare programmes.
Q3 What is the purpose of forming corporate strategy?
Ans. Corporate strategy is the game plan the company has adopted for achieving its short term and long
term objectives. The ultimate purpose of corporate strategy is to provide for the growth of the firm and
to correctly align the organization with the environment.
Q4 Why is a proactive strategy required?
Ans. A reactive strategy the one which is formulated on the spot basis in very short period of time to deal
with the unexpected events changes in the environment of the company or a sudden change in the
requirement and expectations of the buyers or in the availability of market opportunities or a sudden
change in political and economical climate.
Q5 How a strategic management useful to nonprofit and government organizations?
Ans. Now a days the strategic management process is widely use even by nonprofit and government
organizations. The strategic management process provides them an excellent vehicle for developing
and justifying requests for financial support that they need.
Q6 How is strategic management process useful to government agencies and departments?
Ans. Various central, state and municipal agencies, public sector units and government departments are
responsible for formulating, implementing and evaluating strategies that use taxpayers’ money. The
strategic management helps them in discovering and developing the most costeffective ways of
providing services and conducting social welfare programmes.
BRIEFLY ANSWER THE FOLLOWING :
Q1 You are appointed as a strategic manager by XYZ Co. Ltd. Being a strategic manager what should be your
tasks to perform?
Ans. The primary tasks of the strategic manager is conceptualizing, designing and executing company
strategies.

For this purpose, his tasks will include:
Â Defining the mission and goals of the organization.
Â Determining what businesses it should be in.
Â Allocating resources among the different businesses.
Â Formulating strategies.
Â Implementing strategies.
Â Providing leadership for the organization.
Q2 In your view, what is the role of corporate level managers in strategic Management?
Ans. There are three main levels of management in a typical organization: corporate, business and functional.
The corporate level of management consists of the chief executive officer (CEO), other senior
executives, the board of directors, and corporate staff. They are responsible for strategic decision
making and broadly have following roles:
Â Oversee the development of strategies for the whole organization.
Â Determining what businesses is should be in.
Â Formulating strategies.
Â Implementing strategies.
Â Provide a link between the people who oversee the strategic development of a firm and those
who own it.
Q3 Organizations sustain superior performance over a long period of time, inspite of the rapid changes
taking place continually in its competitive environment if they implement strategic management
successfully. Discuss.
Ans. Business organizations function within dynamic environment. The environment may vary from being
conducive to hostile. Whatever be the conditions, implementation of strategic management is very
important for the survival and growth of business organizations. Strategy implementation helps
organizations to sustain superior performance in following manner:
Â Strategic management helps organizations to be more proactive rather than reactive in dealing
with its future.
Â It provides better guidance to entire organization on the crucial point what it is trying to do.
Â It facilitates to prepare the organization to face the future. Organizations are able to identify the
available opportunities and identify ways and mean as how reach to them.
Â It serves as a corporate defense mechanism against mistakes and pitfalls.
Â Over a period of time strategic management helps organization to evolve certain core competencies
and competitive advantages.
Q4 Do you agree with the statement that “strategic management concepts are of no use to government
organizations and medical organization”? Explain with reasons.
Ans. Organizations can be classified as commercial and noncommercial on the basis of interest they have.
Typically, a government or medical organization may function without any commercial objectives. A

commercial organization has profit as its main aim. We can find many organizations around us, which
do not have any commercial objectives of making profits. Their genesis may be for social, charitable, or
educational purposes.
The strategic management process is being used effectively by countless nonprofit organizations.
Many nonprofit and governmental organizations outperform private firms and corporations on
innovativeness, motivations, productivity and human resource.
Compared to forprofit firms, nonprofit and governmental organizations often function as a monopoly,
produce a product or service that offers little or no measurability of performance, and are totally
dependent on outside financing. Especially for these organizations, strategic management provides an
excellent vehicle for developing and justifying requests for needed financial support.
STATE WITH REASONS WHICH OF FOLLOWING STATEMENTS IS CORRECT/INCORRECT:
1. “Environment constituents exist in isolation and do not interact with each other.”
Incorrect: Business environment consists of factors events, influences etc. which arise from different
sources and interact with each other continuously to create new sets of complex influences.
2. “Profit may not be a universal objective but business efficiency is definitely an objective common to
all business.”
Correct: The primary objective of business is to earn adequate profit but not maximum profit. Profit
serves as a yardstick to measure the success of the business. To facilitate and sustain profit earning,
certain other objectives are also pursued by business and efficiency is one of them.
3. “Efficiency and effectiveness mean the same in strategic management.”
Incorrect: The two terms ‘effectiveness’ and ‘efficiency’ mean different but they are related to each
other.
Â ‘Effectiveness’ aims to achieve the goals within time.
Â ‘Efficiency’ focuses on optimum use of resources to achieve the goals.
Management is concerned not only with achieving goals effectively but also attaining them as
efficiently as possible. For instance, it is easier to be effective of one ignores efficiency. For example,
some government organizations get their jobs done but at a very high cost.
4. “The rate and magnitude of changes that can affect organizations are decreasing dramatically.”
Incorrect: The rate and magnitude of changes that can affect organizations are increasing day by day
because of change in business environment due to globalization and liberalization that are fastpaced
and have farreaching implications for business, as most of the organizations are dependent on the
environmental factors.
5. “A business, even if it continually remains passive to the relevant changes in the environment, would
still grow and flourish.”
Incorrect: All living things live within an environment. Similarly business also dwells within an
environment. The success of business is known to have been determined by the constant changes
taking place in the social, economic, political and other conditions of the environment. A business just
cannot remain passive to these changes. It is from the analysis of these changes that management can
make decisions on whether to react, to ignore, or to try influence, anticipate future opportunities or
threats.
6. “The process of strategy avoids matching potential of the organization with the environment
opportunities.”
Incorrect: In the process of strategic management an organization continuously scans its relevant

environment to identify various opportunities and threats. Organizations keep to grow and expand
often look for promising opportunities that match their potential. Such opportunities become a good
stepping stone for achieving the goals of the organization.
7. “Developing annual objectives and shortterm strategies that are compatible with the selected setoff
longterm objectives are one of the major tasks of strategic management.”
Correct: A company’s set of strategic objectives should include both short term and long term
performance target. Short term objectives help to focus attention on delivering immediate performance
improvements. While long term objectives represent the result expected from pursing certain
strategies.
8. “Strategies provide an integral framework for management to negotiate its way through a complex
and turbulent external environment.”
Correct: strategies are meant to fill in the need of enterprises for a sense of direction, focus and
coherent functioning. They provide a systematic basis for the enterprise to stand it ground in the face
of challenge and change as also quickly adjust to them. They obviate the occasions for impulsive and
crisis decisions, false starts, misdirected moves, wasted resource uses and the like.
9. Strategy is a substitute for sound, alert and responsible management.
Incorrect: strategy is not a substitute for sound, alert and responsible management. Strategy can never
be perfect, flawless and optimal. Strategies are goaldirected decision and actions in which capabilities
and resource and matched with the opportunities and threats in the environment. A good management
at the top can steer the organizations by adjusting its path on the basis of the changes in the
environment.
10. Strategies are perfect, flawless and optimal organizational plans.
Incorrect: Strategy can never be perfect, flawless and optimal. It is in the very nature of strategy that it
is flexible and pragmatic; it is art of the possible; it does not preclude secondbest choices, tradeoffs,
sudden emergencies, pervasive pressures, failure and frustrations. However, in a sound strategy,
allowances are made for possible miscalculations and unanticipated external events.
11. Strategic management is a bundle of tricks and magic.
Incorrect: No, strategic management is not a bundle of tricks and magic. It is a deliberate managerial
process that involves systematic and analytical thinking and action. Although, the success or failure of
a strategy is dependent on several extraneous factors, it cannot be stated that a strategy is a trick or
magic. Formation of strategy requires careful planning and requires strong conceptual, analytical and
visionary skills.
12. Control systems run parallel with strategic levels.
Correct: there are three strategic levels in an Organization – corporate, business and functional. Control
systems are required at all the three levels. At the top level strategic controls are built to check whether
the strategy is being implemented as planned and the results produced by the strategy are those
intended. Down the hierarchy management controls and operational controls are built in the systems.
Operational controls are required for daytoday management of business.
13. A company’s Strategy has always to be proactive in nature.
Incorrect: A company’s strategy is a blend of proactive and reactive actions by the management. Reactive
actions are required to address unanticipated developments and environmental conditions. Thus, not
every strategic move is the result of proactive and deliberate management actions. At times, some
kind of strategic reaction or adjustments are required.

14. Strategic management is not needed in nonprofitorganizations.
Incorrect: Strategic management applies equally to profit as well as nonprofit organizations. Though
nonprofit organizations are not working for the profit, they have to have purpose, vision and mission.
They also work within the environmental forces and need to manage strategically to stay afloat to
accomplish their objectives. For the purpose of continuity and meeting their goals, they also need to
have and manage funds and other resources just like any other for profit organization.
EXPLAIN THE FOLLOWING TERMS :
1. Strategy: A company’s strategy consists of the combination of competitive moves and business
approaches that managers employ to please Customers compete successfully and achieve organizational
objectives. We may define ‘Strategy’ as a longrange blue print of an organization’s desired image,
direction and destination. In other words, strategy decides for an organization what it wants to be,
what it wants to do and where it wants to go. Thus, strategy of an organization is a comprehensive and
integrated long term plan adopted to achieve its basic objectives.
2. Strategic management : The term strategic management refers to managerial process of strategy
implementation and implementation. There are five components of strategic management.
(a) Forming a strategic vision
(b) Setting objectives
(c) Crafting a strategy
(d) Implementation and executing strategy
(e) Then overtime introducing appropriate corrective adjustment in vision, Objectives, strategy and
executions are deemed necessary.
3. Strategic decisions : Decision making is a fundamental function of the management of any organization.
It can be defined as the task of selecting a particular course of action out of several available alternatives
for the purpose of achieving organizational goals. These decisions may be routine or may be strategic.
The strategic decisions are those which are taken by the top level management are very risky, are
related to allocation of large amount of company resources, are future oriented take into the external
environment of the firm and they have major business consequences.
MULTIPLE CHOICE QUESTIONS :
1. The three stages of strategic management are:
(a) Strategy formulation, Strategy implementation and strategy execution
(b) Strategy formulation, Strategy execution and Strategy assessment
(c) Strategy formulation, Strategy implementation and Strategy evaluation
(d) Stratify assessment, Strategy execution and Strategy evaluation
2. Job title refers to strategies include which of the following?
(a) External audit
(b) Owner, entrepreneur, executive directors and accountant
(c) Chief executive officer, salesman, dean and lawyer
(d) Owner, dean, president and executive directors
3. How often should strategic management activities be performed?
(a) annually (b) quarterly
(c) monthly (d) continuously

4. In a large organization, strategic management activities occur at what levels?
(a) Corporate and divisional only (b) Divisional
(c) Strategic business unit only (d) Functional, divisional and corporate
5. Strategic management allows an organization to be more
(a) complacent (b) proactive
(c) authoritarian (d) reactive
6. __________ may be the most important benefit of strategic management.
(a) profit (b) commitment
(c) understanding (d) order
7. __________ is one of the reasons for poor or no strategic planning in organization.
(a) Prior good experience (b) Fear of success
(c) Low expense (d) Selfinterest
8. Stability strategy is a __________ strategy.
(a) Corporate level (b) Business level
(c) Functional level (d) Strategic level
9. Strategic management is mainly the responsibility of
(a) Lower management (b) Middle management
(c) Top management (d) All of the above
10. Which of the following is of concern for nonforprofit organizations?
(a) The markets to service (b) Identifying suppliers to deal with
(c) Developing capabilities (d) Building monopolies
11. What are the decisions and actions that determine longrun performance of an organization?
(a) strategies (b) missions
(c) goals (d) opportunities
12. __________ is the collection of managerial decisions and actions that determine the long run
performance of an organization.
(a) planning (b) strategic management
(c) strategy (d) none of the above
13. strategic management deals with
(a) production and quality (b) profit and loss
(c) business process (d) all of the above
14. strategic management handles
(a) external issues (b) management issues
(c) internal issues (d) administration issues
15. Why is strategic management important?
(a) It has little impact on organizational performance
(b) It is involved in many of the decisions the manger make

(c) Most organizations do not change
(d) Organizations are composed of similar divisions and functions
16. An organization is said to have __________ when it has several different businesses that are independent
and that formulate their own strategies.
(a) Operational units (b) Strategic business units
(c) Competitive advantages (d) Legal sub units
17. As indicated in the strategic management model, a clear __________ is needed before alternate
strategies can be formulated and implemented.
(a) Longterm objectives (b) shortterm objectives
(c) policy (d) mission statements
18. __________ is called as a bundle of resources.
(a) industry (b) unit
(c) organization (d) management
19. SBU stands for
(a) Satisfied business unit (b) Stratified business unit
(c) Strategic building unit (d) Strategic business unit
20. The corporate level is where top management directs:

(a) All employees for orientation (b) Its efforts to stabilize recruitment needs
(c) Overall strategy for the entire organization (d) Overall sales projections
21. The three organizational levels are
(a) Corporate level, business level, functional level
(b) Corporate level, business unit level, functional level
(c) Corporate strategy level, business level, functional level
(d) Corporate strategy level, business level, specialist level
22. The basic activities of strategic management include:
(a) Offense, defense and control
(b) Situation analysis, strategy formulation, implementation and evaluation
(c) Development, control and management
(d) Ethics, management and practice
23. In a large organization, strategic management activities occur at what level?
(a) Corporate and divisional (b) Functional, business and corporate
(c) Strategic business unit (d) Divisional
24. The means by which longterm objectives will be achieved are
(a) Mission statements (b) Strategies
(c) Vision statements (d) Longterm goals

ANSWERS
1. (c) 2. (d) 3. (d) 4. (d) 5. (b) 6. (c)
7. (d) 8. (a) 9. (c) 10. (a) 11. (a) 12. (b)
13. (c) 14. (a) 15. (b) 16. (b) 17. (d) 18. (c)
19. (d) 20. (c) 21. (a) 22. (b) 23. (b) 24. (b)
LAST MINUTE REVISION:

1. Business Policy : Business policy tends to emphasize on the rationalanalytical aspect of strategic
management. It represents a framework for understanding strategic decision making.
2. Concept of Management : Management is an influence process to make things happen, to gain command
over phenomena, to induce and direct events and people on a particular manner.
3. Concept of Strategy : Strategy may be defined as a longrange blue print of an orgaization’s desired
image, direction and destination. In other words, strategy decides for an organization what it wants to
be, what it wants to do and where it wants to go.
a. Strategic management:
Â Importance of strategic management:
1. Direction
2. Future driven
3. Decision making
4. Pathfinder
5. Longevity
6. Core competencies
Â Limitation of strategic management:
1. Highly complex and turbulent
2. Time consuming process
3. Costly process
Strategic levels in organizations
1. CORPORSTE LEVEL
2. BUSINESS LEVEL
3. FUNCTIONAL LEVEL
Â Strategic management uses
1. Educational institutes
2. Medical organization
3. Governmental agencies and departments.

CHAPTER2
DYNAMICS OF COMPETITIVE STRATEGY
Organizations succeed in a competitive market place over the long run because they can do certain things
their customers value better than can their competitors
– Robert Hayes
Nothing focuses the mind better than the constant sight of a competitor who wants to wipe you off the map
– Wayne Calloway
The idea is to concentrate our strength against our competitors’ relative weakness
– Bruce Henderson
It is much better to make your own product obsolete rather than allow a competitor to do it
– Michael Cusamano
INTRODUCTION
The business environment is highly dynamic and continuously evolving. The changes happening in the
external environment challenge organizations to find novel and unique strategies to remain business and
succeed. As the word is getting smaller and competition is increasing, organizations have increasing pressure
to develop their business and strengthen its competitiveness. Strategic thinking and strategic management
are highly relevant and important for all the managers in organizations in order to achieve competitive
advantage, high performance for success and to ensure company’s survival and growth.
LONG QUESTIONS
Q1 What is competitive landscape? Steps to understand the competitive landscape.
Ans. Competitive landscape is about indentifying and understanding the competitors and at the same time,
it permits the comprehension of their vision, mission, core values, niche markets, strengths and
weaknesses.
“Competitive landscape is a business analysis which identifies competitors, either direct or indirect.”
Understanding of competitive landscape requires an application of ‘competitive intelligence.’
An indepth investigation and analysis of a firm’s competition allows it to assess the competitors’
strengths and weaknesses in the marketplace and helps it to choose and implement effective strategies
that will improve its competitive advantages.
Followings are the Steps to understand the competitive landscape:
1. Identifying the competitors: The first step to understand the competitive landscape is to identify the
competitors in the firm’s industry and have actual data about their respective market share.
This answers the question:
Â Who are the competitors?
2. Understand the competitors: Once the competitors have been identified, the strategist can use market
research report, newspaper, social media, industry reports and various other sources to understand

the products and services offered by them in different markets.
Â What are their product and services?
3. Determine the strengths of the competitors:
Â What are the strength of the competitors?
Â What do they do well?
Â Do they offer great products?
Â Do they utilize marketing in a way that comparatively reaches out to more consumers?
Â Why do customers give them their business?
Â What are their financial positions?
Â What gives them cost and price advantage?
Â What are they likely to do next?
Â How strong is their distribution network?
Â What is their human resource management?
4. Determine the weaknesses of the competitors: Weaknesses can be identified by going through consumer
reports and reviews appearing in various media. After all, consumers are often willing to give their
opinions, especially when the products or services are either great or very poor.
Â Where are they lacking?
5. Put all of the information together: At this stage, the strategist should put together all information
about competitors and draw inference about what they are not offering and what the firm can do to fill
in the gaps. The strategist can also know the areas which need to be strengthen by the firm.
Â What will the business do with this information?
Â What improvements does the firm need to make?
Â How can the firm exploit the weaknesses of competitors?
Q2 What are the issues to be considered for strategic analysis?
Ans.
Â Issues to be considered for strategic analysis:
1. Strategy evolves over a period of time : Strategy formulation is the function of the top level
management. One has to remember that a strategy at present of the outcome of a number of
small decisions taken in the past. As a result of these decisions the business unit is operating in a
particular manner at the present. Now, if the growth and its momentum are to be considered then
many material changes are necessary in the present strategy. The strategy implementation is a
continuous process. The strategies are made, are implemented and constantly readjusted to the
needs of the new situations. In this way, it is a long term continuous process.
2. Balance: The process of strategy formulation is basically one of the balancing. There are a variety
of balances to be achieved by a strategist.
¾ Internal potential of the organization and the environment opportunities: the process of
CHAPTER2 : DYNAMICS OF COMPETITIVE STRATEGY 22

strategy formulation is often described as one of the matching the internal potential of the
organization with the environment opportunities.
¾ Conflict considerations: In reality, as perfect match between two may not be feasible, strategic
analysis involves a workable balance between diverse and conflicting considerations.
¾ Constraints and Opportunities: A manager working on a strategic decision has to balance
opportunities, influence and constraints. There are constraints that limit the choice such as
existence of a big competitor. These constraining forces will be producing an impact that will
vary in nature, degree, magnitude and importance. Some of these factors can be managed to
an extent; however, there will be several others that are beyond the control of a manager.
3. Risk: The principal of balance in risk is also an important principal in strategic analysis. The modern
day business operates under highly uncertain conditions. Competitive markets, liberalization,
globalization, booms, recessions, technological advancements, intercountry relationships all
affect businesses and pose risk at varying degree. An important aspect of strategic analysis is to
identify potential imbalances or risks and assess their consequences. A broad classification or the
strategic risk that requires consideration in strategic analysis given below:
The internal risks arise from within the organization. They arise because of lack of resources or energy on
the part of the management or because of long term changes in their abilities and preferences. On the
other hand, the external risks arise because the management is not able to devise a proper strategy to

meet the challenges in the external environment. A best strategy is the one which minimizes the risks
and maximizes the gain.
Strategic analysis
External analysis Internal analysis
Customer analysis: segments, motivations, Performance analysis: profitability, sales,
unmet needs. Competitor analysis: strategic customer satisfaction, product quality, relative
groups, performance, objective. Market cost, new products, human resources.
analysis: size, growth, profitability, entry barriers. Determine analysis: Past and current strategies,
Environmental analysis: technological, strategic problems, organizational capabilities
government, economic, cultural, demographic. and constraints, financial resources, strengths and
weaknesses.
Opportunities, threats, trends and uncertainties Strategic strengths, weaknesses, problems,
constraints and uncertainties.
Strategy identification and selection
Â Identify strategic alternatives
Â Select strategy
Â Implement the operating plan
Â Review strategies
Q3 What are the methods of industry and competitive analysis?
Ans. Industry and competitive analysis can be done using a set of concepts and techniques to get clear idea
about basic and fundamental industry features, the intensity of competition, and the drivers of industry
change, the market positions and strategies of rival companies, the keys to competitive success, and
the industry’s profit outlook.
Industry and competitive analysis aims at developing insight in several issues. Analyzing these issues
helps in understanding of a firm’s surrounding environment and collectively, forms the basis for
matching its strategy to changing industry and conditions and competitive realities.
The issues are given below:
a. Dominant economic features of the industry
Industries differ significantly in their basic character and structure. Industry and competitive analysis
begins with an interview of the industry’s dominant economic features. Industry is an “a group of firms
whose products have same and similar attributes such that they compete for the same buyers.” The
factors to consider in profiting an industry’s economic features are fairly standard and are given as
follows:
Â Market size
Â Scope of competitive rivalry (local, regional, national, international or global).
Â Market growth rate and position in the business life (early development, rapid growth and takeoff,
early maturity, saturation and stagnation, decline).
Â Numbers of rivals and their relatives sizes.
Â Small companies and dominant companies.
Â The numbers of buyers and their relative sizes. Whether and to what extent industry rivals have

integrated backward and/or forward.
Â The types of distribution channels used to access consumers.
Â The pace of technological change in both production process innovation and new product
introductions.
Â Whether the products and services of rival firms are highly differentiated, weakly differentiated
or essentially identical.
Â Whether companies can realize economics of scale in purchasing, manufacturing, transportation,
making or advertising.
Â Whether key industry competitors are in a particular location only for example, lock industry in
Aligarh. Saris and diamonds in Surat, information technology in Banglore. Similarly, there is also
concentration of business in different countries on account of graphical and other reasons.
Â Whether certain industry activities are characterized by strong learning and experience effects
(‘learning by doing’) such that unit costs decline as cumulative output grows.
Â Whether high rates of capacity utilization are crucial to achieving lowcost production efficiency.
Â Capital requirements and the ease of entry and exit.
Â Whether industry profitability is above/below par.
b. Nature and strength of competition
One important component of industry and competitive analysis involves delving into the industry’s
competitive process to discover what the main resources of competitive pressure and how strong each
competitive force is. This analytical step is essential because managers cannot devise a successful
strategy without indepth understanding of the industry’s competitive character. Even though
competitive pressures in various industries are never precisely the same, the competitive pressures
operate in identical manner every where.
Porter’s five forces model is useful in understanding the competition. It is a powerful tool for
systematically diagnosing the main competitive pressures in a market and assessing how strong and
important each one is. Not only is it the widely used technique of competition analysis, but it is also
relatively easy to understand and apply.
c. Triggers of change
An industry’s economic features and competitive structure say a lot about its fundamental character
but little about the ways in which its environment may be changing. All industries are characterized by
trends and new developments that gradually produce major changes which require a strategic response
from participating firms. The product about industries life cycle helps in explain industry change but is
still incomplete. The lifecycle stages are strongly linked to changes in the overall industry growth rate
(which is why such terms as rapid growth, early maturity, saturation and decline are used to describe
the stages). Yet there are more causes of industry change than an industry’s position in the life cycle.
They are known as driving forces.
Driving forces: While it is important to judge what growth stage an industry is in, there is more analytical
value in identifying the specific factors causing fundamental industry and competitive adjustments.
Industry and competitive conditions change because there are dynamic forces that create incentives
or pressures for changes. The most dominant forces are called driving forces because they have the
biggest influence on what kinds of changes will take place in the industry’s structure and competitive
environment. Analyzing driving forces has two steps: identifying what the driving forces are and
assessing the impact they will have on industry.
The most common driving forces are as under: Many vents can affect an industry powerfully enough to

qualify as driving forces. Some of the categories/examples of drivers are follows:
Â The internet and the new ecommerce opportunities and threats it breeds in the industry.
Â Increasing globalization.
Â Changes in the longterm industry growth rate.
Â Product innovation.
Â Marketing innovation.
Â Entry or exit of major forms.
Â Diffusion of technical knowhow across more companies and more countries.
Â Changes in cost and efficiency.
The strategist has to study these driving forces.
d. Identifying the companies that are in the strongest/weakest positions
The next step in examining the industry’s competitive structure is to study the market positions o rival
companies. One technique for estimating the competitive positions of industry participants is strategic
group mapping which is useful analytical tool for comparing individual market positions of each firm
separately or in groups when an industry has no many competitors that it is not practical to examine
each one in depth.
A strategic group consists of those rival firms with similar competitive approaches and positions in the
market.
Â They have comparable productline breadth,
Â Sell in the same price/quality range,
Â Emphasize the same distribution channels,
Â Use essentially the same product attributes to appeal to similar types of buyers,
Â Depend on identical technological approaches,
Â Or offer buyers similar services and technical assistance.
An industry contains only one strategic group when all sellers pursue essentially identical strategies
and have comparable market positions. At the other extreme, there are as many strategic groups as
there are competitors when each rival pursues a distinctively different competitive approach and
occupies a substantially different competitive position in the market place.
The procedure for constructing a strategic group map and deciding which firms belong in which strategic
group is straight forward:
Â Identify the competitive characteristics that differentiate firms in the industry typical are price/
quality range (high, medium, low); geographic coverage (local, regional, national, global); degree
of vertical integration (none, partial, full); productline breadth (wide, narrow); use of distribution
channels (one, some, all); and degree of service offered (nofrills, limited, full).
Â Plot the firms on a twovariable map using pairs of these differentiating characteristic.
Â Assign firms that fall in about the same strategy space to the same strategic group.
Â Draw circles around each strategic group making the circles proportional to the size of the group’s
respective share of total industry sales revenues.
e. Likely strategic moves of rivals
Unless a company pays attention to what competitors are doing, it ends up flying blind into competitive
battle. A company can’t expect to overtake its rivals without monitoring their actions, understanding

their strategies and anticipating what moves they are likely to make next. As in sports here also
assessment of opposition is essential. Competitive intelligence about the strategies rivals are deploying,
their latest moves, their resource strengths and weaknesses, and the plans they have announced is
essential for to anticipating the actions they are likely to take next and what bearing their moves might
have on a company’s own best strategic moves. Competitive intelligence can help a company determine
whether it needs to defend against specific moves taken by rivals or whether those moves provide an
opening for a new offensive thrust.
f. Key factors for competitive success
An industry’s key success factors (KSFs) are those things that most affect industry members’ ability to
prosper in the marketplace – the particular strategy elements, product attributes, resources,
competencies, competitive capabilities and business outcome that spell the difference between profit
and loss and ultimately between competitive success or failure. KSFs by their very nature are so
important that all firms in the industry must pay close attention to them. They are the precondition for
industry success or, to put it another way, KSFs are the rules what will decide whether a company will
be financially and competitively successful. The answers to three questions help identify an industry’s
key success factors.
Â On what basis do customers choose between the competing brands of sellers? What product
features are crucial?
Â What resources and competitive capabilities does a seller need to become competitively
successful?
Â What does it take for sellers to achieve a sustainable competitive advantage?
e.g.
In garments and dresses, the KSFs are appealing designs and colour combinations (to create buyer
interest) and lowcost manufacturing efficiency (to permit attractive retail pricing and ample profit
margins).
g. Prospects and financial attractiveness of industry
The final step of industry and competitive analysis is to use the results of analysis of previous six issues
to draw conclusions about the relative attractiveness or unattractiveness of the industry, both near
term and longterm. Company strategists have to assess the industry outlook carefully, deciding whether
industry and competitive conditions present an attractive business opportunity for the company or
not. The important factors on which to base such conclusions include:
Â The industry’s growth potential.
Â Whether competition currently permits adequate profitability and whether competitive forces
will become stronger or weaker.
Â Whether industry profitability will be favourably or unfavourably affected by the prevailing driving
forces.
Â The company’s competitive position in the industry and whether its position is likely to grow
stronger or weaker (being a wellentrenched leader or strongly positioned contender in an
otherwise lackluster industry can still produce good profitability; however, having to fight an
uphill battle against much stronger rivals can make an otherwise attractive industry unattractive).
Â The company’s potential to capitalize on the vulnerabilities of weaker rivals (perhaps converting
an unattractive industry situation into a potentially rewarding company opportunity).
Â Whether the company is able to defend against or counteract the factors that make the industry
unattractive.

Â The degrees of risk and uncertainty in the industry’s future.
Â The severity of problems confronting the industry as a whole.
Â Whether continued participation in this industry adds importantly to the firm’s ability to be
successful in other industries in which it may have business interests.
As a general proposition, if an industry’s overall profit prospects are above average, the industry can be
considered attractive; if its profit prospects are below average, it is unattractive. However, it is a
mistake to think of industries as being attractive or unattractive to all industry participants and all
potential entrants. Attractiveness is relative, not absolute; industry environments unattractive to weak
competitors may be attractive to strong competitors.
Q4 What is meant by PORTFOLIO ANALYSES? What are its methods?
Ans. Meaning of portfolio : In order to analyse the current business portfolio, the company must conduct
portfolio analysis (a tool by which management which management identifies and evaluates the various
businesses that make up the company). In portfolio analysis top management views its product lines
and business units as a series of investments from which it expects returns. A business portfolio is a
collection of businesses and products that make up the company. The best business portfolio is the
one that best fits the company’s strengths and weaknesses to opportunities in the environment. Thus,
a portfolio is the list of the businesses, the branches, the divisions, the product lines or products of the
firm as the case may be.
Â Meaning of portfolio analysis : Portfolio analysis can be defined as a set of techniques that help
the managers in taking strategic decisions with regard to individual products or businesses in a
firm’s portfolio. The management has to evaluate the various components of the portfolio and
has to identify the most profitable or optimal portfolio.
Â Where is it suitable? The portfolio analysis is primarily used for competitive analysis and corporate
strategic planning in multi product and multi business firms and can also be used in lessdiversified
firms, if they have one main business and other minor complementary interests.
Â What is its objective ? There are two main advantage of this analysis.
The main advantage for a multiproduct, multibusiness firm is that resources could be channelized
at the corporate level to those businesses that poses the greatest potential.
The resources, abilities and time at the disposal of the management are very limited and therefore
it has to concentrate on that portfolio which it can effectively handle.
The second advantage for the firm is that it can its current business portfolio and decide which
business should receive more, less or no investment. Depending upon analysis businesses may
develop growth strategies for adding new products or businesses to the portfolio. This is another
advantage of the portfolio analysis.
Â Three important concepts in portfolio analysis.
There are three concepts, the knowledge of which is a condition to understand different models
of portfolio analysis:
Strategic business unit Experience curve Product life cycle
1. Strategic business unit: analyzing portfolio starts with identifying key businesses also termed as
strategic business unit (SBU). SBU is a unit of the company that has a separate mission and objectives
and which can be planned independently from other company businesses. The SBU can be a company
division, a product line within a division, or even a single product or brand. SBUs are common in
organizations that are located in multiple countries with independent manufacturing and marketing
setups. An SBU has following characteristics:

¾ It is a single business or collection of related businesses that can be planned for separately.
¾ It has its own set of competitors.
¾ It has its own manager who is responsible for strategic management planning and profit.
In short, it has a separate identifiable existence in the business of the company or corporation.
After identifying SBUs the businesses have to assess their respective attractiveness and decide how
much support each deserves.
There are a number of techniques that could be considered as corporate portfolio analysis techniques.
The most popular is the Boston Consulting group (BCG) matrix or product portfolio matrix. But there
are several other techniques that should be understood in order to have a comprehensive view of how
objective factors can help strategist in exercising strategic choice.
2. Experience curve: Experience curve is an important concept used for applying a portfolio approach.
The concept is very similar to a learning curve which explains the increase in efficiency gained by
workers through repetitive productive work. Experience curve is based on the commonly observed
phenomenon that unit costs decline as a firm accumulates experience in terms of a cumulative volume
of production. This means that large firms in an industry would tend to have lower unit costs as compared
to those for smaller companies, which gives them a competitive cost advantage. Experience curve
results from a variety of factors such as learning effects, economies of scale, product redesign and
technological improvements in production.
Three main uses of the concept:
¾ The concept of experience curve is useful for a number of areas in strategic management. For
instance, experience curve is considered a barrier for new firms willing to have an entry in an
industry.
¾ It is also used to build market share and discourage competition. In the contemporary Indian
automobile industry, the experience curve phenomenon seems to be working in Maruti Suzuki.
¾ The likely strategic choice for competitors can be a market niche approach or segmentation based
on demography or geography.
3. Product life cycle: The third important concept in strategic choice is that of product life cycle (PLC). This
concept was given by THEODORE LEVITT who is regarded as the father of the concept. It is useful
concept for guiding strategic choice. Essentially, PLC in an Sshaped curve which shows the relationship
of sales with respect of time for a product that passes through the four successive stages such as
introduction (slow sales growth), growth (rapid market acceptance) maturity (slow down in growth
rate) and decline (sharp downward drift).
The first stage of PLC is the introduction stage in which competition is almost negligible, prices are
relatively high and markets are limited. The growth in sales is at a lower rate because of lack of knowledge
on the part of customers.
The second stage of plc is growth stage. In this stage, the demand expands rapidly, prices fall,
competition increases and market expands. The customer has knowledge about the product and shows
interest in purchasing it.
The third stage of PLC is maturity stage. In this stage, the competition gets tough and market gets
stablised. Profit comes down because of stiff competition. At this stage, organizations have to work for
maintaining stability.

In the declining stage of PLC, the sales and profits fall down sharply due to some new product replaced
the existing product. So a combination of strategies can be implemented to stay in the market either
by diversification or retrenchment.
Q5 Explain in detail the Boston consulting group (BCG) growthshare matrix.
Ans. B.C.G. matrix model: this is the simplest way to portray a corporation’s portfolio of investments. Growth
share matrix also known for its cow and dog metaphors is popularly used for resource allocation in a
diversified company. Using the BCG approach, a company classifies its different businesses on a two
dimensional growthshare matrix. In the matrix:
Â The vertical axis represents market growth rate and provides a measure of market attractiveness.
Â The horizontal axis represents relative market share and serves as a measure of company strength
in the market.
Using the matrix, organizations can identify four different types of products or SBU as follows:
Â Stars are products or SBUs that are growing rapidly. They also need heavy investment to maintain
their position and finance their rapid growth potential. They represent best opportunities for
expansion.
Â Cash cows are lowgrowth, high market share businesses or products. They generate cash and
have low costs. They are established, successful and need less investment to maintain their
market share. In long run when the growth rate slows down, stars become cash cows.

Â Question marks, sometimes called problem children or wildcats, are low market share business
in highgrowth markets. They are unpredictable or imponderables. They require a lot of cash to
hold their share. They need heavy investments and have low potential to generate cash. If left
unattended they are capable of becoming cash traps. However, since market growth rate is high,
increasing its market share is relatively easier and therefore if properly attended the business
organizations can turn them into stars.
Â Dogs are lowgrowth, lowshare businesses and products. They may generate enough cash to
maintain themselves, but do not have much future. Sometimes they may need cash to survive.
Dogs should be minimized by means of divestment or liquidation.
Strategies to be adopted:
Once the organizations have classified its products or SBUs, it must determine what role each will
play in the future. The four strategies that can be pursued are:
1. Build: Here the objective is to increase market share, even at the cost of shortterm earnings
in favour of building a strong future with large market share.
2. Hold: Here the objective is to preserve market share.
3. Harvest: Here the objective is to increase shortterm cash flow regardless of longterm
effect.
4. Divest: Here the objective is to sell or liquidate the business because resources can be
better used elsewhere. The growthshare matrix has done much to help strategic planning
study; however, there are problems and limitations with the method.
Limitation of BCG model:
1. It is a difficult, costly and time consuming model.
2. It is also difficult to define SBUs.
3. It requires reliable information about market share.
4. It provides for classification of current businesses but it is not useful for future plan.
5. Desires on the part of organization to increase its market share or entry into new markets may
take it to give up established and profitable business in favour of new, untried and risky ventures.
Q6 Explain Ansoff’s product market growth matrix and its strategic uses.
Ans. The Ansoff’s product market growth matrix (proposed by Igor Ansoff) is a useful tool that helps
businesses decide their product and market growth strategy. With the use of this matrix a business can
get fair idea about how its growth depends upon it markets in new or existing products in both new and
existing markets.
Companies should always be looking to the future. One useful device for identifying growth
opportunities for the future is the product/market expansion grid. The product/market growth matrix
is a portfolioplanning tool for identifying growth opportunities for the company.
Figure : Anoff’s Product Market Growth Matrix

Igor Ansoff’s product market growth matrix helps businesses decide their product and market growth strategy
on the basis of the following:
Strategy Meaning Other points
Market To sell existing products Market penetration can be achieved by
penetration into existing markets. a. Penetration, i.e. making increased sales to present
customers, without changing products in a major
way. Might require greater spending on advertising
or personal selling.
b. To overcome competition in a mature market, the
company should have – (a) an aggressive
promotional campaign and (b) a pricing strategy
designed to make the market unattractive for
competitors.
Market To sell existing products This strategy may be achieved through
development into new markets a. New geographical markets,
b. New product dimensions or packaging,
c. New distribution channels,
d. Different pricing policies to attract different
customers,
e. Creating new market segments.
Product
development To introduce new product This strategy may require the development of new
into existing market competencies and requires the business to develop
and modified products which can appeal to existing
markets.
Diversification To sell new products It involves starting up or acquiring businesses
in new markets. outside the company’s current products and markets.
a. This strategy is risky because it does not rely on
either the company’s successful product or its
position in already established markets.
Note: When market conditions change over a period of time, the company should modify its strategies. For
example, if the present market is fully saturated, the company should find a new market or create a new
product.
Q7 Explain ADL matrix and its strategic uses.
Ans ADL matrix
The ADL matrix has derived its name from Arthur D. Little. It is a portfolio analysis method that is based
on product life cycle as applied to an industry. The approach forms a two dimensional matrix based on
stage of industry maturity and the firm’s competitive position, environmental assessment and business
strength assessment. Stage of industry maturity is an environment measure that represents a position
in industry’s life cycle. Competitive position is a measure of business strengths that helps in
categorization of product or SBUs into one of five competitive positions: dominant, strong, favourable,
tenable and weak. It is four by five matrix as follows:

STAGE OF INDUSTRY MATURITY
Competitive Embryonic Growth Mature Ageing
position
Dominant Fast grow build Fast grow Attend cost Defend position Attend Defend position
barriersAct leadership Renew Defend cost leadership Renew Renew Focus
offensively position Act offensively Fast grow Act offensively Consider
withdrawal
Strong Differentiate Differentiate Lower cost Focus Find niche Hold
Fast grow Lower cost Attack Differentiate Grow niche Harvest
small firms with industry
Favourable Differentiate Focus Differentiate Focus Harvest
Focus Fast grow Defend Differentiate Harvest Turn around
Find nicheHold niche
Turna round Grow with
industry Hit smaller firms
Tenable Grow with Hold niche Turn Turn around
industry Focus around Focus Hold niche
Grow with Retrench
industry
Withdraw
Divest Retrench
Weak Find niche Turn around Withdraw Divest Withdraw
Catchup Retrench
Grow with Niche or
industry withdraw
The competitive position of a firm is based on an assessment of the following criteria:
Dominant: This is a comparatively rare position and in many cases is attributable either to a monopoly or a
strong and protected technological leadership.
Strong: By virtue of this position, the firm has a considerable degree of freedom over its choice of strategies
and is often able to act without its market position being unduly threatened by its competitions.
Favourable: This position, which generally comes about when the industry is fragmented and no one
competitor stand out clearly, results in the market leaders a reasonable degree
Of freedom.
Tenable: Although the firms within this category are able to perform satisfactorily and can justify in the
industry, they are generally vulnerable in the face of increased competition from stronger and more proactive
companies in the market.
Weak: The performance of firms in this category is generally unsatisfactory although the opportunities for
improvement do exist.

Q8 Explain the General Electric Model and its strategic uses.
Ans. The General Electric Model (developed by GE with the assistance of the consulting firm McKinsey &
company) is similar to BCG growthshare matrix. However, there are differences. Firstly, market
attractiveness takes the place of market growth as the dimension of industry attractiveness and includes
a factor other than just the market growth rate. Secondly, competitive strength takes the place of
market share as the dimension by which the competitive position of each SBU is assessed. This also
uses two factors in a matrix / grid situation as shown below:
This model uses two factors while taking strategic decision: business strength and market attractiveness.
The vertical axis indicates market attractiveness and horizontal axis shows the business strength in the
industry.
The market attractiveness is measured by a number of factors like:
Â Size of the market.
Â Market growth rate.
Â Industry profitability.
Â Competitive intensity.
Â Availability of technology.
Â Pricing trends.
Â Overall risk of returns in the industry.
Â Opportunity for differentiation of products and services.
Â Demand variability.
Â Segmentation.
Â Distribution structure (e.g. direct marketing, retail, wholesale) etc.
Business strength is measured by considering the typical drivers like:
Â Market share.
Â Market share growth rate.
Â Profit margin.

Â Distribution efficiency.
Â Brand image.
Â Ability to compete on price and quality.
Â Customer loyalty.
Â Production capacity.
Â Technology capability.
Â Relative cost position.
Â Management caliber, etc.
Market attractiveness Business position
Most attractive business High High
Medium High
Medium High
Less attractive business High Low
Medium Medium
Low High
Least attractive business Medium Low
Low Medium
Low Low
If a product falls in the green section, the business is at advantageous position. To reap the benefits,
the strategic decision can be expand, to invest and grow. If a product is in the amber or yellow zone, it
needs caution and managerial discretion is called for making strategic choices. If a product is in the red
zone, it will eventually lead to losses that would make things difficult for organizations. In such cases,
the appropriate strategy should be retrenchment, divestment or liquidation.
This model is similar to the BCG growthshare matrix. However, there are differences. Firstly, market
attractiveness replaces market growth as the dimension of industry attractiveness and includes a
broader range of factors other than just the market growth rate. Secondly, competitive strength replaces
market share as the dimension by which the competitive position of each SBU is assessed.
Q9 Describe the meaning of SWOT and explain in detail the meaning of SWOT analysis.
Ans. SWOT ANALYSIS :
This is one of the most important requirements for formulating a meaningful strategy. A firm has to
achieve many balances in the formulation of strategy. The most important being balance between
company’s own strengths and weaknesses and the opportunities and threats existing in the external
environment. The comparison of strengths, weaknesses, opportunities and threats is normally referred
to as a SWOT analysis.
Â Strength: strength is an inherent capability of the organization which it can be use to gain strategic
advantage over its competitors.
Â Weakness: a weakness is an inherent limitation or constraint of the organization which creates
strategic disadvantage to it.
Â Opportunity: an opportunity is a favourable condition in the organization’s environment which
enables it to strengthen its position.

Â Threat: a threat is an unfavorable condition in the organization’s environment which causes a risk
for or damage to the organization’s position.
The central purpose of the SWOT analysis is to identify the strategies that will create a firm
specific business model that will best align, fit or match a company’s resources and capabilities to
the demands of the environment in which it operates. A business organization has to develop not
one strategy but an entire set of strategies to create and maintain a competitive position in the
market.
These strategies are as under:
Â Corporatelevel strategy, which answers the primary questions, such as what business or
businesses should the firm have to maximize the longrun profitability of the organization and
how should it enter into and increase its presence in these businesses to gain a competitive
advantage.
Â Businesslevel strategy, which covers the business’s overall competitive theme, the way it
positions itself in the marketplace to gain a competitive advantage and different strategies. For
example, cost leadership, differentiation, focusing on a particular niche or segment of the industry
or some combination of these it adopts to achieve its objectives.
Â Functionallevel strategy, directed at improving the effectiveness of operations within a company,

such as manufacturing, marketing, material management, product development and customer
service.
Â Global strategy, which tells how to expand operations outside the home country to grow and
prosper in a world where competitive advantage is determined at a global level.
The organization’s performance in the marketplace is significantly influenced by the three factors as
follows:
Â The organization’s correct market position.
Â The nature of environmental opportunities and threat.
Â The organization’s resource capability to capitalize the opportunities and to protect against the
threats.
The significance or importance of SWOT analysis.
Â It provides a logical framework: SWOT analysis provides the organization with a logical framework
for systematic and sound identification of issues affecting the business situation for generating
alternatives strategies and the choice of strategy. It clearly brings out what the firm possesses and
on what fronts it has to fight. However, different managers have different perceptions about
opportunities and threats and so their strategies significantly differ.
Â It presents a comparative account: SWOT analysis presents the information about both external
and internal environment in a structured form where it is possible to compare external
opportunities and threats with internal strengths and weaknesses. The helps in matching external

and internal environments so that a strategist can come out with suitable strategy. The patterns
here are as under:
Â High opportunities and high strengths
Â High opportunities and low strengths
Â High threats and high strengths
Â High threats and high strengths.
In all the above cases a different strategy is needed, as situation varies.
Â It guides the strategist in strategy identification: It is natural that a strategist faces a problem
when his organization cannot be matched in the above four patterns. It is possible that the
organization may have several opportunities and some serious threats. It is equally, true that the
organization may have powerful strengths coupled with major weaknesses. In such a situation,
SWOT analysis guides the strategist to think of overall position of the organization that helps to
identify the major purpose of the strategy under focus.
Â SWOT analysis helps managers to craft a business model: This analysis helps the company to
develop an appropriate model which would help it to gain a competitive advantage in its industry
which increases its profitability and maximizes a company’s chances of surviving in the fast
changing, global competitive environment.
In the following paragraphs a list of various components of SWOT has been given.
a. Potential resource strengths and competitive capabilities
Â A powerful strategy supported by competitively valuable skills and experience in key areas.
Â A strong financial condition; ample financial resources to grow the business.
Â Strong brand name, image/company reputation.
Â A widely recognized market leader and an attractive customer base.
Â Ability to take advantage of economies of scale and/or learning and experience curve effects.
Â Proprietary technology/superior technological skills/important patents.
Â Superior intellectual capital relative to key rivals.
Â Cost advantages.
Â Strong advertising and promotion.
Â Product innovation skills.

Â Proven skills in improving product processes.
Â Sophisticated use of ecommerce technologies and processes.
Â Superior skills in supply chain management.
Â A reputation for good customer service.
Â Better product quality relative to rivals.
Â Wide geographic coverage and/or strong global distribution capability.
Â Alliances/joint ventures with other firms that provide access to valuable technology, competencies
and/or attractive geographic markets.
b. Potential resource weaknesses and competitive deficiencies
Â No clear strategic direction.
Â Obsolete facilities.
Â A weak balance sheet, burdened with too much debt.
Â Higher overall unit costs relative to key competitors.
Â Missing some key skills or competencies/lack of management depth/deficiency of intellectual
capital relative to leading rivals.
Â Low profitability; no cost control measures or cost accounting practices.
Â Plagued with internal operating problems.
Â Failing behind rivals in putting ecommerce capabilities and strategies in place.
Â Too narrow a product line relative to rivals.
Â Weak brand image or reputation.
Â Weaker dealer network than key rivals and/or lack of adequate global distribution capability.
Â Poor ecommerce systems and capabilities relative to rivals.
Â Lack of short on financial resources to fund promising strategic initiatives.
Â Lots of short on financial resources to fund promising strategic initiatives.
Â Behind on product quality and/or R&D and/or technological knowhow.
Â Not attaching new customers as rapidly as rivals.
c. Potential company opportunities
Â Serving additional customer groups or expanding into new geographic markets or product
segments.
Â Expanding the company’s product line to meet a broader range of customer needs.
Â Utilizing existing company skills or technological knowhow to enter new product lines or new
businesses.
Â Using the internet and ecommerce technologies to dramatically cut costs and/or to pursue new
sales growth opportunities.
Â Integrating forward or backward.
Â Falling trade barriers in attractive foreign markets.
Â Opening to take market share away from rivals.
Â Ability to grow rapidly because of sharply rising demand in one or more market segments.
Â Acquisition of rival firms or companies with attractive technological expertise.

Â Alliances or joint ventures that expand the firm’s market coverage or boost its competitive
capabilities.
Â Opening to exploit emerging new technologies.
Â Market openings to extend the company’s brand name or reputation to new geographic areas.
d. Potential external threats to company’s wellbeing
Â Likely entry of potent new competitors.
Â Loss of sales to substitute products.
Â Mounting competition from new interest startup companies pursing ecommerce strategies.
Â Increasing intensity of competition among industry rivals – may cause squeeze on profit margins.
Â Technological changes or product innovations that undermine demand for the firm’s product.
Â Slowdowns in market growth.
Â Adverse shifts in foreign exchange rates and trade policies of foreign governments.
Â Costly new regulatory requirements.
Â Growing bargaining power of customers or suppliers.
Â A shift in buyer needs and tastes away from the industry’s product.
Â Adverse demographic changes that threaten to curtail demand for the firm’s product.
Â Vulnerability to industry driving forces.
Q10 What is meant by globalization? Why do companies go global?
Ans. Globalization can be explained in different perspectives.
For developing countries, it means integration with the world economy. In simple economic terms,
globalization refers to process of integration of the world into one huge market. Such unification calls
for removal of all trade barriers among countries. Even political and geographical barriers become
irrelevant.
At the company level, globalization means two things: (A) the company commits itself heavily with
several manufacturing locations around the world and offers products in several diversified industries
and (B) the company’s ability to compete in domestic markets with foreign competitors.
A company which has gone global is called multinational (MNC) or a transanational (TNC). An MNC is,
therefore, one that by operating is more than one country gains R&D, production, marketing, and
financial advantages in its costs and reputation that are not available to purely domestic competitors.
The global company views the world as one market, minimizes the importance of national boundaries,
sources, raises capital and markets wherever it can do the job best.
FEATURES OF A GLOBAL COMPANY
To be specific, a global company has three characteristics:
i. Many units: It is a conglomerate of multiple units (located in different parts of the globe) but all linked
by common ownership.
ii. Common resources: Multiple units draw on a common pool of resources, such as money, credit,
information, patents, trade names and control systems.
iii. Common strategy: the units respond to some common strategy. Besides, its manager and shareholders
are also based in different nations.
Super national enterprise: A further development is the growth of nonpolitical international bodies

such as IMF or World Bank. They operate a business as a private business without direct obligations.
Such a body provides international business service, and it remains viable only by performing that
service adequately for nations which permit its entry. With its integrative view, it is able to draw the
economic world closer together. It could serve all nations without being especially attached to anyone
of them.
Q11 Why do companies go global or the factors responsible for the emergence and development of
multinational companies?
There are several reasons why companies go global. These are discussed a follows:
Â Need for opportunity: the first and foremost reason is need to grow. It is basic need of organizations.
Often finding opportunities in the other parts of the globe organization extend their businesses
and globalize.
Â Transportation & communication: there is rapid shrinking of time and distance across the globe
thanks to faster communication, speedier transportation, growing financial flows and rapid
technological changes.
Â Inadequacy in domestic market: it is being realized that the domestic markets are no longer
adequate and rich. Japanese have flooded the U.S. market with automobiles and electronics
because the home market was not large enough to absorb whatever was produced.
Multinational Vs Transnational
Â Multinational companies own a Â Transnational companies do not have

home company and its subsidiaries. subsidiaries but just many companies.
Â Multinational companies have a Â Transnational companies do not have a
centralized management system. centralized management system.
Â Multinational companies will face a Â Transnational companies are able
barrier in decision making due to its to gain more interest in the local market
centralized management system. since they maintain their own system.
Â Cheaper resources: there can be varied other reasons such as need for reliable or cheaper source
of rawmaterials, cheap labour, etc.
For example, Hyundai got competent engineers at lower cost, industry friendly Maharashtra govt.
which allowed them to setup a unit in India which supplies spare parts for all Hyundai cars across
the world.
Â Reduction in transportation cost: companies often set up overseas plants to reduce high
transportation costs.
For example, making a car in Korea & exporting it in Europe & America is expensive & time
consuming therefore India as a manufacturing hub for Hyundai proved to be better place.

Â Increase in international demand: when exporting organizations find foreign markets to open up
or grow big, they may naturally look at overseas manufacturing plants and sales branches to
generate higher sales and better cash flow.
For example, Hyundai cars made by Korea, sold in India were highly demanded and Hyundai
decided to setup a plant here.
Â Growth of service sector: the rise of services to constitute the largest single sector in the world
economy and regional economic integration, which has involved both the world’s largest
economies as well as certain developing economies.
Â Less interference of government: the apparent and real collapse if International trade barriers
redefine the roles of state and industry. The trends is towards increased privatization of
manufacturing and services sectors, less government interference in business decisions and more
dependence on the valueadded sector to gain market place competitiveness. The trade tariffs
and custom barriers are getting lowered, resulting in increased flow of business.
Â Strategic alliances: globalization has made companies in different countries to form strategic
alliances to ward off economic and technological threats and leverage their respective comparative
and competitive advantage.
SHORT QUESTIONS
Q1 Write short note on core competence.
Ans. Core competencies are capabilities that serve as a source of competitive advantage for a firm over its
rivals.
C.K. Prahalad and Gary Hamel have advocated a concept of core competency, which is a widelyused
concept in management theories. They defined core competency as the collective learning in the
organization, especially coordinating diverse production skills and integrating multiple streams of
technologies. An organization’s combination of technological and managerial knowhow, wisdom and
experience are a complex set of capabilities and resources that can lead to a competitive advantage
compared to a competitor.
Competency is defined as a combination of skills and technique rather than individual or separate
technique. For competencies, it is characteristic to have a combination of skills and techniques, which
make the whole organization, utilize these several separate individual capabilities. Therefore, core
competencies cannot be built on one capability or single technological knowhow; instead, it has to be
the integration of many resources. The optimal way to define core competence is to consider it as sum
of 515 areas of developed expertise.
Major core competencies are identified in three areas:

Â Competitor differentiation is one of the main three conditions. The company can consider having a
core competence if the competence is unique and it is difficult for competitors to imitate. This can
provide a company an edge compared to competitors. It allows the company to provide better products
or services to market with no fear that competitors can copy it. The company has to keep on improving
these skills in order to sustain its competitive position.
Â The second condition to be met is customer value. When purchasing a product or service it has to
deliver a fundamental benefit for the end customer in order to be a core competence. It will include all
the skills needed to provide fundamental benefits. The service or the product has to have real impact
on the customer as the reason to choose to purchase them,
Â The last condition refers to application of competencies to other markets. Core competence must be
applicable to the whole organization; it cannot be only one particular skill or specified area of expertise.
Therefore, although some special capability would be essential or crucial for the success of business
activity, it will not be considered as core competence, if it is not fundamental from the whole
organization’s point of view.
Example:
Â Small retail shops have core competencies and gain competitive advantage in the areas of
I. Personal service to customers,
II. Extended working hours,
III. Easy credit,
IV. Free home deliveries,
V. Amicable style of the owner and
VI. Proximity.
Â Big retail stores (for e.g. Big Bazaar) and supermarkets have special core competence in the areas of
I. Merchandising,
II. Securing supplies at lower cost,
III. Inhouse activity management,
IV. Computerized stock ordering, billing systems and
V. Own brand labels.
Â Supermarkets compete with one another with core competencies as to
I. Locational advantage,
II. Quality assurance,
III. Customer convenience in shopping, etc.
Q2 How to build core competencies (CC)?
Ans. Four specific criteria of sustainable competitive advantage that firms can us to determine those
capabilities that are core competencies.
Â Valuable: Valuable capabilities are the ones that allow the firm to exploit opportunities or avert
the threats in its external environment. A firm created value for customers by effectively using
capabilities to exploit opportunities. Finance companies build a valuable competence in financial
services. In addition, to make such competencies as financial services highly successful require
placing the right people in the right jobs. Human capital is important in creating value for customers.
Â Rare: Core competencies are very rare capabilities and vary few of the competitors possess this.

Capabilities possessed by many rivals are unlikely be sources of competitive advantage for any
one of them. Competitive advantage results only when firms develop and exploit valuable
capabilities that differ from those shared with competitors.
Â Costly to imitate: costly to imitate means such capabilities that competing firms are unable to
develop easily. For example, Intel has enjoyed a fastmover advantage more than ones because
of its rare fast R&D cycle time capability that brought SRAM and DRAM integrated circuit technology
and brought microprocessors to market well ahead of the competitors. The product could be
imitated in due course of time but it was much more difficult to imitate the R&D cycle time
capability.
Â Nonsubstitutable: Capabilities that do not have strategic equivalents are called nonsubstitutable
capabilities. This final criterion for a capability to be a source of competitive advantage is that
there must be no strategically equivalent valuable resources that are themselves either not rare
or imitable. For example, for years, firms tried to imitate Tata’s lowcost strategy but most have
been unable to duplicate Tata’s success. They did not realize that Tata has a unique culture and
attracts some of the top talent in the industry. The culture and excellent human capital worked
together in implementing Tata’s strategy and are the basis for its competitive advantage.
Q3 How are the activities of an organization classified for Value Chain Analysis?
Ans. The value chain analysis is a widely used means of observing the activities within an outside the
organization and discovering their impact on the competitive strength of the organization in providing
valueformoney products or services to the buyers.
Value analysis was originally introduced as a part of an accounting analysis to discover various steps in
a complex manufacturing process with the object of finding out where cost improvements can be
made and value creation improved.
The following diagram explains the nature of these activities.
At the end of the value chain there is the price which the buyers pay. The VCA aims at minimizing this price.
Primary activities: they can be grouped into five main areas.

Â Inbound logistics: These are the activities concerned with transforming the various materials. They
include activities like materials handling, stock control and inbound transportation.
Â Operations: These include all the activities which are concerned with transforming the various inputs
into final product and service.
Â Outbound logistics: These are the activities concerned with collecting, storing and distributing the
product to the customers. In case of services (for example, a theatre) it is an activity of bringing customers
to the location of the service.
Â Sales and marketing: These are the activities concerned with advertising and selling and also include
administrative activities required for them.
Â Service: These are the activities which maintain or increase the value of the product. For example,
installation, providing spare parts etc.
Secondary activities: These are support activities with which the primary activities are linked. They
include:
Â Procurement: This means purchasing various raw materials and consumable items including assets.
Â Technology development: This means development of technology concerned directly with resources,
processes and product.
Â Human resource management: This is found all the primary activities. It is concerned with recruiting,
training and maintaining the manpower by giving them proper rewards.
Â Infrastructure: This includes activities like planning, financing, information management, quality
control, organizational structure, routines and procedures etc. necessary for improving the performance
of primary activities.
The management has to study all these activities and try to find out the activities and areas where
improvements can be reduced and the product can be offered to the buyer at a competitive price. Thus
VCA helps the management to acquire a competitive advantage.
Q4 Write a short note on Managing linkages.
Ans. Introduction : Core competences in separate activities may provide competitive advantage for an
organization but nevertheless over time may be imitated by competitors.
The need for linkage management:
Â Core competences would become difficult to imitate if they relate to – (a) the management of
linkages within the firm’s value chain and (b) linkages existing into the supply and distribution
chains.
Â The management of these linkages creates‘leverage’ and raises the levels of performance, which
are difficult to be acquired by the competitors.
Internal linkages:
Â Between primary activities: Linkages between primary activities should be analysed. For example,
higher stock holding will minimize problems in production scheduling, avoid stock outs and
provides customer satisfaction due to quick response time. Here, the firm should compare the
value added to the customer and the additional cost of carrying stock.
Â Linkages between primary and support activities: linkages between primary and secondary
activities like infrastructure, technology, and human resources etc. which provide core
competences should be analysed. For example, an efficient computerized system for managing
purchases or collecting orders can significantly reduce purchase and marketing costs.
Â Linkages between support activities: core competences may arise due to linkages between support

activities. For example, if the innovative ideas developed by R & D departments are efficiently
used by the employees in production department for better product engineering and designing
then the overall efficiency of the organization would increase.
External linkages:
Â Vertical integration: for example, if the firm can develop production facilities for producing its
own packages then there would be significant reduction in marketing cost.
Â Synergy with suppliers: Here, the firm can inform the suppliers about specific raw material attributes
and qualities expected by the organization and thus can provide quality assistance to suppliers. A
constant evaluation of performance of suppliers can also be done (for example, through penalties
for defective items supplied) which will provide core competence in raising quality of the product.
Â Involving distribution at the design stage: The firm can invite the support of the distributors in
proper designing of a product and can provide them with advertisement materials or can pass on
the distributions the responsibilities of collecting dues from the buyers etc. these would improve
core competences in the Distribution Value Chain. The firm can produce goods according to need
of the market and can communicate their virtues to the buyers easily and speedily.
Q5 Explain the competitive advantage and its characteristics.
Ans. Strategic management involves development of competencies that managers can use to achieve better
performance and a competitive advantage for their organization. Competitive advantage allows a firm
to gain an edge over rivals when competing.
It is a set of unique features of a company and its products that are perceived by the target market as
significant and superior to the competition.
In other words, an organization is said to have competitive advantage if its profitability is higher than
the average profitability for all companies in its industry.
‘If you don’t have a competitive advantage, don’t compete.’
jack Welch
Competitive advantage is the achieved advantage over rivals when a company’s profitability is greater
than the average profitability of firms in its industry. It is achieved when the film successfully formulates
and implements the value creation strategy and other firms are unable to duplicate it or find it too
costly to imitate. Further, it can be said that a firm is successfully in achieving competitive advantage
only after other firm’s efforts to duplicate or imitate it fails.
Role of Resources and Capabilities
Resources Capabilities
Tangible resources are assets that Capabilities exist when resources have been
can be seen and quantified.Example: purposely integrated to achieve a specific task
Production equipment, or set of tasks. These tasks range from human
manufacturing plants etc. resource selection to product marketing and
research and development activities.
Intangible resources include assets that Examples:
typically are rooted deeply in the firm’s Â Effective use of logistics management
history and have ded in unique patterns techniques.
of routines, intangible resources are Â Effective and efficient control of
relatively difficult for competitors to inventories.

analyse and imitate. Â Effective customer service.
Example: knowledge, trust between Â Innovations merchandising.
managers and employees , managerial Â Product and design quality.
capabilities, organizational routines, Â Digital technology.
specific capabilities, the capacity for
innovation and the firm’s reputation
for its goods or services and how it
interacts with people such as
employees,customers and suppliers.
The sustainability of competitive advantage and a firm’s ability to earn profits from its competitive advantage
depends upon four major characteristics of resources and also capabilities:
Â Durability: The period over which a competitive advantage is sustained depends in part on the rate at
which a firm’s resources and capabilities deteriorate. In industries where the rate of product innovation
is fast, product patents are quite likely to become obsolete.
Â Transferability: Even if the resources and capabilities on which a competitive advantage is based are
durable, it is likely to be eroded by competition from rivals. The ability of rivals to attack positions of
competitive advantage relies on their gaining access to the necessary resources and capabilities.
Â Imitability: If resources and capability cannot be purchased by a wouldbe imitator, then they must be
built from scratch. How easily and quickly can the competitors build the resources and capabilities
which a firm’s competitive advantage is based? This is the true test of imitability. For Example: In
financial services, innovations lack legal protection and are easily copied.
Â Appropriability: Appropriability refers to the ability of the firm’s owners to appropriate the returns on
its resources base. Even where resources and capabilities are capable of offering sustainable advantage,
there is an issue as to own who receives the returns onthese resources.
Q6 “Management of internal linkages in the value chain could create competitive advantage in a number
of ways”. Briefly explain.
Ans. Successful implementation of supply management system requires a change from managing individual
function to integrating activities into key supply chain processes. It involves collaborative work between
buyers and suppliers joint product development, common systems and shared information. A key
requirement for successfully implementing supply chain will be network of information sharing and
management of linkages.
Â Linkages are relationship between the way one value activity is performed and the cost or
performance of another (e.g., purchasing highquality, precut steel sheets can simplify
manufacturing and reduce scrap). Linkages can lead to competitive advantage in two ways
optimization and coordination.
Â Linkages among value activities arise from a number of generic causes, among the following: the
same function can be performed in different ways; the cost or performance of direct activities is
improved in different ways; the cost or performance of direct activities is improved by greater
efforts in indirect activities; activities performed inside a firm reduce the need to demonstrate,
explain or service a product in the field; quality assurance functions can be performed in different
ways.
Â The buyer’s value chain. Buyers also have value chains and a firm’s product represents a purchased
input to the buyer’s chain. Understanding the value chains of industrial, commercial and
institutional buyers is easy because of their similarities to that of a firm.
Â The value chain can be used to compare the firm’s current position with the strategy selected in
order to assess the strategic gap. The use of activity based cost measurement with value chain
analysis will enable individual components of the business to be evaluated without losing sight
of their holistic impact on competitiveness of the business.
Â Finally, the basic concept of the value chain has been used by strategists to explain the success of
various firms in pursuit of a differentiation or low cost strategy.
Q7 An industry comprises of only two firms Surya ltd. And Chandra ltd. From the following information
relating to Surya ltd., prepare BCG matrix: (practical question)
Product Revenues Percent Profits Percent Percentage Percentage
(In Rs.) revenues (In Rs.) profits market share industry growth rate
A 6 crore 48 120 lakh 48 80 +15
B 4 crore 32 50 lakh 20 40 +10
C 2 crore 16 75 lakh 30 60 20
D 50 lakh 4 5 lakh 2 5 10
Total 12.5 crore 100 250 lakh 100
Ans. Using the BCG approach, a company classifies its different businesses on a two dimensional growth
share matrix. In the matrix, the vertical axis represents market growth rate and provides a measure of
market attractiveness. The horizontal axis represents relative market share and serves as a measure of
company strength in the market. With the given data on market share and industry growth rate of Surya
ltd. Its four products are placed are placed in the BCG matrix as follows:
Product A is in best positions as it has a big relative market share and a high industry growth rate. On
the other hand, product B has a low relative market share, yet competes in a high growth industry.
Product C has a high relative market share, but competes in an industry with negative growth rate. The
company should take advantage of its present position that may be difficult to sustain in long run.
Product D is in the worst position as it has a low relative market share and competes in an industry with
negative growth rate.
Q8 In the context of Ansoff’s productmarket growth matrix, identify with reasons, the type of growth
strategies followed in the following cases:
i. A leading producer of tooth paste, advices its customers to brush teeth twice a day to keep breath
fresh.

ii. A business giant in hotel industry decides to enter into diary business.
iii. One of India’s premier utility vehicles manufacturing company ventures to foray into foreign
markets.
iv. A renowned auto manufacturing company launches ungeared scooters in the market.
Ans. The Ansoff’s product market growth matrix (proposed by Igor Ansoff) is the useful tool that helps
businesses decide their product and market growth strategy. This matrix further helps to analyse
different strategic directions. According to Ansoff there are four strategies that organization might
follow:
i. Market penetration: A leading producer of toothpaste, advises its customers to brush teeth twice
a day to keep breath fresh. If refers to a growth strategy where the business focuses on selling
existing products into existing products.
ii. Diversification: A business giant in hotel industry decides to enter into diary business. If refers to
a growth strategy where the business markets new products into new markets.
iii. Market development: One of India’s premier utility vehicles manufacturing company ventures to
foray into foreign markets. It refers to a growth strategy where business seeks to sell its existing
products into new markets.
iv. Product development: A renowned auto manufacturing company launches ungeared scooters in
the market. It refers to a growth strategy where business aims to introduce new product into
existing markets.
SHORT NOTES:
Q1 What is value creation? Describe it.
Ans. The concept of creation was introduced primarily for providing products and services to the customers
with more worth. Value is measured by a product’s features, quality, availability, durability, performance
and by its services for which customers are willing to pay. Further, the concept took more space in the
business and organizations started discussing about the value creation for stakeholders.
We can say that the value creation is an activity or performance by the firm to create value that increases
the worth of goods, services, business processes or even the whole business system. Many businesses
now focus on value creation both in the context of creating better value for customers purchasing its
products and services, as well as for stakeholders in the business who want to see their investment in
business appreciate in value.
This concept gives business advantage in the industry and helps them earn above average profit/
returns.

Competitive advantage leads to superior profitability. At the most basic level, how profitable a company
becomes depends on three factors:
Â The value customers place on the company’s products;
Â The price that a company changes for its product; and
Â The costs of creating those products.
The value customers place on a product reflects the utility. They get from a product the happiness or
satisfaction gained from consuming or owning the product. Utility must be distinguished from price.
Utility is something that customers get from a product.
It is a function of the attributes of the product, such as its performance, design, quality and pointof
sale and aftersale service.
Q2 Write a note on TOWS MATRIX.
Ans. Heinz Weihnch has developed a matrix called TOWS (threats, opportunities, weaknesses, strengths)
matrix by comparing strengths and weaknesses of organization with that of market opportunities and
threats. The incremental benefit of the TOWS matrix lies in systematically identifying relationship
between these factors and selecting strategies on their basis.
Internal elements
External elements Organizational strengths Organizational weaknesses
Strategic options
Environmental SO: strengths can be used to WO: the strategies developed need
opportunities capitalize or build upon to overcome organizational weaknesses
(and risks) existing or emerging if existing or emerging opportunities are
opportunities. to be exploited.
Environmental ST: strengths in the WT: the strategies pursued must
threats organization can be used to minimize or overcome weaknesses and as far
minimize existing or ] as possible, cope with threats existing or
emerging threats. emerging threats.
By using TOWS matrix, a strategist can look intelligently at how he can best take advantage of the opportunities
open to him, at the same time that he can minimize the impact of weaknesses and protect himself against
threats.
Used after detailed analysis of threats, opportunities, strengths, and weaknesses, it helps the strategist to
consider how to use the external environment to his strategic advantage, and so he can identify some of the
strategic options available to him.
The TOWS matrix illustrates how the external opportunities and threats facing a particular corporation can
be matched with company’s internal strengths and weaknesses to result in possible strategic alternatives to
be competitive. It is a good way to use brainstorming and to create alternative strategies that might not
otherwise be considered.
Q3 Role of global industries.
Ans. Global industries are those which operate at the transnational, crossculture and across the border
level. They integrate the world into one huge market. They are committed to the international market
to offer quality product in several diversified industries. The influence of global industries studied in
terms of operating in the international environment is as below:
i. Process of globalization.
ii. Global economic forces.
iii. Global trade and commerce.
iv. Global financial system, sources of financing and accounting standards.
v. Geopolitical situation, strategic interests of nations.
vi. Global demographic patterns.
vii. Global human resource.
viii. Global information systems, communication networks.
ix. Global technological and quality systems and standards.
x. Global markets and competitiveness.
xi. Global legal system, adjudication and arbitration mechanism.
xii. Globalization of management.
Q4 Write a short note on product life cycle.
Ans. Definition of PLC: product life cycle is the cycle through which every product goes through from
introduction to withdrawal or eventual demise. A product progresses through a sequence of stages
from introduction to growth, maturity and decline. This sequence is known as the product life cycle
and is associated with changes in the marketing situation, thus impacting the marketing strategy and
the marketing mix.
Introduction growth maturity decline
PLC curve: PLC is an Sshaped curve which exhibits the relationship of sales with respect of time for a
product that passes through the four successive stages of (1) introduction (slow sales growth), (2)
growth (rapid market acceptance), (3) maturity (slow down in growth rate), (4) decline (sharp downward
drift). If businesses are substituted for product, the concept of PLC could work just as well.
Description: These stages are:
Introduction: This is the stage when product is introduces into the market. In this stage, there’s heavy
marketing activity, production promotion and the product is put into limited outlets in a few channels
for distribution. Sales take off slowly in this stage. The need is to create awareness not profits.
Growth: the second stage is growth. In this stage, sales take off, the market knows of the product; other
companies are attracted, profits begin to come in and market share stabilize.
Maturity: The third stage is maturity, where sales grow at slowing rates and finally stabilize. In this
stage, products get differentiated, price wars and sales promotion become common and a few weaker
players exit.
Decline: The fourth stage is decline. Here, sales drop, as consumers may have changed, the product is
no longer relevant or useful. Price wars continue, several products are withdrawn and cost control
becomes the way out for most products in this stage.
Significance of PLC: PLC analysis, if done properly, can alert a company as to the health of the product
in relation to the market it serves. PLC also forces a continuous scan of the market and allows the
company to take corrective action faster. But the process is rarely easy.
Advantage: The main advantage of PLC 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, appropriate strategic for businesses in the
introductory and growth stages. Mature businesses may be used as sources of cash for investment in
other businesses which need resources. A combination of strategies like selective harvesting,
retrenchment, etc. may be built up by exercising a strategic choice based on the PLC concept.
Q5 Write a short note on driving forces

Ans.
Concept of driving forces The company shall determine the driving forces and their impacts on
competitions. This analysis is done in two steps:
i. Identifying the most common driving forces causing the
competition.
ii. Finding or analyzing their individual contribution to competition.
Some common driving forces Â Decreasing cost or price.
Â Increasing globalization.
Â Market innovation.
Â Product innovations.
Â Change in long term industry growth rate.
Â Exit or entry of major firms
Â The interest and new ecommerce opportunities and threats it
breeds in the industry.
Q6 To which industries the following development offers opportunities and threats? ‘The number of
nuclear families, where husband and wife both are working, is fast increasing’.
Ans. Different developments in the environment can offer different opportunities and threats to businesses.
An opportunity is a favourable condition in the organization’s environment which enables it to
strengthen its position with respect to its competitors. A threat is an unfavourable condition in the
causes a risk for, or damage to, the organization’s position.
The situation in the question relates to threats and opportunities of social environment. In the present
social environment, there is growth of nuclear families. This is away from the joint family system,
when both husband & wife are working it increases their spending capacity.
Opportunity: such developments bring direct opportunities to different businesses such as ready to
eat food, fast to cook items, dish washers, washing machines, creches for children and so on. An
indirect opportunity exists for other lifestyle products.
Threat: at the same time, such development also acts as threat to traditional raw food suppliers, kitty
party organizers and so on.
Q7 Distinguish between the following:
Ans. ‘Market development’ and ‘product development’
No. Points Market development Product development
1. Meaning This strategy involves This involves substantial modification
marketing existing products of existing products or creation of new
to customer in related market but related products that can be
areas, by adding different channels marketed to current customers
of distribution or by changing the through established level.
content of advertising or
promotional media.
2. Market Here, the existing market Here, market doesn’t change,
change changes because firms enter firm agrees to offer in same market.
into new market.

3. Product Here products are offered Here, new products are offered
i.e. existing product offered in existing markets.
in new markets.
Q8 What steps would you take to construct a ‘strategic group map’ for an industry?
Ans. Strategic group mapping is a useful analytical tool for comparing the market positions of each firm
separately and for grouping them into like positions when an industry has so many competitors that it
is not practical to examine each one in depth. It involves plotting firms on a twovariable map using
pairs of differentiating characteristics such as price/quality range; geographic coverage and so on.
Steps take to construct a ‘strategic group map’ for an industry:
· Identify the competitive characteristics that differentiate firms in the industry.
· Plot the firms on a twovariable map, using pairs of differentiating characteristic.
· Classify firm that follows the same strategy, into one strategic group.
· Determine the position of each strategic group, by making it proportional to the size of the
group’s respective share of total industry sales revenue.
Q1 What is meant by strategy formulation and strategy implementation?
Ans. Strategy formulation is basically an intellectual process of positioning various forces before action is
taken while strategy implementation is basically an operational process of managing the strategic
forces during the action.
Q2 Which are the areas where matrix organization is popular?
Ans. The matrix organization is popular in the activities like construction, health care, research and defense.
Q3 What are the three most important features of SBUs?
Ans. Three most important features of SBUs are:
Â Each SBU is a collection of same kind of products.
Â It has its own competitors.
Â Every SBU has a separate manager who controls costs, prices and is responsible for planning and
profit performance of the SBU that he leads.
Q4 Why is the matrix organization not popular?
Ans. In spite of the fact that the matrix organization is quite useful to manage the multi product and multi
projects companies, it is not very popular because
Â It is very complex.
Â It is very costly.
Â It is very difficult to manage.
Â It gives rise to conflicts in responsibility and authority relationships.
Q5 What is meant by competitive advantage?
Ans. The competitive advantage is some plus point or points on the part of a organization which enable the
organization to compete more successfully with the competitors within the markets. The firm can
create competitive advantage through cost leadership or product differentiation which is highly valued
by the customers.

Q6 What is meant by core competence?
Ans. Core competence is a unique strength of an organization which increases the competitive advantage
on the part of the firm. This is may be in the form of human resources, marketing techniques, managerial
abilities and technical superiority. Developing core competence requires creative, courageous and
dynamic leadership having faith in the personnel of the company.
Q7 What is an industry?
Ans. Industry is a group of firms whose products have same and similar attributes such that they compete
for the same buyers. A clear understanding of the nature and the composition of the industry and the
degree of competition in the industry are necessary for strategic analysis.
Q8 What does the SWOT analysis try to evaluate?
Ans. The SWOT analysis tries to evaluate the organization’s internal strengths and weakness and its external
threats and opportunities.
Q9 What is the goal of the SWOT analysis?
Ans. The goal of the SWOT analysis is to exploit opportunities before the organization, neutralizing its
threats and correcting its weaknesses.
Q10 What does “B” stand for in BCG matrix?
Ans. BCG matrix means Boston consulting group matrix and therefore, the ‘B’ represents Boston in this
acronym.
Q11 What is meant by DOGS in BCG matrix?
Ans. Dogs are lowgrowth, lowshare, products or businesses which may generate enough cash to maintain
themselves but they do not have much future. They are to be minimized by means of divestment or
liquidation.
Q12 What is meant by a strategic group?
Ans. The concept of strategic group is very important in industry competitive analysis. It is a group which
consists of those rival firms with similar competitive approaches and positions in the market. Companies
in the same strategic group can resemble one another in any of several ways:
Â They may have comparable productline breadth
Â Sell in the same price/quality range
Â Emphasize the same distribution channels
Â Use essentially the same product attributes to appeal to similar types of the buyers
Â Depend on identical technological approaches
Â Or offer buyers similar services and technical assistance.
Q13 Technology related KSFs
Ans.
Â Scientific research expertise (important in such field as pharmaceuticals, highspeed internet
access, mobile communication, space exploration and other hightech industries)
Â Technical capability to make innovative improvements in production processes
Â Product innovation capability
Â Expertise in a given technology
Â Capability to use the internet for all kinds of ecommerce activities

Q14 Manufacturing related KSFs
Ans.
Â Lowcost production efficiency (achieve scale economies, capture experience curve effects)
Â Quality of manufacture (fewer defects, less need for repairs)
Â High utilization of fixed assets (important in capitalintensive/highfixedcost industries)
Â Lowcost plant locations
Â Access to adequate supplies o skilled labour
Â High labour productivity (important for items with high labour content)
Â Lowcost product design and engineering (reduces manufacturing costs)
Â Ability to manufacture or assemble products that are customized to buyer specifications
Q15 Distribution related KSFs.
Ans.
Â A strong network of wholesale distributors/dealers (or electronic distribution capability via the
internet)
Â Gaining ample space on retailer shelves
Â Having companyowned retail outlets
Â Low distribution costs
Â Accurate filling of customer orders
Â Short delivery times
Q16 Marketing related KSFs
Ans.
Â Fast and accurate technical assistance
Â Courteous customer service
Â Accurate filling of buyer orders (few back orders or mistakes)
Â Breadth of product line and product selection
Â Merchandising skills
Â Attractive styling or packaging
Â Customer guarantees and warranties (important in mallorder and online retailing big ticket
purchases, new product introductions)
Â Clever advertising
Q17 Skills related KSFs
Ans.
Â Superior workforce talent (important in professional services like accounting and investment
banking)
Â Quality control know how
Â Design expertise (important in fashion and apparel industries and often one of the keys to low
cost manufacture)
Â Expertise in a particular technology

Â An ability to develop innovative products and product improvements
Â An ability to get newly conceived products past the R&D phase and out into the market very
quickly.
Q18 What is organizational capability?
Ans.
Â Superior information systems (important in airline travel, car rental, credit card and lodging
industries)
Â Ability to respond quickly to shifting market conditions (streamlined decision making, short lead
times to bring new products to market)
Â Superior ability to employ the internet and other aspects of electronic commerce to conduct
business
Â Managerial experience
Q19 What are three important characteristics of a global company?
Ans. A global company is also known as multinational company. It has three important features.
Â It is a group of a large number of business units under the same management.
Â These business units have a common pool of resources like money, information, patents,
trademarks and control systems.
Â While they have different managers and shareholders in different countries their business strategy
is common.
Q20 What is the growth phase of product life cycle?
Ans. After the product is introduced in the market, the product enters the second stage i.e. growth stage.
Under this stage the product gains popularity and recognition. As a result the demand and sales go up
tremendously. Consequently profit of the firm starts going up. However, high profit also attracts
competitors to enter the field. Thus expenditure on advertisement and sales promotion program me
should be increased.
Q21 To which industries the following developments offer opportunities and threats? OR
“Increasing trend in India to organize IPL type of tournaments in other sports also.”
Ans. Opportunities:
Â Growth of the nation.
Â Growth of Indian cricket industry.
Threats:
Â Increase in corruption.
Â Increase in betting.
Â Time wasting of people.
Q22 What does the concept of ‘question marks’ in the context of BCG growthshare matrix signify? What
strategic options are open to a business firm which has some ‘question marks’ in the portfolio of its
businesses?
Ans.
Â The concept of ‘question marks’ in the context of BCG growthshare matrix is high growth & low
market share.

Â They require huge amount of cash to maintain or gain market share.
Â Question marks are generally new goods and services which have a good commercial prospect.
Â There is no specific strategy which can be adopted. If the firm thinks it has dominant market
share, then it can adopt expansion strategy, else retrenchment strategy can be adopted.
Â Most businesses start as question marks as the company tries to enter a high growth market in
which there is already a market share.
Â If ignored, the question marks may become dogs, while if huge investment is made, they have
the potential of becoming stars.
Q23 To which industries the following environmental changes will offer opportunities and pose threats
(name any two industries in each case).
Ans. Give reasons for your answer:
I. Significant reduction in domestic airfares spanning over a long period.
II. Cut in interest rates by banks.
Â If there is changes in significant reduction in domestic airfares spanning over a long period:
Â Airline industries: as an opportunity because it creates profit in future and service can be
improved.
Â Service industries: it creates opportunity for them in the future as a service communication
can be improved by providing better and speedier services.
Â Cut in interest rates by banks:

Â Banking section: Cut in interest rate can be favourable to banking industries is a fund at its
lower cost. So, when there is change in bank interest rate. Manufacturing industries can
avail such fund and grow in an economy.
Â Manufacturing industries: Main requirement of manufacturing industries is a fund at its
lower cost. So, when there is change in bank interest rate, manufacturing industries can
avail such fund and grow in an economy.
Q24 What is an opportunity?
Ans. An opportunity is a favourable condition in the organization’s environment which enables it to
consolidate and strengthen its position. An example of an opportunity is growing demand for the
products or services that a company provides.
Q25 Explain the strategic group mapping.
Ans. Strategic group mapping is a useful analytical tool for comparing the market positions of each firm
separately and for grouping them into like positions when an industry has so many competitors that it
is not practical to examine each one in depth. It involves plotting firms on a twovariable map using
pairs of differentiating characteristics such as price/quality range; geographic coverage and so on.
Q26 Explain the Strategic groups?
Ans. A strategic group consists of rival firms with similar competitive approaches and positions in the market.
Companies in the same strategic group can resemble one another in any of several ways; they may
have comparable productline breadth, sell in the same price/quality range; emphasize the same
distribution channels, use essentially the same product attributes to appeal to similar types of buyers,
depend on identical technological approaches or offer buyers similar services and technical assistance.

Q27 To which industries the following developments offer opportunities and threats?
Ans. An opportunity is a favourable condition in the organization’s environment which enables it to
strengthen its position. On the other hand a threat is an unfavourable condition in the organization’s
environment which causes a risk for, or damage to, the organization’s position. An opportunity is also
a threat in case internal weaknesses do not allow organization to take their advantage in a manner
rivals can.
The IPL (cricket) tournament is highly profit and entertainment driven. A number of entities and process
are involved in this IPL type tournament. IPL (cricket) type of tournament would offer opportunities/
threats to the following industries:
Opportunities:
Â Stadia
Â Sports industry
Â Media industry – sports channels/television, advertisers.
Threats:
Â Entertainment industry like TV serial, cinema theaters and entertainment theme parks as
competitors will be fighting for the same viewers/target customers.
Â Tourism and hotel industries
Â Event management
Q28 Define competitive advantage.
Ans. Competitive advantage is the position of a firm to maintain and sustain a favourable market position
when compared to the competitors. Competitive advantage is ability to offer buyers something
different and thereby providing more value for the money. It is the result of a successful strategy. This
position gets translated into higher market share, higher profits when compared to those that are
obtained by competitors operating in the same industry. Competitive advantage may also be in the
form of low cost relationship in the industry or being unique in the industry along dimensions that are
widely by the customers in particular and the society at large.
Q29 What do you mean by core competencies?
Ans. A core competence is a unique strength of an organization which may not be shared by others. Core
competencies are those capabilities that are critical to a business achieving competitive advantage. In
order to qualify as a core competence, the competency should differentiate the business from any
other similar businesses.
Q30 Components of a Value Chain of an organization.
Ans. Value chain refers to separate activities which are necessary to underpin an organization’s strategies
and are linked together both inside and outside the organization. Organizations are much more than a
random collection of machines, money and people. Value chain of a manufacturing organization
comprises of primary and supportive activities. The primary ones are inclusive of inbound logistic,
operations, outbound logistic, marketing and sales and services. The supportive activities relate to
procurement, human resource management, technology development and infrastructure.
Value chain analysis helps in building and maintaining the longterm competitive position of an
organization to sustain value for money in its products or service. It can be helpful in identifying those
activities which the organization must undertake at a threshold level of competence and those which
represent the core competences of the organization.

1 “Industry is a grouping of dissimilar firms.”
Incorrect: industry is a group of firms whose products have same and similar attributes such that they
compete for the same buyers.
2 “PLC is an S shaped curve.”
Correct: PLC is the Sshaped curve showing graphical representation of sales over time that passes
through four stages that is, introduction, growth, maturity and decline phase. Identification of PLC
stages of any product or service is very helpful in marketing management.
3. “Globalization means different things to different people.”
Correct: Globalization means the process of integration of the world into one huge market. Globalization
helps for removal of all trade barriers among countries. Globalization is an opportunity for organizations
to expand their markets and reach out to different customers. Globalization can also have other
meanings. For some globalization is a new paradigm – a set of fresh beliefs, working methods and
economic, political and sociocultural realities in which the previous assumptions are no longer valid.
For developing countries, globalization means integration with the world economy.
4. “Ecommerce technology opens up the opportunities for reconfiguring industry and company value
chain.”
Correct: As more industries go global, strategic management is becoming an increasingly crucial way to
keep track of international development for longterm competitive advantage. The use of internet for
doing business is reshaping the global marketplace and that it will continue to do so for many years. It
is believed that internet would transform or have a major impact on their corporate strategy. The
internet is changing the way customer, suppliers and companies interact and it is changing way companies
work internally.
5 “Portfolio analysis helps the strategists in identifying and evaluating various businesses of a company.”
Correct: Corporate portfolio analysis is a set of techniques that evolved during the mid 1960s.
Â 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 firm’s portfolio.
6. “A strategic group consists of rival firms with similar competitive approaches and positions in the
market.”
Correct: A strategic group consists of those rival firms that have similar competitive approaches and
positions in the market. Organizations in the same strategic group can resemble one another in several
ways like offering buyers similar services and technical assistance.
7. “An industry can have more than one strategic group.”
Correct: An industry can have more than one strategic group.
8. “Ecommerce technology closes up the opportunities for reconfiguring industry and company value
chain.”
Incorrect: Ecommerce technology doesn’t close up but open up the opportunities for reconfiguring
industry and company value chains.
9. “The strategy analysis is the starting point of strategy formulation.”
Correct: Any organization has to undertake is solid analysis of its external environment and internal
situation before any meaningful strategy can be formulated. Accurate diagnosis of company situation
is necessary for deciding its long term directions, appropriate objectives and effective strategies.

10. “The SWOT analysis and TOWS matrix is the same thing.”
Incorrect: In the SWOT analysis we distinguished between the four variables namely strength, weakness,
opportunities and threats. While in TOWS matrix strength and opportunities, weakness and
opportunities, strength and threats and weakness and threats are examined in groups.
11. “Strategy formulation and strategy implementation are identical.”
Incorrect: The strategy formulation is the task before the top management. It is an intellectual process
and requires effective leadership. As against this strategy implementation is the task before the middle
and operating level management and is an administrative process and requires efficient management
of functional and operational activities.
12. “An SBU structure increases the efficiency of strategic management.”
Correct: An SBU structure is the one where he same kind of products or activities are put into any one
SBU. In different SBUs there are different products and activities. The heads of the SBUs can undertake
individual strategic planning for their SBUs and thereby can increase the efficiency of strategic
management.
13. “Core competences of a business are permanent.”
Incorrect: There are certain competences possessed by the individual business enterprises. They give
them a competitive advantage over the others. These are known as core competences. However, they
are not permanent. Over a long period of time the competitors find out ways and means of copying the
core competences of a business and sometimes develop substitutes for the products of the firm and so
the businesses have to discover and develop new core competences.
14. Competitive strategy is designed to help firms achieve competitive advantage.
Correct: competitive strategy is designed to help firms achieve competitive advantage. Having a
competitive advantage is necessary for a firm to compete in the market. Competitive advantage comes
from a firm’s ability to perform activities more effectively than its rivals.
15. Strength is an inherent capacity of an organization.
Correct: strength is an inherent capacity which an organization can use to gain strategic advantage over
its competitors. An example of strength is superior research and development skill which can be used
for continuous product innovation o for new product development so that the company gains
competitive advantage.
16. The purpose of SWOT analysis is to rank organizations.
Incorrect: SWOT analysis stands for the analysis of strengths, weaknesses, opportunities and threats. It
is a tool for organizational and environmental appraisal necessary for formulating effective strategies.
17. SWOT analysis merely examine internal environment of an organization.
Incorrect: SWOT analysis presents the information about both external and internal environment in a
structured form to compare external opportunities and threats with internal strengths and weaknesses.
This helps in matching external and internal environments so that strategic decision makers in an
organization can come out with suitable strategies by identifying patterns of relationship and develop
suitable strategies.
18. “B” in BCG matrix stands for balance.
Incorrect: The acronym BCG stands for Boston Consulting Group, an organization that developed a
matrix to portray an organizational corporate portfolio of investment. This matrix depicts growth of
business and the business share enjoyed by an organization. The matrix is also known for its cow and
dog metaphors and is popularly used for resource allocation in a diversified company.

19. Growth share matrix is popularly used for resource allocation.
Correct: growth share matrix also known for its cow and dog metaphors is popularly used for resource
allocation in a diversified company. Primarily it categories organizations/products on the basis two
factors consisting of the growth opportunities and the market share enjoyed.
20. A core competence is a unique strength of an organization which may not be shared by others.
Correct: A core competence is a unique strength of an organization which may not to be shared by
others. If business is organized on the basis of core competence, it is likely to generate competitive
advantage. A core competence provides potential access to a wide variety of markets. Core competencies
should be such that it is difficult for competitors to imitate them.
EXPLAIN THE FOLLOWING TERMS:
1. Strategic analysis: strategic analysis is a process leading to strategy development through analysis of
the environment at both internal and external levels. This makes the strategy development process
more rational and scientific.
The two most important situational considerations are:
Â Industry and competitive conditions and
Â Company’s own competitive capabilities, resources, internal strengths and weaknesses and market
position.
2. Key success factor (KSF): key success factors of a business enterprise are those thing that most affect
ability of individual companies in the industry to prosper in the marketplace. KSF include.
Â the particular strategy elements,
Â product attributes,
Â resources,
Â competencies,
Â competitive capabilities
Â business outcome
KSFs by their very nature are so important that all firms in the industry must pay close attention to
them. They are the precondition for industry success or, to put it another way, KSFs are the rules what
will decide whether a company will be financially and competitively successful.
3. SWOT analysis: The comparison of strengths, weaknesses, opportunities and threats of a given firm,
under a given environment situation, to develop a future strategic plan, as at tool of business portfolio
planning is referred as a SWOT analysis:
Â S: an inherent capability of the organization which it can be use to gain strategic advantage over
its competitors.
Â W: an inherent limitation or constraint of the organization which creates strategic disadvantage
to it.
Â O: condition in the organization’s environment which enables it to consolidate and strengthen its
position.
Â T: an unfavorable condition in the organization’s environment which causes a risk for or damage
to the organization’s position.
4. Ansoff’s growth matrix: The Ansoff’s product market growth matrix (proposed by Igor Ansoff) is a
useful tool that helps businesses decide their product and market growth strategy. With the use of this
matrix a business can get fair idea about how its growth depends upon it markets in new or existing

products in both new and existing markets.
5. Market penetration: that is a growth strategy where the business focuses on selling existing products
into existing markets. It is achieved by making mare sales to present customers without changing
products in any major way. Penetration might require greater spending on advertising or personal
selling.
6. Market development: that is a growth strategy where the business focuses on selling existing products
into new markets. It is achieved through new geographical markets, mew product dimensions or
packaging, new distribution channels or different pricing policies to attract different customers or
create new market segments.
7. Product development: that is a growth strategy where the business focuses on selling new products
into existing markets. It may require the development of new competencies and require the business
to develop modified products which can appeal to existing markets.
8. Diversification: that is a growth strategy where the business focuses on selling new products into new
markets. That is risky because it does not rely on either the company’s successful product or its position
in established markets.
9. Stars: Stars are products or SBUs that are growing rapidly. They also need heavy investment to maintain
their position and finance their rapid growth potential. They represent best opportunities for expansion.
When growth slows, stars become cash cows if they are able to maintain their category leadership or
move from brief stardom to dogdom.
10. Cash cows: cash cows are lowgrowth, high market share businesses or products. They generate cash
and have low costs. They are established, successful and need less investment to maintain their market
share. In long run when the growth rate slows down, stars become cash cows. They are to be “milked”
continuously with as little investment as possible, since such investment would be wasted in an industry
with low growth.
11. Question marks (problem children): that is sometimes called problem children or wildcats, are low
market share business in high growth markets. They are unpredictable or imponderables. They require
a lot of cash to hold their share. They need heavy investments and have low potential to generate cash.
If left unattended they are capable of becoming cash traps. However, since market growth rate is high,
increasing its market share is relatively easier and therefore if properly attended the business
organizations can turn them into stars.
12. Dogs (pets): dogs are lowgrowth, lowshare businesses and products. They may generate enough cash
to maintain themselves, but do not have much future. Sometimes they may need cash to survive. Dogs
should be minimized by means of divestment or liquidation. They depends a profitable company’s
return on assets ratio and is used by many investors to judge how well a company is being managed.
Dogs, it is thought, should be sold off to improve the firm’s profitability.
13. Strategic business unit (SBU): Analyzing portfolio starts with identifying key businesses also termed as
strategic business unit (SBU). SBU is a unit of the company that has a separate mission and objectives
and which can be planned independently from other company businesses. The SBU can be a company
division, a product line within a division, or even a single product or brand. SBUs are common in
organizations that are located in multiple countries with independent manufacturing and marketing
setups.
14. Experience curve: Experience curve is an important concept used for applying a portfolio approach.
The concept is very similar to a learning curve which explains the increase in efficiency gained by
workers through repetitive productive work. Experience curve is based on the commonly observed
phenomenon that unit costs decline as a firm accumulates experience in terms of a cumulative volume
of production. This means that large firms in an industry would tend to have lower unit costs as compared

to those for smaller companies, which gives them a competitive cost advantage. Experience curve
results from a variety of factors such as learning effects, economies of scale, product redesign and
technological improvements in production.
15 Product life cycle (PLC): PLC in an Sshaped curve which shows the relationship of sales with respect of
time for a product that passes through the four successive stages such as introduction (slow sales
growth), growth (rapid market acceptance) maturity (slow down in growth rate) and decline (sharp
downward drift). If businesses are substituted for product, the concept of PLC could work just as well.
The main advantage of PLC is that it can be used to diagnose a portfolio of products (or businesses) in
order to establish the stage at which each of the exists.
16. Global company: A company which has gone global is called multinational (MNC) or a transanational
(TNC). An MNC is, therefore, one that by operating is more than one country gains R&D, production,
marketing, and financial advantages in its costs and reputation that are not available to purely domestic
competitors. The global company views the world as one market, minimizes the importance of national
boundaries, sources, raises capital and markets wherever it can do the job best.
17. Value chain analysis: The value chain analysis is an effort to identify the various primary and supportive
activities undertaken by a business unit and finding out the ways and means of reducing costs at
various cost centers so that the final product can be offered to the buyers at a competitive price.
18. Core competence: Core competences are the sum total of all the exclusive abilities possessed by an
organization which give the organization an edge over the competitors. They are sum total of various
distinctive skills as well as invisible and intellectual assets and cultural capabilities of the organization.

1. The kind of advantage gained by offering greater value to customers as compared to competitors is
classify as
(a) Corporate advantage (b) Branding advantage
(c) Competitive advantage (d) Premium advantage
2. The basic competitive strategy includes
(a) Cost leadership (b) Focusing strategy
(c) Differentiation (d) All of the above
3. BCG in BCG matrix stands for
(a) Boston calmette group (b) Boston corporate group
(c) Boston consulting group (d) British consulting group
4. What does Dog symbolize in BCG matrix?
(a) introduction (b) growth
(c) maturity (d) decline
5. What does question mark (?) symbolize in BCG matrix?
(a) invest (b) remain diversified
(c) stable (d) liquidate
6. A SWOT analysis consists of all of the following elements except:
(a) strengths (b) weaknesses
(c) organization (d) threats

7. The pie slices within the circles of a __________ reveal the percent of corporate profits contributed by
each division.
(a) Ansoff’s matrix (b) ADL matrix
(c) SPACE matrix (d) BCG matrix
8. What do Cash cows symbolize in BCG matrix?
(a) Remain diversified (b) invest
(c) stable (d) liquidate
9. the BCG matrix is based on
(a) industry attractiveness and business strength
(b) industry growth and business strength
(c) industry attractiveness and relative market share
(d) industry growth and relative market share
10. The reason of diversification is:
(a) To reduce competition (b) To increase organizational capabilities
(c) To get tax advantage (d) To get quick entry into a business
11. The magnitude and changes that may affect an organization is survival owing to all of the following
except:
(a) Mer(germania (b) demographics
(c) ecommerce (d) dubious firms
12. Which strategies aim at improving internal weakness by taking advantage of external opportunities?
(a) SO (b) WO
(c) SW (d) ST
13. The sketch of the BCG matrix, what is the label of the horizontal axis?
(a) Industry growth rate (b) Market share
(c) Market growth rate (d) Business strength
14. The sketch of the BCG matrix, what is the label of the vertical axis?
(a) Industry growth rate (b) Business strength
(c) Market share (d) Market growth rate
15. According to the BCG matrix SBU comprising products in an attractive industry but representing little
market share would be referred to as
(a) A cash cows (b) A star
(c) A dog (d) A question marks
16. Strategic business units
(a) Are found in onebusiness organizations
(b) Carry out strategies assigned by the CEO
(c) Develop their own unique way of competing
(d) Implement the marketing function’s strategic planning and management decisions

17. The value chain is subdivided into two main headings. These are primary activities and:
(a) Peripheral activities (b) Support activities
(c) Secondary activities (d) Outsourced activities
18. Which types of strategies are of particular importance to global companies?
(a) corporate (b) functional
(c) corporate and competitive (d) corporate
19. the acronym SWOT analysis stands for
(a) special weapons for operations timeliness
(b) services, worldwide optimization and transport
(c) strength, weaknesses, opportunities and threats
(d) none of the above
20. Ansoff’s growth vector matrix is used for
(a) Analyzing the different strategic directions an organization can pursue
(b) Analyzing the balance of the portfolio
(c) Assessing whether the corporate parent is adding value
(d) Assessing the market share of a business
21. In Ansoff’s matrix, product development involves going to direction of
(a) Present products to present markets (b) Present products to new markets
(c) New products to present markets (d) New products to new markets
22. __________ are the organizations major value creating skills, capabilities and resources that determine
the organizations competitive weapons
(a) strength (b) opportunities
(c) core competencies (d) weaknesses
23. An example of core competency of a firm is
(a) The corporation reputation
(b) Communicating with customers in their own languages worldwide
(c) Developing least squared exemptions within its accounting system
(d) Evaluating tangible and intangible assets
24. The merging of analysis of internal and external factors influencing the organizations strategy is known
as
(a) Complete studies (b) Organizational behavior and theory
(c) Definitional analysis (d) SWOT analysis
25. An organization is said to have __________ when it has several different businesses that are independent
and that formulate their own strategies
(a) Operational units (b) Strategic business units
(c) Competitive advantages (d) Legal submits
26. Which of the following is a force in the porter’s five forces model of industry attractiveness?
(a) Opportunity for new entries

(b) Opportunity for substitutes
(c) Bargaining power of suppliers
(d) Sustainable competitive advantage for customers
27. To succeed, Ansoff demands that organization become
(a) More aggressive in terms of competitive strategies and entrepreneurialism or change orientation
(b) More aggressive in terms of competitive strategies
(c) More aggressive in terms of competitive strategies and in their pursuit of opportunities
(d) More aggressive in terms of competitive strategies and innovation
28. The __________ has its own business strategy, objectives and competitors and these are often differ
from parent company
(a) Strategic business unit structure (b) Matrix structure
(c) Divisional structure (d) None of given option
29. __________ are the resource, skills or other advantages a firm enjoys relative to its competitors
(a) weakness (b) strength
(c) threat (d) opportunities
30. __________ is a widely used framework to summarize a company’s situation or current position
(a) SWOT analysis (b) TOWS matrix
(c) Ansoff’s matrix (d) BCG matrix
31. The concept of core competence was developed by
(a) Schwiz marker (b) Prahalad and gary
(c) Peter schiffman (d) None of the above
32. Which of the following is not an element of the growth/market options matrix developed by Ansoff?
(a) Market development (b) diversification
(c) product development (d) market segmentation
33. – arises when a firm is able to perform an activity that is distinct from competitors
(a) Competitive advantage (b) focus
(c) cost leadership (d) logic
34. A useful framework used to assess a company’s investment/divisions is called:
(a) Unit production analysis (b) Corporate insight analysis
(c) Business portfolio analysis (d) Company productivity analysis
35. Cash cows are SBU’s that typically generate:
(a) Problems for product manager (b) Paper losses in the long run
(c) Large awareness levels but few sales (d) A lot of competition
36. An effective shorthand summary of the situation analysis is a:
(a) BCG analysis
(b) SWOT analysis
(c) SBU analysis
(d) Competition analysis

37. Ben and jerry had four marketproduct strategies to expand sales. They included (1) market penetration
(2) product development (3) market development and:
(a) Current Customer retention (b) Defensive synergy
(c) diversification (d) product simplification
38. Which of the following is not a limitation of SWOT analysis?
(a) Organizational strengths may not lead to competitive advantage
(b) SWOT gives a oneshot view of a moving target
(c) SWOT’s focus on the external environment is too broad and integrative
(d) SWOT overemphasizes a single dimension a strategy
39. Which of the following lists is comprised of support activities:
(a) Human resource management, information systems, procurement and firm infrastructure
(b) Customer service, information system, technology development, customer service and
procurement
(c) Human resource management, technology development, customer service and procurement
(d) Human resource management, customer service, marketing and sales and operations
40. What kind of organizational structure combines a vertical chain of command with horizontal reporting
requirements?
(a) Line authority (b) matrix
(c) functional (d) quality circles
41. What are core competences?
(a) Resources which critically underpin competitive advantage and that others cannot obtain
(b) Activities and processes needed to meet customer’s minimum requirements and therefore to
continue exist
(c) Key skills required for success in a particular business
(d) Activities that underpin competitive advantage and are difficult for competitors to imitate or
obtain.
ANSWERS
1. (c) 2. (d) 3. (c) 4. (d) 5. (b) 6. (c)
7. (d) 8. (c) 9. (d) 10. (b) 11. (d) 12. (b)
13. (b) 14. (a) 15. (d) 16. (c) 17. (b) 18. (c)
19. (c) 20. (a) 21. (c) 22. (c) 23. (b) 24. (d)
25. (b) 26. (c) 27. (a) 28. (a) 29. (b) 30. (a)
31. (b) 32. (d) 33. (a) 34. (c) 35. (d) 36. (a)
37. (c) 38. (c) 39. (b) 40. (b) 41. (d)

Â Steps to understand the competitive landscape
1 Identifying the competitors

2 Understand the competitors
3 Determine the strengths of the competitors
4 Determine the weaknesses of the competitors
5 Put all of the information together
Â Three areas of core competence:
1. Competitors differentiation
2. Customer value
3. Application of competencies
Â Four specific criteria to build core competence:
1. Valuable 2. Rare
3. Costly to imitate 4. Nonsubstitutable
Value chain analysis
Primary activities Support activities
¾ Inbound logistics ¾ Procurement
¾ Operating transform these inputs ¾ Technology development
into the final product or service ¾ Human resource management
¾ Outbound logistics ¾ Infrastructure
¾ Marketing and sales
¾ Service
Managing linkages
Internal linkages External linkages
¾ Between primary activities ¾ Vertical integration
¾ Linkages between primary and ¾ Synergy with suppliers
support activities ¾ Involving distribution at the design stage
¾ Linkages between support activities
Characteristic of competitive advantage:
1. Durability 2. Transferability
3. Imitability 4. Appropriability
Three components of portfolio analysis
1. Strategic business unit (SBU)
2. Experience curve
3. Product life cycle (PLC)
Methods of industry and competitive advantage
¾ Dominant economic features of the industry
¾ Nature and strength of competition
¾ Triggers of change
¾ Identifying the strongest/weakest companies(strategic group mapping)

¾ Likely strategic moves of rivals
¾ Key factors for competitive success
¾ Prospects and financial attractiveness of industry
Ansoff’s product market growth matrix
¾ Market penetration
¾ Market development
¾ Product development
¾ diversification
ADL matrix
Dominant, Strong, Favourable, Tenable, Weak

CHAPTER3
STRATEGIC IMPLEMENTATION PROCESS
Nothing focuses the mind better than the constant sight of a competitor who wants to wipe you off the map.
– Wayne calloway
Competition in the market place is like war. You have injuries and causalities. The best strategy wins.
John Collins
INTRODUCTION:
The strategic management process after deciding the vision, goals and adjectives of the organisations, turn
its focus to scanning of the environment in which all organizations work as subsystems. Thus are
environmental scanning covers both scanning of external leads to the identification of the opportunities
and threats.
LONG QUESTIONS
Q1 Explain the meaning of strategic decision making. Also explain the major dimensions of Strategic
Decision Making.
Ans. Decision making is a managerial process of selecting the best course of action out of several alternative
courses for the purpose of accomplishment of the organizational goals. Decisions may be operational,
i.e. which relate to general daytoday operations.
According to Glueck and Jauch, “Strategic decisions encompass the definition of the business, products
to be handled, markets to be served, functions to be performed and the major policies needed for the
organization to execute these decisions to achieve the strategic objectives.”
The major dimensions of strategic decisions are as follows:
Â Strategic decisions require topmanagement involvement:
Strategic decisions involve thinking in totality of the organization. Hence, problems calling for
strategic decisions require to be considered by the top management.
Â Strategic decisions involve commitment of organisational resources:
For example, Strategic decisions to launch a new project by a firm require allocation of huge
funds and assignment of a large number of employees.
Â Strategic decisions necessitate consideration of factors in the firm’s external environment:
Strategic focus in the organization involves orienting its internal environment to the changes of
external environment.
Â Strategic decisions are likely to have a significant impact on the longterm prosperity of the firm:
Generally, the results of strategic implementation are seen on a longterm basis and not
immediately.
Â Strategic decisions are future oriented:

Strategic thinking involves predicting the future environmental conditions and how to orient for
the changed conditions.
Â Strategic decisions usually have major multifunctional or multibusiness consequences:
As they involve organization in totality they affect different sections of the organization with varying
degree.
Q2 What is a Strategic Intent? Also explain the elements of strategic intent.
Ans. Strategic Intent:
Introduction:
Strategic Management is defined as a dynamic process of formulation, implementation, evaluation,
and control of strategies to realise the organization’s strategic intent.
Definition:
Strategic Intent refers to purposes of what the organization strives for. Senior managers must define
“what they want to do?” and “why they want to do?”
“Why they want to do” represents strategic intent of the firm. Clarity in strategic intent is extremely
important for the future success and growth of the enterprise, irrespective of its nature and size.
Strategic intent provides the framework within which the firm would adopt a predetermined direction
and would operate to achieve strategic objectives. Strategic intent could be in a form of vision and
mission statements for the organisation at the corporate level of the organization.
1. Vision :V ision implies the blueprint of the company’s future position. It describes where the
organisation wants to land. It depicts the organisation’s aspirations and provides a glimps of what the
organization would like to become in future. Every sub system of the organization is rehired to follow
its vision.
2. Mission : Mission delineates the firm’s business, its goals and ways to reach the goals. It explains the
reason for the existence of the firm in the society. It is designed to help potential shareholders and
investors understand the purpose of the company.
A mission statement helps to identify, ‘what business the company undertakes.’ It defines the present
capabilities, activities, customer focus and the role in society.
3. Business Definition : It seeks to explain the business undertaken by the firm, with respect to the
customer needs, target markets, and alternative technologies. With the help of the business definition,
one can ascertain the strategic business choices. Organisational restructuring also depends upon the
business definition.
CHAPTER3 : STRATEGIC IMPLEMENTATION PROCESS 72

4. Business Model : Business model, as the implies is a strategy foot the effective operation of the
business, ascertain sources of income, desired customer base, and financial details. Rival firms, operating
in the same industry rely in the different business model due to their strategic choice.
5. Goals and Objectives : These are the base of measurement. Goals are the end results, that the
organizations attempts to achieve. On the other hand, objectives are timebased measureable targets,
which help in the accomplishment of goals.
These are the end results which are to be attained with the help of an overall plan over the particular
period. However, in practice, no distinction is made between goals and objectives and both the terms
are used interchangeably.
Q3 Write a note on Strategic Management Model.
OR
Explain the Strategic Management Model.
Ans. Identifying an organization’s vision, mission, goals and objectives, is the starting point for strategic
management process. Every organization has a specific vision, mission, goals and objectives, even if
these elements are not consciously designed, written, or communicated.
The strategic management process is dynamic and continuous. A change in any one of the major
components in the model can necessitate a change in any or all of the other components. For instance,
a shift in the economy could represent a major opportunity and require a change in longterm objectives
and strategies; a failure to accomplish annual objectives could require a change in policy; or a major
competitor’s change in strategy could require a change in the firm’s mission.
Therefore, strategy formulation, implementation, and evaluation activities should be performed on a
continual basis, not just at the end of the year or semiannually. The strategic management process
never really ends.
Every model represents some kind of process. The Strategic Management Model is a widely accepted,
comprehensive. This model like any other model of management does not guarantee sureshot success,
but it does represent a clear and practical approach for formulating, implementing, and evaluating
strategies.
Environmental
Analysis
Develop Vision, Generate, Analyse

Startegic
Mission adn adn select Implement
Evaluation
Objectves Strategies Strategies
and Control
Organisation
Appraisal
Analysis Implementation Evaluation

Figure: Strategic Management Model

Q4 Explain the Stages of Strategic Management in brief.
Ans. Strategic management involves following stages:
1. Developing a strategic vision and formulation of statement of mission, goals and objectives.
2. Environmental and organizational analysis.
3. Formulation of strategy.
4. Implementation of strategy.
5. Strategic evaluation and control.
The above stages of strategic management can be explained as follows:
Stage 1: Strategic Vision, Mission and Objectives:
First a company must determine what directional path the company should take and what changes in
the company’s productmarketcustomertechnologyfocus would improve its current market position
and its future prospect. A strategic vision delineates management’s aspirations for the organisation
and highlights a particular direction or strategic path for it to follow in preparing for the future, and
moulds its identity. A clearly articulated strategic vision communicates management’s aspirations to
stakeholders and helps steer the energies of the company personnel n a common direction.
Mission and strategic Intent: Managers need to be clear about what they see as the role of their
organization, and this is often expressed in terms of a statement of mission. The organization needs to
be clear about what the organization is seeking to achieve and, in broad terms, how it expects to do so.
Objectives are needed at all organizational levels. Objective setting should not stop with management’s
establishing of companywide performance targets. Ideally, managers ought to use the objectivesetting
exercise as a tool for truly stretching an organization to reach its full potential. Challenging company
personnel to go all out and deliver big gains in performance pushes an enterprise to be more inventive,
to exhibit some urgency in improving both its financial performance and its business position, and to
be more intentional and focused in its actions.
Stage 2: Environmental and Organizational Analysis:
This stage is the diagnostic phase of strategic analysis. It entails two types of analysis:
1. Environmental scanning
2. Organizational analysis.
External environment of a firm consists of economic, social, technological, market and other forces
which affect its functioning. The firm’s external environment is dynamic and uncertain. So, the
management must systematically be analysed various elements of environment to determine
opportunities and threats for the firm in future.
Organizational analysis involved a review of financial resources, technological resources, productive
capacity, marketing and distribution effectiveness, research and development, human resources skills
and so on. This would revel organization’s strength and weaknesses which could be matched with the
threats and opportunities in the external environment.
Stage 3: Formulating Strategy:
The first step in strategy formulation is developing strategic alternatives in the light of organization
strengths and weaknesses and opportunities and threats in the environment. The second step is the
deep analysis of various strategic alternatives for the purpose of choosing the most appropriate
alternate=vet which will serve as strategy of the firm.
A company may be confronted with several alternatives such as:

i. Should the company continue in the same business carrying on the amen volume of activities?
ii. If it should continue in the same business, should it grow by expanding the existing units or by
establishing new units or by acquiring other units in the industry?
iii. If it should diversify, should it diversify into related areas or unrelated areas?
iv. Should it get out of an existing business fully or partly?
The above strategic alternatives may be designated as stability strategy, growth/expansion strategy
and retrenchment strategy. A company may also follow a combination these alternatives called
combination strategy.
Stage 4: Implementation of Strategy
Implementation and execution is an operationsoriented, activity aimed at shaping the performance
of core business activities in a strategymanagement process. To convert strategic plans into actions
and results, a manager must be able to direct organizational change, motivate people, build and
strengthen company competencies and competitive capabilities, create a strategysupportive work
climate, and meet or beat performance targets.
In most situations, strategyexecution process includes the following principal aspects:
Â Developing budgets that steer ample resources into those activities critical to strategic success.
Â Staffing the organization with the needed skills and expertise, consciously building and
strengthening strategysupportive competencies and competitive capabilities, and organizing
the work effort.
Â Using the bestknown practices to perform core business activities and pushing for continuous
improvement.
Â Installing information and operating systems that enable company personnel to better catty out
their strategic roles day In and day out.
Â Motivating people to pursue the target objectives energetically.
Â Creating a company culture and work climate conducive to successful strategy implementation
and execution
Good strategy execution involves creating strong “fits” between strategy and organizational capabilities,
between strategy and reward structure, between strategy and international operating systems, and
between strategy and the organization’s work climate and culture.
Stage 5: Strategic Evaluation and Control
The final stage of strategic management processevaluating the company’s progress, assessing the
impact of new external developments, and making corrective adjustments is the trigger point for
deciding whether to continue or change the company’s vision, objectives, strategy, and/or strategy
execution methods. Whenever a company encounters disruptive changes in the external environment,
questions need to be raised about the appropriateness of its direction and strategy. If a company
experiences a downturn in its market position or shortfalls in performance, then company managers
are obliged to ferret out whether the causes relate to poor strategy, poor execution, or both and then
to take timely corrective action. A company’s direction, objectives, and strategy have to be revisited
anytime external or internal conditions warrant. It is expected that a company will modify its strategic
vision, direction, objectives, and strategy over time.
SHORT QUESTIONS
Q1 Explain the meaning of planning? And also explain Strategic planning.
Ans. Definition/Meaning of Planning:

Planning means deciding what needs to be done in future and generating blueprints for action. Planning
involves determination of the course of action to attain the predetermined objectives. It bridges the
gap between where we are to where we want to go. Thus planning is a future oriented in nature.
Definition/ Meaning of Strategic Planning:
“Strategic Planning is the process of determining the objectives of the firm, resources rehired to
attain these objectives and formulation of policies to govern the acvisitation, use and disposition of
resources.”
Strategic planning involves a fact of interactive and overlapping decisions leading to the development
of an effective strategy for the firm. Strategic planning determines where an organization is going over
the next year or more and ways for going there. The process is organization wide, or focused on a major
function such as division or other major function.
Q2 Define Mission and explain Mission in brief.
Ans. Introduction : A mission is an answer to the basic question ‘what business are we in and what we do’.
It has been observed that many firms fail to conceptualise and articulate the mission and business
definition with the required clarity. Such firms are seen to fumble in the identification of opportunities
and fail in formulating strategies to make use of opportunities. Firms working to manage their
organisation strategically cannot be lax in the matter of mission and business definition, as the two
ideas is absolutely central to strategic planning.
Definition : A company’s mission statement is typically focused on its present business scope “who we
are and what we do”. Mission statements broadly describe an organizations present capabilities,
customer focus, activities, and business makeup.
Q3 Write a note explaining the Vision of a business.
Ans. Introduction: Top management’s views about the company’s direction and the productcustomer
markettechnology focus constitute the strategic cision for the company. Strategic vision delineates
management’s aspirations for the business, providing a panoramic view of the “where we are to go”
and a convincing rationale for why this makes good business sense for the company.
Strategic vision thus points out a particular direction, charts a strategic path to be followed in future,
and moulding organizational identity. A clearly articulated strategic vision communicates management’s
aspirations to stakeholders and helps steer the energies of company personnel in a common direction.
For instance, Henry Ford’s vision of a car in every garage had power because it captured the imagination
of others, aided internal efforts to mobilize the Ford Motor Company’s resources and served as a
reference point for gauging the merits of the company’s strategic actions.
Definition of Vision : “A Strategic vision is a road map of a company’s future – providing specifics about
technology and customer focus, the geographic and product markets to be pursued, the capabilities it
plans to develop, and the kind of company that management is trying to create.”
Q4 Write a short note on goals and objectives of a company.
Ans. Introduction: Business organization translates their vision and mission into goals and objectives. As
such the term objectives are synonymous with goals but yet there is a thin line of difference between
the two. Goals are closeended attributes that denote the future states or outcomes. Objectives are
closeended attributes which are precise and expressed in specified terms.
Thus, the objectives are more specific and translate the goals to bath long term and short term
perspective. But here we will use both the terms interchangeably.
Definition of Objectives : “Objectives are organization’s performance targets the results and outcomes
it wants to achieve. They function as yardsticks for tracking an organization’s performance and progress”.

Objectives provide meaning and sense of direction to the organizational endeavour. Organizational
structure and activities are designed and resources are allocated around the objectives to facilitate
their achievement. They also act as benchmark for guiding organizational activity and so evaluating
how the organization is performing.
Q5 What are the characteristics that the Objectives must possess?
Ans. Objectives with strategic focus relate to outcomes that strengthen an organization’s overall business
position and competitive vitality. Objectives, to be meaningful to serve the intended role, must possess
the following characteristics:
Â Objectives should define the organization’s relationship with its environment.
Â They should be facilitative towards achievement of mission and purpose.
Â They should provide the basis for strategic decisionmaking.
Â They should provide standards for performance appraisal.
Â They should be concrete and specific.
Â They should be related to a time frame.
Â They should be measureable and controllable.
Â They should be challenging.
Â Different objectives should correlate with each other.
Â Objectives should be set within the constraints of organizational resources and external
environment.
Q6 Explain the long term objectives of an organization.
Ans. To achieve long term prosperity strategic planners commonly establish longterm objectives in seven
areas:
Â Profitability
Â Productivity
Â Competitive Position
Â Employee development
Â Employee Relations
Â Technological Leadership
Â Public Responsibility
Longterm objectives represent the results expected from pursuing certain strategies. Strategies
represent the actions to be taken to accomplish long0term objectives. The time frame for the objectives
and strategies should be consistent, usually from 2 to 5 years.
Q7 Explain the Short term objectives of an organization.
Ans. Shortrange objectives can be identical to long –range objectives if an organization is already performing
at the targeted longterm level. For instance, of a company has an ongoing objective of 15% profit
growth every year and is currently achieving this objective, then the company’s longrange and short
range objectives for increasing profits coincide.
The most situations in which shortrange objectives differ from longrange objectives when managers
are trying to evaluate organizational performance and cannot reach the longrange target in just one
year. Shortrange objectives then serve toward achieving long term objective.16.) Write a note on
Strategic Management Model.

Q1 Mention the three elements of a strategic vision.
Ans. The three elements of a strategic vision are:
1. Coming up with a mission statement defines what business the company is presently in and
conveys the essence of “Who we are and where are we now?”
2. Using the mission statement as basis for deciding on a longterm course making choices about
“Where we are going?”
3. Communicating the strategic vision in clear, exciting terms that would arouse organization wide
commitment.
Q2 Give three examples of Vision.
Ans.
Â ICAI:World’s leading accounting body, a regulator and developer of trusted and independent
professionals with world class competencies in accounting, assurance, taxation, finance and business
advisory services.
Â RelianceIndustries: Through sustainable measures, create value for the nation, enhance quality of
life across the entire socioeconomic spectrum and help spearhead India as a global leader in the
domains where we operate.
Â TATA Power: To be the most admired and responsible Integrated Power Company with international
footprint, delivering sustainable value to all stakeholders.
Â TATA Motors: To be a world class corporate constantly furthering the interest of all its stakeholders.
Q3 What are the essentials of a strategic vision?
Ans.
Â The entrepreneurial challenge in the developing a strategic vision is to think creatively about how to
prepare a company for the future.
Â Forming a strategic vision is an exercise in intelligent entrepreneurship.
Â A wellarticulated strategic vision creates enthusiasm among the members of the organization.
Â The bestworded vision statement clearly illuminates the direction in which organization is headed.
Q4 What are the points considered useful while writing a mission of a company?
Ans. Following points are considered useful while writing a mission of a company:
Â One of the roles of a mission statement is to give the organization opts own special identity,
business emphasis and path for the development – one that typically sets it apart from other
similarly positioned companies.
Â A company’s business is defined by what needs it is trying to satisfy, which customer groups it is
targeting and the technologies and the competencies it uses and the activities it performs.
Â Good mission statements are – unique to the organization for which they are developed.
Q5 Mention the reasons that why an organization should have a mission?
Ans.
Â To ensure unanimity of purpose within the organization.
Â To develop a basis, or standard, for allocating organizational resources.
Â To provide a basis for motivating the use of the organization’s resources.

Â To establish a general tone or organizational climate, for example, to suggest a business like operation.
Â To serve as a focal point for those who can identify with the organization’s purpose and direction.
Â To facilitate the translation of objective and goals into a work structure involving the assignment of
tasks to responsible elements within the organization.
Â To specify organizational purposes and the translation of these purposes into goals in such a way that
cost, time, and performance parameters can be assessed and controlled.
Q6 Give two examples of a company’s mission.
Ans.
1. ICAI: ICAI will leverage technology and infrastructure and partner with its stakeholders to
Â Impart world class education, training and professionals development opportunities to create
global professionals.
Â Develop an independent and transparent regulatory mechanism that keeps pace with the changing
times.
Â Ensure adherence to highest ethical standards.
Â Conduct cutting edge research and development in the areas if accounting, assurance, taxation,
finance and business advisory services.
Â Establish ICAI members and firms as Indian multinational services providers.
2. Reliance Industries
Â Create value for all stakeholders.
Â Grow through innovation
Â Lead in good governance practices
Â Use sustainability to drive product development and enhance operational efficiencies
Â Ensure energy security of the nation
Â Foster rural prosperity
1. Strategic planning is an attempt to improve operational efficiency.
Incorrect: strategic planning, an important component of strategic management, involves developing
a strategy to meet competition and ensure long term survival and growth, strategic planning is a
function of top management level in the organisation and relate the organization with its environment.
Operational efficiency is not a direct route of strategic planning.
2. For a small entrepreneur vision and mission statement are intent.
Incorrect: entrepreneur, big or small has to function within several influences external forces.
Competition in different from and different degree is present in all kind and sizes of business. Even
entrepreneur with small businesses can have complicated environment. To grow and prosper they
need to have clear vision and mission.
3. How can a company deal with strategic uncertainty?
Strategic uncertainty denotes the uncertainty that has crucial implications for the organization. A typical
external analysis will emerge with dozens of strategic uncertainty. To be manageable, they need to be
grouped into logical clusters or themes. It is then useful to assess the importance of each cluster in
order to set priorities with respect to information gathering an analysis.

4. You are appointed as a strategic manager by XYZ co. Ltd. being a strategic manager what should be your
tasks to perform?
The primary tasks of the strategic manager is conceptualizing, designing and executing company
strategies.
For this purpose, his task will be:

Â Determining what businesses it should be in.
Â Formulating and implementing strategies that span individual businesses.
1. Strategic intent: the managers who are in charge of strategy formulation have to discover their own
role in the organization. This role can be expressed in the form of a mission statement or strategic
intent. In simple words strategic intent means a clear view on the part of the managers regarding the
objectives of the organization and the manner in which they are to be achieved. This strategic intent
promotes motivation and enthusiasm in the organization and provides a sense of destiny and discovery
on the part of different management levels. Without it, it is possible that different managers may pull
in different directions.
2. Strategic decision making: Strategic decisions encompass the definition of the business, products to be
handled, markets to be served, functions to be performed and the major policies needed for the
organization to execute these decisions to achieve the strategic objectives. Decision making is a
managerial process of selecting the best course of action out of several alternative courses for the
purpose of accomplishment of the organizational goals.
3. Vision: Vision implies the blueprint of the company’s future position. It describes where the organisation
wants to land. It depicts the organisation’s aspirations and provides a glimps of what the organization
would like to become in future. Every sub system of the organization is rehired to follow its vision.
4. Mission: Mission delineates the firm’s business, its goals and ways to reach the goals. It explains the
reason for the existence of the firm in the society. It is designed to help potential shareholders and
investors understand the purpose of the company. A mission statement helps to identify, ‘what business
the company undertakes.’ It defines the present capabilities, activities, customer focus and the role in
society.
5. Business model: Business model, as the implies is a strategy foot the effective operation of the business,
ascertain sources of income, desired customer base, and financial details. Rival firms, operating in the
same industry rely in the different business model due to their strategic choice.
1. What our business is’ is stated in
(a) mission statement (b) strategic goals
(c) vision statement (d) all of the above
2. Diversification can be best classified as
(a) Potential opportunities (b) Potential threats
(c) Potential strengths (d) Potential weaknesses

3. Strategic management is mainly the responsibility of?
(a) Lower management (b) Middle management
(c) Top management (d) All of the above
4. The next step after defining the current business is to?
(a) External and internal audit (b) Formulating a new direction
(c) Formulating strategies (d) Implement the strategies
5. The supply chain management included in?
(a) Personal competencies (b) Interpersonal competencies
(c) Business management (d) Both A and C
6. What implies the blueprint of the company’s future position?
(a) Mission statement (b) Vision statement
(c) Business definition (d) Business model
7. Mention the number of stages Strategic Management
(a) 4 (b) 5
(c) 6 (d) 7
8. Which one is not the element of Strategic Intent?
(a) Vision (b) Business model
(c) Business definition (d) Decision making
9. What provides the framework within which the firm would adopt a predetermined direction and
would operate to achieve strategic objectives?
(a) Strategic planning (b) Strategic intent
(c) Strategic decisionmaking (d) Goals and objectives
10. What is the making and determination of organizational strategy?
(a) Strategic planning (b) Strategic decisionmaking
(c) Goals and objectives (d) Mission and vision statement
ANSWERS
1. (a) 2. (a) 3. (c) 4. (a) 5. (c)
6. (b) 7. (b) 8. (d) 9. (b) 10. (a)
Major dimensions of strategic decisions:
Â Strategic decisions require topmanagement involvement
Â Strategic decisions involve commitment of organisational resources
Â Strategic decisions necessitate consideration of factors in the firm’s external environment
Â Strategic decisions are likely to have a significant impact on the longterm prosperity of the firm
Â Strategic decisions are future oriented
Â Strategic decisions usually have major multifunctional or multibusiness consequences
Elements of strategic intent:
Â Vision

Â Mission
Â Business definition
Â Business model
Â Goals and objectives
Stages of strategic management:
1. Developing a strategic vision and formulation of statement of mission, goals and objectives.
2. Environmental and organizational analysis.
3. Formulation of strategy.
4. Implementation of strategy.
5. Strategic evaluation and control


CHAPTER4
CORPORATE LEVEL STRATEGIES
You ought to pay big bonus for better performance: be a top payer; not in the middle or low end of the pack
– Lawrence Bossidy
Upto now American managers have assumed that technology increases productivity. The theory Z calls for a
redirection of attention to human relations in corporate world
– William Ouchi
INTRODUCTION
In this chapter we are going to study corporate level strategy. In all the corporate units there are various
departments or functional areas such as production, marketing, finance and personnel or human resources.
LONG QUESTIONS :
Q1 What are the different types of corporate strategy? Also mention the basic features of corporate
strategy in short.
The different types of corporate strategies are as follows:
1. Stability Strategy:
Feature: The firm stays with its current businesses and product markets; maintains the existing level of
effort; and is satisfied with incremental growth.
2. Expansion Strategy:
Feature: Here, the firm seeks significant growthmaybe within the current businesses; maybe by
entering new business that are related to existing businesses; or by entering new businesses that are
unrelated to existing businesses.
3. Retrenchment Strategy:
The firm retrenches some of the activities in some business (es), or drops the businesses as such
through sellout or liquidation.
4. Combination Strategy:
The firm combines the above strategic alternatives in some permutation/combination so as to suit the
specific requirements of the firm.
Q2 Explain the stability strategy in brief.
By the word stability means, in this context,
to safeguard its existing interests and strengths,
to pursue well established and tested objectives,
to continue in the chosen business path,
to maintain operational efficiency on a sustained basis,
to consolidate the commanding position already reached, and

to optimise returns on the resources committed in the business.
A stability strategy is pursued by a firm when:
Â It continues to serve in the same or similar markets and deals in the same manner or similar
products and services.
Â The strategic decisions focus on incremental improvement of functional performance.
Stability strategy is not a ‘does nothing’ strategy. It involves keeping track of new developments to
ensure that the strategy continues to make sense. This strategy is typical for those firms whose products
have reached the maturity stage of product life cycle.
Small organizations may also follow stability strategy to consolidate their market position and prepare
for the launch of growth strategies.
Q3 What is Growth/Expansion Strategy? What are the characteristics of growth/expansion strategy?
Ans. Growth/Expansion strategy is implemented by redefining the business by enlarging the scope of
business and substantially increasing investment in the business. It is a popular strategy that tends to
be equated with dynamism, vigour, promise and success. This strategy may take the enterprise along
relatively unknown and risky paths, full of promises and pitfalls.
Characteristics of Growth/Expansion Strategy:
Â Expansion strategy involves a redefinition of the business of the corporation.
Â Expansion strategy is the opposite of stability strategy. While in stability strategy, rewards are
limited; in expansion strategy they are very high. In the matter of risks, too, the two are the
opposites of each other.
Â Expansion strategy leads to business growth. A firm with a mammoth growth ambition a=can
meet its objective only through the expansion strategy.
Â The process of renewal of the firm through fresh investments andnew businesses/products/
markets is facilitated only by expansion strategy.
Â Expansion strategy is a highly versatile strategy; it offers several permutations and combinations
for growth. A firm opting for expansion strategy can generate many alternatives within the strategy
by alternating its propositions regarding products, markets and functions and pick the one that
suits it most.
Â Expansion strategy holds within its fold two major strategy routes: Intensification, Diversification.
Both of them are growth strategies; the difference lies in the way in which the firm actually
pursues the growth.
Q4 Explain the meaning of Diversification.
Ans. Diversification :
Diversification is defined as entry into a new products or product lines, new services or new markets,
involving substantially different skills, technology and knowledge.
When an established firm introduces a new product, which has little or no affinity with its present
product line and which is meant for a new class of customers different from the firm’s existing customer
groups, the process is known as conglomerate diversification.Both the technology of the product and
the market are different from the firm’s present experience.
Diversification is a means of utilising their existing facilities and capabilities in a more effective and
efficient manner. They may have excess capacity or capabilities in manufacturing facilities, investible
funds, marketing channels, competitive standing, market prestige, managerial and other manpower,
research and development, raw material and so forth.
Another reason for diversification lies in its synergistic advantage. It may be possible to improve the
CHAPTER4 : CORPORATE LEVEL STRATEGIES 86

sales and profits of existing products by adding suitably related or new products, because of linkages
in technologies or/and markets.
Q5 Explain different types/categories of diversification.
Ans. Diversification endeavours can be related or unrelated to existing business of the firm. Based on the
nature and extent of their relationship to existing businesses, diversification endeavours have been
classified into four broad categories:
I. Vertically integrated diversification
II. Horizontally integrated diversification
III. Concentric diversification
IV. Conglomerate diversification
1. Vertically Integrated Diversification : In vertically integrated diversification, firms opt to engage in
businesses that are related to the existing business of the firm. The firm remains vertically within the
same process sequence moves forward or backward in the chain and enters specific product/process
steps with the intention of making them into new businesses for the firm
The characteristic feature of vertically integrated diversification is that here, the firm does not jump
outside the vertically linked productprocess chain.
a. Forward integration:
Forward integration is moving forward in the value chain and entering business lines that use
existing products. Forward integration will also take place where organizations enter into
businesses of distribution channels.
E.g.: A coffee bean manufacture may choose to merge with the coffee café.
b. Backward integration:
Backward integration is a step towards, creation of effective supply by entering business of input
providers. Strategy employed to expand profits and gain greater control over production of a
product whereby a company will purchase or build a business that will increase its own supply
capability or lessen its cost of production.
E.g.: A large supermarket chain considers purchasing a number of farms that would provide it a
significant amount of fresh produce.
2. Horizontal Integrated Diversification : Through the acquisition of one or more similar business operating
at the same stage of the productionmarketing chain that is going complementary products, byproducts
or taking over competitors’ products.]
Related Diversification Unrelated Diversification
Â Exchange or share assets or competencies Â Investment in new product portfolios.
by exploiting
Â Brand name Â Employment of new technologies.
Â Marketing skills Â Focus on multiple products.
Â Sales and distribution capacity Â Reduce risk by operating in multiple
product markets.
Â Manufacturing skills Â Defend against takeover bids.
Â R&D and new product capabilitiy Â Provide executive interest.
Â Economices of scale.
Figure: Related Vs. Unrelated Diversification

3. Concentric Diversification : Concentric diversification is a related diversification. In concentric
diversification, the new business is linked to the existing businesses through process, technology or
marketing. The new product is a spinoff from the existing facilities and products/processes. This
means that in concentric diversification too, there are benefits of synergy with the current operations.
Different from vertical integration in nature of the linkage new product has with the existing ones.
In vertically integrated diversification, the new product falls within the firm’s current processproduct
chain, in concentric diversification, there is a departure from this vertical linkage. The new product is
only connected in a looplike manner at one or more points in the firm’s existing process/technology/
product chain.
4. Conglomerate Diversification : In conglomerate diversification, no such linkages exist; the new
businesses/ products are disjoined from the existing businesses/products in every way; it is totally
unrelated diversification.
In process/technology/function, there is no connection between the new products and the existing
ones. Conglomerate diversification has no common thread at all with the firm’s present position.
E.g.: A cement manufacturer diversifies into the manufacture of steel and rubber products.
Q6 Explain the different types of mergers.
Ans. The types of mergers are similar to types of diversification. They are as follows:
a. Horizontal Merger : Horizontal merger is a combination of firms engaged in the same industry. It is a
merger with a direct competitor. The principal objective behind this type of merger is to achieve
economies of scale in the production process by shedding duplication of installations and functions,
widening the line of products, decrease in working capital and fixed assets investment, getting rid of
competition and so on.
E.g.: Formation of Brook Lipton India Ltd. Through the merger of Lipton India and Brook Bond.
b. Vertical Merger : It is a merger of two organizations that are operating in the same industry but at
different stages of production or distribution system. This often leads to synergies with the merging
firms. E.g.: id an organization takes over its supplier/producers of raw material, and then it leads to
backward integration.
On the other hand, forward integration happens when an organization decides to take over its buyer
organizations or distribution channels.
Vertical merger results in many operating and financial economies. Vertical mergers help to create an
advantageous position by restricting the supply of inputs to other players, or by providing the inputs at
a higher cost.
c. Cogeneric Merger : In Cogeneric merger two or more merging organizations are associated in some
way or the other related to the production processes, business markets, or basic required technologies.
Such merger includes the extension of the product line or acquiring components that are required in
the daily operations.
E.g.: an organization in the white goods category such as refrigerators can diversify by merging with
another organization having business in kitchen appliances.
d. Conglomerate Merger : Conglomerate mergers are the combination of organizations that are unrelated
to each other. There are no linkages with respect to customer groups, customer functions and
technologies being used.
There are no common factors between the organizations in production, marketing, research and
development and technology.

Q7 What are the advantages of Strategic Alliance?
Ans. Strategic alliance usually is formed if they provide an advantage to all the parties in the alliance. These
advantages can be broadly categorised as follows:
1. Organizational : Strategic alliance helps to learn necessary skills and obtain certain capabilities from
strategic partners. Strategic partners may also help toenhance productive capacity, provide a distribution
system, or extend supply chain, a good or service that complements thereby creating a synergy. A well
known and respected also helps add legitimacy and creditability to a new venture.
2. Economic : There can be a reduction in costs and risks by distributing them across the members of the
alliance. Greater economies of scale can be obtained in an alliance, as production volume can increase;
causing the cost per unit to decline and finally the partners can take advantage of cospecialization,
creating additional value.
E.g.: A leading computer manufacturer bundles its desktop with a leading monitor manufacturer’s
monitor.
3. Strategic : Rivals can join together to corporate instead of compete. Strategic alliances may also be
useful to create a competitive advantage by the pooling of resources and skills. Strategic alliance may
also be used to get access to new technologies or to pursue joint research and development.
4. Political : Sometimes strategic alliances are formed with a local foreign business to gain entry into a
foreign market either because of local prejudices or legal barriers to entry. Forming strategic alliances
with politicallyinfluential partners may also help improve your own influence and position.
Q8 What steps/stages can be said to be a workable action plan for turnaround strategy?
Ans. For turnaround strategies to be successful, it is imperative to focus on the short and longterm financing
needs as well as on strategic issues. A workable action plan for turnaround would involve the following
stages:
1. Stage one Assessment of current problems : The first step is to assess the current problems and
get to the root causes and the extent of damage the problem has caused. Once the problems are
identified, the resources should be focused toward those areas essential to efficiently work on
correcting and repairing any immediate issues.
2. Stage Two – Analyze the situation and develop strategic plan : Before you make any major changes;
determine the chances of the business’s survival. Identify appropriate strategies and develop a
preliminary action plan. For this one should look for the viable core businesses, adequate bridge
financing and available organizational resources. Analyze the strengths and weaknesses in the
areas of competitive position.
Once major problems and opportunities are identified, develop a strategic plan with specific
goals and detailed functional actions.
3. Stage Three – Implementing an emergency action plan : If the organization is in critical stage, an
appropriate action plan must be developed to stop the bleeding and enable the organization to
survive. The pan typically includes human resources, financial, marketing and operations actions
to restructure debts, improve working capital, reduce costs, improve budgeting practices, prune
product lines and accelerate high potential products.
A positive operating cash flow must be established as quickly as possible and enough funds to
implement the turnaround strategies must be raised.
4. Stage Four – Restructuring the business : The financial state of the organization’s core business is
particularly important. If the core business is irreparably damaged, then the outlook for the
entire organization may be bleak. Prepare cash forecasts, analyze assets and debts, review profits

and analyze other key financial functions to position the organization for rapid improvement.
During the turnaround the “product mix” may be changed, requiring the organization to do some
repositioning. Core products neglected over time may require immediate attention to remain
competitive. Some facilities might be closed; the organization may even withdraw from certain
markets to make organization leaner or target its products toward a different niche.
The ‘people mix’ is another important ingredient in the organization’s competitive effectiveness.
Reward and compensation systems that encourage dedication and creativity encourage employees
to think profits and return on investments.
5. Stage Five – Returning to normal : In the final stage of turnaround strategy process, the organization
should begin to show signs of profitability, return on investments and enhancing economic value
added.
Emphasis is placed on a number of strategic efforts such as carefully adding new products and
improving customer service, creating alliances with other organizations, increasing the market
share, etc.
SHORT QUESTIONS :
Q1 What are the characteristics of stability strategy?]
Ans. Following are the characteristics of stability strategy:
Â A firm opting for stability strategy stays with the same business, same product market posture
and functions, maintaining samelevel of effort as at present.
Â The endeavour is to enhance functional efficiencies in an incremental way, through better
deployment and utilization of resources. The assessment of the firm is that the desired income
and profits would be forthcoming through such incremental improvements in functional
efficiencies.
Â Stability strategy does not involve a redefinition of the business of the corporation.
Â It is basically a safetyoriented, status quo oriented strategy.
Â It does not warrant much of fresh investments.
Â It involves minor improvements in the product and its packaging.
Â The risk is also less.
Â With the stability strategy, the firm has the benefit of concentrating its resources and attention
on the existing businesses/products and markets.
Â The growth objective of firms employing this strategy is quite modest. Conversely, only firms
with modest growth objective choose for this strategy.
Q2 Explain Merger and Acquisition.
Ans. Merger and acquisition in simple words are defined as a process of combining two or more organizations
together. There is a thin line of difference between the two terms but the impact of combination is
completely different in both the cases.
Merger : Merger is considered to be a process when two or more companies come together to expand
their business operations. In such a case the deal gets finalized on friendly terms and both the
organizations share profits in the newly created entity. In a merger two organizations combine to
increase their strength and financial gains along with breaking the trade barriers.
Acquisitions : When one organization takes over the other organization and controls all its business
operations, it is known as acquisitions. In this process of acquisition, one financially strong organization
overpowers the weaker one. Acquisitions often happen during recession in economy or during declining
profit margins. In this process, one that is under the m=name of the powerful entity. A deal in case of
an acquisition is often done in an unfriendly manner, it us more or less a forced association where the
powerful organization either consumers the operations or a company in a weaker position is forced to
sell its entity.
Some of the recent/popular instances of acquisition are listed below:
Â Tata’s acquisition of Anglo Dutch steelmaker Corus
Â Tata’s acquisition of British Jaquar Land Rover
Â Mittal steels’s takeover of Arcelor
Â HPCL’s acquisition of Kenya Petroleum Rifenary Ltd.
Â Hindalco’s acquisition of Canada based Novelis
Q3 What is expansion through strategic alliance?
Ans. Meaning : A strategic alliance is a relationship between two or more businesses that enables each to
achieve certain strategic objectives which neither would be able to achieve on its own. The strategic
partners maintain their status as independent and separate entities, share the benefits and control
over the partnership, and continue to make contributions to the alliance until terminated.
Strategic alliances are often formed in the global marketplace between businesses that are based in
different regions of the world.
Q4 What are the disadvantages of Strategic Alliance?
Ans. Strategic alliances do come with some disadvantages and risks. The major disadvantage is sharing.
Strategic alliances require sharing of resources and profits, and also sharing knowledge and skills that
otherwise organizations may not like to share. Agreements can be executed to protect trade secrets,
but they are only as good as the willingness of parties to abide by the agreements or the court willingness
to enforce them.
Strategic alliances may also create a potential competitor. An ally may become a competitor in future
when it decides to separate out.
Q5 Explain the retrenchment strategy for a company.
OR
Explain the retrenchment strategy.
Ans. Retrenchment Strategy is followed when an organization substantially reduces the scope of its activity.
This is done through an attempt to find out the problem areas and diagnose the causes of the problem.
The next step isto solve the problems. These steps result in different kinds of retrenchment strategies.
If the organization chooses to focus on ways and means to reverse the process of decline, it adopts at
turnaround strategy.
If it cuts off the lossmaking units, it adopts a divestment (or divestiture) strategy.
If none of these actions work then it may choose to abandon the activities totally, resulting in a
liquidation strategy.
Q6 Explain the basics of turnaround strategy.
Ans. Retrenchment may be done rather internally or externally.
For internal retrenchment to take place, emphasis is laid on improving internal efficiency, known as
turnaround strategy.
There are certain conditions or indicators which point out that a turnaround is needed if the company
has to survive. There danger signals are:

Â Persistent negative cash flow from business(es)
Â Uncompetitive products or services
Â Declining market share
Â Deterioration in physical facilities
Â Overstaffing, high turnover of employees, and low morale
Â Mismanagement
Q7 What is Divestment Strategy? OR Explain Divestment Strategy.
Ans. Meaning:
Divestment strategy involves the sale or liquidation of a portion of business, or a major division, profit
centre or SBU. Divestment is usually a part of rehabilitation or restructuring plan and is adopted when
a turnaround has attempted but has proved to be unsuccessful. The option of a turnaround may even
be ignored if it is obvious that divestment is the only answer.
Reasons:
A divestment strategy may be adopted due to various reasons like:
1. A business that had been acquired proves to be a mismatch and cannot be integrated within the
company.
2. Persistent negative cash flows from a particular business create financial problems for the whole
company, creating the need for divestment of that business.
3. Severity of competition and the inability of a firm cope with it may cause it to divest.
4. Technological upgradation is required if the business is to survive but where it is not possible for
the firm to invest in it, a preferable option would be to divest.
5. A better alternative may be available for investment, causing a firm to divest a part of its
unprofitable businesses.
Q8 What is Liquidation Strategy? OR Explain the Liquidation Strategy.
Ans. A retrenchment strategy considered the most extreme and unattractive is liquidation strategy, which
involves closing down a firm and selling its assets. It is considered as the last resort because it leads to
serious consequences such as loss of employment for workers and other employees, termination of
opportunities where a firm could pursue any future activities, and the stigma of failure.
Liquidation strategy may be unpleasant as a strategic alternative but when a “dead business is worth
more than alive”, it is a good proposition. For instance, the real estate owned by a firm may fetch it
more money than the actual returns of doing business. When liquidation is evident (though it is difficult
to say exactly when), an abandonment plan is desirable. Planned liquidation would involve a systematic
plan to reap the maximum benefits for the firm and its shareholders through the process of liquidation.
Q9 Expansion strategy and retrenchment strategy.
Ans. Expansion strategy is implemented by redefining the business by adding the scope of business
substantially increasing the efforts of the current business. On the other hand, retrenchment strategy
involves redefinition of business by divesting a major product line or market.
Expansion may take the enterprise along relatively unknown and risky paths, full of promises and
pitfalls; retrenchment involves regrouping and recouping of resource.
Q10 What strategic alternative should be followed during recession?
Ans. Stability strategy is an advisable option for the organizations facing recession. During recession
businesses face reduced demand for their products even at low prices. Funds become scarce,

expenditure on expansion is stopped, profits decline and businesses try to minimise the costs. They
work hard to maintain the existing market share, so that company survives the recessionary period.
Q11 Explain the meaning of the directional strategies.
Ans. Directional strategies also called grand strategies provides basic direction for strategic actions towards
achieving strategic goals. Such strategies are formulated at the corporate level so are also known as
corporate strategies. The corporate strategies a firm can adopt have been classified into four broad
categories: stability, expansion, retrenchment and combination known as directional/grand strategies.
Q1 What are the major reasons for Stability Strategy?
Ans. Following are the major reasons for pursuing the stability strategy:
Â A product has reached the maturity stage of the product life cycle.
Â It is less risky as it involves less changes and the staff feels comfortable with things as they are.
Â The environment faced is relatively stable.
Â Expansion may be perceived as being threatening.
Â Consolidation is sought through stabilizing after a period of rapid expansion.
Q2 What are the major reasons for growth/expansion strategy?
Ans. Following are the major reasons for growth and expansion strategy:
1. It may become imperative when environment demands increase in pace of activity.
2. Strategists may feel more satisfied with the prospects of growth from expansion; chief executives
may take pride in presiding over organizations perceived to be growthoriented.
3. Expansion may lead to greater control over the market visàvis competitors.
4. Advantages from the experience curve and scale of operations may accrue.
Q3 What are the different types of Growth/Expansion Strategy?
Ans.
1. Expansion through Diversification.
2. Expansion through Mergers and Acquisitions.
3. Expansion through Strategic Alliance.
Q4 What are the important elements of turnaround strategy?
Ans. Following are the important elements of turnaround strategy:
Â Changes in the top management
Â Initial credibilitybuilding actions
Â Neutralising external pressures
Â Identifying quick payoff activities
Â Quick cost reductions
Â Revenue generation
Â Asset liquidation for generating cash
Â Better internal coordination
Q5 What are the characteristics of Retrenchment / Turnaround Strategy?
OR
Mention the characteristics of Retrenchment/Turnaround strategy.
Ans. Following are the characteristics of Retrenchment/Turnaround Strategy:
1. This strategy involves retrenchment/divestment of some of the activities in a given business of
the firm or sellout of some of the businesses as such.
2. Divestment is to be viewed as an integral part of corporate strategy without any stigma attached.
3. Like expansion strategy, divestment strategy, too, involves a redefinition of the business of the
corporation.
4. Compulsions for the divestment can be many and varied, such as:
a. Obsolence of product/process
b. Business becoming unprofitable and unviable
c. Inability to cope up with cut throat competition
d. Industry overcapacity
e. Failure of existing strategy
Q6 What are the major reasons for Retrenchment/Turnaround Strategy?
Ans. Following are the major reasons for Retrenchment/Turnaround strategy:
1. The management no longer wishes to remain in the business either partly or wholly due to
continuous losses and unviability.
2. The management feels that business could be made viable by divesting some of the activities or
liquidation of unprofitable activities.
3. A business that had been acquired proves to be a mismatch and cannot be integrated within the
company.
4. Persistent negative cash flows from a particular business create financial problems for the whole
company, creating the need for divestment of that business.
5. Severity of competition and the inability of a firm cope with it may cause it to divest.
6. Technological upgradation is required if the business is to survive but where it is not possible for
the firm to invest in it, a preferable option would be to divest.
7. A better alternative may be available for investment, causing a firm to divest a part of its
unprofitable businesses.
Q7 What is Combination Strategy? What are the major reasons for adopting a Combination Strategy?
Ans. The strategies such as retrenchment or turnaround or expansion or liquidation strategy are not mutually
exclusive. It is possible to adopt a mix of the above to suit particular situations.
An enterprise may seek stability in some areas of activity, expansion in some and retrenchment in the
others. Retrenchment of ailing products followed by stability and capped by expansion in some
situations may be thought of. For some organizations, a strategy by diversification and/or acquisition
may call for a retrenchment in some obsolete product lines, production facilities and plant locations.
Major reasons for Combination Strategy:
1. The organization is large and faces complex environment.
2. The organization is composed of different businesses, each of which lies in a different industry
requiring a different response.
1. Vertical diversification integrates firms forward or backward in the product chain.
Incorrect: although organization can diversify into businesses that are vertically or horizontally related

to the existing businesses, the diversification is not limited to the related businesses. In conglomerate
diversification, the new businesses/products are disjointed from the existing businesses/ products in
every way. There is no connection between the new products and the existing ones in process,
technology or function.
2. Retrenchment implies downsizing of business.
Incorrect: in the context of strategic management, retrenchment implies giving up certain products
and reducing the level of business as a compulsive measure to cope up with certain adverse
developments on which the firm has little control. Downsizing is planned elimination of positions or
jobs. Retrenchment does not imply downsizing, however, the latter is often used to implement a
retrenchment strategy.
1. Stability strategy: stability strategy involves keeping track of new developments to ensure that the
strategy continues to make sense. This strategy is typical for those firms whose products have reached
the maturity stage of product life cycle. Small organization may also follow stability strategy to
consolidate their market position and prepare for the launch of growth strategies.
2. Growth/expansion strategy: Growth/Expansion strategy is implemented by redefining the business
by enlarging the scope of business and substantially increasing investment in the business. It is a
popular strategy that tends to be equated with dynamism, vigour, promise and success. This strategy
may take the enterprise along relatively unknown and risky paths, full of promises and pitfalls.
3. Concentric diversification: Concentric diversification is a related diversification. In concentric
diversification, the new business is linked to the existing businesses through process, technology or
marketing. The new product is a spinoff from the existing facilities and products/processes. This
means that in concentric diversification too, there are benefits of synergy with the current operations.
4. Conglomerate diversification: In conglomerate diversification, no such linkages exist; the new
businesses/ products are disjoined from the existing businesses/products in every way; it is totally
unrelated diversification. In process/technology/function, there is no connection between the new
products and the existing ones. Conglomerate diversification has no common thread at all with the
firm’s present position.
5. Merger: Merger is considered to be a process when two or more companies come together to expand
their business operations. In such a case the deal gets finalized on friendly terms and both the
organizations share profits in the newly created entity. In a merger two organizations combine to
increase their strength and financial gains along with breaking the trade barriers.
6. Acquisitions : When one organization takes over the other organization and controls all its business
operations, it is known as acquisitions. In this process of acquisition, one financially strong organization
overpowers the weaker one. Acquisitions often happen during recession in economy or during declining
profit margins. In this process, one that is under the m=name of the powerful entity. A deal in case of
an acquisition is often done in an unfriendly manner, it us more or less a forced association where the
powerful organization either consumers the operations or a company in a weaker position is forced to
sell its entity.
7. Strategic alliance: A strategic alliance is a relationship between two or more businesses that enables
each to achieve certain strategic objectives which neither would be able to achieve on its own. The
strategic partners maintain their status as independent and separate entities, share the benefits and
control over the partnership, and continue to make contributions to the alliance until terminated.
8. Retrenchment strategy: A retrenchment strategy considered the most extreme and unattractive is
liquidation strategy, which involves closing down a firm and selling its assets. It is considered as the
last resort because it leads to serious consequences such as loss of employment for workers and other
employees, termination of opportunities where a firm could pursue any future activities, and the
stigma of failure.
9. Divestment strategy: Divestment strategy involves the sale or liquidation of a portion of business, or a
major division, profit centre or SBU. Divestment is usually a part of rehabilitation or restructuring plan
and is adopted when a turnaround has attempted but has proved to be unsuccessful. The option of a
turnaround may even be ignored if it is obvious that divestment is the only answer.
10. Combination strategy: The strategies such as retrenchment or turnaround or expansion or liquidation
strategy are not mutually exclusive. It is possible to adopt a mix of the above to suit particular situations.
An enterprise may seek stability in some areas of activity, expansion in some and retrenchment in the
others. Retrenchment of ailing products followed by stability and capped by expansion in some
situations may be thought of. For some organizations, a strategy by diversification and/or acquisition
may call for a retrenchment in some obsolete product lines, production facilities and plant locations.

1. Diversification can be best classified as
2. Horizontal integration is concerned with
(a) Production (b) Quality
(c) Product planning (d) All of the above
3. At how many different levels are the strategies formulated?
(a) 2 (b) 3 (corporate, business, functional)
(c) 4 (d) 5
4. Involves a redefinition of the business of the corporation.
(a) Expansion strategy (b) Redevelopment
(c) Merger (d) Change in the goals and objectives
5. Is the opposite of stability strategy
(a) Expansion strategy (b) Redevelopment
(c) Merger (d) Change in the goals and objectives
6. Is defined as entry into new products or product lines, new services or new markets, involving
substantially different skills, technology and knowledge.
(a) Diversification (b) Expansion
(c) Merger (d) Demerger
7. What does the intensification does not involve from the following?
(a) Market penetration (b) Market development
(c) Product development (d) Production development
8. Which one of the following does not fall under the category of Diversification?
(a) Vertically integrated diversification (b) Horizontally integrated diversification
(c) Concentric diversification (d) Conglomerate diversification
(e) None of the above

9. A coffee bean manufacturer may choose to merge with a coffee café – is an example of
(a) Forward integration (b) Backward integration
(c) Merger (d) None of the above
10. Is a relationship between two or more businesses that enables each to achieve certain strategic
objectives which neither would be able to achieve on its own.
(a) Strategic planning (b) Strategic decision making
(c) Strategic alliance (d) None of the above
ANSWERS
1. (a) 2. (d) 3. (b) 4. (a) 5. (a)
6. (a) 7. (d) 8. (e) 9. (a) 10. (c)

Different types of corporate strategy:
Â Stability strategy Â Expansion strategy
Â Retrenchment strategy Â Combination strategy
Different types of growth/expansion strategy:
Â Expansion through diversification
Â Expansion through mergers and acquisitions
Â Expansion through strategic alliance
Different types of diversification:
1. Vertically integrated diversification
2. Horizontally integrated diversification
3. Concentric diversification
4. Conglomerate diversification
Different types of mergers:
Â Horizontal merger
Â vertical merger
Â cogeneric merger
Â conglomerate merger
Advantages of strategic alliance:
Â organizational Â economic
Â strategic Â political
A workable action plan for turnaround would involves the following stages:
Â Assessment of current problems
Â Analyze the situation and develop strategic plan
Â Implementing an emergency action plan
Â Restructuring the business

Â Returning to normal
Important elements of turnaround strategy:
Â Changes in the top management Â Initial credibilitybuilding actions
Â Neutralising external pressures Â Identifying quick payoff activities
Â Quick cost reductions Â Revenue generation
Â Asset liquidation for generating cash Â Better internal coordination

CHAPTER5
BUSINESS LEVEL STRATEGIES
Policies are the oral or written submission which forms the limits of the company
– Dr. George R. terry
The idea is to concentrate our strength against our competitors’ relative weakness
– Bruce Henderson
INTRODUCTION
In the corporate units there are various departments or functional areas such as production, marketing,
finance and personnel or human resources. The functional mangers are to be guided about the business
strategy so that they can make decisions. There are two types of the functional strategy namely plans and
policies. The plans tell the functional managers what it to be done and the policies provide guidelines about
how the plans are to be executed.
LONG QUESTIONS :
Q1 Explain the five components of Porter’s Model in detail.
Ans.
I. Threat of New Entrants:
A firm’s profitability tends to be higher when other are blocked from entering the industry. New
entrants can reduce industry profitability because they add new production capacity leading to increase
supply of the product even at a lower price and can substantially erode existing firm’s market share
position. To discourage new entrants, existing firm’s can try to raise barriers to entry.
Common barriers to entry include:
i. Capital requirements
ii. Economies of scale
iii. Product differentiation
iv. Switching costs
v. Brand identity
vi. Access to distribution channels
vii. Possibility of aggressive retaliation by existing players.
II. Bargaining Power of Buyers:
Buyers of an industry’s products or services can sometimes exert considerable pressure on existing
firms to secure lower prices or better services. This leverage is particularly evident when:
i) Buyers have full knowledge of the sources of products and their substitutes.
ii) They spend a lot of money on the industry’s products i.e. they are big buyers.
iii) The industry’s product is not perceived as critical to the buyer’s needs and buyers are more
concentrated than firms supplying the product. They can easily switch to the substitutes available.

III. Bargaining Power of Suppliers:
Suppliers can influence the profitability of an industry in a number of ways. Suppliers can command
bargaining power over a firm when:
i. Their products are crucial to the buyer and substitutes are not available.
ii. They can erect high switching costs.
iii. They are more concentrated than their buyers.
IV. The Nature of Rivalry in the Industry:
The intensity of rivalry in an industry is a significant determinat of industry attrativeness and profitability.
The intensity of rivalry can influence the costs of suppliers , distribution, and of attracting customers
and thus directly affect the profitability. The more intensive the rivalry, the less attractive is the industry.
Rivalry among competitors tends to be cutthroat and industry profitability low when
(i) An industry has no clear leader.
(ii) Competitors in the industry are numerous.
(iii) Competitors operate with high fixed costs.
(iv) Competitors face high exit barriers.
(v) Competitors have little opportunity to differentiate their offerings.
(vi) The industry faces slow or diminished growth.
V. Threat of Substitutes:
A final force that can influence industry profitability is the availability of substitutes for an industry’s
product. To predict profit pressure from this source, firms must search for products that perform the
same, or nearly the same, function as their existing products. Real estate, insurance, bonds and bank
deposits for example are clear substitutes for common stocks, because they represent alternate ways
to invest funds.
The threat of substitutes is great in many high tech industries as well. For example, introduction of
digital filmless cameras virtually replace the film cameras and threatened the existence of Eastman
Kodak and Fuji Film. Further, the introduction of smart phones has replaced cameras to a great extent.
Q2 Explain when does the rivalry among competitors tends to be cutthroat and lowers industrial
profitability?
Or
Explain the nature of rivalry in the industry.
Ans. Rivalry among competitors tends to be cutthroat and industry profitability low when:
I. An industry has no clear leader.
II. Competitors In the industry are numerous.
III. Competitors operate with high fixed costs.
IV. Competitors face high exit barriers.
V. Competitors have little opportunity to differentiate their offerings.
CHAPTER5 : BUSINESS LEVEL STRATEGIES 102

VI. The industry faces slow or diminished growth.
(i) Industry Leader: A strong industry leader can discourage price wars by disciplining initiators of such
activity. Because of its greater financial resources, a leader can generally outlast smaller rivals in a price
war. Knowing this, smaller rivals often avoid initiating such a contest.
(ii) Number of Competitors: Even when an industry leader exists, the leader’s abilityto exert pricing
discipline diminishes with the increased number of rivals in the industry as communicating expectations
to players becomes more difficult.
(iii) Fixed Costs: When rivals operate with high fixed costs, they feel strong motivation to utilize their
capacity and therefore are inclined to cut prices when they have excess capacity. Price cutting causes
profitability to fall for all firms in the industry as firms seek to produce more to cover costs that must be
paid regardless of industry demand. For this reason, profitability tends to be lower in industries (for
example, airline, telecommunications) characterized by high fixed costs.
(iv) Exit Barriers: Rivalry among competitors declines if some competitors leave an industry. Profitability
therefore tends to be higher in industries with few exit barriers. Exit barriers come in many forms.
Assets of a firm considering exit may be highly specialized and therefore of little value to any other
firm. Such a firm can thus find no buyer for its assets. This discourages exit. When barriers to exit are
powerful, competitors desiring exit may refrain from leaving. Their continued presence in an industry
exerts downward pressure on the profitability of all competitors.
(v) Product Differentiation: Firms can sometimes insulate themselves from price wars by differentiating
their products from those of rivals. As a consequence, profitability tends to be higher in industries that
offer opportunity for differentiation.
Profitability tends to be lower in industries involving undifferentiated commodities such as, memory
chips, natural resources, processed metals and railroads.
(vi) Slow Growth: Industries whose growth is slowing down tend to face more intense rivalry. As industry
growth slows, rivals must often fight harder to grow or even to keep their existing market share. The
resulting intensive rivalry tends to reduce profitability for all.
Q3 Explain the BestCost Provider Strategy.
The new model of best cost provider strategy is a further development of above three generic strategies.
It is directed towards giving customers more value for the money by emphasizing both low cost and
upscale differences. The objective is to keep costs and prices lower than those of other sellers of
comparable products.

Bestcost provider strategy involves providing customers more value for the money by emphasizing
low cost and better quality difference. It can be done:
a. Through offering products at lower price than what is being offered by rivals for products with
comparable quality and features or
b. Charging similar price as by the rivals for the products with much higher quality and better features.
DISTINCTIVE FEATURES OF THE GENERIC COMPETITIVE STRATEGIES ARE GIVEN BELOW:
Features LowCost Broad BestCost Focused LowCost and

Provider Differentiation Provider Focused differentiation
¨ Strategic ¨ A broad ¨ A broad cross ¨ Value ¨ A narrow market
target crosssection section of the conscious niche where
of the market market buyer buyer needs and
preferences are
distinctively
differentfrom the
rest of the market.
¨ Basis of ¨ Lower costs than ¨ An ability to offer ¨ More value ¨ Lower cost in serving
competitive competitors buyers something for the money the niche (focused
advantage different from low cost) or special
competitors attributes that appeal
to the tastes or
requirements of
niche members
(focused
differentiation)
¨ Market ¨ Try to make a ¨ Build in whatever ¨ Either under ¨ Communicate
emphasis virtue out of features buyers are price rival how the focuser’s
product features willing to pay for brands with product attributes
that lead to low ¨ Charge a premium comparable and capabilities
cost price to cover the features or aim at catering to
extra cots of match the niche member tastes
differentiating price of rivals and/or specialised
features and provide requirements
better
features to
build a
reputation for
delivering the
best value

¨ Sustaining ¨ Offer economical ¨ Communicate the ¨ Develop ¨ Remain totally
the strategy prices/good value points of difference unique dedicated to serving
¨ Aim at in creditable ways expertise in the niche better than
contributing to a ¨ Stress constant simultaneously other competitors;
sustainable cost improvement and managing don’t blunt the firm’s
advantagethe use innovation costs down image and efforts
key is to manage to stay ahead and upscaling by entering other
costs down, year of initiative features and segments or adding
after year, in competitors attributes. other product
every area of the ¨ Concentrate on a categories to widen
business. few differentiating market appeal.
features; tout
them to create a
reputation and
brand image.
¨ Product ¨ A good basic ¨ Many product ¨ Goodto ¨ Features and
line product with few variations, wide excellent attributes that appeal
frills (acceptable selection, strong attributes, to the tastes and/or
quality and emphasis on several special needs of the
limited selection). differentiating tomany target segment.
features. upscale
features.
¨ Product ¨ A continuous ¨ Creation of value ¨ Incorporation ¨ Tailormade for
emphasis search for cost for buyer; strive for of upscale the tastes and
reduction without product superiority features and requirements of
sacrificing attributes at niche members.
acceptable quality low cost.
and essential
features.
Q4 Explain Michael Porter’s generic Strategies in brief.
Ans. According to porter, strategies allow organizations to gain competitive advantage from three different
bases;
i. Cost leadership
ii. Differentiation
iii. Focus
Porter called these base generic strategies. These strategies have been termed generic because they
can be pursued by any type or size of business firm and even by notforprofit organizations.
Cost leadership emphasizes producing standardized products at a very low perunit cost for consumers

who are pricesensitive.
Differentiation is a strategy aimed at producing products and services considered unique industry
wide and directed at consumers who are relatively priceinsensitive.
Focus means producing products and services that fulfil the needs of small groups of consumers.
Porter’s strategies imply different organizational arrangements, control producers, and incentive
systems. Larger firms with greater access to resources typically compete on a cost leadership and/or
differentiation basis, whereas smaller firms often compete on a focus basis.
Porter stresses the need for strategists to perform costbenefit analysis to evaluate “sharing
opportunities” among the firm’s existing and potential business units. Sharing activities and resources
enhances competitive advantage by lowering costs or raising differentiation.
In addition to prompting sharing, Porter stresses the need for firms to “transfer” skills and expertise
among autonomous business units effectively in order to gain competitive advantage. Depending
upon factors such as type of industry, size of firm and nature of competition, various strategies could
yield advantages in cost leadership differentiation, and focus.
Q5 Analyse the following cases in the context of Michel Porter’s five forces models:
(1) A supplier has a large base of customers.
(2) A manufacturer of sports goods has the advantage of economies of large scale production.
(3) Products offered by competitors are almost similar.
Ans.
(1) Large base of customers of an organization may increase its bargaining power in comparison to
the bargaining power of the customer.
(2) The manufacture of sports goods would be in better position amongst existing competitors
since it has advantage of economies of scale. Even the threat of new entrants gets reduced.
(3) Similar products will reduce the bargaining power of the rivals, i.e. competitors, in other words
the bargaining power of the customer will be more.
Q6 Explain in brief the common barriers to entry in a new industry.
Ans. The common barriers to entry in a new industry can be explained as follows:

(i) Capital Requirements: When a large amount of capital is required to enter an industry, firms lacking
funds are effectively barred from the industry, thus enhancing the profitability of existing firms in the
industry. For example, huge investments are needed to build production facilities and establish brand
awareness among people for entry into the pharmaceutical industry. This makes the entry of new
companies into this sector very difficult.
(ii) Economies of Scale: Many industries are characterized by economic activities driven by economies of
scale. Economies of scale refer to the decline in the perunit cost of production (or other activity) as
volume grows. A large firm that enjoys economies of scale can produce high volumes of goods at
successively lower costs. This tends to discourage new entrants. For example, in the semiconductor
industry, larger companies, such as IBM, Intel, Samsung and Texas Instruments, enjoy substantial
economies of scale in the production of advanced microprocessors, communicationchips and integrated
circuits that power most consumer electronics, personal computers (PCs) and cellular phones. This acts
as a barrier for new entrants.
(iii) Product Differentiation: Product differentiation refers to the physical or perceptual differences, or
enhancements, that make a product special or unique in the eyes of customers. Firms in the personal
care products and cosmetics industries actively engage in product differentiation to enhance their
products’ features. Differentiation works to reinforce entry barriers because the cost of creating genuine
product differences may be too high for the new entrants.
(iv) Switching Costs: To succeed in an industry, new entrant must be able to persuade existing customers of
other companies to switch to its products. To make a switch, buyers may need to test a new firm’s
product, negotiate new purchase contracts, and train personnel to use the equipment, or modify
facilities for product use. Buyers often incur substantial financial (and psychological) costs in switching
between firms.
When such switching costs are high, buyers are often reluctant to change. For example, high switching
costs in moving away from Microsoft’s Windows operating systems used in personal computers and
corporate servers powered the company’s stunning growth over the past decade in the software
industry.
(v) Brand Identity: The brand identity of products or services offered by existing firms can serve as another
entry barrier. Brand identity is particularly important for infrequently purchased products that carry a
high unit cost to the buyer. New entrants often encounter significant difficulties in building up the
brand identity, because to do so they must commit substantial resources over a long period. For
example, during the 1970s, Japanese companies such as Toyota, Nissan, and Honda had to spend huge
sums on new product development and promotional activities to overcome the American consumer’s
preference for domestic cars.
(vi) Access to Distribution Channels: The unavailability of distribution channels for new entrants poses
another significant entry barrier. Despite the growing power of the internet, many firms may continue
to rely on their control of physical distribution channels to sustain a barrier to entry to rivals. Often,
existing firms have significant influence over the distribution channels and can retard or impede their
use by new firms. For example, because of control over distribution channelsin India by HUL, P & G and
Godrej etc., small entrepreneurs find it very difficult to sell their products through the existing channels.
(vii) Possibility of Aggressive Retaliation: Sometimes the mere threat of aggressive retaliation by incumbents
can deter entry by other firms into an existing industry.
For example, introduction of products by a new firm may lead incumbents firms to reduce their product
prices and increase their advertising budgets.

SHORT QUESTIONS :
Q1 What according to Porter’s Five Forces Model is the state of competition in an industry?
OR
In which areas of the market does the composite of competitive pressures operate?
Ans. Michael Porter believes that the basic unit of analysis for understanding is a group of competitors
producing goods or services that compete directly with each other. It is the industry where competitive
advantage is ultimately won or lost. It is through competitive strategy that the organization attempts
to adopt an approach to compete in the industry.
The Porter’s Model holds that the state of competition in an industry is a composite of competitive
pressures operating in five areas of the overall market:
1. Competitive pressures associated with the market manoeuvring (a clever or skilful action) and
jockeying for buyer patronage that goes on among rival sellers in the industry.
2. Competitive pressures associated with the threat of new entrants into the market.
3. Competitive pressures coming from the attempts of companies in the other industries to win
buyers over to their own substitute products.
4. Competitive pressures stemming from supplier bargaining power and supplierseller collaboration.
5. Competitive pressures stemming from buyer bargaining power and sellerbuyer collaboration.
Q2 Who are customers? How to satisfy customer needs?
Ans. Customers are the foundation of an organization’s businesslevel strategies. Who will be served, what
needs have to be met, and how those needs will be satisfied are determined by the senior management.
How to satisfy customer needs?
Organizations must determine how to bundle resources and capabilities to form core competencies
and then use these core competencies to satisfy customer needs or create value for them.
Business level strategies detail actions to be taken to provide value to customers and gain a competitive
advantage by exploiting core competencies in specific individual product or service markets.
Having selected a market, the organization must develop a plan to be successful in that market. Business
strategy therefore looks at how the organization can successfully in the individual markets that it
chooses to operate within.
Q3 Explain the cost leadership strategy.
OR
What is meant by cost leadership strategy?
Ans. Cost leadership strategy is a low cost strategy that aims broad mass market. It requires vigorous pursuit
of cost reduction in the areas of procurement, production, storage and distribution of product or
servieand also economies in overhead costs.
Because of its lower costs, the cost leader is able to change a lower price for its products than its
competitors and still make satisfactory profits. E.g. McDonald’s fast food restaurants have successfully
followed low cost leadership strategy.
When can the cost leadership strategy be followed?
Cost leadership generally must be pursued in conjunction with differentiation. Striving tube the low
cost producer in an industry can be especially effective when the market is composed of many price
sensitive buyers, when there are few ways to achieve product differentiation, when buyers do not
care much about differences from brand to brand, or when there are a large number of buyers with

significant bargaining power. The basic idea is to underprice competitors and thereby gain market
share and sales, driving some competitors out of the market entirely.
Q4 What are the advantages of cost leadership strategy?
Ans. A cost leadership strategy may help to remain profitable even with: rivalry, new entrants, suppliers’
power, substitute products, and buyers’ power.
1. Rivalry Competitors are likely to avoid a price war, since the low cost firm will continue to earn
profits after competitors compete away their profits.
2. Buyer Powerful buyers/customers would not be able to exploit the cost leader firm and will
continue to buy its product.
3. Suppliers Cost leaders are able to absorb greater price increases before it must raiseprice to
customers.
4. Entrants Low cost leaders create barriers to market entry through its continuous focus on efficiency
and reducing costs.
5. Substitutes Low cost leaders are more likely to lower costs to induce customers to stay with their
product, invest to develop substitutes, purchase patents.
Q5 Explain the differentiation strategy.
Ans. This strategy is aimed at broad mass market and involves the creation of a product or service that is
perceived by the customers as unique. The uniqueness can be associated with product design, brand
image, features, technology, dealer network or customer service. Because of differentiation, the
business can change a premium for its product.
Differentiation does not guarantee competitive advantage, especially if standard products sufficiently
meet customer needs or if rapid imitation by competitors is possible. Durable products protected by
barriers to quick copying by competitors are better. Successful differentiation can mean greater product
flexibility, greater compatibility, lower costs, improved service, less maintenance, greater convenience,
or more features. Product development is an example of a strategy that offers the advantages of
differentiation.
Differentiation strategy should be pursued only after a careful study of buyers’ needs and preferences
to determine the feasibility of incorporating one or more differentiating features into a unique product
that features the desired attributes. A successful differentiation strategy allows a firm to charge a
higher price for its product and to gain customer loyalty because consumers may become strongly
attached to the differentiation features. Special features that differentiate one’s product can include
superior service, spare parts availability, engineering design, product performance, useful life, gas
mileage, or ease of use.
A risk of pursuing a differentiation strategy is that the unique product may not be valued high enough
by customers to justify the higher price. When this happens, a cost leadership strategy easily will
defeat a differentiation strategy. Another risk of pursuing a differentiation strategy is that competitors
may develop ways to copy the differentiating features quickly. Firms thus must find durable sources of
uniqueness that cannot be imitated quickly or cheaply by rival firms.
Q6 Write a note on Focus Strategy.
Ans. A successful focus strategy depends on an industry segment that is of sufficient size, has good growth
potential, and is not crucial to the success of other major competitors. Strategies such as market
penetration and market development offer substantial focusing advantages. Midsize and large firms
can effectively pursue focusbased strategies only in conjunction with differentiation or cost leadership
strategy.

Focus strategies are most effective when consumers have distinctive preferences or requirements and
when rival firms are not attempting to specialize in the same target segment. Risks of pursuing a focus
strategy include the possibility that numerous competitors will recognize the successful focus strategy
and copy it, or that consumer preferences will drift toward the product attributes desired by the
market as a whole.
An organization using a focus strategy may concentrate on a particular group of customers, geographic
markets, or on particular productline segments in order to serve a welldefined but narrow market
better than competitors who serve a broader market.
Q7 Explain the focused cost leadership and the focused differentiation.
Ans. Focused cost leadership:
A focused cost leadership strategy requires competing based on price to target a narrow market. A firm
that follows this strategy does not necessarily charge the lowest prices in the target market. Firms that
compete based on price and target a narrow market are following a focused cost leadership strategy.
Focused differentiation:
A focused differentiation strategy requires offering unique features that fulfil the demands of a narrow
market. As with a focused lowcost strategy, narrow markets are defined in differ ways in different
settings. Some firms using a focused differentiation strategy concentrate their efforts on a particular
sales channel, such as selling over the internet only. Others target particular demographic groups.
Firms that compete based on uniqueness and target a narrow market are following a focused
differentiation strategy. E.g. RollsRoycesells limited number of highend, custombuilt cars.
Q1 How can one use the Porter’s Five Forces Model to determine what competition is like in a given
industry?
OR
What are the steps given in by Porter to determine the competition in a given industry?
Ans. The strategists can use the Porter’s fiveforce model to determine that competition is like in a given
industry by undertaking the following steps:
Step 1: Identify the specific competitive pressures associated with each of the five forces.
Step 2: Evaluate how strong the pressures comprising each of the five forces are (fierce, strong, moderate
to normal, or weak).
Step 3: Determine whether the collective strength of the five competitive forces is conductive to
earning attractive profits.
Q2 With what issues is the businesslevel strategy concerned?
Ans. The businesslevel strategy is concerned with the issues such as:
Â Meeting the needs of key customers.
Â Achieving advantage over competitors.
Â Avoiding competitive disadvantage.
Q3 What are the actions required to be take to achieve cost leadership strategy?
Ans. To achieve cost leadership, following are the actions that could be taken:
1. Forecast the demand of a product or service promptly.
2. Optimum utilization of the resources to get cost advantages.

3. Achieving economies of scale leads to lower per unit cost of product/service.
4. Standardisation of products for mass production to yield lower cost per unit.
5. Invest in cost saving technologies and try using advance technology for smart working.
6. Resistance to differentiation till it becomes essential.
Q4 Give the disadvantages of cost leadership strategy.
Ans. Disadvantages erf Cost Leadership Strategy
1. Cost advantage may not be remaining for long as competitors may also follow cost reduction technique.
2. Cost leadership can succeed only if the firm can achieve higher sales volume.
3. Cost leaders tend to keep their costs low by minimizing advertising, market research, and research and
development, but this approach can prove to be expensive in the long run.
4. Technology changes are a great threat to the cost leader.
Q5 Explain the basis of applying the differentiation strategy.
OR
On what basis van the differentiation is made?
Ans. There are several basis of differentiation: product, pricing and organization.
Â Product:Innovative products that meet customer needs can be an area where a company has an
advantage over competitors. The pursuit of new product offerings can be costly – research and
development, as well as production and marketing costs can all add to the cost of production and
distribution. The payoff, however, can be great as customer’s flock to be among the first to have
the new product.
Â Pricing: It can fluctuate based on its supply and demand, and also be influence by the customer’s
ideal value for the product. Companies that differentiate based on product price can either
determine to offer the lowest price, or can attempt to establish superiority through higher prices.
Â Organisation: Organisational differentiation is yet another form of differentiation. Maximizing
the power of a brand, or using the specific advantages that an organization possesses can be
instrumental to a company’s success. Location advantage, name recognition and customer loyalty
can all provide additional ways for a company differentiate itself from the competition.
Q6 How can the differentiation strategy be achieved?
OR
What are the measures to be taken in order to achieve the target of differentiation strategy?
Ans. To achieve differentiation, following are the measures that could be adopted by an organization to
incorporate:
1. Offer utility for the customers and match the products with their tastes and preferences.
2. Elevate the performance of the product.
3. Offer the promise of high quality product/service for buyer satisfaction.
4. Rapid product innovation.
5. Taking steps for enhancing image and its brand value.
6. Fixing product prices based on the unique features of the product and buying capacity of the
customer.
Q7 What are the disadvantages of the differentiation strategy?
Ans. Following are the three main disadvantages of the differentiation strategy:

1. In long term, uniqueness is difficult to sustain.
2. Charging too high a price for differentiated features may cause the customer to switchoff to
another alternative.
3. Differentiation fails to work if its basis is something that is not valued by the customers.
Q8 How can the focused cost leadership/differentiation can be achieved?
Ans. To achieve focused cost leadership/differentiation, following are the measures that could be adopted
by an organization:
1. Selecting specific niches which are not covered by cost leaders and differentiators.
2. Creating superior skills for catering to such niche markets.
3. Generating high efficiencies for serving such niche markets.
4. Developing innovative ways in managing the value chain.
Q9 What are the advantages of Focused strategy?
Ans. Following are the two main advantages of focused strategy:
1. Premium prices can be charged by the organizations for their focused product/services.
2. Due to the tremendous expertise about the goods and services that organisations following focus
strategy offer, rivals and new entrants may find it difficult to compete.
Q10 What is the disadvantage of focused strategy?
Ans. Following are the disadvantages of focused strategy:
1. The firms lacking in distinctive competencies may not be able to pursue focus strategy.
2. Due to the limited demand of product/services, costs are high which can cause problems.
3. In long run, the niche could disappear or be taken over by larger competitors by acquiring the
same distinctive competencies.
1. Porter’s five models consider new entrance as a significant source of competition.
Correct: porter’s five forces models consider new entrants as major source of competition. The new
capacity and product range that the new entrants bring, in throw up new competitive effect. New
entrants also place a limit on prices and affect the profitability of existing players.
1. Cost leadership strategy: Cost leadership strategy is a low cost strategy that aims broad mass market. It
requires vigorous pursuit of cost reduction in the areas of procurement, production, storage and
distribution of product or servieand also economies in overhead costs. Because of its lower costs, the
cost leader is able to change a lower price for its products than its competitors and still make satisfactory
profits.
2. Differentiation strategy: differentiation strategy should be pursued only after a careful study of buyers
needs and preferences to determine the feasibility of incorporating one or more differentiating features
into a unique product that features the desire attributes. A successful differentiation strategy allows a
firm to change a higher price for its product and to gain customer loyalty because consumer may
become strongly attached to the differentiation features.
3. Focus strategy: A focus strategy depends on an industry segment that is of sufficient size, has good
growth potential, and is not crucial to the success of other major competitors. Strategies such as market
penetration and market development offer substantial focusing advantages. Midsize and large firms

can effectively pursue focusbased strategies only in conjunction with differentiation or cost leadership
strategy.
1. Large inventories can be best classified as
2. Common barriers to entry do not include?
(a) Capital requirement (b) Economies of scale
(c) Market development (d) Product differentiation
3. Which one of the following is not a basis of differentiation?
(a) Product (b) Pricing
(c) Organization (d) Market
4. Which of the following is not included in Porter’s Five Force Model of Competition?
(a) Potential new entrants (b) Buyers
(c) Existing firms (d) Customers
5. Model is one of the most effective and enduring conceptual frameworks used to assess the nature of
the competitive environment and to describe an industry’s structure.
(a) Porter’s five forces model (b) IBM model
(c) Honda model (d) Kroos model
6. How many generic strategies has Michael Porter given?
(a) 3 (b) 4
(c) 5 (d) 6
7. With which of the following is the business level strategy not concerned with?
(a) Meeting the needs of the key customers (b) Achieving advantage over competitors
(c) Avoiding competitive disadvantage (d) Market development
8. Who is the foundation of an organization’s businesslevel strategies?
(a) Sellers (b) Buyers/Customers
(c) Managers (d) Workers
9. It is through strategy that the organisation attempts to adopt an approach to compete in the industry
(a) Competitive (b) Expansion
(c) Diversification (d) Merger
10. A firm’s profitability tends to be higher when
(a) Other firms are blocked from entering the industry
(b) Prices of the products are high (c) Customers are more
(d) None of the above
ANSWERS
1. (d) 2. (c) 3. (d) 4. (d) 5. (a)
6. (a) 7. (d) 8. (b) 9. (a) 10. (a)

Five components of porter’s model
Â Threat of new entrants
Â Bargaining power of buyers
Â Bargaining power of suppliers
Â The nature of rivalry in the industry
Â Threat of substitutes
Nature of rivalry in the industry:

Â Industry leader
Â Number of competitors
Â Fixed costs
Â Exit barriers
Â Product differentiation
Â Slow growth
Common barriers to entry in a new industry:

1. Capital requirement
2. Economies of scale
3. Product differentiation
4. Switching costs
5. Brand identity
6. Access to distribution channels
7. Possibility of aggressive retaliation

CHAPTER6
FUNCTIONAL LEVEL STRATEGY
Most of the time, strategists should not be formulating strategy at all; they should be getting on with
implementing strategies they already have.
– Henry mintzberg
You ought to pay big bonus for better performance; be a top payer; not in the middle or low end of the pack.
– Lawarnce Bossidy
Up to now American managers have assumed that technology increase productivity. The theory Z calls for a
redirection of attention to human relations in corporate world.
– Wiliiam Ouchi
There are two types of failure; those who thought and did not do and those who did and did not think.
– Lawrence Peter
INTRODUCTION
In this chapter we are going to study the formulation of functional strategy. In all the corporate units there
are various departments or functional areas such as promotion, marketing, finance and personnel or human
resources. The management has to formulate strategies for these departments which ultimately become
the part of strategy. The functional strategies are formulated within the guidelines fixed by the higher
levels. The functional managers are to be guided about the business strategy so that they can make deci
sions. There are two parts of the functional strategy namely plans and policies. The plans tell the
functional managers what is to be done and the policies provide guidelines about how the plans are to be
executed.

LONG QUESTIONS :
Q1 Explain the meaning of functional strategies and bring out the need for functional strategies.
Ans. Generally, there are three levels of strategic management in a large corporate enterprise namely
corporate level strategies, business level strategies and functional level strategies. In case of very
large units interested in expanding global business they have to even global strategies. Functional
level strategy is a strategy for implementation. To implement corporate level strategy manager need
to create functional level strategy.
Functional strategies play two important roles:
Â They provide support to the overall business strategy.
Â They spell out as to how functional managers will work so as to ensure better performance
in their respective functional areas.
The functional strategies are the strategies adopted by functional areas, such as marketing, finance,
production, human resource, logistic and research and development. Functional strategies are made
within the framework of corporate level strategies and guidelines therein that are set at higher
levels of the organization. Operational plans at the SBU level tell the functional managers what has
to be done while policies state how the plans are to be implemented. It is a lower level strategy. In
hierarchy it is a below business level (SBU level) strategy
The need for functional strategies: The functional strategies are required for the following reasons.
1. Direction : Functional strategies lay down clearly what is to be done at the functional level. They
provide a sense of direction to the functional staff.
2. Facilitate Implementation: They are aimed at facilitating the implementation of corporate
strategies and the business strategies formulation at the business level.
3. Control: They act as basis for controlling activities in the different functional areas of business.
4. Coordination: They help in bringing harmony and coordination as they are formulated to achieve
major strategies.
5. Consistency: Similar situations occurring in different functional areas are handled in a consistent
manner by functional managers.
Q2 Explain the meaning of market strategy and describe the process of marketing strategy formulation.
Ans. In all corporate units every department or functional areas has its own strategy. The strategy formulated
and adopted by the marketing department is known as marketing strategy. Marketing is the activity
undertaken by all the organizations. It can be defined as an activity of identifying the needs of the
customers and taking various actions necessary to satisfy need of customers with consideration of
something in return. Marketing became very important because of competition, globalization etc. In
marketing customer is always in center and all efforts are made to move customer near decision
making. It’s important to do strategically right than immediately profitable in marketing.
The term marketing constitutes different processes, functions, exchanges and activities that create
perceived value by satisfying needs of individual.
Marketing is a social and managerial process, by which individuals and groups obtain what they need
and want through creating, offering and exchanging products of value with others
– Philip Kotler and Gary Armstrom
Some of the important variable need to consider when making marketing strategy
A business organization faces countless marketing variables that affect the success or failure of strategy
implementation. Some examples of marketing decisions that may require special attention are as
follows:
CHAPTER6 : FUNCTIONAL LEVEL STRATEGY 118

1. Amount of advertisements 2. Type of distribution network
3. Be price leader of follower 4. Warranty
5. Target customer 6. Sales force
The marketing process: The marketing process is the process of analyzing market opportunities, selecting
target markets, developing the marketing mix and managing the marketing effort. Target customers stand at
the centre of the marketing process.
1. Delivering value to customers: Marketing alone cannot produce superior value for the customers. It
needs to work in coordination with other departments to accomplish this. Marketing acts as part of
the organizational chain of activities. Marketers are challenged to find ways to get all departments
to think with focus on customer. In its search for competitive advantage, the firm needs to look beyond
its own chain of activities and into the chains of its suppliers, distributors and ultimately customers.
This “partnering” will produce a value delivery network.
2. Connecting with customers: to succeed in today’s competitive marketplace, companies must be customer
centred.
i. It has to divide the total market into different classes of customers. This is known as market
segmentation.
ii. Secondly it has to identify the best customer segment and target groups. This is known as market
targeting.
iii. The firm has to design, formulate and implement strategies to survey the customer group in
profitable manner by providing services better than the competitors. This is known as market
positioning.
Q3 Explain marketing mix.
Ans. Marketing mix forms as important part of overall competitive marketing strategy. The marketing mix is
the set of controllable marketing variables that the firm blends to produce the response it wants in the
target market. The marketing mix consists of everything that the firm can do to influence the demand
for its product. These variables are often referred to as the “4 Ps.” The 4 Ps stands for product, price,
place and promotion. An effective marketing program blends all of the marketing mix elements into a
coordinated program designed to achieve the company’s marketing objectives by delivering value to
consumers. The 4 Ps are from a marketer’s angle. When translated to buyer angle they may be termed
as 4 Cs. Product may be referred as customer solution, price as customer cost, place as convenience and
promotion as communication.

1. Product: Product stands for the “goodsandservice” combination the company offers to the target
market. Strategies are needed for managing existing product over time adding new ones and dropping
failed products.
Strategic decisions must also be made regarding branding, packaging and other product features such
as warrantees.
Products and markets are infinitely dynamic. An organization has to capture such dynamics through a
set of policies and strategies. Some products have consistent customer demand over long period of
time while others have short and fleeting life spans. There are products that have wide range of
quality and workmanship and these also change over time. There are industrial or consumer products,
essentials or luxury products, durables or perishables.
Products can be differentiated on the basis of size, shape, color, packaging, brand names, and after
sales service and so on. Organizations seek to hammer into customers’ minds that their products are
different from others. It does not matter whether the differentiation is real or imaginary. Quite often
the differentiation is psychological rather than physical. It is enough if customers are persuaded to
believe that the marketer’s product is different from others.
Organizations formalize product differentiation through christening ‘brand names’ to their respective
products. These are generally reinforced with legal sanction and protection. Brands enable customers
to identify the product and the organization behind it. The products’ and even firms’ image is built
around brand through advertising and other promotional strategies. Customers tend to develop strong
brand loyalty for a particular product over a period of time.
2. Price: Price stands for the amount of money customers have to pay to obtain the product. Necessary
strategies pertain to the location of the customers, price, flexibility, related items within a product line
and terms of sale. The price of a product is its composite expression of its value and utility to the
customer, its demand, quality, reliability, safety, the competition it faces, the desired profit and so on.
In an industry there would be organizations with low cost products and other organizations with high
costs. The low cost organizations may adopt aggressive pricing strategy as they enjoy more freedom of
action in respect of their prices. They may also afford selective increase in costs to push their sales.
Theoretically, organizations may also adopt cost plus pricing wherein a margin is added to the cost of
the product to determine its price. However, in the competitive environment such an approach may
not be feasible. More and more companies of today have to accept the market price with minor
deviations and work towards their costs. They reduce their costs in order to maintain their profitability.
For a new product pricing strategies for entering a market needs to be designed. In pricing a really new
product at least three objectives must be kept in mind.
a. Making the product acceptable to the customers.
b. Producing a reasonable margin over cost.
c. Achieving a market that helps in developing market share.
For a new product an organization may either choose to skim or penetrate the market. In skimming
prices are set at a very high level. The product is directed to those buyers who are relatively priced
insensitive but sensitive to the novelty of the new product. For example call rates of mobile telephony
were set very high initially. Even the incoming calls were charged. Since the initial off take of the
product is low, high price, in a way, helps in rationing of supply in favour of those who can afford it. A
very large number of the potential consumer may be able to afford and willing to try the product.
3. Place: Place stands for company activities that make the product available to target consumers. One of
the most basic marketing decisions is choosing the most appropriate marketing channel. Strategies
should be taken for the management of channels by which ownership of product is transferred from

producers to customers and in many cases, the system by which goods are moved from where they
produced to where they are purchased by the final customers. Strategies applicable to the middleman
such as wholesalers and retails must be designed.
The distribution policies of a company are important determinants of the functions of marketing. The
decision to utilize a particular marketing channel or channels sets the pattern of operations of sales
force.
4. Promotion: 1. Promotion stands for activities that communicate the merits of the product and
persuade target consumers to buy it. Strategies are needed to combine individual methods such as
advertising, personal selling and sales promotion into a coordinated campaign. In additional
promotional strategies must be adjusted as a product move from earlier stages from a later of its life.
Modern marketing is highly promotional oriented. Organizations strive to push their sales and market
standing on a sustained basis and a profitable manner under conditions of complex direct and indirect
competitive situations. Promotion also acts as an impetus to marketing. It is simultaneously a
communication, persuasion and conditioning process. There are at least four major direct promotional
methods or tools
(1) Personal selling: Personal selling is one of the oldest forms of promotion. It involves face toface
interaction of sales force with the prospective customers and provides a high degree of personal
attention to them. In personal selling, oral communication is made with potential buyers of a
product with the intention of making a sale. It may initially focus on developing a relationship
with the potential buyer, but end up with efforts for making a sale. Personal selling suffers from
a very high cost as sales personnel are expensive. They can physically attend only one customer at
a time. Thus it is not a costeffective way of reaching a large number of people.
(2) Advertising: Advertising is a nonpersonal, highly flexible and dynamic promotional method. The
media for advertisings are several such as pamphlets, brochures, newspapers, magazines,
hoardings, display boards, ratio, television and internet. Choice of appropriate media is
important for effectiveness of the message, copy, illustration are a matter of choice and
creativity. Advertising may be directed towards consumers, middlemen or opinion leaders.
Advertising is likely to succeed in promoting the sales of an organization but its effectiveness in
respect to the expenditure cannot be directly measured. Sale is a function of several variables
out of which advertising is only one.
(3) Publicity: Publicity is also a nonpersonal form of promotion similar to advertising. However, no
payments are made to the media as in case of advertising. Organizations skillfully seek to promote
themselves and their product without payment. Publicity is communication of a product, brand
or business by placing information about it in the media without paying for the time or media
space directly. Thus it is a way of reaching customers with negligible cost. Basic tool for publicity
are press releases, press conference, reports, stories and internet releases. These releases must
be of internet to the public.
(4) Sales promotion: Sales promotion is an omnibus term that includes all activities that are
undertaken to promote the business but are not specifically included under personal selling,
advertising or publicity. Activities like discounts, contents, money refunds, installments,
kiosks, exhibitions and fairs constitute sales promotion. All these are meant to give a boost to
the sales. Sales promotion done periodically may help in getting a large market share to an
organization.
Expanded marketing mix: Typically, all organizations use a combination of 4 Ps in some form or
the other. However, the above elements of marketing mix are not exhaustive. It is pertinent to
discuss a few more elements that may form part of an organizational marketing mix strategy.

They have got more currency in recent years. Growth of services has its own share for the inclusion
of newer elements in marketing. A few new Ps are as follows:
Â People: All human actors who play a part in delivery of the market offering and thus influence
the buyer’s perception, namely the firm’s personnel and the customer.
Â Process: The actual procedures, mechanism and flow of activities by which the product /
service is delivered.
Â Physical evidence: The environment in which the market offering is delivered and where
the firm and customer interact.
Q4 Explain formulation of marketing strategy.
Ans. Marketing analysis involves a complete analysis of the company’s situation. A company performs analysis
by identifying environmental opportunities and threats. It also analyzes its strengths and weaknesses
to determine which opportunities the company can best pursue. Marketing has three components as
planning, implementation and control. Through analyses organization feed information and other
inputs to each of the marketing management functions.
A company must carefully analyze its environment in order to avoid the threats and take advantage of
the opportunities. Areas to be analyzed in the environment normally include:
1. Forces close to the company such its ability to serve customers; others company departments,
channel members, suppliers, competitors and publics.
2. Broader forces such as demographic and economic forces, political and legal forces, technological
and ecological forces and social and cultural forces.
Strategy marketing planning involves deciding on marketing strategies that will help the company
attain its overall strategic objectives. A detailed plan is needed for each business, product or brand. A
product or brand plan may contain different sections: executive summary, current marketing situation,
threats and opportunity analysis, objectives and issues, marketing strategies, action programs, budget
and control.
Q5 Explain market planning. (What is a marketing plan? What are its components?)
Ans. Market planning involves deciding the marketing strategies that will help the company in achieving
its overall strategic objectives. A detailed plan is needed for each business, product or brand. Its
components are as follows:
1. Executive summary: The executive summary is a short summary of the main goals and
recommendations to be presented in the plan.
Â Assessing current marketing situation: This refers to the description of the target market
and the position of the company in the market. Here, the matters are:
Â A market description
Â A product review
Â Analysis of the competition
Â The channel prepared by the company for distribution
Â In the threats and opportunities section, managers are forced to anticipate important
developments that can have an impact, either positive or negative on the firm.
2. Threats and opportunities: By studying the product’s threats and opportunities, the manager can
set objectives and consider issues that will affect them. The objectives should be stated as goals
that the company would like to attain during the plan’s term.
3. Marketing strategy: This is the strategy by which the business unit hopes to achieve its marketing
objectives. Strategies would be created for all marketing mix components.
4. Budget: The marketing budget is that part of marketing plan that shows projected revenues, costs
and profits.
5. Controls: The last component of marketing plan is preparing the controls that will be used to
monitor progress. This allows for progress checks and corrective action.
Q6 What are the various marketing strategy techniques that can adopt by a firm?
Ans. The following are various marketing techniques that can be adopt as a part of marketing strategy.
(1) Social marketing: It refers to the design, implementation and control of programmes aiming at
increasing the acceptability of a social idea, cause or practice among a target group. For instance,
the publicity campaign for prohibition of smoking in public places.
(2) Augmented marketing: It is provision of additional customer services and benefits along with the
main and actual products related to introduction of hitech services like movies on demand, n
line computer repair services, secretarial services, etc. Such innovative offering provide benefits
which raise the quality of customer service to extremely high levels.
(3) Direct marketing: This means marketing through various advertising media that directly promote
contacts with consumers and invite the consumers to make a direct response. Direct marketing
includes catalogue selling, mail, telecommuting, electronic marketing, shopping and TV shopping.
(4) Relationship marketing: The process of creating, maintaining and promoting strong and valuable
relationships with customers and other stakeholders. For example, British Airways offer special
lounges with showers at 199 airports for frequent flyers. Thus, providing special benefits to select
customers to strength bonds with them. It goes a long way in building relationships.
(5) Services marketing: It is applying the concepts, tools and techniques of marketing to services.
Service is any activity or benefit that one party can offer to another that is essentially intangible
and includes the services like banking, savings, retailing, educational or public utilities.
(6) Person marketing: People are also marketed. Person marketing consists of activities undertaken
to create, maintain or change attitudes or behavior towards particular people. For example,
politicians, sports stars, film stars, professionals i.e., market themselves to get votes or to
promote their careers and income.
(7) Organization marketing: It consists of activities undertaken to create, maintain or change

attitudes and behavior of target audience towards an organization. Both profit and nonprofit
organizations practice organization marketing. For example, private hospitals and various
temples advertise themselves to create a class of customers or devotees.
(8) Place marketing: Place marketing involves activities undertaken to create, maintain or change
attitudes and behavior towards particular places say, business sites marketing, tourism marketing.
For example, if the government of Rajsthan widely advertises the facilities and places of
sightseeing for the places like Abu, Udaipur etc. then it is case of place marketing.
(9) Enlightened marketing: this is a marketing philosophy emphasizing that a company’s marketing
should support the best longrun performance of the marketing system; its five principle include
customeroriented marketing, innovative marketing, value marketing, sense of mission marketing
and social marketing.
(10) Differential marketing: It is a marketcoverage strategy in which a firm decides to target several
market segments and designs separate offer for each. For example, Hindustan Lever Limited
has Lifebuoy, Lux and Rexona in popular segment and Liril and Pears in premium segment.
(11) Synchromarketing: When he demand for the product is irregular due to season, some parts of
the day or on hour basis, causing idle capacity or overworked capacities at different points of
time, Synchromarketing can be used to find ways to change pattern of demand through various
measures such as flexible pricing, promotion and other incentives. For example, woolens or
coolers or services like landline telephones and public bus services.
(12) Concentrated marketing: A marketcoverage strategy in which a firm goes after a large share of
one or few submarkets.
(13) Demarketing: This is opposite marketing. Here there are strategies to reduce demand temporarily
or permanently – the aim is not to destroy demand, but only to reduce or shift it. This happens
when there is overall demand. For example, the places like the Lal quilla or the Taj Mahal suffer
from great damage due to a huge number of people every day visiting them. Such monuments
are to be protected. Here, Demarketing can be applied to regulate demand.
Q7 Explain the meaning of finance strategy and describe the process of finance strategy formulation.
Ans. There are four important functional areas in a large unit namely; marketing, finance production and
human resources. The financial strategy of a unit can be defined as the strategies related to acquiring
and employing the capital funds in the organization in an efficient manner. The financial strategies of
an organization are related to several areas of financial management considered central to strategy
implementation. These include:
1. Acquiring capital to implement strategies (source of funds)
2. Projected financial statements / budgets
3. Utilization of funds
4. Evaluating the worth of a business
Strategies need to formulate strategies in these areas so that are implemented. Some example of
decisions that may require financial and accounting policies are:
1. Acquiring capital to implement strategies (source of funds) (what are the problems to be
considered while acquiring capital for a company?)
Every large business enterprise requires adequate amount of funds to implement its plans,
programmes, project and strategies. There are in all four sources of the funds required by a
corporate unit. The most important is the equity capital, and then there are loans and debt. These
are the basis sources of capital. The other two sources are undisturbed profits obtained from the

operations and sometimes the money received from the sale of assets. A successful
implementation of the strategy of a business enterprise requires that there is a proper balance
between the equity and the debt in the capital structure of the company. The issues to be
considered while acquiring capital are as under:
a. Internal or external: The Company has to decide whether the finance would be raised
from the internal sources or the external sources. The internal sources are proprietory
capital or ploughed back profit. Reinvestment of profit and the external sources are
bonds, debentures, bank loans and in the modern times external commercial
borrowings.
b. Deciding debt – equity ratio: Theoretical speaking investment in the business of the
company by raising the debt would be profitable when the return from investment is
greater than the cost of raising the loan funds. This is desirable both for the
shareholder as well as the company. However, if the return from the investment is
smaller than the cost of the debt than the returns to the shareholder would decrease
and the very survival company may be threatened? In such a situation raising capital
through equity shares would be better alternative. However, here also the company
should not issue such a great number of shares to the outsider that the ownership and
control of the company through mergers and acquisitions arises. Moreover, too much
issue of share capital would create problem of over capitalization and also it would be
difficult to service the equity capital in terms of dividend.
c. Other considerations: There are many sources of funds a company wants to raise for
putting its projects, plans etc. into action. However, each individual corporate unit has
to properly examine relative merits and demerits of various individual sources.
Â In the light of the profitability of its own business,
Â The cost of raising loan funds,
Â The tax rates applicable to the company,
Â The stability of profit of the business and the risk element of the business etc. and then
decide purely on subjective ground which source or sources would be most suitable to
the company.
2. Projected financial statements / budgets (Explain the meaning of projected financial statements
and budgets and their role in determining the financial strategy of the company)
These may be explained as follows:
a. Projected financial statements: Whenever large corporate units try to raise capital through
loan from financial institutions they have to prepare to financial statements. These are the
statements giving an idea about expected results of various actions and approaches. For
example,
Â What will be the impact of increasing promotional expenditure on the product, the
impact of increasing salary or the impact of spending more money on research and
development on the business and profitably of the company?
Thus, the financial statements try to give a reasonable picture of the projected future
expense and their impact on the earning of the company. They also give an idea about
the past experiences, industry averages etc. Such financial ratios provide valuable
understanding about the feasibility of various strategies to be adopted by the company.
b. Budgets: A financial budget gives an idea about how funds will be obtained and utilized
during a specified period of time. The time period of budget may be one day or more than

ten years. However annual budgets are the most common form of budgets. Financial
budgeting is not a tool for limiting or controlling expenditure but is a tool for making the
most productive and profitable uses of the financial resources of the organization. In general
financial budgets can be viewed as planned allocation of the resources of a firm based on
the forecasting of the future.
Types of budgets: Budgets are basically controlling techniques. They can be classified into
a number of categories.
Â Such as fixed budgets and variable budgets,
Â Divisional budgets and master budgets,
Â Production budgets and sales budgets,
Â Cash budgets and profit budgets and
Â Capital budgets etc.
Budgets become more important in guiding strategy implementation when the
organization is experiencing storage of financial resources.
Limitation of financial budgets:
They can become highly detailed and therefore cumbersome and expensive.
Problems may be created when there is over budgeting or under budgeting.
Financial budgets can never become a substitute of the organization.
Unless there is periodic evaluation of the budget it can hide inefficiencies and
irregularities.
Without an active involvement of subordinates in preparing the budget, it is possible
that they may prove to be a regularity device that may result into frustration,
absenteeism and a high labour turnover ratio.
3. Utilization of funds (Write a short note on efficient management of funds)
There are two problems associated with efficient management of funds, namely investment of
funds and decisions regarding the asset mix. An efficient management of funds is important
because it is related to the efficiency and effectiveness in the use of the funds. Here, the
management has to take important decisions regarding
Â Capital investment,
Â Current assets,
Â New assets to be purchased,
Â Loans and advances to be taken,
Â The interest to be paid on the loans,
Â Relationship with the shareholders and
Â The portion of the profit to be paid out as dividend.
If there is no proper management of the funds it is possible that
Â On one hand the project may be over capitalized
Â On the other hand the interest liability may go on increasing.
Â Moreover, it will also affect the capacity of the company to pay dividend,
Â Also it may affect the capacity of the company to issue bonus shares to the holder and
thereby may make the company to lose the goodwill of the shareholders.

The management of funds is an important area of financial strategies. It is concerned with
developing efficient and proper systems of finance, accounting, budgeting, controlling, man
agement of cash and credit, management of risk, cost control and cost reduction and tax planning.
4. Evaluating the worth of a business (What are the various methods for evaluating the worth of a
business?)
Evaluating the worth of a business is central to strategy implementation because integrative,
intensive and diversification strategies are often implemented by acquiring other firms. Other
strategies, such as retrenchment may result in the sale of a division of an organization or of the
firm itself. In all these cases, it is necessary to establish the financial worth or cash value of a
business to successfully implement strategies. In other words the problem of evaluating
the worth of a business arises when a new business is to be acquired or an old business is to be
sold out.
Methods of evaluating the worth of a business:
All the various methods for determining a business’s worth can be grouped into three main
approaches:
Â The first approach in evaluating the worth of a business is determining its net worth or
stakeholder’s equity. Net worth represents the sum of common stock, additional paidin
capital and retained earnings. After calculating net worth, an appropriate amount for
goodwill and for overvalued or undervalued assets is to be added or deducted as the case
may be. This total provides a reasonable estimate of a firm’s monetary value. If a firm has
goodwill, it will be listed on the balance sheet, perhaps as “ intangible”.
Â The second approach is that of measuring the value of a firm. This approach is based on the
belief that the net worth of any business should be based largely on the future benefits its
owners may derive through net profits. A conservative rule of thumb is to establish a
business’s worth as five times the firm’s current annual profit. A fiveyear average profit
level could also be used. When using the approach, one has to remember that firms normally
suppress earnings in their financial statements to minimize taxes.
Â The third approach is allowing the market to determine a business’s worth. This approach
involves three methods.
Â First, base the firm’s worth on the selling price of a similar company. A potential problem,
however, is that sometimes comparable figures are not easy to locate, even though
substantial information on firms is available from variety of sources.
Â The second approach is called the priceearnings ratio method. To use this method, divide
the market price of the firm’s common stock by the annual earnings per share and multiply
this number by the firm’s average net income for the past five years. For example, if price
earnings ratio of a firm is 20 and its average income of the past five years is Rs. 25 crores
then the worth of the business can be regarded as Rs. 500 crores.
Â The third approach can be called the outstanding shares method. To use this method,
simply multiply the number of shares outstanding by the market price per share and add a
premium. The premium is simply a pershare amount that a person or firm is willing to pay
to acquire control of the other company.
Q8 What is meant by production / operating strategy? What are main issues in formulating the production
/ operating strategy?
Ans. The production / operating strategy is related to the production system, operational planning and

control and logistics management. It affects the nature of product / service, the markets to be served
and the manner in which the markets are to be served.
Production strategy formulation: production is perhaps the most important department in a company
and therefore appropriate strategies are required for the department. The strategies for production
Â Are related to the production system,
Â Operational planning and control,
Â And research and development (R & D).
a. Production system: The production system is concerned with the issues like location of the
business, production capacity, factory layout, and service design, work systems, degree of
automation and problems related to horizontal and vertical integration.
The strategy adopted affects the nature of products / service, the markets to be served and the
manner in which the markets are to be served. All these collectively influence the operations
system structure and objectives which are used to determine the operations plans and policies.
b. Operations planning and control: Strategies related to operations planning and control concerned
with
Â Aggregate production planning
Â Materials supply and inventory management
Â Cost and quality control
Â Maintenance of plant and equipment.
Here, the aim of strategy implementation is to see how efficiently resources are utilized and in
what manner the daytoday operations can be managed in the light of longterm objectives.
These strategies are required for efficient utilization of the resources of the firm through
production planning and production control. Production planning is concerned with deciding
what to produce, when to produce, how much to produce, how to produce etc. and production
controls concerned with seeing that everything goes according to production plan. Thus, they are
complementary and help the firm in translating the objectives of the firm into reality.
Some companies use quality also a strategic tool. The quality increase the reputation of the
organization and therefore, many companies incorporate the quality into the design of the product
itself rather than having a separate department for quality inspection.
Q9 Logistic strategy (Write a short note on logistic strategy) or what is meant by logistic strategy? What are
its components and advantages?
Ans. Meaning: Management of logistics is a process which integrates the flow of supplies into, through and
out of an organization to achieve a level of service which ensures that the right materials are available
at the right place, at the right time, of the right quality and at the right cost.
In other words, this strategy is concerned with developing efficient supply chains which helps the
management to have constant contacts with its transportation systems and distributives channels and
to minimize the transportation cost.
A firm has to incur transportation cost on the following activities.
Â Incur transportation cost on purchasing materials, components, spares, etc. from outside and
bring them to the production premises. These are inbound transport costs.
Â Transportation cost on the production premises. These are known as internal transport costs.
Â Transportation cost on supplying the finished products to warehouses, sales depots and finally to
the buyers. These are outbound transport costs.

The firm has to make effort to minimize transportation costs in all these activities. For this purpose it has to
develop an effective logistic strategy.
The components of an effective logistic strategy are as under:
Â Which sources of raw materials and components are available?
Â How many manufacturing locations are there?
Â What products are being made at each manufacturing location?
Â What modes of transportation should be used for various products?
Â What is the nature of distribution facilities?
Â What is the nature of materials handling equipment possessed? Is it ideal or is fully used?
Â What is the method for deploying inventory in the logistic network?
Â Should the business organization own the transport vehicles or should it hire them from the outside?
LOGISTICS MANAGEMNET
PROCUREMENT PRODUCTION DISTRIBUTION
Demand forecasting Materials Warehousing
Production planning Goods in process Distributors
Procurement of Finished goods Material Billing and collection
Â Materials handling Inventories
Â Components &
Â Spares
Inbound transport Choice and design Outbound transport
Choice of of material Choice of appropriate mode
appropriate Handling equipment
mode
Economy in purchasing cost Economy in material handling Economy in distribution
Improvement in logistics has many advantages. They are as under:
Â Cost savings
Â Reduced inventory
Â Improved delivery time
Â Customer satisfaction
Â Competitive advantage
Q10 What is supply chain management? Explain it.
Ans. Supply chain management
The way businesses were conducted in the yesteryears is entirely different as they are conducted now.
Today, organizations work in highly turbulent environment. There are several changes in business
environment that have contributed to the development of supply chain networks. The technology has
made impact on all spheres of business activities.
Organizational systems have improved. Even the available infrastructure is improving.
Technological changes and reduction in information communication costs with increase in its speed has led
to changes in coordination among the members of the supply chain network.

Availability of newer technologies has resulted in creation of innovative products with shorter product life
cycles.
Traditionally companies have been managing themselves by taking orders, buying supplies, manufacturing
products and shipping them from their warehouses. Such organizations may lose out the businesses that
strongly lay their focus on key areas of marketing, branding and delivering value to the customers has
become more demanding. They desire customized products that are made according to their needs. They
also aspire that these should be available at lower costs.
Definition:
The term supply chain refers to the linkages between suppliers, manufactures and customers. Supply chain
involves all activities like sourcing and procurement of material, conversion and logistics. Planning and
control of supply chains are important components of its management.
Naturally, management of supply chains includes closely working with channel partners – suppliers,
intermediaries, other service providers and customers.
Supply chain management is defined as the process of planning, implementing and controlling the supply
chain operations.
It is a cross – functional approach to managing the movement of raw materials into an organizations and the
movement of finished goods out of the organization toward the end – consumer who are to be satisfied as
efficiently as possible. It encompasses all movement and storage of raw materials, work inprocess inventory
and finished goods from pointoforigin to pointofconsumption. Organizations are finding that they must
rely on the chain to successfully compete in the global market.
Modern organizations are striving to focus on core competencies and reduce their ownership of sources of
raw materials and distribution channels. These functions can be outsourced to other business organizations
that specialize in those activities and can perform in better and cost effective manner. In a way organizations
in the supply chain do tasks according to their corecompetencies. Working in the supply chain improves
trust and collaboration amongst partners and thus improve flow and management of inventory.
Is logistic management same as supply chain management? Supply chain management is an extension of
logistic management. However, there is difference between the two. Logistic activities typically include
management of inbound and outbound goods, transportation, warehousing, handling of material, fulfillment
of orders, inventory management, supply / demand planning. Although these activities also form part of
supply chain management, the latter has different components. Logistic management can be termed as one
of its part that is related to planning, implementing and controlling the movement and storage of goods,
services and related information between the point of origin and the point of consumption.
Supply chain management includes more aspects apart from the logistics function. It is a tool of business
transformation and involves delivering the right product at the right time to the right place and at the right
price. It reduces costs of organizations and enhances customer service.
Implementing supply chain management systems
Successful implementing supply chain management systems require a change from managing individual
functions to integrating activities into key supply chain processes. It involves collaborative work between
buyers and suppliers, joint product development, common systems and shared information. A key
requirement for successfully implementing supply chain will be network of information sharing and
management. The partners need to link together to share information through electronic data interchange
and take decisions in timely manner.
Implementing and successfully running supply chain management system will involve:
1. Product development: Customers and suppliers must work together in the product development
process. Right from the start the partners will have knowledge of all involving all partners will help in

shortening the life cycles. Products are developed and launched in shorter time and help organizations
to remain competitive.
2. Procurement: Procurement requires careful resource planning, quality issues, identifying sources,
negotiation, order placement, inbound transportation and storage. Organizations have to co ordinate
with suppliers in scheduling without interruptions. Suppliers are involved in planning the manufacturing
process.
3. Manufacturing: Flexible manufacturing processes must be in place to respond to market changes. They
should be adaptive to accommodate customization and changes in the taste and preferences.
Manufacturing should be done on the basis of justintime (JIT) and minimum lot sizes. Changes in the
manufacturing process are made to reduce manufacturing cycle.
4. Physical distribution: Delivery of final products to customers is the last position in a marketing channel.
Availability of the products at the right place at right time is important for each channel participation.
Through physical distribution processes serving the customer become an integral part of marketing.
Thus supply chain management links a marketing channel with customers.
5. Outsourcing: Outsourcing is not limited to the procurement of materials and components but also
include outsourcing of services that traditionally have been provided within an organization. The
company will be able to focus on those activities where it has competency and everything else will be
outsourced.
6. Customer services: Organization through interface with the company’s production and distribution
operations develop customer relationships so as to satisfy them. They work with customer to determine
mutually satisfying goals, establish and maintain relationships.
Performance measurement: There is a strong relationship between the supplier, customer and organization.
Supplier capabilities and customer relationships can be correlated with a firm performance. Performance is
measured in different parameters such as costs, customer service, productivity and quality.
Q11 Explain the research and development strategy in detail.
Ans. Research and development (R & D) personnel can play an integral part in strategy implementation.
These individuals are generally charged with developing new products and improving old products in
a way that will allow effective strategy implementation. This department is also known as product
engineering department.
The people who convert the R & D for producing commercial products are known as entrepreneurs.
The objectives of R & D are as under:
Â To develop new products (concentric diversification)
Â To substantially improve the old products (product development)
Â To economies cost of product without affecting the quality of the product. (cost leadership)
Â To develop special and exclusive features in products. (differentiation)
Thus, R & D employees and managers perform tasks that include transferring complex technology,
adjusting processes to local raw materials, adapting processes to local markets and altering products to
particular tastes and specifications.
Components of R & D strategy: Technological improvements that affect consumer and industrial products
and services shorten product life cycles. Companies in virtually every industry are relying on the
development of new products and services to increase their profitability and growth. Surveys suggest
that the most successful organizations use an R & D strategy that ties external opportunities to internal
strengths and is linked with objectives. Well formulated R & D policies match market opportunities
with internal capabilities. R & D policies can help strategy implementation efforts to:

Â Emphasize product or process improvements.
Â Stress basic or applied research.
Â Be leaders or followers in R & D.
Â Develop robotics or manualtype processes.
Â Spend a high, average or low amount of money on R & D.
Â Perform R & D within the firm or to contract R & D to outside firms.
Â Use university researches or private sector researchers.
A critical question is whether a firm should develop research and development expertise internally or
outside to external agencies. The following guidelines can be used to help make this decision (the
issues to be considered in R & D):
Â If the rate of technical progress is slow, the rate of market growth is moderate and there are
significant barriers to possible new entrants, then inhouse R & D is the preferred solution. The
reason is that R & D, if successful, will result in a temporary product or process monopoly that the
company can exploit.
Â If technology is changing rapidly and the market is growing slowly then a major effort in R & D may
be very risky because it may lead to the development of an ultimately obsolete technology or one
for which there is no market. Here, the strategy should be imitating or copying technology in the
market.
Â If technology is changing slowly but the market is growing quickly, there generally is not enough
time for inhouse development. The prescribed approach is to obtain R & D expertise on an
exclusive or nonexclusive basis from an outside firm.
Â If both technical process and market growth are fast, R & D expertise should be obtained through
acquisition of a wellestablished firm in the industry.
Approaches in R & D: There are at least three major R & D approaches for implementing strategies.
Â Leader / pioneer: The first strategy is to be the first firm to market new technological products.
This is a glamorous and exciting strategy but also a dangerous one. Firms such as 3M and general
electric have been successful with this approach, but many other pioneering firms have fallen,
with rival firms seizing the initiative.
Â Follower / imitator: A second R & D approach is to be an innovative imitator of successful products,
thus minimizing the risks and costs of start up. This approach entails allowing a pioneer firm to
develop the first version of the new product and to demonstrate that a market exists. Then,
laggard firms develop a similar product. This strategy requires excellent R & D personnel and an
excellent marketing department.
Â Lowcost producer: A third R & D strategy is to be a lowcost producer by massproducing products
similar to but less expensive than products recently introduced. As a new product accepted by
customers, price becomes increasingly important in the buying decision. Also, mass marketing
replaces personnel selling as the dominant selling strategy. This R & D strategy requires substantial
investment in plant and equipment but less expenditure in R & D than two approaches described
earlier.
Q12 Outline the key areas where the Human Resource manager (HR manager) can play a strategic role.
Ans. The strategic role of the Human Resource manager in a company can be highlighted with the help of the
following points:
1. Providing purposeful direction: The human resource manager must be able to lead people and

the organization towards the desired direction involving people right from the beginning. The
most important task of a HR manager is to ensure that the objectives of an organization are
internalized by each individual working in the organization. Objectives of an organization state
the very purpose and justification of its existence.
2. Building core competency: Core competence is a unique strength of an organization such as its
human resources, marketing capability or technological ability. Core competence promotes
efficient use of the limited resources of a firm. This requires creative, courageous and dynamic
leadership having faith in the firm’s human resources. Here, the role of Human Resource Manager
is that of a leader.
3. Creating competitive advantage: HR manager should create a competitive atmosphere in the
firms to increase its competitive advantage. There are two important ways a business can achieve
competitive advantage over the others.
Â Cost leadership and
Â Differentiation
The implementation of these strategies requires highly committed and competent word force.
4. Facilitation of change: The human resource manager will be more concerned with substance
rather than form, accomplishments rather than activities and practice rather than theory. The
HR function will be responsible for furthering the organization not just maintaining it. Human
resource manager will have to devote more time to promote changes than to maintain the
status quo.
5. Managing workforce diversity: Workforce diversity means the differences observed in terms of
male and female workers, young and old workers, educated and uneducated workers, unskilled
and professional employees, etc. This requires higher degree of participation by workers in the
company activities. Measures should be taken to promote workers’ satisfaction through various
monetary and nonmonetary incentives.
6. Empowerment of human resources: Empowerment means authorizing every member of an
organization to take up his / her own destiny realizing his / her full potential. It involves giving
more power to those who, at present, have little control what they do and little ability to
influence the decisions being made around them.
7. Development of works ethics and culture: Greater efforts will be needed to achieve cohesiveness
because employees will have transient commitment to groups. As changing work ethic requires
increasing emphasis on individuals, jobs will have to be redesigned to provide challenge. Flexible
starting and quitting times for employees may be necessary. Focus will shift from extrinsic to
intrinsic motivation. A vibrant work culture has to be developed in the organizations to create
an atmosphere of trust among the employees and to encourage creative ideas by them.
SHORT NOTES:
Q1 Enlist the component of marketing mix.
Ans. Marketing mix is a systematic way of classifying the key decision areas of marketing management. It
is set of controllable marketing variables that the firm blends to produce the response it wants in the
target market. The original framework of marketing mix comprises of 4 Ps – product, price, place and
promotion. These are subsequently expanded to highlight certain other key decision areas like people,
processes and physical evidence. The elements of original framework are:
Â Product: It stands for the “goodsandservice” combination the company offers to the target
market.

Â Price: It stands for the amount of money customers have to pay to obtain the product.
Â Place: It stands for company activities that make the product available to target consumers and
include marketing channel, distribution policies and geographical availability.
Â Promotion: It stands for activities that communicate the merits of the product and persuade
target consumer s to buy.
Q2 Does HRM function play a role in organizational strategy?
Ans. The role of human resources in enabling the organization to effectively deal with the external
environment challenges, the human resource management function has been accepted as a strategic
partner in the formulation of organization’s strategies and in the implementation of such strategies
through human resource planning, employment, training, appraisal and rewarding of personnel.
An organization’s recruitment, selection, training, performance appraisal and compensation practices
can have a strong influence on employee competence is very important.
Q3 ‘Determining an appropriate mix of debt and equity in a firm’s capital structure can be vital to successful
strategy implementation’. Discuss.
Ans. Successful strategy implementation often requires additional capital. Besides net profit from operations
and the sale of assets, two basic sources of capital for an organization are debt and equity. Being a
financial manager to determine an appropriate mix of debt and equity in a firm’s capital structure can
be vital to successful strategy implementation. Fixed debt obligations generally must be met, regardless
of circumstances. This does not mean that stock issuance is always better than debt for raising capital.
If ordinary stock is issued to finance strategy implementation; ownership and control of the enterprise
are diluted. This can be a serious concern in today’s business environment of hostile takeovers, Mergers
and acquisitions.
The major factors regarding which strategies have to be made by a financial manager are: capital
structure; procurement of capital and working capital borrowings; reserves and surplus as source of
funds and relationship with lenders, banks and financial institution. Strategies related to the source of
funds are important since they determine how financial resources will be made available for the
implementation of strategies. Organizations have a range of alternatives regarding the sources of
funds. While one company may rely on external borrowings, another may follow a policy of internal
financing.
Q4 What do you understand by functional structure?
Ans. Functional structure is widely used because of its simplicity and low cost. A functional structure groups
tasks and activities by business function.
The functional structure consists of a chief executive officer or a managing director and limited corporate
staff with functional line managers in dominant functions such as production, accounting, marketing, R
& D, engineering and human resources. Disadvantages of a functional structure are that it forces
accountability to the top, minimizes career development opportunities, etc.
Q5 Distinguish between social marketing and service marketing.
Ans. Social marketing and service marketing are marketing strategies primarily with different orientations.
Social marketing refers to the design, implementation and control of programs seeking to increase the
acceptability of a social ideas, cause or practice among a target group. For instance, the publicity
campaign for prohibition of smoking or encouraging girl child, etc.
On the other hand, service marketing is applying the concepts, tools and techniques of marketing to
services. Service is any activity or benefit that one party can offer to another that is essentially intangible
and nonperishing. These may be from business to consumer and from business to business.

Q6 Distinguish between social marketing and service marketing.
Ans. Advertising is a nonpersonal, highly flexible and dynamic promotional method. The media for
advertisings are several such as pamphlets, radio, television and internet. Choice of appropriate
media is important for effectiveness of the message. The media may be local, regional or national.
Publicity is communication of a product, brand or business by placing information about it in media
without paying for the time or media. Thus it is a way of reaching customers with negligible cost.
Q7 “Supply chain management is conceptually wider than logistic management.” Explain.
Ans.
Â Supply chain management refers to the linkages between supplier, manufactures and customers. It
involves all activities like resourcing and procurement of materials, conversion and logistics.
Â Logistic management deals with flow of products into and out to of the manufacturing process.
Â Supply chain management is an extension of logistic management. However there is difference
between two. Logistics activities typically include management of inbound and outbound goods,
transportation, warehousing, handling of material, fulfillment of orders, inventory management, supply
/ demand planning.
Â Since supply chain management includes the logistics it I conceptually wider than logistics management.
Q8 Write a short note on expanded marketing mix.
Ans. Expanded marketing mix: Typically, all organizations use a combination of 4 Ps in some form or the
other. However, the above elements of marketing mix are not exhaustive. It is pertinent to discuss a
few more elements that may form part of an organizational marketing mix strategy. They have got
more currency in recent years. Growth of services has its own share for the inclusion of newer elements
in marketing. A few new Ps are as follows:
Â People: All human actors who play a part in delivery of the market offering and thus influence the
buyer’s perception, namely the firm’s personnel and the customer.
Â Process: The actual procedures, mechanism and flow of activities by which the product /
service is delivered.
Â Physical evidence: The environment in which the market offering is delivered and where the
firm and customer interact.
Q9 Write a short note on publicity and sales promotion.
Ans. Publicity and sales promotion are adopted by organizations when they are undertaking promotion in
the overall marketing mix.
Publicity is a nonpersonal form of promotion similar to advertising. However, no payments are made
to the media as in case of advertising. Organizations skillfully seek to promote themselves and their
product without payment. Publicity is communication of a product, brand or business by placing
information about it in the media without paying for the time or media space directly.
Thus it is way of reaching customers with negligible cost. Basic tools for publicity are press releases,
press conferences, reports, stories and internet releases. These releases must be of interest to the
public.
Sales promotion is an omnibus term that includes all activities that are undertaken to promote the
business but are not specifically included under personal selling, advertising or publicity. Activities
like discounts, contests, money refunds, installments, kiosks, exhibitions and fairs constitute sales
promotion. All these are meant to give a boost to the sales. Sales promotion done periodically may
help in getting a larger market share to an organization.

Q10 Explain the human resource strategy.
Ans.
Â Strategic responsibility of the human resource manager include manager include assessing the staffing
needs and costs for alternative strategies proposed during strategy formulation and developing a
staffing plan for effectively implementing strategies.
Â The plan must also include how to motivate managers and employees.
Â The human resource department must develop performance incentives that clearly link performance
and pay to strategies. Linking company and personal benefits is a major new strategic responsibility of
human resource managers.
Â Other new responsibilities for human resource managers may include establishing and administering
an employee to have conductive work environment, maintain life work balance, synchronize individual
with organization goals.
Â Human resource problems that arises when a business implements strategies can usually be traced to
one of three causes:
1. Disruption of social and political structure:
Â New formal and informal groups’ values, beliefs and priorities may be largely unknown.
Â Managers and employees may become engaged in resistance behavior as their roles, prerogatives
and power in the firm change.
Â Disruption of social and political structures that accompany strategy execution must be anticipated
and considered during strategy formulation and managed during strategy implementation.
2. Failure to match individuals’ aptitudes with implementation tasks:
Â A concern in matching managers with strategy is that jobs have specific and relatively static
responsibilities, although people are dynamic in their personal development.
Â Commonly used methods that match managers with strategies to be implemented include
transferring managers, developing leadership workshops, offering career development activities,
promotions, job enlargement and job enrichment.
3. Inadequate top management support for implementation activities:
Â A number of other guidelines can help ensure that human relationships facilitate rather than
disrupt strategyimplementation efforts.
Â Managers can build support for strategyimplementation efforts by giving few orders, announcing
few decisions, depending heavily on informal questioning and seeking to probe and clarify until
a consensus emerges.
Q11 Write a short note on competitive advantage.
Ans. According to Charles Greer,
In a growing number of organizations, human resources are now viewed as a source of competitive
advantage. There is greater recognition that distinctive competencies are obtained through highly
developed employee skills, distinctive organizational cultures, management processes and systems.
The role of human resources in enabling the organization to effectively deal with the external
environment challenges, the human resource management function has been accepted as a strategic
partner in the formulation of organization’s strategies and in the implementation of such strategies
through human resource planning. The following points should be kept in mind:
1. Recruitment and selection: The workforce will be more competent if a firm can successfully
identify, attract and select the most competent applicants.

2. Training: The workforce will be more competent if employees are well trained to perform their
jobs properly.
3. Appraisal of performance: The performance appraisal is to identify any performance deficiencies
experienced by employees due to lack of competence. Such deficiencies, once identified
can often be solved through counseling, coaching or training.
4. Compensation: A firm can usually increase the competency of its workforce by offering pay and
benefit packages that are more attractive than those of their competitors. This practice enables
organizations to attract and retain the most capable people.
Q.12 Write a short note strategic human resource management (SHRM).
Ans. The human resource strategy of a business should reflect and support the corporate strategy. An
effective human resource strategy includes the way in which the organization plans to develop its
employees and provide them suitable opportunities and better working conditions so that their optimal
contribution is ensured.
Strategic human resource management may be defined as the linking of human resource management
with strategic goals and objectives to improve business performance and develop organizational culture
that fosters innovation and flexibility.
The human resource management practices of an organization may be an important source of
competitive advantage. For this strategic focus should be given on the following points:
Â Preselection: Preselection practices including human resource planning and job analysis.
Â Selection: Selection practices meant to staff various positions in the organizations. Both
recruitment and selection policies and procedures should be designed keeping in view the mission
and the purpose of the organization.
Â Post selection: Post selection practices to maintain and improve the workers job performance
levels. Human resource decisions related to training and development, performance appraisal,
compensation and motivation should be based on corporate strategy of the organization.
Q1 What are the constituents of production systems?
Ans. The production system is concerned with the problems such as production capacity, production layout,
product or service or design, work methods, degree of automation and that of vertical integration.
Q2 When should a company go for inhouse R & D?
Ans. If the rate of technical progress is slow, the rate of market growth is moderate and there are barriers for
the new entrants to enter into the market then it would be desirable to promote R & D within the
company only.
Q3 When should a company go for outhouse R & D?
Ans. If technology is changing slowly but the market is growing very rapidly generally a company does not
have enough time for inhouse R & D. In such situation the company should obtain R & D expertise from
the outside.
Q4 When should a company acquire a well established firm in the industry?
Ans. If technological progress is very rapid and market is growing very fast it would be desirable for a
company to acquire a well established firm in the industry.
Q5 What is meant by performance appraisal?
Ans. This is the activity of undertaking merit rating of the employees and identifying the deficiencies in the
performance of the employees because of luck of training and competence on the part of the
employees. This would help with the firm to develop appropriate programmes of coaching, training
and counseling for the workers.
Q6 What is meant by competitive advantage?
Ans. The competitive advantage is some plus point or points on the part of an organization which enables
the organization to compete more successfully with the competitors within the markets. The firm can
create competitive advantage through cost leadership or product differentiation which is highly valued
by the customers.
Q7 What is meant by JIT (just in time) inventory management?
Ans. This means to obtain materials, spares and component as and when required. This kind of management
keeps away the need for strong and ware housing and thereby avoids the cost of carrying, insurance
etc.
1. “Production strategy implements, supports and drivers higher strategies.”
Correct: In order to get, effective implementation of higher level strategies, strategists need to provide
direction to functional managers, including production, regarding the plans and policies to be adopted.
Production strategy provides a path for transmitting corporate and business level strategy to the
production systems and makes it operational. It may relate to production planning, operational system,
control and research & development.
2. “Logistic management is an extension of supply chain management.”
Incorrect: Logistic management is related to planning, implementing and controlling the storage and
movement of goods and services, while supply chain management is much more than that it is a tool of
business transformation and involve delivering the right product at the right time to the right interfaces
such as telecom or postal system.
3. “Functional strategies are prepared by top level management.”
Incorrect: Functional level strategies are prepared by functional managers as per the guidance received
the corporate strategy. They tell the functional managers what is to be done, what policies are to be
followed and what plans to be implemented.
4. “Marketing alone cannot produce superior value for the customers.”
Correct: Marketing is concerned with producing superior value for the consumer. However, marketing
department alone cannot achieve these objectives. All the department in the company have to work
together to achieve the objectives of creating value chain for the customers.
5. “A finance budget is a statement showing income and expenditure of a firm.”
Incorrect: A financial budget is a document giving details regarding how the funds would be obtained
and how they would be utilized during a given period of time.
6. “Financial plans and policies sometimes present a dilemma for the management.”
Correct: This is because the priorities of the management and those of the shareholders always do not
do in the same direction. For example, the shareholders may be interested in getting more dividends
while the management may be willing to conserve funds for the future plans of the company. The duty
of the management here is to minimize the conflict of interests between the management and the
shareholders.
7. “Production planning and production control are complementary.”
Correct: Production planning means to decide what to produce, where, how, how much, etc. while

production control is concerned with seeing that all the activities in the production department take
place according to the targets of the production department.
8. “Logistic strategy is not much important.”
Incorrect: The logistic strategy is concerned with intregrating the flow of supplies of materials and
goods into, through and out of the organization. This strategy is very important to assure delivery of
right materials, at the right place, at the right time, at the right price and of the right quality. The
strategy not only promotes the customers satisfaction but also increases profit of the company through
proper inventory management.
9. Functional level constitutes the lowest hierarchical level of strategic management.
Correct: Functional level managers and strategies operate at the lowest hierarchical level of strategic
management. Functional level is responsible for the specific business functions or operations that
constitute a company or one of its divisions. Although they are not responsible for the overall
performance of the organization, functional managers nevertheless have a major strategic role to
develop functional strategies in their area that help to fulfill the strategic objectives set by business
and corporate level managers.
10. Skimming means keeping price very low.
Incorrect: In skimming, prices of a new product are kept at a very high level. The idea is to take advantage
of the initial interest that a new product generates amongst the buyers who are relatively price
insensitive.
11. Augmented marketing is provision of additional customer services and benefits.
Correct: Augmented marketing refers to deliberate and accelerated offers to get better marketing
returns through additional means. It includes provision of additional customer services and benefits
built around the care and the actual products that relate to introduction of hitech services like movies
on demand, online computer repair services, secretarial services, etc. Such innovative offerings provide
a set of benefits that promise to elevate customer service to unprecedented levels.
12. Teleshopping is an instance of direct marketing.
Correct: Direct marketing is done through various advertising media that interact directly with customers.
Teleshopping is a form of direct marketing which operates without conventional intermediaries and
employs television and other IT devices for reaching the customer. The communication between the
marketer and the customer is direct through third party interfaces such as telecom or postal systems.
13. Supply chain management is conceptually wider than logistic management.
Correct: Supply chain management is an extension of logistic management. Logistic management is
related to planning, implementing and controlling the storage & movement of goods & services while
supply chain management is much more than that. It is a tool of business transformation and involves
delivering the right product at the right time to the right place and at the right price.
14. Human resource management aids in strategic management.
Correct: The human resource management helps the organization to effectively deal with the external
environment challenges. The function has been accepted as a partner in the formulation of
organization’s strategies and in the implementation of such strategies through human resource planning,
employment, training, appraisal and rewarding of personnel.
15. Production strategy implements, supports and drives higher level strategies.
Correct: For effective implementation of higher level strategies, strategists need to provide direction
to functional managers, including production, regarding the plans and policies to be adopted. Production
strategy provides a path for transmitting corporate and business level strategy to the production systems

and makes it operational. It may relate to production planning, operational system, control and research
& development.
16. Marketers alone can deliver superior value to customers.
Incorrect: A marketer alone cannot deliver superior value to the customers. It needs to work in
coordination with other departments to accomplish this. It is important to be part of organization chain
and marketer needs to work in coordination with other department in the search for competitive
advantages. Organizations need to look at the value chain network along with its own chain of activities
and the chain of suppliers, distributors and ultimately customers.
17. The role of human resource manager is significant in building up core competency of the firm.
Correct: The human resource manager has a significant role to play in developing core competency of
the firm. A core competence is a unique strength of an organization which may not be shared by others.
Core competencies can be generated and maintained only through the effective management of human
resources and their skills.
18. Demarketing strategy aims to reduce demand temporarily or permanently.
Correct: Demarketing is a marketing strategy to reduce demand temporarily or permanently – the aim
is not to destroy demand, but only to reduce or shift it. This happens when the demand is too much to
handle. For example, buses are overloaded zoological parks are overcrowded on Saturdays, Sundays
and holidays. Here Demarketing can be applied to regulate demand.
1. Functional strategy: The functional strategies are department level strategies. They are prepared by
the functional managers according to the guidelines provided by the top level or business level
management. They are production strategy, marketing strategy, HRM strategy and logistic strategy
etc. They tell the functional managers what is to be done, what policies to be followed and what
plans to be implemented.
2. Marketing process: The marketing process is the process of analyzing the market opportunities,
selecting target markets, developing proper market mix and managing the efforts of the marketing
department to the best advantage of the organization.
3. Market segmentation: This is the activity of dividing the customers into various groups according to
their income, their age, needs, purchasing power and geographical location, social and cultural
backgrounds.
4. Market targeting: This is the activity of deciding the best market segments which the firm could
serve and provide bet value to the buyers and making maximum amount of profit for itself.
5. Marketing positioning: This is the activity of designing various market strategies which can serve the
chosen market segments in a way better than the competitors.
6. Marketing mix: The marketing mix is the set of various sectors which are controllable in nature and
which the firm mixes to get the desired results from the target market. In other words, marketing mix
contains everything that the firm can do to influence demand for its product. There are 4Ps and 4Cs of
the marketing mix. The 4Ps are product, price, place and promotion and the 4Cs are customer solution,
customer cost, customer convenience and customer communication.
7. Social marketing: It refers to the design, implementation and control of programmes aiming at
increasing the acceptability of a social idea, cause or practice among a target group. For instance, the
publicity campaign for prohibition of smoking in public places.
8. Augmented marketing: It is provision of additional customer services and benefits along with the
main and actual products related to introduction of hitech services like movies on demand, nline

computer repair services, secretarial services, etc. Such innovative offering provide benefits
which raise the quality of customer service to extremely high levels.
9. Direct marketing: This means marketing through various advertising media that directly promote
contacts with consumers and invite the consumers to make a direct response. Direct marketing
includes catalogue selling, mail, telecommuting, electronic marketing, shopping and TV shopping.
10. Relationship marketing: The process of creating, maintaining and promoting strong and valuable
relationships with customers and other stakeholders. For example, British Airways offer special
lounges with showers at 199 airports for frequent flyers. Thus, providing special benefits to select
customers to strength bonds with them. It goes a long way in building relationships.
11. Services marketing: It is applying the concepts, tools and techniques of marketing to services.
Service is any activity or benefit that one party can offer to another that is essentially intangible and
includes the services like banking, savings, retailing, educational or public utilities.
12. Person marketing: People are also marketed. Person marketing consists of activities undertaken to
create, maintain or change attitudes or behavior towards particular people. For example, politicians,
sports stars, film stars, professionals i.e., market themselves to get votes or to promote their careers
and income.
13. Organization marketing: It consists of activities undertaken to create, maintain or change attitudes
and behavior of target audience towards an organization. Both profit and nonprofit organizations
practice organization marketing. For example, private hospitals and various temples advertise
themselves to create a class of customers or devotees.
14. Place marketing: Place marketing involves activities undertaken to create, maintain or change
attitudes and behavior towards particular places say, business sites marketing, tourism marketing.
For example, if the government of Rajsthan widely advertises the facilities and places of sightseeing
for the places like Abu, Udaipur etc. then it is case of place marketing.
15. Enlightened marketing: this is a marketing philosophy emphasizing that a company’s marketing should
support the best longrun performance of the marketing system; its five principle include customer
oriented marketing, innovative marketing, value marketing, sense of mission marketing and
social marketing.
16. Differential marketing: It is a marketcoverage strategy in which a firm decides to target several
market segments and designs separate offer for each. For example, Hindustan Lever Limited has
Lifebuoy, Lux and Rexona in popular segment and Liril and Pears in premium segment.
17. Synchromarketing: When the demand for the product is irregular due to season, some parts of the
day or on hour basis, causing idle capacity or overworked capacities at different points of time,
Synchro
marketing can be used to find ways to change pattern of demand through various measures such as
flexible pricing, promotion and other incentives. For example, woolens or coolers or services like
landline telephones and public bus services.
18. Concentrated marketing: A marketcoverage strategy in which a firm goes after a large share of one
or few submarkets.
19. Demarketing: This is opposite marketing. Here there are strategies to reduce demand temporarily or
permanently – the aim is not to destroy demand, but only to reduce or shift it. This happens when
there is overall demand. For example, the places like the Lal quilla or the Taj Mahal suffer from great
damage due to a huge number of people every day visiting them. Such monuments are to be protected.
Here, Demarketing can be applied to regulate demand.

EXPLAIN THE MEANING OF THE FOLLOWING CONCEPTS:
1 Relationship marketing : The process of creating, maintaining and promoting strong and valuable
relationships with customers and other stakeholders. Thus, providing special benefits to select
customers to strength bonds with them. It goes a long way in building relationships
2 Supply chain management : Supply chain management is a tool of business transformation and involves
delivering the right product at the right time to the right place and at the right price. It reduces costs of
logistics of organizations and enhances customer service by linkages between suppliers, manufactures
and customers. Supply chain management is an extension of logistic management.
3 Service marketing : Service marketing is applying the concepts, tools and techniques of marketing to
services. Service is any activity or benefit that one party can offer to another that is essentially intangible
and nonperishing. These may be from business to consumer and from business to business.
4 Enlightened marketing : Enlightened marketing helps a company to support the best longrun
performance of the marketing system. It is based on five principle include customeroriented
marketing, innovative marketing, value marketing, sense of mission marketing and social marketing.
5 Person marketing : Person marketing consists of activities undertaken to create, maintain or change
attitudes or behavior towards particular people. For example, politicians, sports stars, film stars,
professionals i.e., market themselves to get votes or to promote their careers and income.
6 Logistic strategy : Logistic is a process that integrates the flow of supplies into, through and out of an
organization to achieve a level of service that facilitate movement and availability of materials in a
proper manner. When a company creates a logistics strategy, it is defining the service levels at which its
logistics is smooth and is cost effective.
7 Production system : The production system is concerned with the activities directed towards creation
of products and services for customers. It covers factors such as capacity, location, layout, design, work
systems, automation and so on.
8 Differential marketing : A marketcoverage strategy in which a firm decides to target several market
segments and designs separate offer for each. Differentiation can be achieved through variation in
size, shape, color, brand names and so on.
9. Synchromarketing : Synchromarketing: When the demand for the product is irregular causing idle
capacity or overworked capacities, Synchromarketing can be used to find ways to alter the pattern of
demand so that it equates more suitably with the pattern of supply. It can be done through flexible
pricing, promotions and other incentives.
BRIEFLY ANSWER THE FOLLOWING QUESTIONS:
Q1 Explain the term marketing.
Ans. In general, marketing is an activity performed by business organizations. In the present day for business,
it is considered to be the activities related to identifying the needs of customers and taking such
actions to satisfy them in return of some consideration. The term marketing constitutes different
processes, functions, exchanges and activities that create perceived value by satisfying needs of
individuals.
Q2 Briefly explain logistic strategy.
Ans. Management of logistics is a process which integrates the flow of materials into, through and out of an
organization to achieve a level of service which ensures that the right materials are available at the
right place, at the right time, of the right quality and at the right cost. For a business organization
effective logistics strategy will involve raising and finding solutions to the questions relating to raw
material, manufacturing locations, products, transportation and development of inventory.
Improvement in logistics can result in saving in cost of doing business.

When a company creates a logistic strategy, it is defining the service levels at which its logistics systems
are highly effective. A company may develop a number of logistics strategies for specific product lines,
specific countries or specific customers to address different categorical requirements.
Q3 Successful implementation of any project needs additional funds. What are the different sources of
raising funds and their impact on the financial strategy which you as a financial manager will consider?
Ans. Successful strategy implementation often requires additional capital. Besides net profit from operations
and the sale of assets, two basic sources of capital for an organization are debt and equity. Being a
financial manager to determine an appropriate mix of debt and equity in a firm’s capital structure can
be vital to successful strategy implementation. Fixed debt obligations generally must be met, regardless
of circumstances. This does not mean that stock issuance is always better than debt for raising capital.
If ordinary stock is issued to finance strategy implementation; ownership and control of the enterprise
are diluted. This can be a serious concern in today’s business environment of hostile takeovers, Mergers
and acquisitions.
The major factors regarding which strategies have to be made by a financial manager are: capital
structure; procurement of capital and working capital borrowings; reserves and surplus as source of
funds and relationship with lenders, banks and financial institution. Strategies related to the source of
funds are important since they determine how financial resources will be made available for the
implementation of strategies. Organizations have a range of alternatives regarding the sources of
funds. While one company may rely on external borrowings, another may follow a policy of internal
financing.
Q4 Distinguish between logistic management and supply chain management.
Ans. Supply chain management is an extension of logistic management. However, there are differences
between the two. Logistic activities typically include management of inbound and outbound goods,
transportation, warehousing, and handling of material, fulfillment of orders, inventory management
and supply / demand planning. Although these activities also form part of supply chain management,
the latter is much broader. Logistic management can be termed as one of its part that is related to
planning, implementing and controlling the movement and storage of goods, services and related
information between the point of origin and the point of consumption.
Supply chain management is an integrating function of all the major business activities and business
processes within and across organizations. Supply chain management is a system view of the linkages
in the chain consisting of different channel partners – suppliers, intermediaries, thirdparty service
providers and customers. Different elements in the chain work together in a collaborative and
coordinated manner. Often it is used as a tool of business transformation and involves delivering the
right product at the right time to the right place and at the right price.
Q5 Write short note on production system.
Ans. 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. Strategies related to
production system are significant as they deal with vital issues affecting the capability of the organization
to achieve its objectives.
Strategy implementation would have to take into account the production system factors as they involve
decisions which are longterm in nature and influence not only the operations capability of an
organization but also its ability to implement strategies and achieve objectives.
Q6 How would you argue that research and development personnel are important for effective strategy
implementation?
Ans. Research and development (R & D) personnel can play an integral part in strategy implementation.

These individuals are generally charged with developing new products and improving old products in
a way that will allow effective strategy implementation. R & D employees and managers perform tasks
that include transferring complex technology, adjusting processes to local raw materials, adapting
processes to local markets and altering products to particular tastes and specifications.
Strategies such as product development, market penetration and concentric diversification require
that new products be successfully developed and that old products be significantly improved. But the
level of management support for R & D is often constrained by resource availability.
1. Selling all a company assets in parts for their tangible worth is called:
(a) Divestiture (b) Concentric diversification
(c) Liquidation (d) Unrelated integration
2. From the following activity which does not comes under the primary activities of value chain analysis:
(a) Operations (b) Technology development
(c) Marketing and sales (d) Services
3. One of the top level manager of a large manufacturing plant uses to spend her day trying to ensure that
the material waste is not more than 10%, she spends her day performing the management process of:
(a) Planning (b) Organizing
(c) Leading (d) Controlling
4. Allah group of industries is involved in the sale of its marginal business. It is not likely to say that
Abdullah group is implementing which one of the following strategies?
(a) Retrenchment (b) Liquidation
(c) Acquisition (d) Joint venture
5. A company offers unique products that are widely valued by customers, it is likely to follow a:
(a) Differentiation strategy (b) Combination strategy
(c) Focus strategy (d) Costleadership strategy
6. Two reasons for mergers and acquisitions are
(a) To increase managerial staff and to minimize economies of scale
(b) To reduce tax obligations and increase managerial staff
(c) To create seasonal trends in sales and to make better use of a new sales force
(d) To provide improved capacity utilization and to gain new technology
7. Functional level strategy directly supports
(a) Corporate strategy (b) Business strategy
(c) Differentiation strategy (d) Focus strategy
8. Human resource management assumes which of the following?
(a) Employees are more productive when they are better informed
(b) Employees are more productive if they are committed to the organization
(c) Employees are resources to be used effectively in the search for competitive advantage
(d) Employees have to be trusted to make correct decisions

9. A company specializing in producing mass market cars acquires a company which specializes in financial
services to its car purchasers. What form of diversification of this?
(a) Resourcebased (b) Unrelated
(c) Routinebased (d) Replicationbased
10. Aggregating prospective buyers into groups is called:
(a) Market categorization (b) Market segmentation
(c) Modeling (d) BCG matrix analysis
11. Cohesive marketing mix consists of the product, promotion, price and
(a) Personnel (b) Production
(c) Advertising (d) Communication
12. HRM is ___________.
(a) A staff functions (b) A line function
(c) A staff function, line function and accounting function
(d) All of the above
13. The following is concerned with developing a pool of candidates in line with the human resource plan
(a) Development (b) Training
(c) Recruitment (d) All of the above
14. The characteristic of human resources are ___________ in nature.
(a) Homogeneous (b) Heterogeneous
(c) Ductility (d) None of the above
15. The scope of human resource management includes
(a) Procurement (b) Development
(c) Compensation (d) All of the above
16. Strategic human resource management aims to achieve competitive advantage in the market through
(a) Product (b) Price
(c) Process (d) People
17. ___________approach involves delivering parts and materials as needed rather than being stockpiled.
(a) JIT (b) MBO
(c) PERT (d) CADDAM
ANSWERS
1. (c) 2. (b) 3. (d) 4. (c) 5. (a) 6. (d)
7. (b) 8. (c) 9. (b) 10. (b) 11. (d) 12. (a)
13. (c) 14. (b) 15. (d) 16. (d) 17. (a)

The need for functional strategies Some example of marketing decisions:
Â Managerial efficiency Â Amount of advertisement
Â Implementation Â Type of distribution network
Â Control Â Be price leader of follower
Â Coordination Â Warranty
Â Consistency Â Customers
Â Sales force
The marketing process The component of marketing plan:

Â Delivering value to customers 1. Executive summary
Â Connecting with customers 2. Threats and opportunities
Â 1. market segmentation 3. Marketing strategy
Â 2. market targeting 4. Budget
Â 3. market positioning 5. Controls

Marketing strategy techniques: Process of financial strategy:
1. Social marketing 1. Acquiring capital to implement strategies
(source of funds)
2. Augmented marketing 2. Projected financial statements / budgets
3. Direct marketing 3. Utilization of funds
4. Relationship marketing 4. Evaluating the worth of a business
5. Services marketing
6. Person marketing
7. Organization marketing
8. Place marketing
9. Enlightened marketing
10. Differential marketing
11. Synchromarketing:
12. Concentrated marketing
13. Demarketing
The strategies for production
1. Production system
2. Operations planning and control
Implementing of supply chain Strategic role of human resource manager:

management system
1. Product development 1. Providing purposeful direction
2. Procurement 2. Building core competency
3. Manufacturing 3. Creating competitive advantage
4. Physical distribution 4. Facilitation of change
5. Outsourcing 5. Managing workforce diversity
6. Customer services 6. Empowerment of human resources
7. Performance measurement 7. Development of works ethics and culture

CHAPTER7
ORGANISATION AND STRATEGIC LEADERSHIP
For any organisation the problem is to ensure that technology, structure and goals are in harmony. That is
what is meant by a good management
– Charles Perrow
We shall not be afraid of conflict, but we recognize that there is a destructive as well as constructive way to
deal with it. Conflict at the moment of appearing and focusing of difference may be a sign of health and a
prophecy of progress
– Mary Parker follet
INTRODUCTION:
Strategic management process does not end when the firm decides what strategies to pursue. There must
be a translation of strategic thought into strategic action. Implementation and leadership affects an
organization from top to bottom, it affects all the areas of business.
LONG QUESTIONS :
Q1 Explain Chandler’s StrategyStructure Relationship.
Ans.
Figure: Chandler’s StrategyStructure Relationship

According to Chandler, changes in strategy lead to changes in organizational structure. Structure should
be designed or redesigned to facilitate the strategic pursuit of a firm and, therefore, structure should
follow strategy.
Chandler found a particular structure sequence to be often repeated as organizations grow and change
strategy over time.

There is no one optimal organizational design or structure for a given strategy. When a firm changes its
strategy, the existing structure may become ineffective. Symptoms of an ineffective organizational
structure include too many levels of management, too many meetings attended by too many people, too
many unachieved objectives.
Changes in organizational structure can facilitate strategyimplementation efforts. Structure also
influences strategy. If a proposed strategy required massive structural changes it would not be an attractive
choice. In this way, structure can shape the choice of strategy. In order to implement and manage strategies
that have been formulated, all companies need some form of organizational structure. And, as companies
formulate new strategies, increase in size, or change their level of diversification, new organizational
structures may be required.
Hence, Organizational Structure may be defined as follows:
“Organizational structure is the company’s formal configuration of its intended roles, procedures,
governance mechanisms, authority, and decisionmaking processes.”
Organizational structure, influenced by factors such as an organization’s age and size, acts as a framework
which reflects managers’ determination of what a company does and how tasks are completed, given the
chosen strategy.
The most important issue is that the company’s structure must be congruent with or fit with the company’s
strategy.
Q2 Explain the Functional Structure of Organization Structure.
Ans. Application of functional structure is simple and low in cost. A functional structure groups tasks and
activities by business function, such as production/operations, marketing, finance/accounting, research
and development, and management information systems.
Functional structure also promotes specialization of labour, encourages efficiency, minimizes the need
for an elaborate control system, and allows rapid decision making.
The functional structure consists of the persons mentioned above. The functional structure enables
the company to overcome the growthrelated constraints of the simple structure, enabling or facilitating
communication and coordination.
Limitations of Functional structure:
Â Difference in functional specialization and orientation may impede communications and
coordination. Thus, the CEO must integrate functional decisionmaking and coordinate actions of
the overall business across functions.
Â Functional specialists often may develop a myopic or narrow perspective, losing sight of the
CHAPTER7 : ORGANISATION AND STRATEGIC LEADERSHIP 152

company’s strategic vision and mission. When this happens, this problem can be overcome by
implementing the multidivisional structure.
Q3 Explain the Divisional Structure.
Ans. As a firm grows, year after year it faces difficulty in managing products and services in different markets.
The divisional structure can be organized in one of the four ways: by geographic area, by product or
service, by customer, or by process. With a divisional structure, functional activities are performed
both centrally and in each division separately.
Advantages of Divisional Structure:

Â Accountability is clear i.e. divisional managers can be held responsible for sale and profit level.
Â As a divisional structure is based on extensive delegation of authority, the managers and employees
can easily see the results of their good or bad performance.
Â Employee morale is generally higher in the divisional structure than in centralized structure.
Â It creates career development opportunities for managers, allows local control of local situations leads
to a competitive climate within an organisation, and allows new business and products in be added
easily.
Limitations of Divisional Structure:
The main limitation of a divisional structure is its cost i.e. divisional structure is very costly, mainly because
of following reasons:
1. Each division requires functional specialists who must be paid.
2. There exists some duplication of staff services, facilities, and personnel e.g. functional specialists are
also needed centrally at headquarters to coordinate divisional activities.
3. Managers must be well qualified because the divisional design forces delegation of authority better
qualified requires higher salaries.
4. It requires an elaborate, headquartersdriven control system
5. Certain regions, products, or customers may sometimes receive special treatment, and it may be
difficult to maintain consistent, companywide practices.
Q4 Explain different types of Divisional Structures.
Ans. There are four types of divisional structures which can be explained as follows:

Â Geographical based Divisional Structure:
A divisional structure by geographic area is appropriate for organisations whose strategies are
formulated to fit the particular needs and characteristics of customers in different geographies areas.
A divisional structure by geographic areas allows local participation indecision making and improved
coordination within a region.
Â Product or service based divisional structure:
This divisional structure is most effective for implementing strategies when specific products or services
need special emphasis.
Also used when an organization offers only a few products or services, when an organization’s products
or services differ substantially.
Allows strict control over and attention to product lines, but it may also require a more skilled
management force and reduced top management control.
General Motors, DuPont, and Procter & Gamble use a divisional structure by product to implement
strategies.
Â Customer based Divisional Structures:
When a few major customers are of paramount importance and many different services are provided
to these customers, then a divisional structure by customer can be the most effective way to implement
strategies.
This structure allots an organization to cater effectively to the requirement of clearly defined customer
groups.
E.g.: Some airline companies have two major divisions: passengers and freight or cargo services.
Â Divisional Structure by process:
This structure is similar to a functional structure, because activities are organized according to the way
work is actually performed.
However, a key difference between these two designs is that functional departments are not
accountable for profits or revenues, whereas divisional process departments are evaluated on these
criteria.
Multidivisional structure calls for:
Â Creating separate divisions, each representing a distinct business.
Â Each division would house its functional hierarchy.
Â A small corporate office that would determine the longterm strategic direction of the firm and exercise
overall financial control over the semiautonomous divisions.
Â Division managers would be given responsibility for managing daytoday operations.
This would enable the firm to more accurately monitor the performance of individual businesses, simplifying
control problems, facilitate comparison between divisions, improving the allocation of resources and
stimulate managers of poorly performing divisions to seek ways to improve performance.
When the firm is less diversified, strategic controls are used to manage divisions. Strategic control refers to
the operational understanding by corporate officers of the strategies being implemented within the firm’s
separate business units.
Q5 Write a note on Strategic Business Unit (SBU) Structure?
Ans. It is impractical for an enterprise with a multitude of businesses to provide separate strategic planning
treatment to each and every one of its products/businesses; it has to necessarily group the products/
business into a manageable number of strategically related business units and then take them up for
strategic planning.

An SBU is a grouping of related businesses, which is amenable to composite planning treatment.
As per this concept, a multibusiness enterprise groups its multitude of businesses into a few distinct
business units in a scientific way.
The purpose is to provide effective strategic planning treatment to each one of its products/businesses.
Characteristics of a SBU:
Â It is a single business or a collection of related businesses which offer scope for independent planning
and which might feasibly stand alone from the rest of the organization.
Â It has its own set of competitors.
Â It has a manager who has responsibility for strategic planning and profit performance, ad who has
control of profitinfluencing factors.
Difficulties arising while carrying out strategic planning, treating territories as the units for planning:
i. Since a number of territorial units handled the same product, the same product was getting varied
strategic planning treatments;
ii. Since a given territorial planning unit carried different and unrelated products, products with dissimilar
characteristics were getting identical strategic planning treatment.
The concept of SBU breaks away from this practice. It recognises that just because a firm is structured into a
number of territorial units, it is not necessarily in different businesses. It may be engaged in more businesses.
The endeavour should be to group the businesses into an appropriate number of strategic business units
before the firm takes up the strategy formulation task.
The SBU structure is composed of operating units where each unit represents a separate business to which
the top corporate officer delegates responsibility for daytoday operations and business unit strategy to its
managers. By such delegation, the corporate office is responsible for formulating and implementing overall
corporate strategy and managers SBUs through strategic and financial controls. Hence, the SBU structure
group’s similar products into strategic business units and delegate’s authority and responsibility for each
unit to a senior executive who reports directly to the CEO. This change in structure can facilitate strategy
implementation by improving coordination between similar divisions and channelling accountability to
distinct business units.
Figure: SBU Structure

A strategic business unit (SBU) structure consists of at least three levels, with a corporate headquarters at
the top, SBU groups at the second level, and divisions grouped by relatedness within each SBU at the third
level.
This enables the company to more accurately monitor the performance of individual businesses, simplifying
control problems. It also facilitates comparisons between divisions, improving the allocation of resources
and can be used to simulate managers of poorly performing divisions to seek ways to improve performance.
This means that, within each SBU, divisions are related to each other, as also that SBU groups are unrelated
to each other. Within each SBU, divisions producing similar products and/or using similar technologies can
be organised to achieve synergy. Individual SBUs are treated as profit centres and controlled b corporate
head quarters that can concentrate on strategic planning rather than operational control so that individual
divisions can react more quickly to environmental changes.
E.g.: Sony has been restructuring to match the SBU structure with its ten internal companies as organized
into four strategic business units. Because it has been pushing the company to make better use of software
products and content (e.g., Sony’s music, films and games) in its televisions and audio gear to increase
Sony’s profitability. By its strategy, Sony is one of the few companies that have the opportunity to integrate
software and content across a broad range of consumer electronics products.
The principle underlying the grouping is that all related productsrelated from the standpoint of “function”
should fall under one SBU. In other words, the SBU concept helps a multibusiness corporation in scientifically
grouping its businesses into a few distinct business units.
The attributes of an SBU and the benefits a firm may derive by using the SBU structure are as follows:
Â A scientific method of grouping the business of a multibusiness corporation which helps the firm in
strategic planning.
Â An improvement over the territorial grouping of businesses and strategic planning based on territorial
units.
Â An SBU is a grouping of related businesses that can be taken up for strategic planning distinct from the
rest of the businesses. Products/businesses within an SBU receive same strategic planning treatment
and priorities.
Â The task consists of analysing and segregating the assortment of businesses/portfolios and regrouping
them into a few, well defined, distinct, scientifically demarcated business units. Products/businesses
that are related from the standpoint of “function” are assembled together as a distinct SBU.
Â Unrelated products/businesses in any group are separated. If they could be assigned to any other SBU
applying the criterion of functional relation, they are assigned accordingly; otherwise they are made
into separate SBUs.
Â Grouping the businesses on SBU lines helps the firm in strategic planning by removing the vagueness
and confusion generally seen in groping businesses; it also facilitates the right setting for correct
strategic planning and facilitates corrective relative priorities and resources to the various businesses.
Â Each SBU is a separate business from the strategic planning standpoint. On the basic factor, viz., missions,
objectives, competition and strategyone SBU will be distinct from another.
Â Each SBU will have its own distinct set of competitors and its own distinct strategy.
Â Each SBU will have a CEO. He will be responsible for strategic planning for SBU and its profit performance;
he will also have control over most of the factors affecting the profits of the SBU.

Q6 Explain the role of Leadership in implementation.
Ans. The strategic leaders must be able to use the strategic management process effectively by guiding the
company in ways that result in the formation of strategic intent and strategic mission, facilitating the
development and implementation of appropriate strategic plans and providing guidance to the
employees for achieving strategic goals.
Strategic leadership entails the ability to anticipate, envision, maintain flexibility, and empower others
to create strategic change as necessitated by external environment.
In other words, strategic leadership represents a complex form of leadership in companies. A manager
with strategic leadership skills exhibits the ability to guide the company through the new competitive
landscape by influencing the behaviour, thoughts, and feelings of coworkers, managing through others
and successfully processing or making sense of complex, ambiguous information by successfully dealing
with change and uncertainty.
Q7 Explain the two basic approaches to leadership. OR

Explain Transformational leadership style. OR
Explain Transactional leadership style.
Ans.
I. Transformational leadership style:
Transformational leadership style uses charisma and enthusiasm to inspire people to exert them for
the good of the organization.

This style may be appropriate n turbulent environments, in industries at the very start or end of their
life cycles, in poorly performing organizations when there is a need to inspire a company to embrace
major changes.
Transformational leadership offer excitement, vision, intellectual stimulation and personal satisfaction.
They inspire involvement in a mission, giving followers a ‘dream’ or ‘vision’ of a higher calling so as to
elicit more dramatic changes in organizational performance.
Such leadership motivates followers to do more than originally affected to do by stretching their
abilities and increasing their selfconfidence, and also promote innovation throughout the organization.
II. Transactional leadership style:
This leadership style focuses more on designing systems and controlling the organization’s activities
and is more likely to be associated with improving the current situation.
Transactional leaders try to build on the existing culture and enhance current practices.
Transactional leadership style uses the authority of its office to exchange rewards, such as pay and
status.
They prefer a more formalized approach to motivation, setting clear goals with explicit reward or
penalties for achievement or nonachievement.
Transactional leadership style may be appropriate in static environment, in mature industries, and in
organizations that are performing well.
This style is better suited in persuading people to work efficiently and run operations smoothly.
SHORT QUESTIONS :
Q1 “Changes in corporate structure often require changes in the way an organization is structured”. Give
reasons.
Ans. Following are the major reasons for such changes:
1. Structure largely dictates how operational objectives and policies will be established to achieve the
strategic objectives.
E.g.:
1. Objectives and policies established under a geographic organizational structure are couched in
geographic terms.
2. Objectives and policies are stated largely in terms of products in an organization whose structure
is based on product groups.
2. Structure dictates how resources will be allocated to achieve strategic objectives.
E.g.:
1. If an organization’s structure is based on customer groups, then resources will be allocated in that
manner.
2. Similarly, if an organization’s structure is set up along functional business lines, then resources
are allocated by functional areas.
Q2 Explain Network Structure.
Ans. Network Structure, also termed as a “nonstructure” by its virtual elimination of in house business
functions. Many activities are outsourced. A corporation organized in this manner is often called a
virtual organization because it is composed of a series of project groups or collaborations linked by
constantly changing nonhierarchical, cobweblike networks. This structure is useful when the
environment of the firm is unstable and is expected to remain so.

The network organization structure provides an organization with increased flexibility and adaptability
to cope with rapid technological change and shifting patterns of international trade and competition.
It allows a company to concentrate on its distinctive competencies, while gathering efficiencies from
other firms who are concentrating their efforts in their areas of expertise.
The network does, however, have disadvantages.
Â The availability of numerous potential partners can be a source of trouble.
Â Contracting out functions to separate suppliers/distributers may keep the firm from discovering
any synergies by combining activities.
Â If a particular firm overspecialises on only a few functions, it runs the risk of choosing the wrong
functions and thus becoming noncompetitive.
Companies like Airtel use the network structure in their operations function by subcontracting
manufacturing to the other companies in lowcost.
Q3 Define Entrepreneurship. Also define and explain the features of an Entrepreneur.
Ans. Definition of Entrepreneurship:
Entrepreneurship is an attitude of mind to seek opportunities, take calculated risk and drive benefits
by starting and running a venture. It comprises of numerous activities involved in the conception,
creation and running an enterprise.
An entrepreneur is a person who searched for business opportunity and starts a new enterprise to
make use of that opportunity.
Definition of an Entrepreneur:
“An entrepreneur is an individual who conceives the idea of starting a new venture; take all types of
risks, not only to put the product or the service into reality but also to make it an extremely demanding
one.
Features of an Entrepreneur:
1. Initiates and innovates a new concept.
2. Recognises and utilises opportunity.
3. Arranges and coordinates resources such as man, material, machine and capital.
4. Faces risks and uncertainties.
5. Establishes a startup company
6. Adds value to the product or service.
7. Takes decisions to make the product or service a profitable one.
8. Is responsible for the profits or losses of the company.
Q4 Explain the concept of Entrepreneur.
Ans. Many people use these terms interchangeably because they think that they both contain the same
elements. However, the fact is that there exists affine line amidst, these toe terms. While the former
refers to a person who starts his own business with a new idea or concept, the latter represents an
employee who promotes innovation within the limits of the organisation.
Definition of Entrepreneur:
“An entrepreneur is nothing but an entrepreneur who operates within the boundaries if an organisation.
He is an employee f a large organisation, who is vested with authority of initiating creativity and
innovation in the company’s products, services and projects, redesigning the processes, workflows
and systems.”

The entrepreneurs believe in change and do not fear failure. They discover new ideas, look for such
opportunities that can benefit the whole organization and take risks, promote innovations to improve
the performance and profitability of the organization. The job of an entrepreneur is extremely
challenging. They get recognition and reward for the success achieved by them.
It has now become a trend that large corporations appoint entrepreneur within the organization, to
bring operational excellence and gain competitive edge in the market.
Q5 Explain the Mform or the Multi Divisional Structure.
Ans. Multidivisional (MForm) structure is composed of operating divisions where each division represents
a separate business to which the top corporate officer delegates responsibility for the daytoday
operations and business unit strategy to division managers. By such delegation, the corporate strategy
and managers divisions through strategic and financial controls.
Q6 Write a note on Hourglass Structure.
OR
Explain the Hourglass Structure.
Ans. Introduction: In the recent year’s information technology and communications have significantly
altered the functioning of organizations. The role played by middle management is diminishing as the
tasks performed by them are increasingly being replaced by the technological tools.
Hourglass Structure explanation: Hourglass organization structure consists of three layers with
constricted middle layer.
The structure has a short and narrow middlemanagement level. Information technology links the top
and bottom level managers. A shrunken middle layer coordinates diverse lower level activities. Contrary
to traditional middle level managers who are often specialist, the managers in the hourglass structure
are generalists and perform wide variety of tasks. They would be handling crossfunctional issues
emanating such as those from marketing, finance or production.
Figure: Hourglass Organisation Structure

Q7 Write a note on Strategic Leadership.
Ans. Introduction : Strategic Leadership sets the firms direction by developing and communicating vision of
future, formulate strategies in the light of internal and external environment, brings about changes
required to implement strategies and inspire the staff to contribute to strategy execution.
A manager as a strategic leader has to play many leadership roles to play: visionary, chief entrepreneur
and strategist, chief administrator, culture builder, resource acquirer and allocator, capabilities builder,
process integrator, crisis manager, spokesperson, negotiator, motivator, arbitrator, policy maker, policy
enforcer, and head cheerleader.

Meaning: A strategic leader is a change agent to initiate strategic changes in the organizations and
ensure that the changes successfully implemented. For the most part, major change efforts have to be
topdown and visiondriven. Leading change has to start with diagnosing the situation and then deciding
which of several ways to hand.
Q8 Explain the five leadership roles to play in pushing for good strategy execution.
Ans.
Staying on top of what is happening, closely monitoring progress, solving out issues, and learning
what obstacles lie in the path of good exaction.
Promoting a culture of esprit de corps that mobilizes and energizes organizational members to execute
strategy in a competent fashion and perform at a high level.
Keeping the organization responsive to changing conditions, alert for new opportunities, bubbling
with innovative ideas, and ahead of rivals in developing competitively valuable competencies
and capabilities.
Exercising ethical leadership and insisting that the company conduct its affairs like a model corporate
citizen.
Pushing corrective actions to improve strategy execution and overall strategic performance.
E.g.: N.R. Narayan Murthy, is known as a celebrated business leader because of the values he had
institutionalised over his tenure as CEO of Infosys. One of the great legacy he left with Infosys is a strong
management development program that builds management talent and strategic leader with ethical values.
Q9 From where does corporate culture originate?
Ans. All the sociological forces, some of which operate quite subtly, combine to define an organization’s
culture, beliefs and practices that become embedded in a company’s culture can originate anywhere:
from one influential individual, work group, department, or division, from the bottom of the
organizational hierarchy or the top.
A significant part of a company’s culture emerges from the stories that get told over and over again to
illustrate to newcomers the importance of certain values and beliefs and ways of operating.
Q10 Explain the corporate culture as both, as strength and as a weakness.
Ans. Corporate Culture : Corporate culture refers to a company’s values, beliefs, business principles,
traditions, and ways of operating and internal work environment. Every corporation has a culture that
exerts powerful influences on the behaviour of managers.
Corporate culture as strength: Culture can facilitate communication, decision making and control and
instil cooperation and commitment. An organization’s culture could be strong and cohesive when to
conducts its business according to clear and explicit set of principles and values, which the management
devotes considerable time to communicating to employees and which; values are shared widely across
the organization.
Corporate culture as a weakness: Culture, as a weakness can obstruct the smooth implementation of
strategy by creating resistance to change.
An organization’s culture could be characterized as weak when many subcultures exist, few values
and behavioural norms are shared and traditions are rare. In such organization, employees do not have
a sense of commitment, loyalty and sense of identity.
Q11 Explain Matrix Structure in brief.
Ans. A matrix structure is the most complex of all designs because it depends upon both vertical and horizontal
flows of authority and communication (hence the term matrix).

A Matrix structure can result in higher overhead because it has more management positions.
Other characteristics of a matrix structure that contributes to overall complexity include dual lines of
budget authority (a violation of the unity command principle), dual sources of reward and punishment,
shared authority, dual reporting channels, and a need for an extensive and effective communication
system.
Q12 In which areas is the Matrix Structure used?
Ans. Despite its complexity, the matrix structure is widely used in many industries, including construction,
healthcare, research and defence.
Some advantages of matrix structure are that project, objectives are clear, there are many channels of
communication workers can see the visible results of their work, and shutting down the project is
accomplished relatively easily.
Q1 Mention the responsibilities of a Strategic leader.
Ans.
Â Making strategic decisions.
Â Formulating policies and action plans to implement strategic decision.
Â Ensuring effective communication in the organisation.
Â Managing human capital.
Â Managing change in the organisation.
Â Creating and sustaining strong corporate culture.
Â Sustaining high performance over time.
Q2 Explain the three distinct phases for the development of matrix structure as proposed by Davis and
Lawrence.
Ans. For the development of matrix structure Davis and Lawrence, have proposed three distinct phases:
1. Crossfunctional task forces : Temporary cross functional task forces are initially used when a new
product line is being introduced. A project manager is in charge as the key horizontal link.
2. Product/brand management : In this arrangement, function is still the primary organizational structure,
but product or the brand managers act as the integrators of semi permanent products or brands.
3. Mature matrix : The third and the final phase of matrix development involve a true dualauthority
structure. Both the functional and product structures are permanent. All employees are connected to
both a vertical functional superior and a horizontal product manager. Functional and product managers
have equal authority and must work well together to resolve disagreements over resources and
priorities.
Q3 Give benefits and limitations of Hourglass Structure.
Ans. Benefits of Hourglass Structure:
i. Hourglass Structure has obvious benefit of reduced costs.
ii. It also helps in enhancing responsiveness by simplifying decision making. Decision making
authority is shifted close to the source of information so that it is faster.
Limitations of Hourglass Structure:
i. With the reduced size of middle management the promotion opportunities for the lower levels
diminish significantly.

ii. Continuity at same level may bring monotony and lack of interest and it becomes difficult to keep
the motivation levels high.
Organizations try to overcome these problems by assigning challenging tasks, transferring laterally
and having a system of proper rewards for performance.
Q4 What are the steps to change a company’s problem culture?
Ans. Changing problem cultures is very difficult because of deeply help values and habits. It takes concerted
management action over a period of time to place an unhealthy culture with a healthy culture or to
root out certain unwanted cultural obstacles and instil ones that are more strategysupportive.
Â The first step is to diagnose which facets of the present culture are strategy supportive and which
are not.
Â Then, managers have to talk openly and forthrightly to all concerned about those aspects of the
culture that have to be changed.
Â The talk has to be followed swiftly by visible, aggressive actions to modify the cultureactions
that everyone will understand are intended to establish a new culture more in tune with the
strategy.
The menu of culturechanging actions includes revising policies and procedures, altering incentive
compensation, recruiting and hiring new managers and employees, replacing key executives,
communication on need and benefit to employees and so on.
Q5 Mention the three conditions which exist where a Matrix Structure is found.
Ans.
1. Ideas need to be crossfertilised across projects or products,
2. Resources are scarce , and
3. Ability to process information and to make decisions need to be improved.
Manufacturing unit Sales Unit Finance Units

Personnel Units

Personnel Units
Personnel Units
Personnel Units
Figure: Matrix Structure
1. An organization’s culture is always an abstacle to successful strategy implementation.
Incorrect: a company’s culture is manifested in the values and business principles that management
preaches and practises. The beliefs, vision, objectives and business approaches and practises
underpinning a company’s strategy may be compatible with its culture or may not. When they are
compatible the culture becomes a valuable ally in strategy implementation and execution.
2. Corporate culture is always identical in all the organization.
Incorrect: every company has its own organizational structure. Each has its own business philosophy
and principles, its own ways of approaching to the problems and making decision, its own work climate,
work ethics, etc. Therefore, corporate culture need not be time inherent and percolates down its own
specific work ethos and approaches.
1. Organizational structure: Organizational structure is the company’s formal configuration of its intended
roles, procedures, governance mechanisms, authority, and decisionmaking processes. Organizational
structure, influenced by factors such as an organization’s age and size, acts as a framework which
reflects managers’ determination of what a company does and how tasks are completed, given the
chosen strategy.
2. Network structure: Network Structure, also termed as a “nonstructure” by its virtual elimination of in
house business functions. Many activities are outsourced. A corporation organized in this manner is
often called a virtual organization because it is composed of a series of project groups or collaborations
linked by constantly changing nonhierarchical, cobweblike networks.
3. Entrepreneurship: Entrepreneurship is an attitude of mind to seek opportunities, take calculated risk
and drive benefits by starting and running a venture. It comprises of numerous activities involved in
the conception, creation and running an enterprise. An entrepreneur is a person who searched for
business opportunity and starts a new enterprise to make use of that opportunity.
4. Intrapreneur: The entrepreneurs believe in change and do not fear failure. They discover new ideas,
look for such opportunities that can benefit the whole organization and take risks, promote innovations
to improve the performance and profitability of the organization. The job of an entrepreneur is
extremely challenging. They get recognition and reward for the success achieved by them.
5. Divisional structure: The divisional structure can be organized in one of the four ways: by geographic
area, by product or service, by customer, or by process. With a divisional structure, functional activities
are performed both centrally and in each division separately. As a firm grows, year after year it faces
difficulty in managing products and services in different markets.
6. Hourglass structure: Hourglass organization structure consists of three layers with constricted middle
layer. The structure has a short and narrow middlemanagement level. Information technology links
the top and bottom level managers. A shrunken middle layer coordinates diverse lower level activities.

Contrary to traditional middle level managers who are often specialist, the managers in the hourglass
structure are generalists and perform wide variety of tasks.
7. Strategic leadership: Strategic Leadership sets the firms direction by developing and communicating
vision of future, formulate strategies in the light of internal and external environment, brings about
changes required to implement strategies and inspire the staff to contribute to strategy execution. A
manager as a strategic leader has to play many leadership roles to play: visionary, chief entrepreneur
and strategist, chief administrator, culture builder, resource acquirer etc.
Responsibilities of a strategic leader:
Â Making strategic decision
Â Formulating policies and action plans to implement strategic decision
Â Ensuring effective communication in the organization
Â Managing human capital
Â Managing change in the organization
Â Creating and sustaining strong corporate culture
Â Sustaining high performance over time
Three distinct phases for development of matrix structure:
Â Crossfunctional task forces
Â Product/brand management
Â Mature matrix
Features of an entrepreneur:
Â Initiates and innovates a new concept
Â Recognizes and utilizes opportunity
Â Arranges and coordinates resources such as man, material, machine and capital
Â Faces risks and uncertainties
Â Establishes a startup company
Â Adds value to the product or service a profitable one
Â Is responsible for the profits or losses of the company
Different types of divisional structures:
Â Geographical based divisional structure
Â Product or service based divisional structure
Â Customer based divisional structure
Â Divisional structure by process
Â Multidivisional structure

CHAPTER8
STRATEGIC IMPLEMENTATION AND CONTROL
Winning companies know how to do their work better

– Michael hammer and James Champy
If you talk about change but don’t change the reward and recognition system then nothing changes
– Paul Allaire
Leadership is accomplishing something through other people that would not have happened of you were
not there
– Noel Tichy
The biggest levers you have got to change for a company are strategy, structure and culture. If I could pick
two, I would pick strategy and culture
– Wayne Leonard
INTRODUCTION
The two most important components of strategic management are strategy formulation and strategy
implementation. Both of them are complementary. Strategic management process doesn’t end with strategy
formulation. There must be a translation of strategic thought into strategic decision. Strategy formulation
would become ineffective if there is no proper strategy implementation and viceversa. So, in this chapter
we are going to study the emerging concepts in strategic management, namely, strategy audit, business
process reengineering and benchmarking.

LONG QUESTIONS :
Q1 What is meant by strategy implementation and bring out the interrelationships between strategy
formulation and strategy implementation?
Ans. Strategy implementation is concerned with translating a strategic decision into action, which
presupposes that the decision itself (i.e. the strategic choice) was made with some thought being
given to feasibility and acceptability. The allocation of resources to new course of action will need to
be undertaken and there may be a need for adapting the organization’s structure to handle new activities
as well as training personnel and devising appropriate systems.
Relationship with strategy formulation.
Strategy formulation and strategy implementation are complementary and yet different functions.
This is because they require different skills. Even best of the strategy will not produce results if there
is a weakness in its proper execution and even best of the execution will produce only sub standard
results when the strategies are defective. Strategy formulation is sound and implementation is
excellent.
The organizational success is a function of good strategy and proper implementation. The matrix in the
figure below represents various combinations of strategy formulation and implementation:
Strategy formulation and strategy implementation matrix

Square A: Company has formulated a very competitve strategy but problem in implementation. Reasons
may be lack o exeprience, lack of resources, lack of good leadership and so on. in such situation the
company will aim at moving square A to square B.
Square B: This is the ideal situation where a company has succeeded in designing a sound and competitve
strategy and has been successful in implementing it.
Square C: That is denotes for companies thathaven't succeed in coming up with a sound strategy
implementation and in addition are bad implementation. Their path to success also goes through
business model redesign and implementing/execution readjustment.
Square D: This is the situation where the strategy formulation is flawed but the company is showing
execellent implementation skills. Square D the first thing they have to do is to redesign their strategy
before readjusting their implemenation/execution skills.
Q2 Show difference between efficiency and effectiveness.
Ans.
Â In organizations that lack strategic direction there has been a tendency to look inwards in times of
CHAPTER8 : STRATEGIC IMPLEMENTATION AND CONTROL 170

stress and for management to devote their attention to cost cutting and to shedding unprofitable
divisions.
Â The focus has been on efficiency rather than on effectiveness but it is important to understand where
exact problem is.
Â While efficiency is essentially introspective, effectiveness highlights the links between the organization
and its environment.
Â The responsibility for efficiency lies with operational managers with top management having the
primary responsibility for strategic orientation of the organization.
Â Cell 1 Well placed and thrive – it is achieving what it aspires to achieve with an efficient output/input
ratio.
Â Cell 2 or 4 doomed – it can establish some strategic direction.
Â Cell 3 – it is better than cell 2 and that is taking mare input is being used to generate outputs but it is at
least in the right strategic direction.
Efficiency Effectiveness
Â This means to do the thing in right manner. Â This means to do right thing.
Â This shows relationship between input and Â This is concerned with achieving, a desired
output. It aims at securing the maximum competitive position.
Â output from a given quantity of inputs. Â Effectiveness establishes a link between the
Efficiency is internal and introspective organization and its environment.
Â The responsibility of doing things efficiently Â The task of making strategy effective
lies with operational managers is responsibility of the top level management.
Q3. Bring out the difference between strategy formulation and strategy implementation.
Ans.
Basis Strategy formulation Strategy implementation
1. Focus The focus of strategy formulation The focus of strategy implementation
is on effectiveness. is on efficiency.
2. Process Strategy formulation is primarily Strategy implementation is primarily an
an intellectual process. operational process.
3. Skills Strategy formulation requires Strategy implementation requires
required conceptual intuitive and a motivation and leadership skills.
Analytical skills.

4. Coordination Strategy formulation requires Strategy implementation requires
coordination among the coordination among the executives
executives at the top level. at the middle and lower levels.
5. Orientation Strategy formulation has a Strategy implementation has an
planningorientation. action/executionorientation.
6. Scope This is basically an This is basically an administrative task.
entrepreneurial activity.
Q4 What are the issues in strategy implementation?
Ans. There are many issues related to strategy implementation. It practically covers the entire management
science. It requires the managerial activities like planning, organization, staffing, directing, controlling,
coordination etc. The manager in charge of strategy requires a wide range of knowledge, skills, attitudes
and abilities. They have to use these capabilities to allocate resources, prepare organization structure,
formulate functional policies and have to develop appropriate leadership styles. The various issues in
strategy implementation may be described as follows:
A. Managerial issues:
Â Strategies are to be achieved: The strategic plan developed by the organization shows the manner
in which the strategies are to be put into action. Strategies, alone do not lead to action. They are
just a statement of intent. Implementation of strategy is meant to realize the intent. Strategies
therefore have to be activated through implementation.
Â Strategies should lead to plans and programmes: Different strategies require different types of
plans. For instance, the stability strategy leads to the formulation of various plans. One such plan
could be a modernization plan. Plans result in different kinds of programmes. A programme is a
broad term which includes goals, policies, procedure, rules and steps to be taken to put a plan
into action. Programmes are usually supported by funds allocated for plan implementation. An
example of a programme is a research and development programme for the development of a
new product.
Â Programmes lead to the formulation of projects: A project is a highly specific programme for
which the time schedule and costs are predetermined. It requires allocation of funds based on
capital budgeting by organizations. For example, sale promotion programme requires like training,
advertisement etc.
Â Developing appropriate organizational structure: implementation of strategies is not limited to
formulation of plants, programmes and projects. Projects would require resources. Once the
resources are provided it would be essential to see that a proper organizational structure is
designed, control systems are installed and functional policies and devised.
Â Given below in sequential manner the issues in strategy implementation which are to be
considered:
Â Project implementation
Â Procedural implementation
Â Resource allocation
Â Structural implementation
Â Functional implementation
Â Behavioural implementation

B. Organizational issues:
Â Responsibility shift: In the smallest organizations, the transition from strategy formulation to
strategy implementation requires a shift in responsibility from strategists to divisional and
functional managers.
Â Participation: Managers and employees throughout an organization should participate early and
directly in strategyimplementation activities. Their role in strategy implementation should build
upon prior involvement in strategyformulation activities.
Â Commitment: strategists should have a genuine personal commitment to implementation is a
necessary and powerful motivational force for managers and employees.
Â Communication: The rationale for objectives and strategies should be understood clearly
throughout the organization. Major competitors’ accomplishments, products, plans, actions and
performance should be apparent to all organizational members.
Â Competitive focus: Firms need to develop a competitor focus at all hierarchical levels by gathering
and widely distributing competitive intelligence; every employee should be able to benchmark
her or his efforts against bestinclass competitors so that the challenge become personal.
Â Training: Firms should provide training for both managers and employees to ensure that they
have and maintain the skills necessary to be worldclass performers.
Q5 Explain: Strategic Change
Ans. The changes in the environmental forces often require businesses to make modification in their existing
strategies and bring out strategies. Strategic change is a complex process that involves a corporate
strategy focused on new markets, products, services and new ways of doing business.
Steps to initiate strategic change: For initiating strategic change, three steps can be identified as
under:
Recognize the need for change: The first step is to diagnose which facets of the present corporate
culture are strategy supportive and which are not. this basically means going for envitonmental scanning
involving appraisal of both internal and external capabilities may be through SWOT analysis and then
determining where the lacuna lies and scope for change exists.
Create a shared vision to manage change: Objective and vision of individuals and organization should
coincide. strategy implementers have to convince all those concerned that the change un business
culture is not superfical or cosmetic. The actions taken have to be fully indicative of management's
seriousness to new strategic initiatives and associated changes.
Recognize the need for change: This is basically an action stage which requires implementation of
changed strategy. Creating and sustaining a different attitude towards change is essential to ensure
that the firm does not slip back into old ways of thinking oe doing things. besides, change process must
be regularly monitored and reviewed ti analyse the aftereffects of change. any discrepancy or deviation
should be apopropriatly addressed.
Kurt Lewin’s model of change: To make the change lasting, Kurt Lewin proposed three phases of the change
process for moving the organization from the present to the future. These stages are unfreezing, changing
and refreezing.

A. Unfreezing the situation: the process of unfreezing simply makes the individuals or organizations
aware of the necessity for change and prepares them for such a change. Lewin proposes that the
changes should not come as a surprise to the members of the organization. Sudden and unannounced
change would be socially destructive and morale lowering. The management must have the way for
change by first “unfreezing the situation”, so that members would be willing and ready to accept the
change.
B. Changing to the new situations: once the unfreezing process has been completed and the members of
the organization recognize the need for change and have been fully prepared to accept such change,
their behaviour for the better.
Â Compliance: it is achieved by strictly enforcing the reward and punishment strategy for good or
bad behaviour. Fear of punishment, actual punishment or actual reward seems to change behaviour
for the better.
Â Identification: identification occurs when members are psychologically impressed upon to identify
themselves with some given role models whose behaviour they would like to adopt and try to
become like them.
Â Internalization: internalization involves some internal changing of the individual’s thought
processes in order to adjust to a new environment. They have given freedom to learn and adopt
new behaviour in order to succeed in the new set of circumstances.
C. Refreezing: refreezing occurs when the new behaviour becomes a normal way of life. The new behaviour
must replace the former behaviour completely for successful and permanent change to take place. In
order for the new behaviour to become permanent, it must be continuously reinforced so that this
new acquired behaviour does not diminish or extinguish.
Q6 Explain: Strategic Control
Ans. Control is one of the important functions of management, though it is often regarded as the core of the
management process. It is a function intended to ensure and make possible the performance of planned
activities and to achieve the predetermined goals and results. Control is intended to regulate and
check, i.e. to structure and condition the behaviour of events and people, to place restraints and curbs
on undesirable tendencies, to make people conform to certain norms and standards, to measure
progress to keep the system on track. It is also to ensure that what is planned is translated into results,
to keep a watch on proper use of resources, on safeguarding of assets and so on. The control function
involves monitoring the activity and measuring results against preestablished standards, analyzing
and correcting deviation as necessary and maintaining/adapting the system. The task of control is
intended to enable the organization to continuously learn from its experience and to improve its
capability to cope with the demands of organizational growth and development. Control is process
within the broader management process. Within any control system, the following elements are
identifiable:
(a) Objectives and characteristics of the system which could be operationalized into measurable and
controllable standards.
(b) A mechanism for monitoring and measuring the characteristics of the system.
(c) A mechanism,
Â For comparing the actual results with reference to the standards
Â For detecting deviation from standards
Â For learning new insights on standards themselves.
(d) A mechanism for feeding back corrective and adaptive information and instruction to the system,
for effecting the desired changes to set right the system to keep it on course.

Primarily there are three types of organizational control, viz., operational control, management control
and strategic control.
Types of control
Operational control Management control Strategic control
1. Operational control: The thrust of operational control is on individual tasks or transactions as against
total or more aggregative management functions. For example, procuring specific items for inventory
is a matter of operational control, in contrast to inventory management as a whole. One of the tests
that can be applied to identify operational control areas is that there should be a clearcut and somewhat
measurable relationship between inputs and outputs which could be predetermined or estimated
with least uncertainty.
Many of the control systems in organizations are operational and mechanistic in nature. A set of
standards, plans and instructions are formulated. The control activity consists of regulating the processes
within certain ‘tolerance’, irrespective of the effects of external conditions on the formulated standards,
plans and instructions. Some of the examples of operational controls can be stock control (maintaining
stocks between set limits), production control (manufacturing to set programmes), quality control
(keeping product quality between agreed limits), cost control (maintaining expenditure as per
standards), budgetary control (keeping performance to budget).
2. Management control: when compared with operational, management control is more inclusive and
more aggregative, in the sense of embracing the integrated activities of a complete department,
division or even entire organization, instead or mere narrowly circumscribed activities of subunits.
The basic purpose of management control is the achievement of enterprise goals Short range and long
range in a most effective and efficient manner. The term is defined by Robert Anthony as ‘the process
by which managers assure the resources are obtained and used effectively and efficiently in the
accomplishment of the organization’s objectives. Controls are necessary to influence the behaviour of
events and ensure that they conform to plans.
3. Strategic control: According Schendel and Hofer, “strategic control focuses on the dual questions of
whether: (1) the strategy is being implemented as planned; and (2) the results produced by the strategy
are those intended.”
Strategies once formulated are not immediately implemented. There is time gap between the stages
of strategy formulation and their implementation. Strategies are often affected on account of changes
in internal and external environments of organizations. There is need for warning systems to track a
strategy as it is being implemented. Strategic control is the process of evaluating strategy as it is
formulated and implemented. It is directed towards identifying problems and changes in premises
and making necessary adjustments.
Types of strategic control
These four strategic controls steer the organization and its different subsystems to the right track.
They help the organization to negotiate through the turbulent and complex environment.

There are four types of strategic control as follows:
Premise control Strategic surveillance
Special alert control Implementation control
1. Premise control: A strategy is formed on the basis of certain assumptions or premises about the complex
and turbulent organizational environment. Over a period of time these premises may not remain valid.
Premise control is a tool for systematic and continuous monitoring of the environment to verify the
validity and accuracy of the premises on which the strategy has been built. It primarily involves
monitoring two types of factors:
(1) Environmental factors such as economic (inflation, liquidity, interest rates), technology, social
and regulatory.
(2) Industry factors such as competitors, suppliers, substitutes. It is neither feasible nor desirable to
control all types of premises in the same manner. Different premises may require different amount
of control. Thus, managers are required to select those premises that are likely to change and
would severely impact the functioning of the organization and its strategy.
2. Strategic surveillance: Contrary to the premise control, the strategic surveillance is unfocussed. It
involves general monitoring of various sources of information to uncover unanticipated information
having a bearing on the organizational strategy. It involves casual environmental browsing. Reading
financial and other newspapers, business magazines, meetings, conferences, discussions at clubs or
parties and so on can help in strategic surveillance.
Strategic surveillance may be loose form of strategic control, but is capable of uncovering information
relevant to the strategy.
3. Special alert control: At times unexpected events may force organizations to reconsider their strategy.
Sudden changes in government, natural calamities, terrorist attacks, unexpected merger / acquisition
by competitions, industrial disasters and other such events may trigger an immediate and intense
review of strategy. Organizations to cope up with these eventualities, form crisis management teams
to handle the situation.
4. Implementation control: Managers implement strategy by converting major plans into concrete,
sequential actions that form incremental steps. Implementation control is directed towards assessing
the need for changes in the overall strategy in light of unfolding events and results associated with
incremental steps and actions.
Strategic implementation control is not a replacement to operational control. Strategic implementation
control, unlike operational controls continuously monitors the basic direction of the strategy. The two
basis forms of implementation control are:
(i) Monitoring strategic thrusts: Monitoring strategic thrusts help managers to determine whether
the overall strategy is progressing as desires or whether there is need for readjustments.
(ii) Milestone Reviews: All key activities necessary to implement strategy are segregated in terms of
time, events or major resource allocation. It normally involves a complete reassessment of the
strategy. It also assesses the need to continue or refocus the direction of an organization.

Q7 Explain Strategy audit and need of strategy audit.
Ans. The audit of management performance with regard to its strategies helps an organization identify
problem areas and correct the strategic approaches that have not been effective so far. Strategy audit
is a process for taking an objective look at the existing strategies of the organization. It involves
assessing the direction of a business and comparing that to the course to the direction required to
succeed in a changing environment.
“A strategy audit is an examination and evaluation of areas affected by
The operation of a strategic management process within an organization.”
Companies review their business plans and strategies on regular basis to indentify weaknesses and
short comings to enable a successful development plan. The strategy audit secures that all necessary
information for the development of the company are included in the business plan and that the
management support it.
The core of strategy audit for any corporate entity lies on two important questions:
Â How well in the current strategy working?
Â How well will the current strategy are working in future?
Â How can this be evaluated in present and future?
Â How urgent is there a need to change a strategy?
A strategy audit provides an excellent platform for discussion with the top management regarding
necessary corporate actions or changes in the existing business plan. It also identifies the need to
adjust the existing business strategies and plans.
Need of strategy audit
A strategy audit is needed under the following conditions:
Â When the performance indicators reflect that a strategy is not working properly or is not producing
desired outcomes.
Â When the goals and objectives of the strategy are not being accomplished.
Â When a major change takes place in the external environment of the organization.
Â When the top management plans:
1. To finetune the existing strategies and introduce new strategies and
2. To ensure that a strategy that has worked in the past continues to be in tune with subtle internal
and external changes that may have occurred since the formulation of strategies.
Adequate and timely feedback is the cornerstone of effective strategy audit. Strategy audit can be no
better than the information on which it is based.
Â Strategy audit includes three basic activities
Examining the underlying bases of a firm’s strategy,
Comparing expected results with actual results and
Taking corrective actions to ensure that performance conforms to plans.
Q8 Explain Richard Rumelt’s criteria for strategy audit.
Ans.
Consistency Consonance
Feasibility Advantage

1. Consistency: A strategy should not present inconsistent goals and policies. Organizational conflict and
inter departmental bickering are often symptoms of managerial discloser, but these problems may
also be a sign of strategic inconsistency. Three guidelines helps determine if organizational problems
are due to inconsistencies in strategy:
· If managerial problems continue despite changes in personnel and if they tend to issuebased
rather than people based, then strategies may be inconsistent.
· If success for one organizational department means, or is interpreted to mean, failure for another
department, them
· If policy problems and issues continue to be brought to the top for resolution, then strategies may
be inconsistent.
2. Consonance: consonance refers to the need for strategies to examine sets of trends, as well as individual
trends, in auditing strategies. A strategy must represent an adaptive response to the external
environment and to the critical changes occurring within it. One difficulty in matching a firm’s key
internal and external factors in the formulation of strategy is that most trends are the result of
interactions among other trends. For example, the daycare school/centre came about as a combined
result of many trends that included a rise in the average level of education. Although single economic
or demographic trends might appear steady for many years, there are waves of change going on at the
interactional level.
3. Feasibility: a strategy must neither overtax available resources nor create unsolved subproblems. The
final broad test of strategy is its feasibility; that can be attempted within the physical, human and
financial resources of the enterprise. The financial resources of a business are the easiest to quantity
and are normally the first limitation against which strategy is audited. It is sometimes forgotten.
However those innovative approaches to financing are often possible. Devices, such as captive
subsidiaries, saleleaseback arrangements and tying plant mortgages to long term contracts, have all
been used effectively. In auditing a strategy, it is important that it possesses the abilities, competencies,
skills and talents needed to carry out a given strategy.
4. Advantage: A strategy must provide for the creation and/or maintenance of a competitive advantage in
a selected area of activity. Competitive advantages normally are the result of superiority in one of
three areas:
(1) Resources – debears
(2) Skills dell
(3) Position apple
The idea that the positioning of firm’s resources that enhance their combined effectiveness is similar
to military theorists and chess players. Position can also play a crucial role in an organization’s strategy.
Positional advantage tends to be selfsustaining as long as the key internal and environmental factors
that underlie it remain stable. Although not all positional advantages are associated with size, it is true
that large organizations tend to operate in markets and use procedures that turn their size into
advantage, while smaller firms seek product/market positions that exploit other types of advantage.
The principal characteristic of good position is that it permits the firm to obtain advantage from policies
that would not similarly benefit rivals without the same position. Therefore, in auditing strategy,
organizations should examine the nature of positional advantage associated with a given strategy.
Reason why strategy evaluation is more difficult today includes the following trends:
Â A dramatic increase in the environment’s complexity.
Â The increasing difficulty of predicting the future with accuracy.
Â The increasing number of variables in the environment.
Â The rapid rate of obsolescence of even the best plans.
Â The increase in the number of both domestic and world events affecting organizations.
Â The decreasing time span for which planning can be done with any degree of certainty.
Q9 What is meant by business process? What is its importance? What is meant by core business processes?
Ans. Business process or business activities are not discrete or unrelated pieces of work. They are parts of
recurrent work processes within which they are located, sequenced and organized. In order to have a
better appreciation of what business process reengineering (BPR) really means it would be pertinent
to have preliminary knowledge of business processes.
Processes are everywhere. Business processes are set of activities that transfer set of input to set of
output. Priority to process rather than function that is a different point of view. It made out of two
words “business process” and “reengineering”.
What is business process?
A business process can be defined as
Â A set of logically related activities or tasks which are under taken with the object of achieving a
specific outcome.
Â Or it can be regarded as a collection of activities which creates some value for the buyer.
Â Or it can also be defined as a set of activities which transforms a set of inputs into a set of output
for other people or other processes.
Many examples of business processes can be given. For example, production process, recruitment
process, process related to development of new product or service or supplying goods according to
buyer’s order or preparing various kinds of budgets.
Importance of business processes:
Â Analysis: the study of various business processes helps the management in analyzing their
components and on that basis in redesigning them for achieving higher levels of efficiency,
effectiveness, economy, speed, quality and for producing larger amounts of output.
Â Linkages: the study of various business processes helps the management in understanding the
inter connection between them and in understanding the business as a system consisting of
various processes.
Â Identification of core business processes: by studying the business processes the company can
identify core business processes which are critical for the success of the organization, for producing
a competitive advantage and for better evaluation of the company by the customers.
Core business processes: these are also known as generic business processes. They are extremely important
for the survival and the success or a business unit. For different activities the core business processes may
be different. For example, for a public transport firm it may be safe and speedy transportation of its
passengers, for an insurance company it may be settling the claims of the insured speedily, for an electronic
company it may be development of a new product and for an educational institution it may be providing
quality education.
While some core business processes are easily identifiable, some core business processes may not always
be immediately apparent. The following instances serve to show that core processes need to be identified
carefully in terms of their bearing on a firm’s competitiveness:
i. In the electronics and semiconductor industries, new product development is a core process.
ii. In a fast moving consumer goods industry marketing is a core process.
iii. In the banking industry, the activities that help mobilize deposits and generate funds for advances to
customers, are a core business process.
iv. In the insurance industry, the actual work that leads to a balance of competitive premium for customer
and profit after claims for the company is a core business process.

Q10 What is meant by business process reengineering? What is its importance or need?
Ans. Meaning: the business process reengineering is an activity related to analyzing and redesigning the
work flows and core process both within and between the organizations. It is a total deconstruction of
various business processes and rethinking about them in the totaling ignoring the existing structure
and patterns with the objective of a quantum improvement in the performance of the process in terms
of time, cost, quantity and quality of output and in the quality of service provided to the buyers.
Importance of business process reengineering: the business process reengineering becomes important
for a number of reasons.
a. Replacement of outdated processes: in case of most of firms, most of their processes are old and
outdated. They are developed by the functional units in the firm according to their own
requirements. There may not be proper coordination between or among them. These processes
are to be replaced by new improved processes.
b. System view: the individual departments and functional divisions of a firm aim at optimizing their
individual performance without taking into account the effect of their activities on the activities
of the other areas. This results into a substandard performance. The objective of business process
reengineering is that of treating the firm as one perennial system.
c. Efficiency: it is possible to the existing business processes in a firm may be lengthy, costly,
inefficient, time consuming, irrational and outdated. The business process reengineering helps
in improving the performance of these processes.
d. Unity: under the traditional systems of management the work processes are fragmented as a
result of which the quality of output remains poor. The business process reengineering broadens
the vision of the employees and raises the quality of their performance.
e. Taking the advantage of information technology: the business process reengineering helps the
firm to incorporate the use of information technology in its activities as a result of which the
speed and the quantity of the output increases, the assets and the equipment are used more
efficiently and the response time of the customers is reduced which raises the level of their
satisfaction.
Q11 What steps would recommend to implement BPR in an organization?
Ans.

a. Determine objectives: objectives are the desired and results of the redesign process which the
management and organization attempts to realize. They will provide the required focus, direction and
motivation for the redesign process and help in building a comprehensive foundation for the re
engineering process.
b. Identify customers and determine their needs: the process designers have to understand customer
their profile, their steps in acquiring, using and disposing a product. The purpose is to redesign business
process that clearly provides value addition to the customer.
c. Study the existing processes: the study of existing processes will provide an important base for the
process designers. The purpose is to gain an understanding of the ‘what’ and ‘why’ of the targeted
process. However, as discussed earlier, some companies go through the reengineering process with
clean perspective without laying emphasis on the past processes.
d. Formulate a redesign process plan: the information gained through the earlier steps is translated into
an ideal redesign process. Formulation of redesign plan is the real crux of the reengineering efforts.
Customer focused redesign concepts are identified and formulated. In this step alternative processes
are considered and the best is selected.
e. Implement the redesigned process: it is easier to formulate new process than to implement them.
Implementation of the redesigned process and application of other knowledge gained from the various
steps is keys to achieve dramatic improvements. It is the joint responsibility of the designers and
management to operationalize the new process.
Q12 What the basic principal of BPR which differentiate from other process:
Ans. The basic principles that differentiate reengineering from any other drive on improving organizational
efficiency may be summarized as follows:
Â Discounting thinking and no partial modification: At the core of reengineering lies the concept of
discontinuous thinking. Reengineering does not have any scope for any partial modification or
marginal improvement in the existing business processes. It aims at achieving excellence and a
breakthrough in performance by redesigning the process entirely and radically. Obviously, it
requires challenging the necessity of existing rules and procedures and discarding the same to
evolve altogether new processes.
Â Old assumptions are not valid: BPR approach recognizes that most of the existing rules and
procedures of work methods are based on certain assumption about technology, people and the
goals of the organization. These assumptions may not valid any more. BPR recognize the vast and
expanding potential of IT for the most rational, simple and efficient redesign of work structure.
BPR aims at utilizing information technology for evolving a new process, instead of automating
the existing process.
Â It starts with the process but doesn’t end: while reengineering starts with the process it does not
end there. The fundamental and radical changes that takes place while reengineering the process
has its own implication on other parts of the organization – almost on every part of it. Re
engineering efforts, therefore, focuses on a multidimensional approach disregarding the
constraints of departmental boundaries.
Â Need to manage massive organizational changes: BPR efforts involve managing massive
organizational change. The change in process is almost always accompanied by a whole lot of
changes in other areas too. People have the choice of making their own decisions instead of being
directed. “Functional departments find their existence as redundant.” Practically every aspect of
the organization changes beyond recognition.

Q13 What is meant by benchmarking? Explain the benchmarking process.
Ans. The modern business world is characterisited by cutthroat competition and therefore it is important
for the organizations to gain a competitive advantage over the competitors. Benchmarking helps the
organization to achieve this objective. The organizations have a large amount of information which can
be used for taking strategic decisions and which can be converted into knowledge useful in planning
and decision making.
Definition of benchmarking: A benchmark is a standard or a reference point against which process,
products and activities of the organization can be judged. In this way it is very much like a standard
used in the controlling process. However, this concept is much broader than the concept of standards
used in the controlling process.
What is benchmarking?
In simple words benchmarking is an approach of setting goals and comparing and measuring the
productivity of the organization on the basis of best industry practices either by matching them or if
possible exceeding them. It is required for developing standards against which the actual performances
can be measured. We can give one example of benchmarking.
Â For example, a company attends the complaints of the customers within forty eight hours.
However, the best industry practice is to attend the complaint within twenty four hours only, and
then this practice can be regarded as the benchmark. If the company can achieve this target then
its performance is alright. But is the company can attend the complaint within sixteen hours then
it has to be acquired a competitive advantage.
In this way benchmarking helps an organization in improving its performance by comparing it with the
best industry practices. If there is gap between the industry practice and the company performance
then the management has to identify the gaps and take necessary measures not only to attain the level
of industry practice but to surpass it if possible. In other words, benchmarking is a process of continuous
improvement in company performance for the purpose of getting a competitive advantage. Here, the
products, the services and the practices of the company are compared against those of its competitors
or those of the industry leaders.
The areas where benchmarking process can be applied: the following are just a few areas where this
process can be applied.
Â Maintenance of operations
Â Labour cost, labour turn over, labour absenteeism
Â Return on assets
Â Rejection ratio, credit management, sales cost, service cost, cost of overtime and other cost
related activities.
Â Manufacturing cost
Â Product development
Â Product distribution
Â Customer service
Â Capacity utilization in plant
Â Human resource management
It is remembered that benchmarking process is a dynamic and continuous activity. The company has to
continuously upgrade the benchmarks according to the changes in industry practices.

Benchmarking process:
Identifying the need for benchmarking and planning: in this step the organization decides the objectives
of benchmarking and selects the types of the benchmarks to be used by the organization.
Understanding existing business processes: here, the organization collects information and data
regarding the exstimg processes through various devices such as interviews, visits and questionnaires
sent to the emplyees in various departmenrs.
Identifying the best processes: here, the organization selects the best processes within the industry or
sometimes from outside the industry.
Compare own processes and performance with that of others: here, the organization copares its own
performance with the benchmarks selected and tries to find out the gap between two. the management
makes efforts to find out the factors responsible for the gap. it also makes effeorts to identify possible
improvements in the performance.
prepare a report and implement the steps necessary to close the performance gap : a report on the
benchmarking initiatives containing recommendations is prepared. such a report includes the action
plan for implemenatation.
Evaluation: a business organization must evaluate the results of the benchmarking process in terms of
improvements visavis objectives and other criteria set for the purpose. it should also periodically
evaluate and reset the banchmarks in the light of changes in the conditions that impact its performance.
SHORT NOTES.
Q1 Explain the interlinkages of implementation and formulation.
Ans. In the real life the formulation and implementation processes are interwined. In other words both are
interlinked and impact on each other. Two types of linkages exist between these two phases of strategic
management. The forward linkages deal with the impact of strategy formulation on strategy
implementation while the backward linkages are concerned with the impact in the opposite direction.
Forward linkages: Forward linkages are the changes to be made in the process of executing the strategy
as a result of experiences and new ideas which develop as a result of the implementation of strategy.
An organization has to consultancy introduced changes in the strategy and has to make necessary
changes in the organizational structure, leadership style etc. according to the requirements of modified
strategies. These are known as forward linkages.
Backward linkages: In the same manner implementation of strategy is determined by the formulation
of strategies, the formulation process is also affected by the factors related with implementation. For
example, if the management finds that it is not possible to put a strategy into practice with the help of
the present organizational structure then it has to make necessary changes in the strategy and adopt
the strategy which can be put into practice with the help of the present organizational structure.
Q2 Explain the nature and advantage of business process reengineering.
Ans. Meaning: Business process reengineering is an activity related to analyzing and redesigning the work

flows and core processes both within and between the organizations. It is a total deconstruction of
various business processes and rethinking about them in the totality ignoring the existing structures
and process in terms of time, cost, quantity and quality of output and in the quality of service provided
to the buyers.
Advantage of business process reengineering.
The advantage of business process reengineering are
Â To obtain quantum gains in the performance of the process in terms of cost, output, quality and
responsiveness to customers.
Â To simplify and streamline the processes by (a) removing all redundant and nonvalue adding
steps, activities and transactions, (b) reducing drastically the number of stages of work and (c)
speeding up the workflow through the use of InfoTech systems.
Â To obtain dramatic improvement in operational effectiveness, by redesigning core business
processes and supporting business systems.
Q3 Explain the elements of BPR.
Ans. “Business process reengineering means starting all over, starting from scratch.” Reengineering, in
other words, means putting aside much of the ageold practices and procedure of doing a thing. It
implies forgetting how work has been done so far and deciding how it can best be done now. The
elements of BPR are as follows:
Â Reengineering begins with a fundamental rethinking: In doing reengineering people must ask
some most basic questions about their operations. An attempt to find out answer to such questions
may startlingly reveal certain rules, assumptions and operational processes as obsolete and
redundant. Reengineering does not begin with anything given or with any assumptions. The
thinking process in reengineering begins with a totally free state of mind without having any
preconceived notion. Reengineering first determines what a company must do. And then it
decides on how to do it. Reengineering ignores what the existing process Is and concentrates on
what it should be. If something is not required to be done it is outright discarded.
Â Reengineering involves radical redesigning of process: Radical redesigning means going to the
root of the problem areas and not attempting to make any superficial changes. Radical redesign
involves completely discarding all existing structure and procedures and evolving completely
new ways of doing the work. “reengineering is about business reinvention – not business
improvement, business enhancement or business modification.”
Â Reengineering aims at achieving dramatic improvement in performance: If an organization feels
the need for marginal improvement in any area of operation at any point of time, the same can be
achieved by conventional methods of adjustments in operating processes and reengineering is
not the answer. Reengineering is meant for replacement of the old process by altogether new
one to achieve dramatic improvement in the performance.
Q4 How many categories classified for redesign by the generic business processes of a firm?
Ans. The generic business processes of a firm needing redesign may be classified into three broad categories
as follows:
Â Processes pertaining to development and delivery of product(s) and/or services: These may
include research, design, engineering, manufacturing and logistics, besides purchasing /
procurement and materials management.
Â Processes involving interface(s) with customers: These usually include marketing, advertising,
order fulfillment and service.

Â Processes comprising management activities: These include strategy formulation, planning and
budgeting, performance measurement and reporting, human resource management and building
infrastructure.
Q5 Explain the rationale behind Business Process Reengineering.
Ans.
Â Improving business is keys in today’s market: Improving business processes is paramount for
businesses to stay competitive in today’s marketplace. Over the last three decades several factors
have accelerated the need to improve business processes. The most obvious is technology. New
technologies are rapidly bringing new capabilities to businesses, thereby raising the strategical
options and the need to improve business processes dramatically.
Â Opening up economy and entry of global players: After opening up of Indian economy, companies
have been forced to improve their business processes because of increased competition. More
companies have entered the market place and competition has become harder. In today’s market
place, major changes are required to just stay even. It has become a matter of survival for most
companies.
Â Customers are also demanding better products and services. If they do not receive what they
want from one supplier, they have many others to choose from. They are ready to try new suppliers
and new brands.
Q6 Explain the problems in BPR.
Ans. There are the problems in BPR as follows:
Â Not all companies have courage to do so:
Reengineering is a major radical improvement in the business process. Only a limited number of
companies are able to have enough courage for having BPR because of the challenges posed. It
disturbs established hierarchies and functional structures and creates serious repercussions and
involves resistance among the workforce.
Â Time and cost:

Reengineering involves time and expenditure, at least in the short run, that many companies are
reluctant to go through the exercise. Even there can be loss in revenue during the transition
period.
Â If target is not properly set than it can be a disaster:
Setting of targets are trickly and difficult. If the targets are not properly set or the whole
transformation not properly carried out, reengineering efforts may turn out to be a failure.
Q7 What is the central trust of BPR?
Ans. Business process reengineering is a continuous process. Although BPR is a multidimensional approach
in improving the business performance its thrust area may be defined as “the reduction of the total
cycle time of a business process”. BPR aims at reducing the cycle time of process by eliminating the
unwanted and redundant steps and by simplifying the systems and procedures and also by eliminating
the transit and waiting times as far as possible. Even after redesigning of a process. BPR maintains a
continuous effort for more and more improvements.

Table 3
Customer cycle time
Customer need is recorded Customer need satisfier is provided

by the organization by the organization
Q8 Explain the role of information technology in BPR.

Ans. BPR recognize the huge potential of information technology for the purpose of most rational, simple
and efficient redesigning of work structure. BPR aims at utilizing information technology for evolving
new processes.
Â Information technology can be used for developing a reengineered business process which increases
the speed, accuracy and adaptability of the business processes. It helps in meeting the customer needs
and expectations quickly and adequately, thereby raising the level of customer satisfaction.
Â The impact of IT – systems on BPR can be observed in –
Â Operational speed and a drastic reduction in time,
Â Creatinga global village, i.e. the IT helps developing global markets by overcoming restriction of
geographical distances in the international market.
Â It improves logistics by restructuring relationships with suppliers and customers.
Â It provides timely, reliable and accurate information, and thus helps the management in better
strategic planning.
Â Use of IT contributes to
Â Efficiency – by way of increased productivity
Â Effectiveness – by way of better management.

Q1 What is meant by strategy formulation and strategy implementation?
Ans. Strategy formulation is basically an intellectual process of positioning various forces before action is
taken while strategy implementation is basically an operational process of managing the strategic
forces during the action.
Q2 What is meant by responsibility shift?

Ans. The top management has to perform the duty of strategy formulation but it has to pass on the
responsibility of implementing the strategy to the divisional and functional managers. The top
management thinks and the other levels of management act. This activity of passing on the responsibility
is known responsibility shift.

Q3 Distinguish between operational and management control
Ans.
No. Operational control Management control
1. Controls individual tasks or Controls the entire function of a department
transaction thus narrow scope. or organization thus wide in scope.
2. Basic purpose is to formulate a set basic purpose is to achieve the organizational goal.
of standard, plan or instruction for
a task or transaction.
Q4 Distinguish between unfreezing the situation and refreezing – the two stages of kurt Lewin change
process.
Ans. The process of unfreezing simply makes the individuals or organizations aware of the necessity for
change and prepares them for such a change. Lewin proposes that the changes should not come as a
surprise to the members of the organization. Sudden and unannounced change would be socially
destructive and morale lowering.
Refreezing occurs when the new behaviour becomes a normal way of life. The new behaviour must
replace the former behaviour completely for successful and permanent change to take place. In order
for the new behaviour to become permanent, it must be continuously reinforced so that this new
acquired behaviour does not diminish or extinguish.
Q5 ABC Ltd. Plans to introduce changes in its structure, technology and people. Explain how kurt Lewin’s
change process can help this firm.
Ans. Any early model of change developed by kurt Lewin described change as a threestage process. Kurt
Lewin theorized a threestage model of change that is known as the unfreezingchangerefreeze model
that requires prior learning to be rejected and replaced. Lewin’s theory states behaviour as a dynamic
balance of forces working in opposing directions. For Lewin, the process of change entails creating the
perception that a change is needed, then moving toward the new, desired level of behaviour and
finally, solidifying that new behaviour as the norm.
1st stage He called ‘unfreezing’. It involved overcoming inter alia and dismantling the existing
“mind set”. Defense mechanisms have to be bypassed.
2nd stage The change occurs. This is typically a period of confusion and transition. We are
aware that the old ways are being challenged but we do not have a clear picture as
to what we are replacing them with yet.
3rd stage He called ‘freezing’. The new mind set is crystallizing and one’s comfort level is
returning to previous levels. This is often misquoted as “refreezing”. So ABC Ltd.
Can change its structure, technology and people as per kurt Lewin’s change process.
Q6 Being a strategic professional, analyze and redesign the work flows in the context of business process
reengineering.
Ans. BPR refers to the analysis and redesign of workflows and processes both within and between the
organizations. The orientation of the redesign efforts is radical. It involves total deconstruction and
rethinking of a business process in it’s entirely.
The workflows are studied, appraised and improved in terms of cost, time, output, quality and
responsiveness to customer. The redesigning efforts aim
To simplify and streamline a process by eliminating all extra avoidable steps, activities and transactions.

With the help of redesigning workflows, organizations can drastically reduce the number of stages of
work and improve their performance
Q7 “Firms can use benchmarking process to achieve improvement in a diverse range of management
functions.”
Ans. Benchmarking is a process of finding the best practices within and outside the industry to which an
organization belongs. Knowledge of the best practices helps in setting standards and finding ways to
match or even surpass own performance with the best performances.
Benchmarking is a process of continuous improvement in search for competitive advantage. Firms can
use benchmarking process to achieve improvement in diverse range of management function such as
mentioned below:
Â Maintenance operations,
Â Assessment of total manufacturing costs,
Â Product development,
Â Product distribution,
Â Customer services,
Â Plant utilization levels and
Â Human resource management.
1. “Changes of any type are always disquieting, sometimes they may be threatening.”
Incorrect: the toughest management task is to talk about change. This is because of heavy anchor of
deeply held values and habits – people cling emotionally to the old and familiar. However favourable
changes either in the external environment on internal environment are not threatening or disquieting.
2. “There is both opportunity and challenge in ‘change’.”
Correct: business works in the climate of change. Change is what makes business dynamic as it poses
both challenge and opportunity. Challenge to accept the change which necessitates appropriate action.
Opportunity to face the future in a more determined the way. It calls for innovative thinking to new
potentials to be unfurled in future.
3. “Efficiency and effectiveness mean the same in strategic management.”
Incorrect: efficiency pertains to designing and achieving suitable input output ratios of funds, resources,
facilities and efforts whereas effectiveness is concerned with the organization’s attainment of goals
including that of desired competitive position While efficiency is essential introspective. Effectiveness
highlights the links between the organization and its environment. In general terms, to be effective is
to do the right things while to be efficient is to do things rightly.
4. “An organization’s culture is always an obstacle to successful strategy implementation.”
Incorrect: a company’s culture is manifested in the values and business principles that management
preaches and practices. The beliefs, vision, objectives and business approaches and practices
underpinning a company’s strategy may be competitive with the culture or may not. When they are
compatible the culture becomes valuable strategy implementation and execution.
5. “Strategy formulation and strategy implementation are identical.”
Incorrect: the strategy formulation is the task before the top management. It is an intellectual process
and requires effective leadership. As against this strategy implementation is the task before the middle
and operative level management of functional and operational activities.

6. Primarily, strategy formulation is an operational process and strategy implementation is an intellectual
process.
Incorrect: strategy formulation is primarily an intellectual process and strategy implementation is
primarily an operational process. Strategy formulation is based on strategic decisionmaking which
requires analysis and thinking while strategy implementation is based on strategic as well as operational
decisionmaking which requires action and doing
7. Business process reengineering (BPR) means partial modification and strategy improvement in the
existing work processes.
Incorrect: business process reengineering does not mean any partial modification or marginal
improvement in the existing work processes. On the other hand, it is an approach to unusual
enhancement in operating efficiency through the redesigning of critical business processes and
supporting business systems. It is revolutionary redesign of key business processes. It involves forgetting
how work has been done so far and deciding how best it can be done now.
8. BPR is an approach to maintain the existing growth of an organization.
Incorrect: BPR is an approach to unusual enhancement in operating efficiency through the redesigning
of critical business processes and supporting business systems. It is revolutionary redesign of key
business processes that involve examination of the basic processes.
9. Benchmarking and business process reengineering are one and the same.
Incorrect: benchmarking relates to setting goals and measuring productivity based on best industry
practices. The idea is to learn from the practices of competitors and others to improve the firm’s
performance. On the other hand, business process reengineering relates to analysis and redesign of
workflows and processes both within and between organizations.
10. Benchmarking is a remedy for all problems faced by organizations.
Incorrect: benchmarking is an approach of setting goals and measuring productivity based on best
industry practices and is a process of continuous improvement in search for competitive advantage.
However, it is not panacea for all problems. Rather, it studies the circumstances and processes that
help in superior performance. Better processes are not merely copied. Efforts are made to learn,
improve and evolve them to suit the organizational circumstances.
1. Business process: business processes are simply a set of activities that transform a set of inputs in to a
set of outputs for other or other processes. They create value for the customers and very often are not
confined to any particular department or functional activity.
2. Business process reengineering (BPR): the business process reengineering is an activity related to
analyzing and redesigning the work flows and core process both within and between the organizations.
It is a total deconstruction of various business process both rethinking about them in the totality
ignoring the existing structures and patterns with the objective of securing a quantum improvement in
the performance of the process in terms of time, cost, quantity of output and in the quality of service
provided to the buyers.
3. Benchmarking: benchmarking is an activity of selecting a standard or a reference point against which
processes, products and activities of the organization can be judged. In this way it is very much like the
use of standards in the controlling process. However, this concept is much broader than the concept of
standards used in the controlling process.
4. Forward linkages: forward linkages are the changes to be made in the process of executing the strategy
as a result of experiences and new ideas which develop as a result of the implementation of strategy.

An organization has to consultancy introduced changes in the strategy and has to make necessary
changes in the organizational structure, leadership style etc. according to the requirements of modified
strategies. These are known as forward linkages.
5. Backward linkages: in the same manner implementation of strategy is determined by the formulation
of strategies, the formulation process is also affected by the factors related with implementation. For
example, if the management finds that it is not possible to put a strategy into practice with the help of
the present organizational structure then it has to make necessary changes in the strategy and adopt
the strategy which can be put into practice with the help of the present organizational structure.
6. Premise control: premise control is a tool for systematic and continuous monitoring of the environment
to verify the validity and accuracy of the premises on which the strategy has been built. It primarily
involves monitoring two types of factors:
Â Environmental factors such as economic (inflation, liquidity, interest rates), technology, social
and regulatory.
Â Industry factors such as competitors, suppliers, substitutes.

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W

Chapterwise Weightage (Marks)

3 Strategic Management Process 7 4 5.5 8 5 6.50 24.00 6.00

4 Corporate Level Strategies 9 4 6.5 0 5 2.50 18.00 4.50

5 Business Level Strategies 7 7 7 10 5 7.50 29.00 7.25

6 Funconal Level Strategies 7 12 0 0 5 2.50 24.00 6.00

1. Introduction of Strategic Management .................................................................. 1

2. Dynamic of Competitive Strategy .............................................................................. 19

3. Strategic Management Process .................................................................................... 69

4. Corporate Level Strategies ............................................................................................... 83

5. Business Level Strategies .................................................................................................. 99

6. Functional Level Strategy ............................................................................................... 115

7. Organisation and Strategic Leadership ................................................................ 149

8. Strategic Implementation and Control ......................................................... 67-190

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Levels of Strategic Management

Market A Market B Market C

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Q3 Describe the use of strategic management techniques in Educational institutions.

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20. The corporate level is where top management directs:

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LAST MINUTE REVISION:

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CHAPTER2 : DYNAMICS OF COMPETITIVE STRATEGY 22

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Figure : Anoff’s Product Market Growth Matrix

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Â Functionallevel strategy, directed at improving the effectiveness of operations within a company,

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Â Multinational companies own a Â Transnational companies do not have

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