UNIT II

Strategic Intent

Strategic management :- a strategy is a unified,

comprehensive & integrated plan that relates the

strategic advantages of the firm to the challenges
of the environment.
Strategic management is defined as a set of
decisions & actions resulting in formulation &
implementation of strategies designed to achieve
the objectives of an organization

Includes following areas

Determining a mission including statement of its purpose
Developing a company profile that reflects internal

conditions & capabilities

Assessments of companys external environment
Identifying the desired options and analyzing them
Strategic choice of a particular set long term objectives &
grand strategies needed to achieve desired options.
Implementation of strategic choice.
Review or evaluation of the success of strategic process.

SM involves 3 types of
decisions

Definitional decisions;- defining business,

identifying customer groups, functions &

technologies.
Goalistic decisions: - defining corporate &
functional objectives & policies.
Optimal decisions:- strategies action programs &
tactics

Strategy of an organization Comprises of

Business vision
Mission
Objectives and goals
Business definition

vision
Vision articulates the position that the firm would

like to attain in the distinct future.

A vision is more dreamt of than it is articulated .
Tata steel says about its mission :- tata steel
enters the new millennium with the confidence of
learning, knowledge based happy organization.
By its nature vision could be vague as a dream that
one experienced last night & is not able to
perfectly recall it.
It acts as a powerful motivation to action.

definition
Vision is a description of something (an organization

corporate culture , business ,a technology an activity in

future)
Benefits of having a good vision:Are inspiring , exhilarating & motivating.
Represents discontinuity , a jump ahead
Helps in creation of common identity and shared sense of
purpose.
Should be competitive, original & unique.
Fosters risk taking & experimentation
Represent integrity , are truly genuine & can be used for the
benefit of the people.

Vision could be divided into

two

Core ideology:- it defines the enduring character of an

organization that remains unchangeable as it passes the

changing environment
It rests on the core values , mission & purposes.
Envisioned future:- a 10- 30 year extremly confident goal.
Descrition of what it will be like to achieve these goals.
Encouraging & supporting goals
Description of the future.

Effects of vision
Learning acquiring knowledge & information
Leads to commitment & motivation
Emphasizing not only on profit makig but

producing useful products & services.

Innovation encouraging
Improving health & wealth of an organization.

Difficulties in creation of
vision

Culture & attitude within an oraganization

Uncertain & unstable environment
Restricted resources
Resistance to change

An enriching and inspirational

vision must
Contain memorable language
Clearly maps the company
Challenges & motivated the workforce
Provokes emotions

Mission (WHY WE EXIST)

CORE VALUES (WHAT WE BELIEVE IN)
VISION (WHAT WE WANT TO BE )
STRATEGY (GAME PLAN)
STRATEGIC IMPERATIVES(WHAT I MEAN TO

DO )
PERSONAL OBJECTIVES
STARTEGIC OUTCOME

mission
Mission is a statement that defines the role that an

organization plays in the society. Purpose is anything that

organization strives for.
Mission is essential purpose of the organization ,
concerning particularly why it is in existence., the nature
of business.
E.g. of mission statement
Maruti: building trust worldwide
Modiluft : miles & smiles
HCL: world class competitor

Elements of mission
Clearly articulated
Relevant
Current
Written with a positive tone/motivating
Unique
Adapted to target audience
Feasible
Precise
Clear
Indicate major components of strategy
Indicate how objectives are to be achieved

Objectives & goals

Objectives are open ended attributes that denote the future states

or outcomes.
Refer to the operational side of business
Goals are the close ended attributes& are prcised & expressed
in specific terms.
Objectives are the ends which state how the goals will be
achieved.
An organization tries to its purpose into long term objectives &
short term goals.
Different objectives are pursued like continuity of profits,
efficiency, product quality, employee satisfaction etc.

Goals are qualitative ,objectives are mainly quantitative

Thus objectives are measurable & comparable.
An organization may pursue multiple objectives.
Importance of objectives:Justify the organization
Provide direction
Basis for management by objectives
Helps in strategic planning & management
Helps coordination
Provides standards for assessment & control
Helps decentralization

Characteristics of ideal
objectives
Formulation
should involve participation
They should be clear
Realistic
Flexibility
Consistency
Ranking (assigning priorities)
Verifiability
Balance
Understandable
Concrete & specific
Challenging
Should be in the constraints

What objectives are set

Profit
Employee welfare
Marketing
Growth
Quality products & services
Power
Social responsibility of business

classification of objectives
Economic & social:Survival
Return on investment
Growth
Market share
Welfare of society
Protect consumer rights
Interest of workers
Primary :Extension, development & improvement
Paying fair dividends to share holders.
Payment of fair wages
Reduction of prices

Secondary:Provide bonus for workers

Promote education
R&D in techniques
Long run & short run:Official & operative:-

Formulation of the
environment
Forces in the environment

Value system of top executives

Awareness of management.

Business definition
Dimensions of business:Customer functions:-what is being satisfied;

freshness, germs fight, protection

Customer groups:- who is being satisfied; oral
care, dental protection
Alternative strategies:- how the need is being
satisfied, paste powder, foam

Business policy
It involves all member of organization
Explicit or implicit
Decision making process
Formulated for frequent happenings
Pyramids of policies policies procedures ,

standard operating plans all guide to act

but differ in the degree of guidance

Features of business policy

Credibility
Acceptability
Feasibility
Clear and consistent
Proper communication
Flexible
Relative to objectives
Policies should not be the result of

opportunistic decisions

Determinants of business
policy
Internal factors Mission
Objectives
Strength and weakness
Management value orientation
External factors Market structure
Nature of industry
Economic and government policies
Technological social and political situation

Importance of business policy

For learning the course
Integrates knowledge
Deals with constraint and complexity of real life business
Broad perspective
Make study and practice of management more meaningful
For understanding business environment
Formulation of policies
Makes management receptive
Reduces feeling of isolation
For understanding the organization
Presents a basic frame work for understanding decision making
Brings the knowledge in strategic decision making
Importance of job performance
For personal development
Career choice
Offers unique perspective to employees

Purpose of business policy

Integrate the knowledge in various

functional areas of management

Generalist approach (problem solving)
Understand complex linkage with the
operating system

Formulation of business
policy
Goal specification and priorities

Identification of policy alternatives

Evaluation of policy alternatives
Check the acceptability
Choice of policy
Impact of external and internal

environment

Function of business policy

Policy establishes indirect control over

independent actions
Policy promotes uniform handling of similar
activities
Ensures quicker decision
Institutionalize basic aspect of organization
Reduces uncertainty
Counter act resistance
Mechanism of avoiding hasty and ill
decisions

Types of business policy

Production policy purchasing policy , quality of

RM used , choice of material , size of purchase

Production process choice of technology ,
extent of automation , size of decentralization ,
extent of division labor
Production capacity sales forecast , policy
decision , equipment utilization
Marketing and replacement
Marketing policy
Product mix
Product differentiation
Pricing policy

 Distribution policy
Geographical location
Selection of customer
Size of customer
Channel design
Choice of middle man
Promotion policy
Financial polity financial control
Lease of buy
Risk
User of assets
HR policy
R and D

Business environment

It consists of both external & internal environments

Aggregate of all conditions , events, influences that

surround & effect it.

Internal are controllable aspects
External uncontrollable
Success depends on the ability to design the internal
variable to take advantage of the opportunities & threats.

Internal appraisal
It provides the organization with its capabilities to

capitalize an opportunity for protecting itself from

threats present in the environment.
Determine distant competencies
What makes it unique
What are its capabilities in future, competent in
specific areas.

Frame work for development of

strategic advantage
Strategic advantage
Organization capability
Competencies
Synergistic effect
Strength & weaknesses
Organization resources & organization behavior

Organization resources:- tangible, Intangible, assets &

capabilities, information & knowledge.

Organization behavior:- forces & influences operating in
internal environment, values, culture, leadership, power &
politics.
S&W:-inherent capability, inherent limitation or
constraint.
Synergistic effect:- S&W combine
Competencies:- special qualities possessed by
organization that make them stand pressure of
competition, a distinctive competence
Strategic advantage:- outcome of organizations
capabilities, result of activities leading to reward, profits
market share , reputation

Internal factors to be analyzed:FINANCIAL & ACCOUNTING:Financial resources & strength, liquidity cash flow
Cost of capital
Relations with owners & stock holders.
Tax conditions
Financial planning
MARKETING & DISTRIBUTUIN FACTORS:Product related: variety, differentiation
Price related
Place: logistics, channels of distribution
Promotion: advertising, sales promotion, PR
Integrative system: market research, packaging of product

 PRODUCTION & OPERATION FACTORS; Use of RM

Production system, capacity
Location
Service design
Operation & control
Product planning
Material supply
Quality control
Lower cost, inventory
Capacity utilization
PERSONNEL CAPABILIY FCTORS: Use of HR skills
Safety welfare, security appraisal
Satisfaction morale, compensation, climate , structure, trade unionism

 INFORMATION CAPABILITY: Flow of information. Outside & within

DBMS, use of information
Speed & IT infrastructure
GENERAL MANAGEMENT; Strategic analysis & intent formulation
Rewards & incentives
Goals & competence
CSR
Organization climate & regulations.
R & D & ENGINEERING:
New improved production
Material , processes
Cost advantage
Research capability

Approaches to Internal
Appraisal
Systematic approach:-

Proactive measure to organizational formal

planning
Ad hoc:Reactive to response to a crisis

SOURCES OF INFORMATION:Internal

External

Employee opinion

Comparative appraisal

Company files & documents

Company reports &

Financial statements

magazine
Through consultants

MIS
Annual reports
Functional area profile

Methods & techniques

Quantitative

Financial analysis:
ratio analysis
Nonfinancial analysis
employee turn over, inventory units, absenteeism
Qualitative:
Corporate culture
Knowledge
Moral

Comparative:- strength & weakness & distinctive competencies

Historical
Industry norms
Bench marking: a point for purpose of meeting best practices

performances, process.
Comprehensive
Balanced score card
Key factor rating
market : product, service , price
Financial: source of funds, usage & management
operations: production system, operation & control
personnel: IR , employee characteristics
information management; acquisition, synthesis & processing,
usage
general management; OC general management system

Structuring organization
appraisal
Organization capability profile
Capability factors
Weakness

normal strength
-5
0
+5
preparing strategic advantage profile
Capability factors
competitive strengths or
weakness

Criteria for determining S &

W
Historical: past performance

Normative: what ought to be

Competition party:
Critical factors for success

External appraisal
Monitoring of economic, government, legal, market/

competitive , supplier/technological, geographic &

social setting to determine opportunities & threats.
Macro factors:International
Economic
Political
Regulatory
Demographic
Socio cultural

Micro
Suppliers
Customers
Competitor
Inter mediaries
Market
Public
Environment analysis is the process of identifying O & T

facing in an organization for the purpose of strategic

formulation

Characteristics of environment:
Complex
Dynamic
Multi faceted
Far reaching impact Market factors: client needs,

preferences
Environmental sectors
Product factors: image, demand, price PLC
Market intermediaries: middle man, distribution
channel
Competitor related: entry exit barriers, nature of
competition

Various types of markets could be

Consumer
Industrial
International
Reseller
Technological environment factors:Knowledge of goods & services, future inventions
Sources of technology
Tech. development, stages, rate of change
Impact of tech on humans
Availability of tech.
Foreign technology collaboration
Strict rules & regulations

Economic factors:Economic conditions: level of income

Economic policies: restrictive & liberalized
Eco system
Inflating deflating rates
Monitory policy
Eco structure
Eco planning
Regulatory factors:Constitutional framework, fundamental principles
Policies related to licensing, foreign investements
Imports & exports policy
Public sector , small scale

Political & government:

Philosophy of govt.
Structure , goals
Election, budget
Subsidies, protect unfair trade
Socio cultural:Society, beliefs, traditions, education, pace of urbanization
International factors:Global eco policies, global HR, global village

Secure sources of funds

Competitors
Opposition from host country
Political, social & eco risk
Natural factors:Geographical location, natural resources ,weather , climate

micro
Suppliers:Cost ,reliability, availability factors.
Continuity of supply
Customers:Individual govt. other commercial establishment
Competitors:Same product
Same market
Market intermediaries:Promoting, selling & distributing agents
Vital link between consumer & company
Public:Media, citizens, local public

Environmental scanning
Environment is changing, so it is needed to be

monitored
Factors analyzed to determine conditions of threat &
opportunities.
Factors in external environment:
Events: specific occurrences
Trends: general tendencies & courses of Action
Issues: concerns that arise
Expectations: demands made

Approaches to scanning
Systematic scanning:Information collected systematically & continuously to

monitor changes & take relevant factor into consideration.

Ad Hoc :Special surveys & studies to deal with specific environment
issues from time to time.
Processed form approach:Uses information in processed form,
available from different sources,
highly systematic & formal procedure
Proactive measure for the anticipated change

Techniques used for environmental

scanning
MIS:- formulize line & staff , gathering of information desired by

strategists
Develop strategic management system: by relying on responses by customers, suppliers, comptitors,
environment condition
Spying:-determine trade secrets
Formal forecasting:-corporate plans, consultants , futurists.
Quest:- quick environmental scanning technique
4 step process
Observation about major events & trends
Speculate on wide variety of issues
Quest director prepares report & summarizes major issues &
implications
Reports & scenarios are reviewed or redesigned to develop strategies

Scenario writing
Simulation
Game theory
Cross impact analysis

Description of ES
Strategies more concerned with economic factors than

the others
Does not give significant time
Psychologically unprepared for change

Appraising the environment

Be aware of the factors affecting the process of

environmental appraisal(strategies, org.

environment)
Identify environmental factors
Structuring the result of environmental appraisal
Prepare an ETOP

ETOP
Evnt. sector

sector
Market
Tech.
Suppliers
Economic
Regulatory
Socio-cultural
political

nature of impact

impact on each

unstructured demand
up gradation

Grand level strategies

Environmental & internal appraisal lead to the

generation of strategic alternatives.

the grand strategic alternatives are
Stability
Retrenchment
Expansion
Diversification
Integration

Dimensions of grand
strategies

Internal/external;-

When an organization adopts strategy independent to other its

internal
In association with other entity its external
Related/unrelated;Related or unrelated to existing business.
Horizontal/vertical:Serving additional CG or CF,
Expansion or contraction of existing business startegy.AS
Active/passive:Offensive strategy in anticipation of environmental threat
Defensive strategy as a reaction to the environment

Strategies are

Stability: No change

Pause/proceed with caution

Profit strategies
Expansion: Through concentration
Through integration
Through diversification
Through cooperation
Through internationalization
Retrenchment: Turnaround
Divestment
liquidation
Combination; Simultaneous
Sequential
Combination of both

Stability strategy
It is adopted by organization when it attempts at an incremental

improvements of its functional performance by marginally

changing one or more of its business in terms of their respective
customer group
customer function and
alternative technologies.
The company stays with the current business & products ,
markets
Maintains existing level of efforts
Is satisfied with incremental growth

Major reasons for adopting

stability are
Less risky
Fewer changes
Environment faced is relatively stable
Expansion may be perceived as threatening
Better deployment & utilization of resources
Not redefining business
Safety oriented
No fresh investments
Does not nil growth, but it is incremental

Conditions under which stability

is adopted
Enjoys comfortable position
Future is ensured
Growth ambitions are modest
Niche's prefer mostly
E.g.:
Copier machine provides better after sales service to its

existing customer to improve its company image

No change strategy:Continues with the same business definition

The environment is predictable & certain
No opportunities & threats in environment
No major strength & weakness
No new competitors
No obvious threat of substitute

Profit strategy
No firm can identically continue with no change.
Sometimes things do change & the firm has to face

situation where it has to do something.

When there occur temporary changes or problems the firm
tries to maintain the profits
The problems could be: economic recession, govt. attitude,
industry downturn, competitive pressure.
These problems are short run only
If problem continues has to adopt another strategy

Pause/proceed with caution

Firms which wish too test the ground before moving ahead with

full fledged strategy.

Or may have had a blistering phase of expansion & now wish to
rest for a while before moving ahead.
Purposes to let the strategic changes seep down the organization
levels, allow structural changes to take place, and let the
systems adopt new strategies.
While profit strategies are enforced choices aimed at sustaining
profitability
Pause/proceed are deliberate and conscious attempt to adjourn
major strategic changes to a more opportune time, or when the
firm is ready to move on with rapid strides again

Expansion strategy
Conditions:Expansion becomes imperative when envt. Demands increase

in the pace of activity.

Increasing size may lead to more control over the market
Advantages from experience curve & economies of scale
High risk
Redefinition of business
Fresh investments new business/ product/ market
Highly versatile strategy

Through concentration:Converging resources in one or more firm s

business
1st preferred strategy.
Involves investment of resources in product
line for an identified market.

market
Market ExistingMarket
penetration
development
new market
Existing product
Product
diversification
development

New product

Applies to situation where the firm finds expansion

worth while.
Its the 1st preferred strategy
Entering into known business
Advantages:Involve minimal org. change so there is less
threatening
Managers comfortable with present business
enables the firm to master in business by the depth of
the knowledge.
Can develop competitive advantage.
Past experience is valuable.

Limitations:Putting all eggs in one basket has his own

problem
Heavily dependent on industry
If industry goes into recession firm finds
difficult to save itself
Its crowded with competitors its attractiveness
decreases.
Factors like product obsolescence, merging of
new technologies are threats to firm.
Lead to cash flow problems

Through integration
Works in present set of CF & CG but the AS

dimension of business undergoes a change

Integration is combining activities on the
basis of value chain
A set of interlinked activities performed by
firm right from procurement of basic raw
material to marketing of finished products.
Widening the scope of business.
Petrochemicals steel hydrocarbons industry.
Cost economics
Forward or backward integration

diversification
Diversification may involve all dimensions of

strategic alternatives
Internal external, related unrelated, horizontal
vertical.
Involves a substantial change in business definition.
Different types are :concentric diversification:Related to existing business definition either in terms

of CG, CF or AS ,is called concentric diversification.

May be of three types:
Marketing related:-similar type of product is offered with help of unrelated

technology . sewing machines produces diversify into kitchenware & house

hold appliances, sold to housewives through a chain of retail stores.
Technology related:- a leasing firm provides hire- purchase services.

Conglomerate:Unrelated to existing business definition.

ITC
Essar (shipping, marine construction, oil support

services)

Why are diversification strategies adopted;To minimize risk by spreading it over several

business
Capitalize organizations strength & minimize
weakness.
Only way out if growth is blocked because of
environmental or regulatory factors.

Advantages:Enables firm to attain synergy by exchange of

resources & skills.

Avail economies of scale
Reduction in risk by spreading risk
Disadvantages:Increase risk & commitment
Diversion of resources & concentration to other
areas.

Through cooperation
Mergers
Take overs
Joint ventures
Strategic alliances
Merger: Combination of 2 or more than 2 entities involved in which

one acquires the assets & liabilities of other in exchange of

cash or shares .
Or both the organizations are dissolved assets & liabilities
combined & new stock is issued.
Objectives of the firms are matched

Types of mergers
Horizontal :- same business
Vertical mergers:-complementary in terms

of input or output
Concentric:-related CF,CG, AS
Conglomerate;- unrelated.

Reasons for mergers

Increase value of firms stock
Increase growth rate & make a good investment
Improve stability of earning sales
To balance, complete & diversify product lines.
Reduce competition
Take advantages of synergy

Takeover/ acquisition
How t takes place:Spell objective
Indicate how they will be achieved
Assess managerial quality
Check compatibility of business style
Anticipate & solve problems early
Treat people with dignity & concern

reasons
Quick growth
Reducing competition
Increasing market share
Creating goodwill
Friendly & hostile
Pros & cons: Growth
Mobility of resources
Sick units betterment
Stress strain

Joint venture
2or more firm consolidation for temporary partnership
Conditions for JV
One cant do alone
Risk is to be shared
Competitive advantage of both can be brought together.
Advantages: Foreign technology
Govt. Policy & support
New fields
Synergistic effect
Disadvantages: Coordination lacking
Foreign regulations
Cultural & behavioral differences

Strategic alliance
2 or more firms unite to pursue a set of agreed upon goals but

remain independent.
Win win strategy
Share strength
Lend power to enterprise
Pooling of resources
Risk is mutual
E.g. TVs Suzuki, Mahindra ford, bpl SANYO, Videocon Suzuki.

Types of strategic alliance

Pro active (low interaction/low conflict)
Inter industry, vertical value chain integration
Non competitive(high interaction/low conflict)
Intra industry , non competitive firms
Competitive: (high interaction/high conflict)
Rival firms to cooperation , inert/ intra industry
Pre competitive: (low interaction high conflict)
Unrelated industries, new product development.

reasons
Entering new markets
Reducing manufacturing costs
Developing & diffusing strategy

Diversification through
Competitive advantage of nations
internationalization
Factor conditions
Demand conditions
Related & supporting industries
Firm strategy, structure & rivalry
Beyond domestic market
Asses environment
Evaluate capabilities
Devise strategy.
Motives: Expansion
Market potential
Govt. policies
resources

Global strategy

Transactional
strategy

International strategy

Multi domestic
strategy

International:Where the products are not available like MCD,, coca cola,

IBM, Kellogg's
Multi domestic:Matching products to national conditions. Customize products.
Global;Standardized products ,
Economies of scale
Undifferentiated product
Competitive price

Entry modes

Export entry mode

Direct
Indirect

Contractual:Licensing
Franchising
Other forms (tech.)

Investment
JV, strategic alliance
Independent ventures

Advantages:Sales profit
Expansion
Above average returns
Disadvantages:
Risk
Uncertainty of economic & political environment
Cultural diversity
Trade barriers

retrenchment
Reducing scope of activity
Demand saturation
Govt. policies adverse
Substitutes emerged
Changing needs & preferences
Poor managt
Wrong strategies
Poor quality

4 types of situation
Realistic non recoverable
Temporary recovery
Sustained survival
Sustained recovery

Turn around
Negative cash flow
Profits
Mismanagement
Declining market share
Uncompetitive products
High turnover
Approaches:Surgical
Non surgical

Divestment/cutback
Sale or liquidation of portion of business .
Liquidation strategies:Closing down a firm & selling its assets
Termination of employees
Loss of employer
Serious consequences.

combination
Mixture of all either applied simultaneously or

sequentially

Process of strategic
Vision,
mission, business definition & objectives
management

Establishing strategic intent:Formulation of strategies:-

Environment & organizational appraisal

Swot analysis
Corporate level strategies
Business level strategies
Strategic choice
Strategic plan

Strategy implementation:Project, procedural, resource allocation, structural, behavioral

functional & operational

Strategic evaluation
Strategic control

Business level strategies

Business strategies are those courses of action adopted by a

firm for each of its business separately to serve identified

CG, provide value to the customers by a satisfaction of their
need.
Porter says that factors that determine the choice of a

competitive strategy are two:

Industry structure
Positioning of a firm

Industry structure is determined by 5 competitive forces:Threat of new entrants

Threat of substitutes products or services
Bargaining power of suppliers
Bargaining power of buyers
Rivalry among exiting competitors in an industry.
They vary from industry to industry & they determine long

term profitability.
Positioning of the firm:Firms overall approach to competing, designed to gin
sustainable strategic advantage.
Two variables:- competitive advatgae
Lower cost & differentiation

Competitive scope:Broad target & narrow target

Offers mass product distributed through mass marketing
High priced products of a limited variety but intensely

focused.
Lower cost is based on the competence of a firm to design,

produce & market a comparable product more efficiently than

its competitors.
Differentiation is the competence of a firm to provide unique
& superior value to the buyers in terms of quality, special
features or after sales services

Competitive scope:Range of products , distribution channels, types of buyers,

geographical area served & related industry.

Industries are segmented having different needs and require
different sets of competencies & strategies to satisfy the needs
of customers.
Broad target approach:Full range of products/services
Narrow target :Offers a limited product or area
When the two factors are combined it results in a set of
generic business level strategy

Porters generic business strategy:Competitive scope

Cost leadership

Differentiation

Focused cost
leadership

Focused differentiation

Broad target

Narrow target

low cost products/services

differentiated products
Competitive advantage

Cost leadership in business

strategy
CA of a firm lies in the lower cost of product/services
High profit
l\flexibility to lower price if market becomes stiff
E.g.
Gujarat cooperative milk marketing federation
Amul branded ice cream market lower cost platform by

backing of 180 diaries

High quality
Supply chain management
Moser Baer manufactures CDs at lower cost, lower raw
material cost & lower labor costs

Achieving cost leadership

Costs are spread over entire value chain activities to reduce

the cumulative cost , analyze cost drivers && identify areas

of optimization of costs.
Accurate demand forecasting
High capacity utilization
Attaining economies of scale leads to lower cost/unit
High level of standardization & uniform services, packaging
Investments in cost saving techniques
Withholding differentiation till it becomes necessary

Conditions under which cost

leadership is used
Price based competition is vigorous making cost an

imp. Factor
Products are standardized
Lesser customer loyalty cost of switching is low
Few ways available for differentiation
Buyers are price sensitive.

benefits

Best insurance against industry competition , protects against the

ill effects of competition

Less effected by the price increase by the suppliers.
Can offer prices reduction to the buyers
Threat of cheaper substitute if off set
Effective entry barrier
Risks:Does not sustain for long time as can be copied
Not a market friendly approach
Can limit experimentation
Technological shifts ,cheaper process & technologies may be

used by competitors

Differentiation business
strategy
Special features incorporated in product/service which is
demanded by customers who are willing to pay .
The strategy which is then adopted is called differentiation
strategy.
Special features & attributes
A premium price is charged, customers gain additional value &
command customer loyalty
Profit comes from difference in premium price
But may fail if customers are not longer interested in
differentiated products

E.g.:Orient fans offers premium ceiling fans based on product

innovation & superior technology.

Extra wide blades, heavy duty motor
Low voltage, high velocity & maximum coverage area.
Brand salt industry DCW home products made captain

cook for quality conscious salt users, free flow, iodine

content.
Frooti tetra pack

Achieving differentiation
To create value to customer that is unmatched by competitors
Offer utility for customers & match their tastes & preferences
Incorporate features that can lower the cost
Which can raise the performance
Increase buyer satisfaction
Promise high quality
Enhance status & prestige
Full range of products is offered to satisfy

Conditions under which

differentiation is used
Market is too large to be catered by few firms offering

standardized products
Customer needs & preferences are too diversified to be
satisfied by standardized products
Is possible to change premium price
Brand loyalty is possible to generate & sustain
Ample scope for increasing sales on basis of
differentiated features

benefits
Lessoning competitive rivalry
Customer brand loyalty acts as a safe guard
Customers are generally less prices sensitive, can

absorb price increases

Powerful buyers do not negotiate price , special
features & attributes
New entrants are not normally in a condition to offer
similar differentiation
Substitute products pose a negligible threat

risks
Difficult to sustain, first mover advantage associated
Distinctiveness is gradually lessoned & ultimately lost
Failed if unnecessary features are added
Price premiums too have a limit

Focus business strategy

These strategies rely on either cost leadership or differentiation

but cater to an narrow segment of the local market.

Used for identifying customer groups on the basis of
demographic characteristics, geographic segmentation.
Price is an imp consideration in piracy ridden industry
T series offered cheap cassette of Hindi film songs while Sony

music & mega sound cater to the upper end niches

Philips India launched flat TV plasma tech that enables
distortion free pictures Dolby sound in the niche market of
sophisticated tech. driven audience.

Achieving focus
Identifying a narrow target in terms of market &

customers. Locate a niche in the market

Cost leader & differentiators in an attempt to cover
broad target tend to leave out segments which require
special attention .
E.g. truck tyres , airplane tyres
A small no of buyers willing to pay higher price to get
some king of special treatment .
Automobiles for physically handicapped persons,
specialized medical treatment for well to do persons.

Choosing specific niche by identifying gaps not

covered by cost leader & differentiates .

Creating superior skills for catering niche market .
Creating superior efficiency
Developing innovative ways to manage the value
chain

Condition under which focus

strategies are used
Some types of uniqueness in the segment may be

geographic demographic or based on life style .

Specialized requirement
Niche market is big enough to be profitable for the
firm
Promising potential for growth
Major players are not interested in the niche market
Necessary skills & expertise to serve the niche
segment.

Benefits
Protected from competition or they provide which

would not be profitable for others to provide

Price increase can be absorbed
Powerful buyer may not shift
Specialization in niche market acts as a barrier

Risks
Requires development of distinctive competencies ,

difficult process
Being focused means committed to a narrow market,
difficult to cater other segments
Shift in customers need may make the niche disappear
Become attractive enough for big players to shift .

Tactics for business strategy

Timing tactic : first mover in mineral water is parley with

biseleri. Late movers icici pru,max new York , hdfc

standard life :- LIC
Advantages of first movers
Market leaders
Benefits of learning curve
Cost advantages
Customer loyalty
Disadvantages
Becomes costlier (create awareness )
More risks
Late movers can imitate technological advances and skills

Market location tactics

Market leaders
Market challengers
Market followers
Marker nichers

Process of strategic choice

Focusing on alternatives:Narrow down a choice to a manageable number of

feasible strategies.
Start with business definition
CG :- cosmetic segment, fluoride segment
CF:- foam, freshness, flavor, dental care
AS:- paste, powder, diff. base material, diff.
packaging, diff. flavoring material, addictives

Gap analysis

Strategies to be followed

Performance

desired performance

o
performance gap

Present performance

time

How wide or narrow is the gap.

Where gap is narrow , stability strategy would

seem to be better
Gap is large due to expected environment
opportunities expansion is feasible
If due to past & expected bad performance,
retrenchment strategies may be suitable

Considering the selection

factors

Determine the criteria on which evaluation of

strategic alternative can be used.

2 groups:Objective:- based on analytical techniques & are
hard facts or data used to facilitate strategic choice
called ration/ normative/ prescriptive factors
Subjective:- based on personal judgments /
collective or descriptive factors.

Evaluation of strategic
alternatives
Bring together the results of analysis.
Making the strategic choice:Most suitable choice under existing conditions
Blue print has to be made..
Objective factors are divided into two parts
Corporate level strategic analysis
Business level strategic analysis

Corporate level analysis

Treats corporate entity as a portfolio of business under a corporate

umbrella
Relevant in case of diversified business.
In which analysis of a company as a collection of different business
with a view to identify the status & potential of the various business
with regard to resource use & resource generation
Corporate portfolio analysis
1. Bcg matrix
2. Ge9 cell matrix
3. Hofers product / market evolution matrix
4. Directional policy matrix
5. Strategic position & action evaluation

BCG matrix
Growth share matrix
2 variables ;- rate of growth of product / market
Market share of the firm relative to its competitors
Market growth indicates attractiveness of the firm
Market share indicated the strength of the firm.

Matrix
Stars
Growth stage
Modest cash flow
Expansion strategy
Scooter for Bajaj, activa
for Honda
Fast food, telecom,
electronics

High

Market
Rate

Cash cows
growth
Mature stage
Stability
Large cash flow
Colgate, decorative paint
for Asian paints

Question
marks/problem children
Large negative cash flow
Retrenchment/expansion
Holiday resorts, light
commercial vehicle

dogs
Late maturity & decline
Retrenchment
Modest cash flow
Cotton, jute textile shipping

Low
high
low

relative market share

GE
9
cell
matrix
Mckinsey & group
Vertical axis 8 different factors
Industry attractiveness
1. Market size
2. Growth rate
3. Industry profit margin
4. Competitive intensity
5. Seasonality
6. Cyclicality
7. Economies of scale
8. Tech, & social , legal & human aspects

Horizontal axis;1. Business strength

2. Relative market share
3. Profit margins
4. Ability to compete on price & quality
5. Knowledge of customer & market
6. Competitive S&W
7. Tech\ Capability & ability of the firm

Zone
Green:investment/expand
Yellow:- select / earn
Red:Harvest/ divest

Industry attractiveness

green

High

yellow

Medium
red

Low
o
o

strong

avg
weak
business strength/competitive position

Advantages of GE9

Intermediate classification of medium & avg.

Large no. of variables
Disadvantages
Provides broad strategic prescription than specifying the

business strategy.
Limitation of BCG:Predicting profitability from growth rate of market share is
difficult.
Difficulty in determining market share
No consideration to experience curve
Disregard for human aspect

Hofers product/market evolution matrix

15 cell matrix
Considers the stages of development
And competitive position
Growth
Development
Shake out
Maturity
decline

Directional policy matrix

Companys competitive abilities
Strong avg. weak
Business sector prospects
Unattractive

avg attractive

Corporate parenting analysis

Fit between parenting opp. & parenting characteristics

x axis
Misfit between CSF & parenting characteristics. Y axis
Focuses on fit of business with the corporate parent
Heartland business:-expansion strategy
Edge of heartland:- expansion strategy may suit by
investing
Ballast:- like cash cows
Alien territory;- retrenchment
Value trap:- retrenchment

SWOT analysis

Business level analysis

Experience curve analysis
Life cycle analysis
Industry analysis: Michael porter 5 forces model
Threat of new entrants: Higher entry barriers
Economies of scale
Capital requirements
Switching costs
Product differentiation
Access to distribution channel
Cost disadvantages
Govt policies

Rivalry among competitors:Competitive structure

Demand conditions
Exit barriers
Bargaining power of buyers:Buyers are few in no
Buyers place k\large orders
Alternatives suppliers are present and supply at lower rates
Switching cost of buyers is low
Sensitive to price increases
Has the ability to integrate backwards

Bargaining power of suppliersSuppliers are few & buyers are more

Product is unique
Substitutes are not available
Switching cost of supplier is high
Buyers buys in small quantity
Has the ability to integrate forwardly
Threat of substitutes:Level of price charged is reasonable

Strategic groups analysis

Clusters of competitors that share similar strategies &

therefore compete with one another directly.

Homogeneous & heterogeneous because of their
strategies
Icici aimed at becoming a universal bank through
attaining a large size
HDFC at optimum revenue generation.

Competitor analysis
It focuses on competitors directly
Deals with actions & reactions of individual firm
Components of competitor analysis;Future goals of competitor;- how our goall are

compaed with others ?what is the attitude towards

risk?
Current strategy of competitor:- does it suppoat
changes?
Key assumptions made by the competitor;Capabilities of competitor:-

Subjective factor in strategic

choice
Considerations for govt. policy

Perception of CFF & distinctive competencies

Commitment to past strategic plans
Strategic decisions style & attitude to risk
Internal political considerations
Timing & competitors consideration.
Management philosophy
Corporate ethics
Social responsibility

Contingency strategies
Strategic choice is made on certain conditions, assumptions

& premises. When conditions change strategy becomes

partly irrelevant , if changes are drastic, strategies have to be
modified continuously. strategies are formulated in advance
to deal with certain conditions.
Most changes occur in environment social, market ,
regulatory, international, where it occurs suddenly
Eg FMCG, power, telecom, IT Insurance
3 scenario model
Pessimistic
most likely
optimistic

Contingency planning
process
Identify the contingent event

Establishing the trigger points

Developing strategies & tactics

Strategic plan

A clear statement of strategic intent

Results of environmental appraisal, major opportunities and threats,

CSF
Results of organization appraisal, major strength & weakness & core
competencies.
Strategies chosen & the assumptions under which strategies would be
relevant . Contingent strategies to be used for different conditions.
Strategic budget for the purpose of resource allocation for
implementing strategies & schedule for implementation.
Proposed organizational structure & major organizations system
Functional strategies & mode of their implementation
Measure to be used to evalaute performance & assess the success of
strategy implementation

Strategy implementation
pyramid of strategy
implementation

Project implementation
strategies lead to plans, programs, projects.
Knowledge related to projects is covered under

project management
A project is a one shot goal limited, time limited ,
major undertaking , requiring the commitment of
various skills & resources.
Goals are derived from plans & programs

Phases of project
Conception phase
Definition phase
Planning & organizing phase
Implementation phase
Clean up phase

Procedural implementation

Formulation of a company
Licensing procedures

Securities & exchange board of india

Monopolies & restrictive trade practices MRTP
Foreign collaboration procedure
Foreign exchange management act FEMA
Import & export requirements
Patenting & trademarks requirement
Labor legislation requirement
Environment protection & pollution control
Consumer protection requirements
Incentives & facilities benefits

Resource allocation
deals with the procurement & commitment of financial ,

physical & HR to strategic tasks for the achievement of org.

objectives.
Both one time & continuous process
New project requires
What sources are tapped
What factors affect
What approaches adopted
How it takes place
What are the difficulties

Procurement of resources
Different types of resources are
Financial
Physical
Human
Finance considered as primary source & is used for creation

& maintenance of other resources.

2 types of finances
Long term;- creation of capital assets
Short term:- working capital
Both can be rocured froom internal & external sources

Internal sources

Retained earning

Depreciation provision
Development rebate
Investment allowances reserve
External sources
Capital market sources
Equity & loans
Money market sources
Bank credit,
Trade credit
Fixed deposits
Both have pros & cons but company prefers internal sources

1st task is to distribute the resources within the org. to

different SUBs , divisions, departments.

Approaches to RA:Top- down approach:- a process of segregation down

to the operating level adopted (ceo , management) in

entrepreneul modes
Bottom approach:Allocated after aggregation from operating level
Mix of both

Means of RA
Used as planning budgeting coordination & control device
BCG based budgeting;- SBU identified as stars, cash cows.
Plc based:- stages of product or SBU may attract more
resources, diverted from high yielding products at maturity.
Capital budgeting:- in case of restructuring or modernization
Zero based budgeting:- justify RA demand , on zero grounds,
fresh cost calculation
Parta system:- indigenous for of control device, exercising
control to access daily net cash inflow from operations, tax &
dividends, daily budgeting & reporting system

Factors affecting RA
Objectives of org
Preference of dominant strategies
Internal policies
External influences

Difficulties
Scarcity of resources
Financial resources
Physical assets , land , machinery
Human resource
Restriction on generating resources for newer units
Over statement of needs

Structural implementation
What is structure?
Is the way in which the tasks & sub tasks required to implement

a strategy.
Structures for strategy:Entrepreneur structure:-

structure
Quick decision making
Timely response to environmental changes
Informal & simple org systems
Disadvantages:Excessive reliance on the manager owner & proves

demanding
May divert the attention of owner to day to day activities.
Inadequate for future if business expands

Functional structure
Specialized skills &delegation of authority

Advantages:Efficient distribution of work through specialization

Delegation of day to day operational functions
Providing time for top management to focus on the

strategic decisions.
Disadvantages:Difficulty in coordination
Specialization at the cost of overall benefit of org.
Functional , line & staff conflicts

Divisional structure
Work divided on the basis of product lines, type of

customers served, or geographic area covered.

Advantages :Enables grouping of functions related to a division.

Generates quick response to environmental changes

affecting the different divisions.

Enables top management to focus on startegeis.
Disadvantages:Problem in resource allocation, corporate overhead

costs.
Inconsistency from the sharing of authority between
corporate & divisional levels
Policy inconsistency between the different divisions

SBU
Any part of business org which is treated

separately for strategic management purposes.

Advantages:Establishing coordination between divisions having

common strategic interests.

Facilitates strategic management & control of large,
diverse org.
Disadvantages:There are too many diff. SBUs to handle effectively in a

large , diverse org.

Difficulty in assigning responsibility & defining
autonomy for SBU heads.
Addition of another level of management between
corporate & divisional management

Matrix structure
In large org. there is a need to work on projects

& products.
This results in requirement of matrix org.
Once a project is completed , the team
members revert to their parent departments.

Advantages;Individual talent to be assigned where talent is needed

Fosters creativity because of pooling of talents
Provides exposure to specialists
Disadvantages:Dual accountability creates confusion for individual

team members
Requires high level of vertical & horizontal
combination
Shared authority may create communication problems

Network structure
Spider web or virtual org.
Non hierarchical, highly decentralized & organized around

customer groups.

Advantages:High level of flexibility

Permits concentration of core competencies of the firm
Adaptability to cope with rapid changes
Disadvantages:Loss of control & lack of coordination
High costs as duplication of resources could be there

Other types of structures

Product based:Volume of sales is prevalent
Customer based:Sales volume of individual customer groups justifies the

separate divisions.
Geographic structure:-

Org. design & change

Steps:-

Identify key activities to be performed to accomplish the

goals & mission grouping of activities similar in nature.

Choice of structure that can accommodate group of
activities.
Creation of departments , divisions
Establishing interrelationship between departments.
Strategies formulated for
Span of management
Line & staff relationship
Use of committees & group decision making
Restructuring, reengineering, delayering, flatter structures

Org. systems
Information system
Control system
Appraisal system
Motivation system
Development system
Planning system

Behavioral implementation
Leadership implementation:- roles diff. strategists play
Theoretical under planning of leadership
Personality:- traits & qualities, & great personalities.
Influence:- relationship between individuals.
Behavior :- actions of leaders
Situation:- in which the leader operates.
Contingency:Transactional;-role differentiation & social interaction

between the leader & subordinates

Anti leadership:- absence of real concept of leadership.
Culture of entire org

Strategists style & strategy:Risk taking

Technocracy:-of planning , qualified personnel &

techniques.
Organicity:- extent of org, structural flexibility
Participation:Coercion;-

Development of strategies
Choice of future strategists,
Their career planning & development
Succession planning
Corporate culture:Shared things
Shared sayings
Shared actions
Shared feeelings

Strategy culture relationship

4 approaches:- ignore culture
Adapt strategy implementation to suit corporate culture.
Change corporate culture to suit strategic requirements.
Too change strategy to fit corporate culture.
Corporate culture & politics:Power within an org. is derived from 5 sources:Reward power
Coercive power
Legitimate power
Referent power
Expert power

Strategic use of politics

Understand how org. power structure works
Be sensitive alert to political signals
Reward org. commitments & penalize indifferent

attitude.
Practice principled politics & use openness & honesty.
Personal values & business ethics
CSR

Functional & operational

implementation
Functional implementation is carried out through functional

plans & policies.

Fit activities & capabilities of an org. with its strategies.
Vertical & horizontal fit:Strategic marketing management:Strategic financial management
Strategic HR management
Strategic information management

Operational plans & policies

Impact of strategy on operational plans & polices:-

Area of operational
effectiveness
Process:BPR
ERP
Benchmarking
Supply chain management
outsourcing
People:Pace;Time study
Network analysis & activity charts
Time based management
Nature of managerial work

Productivity:Mass production
Flexible manufacturing system
Total productive management

Strategic evaluation & control

Importance of evaluation
Need for feedback
Appraisal & reward
Check on validity of e strategic choice
Successive culmination of strategic management process
Creating inputs for new strategy.

Participants in evaluation
Board of directors
Chief executives
SBUs heads
Financial controller, company secretary , external or

internal auditor
Audit & executives committee
Middle level managers

barriers
Limits of control:Difficulties in measurement
Resistance to evaluation
Short termism
Relying on efficiency doing right things over

effectiveness doing the things right

evaluation
Control should involve the minimum amount of

information:- too much control lead to cluttering up of

system & creates confusion
Control should monitor only managerial activities
Should be timely
Both long & short term should be used to balance
Should pinpoint the exceptions
Reward for meeting or exceeding the standards should
be emphasized

Strategic control
Premise control:- strategy is based on certain factors, some of the

factors are highly significant

Premise control is necessary to identify key assumptions & keep
a track of any change.
Implementation control:- evaluating whether the plans , programs
& projects are guiding the organization.
May lead to strategic rethinking (PERT /CPM)
Strategic surveillance :- more generalized & over reaching.
Designed to monitor a broad range of events inside & outside the
company
Special alert control:- based on rapid response & immediate
reassessment of strategy in the light of sudden & unexpected
events.
Can be exercised by formulation of contingency strategies

Process of evaluation
Setting standards of performance
Measurement of performance
Analyzing variance
Taking corrective actions

Techniques of evaluation
Strategic momentum control:- aims at assuring that the

assumptions on whose basis strategies were formed are

still valid.
3 types
Responsibility control centers:- 4 types revenue, expense,
profit & investments
Underlying success factors: - focus on CSF
Generic strategies:- strategies adopted b a similar firm are
comparable .

Strategic leap control:- when environment is relatively

unstable, organizations make startegic leap

4 techniques
Strategic issues management:Strategic field analysis:-examine the nature & extent of
synergies that exist in org.
Systems modeling:- based on computer based models
that simulate essential feature of org.
Scenarios:- perception about the likely environment a
firm would face in future.

Evaluation techniques for

operational control
Internal analysis:Value chain
Qualitative
quantitative
Comparative ;Historical
Industry norms
benchmarking
Comprehensive:Balance score card
Key factor rating

Parta
Network techniques
MBO
Memorandum of understanding