Strategic Management

Strategic Management
Part Time - Dec 2015 Sem - VI
N L Dalmia Institute Of
Management Studies
Prepared by : Dipesh Maitra
Strategic Management Process

Strategy Overview:
Strategic management refers to the set of decisions & actions
managers take, which determines the outcome of the firms
performance. To take correct decisions & actions based on those
decisions the managers must study the general & competitive
business environment & match their core competencies with the
opportunities thrown open by that environment , & work to develop
their strengths & remove weakness.
Earlier the strategic decisions were made for long term planning.
With the rapidly changing business environment, however, the
environment scan has become a daily activity, reducing the time
between strategic decisions & changes in the firms planning for its
overall profitability & growth.
The Strategic Management Process is a sequential set of analysis & choices that
can increase the likelihood that a firm will choose a good strategy, that is a strategy
that generates competitive advantages. It is usually difficult to know that a firm is
pursuing the best strategy, it is possible to reduce the likelihood that mistakes are
being made. The best way to do this is to choose a firms strategy carefully &
systematically & to follow the following strategic management process.
1. Vision / Mission 2. Objectives 3. External Analysis 4. Internal Analysis 5.
Strategic choice 6. Strategy implementation 7. Competitive advantage.
1. The vision of the organization refers to the broad category of long term intentions
that the organization wishes to pursue. It is broad, all inclusive, & futuristic. It is in
most cases, a dream; the aspirations the organization holds for its future; a mental
image of the future state. It might therefore be difficult for the organization to
actually achieve the vision even in the long term, but it provide the direction &
energy to work towards it. The vision statement of NTPC is To be one of the
worlds largest & best power utilities , powering Indias growth. It can be seen
that this statement clearly of the organization specifies the larger purpose.
Good vision statements specify the category of intentions that are: 1. Broad, all
inclusive, forward thinking. 2. Aspirations for the future ends rather than the
means. 3. Mental image of the future state. 4. A dream that is shared across the
entire organization. 5. Inspiring, motivating & challenging. 6. A slogan it could
be encapsulated in an actionable slogan. 7. Easily communicated & shared
among the whole organization & its stakeholders.
When people talk about shared vision, it is expected that members of the
organization share a common mental image of the future, which integrates their
efforts towards the future state. The vision statement clearly & crisply illuminates
the direction in which the organization is headed. It should be highly motivating,
inspiring & challenging. Good vision statements act like slogans that drives
people towards a dream.
Hammel & Prahalad suggest that having a broader strategic intent might drive
organizations & people to seek/deploy additional resources to achieve the stated
intent, which would have been otherwise dismissed as beyond the capabilities of
the organization. In defining the strategic intent, the top management is quite specific
about the ends, but leaves room for the employees with respect to the means ,
thereby stretching the organization, setting corporate challenges to create
sources of competitive advantages.
Mission: The mission statement makes the vision statement more tangible &
comprehensive. In most cases the vision statement is just a slogan, a war cry, or
even a short phrase containing superlatives. A mission statement clearly
specifies (a) Why the organization exists, or the purpose; (b) what differentiates
the organization from others, or the identity; & (c) the basic beliefs, values,&
philosophy of the organization.
The key elements of a mission statement should include:
1. Obligation the firm holds to its stake holders
2. The scope of the business
.3. Sources of competitive advantage.
4. The organizations view of the future.
The purpose of an organization should typically include the various stakeholders &
its obligations towards them. Stakeholders may include customers, employees,
governments, & owners (stockholders). Even though it is acknowledged that the
organization needs to honor obligations to a wide variety of stakeholders, the mission
statement establishes the relative priority/emphasis placed on meeting the specific
requirements of significant stakeholders, by specifying the specific value added
by the firm The sequence of statements in the mission typically signifies the
relative priority of the various value added.
(continued) The identity of the organization delimits the scope of the business &
identifies the key sources of competitive advantage for that business In delimiting
the scope of the business, the organization answers the question, what business
are we in? In doing so, it defines the breadth of products / markets/ target
customers served /technology applied by the firm. The mission statement, apart
from stating what the organization intends to achieve, also describes how it is
going to do it by stating the key forms & sources of competitive advantage
Mission statements also specify the state of the future in a more tangible way than
the vision statement, & the role/position of the firm in the future state. The
anticipated state of macroeconomic environment , regulation, market dynamics,
competitive forces, & changes in customer tastes & preferences form the basis
of this mapping of the future state of the organization, & its environment. This again
helps the organization in anticipating the broad changes in the environment &
preparing its responses to deal with them appropriately, in tune with the intended
vision.
Mintzberg 5Ps of
Strategy
N L Dalmia Institute of Management
Studies.
Part Time Sem VI - Dec 2015.
Prepared by Prof Dipesh Maitra
STRATEGY
A strategy is a long term plan of action
designed to achieve a particular goal.
The word derives from the Greek word
stratgos, which derives from two words:
stratos (army) and ago (ancient Greek for
leading). Stratgos referred to a 'military
commander' during the age of Athenia
Democracy.
APPROACHES TO STRATEGY
Henry Mintzberg
Peter Schwartz
Margaret J. Wheatley
Harold A. Linstone
MINZBERG SAYS
Henry Mintzberg, in his book, The Rise

and Fall of Strategic Planning , 1994,
points out that "strategy" is used in
several different ways, the most
common being :
1. Strategy is a plan, a "how," a means
of getting from here to there.
2. Strategy is a pattern in actions over
time; for example, a company that
regularly markets very expensive
products is using a "high end"
strategy.
3. Strategy is position; that is, it reflects
decisions to offer particular products
or services in particular markets.
4. Strategy is perspective, that is, vision
and direction.
THE 5Ps
Plan
Perspective
Position
5 Ps
Ploy
Pattern
PLAN
It is a set of consciously intended course of
action, a guideline (or set of guidelines) to
deal with a situation.
By this definition strategies have two
essential characteristics:
1) They are made in advance of the
actions to which they apply
2) They are developed consciously and
purposefully.
PLOY
It is a specific manoeuvre intended to
outwit an opponent or competitor.
The real strategy (as plan, that is, the real
intention) is the threat, not the new
practice area itself, and as such is a ploy.
Threatened litigation often falls into this
category.
PATTERN
A pattern is a stream of actions.
Defining strategy is incomplete and needs an
outline that encompasses the resulting
behavior.
The outcome of strategy does not derive
from the design, or plan, but from the action
that is taken as a result.
A pattern makes a strategy consistent in
behavior, whether or not intended.
POSITION
Position implies a specific means of
locating a firm in its environment.
In management terms: a "domain"
consisting of a particular combination of
services, clients and markets.
Position is defined competitively.
PERSPECTIVE
Perspective looks inward into the firm.
Strategy is a perspective shared by
members of an organization, through their
intentions and / or by their actions.
In effect, when we talk of strategy in this
context, we are entering the realm of the
collective mind - individuals united by
common thinking and / or behavior.
CASE
Honda is now the leading manufacturers of

motorbikes. The company is credited with identifying
and targeting an untapped market for small 50cc
bikes in the US, which, enabled it to expand,
trounce European competition and severely

damage indigenous US bike manufacturers.
By 1965, Honda had covered 63% of the US market.
On entering the US market, Hondas planned
strategy was to compete with the larger European
and US bikes of 250ccs and over. These bikes had
a defined market, and sold through dedicated
motorbike dealerships
Disaster struck when Hondas larger machines developed faults - they

had not been designed for the hard wear and tear imposed by US
motorcyclists.
Honda had to recall the larger machines. Honda had made little effort to
sell its small 50 cc motorbikes-its staff rode them errands around Los
Angeles.
Sports goods shops and ordinary bicycle and department stores had
expressed an interest, but Honda did not want to confuse its image in its
target market of men who bought the larger bikes.
The faults in Hondas larger machines meant that

reluctantly, Honda had no alternative but to sell the
small 50cc bikes just to raise money.
They proved very popular with people who would
never have bought motorbikes before.
Eventually the company adopted this new market
with enthusiasm with the slogan: You meet the
nicest people on a Honda.
The strategy had emerged, agents, managers
conscious intentions, but they eventually responded
to the new situation.
PLAN :
The company identified and targeted an
untapped market for small 50cc bikes in the US.
PLOY:
The 250cc bikes had a defined market, and sold
through dedicated motorbike dealerships.
Compete with the larger European and US bikes
of 250ccs and over.
PATTERN :
The 50cc bikes proved very popular with people
who would never have bought motorbikes before.
POSITION :
Company adopted a new slogan to present itself
to the customers : You meet the nicest people
on a Honda.
Did not want to confuse its image in its target
market of men who bought the larger bikes.
PERSPECTIVE :
The strategy had emerged, through agents,
managers, conscious intentions, but they
eventually responded to the new situation.
AT A GLANCE
5Ps
Comments
Plan
A consciously intended course of

action.
Ploy
A maneoveour in a competitive game.
Pattern
Emergent strategies
Position
Environmental fit and relationship with

other organizations
Perspective A unique way of looking at the world,

and interpreting information from it,
judging its opportunities choices and
acting
Strategy, Environment & Structure

Basic Model of Strategic Management:
Strategic management consists of four
basic elements.
Environmental scanning internal &
external
Strategy Formulation
Strategy implementation
Evaluation & Control
Environmental Scanning - Internal
The first task is to get the market structure, getting your market share &
its growth potential, as compared to the competition. Which of your
strengths are responsible for your position in the market, & how
sustainable are these? Is it because of product novelty or its price? How
long can you keep your strength in the competitive scenario?
Next we have to understand the actual relevance of your product in your
market segment , in order to understand whether it is going to stay that
way or whether you need to innovate & move it from one segment to
another. In comparison to the competitive product, does your product
delight or just satisfy your customer? Do your customers believe that your
product provides them with the benefits they want & does it give them value
for their money?
The other areas to look for are :
1. Brand recall by the customer.
2. Product visual appeal, aesthetics.
3. Perception of the product quality with the customers.
4 Ease of availability
5.Quality & access to service in some products
1. The importance of internal analysis .

2. Finding out what needs to be assessed.
3. Critical success factors
4. Value Chain analysis
5. Core processes & systems
6. Uniting the three, critical success factors, value change analysis & core processes
& system.
7. Assessments of strengths & weakness of the firm.
8. Balance scorecard.
9. Qualitative & quantitative analysis
10. Comparison norms from industry, historical norms & benchmarks. The effect of
internal analysis on the firms strategy.
Firms need to know their own strengths & weaknesses, before they plan their
strategies. This internal analysis will bring out the core competencies of the firm,
without which it cannot imagine having sustainable competitive advantage in the
competitive market.
The inner strength, resources & skills when superimposed on the product demand &
external business environment help in strategic formulation. It also helps in
prioritizing the opportunities in the market place for optimizing resource utilization.
Finance:
The following areas need to be studied in finance.

1. Availability of finance and its cost.
2.Capital structure, debt equity ratio.
3. Movement of share prices, declared dividends.
4. Budget & audit.
5. Tax planning & tax outlay.
6. Ability & market goodwill for getting long term & short term finance.
Operations Management-
Following be studied
1.Manufacturing process, production planning.
2. Plant capacity utilization.
3. Adequacy & skills of work force.
4. Inventory management & costs.
5. Level of current assets (lower the better).
6. Labor saving automations.
7. Product-wise manufacturing costs.
Human Resource management:
Areas to be covered 1.Recruitment, training, promotions, yearly increments. 2.
Performance records of employees. 3. Industrial relations unions & collective
bargaining. 4. Employees motivation, participation in decision making worker
empowerment.
R&D
: Following products need to be assessed 1. Number of new products developed,

existing modified on either customers demand or for gaining competitive
advantage. 2. Adequacy of equipments & test instruments 3. Sufficiency of R&D
engineers. 4. R&D expenditure. 5. New product development, product
modification time cycle 6. Interaction with the marketing teams regarding market
needs.
Managerial competence
Can be studied 1. Time management 2. Risk taking abilities 3. Personal goals

are they in line with the firms goals? 4. Are they able to motivate the team
through example or they are still with the carrot & the stick scheme? 5. Leadership
qualities, planned actions , impeccable behavior, helpful attitude, & ability to change
course midstream on exigencies. 6. Good public relations. 7. Being a leader who
motivates, & not a boss who only reprimands. 8. Problem solving ability. 9.
Charisma of a leader.
Organizational Competence
Can be measured 1. Decision making levels, decentralization. 2. Teamwork

problem solving process. 3. Formal & informal two way communication, top to
bottom & vice-versa. 4. Information system. 5. Rewards & punishment systems &
result orientation. 6. Integrated responsibilities of different levels of personnel.
7.Job descriptions, overlap of responsibilities & authority. 8. Timeliness of actions.
9. Integrity of owning up mistakes at all levels of management.
Resource Strength (Environment

Scanning Internal)
Resource allocation should be based on the basis of strengths & weaknesses of

the firm. It should be based on the core competencies of the firm & in the areas
adding customer value.
Production skills cutting edge & technological strengths need resources to keep
on the cutting edge for obtaining competitive advantage.
Profit as one of the yardsticks of the firms strengths needs to be nurtured through
resource allocation. Resources should be built on strengths & remove the firms
weaknesses.
Firms must totally avoid resource allocation for obsolete skills. Resource should
be given in the area of gaining competitive advantage & to that extent the part of
resources should be kept flexible to be relocated when required. It has been
found that the firms with high rate on return of investment have the following
characteristics.
HIGH ROI COMES FROM:

1. Low percent of fixed capital & working capital for sale of each rupee worth of
product. 2. High market share. 3. Better capacity utilization. 4. Superior quality of
product. 5. Operating efficiency regarding employee productivity. 6. Low direct
production cost..
Modern Plans For Internal Analysis

What to assess?
The following gives a good balance of different
areas required for planning strategies in a firm:
1. Critical Success Factors
2. Value Chain Analysis
3. Core Processes & Systems
4. Balance Score Card
5. Qualitative Analysis
6. Quantitative Analysis
7. Activity Based Cost Analysis
Critical Success Factors (CSF)

These are the factors that govern the success of the firm.
1. Industry factors. Is it growing? If yes, at what rate? 2.Its position

in the market life cycle 3. Business general environmental factors 4.
Technology updates 5. Competition.
Example for car service centre CSF

1. Population of vehicles in the area 2. Growth rate of vehicle
population 3. Is the product just being introduced? 4. Demography
of the area 5. Quality of service being provided. 6. Service
equipments at the service center. 7. Number of trained servicemen
8. Location of the service center, easy ingress & egress 9. Parking
facility 10. Service timings, 24 hours or less.
Similarly CSF of the firm being analyzed can be determined.
Value Chain Analysis

PORTERS VALUE CHAIN
This is a method for assessing the strengths and weaknesses of an organization

based on an understanding of the series of activities it performs. Porter (1985) is
credited with the introduction of the framework called the value chain. A value chain
is a set of interlinked value creating activities performed by an organization. These
activities may begin with the procurement of basic raw materials and go through
processing in various stages right up-to the end products marketed to the
ultimate consumer. The value chain of a company may be linked to the value
chain of its upstream supplier and downstream buyers, forming a series of
chains that Porter terms as the Value system.
PORTERS GENERIC VALUE CHAIN (PRIMARY & SUPPORT ACTIVITIES)
Porter divided the value chain of a manufacturing organization into primary and
support activities. Primary activities are directly related to the flow of the product
to the consumer and include five sub-activities as listed below:
(1) Inbound logistics: All activities that an organization uses for receiving, storing
and transporting inputs going into the production process. Typical inbound
logistics activities performed in organizations are material handling, warehousing,
and inventory control

Value Chain Analysis: Michael Porter, the management guru, has
structured a method of analyzing the functional areas of a firm. The functions can be
divided into two major blocks, the staff/support functions & the line/primary
functions. The activities/functions that provide value to the customer are within the
organization.
1. Inbound logistics covers the material movement from suppliers to the firm.
Analyze Cost of movement, and timely supplies.
2. Operations deal with productivity , production control,& automation & factory
layout (as compared to competition).
3. Marketing covers market research, advertising & promotion, distribution
channels, brand equity & products place in BCG Matrix & PLC.
4. Service covers guarantee service, which are provided after the guarantee period
is over handling of complains.
5. Outbound logistics covers the movement of finished goods from the firms godown to the customers place.
6. The customers view point must be kept in mind during the analysis, Does the
new finance manager have a customer oriented approach? The main flaw in this
study is that although individual functions are probed, there is no investigation on
the inter-relationships of the functions
(2) Operations: All activities required for transformation of raw materials to

finished products. Typical operation activities performed in organizations are
assembling, fabricating, machining, maintaining, and packaging.
(3) Outbound logistics: All activities that an organization uses for receiving,
storing, and transporting outputs going out of the production process. Typical
outbound logistics activities performed in an organization are of material handling,
order processing, physical distribution, and warehousing.
(4) Marketing and Sales: All activities that an organization uses to market and sell its
products to customers. Typical marketing and sales activities performed by
organizations are of pricing, developing products, advertising, promoting and
distributing.
(5) Service: All activities that an organization uses for enhancing and maintaining a
products value. Typical service activities performed by organizations are of
installation, repair, maintenance and customer training.
Support activities are provided to sustain the primary activities. These
consists of :
1. Firm infrastructure: All activities that an organization uses for ascertaining the
external opportunities and threats, identifying strengths and weaknesses and
generally managing the organization for achieving its objectives. Typical firm
infrastructure activities performed by organizations are of accounting, finance,
planning, general management, legal support and managing government
relations
2. Human Resource Management: All activities that an organization uses for

managing human resources. Typical human resource management activities
performed by organizations are of recruitment, selection and training, developing,
appraising and compensating employees.
3. Technology Development: All activities that an organization uses for creating,
developing, and improving products and services. Typical technology
development activities performed by organizations are research and
development, product design, process design, equipment design and servicing
procedures.
4. Procurement: All activities that an organization uses for procuring inputs needed
to produce products or provide services. Typical procurement activities performed
by organizations are purchasing fixed assets such as machinery and
equipments, raw materials and supplies.
The figure in the next slide provides a simplified depiction of the value chain. As you
can observe , it is a representation of the interrelated chain of activities that are
required to be undertaken for bringing the finished product to the doorstep of the
customer. The profit margin that an organization earns depends on how effectively
the value chain is managed. The value chain provides a systematic view of
examining all the activities performed by an organization and how these activities
interact and are interrelated.
The value chain analysis requires:
Identifying the activities that make up the organizations value chain and classifying
them into primary and support activities.
Identifying the things done in those activities that contribute to providing value for
the customer
Identifying how the value contribution can be increased so that it costs less to provide
the same or more value, thereby increasing the profit margin for the organization.
Identifying how the value configuration could be improved by innovatively
reconfiguring or recombining activities.
The value chain analysis is a useful method for organizational appraisal as it helps
in providing clarity about the areas where the strength and weaknesses of the
organization reside. In general, the activities that can be provided in a manner that
they create more value to the customer at less cost, are strengths. Those activities
that provide less value at more costs are weaknesses. In such a case, it would be
better for the organization to outsource those activities to external parties who
could perform them better. Those areas where the organization is strong should be
retained as they are the competencies.
The technique of value chain analysis has some limitations:
The technique is deceptively simple but difficult to implement.
It applies to industrial organizations and needs to be adapted for application to
service organizations.
The concept of value is hazy. It is difficult to say what constitutes value for the
customer. Value remains a theoretical construct until the customer is actually
willing to pay what the organization determined its value to be.
The determination of cost cannot rely on traditional cost accounting methods.
Activity-based costing is required to assess the correct estimates of
costs.
The analysis requires collecting data from varied sources. The periodicity of the
sources of information needs to be common. Where figures of costs, for instance,
are not available for the same period, it becomes difficult to make the analysis.
The application of information technology upsets the calculations in the value
chain analysis as often, it results in increasing value and reducing costs
Core Processes And Systems
Core Process & Systems: In order to reduce the fault associated with the
value chain analysis, cross functional teams or groups are formed which are based
on the main or core processes of the firm
Out of the 3 core processes,
1.(a) Product development consists of market research for selecting the product &
getting the technology for manufacturing the same either through R&D or by buying
it from other sources. The product design goes from R&D to process engineering
before it is frozen & given to the manufacturing department.
2. (b) Demand management is the second core process, which includes
marketing-distribution network, advertising, promotion, personal selling, & all
that goes into obtaining the purchase order from the customer.
3. (c) Order fulfillment, the 3rd core process starts with getting raw materials from
the suppliers, inbound logistics, raw material storage , manufacturing, finished
goods storage, & outbound logistics up to the customers premises. Maintaining
low current assets level with Just In Time supplies is a part of this process.
The study of core processes tries to look at cross functional areas & hence
avoids the pitfall of missing the interaction between the various management
functions.
Balanced Scorecard
Balanced Scorecard: To understand the holistic picture of a firm, it is
important to address the 4 areas that decide the possibility of successful result in a
firm.
1. Customer 2. Finance 3. Operations 4. Organization.
1.Customer: The firm works for the customers, earns profits, and grows because of
them; the firm needs to know its market share and brand value . The firms position
is determined by the competitive advantage it has over its competition. Firms gain
this competitive advantage by one or all of the following means:
(A) Achieving uniqueness over competition, in terms of product, price, placement &
promotion, or in service; by providing differentiation, which is liked & appreciated by
the customer & which does not jack up the price to an extent that it is unacceptable
to the customer. Customers look at a differentiated product as it boosts their egos &
gives them the satisfaction that they own a product that no one else possesses.
(B) Low cost of production, which is achieved by economies of scale of
manufacture & through the experience curve of the workers, who improves the
productivity over time & reduce production rejections. Lowering the cost should
never be achieved at the cost of quality because that can be counterproductive &
the firm can loose customers. With lower cost of production, the firm generates cash,
which can be utilized during the firms growth, or at times of severe price competition
with its competitors.
(C) Quick Response Meeting the requirements of the customers first helps in
gaining an advantage over competitive firms.
Balanced Scorecard
2. Finance: It is mainly to determine the profitability of the firm, its growth, & the
economic value it is adding to itself (economic value added- EVA). EVA can be seen
as the true indicator of a firms financial health, rather than the usual return on
investment (ROI)
EVA can be arrived at in the following manner. EVA = PAT (Interest on debt + cost
of Equity capital). PAT is profit after tax, & cost of equity is calculated by taking
average risk adjusted rate of return, which equity or shareholder will get if he invests
his money elsewhere. Firms can increase EVA by getting lower cost capital or by
using less capital.
3. Operations: To analyze the firms operations, the core processes, the product
development, demand management, & order fulfillment process must be looked
into. How can the firm obtain its competitive advantage from these processes?
4. Organizational Analysis: It is important to understand the following areas: 1.
Leadership by example, motivating personnel rather than ordering them about. 2.
Motivation & energy level of the workmen. 3. Firms ability to accept change when
required.. 4. Learning mode of the firm.
Balanced Scorecard
Qualitative Analysis: Organizations must be continuously in the

learning stage if they want to maintain & increase their market
share & brand equity. Hence organizational analysis is the most
important area & should be analyzed with care. Viewing the
behavior pattern of its people can help assess the organizational
culture; do they have a sense of purpose, or are they laidback in
their attitude towards the firm & its results? Are all the members of
the firm committed to the vision , mission, goals & objectives of
the firm? These soft areas of a firm are candid reflections of the
direction the firm is going to take.
The better managed firms reflect a positive sense of urgency in
the managers. To keep comparing their own results with the results
of their competitors. They keep raising the bar of excellence to
push themselves to better performance, even if they are the best in
the business. Innovation & creativity form the bedrock of their
enthusiastic working energy, which separates the winners from
non- winners.
Balanced Scorecard
Quantitative Analysis: It is to understand the viability of the firm &

its intrinsic strengths & weaknesses. A close look at the P&L
statement & the firms balance sheet for the past few years gives a
clear picture. The following ratios need to be seen:
Liquidity ratio: 1. Current ratio = Current assets/current liabilities
(availability of current assets to pay current liability) 2. Quick ratio =
current assets- inventory/current liabilities (ability to pay current
liabilities & inventories through current assets) 3. Cash Ratio = cash
& cash equivalents/current liabilities (availability of cash to pay
current liabilities) 4. Inventory to net working capital =
inventory/current assets current liabilities (affect of changes in
inventories on playability from current assets)
Profitability Ratios: 1. Net profit margin = net profit after tax/net
sales. 2. Gross profit margin = sales cost of goods/net sales. 3.
Return on investment = net profit after taxes/total assets (rate of
return, management efficiency indicator) 4. Return on equity = net
profit after taxes/shareholders equity.
Balanced Scorecard
Activity Ratio: 1. Inventory turnover = Net Sales/Inventory 2. Assets

Turnover = Sales/total assets. 3. Account receivable turnover = annual
credit sales/account receivable. 4. Fixed asset turnover = sales/fixed assets.
Leverage Ratio: 1. Debt equity ratio = total debts/shareholders equity. 2.
Current liability to equity ratio = current liability/share holders equity 3.
Earnings per share = Total dividend declared / number of shares in the
market with share holders.
It is important to know the following: 1. Firms ability to raise additional
capital. 2. Cost of the capital. 3. Relationship with creditors & stockholders.
4. Dividend policy. 5. Match between resources & usage of funds.
Financial comparisons should be made with the following. 1. Firms own
historical figures. 2. Industry norms. 3. Best in the line, the benchmarks.
Additional financial ratios: 1. Working capital ratio = inventory +
receivables payables/gross sales. It gives the firms ability of managing
short term funds.2. Dividend ratio is calculated by dividing profit after tax by
the dividend; it gives the firms ability to meet the expectations of the
shareholders. 3. Debt-equity ratio is calculated as follows: Debt-equity ratio
= Debentures + long term loans/Capital + reserves
Balanced Scorecard
Activity-based Cost Analysis: At times, in costing, factors like,

cost of rework, cost of bottlenecks, & delays are not taken. The
analysis must reveal the cost drivers of the firm. Usually the unit
cost of production is calculated by taking man hours & material
supplies into account. In activity based costing, an engineer
accompanies the account to focus on the details of the
workers activities during the work period.
Should a firms financial strategy be strongly related to its overall
corporate strategy? If yes, why? In conclusion, it can be stated that
the emphasis on the bottom line suggests that the firms
profitability is the one factor that determines its long-term viability.
Examining performances in the light of the customers value,
finance operations, & organizational issues & perspectives
provides a more balanced & meaningful assessment.
The firms operate in a business environment, general & competitive.
The environment factors have a great influence on their business.
The scorecard is not

just a set of
indicators
An organizational
alignment & performance
management tool/process
A communication tool
A tool for ongoing learning
and refinement of strategy
Scorecard Objectives
Enable a focus on the vital
few
Achieve alignment and focus
on strategy and achievement
of our mission
Balance short-term,
operational decisions with
long-term strategic decisions
more effectively
Unlock organizational
capacity by enabling
employees to clearly see
where their actions fit into the
bigger picture
Strategy Focused Business Solutions Inc.
sandyrichardson_bsc@yahoo.ca
(416) 722-1367
A true balanced scorecard:

Demonstrates alignment with corporate strategy/objectives
(departments & BUs),
Contains a limited set of strategic objectives and indicators,

Is focused on indicator quality rather than quantity (focused
on measuring what matters strategically),
Strategy Focused Business Solutions Inc.

sandyrichardson_bsc@yahoo.ca
(416) 722-1367
External Analysis
Firms need to understand their external environment thoroughly, & on a

continuous basis. With increased competition, several firms with
undifferentiated products are being pushed into oblivion or are forced to
survive as suppliers of low cost commodity products. Many new
companies are entering the market, making it difficult for the market
leaders to retain their leadership position. The new entrants usually
bring in differentiated products, further eroding the bottom line. Firms
need to be extra careful in capital-intensive products, as they have to
face exit barriers of their dead investment in case of failure.
Firms need to have a clear picture of macroeconomics of the countries
they operate in. This will help them to understand the business potential
they have to cater to, & to make investment decisions on capital goods.
Both excess capacity or shortage of capacity can become a source of
their market debacle. Interest rates, balance of payment between two
countries, GDP of the host country & its currency fluctuation help in
monitoring further growth of the firm, & in deciding increased investments in
the country.
The firm must also understand the strengths & weaknesses of its
competitors. For instance who are the lead players? Who are the
followers? What is their shareholding in the market?
Firms need to know the governments rules & regulations & the govts
attitude towards international business players operating in the country.
Firm can plan an extension into other markets through alliances, mergers
or takeover.
External Analysis
Firms need to understand the trade barriers in each country it plans to

operate in. Due to pressure from domestic & overseas firms & also world
bodies like WTO, most of such barriers have been removed. Trade blocks,
like the EC, NAFTA, & ASEAN either help or hinder business. The
following must be studied for external analysis.
1. The importance of external business environment. 2. What to
understand in an external environment 3. The general environment 4.
Competitive environment. 5. Evolutionary economics 6. Scenario
planning.
External Environment Study: From 1950 to 1970 Indian firms were relying
only on gut feeling to make decisions about what to sell, how to sell, at
what price, & how to advertise. Today, the firms must realize that they
can enhance their business through proper alignment between the firms
strategy & its business environment.
In the 21st century, the following can be highlighted as the predominant
changes in the business environment.
External Analysis
FACTORS TO BE CONSIDERED:
1. Market globalization & its effect on Indian economy. 2. Market
recession 3. Larger number of women in urban workforce, including in
positions of strength 4. Large production capacities, mostly idle. 5.
Emergence of IT sector and its decline. 6. Growth of management
schools 7. Strong satellite television base, with hundreds of channels
giving jobs to thousands of Indians directly or indirectly.8. Invasion of
Chinese products 9. Political problems, including internal & external
threats to countries sovereignty. 10. Religious fundamentalism 11.
Privatization of government owned firms. 12. Genetic engineering & its
effect on farm produce 13. Rampant misuse of public funds.
Market Globalization: In 1991, the then govt of India decided to open the
countrys economy to the outside world, which resulted in several
multinational firms, offering a variety of products, competitive prices &
superior quality to the Indian customer. With the removal of import
restrictions on products, technology & finance, it was expected that the
Indian economy would start booming. India has yet to fully enjoy the
fruits of a liberalized, privatized & globalized economy.
Market recession: When the production or availability of goods exceeds
its demand, the industry faces recession.
External Analysis
Women Managers: With pursuit of higher living standards, one income per
household does not seem enough. Women are now a very viable presence in almost
all professions. This has had a direct bearing on the increased demand for time
saving consumer durables, like washing machines, vacuum cleaners, instant
foods, & microwave ovens. It has also resulted in the setting up of Crches for
children.
Idle Production Capacities: An assessment of the sales promotional plans for

virtually all the products in the consumer range reveals that the excess capacity
generated by the industry is responsible for the recession in the market. Export
markets need to be targeted.
IT Sectors emergence: From 1995, IT industry got a major boost because of

improvement in landline telephony. Internet, e-mail, & e- commerce are a part of
everyday life now. With information becoming available so easily, the process of
corporate decision making has vastly speeded up. IT & computer education has
taken giant strides in the last 5 years. LAN, WAN & internet connectivity have been
helped by larger storage capacities as also increased speeds.
Growth of Management schools: The need for trained managers were deeply felt in
the early 1990s.Many management schools were opened. With the sudden
increase in numbers of students all the MBAs may not be able to get a good
job. When they take any job, they may get frustrated.
External Analysis
Television Explosion: Color TV came to India in 1981, followed by satellite

channels. This has resulted in the creation of countless jobs, in both software &
hardware areas. There are more than 350 channels, which need news software
feeds, social serials, sitcoms & thrillers besides being the most popular
medium for advertising.
Foreign Goods Especially Chinese: The opening up the economy has created
competition even in the small sector. The Chinese have taken the opportunity to
fully exploit the market in India. Small glass figurines, fancy souvenirs, & pirated
software are now available at affordable prices. Their entry into WTO may have a
positive effect on the Chinese exporters, & we may get Chinese products that are in
consonance with world trade practices.
Political Turmoil, within the country & in the world: The terrorist strikes on the
Indian Parliament & recently in Mumbai, in Afghanistan, World Trade Centre in
USA have had an adverse effect on the business in the country. A stable govt &
peace in the region are fundamental to the health of business & commerce in
any country.
Religious Fundamentalism: India is a secular country which gives equal

importance to every religion. Riots in Gujarat have done a lot of damage.
External Analysis
Privatization of Government Firms: From the time India became independent,

the govt had been giving greater importance to govt-owned firms as
compared to the private firms. Due to lack of accountability & inefficiency,
govt firms have been loosing almost from the beginning. Now the govt has
started selling some of the loss making firms, to give them a chance to
recover from the losses & add to the GDP.
Genetic Engineering & Farm Produce: This has brought about another green
revolution in the country. With self sufficiency in food grains, India is in a
position to export these as well.
Rampant Misuse Of Public Funds: Bribery & corruption have become a way
of life in the country. A major reason of erosion of welfare funds is that they do
not reach the real & genuinely needy persons. The middlemen take away a
big piece of cake. The factors mentioned above are ever changing, & marketers
must watch them closely to accurately assess the opportunities & threats offered
by them
External Analysis
Business General Environment: The following need to be studied for correct

planning & marketing strategies:
1.Demographic factors: These are brought out in the census, factors like
population dispersion in town & villages, income levels for families, sex ratios, &
religious numbers, migration from villages to towns.
2. Social Factors: Increase of working women in towns at all levels of income. This
has given a big boost to the demand for time saving consumer products, like
washing machines, vacuum cleaners, microwave oven, & precooked foods. As
women are coming out of homes, better dresses, cosmetics & health gym are
required. With double family income, leisure activity products, holiday outings &
travel are looking up.
3. Cultural factors: India is a land of rich cultural heritage. Its culture is rich &
diverse. Marketing people & advertisers are well aware of the buying season in
different parts of the country. Hindus buy new clothes & exchange gifts during
Diwali, Muslims do it on Eid, & Christians on Christmas.
4. Political factors: It was the political will of the then govt which led to LPG
liberalization, privatization etc in 1991. The influx of foreign capital, setting up of
manufacturing bases, & joint ventures all started from then onwards. Changes in
Cash Reserve Ratio, taxation rates, Duties had a major impact..
External Analysis
Legal Factors: Supreme courts directives have made car

manufacturers change the emission standards to Euro II. Diesel buses
have been phased out in Delhi for the same reason. Ignoring the law of
the land can be detrimental to the interest of the firms operating in the
country.
Macroeconomic factors: Interest rates, taxes & duties, the balance of

payment situation with the countries the firm wants to do business with, &
foreign currency rate fluctuations have a major impact on business, &
must be well understood by the firm.
Technological factors: In the past decade, IT, telecom, biotechnology, &

genetic engineering have revolutionized the business scene in the
world, as also the Indian business scene.
Global factors: The reunification of the two Germanys, breaking up of

the USSR & more recently attack on the World Trade Center, liberation of
Afghanistan have affected business worldwide, & most countries are
trying to recover the lost ground. On the brighter side, the development in
the area of medicine, agriculture & farming have helped the world take
giant strides towards a better future. The following are the major elements
in a globalize economy.:
External Analysis
Global factors (Continued):
1.World becoming smaller due to faster movement
through supersonic jets, faster world communications
through the internet 2. Strong trade zones like EU,
NAFTA, ASEAN 3. Market economy in Russia,
Multinational, Transnational firms, International strategic
alliances, Global brands in foods, like Kellogs & cars.
Irrespective of its size, Indian business cannot remain
unaffected by the onslaught of globalization. Small
firms that were protected by the govt laws, are now
facing severe competition from well known international
brands. Unless they adopt a reputed international
technology, they will be left out in the race.
Corporate Strategy
What is corporate strategy?

It is important to reach a reasonable consensus concerning the nature & scope of corporate
strategy. One authority, Michael Porter indicates that an effective strategy should display
these characteristics:
1. Unique competitive position for the company.
2. Activities tailored to strategy.
3. Clear trade-offs & choices vis--vis competitors.
4. Sustainability coming from the activity system, not the parts.
5. Operational effectiveness.
The concept of strategy views distinctive capabilities as comprised of business activities
which are aligned to form processes. As example is Wal-Marts distribution system comprised
of various activities such as tracking each item in inventory. Other examples are Dells direct
personal computer sales & built to order process, & Southwest Airlines city-to-city
business design coupled with very efficient performance of the activities needed to transport
passengers from point-to-point.
It is apparent that in the 21st century marketing environments, companies are drastically
altering their business & marketing strategies to get closer to their customers, counter
competitive threats, & strengthen competitive advantages. The challenges to the
management include escalating international competition, new types & sources of competition,
political & economic upheaval, dominance of the customer, & increasing marketing complexity.
Corporate strategy consists of the decisions made by top management & the resulting
actions taken to achieve the objectives set for the business. The major strategy components &
several key issues related to each component are shown in the next figure. The issues
highlight important questions that management must answer in charting the course of the
enterprise. Managements skills & vision in addressing these issues are critical to the
performance of the corporation. Essential to corporate success is matching the capabilities of
the organization with opportunities to provide long-term superior customer value.
Corporate Strategy Components

And Issues
Strategy
component
Key Issues
Scope, mission,
& intent
What business should the firm be in?

What customer needs, market segments, and/or technologies should be focused
on ?
What is the firms enduring strategic purpose or intent?
Objectives
What performance dimensions should the firms business units & employees
focus on?
What is the target level of performance to be achieved on each dimension?
What is the time frame in which each target should be attained?
Development
Strategy
How can the firm achieve a desired level of growth over time?
Can the desired growth be attained by expanding the firms current businesses?
Will the company have to diversify into new businesses or product-markets to
achieve its future growth objectives?
Corporate Strategy Components

And Issues
Strategy component
Key Issues
Resource Allocation
How should the firms limited financial

resources be allocated across its
businesses to produce the highest returns?
Of the alternative strategies that each
business might pursue, which will produce
the greatest returns for the dollars
invested?
Sources of synergy
What competencies, knowledge, &

customer based intangibles (e.g. brand
recognition, reputation) might be developed
& shared across the firms businesses?
What operational resources, facilities, or
functions (e.g., plants, R&D, sales force)
might the firms businesses share to
increase their efficiency?
Corporate Strategy
Organizational Change.
In recent decades massive changes were made in the size & structure of many
business firms. These changes are described as (1) right sizing, (2)
reengineering, & (3) reinventing the organization. The renewal (reforming) of the
traditional organization typically moves through three phases: (a) Vertical
disaggregation, (2) internal redesign, & (3) network formation.
Vertical disaggregation.
This reduces the size of the organization by eliminating jobs & layers of middle
managers & leveling the hierarchy. The Conference Board Inc. reports that 90% of
its members downsized during the 1990s & about two thirds of the executives
representing a broad cross section of business say downsizing will continue.
The resulting flat corporation may organize its activities into a small number of
key processes (e.g. new product planning, sales generation, & customer
service). Alternatively, organizations may retain functional departments,
overlaying them with process. Cross-functional teams manage the processes, &
providing superior customer value is a key objective & measure of performance.
Employees are encouraged to make regular contact with suppliers & customers.
Internal Redesign.
Organizational renewal is more than just reducing staff, eliminating layers of
management, & adopting worker empowerment process. The second phase alters
the internal design of the organization. The new organization forms are lean,
flexible, adaptive, & responsive to customer needs & market requirements. The
altered business designs involve innovation in designing products to meet
customer needs, arranging supply & distribution networks, & constantly staying
in touch with the market place. A priority of these organizations is understanding
customer needs, offering value to customers, & retaining customers.
Corporate Strategy
New Organizational Forms. The third phase of organizational change involves the
formation of relationships with other organizations & the use of processes as the
basic organizing concept. Although inter organizational relationships are often present
in the traditional organization, companies are expanding these relationships with
suppliers, customers, & even competitors. These new organization forms are called
networks since they involve several collaborative arrangements. Networks are more
likely to be launched by entrepreneurs, since the traditional vertically integrated,
hierarchically organized company finds difficulty in shifting to the network paradigm.
Transformation means fewer people on the corporate payroll, different management
challenges, drastic cultural changes, & complex collaborative relationships with other
organizations. Nevertheless, traditional companies like IBM are successfully
transforming themselves to more flexible & adaptive network forms.
Components of Strategy.
Corporate strategy is a way a company creates value through the configuration &
coordination of its multi market activities.
The definition emphasizes value creation, considers the multi market scope of the
corporation (product, geographic, & vertical value chain boundaries), & points to how
the organization manages its activities & businesses that fall under the corporate
umbrella. A key premise of this view of strategy is that the multi business corporation
must contribute to the competitive advantage of its units. Thus, there needs to be a
close relationship between the corporation & the business that are a part of the firm. .
A useful basis for examining corporate strategy that is consistent with the earlier
definition consists of (1) managements long term vision for the corporation; (2)
objectives that serve as milestones toward the vision; (3) assets, skills, & capabilities;
(4) businesses in which the corporation competes; (5) structure, systems &
processes; & (6) creation of value through multi market activity. We examine each
strategy component.
Corporate Strategy
Deciding Corporate Vision. Managements vision defines what the corporation is & what
it does & provides important guidelines for managing & improving the corporation. The
founder initially has a vision about the firms mission, & management may alter the mission
over time. Strategic choices about where the firm is going in the future choices that take
into account company capabilities, resources, opportunities, & problems establish the
vision of the enterprise. Developing strategies for sustainable competitive advantage,
implementing them, & adjusting the strategies to respond to new environmental
requirements is a continuing process. Managers monitor the market & competitive
environment. The corporate vision may, over time, be changed because of problems or
opportunities identified by monitoring. For example, IBMs management is placing major
emphasis on consulting services as a direction of future growth.
Early in the strategy-development process management needs to define the vision of the
corporation. It is reviewed & updated as shifts in the strategic direction of the enterprise
occur over time. The vision statement sets several important guidelines for business
operations.
1. The reason for the companys existence & its responsibilities to stock holders,
employees, society & other stake holders.
2. The firms customers & the needs (benefits) that are to be met by the firms goods or
services (areas of product & market involvement).
3. The extent of specialization within each product-market area & the geographical scope
of operations.
4. The amount & types of product-market diversification desired by management.
5. The stage(s) in the value-added chain where the business competes from raw materials
to the end user.
6. Managements performance expectations for the company
7. Other general guidelines for overall business strategy, such as technologies to be used
& the role of research & development in the corporation.
Corporate Strategy
Objectives. Objectives need to be set so that the performance of the enterprise can
be gauged. Corporate objectives may be established in the following areas:
marketing, innovation, resources, productivity, social responsibility, & finance.
Examples include growth & market share expectations , improving product quality,
employee training & development, new product targets, return on invested capital,
earnings growth rates, debt limits, energy reduction objectives, & pollution standards.
Objectives are set at several levels in an organization beginning with those indicating
the enterprises overall objectives.
The time frame necessary for strategic change often goes beyond short-term financial
reporting requirements. Companies are using more than financial measures to
evaluate longer term strategic objectives, & non financial measures for short term
budgets. The balanced score card approach provides an expanded basis for
tracking organizational performance. It considers both short term & long term
performance metrics. This method of keeping score includes objectives, measures,
targets, & initiatives regarding financial, customer, internal business processes, &
learning & growth perspectives. The balanced score card method is being used by
many companies as a basis for managing & evaluating market-driven strategies.
Capabilities. It is important to place a companys strategic focus on its distinctive
capabilities. These capabilities may offer the organization the potential to compete in
different markets, provide significant value to end user customers, & create barriers to
competitor duplication. For example, HP developed a distinctive capability in ink-jet
printer technology, enabling the company to become the world leader in printers.
We know that distinctive capabilities are important in shaping the organizations
strategy. In contrast to the diversification wave of the 1970s, many companies are
deciding what they do best & concentrating their efforts on these distinctive
capabilities.
Corporate Strategy
(contd) Capabilities. A key strategy issue is matching capabilities to market

opportunities. Capabilities that can be leveraged into different markets & applications
are particularly valuable.
Acknowledgi9ng the constraining nature of capabilities, resources, opportunities &
problems, management has a lot of flexibility in selecting the mission as well as
changing it in the future, Sometimes the priorities & preferences of the CEO or the
board of directors may override factual evidence in selecting the business mission.
For example many of the diversifications pursued by companies in the 1980s did not
work well, & resulted in the restructuring & downsizing of many companies during the
last decade.
Business Composition. Defining the composition of the business provides direction
for both corporate & marketing strategy design. In single product firms that serve one
market, it is easy to determine the composition of the business. In many other firms it
is necessary to separate the business into parts to facilitate strategic analyses &
planning. When firms are serving multiple markets with different products, grouping
similar business areas altogether aids decision making.
Business segment, group, or divisions designations are used to identify the major
areas of business of a diversified corporation. Each segment, group, or division often
contains a mix of related products, though a single product can be assigned such a
designation. The term segment does not correspond to a market segment (sub group
of end users in a product-market), which we discuss through out the book. Most large
corporations break out their financial reports into business or industry segments
according to the guidelines of accounting practices. Some firms may establish sub
groups of related products within a business segment that are targeted to different
customer groups.
Corporate Strategy
(Contd) Business composition. A business segment, group, or division is often too

large in terms of product & market composition to use in strategic analysis &
planning, so it is divided into more specific strategic units. A popular name for these
units is the STRATEGIC BUSINESS UNIT (SBU). Typically SBUs display product &
customer group similarities. A Strategic Business Unit is a single product or brand, a
line of products, or a mix of related products that meets a common market need or a
group of related needs, that meets a common market need or a group of related
needs, & the units management is responsible for all (or most) of the basic business
functions. The characteristic of the ideal SBU shown later in a table. Typically the
SBU has a specific strategy rather than a shared strategy with another business area.
It is a cohesive organizational unit that is separately managed & produces sales &
profit results.
In a business that has two or more strategic business units, decision must be made at
two levels. Corporate management must first decide what business areas to pursue,
& set priorities for allocating resources to each SBU. The decision makers for each
SBU must select the strategies for implementing the corporate strategy & producing
the results that corporate managers expects. Corporate level management is often
involved in assisting SBUs to achieve their objectives.
Corporate strategy & resources should help the SBU to compete more effectively
than if the unit operates on a completely independent basis. To remain competitive,
corporations must provide their business units with low-cost capital, outstanding
executives, corporate R&D, centralizing marketing where appropriate & other
resources in the corporate arsenal. Corporate resources & synergies help the SBU
establish its competitive advantage. The strategic focus & priorities of corporate
strategy guide SBU strategies. Finally top managements expectations for the
corporation indicate the results expected from an SBU, including both financial & non
financial objectives.
Corporate Strategy
(contd) When viewed in this context, the SBUs become the action centers of the
corporation. One criticism of the SBU concept is that distinctive competencies are not
leveraged across a corporations businesses.
Structure, Systems, & Processes. This aspect of strategy considers how the
organization controls & coordinates the activities of its various business units & staff
functions. Structure determines the composition of the corporation. Systems are the
formal policies & procedures that enable the organization to operate. Processes
consider the informal aspects of the organizations activities.
The logic of how business is designed is receiving considerable attention because of
the threats of customers being attracted by designs that better satisfy their needs &
requirements. A business design is the totality of how a company selects its
customers, defined & differentiates its offerings, defines the tasks, it will perform itself
& those who will outsource, configures its resources, goes to market, creates utility
for customers, & captures profit. The business design (or business model) provides a
focus on more than the product and / or technology, instead looking at the processes
& relationships that comprise the design. For example, Dells direct built-to-order
business design is viewed by many business buyers as offering superior value.
Corporate Competitive Advantage. This part of corporate strategy looks at whether
the strategy components create value through multi market activity. The strategic
issue include evaluating the extent to which a business contributes positive benefits
minus costs somewhere in the corporation & whether the corporation creates more
value for the business than might be created by another owner.
Competitor Analysis
Competitor Analysis. While industry analysis and strategic group analysis
focus on the industry as a whole or on subsets of firms within an industry,

competitor analysis focuses on each company with which a firm competes directly.
Competitor analysis, therefore, deals with the actions and reactions of individual
firms within an industry or strategic group. It becomes specially important in the case
of oligopolistic industries where there are a few powerful competitors and each
needs to compete track of the strategic moves of the others.
According to Porter, the purpose of conducting a competitor analysis is to:
(1) Determine each competitors probable reaction to the industry and
environmental changes.
(2) Anticipate the response of each competitor to the likely strategic moves by the
other firms; and
(3) Develop a profile of the nature and success of the possible strategic changes
each competitor might undertake.
Components of Competitor Analysis. A competitor response profile can be built on
the basis of the four components of competitor analysis. These four components
are : (1) Future goals of the competitor, (2) its current strategy,
(3) the key assumptions that the competitor makes about itself and about the
industry and (4) its capabilities in terms of strengths and weaknesses.
A) Future goals of competitor deals with questions such as such as these: how do
our goals compare to our competitors goals? Where will be emphasis be placed
in the future? What is the attitude towards risk?
B) Current strategy of competitor deals with questions such as: How are we
currently competing? Does this strategy support changes in the competition
structure?
C) Key assumptions made by competitor deal with questions such as these: Do we
assume the future will be volatile? Are we operating under status quo? What
assumptions do our competitor hold about the industry and about themselves?
Competitor Analysis
D) Capabilities of competitor deal with questions such as these: What are our
strengths and weaknesses? How do we rate compared to our competitors?
Based on a thorough analysis of these components, a RESPONSE PROFILE can
be prepared for each competitor that can help predict their likely strategic
moves, which can be either of an offensive or defensive type. The response
profile could be based on a firm asking questions such as these: What will our
competitor do in the future? What do we hold an advantage over our
competitors? How will this change our relationship with our competitors? The
information collected in the response profile is a vital input for the purpose of
business strategy formulation by any organization.
It must be noted that the approach outlined above is a highly structured and
systematic one and can be used profitably where competition is an important
consideration in strategic choice. In India, competition is not new to industry, but it
has been particularly pronounced after the successful liberalization measures
taken by the government after 1984, particularly after 1991. Supply has exceeded
demand in industries and companies have overhauled their marketing strategies
to be able to compete well in the market. The case of two wheeler and four
wheeler industries is illustrative of the changing scenario of competitiveness.
Waiting lists for scooters and cars were a common phenomenon prior to the
1990s, but now these markets have become highly competitive. Another case is of
FMCG industry, in general, where competitiveness in several sub-sectors such as
soaps and detergents, cosmetics, bakery, and confectionary products has
increased by leaps and bounds. In such a scenario, competitor analysis
becomes relevant.
Different Stakeholders & Their

Objectives
For whom strategy happens.

We explore the extent to which different stakeholder groups should be, and are,
taken into consideration during the strategy process. We examine the extent to
which firms do, and should, take matters other than profit into account in their
decision-making. We review current trends in the ways in which firms are governed to
avoid unethical or even criminal behavior.
In many firms, the owners shareholders for example are not the people who
work in them, or who are dependent on them, or who are affected by them in other
ways. The internal stakeholders who work in a firm, & some other external
stakeholders, may have very different objectives from the owners.
Main stakeholders. Privately owned firms make up a large proportion of
employment in most countries of the world. Their owners often have particular
personal objectives & values wealth, fame. Ethical standards, the welfare of
their native region that play a significant role in the firms strategy. In addition to the
owners, internal stakeholders such as employees, managers, & directors, have
an interest in what the firm does, & have an influence on the choice of strategy.
However, the only stakeholders that have the power to enforce major changes in
management or strategy, or to close down an organization, fall into three main
categories : (1) shareholding institutions & stock markets; (2) government &
regulatory bodies; (3) major funding bodies.
Shareholding institutions have particular significance in Anglo-Saxon economies &
a growing influence in continental Europe & Japan. Pension funds & insurance
companies own the vast majority of all traded equities in those economies & they
employ specialist fund managers who sect the shares for them.
Different Stakeholders Objective

Stakeholder
Typical Financial
Objectives
Possible Other Objectives
Private
owners
High personal salaries and/or

share dividends .
Fringe benefits & pensions
Build a monument to personal

achievement.
Ensure employment for extended
family.
Create employment for local people.
External
shareholding
institutions
Dividends & share price growth

(driven by profits)
Eventual exit through sale of
shares
Retain reputation with investors, so

avoid ethical dilemmas or bad
publicity
Private
funding
bodies
Interest payments & recovery of

principal
Increase personal power & influence
Government
& regulatory
bodies
Tax revenues
Minimize cost to taxpayer
Ensure employment for local people

Enhance quality of life
1.Low pollution 2. Efficient & effective
infrastructure- transport, energy, water
Different Stakeholders Objective

Stakeholder
Typical Financial Objectives
Possible Other Objectives
Senior
management
High personal salaries and/or

share dividends
Fringe benefits & pensions
Be recognized & esteemed by peer

group (perhaps leading to lucrative
outside appointments)
Personal power and influence.
Security or employment
Junior
employees
Secure growing income
Security of Employment
Health & safety
Promotion
Feel valued by employers & colleagues
Unions
Large body of fee paying

members
Health, safety, & security of employment

for members
Increasing income for members
Personal power & influence
Strategy & Structure.
These days firms are looking closely at their organizational structure, to ensure that
they have the best possible structure required for their operations. IT firms are
opting for flatter organization to get into a faster decision making mode. Large
MNCs are choosing decentralized structures for autonomy which lead to speed in
decision making. Functional division of work is still the most favored structure in
Indian firms, with the alternate of having a SBU structure.
Besides the macro structure, firms use the teams extensively for day to day
operations as they serve a variety of uses. The teams work starts from the top,
with the directors, who plan the strategies of the firm & then go on to make a
number of other teams of permanent nature or for time-bound, specific
purposes.
Cross-functional teams are also created for getting the expertise of
different departments, which help in coordinating the functional areas. At times

the cross functional teams are meant for setting up new projects too.
Firms have realized the importance of informal teams, which are formed in every
organization, not strictly on the basis of functions, but also because of proximity
of persons & their like-minded approach to certain issues. These teams perform
useful roles in the organization as they are often used as a platform of interacting
with them for giving informal advice or for trying to change the organization
culture. These teams also help in building confidence among the members because,
at times, even confidential information can be conveyed to them through the team
interaction.
The following are the organizational macro structures: .
Strategy & Structure
1. Simple Structure 2. Functional Structure 3. Divisional or SBU

structure 4. Matrix structure. 4. Structure for global business 5. New
models of structures 6. Micro structures 7. Informal teams 8.
Organizational culture.
In most firms , CEOs underestimate the value of organizational
structure as having powerful influence on the firms strategy, & its ability to
plan & implement change in the firm. Each different form of
organizational structure has its plus & minus points.
Informal networks serve the purpose of cross over function, which
overcomes the problems faced because of formal structures.
Organizational culture has enormous impact on the success or failure
of the firms. It provides the firm with certain dos & donts, & what it can
or cannot do in the pursuit of goals. It is not easy to change the culture of
the firm, unless great efforts are made & the issue is handled with lot of
patience & perseverance. It can be safely said that organizational
culture has tremendous influence on the outcome of the firms efforts.
When firms get to the stage of making strategic changes, it is important to
understand the role of organizational structure & its culture. They
determine the success of the change process, & motivate the people
involved in making the changes.
Strategy & Structure
A firms formal & informal structure & its culture form the context within
which it operates, & exerts a powerful influence on the implementation of
strategic change. The envisaged change is for the entire organization, in
different time horizons, & involves complex planning & execution.
Therefore, it is important to have the right number of people with required
qualifications, training, & aptitude, & with appropriate authority. In the
changing scenario, interpersonal relationships , team coordination, &
team leadership assume great importance.
Two areas, that standout are the firms structure & its culture. There are 3
types of formal organizational structures, which are:
1. Macro Structure: (a) Simple (b) Functional (c) Divisional or SBU (d)
Matrix (e) International
2. New Structures: (a) Horizontal (b) delaminated matrix (c) Networking
(d) Virtual.
3. Macro-organizational Structures: (a) Teams (b) Internal networks
Macro-organizations deal with the entire organization, whereas micro
structures deal with the parts of the entire organization.
Departmentalization
The basis on which individuals are
grouped into departments
Vertical functional approach. People are
grouped together in departments by common
skills.
Divisional approach. Grouped together based
on a common product, program, or
geographical region.
Horizontal matrix approach. Functional and
divisional chains of command. Some
employees report to two bosses
Team-based approach. Created to

accomplish specific tasks
Network approach. Small, central
hub electronically connected to
their other organizations that
perform vital functions.
Departments are independent,
and can be located anywhere.
Virtual approach. Brings people
together temporarily to exploit
specific opportunities then
disbands
Five Approaches to
Structural Design
Five Approaches to
Structural Design
Slide 2
Divisional Structure
Advantages
Efficient use of resources
Skill specialization development
Top management control
Excellent coordination
Quality technical problem solving
Divisional Structure
Disadvantages
Poor communications
Slow response to external changes
Decisions concentrated at top
Pin pointing responsibility is
difficult
Limited view of organizational
goals by employees
Horizontal Organization
When organizations grow and
evolve, two things happen:
New positions and departments
are added
Senior managers have to find a
way to tie all of the different
departments together
Horizontal Matrix
Advantages
More efficient use of resources than
single hierarchy
Adaptable to changing environment
Development of both general and
specialists management skills
Expertise available to all divisions
Enlarged tasks for employees
Horizontal Matrix
Disadvantages
Dual chain of command
High conflict between two
sides of matrix
Many meetings to coordinate
activities
Need for human relations
training
Power domination by one side
of matrix
Dual Authority Structure

in a Matrix Organization
Evolution of Organization
Structures
Traditional
Vertical
Structure
Teams and Project

Managers for
Horizontal
Coordination
Reengineering
to Horizontal
Processes
New Workplace
Learning
Organization
Team Advantages
Same advantages as functional
structure
Reduced barriers among
departments
Quicker response time
Better morale
Reduced administrative overhead
Team Disadvantages
Dual loyalties and conflict
Time and resources spent on
meetings
Unplanned decentralization
Network Approach
Advantages
Global competitiveness
Work force flexibility
Reduced administrative
overhead
Network Approach
Disadvantages
No hands-on control
Loss of part of the organization
severely impacts remainder of
organization
Employee loyalty weakened
SUPPLIER POWER
PortersFiveForce
Model
Supplier concentration
Importance of volume to supplier
Differentiation of inputs
Impact of inputs on cost or
differentiation
Switching costs of firms in the
industry
Presence of substitute inputs
Threat of forward integration
Cost relative to total purchases in
industry
BARRIERS
TO ENTRY
Absolute cost advantages
Proprietary learning curve
Access to inputs
Government policy
Economies of scale
Capital requirements
Brand identity
Switching costs
Access to distribution
Expected retaliation
Proprietary products
THREAT OF
SUBSTITUTES
-Switching costs
-Buyer inclination to
substitute
-Price-performance
trade-off of substitutes
BUYER POWER
Bargaining leverage
Buyer volume
Buyer information
Brand identity
Price sensitivity
Threat of backward integration
Product differentiation
Buyer concentration vs. industry
Substitutes available
Buyers' incentives
DEGREE OF RIVALRY
-Exit barriers
-Industry concentration
-Fixed costs/Value added
-Industry growth
-Intermittent overcapacity
-Product differences
-Switching costs
-Brand identity
-Diversity of rivals
-Corporate stakes
Industry Structure Porter Five

Forces Model
One of the most important factors that determine the performance is the
structure of the industry the firm operates in. There are some industries
that are inherently attractive, whereas others are relatively difficult.
There are two theories of economics theory of monopoly & theory of
perfect competition that represent two extremes of industry structure.
In a monopoly context, a single firm is protected by barriers to entry, &
has an opportunity to appropriate all the profits generated out of the value
creation activity.
On the other end of the spectrum, is perfect competition, where there are
many firms supplying an identical product/service with little or no
barriers to entry, & therefore, the returns from the business for a firm falls
to a state just above the firms cost of capital. In reality, industries fall
somewhere in between these two extremes.
However, the number of competitors & the resultant entry barriers are not
the only determinants of the industry; the industry structure is determined
by a set of factors including the number of competitors, the relationship of
the firms with the buyers & sellers, & the threats from potential new
entrants & substitute products & services.

Forces Model
(a) Threat of new entrants / Barriers to entry: 1. Highly capital intensive

industries, such as aero space have significantly high barriers to entry. High barriers
to entry could exist due to high capital requirements in the industry, or the cost
structure in the industry that creates high minimum efficient scale of entry. It might
also be possible that the industry demand for that particular product/service is
limited to a certain level, the industry might have to make do with a defined number
of profitable players. For example, Indian Aviation Industry too many players,
survival at stake.
2. It is possible that access to a specific resource is essential to survive / perform in
a particular industry it could be access to cheap source of funds, specific types of
raw materials, specific information, or even specialized human resources. The
more such specialized resources are required in the industry , the higher are the
barriers to entry in the industry.
3. Another significant barrier to entry arises out of product differentiation. In an
industry where products are heavily differentiated on various parameters, it is
important for a new player to enter with a unique selling proposition. On the
contrary, in the commodity markets that are not differentiated, it would be far easier
to enter the market. Product differentiation also provides the existing players in the
industry with some degree of brand loyalty which the new entrants have to invest
in building. Higher levels of brand loyalty indicate very high switching costs for the
consumers from their current brands to the new entrants brands/product/services.
For example Xerox.
4. Another relevant barrier to entry is the incumbents learning curve in the industry.
The incumbents knowledge about the products, processes, & customer
preferences in the industry offers a major barrier. In industries where such

Forces Model
5. Industry knowledge is gained out of years of experience, it would take a

substantial investment in terms of time/effort cost for the new entrant to acquire such
knowledge about the industry.
(b) Threat of substitute Products: It is important to define what constitute
substitute products in a particular industry. Substitute are those products which
could replace a particular product in the market. They could be the substitutes
because they satisfy the same need, beer, coke & water thirst. A particular
industry could be threatened by the existence of substitute products when the
substitute products performance with reference to that particular need are
comparable with each other.
We also need to appreciate the role of technology branding in product substitution.
As a substitute product is positioned as being technologically superior the
consumer perception of performance is shaped appropriately. In such a case, the
threat from substitute products is significantly higher.
(c) Bargaining power of buyers & sellers: Buyers bargaining power can
arise due to relative concentration of the buyers industry- when there are
numerous firms selling their products to limited set of buyers, or to a set of
concentrated buyers, the buyers can command significant bargaining power.
Buyers bargaining power is also a product of their buying behavior- buyers who
buy in large quantities have significant bargaining power than those who buy in
small quantities, as sellers prefer to reap economies of scale & scope of selling..

force model
Sellers could reduce the bargaining power of buyers through product

differentiation & branding. Branding generates loyalty among buyers, & therefore,
strengthens the relative position of the sellers, as buyers prefer a particular brand,
& would not mind paying a premium for it. When sellers create significant
product differentiation, the buyers bargaining power is limited as sellers do no
not compete on the same basis.
(c) Another factor to impact the relative bargaining power of buyers & sellers is the
criticality of the product to the buyer. Consider, for instance a case where the
product being sold is a critical ingredient in the buyers final output, & is a key
determinant of the buyers product quality. In such a case, the buyer is likely to
choose the seller with utmost care, using criteria such as quality capabilities, & be
willing to pay a premium to the sellers for maintaining consistent quality. The
criticality of the product under question could arise due to unique design of the end
product or a critical end-product in itself like food, food products, drugs.
Another significant factor to determine the relative bargaining power of buyers &
sellers is the extent of unique capabilities required to be in the business. If the buyer
could be easily backward integrate into the sellers business, the sellers are
expected to have much less bargaining power over the buyers. Similarly in cases
where the sellers could easily forward integrate into the buyers business, the
buyers are expected to have less bargaining power.
Similarly the switching costs of buyers & sellers could also impact their
bargaining powers. When the buyers could easily switch from one seller to
another, in terms of time/effort / cost buyers would have higher bargaining power.
Likewise, when the sellers could switch from one buyer to another with little
time/effort / cost, it is likely that the sellers would possess significant bargaining
power.
Industry Structure- Porter Five

Force Model
Availability or non availability of substitute products could also become critical in

determining the relative bargaining powers of the buyers & sellers. When the buyers
have an option of choosing from multiple products with similar price performance
ratios, they wield high bargaining power over the sellers. Similarly, as sellers
have options to sell their products to a variety of buyers across different
segments/industries, they wield significant bargaining power as well.
(d) Intensity of Competitive Rivalry: In an industry with few competitors,
firms enjoy greater latitude to raise their prices & earn extra-normal profits, as
opposed to an industry with a lot of competitors competing intensely. The intensity
of competitive rivalry in a particular industry is a function of the structure of the
industry (industry concentration, fixed cost, & product differentiation), the
industry growth rates, & exit barriers in the industry. One of the prime factors to
define the industry structure is its concentration the number & size,
distribution of companies in the industry.
FRAGMENTED INDUSTRY
An industry which is dominated by a large number of small & medium players in

terms of market share, & where few or no players have the capacity to dominate
the industry is called a FRAGMENTED INDUSTRY. For example, the fast moving
consumer goods industry in most markets would have a few large players, with a
huge number of small & niche players.
.
Industry Structure - Porter Five

Force Model
On the other hand, an industry that is dominated by a few firms (an OLIGOPOLY), is
called a CONCENTRATED OR CONSOLIDATED INDUSTRY.. An extreme case of
consolidation is an industry dominated by one firm the monopoly. Infrastructure
services like railways, roads, postal services are typical examples of monopolies.
Industries that are protected by heavy patenting regimes could also become
monopolies, like Xerox. Industry concentration is measured using the concentration
ratio, where the concentration of an industry is determined by the market share held
by the top 4 or 5 competitors called as CR4 or CR5 (concentration ratio). A CR4 of
65% & a CR5 of 80% are considered to be very highly concentrated industries,
whereas industries with CR5 less than 30% are considered to be fragmented
industries(continued)
Generally FRAGMENTED INDUSTRIES are characterized by low entry barriers &
undifferentiated products & services, whereas concentrated industries are
characterized by high entry barriers in the form of high fixed costs, high brand
building costs, standard industry practices, set consumer preferences, or high levels of
product differentiation. The fragmented industries have the potential to attract more
& more firms to enter the industry, & create excess capacity. With excess capacity,
price wars & product differentiation begin. In an industry where the product or services
is treated as a commodity, price wars could be detrimental, leading to closure of
capacities & bankruptcies of financially weak firms. Gradually the industry capacity
balances out with the demand, & the industry stabilizes.
.
Industry Structure - Porter Five

Force Model
On the other hand CONCENTRATED INDUSRIES make firms interdependent on

each other. Competitive actions of one firm directly effect every other firm in the
industry, forcing a response from them. These competitive forces ensure that the
industry margins are minimal, product differentiation is high, & price wars
common. RIVALRY s another factor that determines the intensity of rivalry in the
industry.
DIVERSITY OF COMPETITORS OR RIVALRY . When the firms with similar origins,
objectives, cost structures, & strategies compete against each other, they tend to
avoid price competition. As the diversity of competitors increase, the various firms
would differentiate their products / services to gain competitive advantage.
Business Level Strategies
MICHAEL PORTERS GENERIC TREORY.

Michael Porter views having a low cost structure & differentiating as two
fundamentally different approaches to obtaining a competitive advantage. He calls
them cost leadership strategy & differentiation strategy respectively. To this he
added the issue of the number of customer segments served, or the scope of
business narrow versus broad - & defined three generic business level
strategies, cost leadership, differentiation, & focus.
These strategies are called generic strategies because they may be used in any
industry, & by any type of firm whether it is a service or manufacturing or even a non
profit organization. Each of these strategies results from a consistent choice of
decisions through all the areas of the organizations operations. Properly implementing
any of these strategies allows an organization to obtain above average returns.
DEVELOPMENT OF COMPETITIVE STRATEGY: (COST LEADERSHIP)
(a) Cost Leadership strategy: It is based on a firm having a cost structure that
allows it to offer a comparable product at a lower unit cost than its rivals. This low
cost structure allows the firm to offer the products at a lower price. It is very important
to recognize that the firm does not just offer a low price with a cost structure
comparable to its rivals; instead, it has a cost structure that is lower than that of its
rivals. It is this low cost structure, & just not a low price, that allows the firm to gain
competitive advantage, & earn above average returns.
Cost leadership typically offer standard, no frill products or services to a wide
group of customers. To be successful, the product has to be of a good to acceptable
quality. This strategy does not recommend poor quality.. The aim of this strategy is
to keep costs below the industry average, & to attract the customer on the basis of
an acceptable product at low prices. The following are some key sources for an
organization to obtain a low cost structure.
(a) Product or service offered: A product or service is often designed for
the average customer. Although organizations serve numerous segments, often there is
not sufficient market segmentation to justify differentiated offerings to each
segment. This is because differentiation & customizing to various segments add
cost. Cost leaders do not attempt to offer a very differentiated product or service with a
lot of additional features
(b) Economies of scale: A cost leader attempts to have a large customer
base & to exploit economies of scale. Economies of scale result when an increase in
output generates a drop in the average cost per unit. This decrease in average costs
occur till a point (called the minimum efficient scale), after which diseconomies
of scale set in, & average cost increase.
Economies of scale occur in manufacturing for many reasons. Large volumes often
justify the purchase of specialized machines that are more efficient. Process
industries like chemicals, petroleum, steel, paper, & others often use technologies that
costs less per unit as production volume in a location increases.
Further economies of scale result from
(a) the spreading of fixed or overhead costs over larger volumes, &
(b) the increase in employee specialization that is possible with large volumes.
Although we often associate economies of scale with manufacturing, it is important to
understand that economies of scale occur quite frequently even outside of
manufacturing.
Many firms selling consumer products, from soaps to soft drinks to restaurant
chains, are able to spread their advertising cost, giving larger firms a much lower
advertising cost per unit of sales.
Large retail firms, like Wal-mart in the U.S. , are able to gain considerable bargaining
power over their suppliers, & get products at prices that small firms are unable to
obtain.
Often flexibility becomes an issue smaller firms are often able to modify their
products or services faster than the large firms can. The following are the areas:
(c) Research & Development: R&D can play important role in
lowering costs. Firms pursuing cost leadership do not aim to offer the most
innovative products or to come up with new products. Instead, they focus on making
an acceptable quality product at the lowest cost. So R&D expenditures targeted
towards product innovation & development are often minimal. However, such firms
need to have state-of-the-art facilities for production, materials & inventory
management, distribution & other processes. Consequently, their R&D expenses are
primarily at process & information technology, & other means to keep their
organization very efficient.
(d) Product Design: Firms can cut down costs considerably by the design
of the product. Product may be designed with lower cost inputs, fewer components,
or fewer stages in the manufacturing process. Project impact, a company that sells
cheap hearing aids manufactured by Aurolabs, designed its products with the
intention of keeping manufacturing costs down.

(e) Capacity utilization:
In the short & medium run, plant capacity is

fixed, & the expenses incurred on setting up the plant & equipment entail largely
fixed costs. When the plant is operating at full capacity, its per unit cost will be
lower than when there is any unused capacity. When there is unused capacity, a
firms fixed costs are spread among fewer units, which is detrimental to
efficiency. Thus, cost leadership :requires paying close attention to making full uof
capacity.
(f) Organizational structure: A key component of the cost leadership
is an all permeating organizational culture that values efficiency & low costs.
Most successful cost leaders are firms where the push to cut costs comes from the
top managers.
(g) Organizational structure & processes: Firms successful
in cost leadership have lean organizational structures.. They use systems

providing considerable financial & operational control, & adopt compensation
structures that provide incentives to keep costs down.
Cost leadership strategy is not without risks. 1) The biggest threat to
cost leadership is that other firms might be able to lower their costs below that of
the cost leader. This might happen because of shifts in technology with the
current low cost players locked into less efficient process.
2) Another threat to cost leadership is that competitors might imitate a cost
leaders sources of low cost.. This often happens when low costs are based on
product features, or process technology that can be copied quickly.
3) Sometimes cost leaders loose sight of customer needs & cut back on
product features or allow quality to slip. These are dangerous practices to loose
customers.

Differentiation Strategy: The objective of differentiation strategy is to
offer a product or service that is perceived by customers as being different or

distinctive in ways important to them.
Differentiators might have higher costs than industry averages. But because they
are perceived to be offering something additional that is valuable to the customers,
they are able to charge higher prices for the products. What the firm offers to be
considered valuable is very wide it goes far beyond the physical characteristics
of a product. It encompasses psychological aspects, service, ease of use, &
includes the overall way a firm does business with its customers.
Differentiators cater to a wide range of customers. While some companies might
offer the same product mix to the whole market, most firms are likely to segment
their market & customize offerings to various segments. Market segments
consists of customers with similar needs & purchasing power. Many consumer
product firms, including those in consumer electronics & automobile industry, offer
many models at various prices for different segments.
A firm can differentiate itself on tangible & intangible dimensions like size,
weight shape, color, technology etc. It may also include ease of use, increased
features, better performance, greater reliability, speed, safety etc.
Firms often differentiate their products in intangible ways. Examples of such
products include cars made by Mercedes Benz, & watches by Rolex. The value
consumers attach to these products goes beyond their & often include an appeal to
psychological needs; for example use of the product might provide a sense of
exclusivity or status.
(continued) When selling products or services that appeal to complex psychological

needs , firms need to be aware of the importance of the creation & maintenance of
image. Whether the area of differentiation is tangible or intangible, it is essential for
firms to understand that the success of a differentiation strategy rests on the
perception of the customer. It is not sufficient to offer a high
quality product; the customer must also believe that to be the case.
One of the biggest threats to differentiation is that of being imitated by competitors.
Product features are often easy to imitate.
Multiple points of differentiation, high levels of service, & intangibles like
prestige & reputation are more difficult to imitate. Differentiators might run into
problems because the price may be too high.
In an attempt to become unique & to offer more features to customers, some firms
increase the cost far more than the value added by these features. It is important
for differentiators to keep the cost far more than the value added by these
decisions to differentiate themselves. Customers will pay a higher price only if they
perceive that the value obtained from using the product or service justifies
the higher price.

Focus strategy: The final generic strategy proposed by Porter describes
firms that focus on best meeting the needs of a unique market niche. The
success of this strategy depends on finding a niche a segment that has unique
needs - & positioning the firm to best serve the needs of customers in that niche.
Firms might serve the customers by offering products specially differentiated for
them. Example of this may include launching products that appeal to teenagers, or
making food products specifically for people with special dietary needs, such as
diabetic ice cream.
The focused company does not attempt to compete with cost leaders &
differentiators across the large market segments. Instead, focusers identify
segments whose needs are not being properly met & try to meet those needs.
The more unique the needs of the segment , the greater are the chances that the
focused company will be protected from differentiators & cost leaders who
compete industry wide. Their small size & closeness to the customers help such
firms to be innovative & flexible in meeting customer needs.
Focus strategy is often used to enter a market with strong competitors. Wal-mart
entered the retail market initially by locating itself in these under served rural
location. Success followed by subsequent expansion has made it the largest retail
organization in the world.
Focuses do face risks. A major threat is that their niches may cease to exist one
day customer tastes might change or new technology might make the product
or service provided obsolete.
Flexible manufacturing technology has been making it cost effective for broad
industry competitors to serve small niches. And as in the case of both cost
leaders & differentiators, imitation is a very real threat.

Stuck in the Middle: Porter emphasized the importance of clear
positioning & making consistent choices to reinforce the strategic position

adopted. He called firms that do not have a clear strategic positioning & what
make choices that include a few elements of different strategies (such as cost
leadership & differentiation) as firms stuck in the middle, & he suggested that
such firms do not develop successful competitive advantage. For example a
differentiator with an image for superior innovation cannot reduce its expenses
on research & development for product innovation.
Hybrid Strategies: (1) These include combination of generic strategies,
such as simultaneous low cost & differentiation strategy, have been found to
contribute to competitive advantage in some situations. For instance, successful
implementation of differentiation strategies may result in increased sales volume.
As sales volume increases, costs drop due to economies of scale. Thus
successful differentiators might also be the lowest cost producers in the industry.
(2) Traditionally it has been assumed that firms can either have low costs by
speeding up production & sacrificing quality, or have higher costs with a closer
attention to quality.
As quality gets built into the process, there is less waste & fewer rejects , leading
to a drop in costs.
(3) With flexible manufacturing , it is becoming increasingly possible to
customize a product without increasing costs significantly.
Strategy & Industry Structure

Industry Life Cycle:
As the industry grows through the various phases of the industry life cycle - (a)
embryonic, (b) growth (c) shakeout, (d) maturity, & (e) decline phases, the
competitive rivalry varies.
In an embryonic industry (such as bio technology), where the buyers are unfamiliar
with the product and firms cannot reap economies of scale due to the lack of clearly
defined market, the industry rivalry is based on educating customers about the
product usage , creating distribution channels, & perfecting the product design /
features, & not so much on price.
In the growth phase of an industry (such as the international telecommunication

industry) , more & more customers enter the market, the industry witnesses high
demand growth. Further firms enter the market, & the industry rivalry tends to be
very low. Few firms have achieved economies of scale, & prices tend to fall without
hurting the profitability of other firms in the industry.
In the shakeout phase of the industry (such as personal computers industry),

the industry growth rate slows down, demand approaches saturation levels,
customers are highly educated about the product/ service, & the intensity of rivalry
tends to be high due to increased capacities & intense price war.
Strategy & Industry Structure
In the maturity phase (such as white goods industry), the demand growth is
virtually zero, & the growth is limited to only replacement demand. The firms that
survived the shakeout phase compete intensely for market shares with price wars &
product differentiation. The focus of these firms shifts to reducing operating costs,
& the industry slowly becomes an oligopoly.
In the decline phase (such as electronic calculators), characterized by negative
growth due to factors such as technological substitution, social/demographic
changes, or global competition, the intensity of competition increases as firms
strive to protect their specific market niches, & market shares. Exit barriers form a
significant factor in determining the intensity of competitive rivalry in declining
industries.
In a declining industry, exit barriers are a serious competitive
threat. Exit barriers that arise out of economic, strategic, & even emotional factors
can force firms to continue competing in an industry even when the returns are low.
Exit barriers could exist in several forms.
1.High investments in specific plant & machinery, with no alternative uses.
2. High fixed costs of exit such as low market value of salvageable assets or
high worker layoff costs.
3. Economic dependence on the industry when the firm is solely dependent on this
industry for its revenues & profits.
4. Synergies across multiple business in a diversified firm, where the low-return
business might be supplying critical inputs to a high return business.
5. Emotional attachment of the promoters with the industry.
Turnaround Strategy
One of the primary causes of organizational decline is poor management. Some

writers on declining firms think that they begin their slide into problems up to ten
years before they finally fail through bankruptcy, or takeover. Causes include
small management teams, which reduce the quality of decision making, autocratic
management, & lack of consultation , all of which are often compounded by stress
& the departure of the most competent managers.
Apart from these poor management practices, poor financial controls are the most
common causes of corporate crisis. Falls in demand, increased competition, &
other environment problems , such as increases in input prices or interest rates,
were a factor in 30-40 percent of corporate crises. One-off errors, such as a failed
large project or acquisition, can also reduce a firm to a critical state.
STAGES IN A TURNAROUND.
Scholars have identified several phases in an organizational turnaround. During
these the practitioner leading the turnaround a new chief executive, or perhaps a
specialist company doctor or TURNAROUND CONSULTANT will go through a
number of activities. There are five steps.
In the first phase, the turnaround practitioner (TP) assess the situation of the
organization, to determine if it possesses the strategic resources needed to bridge
the gap between its current performance & that required for viability. If it does,
then he or she will start to negotiate with key stakeholders essentially, the
holders of the companys debt with a view to refinancing the company. At the
same time, the TP will move to replace, or at least inject new skills & ideas into,
the management team. Some 40% of turnarounds involve the CEO. The aim is to
realign the expectations of management & creditors as to what they can expect
from the company. If the debt holders cannot be convinced that the new
management, can get an adequate return on their investment, or that value can be
realized from asset sales, then the turnaround will not proceed.
Turnaround Strategy
(Contd) In the Second phase, retrenchment, the business is cut back to its
viable core. The crisis calls for fast & radical changes without the resources
available in times of growth. This often requires the TP to take tough emergency
action, including shutting down parts of the organization, selling assets to raise
cash, & redundancies. Some form of legal shelter from the demands of the
creditors may be sought.
The TP may also need to negotiate some form of refinancing package, which
requires considerable selling skills, & creditability with bankers & investors. If they
cannot be convinced that the restructured firm can generate adequate returns on
their new & existing investment, then the turnaround attempt will falter at this
point sometimes ignominiously.
In the Third phase, the organization is set on the road to recovery. The most
common strategic elements is listed later on.
Fourth phase - A change of competitive arena is often required. This may
imply moving products & brands up-or-down-market, the identification of new
customer groups, or the development of new brands to replace those with a
tarnished image. The TP must manage the balance between the old business,
which needs to be maintained & milked as far as possible, & the move into new
business areas.
Fifth phase - A transformation of the culture & architecture possibly the
most demanding of all management tasks is also likely to occur, with a view to
resting pride to the organization under its new leadership. Sometimes, where funds
have been made available, a judicious acquisition may also be a vital stage in an
organizations recovery, since combining the firms resources with those of another
may be crucial to giving it a sustainable advantage.
The TP at this stage, may well withdraw discreetly, leaving the running of the
business in the hands of its new management team.
Most Common Changes in Strategy

Attempting Turnarounds
Change in strategy pursued
% of cases
where used
Modernizing manufacturing capacity with equipment utilizing new

technologies.
89%
Increasing or decreasing the capital available for the commercial

development of new products.
84%
Changing priorities among the corporations traditional set of businesses
79%
Introducing new products or services (other than by acquisition or joint

ventures
68%
Targeting new customer segments and/or eliminating existing segments
68%
Selling or closing inefficient or underutilized plants
68%
Increasing or decreasing the capital available for research on new products 68%
or processes.
Eliminating individual offerings from remaining product lines
63%
Eliminating entire product or service lines
61%
Selling off organizational units as going concerns
61%
Liquidating the assets of, or harvesting, units not divested
55%
Vertical Integration
When a corporation performs activities in multiple lines of business spanning more

than one block of the industry value chain, it is considered vertically integrated.
In an industry value chain. Different firms could perform the various activities that
add value to the consumer. This industry structure gives rise to various forms of
transaction costs as each firm makes its profits, & builds in inefficiencies in the
transfer of goods & services from one firm to the another.
Vertical integration is an attempt at reducing these transaction costs in delivering
the final value to the end consumers. Vertical integration helps an organization
integrate its business efficiency so that output of one business feeds into the
other. Vertical integration could be either backward integration through
coordinating upstream operations (operations closer to the sources of raw
material), or forward integration through coordinating downstream operations
(operations closer to the end customers)
When to integrate vertically? It needs to answer the following questions:
(a) Are our existing suppliers meeting the needs of end customer?
When specific skill & competencies are required to perform certain activities in the
industry value chain that are not easy to learn / imitate / replicate, it would be
better to have those set of activities performed by specialists.
For instance the shoe maker Nike has effectively used this strategy of out sourcing its
production to units in South East Asia, & its logistics to Federal Express, while
focusing on brand building & marketing.
On the other hand, if ensuring the right quality of raw materials or providing the right
products / service to ones customer through a control of tight activities is important,
integrating vertically might be necessary.
(b): How volatile is the competitive situation?

When the competitive environment is volatile i.e. when competitors actions &
counteractions are not easily predictable, or when the technology in the industry is
changing fast, or when the basis of competition in the industry is changing frequently, it
is best to keep to ones specialization, rather than commit ones resources onto
activities that span the industry value chain. In such cases of volatile environments ,
flexibility is maintained by outsourcing, & consolidation, so as things change , the
firm could easily adapt to the new bases of competition and/or even exit the
business easily if required.
(c) Is it possible to influence the behavior of our upstream / downstream businesses?

Many times a firm could significantly influence the activities of its suppliers &
customers. For instance, a firm could enter into long term relationships with its
suppliers whereby their businesses become mutually interdependent. Control over
supply and quality of critical inputs could be maintained through establishing mutual
interdependence relationships with at least two significant suppliers, & similarly
assurance of a minimum level of business could be built in the contract. In such
conditions, it would be mutually beneficial for firms to invest in vendor development
& assuring the quality of the inputs / services, rather than getting into those activities
themselves.
(d) Will vertical integration enhance the structural position of the business?
Vertical Integration has the potential to take firms into such businesses that could
have been traditionally wielding significant market power or the potential for high
volumes or high margins.
For example, the erstwhile Gramophone co. of India integrated forward to
distribution of music through the internet through their e commerce website in
order to reap the high margins available in the distribution business, as well as
capitalize on their large library of copyrighted music.
ADVANTAGES OF VERTICAL INTEGRATION
(a) Build entry barriers: Vertical integration could create entry barriers for new
entrants (or existing competitors) by denying them either sources of supply of
critical inputs, or access to significant customers.
(b) Reduce transaction cost: Vertical integration could reduce transaction costs,
such as buying & selling costs, inventory holding costs, & ordering costs.
(c) Better control & coordination of operations: With vertical integration of
critical activities either upstream or down stream, firms can have tighter control
over the supply of critical inputs, or the quality of products/services delivered.
(d) Spread fixed & / or overhead costs over a large number products/services.
Vertical integration can help in apportioning fixed & / or overhead costs (like
distribution costs or branding & marketing expenses) over a large number of
products and services.
LIMITATIONS OF VERTICAL INTREGATION:

Vertical integration is not free from limitations. Many firms are forced to
disintegrate vertically because they underestimated these limitations. The major
limitations are as follows:
(a) When the different lines of businesses operate with different minimum efficient
scales, balancing the line across the various businesses is difficult, & therefore,
inefficiencies might creep in. When plants of minimum efficient scales create a
situation where one of the lines in the business has a larger capacity than those of
its customers, the excess production has to be sold in the market to its
competitors, resulting in transaction costs that vertical integration was originally
designed to avoid.
(b): Vertical integration can force organizations to commit to particular
technologies / products, & risk loosing their flexibility in times of technological
obsolescence or changes in customer tastes.& preferences. In order to remain
competitive & up-to-date with the market, the vertically integrated corporation has
a responsibility to be innovative & efficient at all the lines of businesses it
operates in, in comparison to its tightly focused competitors in each of the lines of
businesses.
(c) Vertically integrated firms have to deal with the problem of integrating
significantly different lines of business into a coherent whole. The internal
organizing, structure & cultures could be different across different business lines.
For a vertically integrated firm to become truly integrated, it must manage these
differences through a robust system of organizing, culture building, &
performance management across all its business lines.
Diversification
The CEO & the Board of Directors of firms have a major task of finding new
business avenues for the firm. Cash rich firms have been going into
diversification, which is meant to add to the shareholders value.
Types of diversification: Diversification is of 4 types. 1. Vertical 2. Horizontal 3.
Conglomerates 4. Global
(1) Vertical Diversification: When a firm takes over more than one
function in the chain of making the product available to the customer, it is known as
vertical diversification. For instance, if a TV manufacturer takes to making its own
TV picture tubes, which is one of the main components in TV manufacture, it is
called vertical diversification. Conversely, a steel manufacturer can take to making
steel utensils. The first example is of Backward Vertical Integration (BVI),
whereas the second example is that of Forward Vertical Integration (FVI).
Vertical Integration should bring extra value to the share holders. If a firm X joins
the firm Y, either as merger or through acquisition of one by the other, the share
value of the resultant firm Z should be more than the share value of pre-merger
firms X & Y. In such an event , the joining of the two firms will be considered
successful & worthwhile. In case X or Y could have done better alone for its
shareholders than as a combination, it is advisable not to join them. The decision
to join is taken by the management, whose interests may differ from the interests
of shareholders. If joining the two gives the new entity a positive competitive
advantage, & their share value goes up to the extent the shareholders may not be
able to manage on their own, then it is a successful merger. The merger should do
the following: (A) Enhance core process execution capability. (B) Strengthen the
critical success factors (C) Improve the firms position in the 5 force model for
competitive analysis (D) Improve the satisfaction level of internal & external
customers. In case of backward vertical integration, if the earlier supplier was
not up to the mark in product quality & supply, integration can surely improve
the quality & supply to desired levels.
Diversification
Similarly if the buyer of raw material is not able to convert it into quality saleable
goods, its takeover can improve the quantity to the satisfaction of the final
customer.
In case technology is changing rapidly & competition is in a fluid state regarding
the final product, the merger may not be effective at all.
Advantages of Vertical Diversification are: (A) It combines upstream &
downstream operations. (B) It eliminates transactional costs (C) It improves
coordination.
Disadvantages of Vertical Diversification are: (A) Culture & skills of merged firms
may be vastly different (B) Top management may loose their position & authority
in the merged firm.
(2) Horizontal Diversification: It involves moving into another
industry while keeping one intact. To be attractive enough for take over, these
industries should have some synergy with each other. A business school starts a
publishing house for management books and a retail grocer who starts retailing
readymade garments would be considered as having diversified horizontally.
Buying out competitors is also horizontal diversification.
(3) Conglomerates: Cash rich firms start taking over unrelated
business firms to form conglomerates. In India, the Spencer Group of the South is
a typical example of a conglomerate; among others, they have interests in the hotel,
retailing & real estate businesses. If the share of a conglomerate sells for less
than the perceived value of shares of its individual units it is called the
Conglomerate Discount. Due to this, most of the conglomerates have been
disbanding themselves into separate units. When somebody purchases large
shares, the firms shares go up in value. This is known as Takeover Premiums.
The advantage of conglomerates is that the finance available in one firm can be
used for the other firms.
Diversification
(4) Global Diversification:

As the name suggests, global diversification happens when firms takeover other
firms across the globe. This can be vertical, horizontal, or for creating
international conglomerates. The recent case of General motors taking over the
Korean Daewoo motors is an example of global diversification. The firms taking
over should have some expertise of managing the particular business the firm
being taken over is in. Or, it should be cash rich, which the firm being taken over is
not and which it needs.
Means of Diversification
The three main means of diversification are: (A) Acquisitions (B) Strategic
alliances (C) Internal Developments
Mergers & Acquisitions: Most mergers or acquisitions have been
unsuccessful because there is no clear understanding between the merged firms.

At times, the takeovers are hostile. Business contracts are not even worth the
paper they are written on. Unless there is intrinsic synergy between the merging
firms, or they compliment each other, both in hard numbers of their balance
sheets & also their soft numbers, like their culture & motivation levels , the merger
may not succeed. The big partner usually shortchanges the smaller one. They do
not realize each others strength, or why they decided to merge in the first place.
Unless both the firms benefit from the merger it will be difficult to succeed.
Strategic Alliance Joint Ventures: Firms that have
complimentary strengths, wherein the small firm has the technology & the large
firm has the financial resources, they can form joint ventures. However they must
understand the relative roles of managers of both the firms, & clearly delineate
the same to avoid conflicts. Contracts for the formation of joint ventures must be
well planned & yet it is the behavior pattern of the members of the two firms that
will ultimately decide the success or failure of the joint venture. The bigger firm
should not shortchange the smaller one.
Diversification
Corporate Entrepreneurship: Large firms act as venture capitalists,
making small firms with common interests with the large firm. At times the firm
can act as a new venture incubator, providing technology, manpower & finance
to the group, which is hived off as a separate firm after production for sale has
started. The firm can also provide a group with a saleable idea, & promote the
firm.
Divestment: Firms get rid of unprofitable businesses to finance acquisitions &
mergers or for starting other ventures. The money can be also used to augment
ongoing operations. The money can change the ratio of debt to equity, if the firm
so desires.
Benefits of diversification: 1. Firms can get significant capitalization on
core competencies. Both firms joining hands can have synergy to create skills &
value for the customers
2. Firms benefit in increasing market power & resultant market share, & can face
competitive rivalry with confidence.
3. Firms get increased bargaining power with the suppliers & hence, better
prices of raw materials due to larger purchases.
4. The firm creates entry barriers for new comers with large market share.
5. Firms dissuade the substitute products from creating competition, as they can
reduce prices if required.
6. Firms joining hands can reduce costs by sharing infrastructure like transport,
phone links, sales offices, & R&D activities.
7. Firms can balance technical & financial resources for the benefit of the new
firm. Cash rich firm can lend monies to the merged firm, & the technology rich
firm can provide the technology to it.
Diversification
Merger Plan: Management of the two merging firms needs to look at the
following, immediately after the merger:

1. Set goats, objectives, & targets that are reachable but with great effort.
2. Set out top job descriptions.
3. Pick the best available and not just the already known.
4.. Make resources needed for merger available.
5. Make certain that the business of the firm continues unhindered.
6. Ensure common budget cycle.
7. Ensure participation of senior managers, giving them their tasks & letting them
make their priorities clear to the management.
8. Make easy communication with the seniors & the lowest rung.
9. Be forceful & set up clear Vision, Mission, Goals, Objectives; & departmental
targets should be made on higher side.
10. Time management must be a priority, as speed is the essence of success.
11. Reasoned financial outlays should be made after considering the business
environment; the best practices, the benchmarks.
12. Place a seasoned person in charge of the merger process on a time bound
program.
13. Let managers of both sides meet & thrash out their differences & problems;
let them visit each others territory to get first hand information.
14. Support the merger-in-charge & solve his problems by nipping them in the
bud.
15. Ensure proper & prompt communications at all levels.
16. Plan both short term & long term goals, assign responsibilities & authority to
perform.
Diversification
17. Plan financial outlays in advance.

18: Put the planning on a bar chart or pert chart, & control time & event as they occur.
19. Decide the size of each problem as it arises; delegate others to handle problems that
do not need top managements attention.
20. Get two way communication .in place, to understand the reactions of persons
connected with the merger. Get feedback from bankers, legal experts, & auditors.
Market Share Strategy: Firms can gain market share through increased business in
the same market by using the strategy of penetrating pricing, which can bring in additional
business in the short run, till the competition catches on. The other way of increasing the
market is developing additional markets, either through geographic extensions or
through catering to different market segments.
The other method of increasing the share of the market is to bring in new products
through diversification, & then try them in the firms geographic coverage, before taking on
other areas.
Finding new uses for a product can help in increasing the market share. Maruti has
placed its OMNI as a personal van. When they found out that it can also be used as a
goods carrier by removing its seats, & as a transport vehicle for carrying office staff,
they provided additional seats in the van. Food product companies keep adding to the
product usages by issuing new recipe.
NOTES: Firms planning to diversify must keep the shareholders interest paramount in
their minds. Most common forms of diversification are vertical & horizontal integration,
& global diversification. These are organized through acquisitions, mergers, joint
ventures, strategic alliances, internal developments, or divestments. To be successful,
diversification should be able to capitalize on the core competencies of the joining firms,
should have some synergy in some area, or should compliment each other. For instance if
one is cash rich, & the other has the technology , they should be able to increase their
market share & share each others infrastructure.
Horizontal Integration
Horizontal Integration. This refers to a strategy of seeking ownership of or increased

control over a firms competitors. One of the most significant trends in strategic
management today is the increased use of horizontal integration as a growth
strategy. Mergers and acquisitions, and takeovers among competitors allow for
increased economies of scale and enhanced transfer of resources and competencies.
The trend towards horizontal integration seems to reflect strategists misgivings about
their ability to operate many unrelated businesses. Mergers between direct
competitors are more likely to create efficiencies than mergers between unrelated
businesses, both because there is a greater potential for eliminating duplicate
facilities and because the management of the acquiring firm is more likely to
understand the business of the target firm.
FIVE GUIDELINES FOR when horizontal integration may be an especially effective
strategy are:
1. When an organization can gain monopolistic characteristics in a particular area or
region without being challenged by the Federal Government for tending
substantially to reduce competition.
2. When an organization competes in a growing industry.
3. When increased economies of scale provide major competitive advantages.
4. When an organization has both the capital and human talent needed to
successfully manage an expanded organization.
5. When competitors are faltering due to lack of managerial expertise or a need for
particular resources that an organization possess; Note that horizontal integration would
not be appropriate if competitors are doing poorly, because in that case overall
industry sales are declining.
Niche Market Strategy
NICHE MARKET STRATEGY.

In all markets there are some small companies which account for roughly 12 % of
the total market & they operate in a particular segment. These firms grow & occupy
market niches effectively through their products & services which cannot be offered
by larger companies. For example in the shoe market, PVC rubber shoes &
bathroom slippers are manufactured by smaller firms & sold all over India & this
market cannot be catered by the large manufacturers like Bata, Nike, Reebok, etc. An
ideal niche market should have a good product, affordable price for the niche
market and offer sufficient volume to be profitable.
The superior niche market players know their market effectively & enjoys better
customer relationship. The key idea is to have a niche product or specialized
service. Best examples can be small eating joints, travel agents, courier services,
maintenance companies etc.
A niche market penetration strategy is most appropriate when the new market is
expected to grow quickly and there are a number of benefits or applications
segments to appeal to. It is particularly attractive when there are a few entry barriers
like the competitors have limited resources or competencies.
When a new product market expands quickly, it still may be possible for the small
firm with limited resources to be a successful pioneer. In such cases, the firm must
define its long terms goals. Instead of pursuing the whole market it may limit itself to
a particular market segment. This kind of niche penetration strategy can help the
smaller pioneer gain maximum and avoid direct confrontation with bigger
companies.
Cost Based Strategy (Cost

Leadership Strategy)
Cost Based Strategy: It is based on a firm having a cost structure that allows it to
offer a comparable product at a lower unit cost than its rivals. This low cost
structure allows the firm to offer the products at a lower price. It is very important to
recognize that the firm does not just offer a low price with a cost structure comparable
to its rivals; instead, it has a cost structure that is lower than that of its rivals. It is
this low cost structure, & just not a low price, that allows the firm to gain competitive
advantage, & earn above average returns.
Cost leadership typically offer standard, no frill products or services to a wide group
of customers. To be successful, the product has to be of a good to acceptable
quality. This strategy does not recommend poor quality.. The aim of this strategy
is to keep costs below the industry average, & to attract the customer on the basis
of an acceptable product at low prices. The following are some key sources for an
organization to obtain a low cost structure
Cost leadership strategy is not without risks. 1) The biggest threat to cost
leadership is that other firms might be able to lower their costs below that of the
cost leader. This might happen because of shifts in technology with the current low
cost players locked into less efficient process.
2) Another threat to cost leadership is that competitors might imitate a cost leaders
sources of low cost.. This often happens when low costs are based on product
features, or process technology that can be copied quickly. Sometimes cost
leaders loose sight of customer needs & cut back on product features or allow
quality to slip. These are dangerous practices. to loose customers.
Cost Based Strategy (Cost

Leadership Strategy)
(a) Product or service offered: A product or service is often designed for the
average customer. Although organizations serve numerous segments, often there is
not sufficient market segmentation to justify differentiated offerings to each
segment. This is because differentiation & customizing to various segments add
cost. Cost leaders do not attempt to offer a very differentiated product or service
with a lot of additional features.
(b) Economies of scale: A cost leader attempts to have a large customer base & to
exploit economies of scale. Economies of scale result when an increase in output
generates a drop in the average cost per unit. This decrease in average costs
occur till a point (called the minimum efficient scale), after which diseconomies
of scale set in, & average cost increase.
Economies of scale occur in manufacturing for many reasons. Large volumes often
justify the purchase of specialized machines that are more efficient. Process
industries like chemicals, petroleum, steel, paper, & others often use technologies
that costs less per unit as production volume in a location increases.
Further economies of scale result from
(a) the spreading of fixed or overhead costs over larger volumes, &
(b) the increase in employee specialization that is possible with large volumes.
Although we often associate economies of scale with manufacturing, it is
important to understand that economies of scale occur quite frequently even outside
of manufacturing. Many firms selling consumer products, from soaps to soft drinks
to restaurant chains, are able to spread their advertising cost, giving larger firms a
much lower advertising cost per unit of sales.
Large retail firms, like Wal-mart in the U.S, are able to gain considerable bargaining
power over their suppliers, & get products at prices that small firms are unable to
obtain
Differentiation Strategy
Differentiation Strategy: The objective of differentiation strategy is to offer a product

or service that is perceived by customers as being different or distinctive in ways
important to them. Differentiators might have higher costs than industry averages. But
because they are perceived to be offering something additional that is valuable to the
customers, they are able to charge higher prices for the products. What the firm
offers to be considered valuable is very wide it goes far beyond the physical
characteristics of a product. It encompasses psychological aspects, service, ease of
use, & includes the overall way a firm does business with its customers.
Differentiators cater to a wide range of customers. While some companies might offer
the same product mix to the whole market, most firms are likely to segment their
market & customize offerings to various segments. Market segments consists of
customers with similar needs & purchasing power. Many consumer product firms,
including those in consumer electronics & automobile industry, offer many models
at various prices for different segments.
A firm can differentiate itself on tangible & intangible dimensions like size, weight
shape, color, technology etc. It may also include ease of use, increased features,
better performance, greater reliability, speed, safety etc.
Firms often differentiate their products in intangible ways. Examples of such products
include cars made by Mercedes Benz, & watches by Rolex. The value consumers
attach to these products goes beyond their & often include an appeal to psychological
needs; for example use of the product might provide a sense of exclusivity or status.
Focus Strategy
Focus strategy: The final generic strategy proposed by Porter describes firms that
focus on best meeting the needs of a unique market niche. The success of this
strategy depends on finding a niche a segment that has unique needs - &
positioning the firm to best serve the needs of customers in that niche. Firms might
serve the customers by offering products specially differentiated for them. Example
of this may include launching products that appeal to teenagers, or making food
products specifically for people with special dietary needs, such as diabetic ice
cream.
The focused company does not attempt to compete with cost leaders &
differentiators across the large market segments. Instead, focusers identify
segments whose needs are not being properly met & try to meet those needs. The
more unique the needs of the segment , the greater are the chances that the
focused company will be protected from differentiators & cost leaders who
compete industry wide. Their small size & closeness to the customers help such
firms to be innovative & flexible in meeting customer needs.
Focus strategy is often used to enter a market with strong competitors. Wal-mart
entered the retail market initially by locating itself in these under served rural
location. Success followed by subsequent expansion has made it the largest retail
organization in the world.
Focuses do face risks. A major threat is that their niches may cease to exist one
day customer tastes might change or new technology might make the product or
service provided obsolete.
Flexible manufacturing technology has been making it cost effective for broad
industry competitors to serve small niches. And as in the case of both cost leaders &
differentiators, imitation is a very real threat.
Strategic Audit
Strategic audit is to evaluate an organization which encompasses the total

company in each of the strategic areas that were identified to be critical to the
firm for its success and leads to continuous competitive advantage.
First, we start with questions regarding current situation covering current
performance & strategic posture.
I Current Situation.
A. Current Performance. How did the corporation perform the past year overall in
terms of return on investment, market share, & profitability?
B. Strategic posture. 1. What are the corporations current mission, objectives,
strategies, & policies? Are they clearly stated or are they merely implied from
performance?
2. Mission: What business is the corporation in? Is the mission statement
appropriate?
3. Objectives: What are the corporate, business, & functional objectives? Are
they consistent with each other, with the mission, & with the internal & external
environments?
4. Strategies: What are the current corporate business, & function strategies?
Are they consistent to each other, with the mission & objectives,& with the internal &
external environments?
5. Policies: What are they? Are they consistent with each other, with the mission,
objectives, & strategies, & with the external & internal environments?
6. Do the current mission, objectives, strategies,& policies reflect the
corporations international operations whether global or multi domestic?
II. Corporate governance.
A. Board of Directors. 1. Who are the directors? Are they internal or external?
Strategic Audit
2. Do they own significant shares of stock?

3. Is the stock privately held or publicly traded? Are there different classes of
stock with different voting rights?
4. What do they contribute to the corporation in terms of knowledge, skills,
background & connections? If the company has internal operations, do board
members have international experience?
5. What is their level of involvement in strategic management? Do they merely
rubber-stamp top managements proposals or do they actively participate &
suggest future directions?
B. Top Management. 1. What person or group constitutes top management?
2. What are top managements chief characteristics in terms of knowledge,
skills, background, & style? Does top management have international
experience? Are executives from acquired companies form part of the top
management team?
3. Has top management been responsible for the corporations performance for
the past few years?
4. Has it established a systematic approach to strategic management?
5. How well does top management interact with lower level managers & with the
board of directors?
6. What role do stock options play in executive compensation?
7. Is top management sufficiently skilled to cope with likely future challenge?
8. Are strategic decisions made ethically in a socially responsible manner?
9. How many managers have been in their current position for less than 3 years?
Were their internal promotions or external hires?
Strategic Audit
III. External Environment: Opportunities & Threats (SWOT).

A. Societal Environment. 1. What general environmental forces are currently
affecting both the corporation & the industries in which it compares? Which are
present current or future threats?
A) Economic.
B) Technological
C) Political Legal
D) Socio cultural
2. Are these forces different in other regions of the world?
B. Task Environment (Industry)
1. What forces drive industry competition? Are these forces the same globally or
do they vary from country to country?
A) Threat to new entrants.
B) Bargaining power of buyers.
C) Threat of substitute products or services.
D) Bargaining power of suppliers.
E) Rivalry among competing firms.
F) Relative power of unions, governments, special interest groups, etc.
2. What key factors in the immediate environment (that is, customers, competitors,
suppliers, creditors, labor unions, governments, trade associations , interest
groups, local communities, & shareholders) are currently affecting the corporation?
Which are current or future threats? Opportunities?
C. Summary of External Factors. (see EFAS table)
Which of these forces & factors are the most important to the corporation & to the
industries in which it competes at the present time? Which will be important in future.
Strategic Audit
IV. Internal Environment: Strength & Weaknesses (SWOT)

A. Corporate Structure.
1. How is the corporation structured at present?
A) Is the decision-making authority centralized around one group or decentralized to
many units?
B) Is it organized on the basis of functions, projects, geography, or some combination
of these?
2. Is the structure clearly understood by everyone in the corporation?
3. Is the present structure consistent with current corporate objectives, strategies,
policies, & programs as well as with the firms international operations?
4. In what ways does this structure compare with those of similar corporations?
B. Corporate Culture.
1. Is there a well defined or emerging culture composed of shared beliefs,
expectations, & values?
2. Is the culture consistent with the current objectives, strategies, policies, & programs?
3. Does the company take into consideration the values of each nations culture in which
the firm operates?
C. Corporate Resources.
1. Marketing.
a) What are the corporations current marketing objectives, strategies, policies, &
programs?
i) Are they clearly stated, or merely implied from performance and / or budgets?
Ii) Are they consistent with the corporations missions, objectives, objectives,
strategies, policies, & with internal & external environments?
.
Strategic Audit
(Contd) b) How well is the corporation performing in terms of analysis of market

position & marketing mix (i.e., product, price, place, & promotion) in both domestic
& international markets? What percentage of sales comes from foreign
operations? Where are current products in product life cycle?
1. What trends emerge from this analysis?
2. What impact have these trends had on past performance & how will they
probably affect future performance?
3. Does this analysis support the corporations past & pending strategic
decisions?
4. Does marketing provide the company with a competitive advantage?
c) How well does this corporations marketing performance compare with that of
similar corporations?
d) Are marketing managers using accepted marketing concepts & techniques to
evaluate & improve product performance? (Consider product life cycle , market
segmentation, market research, & product portfolios.)
e) Does marketing adjust to the conditions in each country in which it operates?
f) What is the role of the marketing manager in the strategic management
process?
2. Finance.
a) What are the corporations current financial objectives, strategies, policies &
programs?
i) Are they clearly stated or merely implied from performance and / or budgets?
Ii) Are they consistent with the corporations mission, objectives, strategies,
policies, & with internal & external environments?
Strategic Audit
b) How well is the corporation performing in terms of financial analysis? (Consider

ratios, common size statements, & capitalization structure.) How balanced , in
terms of cash flow, is the companys portfolio of products & businesses?
i) What trends emerge from this analysis?
ii) Are there any significant differences when statements are calculated in
constant versus reported Rupees?
iii) What impact have these trends had on the past performance & how will they
probably affect future performance?
iv) Does this analysis support the corporations past & pending strategic
decisions?
v) Does finance provide the company with a competitive advantage?
c) How well does this corporations financial performance compare with that of
similar corporations?
d) Are financial managers using accepted financial concepts & techniques to
evaluate & improve current corporate & divisional performance? (Consider
financial leverage, capital budgeting, ratio analysis, & managing foreign currencies)
e) Does finance adjust to the conditions in each country in which the company
operates?
f) What is the role of the financial manager in the strategic management process?
3. Research & Development (R&D).
a) What are the corporations current R&D objective, strategies, policies &
programs?
i) Are they clearly stated, or merely implied from performance and / or budgets?
ii) What is the role of technology in corporate performance?
Iii) Does R&D provide the company with a competitive advantage?
Strategic Audit
(contd) b) What return is the corporation receiving from its investments in R&D?
c) Is the corporation competent in technology transfer? Does it use concurrent
engineering & cross functional work teams in product & process design?
d) Does R&D adjust to the conditions in each country in which the company
operates?
e) What is the role of the R&D manager in the strategic management process?
4. Operations & Logistics
a) What are the corporations current manufacturing / service objectives, strategies,
policies & programs?
i) Are they clearly stated or implied from performance and/or budgets?
ii) Are they consistent with the corporations mission, objectives, strategies policies, &
with internal & external environments?
b) What is the type & extent of operations capabilities of the corporation? How much
is done domestically versus internationally? Is the amount of outsourcing appropriate
to be competitive? Is purchasing being handled appropriately?
i) If product oriented, consider plant facilities, type of manufacturing system
(continuous mass production, intermittent job shop, or flexible manufacturing), age &
type of equipment , degree & role of automation and /or robots, plant capacities &
utilization, productivity ratings, availability & type of transportation.
Ii) If service oriented, consider service facilities , (hospital, theater), type of operations
systems, continuous or otherwise, age & type of supporting system, degree & role of
automation and/or use of mass communication devises.
c) Are manufacturing or service facilities vulnerable to natural disasters, local or
national strikes, reduction or limitation of resources from suppliers, substantial cost
increase of materials, or nationalization by governments?
Strategic Audit
(contd) d) Is there an appropriate mix of people & machines in manufacturing firms, or
of support staff to professionals in service firms?
e) How well does the corporation perform relative to the competition? Is it balancing
inventory costs (warehousing) with logistical costs (just-in-time)? Consider cost per
unit of labor, material & overhead; downtime; inventory control management and/or
scheduling of service staff; production ratings; facility utilizations percentages; &
number of clients successfully treated by category (if service firm) or percentage of
orders shipped on time (if product firm).
i) What trend emerge from this analysis?
ii) What impact have these trends had on past performance and will they probably
affect future performance?
iii) Does this analysis support the corporations past & pending strategic decisions?
iv) Does operations provide the company with a competitive advantage.
v) Do operations & logistics adjust to the conditions in each country in which it has
facilities?
vi) Are operations managers using appropriate concepts & techniques to evaluate &
improve current performance? Consider cost systems, quality control & reliability
systems, inventory control management, personnel scheduling, TQM, learning
curves, safety programs, & engineering programs that can improve efficiency of
manufacturing or of service.
Vii) What is the role of the operations manager in the strategic management process?
5. Human Resource Management. (HRM)
a) What are the corporations current HRM objectives, strategies, policies &
programs?
Strategic Audit
5. Human Resource Management. (HRM)

a) What are the corporations current HRM objectives, strategies, policies &
programs?
i) Are they clearly stated, or merely implied from performance and/or budgets?
ii) Are they consistent with the corporations mission, objectives, strategies, policies, &
with external & internal environments?
b) How well is the corporations HRM performing in terms of improving the fit between
the individual employee & the job? Consider turnover, grievances, strikes, layoffs,
employee training, & quality of work life.
i. What trends emerge from this analysis?
ii. What impact have these trends had on past performance & how will they probably
iii. Does this analysis support the corporations past & pending strategic decisions?
iv. Does HRM provide the company with a competitive advantage?
v. Do the companys employees (skills, education, knowledge) provide trhe company
with a competitive advantage?
c) How does this corporations HRM performance compare with that of similar
corporations?
d) Are HRM managers using appropriate concepts & techniques to evaluate & improve
corporate performance? Consider the job analysis program, performance appraisal
system, up to date job descriptions, training & development programs, attitude
surveys, job design programs, quality of relationship with unions, & use of
autonomous work teams.
e) How well is the company managing the diversity of its work force? What is the
companys position & record on human rights?
f) What is the role of the HRM manager in the strategic management process?
Strategic Audit
6. Information systems (IS)

a) What are the corporations current IS objectives, strategies, policies, & programs?
b) How well is the corporations IS performing in terms of providing a useful data
base, offering Internet access & web sites, automating routine clerical operations,
assisting managers in making routine decisions, & providing information necessary
for strategic decisions?
i. What trends emerge from this analysis?
ii. What impact have these trends had on past performance & how will they probably
iii. Does this analysis support the corporations past & pending strategic decisions?
Iv. Does IS provide the company with a competitive advantage?
c) Are IS managers using appropriate concepts & techniques to evaluate & improve
corporate performance? Do they know how to build and manage a complex data
base, establish Web sites with fire walls, conduct system analysis, & implement
interactive decision support systems?
d) Does the company hve a global IS & internet presence? Does it have difficulty with
getting data across national boundaries.
e) What is the role of IS manager in the strategic management process?
V. Analysis of Strategic Factors (SWOT)
A. Situational Analysis
What are the most important internal & external factors (Strengths, Weakness,
Opportunities, Threats) that strongly affect the corporations present & future
performance? List 8 to 10 Strategic factors.
Strategic Audit
(Contd) B. Review of Mission & Objectives.

1. Are the current mission & objectives appropriate in the light of the key strategic factors
& problems?
2. Should the mission & objectives be changed? If so, how?
3. If changed, what will be the effects on the firm?
VI. Strategic Alternatives & Recommended Strategy
A. Strategic Alternatives.
1. Can the current or revised objectives be met by the simple, more careful implementing
of those strategies presently in use (for example, fine tuning the strategies)?
2. What are the major feasible alternative strategies available to this corporation? What
are the pros & cons of each? Can corporate scenarios be developed & agreed upon?
(Alternatives must fit societal, environment, industry, & company for next 3-5 years.)
a) Consider cost of leadership & differentiation as business strategies.
b) Consider stability, growth, & retrenchment as corporate strategies.
c) Consider any functional strategic alternatives that might be needed for reinforcement
of an important corporate or business strategic alternative.
B. Recommended strategy.
1. Specify which of the strategic alternatives you are recommending for the corporate
business, & functional levels of the corporation. Do you recommend different business or
functional strategies for different units of the corporation?
2. Justify your recommendation in terms of its ability to resolve both long - & short term
problems & effectively deal with the strategic factors.
3. What policies should be developed or revised to guide effective implementation?
4.What is the impact of recommended strategy on the companys core & distinctive
competencies?
Strategic Audit
(Contd) VII. Implementation.

A. What kinds of programs (for example, restructuring the corporation or instituting
TQM) should be developed to implement the recommended strategy?
1. Who should develop the programs?
2. Who should be in charge of these programs?
B. Are the programs financially feasible? Can pro forma budgets be developed &
agreed upon? Are priorities & timetables appropriate to individual programs?
C. Will new standard operating procedures need to be developed?
VIII. Evaluation & Control.
A. Is the current information system capable of providing sufficient feedback on
implementation activities & performance? Can it measure strategic factors?
1. Can performance results be pin pointed by area, unit, project, or function?
2. Is the information timely?
B. Are adequate control measures in place to ensure conformance with the
recommended strategic plan?
1. Are appropriate standards & measures being used?
2. Are reward systems capable of recognizing & rewarding good performance?
3. Who takes corrective action?
Joint Venture Strategies
A Joint Venture could be considered as an entry resulting from a long term

contractual agreement between two or more parties , to undertake mutually
beneficial economic activities, exercise joint control and contribute equity and
share in the profits or losses of the entity.
Mergers refer to a combination of two or more combinations into one company
and may be possible in two ways: Absorption and Consolidation. Absorption take
place in Mergers and Acquisitions where the company acquires another company. .
Consolidation takes place when two or more companies combine to form a new
company. Joint ventures are a special case of consolidation.
The technical definition of Joint Venture by the Reserve Bank of India is: a
foreign concern formed , registered or incorporated in accordance to the laws and
regulation of the host country in which the Indian party makes a direct investment,
whether such investment amounts to a majority or minority shareholding.
Conditions for Joint Ventures. Joint ventures may be useful to gain access to new
business, mainly under four conditions.
1. When an activity is uneconomical for an organization to do alone.
2. When the risk of business has to be shared and, therefore, is reduced for the
participating firms.
3. When the distinctive competence of two or more organization can be brought
together.
Joint Venture Strategies.
4. When setting up an organization requires surmounting hurdles such as import

quotas, tariffs, nationalistic political interests and cultural roadblocks.
From the above conditions, it can be seen that joint ventures are an effective strategy
when development costs have to be shared, risk spread out and expertise
combined to make effective use of resources.
Business Today identified five
Technology : The foreign partner in the joint venture can bring in high class
technology while the Indian partner has a good understanding of the local market.
Telecom and automobiles are examples where this is seen to be taking place.
Geography: There could be a case where a foreign player has a presence in many
key global markets like Prudential and Standard Life are large global players.. For
the Indian partner, it is a big opportunity to participate in the joint venture.
Regulation: This is normally the case when a highly regulated sector opens up.
Insurance, which for a long time was closed to foreign investment, today allows
up to 26% equity participation. This has seen a flow of foreign players Like Bajaj
and ICICI being the Indian partners.
Sharing of Risk and Capital.: This includes capital-intensive sectors like heavy
engineering that also require technological expertise, Here, both the partners look
for a scenario where risks can be equally shared.
triggers for a joint venture.
Intellectual exchange: Here, a sector like the legal business could serve as an
example. Though there is no clear cut law on the entry of foreign law firms, the
intellectual advantage at both ends is hard to ignore.
Types of Joint Ventures: Joint ventures are possible within industries, across
industries and across countries. But they are especially useful for entering
international markets. Frequently, Indian firms will enter a foreign market in a
joint venture with a foreign company. A foreign company entering India would also
enter into a joint venture with an Indian company. From the point of view of Indian
organizations, the following types of joint ventures are possible:
1. Between two Indian Organizations in one industry (e.g A joint venture between
NTPC Ltd and the Indian Railways for setting up a Rs 5,332 crore thermal power
plant at Nabinagar in Bihar, to meet the requirements of the rail network across the
country. The joint venture company, Bharatiya Rail Bijlee Company, will execute the
1000 MW plant, with NTPC holding 74% equity while the railways will provide the
balance).
2. Between two organizations across different industries (e.g. Action Aid India
and Tata Institute of Social Sciences in a joint venture, offering degree courses for
rural communities in India.
3.Between an Indian organization and a foreign organization in India (e.g DLF
Ltd forging 50:50 joint venture with Nakheel, a large property developer of the UAE
for two integrated townships in India at an investment of US $ 10 billion.
4. Between an Indian Organization and a foreign organization in that foreign

country (e.g Kirloskar Brothers Ltd, having a joint venture with SPP Pumps Ltd,
U.K, for catering to the EU market).
5. Between an Indian organization and a foreign organization in a third country
(e.g Apollo Tyres of India and Continental AG of Germany setting up a tyre
manufacturing joint venture in Malaysia).
Benefits and drawbacks in Joint Ventures. The major benefits that are likely to
accrue from joint ventures include minimizing risk, reduce an individual companys
investment, creating access to foreign technology, broad-based equity
participation, access to governmental and political support and entering new
fields of business and synergistic advantages.
The disadvantages that may arise in joint ventures are: 1. Problems in equity
participation., 2. Foreign Exchange regulations, 3. Lack of proper co-ordination
among participating firms, 4. Cultural & behavioral differences and the possibility
of conflict among the partners.
Indian organizations need to be on the guard as there is a high probability of the
joint ventures not working to their advantage. An analysis of the reasons by
Business Today , as to why joint ventures could fail leads to the following
conclusions.
Change of Strategy: India could cease to be of interest to a foreign partner. This
happened in the case of Bell Canada when the company decided that Asia as a
market was not strategic. Following this decision, it sold its stake in Tata Cellular
to the Indian promoters.
Regulatory Changes: Often, this is beyond the control of the partners. This could
work against the joint venture when either the limit on FDI has not been hiked in
time or if it has been reduced. Insurance has been a sector where the 26% FDI limit
for some time now, has not gone down too well with the foreign partners.
Success of joint venture. Ironically, if the joint venture is doing too well , one of
the partners becomes very keen on increasing its holding , which is not
acceptable to the other partner. Suddenly, a 50:50 partnership becomes hard to
manage.
Having partners hampers growth Sometimes, having a partner can hamper
growth prospects. In the case of Tata Telecom, the Tatas decided to sell their holding
to the other partner, Avaya Inc. It worked well for the partners who felt that they
would be better off on their own.
Lack of transparency It is very important that the ground rules are laid down well in
advance. If information is withheld , it can cause considerable levels of mistrust
among partners. This can have very serious consequences. The break up of the
Hutchison Essar joint venture is one where the lack of transparency has been
one of the key reasons.
Joint venture is a risky, yet a rewarding strategy, provided the partners share
strategic interests right from the beginning and work diligently to make the
partnership work.
Strategic Alliances
Yoshino and Rangan define strategic alliances in terms of three necessary and
sufficient characteristics.
Two or more firms unite to pursue a set of agreed upon goals, but remain
independent subsequent to the formation of the alliance;
The partner firms share the benefits of the alliance and control over the
performance of assigned tasks- perhaps the most distinctive characteristics of
alliances and the one that makes them so difficult to manage; and
The partner firms contribute on a continuing basis, in one or more key strategic
areas, for example, technology, product and so forth.
Some other authors define strategic alliance as a cooperative arrangement between
two or more companies where:
A common strategy is developed in unison and a win-win attitude is adopted by
all parties.
The relationship is reciprocal, with each partner prepared to share specific
strengths with each other, thus lending power to the enterprise.
A pooling of resources , investments and risks occurs for mutual (rather than
individual) gain. Strategic alliances are cooperation between two or more
independent firms involving shared control and continuing contributions by all
partners for mutual benefit
Strategic Alliances
Strategic Alliances by definition, cannot be tactical. In order to be strategic, an

alliance must satisfy one of these criteria.
It must be critical to the success of a core business goal or objective.
It must be critical to the development or maintenance of a core competency or
other source of competitive advantage.
It must enable blocking a competitive threat.
It must create or maintain strategic choices for the firm..
It must mitigate a significant risk to the business.
Reasons for Strategic Alliance: The primary reason why firms enter into
strategic alliances is to enhance their organizational capabilities and thereby

gain competitive or strategic advantage. For this to happen, then continually strive
to gain access to new markets and new supply sources. They also wish to become
more profitable by using the latest technology and making optimum utilization of
resources. When the firms that it is not feasible to either create resources
internally or to acquire them, they rely on strategic alliances to create a network
of beneficial relationships.
Walters, Peters and Dess lists several reasons why strategic alliances are used:
. 1 Entering new markets: A company that has a successful product or service
may wish to look for new markets. Doing so on ones own capabilities may seem to
be difficult. This is specially true in case a company wishes to explore foreign
markets. Here it is better to enter into partnership with a local firm which
understands the market better and is more culturally attuned to them.
Strategic Alliances
2. Reducing manufacturing costs: Strategic Alliances are used to pool resources to

gain economies of scale or make better utilization of resources in order to reduce
manufacturing costs. This is specially true of pro-competitive alliances where a long
term relationship is developed with suppliers and buyers.
3. Developing and diffusing technology: Strategic alliances may be used to
develop technological capability by leveraging the technical expertise of two or
more firms - an act which may be difficult to perform if these firms act
independently.
Apart from these reasons , strategic alliances are also used to accelerate product
introduction and overcome legal and trade barriers expeditiously. Speed and
timing are of essence in implementing strategies. Alliances may help firms to
attain these. New products and services are limited quickly by competitors. When
firms enter into strategic alliances with other firms, it is possible to pre-empt such
imitation . For instance , a global firm may introduce new products in foreign markets
quickly with the help of local firms. Then some countries insist upon local
participation before permitting foreign companies to enter their markets. Entry into
Life and General Insurance markets in India has been made contingent upon local
participation , in which case it is imperative for strategic alliance s to take place
between foreign and Indian firms.
Merger & Acquisition
Merger & Acquisition are two commonly used ways to pursue strategies. A merger
occurs when two organizations of about equal size unite to form one enterprise.
An acquisition occurs when a large organization purchases (acquires) a smaller
firm, or vice versa. When a merger or acquisition is not desired by one party, it can
be called hostile takeover. In contrast, if the acquisition is desired by both firms, it is
termed a friendly merger. Most mergers are friendly.
A merger is a combination (other terms used: amalgamation, consolidation or
integration) of two or more organizations in which one acquires the assets and
liabilities of the other in exchange for shares or cash, or both the organizations are
dissolved and assets and liabilities are combined and new stock is issued.. For
the organization which acquires another, it is an acquisition. For the organization
which is acquired , it is a merger. If both organizations dissolve their identity to create
a new organization, it is consolidation. Takeover or acquisition is a popular
strategic alternative adopted by Indian companies.
Types of Mergers and Acquisitions : M&A may be of different types and can be
classified as under:
1. Horizontal Mergers take place when there is a combination of two or more
organizations in the same business , or of organizations engaged in certain aspects
of the production or marketing processes. For instance a company making
footwear combines with another footwear company or a retailer of
pharmaceuticals combines with another retailer in the same business.
2. Vertical Mergers take place when there is a combination of two or more

organizations, not necessarily in the same business, which creates
complementarities either in terms of supply of materials (inputs) or marketing of
goods and services (outputs). For instance, a footwear company combines with
a leather tannery or with a chain of shoe retail stores.
3. Concentric Mergers take place when there is a combination of two or more
organizations related to each other either in terms of customer functions, customer
groups, or alternative technologies used. Thus a footwear company combines with a
hosiery firm making socks or another specialty footwear company, or with a leather
goods company making purses, handbags etc.
4. Conglomerate Mergers take place when there is a combination of two or more
organizations unrelated to each other either in terms of customer functions,
customer groups or alternative technologies used, e.g. a footwear company
combining with a pharmaceutical firm.
Reasons for Mergers and Acquisition. For a merger to take place , two
organizations have to act. One is the buyer organization and the other is the seller.
Both these types of organizations have a set of reasons on the basis of which they
merge. The following are some of the reasons.
Why the buyer wishes to merge:

1. To increase the value of the organizations stock.
2. To increase the growth rate and make a good investment.
3. To improve the stability of its earnings and sales.
4. To balance, complete or diversify its product line.
5. To reduce competition.
6. To acquire a needed resource quickly.
7. To avail tax concessions and benefits.
8. To take advantages of synergy.
Why the seller wishes to merge:
1. To increase the value of the owners stock and investment.
To increase the growth rate.
3. To acquire resources to stabilize operations.
4. To benefit from from tax legislation.
5. To deal with top management succession problem.
2.
In real life, mergers and acquisitions are handled by experts, which are usually
consultancy and legal firms.
We now discuss some
1. Strategic issues relate to the commonality of strategic interests between the buyer
and the seller firms. It is important to consider the extent to which a merger may lead to
positive synergistic effects . For this, the strategic advantages and distinctive
competencies of the merging firms have to be analyzed . Besides these, there has to
be a match between the objectives of the firms. A merger should ideally lead to the
generation of strengths that would help the post-merger organization to achieve its
objectives in a better manner.
2. There are three financial issues.: The valuation of the business and shares of
the target firm, sources of financing for mergers and taxation matters after merger.
The valuation of the business of the target firms is a detailed and comprehensive
process that should take into account a range of factors, including the tangible and
intangible assets, the industry profile of the firm valuation and its prospects and the
future earnings and prospects of the target firm.. The shares in a merger, similarly, is
a complicated process that takes into account a number of factors such as the stock
exchange price of the shares, dividends paid, growth prospects of the firm, value
of assets, quality and integrity of top management, industry, and competitive
conditions, opportunity cost assessment by computing yields on comparable
investments and market sentiments.
strategic, financial, managerial and legal

issues involved in mergers:
The second financial issue is of the source of financing for acquiring firms. There are
several sources of funds that range from the acquiring companies own funds or borrowed
funds, raised through the issues of debentures, bonds, deposits, external commercial
borrowings, global depository receipts, loans from Central or State financial institutions or
rehabilitation finance provided to sick industrial companies.
The third issue is of the taxation matters that are dealt with under the relevant provisions of the
Income Tax Act, 1961 and which are related to various technical aspects such as the carry
forward or set off of losses and unabsorbed depreciation, capital gains tax and
amortization of expenses.
3. Managerial issues in mergers relate to the problems of managing firms after the merger has
taken place. It is important to note that the perception of how the management will take place
after the merger also matters and affects the process of the merger itself. Usually, mergers are
followed by changes in staff, specially chief executives and top managers. If there is an
assurance that the merger will lead to status quo, or that professional management would be
adopted, then the merger may take place smoothly. On the contrary, if the merger is threatening,
it results in its opposition by well entrenched-group of managers making the process of merger
difficult. Quite often merger attempts are foiled because of managerial issues. This happens
because the post merger period poses uncertainty to managers of the merging companies.
They feel insecure about their jobs, status within the company and their earnings and
promotion. Feeling threatened by the impending changes, the existing managers oppose
change leading to low morale and productivity and often resulting in an exodus of managers.
4. Legal issues in mergers relate to the provisions made in law for the purpose of
mergers. In India, the provisions related to mergers and amalgamations and other
schemes, are contained in Chapter V of the companies act, 1956 and
specifically , in sections 391 to 395 of the Companies Act, 1956 and in the rules
67 to 87 of the Companies (Court) Rules 1959. The implementation of the
strategies of mergers and takeovers requires a thorough understanding of the related
provisions. It is interesting to note that the term merger is not used in the
companies act; only the term amalgamation is used in Section 394 of the Act. The
only section that deals with the transfer of shares (or takeover bids) is Section
395. Apart from the Companies Act and the MRTP Act, Section 72A (I) of the
Income Tax is also relevant for taxation purposes of amalgamated companies
and provides for carrying forward accumulated losses and unabsorbed depreciation
of the amalgamating company.
How Mergers and Acquisition Takes Place? Certain guidelines can be used for
M&A s to take place systematically. For instance, a six step procedure recommended
for an acquisition includes the following
1. Spell out the objective
2. Indicate how the objective would be achieved.
3. Assess managerial quality.
4. Check the compatibility of business styles.
5. Anticipate and solve problems early.
6. Treat people with dignity and concern.
It is interesting to knowhow much the talked about the M&A take place in reality. First,
the motivation for the take over is defined, albeit informally. The reasons for take
over are many: quick growth, diversification, establishing oneself s an industrialist,
reducing competition, increasing the market share or even creating goodwill (if sick
units are taken over for rehabilitation). Besides, these rational , there might be
others which are purely irrational such as greed or lust for becoming rich , to
accumulate wealth, to build an industrial empire, or to humble competitors and
business opponents.
The second step is a take over is to arrange for financing. We know the different
modes of financing of M&A as studied earlier. Apart from these, there are leveraged
buy outs (LBOs) or bootstrap acquisitions which involves raising funds by
pledging the assets of the firm to be taken over. After the finances have been
arranged - a move which is usually discreet is made through a trusted
intermediary, who is an accountant, a lawyer or a businessman. Development and
merchant bankers too act as intermediaries. Negotiations are made keeping in view a
number of factors like the valuation of assets, business goodwill , market
opportunities, growth potential etc. and a final arrangement made by fixing the price
to be paid for shares transfer. In this manner, a friendly takeover is consummated.
Tata Teas takeover of consolidated coffee (a grower of coffee beans) and Asian
Coffee (a processor) is an example of friendly takeover. Another example is of Tata
Steels foreign acquisition of the Anglo-Dutch steel company, Corus.
Hostile takeovers (where a takeover is resisted, or expected to be opposed, by the

existing management or professionals) follow a different route. Here the shares are
picked from the open markets and controlling interests obtained. With the tacit
help of other majority shareholders (usually one or more of the financial institutions),
a bid is made to enter the companys board and to acquire control. Resistance is
offered by the existing management by refusing to register the transfer of shares,
or to forestall the moves by deals through court orders and injunctions. It is
believed that the political support matters a lot in the measure of success achieved in
a bid to take over a firm. The example NEPC bid for Modiluft is a classic case of a
hostile takeover as the Modiluft management got the news of the takeover from the
leading dailies. Later, the takeover attempt got mired in controversy and court
interventions. In 1998, Sterlite Industries launched a hostile takeover bid for Indian
Aluminium . Another headline grabbing takeover battle in 2001 was by Renaissance
Estates (represented by Abhishek Dalmia) for Gesco Corpoation. Yet another hostile
bid for VST Industries by Bright Star Investments.
Pros and Cons of Mergers and Acquisitions : Arguments for and against takeovers
are often put forth. One school of thought believes that takeovers are necessary
and desirable (at least, not bad) because they ensure management accountability,
offer easy growth opportunities, create mobility of resources, avoid gestation
periods and hurdles involved in new projects, offer a chance to sick units to
survive and open up alternatives for selective disinvestment. Besides, they also
help firms increase sales revenue and enlarge their product and brand portfolios,
venture into new businesses and market share and decrease competition by
consolidation of the rival companies
The opponents of takeovers argue that professionalism gets replaced by money

power, the takeovers do not create any real assets for society and are detrimental
to the national economy, the interest of the minority shareholders are not
protected and avoidable stresses and strains are created in the companies taken
over or exposed to the threat of takeovers. Besides, takeovers reduce competition
and thereby, facilitate monopolistic or oligopolistic tendencies among firms,
increase of price & job losses for employees. Also, there could be difficulties in
cultural integration of the merging firms and while dealing with hidden liabilities of
the target firms.
Takeovers in India though quite a few of them have been controversial in the past
and, consequently, have faced adverse publicity are expected to be a viable
strategic alternative for organizations which choose the external expansion
strategy. In fact, where the reasons for takeover are rational making it a part of the
investment portfolio, using it to consolidate capacities, taking assistance in
diversification and integration and creating synergistic effects there, a takeover
strategy is a good proposition.
Although M&A success remains elusive for many companies, one thing is clear a
successful corporate development process must allow a company to avoid poor
opportunities and at the same time find the best opportunities and transform
those into value creating propositions. Successful companies continue to use
mergers as an integral part of their expansion strategies.
High Velocity Markets
The world is changing more & more rapidly, and consequently industries & firms
themselves are changing faster than ever. Some industries are changing so fast
that researchers call them high velocity markets or turbulent markets, such as
telecommunications, medical, biotechnology, pharmaceuticals, computer
hardware,, software, and virtually all internet-based industries. High velocity
change is clearly becoming more and more the rule rather than the exception even
in such industries, such as toys, phones, banking, defense, publishing, and
communication.
To meet the challenge of high velocity change three things are required:
(A) REACTING TO CHANGE.
This is a defensive measure. So Actions needed to counter this change which are as
follows:
(a) Introduce better products in response to new offerings of rivals.
(b) Response to unexpected changes to buyer needs & preferences.
(c) Adjust to new government policies.
The Strategy for above should be

a) React and respond as needed.
b) Defend and protect the companys position.
High Velocity Markets
(B) ANTICIPATING CHANGE

a) Analyze the prospects for market globalization
b) Research buyer needs, preferences, and expectations.
c) Monitor new technological developments closely to predict future path.
So Strategy should be
Plan ahead for expected future changes
(a) Add/adapt resources and competitive capabilities
(b) Improve product line
(c) Strengthen distribution
(C) LEADING CHANGE
This is an offensive measure. So strategy must change to be innovators.
a) Pioneer new & better technologies.
b) Introduce innovative products that open new markets and spur the creation of
whole new industries.
c) Seek to set industry standards
So, strategy should be
A) Seize the offensive
B) Be the agent of the industry change; set the pace
C) Influence the rules of the game.
D) Force rivals to follow.
High Growth Markets
High Growth Markets . Market growing at a rate more than 10% is considered as
high growth market. Achieving growth is the prime objective of all corporate
strategists, but there can also be risks in high growth markets. High growth allures
many players or competitors; high growth may also lead to fast changes in market
parameters or success factors; and, both these developments may show up. Let us
elaborate these risk factors.
Competitive Overcrowding
The biggest risk in high growth markets that it may attract too many competitors
with unrealistic sales and market share expectations, and, the growth or incremental
sales may not be sufficient to sustain all of them. For example, hundreds of PC
manufacturers entered the market in early 1990s. The Japanese entered in large
numbers and built excess capacity and, almost produced a glut in the market.
Competitive overcrowding , like this results in a big shake out or in a flux in the
market. The shakeout may take many forms: the high growth phase may turn into a
slow growth cycle because of saturation; technological changes in the product
group may lead to production process restructuring; intense competition may result in
price cutting, warfare, etc. Many companies do not anticipate these risks, and, by
the time the full repercussions of the shakeout become visible, companies get
disillusioned by sudden market developments and lose directions. A number of PC
manufacturers who thronged the market in the early 1990s finally closed down.
Global Strategy
Context for Internationalization Strategies. International trade & investment have

grown dramatically since the end of World War II. There have been several factors
that account for this growth. The major factors are the technological developments
reducing the transportation costs, improvement in communication technology
enabling better contact between trading & investing nations & their policy induced
trade liberalization leading to lowering of barriers to international trade &
investment. The tariff rates on trade have fallen & restrictions on cross-border
investments have eased considerably, creating a global environment conducive
to increase in international trade & investment.
The two trends of lowering of trade & investment barriers between nations &
easing the regulations governing trade & investment have led to intensification of
globalization of production & markets. Globalization has emerged as a potent
force owing to global integration the intensification of economic linkages
among nations - & the internationalization of markets, trade, finance,
technology, labor, communication, transportation & the economic institutions.
The globalization of production & markets has a profound impact on the corporate
strategies of organizations. Taking the advantage of lower tariff barriers & ease of
cross border investing , organizations can disperse production at locations
where they can reap economic advantages. Similarly, organizations can market
their products & services across borders owing to the ease of transportation &
communication.
International economic dynamics accompanied by geopolitical changes, over the
past several years, particularly since the oil crisis of 1973, have changed the
paradigms of international business. In the context of a changing international
environment, nations need to identify the industries & businesses that their firms
need to focus upon to gain a competitive edge.
Global Strategy
Porters Model of Competitive Advantage of Nations.

Porter, in The competitive advantage of nations, has extended his idea of the
competitive advantage of firms to the analysis of competitive advantages of
nations, later extended in his 1998 book on competition. In his opinion, four
national characteristics create an environment that is conducive to creating
globally competitive firms in particular industries. These 4 national
characteristics are also interrelated shown in the form of a diagram popularly
known as Porters diamond. The 4 factors are called the diamond determinants.
PORTERs DIAMOND MODEL
1. Factor conditions. The special factors or inputs of production such as natural

resources, raw materials, labor, etc. that a nation is especially endowed with.
2. Demand conditions. The nature & size of the buyers needs in the domestic
market.
3. Related & supporting industries. The existence of related & supporting
industries to the ones in which a nation excels.
4. Firm strategy, structure & rivalry. The conditions in the nation determining how
firms are created, organized & managed & the nature of domestic competition.
Based on an analysis of these 4 factors, a country can determine the industry or
industry niche in which a cluster of companies that are globally competitive can
be developed. But doing so is a task that requires a concerted & coordinated
action on the part of the national governments & the business firms. Government
plays a significant role in impacting these 4 factors. Chance or serendipity may
also play a role sometimes, which may help to explain why a nation or
geographical area with no apparent strength came to be associated with a
fortuitous industrial concentration.
The diamond of competitive advantage can be viewed as instrumental to the
creation of localized knowledge clusters, usually restricted to particular
industries, which arise from the linkages among specific factor conditions,
demand conditions, related & supporting industries & a particular configuration
of firm strategies, structure & rivalry.
Global Strategy
(contd) The framework of Porters diamond has in some cases been useful in
explaining why internationally successful industries from a particular nation
became globally competitive. This has been largely an outcome of favorable local
diamond determinants. This has happened for instance, in the case of automobile
industry in the US, leather industry in Italy or watch industry in Switzerland.
Porter defines a cluster as a geographically proximate group of interconnected
companies & associated institutions in a particular field, linked by commonalities
& complementarities. Here, it is fundamentally , conditions external to the individual
firm that drive cluster functioning while many forces & actors influence the ultimate
success of a cluster. These conditions may include specialized & advanced
production factors, sophisticated demand, cooperative linkages with firms in
related & supporting industries & intense domestic rivalry. The idea of clusters
helps to explain, for instance, why are there so many factories making leather
products at Agra & Kolkata or why safety matches units are concentrated at
Kovilpatti & Sivakasi.
The remarkable growth of the Indian IT industry or the Indian pharmaceutical s
industry can be partly understood & explained by the help of the Porters
competitive advantage model. The IT industry relied on the technical skills
available at lower cost, high demand created by domestic companies offering
software services to foreign firms & looking for outsourcing, existence of
semiconductor & other supporting industries to manufacture computer
hardware & the presence of IT clusters at many cities & the stiff competition that
Indian computer companies experienced all through the 1990s. The Indian
pharmaceuticals industry got a tremendous boost all through the 1970s & 1980s
through the protectionist policies of the government, large population creating a
huge demand for medicines, existence of upstream supplier industries &
competition among a large number of big & small in the organized & unorganized
sector .
Global Strategy
Four types of International Strategies. Two set of factors impinge upon a firms
decision to adopt international strategies:
Cost pressures denote the demand on a firm to minimize its unit costs. By doing so,
the firm tries to derive full benefits from economies of scale & location economies.
Ideally, the firm seeks a single low cost location, producing globally standardized
products & marketing them widely around the world to achieve economies of scale.
Typically cost pressures are high in industries that produce products that have
characteristics of a commodity such as chemicals, petroleum or steel. These products
serve universal needs. Some category of industrial & consumer products such as
personal computers or cameras too have similar characteristics.
Pressure for local responsiveness makes a firm tailor its strategies to respond to
national-level differences in terms of variables like customer preferences & tastes,
government policies or business practices. In doing so, the firm customizes its
products & services to the requirements of the individual country-market it is serving. A
whole range of products & services like cars, clothes, food, entertainment or
insurance face pressures for local responsiveness & firms have to tailor them to the
requirements of individual country-markets.
Often the pressure for cost reduction & the pressure for local responsiveness act in
a contrary manner minimizing unit costs may not be possible when products &
services have to be differentiated across countries. The juxtaposition of these two
factors leads to 4 types of international strategies.
According to Bartlett & Ghosal, there are 4 types of international strategies: (1)
international strategy, (2) multi domestic strategy, (3) global strategy & (4)
transnational strategy.
(1) Firms adopt an international strategy when they create value by transferring
products & services to foreign markets where these products & services are not
available. This is a simple strategy in the sense that an international firm, by
maintaining a tight control over its overseas operations, offers standardized
products & services in different countries, with little or no differentiation.
Global Strategy
(2) Firms adopt a multi domestic strategy when they try to achieve a high level of
local responsiveness by matching their products & service offerings to the
national conditions operating in the countries they operate in. In this case, the
multi domestic firm attempts to extensively customize their products & services
according to the local conditions operating in the different countries. Obviously
this leads to a high-cost structure as functions such as research & development,
production & marketing have to be duplicated.
(3) Firms adopt a global strategy when they rely on a low cost approached based
on reaping the benefits of experience-curve effects & location economies &
offering standardized products & services across different countries. The global
firm tries to intensify focus on a low cost structure by leveraging their expertise in
providing certain products & services & concentrating the production of these
standardized products & services at a few favorable locations around the world.
These products & services are offered in an undifferentiated manner in all
countries the global firm operates in, usually at competitive prices.
(4) Firms adopt a transnational strategy when they adopt a combined approach of
low-cost & high local responsiveness simultaneously , for their products &
services. Dealing with these two often contradictory objectives is a difficult
proposition & calls for a creative approach to managing the production &
marketing of products & services. Bartlett & Ghosal make a strong case for
adopting the transnational strategy as they opine that this is possibly the only
viable strategy in a competitive world. They feel that the flow of expertise should
not be one way process from the transnational firm situated in a developed
country to the developing countries it operates in. Rather, a transnational firm
should transfer the expertise from the foreign subsidiaries to its headquarters &
from one foreign subsidiary to another foreign subsidiary through a process they
term as global learning.
Global Strategy
FOREIGN INVESTMENT
It is not possible to maintain substantial market standing in an important area unless one
has a physical presence as a producer.
Besides the advantage of getting a feel for the market, offshore investments are
encouraged by such factors as cost advantage, trade barriers etc. The demand for local
content is also satisfied by production in the respective countries.
Foreign investment by Indian companies has so far been very limited. The attractiveness
of the domestic market, lack of global orientation, government regulations etc. have
been responsible for this.
Many Indian companies are setting up manufacturing, assembly / trading bases abroad,
either wholly or in partnership with foreign firms. These would help these companies to
increase their international business.
Indian companies have also been making investments abroad on acquisitions. Several of
these overseas investments aim not only at expansion of production base & business
abroad but also at consolidation of the domestic business.
MERGERS & ACQUISITIONS
These are very important market entry as well as growth strategy. M&A have certain
advantages. It may be used to acquire new technology. M&A would have the effect of
eliminating / reducing competition. One great advantage of M&As in some cases is that it
provides instant access to markets & distribution network. As one of the most difficult
areas in international marketing is the distribution network, some prefer to buy up small
companies with good distribution network. A number of Indian companies have also
resorted to acquisition of companies abroad to gain a foothold in the foreign market & to
increase the overseas business. There were a spate of such takeovers of East German
firms making India as one of the top ten investors in the former East Germany.
Global Strategy
JOINT VENTURES
The reason for & advantages of joint ventures have been described earlier. Joint venturing
is a very important foreign market entry & growth strategy employed by Indian firms.
In several cases joint ventures, as in the case of foreign subsidiaries, help Indian firms to
stabilize & consolidate their domestic business, besides the expansion of the foreign
business. Essar Gujarats joint venture, as in the case of foreign subsidiaries, help Indian
firms to stabilize & consolidate their domestic business, besides the expansion of the
foreign business. Essar Gujarats JVs in countries like Indonesia & Bangladesh to
manufacture cold rolled (CR) steel have resulted from a strategy to create an assured
market for its hot rolled (HR) coil mother plant at Hazira (HR coils are inputs for
manufacturing CR steel products).
STRATEGIC ALLIANCE
Strategic alliance provides enormous scope for the Indian business to enter / expand the
international business. This is particularly important for technology acquisition &
overseas marketing. Alliance is indeed an important international marketing strategy
employed by several Indian firms.
LICENSING & FRANCHISING
These involve minimum commitment of resource & effort on the part of the international
marketer, are easy ways of entering the international market. Many Indian firms can use
licensing or franchising for the overseas market; particularly the developing countries.
For example Ranbaxy has licensing arrangement in countries like Indonesia & Jordan.
Global Strategy Vs Multi-country

Strategy
Thompson, Strickland & Gamble (2005) have differentiated between two strategies
based on the type of competition; Multi country strategy, & Global strategy. They
discussed the suitability of each strategy as stated below:
A Multi country strategy is appropriate for industries where multi-country
competition dominates & local responsiveness is essential. A global strategy
works best in markets that are globally competitive or beginning to globalize.
So for any successful business decision maker, he/she should be aware of those
factors that will affect his/her strategy.
Global strategy succeeds when products & services requirements from country
to country are similar & close. It also suits global or emerging markets, those
markets in which global competition exists.
On the other hand, multi-country strategy works when local cultures & needs
differ from country to another, which in turn affects the products specifications.
Those changing needs demand for more customizable products & services.
Another very important point is the governmental regulations & trade barriers. For
example, all international products manufactured in Egypt, should contain 40% of
the components from local providers. This mandatory Govt. regulation lead car
manufacturers to change in design & specifications, in order to easily source
these components from the local market.
Global strategy: For those organizations that apply global strategy they need to
uniform & coordinate strategic decisions globally. These firms usually work in
industries, products, & services that have high global demand. They may
compete with local rivals as well as global players.
Global Strategy Vs Multi-country

Strategy
When is a multi country strategy is preferable to a global strategy?

Host governments enact regulations requiring that products sold locally meet
strictly defined manufacturing specifications or performance standards and / or
when the trade restrictions of host governments are highly diverse
The industry is characterized by big economies of scale & strong experience curve
effects.
Entry barriers are low, the firm has limited financial capital, market conditions in
many countries are volatile & uncertain & there are big differences in production
costs from country to country ( because of wage rates, workers productivity, &
the prices of parts & components)
Market growth rates vary considerably from country to country.
A big majority of the companys rivals are pursuing global strategies, have
multiple profit sanctuaries, & are prone to employ cross-market subsidization.
Management Of Risk & Trade-offs
Practicing managers face many sources of uncertainty in their strategic decisions.

They are trying to make decisions that enable their organizations to cope with an
uncertain environment & unpredictable reactions of human beings in their
organization.
There is an important difference between managing risk & avoiding it. In the
1960s, several firms developed corporate-level strategies that were aimed at
diversifying away their risk. They deliberately bought businesses that they
thought would generate high profits in economic circumstances that would reduce
returns from their core business. This strategy was intended to let the corporation
generate stable, high returns from its portfolio.
The risk avoidance strategies were rarely successful. They were based on earlier
strategic theories that tended to overestimate the ability of managers to add value to
unrelated businesses, & to underestimate the costs of diversification. These
strategies also overlooked the economic relationship between risk & reward by
diminishing their exposure to risk, these firms also reduced the probability of
their making exceptionally high returns.
Risk management strategies, by contrast, involve acquiring a detailed knowledge
of the risks involved in a range of businesses. Managers then try to ensure that the
firm has sufficient cash & other resources to remain viable when the environment
is unfavorable, & that it can make exceptional profits in favorable circumstances.
One factor that distinguishes successful risk management from risk avoidance is
making the right strategic commitments. The right level of strategic
commitment, & the degree of diversification of risk that is appropriate, will vary
across different firms in different industries.
Many theorists, most notably Michael Porter, believe that in order to arrive at a
sustainable competitive position an organization has to make trade-offs It must
decide which users it wishes to focus its efforts upon, & set up all its systems.&
processes, & its structure to deliver the services that those users desire, in the way
that they want to receive it.
Common Trade-offs & Paradoxes

Trade Off
On the one hand
Flexibility
Premature commitment can waste
versus
resources. Prolonged commitment
commitment can lock resources into
unproductive areas. Flexibility
helps diminish risk.
but on the other hand

Failure to commit sufficient
resources early enough may lead to
markets being lost to more
adventurous or committed players
Diversificati
on versus
focus
Too much reliance in one set of

Too wide a spread can leave each
customers & markets can render an constituent business vulnerable to
organization vulnerable to their
more focused competitors.
whims.
Efficiency
versus
innovation
Small efficiency gains can be the

difference between success &
failure in highly competitive
industries. Innovation can give
world-beating products, or big-step
gains in customer service or
efficiency
If a firm commits too much time &

attention to refining its core
competencies, it may overlook
changes in the environment that make
them worthless. But if it commits all its
attention to innovation, it may never
become efficient enough at any thing
to make money from its new
developments
Managing Change
Managing Strategic Change. A study based on Fortune 500 firms indicating that the
success rate for change has been very low (20-50%). We will explore some of the
factors that prevent organizations making changes.
Impediments to Change. There are a number of reasons why organizations do not
change as needed.
1. Failure to recognize change in the environment. While dramatic shifts in the
environment are seen by managers, slower though important, changes may not
be perceived. A characteristic of perception is to focus on what we consider
important, & to ignore other stimuli. When changes take place in dimensions that
managers have traditionally not paid attention to, they might miss the changes.
Strategic planning techniques like scenario planning are useful in bringing
managers attention to changes they might otherwise miss.
2. Complacency because of existing success: Many successful organizations
become complacent because they are so successful. An attitude of over confidence
develops, & they tend to feel they are invincible. They might underestimate
competition & fail to react until the rival is strong. An example is HLL that
discounted Nirmas entry into the detergent market when its brand Surf was the
market leader. This complacency not only cost HLL the leadership position in that
segment, but also allowed its competitor to enter into many related niches.
3. Misinterpretation of changes. Even when managers notice changes in their
environments, they might misinterpret the changes. Negative changes in the
environment might be explained away & viewed as a temporary problem. If the
changes are seen as threatening to the organization there may be a tendency for
people to become rigid & make narrow interpretations of what they see.
4. Organizational forces that prevent change. Sometimes, managers may be fully
aware of the changes in the environment, & of the changes they need to make
internally, but fail to make the needed changes.
Managing Change
(contd) This could be due to many reasons from failure to get approval &
resources for making changes to poor implementation of the change plan.
MAKING CHANGES HAPPEN. Making changes happen in organizations is a skill. It
is not a dearth of ideas that prevent organizations from making changes but the
lack of skill in making changes. McKinsey consultants observed that while there
was no best way to manage change it depends on the companys performance
challenge, the leaders aspiration, & the human energy level in the organization
there are some underlying lessons.
Lewin visualized two sets of forces one that drives the change, & one that
restraints change. When the forces are balanced, the status quo is maintained. In
order to make changes, one either needs to reduce the forces maintaining status
quo or increase the forces pushing for change. Lewin felt that it is easier to
accomplish change by reducing the forces that maintain status quo. He saw the
change as having three stages.
Stage 1. Unfreezing. Reduction of forces maintaining current status. This could be
done by presenting information that shows the discrepancy between current &
desired behavior.
Stage 2. Moving (or making the change) Making the change that was planned.
Stage 3. Refreezing. Introducing systems, procedures etc that will reinforce the
change. .
The first step in the process is to understand why & how performance needs to
improve. Immediate threats to an organizations survival will need sharper
responses than opportunities & challenges in its horizon, which may be met with
incremental responses. In the former situation a more direct approach may work,
while in the later, an important challenge may be to convince people of the need to
change. After identifying the performance challenge, one should identify what needs
to be changed.
Managing Change
(contd) Some change levers directly affect performance, such as reduction in

overhead. Others have indirect effects changing an organizations structure,
culture etc. Ultimately there should be an impact on the performance of the
organization. These consultants also observed that although the change initiator
might have lots of energy, the key was to harness the energy of others. This
involves seeing the change from others perspectives.
A crucial insight into peoples motivation to change is to understand that what is
beneficial for the organization may not be seen as beneficial by an affected
individual. For example, a change may imply a loss of power or status for an
individual. And even if the change is beneficial for the organization, the affected
individual is likely to resist it. When confronted with a change, individuals often ask
the question how will the change affect me? If the answer to that is perceived as
negative, one cannot assume support. It is also important to keep that period of
strategic change are stressful for individuals, & arouse strong emotions in them.
Emotions influence perception , which in turn influences how much an individual will
support or resist change. In addition to issues of self-interest, people might also
resist change because when changes are being made that affect them, but they had
no role in planning, they feel powerless. People are most likely to support
changes done by them rather than to them. Thus an important strategy to manage
change is to involve key people in planning & implementing the change. The more
people see the change as done by them, the more they will feel it represents their
self interest, & the more they will cooperate to make it succeed.
Changes may be initiated by either top management (top down), or from pockets
within the organization (bottom-up). Changes that are initiated by the top
management involve the major challenge of convincing people who have to make
changes happen that it is in their best interest to change.
Managing Change
(contd) Changes from pockets within the organization might start with more grass
root support. The challenge in that case is to obtain needed resources & the
support of top management.
STEPS IN LEADING CHANGE. 1. Identify whether the organization needs to
change.
2. Establish a sense of urgency. This may be easier to do when the organization is
facing a crisis, but is essential to do even when goal is to pursue an opportunity.
3. Form a powerful guiding coalition. It is essential to involve key people early in
the change process. Jointly diagnose the underlying business problem.
4. Identify sources of resistance to change. Identify those who are likely to resist
change, & address their concerns. Provide all affected people an opportunity to
give their inputs. Encourage as much participation as possible.
5. Create vision. Jointly create a vision to help guide the change effort.
6. Communicate the vision. Using all the means possible, clearly communicate the
vision. Foster support for the vision.
7. Remove obstacles to change. Provide training & support, & change policies,
procedures, & systems that hinder the change. Empower those who need to
implement the changes.
8. Plan for & create short term wins. Plan for & showcase successes. Recognize
& reward employees responsible for these successes.
9. Consolidate improvements. Using the successes as leverage, change
systems, policies etc. that do not fit the vision, & develop talent & skills needed to
further implement the vision. Make adjustment to the plans, if needed.
10. Institutionalize the changes. Develop new policies, procedures, reward
system, etc. to ensure that the changes become entrenched
General Framework for Managing

Change
Successful organizations show fits between various internal dimensions & strategy.
Strategy. This represents the direction of the company. It includes the vision,
business definition, goals, & positioning of the company vis--vis its environment.
Changes can range from incremental changes like selling current products in new
territories to transformational changes like disinvestment.
Resource allocation. To make strategies work, resources will have to be allocated.
For example, to sell current products in new territories , an organization will need to
allocate funds to marketing the product in that area.
Leadership & culture. The culture of an organization governs the behavior of
members of that organization. If an organizations strategy requires increased
innovation, it will need to foster a climate where innovation is valued. Leaders, by
their actions, foster the culture of an organization.
Systems & procedures. They include accounting & budgeting systems, information
systems, & other policies & procedures used by organizations.
Human resource management. People make changes happen. This includes
communication about the changes, dealing with resistance to change, & providing
training, support & incentives for change. Often rewards systems may need to be
modified to reinforce changes. In some situations, hiring new people, pr changing
people might be required.
Organizational Structure. This determines how the task of the organization are
arranged, & what organizational members will pay attention to. For example, if a
company wants to become more customer oriented but its structure is product
oriented, it might, need to change its structure to one that is customer based.

Change
(contd) The above dimensions are interlinked, & organizational change can be
triggered by changes in any of the dimensions. For example, a new strategy may be
formulated, a new leader might take over, or the organization might be restructured.
When one of these dimensions changes, other dimensions will often need to be
changed. If the other dimensions remain unchanged, there could be a mismatch, &
various problems will result. An example of this would be an organization that has
primarily been a single business that moves towards related diversification &
acquires another company (this is a change in strategy). A key factor to make this
strategy successful is to obtain synergies from the new unit. The organization will
need to make changes in the structure may be change from a functional to a
divisional structure - & develop mechanisms to integrate the two divisions to
maximize their relationships. Systems & procedures to integrate the different systems
between the two firms will need to be developed, e.g. new order processing systems,
information systems, or accounting systems. The two divisions will obviously will have
different cultures. But if they are to work together, it is likely that both divisions will find
their cultures modified. Resource allocation will need to shift with two divisions.
Human resource policies & procedures to encourage & reward collaboration across
divisions will also be essential for the organization to benefit from its diversification.
We will illustrate the above framework for managing change using the context of
disinvestment & privatization. Disinvestment involves a transfer in ownership of an
entity from the public to the private sector. What makes this so challenging is the
immensity of the changes. There is often a need to change the entire mindset &
culture of the organization. Thus investment is a major challenge for change
management.

Change
AREAS WHERE CHANGE IS REQUIRED.

1. Goal & Strategy. Public sector enterprises focus on political objectives & interests,
& the welfare of public sector employees profits are not always the primary goal.
When the organization shifts to private ownership, a new stakeholder needs to be
satisfied the shareholder. To maximize shareholder value, organizational goals
need to shift towards profit maximization.
2. Leadership. Replacement of top management can be a major catalyst in
organizational change. Existing managers may be reluctant to allow some of the
changes that need to be made, as it might constrain their actions. In addition existing
managers simply may not understand the need for some changes. Bringing in new
management teams with private sector experience & identifying people within the
organization with such skills, might facilitate the change process greatly. As in all
changes, support of top management is essential for success.
3. Middle-level Managers. The job content of middle level managers will also need
to be changed from that of mere administrative control to that of initiative, the
implementation of changes, & the motivation of the teams supervised by the middle
managers.
4. Culture. The culture that was appropriate before the firm was privatized will need
to be changed. For example, managers at all levels often do not have much
discretion to initiate changes in the public sector, but will be expected to do so in the
private sector. A culture fostering such behavior needs to be nurtured. Overall, an
increased concern for efficiency, & a customer & market orientation needs to be
developed. Changes in leadership, reward systems, & human resource policies will
aid in changing the culture.

Change
5. Reward systems & other human resource policies. Many of the constraints in
public sector organizations that prevent the alignment of managers rewards with
market performance need to be removed. Human resource policies increasing
accountability for results need to be introduced. A combination of incentives for
positive results& negative consequences, including threat of dismissal for nonperformance, might need to be introduced. Training for new skills needed at various
levels in the organization should also be considered.
6. Systems & procedures. Governance systems will change, as will new systems for
resource allocation & information sharing among others.
7. Structural changes. Many public sector organizations tend to be overstaffed. In
countries where it is not difficult to lay off employees, disinvestment was followed by
reductions in layers of management & overall staff strength. Companies could find
other ways to decrease the staff strength eg. By providing incentives for early
retirement, retraining employees, & better utilizing their skills. These changes often
call for a regrouping of employees. It is also important to decrease the level of
bureaucratization that characterizes many public sector companies. Many public
sector organizations tend to be very centralized, & another important structural
change is to increase decentralization.
It is important to recognize that these are radical changes, & the associated
uncertainty is likely to create stress for employees. Employees might wonder about
the security of their jobs, & their ability to meet the new demands made on them. This
is likely to cause resistance to change as well as a decrease in performance.
Excellent communication & change management is essential to deal with this.
Triggers for Change
Organizations do not change easily unless there is a significant trigger for change.
Triggers for change may come in the form of opportunities or threats, & may
originate from inside or outside the company. There may be changes in government
regulations, resulting in disinvestments, or in opening up of previously regulated
sectors to competition as in banking, oil& gas, broadcasting & telecommunications.
There may be new competitors who might challenge even the most successful
firms. Changes may also be triggered when customers tastes change, or when
there are technological innovations such as internet. Internally, changes in
leadership, union activities, or employees initiatives may trigger change.
Regardless of the source of triggers for change, organizations need to be aware of
the need for change & be successful in making the needed changes. If they are to
survive & thrive in the long run.
While all industries need to change, the necessity to change is most challenging in
industries that have short product & process life cycles. While industries such as
aircraft, shipbuilding, & diamond mining have process & product innovations in
cycles of 10-20 years or linger, other industries such as entertainment industry,
personal computers, toys & games have product or process technologies that
change within six months to a maximum of two years. A feature of such industries
with short life cycles is constant product & process innovation, coupled with the
difficulty in predicting the direction that technology will evolve. For example, in
wireless technology there are currently numerous platforms being used in Asia
Pacific GSM, CDMA, i-mode, 3G & WAP, while in Western Europe GSM/GPRS &
WAP are primarily used. It is not certain at this point which technology will
dominate & link all users. In such turbulent industries, managing change is even
more challenging as past success patterns do not necessarily provide the path
to future success. This creates a special challenge for organizations as they plan
their strategy for the future.
Strategic Management In
Entrepreneurial Organizations
The Entrepreneur As Strategist. 1. Often defined as a person who organizes &

manages a business undertaking & who assumes risk for the sake of a profit , the
entrepreneur is the ultimate strategist. 2. He or she makes all the strategic as well
as operational decisions. All the three levels of strategy corporate, business, &
functional are the concerns of this founder & owner / manager of a company. As
one entrepreneur puts it Entrepreneurs are strategic planners without realizing it.
The founding of Nirma captures the key elements of the entrepreneurial venture: 1.
a basic business idea that has not yet been successfully tried & a gutsy
entrepreneur who , while working on borrowed capital & a shoe string budget,
creates a new business through a lot of trial & error & persistent hard work.
Successful new ventures often propose an entirely new approach to doing
business, called a new business model. A business model describes the mix of
activities a company performs to deliver goods & services to customers. Coined in
the 1990s, the term is used to show how the internet & global trade are changing
how companies must do business today.
Use of Strategic Planning & Strategic Management. Research shows that
strategic planning is strongly related to small-business financial performance. A
survey of high growth Inc. 500 firms revealed that 86% performed strategic
planning Of those performing strategic planning , 94% reported improved profits.
Nevertheless, many small companies still do not use the process. The reasons
often cited for the apparent lack of strategic planning practices in many smallbusiness firms are fourfold.
1. Not enough time: Day to day operating problems take up the time necessary for
long term planning. Its easy to justify avoiding strategic planning on the basis of
day to day crisis management. Someone will ask How can I be expected to do
strategic planning when I dont know if Im going to be in business next week?
(Contd) Unfamiliar with strategic planning. The small business CEO may be
unaware of strategic planning or may view it as irrelevant to the small business
situation. Planning may be viewed as a straight jacket that limits flexibility.
Lack of skills. Small business managers often lack the skills necessary to begin
strategic planning & do not have or want to spend the money necessary to import
trained consultants. Future uncertainty may be used to justify a lack of planning.
One entrepreneur admits, deep down, I know I should plan, but I dont know what to
do. Im the leader but I dont know how to lead the planning process.
Lack of Trust & openness: Many small business owner / managers are very
sensitive regarding key information about the business & are thus unwilling to
share strategic planning with employees or outsiders. For this reason boards of
directors are often composed only of close friends & relatives of the
owner/manager- people unlikely to provide an objective view point or
professional advice.
DEGREE OF FORMALITY. Research generally concludes that the strategic
planning process can be far more informal in small companies than it is in large
corporations. Some studies have been found that too much formalization of the
strategic planning process may actually result in reduced performance. It is
possible that a heavy emphasis on structured, written plans can be dysfunctional
to the small entrepreneurial firm because it detracts from the very flexibility that is
a benefit of small size. The process of strategic planning , not the plan itself, is
probably the key to improving business performance. Research does show,
however, that as an entrepreneurial firm matures, its strategic planning process
tends to become more formal.
Usefulness of strategic management model. The model of strategic management
is also relevant to entrepreneurial ventures & small business. The basic model
holds for both an established small company & a new entrepreneurial venture.
Formal
Define mission
Set Objectives
Formulate strategy
Determine policies
Establish programs
Prepare pro forma budgets
Specify procedures
Determine performance measures.
Informal
What do we stand for?
What are we trying to achieve?
How are we going to get there? How
can we beat the competition?
What sort of ground rules should we all
be following to get the job done right?
How should we organize this operation
to get what we want done as cheaply
as possible with the highest quality
possible?
How much is it going to cost us &
where can we get the cash? In how
much detail do we have to lay things
out, so that every body knows what to
do?
What are those few key things that will
determine whether we can make it?
How can we keep track of them?
Usefulness of strategic decision-making process.

The proposed strategic decision-making process for entrepreneurial ventures is
composed of the following 8 interrelated steps.
1. Develop the basic business idea a product and/or service having target
customers and/or markets. The idea can be developed from a persons
experience or generated in a moment of creative insight.
2. Scan & assess the internal factors relevant to the new business. The
entrepreneur should objectively consider personal assets, areas of expertise,
abilities, & experience, all in terms of the organizational needs of the new venture.
3. Scan & assess the external environment to locate factors in the societal & task
environments that pose opportunities and threats. The scanning should focus
particularly on market potential & resource accessibility.
4. Analyze the strategic factors in light of the current situation using SWOT. The
ventures potential strengths & weaknesses must be evaluated in light of
opportunities & threats. Develop a SFAS of the strategic factors.
5. Decide go or no go. If the basic business idea appears to be a feasible
business opportunity, the process should be continued. Otherwise further
development of the idea should be cancelled unless the strategic factors change.
6. Generate a business plan specifying how the idea will be transformed into
reality. The proposed ventures mission, objectives. Strategies, & policies., as well
as its likely board of directors & key managers should be developed. Key internal
factors should be specified & performance projections generated.
The strategic audit can be used to develop a formal business plan.
7. Implement the business plan through the use of action plans & procedures.
8. Evaluate the implemented business plan through comparison of actual
performance against projected performance results. To the extent the actual
results are less than or much greater than the anticipated results, the entrepreneur
needs to reconsider the companys current mission, objectives, strategies,
policies & programs, & possibly make changes to the original business plan.
FACTORS AFFECTING A NEW VENTURES SUCCESS.
According to Hofer & Sandberg, three factors have a substantial impact on a new
ventures performance. In order of importance , these factors affecting new
venture success are: (1) the structure of the industry entered , (2) the new
ventures business strategy, & (3) behavioral characteristics of the entrepreneur.
Industry Structure. Research shows that the chances for success are greater for
entrepreneurial ventures that enter rapidly changing industries than for
those that enter stable industries. In addition prospects are better in industries that
are in the early high growth stages of development. Competition is often less
intense. Fast market growth also allows new ventures to make some mistakes
without serious penalty. New ventures also increase their chances of success
when they enter markets in which they can erect entry barriers to keep out
competitors.
Contrary to popular wisdom , patents may not always provide competitive
advantage, especially for new ventures in a high-tech or hyper competitive
industry. A well financed competitor could examine a newly filed application for a
patent, work around the patent , & beat the pioneering firm to market with a
similar product. In addition, the time & cost of filing & defending a patent may
not be worth the effort.
(contd) Industry structure. According to Connie Bagley, It might take 18 months to

get a patent on a product that has a 12-month life cycle. By the time you finally get
the damn thing litigated, its meaningless. So people are focusing less on
proprietary assurance & more on first mover advantage. The law is just too
slow for this high-speed economy.
Most new ventures enter industries having a low degree of industry concentration
(that is no dominant competitors). Industry concentration is not necessarily bad.
It may create market niches being ignored by large firms. Hofer & Sandberg
found that a new venture is more likely to be successful entering an industry in
which one dominant competitor has a 50% or more market share than entering an
industry in which the largest competitor has less than a 25% market share. To
explain this phenomenon , Hofer & Sandberg point out that when an industry has one
dominant firm, the remaining competitors are relatively weak & are a easy prey
for an aggressive entrepreneur. To avoid direct competition with a major rival,
the new venture can focus on a market segment that is being ignored.
Industry product characteristics also have a significant impact on a new
ventures success. First, a new venture is more likely to be successful when it
enters an industry with heterogeneous (different) products) than when it enters
one with homogeneous (similar) products. In a heterogeneous industry, a new
venture can differentiate itself from competitors with a unique product; by focusing
on the unique needs of a market segment, it can find a market niche. Second, a
new venture is, according to research data, more likely to be successful if the
product is relatively unimportant to the customers total purchasing needs than if
it is important. Customers are more likely to experiment with a new product if the
cost is low & product failure will not create a problem.
BUSINESS STRATEGY.
According to Hofer & Sandberg, the key to success for most new ventures is (1) to
differentiate the product from those of other competitors in the areas of quality &
service & (2) to focus the product on customer needs in a segment of the market
in order to achieve a dominant share of that part of the market (Porters focused
differentiation competitive strategy). Adopting guerrilla war fare tactics, these
companies go after opportunities in market niches too small or too localized to
justify retaliation from the market leaders.
To continue its growth once it has found a niche, the entrepreneurial firm can
emphasize continued innovation & pursue natural growth in its current markets. It
can expand into related markets in which the companys core skills, resources, &
facilities offer the keys to further success.
Some studies do indicate, however, that new ventures can also be successful
following strategies other than going after an undefended niche with a focus
strategy. A narrow market approach may leave the new firm vulnerable &
preordained to only limited sales. One possible approach would be to offer products
that are substitutable to, but differentiated from, those offered by bigger firms.
ENTREPRENEURIAL CHARACTERISTICS
Four entrepreneurial characteristics are key to a new ventures success.
Successful entrepreneurs have:
1. The ability to identify potential venture opportunities better than most people.
They focus on opportunities not on problems- & try to learn from failure.
Entrepreneurs are goal oriented & have a strong impact on the emerging culture
of an organization. They are able to envision where the company is going & are
thus able to provide a strong overall sense of strategic direction.
(contd) 2. A sense of urgency that makes them action oriented. They have a high
need for achievement, which motivates them to put their ideas into action. They
tend to have internal focus of control that leads them to believe that they can
determine their own fate through their own behavior. They also have significantly
greater capacity to tolerate ambiguity & stress than do many in established
organizations. They also have a strong need for control & may even be viewed as
misfits who need to create their own environment. They tend to distrust
others & often have a need to show others that they amount to something, that they
cannot be ignored.
3. A detailed knowledge of the keys to success in the industry & the physical
stamina to make their work their lives. They have better than average education
& significant work experience in the industry in which they start their business.
They often work with their partners to form a new venture (70% of new high tech
ventures are started by more than one founder). More than half of all entrepreneurs
work at least 60 hours a week in the start up tear.
4. Access to outside help to supplement their skill, knowledge, & abilities. Over
time, they develop a network of people having key skills & knowledge whom the
entrepreneurs can call upon for support. Through their enthusiasm , these
entrepreneurs are able to attract key investors, partners, creditors, & employees
SOME GUIDELINES FOR NEW VENTURE SUCCESS.
1. Focus on industries facing substantial technological or regulatory changes,
especially those with recent exits by established competitors.
2. Seek industries whose smaller firms have relatively weak competitive positions.
3. Seek industries that are in early, high growth stages of evolution.
4. Seek industries where it is possible to create high barriers to subsequent entry.
(contd) 5. Seek industries with heterogeneous products that are relatively

unimportant to the customers overall success.
6. Seek to differentiate your products from those of your competitors in ways that
are meaningful to your customers.
7. Focus such differentiation efforts on product quality, marketing approaches,
& customer service - & charge enough to cover the costs of doing so.
8. Seek to dominate the market segments in which you compete. If necessary,
either segment the market differently or change the nature & focus your
differentiation efforts to increase your domination of the segments you serve.
9. Stress innovation, specially new product innovation, that is built on existing
organizational capabilities.
10. Seek natural organic growth through flexibility & opportunism that builds on
existing organizational strengths.
SOURCES OF INNOVATION.
Peter Drucker, in his book Innovation & Entrepreneurship, proposes 7 sources for
innovative opportunity that should be monitored by those interested in starting an
entrepreneurial venture, either within an established company or as an independent
small business. The first four sources of innovation lie within the industry itself; the
last 3 arise in the societal environment. The 7 siurces are:
1. The unexpected : An unexpected success, an unexpected failure, or an
unexpected outside event can be symptom of an unique opportunity. When Don
Cullen of Transmet Corporation spilled a box of very fine aluminum flakes into his
companys parking lot, he discovered that their presence in the asphalt prevented it
from turning sticky in high temperatures. His company now produces aluminum chips
for use in roofing. Sales have doubled every year since the products introduction &
his company will soon dominate the business. .
(contd) 2. The incongruity: A discrepancy between reality & what everyone assumes
it to be, or between what is & what ought to be, can create an opportunity for
innovation. For example a side effect of retailing via the internet is the increasing
number of packages being delivered to the home. Since neither DHL nor DTDC can
leave a package unless someone is home to sign for it, many deliveries are
delayed. Tony Paikeday founded zBox Company to make & sell a hard-plastic
container that would receive deliveries from any delivery service & would be
accessible only by the owner & the delivery services. We are amazed that it doesnt
exist yet, says Paikeday. We think it will be the next great appliance of the century.
3. Innovation Based on Process Need. When a weak link is evident in a particular
process, but people work around it instead of doing something about it, an
opportunity is present for the person or company willing to forge a stronger one. Tired
of having to strain to use a too small keyboard on his personal computer, David
Levy invented a keyboard with 64 normal l sized keys cleverly put into an area the
size of a credit card.
4. Changes in Industry or Market Structure: A business is ready for an innovative
product, service, or approach to the business when the underlying foundation of the
industry or market shifts. Changes from process to product patent in the
pharmaceuticals sector from 2005 has led to Mr. Anil Motihar of Kee Pharma, looking
for for in-licensing of global brands & selling them in domestic market.
5. Demographics: Changes in the populations size, age structure, composition,
employment, level of education, & income can create opportunities for innovation. For
example, increasing competition for admissions to professional courses / careers in
India motivated Dr. Rao to start Brilliant Tutorials which coaches students for different
competitive examinations leading to admissions in professional courses of IITs etc.
(contd) 6. Changes in Perception, Mood & Meaning: Opportunities for innovation

can develop when a societys general assumptions, attitudes & beliefs change. For
example, the increasing health consciousness of people has caused small vendors to
come out with ready to eat salads & cut fruits in the metro cities of India.
7. New Knowledge: Advance in scientific & non scientific knowledge can create new
products & new markets. Advance in two different areas con sometimes be integrated
to form the basis of a new product. For example, Medical Foods was formed to make
foods that act like medicine to treat conditions from diabetics to arthritis. Its first
product, NiteBite is a chocolate flavored snack bar designed to help diabetics
manage nocturnal hypoglycemia, caused by low blood sugar. NiteBite gradually
releases glucose into the blood stream, where it lasts for six hours or more.
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Part Time - Dec 2015 Sem - VI

Strategic Management Process

Strategic Management Process

Strategic Management Process

Strategic Management Process

Strategic Management Process

Henry Mintzberg, in his book, The Rise

Honda is now the leading manufacturers of

trounce European competition and severely

Disaster struck when Hondas larger machines developed faults - they

The faults in Hondas larger machines meant that

A consciously intended course of

A maneoveour in a competitive game.

Environmental fit and relationship with

Perspective A unique way of looking at the world,

Strategy, Environment & Structure

Environmental Scanning - Internal

Environmental Scanning - Internal

1. The importance of internal analysis .

Environmental Scanning - Internal

The following areas need to be studied in finance.

Environmental Scanning - Internal

: Following products need to be assessed 1. Number of new products developed,

Can be studied 1. Time management 2. Risk taking abilities 3. Personal goals

Can be measured 1. Decision making levels, decentralization. 2. Teamwork

Resource Strength (Environment

Resource allocation should be based on the basis of strengths & weaknesses of

HIGH ROI COMES FROM:

Modern Plans For Internal Analysis

Modern Plans For Internal Analysis

Critical Success Factors (CSF)

1. Industry factors. Is it growing? If yes, at what rate? 2.Its position

Example for car service centre CSF

Value Chain Analysis

This is a method for assessing the strengths and weaknesses of an organization

Modern Plans For Internal Analysis

Value Chain Analysis

(2) Operations: All activities required for transformation of raw materials to

Support activities are provided to sustain the primary activities. These

Value Chain Analysis

2. Human Resource Management: All activities that an organization uses for

Value Chain Analysis

Core Processes And Systems

Qualitative Analysis: Organizations must be continuously in the

Quantitative Analysis: It is to understand the viability of the firm &

Activity Ratio: 1. Inventory turnover = Net Sales/Inventory 2. Assets

Activity-based Cost Analysis: At times, in costing, factors like,

The scorecard is not

A true balanced scorecard:

Contains a limited set of strategic objectives and indicators,

Strategy Focused Business Solutions Inc.

Firms need to understand their external environment thoroughly, & on a

Firms need to understand the trade barriers in each country it plans to

Idle Production Capacities: An assessment of the sales promotional plans for

IT Sectors emergence: From 1995, IT industry got a major boost because of

Television Explosion: Color TV came to India in 1981, followed by satellite

Religious Fundamentalism: India is a secular country which gives equal

Privatization of Government Firms: From the time India became independent,

Business General Environment: The following need to be studied for correct

Legal Factors: Supreme courts directives have made car

Macroeconomic factors: Interest rates, taxes & duties, the balance of

Technological factors: In the past decade, IT, telecom, biotechnology, &