Mysore University

(B.N. Bahadur Institute of Management Sciences)

Strategic Management

Unit one:
 Overview of Strategic Management
1st Origin of strategy
2nd Strategy vs Structure
3rd Element of Business strategies
4th Strategic Management
 Overview of Strategic Management
Definition
Strategic Management is all about identification and description of the strategies that managers
can carry so as to achieve better performance and a competitive advantage for their organization.
An organization is said to have competitive advantage if its profitability is higher than the
average profitability for all companies in its industry.
Strategic management is the process of managing the pursuit of organizational mission while
managing the relationship of the organization to its environment (James M. Higgins).
Strategic management is defined as the set of decisions and actions resulting in the formulation
and implementation of strategies designed to achieve the objectives of the organization (John A.
Pearce II and Richard B. Robinson, Jr.).

Components of Strategic Management

There are 5 components in strategic management:
1. Goal setting - vision and mission
2. Analysis - Environmental Scanning (Internal and External Factors)
3. Strategy Formulation
4. Strategy Implementation
5. Evaluation and control

Features of strategic management

Strategic management is a modern approach to manage business enterprise successfully and to
face future challenges. The following are the main features.
1. Organized and systemized method of managing: strategic management is an organized
and systemized method of managing enterprises it involves two phases. Strategic
planning and execution.
• Strategic planning phase involves determination of organization objectives, strategies
to attain objectives, and selecting the best course of action to deploy resources to
exploit present and future opportunities and to counter act present and future threats.
• The implementation phase over all activities necessary to execute the strategic plan. It
involves development of action plan, implementation and monitoring, recycling and
reformulating plan of the enterprise.
2. Based on structure of plans: it consists if plans like strategic plans, functional plans,
operating plans, and organizational plans.
 3. Follow systems approach: strategic management concepts follow system approach. It is a
treated as a system. In this system, the organizational objectives take precedence over
departmental objectives.
4. Future oriented: it is related with impact of present decisions on the future product-
market path of the organization.
5. Dynamic process: it is a continues dynamic process it reviews the whole planning process
continuously.
6. Long range time span: the time plan of strategic planning is long range. It means the
organization should plan for a period of 5 to 10 years.

1st Origin of strategy

Phases of Evolution of Strategic Management
The phases of evolution of strategic management are:
Phase 1 - Basic financial planning: Seek better operational control by trying to meet budgets.
Phase 2 - For-cast based planning: Seeking more effective planning for growth by trying to
predict the future beyond next year.
Phase 3 - Externally oriented planning (strategic planning): Seeking increasing responsiveness to
markets and competition by trying to think strategically.
Phase 4 - Strategic management: Seeking a competitive advantage and a successful future by
managing all resources. Phase 4 in the evolution of the strategic management includes a
consideration of strategy implementation and evaluation and control, in addition to the emphasis
on the strategic planning in Phase 3.

2nd Strategy vs Structure

Strategy vs structure
An organization’s strategy is its plan for the whole business that sets out how the organization
will use its major resources. In other words, an organization’s strategy is a plan of action aimed
at reaching specific goals and staying in good stead with clients and vendors.
On the other hands, an organization’s structure is the way the pieces of the organization fit
together internally. For the organization to deliver its plans, the strategy and the structure must be
woven together seamlessly. In other words, organizational structure is a term used to highlight
the way a company thinks about hierarchy, assigns tasks to personnel and ensures its workforce
works collaboratively to achieve a common goal. The goal is to avoid task overlap and
workforce confusion, especially when it comes to laying a strong foundation for long-term
productivity. Task overlap, a situation in which two or more employees perform the same task in
different departments, costs a company money. This creates confusion, inefficiencies and lack of
accountability -- because no employee ultimately has a clear responsibility over who does what,
where and when.
It is important to highlight that for too long, structure has been viewed as something separate
from strategy. Revising structures are often seen as ways to improve efficiency, promote
teamwork, create synergy, eliminate or create new department or reduce cost, including
personnel. Yes, restructuring can do all that and more. What has been less obvious is that
structure and strategy are dependent on each other. You can create the most efficient, team
oriented, synergistic structure possible and still end up in the same place you are or worse if a
good strategy is not adopted.
Organizational structure and strategy are related because organizational strategy helps a company
define and build its organizational structure. A company's organizational structure is based on the
result of the analysis of organizational strategy. The company will use these results to determine
its areas of concentration and how to position itself in order to succeed.
One of the first steps a company takes in its initial stages is assessing its operational environment
in order to determine the conditions in which it must operate. This involves checking out the
competition, consumer trends, culture and other factors. The company will find out the strengths
and weaknesses of its competition, the buying habits of the consumers, and its economic
capabilities.
The relationship between organizational structure and strategy becomes clearer when the
company’s strategy is in place. With a clear focus of what it wants to achieve, the organization
will proceed to align its structure in such a manner to best achieve this. It will allocate
responsibilities for optimal results, create branches, and decide whether individual efforts or
group participation is the best method for it to achieve its goals. The organizational structure and
strategy will also help the company decide if the tone of the company should be strictly formal,
semi-formal or informal. All of these decisions can be made after determining the organizational
strategy of the company.
Structure is not simply an organization chart. Structure is all the people, positions, procedures,
processes, culture, technology and related elements that comprise the organization. It defines
how all the pieces, parts and processes work together. This structure must be totally integrated
with strategy for the organization to achieve its mission and goals. Structure supports strategy. If
an organization changes its strategy, it must change its structure to support the new strategy.
When it doesn’t, the structure acts like a bungee cord and pulls the organization back to its old
strategy.
Strategy follows structure. What the organization does defines the strategy. Changing strategy
means changing what everyone in the organization does. When an organization changes its
structure and not its strategy, the strategy will change to fit the new structure. Strategy follows
structure. Suddenly management realizes the organization’s strategy has shifted in an undesirable
way. It appears to have done it on its own. In reality, an organization’s structure is a powerful
force. You can’t direct it to do something for any length of time unless the structure is capable of
supporting that strategy.
The sum total of how an organization goes about its work is its strategy. Structure and strategy
are married to each other. When a company makes major changes, it must carefully think out
every aspect of the structure required to support the strategy. That is the only way to implement
lasting improvements. Every part of an organization, every person working for that organization
needs to be focused on supporting the vision and direction. How everything is done and
everything operates needs to be integrated so all the effort and resources support the strategy.
It takes the right structure for a strategy to succeed. Management that is solely focused on results
can have a tendency to direct everyone on what they need to do without paying attention to the
current way the organization works. While people may carry out these actions individually, it is
only when their daily way of working is integrated to support strategy that the organization’s
direction is sustainable over time.
Top management can’t just send out a proclamation about a new strategy, direction and vision
and expect everyone to follow it. To implement such a strategic shift requires a complete change
within the organization itself. Strategy and structure are married to each other. A decision to
change one requires an all-out effort to change the other. But that structural change must be well
thought out and based on a thorough cause and effect analysis. You don’t just change a structure
to change it. You have to make sure the changes will support that strategy. At the same time, you
don’t just implement a better leadership and engagement approach in a company or alter the
organizational chart without evaluating.

The relationship between strategy and structure

An organization’s strategy is its plan for the whole business that sets out how the organization
will use its major resources. An organization’s structure is the way the pieces of the organization
fit together internally. It also covers the links with external organizations such as partners.
For the organization to deliver its plans, the strategy and the structure must be woven together
seamlessly.

The goal of The Coca-Cola Company is 'to be the world's leading provider of branded beverage
solutions, to deliver consistent and profitable growth, and to have the highest quality products
and processes.'
To achieve this goal, the Company has established six strategic priorities and has built these into
every aspect of its business:
1. Accelerate carbonated soft drinks growth, led by Coca-Cola
2. Broaden the family of products, wherever appropriate e.g. bottled water, tea, coffee,
juices, energy drinks
3. Grow system profitability & capability together with the bottlers
4. Creatively serve customers (e.g. retailers) to build their businesses
5. Invest intelligently in market growth
6. Drive efficiency & cost effectiveness by using technology and large scale production to
control costs enabling our people to achieve extraordinary results every day.
There are many ways to structure an organization. For example, a structure may be built around:
• Function: reflecting main specialisms e.g. marketing, finance, production, distribution
• Product: reflecting product categories e.g. bread, pies, cakes, biscuits
• Process: reflecting different processes e.g. storage, manufacturing, packing, delivery.
Organizational structures need to be designed to meet aims. They involve combining flexibility
of decision making, and the sharing of best ideas across the organization, with appropriate levels
of management and control from the center.
Modern organizations like The Coca-Cola Company, have built flexible structures which,
wherever possible, encourage teamwork. For example, at Coca-Cola Great Britain any new
product development (e.g. Coca-Cola Vanilla) brings together teams of employees with different
specialisms.
At such team meetings, marketing specialists clarify the results of their market research and
testing, food technologists describe what changes to a product are feasible, financial experts
report on the cost implications of change.

How that is going to effect the firm’s ability to carry out its current strategies.

3rd Element of Business strategies

The following statements provide a definition of the concept of strategic management and the
scope of business strategy. Hence you should act in accordance with the following principles:
• Strategy should not suppress the initiatives, creativity and professionalism of
management and company employees.
• The entrepreneur and senior management members must be brave and creative in order to
adapt their leading thought and consequently their directives for functional areas, regional
units and partner companies according to the conditions of the respective situation.
• Strategy must be constantly observed, while tactics are urgent tasks that have to be
accomplished in the short term, whilst aiming for your most important goals.
 • Strategy is acting with regards to the greater picture, while inducing short-term elements
and results.

4th Strategic Management Process

Strategic management process
Strategic management process has following four steps:
1. Environmental Scanning
Environmental scanning refers to a process of collecting, scrutinizing and providing information
for strategic purposes. It helps in analyzing the internal and external factors influencing an
organization. After executing the environmental analysis process, management should evaluate it
on a continuous basis and strive to improve it.
2. Strategy Formulation
Strategy formulation is the process of deciding best course of action for accomplishing
organizational objectives and hence achieving organizational purpose. After conducting
environment scanning, managers formulate corporate, business and functional strategies.
3. Strategy Implementation
Strategy implementation implies making the strategy work as intended or putting the
organization’s chosen strategy into action. Strategy implementation includes designing the
organization’s structure, distributing resources, developing decision making process, and
managing human resources.
4. Strategy Evaluation
Strategy evaluation is the final step of strategy management process. The key strategy evaluation
activities are: appraising internal and external factors that are the root of present strategies,
measuring performance, and taking remedial / corrective actions. Evaluation makes sure that the
organizational strategy as well as its implementation meets the organizational objectives.
These components are steps that are carried, in chronological order, when creating a new
strategic management plan. Present businesses that have already created a strategic management
plan will revert to these steps as per the situation’s requirement, so as to make essential changes.
Strategic management is an ongoing process. Therefore, it must be realized that each component
interacts with the other components and that this interaction often happens in chorus.

Unit Two:

 Environmental Analysis
1st Strategic relevant components of internal and external environment
2nd Industry and competitive analysis
3rd Analysis of resources and competitive capabilities 4th
Environment scanning techniques.
Environmental Analysis
Environmental analysis is a strategic tool. It is a process to identify all the external and internal
elements, which can affect the organization’s performance. The analysis entails assessing the
level of threat or opportunity the factors might present. These evaluations are later translated into
the decision-making process. The analysis helps align strategies with the firm’s environment.
Our market is facing changes every day. Many new things develop over time and the whole
scenario can alter in only a few seconds. There are some factors that are beyond your control.
But, you can control a lot of these things.
Businesses are greatly influenced by their environment. All the situational factors which
determine day to day circumstances impact firms. So, businesses must constantly analyze the
trade environment and the market.
There are many strategic analysis tools that a firm can use, but some are more common. The
most used detailed analysis of the environment is the PESTLE analysis. This is a bird’s eye view
of the business conduct. Managers and strategy builders use this analysis to find where their
market currently. It also helps foresee where the organization will be in the future.
PESTLE analysis consists of various factors that affect the business environment. Each letter in
the acronym signifies a set of factors. These factors can affect every industry directly or
indirectly.
The letters in PESTLE, also called PESTEL, denote the following things:

• Political factors
• Economic factors
 • Social factors
• Technological factors
• Legal factors
• Environmental factor
Often, managers choose to learn about political, economic, social and technological factors only.
In that case, they conduct the PEST analysis. PEST is also an environmental analysis. It is a
shorter version of PESTLE analysis. STEP, STEEP, STEEPLE, STEEPLED, STEPJE and
LEPEST: All of these are acronyms for the same set of factors. Some of them gauge additional
factors like ethical and demographical factors.

P for Political factors

The political factors take the country’s current political situation. It also reads the global political
condition’s effect on the country and business. When conducting this step, ask questions like
“What kind of government leadership is impacting decisions of the firm?” Some political factors
that you can study are:
• Government policies
• Taxes laws and tariff
• Stability of government
• Entry mode regulations

E for Economic factors

Economic factors involve all the determinants of the economy and its state. These are factors that
can conclude the direction in which the economy might move. So, businesses analyze this factor
based on the environment. It helps to set up strategies in line with changes.
I have listed some determinants you can assess to know how economic factors are affecting your
business below:

• The inflation rate

• The interest rate
• Disposable income of buyers
• Credit accessibility
• Unemployment rates
 • The monetary or fiscal policies
• The foreign exchange rate

S for Social factors

Countries vary from each other. Every country has a distinctive mindset. These attitudes have an
impact on the businesses. The social factors might ultimately affect the sales of products and
services.
Some of the social factors you should study are:
• The cultural implications
• The gender and connected demographics
• The social lifestyles
• The domestic structures
• Educational levels
• Distribution of Wealth
T for Technological factors
Technology is advancing continuously. The advancement is greatly influencing businesses.
Performing environmental analysis on these factors will help you stay up to date with the
changes. Technology alters every minute. This is why companies must stay connected all the
time. Firms should integrate when needed. Technological factors will help you know how the
consumers react to various trends.
Firms can use these factors for their benefit:

• New discoveries
• Rate of technological obsolescence
• Rate of technological advances
• Innovative technological platforms

L for Legal factors

Legislative changes take place from time to time. Many of these changes affect the business
environment. If a regulatory body sets up a regulation for industries, for example, that law would
impact industries and business in that economy. So, businesses should also analyze the legal
developments in respective environments.
I have mentioned some legal factors you need to be aware of:
• Product regulations
• Employment regulations
• Competitive regulations
 • Patent infringements
• Health and safety regulations

E for Environmental factors

The location influences business trades. Changes in climatic changes can affect the trade. The
consumer reactions to particular offering can also be an issue. This most often affects
agribusinesses.
Some environmental factors you can study are:
• Geographical location
• The climate and weather
• Waste disposal laws
• Energy consumption regulation
• People’s attitude towards the environment
There are many external factors other than the ones mentioned above. None of these factors are
independent. They rely on each other.
If you are wondering how you can conduct environmental analysis, here are 5 simple steps you
could follow:
• Understand all the environmental factors before moving to the next step.
• Collect all the relevant information.
• Identify the opportunities for your organization.
• Recognize the threats your company faces.  The final step is to take action.
It is true that industry factors have an impact on the company performance. Environmental
analysis is essential to determine what role certain factors play in your business. PEST or
PESTLE analysis allows businesses to take a look at the external factors. Many organizations use
these tools to project the growth of their company effectively.

Steps Involved in Environmental Analysis

1. Identifying: First of all, the factors which influence the business entity are to be
identified, to improve its position in the market. The identification is performed at
various levels, i.e. company level, market level, national level and global level.
2. Scanning: Scanning implies the process of critically examining the factors that highly
influence the business, as all the factors identified in the previous step effects the entity
with the same intensity. Once the important factors are identified, strategies can be made
for its improvement.
3. Analyzing: In this step, a careful analysis of all the environmental factors is made to
determine their effect on different business levels and on the business as a whole.
 Different tools available for the analysis include benchmarking, Delphi technique and
scenario building.
4. Forecasting: After identification, examination and analysis, lastly the impact of the
variables is to be forecasted.
Environmental analysis is an ongoing process and follows a holistic approach that continuously
scans the forces effecting the business environment and covers 360 degrees of the horizon, rather
than a specific segment.

Benefits of Environmental Analysis

A PEST analysis prepares the business for handling external factors. Robert Chapman, author of
the book, Simple Tools and Techniques of Enterprise Risk Management, explains a PEST
analysis helps the business be proactive with market trends. Instead of reacting to market forces,
Chapman explains a PEST analysis gives the business the tools to prepare for potential risks. For
instance, this type of analysis may disclose that government legislation will increase the cost of
raw materials by 20 percent. If the business can preempt this as a possibility, it can switch
vendors, stock up on raw materials or find cheaper alternatives. Such preparation ultimately
saves the company money and in turn gives it a competitive advantage.

SWOT Analysis
A SWOT analysis reviews the business’s strengths, weaknesses, opportunities and threats. As is
the case with an environmental analysis, a SWOT analysis also surveys external circumstances.
However, this type of analysis also takes into consideration internal components. Within the
strengths and weaknesses section of the SWOT analysis, the company assesses factors unique to
the organization. Examples of these components may include the business’s leadership abilities,
patents and intellectual property, technology available within the company and the strength of its
brand name. The company can control these factors, so it attempts to strengthen its best assets
and improve its apparent weaknesses.

Benefits of a SWOT Analysis

A SWOT analysis offers a well-rounded, holistic picture by revealing both internal and external
issues. Though the "opportunities" and "threats" sections of the analysis do not differ much from
a PEST report, the "strengths" and "weaknesses" components highlight the internal issues of the
organization. Carlos Moore advises in his book, Small Business Management, to ask additional
questions about how these strengths, weaknesses, opportunities and threats can help the business
prepare for future events. This turns the SWOT analysis into an insightful tool that allows the
company to capitalize on future possibilities and avoid potential pitfalls.

1st Strategic relevant components of internal and external environment

External Environment
The external environment consists of legal, political, socio-cultural, demographic factors etc.
These are uncontrollable factors and firms adapt to this environment. They adjust internal
environment with the external environment to take advantage of the environmental opportunities
and strive against environmental threats. Business decisions are affected by both internal and
external environment.
The external environment consists of the micro environment and macro environment.

1. Micro Environment

“The micro environment consists of factors in the company’s immediate environment”. These
factors affect the performance of a company and its ability to serve the customers. Micro
environment consists of customers, suppliers, competitors, and public and market intermediaries.

A brief discussion of the firm’s micro environment is as follows:

 Customers
Customers constitute important segment of the micro environment. Business exists to serve its
customers. Unless there are customers, business has no meaning. A company can have different
types of customers like, households, producers, retailers, Government and foreign buyers.

 Suppliers
They supply inputs (money, raw material, fuel, power and other factors of production) and help
in smooth conduct of the business. Firms should remain aware of the policies of suppliers as
increase in prices of inputs will affect their sales and profits. Shortage of supplies also affects the
production schedules. Firms should have more than one supplier so that change in policies of one
supplier does not affect their production schedules.

 Competitors
Competitors form important part of the micro environment. Firms compete to capture big share
of the market. They constantly watch competitors’ policies and adjust their policies to gain
customer confidence.

 Public

“A public is any group that has an actual or potential interest in or impact on an organization’s
ability to achieve its interest”. Public can promote or demote company’s efforts to serve the
market. The term ‘public’ consists of financial public (banks, financial institutions etc.), media
public (newspapers, radio, television etc.), Government public, customer organizations, internal
public (workers and managers), local public (neighborhood or community residents) and general
public (buyers at large). Companies observe the behavior of these groups to make functional
policies.

 Market intermediaries
They are the links that help to promote, sell and distribute the products to final consumers. They
are the physical distribution firms (transport firm), service agencies (media firms), financial
intermediaries (banks, insurance companies) etc. that help in producing, marketing and insuring
the goods against loss of theft, fire etc. Firms maintain good relations with them to carry their
activities smoothly. All these factors are largely controllable by the firms but they operate in the
larger macro environment beyond their control.

2. Macro Environment
The macro environment consists of the economic and non- economic variables that provide
opportunities and threats to firms. This is largely uncontrollable and, therefore, firms adjust their
operations to these environmental factors.
The macro-environment consists of the following:
 Economic Environment
The economic environment consists of economic forces that affect business activities. Industrial
production, agriculture, infrastructure, national income, per capita income, money supply, price
level, monetary and fiscal policies, population, business cycles, economic policies, infrastructural
facilities, financial facilities etc. constitute the economic environment.
The economic environment influences the activities of business enterprises. In the capitalist
economies, firms have the freedom to choose the occupation. The economic decisions to invest,
produce and sell are guided by profit motives. The factors of production are privately owned and
production activities are initiated by the private entrepreneurs.

 Non-Economic Environment
It consists of socio-cultural, demographic, natural, physical, technological, political and legal
environment that influence and are influenced by the economic environment. A large number of
variables affect the non-economic environment.
Some of the important areas of non-economic environment are discussed below:
• Political-legal environment
• Socio-cultural environment
• Technical environment
• Demographic environment
• Natural environment
• International environment

Internal Environment
Survival of a business depends upon its strengths and adaptability to the environment. The
internal strengths represent its internal environment. It consists of financial, physical, human and
technological resources. Financial resources represent financial strength of the company. Funds
are allocated over activities that maximize output at minimum cost, that is, optimum allocation of
financial resources.
Physical resources represent physical assets such as plant, machinery, building etc. that convert
inputs into outputs. Human resources represent the manpower with specialized knowledge that
performs the business activities.
The operative and managerial decisions are taken by the human resources. Technological
resources represent the technical know-how used to manufacture goods and services. Internal
environment consists of controllable factors that can be modified according to needs of the
external environment.
2nd Industry and competitive analysis
Industry
An industry is a group of firms producing a similar product or service, such as airlines, fitness
drinks, furniture, or electronic games.

Industry Analysis
Is business research that focuses on the potential of an industry?

Importance of Industry Analysis

• Once it is determined that a new venture is feasible in regard to the industry and market
in which it will compete, a more in-depth analysis is needed to learn the ins and outs of
the industry.
• The analysis helps a firm determine if the niche market it identified during feasibility
analysis is favorable for a new firm.

Studying Industry Trends

1. Environmental Trends
Include economic trends, social trends, technological advances, and political and regulatory
changes.
For example, industries that sell products to seniors are benefiting by the aging of the population.

2. Business Trends
Other trends that impact an industry.
For example, are profit margins in the industry increasing or falling? Is innovation accelerating
or waning? Are input costs going up or down?

Five Forces in Competitor Analysis

The threat of substitutes, competitive rivalry, and threat of new entrant are classified as
horizontal forces. Vertical forces include the bargaining power of suppliers and that of buyers.
We will now discuss the five forces identified by Porter.

1. Competitive Rivalry

This is the rate of rivalry among competing firms. If it is high, then the companies’ strategy,
profits, and prices are affected altogether. The more the rivalry, the more the pressure the
existing firms will experience. If the rivalry is not much, the companies will enjoy autonomy in
setting the prices for their goods and products. The customers will not have a variety of choices
to choose from so the sellers will dictate the prices as they wish. However as new companies
enter the market, the prices are streamlined by the competition.
Competitive rivalry is high when there is a low exit or high barriers of entry, when the products
in the market have the same benefits and features, when the companies operating in the market
area are of the same size, and when the industry is growing slowly. When companies have
similar strategies, the rivalry is also high.

2. Threat of new Entrants

Competition is not only limited to existing companies; new companies planning to join the
industry pose a threat to the existing businesses. Industries with high profits tend to attract many
companies.
To curb the high entrance, the industry places barriers of entry to limit the number of new
entrants. Otherwise, many companies would join the industry and reduce the profits earned.
Barriers to entry include:

• High initial capital

• Patents and property rights
• Government-driven obstacles
• Access to specialized infrastructure or technology
• High switching costs for clients
• Difficulty in accessing distribution channels and raw materials

3. Threat of Substitutes
Substitutes are products that can be used on behalf of others and still serve the same purpose. A
good example is Coke and Pepsi which are both soft drinks.
When setting prices, the two companies have to be aware of the substitute’s prices. If one sets the
prices so high, they will lose customers as they will have an alternative product.
In the marketplace, when there are many competing products and services, it becomes difficult to
set the price of the service or good as you wish. You must, therefore, set the price in accordance
with the way the other players in the market have set theirs. Trends and fads, relative prices,
brand loyalty, and switching costs affect threat to substitutes.

4. Bargaining Power of Buyers

The customer is always right and more so when they have the power to influence the prices in the
market. In an industry where the buyers purchase goods in bulk or where there are similar
products being produced, the buyers control the prices.
If a business insists on a particular price, the buyer might as well buy from another company with
the same kind of goods.

5. Bargaining Power of Suppliers

The production service relies on raw materials from suppliers. The suppliers can influence the
competitive edge of business by setting the prices for the materials, determine the availability of
materials, and dictate terms of trade.
For suppliers who supply goods to many companies, they can decide to increase the cost of raw
materials, and if the businesses do not have much choice, they will have to pay more for the
materials. To avoid these inconveniences, maintain a steady and strong relationship with
suppliers.
You do not have much choice but to pay the high prices if the suppliers are limited in number.
Some suppliers have proprietor knowledge or patent rights to supply the raw materials. You
cannot also afford to complain about the price if you know that switching to another supplier will
be expensive for you.

Industry types and the opportunities they offer

• Emerging Industries
Industries in which standard operating procedures have yet to be developed.
Opportunity: First-mover advantage.
• Fragmented Industries
Industries that are characterized by a large number of firms of approximately equal size.
Opportunity: Consolidation.-mergers and acquisitions
• Mature Industries
Industries that are experiencing slow or no increase in demand.
Opportunities: Process innovation and after-sale service innovation.
 Declining Industries
Industries that are experiencing a reduction in demand.
Opportunities: Leadership, establishing a niche market, and pursuing a cost reduction strategy.
 Global Industries
Industries that are experiencing significant international sales.
Opportunities: Multi domestic and global strategies.

The steps of an industrial analysis

1. Review available reports
Look for reports that focus on the industry you are about to enter or are operating in. If you have
not yet joined the industry, it will help you make a decision as to whether it is wise to invest in
the industry.
Understand that the information that was deemed relevant yesterday might no longer be accurate
today. A good example is government taxes which affect the operations of a business. The
government may change the tax at any time and if it does, the accuracy of the industry report is
affected.

2. Approach the correct industry

Every industry has sub-industries and in some cases the sub-industries are further subdivided.
Identifying the sub-industry that you intend to deal with will allow you to use the correct
industry analysis report.

3. Demand & supply scenario

The aim of entering into business is to earn profits. Profitability in an industry is determined by
the forces of demand and supply. When conducting an industrial analysis, you ought to consider
how the industry has performed in the past and what the future looks like.
Future predictions on the viability of the industry will determine whether investors will invest in
the industry or not.

4. Competitor analysis
For you to come up with a good strategy to deal with the competition in the industry, you must
first understand the industry itself. After this, you can make informed choices on the best
competitive strategy to use. By the time you develop a competitor analysis, you should be able
to:
• Know your position in the industry
• Identify opportunities and threats within the industry
• Highlight the strengths and weaknesses of your organization
• Pinpoint the areas where strategic changes will lead to high returns
Competitor analysis is the process where you identify your greatest competitors and evaluate
their strategies to find out what their strengths and weaknesses are and how they relate to your
product or service. This analysis removes you from your comfort zone but also places you on the
path to success if you do it well.
The information that you receive from the analysis shapes your marketing plan. It will help you
identify what makes your services or products unique and what aspects of your products needs to
be upgraded to make them more competitive.

Conducting and preparing your competitor analysis

 Conduct research
 Gather competitive information
 Analyze competitive information
 Determine your own competitive position

1. Conduct Research
Conducting research during a competitor analysis sounds like a complicated process that should
be carried out by professionals, but it is not true. Some professional commit to carrying out such
research in case you want to use their services.
The problem is, if your business is new or just in its initial stages, the services of the professional
might be expensive at that stage. After your business has grown, then you can incorporate the
services of the professional together with your personal research.
But since you need to carry out the research, let me show you some things that can make the
process easy and doable. To be able to do a thorough research, ask yourself the following
questions;
• Who are my competitors?
• What makes them my competitors? Is it the products or services that they sell?
• Do I stand a chance to compete with them?
• What market share do they hold?
 • Which strategies have they used in the past?
• What strategies are they using now?
• What are the threats that they face?
• In what ways do the customers see them positively and negatively? How can I take
advantage of the negative customer reviews?
• How long have my competitors been in business?
• How do they advertise their products and services and what is the frequency of the
adverts?
• Do they provide me with an opportunity that I can take advantage of?
• What is the strength or weaknesses of my competitors?
• How can you rate your competitors regarding; o Employees o Pricing incentive o
Customer service
o Resources o Quality of service
or products o Hours of
operation?

2. Gather Competitive Information

Secondary sources of information provide accurate information that can be used to prepare an
industrial and competitor analysis. In case you may be wondering what secondary sources of
information are, they are sources that were developed to meet another purpose apart from your
current need, but they contain information that can help you prepare an excellent industrial and
competitor analysis.
The sources are available to the general public either for sale or free of charge. Secondary
information is cost effective to access, and it can be retrieved after publication through electronic
means. Some sources of information that you can use include:

• Sales brochure
• Your sales team
• Other employees
• Consider the customer service
• Advertising
• Trade association
• Annual report
• Newspaper and magazine article
• Direct observation
• Your competitor

3. Analyze Competitive Information

The reason why you were gathering the information is so that it can help you gain a competitive
edge. You should analyze the information to get the market share, your competitor’s weaknesses
and strengths, product information, and marketing strategies.

4. Identify the strengths and weaknesses of your competitors / Determine your own
competitive position
A good competitive strategy takes advantage of the weakness of your competitors but with the
awareness of their strengths. Look at what your company does better than your competitors.
Consider their areas of weaknesses as you look at their strengths.

3rd Analysis of resources and competitive capabilities

The Role of Resource Analysis in Strategy Formulation
Intangible assets are often overlooked, but they are many times the only source of sustainable
competitive advantage (i.e. brand, technology, information, culture, etc.).
Taking the lead from military campaigns in which the goal is to pitch "strength against
weakness"(1), business strategy should be defined by resource analysis rather than the inverse.
Firms that base their strategy on the development of specific capabilities have shown better
adaptability than those that base their strategy on their customers or on how to serve them. One
can take Merrill Lynch, American Express and Sears as having examples of failed strategies
(being too broad and having an emphasis on customer needs), and Honda and 3M Corporation as
having examples of successful strategies (with a focus on the capability of making engines and
adhesives respectively).
Basically, any element that is traditionally considered to support competitive advantage can be
seen as stemming from the correct acquisition and use of resources. For example, barriers to
entry can be created by owning a strong brand, patents, or retaliatory capacity. A monopoly is
nothing more than ownership of market share. Cost advantages come from process technology,
size of plants, and access to low-cost inputs. Finally, Differentiation advantage comes from a
brand, product technology, or marketing, distribution, and service capabilities.
Taking Stock of Resources and Capabilities

Tangible Resources
Tangible resources are the easiest to evaluate since they are visible and quantifiable. Two key
questions underlie this procedure;
• What opportunities exist for economizing on finance, inventories, and fixed assets?
• What are the possibilities for employing existing assets more profitable?

Intangible Resources
Much of a company's worth comes from less defined assets such as reputation, technology, or a
particular set of cultural attributes within the company. Intel and American Express have
successfully protected their intangibles, while Xerox has repeatedly over-looked its core assets.
Brand is everything for Coca-Cola, and Gillette, while software and pharmaceutical companies
depend mostly on their technology and patents.

Human Resources
People in companies provide skills, knowledge, intuition, and reasoning (known as human
capital). Additionally, the culture inside an organization consists of relationships, values, and
routines, and companies that have a strong set of managerial values have a strategic advantage
over those that don't- through employees increased identity with corporation, increased stability
and consistency as well as a guide for appropriate behavior.

Core Competences
Hamel and Prahalad introduced the term "core competences" in 1990 to describe those
competences that a) "make a disproportionate contribution to ultimate customer value or to the
efficiency with which that value is delivered," and b) "provide a basis for entering new markets."
So the question to ask in this case is "What can such and such firm do better than others?"
The process of identifying core capabilities can begin in many ways; the two more common ones
are through a classification of all capabilities according to function, or through a value chain
analysis that separates a firm into small sequential activities.
Example of a value chain:
Technology (patents) >> Product Design (quality) >> Manufacturing (assembly) >> Marketing
(brand) >> Distribution (warehousing) >> Service (warranty)

Benchmarking
Benchmarking is important because it brings objectivity into the process of identifying
competences. It also brings vain imaginations down to the ground. To create a benchmark, one
must identify areas of potential improvement; identify world-leading companies in each area;
contact the companies (visit, talk to managers, discuss with workers); and define goals based on
the learning done at those companies.

Analysis of resources
Resource-based view of a firm is a concept developed by Jay Barney to analyze operations and
measure performance of an organization. According to Barney, a firm has to identify its
resources, evaluate them to identify the key resources which give the firm its competitive
advantage and protect them to maintain the strategic advantage.
In the process of analysis, the resources are classified on four criteria, VRIN defined as below:
• V for valuable resources, using which a firm can devise strategies for improving
efficiency and effectiveness.
• R for rare resources, which are not available for competitors.
• I for imperfectly imitable, meaning those that cannot be easily imitated or copied to
appear as those belonging to the firm, and,
• N for non-substitutable, meaning which cannot be substituted by any other easily
available resource.

Capabilities
According to Leonard-Barton (1992, p. 113-4) “is the knowledge set that distinguishes and
provides competitive advantage”. This suggests that pursuit of greater organizational knowledge
is a central motivator for organizations seeking to develop their organizational capabilities (OC).
The OC can help the organization in the following ways.
 • Increasing competitive advantage through basing strategy on an understanding of the
strengths and weaknesses of the workforce (Barney 1991; Grant 1991).
• Establishing the Human Resources Development function as a strategic partner. In this
way OC acts as a linchpin between strategy and human resources (HR), therefore HR
becomes a proactive source of competitive advantage, rather than reactive in focusing on
performance gaps (Ulrick and Lake 1991).
• Driving organizational outcomes, such as stakeholder satisfaction and customer
satisfaction (Ulrick and Lake 1991; Yeung and Berman 1997).
• Communicating valued behaviors, raising competency levels and reinforcing positive
values (Finegold, Lawler III et al. 1998).
The following layout will help to understand how to increase the workforce capabilities which
leads the organization to the success.

4th Environment scanning techniques

Environmental scanning is a concept from business management by which businesses gather
information from the environment, to better achieve a sustainable competitive advantage.
Environment scanning helps the signals of potential changes in the environment. It also detects
the changes that are already under way. It normally reveals ambiguous, incomplete, or
unconnected data and information. It involves a detailed and micro study of the environment.
Hence, it is also called the X-ray of the environment. The environment uncertainty, complexity
and dynamism are studies to assess the trend of environment. It is the base of environment
analysis. It is normally done when there is high level of uncertainty in the environment. It is a
continuous process.
The scanning system should be aligned with the organizational context. Hence, a scanning
system designed for a volatile environment may be inappropriate for a stable environment. Many
organizations even use special software and internet for environment scanning.

Types of Environmental Scanning

Environmental scanning is a process of obtaining information from the environment. It helps
prepare an organization to exploit the business opportunity by developing a sound resource base.
Further, it also assists in preparing scenarios and to adjust with changes. Environmental scanning
may be done in two ways as mentioned below:
 1. Centralized scanning
If some specific environmental components are only analyzed, it is called centralized scanning.
Under this, the important components which are likely to exert considerable impact to the
business are only analyzed. For example, if economic conditions are only studies, it is termed as
centralized scanning. Since specific components are only scanned, this is economical. Likewise,
it helps to save time as well. However, it is not a comprehensive method due to the study of
specific components only.

2. Comprehensive scanning
"If all the components of environment are analyzed in a detailed and micro way, it is called
comprehensive environmental scanning."

Process of Environmental Scanning

Environmental scanning is a useful managerial tool for assessing the environmental trend. The
following process is adopted for environmental scanning.

1. Study the forces and Nature of the Environment

In the first step of environmental scanning, the forces of the environment that have got
significant bearing in the growth and development of the business should be identified. They
may be political, economic, sociology-cultural, technological, legal, physical environment and
global components. After this, the nature of the environmental components is studied. The nature
of environment may be simple or complex. It may also be stable or volatile. The nature of the
environment affects a firm's ability to predict the future. Some business may be operating in
simple environment and others in complex. When there is a high level of uncertainty and
complexity in the environment, environmental scanning becomes more critical.

2. Determine the sources of Information

After studying the process and nature of the environment, the sources of collecting information
from the environment should be determined. There are different sources through which
information on business environment may be collected. They are as follows:
 • Secondary sources
Newspapers, book, research articles, industrial and trade publications, government publication,
and annual report of the competitors.

• Mass media
Radio, TV and Internet.
• Internal sources
Internal reports, management information system, data network, and employee.
 External agencies
Consumers, marketing intermediaries and suppliers.
• Formal studies
Formal research and study by employee, research agencies, and educational institutions.
Spying and surveillance of the competitors.

3. Determine the Approach of Environmental scanning

After determining the sources of information the approach of environmental analysis should be
determined. There are mainly three approaches to environmental scanning. They are:

• Systematic approach
Under this approach, a systematic method is adopted for environmental scanning. The
information regarding market and customer, government policy, economic and social aspects are
continuously collected. In other words, the environment is monitored in a regular way. The
timeliness and relevance of such information enhances the decision making capacity of the
management.

• Ad-hoc Approach
Under this, specific environmental components are only analyzed through survey and study.
Adhoc approach is useful for collecting information for specific project, evaluating the strategic
alternative or formulating new strategies. It is not a continuous process.

• Processed form approach

Under this, the information collected from internal and external sources are used after processing
them. Normally, the information obtained from secondary sources are processed and used as per
the requirements of the business.

• Scan and Assess the Trend

This is the final step of environmental scanning process. It involves a detailed and micro study of
the environment to identify the early signals of potential changes in the environment. It also
detects changes that are already under way and shows the trend of the environment. The trend
should be assessed in terms of opportunities and threats.

Techniques/Methods of Environmental scanning

Environmental scanning is a technique of detail study of the environment. It is done to assess the
trend of the environment and prepare the organization accordingly. There are different
techniques/methods of environmental scanning. They are discussed below:

• Executive opinion method

It is also called executive judgement method. Under this environment is forecasted on the basis
of opinion and views of top executives. A panel is formed consisting of these executives.

• Expert opinion method

Under this environment forecasting is based an opinion of outside experts or specialist. The
experts have better knowledge about market conditions and customer taste and preferences. This
method is similar to executive opinion method. However, it uses external experts.

• Dephi method
This method is extension of expert opinion method. It involves forming a panel of experts and
questioning each member of the panel about the future environmental trend. Later, the responses
and summarized and returned to the members for assessment. This process continues till the
acceptable consensus is achieved.

• Extrapolating method
Under this method, the past information is used to predict the future. Different methods used to
extrapolate the future are time series, trend analysis and regression analysis.

• Historical analogy
Under this, the environmental trends are analyzed with the help of other trends which are parallel
to historical trend.

• Intuitive reasoning
Under this, rational and unbiased intuition is used for environmental scanning. Environmental
dynamics are guessed individual judgement. Reliability of this method is questionable.

• Scenario building
Scenarios are the pictures of possible future. They are built on the basis of time ordered sequence
of events that have logical cause and effect relationship with each other. Scenarios are built to
address future contingencies.

• Cross-impact matrix
Under this, environmental forecasts through various methods are combined to form and
integrated and consistent description of future. Cross impact matrix is used to assess the internal
consistency of the forecasts.

Importance of Environmental Scanning

Signals threats: It provides an early signal of threats, which can be defused or minimized if
recognized well in advance.

• Customer needs
It signals an organization to the changing needs and requirements of the customers.
 Capitalize opportunities
It helps an organization capitalize opportunities earlier than the competitors.
 Qualitative information
It provides a base of objective qualitative information about the environment that can be utilized
for strategic management.
• Intellectual simulation
It provides intellectual stimulation to managers in their decision making.

• Image
It improves the image of the organization as being sensitive and responsive to its environment.

Process of Environmental Analysis

 Scanning
Environmental scanning involves the study of the general environment. It helps to identify the
early signals of potential changes in the environment. It also detects changes that are already
under way. It normally reveals ambiguous, incomplete, or unconnected data and information.
The scanning system should be aligned with the organizational context. Hence, a scanning
system designed for a volatile environment may be inappropriate for a stable environment. Many
organizations even use special software and internet for environmental scanning.  Monitoring
Monitoring involves observation of environmental changes to see the trend. It detects meaning in
different environmental events and trends.
Scanning and monitoring are particularly important when a firm competes in a highly volatile
environment. They help gather knowledge about markets and other components. 
Forecasting
Scanning and monitoring are concerned with events and trends in the general environment at a
point in time. Forecasting involves developing feasible projections of what might happen and
how quickly. It is done on the basis of changes and trends. Forecasting is a challenging work.
 Assessing
Assessing determines the timing and significance of the effects of environmental changes and
trends that have been identified. It specifies the implications of that understanding. Assessing
connects the data and information with competitive relevance. Equally important is interpreting
the data and information to determine the trend as opportunity or threat for the organization.

Unit Three:

 Establishing organizational direction

1st Developing Strategic vision
2nd Mission and setting Objectives
3rd Strategic intent and the concept of Strategic pyramid 4th
Corporate ethics and social responsibility.
Establishing organizational direction
Every organization, regardless of its size, needs to find its place its general, operating and
competitive environments. Moreover, in order to create the fit - to survive and prosper - firms
must answer the following questions:
• What is our business?
• Who is the customer?
• What will our business be?
• What should our business be?
These questions involve three key components that comprise the process of giving direction and
performing the entrepreneurial function:
• Defining the organization's purpose and mission.
• Establishing objectives.
• Formulating a strategy to achieve the objectives.
This chapter explains the role of mission in the strategic management process and provided
guideline for identifying objectives.
 1. Organizational Mission
Mission and a sense of mission are important to business success because they help organizations
to move in a united direction, make consistent decisions and strategies, and harness the skills and
commitment of the work force.
Every kind of organized operation has-or at least should have purpose or mission. Moreover, an
answer to the first question requires a consideration of the purpose and mission definition of
business activities the firm pursues. The more so as, in every social system, enterprises have a
basic function or task is assigned to them by society.
• Organizational Purpose
Purpose relates to the reason for an organization's existence. The purpose of a business generally
is the production and distribution of goods and services. There is a tendency sometimes for
companies to view their purpose in terms of "making a profit" this typifies all profit-seeking
enterprises and thus distinguish none.
Defining purpose in terms of markets and customers to be served is a step forward, Peter
Drucker, one of the most authorities in this field, maintains: "There is only one valid definition of
business purpose: to create a customer." Derek Abell has developed Drucker's perceptive,
arguing that the mission of a company is defined along three dimensions: "what is being
satisfied", "who is being satisfied" and "how customer needs are satisfied". Defining the purpose
of organization in term of what to satisfy, and how the organization satisfies needs, is in requires
taking three factors: customer needs, customer groups, and the technologies used and functions
performed. The development of shared organizational vision represents a crucial response to this
problem.
• What Is Mission?
The company mission is - "a broadly defined but enduring statement of purpose that
distinguishes a business from other firms of its type and identifies the scope of its operations in
product and market terms" (J. A. Pearce ).
The mission contains few specific directives, only broad outlines or implied objectives and
strategies. What then is a company mission designed to accomplish?
King and Cleland provide seven good answers:
o To ensure unanimity of purpose within the organization.
o To provide a basis for motivating the use of the organization's resources. o
o To develop a basis, or standard, for allocating organizational resources. o
o To establish a general tone or organizational climate, for example, to suggest a
businesslike operation. o
o To serve as a focal point for those who can identify with organization's purpose and
direction; and to deter those who cannot from participating further in the organization's
activities.
 o To facilitate the translation of objectives and goals into a work structure involving the
assignment of tasks to responsible elements within the organization.
o To specify organizational purposes and the translation of these purposes into goals in
such a way that cost, time, and performance parameters can be assessed and controlled.
Phillip Kotler suggests, an organization's mission is viewed as its broadly stated definition of
basic business scope and operations which distinguishes it from other organizations of similar
types. According Philip Kotler, the mission should stated in light of at least five key factors:
o The firm's history
o Current preferences of management and owners o Environmental consideration o
Available resources o Distinctive competences

The most obvious segmentation of organizations according to mission uses of profit and not
profit. More definitively, Peter and W.Richard Scott have identified four major types of
organizations:
o The business concern, which benefits the owners - for example, Coca Cola. o The mutual
benefit association, which benefits the members, which benefits the members themselves
- for example, a union or a club.
o The serve organization, which benefits its clients - for example, United Way.
o The commonweal organization, which benefits society in general - for example, the U.S.
Department of Defense.

 Building A Definition Of Mission

Despite the diversity of opinion about mission, it is possible to distinguish two schools of thought
about mission.
One approach describes mission in terms of business strategy. This strategic school views
mission as a strategic tool: mission is something that is linked to strategy but at a higher level. It
exists to answer two fundamental questions: "What is our business and what should it be?
In contrast, the second school of thought argues that mission is the cultural "glue" that enables an
organization to function as a collective unity. This cultural glue consists of strong norms and
values that influence the way in which people behave, how they work together, and how they
pursue the goals of the organization. This view describes mission in terms of a distinct business
philosophy, which in turn produces strong cultural norms and values. Thomas J. Watson, Jr., in
his book, A Business and Its Beliefs, insisted that these beliefs have been the central pillar of the
company's success.

 Mission and Vision

A vision and a mission can be one and the same. But vision and mission are not fully overlapping
concepts. Vision refers to a future state,
"a condition that is better... than what now exists," whereas mission more normally refers to the
present" (Warren Bennis and Burt Nanus )
A vision is, therefore more associated with a goal whereas a mission is more associated with a
way of behaving.
The importance of creating a future vision for the company is underscored by Warren Bennis and
Burt Nanus in their book, Leaders: The Strategies for Taking Charge. Based on 90 interview
with successful business leaders, the authors found that the sine qua non of successful leadership
is the ability to create a compelling image of the future:
When the organization has a clear sense of its purpose, direction, and desired future state,
individuals are able to find own roles in the organization and the larger society of which they are
part...

 The Vision Framework

James Collins and Jerry Porras developed the vision framework. Figure Organizational Vision
shows an overview of the framework and various components.
At the broadest level, vision consists of two major components: a Guiding Philosophy that, in the
context of expected future environments, leads to a Tangible Image (see Organizational Vision
Figure).

The guiding philosophy is where vision begins. The guiding philosophy is a system of
fundamental motivating assumptions, principles, values, and tenets. Core values and beliefs are
the organization's basic precepts about what is important in both business and life, how business
should be conducted, its view of humanity, its role in society, the way the world works, and what
is to be held inviolate.
Tangible image consists of mission which clearly focuses the efforts of the organization and a
vivid description through which the mission is made more alive and engaging. Mission is a clear
and compelling goal that serves to unify an organization's efforts.
Vivid description represents a vibrant, engaging, and specific description of what it will be like
when the mission is achieved.
However, mission is more powerful concept then vision as a central concept. In times of change,
a new mission will difficult to distinguish from a vision because the new mission will be a
mental image of desirable future state. When a vision is achieved, a new vision needs to be
developed.
The critical point is that a vision articulates a view of a realistic, credible,a attractive future for
the organization, a condition that is better in some important ways that now exists (Warren
Bennis and Burt Nanus ).
Andrew Campbell and Laura L. Nash, authors of A Sense of Mission, believe that these two
schools of thought can be synthesized into a comprehensive single description of mission. Their
definition of mission is illustrated in a figure (The Ashridge Mission Model). According to this
framework, a strong mission exists when four elements of mission: purpose, strategy, behavioral
standards, and values - link tightly together, resonating and reinforce each other.
A sense of mission is not an intellectual concept; it is an emotional commitment. It is important
to recognize the individual nature of sense of mission. Even in companies with a strong mission,
there are many people "who do not feel an emotional commitment." However, it recognizes that
employees are stimulated more by the beliefs and values that the organization uses today that by
dreams of glory and success in the future.
None of the relationships (see The Ashridge Mission Model Figure) central to this definition of
mission is new. All of them have been exposed by other writers. For example, Tom Peters and
Robert Waterman in their, In Search of Excellence by Tom Peters and Robert Waterman, the
best-selling business book of all time because of its gleeful recognition of the emotional side of
organizations, authors examine psychologists, philosophers, and many practical studies of
behavior and conclude that people yearn for transcendence. It is this observation that makes it
possible for an organization to help an employee develop a sense of mission.

 Mission Formulation
For any given firm, organizational mission is normally summarized and documented in a mission
statement.
The titles of the mission statements are quite varied. They include "corporate philosophy,"
"objectives," "credo," "our way," "guidelines," "our purpose," and so on. For example, the Figure
presents Ford Motor Company's "Mission, Values, and Guiding Principles".
But despite the variety of names, the idea is the same: to define what is important to the
company. Therefore, in formulating its mission, an organization must base on the four elements
of mission described by Campbell and Nash: purpose, strategy, values, and behavioral standards
(see above).
In practice, mission statements take on a variety of forms and lengths. But each mission
statement has a personality which is unique and reflective of the individuals ideals of the
corporate directors. Although there are differences in the mission statements of various
companies, there are also many similarities.
The kinds of information contained in mission statement vary somewhat from organization to
organization. Most mission statements cover the following major topics:
o Company product or service
 o Market o Technology o Company objective o Company philosophy o Company self-
concept o Public image
The need to assess the quality of a mission statement is a problem that is being faced by many
management teams and consultants.

Goodstein, Nolan and Pfeipher provide the following ten criteria for evaluating mission
statements:
The mission statement is clear and understandable to all personnel, including rank-and-file
employees.
The mission statement is brief enough for most people to keep it in mind. This typically means
one hundred words or less, which is possible.
The mission statement clearly specifies what business the organization is in. This includes a clear
statement about:
o "What" customer or client needs the organization is attempting to fill, not what products
or services are offered;
o "Who" the organization's primary customers or clients are;
o "How" the organization plans to go about its business, that is, what its primary
technologies are; and
o "Why" the organizations exists, that is, the overriding purpose that the organization is
trying to serve and its transcendental goals.
o The mission statement should identify the forces that drive the organization's strategic
vision.
o The mission statement should reflect the distinctive competence of the organization.
o The mission statement should be broad enough to allow flexibility in implementation but
not broad enough to permit a lack of focus. o The mission statement should serve as a
template and be the means by which mananagers and others in the oragnization can make
decisions. o The mission statement must reflect the values, beliefs, and philosophy of
operations of the organization. o The mission statement should be achievable. It should
be realistic enough for organization members to buy into it.
o The wording of the mission statement should help it serve as an energy source and
rallying point for the organization.
All ten criteria must met for the mission statement to fully accomplish all that such statements.
The process of writing a mission statement can be broken down into several distinct steps; these
include:
 o Establish the basic parameters;
o Collect and assemble possible ideas for inclusion; o Determine the limits; o Set the
priorities of each statement; o Carefully express each of the ideas; o Add explanatory
statements; o Establish the document's appearance; o Gain final approval.
2. Strategic Goals And Objectives
To fulfil the promises of the mission statement, strategic objectives must be identified. Without
objectives, the organization is assured of eventual failure.
In management literature, the terms "goals," and "objectives" are often used synonymously.
Still others claim that these two terms mean different things. In this case, "organization's goals"
represent the desired general ends toward which efforts are directed" (Wright, Pringle, Kroll )
Three economic goals guide the strategic direction of almost every viable organization: survival,
growth, and profitability.
Objectives are specific, and often quantified, version of goals. Therefore, objectives should be
specific, measurable, time phased, and achievable.
In this thesis the terms "goals" and "objectives" are used interchangeably. However, where other
works are being referred to and those authors have used the term goal as opposed to objective,
their terminology is retained.

 Objectives: What Should They Be; What Are They?

A full consideration of objectives incorporates three aspects:
o An appreciation of the objectives that the organization is actually pursuing and achieving-
where is going and why; the objectives that it might pursue, and the freedom and
opportunity it has to make changes; specific objectives for the future.
As a background to the consideration of these points it is useful to look briefly at a number of
theories of business organizations.

 Market Models
Basic microeconomic theory states that firms should seek to maximize profits and that this is
achieved where marginal revenue is equal to marginal cost. This basic theory has resulted in the
development of four market models: pure competition, monopolistic competition, oligopoly, and
pure monopoly.
  Pure (or perfect) competition model
Perfect competition is a concept used by economists in constructing theoretical models of
economics systems. It does not exist in the real world. Such an economy is supposed to work
according to a number of ideal rules:
o There are large numbers of both buyers and sellers with no one a large enough buyer or
seller to influence prices or supplies;
o Products are homogeneous or identical, so that the buyer will always buy at the lowest
price, thus forcing all suppliers to have the same low price;
o Buyers and suppliers have perfect knowledge of prices and products throughout the
economy;
o Perfect freedom of entry to and exit from the market exists; o Its is assumed that there
are no transportation or other such costs;
o There are no profits other than the minimum return to the factors of production necessary
to ensure that they remain in the market.
Competition results, and if supply exceeds demand the ruling market price is forced down and
only the efficient firms survive.
 Monopolistic competition
Monopolistic competition is quite similar to perfect competition. A market characterized by a
large number of producers and low barriers to entry. The major difference between monopolistic
competition and pure competition is that in monopolistic competition consumers perceive
important differences between the products offered by individuals firms. This gives firms at least
some direction in setting prices.
However, the presence of many close substitutes limits the price-setting ability of individual
firms, and drives profits down to normal rates of return in the long run. As in the case of perfect
competition, above-normal profits are only possible in the short-run before rivals can take
effective counter measures. The theory was developed almost simultaneously by the American
economist Edward Hustings Chamberlin in his Theory of Monopolistic Competition (1933) and
by the British economist Joan Robinson in her Economics of Imperfect Competition (1933).

 Oligopoly
A market in which there are only a few large sellers but many buyers, and that is characterized
by limited or intermittent price competition. Each producer must consider the effect of a price
change on the actions of the other producers. A cut in price by one may lead to an equal
reduction by the others, with reaction approximately the same share of the market as before
but at a lower profit margin. Therefore, the main forms of competition consist of advertising
and product differentiation. Oligopolistic firms tend to be large and require significant capital
investment to achieve economic of scale.  Pure monopoly
A market in which there is only one producer but many buyers and no substitute for that
producer's product or service, which enables the single producer to exercise considerable power
over the price, quantity, and quality of the product. Since a monopolist is the sole provider of a
desired commodity, the monopolist is the industry. The absence of competition usually means
that the consumer has to pay higher prices that would prevail with competition. The goal of
monopolist is to maximize profits.
Profit-maximizing decision rules are relatively simple and straight forward in the cases of perfect
competition, monopolistic competition, and monopoly. Under oligopoly, however, the rules
become much more complex, almost to the point of being indeterminate.
However, only in oligopoly and monopoly markets is there real opportunity for 'super-normal'
profits, in excess of what is required to stay in business. In all these models competition is a
major determinant of profit potential and therefore objectives must be set with competitors in
mind. In a monopoly (again somewhat theoretical in a pure sense) excess profits could be made
if government did not act as a restraint.

 Stakeholder Theory
Some writers have said that the overriding purpose of management is maximize stockholder
wealth. R. Edward Freeman, author of a book on stakeholder management (1984), defines
stakeholders as any group or individual who can affect, or is affected by, the performance of the
organization. Newbold and Luffman (1979) divide the major stakeholders into four groups,
arguing that their individual objectives suggest separate criteria for assessing the viability of
particular strategies.

The four groups are the shareholders who finance the business, the managers who manage it, the
employees who work for it, and the economy (buyers, suppliers, and the groups represent the
wider economic interests of the country). Newbold and Luffman argue that current and future
strategies are affected by:
o External pressures from the marketplace, including competitors, buyers and suppliers;
shareholders; pressure groups; and government;
o Internal pressures from existing commitments, managers, employees and their trade
unions;
o The personal ethical and moral perspectives of senior managers.

Given this view, the task of management becomes on of satisfying stakeholders' wants and needs
and of managing the relationships between, and often conflicting demands of, various
stakeholders. It is important to establish priorities amongst the several and varied stakeholders
and objectives.
Objectives of an Organization and Can Be Structured Into A Hierarchy.
The corporate objectives affect the entire organization; divisional objectives are those derived
from the corporate objectives, department are derived from the divisional objectives, and so
forth, right down to the individual level.
Similarly, the can range from the short to the long term. Long-range objectives extend over five
or more years. Short-range objectives are very specific and generally are realized within one
year. Every business has more than one objective.
Although the choice and priorities will be different among firms, the objectives lists of most
firms will contain to levels objectives: the overall (general) objectives and specific (minor)
organization objectives.
The first level is concerned with the firm's broad goals:
o Economic service objectives o Broadly stated company objective o
Survival and growth objectives o Personal group objectives o
Government and social objectives
The second level - specific organization objectives relate to:
o Productivity objectives o Budgetary objectives o Quantitative
objectives o Qualitative objectives.
Every company needs to establish both strategic objectives and financial objectives.
Why do firms have objectives, and why are they important to strategic management? There are
four reasons:
o Objectives help define the organization in its environment. o
Objectives help in coordinating decisions and decisions makers.
o Objectives provide standards for assessing organizational
performance. o Objectives are more tangible targets than mission
statements. o Objectives may be short and long term.
Although there is no precise definition of dividing point among the the classes of objectives,
many would agree that one year or less refers to a short-term objective and five years or more
refers to a long-term objectives. Both long-range and short-range objectives are needed.
Long-range objectives serve two purposes:
o One, they raise the issue of what actions to take now to able to
reach the targeted longrange performance later. o Two, having long-
range objectives pushes managers to weigh the impact of today's
decisions on longer- range performance.

Short-range objectives spell out the immediate and near-term results to be achieved:
o They indicate the speed at which the organization needs to move
along its charted path as well as the level of performance which being
aimed for. o They represent a commitment by managers to produce
specified results in a specified time frame - this means they must spell
out how much by when.

Changing Mission and Objectives

Mission and objectives should not be viewed as unchangeable. Although organizations tend
toward stability, mission and objectives change over time.
In certain circumstances the mission itself must be reevaluated if the organization is to survive.
Another reason for changing the mission and the objectives of an organization occurs when the
long-term prospects for an organization's core business area not good and the organization
decides to redirect its activities. A variety of factors, such as new technology, new government
regulation, and different stakeholder demands, can render good objective obsolete.

1st Developing Strategic vision

Defining vision
One definition of vision comes from Burt Nanus, a well-known expert on the subject. Nanus
defines a vision as a realistic, credible, attractive future for [an] organization. Let's disect this
definition:
Realistic: A vision must be based in reality to be meaningful for an organization. For example, if
you're developing a vision for a computer software company that has carved out a small niche in
the market developing instructional software and has a 1.5 percent share of the computer
software market, a vision to overtake Microsoft and dominate the software market is not
realistic!
Credible: A vision must be believable to be relevant. To whom must a vision be credible? Most
importantly, to the employees or members of the organization. If the members of the
organization do not find the vision credible, it will not be meaningful or serve a useful purpose.
One of the purposes of a vision is to inspire those in the organization to achieve a level of
excellence, and to provide purpose and direction for the work of those employees. A vision
which is not credible will accomplish neither of these ends.
Attractive: If a vision is going to inspire and motivate those in the organization, it must be
attractive. People must want to be part of this future that's envisioned for the organization.
Future: A vision is not in the present, it is in the future. In this respect, the image of the leader
gazing off into the distance to formulate a vision may not be a bad one. A vision is not where you
are now, it's where you want to be in the future. (If you reach or attain a vision, and it's no longer
in the future, but in the present, is it still a vision.

Developing a vision
At this point you should know what a good vision consists of, and recognize a vision statement
when you see one. But how does a strategic leader go about developing a vision for an
organization? Nanus also offers a few words of advice to someone formulating a vision for an
organization:
Learn everything you can about the organization. There is no substitute for a thorough
understanding of the organization as a foundation for your vision.
Bring the organization's major constituencies into the visioning process. This is one of Nanus's
imperatives: don't try to do it alone. If you're going to get others to buy into your vision, if it's
going to be a wholly shared vision, involvement of at least the key people in the organization is
essential. "Constituencies," refer to people both inside and outside the organization who can have
a major impact on the organization, or who can be impacted by it. Another term to refer to
constituencies is "stakeholders"- those who have a stake in the organization.
Keep an open mind as you explore the options for a new vision. Don't be constrained in your
thinking by the organization's current direction - it may be right, but it may not.
Encourage input from your colleagues and subordinates. Another injunction about not trying to
do it alone: those down in the organization often know it best and have a wealth of untapped
ideas. Talk with them!
Understand and appreciate the existing vision. Provide continuity if possible, and don't throw out
good ideas because you didn't originate them. In his book about visionary leadership, Nanus
describes a seven-step process for formulating a vision:
1. Understand the organization
To formulate a vision for an organization, you first must understand it. Essential questions to be
answered include what its mission and purpose are, what value it provides to society, what the
character of the industry is, what institutional framework the organization operates in, what the
organization's position is within that framework, what it takes for the organization to succeed,
who the critical stakeholders are, both inside and outside the organization, and what their
interests and expectations are.

2. Conduct a vision audit

This step involves assessing the current direction and momentum of the organization. Key
questions to be answered include: Does the organization have a clearly stated vision? What is the
organization's current direction? Do the key leaders of the organization know where the
organization is headed and agree on the direction? Do the organization's structures, processes,
personnel, incentives, and information systems support the current direction?

3. Target the vision

This step involves starting to narrow in on a vision. Key questions: What are the boundaries or
constraints to the vision? What must the vision accomplish? What critical issues must be
addressed in the vision?

4. Set the vision context

This is where you look to the future, and where the process of formulating a vision gets difficult.
Your vision is a desirable future for the organization. To craft that vision you first must think
about what the organization's future environment might look like. This doesn't mean you need to
predict the future, only to make some informed estimates about what future environments might
look like. First, categorize future developments in the environment which might affect your
vision. Second, list your expectations for the future in each category. Third, determine which of
these expectations is most likely to occur. And fourth, assign a probability of occurrence to each
expectation.

5. Develop future scenarios

This step follows directly from the fourth step. Having determined, as best you can, those
expectations most likely to occur, and those with the most impact on your vision, combine those
expectations into a few brief scenarios to include the range of possible futures you anticipate.
The scenarios should represent, in the aggregate, the alternative "futures" the organization is
likely to operate within.

6. Generate alternative visions

Just as there are several alternative futures for the environment, there are several directions the
organization might take in the future. The purpose of this step is to generate visions reflecting
those different directions. Do not evaluate your possible visions at this point, but use a relatively
unconstrained approach.

7. Choose the final vision

Here's the decision point where you select the best possible vision for your organization. To do
this, first look at the properties of a good vision, and what it takes for a vision to succeed,
including consistency with the organization's culture and values. Next, compare the visions
you've generated with the alternative scenarios, and determine which of the possible visions will
apply to the broadest range of scenarios. The final vision should be the one which best meets the
criteria of a good vision, is compatible with the organization's culture and values, and applies to a
broad range of alternative scenarios (possible futures).

2nd Mission and setting Objectives (Discussed in pervious pages)

Glossary
1. Shared Views
Organizational purpose comes from a shared view of our vision, mission, and values. Satisfying
customers requires that you understand their needs, know your own processes, and then set goals
and objectives to drive and evaluate your actions.

2. Business Charter
A business Charter is an organizational statement of purpose.
• Why are you in business? (Vision)
• What business are you in? (Mission)
• What are your principles? (Values)
To perform strategic planning, you must begin with a clear Charter. Each element of the Charter
is important. You need to link these vision, mission, and values statements. A vision without a
mission is just a pipedream. And, tactics must be guided by honorable values.

3. Vision Statement
A vision statement is created as a compelling verbal image and forms a mental picture of the
future. It should define what we seek to become as an organization, yet describe something that
is realistic. The vision should generate human energy and engagement. In other words, it should
provide direction and focus for the organization.
To develop a vision statement, ask yourself these questions:
 • What is your dream or vision of the future?
• What is the loftiest picture you can imagine?
Then, convince others of the value of that vision. Express it in a way that aligns with their best
interests. Encourage them to buy into your purpose for the organization. Keep the statement brief
and memorable. Use it to focus your activities.

4. Mission Statement
Your mission is the business reason for your organization’s existence. It is an element of the
charter. It doesn’t describe a specific outcome and contains no time limit or measurement. The
mission statement provides the basis for setting your goals and is used to allocate resources.
A typical mission statement format might be:
• To provide (product) to (customers) for (reason) in (marketplace).
• To define your mission, begin by describing why your organization exists. Identify your
scope of products and services. Identify your customers and the audience for your
offerings. Then, write a brief and succinct mission statement.

5. Values Statement
Values are the beliefs behind your vision and mission. A worthy vision is guided by worthy
values. Values give dignity and direction to your mission. They are the moral compass and
expected behaviors during your vision quest. A values statement may include elements like:
• Integrity in all our actions
• Commitment to employees
• Quality of our products
• Protection of environment
• Innovative business ideas
• Continual learning
What do you hold dear and inviolate? What core values guide your activities? Express these
values for an improved work environment and to allow the organization to prosper.

6. Strategy Development
A strategy is a statement of your approach to achieving your goals. Your vision, mission, and
values play an important role in developing your business strategy. They provide the framework
for generating and screening strategic options. They provide an organizational identity and
understanding of business directions.
The business strategy can be viewed as how you will use your mission to achieve your vision.
Strategies are critical to the success of an organization because this is where you begin outlining
the plans and actions to accomplish your goals.

7. Goals and Objectives

Goals are conditions to be achieved in the future. They must be defined consistent with your
vision, mission, and strategic directions. Goals guide your decisions and actions. However, they
usually do not involve measurable results, and therefore, do not change as often as objectives.
Objectives are focused on critical issues and milestones. They describe the activities and targets
to achieve your goals. They identify the dates for completing the activities. They are measurable
in terms of being achieved, or not. For example, a general goal might be to reduce waste. The
specific objective might be to reduce waste from 5% to 3% by the end of 2017.

8. Policies and Procedures

Policies are the intentions and directions of an organization as formally expressed by its top
management. These adopted policies are used to guide an organization to reach its goals.
Procedures are the specified way to carry out an activity or a process. They are the methods used
to express policies as specific actions for everyday operations and support.
Together, policies and procedures ensure that the top management point of view is translated into
steps that will result in the intended business outcomes.

3rd Strategic intent and the concept of Strategic pyramid

Strategic intent
Strategic intent gives an idea of what the organization desires to attain in future. It answers the
question what the organization strives or stands for? It indicates the long-term market position,
which the organization desires to create or occupy and the opportunity for exploring new
possibilities.
 1. Vision

Vision implies the blueprint of the company’s future position. It describes where the organization
wants to land. It is the dream of the business and an inspiration, base for the planning process. It
depicts the company’s aspirations for the business and provides a peep of what the organization
would like to become in future. Every single component of the organization is required to follow
its vision.
2. Mission
Mission delineates the firm’s business, its goals and ways to reach the goals. It explains the
reason for the existence of business. It is designed to help potential shareholders and investors
understand the purpose of the company. A mission statement helps to identify, ‘what business
the company undertakes.’ It defines the present capabilities, activities, and customer focus and
business makeup.
3. Business Definition
It seeks to explain the business undertaken by the firm, with respect to the customer needs, target
audience, and alternative technologies. With the help of business definition, one can ascertain the
strategic business choices. The corporate restructuring also depends upon the business definition.
4. Business Model
Business model, as the name implies is a strategy for the effective operation of the business,
ascertaining sources of income, desired customer base, and financing details. Rival firms,
operating in the same industry relies on the different business model due to their strategic choice.
5. Goals and Objectives
These are the base of measurement. Goals are the end results, that the organization attempts to
achieve. On the other hand, objectives are time-based measurable actions, which help in the
accomplishment of goals. These are the end results which are to be attained with the help of an
overall plan, over the particular period.
The vision, mission, business definition, and business model explains the philosophy of business
but the goals and objectives are established with the purpose of achieving them.
Strategic Intent is extremely important for the future growth and success of the enterprise,
irrespective of its size and nature.

Classification of Strategic Intent

If we have to broadly divide Strategic Intent into subdivisions then we may classify it into three
parts, namely, Stretch, Leverage and Fit. Stretch stresses on the basic definition of Strategic
Intent as to stretch the resources and capabilities to the extent that achievement of end is ensured.
Here the basic stands the same as we have discussed since the start that there is always a misfit
between the resources and aspirations but equating this out-proportioned equation is what refers
to the Stretch. Second is Leverage, which refers to the scenario where resources are leveraged by
accelerating the pace of organization learning so as to attain impossible goals. Here key success
factors are may, namely, Concentration, Accumulation, Complementing and Conservation and
Recovering. And third is Fit which refers to the case where ideally resources have been made
available in such a manner so that high level of Aspirations may still be easily achieved with help
of resources available.

How to Implement Strategic Intent?

It is a three step process where the first step starts with setting the strategic intent which aims at
setting all the three attributes discussed earlier, namely, direction, discovery and destiny, right.
This refers to having clarity of what actually the organization intends to be in all respects.
Second step is to set the challenges which should be appropriate and communicated to everyone
in the organization effectively. Third and final step is the empowerment of Strategic Intent and
here the key is to involve everyone. Downward and upward communication of ideas should be
free-flow and everyone’s opinion should be given considerable importance. Here the term
empowerment is used in a vary holistic manner so as to encompass both individuals and
organization.

Strategic Pyramid
What’s the difference between a mission and a vision? How is a purpose different from a goal?
Does the corporate mission last forever, or does it change over time? If you’re confused about
any or all of these, it’s not your fault. For two decades, business leaders have tossed these terms
around with reckless abandon, while experts have defined them in ways that seem to contradict
one other.
Here’s a simple model from my book Metaskills that puts the major concepts of the last 20 years
into a clearly defined hierarchy. The next time you address the top-level drivers behind your
business or brand, download these slides to get your team on the same page.
Notice in the pyramid that mission and vision are on the same level. They’re fraternal twins that
reveal the “how” and the “what” of future success. Most CEOs get this wrong, using mission and
vision interchangeably. Also notice that purpose is on a higher level than both mission and
vision. That’s because even when the mission isn’t going well and the vision seems like a
mirage, a strong purpose will keep people coming back to work day after day.

That’s it. Now you can start building a strategy that all your stakeholders can understand.
Strategic pyramid 5 levels
4th Corporate ethics and social responsibility
Business Ethics
Moral guidelines for the conduct of business based on notions of what is right, wrong and fair.
Most business people rely upon their own consciences in making business decisions, falling back
upon their own moral and religious backgrounds for guidance. However, business people are also
affected by their superiors and immediate colleagues when making business decisions and may
feel pressurized to behave unethically when seeking to make profits. Over recent years many
firms and industries have attempted to develop codes of conduct which can be used to guide
managers when making decisions.
Corporate Social Responsibility
A business philosophy which stresses the need for firms to behave as good corporate citizens, not
merely obeying the law but conducting their production and marketing activities in a manner
which avoids causing environmental pollution or exhausting finite world resources. Some
businesses have begun to behave in a more socially responsible manner, partly because their
managers want to do so, and partly because of fear of environmentalist and consumer pressure
groups and the media, and concern for their public image. It is argued that socially responsible
behavior can pay off in the long run, even where it involves some short-term sacrifice of profit.

Business Ethics and Corporate Social Responsibility

The study of business ethics refers to the ethical dimensions of productive organizations and
commercial activities, according to the Stanford Encyclopedia of Philosophy. It applies to the
production, distribution, marketing, sale and consumption of goods and services. It can include
potentially controversial issues like insider trading, bribery and discrimination.
From its roots in ancient Greece to modern topics like unequal gender pay, business ethics is a
large field of study. There are several journals devoted to business ethics, and it appears in
mainstream philosophy and social science journals as well. However, there is a difference
between business ethics and social responsibility (and corporate social responsibility).

Relating Business Ethics and Social Responsibility

Business leaders and organizations can examine how their decisions relate to social
responsibility, which is a general concept that can include social as well as cultural, economic
and environmental issues. By integrating business ethics and principles of social responsibility,
organizations can make a difference in the world and enhance their reputation.

Some companies have adopted the social entrepreneurship model of business that focuses on
applying practical, innovative and sustainable approaches to benefit society. The shoe retailer
TOMS is one of the most popular examples of the social entrepreneurship model. For every pair
of shoes sold, the company provides a new pair of shoes to children in developing countries.
Another example of combining business ethics and social responsibility is by focusing on
benefiting the environment. Forbes notes some of the reasons why Seventh Generation, a
Burlington, Vermont-based company that produces and distributes green products, was
recognized as the best company for the environment.
Selling products such as biodegradable, vegetable-based cleaning products, chlorine-free
tampons and paper towels and natural lotion baby wipes.
Developing an employee bonus program that awards workers who figure out how to make the
company’s goods even more sustainable.
Having an LEED-certified building where more than a quarter of the company’s fleet is
comprised of low-emissions cars and more than a quarter of the energy burned in manufacturing
its products comes from renewable energy.

Definition and Characteristics

Corporate social responsibility is similar to ideas of social responsibility for individuals and
businesses. Some sources provide similar definitions for the two terms, but corporate social
responsibility is a specific business approach that began in the 1950s and 1960s, with definitions
expanding in the ensuing decades.
There is no universally accepted definition of corporate social responsibility, according to the
Journal of Business Ethics, but two features can be used to differentiate corporate social
responsibility from other activities: 1) They partly or entirely benefit society and/or general
interests; and 2) they are not obligated by law. Other aspects of corporate social responsibility
can vary.
Domains include environmental friendliness, community support, local products promotion, fair
employee treatment and more.
Stakeholders include employees, suppliers, customers, communities, the environment, investors
and regulators.
Policies and activities include cause-related marketing (marketing programs that combine sales
objectives and helping worthy causes), sponsorship (connecting worthy causes to a brand or
organization for money) and corporate philanthropy (charitable donations).
Some organizations engage in corporate social responsibility activities for intrinsic reasons: to
help out and make societal contributions. Another motive is extrinsic, which relates to a
company expecting financial or other benefits for socially responsible behavior. Many studies
reflect positive organizational outcomes for corporate social responsibility activities, the Journal
of Business Ethics reports. Finally, a third motive for corporate social responsibility activities is
meeting societal expectations and stakeholder pressure.
 Unit Four:

 Generic Competitive Strategies

1st Stability
2nd Expansion
3rd Retrenchment
4th Conglomerate and their variants
5th Strategic and competitive advantage
6th New business models for global and internet economy
7th Strategic clusters and model relating to portfolio analysis
Generic Competitive Strategies
The Generic Competitive Strategy (GCS) is a methodology designed to provide companies with
a strategic plan to compete and gain an advantage within the marketplace.
According to Porter, a company can leverage its strengths to position itself within the
competition. When classifying the strengths of a company, they can either be placed under the
heading of cost advantage or differentiation. Within those two strength categories, the scope of
the company is either broad or narrow. As a result, there are three strategies that can be applied
to any business or industry at the business level (explained later in the post).

Components of the generic competitive strategy

GCS is based on three generic strategies: cost leadership, differentiation, and focus. Each
strategy has a different mechanism for reaching success. Companies within the same industry
may not choose the same strategy – it is a choice that must be made with the company’s
management, based on the desired outcome for success and the company’s strengths. Each
strategy has unique components that shape the company.
Cost Leadership
A business that wants to achieve an edge through cost leadership will become an expert in
lowering costs while maintaining prices. The goal should always be to reduce the costs
associated with doing business, while continuing to charge the same price as its competitors.
This gives the company a greater profit, without having any extra expenses. Another method of
maximizing the Cost Leadership position is by lowering the selling point. Because the costs
associated with the products are already low, the company is still making a healthy profit. This
allows the company to under bid the competitors while still preserving profits.

Differentiation
The differentiation strategy seeks to set a company apart by creating products that are different
than a competitor’s. The specific ways that a company differentiates itself from the competition
will depend on the industry of the company, but may include features, support and functionality.
The uniqueness of the company – the differentiation – must only be a feature that a customer is
willing to pay a premium price for. A company that focuses on differentiation may be
disappointed to realize that their market share is continually changing and comes with a set of
risks.

Focus
The company that uses the Focus strategy is selecting a niche market, and then determining the
scope of the focus. Within the Focus strategy is the option to use either cost leadership or
differentiation. It may be confusing to keep in mind that the Focus strategy is dealing with a
specific, niche market. Focus does not mean a smaller market simply because the company is
small – it means that the company has chosen to add value to their products and offer them to a
select number of customers. Because the company who chooses a Focus strategy deals
exclusively with their client base, they develop a loyal relationship which can generate sales and
profits for the future.
Creating the generic competitive strategy
Before creating a Generic Competitive Strategy, a company must decide which strategy to
employ. Taking into account the strengths of the company may give an indication of the best
strategy to choose, but should not be rushed simply to move to the next item.
To determine the best strategy for the company, follow a few simple steps:
1. Create a Strengths, Weakness, Opportunities, Threats (SWOT) chart for each of the three
strategies. Once that is completed, it may be clear that a strategy would not be
appropriate. If that is the case, eliminate that strategy, and continue to the next step.
2. Conduct an analysis of the industry the business is in. Finding out specifics about the
business industry can lead to an increased understanding of the market and how to best
position the company.
3. Compare the SWOT analysis to the business industry results. Select the most viable
options from the SWOT analysis and compare to the business industry analysis.

Five Generic Competitive Strategies

1. Low-Cost Provider Strategy
2. Broad Differentiation Strategy
3. Focused Low Cost Strategy
4. Focused Differentiation Strategy
5. Best-Cost Provider Strategy

What is competitive strategy?

Competitive Strategy is a long-term action plan for how a firm will compete after evaluating its
strengths and weaknesses.
Competitive Strategy is defined as a "framework for making decisions that create results in a
competitive market “The competitive theory was proposed by Michael Porter in 1980”
 Low-Cost Provider Strategy
• Effective Low-Cost Approaches:
o Pursue cost-savings that are difficult imitate.
o Avoid reducing product quality to unacceptable levels.
• Competitive Advantages and Risks:
o Greater total profits and increased market share gained from underpricing
competitors.
 o Larger profit margins when selling products at prices comparable to and
competitive with rivals. o Low pricing does not attract enough new buyers. o
Rival’s retaliatory price cutting set off a price war.
 Broad Differentiation Strategy
• Effective Differentiation Approaches: o Carefully study buyer needs and behaviors,
values and willingness to pay a unique product or service.
o Incorporate features that both appeal to buyers and create a sustainably distinctive
product offering.
o Use higher prices to recoup differentiation costs.  Advantages of Differentiation:
o Premium prices for products o Increased unit sales o Brand loyalty

 Focused Strategy
Companies use Focus strategies to concentrate on a particular market, by understanding the
dynamics of that market and the unique needs of customers within it.
This helps the companies to develop uniquely low cost or well-specified products for the market.
They tend to build strong brand loyalty amongst their customers.

 Focused Low Cost Strategy

It aims at securing competitive advantage by selling products at lower prices than those of its
competitors.
It concentrate on selling products at a low cost to a narrow target segment.
The main objective is to serve niche buyers better than the rivals.
The features of the products offered are tailored according to the need and taste of the niche
buyers.
Example:
Google Nexus 5
Offers advanced features at a price much lower than its competitors.
Specially targeted at geeks and software developers who want to customize the device to a great
extent.
Value for Money (VFM) device.

 Focused Differentiation Strategy

Pursuing strategic differentiation within a focused market.
In the focused differentiation strategy, a company aims to differentiate its products within a small
number of target market segments.
Focused differentiation strategy is most effective when consumers have different preferences or
requirements and when rival firms are not attempting to specialize in the same target segment.
Example:
Apple iPhone
Positioned itself as a status symbol
Targeted at urban youths and office goers in developed countries.
Finger Print Scanner.
The only smartphone in the world to run on the iOS platform.

 Best-Cost Provider Strategy

Striving to give customers more value for the money by combining an emphasis on low cost with
an emphasis on upscale differentiation
Combines low-cost and differentiation
The objective is to create superior value by meeting or beating customer expectation on product
attributes and beating their price expectations Keys to success:
• Match close competitors on key product attributes and beat them on cost
• Expertise at incorporating upscale product attributes at a lower cost than competitors 
Contain costs by providing customers a better product
Advantages of Best-Cost Provider Strategy
• Competitive advantage comes from matching close competitors on key product attributes
and beating them on price
• Most successful best-cost providers have skills to simultaneously manage costs down and
product quality up
• Best-cost provider can often beat an overall low-cost strategy and a broad differentiation
strategy where Customer diversity makes product differentiation the norm  Many
customers are price and value sensitive

1st Stability
The Stability Strategy is adopted when the organization attempts to maintain its current position
and focuses only on the incremental improvement by merely changing one or more of its
business operations in the perspective of customer groups, customer functions and technology
alternatives, either individually or collectively.
Generally, the stability strategy is adopted by the firms that are risk averse, usually the small
scale businesses or if the market conditions are not favorable, and the firm is satisfied with its
performance, then it will not make any significant changes in its business operations. Also, the
firms, which are slow and reluctant to change finds the stability strategy safe and do not look for
any other options.
Stability Strategies could be of three types:

1. The No-Change Strategy, as the name itself suggests, is the stability strategy followed
when an organization aims at maintaining the present business definition. Simply, the
decision of not doing anything new and continuing with the existing business operations
and the practices referred to as a no-change strategy.
 2. The Profit Strategy is followed when an organization aims to maintain the profit by
whatever means possible. Due to lower profitability, the firm may cut costs, reduce
investments, raise prices, increase productivity or adopt any methods to overcome the
temporary difficulties.

3. The Pause/Proceed with Caution Strategy is well understood by the name itself, is a
stability strategy followed when an organization wait and look at the market conditions
before launching the full-fledged grand strategy. Also, the firm that has intensely
followed the expansion strategy would wait till the time the new strategies seeps down
the organizational levels and look at the changes in the organizational structure before
taking the next step.

2nd Expansion Strategy

The Expansion Strategy is adopted by an organization when it attempts to achieve a high growth
as compared to its past achievements. In other words, when a firm aims to grow considerably by
broadening the scope of one of its business operations in the perspective of customer groups,
customer functions and technology alternatives, either individually or jointly, then it follows the
Expansion Strategy.
The reasons for the expansion could be survival, higher profits, increased prestige, economies of
scale, larger market share, social benefits, etc. The expansion strategy is adopted by those firms
who have managers with a high degree of achievement and recognition. Their aim is to grow,
irrespective of the risk and the hurdles coming in the way.
The firm can follow either of the five expansion strategies to accomplish its objectives:
 1. Expansion through Concentration
Expansion through Concentration is the first level form of Expansion Grand strategy that
involves the investment of resources in the product line, catering to the needs of the identified
market with the help of proven and tested technology.
Simply, the strategy followed when an organization coincides its resources into one or more of
its businesses in the context of customer needs, functions and technology alternatives, either
individually or collectively, is called as expansion through concentration.
The organization may follow any of the ways to practice Expansion through concentration:

• Market penetration strategy: The firm focusing intensely on the existing market with its
present product.
• Market Development type of concentration: Attracting new customers for the existing
product.
• Product Development type of Concentration: Introducing new products in the existing
market.
The firms prefer expansion through concentration because they are required to do things what
they are already doing. Due to the familiarity with the industry the firm likes to invest in the
known businesses rather than a new one. Also, through concentration strategy, no major changes
are made in the organizational structure, and expertise is gained due to an in-depth knowledge
about one or more businesses.
However, the expansion through concentration is risky since these strategies are highly
dependent on the industry, so any adverse conditions in the industry can affect the business
drastically. Also, the huge investments made in a particular business may suffer losses due the
invention of new technology, market fickleness, and product obsolescence.

2. Expansion through Diversification

Expansion through Diversification is followed when an organization aims at changing the
business definition, i.e. either developing a new product or expanding into a new market, either
individually or jointly. A firm adopts the expansion through diversification strategy, to prepare
itself to overcome the economic downturns.
Generally, the diversification is made to set off the losses of one business with the profits of the
other; that may have got affected due to the adverse market conditions. There are mainly two
types of diversification strategies undertaken by the organization:
• Concentric Diversification: When an organization acquires or develops a new product or
service that are closely related to the organization’s existing range of products and
services is called as a concentric diversification. For example, the shoe manufacturing
company may acquire the leather manufacturing company with a view to entering into
the new consumer markets and escalate sales.
• Conglomerate Diversification: When an organization expands itself into different areas,
whether related or unrelated to its core business is called as a conglomerate
diversification. Simply, conglomerate diversification is when the firm acquires or
develops the product and services that may or may not be related to the existing range of
product and services.
Generally, the firm follows this type of diversification through a merger or takeover or if the
company wants to expand to cover the distinct market segments. ITC is the best example of
conglomerate diversification.

3. Expansion through Integration

Expansion through Integration means combining one or more present operation of the business
with no change in the customer groups. This combination can be done through a value chain.
The value chain comprises of interlinked activities performed by an organization right from the
procurement of raw materials to the marketing of finished goods. Thus, a firm may move up or
down the value chain to focus more comprehensively on the needs of the existing customers.
The expansion through integration widens the scope of the business and thus considered as the
grand expansion strategy. There are two ways of integration:
• Vertical integration: The vertical integration is of two types: forward and backward.
When an organization moves close to the ultimate customers, i.e. facilitate the sale of the
finished goods is said to have made a forward integration. Example, the manufacturing
firm open up its retail outlet.
Whereas, if the organization retreats to the source of raw materials, is said to have made a
backward integration. Example, the shoe company manufactures its own raw material
such as leather through its subsidiary firm.
• Horizontal Integration: A firm is said to have made a horizontal integration when it takes
over the same kind of product with similar marketing and production levels. Example, the
pharmaceutical company takes over its rival pharmaceutical company.

4. Expansion strategy through Corporation

Expansion through Cooperation is a strategy followed when an organization enters into a mutual
agreement with the competitor to carry out the business operations and compete with one another
at the same time, with the objective to expand the market potential.
The expansion through cooperation can be done by following any of the strategies as explained
below:

• Merger: The merger is the combination of two or more firms wherein one acquires the
assets and liabilities of the other in the exchange of cash or shares, or both the
organizations get dissolved, and a new organization came into the existence.
• The firm that acquires another is said to have made an acquisition, whereas, for the other
firm that gets acquired, it is a merger.
• Takeover: Takeover strategy is the other method of expansion through cooperation. In
this, one firm acquires the other in such a way, that it becomes responsible for all the
acquired firm’s operations.
• The takeovers can either be friendly or hostile. In the former, both the companies agree
for a takeover and feels it is beneficial for both. However, in the case of a hostile
takeover, a firm try to take on the operations of the other firm forcefully either known or
unknown to the target firm.
• Joint Venture: Under the joint venture, both the firms agree to combine and carry out the
business operations jointly. The joint venture is generally done, to capitalize the strengths
of both the firms. The joint ventures are usually temporary; that lasts till the particular
task is accomplished.
• Strategic Alliance: Under this strategy of expansion through cooperation, the firms unite
or combine to perform a set of business operations, but function independently and
 pursue the individualized goals. Generally, the strategic alliance is formed to capitalize
on the expertise in technology or manpower of either of the firm.
Thus, a firm can adopt either of the cooperation strategies depending on the nature of business
line it deals in and the pursued objectives.

5. Expansion through Internationalization

Expansion through Internationalization is the strategy followed by an organization when it aims
to expand beyond the national market. The need for the Expansion through Internationalization
arises when an organization has explored all the potential to expand domestically and look for
the expansion opportunities beyond the national boundaries.
But however, going global is not an easy task, the organization has to comply with the stringent
benchmarks of price, quality and timely delivery of goods and services, that may vary from
country to country.
The expansion through internationalization could be done by adopting either of the following
strategies:

• International Strategy: The firms adopt an international strategy to create value by

offering those products and services to the foreign markets where these are not available.
 This can be done, by practicing a tight control over the operations in the overseas and
providing the standardized products with little or no differentiation.
• Multi domestic Strategy: Under this strategy, the multi-domestic firms offer the
customized products and services that match the local conditions operating in the foreign
markets. Obviously, this could be a costly affair because the research and development,
production and marketing are to be done keeping in mind the local conditions prevailing
in different countries.
• Global Strategy: The global firms rely on low-cost structure and offer those products and
services to the selected foreign markets in which they have the expertise. Thus, a
standardized product or service is offered to the selected countries around the world.
• Transnational Strategy: Under this strategy, the firms adopt the combined approach of
multi-domestic and global strategy. The firms rely on both the low-cost structure and the
local responsiveness i.e. according to the local conditions. Thus, a firm offers its
standardized products and services and at the same time makes sure that it is in line with
the local conditions prevailing in the country, where it is operating.
So, in order to globalize, the firm should assess the international environment first, and then
should evaluate its own capabilities and plan the strategies accordingly to enter into the foreign
markets.
3rd Retrenchment Strategy
Retrenchment Strategy is adopted when an organization aims at reducing its one or more
business operations with the view to cut expenses and reach to a more stable financial position.
In other words, the strategy followed, when a firm decides to eliminate its activities through a
considerable reduction in its business operations, in the perspective of customer groups,
customer functions and technology alternatives, either individually or collectively is called as
Retrenchment Strategy.
The firm can either restructure its business operations or discontinue it, so as to revitalize its
financial position. There are three types of Retrenchment Strategies:

1. Turnaround Strategy
Turnaround Strategy is a retrenchment strategy followed by an organization when it feels that the
decision made earlier is wrong and needs to be undone before it damages the profitability of the
company.
Simply, turnaround strategy is backing out or retreating from the decision wrongly made earlier
and transforming from a loss making company to a profit making company.
Now the question arises, when the firm should adopt the turnaround strategy? Following are
certain indicators which make it mandatory for a firm to adopt this strategy for its survival. These
are:
 • Continuous losses
• Poor management
• Wrong corporate strategies
• Persistent negative cash flows
• High employee attrition rate
• Poor quality of functional management
• Declining market share
• Uncompetitive products and services
Also, the need for a turnaround strategy arises because of the changes in the external
environment Viz, change in the government policies, saturated demand for the product, a threat
from the substitute products, changes in the tastes and preferences of the customers, etc.

Example: Dell is the best example of a turnaround strategy. In 2006. Dell announced the
costcutting measures and to do so; it started selling its products directly, but unfortunately, it
suffered huge losses. Then in 2007, Dell withdrew its direct selling strategy and started selling its
computers through the retail outlets and today it is the second largest computer retailer in the
world.

2. Divestment Strategy
Divestment Strategy is another form of retrenchment that includes the downsizing of the scope of
the business. The firm is said to have followed the divestment strategy, when it sells or liquidates
a portion of a business or one or more of its strategic business units or a major division, with the
objective to revive its financial position.
The divestment is the opposite of investment; wherein the firm sells the portion of the business to
realize cash and pay off its debt. Also, the firms follow the divestment strategy to shut down its
less profitable division and allocate its resources to a more profitable one.
An organization adopts the divestment strategy only when the turnaround strategy proved to be
unsatisfactory or was ignored by the firm. Following are the indicators that mandate the firm to
adopt this strategy:
• Continuous negative cash flows from a particular division
• Unable to meet the competition
• Huge divisional losses
• Difficulty in integrating the business within the company
• Better alternatives of investment
• Lack of integration between the divisions
• Lack of technological upgradations due to non-affordability  Market share is too small
• Legal pressures
Example: Tata Communications is the best example of divestment strategy. It has started the
process of selling its data center business to reduce its debt burden.

3. Liquidation Strategy
Liquidation Strategy is the most unpleasant strategy adopted by the organization that includes
selling off its assets and the final closure or winding up of the business operations.
It is the most crucial and the last resort to retrenchment since it involves serious consequences
such as a sense of failure, loss of future opportunities, spoiled market image, loss of employment
for employees, etc.
The firm adopting the liquidation strategy may find it difficult to sell its assets because of the
non-availability of buyers and also may not get adequate compensation for most of its assets. The
following are the indicators that necessitate a firm to follow this strategy:
• Failure of corporate strategy
• Continuous losses
• Obsolete technology
• Outdated products/processes
• Business becoming unprofitable
• Poor management
• Lack of integration between the divisions
Generally, small sized firms, proprietorship firms and the partnership firms follow the liquidation
strategy more often than a company. The liquidation strategy is unpleasant, but closing a venture
that is in losses is an optimum decision rather than continuing with its operations and suffering
heaps of losses.

Advantages and Disadvantages of Retrenchment strategy:

1. Cost effect strategy
2. Improve performance
3. Loss of good employee
4. Critical point
4th Conglomerate and their variants
Conglomerate Definition
The conglomerate definition is a type of complex company which operates under several
industries. It is also the combination of two or more corporations. Conglomerates are often used
to manage several different companies as a means of diversification across industries. Great
examples of conglomerate companies include General Electric (GE) or Berkshire Hathaway.
A conglomerate is the combination of two or more corporations operating in entirely different
industries under one corporate group, usually involving a parent company and many subsidiaries.
Often, a conglomerate is a multi-industry company. Conglomerates are often large and
multinational
Conglomerate Meaning
A conglomerate means a company has a majority interest or ownership in several different
corporations or other companies. A conglomerate can also be known as a holding company in
some cases. The conglomerate was a means of diversifying larger companies and growing
earnings. A conglomerate often holds several smaller and faster growing companies so that
earnings can grow as the core business of the conglomerate has likely matured or declined.
Advantages of Conglomerates
Advantages of conglomerates include the ability to gain financing at a cheaper cost.
Conglomerates are very large and their ability to gain cheap financing is good. Conglomerate
diversification means that a conglomerate can maintain stability no matter which way the market
is making a push.
Disadvantages of Conglomerates
Disadvantages of conglomerates are that synergies may not be readily recognizable because a
conglomerate operates in several industries rather than specializing in a particular one. Another
disadvantage is that there is an increased need for management at the top conglomerate level as
well as for each one of the companies. It is likely that many of the members of the conglomerate
have little experience in several of the industries or companies in which it holds. The culture
clash among companies can also be problematic as what works for one company and industry
may not be so for another.
This lecture brings strategic management to life with many contemporary examples. Sixteen
types of strategies are defined and exemplified, including Michael Porter's generic strategies:
cost leadership, differentiation, and focus. Guidelines are presented for determining when
different types of strategies are most appropriate to pursue. An overview of strategic
management in nonprofit organizations, governmental agencies, and small firms is provided.
After reading this lecture you will be able to know about:

Types of Strategies
Diversification strategies

There are three general types of diversification strategies: concentric, horizontal, and
conglomerate. Over all, diversification strategies are becoming less popular as organizations are
finding it more difficult to manage diverse business activities. In the 1960s and 1970s, the trend
was to diversify so as not to be dependent on any single industry, but the 1980s saw a general
reversal of that thinking. Diversification is now on the retreat.
1. Concentric Diversification Adding new, but related, products or services Adding new, but
related, products or services is widely called concentric diversification. An example of
this strategy is AT&T recently spending $120 billion acquiring cable television
companies in order to wire America with fast Internet service over cable rather than
telephone lines. AT&T's concentric diversification strategy has led the firm into talks
with America Online (AOL) about a possible joint venture or merger to provide AOL
customers cable access to the Internet.
Guidelines for Concentric Diversification Five guidelines when concentric diversification may be
an effective strategy are provided below:
• Competes in no- or slow-growth industry
• Adding new & related products increases sales of current products.
• New & related products offered at competitive prices
 • Current products are in decline stage of the product life cycle
• Strong management team

2. Conglomerate Diversification Adding new, unrelated products or services adding new,

unrelated products or services is called conglomerate diversification. Some firms pursue
conglomerate diversification based in part on an expectation of profits from breaking up
acquired firms and selling divisions piecemeal

Guidelines for Conglomerate Diversification Four guidelines when conglomerate diversification

may be an effective strategy are provided below:
• Declining annual sales and profits
• Capital and managerial talent to compete successfully in a new industry
• Financial synergy between the acquired and acquiring firms
• Exiting markets for present products are saturated

3. Horizontal Diversification Adding new, unrelated products or services for present

customers is called horizontal diversification. This strategy is not as risky as
conglomerate diversification because a firm already should be familiar with its present
customers
Guidelines for Horizontal Diversification Four guidelines when horizontal diversification may be
an especially effective strategy are:
• Revenues from current products/services would increase significantly by adding the new
unrelated products.
• Highly competitive and/or no-growth industry w/low margins and returns
• Present distribution channels can be used to market new products to current customers 
New products have counter cyclical sales patterns compared to existing products.
5th Strategic and competitive advantage
Strategic Advantages
A strategic advantage is a position that makes it likely a firm with outperform the competition in
the long term. The following are common types of strategic advantage.

• Talent
The talent of your people including at the governance and executive management level.
 Relationships
Relationships with stakeholders including investors, governments, partners, customers and the
communities in which you operate.
• Home Country
The country where you are located. For example, a lower tax rate can be a significant advantage
over the competition as it allows you to invest more of your profits back into your business. 
Processes
Your business processes such as a production line that produces high quality items at low cost.
 Capabilities
Things that you can do. For example, a firm that is able to consistently design products and
services with high perceived value.
• Organizational Culture
The norms, expectations and symbols of your organization. For example, a firm where people
take pride in their work.

• Brand
How well your brands are recognized and your reputation.
• Business Model
How you capture value. For example, an ecommerce company that provides a two-sided market
versus a firm that sells its own products.
• Products & Services
The position, quality and unit cost of your products and services. For example, the cheapest
organic coffee on the shelves.

• Costs
Your overhead and unit costs. All else being equal, a firm that spends 5% of revenue on general
administration has an advantage over a firm that spends 30%.
• Productivity & Efficiency
The amount of output you produce for an hour of work or unit of a resource such as energy.
 Knowledge
Your know-how, designs, methods and information capabilities. Includes things like intellectual
property, data and the talent of your people.

• Scale
A large firm tends to have more brand recognition and lower unit costs due to economies of
scale. A small firm can typically change more quickly. Generally speaking, a firm that is large
enough to achieve significant market share without becoming slow to change has a significant
strategic advantage over both the small and the slow.
• Capital
Capital including things like land, facilities, infrastructure and equipment. For example, a hotel
with beachfront access to a popular beach.
• Sustainability
Your ability to keep up with the changing values of society and to manage risks to your firm and
the greater community.

Competitive advantages
A competitive advantage is what makes an entity's goods or services superior to all of a
customer's other choices. The term is commonly used for businesses. The strategies work for any
organization, country, or individual in a competitive environment.
To create a competitive advantage, you've got to be clear about these three determinants.
1. Benefit. What is the real benefit your product provides? It must be something that your
customers truly need and that offers real value. You must know not only your product's
features, but also its advantages how they benefit your customers. That means being
constantly aware of new trends that affect your product, especially new technology. For
example, newspapers were slow to respond to the availability of free news on the
internet. They thought people were willing to pay for news delivered on a piece of paper
once a day.

2. Target market. Who are your customers? What are their needs? You've got to know
exactly who buys from you, and how you can make their life better. That’s how you
create demand, the driver of all economic growth. Newspapers' target market drifted to
older people who weren't comfortable getting their news online.
3. Competition. Have you identified your real competitors? That's more than just similar
companies or products. It includes anything else your customer could do to meet the need
you can fulfill. Newspapers thought their competition was other newspapers until they
realized it was the internet. They didn't know how to compete with a news provider that
was instant and free.
Types of Competitive Advantages:

Cost advantage. Porter argued that a company could achieve superior performance by producing
similar quality products or services but at lower costs. In this case, company sells products at the
same price as competitors but reaps higher profit margins because of lower production costs. The
company that tries to achieve cost advantage (like Amazon.com) is pursuing cost leadership
strategy. Higher profit margins lead to further price reductions, more investments in process
innovation and ultimately greater value for customers.

Differentiation advantage. Differentiation advantage is achieved by offering unique products

and services and charging premium price for that. Differentiation strategy is used in this situation
and company positions itself more on branding, advertising, design, quality and new product
development (like Apple Inc. or even Starbucks) rather than efficiency, outsourcing or process
innovation. Customers are willing to pay higher price only for unique features and the best
quality.
6th New business models for global and internet economy
Internet business models
• Information Sales
• Service Sales
• Brokerage
• Advertising
• Merchant
• Manufacturer (Direct)
• Affiliate Community
• Subscription
• Utility

The economic potential of the internet revolution

• Reducing the cost
• Manage supply chain more effectively
• Easy communication
• Increasing competition
• Making prices more transparent
• Broadening markets for buyers and sellers
• Increasing the effectiveness of marketing and pricing
• Increasing consumer choice, convenience and satisfaction in a variety of ways.

Contribution of internet
India will overtake the U.S. to become country with the second highest number of Internet users
after China.

How Facebook makes money?

 • Total Revenue for 2013 Q1:$1.46 billion

How does Facebook make money if it's free?

• Advertising
• Subscribers
• Lead Gen / Affiliate
• Selling Data Freemium
• Royalties

How does Instagram make money?

• Advertising
• Subscribers
• Lead Gen / Affiliate
• Selling Data Freemium
• Royalties
Before selling to Facebook they were not making money.

How does google make money?

Google generated $9.7 billion of total gross revenue.
How does google make money from android?
• Advertising
• Subscribers
• Lead Gen / Affiliate
• Selling Data Freemium
• Royalties
Google takes a 30% transaction fee for each app sold, plus profits from in-app advertising.
Google Apps for Business gives subscribing businesses more control and security of their
documents and data stored online. Users can rent additional storage (shared between Picasa,
Docs, and Gmail) from 25 GB (US $2.49 / month) to 16 TB (US $799.99 / month).
Google Chrome makes money indirectly through Google search advertising. Google.com is the
default search engine for the Google Chrome browser.
Ads on site and throughout embedded videos.
Gmail is supported with ads from ad words

How does apple make money on apps?

• Advertising
• Subscribers
• Lead Gen / Affiliate
 • Selling Data
• Freemium
• Royalties
Adobe sells the flash development software but then does not charge users for the software to
play flash on PCs.

How does twitter make money?

• Advertising
• Subscribers
• Lead Gen / Affiliate
• Selling Data
 Freemium
• Royalties

How does Microsoft make money from Xbox?

• Advertising
• Subscribers
• Lead Gen / Affiliate
• Selling Data
• Freemium
• Royalties
Xbox live charges users $50 annually for subscriptions to their service in addition to the virtual
goods that are sold on the service.

How does LinkedIn make money?

• Advertising
• Subscribers
• Lead Gen / Affiliate
• Selling Data
• Freemium
• Royalties
Selling Data - Companies and recruiters are able to pay and gain access to LinkedIn databases.
7th Strategic clusters and model relating to portfolio analysis
Strategic cluster
A business cluster is a geographic concentration of interconnected businesses, suppliers, and
associated institutions in a particular field. Clusters are considered to increase the productivity
with which companies can compete, nationally and globally.[1][2][3] In urban studies, the term
agglomeration is used.[4] Clusters are also important aspects of strategic management.

Types
By composition
Following development of the concept of inter organizational networks in Germany and practical
development of clusters in the United Kingdom; many perceive there to be four methods by
which a cluster can be identified:

Geographical cluster – as stated above e.g. the California wine cluster or the flower cluster
between Rotterdam and Amsterdam in Holland.
Sectoral clusters (a cluster of businesses operating together from within the same commercial
sector e.g. marine (south east England; Cows and now Solvent) and photonics (Aston Science
Park, Birmingham))
Horizontal cluster (interconnections between businesses at a sharing of resources level e.g.
knowledge management)
Vertical cluster (i.e. a supply chain cluster)
It is also expected – particularly in the German model of organizational networks – that
interconnected businesses must interact and have firm actions within at least two separate levels
of the organizations concerned.

Process
The process of identifying, defining, and describing a cluster is not standardized. Individual
economic consultants and researchers develop their own methodologies. All cluster analysis
relies on evaluation of local and regional employment patterns, based on industrial
categorizations such as NAICS or the increasingly obsolete SIC codes. Notable databases
providing statistical data on clusters and industry agglomeration include:
• The Cluster Mapping Project (for the USA), conducted by the Institute for Strategy and
Competitiveness at Harvard Business School
 • The European Cluster Observatory (for Europe), managed by the Center for Strategy and
Competitiveness at the Stockholm School of Economics
An alternative to clusters, reflecting the distributed nature of business operations in the wake of
globalization, is hubs and nodes.

Portfolio Models
The intellectual history of portfolio theory in corporate strategy is complex (Wind and Mahajan
1981). Therefore, for this section purpose it is adequate to use as an example the famous BCG
Matrix (Henderson 1979).
Bruce Henderson, founder of the Boston Consulting Group, argued that all business cost
followed a well-known pattern: unit’s costs dropped by one-third every time volume (or
turnover) doubled. Therefore, Henderson postulated a relationship, known as the experience
curve, between unit costs and volume. This relationship leads to some generic strategic advice:
gain market share, for if a firm gains market share, its units costs will fall and profit potential
will increase. He argued that any business could be categorized into one of four types depending
on how its industry was growing and how large a share of the market it had: (1) high growth/high
share businesses ("stars"), which generate substantial cash but also require large investments if
their market share is to be maintained or increased; (2) low growth/ high share businesses ("cash
cows"), which generate large cash flows but require low investment and therefore generate
profits that can be used elsewhere; (3) low growth/low share businesses ("dogs"), which produce
little cash and offer little prospect of increased share; and (4) high growth/low share businesses
("question marks"), which would require substantial investment in order to become stars or cash
cows (the question is whether the investment is worth it).
The strength of portfolio approaches is that they provide a method for measuring entities of some
sort (e.g, businesses, or investment options) against dimensions that are deemed to be of strategic
importance (e.g., share and growth or position and attractiveness) for purposes of analysis and
recommendation.
The weaknesses of such approaches include the difficulty of knowing what the appropriate
strategic dimensions are; difficulties of classifying entities against dimensions; and the lack of
clarity about how to use the tool as part of a large strategic planning process.
 Unit five:

 Strategic Implementation
1st Building core competencies
2nd Competitive capabilities
3rd Develop policies and Procedures for implementation
4th Designing and installing supporting
5th Rewarding system
6th Evaluating and monitoring implementation
Strategic Implementation
Strategy Implementation
Definition: Strategy Implementation refers to the execution of the plans and strategies, so as to
accomplish the long-term goals of the organization. It converts the opted strategy into the moves
and actions of the organization to achieve the objectives.
Simply put, strategy implementation is the technique through which the firm develops, utilises
and integrates its structure, culture, resources, people and control system to follow the strategies
to have the edge over other competitors in the market.

Strategy Implementation is the fourth stage of the Strategic Management process, the other three
being a determination of strategic mission, vision and objectives, environmental and
organizational analysis, and formulating the strategy. It is followed by Strategic Evaluation and
Control.
Process of Strategy Implementation
1. Building an organization, that possess the capability to put the strategies into action
successfully.
2. Supplying resources, in sufficient quantity, to strategy-essential activities.
3. Developing policies which encourage strategy.
4. Such policies and programs are employed which helps in continuous improvement.
5. Combining the reward structure, for achieving the results.
6. Using strategic leadership.
The process of strategy implementation has an important role to play in the company’s success.
The process takes places after environmental scanning, SWOT analyses and ascertaining the
strategic issues.

Prerequisites of Strategy Implementation

Institutionalization of Strategy: First of all the strategy is to be institutionalized, in the sense that
the one who framed it should promote or defend it in front of the members, because it may be
undermined.
Developing proper organizational climate: Organizational climate implies the components of
the internal environment that includes the cooperation, development of personnel, the degree of
commitment and determination, efficiency, etc., which converts the purpose into results.
Formulation of operating plans: Operating plans refers to the action plans, decisions and the
programs, that take place regularly, in different parts of the company. If they are framed to
indicate the proposed strategic results, they assist in attaining the objectives of the organization
by concentrating on the factors which are significant.
Developing proper organizational structure: Organization structure implies the way in which
different parts of the organization are linked together. It highlights the relationships between
various designations, positions and roles. To implement a strategy, the structure is to be designed
as per the requirements of the strategy.
Periodic Review of Strategy: Review of the strategy is to be taken at regular intervals so as to
identify whether the strategy so implemented is relevant to the purpose of the organization. As
the organization operates in a dynamic environment, which may change anytime, so it is
essential to take a review, to know if it can fulfil the needs of the organization.
Even the best-formulated strategies fail if they are not implemented in an appropriate manner.
Further, it should be kept in mind that, if there is an alignment between strategy and other
elements like resource allocation, organizational structure, work climate, culture, process and
reward structure, then only the effective implementation is possible.

Aspects of Strategy Implementation

Creating budgets which provide sufficient resources to those activities which are relevant to the
strategic success of the business.
Supplying the organization with skilled and experienced staff.
Conforming that the policies and procedures of the organization assist in the successful execution
of the strategies.
Leading practices are to be employed for carrying out key business functions.
Setting up an information and communication system that facilitate the workforce of the
organization, to perform their roles effectively.
Developing a favorable work climate and culture, for proper implementation of the strategy.
Strategy implementation is the time-taking part of the overall process, as it puts the formulated
plans into actions and desired results.

1st Building core competencies

Core Competency Theory
The core competency theory is the theory of strategy that prescribes actions to be taken by firms
to achieve competitive advantage in the marketplace. The concept of core competency states that
firms must play to their strengths or those areas or functions in which they have competencies. In
addition, the theory also defines what forms a core competency and this is to do with it being not
easy for competitors to imitate, it can be reused across the markets that the firm caters to and the
products it makes, and it must add value to the end user or the consumers who get benefit from it.
In other words, companies must orient their strategies to tap into the core competencies and the
core competency is the fundamental basis for the value added by the firm.

“Core competencies” stand for what a corporation does best, its expertise in its field of business,
and the uniqueness of its products in the eyes of its customers.
Core competencies reflect the fundamental knowledge and technical skills that make a
corporation and its products “special.” The core competencies of a corporation help it distinguish
itself from its rivals and seize a competitive advantage in the marketplace.

Core products, end products

Core Competencies
Core competencies lead to the development of what Prahalad and Hamel called “core products,”
which are not directly sold to consumers but are used to make end-user products.
Prahalad and Hamel thought of the diversified corporation (say, Honda) as a tree, with its roots
as its core competencies (know-how and ability to produce lightweight engines, in Honda’s
case).

The trunk and major branches represent the core products (Honda’s lightweight engines).

The smaller branches are the business units (units that manage Honda’s portable-generator
business).
The fruits and flowers (generators) are the end products sold to customers.

Identifying and building core competencies for business

Prahalad and Hamel mentioned three tests to identify core competencies in a company:
1. Core competencies gives potential access to a wide variety of markets—for example,
competence in optics made Canon a market leader in not only cameras but also laser
printers.
2. They contribute significantly to end-product benefits—for example, Honda’s engines
initially powered portable generators and later motorcycles and cars.
3. They are difficult to imitate—for example, Sony’s ability to miniaturize electronics.

In order to build core competencies, a corporation should

• Understand which of its abilities customers value the most
• Develop an intra-organizational think tank to isolate key abilities and make a plan to
transform them into strengths across various departments
• Depute key personnel (“competence carriers”) and allocate funds to building core
competencies for the organization as a whole
• Integrate technologies and coordinate diverse production skills
• Opt for strategic alliances, acquisition, or licensing arrangements to strengthen core
competencies
• Observe competitors active in the same market to ensure that the core competencies
being built are unique
 • Preserve the pursuit of developing core competencies even in the wake of organizational
changes.
In order to identify core competencies and build them, it is also necessary to understand what
they are not. Core competencies are not necessarily about outspending competitors in research
spending, opting for vertical integration, cutting costs by sharing resources among a
corporation’s business units, or outsourcing non-core processes to focus on core functions.

Why build core competencies?

Core competencies go into the making of corporate strategies. They are also used to:

• Improve a corporation’s position in its own market and also develop new markets
• Integrate strategic thinking across all wings
• Decide allocation of resources
• Refine decisions on outsourcing, sale or disinvestment of divisions
Corporations that fail to exploit their core competencies are condemned to compete with their
rivals on the basis of their product price.
When this strategy fails, they find themselves ousted from the market. They may then start
thinking of core competencies, but that may be too late.

Steps to selecting core competencies

Core competencies can be defined as those capabilities that differentiate a business from its
competitors – the things that make it unique and give it a competitive advantage. But how does
this translate into employees’ competencies?
1. Begin with your mission and vision statement
2. Understanding your business
3. Draft your core competencies
4. Validate your core competencies
5. Preach the core competencies
6. Implement the core competencies
2nd Competitive capabilities
Across Asia, competitive strategies and technologies are driven by consumer product
requirements. In assessing the levels of capabilities of electronics manufacturers in the countries
that the WTEC panel visited, the following measures of capabilities proved to be useful: product
design, process automation, next-generation technologies, communications, and capital.

Product Design
The firms visited during this WTEC study include contract manufacturers like WKK in Hong
Kong, OSE in Taiwan, and NatSteel in Singapore; ODMs like GVC and Inventec in Taiwan; and
OEMs like Legend in China, Acer in Taiwan, and Samsung in Korea. Contract manufacturers in
Asia are experienced low-cost producers. However, rising labor and infrastructure costs are
forcing contract manufacturers in Taiwan, Singapore, and Korea to increase their value-added
activities. In their move to become ODM vendors, contract manufacturers like WKK and Wong's
Electronics in Hong Kong are developing product designs in cooperation with their customers.
More advanced ODM suppliers, like GVC and Inventec in Taiwan, design ready-to-go products.
OEMs like Acer, Samsung, and Legend supply their own brands into the market. The movement
from contract manufacturer to ODM is a long-term transition that requires significant upgrading
of engineering talent and related design and materials technology. Inventec, for example, has
used its technology to become the largest maker of electronic dictionaries in Taiwan and China,
selling under its own "Besta" brand name.

Process Automation
The growth in competition based on low-cost labor requires increased automation and related
capital investments by firms located in higher-cost countries. Sources of low-cost manufacturing
have shifted over the years from the United States to Japan to the newly industrializing
economies (NIEs) of Asia. Korea and Taiwan were the low-cost sources of labor in the 1970s, to
be replaced in the early 1980s by Singapore and Malaysia, and in the late 1980s and 1990s by
China and other less-developed countries of Asia.

Next-Generation Process Technologies

While SMT technology is mature and globally available, more advanced TAB and "direct chip
attach" assembly technologies are not as widespread. Notebook computers, PDAs, and PC cards
use TAB technology for miniaturization. The more advanced "direct-chip-attach" technology
allows for further miniaturization. TAB technology was first used by Inventec in Taiwan in the
assembly of Apple's Newton PDA. Hitachi recently announced that its next generation of thin
and lightweight notebook computers will be produced in Japan using direct-chip-attach
technology. TAB and direct-attach technologies require more sophisticated engineering
capabilities. BGA packages were also being used for new Pentium chip sets at the time of the
WTEC visits.

Communications
No printed circuit board assembler can expect production to last over six months for today's
products. Short life cycles are forcing firms to be more responsive in providing product quotes to
and communicating with their global customers. Standard design software allows for rapid
transfer of design data files between clients and vendors by electronic mail. Leading firms across
Asia use leased lines and intranets between their operating units around the world to facilitate
communications.

Capital
One barrier to competition is often capital; however, many of the countries of this WTEC study
find themselves with excess financial resources to invest. Early investments in China allowed for
sustained profit margins in high-growth industries like computers, telecommunications, and
related parts and components. With growing competition, more capital-intensive strategies are
now being pursued. In Taiwan, petrochemicals and semiconductor fabrication operations (fabs)
are two industries with heavy investment requirements. Formosa Plastics, Taiwan's largest
conglomerate and a world leader in high-quality textiles, is currently building a complex that will
include an oil refinery, two naphtha cracking plants, and 27 chemical plants. The Singapore and
Taiwan governments are providing additional incentives to build wafer fabrication facilities
(fabs), where historical profits have been about 35%. By 2002, Singapore and Taiwan together
plan to have over 40 wafer fabs, compared to 10 in 1995. At an estimated cost of around $1
billion per fab, these are truly capital-intensive investments. Hong Kong has discouraged such
investments due to limited land availability.

Capabilities and Competences

Capability-based strategies are based on the notion that internal resources and core competencies
derived from distinctive capabilities provide the strategy platform that underlies a firm's
longterm profitability. Evaluation of these capabilities begins with a company capability profile,
which examines a company's strengths and weaknesses in four key areas:

• Managerial
• Marketing
• Financial
• Technical
Then a SWOT analysis is carried out to determine whether the company has the strengths
necessary to deal with the specific forces in the external environment. This analysis enables
managers to identify:
1. External threats and opportunities, and
2. Distinct competencies that can ward off the threats and compensate for weaknesses.
The picture identified by the SWOT analysis helps to suggest which type of strategy, or strategic
thrust the firm should use to gain competitive advantage.
Stalk, Evans and Schulman (1992) have identified four principles that serve as guidelines to
achieving capability-based competition:
1. Corporate strategy does not depend on products or markets but on business processes.
2. Key strategic processes are needed to consistently provide superior value to the customer.
3. Investment is made in capability, not functions or SBUs.
4. The CEO must champion the capability-based strategy.
Capability-based strategies, sometimes referred to as the resource-based view of the firm, are
determined by (a) those internal resources and capabilities that provide the platform for the firm's
strategy and (b) those resources and capabilities that are the primary source of profit for the firm.
A key management function is to identify what resource gaps need to be filled in order to
maintain a competitive edge where these capabilities are required.

Several levels can be established in defining the firm's overall strategy platform (see figure).
At the bottom of the pyramid are the basic resources a firm has compiled over time. They can be
categorized as technical factors, competitive factors, managerial factors, and financial factors.
Core competencies can be defined as the unique combination of the resources and experiences of
a particular firm. It takes time to build these core competencies and they are difficult to imitate.
Critical to sustaining these core competencies are there:
 1. Durability - their life span is longer than individual product or technology life-cycles, as
are the life spans of resources used to generate them, including people.
2. In transparency - it is difficult for competitors to imitate these competencies quickly.
3. Immobility - these capabilities and resources are difficult to transfer.

3rd Develop policies and Procedures for implementation

Develop policies
Policy development involves identifying need, gathering information, drafting, consulting and
review.
Stages in policy development
The following steps summaries the key stages involved in developing policies:

1. Identify need
Policies can be developed:
• In anticipation of need (e.g. child protection policies should be in place once an
organization starts to work with children or young people); and
• In response to need (e.g. a policy position on a government strategy may be developed in
response to a consultation paper).
The organization needs to constantly assess its activities, responsibilities and the external
environment in order to identify the need for policies and procedures. (More on what policies
you need to develop).

2. Identify who will take lead responsibility

Delegate responsibility to an individual, working group, sub-committee or staff members,
according to the expertise required. (More on the management committee's role in policy
development).

3. Gather information
Do you have any legal responsibilities in this area? Is your understanding accurate and up to
date? Have other organizations tackled the same issue? Are there existing templates or
examples that you could draw on? Where will you go for guidance?
4. Draft policy
Ensure that the wording and length or complexity of the policy are appropriate to those who will
be expected to implement it.

5. Consult with appropriate stakeholders

Policies are most effective if those affected are consulted are supportive and have the opportunity
to consider and discuss the potential implications of the policy. Depending on whether you are
developing policies to govern the internal working of the organization or external policy
positions, you may wish to consult, for example:

• Supporters;
• Staff and volunteers;
• Management Committee members; and  Service users or beneficiaries.

6. Finalize / approve policy

Who will approve the policy? Is this a strategic issue that should be approved by the
Management Committee or is the Committee confident that this can be dealt with effectively by
staff? Bear in mind that, ultimately, the Management Committee is responsible for all policies
and procedures within the organization.

7. Consider whether procedures are required

Procedures are more likely to be required to support internal policies. Consider whether there is
a need for clear guidance regarding how the policy will be implemented and by whom. (E.g. a
policy regarding receiving complaints will require a set of procedures detailing how complaints
will be handled). Who will be responsible for developing these procedures? When will this be
done? What will be the processes for consultation, approval and implementation?

8. Implement
How will the policy be communicated and to whom? Is training required to support the
implementation among staff and volunteers? Should the organization produce a press release
(for external policy positions)?
9. Monitor, review, revise
What monitoring and reporting systems are in place to ensure that the policy is implemented and
to assess usage and responses? On what basis and when will the policy be reviewed and revised
(if necessary)?

Develop policies and Procedures for implementation

Refer to PowerPoint Pdf
4th Designing and installing supporting and reward system
Reward system
The reward system is a group of neural structures responsible for incentive salience (i.e.,
motivation and "wanting", desire, or craving for a reward), associative learning (primarily
positive reinforcement and classical conditioning), and positively-valenced emotions,
particularly ones which involve pleasure as a core component (e.g., joy, euphoria and ecstasy).
Reward is the attractive and motivational property of a stimulus that induces appetitive behavior,
also known as approach behavior, and consummator behavior. In its description of a rewarding
stimulus (i.e., "a reward"), a review on reward neuroscience noted, "Any stimulus, object, event,
activity, or situation that has the potential to make us approach and consume it is by definition a
reward.” In operant conditioning, rewarding stimuli function as positive reinforces; however, the
converse statement also holds true: positive reinforces are rewarding.
In neuroscience, the reward system is a collection of brain structures and neural pathways that
are responsible for reward-related cognition, including associative learning (primarily classical
conditioning and operant reinforcement), incentive salience (i.e., motivation and "wanting",
desire, or craving for a reward), and positively-valenced emotions, particularly emotions that
involve pleasure (i.e., hedonic "liking").

Terms that are commonly used to describe behavior related to the "wanting" or desire component
of reward include appetitive behavior, approach behavior, preparatory behavior, instrumental
behavior, anticipatory behavior, and seeking. Terms that are commonly used to describe behavior
related to the "liking" or pleasure component of reward include consummator behavior and
taking behavior.
The three primary functions of rewards are their capacity to:
• Produce associative learning (i.e., classical conditioning and operant reinforcement);
• Affect decision-making and induce approach behavior (via the assignment of
motivational salience to rewarding stimuli);
• Elicit positively-valenced emotions, particularly pleasure.
6th Evaluating and monitoring implementation
IMPLEMENTATION ANALYSIS
The full policy process is often described by the following steps:
1. Problem definition
2. Alternative generation
3. Analysis of alternatives
4. Policy adoption
5. Policy implementation
6. Policy evaluation
While this course has focused on the first three steps, the last three steps are equally important. A
thorough policy analysis will include some consideration of policy implementation, monitoring,
and evaluation.

The policy analyst can sketch out an implementation plan for the most highly ranked
alternative(s) that considers:
1. Relevant actors and their interests
2. Required resources and who might provide them
3. Facilitators and barriers likely to be encountered
4. Reasonable time frame
Implementation analysis might involve writing a "best-case" scenario and a "worst-case"
scenario for each policy alternative, as well as the "most likely" outcome. The idea is to think
systematically through the implementation process, identify potential problems, and develop
actions that can be taken to either avert catastrophes or reduce losses.

Policy monitoring
Policy maintenance refers to keeping the policy or program going after it is adopted. Policy
monitoring refers to the process of detecting how the policy is doing.
To monitor a policy, some data about the policy must be obtained. A good implementation plan
will suggest some ways in which ongoing data about the policy can be generated in the regular
course of policy maintenance, for example, from records, documents, feedback from program
clients, diary entries of staff, ratings by peers, tests, observation, and physical evidence.
Policy evaluation
Policy evaluation is the last step in the policy process. It may ask deep and wide-ranging
questions, such as:
1. Was the problem correctly identified, or was the correct problem identified?
2. Were any important aspects overlooked?
3. Were any important data left out of the analysis? did this influence the analysis?
4. Were recommendations properly implemented?
5. Is the policy having the desired effect?
6. Are there any needs for modification, change, or re-design? what should be done
differently next time?
When policies fail to have the intended effect, it is usually due to one of two types of failure:
theory failure, or program failure.
A theory failure occurs when the policy was implemented as intended, but failed to have the
desired effect. This may occur when, for example, a school adopts school uniforms to curb
violence in the school, but the violence remains at the same level. The policy was implemented
(uniforms were adopted) but the expected change did not occur. The theory that violence occurs
due to style of dress is wrong. There must be some other cause of school violence, which would
require a different policy to address.
An implementation failure occurs when the policy is not implemented as intended. For example,
the school may adopt a uniform policy, but the majority of the students ignore it. The level of
violence in the school does not change. We still do not know whether adopting school uniforms
would lower the level of violence in the schools; we only know that uniforms were not adopted.

Summative evaluation
Summative evaluation is conducted after a program has been fully implemented. It looks at
whether the program is meeting its objectives, and why or why not.
Evaluations may be unpopular for many reasons:
1. The program is controversial;
2. There are strong political interests in seeing it succeed or fail;
3. There are difficulties in measuring program accomplishments;
4. Those involved may be uncooperative;
5. Program effects may be influenced by outside developments.
To decide whether an evaluation will be helpful, the answer to the following questions should be
"yes":
1. Will the evaluation be accepted by politicians, administrators, and/or participants?
2. Has an evaluator been involved from the beginning?
3. Are there measurable objectives?
4. Are data available?
5. Are multiple evaluation methods plausible?
6. Has the program remained stable over time?
7. Can program staff become involved in the evaluation?
8. Will the findings be made widely available?
Best wishes    