Strategic Management

Chapter One:
An Overview of strategic management
INTRODUCTION
1.What makes one organization a winner, while
another fails to take advantage of its
opportunities?
2.What factors allow an organization to be
successful while the others fail?
 The answer lies in the strategic decisions made
by top management of these organizations.
Strategic management is the most exciting
aspect of managing in all type of organizations.
In a dynamic, competitive environment, an
organization must either move forward, with
purpose and direction or fall back.
MEANING AND DEFINITION OF STRATEGIC
MANAGEMENT AND STRATEGY
 The concept of strategy in business has been

borrowed from military science and sports where

it implies out- maneuvering the opponent.
 The term strategy began to be used in business

with increase in competition and complexity of

business operations.
 Cont.…
 A strategy is an administrative course of action
designed to achieve success in the face of
difficulties.
 It is a plan for meeting challenges posed by the
activities of competitors and environmental
forces.
 Strategy is the complex plan for bringing the
organization from a given state to a desired
position in a future period of time.
 Cont.…
 Andrews defined strategy as: "The pattern of
objectives, purposes, goals and the major policies
and plans for achieving these goals ".

 Ansoff explained strategy as: "The common thread

among the organization's activities and product
markets, that defines the essential nature of business
that the organization was or planned to be in the
future"
 Glueck define the strategy as: "A unified,
comprehensive, and integrated plan designed to
assume that the basic objectives of the enterprise are
achieved"
 Cont.…
 To put it precisely, strategic management is the
set of managerial decisions and actions that
determines the long run performance of an
organization that includes environmental
scanning (both external and internal), strategy
formulation, strategy implementation, evaluation
and control.
 STAGES OF STRATEGIC MANAGEMENT
 The process can be broken down into three phases;
 Strategy formulation: Strategy formulation is
the development of long-range plans for the
effective management of environmental
opportunities and threats, in light of corporate
strengths and weaknesses.
 It includes:

defining the corporate mission,

specifying achievable objectives,

developing strategies and

setting policy guidelines.

 Cont.…
 Strategy Implementation: Strategy
implementation is the process by which
strategies and polices are put into action
through the development of programs, budgets
and procedures.
 This process might involve changes within the
overall culture, structure, and/or management
system of the entire organization.
 Most of the times strategy implementation is
carried out by middle and lower-level managers
with top management’s review.
 Cont.…
 Strategy Evaluation and control: is the process
in which corporate activities and performance
can be compared with desired performance.
 Managers at all levels use the clear, prompt,
unbiased information from the people below the
corporation’s hierarchy to take corrective action
and resolve problems.
 It can also pinpoint weaknesses in previously
implemented strategic plans and this stimulates
the control of performance. The evaluation and
the control of performance complete the strategic
management model.
KEY TERMS IN STRATEGIC MANAGEMENT
 Str. mgt comprises nine key terms, these are:
(1) Competitive Advantage
 This term can be defined as “anything that a
firm does especially well compare to rival firm”.’
 When a firm can do something that rival firms
cannot do, or owns something that rival firm’s
desire, that can represent a competitive
advantage.
 Getting and keeping competitive advantage is
essential for long-term success in an
organization.
 Competitive Advantage
 A firm must strive to achieve sustained
competitive advantage by:
I. Continually adapting to changes in external
trends and events and internal capabilities,
competencies, and resources; and by
II. Effectively formulating, implementing, and
evaluating strategies that capitalize upon those
factors.
 Cont.….
(2) Strategists
 Strategists are individuals who are most
responsible for the success / failure of an
organization.
 Strategists are individuals who form
strategies.
 Strategists have various job titles, such as
chief executive officer, president, owner, chair
of the board, executive director, chancellor,
dean, or entrepreneur
 Strategists help an organization gather,
analyze, and organize information.
 Cont.…
(3) Vision and Mission Statements
Vision Statements
 Vision is a picture of what the firm wants to be
and, in broad terms, what it wants to
ultimately achieve.
 In other words, a vision statement points the firm
in the direction of where it would eventually
like to be in the years to come. Vision is “big
picture” thinking with passion that helps people
feel what they are supposed to be doing.
 a vision statement answers the question, what do
we want to become?
 E.g. CEO of LG Electronics says, “We must be a
great company with great people.”
 Cont.…
Mission Statements
An organization’s mission is the purpose or the

reason for the organization existence.

Mission statements are enduring statements of

purpose that distinguish one business from other

similar firms.
A mission statement identifies the scope of a

firm's operations in product and market terms.

It addresses the basic question that faces all

strategists: What is our business? A clear mission

statement describes the values and priorities of an
organization.
 Cont.….
(4) External Opportunities and Threats
1.Opportunity. An opportunity is a favorable
condition in the organization’s environment which
enables it to strengthen its position.
2. Threat. A threat is an unfavorable condition in the
organization’s environment which causes a risk for,
or damage to, the organization’s position.

External opportunities and external threats refer to

economic, social, cultural, demographic,
environmental, political, legal, and governmental,
technological trends and events that could
significantly benefit or harm an organization in the
future
 Cont.….
(5) Internal Strengths and Weaknesses
1)Strength. is an inherent capability of the
organization which it can use to gain strategic
advantage over its competitors.
2)Weakness. is an inherent limitation or
constraint of the organization which creates
strategic disadvantage to it.
Internal strengths and internal weaknesses are an

organization’s controllable activities that are

performed especially well or poorly.
They arise in the management, marketing,

finance, production, R&D, and MIS activities of a

 CONT….
(6) Long-Term Objectives
Objectives can be defined as specific results that

an organization seeks to achieve in pursuing its

basic mission essential. Long-term means more
than one year.
Objectives are for organizational success because

they state direction; aid in evaluation; create

synergy; reveal priorities; focus coordination; and
provide a basis for effective planning, organizing,
motivating, and controlling activities. Objectives
should be SMART
 CONT….
(7) Strategies
Strategies are the means by which long-term

objectives will be achieved. Business strategies

may include geographic expansion, diversification,
acquisition, product development, market
penetration, retrenchment, divestiture, liquidation,
and joint venture.
Strategies are potential actions that require top

management decisions and large amounts of the

firm’s resources.
 Cont.….
(8) Annual objectives
 short-term milestones that organizations
must achieve to reach long-term objectives.
 Like long-term objectives, annual objectives
should be measurable, quantitative,
challenging, realistic, consistent, and
prioritized.
 They should be established at the corporate,
divisional, and functional levels in a large
organization.
 Cont.…
 Annual objectives should be stated in terms of
management, marketing, finance/accounting,
production/operations, research and
development, and information systems
accomplishment
(9) Policies
 are the means by which annual objectives
will be achieved. Policies include guidelines,
rules, and procedures established to support
efforts to achieve stated objectives.
 Policies are guides to decision making and
address repetitive or recurring situations.
 OVER VIEW OF TYPES OF STRATEGY
 A typical business firm should consider three

types of strategies, which form a hierarchy as

shown below:
 Corporate strategy: Which describes a
company’s overall direction towards growth
by managing business and product lines?
These include stability, growth and retrenchment.
 For example, Coco cola, Inc., has followed the

growth strategy by acquisition. It has acquired

local bottling units to emerge as the market
leader.
 OVER VIEW OF TYPES OF STRATEGY
 Business strategy: Usually occurs at business
unit or product level emphasizing the
improvement of competitive position of a
firm’s products or services in an industry or
market segment served by that business unit.
Business strategy falls in the in the realm of
corporate strategy.
OVER VIEW OF TYPES OF STRATEGY
 Functional strategy: It is the approach taken by
a functional area to achieve corporate and
business unit objectives and strategies by
maximizing resource productivity. It is concerned
with developing and nurturing a distinctive
competence to provide the firm with a
competitive advantage.
Level of Strategy

Corp
level

Business Level

Functional Level
BENEFITS OF STRATEGIC MANAGEMENT
 Strategic management is basically needed for every
organization and it offers several benefits.
1) Choice of Strategy

2) Improves Employee’s Efficiency

3) SWOT Analysis

4) Aids in planning

5) Organizing Resources

6) Helps in Evaluation

7) Facilitates Communication and Coordination

8) Helps to face Competition

BUSINESS ETHICS AND CORPORATE SOCIAL
RESPONSIBILITY
Business Ethics and Strategic Management
 Business ethics can be defined as principles of

conduct with in organizations that guide

decision making and behaviour.
 Good business ethics is a prerequisite for good

strategic management; good ethics is just good

business
 All strategy formulation, implementation, and

evaluation decisions have ethical ramifications

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.
 Integrating social responsibility in strategic
management requires sound knowledge of the
types of social responsibilities a company deals
with.
Corporate Social Responsibility
 Economic responsibilities are the most basic
type of social responsibilities. The company is
expected to provide goods to the society at
reasonable prices, create jobs and pay due taxes.
 Legal responsibilities reflect the obligation to
comply with the laws that regulate business
activities; ethical responsibilities mirror the
company's notion of the right business behavior.
Corporate Social Responsibility
 Some actions might not be illegal but can be
unethical. Making and selling cigarettes is a case
in point.
 Finally, discretionary responsibilities are those
that are voluntarily adopted by the business. For
example, companies that adopt the good
citizenship approach, actively support charities,
public service advertising campaigns and other
public interest issues.
CHAPTER TWO
THE BUSINESS MISSION, VISION, VALUES &
Objectives
Definition of Mission
 Mission is the purpose of or a reason for
organization existence.
 Mission is a well convincible statement which
include fundamental and unique purpose
which makes it different from other
organization.
 It identifies scope of its operation in terms of
product offered and market served.
 Mission also means what we are and what we
do
Cont…
The Importance of a Clear Mission
 Unanimity of purpose within the organization
 Basis for allocating resources
 Establish organizational climate
 Focal point for direction

To serve as a focal point for those who can

identify with the organizations purpose and
directions and, to deter those who can not from
participating further in the organization’s
activities.
Cont…
 Translate objectives into work structure
involving the assignment of tasks to
responsible elements within the organization
 Cost, time, and performance parameters are
assessed and controlled.
 Cont…
Characteristics of good Mission Statements
 Broad in scope
 Generate range of feasible strategic alternatives
 Not excessively specific
 Reconcile interests among diverse stakeholders
 Finely balanced between specificity & generality
 Arouse positive feelings and emotions
 Motivate readers to action
 Generate the impression that firm is successful, has
direction, and is worthy of time, support, and investment
 Reflect judgments re: future growth
 Cont…
 Provide criteria for selecting strategies

 Basis for generating & screening strategic

options
 Are dynamic in orientation

Components of a mission statement

 Customers Who are the firm's customers?

 Products / services What are the firm's major

products /services?
Cont..
 Markets: Geographically, where does the firm
compete?
 Technology: Is the firm technologically
current?
 Concern for survival, growth, and profitability:
Is the firm committed to growth and financial
soundness?
 Philosophy: What are the basic beliefs,
values, aspirations, and ethical priorities of the
firm?
Cont…
 Self concept: What is the firm's distinctive
competence or major competitive advantage?
 Concern for public image: Is the firm
responsive to social, community, and
environmental concerns?
 Concern for employees: Are employees a
valuable asset of the firm?
 Defining Vision
 Kotter defines it as a “description of something
(an organization, corporate culture, a business, a
technology, an activity) in the future”.
 Einamaki considers it as a “mental perception of
the kind of environment an individual, or an
organization, aspires to create within a broad time
horizon and the underlying conditions for the
actualization of this perception”.
 Miller and Dess view it simply as the “category
of intentions that are broad, all-inclusive, and
forward thinking”.
Cont…
Vision Statements
 Many organizations today develop a "vision
statement" which answers the question, what
do we want to become?
 Developing a vision statement is often
considered as the first step in strategic
planning, preceding even development of a
mission statement.
 Many vision statements are a single sentence
Cont…
 The company’s vision statement is the
inspiration, the framework for all strategic
planning.
 A lucid and clear vision lays down a foundation
on which a sound mission statement can be built.
 A vision statement may apply to an entire
company or to a single division of that company.
 Whether for all / part of an organization, the
vision statement answers the question, “Where do
we want to go?”
Cont…
 What you are doing when creating a vision
statement is articulating your dreams and
hopes for your business. It reminds you of
what you are trying to build.
 While a vision statement doesn’t tell you how
you’re going to get there, it does set the
direction for your business planning
 Unlike the mission statement, a vision
statement is for you and the other members of
your company, not for your customers or
clients.
The Benefits of Having a Vision
 Here is what they say:
 Good visions are inspiring and exhilarating
 Visions represent a discontinuity, a step function & a
jump ahead so that the company knows what it is to be
 Good visions help in the creation of a common identity
and a shared sense of purpose
 Good visions are competitive, original and unique.
 Good visions foster risk taking and experimentation
 Good visions foster long term thinking.
 Good visions represent integrity, they are truly genuine
and can be used for the benefit of people.
Cont….
MISSION V/S VISION
Mission statement explains the company’s
 present product, market standing(whether it is
a market leader or the industry’s fastest
growing company), technological and business
capabilities
 A strategic vision portrays a company’s future
business scope(where we are going)
Cont…
Where as the a company’s mission typically
describes its present scope and business
purpose(what we do, why we are here, and
where we are now)
 BUSINESS VALUES
 In the modern business era, we constantly hear
the terms core values, mission statements and
culture and we have integrated them in the
business language among many other terms.
 But what are company core values? Why are they
so important? In this topic it better to discuss the
importance of core values and why it is important
to have core values in your organization.
 Core values are what support the vision, shape
the culture and reflect what the company
values
 Cont.…

They are the essence of the company’s

identity – the principles, beliefs or
philosophy of values.
Many companies focus mostly on the
technical competencies but often forget what
are the underlying competencies that make
their companies run smoothly — core
values.
Establishing strong core values provides
both internal and external advantages to
the company:
 Cont.…
Core values help companies in the decision-


making processes.

Core values educate clients and potential
customers about what the company is about and
clarify the identity of the company.

Core values are becoming primary recruiting and
retention tools.
Below is a list of 10 core values that are common
across organizations in different industries:
Accountability:

Acknowledging & assuming
responsibility for actions, decisions, and policies.
Balance – Taking a proactive stand to create and


maintain a healthy work-life balance for workers.


Commitment – Committing to great product, service,
and other initiatives that impact lives within and outside
the organization.
Community: Contributing to society and demonstrating


corporate social responsibility.

Diversity – respecting the diversity and giving the best


of composition. Establishing an employee equity

Below is a list of 10 core values that are common
across organizations in different industries:

Empowerment – Encouraging employees to take
initiative and give the best.

Innovation – Pursuing new creative ideas that have the
potential to change the world.

Integrity – Acting with honesty and honor without
compromising the truth

Ownership – Taking care of the company and
customers as they were one’s own.

Safety – ensuring the health and safety of employees
and going beyond the legal requirements to provide an
accident-free workplace.
SETTING GOALS AND OBJECTIVES
 Objectives refer to the ultimate end results
which are to be accomplished by the overall
plan over a specified period of time.
 The vision, mission and business definition
determine the business philosophy to be adopted
in the long run.
 The goals and objectives are set to achieve them.
 Difference between objectives & goals

goals objectives
 The goals are broad  while objectives are

 The goals are set for a specific.

relatively longer period  The Objectives are set
of time. for a relatively short
 Goals are more period of time.
influenced by external  Objectives are more
environment. focus within orgn.
 Goals are not quantified  while objectives are
quantified.
Need for Establishing Objectives
 The following are need for establishing objectives:
 Objectives provide yardstick to measure
performance of a department or SBU or
organization.
 Objectives serve as a motivating force.

 Objectives help the organization to pursue its

vision and mission.
 Objectives define the relationship of
organization with internal & external
environment.
 Objectives provide a basis for decision-making.
What Objectives Are Set?
 Researchers have identified the following areas
for setting objective.
 Profit Objective
 Marketing Objective
 Productivity Objective
 Product Objective
 Social Objective
 Financial Objective.
 Human resources objective
Characteristics of Objectives
 The following are the characteristic of corporate
objectives:
 They form a hierarchy.
 They may be multiplicity of objectives
 A specific time horizon must be laid for effective
objectives.
 Attainable objectives act as a motivator in the
organization.
 Objectives should be understandable.
 Objectives must be concrete. For that they need to be
quantified.
 Objectives must be within reach and is also challenging
 CHAPTERTHREE
EXTERNAL ENVIRONMENTAL ANALYSIS
THE NATURE OF ANEXTERNAL AUDIT
The purpose of an external audit is to develop a finite list of
opportunities that could benefit a firm and Threats that should be
avoided.

As the term finite suggests, the external audit is not aimed at
developing an exhaustive list of every possible factor that could
influence the business; rather, it is aimed at identifying key
variables that offer actionable responses.

54
 Firms should be able to respond either offensively or
defensively into the factors by formulating strategies that
take advantage of external opportunities or that minimize
the impact of potential threats.

THE PROCESS OF PERFORMING AN EXTERNAL

AUDIT

 The process of performing an external audit must involve

as many managers and employees as possible.

 As emphasized in earlier discussions, involvement in the

strategic-management process can lead to understanding
and commitment from organizational members.
 Individuals appreciate having the opportunity to
contribute ideas and to gain a better understanding of
their firm's industry, competitors, and markets.
 To perform an external audit, a company first must gather
competitive intelligence and information about social,
cultural, demographic, environmental, economic,
political, legal, governmental, and technological trends.
 Individuals can be asked to monitor various sources of
information such as key magazines, trade journals, and
newspapers.
 These persons can submit periodic scanning reports to a
committee of managers charged with performing the
external audit.
ANALYSIS OF KEY EXTERNAL FACTORS
General external factors
External environment is also important in survival and
success of the business unit.
External environment means those factors or forces which
resides outside the business, but has its influence over the
functioning of the business.
As these forces resides outside, does not have control over
them. The environment factors are of two types known as
i) Micro environment and
ii) Macro Environment.
1. Macro environment /General external factors
Also referred to as general or remote environment, Mega’
environment, skirts the ‘micro’, or the relevant environments.
The major constituents of mega environment are PEST or
STEP (Prefers to Politico-legal environment, E-Economic
environment, S-Socio-cultural environment and T-
Technological environment) or PESTEL (Political,
environmental, socio-cultural, technological, economic and
legal).
These environments can further be classified into
international, regional, national etc.
Thus, depending upon the situation, an analyst may refer to
the global economic environment, the regional political
environment or the national social environment.
 A. Socio –cultural environment
The socio cultural environment is one of the key
elements of macro environment.
Demographics like literacy rates, sex ratios, child birth
rates, age distribution, educational levels life style,
geographic distribution, mobility of the pollution cultural
variables like beliefs, values, faiths, religion, customs and
traditions, environment folkways, etc., are part of the social
changes in society may be slow or fast but change is
inevitable in any business environment.
Socio-cultural factors affect buying preferences, usage
patterns and life style adaptations. Firms, which ignore the
socio cultural environments, tend to lose.
 B. Technological environment
Technology is knowledge to create new things. Managers
need technology to design, produce, distribute and sell goods
and services.
The technological environment consists of the factors
related to technology used in the production of goods and
services that have an impact on the business of an
organization.
Technological factors to be considered are:
 Source of technology like company, external and
foreign sources, cost of technology acquisition,
collaboration and transfer of technology.
 Technological development, rate of change of
technology and research and development.
 Impact of technology on human beings, the man-
machine system and the environmental effects of
 Communication, infrastructure and managerial
technology. For a business firm technology affects its
final products by changing processes in raw material
sourcing, production and distribution. Technology, when
rightly used can bring about huge changes in the
productivity of firms. Computer Industry is one example
where the technology in the industry keeps pushing
competition to the brink.
 C. Economic environment
The economic environment consists of macro level factors
related to the means of production and distribution of wealth that
have an impact on the business of the organization. The various
forces of economic environment can be explained as follows:
 Capital: machinery, buildings, investments office
equipment, tools and cash. Business organizations issue
shares and debentures and borrow from commercial banks.
 Labor: availability of skilled labor at affordable wage rates.
US companies are outsourcing from India because labor is
very cheap here.
 Prices: The price changes caused by business cycles are a
major concern. The price raise in one industry affects the
other ones. It reduces the buying power of consumers and
reduces demand.
 Government Fiscal and tax policies: Government’s control on
availability of credit through fiscal policy has considerable
impact on business. If business profit taxes are high, the interest
to go into business gets marginalized. If sale, taxis high people
don’t buy.
 Customers: Customers are the foundation of business. Business

must serve the public. People want value for the money they pay
and service that satisfy their needs. Also there are
CRM(customer relationship management) programs in many
organizations today.
 General Economic Conditions: is like national income, per

capita income, economic resources, distribution of income and

assets, economic development, etc. are important determinants
of the business strategies. In countries and regions where income
of people is low, the demand for the product will be low
 Economic Systems: All business organizations operate in at
least one type of economic system-socialist, communist and
capitalistic. In capitalistic type of economic system, free play
of market mechanism takes place, whereas in state controlled
economies, there are restrictions, on the private sector’s role.
 Economic Policies: The economic policies of the

government have tremendous impact on the business. With

the new economic policies of liberalization and
globalization, the era of protectionism and preferential
treatment is giving way to competition and cost-
consciousness.
 Economic Growth: The general economic growth in the

economy has direct impact on the business strategies.

Increased economic growth rate, leading to increase in
consumptions, expenditure, lowers the general pressure
 Interest rates: The rate of interest affects the demand for
the products in the economy, particularly when general
goods are to be purchased through borrowed finance. If the
interest rate is low, the demand for certain products like
autos, appliances, capital equipment, housing materials, etc.
will rise.
 Currency exchange rate: Currency exchange rates have
direct impact on the business environment.

D. Politico-Legal environment
Politico-legal forces allocate power and provide laws and
regulation that may constrain or protect the business.
The various forces in political and legal environment direct
and restrict business decision making.
 Political environment: Attitudes of Government and
legislators change with social demands and beliefs.
Government affects every aspect of life. For instance,
strong pollution norms many result in closure of a
company. Government not only promotes but also
constrains business. Promotion is possible by stimulating
economic extension and development, by providing
subsidies to SSIs, tax advantages, support to R&D and
protecting business in priority sector.
 Legal environment: It consists of judiciary and
legislation. It constrains and regulates business. The
constitutional framework, directive principles,
fundamental rights and divisions of legislative power
between central and state government, Policies related to
licensing, monopolies, foreign investments and
financing to industries, Policies related to distribution
and pricing and their control, and Policies related to
 E. Natural Environment
Geographical and ecological factors, such as natural
resources endowments, weather and climatic conditions,
topographical factors, location aspects in the global context,
port facilities etc., are all relevant to business.
Differences in geographical conditions between markets may
sometimes call for changes in the marketing mix.
Geographical and ecological factors also influence the
location of certain industries.
2.Micro Environment
Micro environmental factors mean those which are very
close and direct effect factors.
It includes suppliers, competitor’s customers, marketing
intermediaries and the public at large.
These factors are more intimately linked with the company
than the macro factors.
These factors are giving individual effect on each company
rather than a particular industry. Let’s see the all these factors
in detail.

a) Suppliers: This force supplies the inputs like raw materials

and other supplies. This is important because of supplying
smoother functioning of the business. The supply is very
sensitive. So many companies give high importance to vendor
development. The company never depended on a single
supplier because if they back out, or any other problem with
b) Customers: Customer is the king of the market.
Therefore, every company strives to create & sustain
customers in the market. So that it can survive & be success in
the market. In fact, monitoring the customer sensitivity is
the pre-requisite for the business success.
There are different categories of customers like individuals,
household industries and other commercial establishments and
govt. etc. Depending on a single customer is dangerous to
the company as it places to the company in poor bargaining
position and customer’s switching to competitors may lead to
closure of the company.
c) Competitors: In simple word competition means the firms
which market the same products. Here all those who compute for
the discretionary income of the consumer are considered as
competitors. Discretionary income of the consumers means
creating consumers’ decisions for similar or equivalent needs
products.

d) Marketing Intermediaries: Marketing intermediaries means

those who are helping company to supply goods from
manufacturing company to customer it includes agents and
merchants who help company to find customers sales it’s the
products or those who are physically distributing the goods from
their origin to their destination. It includes warehousing,
transportations, marketing firms, or promoting companies’
products.
 Industry analysis
An industry is a group of firms producing a similar product or

service, such as financial services or soft drinks.

An examination of the important stakeholder groups, such as

suppliers and customers, in the task environment of a particular

corporation is a part of industry analysis.
Industry and competition constitute an important component of

the specific environment of the firm. Knowledge about industry

and competition is a fundamental requirement for developing
strategy.
It is essential for developing an objective of the firm and even

building competitive advantage and is dependent on proper

grasp of the industry and competition.
To analyze industrial environment, we should begin by

understanding its purpose.

This can be explaining in the following terms:

Market size/age: Is the market relatively small or large, and

can it be broadly characterized by its stage of development
(start-up, emerging, growth, maturing, declining)?
Number of competitors: What is the level of competition for
the market? Are there many small rivals or a few large, dominant
ones? Also, how easy is it for new players to enter the industry?
Some industries are easy to enter, others difficult.
Industry attractiveness: The overall attractiveness of an
industry is determined by the interaction of these key structural
forces. The higher the rate of growth and the weaker the
competition, the more attractive the industry.
 The rules of the game: How do firms compete in this market?
Do they compete on price, quality, technology, service, etc?
What is the average level of profitability? Is it a profitable
market or is it a high volume, low margin field? As an industry
matures there is usually a movement towards the cost
advantage of economies of scale. When there is a major change
in the cost or profit structure, competition will tend to
intensify, as, for instance, if price cutting strategies are used.
 Industry trends/driving forces: What are the industry trends
and how rapidly do they change? Is the industry growing and
innovative or stable and slow to change? The rate of market
growth is a critical factor because it influences the
equilibrium between demand and supply. In a slow growth
industry, competition tends to increase because any growth
must be taken from a rival’s share.
 Analysis of Competition
Usually competition analysis is done along with the industry
analysis. This is so because competition and competitive forces are a
part and parcel of industry structure.
As a part of strategy formulation the firm must analyze and size up
all the forces that shape competition in the industry.
Most of the firms suffered from what was referred to as ‘strategic
myopia’.
 It was Michael Porter who gave a new thrust to the ideas
associated with the competition
PORTER'S FIVE FORCES MODEL
Porter argues that there are five forces that determine the
profitability of an industry. Porter contends that "The collective
strengths of these forces determines the ultimate profit potential in
the industry, where profit potential is measured in terms of long run
return on investment capital". Let us see each of them in detail:
Porter’s Five Forces
1. Threat of new entrants
New entrants to an industry typically brings to it new capacity
and desire to gain market size and substantial sources. They are
therefore threats to established corporations. Threat of entry
depends on the entry barriers and their action that can be
expected from the existing companies. An entry barrier is an
obstruction that makes it difficult for a company to enter into an
industry. Major entry barriers include:
1) Economies of scale
2) Cost disadvantage independent of scale
3) Product differentiation
4) Switching cost
5) Capital requirement
6) Access to distribution channel
2. Bargaining power of suppliers
Suppliers can affect the industry through their ability to raise
price or to reduce the quality of the purchased product and
services. Following are the conditions that make suppliers
powerful:
1)Dominance by few players and lack of substitutes
2)Greater concentration among suppliers than among buyers
3)Relative lack of importance of the buyer to the supplier group
4)High differentiation by the supplier and high switching cost
5)Threat of forward integration
3. Bargaining power of buyers
Buyers can exert bargaining power over a supplier industry
by forcing its prices down, by reducing the amount of goods
they purchase from the industry or by demanding better
quality for the same price. Factors that makes the buyer
more powerful:
a. Undifferentiated or standard supplies
b. Credible threat of backward integration
c. Accurate information about the cost structure of the
supplier
d. Price sensitivity
4. Threat of substitute products
Substitute products are those products that appear to be
different but can satisfy the same need as another product.
The availability of substitutes places a ceiling on price
limit of an industry product.
When the price of the product rises above that of the
substitute product customers tend to switch over to the
substitutes.
Deregulation and technology revolution has given rise to a
lot of substitutes.
5. The intensity of rivalry among existing players
In most industries individual firms are mutually dependent.
Competitive moves by one firm can be expected to have
noticeable effects on its competitors and cause retaliation or
counter efforts. Competition can be in the form of pricing,
product differentiation, product innovation etc. Factors that
increase competitive rivalry are:
1) Equally balanced competitors
2) Slow industry growth
3) High fixed cost
4) Lack of differentiation or lack of switching cost
5) Large increase in manufacturing capacity
6) High strategic stakes
7) High exit barriers
Sources of external information
The sources of information could be classified as formal and
informal. They could be:
1)Documentary or secondary sources – Companies collect
information on environmental factors through bulletins of
Government, Banks and their competitors. Many
organizations often release periodic internal reports analyzing
the environment.
2)Mass media – Mass media like TV, Radio etc could be
used to collect information like the taste, social values, and
standard of life of the public.
3)Internal sources – Companies could use internal sources
like employees to collect the information about the public
and the competitor.
4) External agencies – The company could use various external
agencies like Associations, clubs etc also to collect the
environmental information. It could also use its own sales force
to collect the information.
5) Formal studies – Company could do the formal study either
themselves or through some research agencies to collect the
information to reevaluate their strategies.
6) Spying and surveillance - Companies could use their own
employees, sales agents, and retired employee etc to collect the
information.
 CHAPTER FOUR
INTERNAL ENVIRONMENT ASSESSMENT
NATURE OF INTERNAL AUDIT

Internal Audit / Internal strategic management audit is process in

which the information about key internal factors is gathered &
compiled in order to ascertain the strengths & weaknesses of the
organization in the functional areas of marketing, management,
finance/accounting, production/operations and research &
development etc.
This internal strategic management audit is conducted for the
assistance of the organization to positively utilize its strengths for
the success while improving its identified weaknesses.
Following points highlight the nature of internal strategic
management audit.
All the strategies & objectives of the organization are based on it.
The internal strengths/weaknesses are assessed & clear statement of mission is
also established
It may be different for different kinds of organizations.
The same organization may have different divisions that require different type of
internal strategic management audit.
It shapes the strengths of organization in such a way that cannot be easily imitated
or matched by competitors.
Effective strategies are build that converts the weakness of the organization into
its strength.
PROCESS OF PERFORMING AN INTERNAL AUDIT
In order to understand the nature & effects of decisions in
other functional areas of the organization, internal strategic
management audit is quite helpful.
There are certain strengths & weaknesses in different
functional areas of almost every organization. There is no
single organization that can be completely equal in its all
functional areas.
The internal strategic management audit is essential for the
success of the organization. The understanding & coordination
among managers from different functional areas is enhanced
through internal audit.
PROCESS OF PERFORMING AN
INTERNAL AUDIT

Internal analysis is also the process of

reviewing organizational resources (resource
audit),
scanning organizational activities and
linking them with creation of value to the
organization (value chain analysis) and
identifying the unique strengths and
capabilities (core competences).
A)Resource audit: This audit reviews the resources
of an organization for the purpose of assessing the
inherent strengths of those resources. Resources:

(1)Physical Resources: The physical resources

include plant and machinery, land and building,
vehicles, stock, etc.

(2) Financial Resources: Financial resources include

cash, bank, debtors, marketable securities, etc
(3) Human Resources: Human resources are the
most valuable assets of the organization,
especially in the present business scenarios –
where we find people competing than
corporations ‘strategy, structure and systems’
model towards ‘purpose process and people’
model.

(4) Intangible Assets. In the contemporary

business world, organizations stress on building
intangible assets such as brand, customer
relationship, intellectual property, etc. Why
so?
B) Value chain Analysis: The resources audit
provides an understanding of an organization’s
capabilities.
The next step is to identify how the organizational
activities contribute to the value - the price the
customers are willing to pay for the goods and
services of the organization.

Charles W.L. Hill and Gareth R. Jones maintain

“To gain a competitive advantage, a company must
either perform value – creation functions at a lower
cost than its rivals or perform them in a way that
leads to differentiation and a premium price.
C) Core Competence Identification: The core
competence refers to unique strength of the
company that competitors cannot easily match
or imitate. Core competence exhibits the
following features:
1) Core competence does not reside in one
particular product or business unit.
2) As Core – competence contributes to
competitiveness as winning or losing the battle
for leadership is highly dependent upon it. “
3) A Core – competence is not a single
discrete skill or technology, rather a bundle of
FUNCTIONAL AREAS IN THE
OPERATION OF BUSINESS
The departments of various organizations will differ
depending on the type of business.
A) The production department is responsible for
transforming raw materials into finished products. They are
also responsible for quality control to ensure that required
standards are met.

B) The Finance/accounts department makes and receives

all payments on behalf of the business and records all
FUNCTIONAL AREAS IN THE
OPERATION OF BUSINESS
C) Marketing department creates awareness
for the firm products and motivates
consumers to buy. They also carry out market
research to identify customer’s needs
D) Human Resources/Personnel department
recruits and selects staff for the business
organization. They are also responsible for staff
FUNCTIONAL AREAS …..
E) The Purchasing Department has responsible
for the purchasing of the firms’ raw material,
stationery and goods for re-sale.
F) Customer Service/ Customer Relations
Department bridges the gap between a business
and its customers. It deals with customers’
queries, advising and assisting customers to place
orders and handling customers’ complaints.
FUNCTIONAL AREAS …..
G) Legal Department is concerned with legal
problems that might arise for the company.
H) R&D involved with research to explore ways
of improving the company’s existing products,
developing new ones and identifying efficient
processes to increase production.
THE VALUE CHAIN ANALYSIS
Value consists of the performance characteristics and
attributes provided by companies in the form of goods
or services for which customers are willing to pay.
Categories of value
 Value is low price
 Value is what is wanted
 Value is the quality received for the price
paid
Value chain- represents the internal activities a firm
engages in when transforming inputs into outputs.
THE VALUE CHAIN ANALYSIS
Value chain analysis (VCA) - is a process where a firm
identifies its primary and support activities that add value
to its final product and then analyze these activities to
reduce costs or increase differentiation.

Every organisation can be viewed as value chain approach.

Value chain approach as a collection of value activities that
are performed to design, produce, market, deliver and support
its product. The basic categories of value activities can be
grouped into two broad types. They are as listed below:
• Primary activities
• Support activities
Primary Activities:
The primary activities are concerned with physical
creation of the product, its marketing and
delivery to buyers and after-sales service.

97
• Inbound logistics include the receiving,
warehousing, and inventory control of input
materials.
• Operations are the value-creating activities that
transform the inputs into the final product.
• Outbound logistics are the activities required to get
the finished product to the customer, including
warehousing, order fulfillment, etc.
• Marketing & Sales are those activities associated
with getting buyers to purchase the product,
including channel selection, advertising, pricing, etc.
• Service activities are those that maintain and
enhance the product's value including customer
support, repair services, etc. 98
Support activities:
 The support activities provide the inputs and

infrastructure for the primary activities.



99
 Procurement - the function of purchasing the raw
materials and other inputs used in the value-creating
activities.
 Technology Development Activities involved in
designing the product as well as in creating and
improving the way the various activities in the value
chain are performed.
 Human Resource Management- the activities
associated with recruiting, development, and
compensation of employees.
 Firm Infrastructure - includes activities such as
general management, finance, legal, strategic
planning etc.
100
Environmental Scanning Techniques
 Strategic thinking requires the generation of a series
of strategic alternatives, or choices of future strategies
to pursue, given the company's internal strengths and
weaknesses and its external opportunities and threats
 The comparison of strengths, weaknesses,
opportunities, and threats is normally referred to as a
SWOT analysis
 Strength: Strength is an inherent capability of the

organization which it can use to gain strategic

advantage over its competitors.

101
 Weakness: A weakness is an inherent limitation
or constraint of the organization which creates
strategic disadvantage to it.
 Opportunity: An opportunity is a favourable
condition in the organisation’s environment
which enables it to strengthen its position
 Threat: A threat is an unfavourable condition in
the organisation’s environment which causes a
risk for, or damage to, the organisation’s position.

102
103
TOWS MATRIX
 Heinz Weihrich has developed a matrix called TOWS
matrix by comparing strengths and weaknesses of
organization with that of market opportunities and threats.
 It has been criticized that after conducting the SWOT
analysis managers frequently fail to come to terms with
the strategic choices that the outcomes demand
 In order to overcome this, Piercy argues for the TOWS
Matrix, which, while using the same inputs (Threats,
Opportunities, Weakness
and Strengths) reorganizes them and integrates them
more fully into the strategic planning process. The matrix
is outlined below:

104
105
 CHAPTER FIVE
STRATEGYFORMULATION: STRATEGY ANALYSIS AND
CHOICE
Nature of Strategy Formulation
Strategy Formulation is an analytical process of

selection of the best suitable course of action to

meet the organizational objectives and vision.
It is one of the steps of the strategic management

process.
The strategic plan allows an organization to

examine its resources, provides a financial plan

and establishes the most appropriate action plan
for increasing profits.
106
Nature of Strategy Formulation
It is examined through SWOT analysis.
The strategic plan should be informed to all the
employees so that they know the company’s
objectives, mission and vision.
It provides direction and focus to the employees.
STEPS OF STRATEGY FORMULATION
The steps of strategy formulation include the following:
1. Establishing Organizational Objectives: This
involves establishing long-term goals of an organization.
2. Analysis of Organizational Environment: This
involves SWOT analysis
3. Forming quantitative goals: Defining targets so as to
meet the company’s short-term and long-term objectives.
Example, 30% increase in revenue this year of a company.
4. Objectives in context with divisional plans: This
involves setting up targets for every department so that
they work in coherence with the organization as a whole.
5. Performance Analysis: This is done to estimate the
degree of variation between the actual and the standard
performance of an organization.
6. Selection of Strategy: This is the final step of strategy
formulation.
Process of Strategy Analysis and Choice
• As it’s not possible to consider infinite number of
alternative strategies, a manageable set of most
attractive alternative strategies are developed.
• Identifying and evaluating alternative strategies should
involve as many managers and employees as possible
from each department who earlier participated in
formulation of organizational vision, mission, internal
and external audits.
• After identifying all feasible strategies, they must be
ranked to arrive at a list of prioritized strategies
reflecting the collective wisdom of the organization.
 TYPES OF STRATEGY
• Corporate Strategy: Sets long-term direction for the
1) growth strategy, 2)
total enterprise. Example:
stability strategy, 3) retrenchment strategy. Etc
• Business Strategy: Identifies how a strategic business
unit or division will compete in its product or service
domain. 1)cost leadership, 2) differentiation, 3)
focus, 4) mixed.
• Functional Strategy: Guides activities within one
specific area of operations.
Level of strategies
 1. Corporate Strategy

 There are four generic ways in which corporate level strategy

alternatives can be considered
a) stability
b) growth
c) retrenchment and
d) combination.
 Firms take into consideration these strategy alternatives
while formulating their corporate strategies because only
through generic strategies, they can locate the particular route
best suited for achieving the chosen objective.
 a) Stability Strategy:
When a company finds that it should be continue in the
existing business and is doing reasonably well in that business
and there is no scope for significant growth, the stability
strategy is used.
It is also called neutral strategy: occurs when an organization
is satisfied with its current situation and wants to maintain the
status quo.
Reasons for using stability strategy: the company is doing well
“if it works, don’t fix it”, the management wants to avoid
additional hassles associated with growth, & resources has
been exhausted because of earlier growth strategies.
It involves maintaining the current strategy that brought it
success with little or no change. There are three basic types of
stability strategies, they are:
 Stability Strategy:
1) No change Strategy: it indicates that the company is very
much happy with the current operations, and would like to
continue with the present strategy. And sees little or no growth
opportunities within the industry.
2) Profit Strategy: the company tries to sustain its profitability
through artificial means which may include aggressive cost
cutting and raising sales prices, selling of investments or
assets, and removing non-core businesses. The profit strategy
is useful in two instances:
 To help a company through tough times or temporary

difficulty; and
 To artificially boost the value of a company in the case of

an Initial Public Offering (IPO)

 Stability Strategy:

3) Pause/ Proceed with caution Strategy: This strategy is used

to test the waters before continuing with a full-fledged strategy.
It could be an intermediate strategy before proceeding with a
growth strategy or retrenchment strategy.
The pause or proceed with caution strategy is seen as a
temporary strategy to be used until the environment becomes
more hospitable or consolidate resources after prolonged rapid
growth.
 b) Growth Strategy:
 When growth strategy is adopted, it can lead to addition of
new products / or new markets or functions. Even without a
change in business definition, many firms undertake major
increases in the scope of activities.
 Growth is usually considered as the way to improve
performance in terms of market share, sales turnover and
profitability of the firm.
 It is possible for the firm to grow through the use of
a) Internal and
b) External growth strategies.
 I. Internal Growth Strategies
 Internal growth is within the organization or with the help of its
internal resources. i.e. the capital, employees, the technique used
for production etc.
 There are no major changes in the management and operations
of the organization, if it focuses on internal growth.
 Internal growth can take place either by
a) Intensification or
b) Diversification of business.
• Intensification Strategy: a firm intends to grow by
concentrating on its existing businesses. This strategy involves
three alternatives:
1) Market penetration
2) Market development
3) Product development
 Market
Penetration
Example
Defined
• Ameritrade, the on-
line broker, tripled its
• Seeking increased
annual advertising
market share for
expenditures to $200
present products
million to convince
or services in
people they can make
present markets
their own investment
through greater
decisions.
marketing efforts
 Market
Development

Example
Defined
• Khuzendar Tiles maker
• Introducing introduce his product
present products to Gulf markets.
or services into
new geographic
area
 Product
Development
Example
Defined • Apple developed the
G4 chip that runs at
• Seeking increased 500 megahertz.
sales by improving • Khuzendar Tiles maker
present products introduce Ceramic as a
or services or new product.
developing new
ones
 Diversification Strategy: In this strategy, the firm enters into
the new line of business. It involves expansion or growth of
business by introducing new products either in the same market
or in different markets. Diversification strategy involves the following
forms:
• Vertical diversification
• Concentric diversification
• Conglomerate diversification
• Horizontal diversification

 Vertical Diversification: In this case, the company expands its

activities or product lines vertically i.e. by forward or
backward integration.

122
 Forward
Integration Example

Defined • General Motors is

acquiring 10% of its
• Gaining dealers.
ownership or
increased control
over distributors
or retailers
 Backward
Integration Example

• cupboard
Defined manufacturing unit
enter into it’s a raw
• Seeking materials.
ownership or
increased control
of a firm’s
suppliers
 Diversification Strategy

Concentric
Diversification

Defined Example
a car seller may start
finance company to
• Adding new, but
increase his sale.
related, products
or services
 Diversification Strategy

Conglomerate
Diversification

Example
Defined Transport operator entered
into furniture manufacturing
• Adding new,
unrelated products
or services
 Diversification Strategy

Horizontal
Diversification

Example
gent’s garments
Defined manufacture enter into
ladies garments
• Adding new, manufacturing.
unrelated products
or services for
present customers
 II. External growth strategies
 Growth with the help of external resources or organizations is
called external growth.
 The external growth strategies can be broadly divided into
three groups.
1) Mergers and Acquisitions
2) Amalgamations
3) Joint Ventures
1. Mergers:
They can be defined as the fusion or absorption of one
company by another. It refers to a combination of two or
more companies into one company.
It may involve absorption or consolidation. In absorption
one company acquires another company, and in
consolidation two or more companies join to form a new
company.
In a case of Company A and Company B, a merger can
take place by Company A and Company B merges into a
third entity to be called as Company AB and Company A and
B ceases to be legal entity, OR Company A transfers its
business and undertakings including assets and liabilities
into Company B and Company A ceases to be in existence.
Mergers may be broadly classified as follows:
a) Concentric– within same industries and taking place at
the same level of economic activity – exploration,
production or manufacturing wholesale distribution or
retail distribution to the ultimate consumer.
i. Horizontal merger: A firms engaged in same line
of business
ii. Vertical merger: A firms engaged in different
stages of production in an industry.
b)Conglomerate – Merger of firms engaged in unrelated
lines of business or between unrelated businesses.
Reason for mergers
a. To undertake diversification
b. To secure scare sources of supply
c. To secure economies of scale
d. To have better management
e. To improve the financial standing
f. To achieve a monopoly position
2. Amalgamation:
It is an arrangement‘ or reconstruction‘. Amalgamation is
a legal process by which two or more companies are joined
together to form a new entity or one or more companies are
to be absorbed or blended with another and as a
consequence the amalgamating company loses its
existence and its shareholders become the shareholders of
new company or the amalgamated company.
To give a simple example of amalgamation, we may say
A Ltd. and B Ltd. form C Ltd. and merge their legal identities
into C Ltd. It may be said in another way that A Ltd. + B Ltd.
= C. Ltd.
 3. ACQUISITION and TAKEOVER:
a) ACQUISITION: One firm buys a controlling, 100 percent
interest in another firm with the intent of making the
acquired firm a subsidiary business within its portfolio.
b) TAKEOVER: Special type of acquisition strategy wherein
the target firm did not solicit the acquiring firm's bid
 HOSTILE TAKEOVER: Unfriendly takeover that is undesired
by the target firm .

REASONS FOR ACQUISITIONS

 Increased Market Power
 Overcoming Entry Barriers
 Cross-Border Acquisitions
 Increased Diversification
 Reshaping the Firm’s Competitive Scope etc
 4. Joint Ventures:
 Joint venture is a form of business combination. Two or more
companies form a temporary partnership and arrive at an
agreement on certain issues of mutual interest.
 New company is not created but suitable working
arrangements are agreed upon. Such agreements are
beneficial to combining units.
 c) Defensive Strategies
The Defensive strategies can be of the following
forms:
• Retrenchment/turnaround
• Divestiture
• Liquidation
 Defensive Strategies

Retrenchment
(turnaround)

Example
Defined
• Regrouping through • A company sold off a
cost and asset land and 4 apartments
reduction to reverse to raise cash needed.
declining sales and It introduce expense
profit. Sometimes it is
called turnaround or
effective control
reorganizational system.
strategy.
 Defensive Strategies

Divestiture

Example
Defined
• Harcourt General, the
• Selling a division large US publisher, is
or part of an selling its Neiman
organization Marcus division.
 Defensive Strategies

Liquidation

Defined Example

• Selling all of a • El-Ameer Block factory

company’s assets, sold all its assets and
in parts, for their ceased business.
tangible worth
 2. Business Strategy

 Business strategies are the course of action adopted by an

organization for each of its businesses separately and aim at
developing competitive advantages in the individual
businesses that the company has in its portfolio and are also
aimed to use the resources, skills, and synergies to enhance its
competitive advantages.
 The multi-products and multi-geographic area company
creates strategic business divisions to manage effectively each
of the products.
 Business-level strategies are called “generic strategies” The
Five Generic Competitive Strategies are:
 Business Strategy
• Porter’s Five Generic Competitive Strategies
1) Differentiation Strategy: Offers products and services that
are uniquely different from the competition. The message that
such a firm conveys to customers is that you will pay a little bit
more for our offerings, but you will receive a good value overall
because our offerings provide something special.
2) Focused Differentiation Strategy: offers a unique product
to a special market segment. It concentrate their efforts on a
particular sales channel, such as selling over the Internet only.
Others target particular demographic groups
 Business Strategy

3) Cost Leadership Strategy: Seeks to operate at lower costs than

competitors. Its low-price strategy is communicated to customers through
advertising slogans such as “Why pay more when you can Payless?”
4) Focused Cost Leadership Strategy: uses cost leadership
and target needs of a special market. A focused cost leadership
strategy requires competing based on price to target a narrow market.

5) mixed Strategy:
 3. Functional strategy

 Functional strategy is the key functional area of plans. It

is a form of an action plan, detailing how the organization
of functional departments acts in the overall business
strategy and goals of the individual functional areas.
 This type of strategy is drawn up for marketing, production,
labor resources and finances.
1) The marketing strategy: concluded that it would be
based on the answer to the questions where, when and
how to compete. This strategy relates to pricing, the
company’s manufactured products promotion and
distribution. The marketing strategy consists of the
following key functional strategies: product, market,
pricing, distribution, promotion and international
marketing.
2) The production strategy: is related to decisions on the
means of production and work organization. Its function is
to develop and materialize a competitive product to the
market. The production strategy is based on a number of
conflicting group interests’ assessment, it is considered
as one of the most difficult types of functional strategies.
3) Labor resources strategy: is focused on enterprise
management education, employee compensation and
the principle of distribution, etc. Two problems can be
encountered in this strategy: a guide and staff salaries.
Labor resources strategy depends on the company, its
environment and the common strategy in nature.
4) Finance and accounting functions within each company
have a strategic importance because it is responsible for
one of the most important resources – money. The main
function to be realized in the financial management
strategy is the capital and the use of structure formation,
which would implement other corporate goals.
 LONG TERM OBJECTIVES

 Generally, top management determines the overall objectives

which the members of the organization unite to achieve.
 In some organizations, the objectives may be set by the vote of
the share-holders;
 in others, by a vote of the members,
 by a small number of trustees or by a few individuals who own
and run the organizations. In large corporate entities, such
bodies as board of directors, governing board, executive
committee may set the objectives.
 Types of objectives
 Profitability  R&D
 Growth  Diversification
 Market share  Efficiency
 Social responsibility  Financial stability
 Employee welfare  Resource conservation
 Product Quality  Mgt & labor
 Service development

145
Guidelines for Objective Setting
Objectives must be clearly specified.
Objectives must be set taking into account the various factor
affecting their achievement.
Objectives should be consistent with organizational mission.
Objectives should be rational and realistic rather than
idealistic.
Objectives should be achievable but must provide challenge
to those responsible for achievement.
Objectives should yield specific results when achieved.
Objectives should be desirable for those who are responsible
for the achievement.
Objectives should be consistent over the period of time.
Objectives should be periodically reviewed.
THE 7’S MODEL/McKinsey’s 7- s framework
It developed by US based management consulting firm McKinsey
and Company has received attention from strategists.
The framework rests on the proposition that effective
organizational change is best understood in terms of the complex
relationship between the seven S’s as shown below
Mckinsey 7-s Framework
1)Strategy: the plan devised to maintain and build competitive
advantage over the competition.
2)Structure: the way the organization is structured and who
reports to whom.
3)Systems: the daily activities and procedures that staff members
engage in to get the job done.
4)Shared Values: called "super ordinate goals" when the model
was first developed, these are the core values of the company that
are evidenced in the corporate culture and the general work ethic.
5)Style: the style of leadership adopted.
6)Staff: the employees and their general capabilities.
7)Skills: the actual skills and competencies of the employees
working for the company
 CHAPTER SIX

STRATEGY IMPLEMENTATION
THE NATURE OF STRATEGIC MANAGEMENT IMPLEMNTATION
 A strategy is only as good as its implementation. The strategic-
management process does not end when the firm decides
what strategy or strategies to pursue.
 There must be a translation of strategic thought into strategic
action. This translation is much easier if managers and
employees of the firm understand the business, feel a part of the
company, and through involvement in strategy formulation
activities have become committed to helping the organization
succeed.
 Successful strategy formulation does not guarantee successful
strategy implementation. It is always more difficult to do
something (strategy implementation) than to say you are going
to do it (strategy formulation)!
 Cont..

Successful strategy implementation depends on cooperation

among all functional and divisional managers in an organization.
Marketing departments are commonly charged with implementing
strategies that require significant increases in sales revenues in new
areas and with new or improved products. Finance and accounting
managers must devise effective strategy implementation
approaches at low cost and minimum risk to that firm.
Strategy formulation and implementation can be contrasted in
the following ways:

Strategy formulation Strategy implementation

 Strategy formulation is positioning  Strategy implementation is managing
forces before the action forces during the action.
 Strategy formulation focuses on  Strategy implementation focuses on
effectiveness. efficiency.
 Strategy formulation is primarily an  Strategy implementation is primarily an
intellectual process. operational process.
 Strategy formulation requires good  Strategy implementation requires special
intuitive and analytical skills. motivation and leadership skills.
 Strategy formulation requires  Strategy implementation requires
coordination among a few individuals coordination among many individuals.
relatively.
 KEY CONCEPTS OF IN STRATEGIC IMPLEMENTATION

 In a simple way, strategy implementation can be defined as a

process through which a chosen strategy is put into action.
Though this definition is very simple but does not specify what
action are required in strategy implementation.
 To elaborate the issues and activities involved in strategy
formulation, let us consider other definitions. Steiner et al have
defined strategy implementation as follows:
 “The implementation of policies and strategies is concerned
with the design and management of systems to achieve the best
integration of people, structures, processes, and resources, in
reaching organizational purposes.”
 McCarthy et al have defined strategy implementation as follows:
“Strategy implementation may be said to consist of securing
resources, organizing these resources and directing the use
of these resources within and outside the organizations.”
 Activating Strategy
 Activation is the process of stimulating an activity -so that it is
undertaken effectively.
 Activation of strategy is required because only a very small
group of people is involved in strategy formulation while its
implementation involves a large number of people in the
organization. So long as a strategy is not activated, it remains in
the mind of strategists.
 Activation of a strategy or set of strategies requires the
performance of following activities:
1) Institutionalizations of Strategy: The first basic role of the
strategist in strategy implementation is the institutionalization
of the strategy. Institutionalization of strategy involves two
elements: Communication of strategy to organizational
members and · Getting acceptance of strategy by these
members.

2) Formulation of Derivative Plans and Programmes: the

organization may proceed to formulate action plans and
programs. Since these plans and programs are derived from a
strategic choice (strategic plan), these are known as derivative
plans and programs.
3.Translating general Objectives into Specific Objectives:
general objectives are too general and, sometimes, intangible
to be transformed into action. In order to make these
operative, managers determine specific objectives within the
framework of general objectives, which the organization and
its various units will seek to achieve within a specific period.
Translation of general objectives into specific and operative
objectives must fulfill two criteria.
1.Translation of general objectives into specific objectives
should be tangible and meaningful.
2.Specific objectives should contribute to the achievement of
general objectives
4. Resource mobilization and allocation: For implementing
a strategy, an organization should have commensurate
resources and these resources should be committed and
allocated to various units and functions where these have
optimum use.
 STRUCTURAL IMPLEMENTATION
 Structural implementation of strategy involves designing of
organization structure and interlinking various units and
subunits of the organization created as a result of the
organization structure.
 Organization structure is the pattern in which the various
parts of the organization are interrelated or interconnected.
 Thus, it involves such issues as to how the work of the
organization will be divided and .assigned among various
positions, groups, departments, divisions, etc. and the
coordination, necessary to accomplish organizational
 Cont.…

Strategy-Structure Relationship:
There is close relationship between an organization’s strategy
and its structure.
The understanding of this relationship is important so that in
implementing the strategy, the organization structure is designed
according to the needs of the strategy. The relationship between
strategy and structure can be thought in terms of utilizing
structure.
“The experience of McKinsey supports the view that neither
strategy nor structure can be determined independently of the
other. If structure cannot stand alone without strategy, it is equally
true that strategy can rarely succeed without an appropriate
structure.
 FUNCTIONAL IMPLEMENTATION

 Functional implementation deals with the development of

policies and plans in different areas of functions which an
organization undertakes.
 Every business organization is built around two basic
functions: production and marketing; to be in business,
every organization has to produce goods or services and
sell these to the customers
 Policies and Plans:

Integrated strategic planning system has significant

dimension that coordinates the various plans from the top level
of the organization down through the lower levels. Such plans
are coordinated at different levels so that planning efforts at a
lower level contribute to the higher level efforts.

Thus, integration of various functions, their plans and efforts

leads to effective implementation Functional of strategy.
 Cont.…

Policies are guides to action. They are in the form of

specific statements or general understanding which provide
guidance in decision making to members in respect of any
course of action.
They indicate how the task assigned to the organization
might be accomplished and provide a basis for lower level
managers on which to make decisions about the use of
resources which have been allocated.
 Difference between Policy and Procedure
Policy Procedure
 Policy provides guidance for
managerial thinking as well as  a procedure simply provides
action. As a result, it does not guidelines to the action by
tell a manager, how to do the prescribing how an action can be
things; it is channels of
performed step by step.
decision-making
 procedure prescribes the exact sequence
 A policy is more flexible as
of the activities without scope of any
compared to a procedure, because it
variation.
prescribes the areas of discretion to
managers,
 while procedures are more prevalent at
lower levels. At lower levels are engaged
 Policy is more pronounced at higher
mostly in routine work which can be
levels. At higher levels, managers
better accomplished if the set standards
are more concerned with looking
into the totality of the
organizational functioning and,
therefore, they should prescribe
policies so that uniformity is
maintained for particular action
 BEHAVIOURAL
IMPLEMENTATION
Strategic Leadership:

It is the process of transforming an organization with the help

of its people so -as to put it in a unique position.

Thus, two aspects are involved in strategic leadership.

 First, it transforms the organization which involves changing all faces
such as size, management practices, culture and values, and people in
such a way that the, .organization becomes unique.

 Second, strategic leadership process emphasizes people because they

are the source for transforming various physical and financial resources
of the organization into outputs that are meaningful to the society.
 Cont.…

Thus, strategic leadership proceeds as follows:-

1.Strategic leadership deals with vision-keeping the mission in

sight-and with effectiveness and results.
2.It emphasizes transformational aspect and, therefore
transformational leaders emerge in the organization.
Transformational leadership is the set of abilities that allow a
leader to recognize the need for change.
3.It inspires and motivates people to work together with a
common vision and purpose.
4.It has external focus rather internal focus. This external focus
helps the organization to relate itself with its environment.
 Organizational Culture:

Organizational culture is another element which affects

strategy implementation as it provides a framework within,
which the behavior of the members takes place.

organizational culture is defined as a set of assumptions

the members of an organization share in common.

For example, organizational culture has been defined as

follows: “Organizational culture is the set of assumptions.
Beliefs, values and norms that are shared by an
organization’s members.
Organizational Culture Cont..
 RESOURCE MOBILISATION AND ALLOCATION

 Resource mobilization involves, procurement of resources that

may be required to implement a strategy, and depending on the
nature of the strategy, type and volume of resources will be
determined.
 For example, a strategy involving substantial expansion of
business will require huge resources of different types as
compared to a strategy involving market development. An
organization’s capacity to mobilize resources has reciprocal
relationship with strategy.
 Resource Allocation After resource mobilization, resource
allocation activity is undertaken. This involves allocation of
different resources financial and human-among various
organizational units and subunits.