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UNIT 1 - BUSINESS POLICY

DEFINITION

Professor George Terry:

Business policy is an implied overall guide setting up boundaries that supply the general

limits and direction, in which managerial action will take place.

Professor Edwin P Phippo:

A business policy is a man-made or predetermined course of action that is established to

guide the performance of work toward the organization‟s objectives. It is a type of standing

plan that serves to guide subordinates in the execution of their tasks

Importance/need of business policy

1. Policies provide stability to the organization.

2. They tend to serve as precedents and this reduce the repititive rethinking of all the

factors in individual decisions and save time

3. Policies aid in coordination, if a number of individuals are guided by the same

policies, they can predict more accurately the actions and decisions of others.

4. Clear policies encourage definite individual decisions in as much as the manager has

clear understanding of the range within which he can make decision and thus feels

less uncertain as to whether he can give answers to subordinates without “getting into

trouble.”

5. Because they specify routes towards selected goals, policies serve as a standard or

measuring yard for evaluating performance. The actual results are compared to

determine how well organizational goals have been achieved.

PURPOSE OF BP

1. Clarify objectives: Objectives are derived from policies and are the ends to which

activity is aimed.

2. Guide planning: Planning is deciding in advance what to do, how to do, when to do

and who will do it?. Policy provides direction and guides planning process in an

organization

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3. Helps executives in making strategic decisions and subordinates in making operating

decisions: Policies provide direction to the business and its objectives. Objectives are

the basis for strategy formulation and strategic decisions. Strategic decisions become

the basis for making routine decisions (operating decisions) by lower level employees.

4. Facilitates overall coordination: Organizational policy links and coordinates the

activities of all the units in the business as well as coordinates business activities with

societal needs.

OBJECTIVES OF BP

Business is divided into different functions which are interdependent and interrelated

and needs to be balanced. This requires multiple objectives to cover all functional

areas and the success of business depends on this aspect. Objectives of BP may be

discussed under the following heads:

1. Knowledge Generation: Any business practicing business policy to achieve the

long-term goals and objectives of the organization needs to generate fresh

knowledge through R&D and with the practice of induction process. Research is

going on in every functional area such as production, marketing, finance and HR

for improving operating efficiency of business enterprises. In this process, a lot of

data and knowledge are being generated through group discussions,

brainstorming, etc . This is available to the organization where research is being

undertaken as well as to the outside world through publication. Moreover, the

interaction between industry and academics gives rise to a lot of knowledge

creation which may be advantageous to public at large

2. Skill Creation: The attainment of knowledge results ultimately in skill creation

through training and development. Training programs are specifically designed to

create skill for performing job with efficiency. Skills are required to take

decisions, perform jobs, improve processes, establish harmonious relations and to

make organization effective.

Three types of skills may be identified:

Technical skills: These pertain to acquiring proficiency relating to methods,

processes and procedures. These skills improve on the job efficiency and

performance.

Human skills: These involve the ability to work with people. This is a great skill

needed by successful leaders.

Conceptual skills: Relate to the ability to know different elements and their

relationship between looking at a particular phenomenon or situation.

3. Attitudinal changes to cope with business situation: In any organization, the

human factor is important if plans are to be implemented as per schedule. Change

is inevitable and resistance to change is common occurrence. It becomes

necessary to create positive attitudes in the minds of employees and make them

more open and acceptable to the change. Therefore, business policy should try to

change behavioral attitudes of the employees so that their contribution to the

organization is maximum. It may also need to alter policies to suit people at

different management levels.

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UNIT 2 - UTILITY AND APPLICATION OF STRATEGIC

MANAGEMENT

MEANING AND DEFINITION OF STRATEGY

A. D. Chandler “ Strategy can be defined as the determination of basic long-term goals and

objectives of an enterprise and the adoption of courses of action and the allocation of

resources for carrying out these goals.”

Randall B. Dunham and John H. Pierce “Strategy is the art and science of combating the

many resources available to achieve the best match between an organization and its

environment.”

Strategy

plan of action, set of decisions/rules

related to organization's activities are derived from policies, objectives and goals

to move it from its current position to a desired future state

concerned with resources necessary for implementing a plan

connected to the strategic positioning of the firm

Characteristics and attributes of effective strategies

Clearly stated and understood objectives and goals which are decisive and attainable.

There is scope for initiative and freedom of actions -should also enhance

commitment.

It should enable mobilization and use of resources at decisive points to ensure success

and enhance superiority of the firm vis-à-vis the competition.

It should have flexibility to facilitate the alteration of a course of action.

It must be championed by a committed leadership.

Hierarchical levels of strategies: Three levels of strategy are relevant to business having

multi-plants/multi-divisions. When single unit only corporate and functional level.

1. Corporate level strategies: Who? CEO, BOD, senior executives – occupying decision

making positions at apex level. They set objectives, analyze internal and external

environment, formulate strategies and ensure their implementation.

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2. Business level strategies: Who? Second or middle level of decision making at the

business level.

SBU: The business is a self contained division that provides a product/service for a

particular market. Each business/division is called SBU – strategic business unit.

Management here involves a head of business and few corporate managers. They

translate corporate strategy into concrete objectives for individual business. They

determine how the firm will compete successfully in the targeted product market, identify

new promising market segment, which products/services should be developed in which

markets, etc.

3. Functional/operational level strategies: Who? managers of different functional areas .

Responsible for developing annual objectives and short term strategies of the

concerned area of operation. This is impacted by BLS which are in turn influenced by

CLS. They address issues like efficiency and effectiveness of functional areas thereby

helping in effective implementation of CLS and in achieving firm‟s goals/objectives.

What is Strategic Management?

Strategic Management -The dynamic process of formulation, implementation, evaluation and

control of strategies to realize the organizations strategic intent. Strategic management

enables an organization to be more proactive than reactive in shaping its own future, it also

permits organization to initiate and influence activities and thus to exert control over its own

destiny. Research has revealed that organizations that engage in strategic management

generally outperform those that do not.

Need For Strategic Management

1. Due to change: SM encourages top executives to forecast change and provide

direction and control

2. To provide guideline: SM provides guidelines about organizations expectations from

them.

3. Systematize business decisions: SM provides data and information about different

business transactions to managers and helps them to make decisions systematically.

4. Improves communication

5. Improves coordination

6. Improves allocation of resources

7. Helps managers to have a holistic approach

Benefits of strategic management

1. Allows for identification, prioritization and exploitation of opportunities.

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2. Provides an objective view of management problems.

3. Represents a framework for improved coordination and control of activities.

4. Minimizes the effects of adverse conditions and changes.

5. Allows major decisions to better support established objectives.

6. Allows effective allocation of time and resources among business units.

PROCESS OF STRATEGIC MANAGEMENT

1. Strategic intent – Developing Vision, Mission And Objectives: Establish organization‟s

strategic intent – SM process begins with the development of the corporate Vision, Mission,

And Objectives.

Prahalad and Hamel define strategic intent as “ an ambitious and compelling….. dream that

energizes ….. That provides the emotional and intellectual energy for the journey … to the

future.” If strategy is the mind, strategic intent is soul – the heart of management.

Attributes of SI:

1. Sense of direction - either market/competitive position – future

2. Sense of discovery – holds out the promise of exploring new competitive territory.

3. Sense of destiny – it is a goal that employees perceive as inherently worthwhile.

Purpose of SI – focuses on organization‟s attention on essence of winning/motivates people

by communicating value of target/sustains enthusiasm as circumstances change/use SI to

guide resource allocations.

Vision

McDonald: To Be The World‟s Best Quick Service Restaurant

A corporate vision delineates managements aspirations for the business, providing a

panoramic view of “where are we going?” and convincing rationale for why this makes good

business sense for the organization.

Vision- Inspires, Energises, Evokes Passion, Represents A Destination But Does Not

Specify Means. “Beacon Of Light” which answers the question “What do we want to

become?”

Created - either by intuition of top management or by brainstorming

Components- 1. Core Ideology – Long lasting character of a firm rests on core values

{treatment – employees/customers, innovativeness, integrity, quality, trust, teamwork,

etc.} and purposes and 2. Envisioned Future {long term goal}

Mission

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A mission statement defines the core purpose of the organization. Why it exists; it

examines the “raison d‟etre” for the organization beyond simply increasing

shareholders wealth and reflects employees motivation for engaging in the company‟s

work.

Mission: Why it exists? Why are we in business? What is our operating philosophy in

terms of quality, company image and self-concept? What are core competencies and

competitive advantages?

Created by top executive team/brainstorming

Components : There are 3 indispensable components of the corporate mission

statements. They are the products, customer and principle technology for production

or delivery.

Elements of a mission statement

Purpose: Why does the business exist? Is it there to create wealth for shareholders?

Does it exist to satisfy the needs of all stakeholders?

Strategy And Strategic Scope: Strategy – may be to produce something ; Strategic

Scope – boundary that sets terms of geography, market, business method, etc.

Standards And Behaviours: Translation of mission into actions, needs to have policies

and standards of behaviour {for ex. delivering “Outstanding customer service” –

customer complaint solved within 24 hours}

Values: State the beliefs of managers and employees who work in the company (like

loyalty and commitment)

Distinguish between vision and mission statement

Vision: Statement of its future. 2. Determined by stakeholders or founders of the organization

3. translated into mission statement that defines the organization purpose 4. portrays a

company‟s future business scope Vs. Mission enduring statement of purpose that

distinguishes one business from the other 2. Determined by top management. 3. converted

into performance objectives 4. Describes a company‟s present business scope.

Objectives

Objectives are used to operationalise the mission statement and use them as performance

targets. They act as yardstick for measuring company‟s performance.

Characteristics of objectives SMART – Measurable/Specific – clear message as to what

needs to be accomplished/ Appropriate with vision and mission of the organization./

Realistic./ Time achievable – objectives should be achievable in a specific time period.

2. Environmental analysis –SWOT External O and T / Internal S and W : The prime

purpose of analyzing external operating environment is to identify organization‟s

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strategic opportunities and threats for the organization. Key environmental factors are

– Political, Legal, Economic, Technological, Socio-cultural, Societal. The essential

purpose of the internal analysis is to identify strengths and weakness of the

organization. It consists of variables that are within the organization itself. They are

the structure, culture and resources. A business becomes strong when it has all these 3

in balance and vice versa.

3.Strategy formulation – CLS/BLS/FLS - Strategy formulation is the development of long-

range plans for the effective management of environmental opportunities and threats. In this

step, managers develop a series of strategic alternatives to pursue. The alternative strategies

may be at global level, corporate level, business level and functional level. They develop a

firm specific model, which will align, fit or match the company‟s resources and capabilities.

Strategies should help build competitive advantage.

4. Strategy implementation - After developing alternative strategies and selecting a specific

strategy to achieve competitive advantage, strategy developers must ask managers to put it

into action. Sometimes the existing structure, culture and policies may not support strategy

implementation; in such cases, there is a need to modify or change them according to the

requirement. Generally strategy implementation is done by middle and operating level

managers and the same is reviewed by top level managers.

5. Strategic evaluation and control -Strategy evaluation and control go side by side strategy

implementation. Just strategy formulation and implementation may not help in achieving

corporate objectives. Good control is critical for corporate success. Strategic evaluation and

control is the process in which corporate activities and performance results are measured and

monitored with a view to compare actual result with predetermined target performance. If

corporate objectives are not achieved, then managers need to take corrective action.

Evaluation and control helps in identifying weakness in implementing strategies.

STRATEGIC DECISION MAKING

Management is the process of decision making. All decisions are not of equal importance.

More important decisions which are non-repetitive type involving huge commitment and

having impact on sections of the company are called strategic decisions. Others are less

important and are repetitive type and can be delegated to lower level, they are secondary

decisions (operational decisions). A strategic decision is a major choice of actions concerning

allocation of resources and contribution to the achievement of organizational objectives.

Decision making means choosing better course of action out of available alternatives. Each

alternative is carefully evaluated in the light of financial, social, technological and political

implications.

As each firm is unique, each firm follows its own strategic decision making approach. Some

common approaches are

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1. The Chief Architect Approach: Here a single person, either the owner or CEO

assumes the role of chief strategist and single handedly shapes most or all of the

major strategies. Of course he may take help from subordinates through brainstorming

or for data/ data analysis by specific departments. However, here 1 person functions

as strategic visionary and chief architect of strategy, personally orchestrating the

process and putting his imprint on what strategy to pursue. Ex . Business groups such

as Reliance/Infosys in India and ex. Bill Gates at Microsoft.

2. The Delegation Approach: Here the executive in charge delegates a major part of

strategy making to trusted subordinates, down-the-line managers in charge of key

business units or depts., a high level task force of knowledgeable and talented people

from various parts of the organization, etc. delegating brainstorming, analysis, and

crafting of major strategy components allows for broad participation of experienced

personnel who have on–the-scene knowledge of market and competitive conditions.

Weakness: success depends on business judgement and strategy making skills of

lower level personnel. 2.. Sends out the wrong signal that strategy development is not

that important to warrant boss‟s time and attention.** useful in

multiproduct/multibusiness enterprises.

3. The collaborative/team approach: This is a middle approach where a manager with

strategy making responsibility enlists the assistance and advice of key peers and

subordinates in arriving at a consensus strategy. Strategy teams often include line and

staff managers known for the ability to think creatively, and near retirement veterans

noted for being keen observers. Collaborative efforts are led by manager in charge

but the result is the joint product of all concerned. - ** well suited to situations where

strategic issues cut across departments, product lines, and businesses and there is a

need to tap strategic thinking of people with different expertise, experiences and

perspectives.

4. The corporate intrapreneur approach: Here the top management encourages

individuals and teams to develop proposals for new product lines and new business

venture. The idea is to unleash the talents and energies of promising corporate

intrapreneurs, letting them try out business ideas and pursue new strategic initiatives.

Executives serve as judges of which proposals merit support and give company

intrapreneurs the needed organizational budgetary support. With this approach, the

total strategy of a company is the collective sum of all the championed initiatives.

Important parts of company strategy originate with those intraprenuering individuals

and teams who succeed in championing a proposal through the approval stage and

then end up being charged with the lead role in launching new products/overseeing

entry into new geographic markets/heading to new business ventures.

REASONS FOR FAILURE OF STRATEGIC MANAGEMENT

1. Failure to define the end objectives correctly.

2. Failure to understand the customer (inadequate/incorrect marketing research)

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3. Inability to predict environmental reaction (competitors, govt intervention)

4. Over-estimation of resource competence (can staff/equipment handle new strategy?-

failure to develop new employee/mgt skills)

5. Failure to coordinate (organizational structure not flexible enough/ reporting and

control relationships not adequate)

6. Failure to obtain senior management commitment

STRATEGISTS AND THEIR ROLE IN STRATEGIC MANAGEMENT

Strategists are the individuals who are responsible for the success or failure of an

organization, because they are the ones who formulate strategy. Strategists gather, analyze

(external and internal env. and prepare SWOT analysis ) and organize information. Using this

information, they develop models, evaluate and control SBU and provide corrective action

plans. Strategists differ in their attitudes, values, ethics, willingness to take risks, concern for

social responsibility/profitability/short term versus long run aims and management styles and

these are reflected in their strategy formulation, implementation, evaluation and control of

strategies.

Strategist 1: Board of Directors - BOD are elected by shareholders of the organization.

Ultimate legal authority of a firm. Responsible to stakeholders for ensuring continuity of

management, protecting use of stakeholders resources, approving financial and operational

decisions, etc. may consist of people from the organization and outsiders. Decides on the

strategies to be pursued by firm. CEO presides over the meetings of the BOD.

Strategist 2: Chief Executive Officer - Should visioneer and guide the board members to

formulate strategies. Key role of CEO

1. Strategist: CEO sets the future direction of his/her company. Team centered strategic

planning is necessary for the process of creating effective strategy, where CEO carries

his/her team , looks into the future. If CEO conduct annual reviews, he must have

quarterly reviews as well.

2. Ambassador: should meet his clients and customers once or twice a year, not for sales

call but for an informal lunch or dinner. This helps build trust between himself and

clients. Trust builds CEOs credibility.

3. Inventor: needs to find his customer pain and develop new products and services to

relieve theh pain. It ensures that strategic direction of the company aligns around

customer‟s pain thereby helps in running business successfully

4. Coach: inculcate a learning culture in the organization. Should create enabling

environment for the employees to learn.

5. Investor: should treat his company as an investment. Should know the market value

and try to develop.

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6. Student: stay active in continue professional development.

Strategist 3: senior managers – committees assigned with specific task, SM need to be

associated with these committees.

Strategist 4: SBU level managers – each SBU own strategic plan

Strategist 5: Corporate planners/staff assist top mgt in SF, SI, SE&C

Strategist 6: consultants – external consultants – Ernst and Young, McKinsey, BCG TCS etc.

time bound or specific assignment no t entire SM process. But beneficial because unbiased,

specialized, and cost-effectiveness.

Strategist 7: executive assistant person who assist CEO – data collection, preparing briefs of

various proposals, projects, PR activities, etc.

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UNIT 3 - ENVIRONMENT APPRAISAL

THE CONCEPT OF ENVIRONMENT

Environment: Surrounding external objects or circumstances in which someone or something

exists.

Business environment is the sum total of all external factors beyond control of business that

influence the business in a number of ways. It is divided into general environment and

industry environment. General environment/ “macroenvironment” – refers to the general and

overall env. within which firms operate – economic, social, political, demographic, legal,

technological etc. within which the industry and company are placed. It is called as “indirect

action” environment. The forces do not have any immediate direct effect on the operations

but they influence. Industry environment/ “microenvironment”/”direct environment” consists

of elements that directly affect the company such as competitors, customers and suppliers. It

is the more specific and immediate environment in which an organization conducts its

business.

THE COMPANY AND ITS ENVIRONMENT

Analysis of external factors include - Global factors (foreign exchange rate, increased global

rate, etc.), Economic factors ( national income, interest rate, disposable income, etc.), Social

and Cultural factors – values, beliefs, lifestyles (more women in workforce, nuclear families,

etc.), Technological factors, Political factors (political climate, tax, minimum wage, pollution

control policies) Ecological factors (location, expansion, transportation, etc.) , Demographic

(birth rate, family size, income/education level, age composition, etc.)

Objectives of environmental analysis

Provides an understanding of current and potential changes taking place in task

environment

Provides input for strategic decision making

It should facilitate and foster strategic thinking in the organization

Benefits Of Environmental Analysis

Develop broad strategies and long term policies of the firm

Develop action plans to deal with technological advancements

To foresee the impact of socio-economic changes at the national and international

levels on the firm‟s stability

Analysis of the competitors strategies and formulation of effective counter measures

To keep oneself dynamic

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SCANNING THE ENVIRONMENT

Environmental scanning is that exercise that involves continuous process of

monitoring the dynamic interplay of all those forces namely economic, competitive,

technological, socio-cultural, political, demographic to determine the opportunities.

Why?

1. It imprints the image of existing environment – provides a clear picture of

competitors, suppliers, govt, consumer, etc. – perfect knowledge helps to choose

viable strategy

2. It makes possible to have effective strategy.

3. The external environment throws open Opportunities and Threats

4. It helps in reading the future

Four steps involved in scanning the environment are:

1. Scanning: General surveillance of environmental factors and their interactions to –

identify new change and detect environmental change already under way. Is ill-

structured and ambiguous environmental analysis activity. Potential relevant data are

unlimited but are vague, scattered and imprecise; challenge is to make sense of this.

2. Monitoring: This involves tracking the environmental trends/sequence of

events/activities. Involves following the signals/indicators unearthed during scanning

– to ascertain whether any trend is emerging. This results in 3 outcomes. 1. a specific

description of env trends/patterns to be forecast 2. identify other trends that can be

monitored 3. identify other areas for further scanning.

3. Forecasting: The earlier 2 steps provide the past and present but strategic decision

making is concerned with future. Forecasting is concerned with developing plausible

projections of direction, scope, and intensity of environmental change. Ex. How long

will it take the new technology to reach market place? Are current lifestyle trends

likely to continue? – these kind of questions provide grist (something one can exploit)

for forecasting. Forecasting is well focused, deductive and complex activity because

the scope, focus and goals are more specific than the earlier 2 stages.

4. Assessment: This involves identifying and evaluating how and why current and

projected environmental changes affect or will affect the strategic management of the

organization. It moves from understanding the environment (which is the focus of

scanning, monitoring and forecasting) to identify what this means for the organization. It

tries to answer questions such as what are the key issues presented by the environment,

and what are the implications of such issues for the organization

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COMPETITIVE ENVIRONMENT

Michael E. Porter‟s Five Forces Model

1. Threat Of New Entrants This refers to entry of potential competitors. New entrants bring

new capacity, desire to gain market share and substantial resources. They bring down the

profitability of the established firms. Extent of threat depends on the presence of entry

barriers and combined reaction from existing competitors.

An entry barrier is a strategy of existing firms which make it difficult for new entrants

to enter an industry.

Major Sources

Economies Of Scale: This refers to spreading the cost of production over number of

units produced. For ex: mass production of standard products/ discounts on bulk

purchases of inputs / spread of fixed (marketing) costs over large volume ex. Intel &

Microsoft.

Product Differentiation: Having strong products which differentiates it from others

with strong brand identification/brand loyalty ex detergents –Ariel/Surf Excel/Tide –

Sources of creating brand loyalty – continuous advt -spend heavily on advt/obtaining

patent/excellent after sales service, etc.

Capital Requirements: If amount to invest is huge, then acts as barrier. Ex: cement,

chemicals, etc.

2. The Bargaining Power Of Buyers - Buyer: individual/company which distributes an

industry‟s product to end users. Refers to the ability of the buyers to bargain - down prices,

higher quality or more services and play competitors off against each other which reduces

profitability. Powerful buyers – threat.

Bargaining power will be high

1.When buyer purchases in large quantities, 2. standardized /undifferentiated

product/service 3. when switching costs are low. 4.when buyers pose a threat of

backward integration (producing the product themselves) 5. plenty of alternative

products. 6. when buyers are well informed about sellers, products, prices and costs.

Ex: auto component supply industry.

3. The Bargaining Power Of Suppliers -Suppliers are those companies that supply input to the

industry. Maybe individuals or organizations. Refers to the ability of the suppliers to increase

input prices, reduce quality and squeeze profitability. Powerful suppliers – threat.

Bargaining power will be high

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When supplier is dominated by a few and is more concentrated than the industry it

sells to.

When supplier product is an important input to the buyer‟s business.

When switching costs are high.

When supplier group poses a credible threat of forward integration (starts producing

main products)

When supplier group produces differentiated products.

Ex. PC – Intel chips 85% - competitor AMD(advanced macro devices)

4. Threat Of Substitute Products/Services - All companies in 1 industry come under

pressure from the actions of companies in closely adjoining industry whenever buyer

views the products of 2 industries as good substitutes. Substitute products: products

of different companies or industries which appear to be different but can satisfy

similar customer needs ex. Coffee and tea.

5. Rivalry Among Existing Firms-Rivalry refers to the competitive struggle between

companies in an industry to gain market share from each other.

The types of struggles may be price cutting, product design, advt. and production

expense, direct selling effort, and best after sales service. Ex. Price war among Surf

Excel, Ariel, and Tide reduce the products profitability and helped the customers.

Rivalry may be due to

1. Existence of numerous or equally balanced competitors.

2. Slow industry growth – turns competition into a fight for market share, since demand

is less and supply high

3. Lack of differentiation and switching cost when a product is perceived as a

commodity, then the buyers choice is typically based on price and service resulting in

pressure for intense price and service competition.

4. High exit barriers – Exit barriers keep a company from leaving an industry. Exit

barriers are economic, strategic and emotional factors that keep firms to stick to same

industry.

Complementors This force is in addition to the 5 forces Grove A. S. former CEO of Intel

gave the 6th

force – the power, vigor and competence of the Complementors. Complementors

are the companies that produce and sell products which add value to products of companies

in an industry, because when they are used together the products better satisfy customer

demands. For ex: having personal computer without right software is of no use. PC

complementor is those that make software application. The greater the quality of software to

run PC, greater value to customers, greater demand and greater profitability to PC industry.

Relative Power Of Other Stakeholders - Some advocate a sixth force that can be added to

Porter‟s list to include a variety of stakeholder groups from the task environment –

governments, local communities, creditors, trade associations, trade unions, shareholders, etc.

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DRIVING FORCE: Driving Force are those that have a huge influence on industry structure

and competitive environment. includes both macroeconomic factors as well as company‟s

immediate environment

Factors Driving Industry Change

1. Emerging new technology applications and growing use of the internet – new

distribution channel (traditional – retailers, wholesalers)

2. Technological change and innovative manufacture process - new/improved products

produced at lower cost, but it requires significant changes in capital investment

3. Globalization of the industry - means competition (due to economies of scale/dif. In

labor cost)

4. Changes in buyers and product usage – ex. cell phones –now used to also take photos,

download music etc.

5. Innovative products - continuous improvement in products, only way to survive - cell

phone, video games, toys, etc.

Strategic Group: Strategic group is a set of business units or firms that pursue similar

strategies with similar resources. Classifying an industry into strategy groups involves

judgement.

Strategic Group Types Defenders: Focus on improving the efficiency of existing

operations – limited product line.

Prospectors: broad product lines and focus on product innovation and market

opportunities. Adopt an offensive attitude.

Analyzers – firms that operate in at least 2 different products – market areas one stable

(emphasis on efficiency) and the other variable (innovation) areas

Reactors – firms do not have a consistent strategy, but they are interested in Guerrilla

warfare.

ANALYSIS OF INTERNAL ENVIRONMENT - ORGANIZATIONAL AUDIT

Corporate strategy is ultimately a matching game between environmental opportunities

and firm strength‟s to gain competitive edge.

Managers need to

1. Understanding value creators {resources and capabilities} and their role in process of

creating values

2. Understanding the importance of superiority – superior efficiency, quality, innovation,

customer responsiveness

3. Identifying sources of competitive advantage.

Distinctive competencies and competitive advantage

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Competencies can range from merely a competence in performing to a core competence to a

distinctive competence

Competence: something a company is good in doing. For ex.HR deliberate selection, training

over a period of time proficient/Big Bazaar located near bus stop

Core competence: (very important in success) the areas of expertise are most likely to

develop in the critical, central areas of the company where the most values is added to its

products. For ex: electronic equipments – design of electronic components and circuit

Distinctive competence: It is the firm's specific strength that allows the firm to differentiate

its products and achieve substantially lower costs than its rivals and helps in gaining

competitive advantage ex: JIT

Resources

These arise from a company‟s resources and capabilities

1. Tangible resources: easy to identify & found on company‟s balance sheet. ex. Land,

building, financial resources – physical and financial means a company uses to add

value to its products and for customers. Ex. Virgin Airlines plane fleet/ford cash

reserves

2. Intangible resources: ex. Brand names, organization morale, patents- not easily

identifiable, not accountable, not imitatable, because embedded in company practices

that have been developed and accumulated over a long period of time. Ex. Nike brand

name

3. Organizational capabilities: Not specific inputs like tangible/intangible- they are the

skills or competencies that a company employs to transform inputs into outputs. Ex.

Coke global distribution network.

Firm resources and competitive advantage

1. Easy to Imitate? – ( cash – economies of scale- brand loyalty – unique locations)

2. Is the resource strength durable? (Kodak and advent of digital camera)

3. Is the resource really comparatively superior? (Intel processor vs Celron)

4. Can the resource strength be trumped by the different resource strengths / capabilities

of rivals? (Amazon Vs. brick-and-mortar book stores)

Criteria For Determining Strengths And Weakness

Historical: Compare the variables (sales/net profit) with past performance. (Improvement

over past performance = strength and decline = weakness.)

Normative: This is a judgemental approach. The judgment is based on ”what ought to be” the

level of performance to classify a particular element into strength or weakness. Based on

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expert opinion, industry/association practices or personal opinions, one can develop norms

for evaluation.

Competitive parity: Determination of an element as S or W. This is determined on the basis

of action of successful direct competitors or potential competitors. Based on the premise that

the firm must meet the actions of the competitors, at the minimum; ex. , 30 days credit is

industrial practice, otherwise considered weak.

Critical factors for success: Each business is unique and needs a set of minimum performance

standards called critical factors for success or key factors for success. For ex. Advt. An

organization‟s KSF are those things that affect its ability to prosper in market place –

particular strategy elements, product attributes, resources, competencies, competitive

capabilities and business outcomes that spell the difference between profit and loss and

ultimately competitive success or failure. They are the prerequisites for an organization‟s

success and must be given its due importance. Therefore, determining the organization‟s KSF

is a top priority analytical consideration

Relating opportunities and resources based on appraisal for the environment (situation

analysis –opportunities and threats

ETOP ANALYSIS-ENVIRONMENTAL THREATS AND OPPORTUNITIES PROFILE

Analysis of environmental information, data and factors and determining opportunities and

threats require a systematic technique. Lawrence R Jauch and William F Glueck suggested

the technique of ETOP. This technique conveniently summarizes the diagnoses of all various

sectors of the env which is important to the strategic gaps facing the firm.

SWOT ANALYSIS

Strengths: attributes of the organization that are helpful to achieve the objective

Weaknesses: Attributes of the organization that are harmful to achieving the objectives

Opportunities: External conditions that are helpful to achieving the objectives

Threat: External conditions that are harmful to achieving the objectives

Value chain analysis(value steam mapping): A value chain is a linked set of value creating

activities the company performs internally. Value is the amount that buyers are willing to pay

for the product offered by a firm. Firms will have superior profits when the perceived value

exceeds the costs involved in creating its product.

Avoiding Failure

Focus on the general building blocks of competitive advantage/Adopt continuous

improvement and learning/Track best industrial practice and use it as

benchmark/Overcome inertia

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UNIT 4 – STRATEGIC PLANNING

CORPORATE LEVEL STRATEGY

STRATEGIC PLAN: Strategic plan is the process of selecting an organization‟s goals,

determining the policies and strategic programs necessary to achieve specific objectives en

route to the goals and establishing the methods necessary to assure that the policies and

strategic programs are achieved

STRATEGIC PLANNING PROCESS

1. Establishing set of goals to be achieved

2. Establishing the planning premises

a. Internal premises – sales forecasts, etc and External premises – economic, political

etc.

b. Tangible premises – product demand, population growth, etc.

Intangible premises – social, political factors

c. Controllable premises – labor or advt policy

Uncontrollable premises – strikes, etc.

3. Deciding the planning period

4. Finding alternative courses of action – availability of alternative technologies, sources of

capital

5. Evaluating the alternative plans and selecting a course of action – through SWOT analysis

6. Developing derivative plans: formulate policies and plans which are sub plans to the main

plan through consultation with lower level managers

7. Implementation of business plans : mgt take initiative

8. Measuring and controlling: measure progress , observe deviations from standards and

correct.

CLS-Expansion Strategy, Stability Strategy, Retrenchment Strategy, Restructure Strategy,

Merger Strategy

Nature Of Corporate Level Strategy: Deals with products, addition of new products; Markets

to compete; Geographic regions to operate; If multi business, resource allocation {cash,

staffing, equipments, etc.}; Diversification; Competition: compete directly? or establish

relationships? – strategic alliances, JV, etc.

Categories of CLS

1. Growth Strategies

2. Stability Strategies

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3. Retrenchment Strategies

4. Combination Of The Three

Also Known As “Grand Strategies”, “Basic Strategies”, Or “Generic Strategies”.

Growth Strategies

Measures Of Growth

Increase in sales, profits, assets

Ways Of Growth

1. Internal Growth: Organization expands its operations by purchasing new plant and

machinery to increase capacity/train its sales force to sell a new product.

2. External Growth: When the company takes over the operations of another

(acquisition)/grow externally (mergers/takeovers/JV/strategic alliances)

Integration: Vertical Integration: Represents an expansion or extension of the firm by

integrating preceeding or successive productive processes. Ex: oil industry – active in

locating crude oil deposits, drilling, extracting crude, transporting it around the world,

refining it into petroleum products, and distributing them through company owned retail

stations- Royal Dutch Shell/BP

Automobile industry (forward integration) {supply its own tyres, music system} (backward

integration) { control its distribution system and invest in its own dealership.}

Risks

1. Costs and expenses with vertical integration when company purchases inputs from

company owned supplier rather than buying at low price from outsider

2. Loss of flexibility – to respond to changes- due to high investment

3. Additional administrative costs associated with managing a more complex set of activities.

Benefits Of Vertical Integration

1. A secure supply of raw materials or distribution channels that cannot be held hostage

to external markets where costs can fluctuate overtime

2. Production and control over assets and services required to produce and deliver

valuable products/services

3. Access to new business opportunities and new forms of technologies

4. Control quality by controlling input quality.

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Types Of Vertical Integration

A.Backward Vertical Integration

Car assembled by using thousands of component parts – backward integration is owning of

the supply chain.

Benefits

1. Cost savings when volume needed is high and suppliers have huge profit margins

2. Decrease the dependence on suppliers of crucial components and lessening the

company‟s vulnerability of powerful suppliers inclined to raise prices at every

opportunity.

Situations Suitable For Backward Integration

1. Suppliers are expensive / unreliable / incapable of meeting the firm‟s needs

2. When the number of suppliers is small and the number of competitors is large

3. When the organization has capital and HR to manage new business of supplying its

own component parts.

B.Forward vertical integration

The company sets up subsidiaries that distribute or market its products to customers

Benefits: gain better access to end user/ reduces product distribution cost thereby product

selling price.

Situations Suitable For Forward Integration: Distributors expensive/ quality retailers,

distributors limited/has both capital and HR needed to manage the new distribution business.

Degree of vertical integration- ranges from Ownership of the value chain and market a

product to no ownership at all

Full Integration: A company makes all the inputs required and completely controls it

distributors

Taper Integration: Organization buys from outside suppliers in addition to internally

produced inputs or sell products through independent outlets in addition to company owned

distribution outlets

Quasi – Integration: A company purchases inputs from outside suppliers who are under

company control (partial)

Long-Term Contract: Companies can have long-term contracts with other firms to provide

specified goods/service for a specific period of time.

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Horizontal Integration

Seek ownership or increase control over firm‟s competitors. It is called horizontal

because the firm tries to have ownership control over the same nature of business.

Activities involved are MERGERS, ACQUISITIONS AND TAKEOVERS.

Add to economies of scale and enhanced transfer of resources and competencies.

Situations Suitable: No govt regulation, so a firm can gain monopolistic position/when

economies of scale provide a competitive advantage/when it has capital and HR to manage

expanded firm/when firms compete in a growing industry.

Benefits

1. Economies of scale – spread fixed cost over large volume

2. Reduction of duplication – eliminate adm costs

3. Increasing value of product – possible to offer quality at reasonable price

4. Reduction in industry rivalry

5. Increased bargaining power – concentration in few hands – charge high prices/make

profit.

Drawbacks

1. Concentration of economic power leads to monopolies

2. Sell low quality at monopoly prices

3. Not all mergers create value-can destroy also

Diversification Strategy

Process of adding new business to the firm that is distinct from its present operations.

A diversified company is involved in one or two businesses that are different from

one another.

Situations Suitable: Slow growth of industry/ leverage existing capabilities and

resources/good brand name/less or no competition in proposed business area.

Types of diversification- interrelated business or unrelated areas

Concentric Diversification

Company adds new products or services which have technological or commercial

synergies with current products and which will appeal to new customer groups.

Strategic fit areas – R&D, Supply Chain, Manufacturing Related, Distribution, Sales

And Marketing Activity, managerial and and support activities

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Conglomerate Diversification

• This is when an organization moves beyond its current value system or industry that

has no strategic fit between Present Business Resources And Proposed Business.

• Offers An Unfamiliar Product

• Adv: deployment of finance in attractive industries/ spread of business risk

• Disadvantages: complex/challenging demands high skills + no potential for

competitive adv.

Horizontal diversification

Company adds new products/services that are technologically or commercially

unrelated to current products but which may appeal to new customers

if customers are loyal, new products are of good quality, well promoted and priced

Increase dependence on certain market segments

Ex: petrol bunks creating miniature malls (coffee, restaurants, drug stores, retail etc.)

within its premises

Mergers, acquisitions and strategic alliances

Merger (amalgamation)

The term merger refers to a combination of two or more companies into a single

company where one survives and the others lose their corporate existence.

The acquired company acquires the assets as well as the liabilities of the merged

company/companies

Generally the company which survives is the buyer which retains its identity and the

seller company is extinguished.

Mergers take place when the objectives of the buyer firm and the seller firm are

matched to a large extent.

Types of mergers- horizontal, vertical and conglomerate

Horizontal Mergers: Two or more business units carrying on the same business join together -

to avoid competition, gain advantage of large scale operations, to make the best use of

resources and capabilities.

Vertical Mergers: This takes place between firms in different stages of production, either as

forward or backward integration. It occurs when the firm acquires “upstream”(suppliers of

raw materials) firm or downstream firms (sell to customers).

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Concentric Mergers- two or more organizations related to each other in terms of customer

groups or customer functions or alternative technologies come together. For ex, if a footwear

manufacturing company combines with socks making company/ leather goods company

making purses, bags, etc.

Conglomerate Mergers- here a firm in one industry combines with another firm in another

unrelated industry. For ex: footwear and pharmaceutical industry

Critical issues in merger

1.Strategic issues: these relate to commonality of strategic interests for mergers between the

firms. Strength of one firm may be weakness of the other – both the firms get the advantage

of strength of each other after merger. Impact of synergy would help both firms to achieve

the objective efficiently.

2.Financial issues: (A) valuation of seller firm- assets, market standing, earning potential,

share prices etc. (B) sources of financing for mergers – shares, however other sources are

rarely used

3. Managerial issues: Critical issue in mergers. Significant changes { top management level

and chief executive of the firm, middle and lower level} may be there.

To make the merger smooth – understanding should be there about top level

management between buyer and seller at all levels and professional management.

Further steps to be taken regarding training of employees of both firms about the

organizational culture of each other.

4.Legal issues: legal issues in mergers are concerned with the provision of the various laws

relating to mergers. Chapter V of the Companies Act 1956 , MRTP Act and Section 72 a(I) of

the Income Tax Act

Advantages Of Mergers

1. Elimination/reduction of competition

2. Gain economies of large scale operations

3. Growth of amalgamating firm

4. Increases financial strength of the amalgamated firm

5. Helps in diversification of business (conglomerate merger)

6. It avoids gestation period of establishing new business. It provides immediate access

to market.

7. Sometimes cost of acquisition may work out to be economical that establishing a new

business unit.

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8. It helps in synergy. One unit may be strong in financial resources and the other has

profitable investment opportunities. Or one may have strong brand name but lacks

marketing organization. Thus mergers help in achieving synergy between

complementary activities.

9. It helps in gaining tax benefits - tax benefits are available for a firm, which acquires a

firm that is running with cumulative losses.

10. The merger helps the buying company in having easy access to the sources of raw

material, finance and HR.

Disadvantages of mergers

1. Executives of the acquired firm may get a low status, low level authority and power

2. The psychological problems of the top management of the merging firms after merger

may result in disbanding of merger

3. Research studies find that the performance and profitability of combined firms tend to

decline compared with that of merging firms before merger

4. Mergers will lead to concentration of economic power, monopolistic conditions and

thereby political power, higher prices, restricted supply, etc.

5. Culture shock

6. Technology integration: research shows 3 out of 4 companies reported problems

integrating information systems after merger.

Acquisitions/Takeovers – external growth strategy

Takeover means acquisition of certain block of equity capital { theoretically 50%; practically

20% to 50%} of a company which enables the acquirer to exercise control over the affairs of

the company. Ex. Volvo „s takeover of Nissan Diesel

Types Of Takeovers

Friendly Takeover

• Through negotiations- the acquiring firm makes a financial proposal to the target

firm‟s management and board.

• If no agreement is reached, the acquisition proposal stands terminated

Hostile Takeover

• Silent and unilateral efforts are pursued (takeover raids) to gain controlling interest in

it against the wishes of the management – are called “ takeover bids” when organized

in a systematic way.

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Bailout Takeover

• a financially sound and profit making company takes over a financially sick –

purchase of a scheme of rehabilitation approved by public financial institutions.

Takeovers are evaluated by leading financial institutions

Reverse Takeover

• A public company acquires a private company of higher value, done at the

instigation of private company because it wants to effectively float itself

{conventional initial public offer (IPO)} while avoiding time and expense

Advantages Of Takeovers

1. Decrease competition

2. Increase market share

3. Avoid gestation periods and problems involved in new projects.

4. Provide a chance of survival for sick units

5. Afford scope for realizing synergistic benefits

Disadvantages

1. Shatter employee morale

2. Create monopoly and concentration of economic power

3. Cultural conflict with new management

4. Hidden liabilities of target company surface.

Strategic Alliances

Strategic Alliances (develop new products/ enter new markets/technology sharing/use of

production facilities/marketing on another‟s product/etc.) - This is a partnership formed by 2

or more corporations to achieve strategically significant objectives that are mutually

beneficial.

Types Of Strategic Alliances

Non Equity Form Of Alliance : Agree to work together on strategic activities, but do

not buy equity stock in each other firm or form an independent firm. They are

typically contracts- Supply/distribution agreements

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Equity Form Of Alliance: Cooperating firms support contracts with equity holding in

alliance partners – GM imports small Isuzu cars and also bought 34.2% of Isuzu

equity stock

Joint Ventures -Cooperating firms create a legally independent firm in which they

invest and share profits

Reasons of forming

1. Obtain and manage technological change – Texas Instruments and Hitachi –conduct

joint research and later manufacture memory chips.

2. Facilitate entry to foreign markets- Motorola and Toshiba – Japanese cellular

telephone market(easy to get radio frequencies for its mobile communication systems)

3. Sharing risk {Boeing – alliance with Japanese – Fuji, Matsushita, Kawasaki to

develop Boeing 777- billions of dollars as cost -sought to minimize risk with alliance.

4. Economies of scale-by sharing of resources

5. To learn important skills and abilities – GM-Toyota - gm to learn high quality small

cars.

6. Mutual benefits.

JOINT VENTURES

Lynch - joint venture is a “cooperative business activity, formed by 2 or more

separate organizations for strategic purposes, that creates an independent business

entity and allocates ownership, operational responsibilities, and financial risks and

rewards to each member, while preserving their separate identity/autonomy.”It can be

temporary, disbanding after the project is finished, or long term.

Limited and specific JV - partners agree to cooperate in a limited and specific way ex

small business firms are manufacturing-selling through a big firm which has wide

distribution network

Separate joint venture - start a separate jv by owning shares in the joint venture

Business partnership - partners may completely merge their businesses – not very

popular

Advantages of JV

1. Accessing of new markets and distribution networks

2. Sharing of risks with partners

3. Sharing huge development cost with partners

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4. Gaining entry into foreign markets

5. Obtaining new technological knowledge, etc.

Disadvantages

1. Loss of control to other firms

2. Absence of proper coordination between/among partners

3. Difference of culture and customs of both partners

4. Lower profits

5. Lack of sufficient leadership and support in early stages.

6. No uniform objectives(partners may have different purposes of JV which are not

shared)

Stability Strategy: Refers to a strategy {same production level/customer groups/tech, etc.}

which a firm pursues for a long term as it has benefitted from it immensely. Obviously, the

firm operates in a stable and predictable environment and finds no reason why it should

change a strategy which has stood the test of time {ex. Small businesses where the owners

are content with small successes}.

Types Of Stability Strategy

1. Pause And Proceed With Caution: this strategy is pursued by the firm before striking.

It is expecting major changes in its environment and before initiating any action wants

to wait and watch. 1993, DELL followed this strategy until the resources –people and

other facilities – were in place and then beat COMPAQ and IBM by selling PCs at

lower price ($ 2 billion – 95 countries).

2. No Change Strategy: Same as above.

3. Profit Strategy: Strategy to do nothing new in worst business environment, but

assumes that the problems are only for a short period and they will go away when

time passes. In this situation, firm attempts to maintain profits by artificial measures

by adopting a profit strategy. For ex. When company sales are declining – firm

reduces investment, reduce waste, raise prices slightly, etc. get through a temporary

worst situation and try to avoid announcing it to stakeholders-cannot be used for long

run. Usually top management‟s passive short term and often self servicing response

to temporary worst situation

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Retrenchment Strategy And Portfolio Restructuring (Combination Of The All

The 3 Strategies)

Retrenchment strategy is adopted when the organization is performing poorly – sales are

down, profit is declining, high employee turnover, low morale, etc. Retrenchment is a

corporate level strategy that seeks to reduce the size of the firm‟s operation. Organizations try

to reduce cost of operations and improve activities - reduction in no of employees, closing

down/outsourcing unprofitable plants/ activities, sale of assets, QC implementation, etc.

Primary objective being to stabilize the financial condition of the firm.

Types of retrenchment strategies

1. Turnaround Strategy: A firm‟s profit may show declining trend due to

external/internal reasons. Managers believe that concentrated efforts over a period of

time can rescue the firm from the ongoing crisis. This idea is known as turnaround

strategy. This can be achieved by cost reduction, asset reduction or both. Cost

reduction = Workforce slimming, reducing debt, procuring equipments on lease rather

than buying, minimizing promotional expenses, etc. Asset reduction= sale of surplus

land, equipment, building, etc.

2. Divestment Strategy: This involves the sale of a firm or a part (product/division) of

the firm. Divestment is usually decided when a retrenchment fails to accomplish the

desired turnaround in a planned period or when a nonintegrated business activity

achieves a usually high market value.

Options For Divesting -1.Selling A Business Unit To Independent Investors (Spin-

Off) – This can be followed when a saleable unit is profitable and the stock market

has an appetite for new issues of stock (from seller perspective – contraction; buyer –

expansion) Here current shareholders are issued a proportional number of shares in

the spin-off business. For ex. 10 shares in ABC ltd. A is spin off then shareholder will

have 10 shares in A ltd. Now choice of retaining ownership in sold business is with

shareholder –does not work well with spin-off unit is unprofitable . 2. Selling A

Business Unit To Another Company: Here the company divesting an unprofitable

business to another company should analyze for what sort of company would this

business be a good fit and under what conditions would it be viewed as a good deal.

By doing so a company may fetch premium on current value of assets. If it cannot

find buyer then it can close /liquidate.3. Selling A Business Unit To Its Management

(Management Buyout-Mbo): Management raises the required finance from the sale of

high-yield bonds to public. The bond issue is done through a buyout specialist.

Buying a company with borrowed funds is known as leveraged buyout (LBO)

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3. Bankruptcy Strategy: This situation occurs when a company‟s financial statement has

shown an unabated decline in profits for 7 quarters. Finds it difficult to pay bills as

they become due, suppliers reject to supply without cash payment, customers going

away, etc. Bankruptcy involves legal protection against creditors or others allowing

the firm to restructure its debt-obligations or other payments, typically in a way that

temporarily increases cash flows. Top management hopes that once the court decides

the claims on the firm, then the firm will be stronger and better able to compete in a

more attractive industry. For ex. After September 2001, hijackings & tragic events,

many US airline filed for bankruptcy to avoid liquidation (stymied demand for air

travel/rising fuel prices) – one airline asked court permission to permanently suspend

payment to its employee pension plan

4. Liquidation Strategy: This involves selling of the entire operation. In this strategy

there is no future for the firm, employees are exited, land, buildings, plant, equipment

sold; customers no longer have access to product/services. This is the last

retrenchment strategy which is most unpleasant and painful. Nonetheless in hopeless

situations this is beneficial over bankruptcy – board of directors and top management

make the decision instead of turning it over to the courts whose decision may ignore

equity shareholders or owners. The liquidating company usually tries to develop a

planned and orderly system that will fetch in the greatest possible return and cash

conversion as the company slowly relinquish its market share

5. End Game Strategies/Harvesting: This takes a middle course between preserving the

status quo (existing state of affairs) and exiting as soon as possible. These strategies

involves getting bigger near-term cash flows and deploy this in other business.

Operating budget is reduced to rock bottom level; minimum reinvestment; capital

expenditure on equipment is put on hold; slowly reduce promotional expenditure;

reduction in product quality in not so visible ways, etc – This in no way controls the

shrinking market share but help in increasing profit after tax. By showing bigger cash

flows not profit, firm can harvest the business

Combination of the above - Here firms use a combination of the retrenchment strategies.

Suppose a firm is planning to divest its unprofitable business. In process of finding the buyer,

buyer may not buy all assets (some assets

Corporate Restructuring: The concept of restructuring involves embracing new ways of

running an organization and abandoning old methods. It is the act of partially dismantling and

reorganizing a company for the purpose of making it more efficient. It generally involves

selling off portions of the company and making severe staff reductions. Restructuring is often

done as part of bankruptcy or takeover or by a new CEO hired specifically to make difficult

and controversial decisions required to save or reposition the company

Business Level Strategy

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Nature Of Business Level Strategy: Business level strategy pertains to each business

unit/product line. It focuses on how the business unit competes within its industry for

customers. It includes all the moves and approaches a firm has taken/is taking to

1. Attract buyers

2. To withstand competitive pressures

3. To improve its market position.

Types Of Business Level Strategies: These strategies can be broadly divided into the

following 3 categories:

1. Striving to be the overall low-cost producer in the industry { a low-cost leadership

strategy}

2. Seeking to differentiate one‟s product offering from rival‟s products {differentiation

strategy}

3. Focusing on a narrow portion of the market rather than the whole market { a focus or

niche strategy}

1. Cost Leadership (Low Cost) Strategy: A firm can achieve a cost leadership position

only when it is able to produce or provide goods/service at lower unit cost than their rivals.

(not lowest possible cost!)

Cost advantage in performing value chain activities

Economies of scale – large volumes

Learning Curve Effects – the benefits arising from experience of firm personnel

Cost of Key Resource Inputs: the prime resource input for manufacturing is raw

material and second is labor. Usage of these 2 in the best possible manner increases

production and reduces per unit production cost.

2.Differentiation Strategy: Firm creates a product /service that is perceived industry wide

as unique and valued by customers. – multiple features (Microsoft Windows vista), product

reliability (Johnson&Johnson baby products), one stop shopping (Amazon.com), Innovation

(Samsung Cellular phones)

Value chain provides differentiation

Supply chain activities – performance of end product

manufacturing activities – reduce product defects, extend product life

outbound logistics & distribution – faster delivery, lower shipping costs

R & D production & tech - reduce wastage, improve quality

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marketing, sales and customer service - better product information, faster

maintenance and repair service

3.Focus Strategy/Niche Strategy: A firm that adopts this strategy selects a segment and

tailors its strategy to serve them. Here a firm focuses its efforts and resources on a narrow

defined segment of market – exploitation of a particular market segment that is different from

rest of industry. Trying to concentrate on many segments may divert the attention of the

company.

What is a segment? A segment may be defined by geographic uniqueness or by special

product attributes. For ex. Google – specialist in internet search engine software, eBay –

online auction.

A firm that adopts this strategy selects a segment and tailors its strategy to serve them. Here

a firm focuses its efforts and resources on a narrow defined segment of market – exploitation

of a particular market segment that is different from rest of industry. Trying to concentrate on

many segments may divert the attention of the company. Variants of Focus Strategy: A.

Focused low cost strategy: gains competitive advantage by serving buyers at a lower cost

than rivals. B. Focused differentiation strategy: gains competitive advantage by serving

buyers with differentiated products which are suitable to target buyers.

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UNIT 5 – IMPLEMENTATION OF STRATEGIES

ACTIVATING STRATEGY

The strategic management process does not end by deciding a strategy. The strategy

must be translated into actions. This phase is known strategy implementation or

activating strategy

Strategy implementation refers to how a company should create, use and combine

organizational structure, control systems and culture to pursue strategies that lead to

competitive advantage and superior performance.

What Is Forward And Backward Linking?

Forward Linking

Managers may formulate strategies that demand additional resources( creating, using and

combining resources) and changes in existing organizational structure and culture as per the

requirements of strategy. Here there is no strategy fit between the resources required to

implement strategy and available resources. Available resources are less. This helps the

organization to decide what changes are needed to be made in the future while implementing

the strategies

Backward Linking

Here strategy formulation depends on existing resources and organization structure and

culture. Here manager tries to formulate and implement strategy within the available

resources, structure and culture.

It can ensure organization success, since there is “strategic fit.”

ACTIVITIES INVOLVED IN STRATEGIC IMPLEMENTATION

1 Establishing Annual Objectives - along with formulating long term objectives (VISION),

the firm should establish short term (annual) objectives which should be communicated to all

the employees down the line. These help to (1) decide the basis of resource allocation (2)

Monitor progress (3) Establish organizational, divisional and departmental priorities

2. Devising Plans - Devising plans are very important - all corporate level strategies should

lead to plans without which there is no possibility of achieving objectives {a firm targets to

acquire another firm, then plans of acquiring stock}

3. Programs – Programs {of complex goals, policies, procedures, rules, task assignments,

steps to be taken, resources to be employed and other elements necessary to carry out a given

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course of action} are ordinarily supported by budgets.{ for ex. PepsiCo (New York based)

program to have about 1,00,000 acres of Florida orange trees in India within 4 years,

producing estimated 2 million tonnes of fruit.}

4. Projects: Programs should become projects – when firm studies their feasibility. A project

requires huge capital investment and have gestation economic period over which it generates

cash flows. For ex. PepsiCo project – in India is a project which involves crores of rupees and

generates benefits to over a long period (roads, employee housing, electricity etc.)

Companies in actual may not make a distinction among plans, programs and projects

5. Budgets: A budget is a statement of expected results expressed in numerical terms –

expressed in financial terms, units of products/sales/raw materials, etc. Budget preparation

begins after project finalization.

6. Rules: Rules spell out specific actions. They allow no deviation from stated course of

action. For ex. Mergers need govt and shareholders permission.

7. Resource allocation: Resources – finance, physical, human or social, information

knowledge, organizational process, tech factors- help to create value to customers.

These resources can be grouped into 3 categories:

1. Tangible – touched and seen – (A) physical {land, buildings, equipment, inventory

(B) financial {capital/money account receivables}

2. Intangible – cannot be touched and seen – brand name, experience/capability of

employees/ patents etc.

3. Organizational capabilities – deploy tangible and intangible resources over time to

achieve their objectives/

Resource allocation is the process of allocating resources to various divisions/departments/

SBU. It is a central management activity that allows strategy implementation – avoids

allocation to be made on a subjective basis and enables resources to be allocated according to

priorities established by annual plans.

Techniques Of Resource Allocation

1 BCG Matrix

The Boston Consulting Group Matrix is a tool for strategic planning and resource

allocation. Matrix is developed on the basis of 2 factors:

1. Relative competitive position {relative market share}

2. Industry growth rate { business growth rate}

STARS are the products that are rapidly growing with large market share. They earn high

profits but require substantial investment to maintain their dominant position in a growing

market

CASH COWS are the businesses with a high market share and limited growth. These

generate substantial profits and cash flows but their investments are minimal.

DOGS are the businesses/products with low market share and limited growth prospects. They

need to be divested or liquidated

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QUESTION MARKS are the businesses/products whose relative market share is low but

have high growth potential. These products require additional resources to improve their

market share. They have potential to become stars.

Cash cows and dogs do not require investment but stars and question marks require additional

investment. With BCG matrix, management can transfer financial resources from cash cow

and dog to stars and question mark category business.

2. GEs Stoplight Matrix

General Electric Company of US with assistance of McKinsey consulting firm,

developed a more complicated matrix – GE Portfolio matrix/Nine-Cell Grid. This

helps in guiding resource allocation.

Analysis is based on 2 factors – business strength and industry attractiveness

Fund requirement is determined on the rating in terms of the business strength and

industry attractiveness. Businesses favorably placed need substantial commitment of

funds; unfavorably placed need no investment, those placed between favorable and

unfavorable need modest investment

Project Implementation - Involves decisions regarding the project to be undertaken in future

and to see that they are properly executed. Different phases are

1. Conceptual Stage: Environmental scanning reveals various potential opportunities

(categorized into various projects) – cannot take up all simultaneously. Organization

has to chose an appropriate opportunity for further development

2. Analyzing Stage: after identifying a project, detailed analysis (technical, financial,

marketing, legal, etc.) has to be made regarding feasibility. Project feasibility report

has to be prepared to decide whether the project can be taken up or not for further

action

3. Planning Stage: Once project is decided to be feasible, the organization should begin

planning and organizing the project. The plan should mention in detail regarding –

infrastructure, finance, manpower, etc. needed for establishment of the proposed

project.

4. Implementation Stage: activities needed to accomplish the project are put to action at

this stage. Various contracts are entered into. Test trials are undertaken to ensure that

the project is ready for the final take off.

5. Launching Stage: Implementation stage ensures that the project is ready for

operation. At the launching stage, project is handed over for the actual execution to

those involved in its operation.

Procedural Implementation - Includes approval of state/central govts; procedural framework

comprises of legislative enactments, and administrative orders apart from policy guidelines

released by concerned govt from time to time. The prime and common regulatory elements of

procedural implementation are:

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1. Formation Of Company: It is governed by the provisions of the Companies Act ,

1956. { promotion, registration of company with Registrar of Companies (ROCs)

and flotation of required capital.}

2. Licensing Procedures: License is the written permission from the govt to a company

to manufacture a specified product included in the schedule. A firm need to be applied

to Industries (Development and Regulation) Act, 1951 (IDRA) for license. Govt

grants license under Sec.30 of IDRA. After 1991, licensing abolished {except

security, defence, env concern, etc.}

3. SEBI Requirements: Security Exchange Board of India, 1992, replaces Capital Issues

Control Act, 1956, and it is dealing with capital markets. SEBI is promoted to protect

the interests of investors. It has comprehensive powers in Indian Capital Market.

4. FEMA Requirements: Any firm which is planning to deal with foreign supplier or

consumer need to fulfill certain procedures under Foreign Exchange Management

Act, 1999. FEMAs main objective is to consolidate and amend the law relating to

foreign exchange with a view to facilitate external trade.

5. EXIM Policy Requirements: export and import requirements need to be fulfilled in

strategy implementation stage. Any firm which is planning to import raw materials or

input or fixed assets and planning export goods or provides services to foreigners is

under Exim policy regulations

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6. Patents And Trademarks Requirements: Any company which has developed

innovative product or process can obtain patents against it under Patents Act 1970 and

the Patents Rules 1972 Section 47 of the act confers patents to the patentee if eligible.

Any company planning to produce products/services under some foreign company

brand name has to get trademarks. Thus any business strategy that involves –patent,

copyright, trademark and design need to get permission

STRUCTURAL IMPLEMENTATION

Structural Considerations

Organization structure is the formal system of task and authority relationship that control how

people coordinate their actions and use resources to achieve organization‟s goals. The

principle purpose of organization structure is one of control; to control the means used to

motivate people to achieve these goals.

7s framework of McKinsey

The McKinsey Company is a well known management consulting company of US. It has

given a popular model known as 7-S framework for the success of organization. The 7-S

model advocates that whenever there is a change, there must be proper blend of these 7 S‟s:

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strategy, structure, systems, style, staff, shared values and skill. These 7 elements are

distinguished as hard S‟s and soft S‟s. The hard elements are feasible and easy to identify

and are found in strategy statements, corporate plans, organizational charts, and other

documentations. The soft elements are hardly feasible. They are difficult to describe since

capabilities values and elements of corporate culture are continuously developing and

changing. And are more difficult to plan or influence.

THE HARD S‟s - STRATEGY: Long-term decision aimed at gaining competitive advantage

for the organization. Strategy must give scope for modification to suit environmental

changes. STRUCTURE: Shows authority and responsibility relationship between the people

working at different levels. It is a chart that explains who reports to whom. It clearly shows

how the tasks are subdivided and integrated. Based on the change in the strategy, structure

must also be altered.SYSTEMS: Several activities are involved in daily operation of a

business. Flow of activities should follow a system for an effective accomplishment of

objectives. Proper system avoids confusion and duplication of work. Changes made in the

structure should be incorporated in the system of operation.

SOFT S‟s – less tangible, more cultural in nature

STYLE: The leadership style adopted by the management goes a long way in attaining

organizational goal. How managers act is more important than what managers say. Managers

behaviour influences the behaviour of their subordinates. SHARED VALUES: Beliefs,

mindset and assumptions of the organization which has an impact on the overall corporate

culture. Shaping the minds of people to adjust to the changed environment is more essential.

It is the belief and value system that takes employees and organization to newer heights.

STAFF: Acquiring and developing employees is vital in the organizational success.

Committed workforce is an asset to the organization. They must be motivated to contribute

their maximum efforts for the development of the organization. Quality and quantity of

workforce should change to suit the demanding situation. SKILLS: Organizational skills,

capabilities and competencies help the organization to gain competitive advantage. These

strong qualities must be polished and strengthened to maintain competitive advantage over a

long period of time.

Structures For Strategies

Types Of Organization Structure

1. Entrepreneurial Structure: Simple structure, owner-top level, employees-lower level. Ex.

Small scale units/small organizations-single or narrow product line-owner makes all

decisions. Highly centralized and informal and coordination by direct supervision

2. Functional Structure: Organization is departmentalized on basis of function. Single

product/service- stable environment, pursues low cost or focused business strategy. The

functions of all these depts are coordinated by the chief executive of the organization.

ADVANTAGES: permits division of labor and specialization/top mgt can concentrate on

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strategic issues, fn heads take care of respective activities/ eliminates duplication/ dev in

specialized area. DISADVANTAGES: lose sight of organization as a whole

3. Divisional Structure-It can be organized in 1 of 4 ways- geographic area, products,

customer or by process. When organizations grow into unrelated products/services for

different markets then a divisional structure is used. A divisional structure encompasses a set

of relatively autonomous units (relatively independent and consists of different

products/services) governed by a corporate office. ADVANTAGES: Clear accountability of

each unit/enhance quick response to changes in external environment. DISADVANTAGES:

Coordination tough, give rise to divisional conflicts, differences in image and quality may

occur across divisions,

4. Strategic Business Unit (SBU) Structure: SBU structure groups similar products, markets

and/or technologies into homogenous groups in order to achieve synergy. ADVANTAGES:

Planning and control by corporate office more manageable/greater decentralization of

authority/helps individual business to respond to changes DISADVANTAGES: Corporate

office may become unaware of key developments that could impact on the corporation/create

unhealthy competition for corporate resources/may be difficult to achieve synergies across

SBUs.

5. Organizations Of The Future-Matrix - The matrix organization structure operates on dual

channel of authority, performance, responsibility, evaluation and control. Three features of

matrix: 1. there are managers who report to different matrix bosses 2. there are matrix

managers who share subordinates 3. there is the top manager who is expected to head the

dual structure and balance and adjudicate disputes.One chain of command is exercised by

functional managers, authority flows vertically. Second line of command is exercised by

project managers, line of command flows horizontally. Because lines of command flow

vertically and horizontally, matrix design is also called the “multiple command” system.

ORGANIZATIONAL DESIGN AND CHANGE

Organization design is the process by which managers select and manage elements of

structure so that an organization can control the activities necessary to achieve its goals. It is

about how and why various means are chosen. It is a task that requires managers to strike a

balance between external pressure from the organization‟s environment and internal pressure.

Importance Of Organization Design

1. Dealing with contingencies (an event that may occur and must be planned for): The

design of the organization determines how effectively an organization controls

various factors and obtains scarce resources. Might change employee task

relationships or change the way organization relates to other organizations (ex. joint

ventures)

2. Gaining competitive advantage (ability of the company to outperform others because

its managers are able to create more value from the resources at their disposal): This

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comes from a firm‟s competencies, manager‟s skills and abilities in value creation

activities such as manufacturing, research and development or organization design. It

is much more difficult to imitate good organizational design as structure is embedded

in the way people in the organization interact and coordinate their actions to get a job

done.

3. Managing diversity: An organization needs to design a structure to make optimal use

of the talents of a diverse workforce and to develop cultural values that encourage

people to work together.

4. Efficiency and Innovation: Organizations exist to produce goods and services that

people value. The design and use of new and more efficient organization structures

enable companies to reduce costs/increase quality and thereby become more efficient.

Organizational design plays an important role in innovation - how well they innovate

and how fast the organization can introduce new products.

Key Factors In Organization Design

1. Environmental Factors: These vary in terms of

a. Complexity refers to whether characteristics are few and similar (uniform) or many

and different (varied). Ex Nestle [500 factories in 76 countries/sells 193 nations,

strength 2,10,000]vs Amul.

b. Dynamism relates to whether environmental characteristics remain basically the same

(stable) or change (unstable – demand revision in org design). It also relates to the

need for speed in responding to customers and stakeholders demands.

c. Environmental richness is a function of the amount of resources available to support

an organization. In rich env, resources are plentiful and uncertainty is low because

organizations need not compete for resources and vice versa

2. Strategy Choices: Low cost, differentiation, or focus strategy.

3. Technological Factors: Viewed from complexity 3 types of technology may be

distinguished:

a. Small batch production: products – custom produced to meet customers specification/

or made in small quantities. Here employees have to be given freedom to make their

own decisions so that they can respond quickly & flexibly to the customers request.

flat structure, decentralized decision making.

b. Mass production technology: products manufactured in large quantities- assembly

line. Formalization through rules and procedures becomes the principle method of

coordination – tall structure, decision making centralized.

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c. Continuous production technology: tasks programmed in advance and work process is

predictable, but major problem is to control and correcting unforeseen events before

they lead to disaster- ex. Faulty pipeline/nuclear accident – tallest hierarchy

4. Internal Contingency Factors: Some important internal forces that have an impact on OD:

A. Goals: relative emphasis of an organization‟s goals on flexibility, technical superiority

or efficiency is important in deciding the org structurSize: small – informal, big-

formal

B. Employee characteristics: (1) age: old feel secure in bureaucratic structure, young

reluctant to accept rigid rules & regulations. (2) education: better educated, more

participation in decision making-flexible (3) Intelligence-against bureaucratic rules

(4) experience- new seeks guidance & more control; later less.

ORGANISTIONAL CHANGE

Successful organizational change should be as much about changing the way people think &

behave as about overhauling how they work.

Change is inevitable in the life of an organization. Change also poses formidable challenges

& heralds new opportunities. Organizations that learn & cope with change will thrive &

flourish & others which fail to do so will perish.

Organizational change is the process by which organizations move their present state to some

desired future state to increase their effectiveness.

Characteristically change is:

• Vital if a company were to avoid stagnation.

• A process & not an event.

• Normal & constant.

• Fast & is likely to increase further in the present competitive business etc…

Levels of change

Individual – level change.

Group – level change.

Organizational – level change

Changes in the external environment necessitate structural or behavior modification or both.

A structural change necessitates the use of new technology, method, work system, machines,

etc., and may lead to new responsibilities, new way of working. Behavior modification

becomes necessary because people resist changes. Behavior needs to be modified so that

people have a positive outlook towards new strategies.

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ORGANIZATIONAL SYSTEM

Information System: This refers to the electronic systems for managing inventory, tracking

sales, pricing products, selling products, dealing with customer service inquiries, etc. With

the spread of computers, internet, high-band width fiber optics, digital wireless technology,

the function of IS is moving to center stage in the quest for operating efficiencies and a low

cost structure. Ex. Ability to control information generated by retail scanners – Wal-Mart

most sophisticated retail mall in the world – uses IS to transmit daily sales data to Wrangler

(supplier blue jeans) based on which Wrangler shifts specific quantities of sizes and colors to

specific stores from specific warehouses. It reduces logistics and inventory costs and leads to

fewer stock outs. Computer IS affects every aspect of the business (CAD – manufacturing;

CIM environments product designs and production schedules are linked directly to

manufacturing equipment that increases accuracy, flexibility and speed in delivering

customer orders

CONTROL SYSTEM

Strategy formulation & implementation need the support of the control system to be effective.

Control system is not just monitoring how well the firm and employees are performing; it is

also about appraising employees and motivating by creating incentives and focusing on the

important problems they may confront in an organization. CS can be divided into:

A. Appraisal System: This is evaluating employees performance in the light of

organizational objectives, particularly managerial performance. Appraisal should not be

biased. Prime issues are method and procedure of appraisal. Method: select method based on

strategy – if expansion strategy, then improving value of the firm over a long period is more

relevant. Procedure: Who? ( a person who is closely observing performance) When? and

How? – should be continuous and the results of this should be used to decide promotions,

incentives and motivate employees.

B. Motivation System: This helps to induce desired behavior and encourages employees to

work towards predetermined organization goals. Employees can be motivated by monetary

(increases in salary, payment of bonus, cash award, profit sharing plans- generally lower

level) or non-monetary ( recognition, allowing them to participate in decisions) or both. Ex.

Software – ESOP employee stock option plan.

C. Development System: Just appraising and giving incentives is not enough in the long run.

Firms need to initiate steps to train and develop its employees.

Communication System: Communication of the strategic intent of the plan throughout the

organization is important. Although business executives understand; sales, customer support,

manufacturing and finance many not be aware of the strategic objectives and as they are

instrumental in implementation of strategy they will perform their activities independent of

strategy and hence strategy may fail.

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BEHAVIOURAL IMPLEMENTATION

LEADERSHIP IMPLEMENTATION

Effective strategic implementation depends on the type of leadership available in the

organization. Leadership style refers to behavioural pattern employed by a leader to integrate

organizational and personal interests in accomplishing organizational goal.

According to Koontz and O‟Donnell “it is the followers who make a person leader. An

executive has to earn followers. He may get subordinates because he is in authority but he

may not get a follower unless he makes the people willing to follow him. Only willing

followers can and will make him a leader.

Behaviour of people contributes to the development of corporate culture. It is the positive

attitude that determines the organizational success.

Leadership implementation refers to ensuring the right people in righ positions for strategy

implementation. The ability of the CEO and other top executives are very critical for

successful strategy implementation. Organizations have to make sure that such key positions

are held by the right people.

Functions Of A Leader

1. To make the environment conducive to work

2. Integrates the efforts of the followers and the organizational objectives

3. Performs the function of an intermediary between the top management and work

group

4. Works as an appropriate counselor

5. Creates cooperation among workers

6. Teaches principles of time management

7. Communicates organizational policies to the followers

Important Characteristics Of Leadership

1. It is a personal quality which helps the individual to exert personal influence

2. Leads his group with confidence and authority

3. Motives his group towards organizational goal accomplishment

4. It is the process of directing, guiding and influencing the people to do their best

for objective accomplishment.

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CORPORATE CULTURE

Organization culture can be expected as the complex pattern of beliefs, expectations, ideas,

values, attitudes and behaviors displayed by the employees of an organization. The

organization culture is determined on the basis of the following:

1. Individual initiative: the culture is largely based on the degree of responsibility,

freedom, and independence that individuals of the organization have

2. Clarity of objective: are the people working in the organization clear about the

objectives stated by the organization? If the objective is not clear, positive behavior

cannot be created.

3. Risk taking ability: are the people encouraged to take risk? Or are they aggressive and

innovative?

4. Coordination: are the people working with close harmony?

5. Management support: is communication clear? Do the people get sufficient assistance

and support from the managers

6. Reward system: is the reward system based on real performance? Is there any

partiality or favoritism? Is the system in place practiced in a justified manner?

7. Identity: do the people identify themselves with the organization or with their work

group? It means how belonging they are to the organization.

8. Control: what is the prevailing control system in the organization? Is close

supervision used to control the people?

9. Communication system: does communication follow formal channel of

communication? Is there any scope for 2-way communication

Corporate culture has profound influence on the organization success. A strong culture is

strength to the organization and a weak culture is a hindrance to the organizational growth.

People working in the organization must feel that they are closely belonging ot the

organization. This attitude takes the organization to greater height of success. Therefore

organization must strive to build better corporate culture and values in the minds of the

people to achieve desired goals smoothly and successfully.

CORPORATE POLITICS AND USE OF POWER

Power

Power has been defined as the capacity of the person, team, department or organization to

influence others. Politics is the use of power. Power is an important means to enforce

obedience to the rules, regulations of the organization. Power may be derived on personal or

institutional basis. The use of power may or may not affect the behavior of people in the

desired manner. Power is both functional and dysfunctional.

Sources And Kinds Of Power

Power comes from various sources. To understand the nature of sources, power needs to be

classified. The following are the different kind of powers.

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1. Coercive power: the source of this power is based on fear. Coercive power can be an

individual‟s ability to influence other‟s behavior by punishing their undesirable

power. The coercive power will generally depend on the application or threats of

physical sanctions taking the form of reprimands, closed supervision, cuasing

frustration through restricted movement controlling by force the basic physiological

or safety needs or so. It is one of the most commonly used forms of power.

2. Reward power: it refers to the person‟s ability to influence others behavious by

rewarding their desirable behavior. Employees comply with the wishes or directives

of their superiors, because by doing so they may get positive benefits and rewards for

their compliance.

3. Legitimate power: it is based on the structural position in an organization which can

result in the managers ability to influence the behavior of the subordinates. Further

subordinates may also respond to such influence because they acknowledge the

mangers legitimate right to prescribe certain expected formal behavior. Legitimate

power is a broad concept encompassing both the power to coerce and reward.

4. Expert power it is the individuals ability to influence other behavior on the basis of

recognized competencies, talents or specialized knowledge. In the business scenario,

it can be said that computer professionals, economists, market researchers, tax

consultants, cost consultants and other specialists are able to wield power based on

their expertise in the relevant area.

5. Referent power: it is the individual‟s ability to influence other‟s behavior because of

being respected, admired or liked. This power is used by advertisers in the form of

celebrities endorsing their products

Reward power, coercive power and legitimate power can be said to have

organizational base since the top management can change employees hieararchial

position in the firm which may either reduce or increase their power. Referent and

expert power generally depends upon the individuals personal characteristics such as

his personality, leadership style and knowledge.

POLITICS

If the management is able to use politics by regulating dysfunctional politics better results can

be achieved. The implication of power and politics on behavious and performance can be

understood from the following points

1. Power and politics can be used to motivate executives to work towards

achievement of common goals of the organization

2. Proper use of power and politics lead to employee job satisfaction and better

performance.

3. Power and politics creates a feeling of teamwork among people in the

organization.

4. Referent and expert power provides employee empowerment

5. Counterpower and politics provide employee involvement

6. Power and politics assists in moulding the behavior of workers..

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FUNCTIONAL AND OPERATIONAL IMPLEMENTATION

Functional strategies

Strategy implementation does not end with structural and behavioral implementation.

Functional level strategies are the key for translating grand strategies into action and

achieve desired short-term goals and thereby the corporate goal.

Functional and operational implementation is concerned with coordinating the

functional areas of an organization so that each contributes some value to the product

and support BLS and CLS in accomplishing strategic objectives.

Functional strategies are derived from BLS. Ex. Low cost leadership strategy – all

functional areas have to focus on low cost- finance – raise required capital at least

cost/ R&D – design product attribute that reduces waste, time and production

cost/production dept – utilize the available fixed asset effective and increase capacity

utilization/purchase dept – right quality/cost; marketing minimize distribution cost.

Therefore the key task of functional and operational strategy implementation is to

align-fit the organizational activities and capabilities with its strategies.

The congruence and coordination among the different level strategies is known as

“vertical fit” – congruence takes place between functional (lower) and business

strategy (higher)

On the other hand, different activities that are taking place in one functional level is

known as “horizontal fit.”

Functional Policies And Plans

Strategy to be effectively implemented requires strategic directions to functional and

operational managers with regard to plans and policies to be adopted.

Functional policies provide guidelines to operating managers so that strategies are

implemented; executive time in decision making is reduced, and achieves coordination

across functional areas

Development Of Functional Plans And Policies

1. Production/Operations: The basic objective of POM is to ensure that the

outputs produced have a value that exceeds the combined cost of the inputs

and the transformation process. The important production and operations

strategies are – size/location of facility, type of equipment/tooling, degree &

types of cost control, quality control methods, use of standards, etc.

2. Financial strategy: Financial and accounting strategies of an organization are

concerned with anticipating the required funds at least possible cost, effective

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allocation, and management of funds. Both for investment and to meet

working operations – capital structure, financial planning, leasing or buying

fixed assets, capital investment methods and systems, etc.

3.Human resource strategy- list of primary activities of HR Department

Conduct training programs to develop and build skill

Implement self managing work teams

Implement pay for performance

Conduct TQM training program

Organize employees into quality teams/circles

Hire talented scientists and engineers

Retain talent.

HR are one of the supporting activities in the value chain that help an organization

create more value.

4.Marketing strategy - List of primary activities of marketing function

Provide market information to R&D

Focus on customer

Provide customer feedback on quality

Work with R&D to develop new products

Know the customer.

5.MIS strategy: Information system strategy is no longer an option it is a requirement.

Effective gathering, assimilation and evaluation of internal and external information helps

in gaining competitive advantage. Strategic management process is supported immensely

in many organizations that have effective information system.

Integration Of Functional Plans And Policies

Strategies are formulated at top level of organization structure, and are implemented

by dividing the total operation of an organization into HR, finance, production, R&D,

marketing and MIS.

All activities/functions need to be brought together to achieve the overall goal of the

firm.

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UNIT 6 – STRATEGIC EVALUATION

Nature Of Strategic Evaluation: This is the 6th

step in strategic management process. SM does

not end with strategic implementation. There is a need to see if the implemented strategy is

guiding the organization to achieve the desired goals and objectives.

Benefits of strategic evaluation and control:

1. Proper coordination of tasks between divisions/SBUs/functional managers

2. Checking the assumptions underlying the strategy.

3. Assessing whether these decisions match the intended strategy requirement or not

4. Formulating new strategies whenever there is a need to change as per environmental

changes

5. Motivating employees through performance appraisal and rewards

6. Using control systems to overcome resistance to change

7. Successful culmination of the strategic management process.

Types Of Organizational Control

1.STRATEGIC CONTROL: As there exists a time gap between strategy formulation and

implementation stage, strategic control takes into account the changing environment and

continuously evaluates the strategic management process and if necessary modifies the

strategy to suit the environmental changes. There are 3 types of strategic controls A.

FEED FORWARD CONTROL: Focuses on regulation of inputs to ensure that they meet

the standards necessary for the transformation process. This helps to prevent problems

and can be called as preventive control. B. CONCURRENT CONTROL: This takes place

when the activity is in progress, it ensures that activities produce desired results. It is

called as screening or yes-no control because it often involves checkpoints at which

decisions are taken whether to continue progress, take corrective action or stop work

altogether. C. FEEDBACK CONTROL: This focuses on the output, used when the first 2

are costly/not feasible. This gives information on how effective their planning efforts

were and also the variance between standards and performance. They are post-action

controls

2. IMPLEMENTATION CONTROL -Implementation of strategy is a lengthy process.

Implementation control is designed to assess whether the overall strategy should be

changed in the light of the unfolding events and results associated with the incremental

steps and action that implement the overall strategy

3. STRATEGIC SURVEILLANCE-This is designed to monitor a broad range of events

inside and outside the company that are likely to threaten the course of strategy

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4. SPECIAL ALERT CONTROL-This is needed to thoroughly and rapidly reconsider

organization‟ s strategy based on a sudden, unexpected event.

2. MANAGEMENT CONTOL: This functions within the framework established by

strategy, in which standards are set for major subsystems (divisions/SBUs, projects,

functional units, etc. for ex. Standards like return of investment etc.) within the firm.

3. OPERATIONAL CONTROL - This includes budgets, schedules and key success factors

BUDGETS: An old control technique – ex. Capital budgeting, sales/purchase budget,

cash/expenses budget etc.- lists the detailed cost of each program

SCHEDULING: Numerous interrelating activities have to properly planned, scheduled and

controlled during implementation stage. Help of PERT and CPM.

KEY SUCCESS FACTORS: since control of all factors is impossible, key factors which are

considered important for the success of the organization has to be controlled/monitored. Ex.

Cell phone KSF is technology. Varies with industries.

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UNIT 7 SOCIAL RESPONSIBILITIES

The Company And Its Social Responsibilities

Social responsibility is also called corporate social responsibility (CSR).

According to Keith Davis, „Social responsibility‟ refers to “the businessman‟s decisions and

actions taken for reasons at least partially beyond the firm‟s direct economic or technical

interest.”

The concept of social responsibility is based on the idea that a business functions in the

society and uses the physical and human resources of the society for its operation and hence,

it is under the obligation to serve the society. It is also based on the idea that anything good

done by a business firm for the society is good for the business itself in the long run.

Forces Pressurising Social Responsiveness

1. Government programmes

2. Community interest and demands

3. Environmental concerns

4. Shareholders/investors pressures

5. Competitive advantage

Areas Of Social Responsibility

1. Towards owners of enterprises – payment of fair rate of dividend, maximization of net

present value of business through effective management/supplying of accurate and

comprehensive reports giving full information on the working of the company.

2. Towards workers – Job security with fair wages, bonus, profit sharing, etc. /fair

promotional practices/equal opportunities for growth and development within the

organization.

3. Towards consumers – ensuring product availability in right quantity at right place and

at the right time/ providing good after-sales services/avoiding restrictive trade

practices and other undesirable methods to exploit the consumers

4. Towards the society – providing public amenities and avoiding the conditions of slum

and congestion/participating in social welfare programmes like adopting villages,

providing medical facilities, scholarship to deserving students, etc./ maintain

environment ecology and adopting anti-pollution measures.

5. Towards the government - strictly observing the provisions of various laws and

enactments/ paying taxes and other dues to the government regularly and honestly/

extending full support to the government in its efforts to solve national problems such

as unemployment, inflation, regional imbalance in economic development, etc.

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Social Responsibility For Economic Growth

1. Optimum utilization of resources – as resources are limited in nature,

organizations are expected to use resources in a justified way. They have to be

used for the production of goods/services that are not detrimental to the interest of

society.

2. Producing goods and services efficiently and contributing to economic well being

of society- without wastage. If organizations practice business process

reengineering, they can identify new and improved ways of doing things at

reduced cost. New methods result in work simplification and quality improvement

in the product. All these contribute to the economic well being of society.

3. Providing public amenities and avoiding the conditions of slums and congestion –

organizations are expected to protect the surrounding environment. It cannot

handover this responsibility to the government. It should take initiative to avoid

slums and congestion and pollution of surroundings. Govt can concentrate on

other vital issues

4. Maintaining environmental ecology and adopting anti-pollution measures

5. Participating in social welfare programs

6. Ensuring that the gains of improved production by the organization are shared by

all the constituents of the society.

7. Encouraging voluntary organizations and agencies engaged in improvement of

weaker sections

8. Producing goods to meet the needs of various sections of the society.

9. Encouragement development of small business, import substitution and self

reliance.

10. Helping the weaker sections by providing then an opportunity for growth.

SOCIAL AUDIT

The term social audit means an assessment of how well a company has discharged its social

obligations. A social audit is a systematic study and comprehensive evaluation of an

organization‟s social performance as distinguished from its economic performance. Social

performance here signifies organizational efforts enriching the general welfare for the whole

community and the whole society. It is a document published annually with information on

the activities developed by a company in the area of human and social promotion, directed

towards it employees and community to which it belongs. It is a valuable instrument for

gauging the practice of social responsibility in the company‟s undertaking.

A social audit is a planning tool, a management tool, and a communication tool for an

organization. It is a dialogue desired to find out what is important to the organization and its

stakeholders, to measure what is important and then to report on both the dialogue and the

measurement. It creates a conversation between an organization and its constituents or

shareholders.

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Features Of Social Audit

1. Wide scope: The areas for social audit include any activity which has significant

social impact – environmental quality, consumerism, opportunities for women and

other disadvantaged people in society, etc.

2. Cannot determine the amount of social good: It can determine only what an

organization is doing in social areas, not the amount of social good that results from

these activities. It is a process audit rather than an audit for results.

3. Difficult to audit social performance: because most of the results of social activities

occur beyond the company‟s gate and the company has no means of securing data on

the results. Even if data is available, it is difficult to establish how many of them have

occurred due to company‟s actions.

4. Social audits use both qualitative and quantitative data: Quantitative data are precise

and convincing but in the area of social philosophy and human values, it is misleading

to report only in quantitative terms. They can communicate only a part of the total

situation. Both quantitative and qualitative data are essential. Normally, the firm uses

as much quantitative data as possible and then supplements it with qualitative data.

Need For Publishing Social Audit

1. It is ethical – being fair, good and responsible

2. It adds value – gives the company a reference that is being more and more appreciated

by investors and consumers throughout the world

3. It reduces the risks

4. It is an instrument of modern management – it is a valuable tool for the company to

administrate measure and publicise the practice of social responsibility in its

undertakings

5. It is an instrument of evaluation – market analysts, investors and financing agencies

now include the social audit in the list of documents required to assess a company‟s

risk and projections.

Principles Of Social Audit

1. Multiperspective: Reflects the views of all stakeholders involved with or affected by

the organization.

2. Comprehensive: Reports on all aspects of the organization„s work and performance.

3. Participatory: Encourages participation of stakeholders and sharing of their values.

4. Multidirectional: Stakeholders share and give feedback on multiple aspects.

5. Regular: It aims to produce social audit on a regular basis so that the concept and

practice become embedded in the culture of the organization covering all the

activities.

6. Comparative: It helps to compare its social performance each year and against

appropriate external norms or benchmarks and provide for comparisons with

organizations doing similar work and reporting in similar fashion.

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7. Verification: Ensures that social accounts are audited by a suitably experienced

person or agency with no vested interest in the organisation.

8. Disclosure: Ensures that audited accounts are disclosed to stakeholders and wider

community in the interest of accountability and transparency.

Uses of Social Audit

1. To monitor the social and ethical impact and performance of the organization

2. To provide a basis for shaping management strategy in a socially responsible and

accountable way.

3. To facilitate organizational learning about how to improve social performance

4. To inform the community, public other organizations and institutions in the allocation

of their resources (time and money)

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QUESTION PAPER 1

BBM EXAMINATION, DECEMBER 2009

STRATEGIC MANAGEMENT

Time 3 hours Max. Marks: 90

SECTION A

Answer any 10 questions. Each question carries 2 marks 10 x 2 = 20

1. Define business policy.

2. What is strategic management process?

3. What are exit barriers?

4. What is ETOP?

5. What is strategic alliance?

6. What is strategy implementation?

7. What is corporate structure?

8. What is organizational change?

9. What is strategy review?

10. What is strategic choice?

11. What is social audit?

12. What is ZBB?

SECTION B

Answer any 5 of the following. Each question carries 5 marks 5 x 5 = 25

1. Business polices are the very base of the management process. Explain.

2. Discuss the approaches to strategic decision making.

3. Distinguish between strategic and operational decisions.

4. Explain the Porter model of competitive force.

5. What is SWOT analysis? Explain its importance.

6. What is growth strategy? What are its features?

7. Explain the types of strategic control.

8. What is market segmentation? What are the segmentation strategies?

SECTION C

Answer any 3 questions. Each question carries 15 marks 15 x 3 = 45

1. What is strategic management process? Draw a model of strategic management

process.

2. What is general environment? What are its components?

3. What is structure? Discuss structure for strategies.

4. What is organizational politics? How people gain it?

5. What is operational control? Explain its techniques.

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QUESTION PAPER 2

BBM EXAMINATION, DECEMBER 2010

STRATEGIC MANAGEMENT

Time 3 hours Max. Marks: 90

SECTION A

Answer any 10 questions. Each question carries 2 marks 2 x 10 = 20

1. What do you mean by strategy?

2. What do you mean by business policy?

3. What is strategic planning?

4. Define strategic management.

5. What do you mean by situation analysis?

6. What is stability strategy?

7. What do you mean by SBU?

8. Define the concept of environment.

9. What do you mean by functional strategies?

10. What is organizational change?

11. What is social responsibility?

12. What is KRA?

SECTION B

Answer any 5 of the following. Each question carries 5 marks 5 x 5 = 25

9. What are the objectives of business policy?

10. Explain the reasons for failure of strategic management.

11. Explain the benefits of external environmental analysis.

12. What are the objectives of strategic planning.

13. What is merger strategy? Mention its advantages.

14. What are functional strategies and mention its importance.

15. What is operational control? Mention its merits.

16. What is social audit and mention its importance.

SECTION C

Answer any 3 questions. Each question carries 15 marks 15 x 3 = 45

1. Explain the strategic management process.

2. Explain the major issues in strategy implementation.

3. What is strategic evaluation and explain its methods.

4. Explain the strategic planning process.

5. What is social responsibility and why it is significant?

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QUESTION PAPER 3

BBM EXAMINATION, DECEMBER 2008

STRATEGIC MANAGEMENT

Time 3 hours Max. Marks: 90

SECTION A

Answer any 10 questions. Each question carries 2 marks 2 x 10 = 20

1. What do you mean by business policy?

2. What is strategy?

3. What is mission?

4. What is resource audit?

5. What is economic environment?

6. What is corporate strategy?

7. What is organizational culture?

8. What is KRA?

9. Give the meaning of benchmarking.

10. Mention any 2 social responsibilities towards owners.

11. What is social process audit?

12. List out any 4 techniques of ETOP.

SECTION B

Answer any 5 of the following. Each question carries 5 marks 5 x 5 = 25

1. What are the objectives of business policy?

2. State the benefits of strategic management

3. Name the components of external environment and explain any 2 of them.

4. Briefly explain the benefits of merger.

5. What is 7-S model. Briefly explain.

6. What is importance of strategic evaluation?

7. What are the characteristics of social responsibility>

8. What are the approaches to social audit.

SECTION C

Answer any 3 questions. Each question carries 15 marks 15 x 3 = 45

1. Explain the various classifications of business policy.

2. What is joint venture? Discuss the benefits and limitations.

3. Explain the various steps involved in strategy implementation.

4. Explain the various evaluation techniques of operational control.

5. Define social responsibility. Discuss its significance for business as well as economic

growth of country.

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BOOKS FOR REFERENCE

STRATEGIC MANAGEMENT – G. SUDARSANA REDDY

STRATEGIC MANAGEMENT – P.SUBBA RAO

STRATEGIC MANAGEMENT – C.N. SONTAKKI