MB403D Strategic Management of Technology & Innovation

UNIT 20: Case Study
MB-403D
SE
Strategic Management
of Technology & UP
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Innovation
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Strategic Management of Technology & Innovation
Course Design
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Advisory Council
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Chairman
Dr Parag Diwan
Members
Dr Anirban Sengupta Dr Ashish Bhardwaj
UP
Dr Kamal Bansal
Dean Dean CIO
Dr S R Das Dr Sanjay Mittal Prof V K Nangia

VP – Academic Affairs Professor – IIT Kanpur IIT Roorkee
SLM Development Team

Wg Cdr P K Gupta
Dr Joji Rao
Dr Neeraj Anand
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Dr K K Pandey
Print Production
Mr Kapil Mehra Mr A N Sinha

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Manager – Material Sr Manager – Printing
Author
Neelakantan Tatikonda
All rights reserved. No part of this work may be reproduced in any form, by mimeograph or any other means,
without permission in writing from MPower Applied Learning Enterprise.
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Course Code: MB-403D
Course Name: Strategic Management of Technology & Innovation
Version: July 2013
© MPower Applied Learning Enterprise

UNIT 20: Case Study
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Contents
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Block-I
Unit 1 Strategy........................................................................................................................... 3
Unit 2 Strategic Thinking........................................................................................................ 13
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Unit 3 Evolution of Strategic Thinking................................................................................... 23
Unit 4 Corporate Strategic Planning ...................................................................................... 31
Unit 5 Case Study .................................................................................................................... 47
Block-II
Unit 6 Strategic Objectives ...................................................................................................... 51

Unit 7 Strategic Management ................................................................................................. 61
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Unit 8 Strategy and Technology.............................................................................................. 71
Unit 9 Strategic Management Practice in India .................................................................... 79
Unit 10 Case Study .................................................................................................................... 89
Block-III
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Unit 11 Technology and Innovation .......................................................................................... 95

Unit 12 Technological Innovation System .............................................................................. 103
Unit 13 Managing Technology and Innovation ...................................................................... 113
Unit 14 Strategy and Innovation ............................................................................................ 123
Unit 15 Case Study .................................................................................................................. 133
Block-IV
Unit 16 Strategy Formulation ................................................................................................. 139

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Unit 17 Generic Strategies ...................................................................................................... 151

Unit 18 Strategy Implementation ........................................................................................... 163
Unit 19 Strategy Implementation Approaches....................................................................... 173
Unit 20 Case Study .................................................................................................................. 183
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Block-V
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Unit 21 Strategic Control and Evaluation .............................................................................. 189
Unit 22 Tools for Strategic Planning and Evaluation............................................................ 199
Unit 23 Life Cycle Approach to Strategic Planning ............................................................... 213
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Unit 24 Strategic Management of Technological Innovation ................................................ 225
Unit 25 Case Study .................................................................................................................. 233
Glossary ............................................................................................................................................ 237
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UNIT 1: Strategy
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Notes
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BLOCK-I
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Detailed Contents Strategic Management of Technology & Innovation
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F
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Notes
UNIT 1: STRATEGY
___________________ UNIT 3: EVOLUTION OF STRATEGIC THINKING
z Introduction z Introduction
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z Meaning of Strategy z Annual Budgeting
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z Strategy vs Tactics z Long-range Planning
z ___________________
Characteristics of Strategy z Environmental Scanning
___________________ z Strategic Planning Phase

UNIT 2: STRATEGIC THINKING
z
___________________
Introduction UNIT 4: CORPORATE STRATEGIC PLANNING
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z Meaning of Strategic Thinking
___________________ z Introduction
z Key Elements
___________________ z Meaning of Corporate Strategic Planning
z Attributes of Strategic Thinking z Mission – Vision of the Firm
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z Relevance of Strategic Thinking z Preparation of Vision and Mission Statements
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UNIT 5: CASE STUDY
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UNIT 1: Strategy
Unit 1
3
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Notes
Activity
Strategy Visit___________________
a small business unit and
ask what the meaning of
___________________
strategy to them is and
prepare a report.
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___________________
Objectives
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After completion of this unit, the students will be aware of the following
topics: ___________________
\ Meaning of Strategy ___________________
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\ Strategy vs. Tactics ___________________
\ Characteristics of Strategy
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___________________
Introduction
___________________
Strategy is a high level plan to achieve one or more goals under
conditions of uncertainty. Strategy becomes even necessary when
it is known or suspected there are insufficient resources to achieve
these goals.
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Strategy is also about attaining and maintaining a position of
advantage over adversaries through the successive exploitation of
known or emergent possibilities rather than committing to any
specific fixed plan designed at the outset.
Business-level strategies outline a company’s core competencies.
Core competencies represent a company’s strengths, which they
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use to create market share in the business environment. Core

competencies include good customer service, unique products that
are difficult for competitors to duplicate and the use of a supply
chain to deliver products into the economic market. Business
owners often integrate core competencies into business-level
strategies to ensure a sustainable competitive advantage is
maintained by their company.
Meaning of Strategy
Strategy is a set of key decisions made to meet objectives. It refers
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to a complex web of thoughts, ideas, insights, experiences, goals,

expertise, memories, perceptions and expectations that provides
general guidance for specific actions in pursuit of particular ends.
Nations have, in the management of their national policies, found
it necessary to evolve strategies that adjust and correlate political,
4 economic, technological, and psychological factors, along with
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Notes military elements. Be it management of national policies,
___________________ international relations, or even of a game on the playfield, it
provides us with the preferred path that we should take for the
___________________
journey that we actually make.
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Source: http://www.odonnellstrategy.com/media/strategy.jpg
Figure 1.1: Strategy
Every firm competing in an industry has a strategy, because

strategy refers to how a given objective will be achieved. 'Strategy'
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defines what it is we want to achieve and charts our course in the

marketplace; it is the basis for the establishment of a business
firm; and it is a basic requirement for a firm to survive and to
sustain itself in today's changing environment.
An organization cannot operate effectively without a strategy. The
strategy may have been developed explicitly through a planning
process or it may have evolved implicitly through the operations of
the various functional departments – but in order to function
effectively in the marketplace, the organization must have answers
to these questions:
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z What business are we in? What products and services will we

offer?
z To whom?
z At what prices?
UNIT 1: Strategy
z On what terms? 5
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Notes
z Who are the competitors?
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z On what basis will we compete?
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If the organization asks any of these key questions and it has the
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answers, then there is a strategy in place.
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The definitions given below provide an insight into the diversity of
thinking and changing perceptions on the nature of strategy: ___________________
Chandler: Strategy is the determination of the basic long-term ___________________
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goals of an enterprise, and the adoption of courses of action and the ___________________
allocation of resources necessary for carrying out these goals.
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Learned: Strategy is the pattern of objectives, purposes or goals ___________________
and major policies or plans for achieving these goals, stated in such
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a way as to define what business the company is in or is to be in
and the kind of business it is or is to be.
Andrews: Corporate strategy is the pattern of decisions in a
company that determines and reveals its objectives, purposes, or
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goals, produces the principal policies and plans for achieving those
goals, and defines the range of business the company is to pursue,
the kind of economic and human organization it intends to be, and
the nature of economic and non-economic contribution it intends to
make to its shareholders, customers and communities.
Mintzberg: Strategy is a mediating force between the organization
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and its environment: consistent patterns in streams of

organizational decisions to deal with the environment.
Quinn: A strategy is the pattern or plan that integrates an
organization's major goals, policies, and action sequences into a
cohesive whole. A well-formulated strategy helps to marshal and
allocate an organization's resources into a unique and viable
posture based upon its relative internal competencies and
shortcomings, anticipated changes in the environment, and
contingent moves by intelligent opponents.
Wernerfelt: Strategy is to create a situation where a resource
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position makes it more difficult for others to catch up.

Grant: Strategy is the overall plan for deploying resources to
establish a favourable position; it is less a predetermined program
of investment plans and more a positioning of the firm to permit it
to take advantage of opportunities as they arise.
6 Normann: Strategy is the art of creating value.
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Notes
Activity Prahalad: Strategy is more than just fit and allocation of
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Take an appointment with a resources. It is stretch and leveraging of resources.
marketing executive and ask
him___________________
the practical difference he Teece: The essence of strategy is the search for rents. Strategic
finds in strategy and tactic and
___________________ Management is – or can and should be – the study of rent-seeking
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prepare a slideshow.
___________________ by the enterprise.
___________________ Mahoney: Strategy is a search for balance.

___________________ Porter: Strategy is about being different. It means deliberately
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___________________ choosing a different set of activities to deliver a unique mix of
value.
___________________
___________________ Check Your Progress

___________________ Fill in the blanks:
1. Strategy is a set of key …………………… made to meet
objectives.
2. An organization cannot operate effectively without a
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…………………….
Strategy vs Tactics
Strategy and tactics are both concerned with formulating and then
carrying out courses of action intended to attain particular
objectives. The language of strategic manoeuvre is also largely the
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language of tactics. 'Tactics' follow and facilitate strategy and is

defined as techniques or a science of dispensing and manoeuvring
forces to accomplish a limited objective or an immediate end.
Strategy and tactics are distinct in terms of their dimensions.
Strategy, for the most part, is concerned with deploying resources,
and tactics is concerned with employing them. Strategy deals with
wide spaces, long periods of time, and large movements of forces;
tactics deal with the opposite. Strategy is the prelude to action,
and tactics the action itself. Table 1.1 attempts to summarize the
difference between the two, as there often is confusion about the
distinction between strategy and tactics.
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Despite distinctions in theory, strategy and tactics cannot always

be separated in practice. Strategy gives tactics its mission and
resources and seeks to reap the results. Tactics, then become an
important conditioning factor of strategy, and as the tactics
change, so does strategy. Strategy triggers a movement; a
UNIT 1: Strategy
movement begets an action; and the action results in new 7
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movement. This inter-connectedness between the movement and Notes
the action often merges one into the other. ___________________
Table 1.1: Difference between Strategy and Tactics ___________________
Aspects Strategy Tactics
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Scale of the Objective Grand Limited
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Scope of the Action Broad and General Narrowly Focused
Guidance Provided General and Ongoing Specific and Situational ___________________
Degree of Flexibility Adaptable, but not Fluid, quick to adjust
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hastily changed and adapt in minor or
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major ways
___________________
Timing in Relation to Before Action During Action
Action ___________________
Focus of Resource Deployment Employment
Utilization
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There is a unique relationship between strategy and tactics. Every ___________________
tactic can be a significant strategic opportunity. It is necessary to

understand the difference between strategy and tactics, as this can
be a strategic edge to the organization. It gives us the ability to
have the ultimate position of the organization and the particular
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strategy in mind while executing any tactic. This competency can
enhance the organization's effectiveness without any investment.
For example, assume the strategic position of the company is: "To
be the best known, most trusted and respected company in the
target market." If that is our overall goal, then we have to ask
what our tactics do to achieve this important goal. If our
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salesperson is simply trying to make a sale, then he is operating

only tactically.
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Source: http://www.softwareag.com/corporate/images/ARIS_Strategy_KeyVisual_269x217_t
cm16-79368.jpg
Figure 1.2: Strategy

8 If he can think strategically, he must ask "What should I do to sell
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Notes the product and make the customer believe my company is the best
Activity
With___________________
the help of internet, find in the market?" If he can accomplish this objective in his sale, he is
out a case study of strategy improving the effectiveness of the organization at no cost to the
and___________________
try to identify the
characteristics of a strategy organization. If not, he is just chasing the sale of the day, and not
and___________________
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prepare a presentation. building anything sustainable for the organization. This is difficult
___________________ as most business executives, even from the biggest firms in the
___________________ world, are so tactical that they often find it difficult to differentiate
between strategy and tactics.
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___________________ 1. Strategy and tactics are distinct in terms of their
___________________ ………………….
2. Every tactic can be a significant ………… opportunity.
3. Strategy and tactics cannot always be ……………… in
practice.
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4. There is a unique ………………… between strategy and
tactics.
Characteristics of Strategy
Business strategies help companies create a competitive advantage
in the marketplace. Corporate, department and business-level
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strategies are commonly used by business owners to create a

competitive advantage.
Corporate strategies provide direction when the company enters
new economic markets. Department strategies outline specific
goals for individual business departments. Business-level
strategies focus on a specific function that can increase a
company’s market share and profitability.
The definition of strategy suggests the following characteristics:
1. Strategy is the right combinations of factors. This requires not
only the isolation of the components of the situation, but also
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an evaluation of their relative importance.

2. Strategy relates the business organisation to its environment.
Strategy decisions are primarily concerned with external,
rather than internal, problems of the organisation.
UNIT 1: Strategy
3. Strategy is relative. It is an action to meet particular 9
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conditions, to solve a certain problem or to attain a desired Notes
objective. It may take many forms, for almost every situation ___________________
varies and, therefore, requires a somewhat different approach.
___________________
4. Strategy may require contradictory action. A manager may
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take a course of action today and revises or retraces his steps
tomorrow because of changes in situations. ___________________
___________________
5. Strategy is forward looking; it has to do orientation towards
the future. Strategy is required in a new situation. Nothing ___________________
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new requiring solution can exist in the past, so strategy is ___________________
relevant only to the future.
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6. Strategy is ubiquitous. It can be found at the highest levels of
___________________
corporate, governmental, military and organizational
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endeavour and in small, medium and large units. It is used to
define the basis for competition and it can give rise to
collaboration and cooperation. It can even be found guiding
and explaining individual initiative. It is everywhere.
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7. Strategy is an abstraction, a construct. It has no concrete form
or substance. At best it can be communicated in words and
diagrams. But, just as "the map is not the territory," the words
and diagrams used to communicate strategy are not the
strategy they convey.
8. Strategy is the art of the general. It is broad, long range and
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far reaching. In part, it is about the preparations made before

battle, before the enemy is engaged. But it is also about
avoiding battle and making combat unnecessary. It is as much
about destroying the enemy's will to fight as it is about
destroying the enemy in a fight. If that sounds too militaristic,
consider the business parallel: a firm that raises such
formidable barriers to entry that would-be competitors throw
up their hands and walk away. In short, destroying the will to
compete differs little from destroying the will to fight.
9. Strategy is a general plan of attack, an approach to a problem,
the first step in linking the means or resources at our disposal
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with the ends or results we hold in view. Tactics, of course, is

the second step. Strategy is concerned with deploying
resources and tactics is concerned with employing them.
Without some goal, some end in view, there can be no strategy
and tactics will consist of aimless flailing about-action for the
10 sake of action. Strategy, then, is relative, which is to say that
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Notes it exists only in relation to some goal, end or objective. If
___________________ someone asks us, "What is your strategy?" be sure to reply, "In
relation to what?"
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___________________ 10. Strategy is direction and destination. At one and the same
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time strategy says, "We are headed there - by this path." Yet,
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as noted earlier, it is also ruse and deception; that is, our
___________________ strategy takes us down a path with many branches and only
___________________ we know our destination and the choices we will make as we
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are confronted with them. In short, strategy is a way of
___________________
confounding our enemies or, in less warlike terms, our
___________________
competitors.
___________________
11. Strategy is a set of decisions made. What business are we in?
___________________ What products and services will we offer? To whom? At what
prices? On what terms? Against which competitors? On what
basis will we compete?
Check Your Progress

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Fill in the blanks:
1. Business strategies help companies create a ……………
advantage in the marketplace.
2. Corporate strategies provide direction when the
company enters new ……………… markets.
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Summary
Strategy is the pattern of objectives, purposes or goals and major
policies or plans for achieving these goals, stated in such a way as
to define what business the company is in or is to be in and the
kind of business it is or is to be. The essence of strategy is the
search for rents. Strategic Management is – or can and should be –
the study of rent-seeking by the enterprise. Strategy and tactics
are distinct in terms of their dimensions. Strategy, for the most
part, is concerned with deploying resources, and tactics is
concerned with employing them.
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Strategy is a general plan of attack, an approach to a problem, the

first step in linking the means or resources at our disposal with the
ends or results we hold in view. Tactics, of course, is the second
step. Strategy is concerned with deploying resources and tactics is
concerned with employing them.
UNIT 1: Strategy
Lesson End Activity 11
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Notes
Visit a small business unit and design strategies for its future
___________________
growth with the help of officials.
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Keywords
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___________________
___________________
Competency: The quality of being adequately or well qualified
physically and intellectually. ___________________
Opportunity: A set of circumstances that makes it possible to do ___________________
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something. ___________________
Strategy: Strategy is a high level plan to achieve one or more ___________________

goals under conditions of uncertainty.
___________________
Tactic: A tactic is a conceptual action implemented as one or more ___________________
specific tasks.
Questions for Discussion

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1. What do you mean by strategy?
2. Differentiate between strategy and tactics.
3. “Strategy is direction and destination”. Comment.
4. What are the characteristics of a Strategy?
5. “Strategy is ubiquitous”. Explain how?
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Further Readings
Books
White Margaret Alice (2010), “The Management of Technology and
Innovation: A Strategic Approach”, Cengage Learning.
Christensen.Clayton (2008), “Strategic Management of Technology
and Innovation”, McGraw-Hill Education.
Dicke. Wilhelmina Margaretha (2005), “Managing Technology and
Innovation: An Introduction”, Routledge.
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Web Readings
http://www.freemba.in/articlesread.php?artcode=1196&stcode=7&s
ubstcode=60
http://en.wikipedia.org/wiki/Strategy
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Notes
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UNIT 2: Strategic Thinking
Unit 2
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Notes
Strategic Thinking
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___________________
Objectives
___________________
topics: ___________________
\ Meaning of Strategic Thinking ___________________
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\ Key Elements of Strategic Thinking ___________________
\ Attributes of Strategic Thinking
___________________
\ Relevance of Strategic Thinking
___________________
___________________
Introduction
Strategic thinking is defined as a mental or thinking process
applied by an individual in the context of achieving success in a
game or other endeavour. Strategic thinking includes finding and
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developing a strategic foresight capacity for an organization, by
exploring all possible organizational futures, and challenging
conventional thinking to foster decision making today. Recent
strategic thought points ever more clearly towards the conclusion
that the critical strategic question is not the conventional “What?”,
but “Why?” or “How?”. The work of Henry Mintzberg and other
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authors further support the conclusion; and also draw a clear

distinction between strategic thinking and strategic planning,
another important strategic management thought process.
While there is no generally accepted definition for strategic
thinking, no common agreement as to its role or importance, and
no standardised list of key competencies of strategic thinkers; most
agree that traditional models of strategy making, which are
primarily based on strategic planning, are not working. Strategy in
today's competitive business landscape is moving away from the
basic ‘strategic planning’ to more of ‘strategic thinking’ in order to
remain competitive.
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However, both thought processes must work hand-in-hand in order

to reap maximum benefit. It has been argued that the real heart of
strategy is the 'strategist'; and for a better strategy execution
requires a strategic thinker who can discover novel, imaginative
strategies which can re-write the rules of the competitive game;
14 and set in motion the chain of events that will that will shape and
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Notes "define the future".
Activity
___________________
Draft an article on the
meaning of strategic thinking.
___________________ Meaning of Strategic Thinking
___________________ As 'change' becomes increasingly frequent, it makes it more and
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___________________ more difficult to define a strategic direction for an organization.
Because the future is progressively uncertain and does not follow
___________________
any predictable path, increasing competition, forces of
___________________ globalization, the regulatory environment, customer choices,
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___________________ innovations and technological changes make it essential to
continuously evaluate and update strategies.
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Corporations in the 21st century have to look for a more flexible
___________________
and dynamic system to meet the demands of the changing external
___________________
environment. Strategic thinking is a process of developing or
examining the assumptions about the future upon which the
organization's mission, goals, and strategy are based, to evaluate
whether they still reflect the realities the organization faces.
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Strategic thinking looks at the vision for the organization and then
works backwards by focusing on how the business will be able to
reach this vision. In doing so, it improves the ability of the
organization to make its business vision a reality.
'Vision' is a long-term perspective of what is the final destination of
the organization. Vision is what keeps the organization moving
forward. Vision is the motivator in an organization. It needs to be
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meaningful with a long term perspective so that it can motivate

people even when the organization is facing discouraging odds.
These are times of change and paradigm shift, where management
no longer has the luxury of resting upon past successes or ways of
doing business. The future is unknown and the world is
continually changing, all business plans and strategies eventually
become obsolete and the assumptions on which they are based
must be re-examined and updated. Therefore, it is not surprising
that strategic thinking has become a critical requirement of the
business process and is a necessary requirement for the modern
organization.
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In strategic thinking, we first seek a clear understanding of the

particular character of each element of a situation. Then we make
the fullest possible use our brainpower to restructure the elements
in the most advantageous way. Phenomena and events in the real
world do not always fit a linear model. Hence the most reliable
means to analyse a situation is to break it up into its constituent 15
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parts and reassemble the constituent parts in the desired pattern. Notes
Activity
This is not a step-by-step methodology such as systems analysis.
Visit___________________
Rather, it uses the ultimate nonlinear thinking tool, the human http://www.forbes.com/2010/1
___________________
brain. True strategic thinking thus contrasts sharply with the 1/09/strategic-thinking-
innovation-creativity-
conventional mechanical systems’ approach based on linear
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___________________
leadership-managing-rein.html
thinking. However, it reaches its conclusions with a real and identify the three keys to
___________________
strategic thinking.
breakdown or analysis.
___________________
Check Your Progress ___________________
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Fill in the blanks: ___________________
1. ………………… improves the ability of the organization ___________________
to make its business vision a reality. ___________________
2. Strategic thinking has become a critical requirement of ___________________

the ………………… process.
Key Elements
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Strategic thinking requires a definition of the problem. We need to
itemize the respects in which the organization requires to change
to have a competitive advantage. Identify the phenomena that
share a common denominator. Combine them into groups. Having
done this, look once again at each group as a unit and ask, 'What
crucial issue does each unit pose?' The source of the problem must
be understood before any real solution can be found, and the
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process of abstraction should bring the crucial issues to light

without the risk of overlooking anything important.
The first stage in strategic thinking is to identify the critical issue
in the situation. In problem solving, it is vital at the start to
formulate the question in a way that will provide a solution. For
example, overtime has become chronic in a company, dragging
down profitability. If we frame the question as: ‘What should be
done to reduce overtime?’ Many answers will suggest themselves:
z Work harder during the regular working hours
z Shorten the lunch period and coffee breaks
(c)
z Forbid long private telephone conversations

Such questioning is a characteristic of organizations using
techniques that involve the participation of all employees. Ideas
are gathered, screened, and later incorporated in the improvement
program. But this approach has an intrinsic limitation. The
16 questions are not framed to point toward a solution; rather, they
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Notes are directed toward finding remedies to symptoms.
___________________ We could frame the question in a more solution-oriented way: ‘Is
___________________ this company's workforce large enough to do all the work required?’
___________________ There can be only one of two answers: 'yes' or 'no'. To arrive at the
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___________________ answer 'yes', we have to compare with other companies in the same
industry, find the historical trend of workload per employee, and
___________________
the degree of automation and computerization and their economic
___________________ effectiveness. On the other hand, after careful perusal of the sales
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___________________ record, profit per employee, ratio between direct and indirect
labour, comparison with other companies, etc., if the answer
___________________
should turn out to be 'no', this in itself would be tantamount to a
___________________
solution of the original problem. The solution is an increase in
___________________ personnel.
That is not the only way the question could have been formulated.
We might have asked it this way: ‘Do the capabilities of the
employees match the nature of the work?’
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This formulation, like the previous one, is oriented towards finding
a possible solution. Here too, a negative answer would imply a
shortage of suitable personnel, which would in turn suggest that
the solution is either in staff training or in recruiting capable staff.
On the other hand, if the answer is 'yes', it indicates chronic
overtime lies in the amount of the workload. Thus, not training but
adding to the workforce would then be the crucial factor in the
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solution.
If the right questions are asked in a solution-oriented manner, and
if the proper analyses are carried out, the final answer is likely to
be the same, even though it may have started from a differently
phrased question and may have been arrived at by a different
route. In either case, a question concerning the nature and amount
of work brings the real issue into focus and makes it easy to arrive
at a clear-cut verdict.
Solution-oriented questions can be formulated only if the critical
issue is localized and grasped accurately. When problems are
(c)
poorly defined, the creative mind does not work well. Isolating the
crucial points of the problem and determining the critical issue is
most important to the discovery of a solution.
No matter how difficult or unprecedented the problem, a
breakthrough to the best possible solution can come only from a
combination or rational analysis, based on the real nature of 17
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things, and imaginative reintegration of all the different items into Notes
Activity
a new pattern, using non-linear brainpower. This is always the ___________________
Create a digital essay on the
most effective approach to devising strategies for dealing Attributes of Strategic
___________________
successfully with challenges and opportunities, in the market Thinking.
arena as on the battlefield.
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___________________
There are four key requirements to strategic thinking: ___________________
z A definite purpose in mind, ___________________
___________________
z An understanding of the firm's environment, particularly of
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the forces that affect or impede the fulfilment of that purpose, ___________________
the environmental view; the marketplace view; the project ___________________
view; and the measurement view,
___________________
z The organization, the people, the organizational structure, and
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the resources necessary to make it all work, and
z Creativity in developing effective responses to all the above
forces.
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Check Your Progress
Fill in the blanks:
1. When problems are ……………… defined, the creative
mind does not work well.
2. No matter how difficult or unprecedented the problem,
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a ……………… to the best possible solution can come

only from a combination or rational analysis.
Attributes of Strategic Thinking

Drucker defines strategic thinking as examining the "Theory of the
Business". According to Drucker, in the dynamic conditions of
change today, strategic thinking provides the insights to answer
the questions, ‘What business are we in today?’ and ‘What business
should we be in tomorrow?’
Strategic thinking is a creative, mind expanding process which
(c)
visualizes the future environment and formulates strategy that

will bring success. To succeed, the key participants involved in the
process must be active, involved, connected, committed, alert, and
stimulated. They have to create an environment of calculated
chaos, which drives their thinking, enabling them to build
reflection on action as an interactive process.
18 According to Jeanne Liedtka (1998), of the Batten Institute – the
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Notes major attributes of strategic thinking are:
___________________
z "A systems or holistic view. Strategic thinking is built on the
___________________ foundation of a systems perspective."
___________________ z It includes "a mental model of the complete end-to-end system
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___________________ of value creation and an understanding of the
interdependencies it contains."
___________________
z It involves looking at each part "not as a sum of its specific
___________________
tasks, but as a contribution to a larger system that produces
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___________________
outcomes of value."
___________________
z “Strategic thinking is intent-driven; it allows individuals
___________________ within an organization to leverage their energy, to focus
___________________ attention, to resist distraction, and to concentrate for as long
as it takes to achieve a goal."
z “Strategic thinkers link past, present, and future. The gap
between today's reality and intent for the future is critical."
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z “Strategic thinking deals with hypothesis generating and
testing as central activities and avoids the analytic-intuitive
dichotomy it is both creative and critical in nature.”
z As such, strategic thinking allows us to, "pose ever-improving
hypotheses without forfeiting the ability to explore new ideas"
and be "intelligently opportunistic."
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z “The dilemma involved in using a well-articulated strategy to

channel organizational efforts effectively and efficiently must
always be balanced against the risks of losing sight of
alternative strategies better suited to a changing environment.
There must be room for intelligent opportunism that not only
furthers intended strategy but that also leaves open the
possibility of new strategies emerging."
Check Your Progress

Fill in the blanks:
1. Strategic thinking is a ……………… and ………………
(c)
expanding process.
2. Strategic thinking deals with ……………… generating.
Relevance of Strategic Thinking 19
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Notes
Strategic thinking is aimed at putting us into the most favourable Activity
position to engage the opposition, and compelling the opposition to Visit___________________

http://www.thinkwatson.com/re
engage at a disadvantage. It evolves ways and means of developing ___________________
sources/critical-and-strategic-
capabilities in team work, problem solving, and critical thinking in thinking and prepare a short
E
___________________
report.
the organization. It provides clarity of purpose, common
___________________
understanding and a framework for detailed planning; it gives the
organization a focus on the strategic developments it should be ___________________
pursuing and a view of the future towards which it is moving. ___________________
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The characteristics of strategic thinking can be summarized as: ___________________
z An Ability to see the 'Whole Picture': Looking across all ___________________

parts of the organization and its business, and its ___________________
relationships with others; understanding the connections
___________________
between them, both now and in various possible futures.
z Creativity: Thinking outside existing boundaries and
constraints; identifying and questioning the assumptions upon
which the existing business organization and operations are
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based.
z Scenario Generation and Evaluation: Consideration of
many possible futures for the organization, through
formulation and responses to 'What if ?' questions ability to
deal with ambiguity and uncertainty.
z Identification of Strategic Issues: The strategy will be
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driven by our perception of the issues, and the strategic

themes.
Strategic thinking finally leads the organization to gain insight
into the driving forces behind the new competitive paradigm;
systematically develop a sustainable competitive advantage based
on its core competencies; create an infrastructure for the
continuous review and redefinition of strategic direction to
maximize results, while minimizing the time spent on this process;
and recognize and capitalize on new developments and
opportunities in the market.
(c)
Check Your Progress

Fill in the blanks:
1. The strategy will be driven by our …………………… of
the issues, and the strategic themes.
Contd...
20
2. Strategic thinking is aimed at putting us into the most
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Notes
…………………… position to engage the opposition.
___________________
___________________
Summary
___________________
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Strategic thinking includes finding and developing a strategic
___________________ foresight capacity for an organization, by exploring all possible
___________________ organizational futures, and challenging conventional thinking to
foster decision making today. Strategic thinking looks at the vision
___________________
for the organization and then works backwards by focusing on how
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___________________
the business will be able to reach this vision. In doing so, it
___________________ improves the ability of the organization to make its business vision
___________________ a reality.
___________________ Strategic thinking is a creative, mind expanding process which

visualizes the future environment and formulates strategy that
will bring success. To succeed, the key participants involved in the
process must be active, involved, connected, committed, alert, and
stimulated.
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Lesson End Activity
Visit http://www.inc.com/paul-schoemaker/6-habits-of-strategic-
thinkers.html and prepare a presentation as per your learning.
Keywords
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Change: It refers to become different or undergo alteration.

Creative: It relates to or involves the imagination or original
ideas.
Strategic Thinking: Strategic thinking is defined as a mental or
thinking process applied by an individual in the context of
achieving success in a game or other endeavour.

1. What is the meaning of strategic thinking?
(c)
2. Discuss the key elements of strategic thinking.

3. Explain the attributes of strategic thinking.
4. Describe the relevance of strategic thinking.
5. Give a holistic view of strategic thinking.
Further Readings 21
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Notes
Books ___________________
White Margaret Alice (2010), “The Management of Technology and ___________________

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___________________
Christensen Clayton (2008), “Strategic Management of Technology ___________________
___________________
Dicke Wilhelmina Margaretha (2005), “Managing Technology and
___________________
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___________________
Web Readings ___________________
http://en.wikipedia.org/wiki/Strategic_thinking ___________________
http://www.forbes.com/2010/11/09/strategic-thinking-innovation- ___________________
creativity-leadership-managing-rein.html
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(c)
22
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Notes
___________________
___________________
___________________
E
___________________
___________________
___________________
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___________________
___________________
___________________
___________________
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(c)
UNIT 3: Evolution of Strategic Thinking
Unit 3
23
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Notes
Activity
Evolution of Strategic Thinking

___________________
Create a digital essay on
annual budgeting.
___________________
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___________________
Objectives
___________________
topics: ___________________
\ Annual Budgeting ___________________
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\ Long-range Planning ___________________
\ Environmental Scanning
___________________
\ Strategic Planning Phase
___________________
___________________
Introduction
A strategic plan is a document used to communicate with the
organization the organizations goals, the actions needed to achieve
those goals and all of the other critical elements developed during
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the planning exercise.
Strategic Management is a development of the concepts embodied
in Strategic Planning. Strategic Planning in an organization
appears to evolve through four sequential phases according to
Gluck, Kaufman, and Walleck, which starts with the annual
budgeting process. The four phases of evolution are explained in
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the following sections.
Annual Budgeting
Companies in Phase I often have sound business strategies, but
the business strategy is reflected in its budgeting procedure. The
annual budgeting process reduces the functioning of the
organization to a financial problem. Procedures are developed to
forecast revenue, costs, and capital needs. This is a budget that
identifies limits for expenses on an annual basis. Information
systems’ reportage on functional performance is compared with
budgetary targets to establish control and feedback. These may be
(c)
reflected in the projected sales/earnings growth rate, occasionally

qualified by certain debt/equity target or other explicit financial
objectives.
The CEO and his top team plan the future based on their
knowledge of their company's products and markets. They try to
24 sense what major competitors are doing and are expected to do.
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Notes Based on this framework and their own cost structure, they can
Activity
___________________
Draft a magazine style article estimate what the impact of a product or marketing change will be
on long range planning. on their plants, their distribution system, or their sales force. With
___________________
this knowledge, and if they are not planning for the business to
___________________
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grow beyond reasonable limits, the need to set up an expensive
___________________ planning system may not be there.
___________________ Complexities increase when companies become large – the number
___________________ of products and markets served, the degree of technological
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sophistication required, and the complex economic systems
___________________
involved far exceed the intellectual grasp of any one manager or a
___________________
small group of managers. Explicit documentation in place of
___________________ implicit knowledge is required to chart the strategy of the
___________________ organization.
The financial planning system is extended to estimate the capital
needs and the trade-off between alternative financing plans. This
requires extrapolation of past trends and an attempt to predict the
future impact of political, economic, and social forces. This is the
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basis of the second phase: forecast-based planning. Many Indian
companies use a Phase II planning system – long-range planning –
today.
Check Your Progress

Fill in the blanks:
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1. The financial planning system is extended to estimate

the …………………… needs.
2. Procedures are developed to …………………… revenue,
costs, and capital needs.
Long-range Planning
Phase II is the traditional long-range planning system. The
objective of the long-range planning activities is to provide the
organization with answers to the questions:
(c)
1. Where is the organization now?

2. Where is it going?
3. Where does it want to go?
4. What does it have to do to get to where it wants to go?
In its most elementary form, traditional long-range planning 25
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identifies four key activities on which the concept of planning is Notes
based – monitoring, forecasting, goal setting, and implementing ___________________
policies and actions to facilitate the goals. Long-range plans are
___________________
produced by performing these key activities as a continuing
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process. ___________________
___________________
___________________
___________________
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___________________
___________________
___________________
___________________
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Figure 3.1: Traditional Long Range Planning Model
The inter-relationship between these activities is shown in Figure

3.1. The cycle begins by:
z Monitoring selected trends of interest to the organization,
z Forecasting the expected future of those trends,
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z Defining the desired future by setting organizational goals in

the context of the expected future,
z Developing and implementing specific policies and actions
designed to reduce the difference between the expected future
and the desired future, and
z Monitoring the effects of these actions and policies on the
selected trends.
The major limitation of the long-range planning model is that
information about the changing external environment is usually
(c)
not taken into account systematically or comprehensively. It is

assumed that there is continuity in the environment. This
assumption is valid only under very special circumstances, e.g.,
mature industries, or to basic industries like mining, etc. Hence,
the usefulness of this type of model under dynamic conditions is
limited.
26
Differences between Phase I and Phase II
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Notes
Usually this phase starts like the annual budget with a time frame
___________________
of around 3 – 5 years as compared to a year for Phase I. However,
___________________ as the organization develops its capabilities, the models become
___________________ more sophisticated. In the early models, there is generally
E
significant variance between the real world and the forecasts. The
___________________
simple extended budgeting models often fail to signal major
___________________ environmental shifts. As these models become more sophisticated,
___________________ they protect the negative impact on corporate fortunes of the
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___________________
limited accuracy of the earlier models.
___________________ Nevertheless, Phase II improves the effectiveness of strategic

decision-making. It forces management to confront the long-term
___________________
implications of decisions and to give thought to the potential
___________________ business impact of discernible current trends. One of the greatest
impacts of Phase II is on resource allocation. Under the pressure of
long-term resource constraints, planners learn how to look at the
flow of capital and other resources among business units with a
longer time frame.
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However, owing to the limited view of the horizon, Phase II
companies tend to be focused on current capabilities, rather than
on the search for longer term options. Moreover, the model is
deterministic, that is, the current position of a business is used to
determine the appropriate strategy, according to a generalized
formula. And Phase II companies typically regard positioning as
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the end product of strategic planning, rather than as a starting

point.
Phase II systems are also beneficial in analysing medium-term
trends and setting operational objectives (for example, productivity
improvement or better fund utilization), but the key business
issues are often ignored as the focus is on short or medium-term
operating performance at the expense of long-term goals.
Check Your Progress

Fill in the blanks:
(c)
1. The major limitation of the long-range planning model

is that information about the changing …………………
environment is usually not taken into account.
2. The key business issues are often ignored as the focus
is on short or medium-term ……………… performance.
Environmental Scanning 27
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Notes
Organizational environment consists of both external and internal Activity
___________________
Discuss within a group of 5
factors. Environment must be scanned so as to determine z
students about
development and forecasts of factors that will influence ___________________
environmental scanning.
organizational success. Environmental scanning refers to Visit an organization of
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z ___________________
your preference and study
possession and utilization of information about occasions, patterns,
its strategic planning
___________________
trends, and relationships within an organization’s internal and model.
external environment. It helps the managers to decide the future ___________________
path of the organization. Scanning must identify the threats and ___________________
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opportunities existing in the environment. While strategy ___________________
formulation, an organization must take advantage of the
___________________
opportunities and minimize the threats. A threat for one
organization may be an opportunity for another. ___________________
As businesses become more competitive, planners typically reach ___________________
for more advanced forecasting tools to handle the complexities of

the marketplace. This may include trend analysis and regression
models and, eventually, computer simulation models. These
models are an improvement. They add information from the
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external environment to the long-range planning process.
Environment scanning is used to:
z Identify new and potentially crucial information that should be
added to those identified and tracked during monitoring.
z Identify possible developments that must be used to adjust the
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forecasts of the internal issues derived from forecasting.
Check Your Progress

Fill in the blanks:
1. Organizational environment consists of both ……………
and …………… factors.
2. Scanning must identify the …………… and ……………
existing in the environment.
Strategic Planning Phase

(c)
By merging the two models of planning, long-range planning and

environmental scanning to form an inter-related model – the
Strategic Planning Model was formed. The Strategic Planning
model is a tool that helps an organization in setting up goals or
objectives; the analysis of the environment and the resources of the
28 organization; the generation of strategic options and their
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Notes evaluation; and the planning, design and implementation of
___________________ control systems or monitoring mechanisms.
___________________ This model consists of six identifiable stages that fulfil the
___________________ requirements of the management thinkers:
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___________________ z Environmental scanning
___________________ z Evaluation of issues

___________________ z Forecasting
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___________________ z Goal setting
___________________ z Implementation
___________________
z Monitoring
___________________
Strategic planning can take many different routes, depending upon
the organization’s needs. Various models of strategic planning
include vision- or goal-based strategic planning, issues-based
planning. Whichever strategic planning model you choose
determines upon your specific process, although they all have
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several aspects in common. Each model uses short- and long –
term goal setting; clear, measurable, and quantifiable objectives;
and actionable strategies and tactics to bring a strategic plan to
life. A critical component of every strategic plan is making sure it
is in line with the company’s mission, values, and vision
statements.
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This planning process is very basic, but also effective. By looking

ahead to the future instead of the “now,” companies are able to see
what strategies are most effective toward reaching their goals.
Important steps of this planning process include: creating a
mission statement, creating a vision statement, clarifying company
values, and breaking down the plan into goals, objectives,
strategies, and tactics.
Organizations that have tried long-term planning in the past and
have failed may want to try a different approach focused more on
the “here and now.” An essential element of issues-based planning
(c)
is effective team brainstorming to identify real issues facing the

company.
29
Check Your Progress
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Notes
Fill in the blanks:
___________________
1. Each model uses short- and long-term ………… setting. ___________________
2. An essential element of issues-based planning is
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___________________
effective team …………….
___________________
___________________
Summary
___________________
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Strategic Management is a development of the concepts embodied
___________________
in Strategic Planning. The annual budgeting process reduces the
functioning of the organization to a financial problem. Procedures ___________________
are developed to forecast revenue, costs, and capital needs. The ___________________
major limitation of the long-range planning model is that
___________________
information about the changing external environment is usually
not taken into account systematically or comprehensively.
Environmental scanning refers to possession and utilization of
information about occasions, patterns, trends, and relationships
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within an organization’s internal and external environment. It
helps the managers to decide the future path of the organization.
Strategic planning can take many different routes, depending upon
the organization’s needs. Various models of strategic planning
include vision- or goal-based strategic planning, issues-based
planning.
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Lesson End Activity

Prepare a chart of long range planning model with text and
images.
Keywords
Environmental Scanning: It refers to possession and utilization
of information about occasions, patterns, trends, and relationships
within an organization’s internal and external environment.
Forecasting: It is the process of making statements about events
(c)
whose actual outcomes have not yet been observed.

Strategic Plan: A strategic plan is a document used to
communicate with the organization the organizations goals, the
actions needed to achieve those goals and all of the other critical
elements developed during the planning exercise.
30
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Notes
1. Briefly explain annual budgeting.
___________________
___________________
2. Explain the traditional long range planning model.
___________________ 3. What are the reasons environmental scanning is used?
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___________________ 4. Explain in brief the strategic planning phase.
___________________ 5. Differentiate between annual budgeting and long range

___________________
planning.
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___________________
Further Readings
___________________
___________________ Books
___________________ White Margaret Alice (2010), “The Management of Technology and
Christensen Clayton (2008), “Strategic Management of Technology
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Web Readings
http://www.managementstudyguide.com/environmental-
scanning.htm
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http://en.wikipedia.org/wiki/Environmental_scanning
(c)
UNIT 4: Corporate Strategic Planning
Unit 4
31
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Notes
Activity
Corporate Strategic Planning Visit___________________

the planning division of
an organization and find out
the ___________________
tools or methods they use
for strategic planning and
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___________________
Objectives
___________________
topics: ___________________
\ Meaning of Corporate Strategic Planning ___________________
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\ Mission-Vision of the Firm ___________________
\ Preparation of Vision and Mission Statements
___________________
___________________
Introduction
___________________
Simply put, strategic planning determines where an organization
is going over the next year or more, how it's going to get there and
how it'll know if it got there or not. The focus of a strategic plan is
usually on the entire organization, while the focus of a business
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plan is usually on a particular product, service or program. There
are a variety of perspectives, models and approaches used in
strategic planning. The way that a strategic plan is developed
depends on the nature of the organization's leadership, culture of
the organization, complexity of the organization's environment,
size of the organization and expertise of planners.
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Strategic planning is an organizational management activity that

is used to set priorities, focus energy and resources, strengthen
operations, ensure that employees and other stakeholders are
working toward common goals, establish agreement around
intended outcomes/results, and assess and adjust the
organization's direction in response to a changing environment.
It is a disciplined effort that produces fundamental decisions and
actions that shape and guide what an organization is, who it
serves, what it does, and why it does it, with a focus on the future.
Effective strategic planning articulates not only where an
organization is going and the actions needed to make progress, but
(c)
also how it will know if it is successful.
Meaning of Corporate Strategic Planning

Corporate Planning departments, equipped with tools and
techniques to formalize the strategic planning system, are
32 extremely effective when internal changes prevail in the business
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Notes environment. However, when changes in the external environment
___________________ become predominant, they bring out the limitations of a formal
planning system. In order to survive, corporate planning
___________________
departments must plan ahead comprehensively, controlling an
___________________
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array of critical functions in every detail. They specify policies and
___________________ procedures in meticulous detail, spelling out for practically
___________________ everyone what can and what cannot be done in particular
circumstances. They establish hurdle rates, analyse risks, and
___________________
anticipate contingencies. As strategic planning processes
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___________________ proliferate in these companies, strategic thinking gradually
___________________ withers away.
___________________ Data analysis and decision-making tools of strategic planning do
___________________ not make the organization work – they can only support the
intuition, reasoning skills, and judgment that people bring to their
organization. The success of Strategic Planning has to do with the
acceptability of the plan and dynamics of the organization. The
success of Strategic Management will be the topic for the
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remaining part of this book.
According to Mintzberg, the problem is that strategic planners
often believe that strategic planning, strategic thinking, and
strategy making are synonymous. When managers comprehend
the difference between planning and strategic thinking, it is
possible to return to what the strategy-making process should be:
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“Capturing what the manager learns from all sources (both the soft
insights from his or her personal experiences and the experiences
of others throughout the organization and the hard data from
market research and the like) and then synthesizing that learning
into a vision of the direction that the business should pursue."
Henry Mintzberg (1994), in an article appearing in the Harvard
Business Review titled "The Fall and Rise of Strategic Planning,"
sees strategic planning as practiced as strategic programming –
articulating and elaborating strategies that already exist.
According to Mintzberg, strategic planning is about analysis (i.e.,
breaking down a goal into steps, designing how the steps may be
(c)
implemented, and estimating the anticipated consequences of each

step) while strategic thinking is about synthesis, about using
intuition and creativity to formulate an integrated perspective, a
vision, of where the organization should be heading.
33
Check Your Progress
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Notes
Activity
Fill in the blanks:
___________________
Search the mission and vision
1. When changes in the external environment become statements of any three
___________________
organizations of FMCG sector.
predominant, they bring out the …………………… of a
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___________________
formal planning system.
___________________
2. The success of Strategic Planning has to do with the
…………………… of the plan and …………………… of ___________________
the organization. ___________________
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___________________
Mission – Vision of the Firm ___________________
The first task of Strategic Management is formulating the ___________________
organization's vision, mission, and value statements. These
___________________
statements are primarily based on internal processes within the
organization. They have the greatest impact on the identity and
the future of the organization and reflect the strategic intent of the
organization. Vision, mission, and values have their distinct
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characteristics and play distinct roles in the subsistence of the
organization:
z Vision is what keeps the organization moving forward. Vision
is the motivator in an organization. It needs to be meaningful
with a long-term perspective so that it can motivate people
even when the organization is facing discouraging odds.
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z Mission is the founders' intentions at the outset of the

organization – what they wanted to achieve. In the dynamic
environment of today, it must be re-examined and refreshed
periodically.
z Values manifest in what the organization does as a group and
how it operates. An explicit depiction of values is a guide to
ways of choosing among competing priorities and about how to
work together.
Vision, values and mission are the three components of focus and
context of the organization. They form a hierarchy. The vision of
(c)
the organization leads to its Mission and its values. The Mission in
turn leads to the Objectives of the firm. This relationship is shown
graphically in Figure 4.1.
34
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Notes
Vision
___________________
Mission & Values
___________________
Objectives
___________________
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___________________ Figure 4.1: Hierarchy of Vision, Mission and Objectives
___________________ The time to articulate vision, mission, and values is at the outset of
___________________ an organization's life, if possible and at the first opportunity if the
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organization is already under way.
___________________
___________________ Vision Statements

___________________ When you begin the process of corporate strategic planning then
___________________ vision comes first. Martin Luther King, Jr. said, "I have a dream,"
and what followed was a vision that changed a nation. That
famous speech is a dramatic example of the power that can be
generated by a compelling vision of the future. A vision is a guide
to implementing strategy. Visions are about feelings, beliefs,
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emotions, and pictures.
A vision statement answers the question, "What will success look
like?" The pursuit of this image of success is what motivates people
to work together. It is an important requirement for building a
strong foundation. When all the employees are committed to the
firm's visions and goals, optimum choices on business decisions are
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more likely.
The process and outcomes of visioning is to develop an effective
basis for business strategy. The foresight of the organization is to
fit the strengths of the organization with the market demands, to
make the organization highly competitive with growth and profits
as the rewards.
Whatever the eventual architecture of the organization, the vision
statement encompasses the organization in all its forms. The
vision statement identifies activities the organization intends to
pursue, sets forth long-term direction and provides a big
perspective of:
(c)
z Who are we?

z What are we trying to do?
z How do we want to go about it?
z Where are we headed?
Successful organizations have a vision that is executable – not a 35
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pie-in-the-sky blanket statement but a realistic goal, according to Notes
Sunil Alagh, former Managing Director and CEO of Britannia ___________________
Industries. "It's all about how you define the market, or how you
___________________
redefine it for yourself. We can always raise the bar, but the vision
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stays with the company." When he was the CEO of Britannia, he ___________________
decided to come up with a one-line vision for the company. He ___________________

came up with the following vision statement:
___________________
'Every third Indian must be a Britannia consumer by 2004.' ___________________
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It is this vision of the organization that has made Britannia a ___________________
leading manufacturer of bakery and dairy products.
___________________
Jack Welch redefined GE's approach to its business when he
___________________
announced to all GE managers, "To me, quality and excellence
___________________
means being better than the best ……if we aren't better than the
best, we should ask ourselves 'What will it take?', then quantify
the energy and resources to get there."
Y.C. Deveshwar, Chairman of ITC, had a vision of ITC reminiscent
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of Jack Welch. He said that in a mature economy, with developed
market institutions, ITC was unlikely to be successful unless it
was focused on a one theme vision:
'Either we become world-class or we leave the business.'
It is this quality of vision that makes organizations excel.
Therefore, it is not surprising that this vision statement comes
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from ITC which has remained, over the last five decades, one of the
leading consumer products conglomerates in the country, with its
annual revenues reaching $2 billion in 2002.
The vision statement of Ford Foundation is an illustration of a
well-crafted vision statement. It identifies who they are and who
they are not, what they are trying to do, how they are going about
it, and where they are headed.
A Basis for Performance

A vision is a description in words that conjures up a similar picture
(c)
for each member of the organizations of the path and the

destination. A clear vision of the desired future is an essential
component for the high performance of the organization.
Take an example from the story based on Italian folk lore. The
story goes like this:
36 A man was cutting stones in a stone quarry. A traveller was
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Notes passing the stone quarry, and seeing the man cutting stones, asked
___________________ him, "What are you doing?" The man was irritated at being
disturbed and said, "Can't you see, I am cutting stones." When the
___________________
traveller had gone some additional distance, he saw a second man
___________________
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doing similar work and he again asked, "What are you doing?" The
___________________ man looked up, smiled at him and replied, "I am earning a living."
___________________ Further on, the traveller came across another man cutting stone.
When he was asked, "What are you doing?" The man straightened
___________________
up and proudly replied, "I am building a cathedral."
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___________________
The person building the cathedral had a vision that would make
___________________
his performance outstanding in comparison to his compatriots.
___________________ Building this type of motivation is what an organization looks at in
___________________ its Vision Statement.
Reflects Core Values

The vision statement should be built around the core values of the
organization and the people within it. The statement should be
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designed to orient the group's energies towards the core values and
serve as a guide to action.
The vision statement is meant to inspire challenge and motivate
the workforce, arouse a strong sense of organizational purpose,
build pride and strike a responsive chord to their value system.
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Way to Communicate
A vision statement is an exercise in communication. A well
communicated vision statement will bring the workforce together
and galvanise people to act. It will cause people to live in the
business rather than live with the business. The 'dream' of Martin
Luther King Jr. was communicated so effectively, that it changed
the course of the American nation. A well-crafted Vision Statement
should be:
z Realistic and credible,
z Well-articulated and easily understood, and
(c)
z Appropriate, ambitious, and responsive to change.

Given below are vision statements of Tata Iron & Steel Co. Ltd.,
Hindustan Lever Ltd., DuPont, Burger King and Reliance
Industries. These are a representative cross-section of vision
statements.
Tata Iron and Steel Co. Ltd. 37
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Notes
z To seize the opportunities of tomorrow and create a future.
___________________
z To continue to improve the quality of life of our employees and
the communities we serve. ___________________
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___________________
z Revitalize the core business for a sustainable future.
___________________
z Venture into new businesses that will own a share of our
future. ___________________
z Uphold the spirit and values of TATAs towards nation ___________________
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building. ___________________
Hindustan Lever Ltd. ___________________
Our vision is to meet the everyday needs of people everywhere. ___________________
DuPont ___________________
z We, the people of DuPont, dedicate ourselves daily to the work

of improving life on our planet.
z We have the curiosity to go farther … the imagination to think
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bigger the determination to try harder … and the conscience to
care more.
z Our solutions will be bold. We will answer the fundamental
needs of the people we live with to ensure harmony, health
and prosperity in the world.
Our methods will be our obsession. Our singular focus will be
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z
to serve humanity with the power of all the sciences available
to us.
z Our tools are our minds. We will encourage unconventional
ideas, be daring in our thinking, and courageous in our
actions. By sharing our knowledge and learning from each
other and the markets we serve, we will solve problems in
surprising and magnificent ways.
z Our success will be ensured. We will be demanding of
ourselves and work relentlessly to complete our tasks. Our
achievements will create superior profit for our shareholders
(c)
and ourselves.
z Our principles are sacred. We will respect nature and living
things, work safely, are gracious to one another and our
partners, and each day we will leave for home with consciences
clear and spirits soaring.
38 Burger King
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Notes
z We take Pride in serving our Guests the Best Burgers and a
___________________
variety of other Great Tasting, Healthy Foods Cooked over an
___________________ Open Fire. That's what we're all about.
___________________ z The ultimate success of the vision statement is the extent to
E
___________________ which leadership and key stakeholders actually begin living
the vision day-to-day. Sometimes, there is an unwritten vision
___________________
statement, understood by the stakeholders and the leadership.
___________________
Reliance Industries
UP
___________________
z Reliance believes that any business conduct can be ethical only
___________________
when it rests on the nine core values of Honesty, Integrity,
___________________ Respect, Fairness, Purposefulness, Trust, Responsibility,
___________________ Citizenship and Caring.
z We are committed to an ethical treatment of all our
stakeholders – our employees, our customers, our
environment, our shareholders, our lenders and other
investors, our suppliers and the Government. A firm belief
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that every Reliance team member holds is that the other
persons' interests count as much as their own.
z The essence of these commitments is that each employee
conducts the company's business with integrity, in compliance
with applicable laws, and in a manner that excludes
considerations of personal advantage.
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z We do not lose sight of these values under any circumstances,

regardless of the goals we have to achieve. To us, the means
are as important as the ends.
Mission Statements
Vision is the critical focal point and beginning to high performance.
But obviously a vision alone won't make it happen. Even the most
exciting vision will remain only a dream unless it is followed up
with striving, building, and improving.
Why does the organization exist? What is its value addition?
(c)
What's its function? How does it want to be positioned in the

market and minds of customers? What business is it in? These are
all questions of purpose. They deal with the deeper motivations
and assumptions underlying the values and purpose that form the
context and focus of the organization.
z Your mission statement draws on your belief statements. 39
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Notes
z Your mission statement must be future oriented and portray
your organization as it will be, as if it already exists. ___________________
z Your mission statement must focus on one common purpose. ___________________
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___________________
z Your mission statement must be specific to the organization,
not generic. ___________________
The mission statements set the organization apart from others. ___________________
They give meaning to the reason for being, value-add, and define ___________________
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the business of the organization. As with vision and values, the
___________________
mission should have clear answers to the above questions. It
should arouse a strong sense of organizational identity and ___________________
business purpose. ___________________
Though some of these questions often seem deceptively simple, ___________________

they are not so simple. We need to answer them to prepare a
mission statement. For example the question, "What business are
we in?" The implications of making a definitive identification
means that the organization has put boundaries around to give
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guidance to the strategic direction in which it will move.
The mission statement has direct implications on the
diversification strategy of the organization. It provides directions
on the strategic choice in diversification strategies. If the areas are
to be related it puts limits on the options. The diversification
options may be related in a number of different ways; the new
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products and services may have similar technologies, or may be

serving similar markets, or may have similar competencies.
Signal to Management's Intents

Specifically speaking of Mission statements, a well-crafted mission
statement must be narrow enough to specify the real area of
interest; and it should serve as a signal on where the top
management intends to take the firm. Overly broad mission
statements provide no guidance in strategy making. However,
diversified companies will have a broader mission definition than
single business enterprises. In either case, the statement should
(c)
lead to the direction the organization plans to take.

Ranbaxy Laboratories Ltd. – Mission Statement
Our mission is to become a research-based international

pharmaceutical company.
40 McDonald's – Mission Statement
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Notes
To offer the customer fast food prepared in the same high quality
___________________ worldwide, tasty and reasonably priced, delivered in a consistent
___________________ low key décor and friendly manner.
___________________ In the examples given above, the mission statement of Ranbaxy
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___________________ gives a clear signal of the management's intent. As a matter of
fact, Ranbaxy rejected a lucrative offer to expand by setting up
___________________
business in the USSR. It was the management's view that this
___________________ would deter it from its mission to become an international
UP
___________________ pharmaceutical company. Similarly, McDonald's mission
statement which is given above, gives a clear signal of its
___________________
management's intent. It indicates that it will look at domestic and
___________________ international markets, and it intends to remain in the reasonably
___________________ priced, high quality fast food industry.
Setting a Direction
If we study the Mission Statements carefully, we will notice that
these statements have three distinct and identifiable components.
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These are:
z The key market
z Contribution
z Distinction
The Ford Foundation Mission Statement identifies "the world
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living in poverty" as its key market, Otis Elevator identifies the

key market as, "any customer" and McDonald's mission statement
that was given earlier, identifies the key market as "fast food
customers."
The distinctions are specified in the last part of the statements.
The distinction of Ford Foundation is, "To be an excellent
institution able to attract, excite, and nurture diverse and
committed staff with exceptional skills who know how to listen and
learn." In the case of Otis Elevator it is, "with higher reliability
than any other enterprise in the world," and in the case of
McDonald's it is, "delivered in a consistent low key décor and
(c)
friendly manner."
Mission statement can set the direction of the business
organization by identifying the key market, the contribution the
organization plans to make to the key market, and the 'distinctive
competencies' or 'value' the organization will provide in its focus on
to serve the key market. This provides clarity and focus to the 41
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strategy that the organization employs. Notes
___________________
Outward Looking Statements
___________________
There are different ways to define in a mission statement;
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___________________
Customer needs – what is being satisfied; and Customer Groups –
Who is being satisfied. Looking outwards at customer needs makes ___________________
the organization a market driven organization and customer ___________________
driven firm. An example is the mission statement of Hindustan
___________________
Lever Ltd.
UP
___________________
Hindustan Lever Ltd. – Mission Statement
___________________
Our purpose in Unilever is to meet the everyday needs of people
___________________
everywhere – to anticipate the aspirations of our consumers and
customers and to respond creatively and competitively with ___________________
branded products and services which raise the quality of life.
Mission Statements by Functional Areas

Though mission statements are generally considered to be in the
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domain of the corporate entity, sometimes, these are made by
functional areas in an organization also. They may be used to focus
on the department's contribution to the overall mission of the
company; the department's role and scope within the company; and
direction in which the department needs to move. This is more
common in highly diversified firms or firms that have a high level
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of specialization.
Organizational Values and their Impact on Strategy

The value statements give a common cause and a common sense of
purpose across the organization. Just like the mission statement, it
provides the direction to the strategy of the organization. It
provides an explicit depiction of values to guide the organization in
choosing among competing priorities, thereby setting the
organization apart from others. Organizational Values can set the
direction of the business organization by identifying the
contribution the organization plans to make to the key market, and
(c)
the 'distinctive competencies' or 'value' the organization will

provide in its focus on to serve the key market. The statements
should speak loudly and clearly for themselves, elicit personal
effort and dedication and generate enthusiasm for the firm's future
– the strategy of the organization.
42 The value statement of the Ford Foundation provides guidelines to
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Notes the moral conduct of the organization in achieving its mission and
Activity
___________________
Carry a brainstorming session objectives. The statements reflect that the Ford Foundation do not
in your class to prepare a believe in a 'no holds barred' strategy. The strategies that it will
___________________
vision and a mission
statement for a new adopt will be limited by the ethical values of the organization. The
___________________
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organization manufacturing value statement is given below, as an example:
health drinks.
___________________
What does Pillsbury mean? Pillsbury perhaps means a lot because
___________________ it is identified with high quality dough products. Two of the biggest
___________________ names that have emerged in the past decade are Amazon and
UP
Starbucks. Does Starbucks mean coffee? Absolutely not. But we get
___________________
to know a company and that starts to create an image. It is linked
___________________
in customers' minds with attributes or benefits.
___________________
Identity is the answer to the question, "Who are we?" The Tatas
___________________ have been advertising, "Tata, a century of trust". This corporate
identity reflects the personalities and values of the founders and
its management. It envelops the whole group of industries
operating in different areas of business and the economy.
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Check Your Progress
Fill in the blanks:
1. The vision of the organization leads to its ………………
and its ……………….
2. The process and outcomes of visioning is to develop an
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effective basis for business ……………….
Preparation of Vision and Mission Statements

In a competitive economy driven by the cruel logic of markets, a
company with a determined management can transform an
organization much more quickly and much more effectively than in
the past. Clearly articulating your strategic intent is the key.
Vision, mission, and values hold an organization together.
Unfortunately, they don't come neatly packaged in separate
mental compartments. Instead, they are linked in people's hearts
(c)
and minds. Most people can relate to a personal vision, their

personal values, and their mission in life, but they often find it
difficult to arrive at a consensus on issues concerning mission,
values, and vision of the group.
It's important to recognize and respect diverse approaches to 43
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questions of ultimate purpose in a group. Ideally, the senior Notes
management team defines the broad parameters of what business ___________________
we're in and which direction we're heading. They can prepare a
___________________
rough vision for input and refinement or leave things wide open for
the rest of the organization to fill in. Group members then
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___________________
exchange ideas and make decisions to articulate the vision, ___________________
mission, and values.
___________________
Different ways of defining a group's vision, mission and values may
___________________
seem foolish or even alarming; but organizations are strongest
UP
when many aptitudes, interests, and points-of-view can be worked ___________________
out together. Teams or organizations need a shared vision, not ___________________

something that only a few people own. Everyone should be a
___________________
"stakeholder" in spirit. That's usually a cascading process, but it
___________________
can start in any part of an organization.
The vision and mission statements should provide clarity to the
issues of governance. However, often there are conflicts in
perceptions. What organizations describe as "personality conflicts",
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after a little exploration often reveals real differences on issues
about governance, finances, purpose and program of the
organization.
There are many ways in which the Vision Statement can be
prepared. It depends on the nature and type of organization as well
as the philosophy and management style of the top management.
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One popular method, to prepare the vision statement, is given

here.
We may brainstorm with our staff or our board what we would like
to accomplish in the future, using the "guided fantasy" method. We
bring the participants together and ask them to imagine and
create a vision of what the group's activities will be five or ten
years down the line. We can begin by leading the group with our
vision of how the world will change as the result of the group's
work, the array of things we like it to do – our vision. And others
will find themselves thinking first about how the organization
should evolve and how they can work with each other within the
(c)
public elements of the organization's values. People can spur each

other on to more daring and valuable dreams and visions – dreams
of changing the world that they are willing to work hard for. For
some people, it will be most comfortable to focus on the purpose of
the organization itself – its mission. This should be consistent with
the organization's values.
44 An exercise like this encourages people to develop their visions and
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Notes missions, loosening their imaginative powers. Keep the process as
___________________ open as possible. Avoid symbolic or theoretical disputes and try not
to be diverted by details. Then discuss the ideas this has brought
___________________
up. Create a consensus and welcome all the contributions.
___________________
E
Then have a working group prepare a draft after the meeting,
___________________
summarizing the results and harvest what is needed to formulate
___________________ mission and vision statements.
___________________
Check Your Progress
UP
___________________
Fill in the blanks:
___________________
1. Teams or organizations need a shared …………………,
___________________
not something that only a few people own.
___________________
2. The vision and mission statements should provide
clarity to the issues of ………………….
Summary
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Systematic process of determining goals is to be achieved in the
foreseeable future. It consists of: (1) Management's fundamental
assumptions about the future economic, technological, and
competitive environments. (2) Setting of goals to be achieved
within a specified timeframe. (3) Performance of SWOT analysis.
(4) Selecting main and alternative strategies to achieve the goals.
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(5) Formulating, implementing, and monitoring the operational or

tactical plans to achieve interim objectives.
As with vision and its mission, the organizational values provided
should be clear, to provide answers to what strategic options are
acceptable to the organization. It should add to the sense of
organizational identity and business purpose and identify the
areas of value-addition of the organization in its business. The
Values of an organization are often built with associations. You
create a simple and consistent message of who you are, what you're
looking for, and your uniqueness as differentiated from others.
(c)
Lesson End Activity

Prepare a collage of various vision statements of an organization of
your choice.
Keywords 45
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Notes
Mission: 'Mission' is the founders' intentions at the outset of the
___________________
organization – what they wanted to achieve.
___________________
Values: 'Values' manifest in what the organization does as a group
and how it operates. It is a guide to ways of choosing among
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___________________
competing priorities and about how to work together. ___________________
Vision: 'Vision' is a long-term perspective of what is the final ___________________

destination of the organization. A vision is a description in words
___________________
that conjures up a similar picture for each member of the
UP
organizations of the path and the destination. ___________________
___________________
Questions for Discussion ___________________
1. Use your insight and critical abilities to analyse the Vision and ___________________
Mission Statements for any three organizations given in this

unit.
2. What would be the impact of vision and mission statements on
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the functioning of organizations? And, Why?
3. This question requires students to demonstrate an
understanding of the importance and relevance of the vision
and mission statements of an organization.
4. How vision and mission statements are arrived at, and under
what circumstances they need to be changed or revised.
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Further Readings
Books
Dicke.Wilhelmina Margaretha (2005), “Managing Technology and
(c)
Web Readings
http://en.wikipedia.org/wiki/Strategic_planning
http://www.balancedscorecard.org/BSCResources/StrategicPlannin
gBasics/tabid/459/Default.aspx
46
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Notes
___________________
___________________
___________________
E
___________________
___________________
___________________
UP
___________________
___________________
___________________
___________________
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(c)
UNIT 5: Case Study
Unit 5
47
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Notes
Case Study
___________________
___________________
E
___________________
Objectives
___________________
After analysing this case, the student will have an appreciation of the
concept of topics studied in this Block. ___________________
___________________
Case Study: Dorsey Corporation
UP
___________________
Dorsey Corporation was a medium sized company. The Chairman
of the Board, John T. Pollock, and President of Sewell Plastics, ___________________
Charles Sewell were the principal officers of the company. In
___________________
1975, Dorsey Corporation consisted of three divisions -
Chattanooga Glass, Sewell Plastics and Dorsey Trailers. ___________________
Chattanooga Glass made green Coca-Cola bottles for its Southern
region; Sewell Plastics made plastic containers and Dorsey
Trailers produced cargo trailers for bulk transportation.
Chattanooga Glass accounted for 60 per cent of total sales and
dominated Dorsey's business.
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Du Pont had invented a new technology in plastics, called PET
(polyethylene terephthalate). In an attempt to find applications
for this new material, Du Pont found the beverage market had
good potential. They made a 2-litre container out of PET and
submitted it to the FDA for approval. In 1977, Du Pont received
FDA approval to use PET bottles as beverage containers. They
worked with a machine tool company, Cincinnati Milacron, who
built a line to mass-produce the PET bottle.
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In 1977, most glass companies had been ignoring the potential of

new plastic technology in bottles. Dorsey recognized that a plastic
bottle made of PET was not only lighter than glass bottles but
could hold carbonated beverages as well as glass. This would
result in lower freight costs and less breakage. Also, glass
manufacturing had come under the purview of environmentalists
and required large investments to meet the new emerging
pollution standards.
Charles Sewell saw this as a unique opportunity and immediately
took the board's approval and invested $ 4 million in new plant
and machinery. Sewell knew he was competing against giant
companies like Owen-Illinois, Continental, Amoco, etc. He saw
the introduction of PET beverage bottles as an opportunity for a
smaller company with older technology - yet receptive to
(c)
technological change, to challenge his competition.

He invested further in plastic bottles. He not only used PET
containers for beverages; he also introduced them for milk and
chemicals. By 1982, Sewell Plastics was the market leader in
beverage bottles and had a sales volume of nearly $ 800 million.
Contd...
48
The PET bottle innovation by Dorsey made obsolete both the
S
Notes product and production process of glass beverage bottles for larger
sized containers.
___________________
Question:
___________________
What was the result of identifying a new opportunity by Sewell ?
___________________
E
___________________
___________________
___________________
UP
___________________
___________________
___________________
___________________
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(c)
UNIT 6: Strategic Objectives
49
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Notes
___________________
___________________
E
___________________
___________________
___________________
___________________
UP
___________________
___________________
___________________
___________________
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BLOCK-II
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(c)
50
F
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Notes
UNIT 6: STRATEGIC OBJECTIVES
___________________ UNIT 8: STRATEGY AND TECHNOLOGY
___________________
z Setting Objectives z Strategies of Indian IT Companies
___________________
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z Network Objectives z Strategies of the Indian Tata Group
z ___________________
Make them Challenging but Attainable z Technology Strategy
___________________
UNIT 7: STRATEGIC MANAGEMENT UNIT 9: STRATEGIC MANAGEMENT PRACTICE
___________________ IN INDIA
z Introduction
UP
z Introduction
z Overview of Strategic Management
___________________
z An Overview of Strategic Management Practice in
z Components of a Strategy Statement
___________________ India
z Strategic Management Process
___________________ z TSMG’s Strategic Management
z Family Run Corporates
___________________
UNIT 10: CASE STUDY

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(c)
Unit 6
51
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Notes
Strategic Objectives
___________________
___________________
E
___________________
Objectives
___________________
topics: ___________________
\ Setting Objectives ___________________
UP
\ Network Objectives ___________________
\ Make them Challenging but Attainable
___________________
___________________
Introduction
___________________
Statements of vision tend to be quite broad and can be described as
a goal that represents an inspiring, overarching, and emotionally
driven destination. Mission statements, on the other hand, tend to
be more specific and address questions concerning the
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organization’s reason for being and the basis of its intended
competitive advantage in the marketplace. Strategic objectives are
used to operationalize the mission statement. That is, they help to
provide guidance on how the organization can fulfil or move toward
the “high goals” in the goal hierarchy-the mission and vision. As a
result, they tend to be more specific and cover a more well-defined
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time frame.
Setting objectives demands a yardstick to measure the fulfilment
of the objectives. If an objective lacks specificity or measurability,
it is not very useful, simply because there is no way of determining
whether it is helping the organization to move toward the
organization’s mission and vision. Most of strategic objectives are
directed toward generating greater profits and returns for the
owners of the business, others are directed at customers or society
at large.
Objectives must typically be specific, quantifiable, challenging but
‘doable,’ and tied directly to a reward system. In addition, a
(c)
method must be established to communicate each level's goals to

the next level down (flow down) and also send feedback (roll-up) to
the next level up.
Much of management literature talks of long-run and short-run
objectives. Long-run objectives focus on long-term performance and
52 short-run objectives focus on short-term performance. Generally,
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Notes the span of a short-run objective is 1–2 years, while the span of a
Activity
___________________
Create a digital essay on long-run objective is 3–5 years. Corporate Objectives or Strategic
quantifying the objectives. Objectives are normally long-term objectives, but often incorporate
___________________
short-run objectives. Short-run objectives play a significant part in
___________________
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assessing and determining whether the speed and level of
___________________ performance being aimed for is being achieved. These also provide
___________________ a stepping stone towards attaining the long term performance.
___________________
Setting Objectives
UP
___________________
___________________ All managers need objectives. A very important consideration in

setting objectives is to convert the organization into integrated
___________________
networks. The process should be such that the shared values and
___________________ identity of the organization is reflected in the process.
Top-down Objectives: Objective setting is generally a top-down
process. This achieves unity and cohesion throughout the
organization. Managers at different levels in the organizational
hierarchy are concerned with different kinds of objectives. The
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Board of Directors and top managers are involved in determining
the Vision, the Mission and the Strategic Objectives of the firm.
They are also involved in deciding upon the specific overall
financial objectives in the Key Result Areas.
The middle management is involved in setting up objectives for the
Key Result Areas, objectives at the divisional levels, at the
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departmental and individual levels. Lower level managers set

objectives of units as well as their subordinates.
Bottom-up Approach: Though in most manufacturing and service
organizations, the objective is set top-down, there is an argument
for a bottom-up approach. This is especially true for knowledge
based companies, where the argument is that objective setting
should be bottom-up that it should be part of a learning process
and not a part of the reward and punishment system.
Proponents of the bottom-up approach argue that top management
needs to have information from lower levels and this will make
(c)
objectives more realistic and acceptable. They also argue that

subordinates are more likely to be highly motivated by, and
committed to goals that they initiate, than to objectives thrust
upon them. In spite of the strength of the arguments, the bottom-
up approach is highly under-utilized.
Setting objectives is a critical exercise in an organization. Not only 53
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does it direct the organization towards its goals but also, it is the Notes
basis for the reward system. Therefore, this activity affects almost ___________________
everyone in the firm. Some care needs to be taken while setting
___________________
objectives. Some of the issues that need to be kept in mind while
setting business objectives have been discussed below.
E
___________________
___________________
Balance Your Objectives
___________________
Objectives should be balanced. They should incorporate
___________________
requirements that will involve all members of the organization. If
UP
our objectives focus on only profit and sales, people outside of the ___________________
executive planning group may wonder, "What's in it for us?" If they ___________________
ask that question out loud, we've got a problem. If they ask it
___________________
silently to themselves, we've got an even more serious problem.
___________________
Multiplicity of Objectives
We should not set too many objectives. If we do, we'll lose focus. We
won't be able to use our objectives in managing day to day. Keep
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the objective lists short. The importance of the objectives is that we
should enthuse and motivate the employees. In order to do so,
employees should be able to remember and keep the objectives in
mind.
At every level in the hierarchy there are likely to be a number of
objectives. Some people think that a manager can handle a limited
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span of objectives effectively. Too many objectives have a number

of problems:
z They tend to dilute the drive needed for their accomplishment
z They may unduly highlight minor objectives to the detriment
of major ones
There is no agreement to the number of objectives that a manager
can handle. However, if there are so many that none receives
adequate attention and the execution of the objectives is
ineffective, there is a need to be cautious. However, it will be wise
to identify the relative importance of each objective, in case the list
(c)
is not manageable.
Themes for Objectives

For an objective to be useful, it has to meet certain criteria. It must
carry a single theme. It should tell us to do one thing only, not two
or more. When there is more than one theme in the objective there
54 is a problem in evaluating the performance, both for the
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Notes management as well as for us. If we fulfil one of the two themes,
___________________ have we met our objectives? A lack of clarity can make the
objective redundant.
___________________
___________________
Multiple themes also create conflict. It is unlikely that the themes
E
will result in the same outcomes. Were this so, there would be no
___________________
need to have multiple themes.
___________________
Use Result-oriented Objectives
___________________
UP
___________________
There are two orientations in describing activities. Based on this,
there are two types of objectives that we can develop:
___________________
z Result-oriented
___________________
z Activity-oriented.
___________________
In a result-oriented objective, we focus on the outcome from the
activities of the individual or function. We could require the
function to increase its production of certain products, say by 10
per cent. This is a result-oriented objective. We could also require
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the workers to put in 10 per cent extra hours in production. This is
now an activity-oriented objective. In this case, the increase in
hours put in by the worker does not ensure that there is an
increase in the production by 10 per cent.
Obviously, the first is a stronger statement. It motivates the
workers to work harder and even improve their productivity so as
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to provide the result. We should establish results-oriented

objectives whenever possible. Results-oriented objectives are
stronger. Whenever possible, we write our objectives in terms of a
result, rather than an activity. Activity-oriented objectives should
be used when it is extremely difficult to write a results-oriented
objective. It should be an exception.
Quantify Your Objectives

Objectives must be quantified. Everyone in the organization has to
know how much effort we need to put in to accomplish the
objectives and we've got to be able to measure it to figure out
whether or not we've succeeded.
(c)
Some objectives are easy to measure, some are not. Financial

objectives are the easiest to quantify. Marketing objectives, e.g.,
sales volume and market share are also usually easy enough to
turn into numbers if we can agree on a measurement for industry
sales.
Quantities like 'customer satisfaction' are more difficult to 55
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measure. We can count complaints. We can measure defective Notes
Activity
product. We can count referrals to new accounts or repeat business ___________________
Recreate an old newspaper
or warranty costs. In the case of a measure of 'customer page and cover network
___________________
objectives.
satisfaction', we assume that it is difficult to measure directly, and
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so we use proxy variables. Something we believe parallels the issue ___________________
of customer satisfaction. We quantify our objectives even if we ___________________

have to "force" our measurement. So when warranty cost gets
___________________
below 1.5%; or when the reorder ratio goes over 75%; or when
___________________
referrals to new accounts reach 25% of total billings – then we'll
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believe that customer satisfaction is where we want it to be. ___________________
Though it seems some objectives are measurable, on analysing the ___________________

measure more carefully, the measure may not be so good. For ___________________
example, it is normally accepted that market share is a
___________________
measurable objective. But is this true? It's difficult to get
agreement on the total market size used in calculating market
share. And even if we can agree on total market size, there is a lag
between the periods when the objectives have to be met and when
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market data will be available. This lack of timely information
means we can't use the market share objective to manage our
business on a day-to-day basis.
Check Your Progress

Fill in the blanks:
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1. When there is more than one theme in the objective

there is a problem in evaluating the ………………….
2. Some objectives are easy to ………………, some are not.
3. ……………… objectives are the easiest to quantify.
4. A lack of …………… can make the objective redundant.
Network Objectives
Objectives are never linear. When one objective is accomplished, it
is not neatly followed by another, and so on. Objectives form an
(c)
interlocking network. One objective is very often dependent on

another. The implementation of one may impact the
implementation of the other. It's one thing to write down an
objective and say "Yes, that's fine. I think we can do it. Let's
commit to it." Then go on to the next one and do it again and again.
56 There is the aspect of 'fitting'. When we have a number of
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Notes objectives we should take a long, hard look at them. And ask, "Can
Activity
Pick___________________
up objective statement of we do this whole bunch of objectives all at the same time?" Very
an organization and analyze if often, an examination like that will indicate the type of problems
___________________
it is both challenging but
attainable and prepare a we may face, as typified below:
___________________
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presentation.
"Assume we have a situation where the manufacturing department
___________________
has to cut the cost of the product by say 5 per cent. It can do so by
___________________ taking long production runs. The marketing department, in order
___________________ to meet its objectives desires to have all the products in the line
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readily available for dispatch. The finance department has the
___________________
objective of maintaining investment in inventories at a certain low
___________________
level.
___________________
We wrote a set of objectives calling for growth in the sales volume,
___________________ and reduction in the cost of manufacture, at the same time. But
the two are conflicting objectives. Because reduction in cost
requires high productivity and sales growth requires that it should
be able to ship the products promptly to the customers so that they
do not go to other sources. The solution could have been an
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increase in inventory. But this is in conflict with the objectives of
the finance department, who have to ensure that inventories are
maintained at a low level."
Make sure objectives not only fit but also reinforce each other. The
requirement is that everyone on your planning team should believe
that we can accomplish all the objectives we have put down, at the
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same time.
Check Your Progress

Fill in the blanks:
1. Objectives form an ………………… network.
2. The marketing department, in order to meet its
objectives desires to have all the products in the line
readily available for ………………….
Make them Challenging but Attainable

(c)
There was a lot of literature that came out in the nineteen sixties
on 'Achievement Motivation'. The main proponent of this concept,
Atkinson, proposed that if the task put before a person was too
easy or too difficult, the likelihood was that there would be failure
in executing the task efficiently, as the motivation to succeed was
related to the person's perception of the probability of success or 57
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failure. In order to prove his hypothesis, he used expert marksmen Notes
and gave them an extremely easy target range to shoot at. He ___________________
found that the marksmen did not perform as well as they should
___________________
have - according to him this was a result of poor motivation.
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___________________
The objective should be challenging but, at the same time,
attainable. In other words, an objective should be achievable. ___________________
People in your organization should understand that ___________________
accomplishment of the objective requires effort and given that
___________________
effort, they should expect they can accomplish the objective.
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___________________
For example, DuPont has defined a set of goals; immortal
polymers; zero waste processes; elastic coatings as hard as ___________________
diamonds; elastomers as strong as steel; materials that repair ___________________

themselves; chemical plants that run by a single chip; and coatings
___________________
that change colour on demand.
Thank God, this is the vision of the company. Were these the
objectives of the company, we would be so overwhelmed that we
would put our hands up even before we started trying to play the
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game. Even if the objective were "maintain our performance at last
year's level," (there could be good reasons for such an objective)
most people would relax assuming that it was too easy to require
them to put in additional effort. Chances are they would not be
able to maintain last year's performance.
We must make each of our objectives both challenging and
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attainable. Finally, in writing objectives, eliminate the "why". Do

not be tempted to explain 'why', in order to enthuse or motivate
employees. The 'why' may replace the objective in the mind of the
employee and the focus of the objective will be lost. Also, don't
write 'how' in the objective. Not only will it cause confusion, it will
also cause conflict. Is the 'how' more important than the objective
itself? We must also understand that the answer to "how" is really
a strategy.
SMART Formula
The SMART Formula is a useful method of examining objectives.
Many business schools use this model to illustrate how to build up
(c)
and create proper business objectives. Each letter in SMART

stands for a characteristic associated with business objectives.
That is:
z Specific: Clearly state what it is we want to do/achieve by
way of a factual description?
58 z Measurable: Ensure that the success of your business
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Notes objective can be measured against concrete criteria.
___________________
z Achievable: Is the objective achievable given your current
___________________ operational resources and/or competence/capacity?
___________________ z Realistic: Is the scope of the objective within the bounds of
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___________________ what is recognizable as a proper 'business fit'?
___________________ z Timely: Include a time scale within which the objectives

should be achieved.
___________________
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___________________ The SMART method is a very nice way to reassess the objectives,
once they are made. It is a good evaluation method.
___________________

1. We must make each of our objectives both ………………
and ……………….
2. The '…………… ' may replace the objective in the mind
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of the employee and the focus of the objective will be
lost.
Summary
All businesses need to set objectives, objectives are important they
focus organisations. Businesses that have specific aims are usually
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more successful than those that don't; because a business with

objectives knows what it is trying to achieve. Objectives can be set
in all areas of the business e.g. sales, production, finance and
marketing.
An objective that follows SMART is more likely to succeed because
it is clear (specific) so you know exactly what needs to be achieved.
You can tell when it has been achieved (measurable) because you
have a way to measure completion. A SMART objective is likely to
happen because it is an event that is achievable. Before setting a
SMART objective relevant factors such as resources and time were
taken into account to ensure that it is realistic. Finally the
(c)
timescale element provides a deadline which helps people focus on

the tasks required to achieve the objective. The timescale element
stops people postponing task completion.
Lesson End Activity 59
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Notes
Prepare a chart with text and images on SMART objectives.
___________________
___________________
Keywords
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___________________
Customer Satisfaction: It is a term frequently used in
___________________
marketing, is a measure of how products and services supplied by
a company meet or surpass customer expectation. ___________________
Objective: It refers to A specific result that a person or system ___________________
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aims to achieve within a time frame and with available resources. ___________________
Strategic Objective: A broadly defined objective that an ___________________

organization must achieve to make its strategy succeed.
___________________
___________________
1. Explain short-run and long-run objectives.
2. What is bottom-up approach?
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3. What do you mean by multiplicity of objectives?
4. Briefly describe network objectives.
5. Why should the objectives be challenging?
Further Readings
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Books
Web Readings
(c)
http://www.tutor2u.net/business/strategy/objectives.htm
http://www.sbaer.uca.edu/publications/strategic_management/pdf/0
8.pdf
60
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Notes
___________________
___________________
___________________
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___________________
___________________
___________________
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___________________
___________________
___________________
___________________
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(c)
UNIT 7: Strategic Management
Unit 7
61
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Notes
___________________
___________________
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___________________
Objectives
___________________
topics: ___________________
\ Overview of Strategic Management ___________________
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\ Components of a Strategy Statement ___________________
\ Strategic Management Process
___________________
___________________
Introduction
___________________
Strategic management analyses the major initiatives taken by a
company's top management on behalf of owners, involving
resources and performance in external environments. It entails
specifying the organization's mission, vision and objectives,
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developing policies and plans, often in terms of projects and
programs, which are designed to achieve these objectives, and then
allocating resources to implement the policies and plans, projects
and programs.
A balanced scorecard is often used to evaluate the overall
performance of the business and its progress towards objectives.
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Recent studies and leading management theorists have advocated

that strategy needs to start with stakeholders expectations and use
a modified balanced scorecard which includes all stakeholders.
Strategic management is a level of managerial activity below
setting goals and above tactics. Strategic management provides
overall direction to the enterprise and is closely related to the field
of Organization Studies. In the field of business administration it
is useful to talk about "strategic consistency" between the
organization and its environment or "strategic consistency."
According to Arieu (2007), "there is strategic consistency when the
actions of an organization are consistent with the expectations of
(c)
management, and these in turn are with the market and the
context." Strategic management includes the management team
and possibly the Board of Directors and other stakeholders.
62
Overview of Strategic Management
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Notes
Activity
Strategic management is an ongoing process that evaluates and
Meet___________________
with an official of an
organization known to you controls the business and the industries in which the company is
___________________
involved in strategy making involved; assesses its competitors and sets goals and strategies to
and know his point of view
___________________ meet all existing and potential competitors; and then reassesses
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about strategic management
and prepare a report.
___________________
each strategy annually or quarterly to determine how it has been
implemented and whether it has succeeded or needs replacement
___________________
by a new strategy to meet changed circumstances, new technology,
___________________ new competitors, a new economic environment, or a new social,
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___________________ financial, or political environment."
___________________ Strategic Management can also be defined as "the identification of

___________________
the purpose of the organisation and the plans and actions to
achieve the purpose. It is that set of managerial decisions and
___________________
actions that determine the long-term performance of a business
enterprise. It involves formulating and implementing strategies
that will help in aligning the organization and its environment to
achieve organisational goals.
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Strategic Management is all about identification and description of
the strategies that managers can carry so as to achieve better
performance and a competitive advantage for their organization.
An organization is said to have competitive advantage if its
profitability is higher than the average profitability for all
companies in its industry.
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Strategic management can also be defined as a bundle of decisions

and acts which a manager undertakes and which decides the result
of the firm’s performance. The manager must have a thorough
knowledge and analysis of the general and competitive
organizational environment so as to take right decisions. They
should conduct a SWOT Analysis (Strengths, Weaknesses,
Opportunities, and Threats), i.e., they should make best possible
utilization of strengths, minimize the organizational weaknesses,
make use of arising opportunities from the business environment
and shouldn’t ignore the threats.
Strategic management is nothing but planning for both predictable
(c)
as well as unfeasible contingencies. It is applicable to both small as

well as large organizations as even the smallest organization face
competition and, by formulating and implementing appropriate
strategies, they can attain sustainable competitive advantage.
63
Check Your Progress
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Notes
Activity
Fill in the blanks:
___________________
Conduct a survey and perform
1. Strategic management is an …………………… process environmental scanning for a
___________________
startup organization in your
that evaluates and controls the business. city.
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___________________
2. Strategic management can also be defined as a bundle
___________________
of …………………….
___________________
Components of a Strategy Statement ___________________
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___________________
The strategy statement of a firm sets the firm’s long-term strategic
direction and broad policy directions. It gives the firm a clear sense ___________________
of direction and a blueprint for the firm’s activities for the ___________________
upcoming years. The main constituents of a strategic statement
___________________
are as follows:
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Source: http://www.ehow.com/facts_6901134_meaning-strategic-intent_.html
Figure 7.1: Strategic Intent
Strategic Intent
An organization’s strategic intent is the purpose that it exists and
why it will continue to exist, providing it maintains a competitive
advantage. Strategic intent gives a picture about what an
(c)
organization must get into immediately in order to achieve the

company’s vision. It motivates the people. It clarifies the vision of
the vision of the company. Strategic intent helps management to
emphasize and concentrate on the priorities. Strategic intent is
nothing but, the influencing of an organization’s resource potential
64 and core competencies to achieve what at first may seem to be
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Notes unachievable goals in the competitive environment. A well
___________________ expressed strategic intent should guide/steer the development of
strategic intent or the setting of goals and objectives that require
___________________
that all of organization’s competencies be controlled to maximum
___________________
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value.
___________________
Strategic intent includes directing organization’s attention on the
___________________ need of winning; inspiring people by telling them that the targets
___________________ are valuable; encouraging individual and team participation as
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well as contribution; and utilizing intent to direct allocation of
___________________
resources. Strategic intent differs from strategic fit in a way that
___________________
while strategic fit deals with harmonizing available resources and
___________________ potentials to the external environment, strategic intent
___________________ emphasizes on building new resources and potentials so as to
create and exploit future opportunities.
Mission Statement
Mission statement is the statement of the role by which an
E-
organization intends to serve its stakeholders. It describes why an
organization is operating and thus provides a framework within
which strategies are formulated. It describes what the organization
does (i.e., present capabilities), who all it serves (i.e., stakeholders)
and what makes an organization unique (i.e., reason for existence).
A mission statement differentiates an organization from others by
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explaining its broad scope of activities, its products, and

technologies it uses to achieve its goals and objectives. It talks
about an organization’s present (i.e., “about where we are”).
For instance, Microsoft’s mission is to help people and businesses
throughout the world to realize their full potential. Wal-Mart’s
mission is “To give ordinary folk the chance to buy the same thing
as rich people.” Mission statements always exist at top level of an
organization, but may also be made for various organizational
levels. Chief executive plays a significant role in formulation of
mission statement. Once the mission statement is formulated, it
serves the organization in long run, but it may become ambiguous
(c)
with organizational growth and innovations.

In today’s dynamic and competitive environment, mission may
need to be redefined. However, care must be taken that the
redefined mission statement should have original
fundamentals/components. Mission statement has three main
components – (i) a statement of mission or vision of the company, 65
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(ii) a statement of the core values that shape the acts and Notes
behaviour of the employees, and (iii) a statement of the goals and ___________________
objectives.
___________________
Features of a Mission
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___________________
Following are the features of a mission statement: ___________________
z Mission must be feasible and attainable. It should be possible ___________________
to achieve it. ___________________
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z Mission should be clear enough so that any action can be ___________________
taken. ___________________
z It should be inspiring for the management, staff and society at ___________________
large.
___________________
z It should be precise enough, i.e., it should be neither too broad
nor too narrow.
z It should be unique and distinctive to leave an impact in
everyone’s mind.
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z It should be analytical i.e., it should analyse the key
components of the strategy.
z It should be credible, i.e., all stakeholders should be able to
believe it.
Vision
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A vision statement identifies where the organization wants or

intends to be in future or where it should be to best meet the needs
of the stakeholders. It describes dreams and aspirations for future.
For instance, Microsoft’s vision is “to empower people through
great software, any time, any place, or any device.” Wal-Mart’s
vision is to become worldwide leader in retailing. A vision is the
potential to view things ahead of themselves. It answers the
question “where we want to be”. It gives us a reminder about what
we attempt to develop. A vision statement is for the organization
and its members, unlike the mission statement which is for the
(c)
customers/clients. It contributes in effective decision making as

well as effective business planning. It incorporates a shared
understanding about the nature and aim of the organization and
utilizes this understanding to direct and guide the organization
towards a better purpose. It describes that on achieving the
mission, how the organizational future would appear to be.
66 An effective vision statement must have following features:
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Notes
z It must be unambiguous.
___________________
z It must be clear.
___________________
z It must harmonize with organization’s culture and values.
___________________
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z The dreams and aspirations must be rational/realistic.
___________________
z Vision statements should be shorter so that they are easier to
___________________ memorize.
___________________
In order to realize the vision, it must be deeply instilled in the
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___________________ organization, being owned and shared by everyone involved in the
organization.
___________________
___________________ Goals and Objectives

___________________
Goals
A goal is a desired future state or objective that an organization
tries to achieve. Goals specify in particular what must be done if
an organization is to attain mission or vision. Goals make mission
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more prominent and concrete. They co-ordinate and integrate
various functional and departmental areas in an organization.
Well-made goals have following features:
z These are precise and measurable.
z These look after critical and significant issues.
z These are realistic and challenging.
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z These must be achieved within a specific time frame.

z These include both financial as well as non-financial
components.
Objectives
Objectives are defined as goals that organization wants to achieve
over a period of time. These are the foundation of planning.
Policies are developed in an organization so as to achieve these
objectives. Formulation of objectives is the task of top level
management. Effective objectives have following features:
(c)
z These are not single for an organization, but multiple.

z Objectives should be both short-term as well as long-term.
z Objectives must respond and react to changes in environment,
i.e., they must be flexible.
z These must be feasible, realistic and operational.
67
Check Your Progress
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Notes
Activity
Fill in the blanks:
___________________
Prepare a flowchart to show
1. Strategic …………………… gives a picture about what the process of strategic
___________________
management on a chart.
an organization must get into immediately in order to
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___________________
achieve the company’s vision.
___________________
2. A vision is the …………………… to view things ahead of
themselves. ___________________
___________________
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Strategic Management Process ___________________
The strategic management process means defining the ___________________

organization’s strategy. It is also defined as the process by which ___________________
managers make a choice of a set of strategies for the organization
___________________
that will enable it to achieve better performance. Strategic
management is a continuous process that appraises the business
and industries in which the organization is involved; appraises its
competitors; and fixes goals to meet the entire present and future
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competitor’s and then reassesses each strategy.
Strategic management process has following four steps:
Environmental Scanning
Environmental scanning refers to a process of collecting,
scrutinizing and providing information for strategic purposes. It
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helps in analysing the internal and external factors influencing an

organization. After executing the environmental analysis process,
management should evaluate it on a continuous basis and strive to
improve it.
Strategy Formulation
Strategy formulation is the process of deciding best course of action
for accomplishing organizational objectives and hence achieving
organizational purpose. After conducting environment scanning,
managers formulate corporate, business and functional strategies.
Strategy Implementation
(c)
Strategy implementation implies making the strategy work as

intended or putting the organization’s chosen strategy into action.
Strategy implementation includes designing the organization’s
structure, distributing resources, developing decision making
process, and managing human resources.
68
Strategy Evaluation
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Notes
Strategy evaluation is the final step of strategy management
___________________
process. The key strategy evaluation activities are: appraising
___________________ internal and external factors that are the root of present
___________________ strategies, measuring performance, and taking remedial/corrective
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actions. Evaluation makes sure that the organizational strategy as
___________________
well as its implementation meets the organizational objectives.
___________________
These components are steps that are carried, in chronological
___________________
order, when creating a new strategic management plan. Present
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___________________ businesses that have already created a strategic management plan
___________________ will revert to these steps as per the situation’s requirement, so as
to make essential changes.
___________________
___________________
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Source: http://www.managementstudyguide.com/strategic-management-process.htm
Figure 7.2: Components of Strategic Management Process
Strategic management is an ongoing process. Therefore, it must be

realized that each component interacts with the other components
and that this interaction often happens in chorus.
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Check Your Progress

Fill in the blanks:
1. Environmental …………………… refers to a process of
collecting, scrutinizing and providing information for
strategic purposes.
2. Evaluation makes sure that the organizational strategy
as well as its ………………… meets the organizational
objectives.
Summary
(c)
Strategic Management is a way in which strategists set the

objectives and proceed about attaining them. It deals with making
and implementing decisions about future direction of an
organization. It helps us to identify the direction in which an
organization is moving.
Strategic management is a continuous process that evaluates and 69
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controls the business and the industries in which an organization Notes
is involved; evaluates its competitors and sets goals and strategies ___________________
to meet all existing and potential competitors; and then
___________________
re-evaluates strategies on a regular basis to determine how it has
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been implemented and whether it was successful or does it needs ___________________
replacement. ___________________
Strategic Management gives a broader perspective to the ___________________

employees of an organization and they can better understand how ___________________
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their job fits into the entire organizational plan and how it is
___________________
co-related to other organizational members. It is nothing but the
art of managing employees in a manner which maximizes the ___________________
ability of achieving business objectives. The employees become ___________________
more trustworthy, more committed and more satisfied as they can
___________________
co-relate themselves very well with each organizational task. They
can understand the reaction of environmental changes on the
organization and the probable response of the organization with
the help of strategic management. Thus the employees can judge
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the impact of such changes on their own job and can effectively
face the changes. The managers and employees must do
appropriate things in appropriate manner. They need to be both
effective as well as efficient.
Lesson End Activity

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Prepare a model of strategic management process and display it in

your class.
Keywords
Environmental Scanning: It refers to a process of collecting,
scrutinizing and providing information for strategic purposes.
Goal: A goal is a desired future state or objective that an
organization tries to achieve.
Objectives: Objectives are defined as goals that organization
(c)
wants to achieve over a period of time.

Strategic Intent: Strategic intent is defined as a compelling
statement about where an organization is going that succinctly
conveys a sense of what the organization wants to achieve long-
term.
70
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Notes
1. “Strategic management is an ongoing process”. Discuss.
___________________
___________________
2. Discuss strategic intent as a component of strategic intent.
___________________ 3. Explain the features of both mission and vision statements.
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___________________ 4. Explain strategic management process with the help of a
diagram.
___________________
___________________
5. Why does strategic management called bundle of decisions?
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___________________
Further Readings
___________________
___________________ Books
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Web Readings
http://www.managementstudyguide.com/strategy-statement-
components.htm
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http://www.managementstudyguide.com/strategic-management-
process.htm
(c)
UNIT 8: Strategy and Technology
Unit 8
71
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Notes
Strategy and Technology

___________________
___________________
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___________________
Objectives
___________________
topics: ___________________
\ Strategies of Indian IT Companies ___________________
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\ Strategies of the Indian Tata Group ___________________
\ Technology Strategy
___________________
___________________
Introduction
___________________
Strategy plays a vital role in companies for its sustainability and
growth. Major issues of strategy are being discussed at national
and global levels and research being undertaken to understand
what makes some companies outperform their industry peers. It is
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argued that companies need tools and techniques to excel in an
industry but more important is how to formulate and implement
strategies as also what kind of management practices to be
followed. A large body of literature is available throwing light on
various strategic issues for companies to excel in an industry.
z Organizational Excellence and Dynamics Challenges
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z Innovation and Corporate Sustainability

z Competition and Competitiveness
z Strategy Formulation and Implementation
z Balanced Scorecard
z Change Management
Some of the Indian companies entered the global market and
become major player. They are either cost leader or producer of
differentiated products. They accept the challenges of global
competition by innovation and strategic dynamics. They capture
(c)
global market through joint ventures, mergers and acquisitions.

They try to make their present felt in the global market. However
they have to struggle hard to compete with other global players.
72
Strategies of Indian IT Companies
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Notes
Activity
Many IT companies are growing in terms of sales, man power, and
Pick___________________
up an IT organization of
your preference and analyze
skills. Indian companies are becoming part of the world reputed IT
its ___________________
strategies and prepare a projects. What are the growth strategies of successful Indian IT
report.
___________________ companies?
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___________________ Indian IT companies' revenues are increasing every year after the
___________________ US economic slowdown in 2000. Every year Indian IT industry is
reaching the software export targets projected by the NASSCOM.
___________________
Many IT companies are growing in terms of sales, man power, and
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___________________ skills. Indian companies are becoming part of the world reputed IT
___________________ projects. What are the growth strategies of successful Indian IT
companies? How are they getting more business every year in spite
___________________
of the tough competition from China? How are they becoming
___________________ profitable? How are they able to retain their employees for long
term? How they are able to deliver good quality turnkey solutions?
People are the first assets to any company. It is the human capital
which is giving maximum returns to any company. The skilled
man power and the education system India is having are the
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greatest assets. The young engineers in India are very flexible in
learning new technologies and they are hunger for technology and
technical developments.
Indian software engineers welcome new technologies and they
accept change, which is an advantage to IT companies. Indian IT
companies are heavily investing in training young engineers. As
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we know technologies change fast. To catch the new technical

projects, these companies should be ready with the latest skilled
technical man power. Quick learning capabilities of these
engineers is also an advantage to these software services firms.
Once you have the man power available in the latest technologies,
it is easy to bid the projects in those technologies.
One of the growth strategies of Indian IT services firms is
acquisitions. In the recent past many Indian IT companies
acquired companies in US and Europe which are having the good
customer base so that they can get more business from US and
Europe. For example, US based NerveWire was acquired by Wipro
(c)
Technologies. If you look at the global player Cisco, It is best

example for Mergers & Acquisitions. It has acquired hundred of
companies having related products.
Another growth strategy they are following is diversification
strategy. Some IT companies are having plans to enter into
biotechnology area. Companies like Satyam, TCS and Wipro are 73
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already into Bioinformatics. And many IT companies are following Notes
the chain. ___________________
One more growth strategy these IT companies are following is ___________________
geographical diversification. Satyam started their development
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___________________
centre in China and Dubai. Majority of Indian software houses are
becoming MNCs by starting their development centres abroad. ___________________
They are recruiting diversified workforce. Infosys is going to global ___________________
business schools to recruit their management graduate.
___________________
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Companies like Infosys and i-Flex are entering into IT products
___________________
segments with their banking products to the global markets. These
___________________
IT companies are diversifying their customer base. They are not
dependent on single customer. ___________________
Also these IT companies are diversifying their services offering to ___________________

the customer. Earlier they were into maintenance and manpower
supply to the western IT customers. These days Indian IT
companies are providing offshore facilities, project management,
program management, design, and architecture services also. In
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fact, Infosys is providing complete business solutions to the
customer by providing management consulting services through
their business consulting venture and IT services through their
traditional software business.
According to NASSCOM President, Kiran Karnik's article titled
“Dreaming of a new India” published in The Times of India, now
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every global company is having "India Strategy". The boards of

these global players are having the India specific strategies.
Now let us see other side of the spectrum. According to the article
published in recent BusinessWeek, 16 Jan 2006 Issue,
“Sub-continental Drift” written by Nandini Lakshman, there are
around 30,000 foreign workers in Indian IT and ITES companies
working in India. This number is triple the number of foreigners in
India which is two years ago. People from European countries are
coming and working in Indian IT enabled services companies in
Metro areas. Majority of them are language experts in Spanish,
Finish, French, and German. Many foreign program and business
(c)
managers of global IT companies like IBM are working in India.

Indian IT industry is attracting many foreigners to come and work
here.
Mumbai based Mastek, is part of the biggest IT program of UK,
which is NHS computerization in UK. Mastek is taking care of
74 providing offshore facilities for NHS. It is working along with
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Notes British Telecom for NHS in UK.
Activity
___________________
Prepare a slideshow of
strategies of Tata Group in Check Your Progress
___________________
bullet points and present it in
the class. Fill in the blanks:
___________________
E
___________________
1. The young engineers in India are very …………………
in learning new technologies.
___________________
2. Companies like Infosys and i-Flex are entering into IT
___________________
products segments with their ………………… products
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___________________ to the global markets.
___________________
___________________ Strategies of the Indian Tata Group

___________________ Complex ownership structures are a common phenomenon across
Asian business groups. There has been a large amount of
international work focusing on the various aspects of ownership
structures and strategies adopted by international business
groups. In the Indian literature, we found little work, especially
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with respect to case studies. In this unit, we use public information
of a well-known business group (the Tatas) passing through a
major restructuring and document the development of ownership
structure. The country's second-largest conglomerate, the Tata
group, with year 2005 revenue of over ` 80,000 crore (US$ 20
billion) and core interests ranging from steel, cars and
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telecommunications to software consulting, hotels and consumer

goods, has come a long way since JRD Tata passed the dynamics
mantle to Ratan Tata, in 1991.
Indian Business Houses Tata Group

Tata Heritage
z Jamsedji Tata
Started textile mill in 1877
Inspired steel and power industry
Technical education and philanthropy
z JRD Tata
Pioneered civil aviation
Funded-Homi Bhabha’s nuclear programme
(c)

Guided the Tata group for over half a century
z Ratan Tata
Present Chairman since 1991
Figure 8.1: Tata Group

We examine the interrelation of ownership structure, corporate 75
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strategy, and external forces for one of the largest conglomerate Notes
Activity
from India. In all Tata group affiliates, control is enhanced ___________________
Compare and contrast
through pyramidal structures, and cross-holdings among affiliates. traditional technology strategy
This case study on the oldest business empire also explores the and___________________
modern IT technology.
E
rationale behind these moves and examines the tensions and ___________________
complementarities between stronger ownership ties among group ___________________

affiliates. While bridging ties among group affiliates does benefit
___________________
the new dynamics in creating a more cohesive business group yet
___________________
the findings hold enough water to conclude that these moves are
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contradictory to the interests of the minority shareholders in the ___________________
individual operating companies. ___________________
___________________
Fill in the blanks:
1. …………………… ownership structures are a common
phenomenon across Asian business groups.
2. In all Tata group affiliates, control is enhanced through
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…………………… structures, and cross-holdings among
affiliates.
Technology Strategy
A Technology strategy is the overall plan which consists of
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objective(s), principles and tactics relating to use of the

technologies within a particular organization. Such strategies
primarily focus on the technologies themselves and in some cases
the people who directly manage those technologies. The strategy
can be implied from the organization's behaviours towards
technology decisions, and may be written down in a document.
Other generations of technology-related strategies primarily focus
on: the efficiency of the company's spending on technology; how
people, for example the organization's customers and employees,
exploit technologies in ways that create value for the organization;
on the full integration of technology-related decisions with the
(c)
company's strategies and operating plans, such that no separate

technology strategy exists other than the de facto strategic
principle that the organization does not need or have a discreet
'technology strategy'.
76 A technology strategy has traditionally been expressed in a
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Notes document that explains how technology should be utilized as part
___________________ of an organization's overall corporate strategy and each business
strategy. In the case of IT, the strategy is usually formulated by a
___________________
group of representatives from both the business and from IT. Often
___________________
E
the Information Technology Strategy is led by an organization's
___________________ Chief Technology Officer (CTO) or equivalent. Accountability
___________________ varies for an organization's strategies for other classes of
technology. Although many companies write an overall business
___________________
plan each year, a technology strategy may cover developments
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___________________ somewhere between three and 5 years into the future.
___________________
Check Your Progress
___________________
Fill in the blanks:
___________________
1. The strategy can be implied from the organization's
behaviours towards …………………… decisions.
2. …………………… varies for an organization's strategies
for other classes of technology.
E-
Summary
Strategy plays a vital role in companies for its sustainability and
growth. Major issues of strategy are being discussed at national
and global levels and research being undertaken to understand
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what makes some companies outperform their industry peers.

People are the first assets to any company. It is the human capital
which is giving maximum returns to any company. The skilled
man power and the education system India is having are the
greatest assets. One of the growth strategies of Indian IT services
firms is acquisitions. While bridging ties among group affiliates
does benefit the new dynamics in creating a more cohesive
business group yet the findings hold enough water to conclude that
these moves are contradictory to the interests of the minority
shareholders in the individual operating companies.
(c)
Lesson End Activity

Conduct a survey and find out the strategies most widely used in
IT sector and prepare a presentation based on your findings.
Keywords 77
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Notes
Enterprise Data: It defines a plan for how an enterprise utilizes
___________________
the data required to execute its business process through strategic
technology. ___________________
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Growth: It means development from a lower or simpler to a higher ___________________
or more complex form; evolution. ___________________
Strategy: Strategy is a high level plan to achieve one or more ___________________

goals under conditions of uncertainty. ___________________
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Technological Change (TC): It is a term that is used to describe ___________________
the overall process of invention, innovation and diffusion of
___________________
technology or processes.
___________________
1. Discuss the strategies in IT sector.

2. Explain the strategies of Indian Tata Group.
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3. What do you understand by technology strategy?
4. Explain diversification as a growth strategy in IT sector.
Further Readings
Books
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Web Readings
http://www.businessweek.com/stories/2008-04-28/indian-it-
companies-eye-new-strategiesbusinessweek-business-news-stock-
(c)
market-and-financial-advice
http://www.thehindubusinessline.com/industry-and-economy/info-
tech/time-for-it-companies-to-reframe-business-
strategies/article3377405.ece
78
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Notes
___________________
___________________
___________________
E
___________________
___________________
___________________
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___________________
___________________
___________________
___________________
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(c)
UNIT 9: Strategic Management Practice in India
Unit 9
79
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Notes
Activity
Strategic Management Practice in

___________________
Collect recent news on
strategic management
___________________
practice in India and prepare a
India report.
E
___________________
___________________
Objectives ___________________
___________________
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topics:
___________________
\ An Overview of Strategic Management Practice in India
\ TSMG’s Strategic Management ___________________
\ Family Run Corporates ___________________
___________________
Introduction
In words of C.K. Prahalad, "As Indian firms emerge into the global
scene; they bring with them their unique brand of innovative
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practice. Some of these are radically new ways of organizing and
leveraging resources globally, while others are breaking new
grounds in offering products and services at price points and
quality never envisaged before. Simultaneously, Indian firms are
facing hurdles in their rapid growth, as they transition from
domestic to global players".
"The rise of India poses opportunities as well as fundamental
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challenges both to academics and strategists. While access to

potentially one billion customers poses large untapped
opportunities, the very unique milieu in India is requiring a
re-thinking of strategic tenets."
An Overview of Strategic Management Practice in

India
In keeping with the strategic imperatives of contemporary global
business, the India should focus on the opportunities and
challenges associated with enhancing innovation in a world, which
(c)
is becoming increasingly flatter. Businesses in India, both domestic

and foreign, are redefining global industries through innovations
in product, process and business models. Importantly, the
emergence of innovations that are being targeted to the bottom of
the pyramid, are heralding a significant shift to a more inclusive
form of capitalism.
80 As India shakes off the shackles of its past and emerges on the
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Notes world stage as a rapidly modernizing and progressive nation, it
___________________ poses a number of challenges and opportunities to strategic
thinkers, industry leaders, and policy makers around the world.
___________________
From the perspective of Indian firms, the challenge revolves
___________________
E
around developing platforms for innovation and growth that will
___________________ sustain their meteoric rise onto the world stage as 'emerging
___________________ multinationals.' From the perspective of Western firms, the rise of
India poses opportunities as well as fundamental challenges. While
___________________
access to a potential one billion customers poses large untapped
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___________________ opportunities, the very unique milieu in India and the competition
___________________ from resurgent and ambitious Indian firms poses learning
___________________
challenges. From this platform, a set of intriguing questions arises:
___________________ How can Indian companies put innovation at the heart of their
business strategy and organizational culture? How can they
harness their entrepreneurial skills to build world-class
businesses? What's next for India as it further integrates into the
world economy? How are India's leading retailers, banks,
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pharmaceutical companies and other service providers turning the
country into a centre for innovation? How should India Inc. help
bolster the relatively weak innovation eco-system and
infrastructure in the country? How can Indian firms manage
overseas growth and integrate Western businesses into their fold?
How can Indian firms innovate to face the challenges from
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challengers such as China and other emerging markets? Similarly,

how can Western companies learn to compete in the new world?
How can they tap into the disruptive power of innovations that are
finding expression at the bottom of the pyramid and scale that into
their existing markets? How can they morph themselves so that
they are proactive participants in the new age? More broadly, what
are the opportunities for creating new insights for strategic
management by focusing on the business activities in emerging
markets such as India?
Many trans-national businesses have been eyeing India keenly.
They either want to cater to the Indian market, source products
(c)
from India or outsource businesses processes here. The country has

a highly skilled manpower pool fluent in English. This, along with
state-of-the-art telecom infrastructure makes it a favourable
destination for offshore outsourcing of business processes. Further,
the country's technology savvy talent base gives it an advantage in
low-cost manufacturing of engineered products. But on the flip 81
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side, India is a complex market with diverse economic strata, Notes
Activity
differential economic growth across regions, dynamically changing ___________________
Analyse and do a SWOT
government policies, diverse cultures, geographically dispersed analysis of TSMG’s strategic
___________________
management.
markets and a huge low-cost unorganized distribution structure.
E
___________________
Therefore, to understand these diversities is extremely important
before product portfolios and investment phases for the Indian ___________________
market are designed. Decisions on partners, acquisition targets ___________________

and manufacturing locations can also be critical for the success of a ___________________
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business in India.
___________________
1. The ……………… revolves around developing platforms ___________________
for innovation and growth.

2. Many ……………… businesses have been eyeing India
keenly.
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TSMG’s Strategic Management
TSMG (Tata Strategic Management Group) of Tata group has
developed a unique consulting model for addressing the issues
faced by companies leveraging India in its global strategy for
growth or cost optimization. Their experience across sectors,
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knowledge of the Indian markets and consumers, and

understanding of government regulations and policies has stood
them in good stead while assisting a number of companies from the
US, Europe and Asia prepares and implements India entry
strategies. Further, they have helped clients looking to harness
India's low-cost manufacturing, through strategic sourcing
initiatives and vendor identification. Their numerous service
industry clients have been benefited by way of outsourcing their
customer facing and back-office processes and setting up of BPO
outfits. Often, they have partnered them from identifying
processes through to transitioning and stabilising the BPO.
(c)
TSMG helps companies understand the contradictions of the

Indian market and industry. They develop a detailed strategy for
entering India on the lines of phasing of products, markets,
investments and customer access plans. As manufacturing
capacities are disintegrated and geographically diverse, it is no
82 easy task to identify the most appropriate supplier of a product.
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Notes They assist companies in identifying the products that can have
Activity
___________________
There are many family run factor advantages when manufactured in India. They also identify
corporates in India, choose and qualify suitable suppliers with the appropriate technology for
one___________________
of them as per your
preference and study the production at desired price points, their financial capability to
___________________
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strategies of the same and sustain supplies and credibility in business dealings. TSMG also
___________________ assist in identification of strategic alliance partners and
___________________ acquisition targets, due diligence and location studies.
___________________ In the case of outsourcing of processes, it is critical to identify a
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suitable vendor as a large number of third-party BPOs, focusing on
___________________
different industry verticals and business processes, have
___________________
mushroomed in different geographical hubs. TSMG assist our
___________________ clients identify the processes to outsource by mapping their
___________________ criticality to business and costs. The processes can either be out-
located to a subsidiary in India or outsourced to a suitable vendor.
In the case of out-location, we assist the client set up a subsidiary
in India. In the latter case, TSMG help them identify suitable
Indian suppliers. We also map the transitioning of the processes to
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India. TSMG could also run a program management office to
stabilize the process in the Indian outfit.
TSMG’s India entry practice has assisted several global
corporations including some Fortune 500 companies in businesses
as diverse as media, retail, telecom and auto components explore
and/or set up operations in the Indian subcontinent.
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Check Your Progress

Fill in the blanks:
1. TSMG helps companies understand the …………………
of the Indian market and industry.
2. TSMG assist in identification of strategic ………………
partners and ……………… targets.
Family Run Corporates

A silent revolution is sweeping through India Inc. Leading family-
(c)
run business groups such as the Birlas, the Ruias, the Goenkas
and the Jindals are making efforts to centralise functions such as
IT and payroll processing under a single entity, that mirror the
large BPO and IT captives currently being run by multinationals
such as Citi and HSBC.
Some groups like Essar and the Jindals have already put in one to 83
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two years into these efforts and have recruited senior management Notes
consultants to head the ventures or put key group executives in ___________________
charge of them. Other groups, like the Kolkata-based RPG group,
___________________
are in the process of short-listing consultants to help them come up
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with a blueprint for the new venture. ___________________
"Ours is a large diversified group and it makes sense to have a ___________________
separate company to handle all IT and related activities. ___________________

Especially as we have been expanding internationally, the need to ___________________
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have unified company for these services is vital," said Prashant
___________________
Ruia, director, Essar group.
___________________
"This is what has happened globally. We are following the same
trend," said Milan Sheth, partner, Ernst & Young. According to ___________________
him, as these large family-run businesses go global through ___________________

acquisitions, having a single entity that handles all the IT and
support functions also makes integration easier. "In future, these
companies can be listed or valued as a commercial business," he
added.
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Most promoters ET spoke to said the goal was to run the
companies as shared service centres, facilities that cater to
customers even outside the group fold, making it easier to
monetise them. The immediate driver, however, is to build
economies of scale and higher efficiency across the group firms.
"We could see three options emerge. One is that the company
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continues to service all the group companies. The other is, they
take the concept to market and take on third party business. The
third is, eventually sell it out to a specialised provider like what
happened in the Philips-Infosys BPO deal," said Vikash Jain,
engagements director, Everest Group.
The Essar group hired Vijay Mehra, a former McKinsey executive
with international experience and designated him as group CIO to
outline the unified IT and BPO strategy. One of Mr. Mehra's first
tasks was to come out with a 160-page vision document setting out
the blueprint for the delivery of IT solutions across the group, as
(c)
well for processes such as payroll, human resources, accounting

and procurement.
Today, Essar Information Technology Holdings (EITH) is being
built to serve all the common IT needs of the group and some
functions such as payroll are being handled by its BPO, Aegis
84 BPO. "There will be three legs to it, BPO, IT applications and data
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Notes centres. To start with, we will service the six Essar businesses
___________________ under various holding companies and later, also take on external
clients," said Mr. Mehra.
___________________
___________________ Similarly, Aditya Birla group firm, PSI Data Systems, is now being
E
repositioned to handle the IT requirements of all the group
___________________
companies. "It will be more inward looking now," group chairman
___________________ Kumar Mangalam Birla had told ET in a recent interview.
___________________ The appointment of Dev Bhattacharya, a key member of the Birla
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___________________ group think-tank as group executive president, IT & ITES also
___________________
reflects this focus, Birla group officials said. In the JSW group, the
common IT functions are being centralised under a new firm, JSoft
___________________
Solutions, formed for this purpose.
___________________
"Accounting, payroll, procurement, HR and other common
functions will be run as shared services. In another six months we
will also extend the operation to outside the group," said JSW
group finance director, MVS Seshagiri Rao. Others like the RPG
group are in the process of short listing a consultant to guide it on
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this exercise.
In family run companies, there was a time when the value system
of the organization was simply the value system of the patriarch
and his wife. Back then, those who invested in company shares
were usually businessmen from the same community as the
promoter, which meant they had implicit trust in the family
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management. There were no rules of conduct written down, no

formal norms of governance, and the patriarch's sons, sons-in-law
and nephews were groomed to carry on the business, hopefully
inculcated with the same set of values.
It's a wonderful structure in theory, relying as it does on goodness
of family values, but alas, history shows that very few have been
able to carry it off in practice. MV Subbiah is one of the few who
has managed to avoid an acrimonious split in the family, though
he's candid about the tensions inherent between the idea of family
and the idea of business. Speaking at the third CII Corporate
(c)
Governance Summit in Mumbai, the former chairman of the

Murugappa group said: "A business needs meritocracy, but
families want equality among members, so they practice nepotism.
Further, families look for high profit, high dividends, safety and
security, while a business needs growth and risk-taking ability."
Arun Bharat Ram, chairman of SRF, is from a prominent business 85
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family that splintered famously in the late 80s. He believes Notes
attitudes have changed since then and business families now ___________________
actively seek to bring the aspirations of their members in line with
___________________
what's good for the company. "Family businesses have adapted," he
E
says. "They realize that what is good for the common shareholders ___________________
in good for them." ___________________
With 42% of the companies listed on the Bombay Stock exchange ___________________
having family shareholdings exceeding 50%, India Inc's fortunes ___________________
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are closely linked to the way family businesses conduct themselves.
___________________
Then there are a new set of family businesses that are currently
establishing themselves in these times of rapid growth. Many of ___________________
them fall in the Small and Medium Enterprise (SME) category and ___________________
are not yet listed, but they will eventually set the pace.
___________________
ICICI Bank has made its business to lend to the SME sector and
CEO KV Kamath is confident that the new-gen family businesses
will measure up. "They are adopting good corporate governance
practices of their own volition," he says. "They understand that the
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best way to increase their wealth is through the valuation of their
companies."
Not everyone is convinced. Ajay Bagga, CEO of Lotus India Asset
Management, says that family managements continue to be
arrogant and at the CII Summit, he presents a series of examples
of families that have enriched themselves at the expense of
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common shareholders. Some give themselves preferential

allotments at reduced prices ahead of an IPO and others merge
their group companies in a way that the swap ratio favours the
company with the higher promoter stake. "It gets hushed up
because everyone is making 40% returns on the market," he says.
"Shareholder activism doesn't yet exist in India, but if the returns
fall, there could be trouble."
What do family-run businesses need to do to earn a reputation for
good corporate governance? Ernst & Young, in conjunction with
CII, has recently released a discussion paper titled Corporate
Governance: Value for whom and how, where it suggests they
(c)
install a succession planning mechanism, appoint independent

directors who are not too close to the family and empower them to
help resolve conflicts of interest between the business and the
family.
86 Farokh Balsara, "A huge chunk of Indian companies are family
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Notes managed and their corporate governance will determine whether
___________________ people will invest in them and the premium they will pay. For
example, in Tata group companies, corporate governance has
___________________
added significant value to the brand."
___________________
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One of the most sensitive areas in family run corporates is
___________________
succession planning. Indian corporates are still a long way from
___________________ the American model of separation of ownership from management,
___________________ which means a place needs to be made for succeeding generations
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of the family. Promoters try to mitigate this problem by ensuring
___________________
their children have impeccable educational credentials, often
___________________
followed by a stint in another organization where they might earn
___________________ their spurs. But still, the nagging question remains – is the family
___________________ member the best person to take charge? Or should professionals
within and outside of the organization be considered?
Rama Bijapurkar is an independent director on the boards of
Infosys, Godrej Consumer Products and Mahindra Resorts among
others and she candidly admits that it's a difficult call: "Given our
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Indian culture, if the family owns 60%, can you really contest it if a
well-educated new family member is brought into the company? As
an independent director, I've struggled with that question."
Worse still are the sibling rivalries that crop up in the second
generation, when independent directors are usually called upon to
mediate. The Murugappa group's MV Subbiah says such rivalries
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are usually unavoidable and need to be managed. At the CII

Summit he had this piece of practical advice to give to family
business patriarchs: "Build schools, hospitals, engage your family
in social work. Not only does it build a sense of values, it acts as a
glue when it comes to a question of a split.
Check Your Progress

Fill in the blanks:
1. A business needs ……………………, but families want
equality among members, so they practice nepotism.
(c)
2. Families look for high profit, high dividends, safety and

security, while a business needs …………………… and
…………………… ability.
Summary 87
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Notes
As India shakes off the shackles of its past and emerges on the
___________________
world stage as a rapidly modernizing and progressive nation, it
poses a number of challenges and opportunities to strategic ___________________
thinkers, industry leaders, and policy makers around the world.
E
___________________
Many trans-national businesses have been eyeing India keenly.
___________________
They either want to cater to the Indian market, source products
___________________
from India or outsource businesses processes here. The country has
___________________
a highly skilled manpower pool fluent in English. Therefore, to
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understand these diversities is extremely important before product ___________________
portfolios and investment phases for the Indian market are ___________________
designed.
___________________
___________________
Lesson End Activity
Collect the information on strategic management of Reliance and
prepare a presentation.
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Keywords
Global: It means Pertaining to the entire globe rather than a
specific region or country.
Growth: It means development from a lower or simpler to a higher
or more complex form; evolution.
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Innovation: It is the development of new values through solutions

that meet new requirements, inarticulate needs, or old customer
and market needs in value adding new ways.
Strategy: Strategy is a high level plan to achieve one or more

1. Comment on the strategic management practice prevalent in
India.
(c)
2. Write a note on various ways in which different Indian

organizations have set up their vision, mission and values.
3. What is the importance and relevance of the vision and
mission statement of various Indian organizations?
4. Write a brief note on the family run Corporates.
88
Further Readings
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Notes
___________________ Books
___________________ Innovation: A Strategic Approach”, Cengage Learning.
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___________________ Christensen.Clayton (2008), “Strategic Management of Technology
___________________
___________________ Dicke.Wilhelmina Margaretha (2005), “Managing Technology and

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___________________
___________________ Web Readings

___________________ http://articles.economictimes.indiatimes.com/2007-12-
___________________ 21/news/27676357_1_group-firms-goenkas-essar-group
http://www.tsmg.com/resources/16.html
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(c)
UNIT 10: Case Study
Unit 10
89
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Notes
Case Study
___________________
___________________
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___________________
Objectives
___________________
___________________
Case Study: JetBlue Airlines' Success Story
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___________________
In early 2003, JetBlue Airways (JetBlue), the three-year-old
no-frills American airline, posted a profit of $ 17.6 million for the ___________________
first quarter of 2003. In the same period, the American airline
___________________
industry announced losses of around $2 billion. JetBlue was one
of the few bright spots in an industry which has been reeling ___________________
under the woes of over-capacity and losses for over two years.
The company managed to succeed in a period when big names of
the American airline industry like American Airlines, United
Airlines, US Airways and others suffered huge losses and were a
few steps from bankruptcy. The American airline industry was in
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a bad state owing to the effects of terrorism, war and economic
downturn. The major carriers alone were estimated to have an
outstanding debt of over $100 billion, as against a combined stock
market value of $13 billion in 2002. Passenger traffic was also
falling consistently. In early 2003, the traffic was 17% lower than
in the same period of 2002 (which was itself 10% lower than the
traffic in early 2001). In this scenario, a number of low cost
airlines began to make their presence felt in the industry.
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Southwest Airlines, the highly successful 30-year-old discounter,

was the inspiration for most of the low-cost start-ups. However,
not all the start-ups succeeded. The most important cause for
failure was the inability of these low-cost airlines to bring about a
balance between cost-cutting and quality of service.
The most successful exception to this condition was JetBlue.
JetBlue, which was also modelled on the lines of Southwest
Airlines, managed to succeed in a depressed and highly
competitive industry, because of its innovative approach to
business and its efforts in becoming a cost leader by cutting down
on unnecessary frills and wasteful expenses. The airline managed
to cut costs without compromising on the quality of service. In
fact, it provided more amenities than other airlines, including
personal television sets for every flyer and comfortable leather
(c)
seats, creating a feeling of luxury. JetBlue's strategy was to

identify and eliminate non-value adding costs and use the money
so saved, to provide service of better quality.
JetBlue is the brainchild of David Neeleman (Neeleman), the son
of a Mormon missionary, who grew up in Salt Lake City, Utah.
Neeleman was a poor student and dropped out of the University
Contd...
90 of Utah after his freshman year. After dropping out, he spent two
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Notes years in Brazil as a missionary.
Returning to the USA, he took up a career in sales, selling
___________________
condominiums in Hawaii. To boost his business, he started his
___________________ own travel agency by chartering flights to transport prospective
clients to the Hawaiian Islands. Neeleman was a hard-seller who
___________________ even tried to push honeymoon packages onto couples during their
E
weddings. His reputation as a salesman caught the attention of
___________________
June Morris, who owned one of Utah's largest travel agencies.
___________________ Together they started a Utah-based charter operation in 1984
called Morris Air. Neeleman modelled Morris Air on the lines of
___________________ Southwest Airlines (Southwest) run by his idol Herb Kelleher. He
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took ideas from Southwest and tried to improve on them. He
___________________
adopted a strategy of keeping costs low to increase margins by
___________________ turning around the planes quickly and having reservationists
work from home to save office rentals.
___________________
He also developed the industry's first electronic ticketing system,
___________________ which was easier to operate than manual ones and did not cost
much. By 1992, Morris Air had developed into a regular scheduled
airline and was poised for an IPO.
Herb Kelleher, impressed with the airline's low cost, high
revenues strategy, offered to take it over. Southwest bought
Morris Air for $129 million. Neeleman gained $22 million from
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this sale and went to work at Southwest as an executive vice
president. This arrangement, however, did not work out.
Neeleman, accustomed to running his own airline, was unable to
adjust to working in a team. Within a year, he split ways with
Southwest. Before he could leave, Kelleher made him sign a non-
compete agreement, which would be valid for five years.
Neeleman then moved to Canada, where he co-founded a discount
airline called West Jet. He also fine-tuned the online reservations
system he developed at Morris Air, called it Open Skies and sold it
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to Hewlett-Packard in 1999, for a reported $22 million.

JetBlue succeeded because of its cost advantages and no-nonsense
approach to business. The company adopted aggressive cost
cutting by doing away with most of the frills other airlines
provided (which only increased their cost and did not improve
customer value) without compromising on quality or comfort.
Said Neeleman, "You can be efficient and effective and deliver a
great experience at the same time." JetBlue's aim was to create a
cost structure that would support low fares, without lowering
service standards. The fares charged by JetBlue for a round trip
averaged between $98 to $498, which was more than 50 per cent
less than those charged by the majors in the industry (For
instance, a round trip from New York to Florida cost about $ 500
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on the major airlines; JetBlue charged about $ 140 for the same
trip with a seven day advance purchase). To support its decision
to become a cost leader, JetBlue adopted a number of innovative
measures on its flights. Jetblue decided not to serve meals on its
flights, no matter what the distance or duration. Neeleman
identified food as an area in which major cost cutting was
possible.
Contd...
UNIT 10: Case Study
91
JetBlue succeeded where a number of other airlines failed. The
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primary reason for this success was that the airline tried to be Notes
different. It built its success on low cost and high standards,
which attracted and kept passengers, and at the same time ___________________
helped the airline remain solvent in times when the majors were ___________________
crumbling to dust.
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However, analysts wonder whether this magnitude of success can ___________________
be sustained for a longer period. JetBlue's cost leader approach ___________________
succeeded because the airline was in its growing stage and could
yet exercise close control over the business. There were no labour ___________________
problems because the airline was small enough for all the
employees to feel involved and for the management to look after ___________________
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its employees well. Things cannot be the same forever. With ___________________
JetBlue growing at a very rapid pace, its real success would be in
replicating the same model successfully on a larger scale. An ___________________
important factor in JetBlue's success was that it operated in a
niche market, where it had no competition. It adopted the ___________________
Southwest model, but did not operate in the same markets.
___________________
However, competitors were catching up with JetBlue.
Question:
Critically analyse the above case.
Source: http://www.icmrindia.org/casestudies/catalogue/Business%20Strategy1/Business%2
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0Strategy%20Jetblue%20Airlines%20Success%20Story.htm
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92
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Notes
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___________________
___________________
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___________________
___________________
___________________
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___________________
___________________
___________________
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UNIT 11: Technology and Innovation
93
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Notes
___________________
___________________
E
___________________
___________________
___________________
___________________
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___________________
___________________
___________________
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BLOCK-III
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94
F
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Notes
UNIT 11: TECHNOLOGY AND INNOVATION
___________________ UNIT 13: MANAGING TECHNOLOGY AND
INNOVATION
z Introduction
___________________ z Introduction
z Importance of Technology and Innovation to
Business
___________________ z Importance of Managing Technology
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z Importance of Technology and Innovation to Society
___________________ z Process and Tools for Managing Technology
z Technology and Innovation Do Not Stand Still z Making Decisions for Managing Technology
___________________
z Value Creation is the Key z Making Decisions for Managing Innovation
___________________
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UNIT 12: TECHNOLOGICAL INNOVATION UNIT 14: STRATEGY AND INNOVATION
___________________
SYSTEM
z Introduction
z ___________________
Introduction
z Link between Strategy and Innovation
z Background of Technological Innovation System
___________________ z Change and Innovation
z Structures of a Technological Innovation System
___________________ z Innovation as Strategy
z Seven System Functions
z Acquiring New Technologies and Capabilities UNIT 15: CASE STUDY
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Unit 11
95
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Notes
Activity
Technology and Innovation Give___________________

examples of those
products or companies which
have___________________
been successful in using
technology and innovation to
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___________________
business.
Objectives
___________________
topics: ___________________
\ Importance of Technology and Innovation to Business ___________________
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\ Importance of Technology and Innovation to Society ___________________
\ Technology and Innovation Do Not Stand Still
___________________
\ Value Creation is the Key
___________________
___________________
Introduction
GE illustrates that the management of technology and innovation
is not a new concern for businesses. However today, new products,
processes, and approaches are emerging faster than in the past. As
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a result, the management of technology and innovation has been
pushed to the forefront as a major focus for both business and
society.
Importance of Technology and Innovation to Business

To illustrate the importance of technology to business, consider the
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following statement by Alan Greenspan, former Chairman of the

Federal Reserve.
New technologies that evolved from the cumulative innovations of
the past half-century have now begun to bring about dramatic
changes in the way goods and services are produced and in the way
they are distributed to final users.
Those innovations, exemplified most recently by the multiplying
uses of the Internet, have brought on a flood of start-up firms,
many of which claim to offer the chance to revolutionize and
dominate large shares of the nation’s production and distribution
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system.
Former Chairman Greenspan goes further in his speech saying
that not only will the future of business be directed by technology
but also that the root of business today is driven by technology and
its application. His belief in the growth of technology is supported
by the growth in patents worldwide.
96 The practical impact on business of this growth in technology is
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Notes illustrated by the fact that as recently as ten years ago
___________________ information, including pricing on many different types of
machinery and commodity products, was highly inefficient. It was
___________________
difficult to know exactly what each firm would charge for its
___________________ product and what the price would be for other firms. A business
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___________________ person could call and ask the price for that product. Whether the
price was the same if you called a different salesperson in a
___________________
different part of the month was not predictable.
___________________
The result was that widely different prices were charged for the
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___________________ same products. Purchasing agents spent a lot of time looking for
___________________ the best price. However, changes in telecommunications have all
but eliminated this inefficiency. Internet availability has resulted
___________________
in more transparent and efficient pricing for both capital goods and
___________________ commodity products today.
The impact of technology on business is seldom one-dimensional,
but rather, new technology causes a cascading effect within firms.
To illustrate, consider the information technology from the prior
example. In economic theory, we learn that price is a function of
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supply and demand. But the technology has resulted in both more
demand and lower prices. New technology has made more
information available to consumers. As more information becomes
available, potential buyers become more aware of opportunities to
obtain and use products. This leads to greater demand. But more
precise information also leads to pricing being more systematic.
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Thus, technology leads to better prices. A similar cycle has taken

place in other markets. Today, people use the Internet to buy
automobiles, books, and other products. This has resulted in more
buyers while, in many cases, exerting pressures to lower prices.
For a firm to make a profit in this environment, it must be more
efficient.
One of the key ways that a firm obtains such efficiency is through
technology. Thus, the use of technology in one domain typically
leads to greater need for changes in technology in other areas.
Retail is one of the oldest industries in the United States. Wal-
Mart is the world’s largest retailer and is a good example of this
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cascading effect in practice. Today, when you purchase goods and

check out at a Wal-Mart store, you or the cashier scans the various
products you are purchasing. This process is more than a way to
speed your checkout from the store. There is information generated
on the sale and on the product itself. This information is used for
reordering products and tracking sales patterns.
Wal-Mart wants to expand the information generated at the 97
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checkout by implementing nationwide Radio Frequency Notes
Activity
Identification (RFID) technology. RFID technology requires a small ___________________
What additional creative
tag be placed on each item at the manufacturer. technology you can add to
___________________
upgrading your society.
Check Your Progress
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___________________
1. A business person could call and ask the ……………… ___________________
for that product. ___________________
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2. The impact of technology on business is seldom ___________________
…………………… dimensional. ___________________
___________________
Importance of Technology and Innovation to Society
___________________
The impact of technology is not simply on individual firms. It also
has broader societal impact both positive and negative. Consider
the positive effect by examining the findings on the impact of
technology in a single state, Washington. This state has
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aggressively developed its technological foundation. It has been
found that technology-based businesses contribute more to the
state’s international exports than other types of businesses.
As noted before, technology helps push firms to lower costs.
However, this has led to increased levels of outsourcing by a
number of firms to lower cost settings; technology advances in
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communication and computers help ensure that such outsourcing

can be successful. Technology allows many job activities to be done
as easily in one part of the world as another. Thus, technology has
encouraged and permitted the outsourcing of jobs to these lower
cost environments to a degree not seen before. In the past,
manufacturing jobs were the only jobs principally outsourced.
However, today, the jobs outsourced include not only computer
programmers but also other technical jobs such as reading MRI
images from medical tests and preparing tax returns. In fact,
Princeton economist Alan Blinder predicts that over the next 20
years over 40 million such jobs will be lost.
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However, outsourcing is not all negative. Outsourcing impacts the

United States as well as other developed economies. Countries as
diverse as Ireland and Korea have experienced some of the same
negative impact from technology as jobs are outsourced to lower
cost environments. But as one country outsources some jobs other
jobs will be in sourced. While individually an outsourced job may
98 be very painful, studies indicate that there is a net 14 per cent
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Notes benefit to the outsourcing nation through new job creation and
Activity
Do ___________________
you agree with the
increased efficiencies. In addition, the development of the
statement that technology and economies of India, China, Russia, and other similar nations
___________________
innovation do not stand still?
With the help of internet
provides new markets for other businesses from developed
___________________ economies.
E
prepare a presentation on the
same.
___________________
The interaction between society and technology can be viewed in
___________________ terms of pushing and pulling. When we say that technology is
___________________
pushing society, we mean that new innovations in technology lead
to changes in society that were not expected. For example, society
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___________________
was not demanding the development of the Internet. However,
___________________ when it became a reality, it was quickly adopted and employed.
___________________ Business can also be pulled by society to create technology.
___________________ For example, society demanded through their legal representatives

that there be new innovations in automobiles such as more safety
features and better gas mileage. The major American automakers
headquartered in Detroit insisted that it would be impossible to
meet those goals. However, when laws were passed demanding the
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innovations, business rose to the task and developed the
technology necessary to meet the demands. Thus, the relationship
between society and technology is rich and multidimensional.
Check Your Progress

Fill in the blanks:
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1. The impact of technology is not simply on ………………

firms.
2. The major American automakers headquartered in
…………… insisted that it would be impossible to meet
those goals.
Technology and Innovation Do Not Stand Still

Technology and innovation influence both the firm and society as a
whole, and this impact is ongoing. Entire industries can be created
or can disappear very quickly because of new technologies. To
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illustrate, consider what has happened to the recorded music

industry. In the last 40 years, the dominant technology has
changed from records (LPs), to eight-track tapes, to cassette tapes,
to compact discs. Turntables are antiques, and eight-track players
are collectibles. Now with the emergence of MP-3 and other types
of new technologies (4G phones), CDs and MP-3 players may soon
become obsolete. Individual companies can similarly be created or 99
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can disappear quickly due to technological changes. Notes
Activity
For example, a classic American company Polaroid went into Draft___________________
a digital essay on
bankruptcy because of the development of the digital camera, importance of Value Creation.
___________________
which made many of Polaroid’s products obsolete. Today, Polaroid
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___________________
has reinvented itself with its innovative line of Polaroid PoGo
digital products, digital cameras, digital photo frames, etc. Today, ___________________
the firm has become a consumer electronics company that employs ___________________
a wide range of cutting edge technologies not a camera ___________________
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manufacturer. Therefore, as we begin to look at technology, we
___________________
hope you recognize that technology is a key part of most
businesses. ___________________
Technology is typically pervasive in ways that we may not realize ___________________
until we begin to explore it in depth. It is clear that an industry, ___________________

firm, or individual who ignores technology and its development
does so at great risk. A recent McKinsey report sums up how
technology and innovation are changing how business is done as
follows:
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As globalization tears down the geographic boundaries and market
barriers that once kept businesses from achieving their potential, a
company’s ability to innovate – to tap the fresh value-creating
ideas of its employees and those of its partners, customers,
suppliers, and other parties beyond its own boundaries has become
a core driver of growth, performance, and valuation.
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Check Your Progress

Fill in the blanks:
1. Entire industries can be created or can disappear very
quickly because of new …………………….
2. Today, the firm has become a consumer …………………
company that employs a wide range of cutting edge
technologies not a camera manufacturer.
Value Creation is the Key

(c)
Whether in the United States or elsewhere in the world,

technology and innovation must add value to the firm or to society
to flourish. The goal of technology and innovation processes is to
add value to the business but not just for the purpose of creation.
This typically means that there is a profit motive for the business
100 or an efficiency and effectiveness motive for non-profits. Basic
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Notes research, which focuses on the creation of knowledge for the sake
___________________ of knowledge, can have value to society, but it is not a major
concern here. In focusing on value creation, the manager must also
___________________
recognize that in today’s environment there is a need for
___________________
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technology to provide a visible and timely creation of value for the
___________________ firm. Following the dot-com business crash of the mid-1990s, the
___________________ spending on new technology by businesses decreased.
___________________ However, this decrease must be kept in perspective. For four
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decades prior to the technology investment decline in the late
___________________
1990s, spending on new technology increased 10 per cent annually.
___________________
In 2003, that level of spending growth had declined. However,
___________________ spending growth in new technology was still approximately 4 per
___________________ cent per year. Thus, businesses are no longer willing to invest in
technology if the strategic and performance benefits of the
technology are not clear. During the boom years of the 1990s, firms
invested with hopes that there would be a positive result. The new
competitive environment requires more in the management of
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technology. Now the value addition of the technology must be clear
and based on sound analysis and forecasts to justify the
investment. This makes the processes of the management of
technology and innovation more difficult and complex.
The focus on value creation has clearly been true in the turbulent
economy of recent years. In 2009, the prediction was for a 4 per
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cent increase in technology spending. However, in 2010 as the

economy recovered spending is returning to historical averages
closer to 10 per cent. Thus, the global economy is affected by
technology development and affects technology usage. Individual
technology-focused firms may experience ups and downs, but the
core importance of technology continues for businesses in
developed economies such as the United States and European
Union, as well as emerging economies around the world.
Check Your Progress

Fill in the blanks:
(c)
1. The goal of technology and innovation processes is to

add …………………… to the business but not just for
the purpose of creation.
2. In 2009, the prediction was for a …………………… per
cent increase in technology spending.
Summary 101
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Notes
New technologies that evolved from the cumulative innovations of
___________________
the past half-century have now begun to bring about dramatic
changes in the way goods and services are produced and in the way ___________________
they are distributed to final users. The impact of technology on
E
___________________
business is seldom one-dimensional, but rather, new technology
___________________
causes a cascading effect within firms. Wal-Mart wants to expand
the information generated at the checkout by implementing ___________________
nationwide Radio Frequency Identification (RFID) technology. The ___________________
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impact of technology is not simply on individual firms. It also has ___________________
broader societal impact both positive and negative. The interaction
___________________
between society and technology can be viewed in terms of pushing
and pulling. Technology and innovation influence both the firm ___________________
and society as a whole, and this impact is ongoing. The goal of ___________________
technology and innovation processes is to add value to the business
but not just for the purpose of creation.
Lesson End Activity

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Critically examine the impact of technology on business.
Keywords
Business: A business (also known as enterprise or firm) is an
organization involved in the trade of goods, services, or both to
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consumers.
Globalization: Globalisation is the process by which the world is
becoming increasingly interconnected as a result of massively
increased trade and cultural exchange.
Innovation: Innovation generally refers to renewing, changing or
creating more effective processes, products or ways of doing things.
Outsourcing: Outsourcing is the contracting out of an internal
business process to a third party organization.
Radio Frequency Identification (RFID): Radio-frequency
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identification (RFID) is the wireless non-contact use of radio-

frequency electromagnetic fields to transfer data, for the purposes
of automatically identifying and tracking tags attached to objects.
Society: Society made up of individuals who have agreed to work
together for mutual benefit.
102 Technology: Technology is a body of knowledge used to create
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Notes tools, develop skills, and extract or collect materials.
___________________
Value Creation: The performance of actions that increase the
___________________ worth of goods, services or even a business.
___________________
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___________________ Questions for Discussion
___________________ 1. Discuss the importance of technology to business.
___________________ 2. “One of the key ways that a firm obtains such efficiency is
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___________________ through technology.” Elucidate.
___________________ 3. How does technology helps push firms to lower costs?
___________________ 4. “The interaction between society and technology can be viewed

___________________
in terms of pushing and pulling.” Explain.
5. Describe the goal of technology and innovation processes.
Further Readings
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Books
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Web Readings
http://www.inc.com/ss/10-tech-innovations-help-your-business#1
http://www.ey.com/GL/en/Issues/Business-environment/Six-global-
trends-shaping-the-business-world—Rapid-technology-innovation-
creates-a-smart – mobile-world
http://www.foundation.org.uk/journal/archive.htm
http://www.helmholtz.de/en/research/key_technologies/technology_i
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nnovation_and_society/
http://blogs.sfu.ca/departments/cprost/wp-
content/uploads/2012/06/0802.pdf
UNIT 12: Technological Innovation System
Unit 12
103
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Notes
Activity
Technological Innovation System

___________________
Collect recent updates on
Technological Innovation
___________________
system.
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___________________
Objectives
___________________
topics: ___________________
\ Background of Technological Innovation System ___________________
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\ Structures of Technological Innovation System ___________________
\ Seven System Functions
___________________
\ Acquiring New Technologies and Capabilities
___________________
___________________
Introduction
The Technological Innovation System is a concept developed within
the scientific field of innovation studies which serves to explain the
nature and rate of technological change. A Technological
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Innovation System can be defined as ‘a dynamic network of agents
interacting in a specific economic/industrial area under a
particular institutional infrastructure and involved in the
generation, diffusion, and utilisation of technology’.
The approach may be applied to at least three levels of analysis: to
a technology in the sense of knowledge field, to a product or an
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artefact, or to a set of related products and artefacts aimed at

satisfying a particular [societal] function. With respect to the
latter, the approach has especially proven itself in explaining why
and how sustainable (energy) technologies have developed and
diffused into a society, or have failed to do so.
Background of Technological Innovation System

The concept of a Technological Innovation System was introduced
as part of a wider theoretical school, called the innovation system
approach. The central idea behind this approach is that
(c)
determinants of technological change are not (only) to be found in

individual firms or in research institutes, but (also) in a broad
societal structure in which firms, as well as knowledge institutes,
are embedded. Since the 1980s, innovation system studies have
pointed out the influence of societal structures on technological
104 change, and indirectly on long-term economic growth, within
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Notes nations, sectors or technological fields.
___________________
The purpose of analysing a Technological Innovation System is to
___________________ analyse and evaluate the development of a particular technological
___________________ field in terms of the structures and processes that support or
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hamper it. Besides its particular focus, there are two, more
___________________
analytical, features that set the Technological Innovation System
___________________ approach apart from other innovation system approaches.
___________________ Firstly, the Technological Innovation System concept emphasises
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___________________ that stimulating knowledge flows is not sufficient to induce
___________________
technological change and economic performance. There is a need to
exploit this knowledge in order to create new business
___________________
opportunities. This stresses the importance of individuals as
___________________ sources of innovation, something which is sometimes overseen in
the, more macro-oriented, nationally or sectorally oriented
innovation system approaches.
Secondly, the Technological Innovation System approach often
focuses on system dynamics. The focus on entrepreneurial action
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has encouraged scholars to consider a Technological Innovation
System as something to be built up over time. This was already put
forward by Carlsson and Stankiewicz:
‘Technological Innovation Systems are defined in terms of
knowledge/competence flows rather than flows of ordinary goods
and services. They consist of dynamic knowledge and competence
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networks. In the presence of an entrepreneur and sufficient critical

mass, such networks can be transformed into development blocks,
i.e. synergistic clusters of firms and technologies within an
industry or a group of industries.’
This means that a Technological Innovation System may be
analysed in terms of its system components and/or in terms of its
dynamics.
Check Your Progress

Fill in the blanks:
(c)
1. The concept of a Technological Innovation System was

introduced as part of a wider theoretical school, called
the …………………… approach.
2. The Technological Innovation System approach often
focuses on system …………………….
Structures of a Technological Innovation System 105
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Notes
The system components of a Technological Innovation System are Activity
Make___________________
an assignment on
called structures. These represent the static aspect of the system,
Structures of a Technological
as they are relatively stable over time. Three basic categories are ___________________
Innovation System of an
distinguished: organization in IT sector of
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your___________________
choice.
Actors ___________________
___________________
Actors involve organisations contributing to a technology, as a
developer or adopter, or indirectly as a regulator, financer, etc. It is ___________________
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the actors of a Technological Innovation System that, through ___________________
choices and actions, actually generate, diffuse and utilise
___________________
technologies. The potential variety of relevant actors is enormous,
ranging from private actors to public actors and from technology ___________________
developers to technology adopters. ___________________
The development of a Technological Innovation System will depend
on the interrelations between all these actors. For example,
entrepreneurs are unlikely to start investing in their businesses if
governments are unwilling to support them financially. Vice versa,
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governments have no clue where financial support is necessary if
entrepreneurs do not provide them with the information and the
arguments they need to legitimate policy support.
Institutions
Institutional structures are at the core of the innovation system
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concept. It is common to consider institutions as ‘the rules of the

game in a society, or, more formally, the humanly devised
constraints that shape human interaction’. A distinction can be
made between formal institutions and informal institutions, with
formal institutions being the rules that are codified and enforced
by some authority, and informal institutions being more tacit and
organically shaped by the collective interaction of actors. Informal
institutions can be normative or cognitive. The normative rules are
social norms and values with moral significance, whereas cognitive
rules can be regarded as collective mind frames, or social
paradigms.
(c)
Examples of formal institutions are government laws and policy

decisions; firm directives or contracts also belong to this category.
An example of a normative rule is the responsibility felt by a
company to prevent or clean up waste. Examples of cognitive rules
are search heuristics or problem-solving routines. They also
involve dominant visions and expectations held by the actors.
106
Technological Factors
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Notes
Activity Technological structures consist of artefacts and the technological
___________________
Prepare a chart on seven infrastructures in which they are integrated. They also involve the
system functions.
___________________ techno-economic workings of such artefacts, including costs, safety,
___________________ and reliability. These features are crucial for understanding the
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feedback mechanisms between technological change and
___________________
institutional change. For example, if R&D subsidy schemes
___________________ supporting technology development should result in improvements
___________________ with regard to the safety and reliability of applications, this would
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pave the way for more elaborate support schemes, including
___________________
practical demonstrations. These may, in turn, benefit technological
___________________
improvements even more. It should, however, be noted here that
___________________ the importance of technological features has often been neglected
___________________ by scholars.
The structural factors are merely the elements that make up the
system. In an actual system, these factors are all linked to each
other. If they form dense configurations they are called networks.
An example would be a coalition of firms jointly working on the
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application of a fuel cell, guided by a set of problem-solving
routines and supported by a subsidy programme. Likewise,
industry associations, research communities, policy networks,
user-supplier relations etc. are all examples of networks.
An analysis of structures typically yields insight into systemic
features - complementarities and conflicts - that constitute drivers
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and barriers for technology diffusion at a certain moment or within

a given period in time.
Check Your Progress

Fill in the blanks:
1. The development of a Technological Innovation System
will depend on the interrelations between all ………….
2. …………… structures are at the core of the innovation
system concept.
(c)
Seven System Functions

Structures involve elements that are relatively stable over time.
Nevertheless, for many technologies, especially newly emerging
ones, these structures are not yet (fully) in place. For this reason,
mostly, the scholars have recently enriched the literature on
Technological Innovation Systems with studies that focus on the 107
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build-up of structures over time. The central idea of this approach Notes
is to consider all activities that contribute to the development, ___________________
diffusion, and use of innovations as system functions. These
___________________
system functions are to be understood as types of activities that
influence the build-up of a Technological Innovation System.
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___________________
As an example, the seven system functions defined by Suurs are ___________________
explained here: ___________________
___________________
Entrepreneurial Activities
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___________________
The classic role of the entrepreneur is to translate knowledge into
business opportunities, and eventually innovations. The ___________________
entrepreneur does this by performing market-oriented experiments ___________________

that establish change, both to the emerging technology and to the ___________________
institutions that surround it. The Entrepreneurial Activities
involve projects aimed to prove the usefulness of the emerging
technology in a practical and/or commercial environment. Such
projects typically take the form of experiments and
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demonstrations.
Knowledge Development
The Knowledge Development function involves learning activities,
mostly on the emerging technology, but also on markets, networks,
users etc. There are various types of learning activities, the most
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important categories being learning-by-searching and learning-by-

doing. The former concerns R&D activities in basic science,
whereas the latter involves learning activities in a practical
context, for example in the form of laboratory experiments or
adoption trials.
Knowledge Diffusion/Knowledge Exchange

The characteristic organisation structure of a Technological
Innovation System is that of the network. The primary function of
networks is to facilitate the exchange of knowledge between all the
actors involved in it. Knowledge Diffusion activities involve
(c)
partnerships between actors, for example technology developers,

but also meetings like workshops and conferences. The important
role of Knowledge Diffusion stems from Lundvall’s notion of
interactive learning as the raison-d’être of any innovation system.
The innovation system approach stresses that innovation happens
only where actors of different backgrounds interact. A special form
108 of interactive learning is learning-by-using, which involves
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Notes learning activities based on the experience of users of technological
___________________ innovations, for example through user-producer interactions.
___________________
Guidance of the Search
___________________
E
The Guidance of the Search function refers to activities that shape
___________________ the needs, requirements and expectations of actors with respect to
___________________ their (further) support of the emerging technology. Guidance of the
Search refers to individual choices related to the technology but it
___________________
may also take the form of hard institutions, for example policy
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___________________ targets. It also refers to promises and expectations as expressed by
___________________ various actors in the community. Guidance of the Search can be
positive or negative. A positive Guidance of the Search means a
___________________
convergence of positive signals – expectations, promises, policy
___________________ directives – in a particular direction of technology development. If
negative, there will be a digression, or, even worse, a rejection of
development altogether.
This convergence is important since, usually, various technological
options exist within an emerging technological field, all of which
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require investments in order to develop further. Since resources
are usually limited, it is important that specific foci are chosen.
After all, without any focus there will be a dilution of resources,
preventing all options from prospering. On the other hand, too
much focus may result in the loss of variety. A healthy
Technological Innovation System will strike a balance between
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creating and reducing variety.
Market Formation
Emerging technologies cannot be expected to compete with
incumbent technologies. In order to stimulate innovation, it is
usually necessary to create artificial (niche) markets. The Market
Formation function involves activities that contribute to the
creation of a demand for the emerging technology, for example by
financially supporting the use of the emerging technology, or by
taxing the use of competing technologies. Market Formation is
especially important in the field of sustainable energy technologies,
(c)
since, in this case, there usually is a strong normative legitimation

for the intervention in market dynamics.
Resource Mobilisation
Resource Mobilisation refers to the allocation of financial, material
and human capital. The access to such capital factors is necessary
for all other developments. Typical activities involved in this 109
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system function are investments and subsidies. They can also Notes
involve the deployment of generic infrastructures such as ___________________
educational systems, large R&D facilities or refuelling
___________________
infrastructures. In some cases, the mobilisation of natural
E
resources, such as biomass, oil or natural gas is important as well. ___________________
The Resource Mobilisation function represents a basic economic ___________________

variable. Its importance is obvious: an emerging technology cannot
___________________
be supported in any way if there are no financial or natural means,
___________________
or if there are no actors present with the right skills and
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competences. ___________________
___________________
Support from Advocacy Coalitions
___________________
The rise of an emerging technology often leads to resistance from
___________________
actors with interests in the incumbent energy system. In order for
a Technological Innovation System to develop, other actors must
counteract this inertia. This can be done by urging authorities to
reorganise the institutional configuration of the system. The
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Support from Advocacy Coalitions function involves political
lobbies and advice activities on behalf of interest groups. This
system function may be regarded as a special form of Guidance of
the Search. After all, lobbies and advices are pleas in favour of
particular technologies.
The essential feature which sets this category apart is that
advocacy coalitions do not have the power, like for example
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governments, to change formal institutions directly. Instead, they

employ the power of persuasion. The notion of the advocacy
coalition is based on the work of Sabatier, who introduced the idea
within the context of political science. The concept stresses the idea
that structural change within a system is the outcome of
competing interest groups, each representing a separate system of
values and ideas. The outcome is determined by political power.
Check Your Progress

Fill in the blanks:
(c)
1. Structures involve …………………… that are relatively

stable over time.
2. The classic role of the …………………… is to translate
knowledge into business opportunities, and eventually
innovations.
110
Acquiring New Technologies and Capabilities
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Notes
Activity
To improve competitiveness and retain sustainability, firms
___________________
Collect information from
newspapers and other means
require new technologies and capabilities. In this age of rapid
on ___________________
the technologies and innovation and complexity, it is challenging for the firms to
capabilities that India has
___________________ develop internally and remain competitive at the same time.
E
acquired recently in any
technological sector and Merger, acquisition and alliance are some of the ways to achieve
___________________
prepare a slideshow. this, but the primary driver is the desire to obtain valuable
___________________ resources. Many acquisitions failed to achieve their objectives and
___________________ resulted in poor performance because of improper implementation.
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___________________ 1. Improper documentation and changing implicit knowledge
makes it difficult to share information during acquisition.
___________________
2. For acquired firm symbolic and cultural independence which is
___________________
the base of technology and capabilities are more important
___________________ than administrative independence.
3. Detailed knowledge exchange and integrations are difficult
when the acquired firm is large and high performing.
4. Management of executives from acquired firm is critical in
E-
terms of promotions and pay incentives to utilize their talent
and value their expertise.
5. Transfer of technologies and capabilities are most difficult task
to manage because of complications of acquisition
implementation. The risk of losing implicit knowledge is
always associated with the fast pace acquisition.
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Preservation of tacit knowledge, employees and literature are

always delicate during and after acquisition. Strategic
management of all these resources is a very important factor for a
successful acquisition.
Increase in acquisitions in our global business environment has
pushed us to evaluate the key stake holders of acquisition very
carefully before implementation. It is imperative for the acquirer to
understand this relationship and apply it to its advantage.
Retention is only possible when resources are exchanged and
managed without affecting their independence.
(c)
Check Your Progress

Fill in the blanks:
1. Many ……………… failed to achieve their objectives
and resulted in poor performance because of improper
implementation.
Contd...
111
2. …………… of tacit knowledge, employees and literature
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Notes
are always delicate during and after acquisition.
___________________
Summary ___________________
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___________________
Technological Innovation System concept emphasizes that
stimulating knowledge flows is not sufficient to induce ___________________
technological change and economic performance. Technological ___________________
Innovation System approach often focuses on system dynamics.
___________________
The focus on entrepreneurial action has encouraged scholars to
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consider a Technological Innovation System as something to be ___________________
built up over time. ___________________
The development of a Technological Innovation System will depend ___________________

on the interrelations between all these actors. For example, ___________________
entrepreneurs are unlikely to start investing in their businesses if
governments are unwilling to support them financially.
Preservation of tacit knowledge, employees and literature are
always delicate during and after acquisition. Strategic
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management of all these resources is a very important factor for a
successful acquisition.
Lesson End Activity

Prepare a report on new technology innovation system by finding a
television show or movie.
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Keywords
Actors: Actors involve organisations contributing to a technology,
as a developer or adopter, or indirectly as a regulator, financer, etc.
Competence: Competence (or competency) is the ability of an
individual to do a job properly.
Entrepreneur: An entrepreneur is a person who undertakes new
financial ventures despite the risks.
Innovation System: The concept of the innovation system
(c)
stresses that the flow of technology and information among people,

enterprises and institutions is key to an innovative process.
System Dynamics: System dynamics is an approach to
understanding the behaviour of complex systems over time.
112 Technological Change: Technological change (TC) is a term that
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Notes is used to describe the overall process of invention, innovation and
___________________ diffusion of technology or processes.
___________________ Technological Structures: It consists of artifacts and the
___________________ technological infrastructures in which they are integrated.
E
___________________
___________________
___________________
1. Discuss the central idea behind the innovation system
approach.
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___________________
2. “Technological Innovation Systems are defined in terms of
___________________
knowledge/competence flows rather than flows of ordinary
___________________ goods and services.” Elucidate.
___________________
3. Explain the Technological factors in innovation system.
4. Describe the function of Guidance of the Search.
5. What do you understand by Resource Mobilisation?
6. Highlight the reasons involved in the failure in many
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acquisitions.
Further Readings
Books
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Web Readings
http://en.wikipedia.org/wiki/Technological_innovation_system
http://heimeriks.net/measuring-and-modelling-innovation/mmi-
(c)
lesson-6-innovation-systems/
UNIT 13: Managing Technology and Innovation
Unit 13
113
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Notes
Managing Technology and ___________________
Innovation ___________________
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___________________
___________________
Objectives
After completion of this unit, the students will be aware of the following ___________________
topics: ___________________
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\ Importance of Managing Technology
___________________
\ Process and Tools for Managing Technology
___________________
\ Making Decisions for Managing Technology
\ Making Decisions for Managing Innovation ___________________
___________________
Introduction
Technology and innovation influence not only the technical aspects
of business but also the behaviours and attitudes of individuals
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and groups within the organization. The result is that technology
and innovation are an organization-wide concern. An organization
cannot isolate one unit and say its concern is technology while the
rest of the organization ignores such issues. To illustrate, the
portable cell phone has become part of our everyday lives in the
last decade. This technological innovation means that employees
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who are out of the office are not out of contact. This has made it
easier to work from locations other than the office. In fact today,
with applications such as wireless connection and video capability
available for many cell phones and laptops, an employee may never
need to be in the office. As a result, processes must be in place to
ensure that the person in the field behaves as desired by the firm.
This means that managers must learn how to integrate and
manage these individuals differently from employees who are
physically present each day. Thus, managers must not only
manage changes in technology but also the structures and systems
of the organization where the technology is used.
(c)
Today, it is difficult to segment technology as being from one

country or another. For example, many Taiwanese semiconductor
firms have their headquarters in Taiwan, produce their chips in
mainland China, but maintain their principal research facilities in
the United States. Thus, technology firms are truly international
entities.
114 It is true that much of the theory, and principles, as well as the
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Notes investigation of the management of innovation and technology
Activity
___________________
Prepare an article came from the United States and other developed countries.
demonstrating the importance However, this does not limit their relevance to these countries.
___________________
of managing technology taking
examples from real world. A theoretical foundation relevant for technology should be
___________________
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applicable in a wide variety of settings in management just as
___________________ theory for physics or chemistry applies anywhere in the world. For
___________________ a theory to be sound, it cannot simply apply to a single nation.
___________________
Importance of Managing Technology
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___________________
___________________ Now that we have defined technology and its management, what
will actually be needed to build an understanding of how to do
___________________
these activities? The National Task Force on Technology has listed
___________________ five specific reasons individuals and organizations should be
concerned about the management of technology. These reasons are
as follows:
1. The rapid pace of technological change demands a cross-
discipline approach if economic development is to occur in an
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effective and efficient manner to take advantage of
technological opportunities.
2. The rapid pace of technological development and the
increasing sophistication of consumers have shortened product
life cycles. The result of these factors is a need for
organizations to be more proactive in the management of
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technology.
3. There is a need to cut product development times as well as to
develop more flexibility in organizations. The lead-time from
idea to market is being reduced by the emergence of new or
altered technologies.
4. Increasing international competition demands that
organizations must maximize competitiveness by effectively
using new technologies.
5. As technology changes, the tools of management must change,
but the process of determining what those new tools should be
(c)
is in its infancy.
Each of these issues will be dealt with in this book as we develop
an understanding of how to manage technology. Although focusing
on a single dimension of the management of technology may be
interesting, it does not provide a usable basis to actually manage
the firm. As a result, this text will address a wide range of issues 115
S
and integrate those issues into a usable whole. At the heart of the Notes
Activity
various issues examined is the belief that the management of ___________________
Collect information from the
technology is the central strategic concern for the firm. If the internet and find out the tools
business approaches the management of technology from this and___________________
processes that have been
recently introduced for
perspective, it will then have the foundation and insight to be
E
___________________
managing technology.
successful. ___________________
___________________
Check Your Progress
___________________
Fill in the blanks:
UP
___________________
1. The rapid pace of ………………… change demands a
___________________
cross-discipline approach.
___________________
2. As technology changes, the tools of ……………… must
change. ___________________
Process and Tools for Managing Technology

The range of tools and issues that a firm must examine can be
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broad. To illustrate, consider the example of the iBOT, a new type
of wheelchair that has been developed. The wheelchair has been in
existence for more than 100 years, with very little change in its
fundamental design. Wheelchair designs have historically confined
their use to relatively flat and smooth surfaces. However, Dean
Kamen, the inventor of the iBOT, saw how difficult it was for
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someone to handle a wheelchair in settings that were not flat, such

as on stairs. So he went looking for a new solution. However,
rather than thinking of a wheelchair traditionally, he sought to
build a chair that could stand up and balance like a human. The
end result would be a wheelchair that could carry a person up and
down stairs.
The development of the iBOT illustrates the role of various
elements in the firm needing to work together for success. For
example, the iBOT shows the need for a new approach and
philosophy so that the problem could be attacked in a different
way. Thus, it allows individuals in wheelchairs to roll across sand
(c)
or stand to get products off the top shelf in their home or the
grocery store.
This case demonstrates the need not only for engineers to design
the product but also for financial experts to underwrite the costs
and marketing personnel to test the product. The development of
116 this product took substantial funds and investment. Marketing
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Notes was also critical to the actual acceptance of the product. While the
Activity
___________________
Prepare a presentation on $29,000 cost per unit is high and its cost could be offset by the
Making Decisions for normal cost associated with modifying a house to meet the needs of
___________________
Managing Technology.
a person who uses a wheelchair, it requires marketing to educate
___________________
E
individuals about this benefit. Thus, it not only took the vision of
___________________ one person to see a different solution, but it took an entire
___________________ organization to develop the product. A full range of tools needs to
be considered when examining the management of technology.
___________________
UP
This perspective on the role of technology in the firm means that
___________________
the specific tools necessary to properly manage technology can be
___________________
very broad. Too often, managers of technology assume that,
___________________ because the technology is interesting or attractive to them, it will
___________________ be demanded by the consumer. However, for success, the manager
does more than rely on his or her own judgment about the viability
of the product. Instead, the manager needs to do things such as:
z Analyse the industry structure both domestically and
internationally
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z Understand the firm’s capabilities and those of its competitors
z Conduct a financial analysis of the product and firm
z Forecast future changes
Check Your Progress

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Fill in the blanks:

1. The range of ………………… and ………………… that a
firm must examine can be broad.
2. A full range of tools needs to be considered when
examining the ………………… of technology.
Making Decisions for Managing Technology

There are key decisions that need to be made as businesses and
managers seek to manage technology. These decisions initially
focus on the strategic posture the firm wants to assume. For
(c)
example, the firm must determine if it wants to be a leader or

follower in its industry. There are benefits to both, but the choice
will result in the firm taking radically different steps and
developing different processes and structures. The firm must also
determine whether it will develop its own new technology or buy
the technology. Again, each of these strategic approaches has 117
S
benefits and drawbacks that will be detailed later, but the firm Notes
needs to weigh these pluses and minuses for itself. ___________________
___________________
E
___________________
___________________
___________________
___________________
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___________________
___________________
___________________
___________________
Source: http://blog.vistage.com/wp-content/uploads/2012/12/shutterstock_85351111-
300x225.jpg
Figure 13.1: Managing Technology and Innovation

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The strategic decisions do not stop there. The firm will also have to
determine the scope of products it wants to offer. A key element in
this determination is how it can leverage its technology and
innovations to create a total platform of products and processes.
The firm must also determine the scale of products, how it will
price the products, where it will market the products, and where it
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will manufacture the products.

The process that the firm needs to address each of these issues is
critical. If the business responds in a reactive, piecemeal manner
to the competition rather than actively determining its direction,
the performance of the business will suffer. The answers to the
questions and the review of relevant concerns will help identify the
tools that need to be employed in the decision-making processes
associated with the management of technology.
Check Your Progress

Fill in the blanks:
(c)
1. There are key decisions that need to be made as

businesses and managers seek to manage ……………….
2. The firm will have to determine the …………………… of
products it wants to offer.
118
Making Decisions for Managing Innovation
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Notes
Activity
Fostering creativity is essential to managing innovation. However,
___________________
Recreate an old style
newspaper page covering the it is more than encouraging individuals to think outside the
___________________
topic Making Decisions for proverbial box. It is a process that includes developing an
Managing Innovation by
___________________ environment of discovery in the organization. Delbecq and Mills
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studying examples from real
world.
___________________
described the characteristics of firms that manage the innovation
process well. These firms are characterized by:
___________________
1. Separate funds for innovation,
___________________
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2. Periodic reviews of informal proposals by a group outside line
___________________
management,
___________________
3. Clear direction on studies to be done and follow-ups that are
___________________
expected,
___________________
4. Extensive boundary-spanning activities to learn from others
and to gain an understanding of what others are doing,
5. Sets of realistic expectations, and
6. Supportive atmosphere for debugging and exploring variations
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as well as appropriate resources for maintenance and service.
Pixar Animation Studios illustrates the way to build a supportive
environment for innovation. This studio has created the movies
Toy Story, Wall-E, Cars, and Up among others. It has pioneered
the development of new computerized animation technologies,
including Marionette, a software for animation, and Ringmaster, a
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software system for modelling, animating, and lighting. The studio

has very creative individuals heading the firm (Steve Jobs, founder
of Apple Computer) and others working throughout the firm. To
ensure that individuals in the firm have the range of skills
necessary, the business started Pixar University, which allows
individuals to study for three months on a variety of topics related
to Pixar’s work. The company seeks to further encourage creativity
by limiting its bureaucracy. Thus, the business has sought to
create a total environment for creativity.
The management of innovation requires that the firm encourage
(c)
creativity and risk taking by individuals. The firm must employ

processes that allow failure and exploration. There are four key
individual characteristics that enhance the initiative that sparks
innovation. If an organization manages the work environment in
such a way as to encourage these behaviours, then innovation is
more likely. The four behaviours are:
1. Asking questions to identify problems and opportunities, 119
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Notes
2. Learning new skills,
___________________
3. Taking risks and being proactive, and
___________________
4. Aligning strong personal beliefs and values with the
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___________________
organizations values and goals.
___________________
As you consider this innovation process, what becomes clear is that
it should be a continuous process in the organization. It is not a ___________________
process that occurs once and brings the firm all of the innovation it ___________________
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needs. To illustrate this process, consider Koch Industries. The ___________________
firm is one of the largest privately held companies in the United
___________________
States. Koch rewards individuals for developing new ideas like
many firms. But Koch also actively seeks to cross-train individuals ___________________
in different areas of the firm so that they understand how the ___________________
entire firm works. Additionally, the firm consciously seeks not to
punish individuals if they try something new that does not work.
The culture at Koch encourages risk taking. The end result is a
firm that has been able to diversify from an oil and gas company
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into one that continually finds new markets into which it can
expand.
Tools for Managing Innovation

The management of technology involves a much broader scope of
continuing and nurturing existing technology than does
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innovation. Innovation directly involves the discovery and

development of new products and/or processes.
Most often, when we think of innovation, we think of radically new

and inventive products and/or processes. For example, the
innovation of the lean manufacturing system pioneered by Toyota
has reshaped how manufacturers do business, with techniques
such as JIT inventory now becoming the norm worldwide.
However, innovation does not have to be so radical; it may be as
simple as using an old product in a new way.
For example, Scotch Masking Tape has been an innovation that

(c)
has served 3M well since its invention in 1923. The original

problem to be solved was making waterproof sandpaper. However,
Richard Drew went to an auto body shop to test his ideas and
discovered a need for tape that adhered to a painted surface and
stripped off easily. This innovation and the resultant technology
120 have led to over 900 other varieties of Scotch brand tape.
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Notes Successful technology and innovation management have made 3M
___________________ the international corporation it is today. In this unit we have
discussed the differences between Management of Technology
___________________
(MOT) and the Management of Innovation (MOI), but remember
___________________
E
that they are interconnected within the organization. This
___________________ differentiation helps us better analyse the firm’s actions, but in
___________________ reality, they are intertwined at a number of levels.
___________________
Check Your Progress
UP
___________________
Fill in the blanks:
___________________
1. Fostering ………… is essential to managing innovation.
___________________
2. Innovation directly involves the ………… and …………
___________________
of new products and/or processes.
Summary
This unit has established the foundation for the exploration of
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management of innovation and technology. The unit highlighted
that the use of technology continues to expand in business in the
United States and around the world. This expanding use and
impact of technology make the understanding of the management
of technology and innovation that much more critical. The unit has
defined both technology and innovation and what is needed to
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manage them. The focus in these definitions is on multiple

dimensions of the concepts, with strategic management playing a
particularly critical role.
Lesson End Activity

Create a group of 6 students and discuss the tools that are used for
managing technology.
Keywords
Creativity: It refers to the use of the imagination or original ideas,
(c)
esp. in the production of an artistic work.

Innovation: Innovation is the development of new values through
solutions that meet new requirements, inarticulate needs, or old
customer and market needs in value adding new ways.
Strategic Decisions: Decisions concerning policy that have a long 121
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term impact on a business. Notes
___________________
1. Why there is a need for cross-discipline approach?
E
___________________
2. What changes are required when technology changes? ___________________
3. Define management of technology and give an example based ___________________

on your knowledge. ___________________
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4. Define management of innovation and give an example of how ___________________
a firm can manage innovation processes. ___________________
5. Give an example of GE’s management of technology and how ___________________
they were able to gain a competitive advantage from those
___________________
activities.
Further Readings
E-
Books
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Web Readings
www.cgee.org.br/sobre/cgee_english.php
www.acronymfinder.com/Strategic-Management-of-Technology
(c)
122
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Notes
___________________
___________________
___________________
E
___________________
___________________
___________________
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___________________
___________________
___________________
___________________
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(c)
UNIT 14: Strategy and Innovation
Unit 14
123
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Notes
Activity
Strategy and Innovation

___________________
Interview an official of a
reputed organization and ask
him ___________________
about his views on the
linkage of strategy and
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___________________
innovation and write a short
Objectives report.
___________________
topics: ___________________
\ Link between Strategy and Innovation ___________________
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\ Change and Innovation ___________________
\ Innovation as Strategy
___________________
___________________
Introduction
___________________
Strategy and innovation are often conflated. The conundrum is
that every business needs both. Without strategy you have no
direction, without innovation you lose relevance. They both need to
be part of an integrated effort. So it is important to be clear about
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what each needs to succeed, where to deploy them, who should
drive them and what to expect.
Strategy is probably the most overused word in business. It is often
employed, unhelpfully, as a value distinction. If something is
“strategic,” then it’s well thought out, if it’s “unstrategic” then
some idiot must have done it.
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In reality, a strategy is a coherent and substantiated logic for

making one set of choices rather than another. In other words, it’s
used to make decisions that drive action, whether that entails the
overall mission of the enterprise, where it allocates resources or
how it implements programs and processes.
Good strategy is clear, never confused. At its best it’s elegant,
meaning that it explains the maximum amount of variables in the
fewest number of statements. Most of all, everything strategy does
is in the service of operational success. There can never be “good
strategy, but poor execution,” because assessing capabilities is a
(c)
crucial component of strategy.
Link between Strategy and Innovation

The “why” of innovation is simple: change is accelerating and we
don’t know what’s coming in the future, which means that we must
124 innovate to both prepare for change, and to make change. If things
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Notes didn’t change, then your company could keep on doing what it’s
___________________ always done, and there would be no need for innovation. If markets
were stable, if customers were predictable, if competitors didn’t
___________________
come up with new products and services, and if technology stayed
___________________
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constant, then we could all just keep going as we did yesterday.
___________________
But all the evidence shows that change is racing at you faster and
___________________ faster, which means many new types of vulnerabilities. Technology
___________________ advances relentlessly, altering the rules of business in all the
UP
markets that it touches, which is of course every market. Markets
___________________
are not stable, customers are completely fickle, and competitors are
___________________
aggressively targeting your share of the pie. So please ask yourself,
___________________ “Are we managing with the realities of change in mind? And are
___________________ we handing uncertainty?”
Since the alternatives are either to “make change” or to “be
changed,” and making change brings considerable advantages
while being changed carries a huge load of negative consequences,
then the choice isn’t really much of a choice at all. You’ve got to
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pursue innovation, and you’ve got to do it to obtain long lasting
benefits.
The decisions to be made focus on how best to prepare for future
markets, and the actions relate to transforming the innovation
mind set into meaningful work throughout the organization, work
that results in the development of innovations that impact the
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market, and improve the position of the organization relative to its

competitors. This means, finally, an organization-wide
commitment to designing and implementing your version of the
innovation master plan.
So what we’re talking about here is the practice of innovation as a
vital aspect of corporate or organizational strategy; the rest of this
unit explores how strategy and innovation are intimately linked
and should be mutually reinforcing. The units that follow will then
address the best practical approaches to achieving superior
innovation results.
(c)
A tight linkage between innovation and strategy will certainly be

part of your master plan, and to give you a better idea of how this
works in practice, in this unit we take a look at Apple, Cisco,
Blockbuster, IBM, and Coca Cola to see how their strategies have
shaped their pursuit of innovation.
Strategic Technology and Innovation 125
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Notes
Strategic technology and innovation can be developed as follows:
___________________
IT Strategy ___________________
Provides insight and counsel to clients concerning trade-offs and
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___________________
opportunities for making prudent investments in security
___________________
technology. The goal is to generate a competitive advantage in the
market while meeting the demands of clients and constituents. ___________________
___________________
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Enterprise Data
___________________
Defines a plan for how an enterprise utilizes the data required to
___________________
execute its business process through strategic technology. An
___________________
Enterprise Data Strategy includes defining comprehensive data
architecture, defining a set of data management processes, and ___________________
developing a thorough understanding and definition of data to be
used for critical decision-making.
Enterprise Architecture
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It improves business processes, operational stability of
investments, cohesion between departments, and enhanced
communication. We help government IT leaders maintain a holistic
view of the enterprise, so they can effectively position applications,
infrastructure, and information through strategic technology.
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Service Oriented Architecture (SOA)

It applies the latest architecture approach to enterprise
information sharing and systems integration. SOA helps create a
more agile and responsive enterprise by closely aligning strategic
technology with business goals and deploying reusable services.
Mission Engineering
An innovation bridges the gap between business and engineering
by addressing requirements from a user and developer perspective.
Mission Assurance
(c)
It addresses all activities and processes that ensure an

organization's ability to accomplish its mission in an all-hazard
environment. Our systems and processes enable an enterprise to
withstand and recover quickly from business interruptions.
126 Information Assurance
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Notes
Activity It provides services applicable to the acquisition and program
___________________
Research on Tata’s innovation management of security technology, services, and systems,
of Nano and present a
___________________
detailed report. including security assessments, acquisition and program planning,
___________________ security policy and governance, and compliance activities.
E
___________________
Trusted Services
___________________
It provides a framework through strategic technology that enables
___________________ our clients to adopt new computing and IT models in ways that
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___________________ satisfy needs for trust, mobility, scalability, and economic
efficiencies.
___________________

1. Technology advances relentlessly, altering the …………
of business in all the markets that it touches.
2. A tight ……………… between innovation and strategy
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will certainly be part of your master plan.
Change and Innovation

Innovation by your competitors and by your own firm causes
existing products, services, and business models, and indeed entire
businesses, to become obsolete. Since innovation is the driver of
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change, and change is the most fundamentally important driver of

business strategy, then it’s not an exaggeration to say that
innovation is the means of achieving strategy, as we find in the
story of Apple’s turnaround from the abyss.
When Steve Jobs was asked to return to Apple as CEO in 1997
after an absence of more than ten years, the company was, to put it
bluntly, a mess. If you thought that the PC market was a war
between Apple and Microsoft, it was clear that Microsoft had won
big.
Apple’s market share was about 5% and shrinking, and to many
(c)
observers it seemed that the company was fading away. Its product
line was an incoherent collection of 11 different computers, and
there didn’t seem to be a clear vision guiding the company forward.
The board of directors was desperate. But did Jobs have a vision
for the 21st century, as he had had in the 1970s? Did he still have
the magic? We know today that he did, but imagine that it’s 1997
and you’re Steve Jobs, and you have to figure out how to turn 127
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Apple Computer around. What do you do? Notes
Activity
Today Apple’s share of the US PC market is growing, although it’s Give___________________
an example of an
still less than 10%. But the iPod is the undisputed MP3 world organization like Google who
have___________________
used its innovation as
leader, with 70% of the market, the iPhone became the world strategy.
E
___________________
standard design for smart phones immediately upon its launch,
and the iPad may do the same in the tablet market. And 13 years ___________________
after Jobs returned Apple’s total market capitalization recently ___________________
achieved an insider milestone when the company’s total stock
___________________
value surpassed arch-rival Microsoft.
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___________________
Without a focused and successful effort at innovation Apple surely
___________________
would not have survived; the quality of its innovative efforts led
not only to survival, but leadership. Innovation was thus essential ___________________
to the company’s strategy, and it was in fact how the strategy was ___________________
executed, so much so that we simply can’t imagine “Apple” without
thinking about “innovation.”
Check Your Progress

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Fill in the blanks:
1. …………………… is the driver of change, and change is
the most fundamentally important driver of business
strategy.
2. Without a ………………… and ………………… effort at
innovation Apple surely would not have survived.
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Innovation as Strategy
Do you admire Google? Then ask yourself what role innovation
plays in Google’s strategy. It’s obvious that we wouldn’t admire
Google, and in fact we wouldn’t even know about Google if it
weren’t for innovation. The very existence of the company is based
on a single strategic insight and on two critical innovations that
made the strategy real. The insight was that as the number of web
pages grew, the internet’s potential as an information resource was
surpassing all other resources for scale, speed, and convenience,
(c)
but it was getting progressively more difficult for people to find the
information they were looking for. People therefore came to value
better search results, and Google’s first innovation to address that
need was its PageRank system, developed in 1995, an algorithm
for internet searches that returned better results than any other
search engine at the time.
128 The second innovation was a business model innovation, which
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Notes turned the company into a financial success along with its
___________________ technical search success. When Google’s leaders realized in 2000
that they could sell advertising space at auction in conjunction
___________________
with key words that Google users searched for, they unleashed a
___________________
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multi-billion dollar profit machine. The integration of these two
___________________ innovations provided a multiplicative advantage, and Google’s
___________________ competitors are falling by the wayside as the company continues to
dominate.
___________________
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For example, in November 2010, Ask.com threw in the towel with
___________________
only 2% of the market for internet search after trying for five years
___________________
to compete with Google following its $1.85 billion acquisition by
___________________ Barry Diller’s IAC/InterActiveCorp. Diller wrote, “We’ve realized
___________________ in the last few years you can’t compete head on with Google.”
Yahoo, a much bigger company than Ask, came to the same
conclusion earlier in 2010 when it decided to position itself as a
media company rather than a technology company, and outsourced
its search function to Microsoft’s Bing.
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What other companies do you like? Do you also admire Starbucks?
Or Disney? Or Sony? Or Toyota? Or BMW? They’re certainly
innovators, and many of us appreciate them precisely because of it.
So the relationship between strategy and innovation is vital, and
the important role that innovation plays in transforming the
concepts of strategy into realities in the marketplace tells us that
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none of these companies could have succeeded without innovation.

Nothing is more certain than change. While many speak as if
change is a reflection of the 21st century, the world has actually
been changing for many, many years. The ability to manage that
change effectively, especially in business organizations, is critical.
The effects of change can be negative or positive. Successful
management will ensure the latter.
Accept Change
In this technology-driven global economy, it is important to accept
(c)
the inevitability of change and communicate this to employees.

You do not want to raise expectations that the rate of change will
eventually slow. Instead, companies serve their employees best
when they acknowledge change is constant, but manageable.
Practice Openness 129
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Notes
Organizations manage change most effectively when alert to its
impact upon staff. Thus, commit to fostering an environment of ___________________
openness. Establish an environment of trust through open-door ___________________
policies, tools allowing two-way feedback and – most importantly –
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___________________
the willingness to listen non-defensively to all feedback, even when
critical. ___________________
___________________
Solicit Input
___________________
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Employees do not oppose change; they oppose change they have no
___________________
opportunity to influence. If you welcome their input, they will
better appreciate and accept the reasons for change. Also, your ___________________
business just may benefit from their insights. After all, they are on ___________________
the front lines with the best grasp of customer needs and
___________________
preferences.
Provide Training
Organizations should first assess employee knowledge and skill
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level to determine their readiness for change. If they are found
wanting, then they should first receive appropriate training to get
better equipped to meet the demands of the new change or
innovation. Adapting to change often requires mastery of new
processes and skills.
Accept and Recognize

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It is inevitable that some failure will occur as management and

employees work to implement change. Accepting failure as an
inevitable part of the learning process sends a positive message to
employees. Organizations managing change and innovation most
effectively are the ones taking time to recognize and celebrate
success. They acknowledge change can be stressful, requiring long
hours and extra effort. Recognizing this will go a long way toward
motivating employees to continue responding positively.
Check Your Progress

Fill in the blanks:
(c)
1. The relationship between …………… and …………… is

vital.
2. Organizations should first assess employee ……………
and …………… level to determine their readiness for
change.
130
Summary
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Notes
Strategy is probably the most overused word in business. It is often
___________________
employed, unhelpfully, as a value distinction. If something is
___________________ “strategic,” then it’s well thought out, if it’s “unstrategic” then
___________________ some idiot must have done it. Innovation by your competitors and
E
___________________
by your own firm causes existing products, services, and business
models, and indeed entire businesses, to become obsolete.
___________________
It is inevitable that some failure will occur as management and
___________________
employees work to implement change. Accepting failure as an
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___________________ inevitable part of the learning process sends a positive message to
___________________ employees. Organizations managing change and innovation most
___________________
effectively are the ones taking time to recognize and celebrate
success.
___________________
Lesson End Activity

Pick an organization of your preference and study the innovations
done by it and how it used its innovations as strategy.
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Keywords
Enterprise Data: It defines a plan for how an enterprise utilizes
the data required to execute its business process through strategic
technology.
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Innovation: Innovation is the development of new values through

solutions that meet new requirements, inarticulate needs, or old
customer and market needs in value adding new ways.
Mission Engineering: An innovation that bridges the gap
between business and engineering by addressing requirements
from a user and developer perspective.
Strategy: Strategy is a high level plan to achieve one or more

(c)
1. What is a good strategy? Explain.

2. Which factor do you think drives innovation?
3. Why does a linkage required between strategy and innovation?
4. Describe Service Oriented Architecture (SOA).
5. What is the role of innovation in Apple’s Strategy? 131
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Notes
6. Explain the innovation of Google.
___________________
Further Readings ___________________
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___________________
Books
___________________
WhiteMargaret Alice (2010), “The Management of Technology and
___________________
___________________
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___________________
___________________
Innovation: An Introduction”, Routledge. ___________________
___________________
Web Readings
http://www.boozallen.com/consulting/transform-
technology/technology-innovation
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http://www.digitaltonto.com/2012/the-difference-between-strategy-
and-innovation/
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(c)
132
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Notes
___________________
___________________
___________________
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___________________
___________________
___________________
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___________________
___________________
___________________
___________________
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(c)
UNIT 15: Case Study
Unit 15
133
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Notes
Case Study
___________________
___________________
E
___________________
Objectives
___________________
___________________
Case Study: Innovation at Apple
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___________________
The iconic founder of technology major Apple Inc. (Apple), Steve
Jobs (Jobs), passed away on October 5, 2011, aged 56. Jobs's ___________________
demise led to speculations about the consequences for Apple and
___________________
its ability to continue to innovate without him. Jobs was
succeeded by Timothy Cook as CEO, but some analysts raised ___________________
concerns about whether the company would thrive without Jobs's
vision and flair for innovation. They were apprehensive whether
Apple which was synonymous with innovation would continue to
break new ground without Jobs. According to Jason O. Gilbert, a
technology reporter for the Huffington Post, “The biggest
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challenge for Apple is the one whose answer is difficult precisely
because it is hard to define”.
“How do you replace someone whose talents seemed to go beyond
design and imagination to almost-ethereal, zeitgeist-y qualities?
How do you hand over responsibility for maintaining an aura? For
Apple, as for any company, that's a high bar, one it will likely fail
to reach. Apple's coolest days are probably behind it."
Apple was founded by Steve Jobs, Stephen Gary Wozniak
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(Wozniak), and Ronald Gerald Wayne (Wayne) on April 1, 1976.

Working at Jobs's garage they designed a personal computer (PC)
that was sold as Apple I. The company was incorporated as Apple
Computer, Inc. on January 3, 1977. Thereafter, the company grew
by introducing many innovative and commercially successful
products such as Apple II (1977) and Apple III (1980). Right from
its inception, Apple had been a company committed to building
great products using the latest technologies. The strong R&D
focus that Jobs and Wozniak insisted on helped Apple to
differentiate itself from its competitors.
Apple products enjoyed wide recognition among end-users both
for their attractive designs and their powerful applications in
high-end computing in the education, multimedia, and
entertainment industries. A large portion of this credit went to
(c)
Jobs who had always seen himself as a product architect rather

than as a businessman. Apple brought out a number of innovative
products and innovative features in the early 1980s. In its early
days, Apple's product development strategy focused on replacing
existing products with new ones at regular intervals. For
instance, Apple I was replaced by Apple II and then Apple II by
Contd...
134 Apple III. When Apple III failed in the market and there was an
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Notes onslaught of competition, Jobs was compelled to create products
that would differentiate them from the traditional low-end
___________________ computing products.
___________________ Apple's Approach to Innovation
___________________
At Apple, innovation was a way of life and a part of its corporate
E
DNA. Apple's success was attributed to its ability to develop
___________________ innovative products. Over the years, the company launched some
great products in the market which became the benchmark for
___________________ customer experience. For five consecutive years (2006-2011),
Apple was ranked number one on the world’s most innovative
___________________
companies list compiled by BusinessWeek. Since its inception,
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___________________ Apple had focused on innovation and had ventured into those
markets where it could make a significant contribution.
___________________
Product Innovation
___________________ Apple became the leading technology company in the world by
___________________
creating cutting edge products. The company constantly
innovated with its business model to respond to market needs and
challenges and to deliver quality products and services. The
technology behemoth combined new technology with simplicity to
come out with cool and simple products.
Innovation in Customer Experience
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Apple's innovation strategy was customer centric. The company
designed new products around the needs of the user, not the
demands of the technology. It came out with such products which
created value for both the company and its customers. Apple
products were such that consumers never really realized they
needed just these until they were launched in the market. These
products empowered customers through their high quality user
experience.
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Innovation Leadership
Jobs were the chief innovator at Apple. Since re-joining Apple in
1996, he had focused heavily on innovation and he played an
important role in the product development process. He ensured
that new ideas were aligned with the company's vision. He
emerged as the one of the most innovative business leaders in the
world. Talking about Apple's struggle to innovate in the initial
years, Jobs said, "You need a very product-oriented culture, even
in a technology company. Lots of companies have tons of great
engineers and smart people. But ultimately, there needs to be
some gravitational force that pulls it all together. Otherwise, you
can get great pieces of technology all floating around the universe.
But it doesn't add up to much. That's what was missing at Apple
for a while. There were bits and pieces of interesting things
(c)
floating around, but not that gravitational pull.

Where's Apple Headed
For the third quarter ended June 2011, Apple generated quarterly
revenues of US$28.57 billion compared to US$15.70 billion in the
corresponding period of the previous year. The company recorded
a net profit of US$7.31 billion. International sales accounted for
Contd...
UNIT 15: Case Study
62% of the quarter's revenue. On August 9, 2011, Apple briefly 135
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surpassed oil group Exxon Mobil Corporation to become the most Notes
valuable company in the world in terms of market capitalization.
Question: ___________________
Critically analyse SWOT factors for the above case. ___________________

Source: http://www.forbes.com/fdc/welcome_mjx.shtml
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___________________
___________________
___________________
___________________
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___________________
___________________
___________________
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(c)
136
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Notes
___________________
___________________
___________________
E
___________________
___________________
___________________
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___________________
___________________
___________________
___________________
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(c)
UNIT 16: Strategy Formulation
137
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Notes
___________________
___________________
E
___________________
___________________
___________________
___________________
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___________________
___________________
___________________
___________________
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BLOCK-IV
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(c)
138
F
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Notes
UNIT 16: STRATEGY FORMULATION
___________________ UNIT 18: STRATEGY IMPLEMENTATION
___________________
z Meaning of Strategy Formulation z Meaning of Strategy Implementation
___________________
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z Strategy Selection Process z Strategy Implementation Process
z ___________________
Steps in Strategy Formulation Process z Three C’s of Implementing Strategy
z Three Aspects of Strategy Formulation
___________________ z Strategy Formulation vs Strategy Implementation
___________________
UNIT 17: GENERIC STRATEGIES UNIT 19: STRATEGY IMPLEMENTATION
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APPROACHES
z Introduction
___________________
z Introduction
z Cost Leadership Strategy
___________________
z Strategic Control Approach
z Differentiation Strategy
___________________ z Virtual Organization
z Focus and Niche Strategies
___________________ z Opportunity-based Designs
UNIT 20: CASE STUDY

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(c)
Unit 16
139
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Notes
Activity
Strategy Formulation
___________________
Prepare a scrapbook of such
images with the help of which
you ___________________
can explain the meaning
of strategy formulation and
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___________________
present it in the class.
Objectives
___________________
topics: ___________________
\ Meaning of Strategy Formulation ___________________
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\ Strategy Selection Process ___________________
\ Steps in Strategy Formulation Process
___________________
\ Three aspects of Strategy Formulation
___________________
___________________
Introduction
Formulating competitive strategy involves the consideration of
four key factors. These factors determine what a company can
successfully accomplish. The factors that are internal to the
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organization are its strengths and weaknesses and the values of its
key personnel; the factors that are external to the organization are
the industry opportunities and threats and societal expectations.
These factors combine to provide the basis and limits to the
competitive strategy a company can successfully adopt. The
appropriateness of the competitive strategy can be determined by
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testing the proposed objectives and policies for consistency.

These broad considerations in an effective competitive strategy can
be extended into a generalized approach to the formulation of
strategy.
Meaning of Strategy Formulation

In a tidy logical world, any process of choice could be rational.
Identifying and choosing options would be done purely analytically.
This is not necessarily true. Identifying and evaluating options and
then exercising it for strategy formation is a complex process.
(c)
Actually, it may be difficult to identify all possible options with

equal clarity, or at the same time.
The future may evolve differently from any of the options.
Unexpected events can create new opportunities, destroy foreseen
140 opportunities, or alter the balance of advantage between
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Notes opportunities. The results may eventually depend as much on
Activity
Visit___________________
an organization and chance and opportunity as on the deliberate choice. Good fortune
study its strategy selection and inspiration play a large role in organization success and
___________________
process and prepare a
presentation. failure, too.
___________________
E
The formulation of a sound strategy facilitates a number of actions
___________________
and desired results that would be difficult otherwise. A strategic
___________________ plan, when communicated to all members of an organization,
___________________ provides employees with a clear vision of what the purposes and
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objectives of the firm are. The formulation of strategy forces
___________________
organizations to examine the prospect of change in the foreseeable
___________________
future and to prepare for change rather than to wait passively
___________________ until market forces compel it. Strategic formulation allows the firm
___________________ to plan its capital budgeting. Companies have limited funds to
invest and must allocate capital funds where they will be most
effective and derive the highest returns on their investments.
On the other hand, a firm without a clear strategic plan gives its
decision makers no direction other than the maintenance of the
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status quo. The firm becomes purely reactive to external pressures
and less effective at dealing with change. In highly competitive
markets, a firm without a coherent strategy is likely to be out
maneuvered by its rivals and face declining market share or even
declining sales.
Check Your Progress

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Fill in the blanks:

1. The …………………… of a sound strategy facilitates a
number of actions.
2. Strategic formulation allows the firm to plan its capital
…………………….
Strategy Selection Process

The evolution of strategic choice is driven by many different forces.
Ideas and practices emerge from collaborative contacts between
(c)
organizations. Firms cannot avoid learning and borrowing when

they trade and work together. The evolution of strategy is also
pushed along by competition and confrontation. New ideas and
practices arise when managers try to outwit or beat back powerful
rivals. New strategies are often a recasting of the old. In a sense, 141
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old strategic ideas never disappear entirely; they infiltrate new Notes
practices covertly, like the blending of old and new malt whiskies. ___________________
Finally, strategy is pushed along by the sheer creativity of
___________________
managers, because they explore new ways of doing things.
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___________________
The nuts and bolts of strategy start with the selection process.
Strategy selection is based on the vision of the organization. ___________________
It blends into the missions and goals of the organization. Through ___________________
strategies, organizations align their internal resources with ___________________
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environmental demands to ensure long-term effectiveness.
___________________
A workable strategy is built on these outputs.
___________________
Results of Process
Chosen Strategy ___________________
___________________
Strategic
Intent CONTEXT
Strategic Available
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Assessment Options
Figure 16.1: Strategic Choice Process
The relationship of strategy selection with the strategic intent and

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the strategic assessment process is shown in Figure 16.1. In the

figure, strategic intent, strategic assessment and available options
are shown as three circles. To some extent, strategic choice shapes
and even limits the goals a company can reasonably pursue. The
logically viable strategy emerges where the three logical elements
overlap. Where all three circles overlap, the differing requirements
of intent and assessment are most fully met.
The common ground between any two circles is of some interest.
This is explained in Figure 16.2. Where any two circles overlap are
areas where feasible options may exist which are not aligned to
strategic intent. This may raise the question of whether the
(c)
strategic intent should be changed. Options that are not feasible

may seem highly attractive and may have powerful supporters, so
the reasons why they are not feasible may need to be carefully
argued with clear evidence in support.
142
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Notes Logically viable options/
Activity Chosen strategy Aligned but
___________________
Discuss in a group of 3 infeasible options
Strategic
students the various steps in Intent
___________________
strategy formulation process. Choice criterial
No options
___________________ identified
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Strategic Available
___________________ Assessment Options
___________________
___________________
Feasible but
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___________________ unaligned options
___________________
Figure 16.2: The Strategic Choice Process Explained
___________________
Another case may be that they are aligned but have not been found
___________________ feasible. In this case also, it will be necessary to faithfully
document all the assumptions and analysis of why the option was
found not to be feasible. Choices of what not to do may sometimes
be as important as choosing what to do.
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Check Your Progress
Fill in the blanks:
1. Ideas and practices emerge from …………… contacts
between organizations.
2. The nuts and bolts of strategy start with the ……………
process.
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Steps in Strategy Formulation Process

The process of strategy formulation basically involves six main
steps. Though these steps do not follow a rigid chronological order,
however they are very rational and can be easily followed in this
order.
Setting Organizations’ Objectives

The key component of any strategy statement is to set the long-
term objectives of the organization. It is known that strategy is
(c)
generally a medium for realization of organizational objectives.

Objectives stress the state of being there whereas strategy stresses
upon the process of reaching there. Strategy includes both the
fixation of objectives as well the medium to be used to realize those
objectives. Thus, strategy is a wider term which believes in the
manner of deployment of resources so as to achieve the objectives.
While fixing the organizational objectives, it is essential that the 143
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factors which influence the selection of objectives must be analysed Notes
before the selection of objectives. Once the objectives and the ___________________
factors influencing strategic decisions have been determined, it is
___________________
easy to take strategic decisions.
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___________________
Evaluating the Organizational Environment ___________________
The next step is to evaluate the general economic and industrial ___________________
environment in which the organization operates. This includes a
___________________
review of the organizations competitive position. It is essential to
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conduct a qualitative and quantitative review of an organizations ___________________
existing product line. The purpose of such a review is to make sure ___________________
that the factors important for competitive success in the market ___________________
can be discovered so that the management can identify their own
___________________
strengths and weaknesses as well as their competitors’ strengths
and weaknesses.
After identifying its strengths and weaknesses, an organization
must keep a track of competitors’ moves and actions so as to
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discover probable opportunities of threats to its market or supply
sources.
Setting Quantitative Targets

In this step, an organization must practically fix the quantitative
target values for some of the organizational objectives. The idea
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behind this is to compare with long term customers, so as to

evaluate the contribution that might be made by various product
zones or operating departments.
Aiming in Context with the Divisional Plans

In this step, the contributions made by each department or division
or product category within the organization are identified and
accordingly strategic planning is done for each sub-unit. This
requires a careful analysis of macroeconomic trends.
Performance Analysis
(c)
Performance analysis includes discovering and analysing the gap

between the planned or desired performance. A critical evaluation
of the organizations past performance, present condition and the
desired future conditions must be done by the organization. This
critical evaluation identifies the degree of gap that persists
144 between the actual reality and the long-term aspirations of the
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Notes organization. An attempt is made by the organization to estimate
Activity
With___________________
the help of internet find its probable future condition if the current trends persist.
out the modern corporate level
___________________
strategies being used in Choice of Strategy
today’s business world and
___________________
E
prepares a slideshow with text
and images.
This is the ultimate step in Strategy Formulation. The best course
___________________
of action is actually chosen after considering organizational goals,
___________________ organizational strengths, potential and limitations as well as the
___________________ external opportunities.
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___________________
Fill in the blanks:
___________________
1. The key component of any strategy statement is to set
___________________ the ………………… objectives of the organization.
2. An organization must practically fix the …………………
target values for some of the organizational objectives.
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Three Aspects of Strategy Formulation
The following three aspects or levels of strategy formulation, each
with a different focus, need to be dealt with in the formulation
phase of strategic management. The three sets of
recommendations must be internally consistent and fit together in
a mutually supportive manner that forms an integrated hierarchy
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of strategy, in the order given.
Corporate Level Strategy

In this aspect of strategy, we are concerned with broad decisions
about the total organization's scope and direction. Basically, we
consider what changes should be made in our growth objective and
strategy for achieving it, the lines of business we are in, and how
these lines of business fit together.
It is useful to think of three components of corporate level strategy:
(a) growth or directional strategy (what should be our growth
objective, ranging from retrenchment through stability to varying
(c)
degrees of growth - and how do we accomplish this), (b) portfolio

strategy (what should be our portfolio of lines of business, which
implicitly requires reconsidering how much concentration or
diversification we should have), and (c) parenting strategy (how we
allocate resources and manage capabilities and activities across
the portfolio – where do we put special emphasis, and how much do 145
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we integrate our various lines of business). Notes
___________________
___________________
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___________________
___________________
___________________
___________________
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___________________
___________________
___________________
___________________
Source: http://smallbusiness.chron.com/types-corporate-level-strategy-60147.html
Figure 16.3: Running a Business Requires thoughtful Strategy

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Corporate level strategy is concerned with the strategic decisions a
business makes that affect the entire organization. Financial
performance, mergers and acquisitions, human resource
management and the allocation of resources are considered part of
corporate level strategy. There are four types of corporate level
strategy that a business can employ.
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Value-Creating Strategy
A value-creating strategy is one in which the business seeks to
edge out its competitors by gaining more market share. These
strategies seek to add real and perceived value to the business'
products and services by exploiting economies of scope – the
resources and capabilities of the business that can be shared across
the entire organization to reduce costs and increase efficiency.
A key idea behind value-creating strategy is diversification:
offering more products to more consumers within the market in an
attempt to dominate all of part of the overall market share.
(c)
Value-Neutral Strategy
A business can employ a value-neutral strategy when the
organization isn't so much concerned with allocating resources and
manpower as it is with securing its current place within the
146 market. In essence, value-neutral strategy helps shore up the
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Notes business' operations plan. Initiating regulatory oversight, creating
___________________ synergy between departments, working to reduce risk and securing
a steady cash flow are value-neutral approaches.
___________________
___________________ Value-Reducing Strategy
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___________________
Businesses also sometimes engage in value-reducing strategies.
___________________ This happens on an organization-wide level when the stakeholders
___________________ or customers perceive that the business is getting too big for its
britches or that only the top-level executives are benefiting from
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___________________
diversification. In this case, value-reducing strategy refocuses the
___________________ business market, helps it define a target demographic and puts
___________________ mechanisms in place to prevent unnecessary or harmful growth.
___________________
Deciding on a Strategy
While it sometimes is evident which type of corporate level
strategy an organization should adopt, it is less clear at other
times, particularly when the market is unsteady or the business
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cannot afford to waste resources trying new products and services
that may not be profitable. Asking yourself a few strategy-level
questions can help in the decision: Does my company feel
threatened by competitors? If so, value-creating strategy is the
right direction. Does my business need to tighten its resources and
monitor its finances more closely? Focus on value-neutral strategy.
Are just a select few people benefiting from the organization's
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success? Consider value-reducing strategy.
Competitive Strategy (often called Business Level Strategy)

This involves deciding how the company will compete within each
Line of Business (LOB) or Strategic Business Unit (SBU). Business
strategies help companies create a competitive advantage in the
marketplace. Corporate, department and business-level strategies
are commonly used by business owners to create a competitive
advantage.
Business-level strategies focus on a specific function that can
(c)
increase a company’s market share and profitability. These

strategies also integrate various economic resources to improve a
company’s production efficiency.
147
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Notes
___________________
___________________
E
___________________
___________________
___________________
___________________
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___________________
___________________
___________________
Source: http://www.golime.co/blog/bid/173704/Can-Cloud-Computing-Lead-to-a-
___________________
Competitive-Advantage
Figure 16.4: Competitive Advantage
Functional Strategy
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A functional strategy is one that dictates the task and activities of
a certain business area. Owners and managers make up certain
rules and guidelines for employees to follow. Each department
operates by these guidelines, with all departments working
together to achieve the overarching company goals. Common areas
where a company may implement a functional strategy include the
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production, finance, or the research and development departments.

An organizational strategy may also be functional. These more
localized and shorter-horizon strategies deal with how each
functional area and unit will carry out its functional activities to be
effective and maximize resource productivity.
Production Strategy
Production department strategies often fall under the “make
versus buy” analysis. Each product or product line is reviewed by
owners and managers, who use specific rules to make this decision.
The functional strategy helps dictate how to decide the best
(c)
alternative for new or existing products. For example, the strategy

may involve reviewing available materials, looking at the labour
skill in the current market, and reviewing the costs for outsourcing
the product for production purposes. The result leads to an
informed decision on how a company will proceed with product
production.
148 Financial Strategy
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Notes
A company’s finance department typically makes decisions on
___________________
capital structure. The capital structure includes a mix of debt and
___________________ equity funds to finance large business operations. A functional
___________________ strategy provides guidance on how to review operational income
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and decide what portion should be reinvested into the company.
___________________
From here, finance employees then look to different funding
___________________ options to fund the shortfall in cash from operations. Selecting the
___________________ lowest cost of capital from the mix of funding options is typically
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___________________
the goal of a functional strategy.
___________________ Other Departments

___________________
Other departments can also work under a functional strategy. The
___________________ strategy best describes any set of rules that provide specific
guidance for moving the company forward. The research and
development department, for example, can have guidelines on how
to increase the company’s product pipeline. Human resource
departments have a focus on hiring and retaining skilled workers.
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The accounting department has a schedule for processing
information and closing the books each month, meeting the
company’s goals.
Through each of these individual functional strategy divisions, a
company can meet its overarching business goals. Executives can
set a company’s focus through its organizational mission statement
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or other goal-setting statements. This provides guidance for each

department on how to proceed with developing their own
strategies. An organizational strategy typically has the
overarching goals of building the company’s structure, training
staff to complete tasks, and setting competitive wages in the
market. Outside legal advice may be necessary to complete some of
these items.
Check Your Progress

Fill in the blanks:
(c)
1. Business ……………………… help companies create a

competitive advantage in the marketplace.
2. Human resource departments have a focus on
………………… and ………………… skilled workers.
Summary 149
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Notes
The formulation of a sound strategy facilitates a number of actions
___________________
and desired results that would be difficult otherwise. A strategic
plan, when communicated to all members of an organization, ___________________
provides employees with a clear vision of what the purposes and
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___________________
objectives of the firm are. The nuts and bolts of strategy start with
___________________
the selection process. Strategy selection is based on the vision of
the organization. It blends into the missions and goals of the ___________________
organization. ___________________
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An organizational strategy typically has the overarching goals of ___________________
building the company’s structure, training staff to complete tasks, ___________________
and setting competitive wages in the market.
___________________
___________________
Lesson End Activity
Try to formulate a strategy to introduce a hypothetical product
created by you.
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Keywords
Competitive Advantage: An advantage that a firm has over its
competitors, allowing it to generate greater sales or margins and/or
retain more customers than its competition.
Environment: It refers to the setting or conditions in which a
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particular activity is carried on.

Strategic Management: Strategic management is a firm’s effort
to analyse its environment and its own strengths and weaknesses
and then consciously choose the competitive path it wants to
follow.

1. What do you mean by strategy formulation?
2. Discuss the components of strategy selection process with
diagrams.
(c)
3. What are the steps in strategy formulation process?

4. Explain corporate level strategy with examples.
5. Describe functional strategy in detail.
150
Further Readings
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Notes
___________________ Books
___________________ Innovation: A Strategic Approach”, Cengage Learning.
E
___________________ Christensen Clayton (2008), “Strategic Management of Technology
___________________
___________________ Dicke Wilhelmina Margaretha (2005), “Managing Technology and

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___________________
___________________ Web Readings

___________________ http://www.enotes.com/strategy-formulation-reference/strategy-
___________________ formulation
http://www.managementstudyguide.com/strategy-formulation-
process.htm
http://www.wisegeek.com/what-is-a-functional-strategy.htm
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(c)
UNIT 17: Generic Strategies
Unit 17
151
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Notes
Generic Strategies
___________________
___________________
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___________________
Objectives
___________________
topics: ___________________
\ Cost Leadership Strategy ___________________
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\ Differentiation Strategy ___________________
\ Focus and Niche Strategies
___________________
___________________
Introduction
___________________
The objective of the organization is to yield a superior rate of
return on the investment for the organization. The principle to
meet this objective is that organizations achieve competitive
advantage by providing their customers with what they want, or
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need, better or more effectively than competitors and in ways the
competitors find difficult to imitate. The best strategy for the
organization, therefore, is ultimately unique, reflecting the
particular circumstances it faces.
In order to succeed in this, organizations have found many
offensive and defensive actions to defend their position in the
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industry and cope with the five competitive forces. A firm's relative
position within its industry determines whether a firm's
profitability is above or below the industry average. The
fundamental basis of above average profitability in the long run is
sustainable competitive advantage. There are two basic types of
competitive advantage a firm can possess: low cost or
differentiation. The two basic types of competitive advantage
combined with the scope of activities by which a firm seeks to
achieve them, lead to three internally consistent generic
competitive strategies that can be used by the organization to
outperform competition and defend its position in the industry.
(c)
These strategies are:

z Cost Leadership
z Differentiation, and
z Focus and Niche Strategies.
152
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Notes
Activity
Find___________________
ten such organizations
that have attained success by
___________________
applying cost leadership
strategy and prepare a digital
___________________
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report.
___________________
___________________
Figure 17.1: Generic Strategies
___________________
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___________________
The focus strategy has two variants, cost focus and differentiation
focus. This is shown in Figure 17.1.
___________________
These strategies are explained below. Effectively implementing
___________________
any of the generic competitive strategies usually requires total
___________________ commitment and determined organizational support. This happens
when there is compatibility between corporate level strategy and
the strategy at the business level.
Cost Leadership Strategy

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A firm pursuing a cost-leadership strategy attempts to gain a
competitive advantage primarily by reducing its economic costs
below its competitors. This policy once achieved provides high
margins and a superior return on investments.
The skills and resources required to be successful in this strategy
are sustained capital investment and access to capital; superior
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process engineering skills; good supervision and motivation of its

labour force; product designed for ease in manufacturing; low-cost
distribution system. The organization attempts to exploit
economies of scale by aggressive construction of efficient economies
of scale through:
z Volume of production and specialized machines
z Volume of production and cost of plant and equipment
z Volume of production and employees’ specialization
z Volume of production and minimised overhead costs
(c)
This strategy requires tight cost control. This is often done by

using a full costing method or activity based costing with frequent
and detailed control reports. The structure of the organization
should be clear-cut and responsibilities clearly laid out.
Organizations often provide incentives based on meeting strict
quantitative targets, etc.
In order to remain a cost leader, the firm attempts to avoid those 153
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factors that can cause the economies of scale to be affected. It has Notes
to work within the physical limits to efficient size; worker ___________________
motivation; and focus on markets and suppliers, sometimes, in
___________________
restricted geographical areas. Firms that are known to have
successfully used this strategy in a number of their businesses
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___________________
include Black and Decker, Texas Instruments, and DuPont. ___________________
The low-cost producer strategy works best when buyers are large ___________________
and have significant bargaining power; price competition among
___________________
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rival sellers is a dominant competitive force; the industry's product
___________________
is a standard item readily available from a variety of sellers; there
are not many ways to achieve product differentiation that have ___________________
value to the buyer; buyers incur low switching costs in changing ___________________
from one seller to another and are prone to shop for the best price.
___________________
A low-cost leader is in the strongest position to set the floor on
market price and this strategy provides attractive defences against
competitive forces. Its cost position gives it a defence from
competitors because its lower costs mean that it can still earn
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returns after its competitors have competed away their profits
through rivalry. It is protected from powerful buyers because
buyers can exert power only to lower prices, and this will be
possible only with next most efficient competitor. Lower cost
provides protection against suppliers because there is more
flexibility in the organization to cope with input cost increases.
Any new entrant will find it difficult to overcome entry barriers
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because of required economies of scale, and also because the

activities taken to achieve low costs are both rare and costly to
imitate.
Finally, it places the organization in a favourable position when
pitted against substitutes compared to competitors in the industry.
Cost leadership is valuable if:
z Buyers do not value differentiation very much
z Buyers are price-sensitive
z Competitors will not immediately match lower prices
(c)
There are no changes in:

z Consumer tastes
z Technology
z Exogenous prices/costs
154 There are a number of risks in using this strategy. These risks
S
Notes relate to the fast changing business environment. The most serious
Activity
Take ___________________
an example from your
risk to cost leadership is technological change that nullifies past
real life and prepare an article investment or learning of the organization. Sometimes the
for ___________________
a magazine on how
differentiation strategy can
inability of the management to see or anticipate the changes
help___________________ required in the product or market change, is a grave handicap. The
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businesses if it is helpful
in smaller tasks of day to day
life.___________________
organization's advantage can also be neutralized if there is low cost
___________________
learning by industry newcomers or inflation in costs of supplies or
processes that provide the organization a competitive advantage.
___________________
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___________________ 1. The structure of the organization should be ……………
___________________ and responsibilities clearly laid out.
2. The most serious risk to cost leadership is ……………
change that nullifies past investment or learning of the
organization.
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Differentiation Strategy
In a differentiation strategy, a firm seeks to be unique in its
industry along some dimensions that are widely valued by buyers.
It selects one or more attributes that many buyers in an industry
perceive as important, and uniquely position itself to meet those
needs. Differentiation will cause buyers to prefer the company's
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product/service over the brands of rivals. An organization pursuing

such a strategy can expect higher revenues/margins and enhanced
economic performance.
The challenge is finding ways to differentiate that create value for
buyers and that are not easily copied or matched by rivals.
Anything a company can do to create value for buyers represents a
potential basis for differentiation. Ways to differentiate
products/services include:
z Product features
z Linkage between functions
(c)
z Timing
z Location/convenience
z Product mix
z Links with other firms
z Customization 155
S
Notes
z Product complexity/sophistication
___________________
z Marketing (image, etc.)
___________________
z Service and support
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___________________
Successful differentiation creates lines of defense against the five
competitive forces. It provides insulation against competitive ___________________
rivalry because of brand loyalty of customers and hence lower ___________________

sensitivity to price. The customer loyalty also provides a
___________________
disincentive for new entrants who will have to overcome the
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uniqueness of the product or service. Competitors are not likely to ___________________
follow a similar approach if buyers value the differentiated ___________________

products and services. If they do, this will lead to a lose-lose
___________________
situation for them. The higher returns of the strategy, provides a
higher margin to deal with supplier power. Buyer power is ___________________
mitigated as there are no comparable alternatives. Finally a

company that has differentiated itself to achieve customer loyalty
should be better placed to compete with substitutes than its
competitors. Some successful examples of this strategy are
E-
DaimlerChrysler in Automobiles, Bose in Audio Systems, and
Caterpillar in construction equipment.
Competitive advantage through differentiation is sustainable if the
activities taken to achieve differentiation are rare and costly to
imitate. The most appealing types of differentiation strategies are
those least subject to quick or inexpensive imitation.
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Differentiation is most likely to produce an attractive, long-lasting

competitive edge when it is based on technical superiority, quality,
giving customers more support services, and on the core
competencies of the organization.
Differentiation requires the organization to have some of these
skills and resources:
z Strong marketing abilities
z Product engineering
z Creative flair
Corporate reputation for quality or technological leadership
(c)
z Strong cooperation from channels

z Strong coordination among functions
z Amenities to attract highly skilled labour, scientists, or
creative people
156 Differentiation strategy works best when there are many ways to
S
Notes differentiate the product/service and these differences are
Activity
___________________
Identify a niche market perceived by buyers to have value or when buyer needs and uses of
operating in your city and try the item are diverse. The strategy is more effective when not many
to ___________________
analyze these strategies
and prepare a detailed rivals are following a similar type of differentiation approach.
___________________
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presentation. There are risks in this strategy when the cost of differentiation
___________________ becomes too great or when buyers become more sophisticated and
___________________ need for differentiation falls.
___________________
Check Your Progress
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___________________
Fill in the blanks:
___________________
1. Differentiation will cause buyers to prefer the
___________________ company's product/service over the brands of ………….
___________________
2. Successful differentiation creates lines of ……………
against the five competitive forces.
Focus and Niche Strategies

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The generic strategy of focus rests on the choice of a narrow
competitive scope within an industry. The focuser selects a
segment or group of segments in the industry, or buyer groups, or
a geographical market and tailors its strategy to serving them to
the exclusion of others. The attention of the organization is
concentrated on a narrow section of the total market with an
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objective to do a better job serving buyers in the target market

niche than the rivals. Each functional policy of the organization is
built with this in mind.
There are two aspects to this strategy, the cost focus and the
differentiation focus. In cost focus a firm seeks a cost advantage in
its target market. The objective is to achieve lower costs than
competitors in serving the market – this is a low cost producer
strategy focused on the target market only. This requires the
organization to identify buyer segments with needs/preferences
that are less costly to satisfy as compared to the rest of the market.
Differentiation focus offers niche buyers something different from
(c)
other competitors. The firm seeks product differentiation in its

target market.
Both variants of the focus strategy rest on differences between a
focuser's target market and other markets in the industry. The
target markets must either have buyers with unusual needs or else
the production and delivery system that best serves the target 157
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market must differ from that of other industry segments. Cost Notes
focus exploits differences in cost behaviour in some markets, while ___________________
differentiation focus exploits the special needs of buyers in certain
___________________
markets. A focuser may do both to earn a sustainable competitive
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advantage though this is difficult. Examples of focus strategies are ___________________
Rolls-Royce in luxury automobiles; Apple Computer in Desktop ___________________

publishing.
___________________
Focus strategy is successful if the organization can choose a ___________________
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market niche where buyers have distinctive preferences, special
___________________
requirements, or unique needs and then developing a unique
ability to serve the needs of the target buyer segment. Even though ___________________
the focus strategy does not achieve low cost or differentiation from ___________________
the perspective of the market as a whole, it does achieve this in its
___________________
narrow target. However, the market segment has to be big enough
to be profitable and it has growth potential. The organization has
to identify a buyer group or segment of a product line that
demands unique product attributes. Alternatively, it has to
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identify a geographical region where it can make such offerings.
Focusing organizations develop the skills and resources to serve
the market effectively. They defend themselves against challengers
via the customer goodwill they have built up and their superior
ability to serve buyers in the market. The competitive power of a
focus strategy is greatest when the industry has fast-growing
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segments that are big enough to be profitable but small enough to

be of secondary interest to large competitors and no other rivals
are concentrating on the segment. Their position is strengthened
as the buyers in the segment require specialized expertise or
customized product attributes.
A focuser's specialized ability to serve the target market niche
builds a defence against competitive forces. Its focus means that
either the organization has a low cost position as its strategic
target, high differentiation, or both. The logic that has been laid
out earlier for cost leadership and differentiation also is applicable
here.
(c)
Some of the situations and conditions where a focus strategy works

best are:
z When it is costly or difficult for multi-segment rivals to serve
the specialized needs of the target market niche;
158 z When no other rivals are concentrating on the same target
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Notes segment;
___________________ z When a firm's resources do not permit it to go after a wider
___________________ portion of the market;
___________________ z When the industry has many different segments, creating
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___________________ more focusing opportunities and allowing a focuser to pick out
an attractive segment suited to its strengths and capabilities.
___________________
A focus strategist must beware of events that could impact the
___________________
target market. This can happen when broad-line, multi-segment
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___________________
competitors may find effective ways to match the focused firm in
___________________ serving the narrow target market, or the segment may become so
___________________
appealing that it is soon crowded with eager, aggressive rivals,
causing segment profits to be split. Often the niche buyer's
___________________
preferences and needs drift more and more towards the product
attributes desired by the market as a whole; this could be
threatening. The focus strategy always implies some limitation on
the overall market share achievable. The strategy involves a trade-
off between profitability and sales volume.
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Some Aspects of Generic Strategies
The three generic strategies differ on many dimensions.
Implementing them successfully requires different resources and
skills. Organizations pursuing different strategies will find that
they attract different sorts of people. This should result in different
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styles of leadership that can translate into different corporate

cultures and atmospheres.
If the organization is in a position where it is between the three
strategic options, it usually takes time and sustained effort to come
out of this position. In spite of the fact that successfully executing
each generic strategy involves different resources, strengths,
organizational arrangements, and managerial style, some
organizations try to flip back and forth among the generic
strategies. In addition, the organization would be amenable to a
blurring of the corporate culture and conflicting motivation system.
Obviously, this happens when organizations do not exercise their
(c)
options based on their capabilities and limitations.

An organization must take a fundamental strategic decision to
select one of the three generic strategies. Failing to develop a
strategy in any of the three directions will result in low
profitability. It will either lose the high volume customers who
demand low prices or operate with reduced profits to get this 159
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business away from low cost competition. It will also lose high Notes
margin businesses to competition that have achieved ___________________
differentiation overall.
___________________
This seems to indicate that in many industries there is a U-shaped
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___________________
relationship between profitability and market share. The
profitability is high with low market share using a differentiation ___________________
strategy and a high market share using a cost leader strategy. For ___________________
example, in the automobile industry the profit leaders are General ___________________
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Motors that has a price leadership strategy and DaimlerChrysler
___________________
which has a differentiation strategy.
___________________
The three strategies are based on competing differently in the
marketplace. They construct different types of defenses against ___________________
competitive forces. The types of risks they face are also different. ___________________
However, there are two types of risks that are common to all of
them:
z Failing to attain or sustain the strategy, and
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z Erosion in the value of the strategic advantage with industry
evolution.
Cost leadership imposes severe burden on the organization to keep
up its position. It means the organization has to reinvest in
modern equipment so as to keep reaping all economies of scale. In
addition, it must keep honing its process engineering core
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capability. Similarly, differentiation requires investments in a

strong R&D on a continuous basis and the ability to attract the
right type of people into the company.
Check Your Progress

Fill in the blanks:
1. A ………………… strategist must beware of events that
could impact the target market.
2. The strategy involves a …………………… between
profitability and sales volume.
(c)
Summary
The strength of competitive forces in an industry determines the
degree to which this inflow of investment occurs and the ability of
organizations to sustain above average returns. The five
160 competitive forces – threat of new entrants; threat of substitute
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Notes products or services; bargaining power of suppliers; bargaining
___________________ power of buyers; and rivalry among existing firms, reflects the fact
that competition in an industry goes well beyond the established
___________________
players.
___________________
E
There are two basic types of competitive advantage a firm can
___________________
possess: low cost or differentiation. A firm pursuing a cost-
___________________ leadership strategy attempts to gain a competitive advantage
___________________ primarily by reducing its economic costs below its competitors. In a
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differentiation strategy a firm seeks to be unique in its industry
___________________
along some dimensions that are widely valued by buyers. An
___________________
organization pursuing such a strategy can expect higher revenues/
___________________ margins and enhanced economic performance. Competitive
___________________ advantage through differentiation is sustainable if the activities
taken to achieve differentiation are rare and costly to imitate.
Lesson End Activity

Within a group of 4 students discuss one example per group
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member of companies using one or the other generic strategies.
Keywords
Cost Focus: Cost focus exploits differences in cost behaviour in
some markets. In cost focus, a firm seeks a cost advantage in its
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target market. The objective is to achieve lower costs than

competitors in serving the market – this is a low cost producer
strategy focused on the target market only.
Cost-leadership Strategy: A firm pursuing a cost-leadership
strategy attempts to gain a competitive advantage primarily by
reducing its economic costs below its competitors.
Different Strategy: In a differentiation strategy a firm seeks to be
unique in its industry along some dimensions that are widely
valued by buyers. It selects one or more attributes that many
buyers in an industry perceive as important, and uniquely
(c)
positions it to meet those needs.

Differentiation Focus: Differentiation focus offers niche buyers
something different from other competitors. The firm seeks product
differentiation in its target market.
Generic Competitive Strategies: Generic competitive strategies 161
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are those competitive strategies that can be used by the Notes
organization to outperform competition and defend its position in ___________________
the industry.
___________________
Generic Strategy: The generic strategy of focus rests on the
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___________________
choice of a narrow competitive scope within an industry. The
focuser selects a segment or group of segments in the industry, or ___________________
buyer groups, or a geographical market and tailors its strategy to ___________________

serving them to the exclusion of others. ___________________
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___________________
___________________
1. Explain generic strategies with the help of diagram.
___________________
2. How can a firm gain competitive advantage through cost ___________________
leadership?
3. Discuss how a firm can operate its business by applying focus
and niche strategies.
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4. Explain the risks involved in generic strategies.
5. Differentiate the three strategies as per your understanding
from this unit.
Further Readings
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Books
Web Readings
http://smallbusiness.chron.com/generic-business-level-strategies-
(c)
2566.html
http://smallbusiness.chron.com/advantages-disadvantages-
businesslevel-strategy-19209.html
162
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Notes
___________________
___________________
___________________
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___________________
___________________
___________________
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___________________
___________________
___________________
___________________
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(c)
UNIT 18: Strategy Implementation
Unit 18
163
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Notes
___________________
___________________
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___________________
Objectives
___________________
topics: ___________________
\ Meaning of Strategy Implementation ___________________
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\ Strategy Implementation Process ___________________
\ Three C’s of Implementing Strategy
___________________
\ Strategy Formulation vs Strategy Implementation
___________________
___________________
Introduction
Strategic implementation put simply is the process that puts plans
and strategies into action to reach goals. A strategic plan is a
written document that lays out the plans of the business to reach
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goals, but will sit forgotten without strategic implementation. The
implementation makes the company’s plans happen.
Strategic implementation is critical to a company’s success,
addressing who, where, when, and how of reaching the desired
goals and objectives. It focuses on the entire organization.
Implementation occurs after environmental scans, SWOT
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analyses, and identifying strategic issues and goals.

Implementation involves assigning individuals to tasks and
timelines that will help an organization reach its goals.
A successful implementation plan will have a very visible leader,
such as the CEO, as he communicates the vision, excitement and
behaviours necessary for achievement. Everyone in the
organization should be engaged in the plan. Performance
measurement tools are helpful to provide motivation and allow for
follow-up. Implementation often includes a strategic map, which
identifies and maps the key ingredients that will direct
performance. Such ingredients include finances, market, work
(c)
environment, operations, people and partners.

To successfully implement your strategy, several items must be in
place. The right people must be ready to assist you with their
unique skills and abilities. You need to have the resources, which
164 include time and money, to successfully implement the strategy.
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Notes The structure of management must be communicative and open,
Activity
___________________
Prepare an article for a with scheduled meetings for updates. Management and technology
magazine on the meaning of systems must be in place to track the implementation, and the
___________________
strategy implementation.
environment in the workplace must be such that everyone feels
___________________
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comfortable and motivated.
___________________
___________________ Meaning of Strategy Implementation

___________________ Strategy implementation is the translation of chosen strategy into
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___________________ organizational action so as to achieve strategic goals and
___________________
objectives. Strategy implementation is also defined as the manner
in which an organization should develop, utilize, and amalgamate
___________________
organizational structure, control systems, and culture to follow
___________________ strategies that lead to competitive advantage and a better
performance. Organizational structure allocates special value
developing tasks and roles to the employees and states how these
tasks and roles can be correlated so as maximize efficiency,
quality, and customer satisfaction – the pillars of competitive
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advantage. But, organizational structure is not sufficient in itself
to motivate the employees.
An organizational control system is also required. This control
system equips managers with motivational incentives for
employees as well as feedback on employees and organizational
performance. Organizational culture refers to the specialized
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collection of values, attitudes, norms and beliefs shared by

organizational members and groups.
A very common mistake in strategic implementation is not
developing ownership in the process. Also, a lack of communication
and a plan that involves too much are common pitfalls. Often a
strategic implementation is too fluffy, with little concrete meaning
and potential, or it is offered with no way of tracking its progress.
Companies will often only address the implementation annually,
allowing management and employees to become caught up in the
day-to-day operations and neglecting the long-term goals. Another
pitfall is not making employees accountable for various aspects of
(c)
the plan or powerful enough to authoritatively make changes.

165
Check Your Progress
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Notes
Activity
Fill in the blanks:
___________________
Search over the internet and
1. Organizational structure allocates ……………… value study the strategy
___________________
implementation process of a
developing tasks and roles to the employees. company of your choice and
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___________________
prepare a flowchart.
2. A very common mistake in strategic implementation is
___________________
not developing ……………… in the process.
___________________
Strategy Implementation Process ___________________
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___________________
A strategic plan is of little use to an organization without a means
of putting it into place. In fact, implementation is an essential part ___________________
of the strategic planning process, and organizations that develop ___________________
strategic plans must expect to include a process for applying the
___________________
plan. The specific implementation process can vary from
organization to organization, dependent largely on the details of
the actual strategic plan, but some basic steps can assist in the
process and ensure that implementation is successful and the
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strategic plan is effective.
Step 1
Evaluate the strategic plan. The first step in the implementation
process is to step back and make sure that you know what the
strategic plan is. Review it carefully, and highlight any elements of
the plan that might be especially challenging. Recognize any parts
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of the plan that might be unrealistic or excessive in cost, either of

time or money. Highlight these, and be sure to keep them in mind
as you begin implementing the strategic plan. Keep back-up ideas
in mind in case the original plan fails.
Step 2
Create a vision for implementing the strategic plan. This vision
might be a series of goals to be reached, step by step, or an outline
of items that need to be completed. Be sure to let everyone know
what the end result should be and why it is important. Establish a
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clear image of what the strategic plan is intended to accomplish.
Step 3
Select team members to help you implement the strategic plan.
Make sure you have a team that “has your back,” so to speak, and
understands the purpose of the plan and the steps involved in
166 implementing it. Establish a team leader, if other than yourself,
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Notes who can encourage the team and field questions or address
Activity
___________________
Prepare a chart of Three C’s
problems as they arise.
of Implementing Strategy with
___________________
examples. Step 4
___________________
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Schedule meetings to discuss progress reports. Present the list of
___________________ goals or objectives, and let the strategic planning team know what
___________________ has been accomplished. Whether the implementation is on
schedule, ahead of schedule, or behind schedule, assess the current
___________________
schedule regularly to discuss any changes that need to be made.
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___________________
Establish a rewards system that recognizes success throughout the
___________________ process of implementation.
___________________
Step 5
___________________
Involve the upper management where appropriate. Keep the
organization’s executives informed on what is happening, and
provide progress reports on the implementation of the plan.
Letting an organization’s management know about the progress of
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implementation makes them a part of the process, and, should
problems arise, the management will be better able to address
concerns or potential changes.
Check Your Progress

Fill in the blanks:
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1. The specific …………………… process can vary from

organization to organization.
2. Create a ………………… for implementing the strategic
plan.
Three C’s of Implementing Strategy

To successfully execute an organization’s strategy, it must be the
focus of every person in that organization. It is up to the leaders to
create, monitor, and reward that focus as it is expressed. So how
then do you provide the leadership required to implement
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strategies in a way that allows them to come to life in each corner

of an organization?
Clarify your Strategy

All too often, strategies are expressed as high-level statements
that resonate with board and executive levels but fall flat with
mid-level and frontline personnel. Unfortunately, if people don’t 167
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understand the strategy, they are unable to connect with it. So the Notes
first step is to clarify your strategy in a way that people in your ___________________
organization can rally to support its implementation. Done well,
___________________
this strategy will tie together your goals and objectives and clearly
explain what you intend to do. In their book “Top Management
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___________________
Strategy”, Ben Tregoe and John Zimmerman offer a very useful ___________________
definition of strategy, calling it, “the framework which guides those
___________________
choices that determine the nature and direction of an
organization.” Most importantly, try to stay away from “corporate ___________________
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speak,” or “bureaucratize,” which Herb Kelleher of Southwest ___________________
Airlines calls “difficult to understand and boring.”
___________________
Communicate your Strategy ___________________
Powerfully communicating the essence of your strategy at every ___________________
level of the organization using multiple mediums is the key here.

Use internal blogs and message boards, brown bag luncheons,
podcasts, and department meetings to communicate what the
strategy is and how everybody’s work is informed by that strategy.
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Discussions need to occur at each level, translating the
organization’s strategy to understandable and contextualized
sound bites, which connect to the work of individuals. In short,
communicating the strategy provides the “connective tissue”
throughout the organization that helps people understand the big
picture.
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Cascade your Strategy

If strategy is “what” you do then tactics are “how” you do it. And if
you want your strategy implemented well, you need to cascade it
throughout the organization and get to the practical and tactical
components of people’s jobs every day. Ideally, you will involve
your managers in this process, and they will help to translate the
elements of the strategy for your organization to their own
functional areas. Doing this allows them to develop and own the
process of cascading the strategy and designing implementation
plans with high likelihood of execution. Cascading strategy is the
(c)
proverbial rubber hitting the road. The bulk of the work in

implementing strategy is done at this stage. It is the team
meetings, the one-on-one coaching, the process improvements, the
customer meetings, and the responses to the market that, in
alignment with an organization’s strategy, can make a tremendous
difference for an organization.
168 The pace of business shows no signs of slowing down and the
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Notes competition in any sector isn’t getting easier. But effectively
Activity
___________________
Prepare a slideshow on implementing strategy can be a source of competitive advantage.
Strategy Formulation vs. Try this Three Cs and see if they help. Leaders from Fortune 500
___________________
Strategy Implementation.
companies to small not-for-profits must be armed with the ability
___________________
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to effectively implement the strategies of their organization, all
___________________ while juggling 100s of emails and voice mails, and addressing the
___________________ exigencies of the day. Because implementing strategy is not
additive work for the leader. It is, in fact, their pivotal job.
___________________
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___________________ 1. First step is to …………………… your strategy in a way
___________________ that people in your organization can rally to support its
implementation.
2. ………………… strategy is the proverbial rubber hitting
the road.
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Strategy Formulation vs Strategy Implementation
Following are the main differences between Strategy Formulation
and Strategy Implementation:
Strategy Formulation Strategy Implementation

Strategy Formulation includes Strategy Implementation involves all
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planning and decision-making those means related to executing the

involved in developing organization’s strategic plans.
strategic goals and plans.
In short, Strategy Formulation is In short, Strategy Implementation is
placing the Forces before the action. managing forces during the action.
Strategy Formulation is an Strategic Implementation is mainly an
entrepreneurial activity based on Administrative task based on strategic
strategic decision-making. and operational decisions.
Strategy Formulation emphasizes on Strategy Implementation emphasizes
effectiveness. on efficiency.
Strategy Formulation is a rational Strategy Implementation is basically
process. an operational process.
Strategy Formulation requires co- Strategy Implementation requires co-
ordination among few individuals. ordination among many individuals.
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Strategy Formulation requires a great Strategy Implementation requires

deal of initiative and logical skills. specific motivational and leadership
traits.
Strategic Formulation precedes Strategy Implementation follows
Strategy Implementation. Strategy Formulation.
Excellently formulated strategies will fail if they are not properly 169
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implemented. Also, it is essential to note that strategy Notes
implementation is not possible unless there is stability between ___________________
strategy and each organizational dimension such as organizational
___________________
structure, reward structure, resource-allocation process, etc.
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___________________
Strategy implementation poses a threat to many managers and
employees in an organization. New power relationships are ___________________
predicted and achieved. New groups (formal as well as informal) ___________________

are formed whose values, attitudes, beliefs and concerns may not ___________________
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be known. With the change in power and status roles, the
___________________
managers and employees may employ confrontation behaviour.
___________________
1. Strategy formulation is an entrepreneurial activity

based on strategic ………………-making.
2. Strategy ……………… poses a threat to many managers
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and employees in an organization.
Summary
Strategic implementation is critical to a company’s success,
addressing who, where, when, and how of reaching the desired
goals and objectives. A very common mistake in strategic
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implementation is not developing ownership in the process. Also, a

lack of communication and a plan that involves too much are
common pitfalls. Often a strategic implementation is too fluffy,
with little concrete meaning and potential, or it is offered with no
way of tracking its progress.
The first step in the implementation process is to step back and
make sure that you know what the strategic plan is. This vision
might be a series of goals to be reached, step by step, or an outline
of items that need to be completed. Establish a team leader, if
other than yourself, who can encourage the team and field
questions or address problems as they arise. Present the list of
(c)
goals or objectives, and let the strategic planning team know what
has been accomplished.
Involve the upper management where appropriate. Keep the
organization’s executives informed on what is happening, and
provide progress reports on the implementation of the plan.
170
Lesson End Activity
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Notes
Discuss in a group of 5 students the differences between the
___________________
formulation and implementation of strategy.
___________________
___________________
Keywords
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___________________
Strategic Plan: A strategic plan is a written document that lays
___________________ out the plans of the business to reach goals, but will sit forgotten
___________________ without strategic implementation.
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___________________ Strategy Formulation: It includes planning and decision-making
___________________ involved in developing organisation’s strategic goals and plans.
In short, strategy formulation is placing the forces before the
___________________
action.
___________________
Strategy Implementation: Strategy Implementation refers to the
sum total of the activities and choices required for execution of a
strategic plan.
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1. What do you mean by strategy implementation?
2. Discuss the steps included in strategy implementation process.
3. Explain the 3 C’s of strategy implementation in detail. Give
examples.
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4. How will you differentiate between strategy formulation

strategy implementation?
Further Readings
Books
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Web Readings 171
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Notes
http://smallbusiness.chron.com/implementation-process-strategic-
plans-4514.html ___________________
http://smallbusiness.chron.com/strategic-implementation- ___________________
5044.html
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___________________
http://www.forbes.com/sites/scottedinger/2012/08/07/three-cs-of- ___________________
implementing-strategy/ ___________________
___________________
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___________________
___________________
___________________
___________________
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172
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Notes
___________________
___________________
___________________
E
___________________
___________________
___________________
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___________________
___________________
___________________
___________________
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UNIT 19: Strategy Implementation Approaches
Unit 19
173
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Notes
___________________
___________________
Approaches
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___________________
___________________
Objectives ___________________
___________________
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topics:
___________________
\ Strategic Control Approach
\ Virtual Organization ___________________
\ Opportunity-based Designs ___________________
___________________
Introduction
Prahalad and Hamel related strategy to the internal world of a
company. Strategy, according to them, consisted of all the
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resources and competencies of the organization, and how they were
leveraged. Porter, on the other hand, believed strategy focused on
the external world of industry structure and the strategy of
competitors. However, a rational view – taking into consideration
both these approaches to strategy – is that strategy is a dynamic
and evolutionary process of finding external opportunities into
which the competencies can be meshed to provide competitive
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advantage.
Strategy is based on three iterative processes. The first process is
to continuously look for growth by identifying new market
opportunities into which the company's existing resources and
competencies can be exploited. This concept is based on the classic
economic model that Porter postulated. C.K. Prahalad and Gary
Hamel together, provide the rationale for the second iterative
process. They explained that an organization has to face a different
type of competition: the competition for resources and capabilities.
The second process, then, is to continuously improve on the
strategic architecture, both by strengthening existing competencies
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and also by developing or acquiring new ones. What drives these

two processes is the third process. This is to create a sense of
purpose that energizes the whole strategic process.
These two views are connected through the strategy
implementation process. Even though strategy may be about
174 deciding what to do based on competitive considerations,
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Notes implementation is about getting it done through the use of
Activity
___________________
Prepare a presentation on
resources and competencies. In order to have a competitive edge
Strategic Control Approach over its rivals, an organization with a superior strategy needs a
with___________________
text and diagrams.
superior ability to execute strategy. The superiority comes from its
___________________ portfolio of resources and competencies. The superiority can be
E
___________________ maintained by continuously improving on the strategic
___________________
architecture, both by strengthening existing competencies and also
by developing or acquiring new ones.
___________________
Conventional management models also view implementation of
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___________________
strategy as being as important as the strategy itself, but they see
___________________ the relationship between structure and strategy in a different way.
___________________ They view strategy formulation as a top management function and
the rest of the organization as a means to implement the strategy.
___________________
Therefore, for the proper implementation of strategy, it has to be
translated such that it is accepted and adopted by the rest of this
organization. This requires the capacity to design good working
environments, working environments that motivate and effectively
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coordinate the activities of the people working in the organization.
To a large extent, this is determined by its organizational
architecture and structure. An appropriate organizational
structure is crucial for success. It helps develop the capacity to
implement strategy effectively. The structural components are a
means to facilitate the smooth translation of organizational
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strategy and policies to action that motivate and coordinate the

activities of the people working in the organization. A lack of
motivation or coordination (or both), can cause the organization to
lose its competitive advantage.
Strategic Control Approach

Strategic control approach is based on improving the competitive
capacity of the organization by providing a high level of autonomy
to the operating units. It is basically a hands-off organizational
strategy with control systems to monitor and evaluate the
performance of the business unit. The objective is to control
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efficiency, quality, innovation, and responsiveness to customers.

Therefore, it looks at the strategic plan from a perspective that lies
between the two extremes – the strategic planning approach and
the financial control approach and creates an appropriate
structure. Strategic control approach, therefore, is not single
stereotype architecture, but a set of organizational structures that 175
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bridges the space between strategic planning and financial control. Notes
Unlike the system used in Strategic Planning architectures, which ___________________

focused on the consequences of the increasing size of the ___________________
organization, goals are set in a participatory manner based on a
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___________________
belief that the unit has a better knowledge of the requirements of
the customers and the efficiency, quality and innovation required ___________________
to meet the objectives of the corporate centre. The graphical ___________________

representation of the Strategic Control Approach is shown in
___________________
Figure 19.1.
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___________________
CORPORATE CENTRE (STRATEGIC CONTROL) ___________________
Strategy Policies Capital Performance Establishment Agreed ___________________

Balance Allocations Assessment & Infrastructure Business
Plans
___________________
Division/
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Department
Figure 19.1: Strategic Control Approach
The corporate centre is not concerned with developing strategy

through structuring the tasks of its various departments or
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divisions. It is concerned with shaping the behaviour in

departments and divisions. And it is concerned with the context
within which others are operating. Generally, business plans are
produced by divisions – but within central guidelines based on the
use of long-term and strategically relevant criteria to set up the
strategic plan.
There can be many different types of strategic controls. However,
the controls that are commonly used in the preparation of the
strategic plan are financial controls, output controls and behaviour
controls.
(c)
z Behaviour control is exercised by monitoring and evaluating

systems. Operationally this is affected through operating
budgets and standardization of inputs, e.g., policies on
employment, market coverage, etc.; conversion activities of
inputs, throughputs and outputs; the reward structure, e.g.,
Commission Systems, Bonus Plans, etc.
176 z Financial control is exercised through defining and agreeing to
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Notes specific financial parameters and laying down targets for a
___________________ number of measurable financial quantities, e.g., stock market
price, return on investment, market share and cash flow, etc.
___________________
___________________ z Output control is exercised by agreeing upon on targets for the
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divisional and functional goals. Table 19.1 shows the summary
___________________
of some of the possible control systems.
___________________
Table 19.1: Types of Strategic Controls
___________________
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Financial Control Output Control Behaviour Control
___________________
Stock Prices Divisional Goals Budgets
___________________ ROI Functional Goals Standardization
Rules & Procedures
___________________
___________________
On the one hand, the philosophy of conventional organizations that
focus of organizational design is based on 'flexibility' so that the
changing environmental forces are exploited effectively. On the
other hand, what is being promoted as a philosophy by new
economy companies is that design of the organization could itself
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be used as the strategy.
The emergence of new economy companies in the 1990s revived
interest in the use of structure as strategy. Perhaps, in a sense,
this represents a revival of the use of strategy by Indian companies
to gain competitive advantage. However, the framework was
different. The new economy companies were led by a group of
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corporations, primarily in the information technology businesses.

These organizations were enabled by technology and its
concomitant focus on reduction in prices and their aspirations were
compelled by the expectations of pioneering trends. They have now
become the drivers of the markets and the investment community
in the new millennium.
The philosophy of the new technology companies has resulted in
the development of new organization forms where structure is seen
as strategy. Their strategic framework is different; these
businesses have flat matrix-like structures and avoid vertical
integration and diversification. The organizations are tiered
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vertically, e.g., from components to subassemblies to systems. For

example, Apple's open architecture sharply reduced interaction
costs in the computer industry. By conforming to a set of well-
documented standards, specialized companies could, for the first
time, work together easily to produce complementary products and
services. As a result, tightly coordinated webs of companies – such
as Adobe Systems, Apple, Intel, Microsoft, Novell, and Sun 177
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Microsystems – could form and ultimately compete effectively Notes
Activity
against the entrenched, vertically integrated giants. ___________________
Draft an article for a
This has empowered component developers to bring out radically newspaper on Virtual
___________________
organizations.
new devices with the assurance that the 'system' will adopt
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___________________
superior new components without hesitation. This has permitted a
free flow of the latest technologies from components to ___________________
subassemblies to systems, and so on. Intel invests more than $100 ___________________
million each year to help other companies develop software and
___________________
hardware that use Intel technology. It supports advances across
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the entire computer, communications and media sector, while ___________________
assuring the need for its own microprocessors. ___________________
___________________
Check Your Progress
___________________
Fill in the blanks:
1. Strategic control approach is based on improving the
…………………… capacity of the organization.
2. …………………… control is exercised by monitoring and
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evaluating systems.
Virtual Organization
The 'virtual organization' is described as one which will appear
almost edgeless, with permeable and continuously changing
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interfaces between company, supplier, and customer; operating

divisions will be constantly reforming according to need and job
responsibilities will regularly shift, as will lines of authority. Even
the very definition of employee will change, as some customers and
suppliers begin to spend more time in the company than will some
of the firm's own workers. One of the Canada's best performing
natural resources companies created a unique organizational
structure that combines the advantages of small business units
with Virtual Structures – groupings of these business units – that
can address different strategic issues and competitive
environments. It created over 100 business units. Based on the
requirement, it subdivided the units on the basis of:
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z Business Units serving a common customer group

z Business Units located in a common geography
z Business Units served by a common supplier group and
z Business Units in a similar phase of development
178 Each of the 100-plus business units represents a small team with
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Notes accountability for strategy, resources and performance. According
___________________ to the authors, "This enables the CEO and his team to push
accountability for value as close as possible to the 'coal face', where
___________________
value is actually created or destroyed."
___________________
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Virtual structure is a grouping of business units that can address
___________________
different strategic issues and competitive environments. It is a
___________________ unique organizational structure and form of business organization
___________________ that is emerging. The benefit of these virtual business units is
their ability to tackle corporate strategic issues that the
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___________________
operational business units cannot address on their own without
___________________ creating new layers of bureaucracy that too often become
___________________ permanent.
___________________ Business Units

served by a
Common
Business Units in a
Supplier Group
Similar Development
Phase
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Single Business Unit
Business Units
serving a
Common
Customer Group
Business Units
located in a
Common Geography
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Figure 19.2: Virtual Organization Structure
Moreover, because they are "virtual", these larger groupings of

business units can be "organized" in many different ways to meet
the company's priorities, even as they evolve over time. This gives
the company enormous capacity to organize and reorganize in
response to an ever-moving agenda and competitive environment.
Check Your Progress

Fill in the blanks:
1. Virtual structure is a grouping of business units that
(c)
can address different strategic issues and ………………

environments.
2. The benefit of these virtual business units is their
ability to tackle corporate strategic issues that the
…………… business units cannot address on their own.
Opportunity-based Designs 179
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Notes
Some companies, rather than viewing the corporation as a portfolio Activity
of business units, regard it as a portfolio of resources and of With___________________

the help of internet, find
out any two such
opportunities to create value. This opportunity-based design ___________________
organizations which are using
perspective gives these companies the flexibility to bring the most opportunity based design as
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their___________________
approach to strategy
useful resources to bear on the most promising opportunities. For implementation.
___________________
example, ABB is an engineering company with a decentralized
structure. ABB's country manager immediately appointed an ___________________
airport project leader, who persuaded ABB's businesses in the ___________________
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country to work under his guidance. These businesses, with their ___________________
networks, offered the complete set of resources needed for the
___________________
project. Because the project leader – the "opportunity owner" was
empowered to coordinate these resources, and because the heads of ___________________
ABB business units and functions – the "resource owners" were ___________________
willing to dedicate them to an opportunity that others had
identified, ABB won 70 airport contracts, with a total worth of
more than $300 million.
In opportunity-based designs, owners of opportunities and
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resources typically exist within or alongside the business-unit
structure. The organization must therefore be managed on two
levels. Its foundation is a host of stable business units that conduct
the company's day-to-day work, such as creating and marketing
individual products. On top of that lie a number of fluid
"opportunity units" that pull together elements of different
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businesses in order to tackle particular projects. The resulting

organization is more complex and poses new managerial
challenges. Opportunity-based design helps established companies
emulate the market responsiveness of start-ups without sacrificing
the advantages of scale and scope.
This opportunity-based structure has tricky implications for an
organization and for human resources in particular. In a
traditional line organization, everything is connected directly to
the formal structure: careers, accountability, and decision-making
processes. But all that changes when people begin to think of
themselves as entrepreneurial resources that can be applied to a
(c)
range of opportunities. In this case, employees need to juggle

independent assignments, to build careers that move outward as
well as upward.
180
Check Your Progress
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Notes
___________________ 1. In opportunity-based designs, owners of …………………

and ………………… typically exist within or alongside
___________________
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the business-unit structure.
___________________
2. In a traditional line organization, everything is
___________________
connected directly to the ………………… structure.
___________________
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___________________ Summary
___________________
The strategy implementation process is a bridge between the
___________________ classic economist's view and the view of the resource school.
___________________ Critical areas related to the implementation of strategy are
organizational structure, the culture of the organization, and the
strategic change process.
The structure of the organization determines three key
components pertaining to organizing the activities of the people in
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the organization. The organization chart is the visual
representation of underlying activities and processes being
undertaken by the organization. The principle underlying the
organization chart is that vertical linkages primarily show control,
while horizontal linkages indicate coordination and collaboration.
Based on the manner in which the strategic plan is structured and
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executed, organizations can be divided into three organizational

architectures. These are the strategic planning, the financial
control, and the strategic control approaches.
Lesson End Activity

Hold a group discussion in a group of 5 members on various
approaches to strategy implementation.
Keywords
(c)
Behaviour Control: It is exercised by monitoring and evaluating

systems.
Financial Control: It refers to defining and agreeing to specific
financial parameters and laying down targets for a number of
measurable financial quantities.
Output Control: It is exercised by agreeing upon on targets for 181
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the divisional and functional goals. Notes
Strategic Control Approach: It is based on improving the ___________________

competitive capacity of the organization by providing a high level ___________________
of autonomy to the operating units.
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___________________
___________________
___________________
1. Write a note on various approaches to implementation of
___________________
strategy.
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___________________
2. What are the three types of strategic control?
___________________
3. What do you understand by virtual organizations?
___________________
4. Explain opportunity based designs.
___________________
5. Prepare the diagram of virtual organizations.
Further Readings
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Books
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Web Readings
http://www.slideshare.net/birubiru/strategy-control-7038193
www.floridatechonline.com/.../strategic-management-technology-
inn.
(c)
182
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Notes
___________________
___________________
___________________
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___________________
___________________
___________________
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___________________
___________________
___________________
___________________
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UNIT 20: Case Study
Unit 20
183
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Notes
Case Study
___________________
___________________
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___________________
Objectives
___________________
___________________
Case Study: Wal-Mart's Cost Leadership Strategy
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___________________
By successfully adopting a cost leadership strategy over the
decades, Wal-Mart has emerged as the largest company (in terms ___________________
of revenues) in the world.
___________________
The case examines in-depth the key elements of the cost
leadership strategy followed by Wal-Mart. It discusses how the ___________________
cost leadership strategy generated above-average returns for the
company and acted as a defence against competition in the
industry.
Finally, the case discusses the plans and challenges faced by Wal-
Mart in early 2004.
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For the financial year ending January 31, 2003, retailing giant
Wal-Mart reported revenues of $244.5 billion, making it the
world's largest company. The company topped Fortune's list of the
world's largest companies for the second year in succession.
Considering the modest beginning of this company four decades
ago, nobody, including the company officials expected Wal-Mart to
emerge such a dominant player in the retailing industry. Wal-
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Mart's success story is a classic example of a company, which

became successful by rigorously pursuing its core philosophy of
cost leadership, right from the day it began operations in 1962.
Wal-Mart was founded by an ambitious entrepreneur, Sam
Walton (Walton), who figured out early that retailing, was a
volume-driven business, and his company could achieve success
by offering consumers better value for their money. Wal-Mart's
growth during the first two decades was propelled primarily by
following the strategy of establishing discount stores in smaller
towns and capturing significant market share.
The company was able to foster its growth in the 1980s by making
heavy investments in information technology (IT) to manage its
supply chain and by expanding business in bigger metropolitan
cities. In the late 1980s, when Wal-Mart felt that the discount
(c)
stores business was maturing, it ventured into food retailing by

introducing Supercentres.
In the late 1990s, Wal-Mart launched exclusive groceries/drug
stores known as "neighbourhood markets" in the US. Though
Wal-Mart had achieved huge success over the decades, the
company drew severe criticism from industry analysts for its
Contd...
184 strategies that aimed at killing competition. At the speed at
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Notes which Wal-Mart was growing, analysts feared that the company
would soon face an anti-trust suit2 for its monopolistic practices.
___________________ Christopher Hoyt, president of Scottsdale, an Arizona-based
supermarket store, Hoyt & Company, said, "The only thing that
___________________
could stop Wal-Mart is if the government gets involved, just as it
___________________ did with Microsoft."
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On July 2, 1962, Samuel Moore Walton (Walton), a merchant with
___________________
over 15 years of experience in retailing, set up his first discount
___________________ store in Rogers, a small town in the state of Arkansas, US. The
store offered a wide variety of branded merchandise at a
___________________ competitive price.
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___________________ During the initial years, Walton focused on establishing new
stores in small towns, with an average population of 5,000.
___________________
These towns were largely neglected by leading retailers like Sears
___________________ Roebuck & Company, K-Mart and Woolco, which concentrated
more on larger towns and big cities. In his efforts to attract people
___________________ from the rural areas to his stores, Walton introduced the concept
of everyday low prices (EDLP).
EDLP promised Wal-Mart's customers a wide variety of high
quality, branded and unbranded products at the lowest possible
price, offering better value for their money. Wal-Mart's
advertisement describing EDLP said, "Because you work hard for
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every dollar, you deserve the lowest price we can offer every time
you make a purchase. You deserve our Every Day Low Price.
It's not a sale; it's a great price you can count on every day to
make your dollar go further at Wal-Mart."4 From the very
beginning, Walton made efforts to procure products at the lowest
prices possible from manufacturers.
He always shared these savings with customers by charging them
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lower prices, thus giving them the maximum value for their
money. Wal-Mart's products were usually priced 20% lower than
those of its competitors. Walton's pricing strategy led to increased
loyalty from price-conscious rural customers. It helped the
company to generate more profits due to larger volumes.
Explaining his pricing strategy, Walton said, "By cutting your
price, you can boost your sales to a point where you earn far more
at the cheaper retail price than you would have by selling the
item at the higher price. In retailer language, you can lower your
mark-up but earn more because of the increased volume."5 EDLP
was extremely attractive to rural customers and emerged as the
key contributor to Wal-Mart's growth over the years.
Achieving Cost Leadership
Offering products at EDLP, especially during its early years,
(c)
when Wal-Mart was not an established retail player, was quite

difficult. The company aggressively followed a cost leadership
strategy that involved developing economies of scale and making
consistent efforts to reduce costs.
The surplus generated was reinvested in building facilities of an
efficient scale, purchasing modern business-related equipment
Contd...
UNIT 20: Case Study
and employing the latest technology. The reinvestments made by 185
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the company helped it to maintain its cost leadership position. Notes
From the start, Wal-Mart imposed a strict control on its overhead
costs. The stores were set up in large buildings, while ensuring ___________________
that the rent paid was minimal. The company imposed an upper
___________________
limit for its rent payment at $1.00 per square foot during the late
1960s. Not much emphasis was laid on the interiors of the stores.
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___________________
The company did not invest on standardized ordering programs
and on basic facilities to sort and replenish the stock... ___________________
Wal-Mart in the 1990s ___________________

In the early 1990s, Wal-Mart started focusing on its Supercenters
___________________
and Sam's Clubs to fuel growth. Wal-Mart expanded its
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operations into the Northeast and West of the US by placing a lot ___________________
of emphasis on the groceries business through its Supercenters.
___________________
The modus operandi was to first establish discount stores, after
which the best performing stores were to be converted into ___________________
Supercenters.
___________________
By 1991, Wal-Mart's mammoth retail network comprised of 1,355
discount stores, 120 Sam's Clubs and three Supercenters being
served by 16 distribution centers.
However, at this time, Wal-Mart had yet to enter as many as 23
states in the US. In the early 1990s, it was estimated that the size
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of the groceries business in the US was three times that of the
discount store business. So, Wal-Mart decided to focus on
Supercenters to propel its growth. Following Walton's death in
1992, David Glass (Glass) succeeded him as the CEO of Wal-Mart.
Glass viewed food retailing as a key driver to increase revenue
growth in the 1990s.
The Growth Continues
By the beginning of the new millennium, Wal-Mart was one of the
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world's largest companies, with revenues of $165 billion in fiscal

2000. Wal-Mart's rapid growth continued in the initial years of
the new millennium.
While continuing its aggressive expansion in the food business,
the company started launching innovative programs to further
penetrate the US markets. For instance, in 2001, Wal-Mart
launched a program, called 'Store of the community.' Under the
program, Wal-Mart began remodelling its discount stores and
Supercenters in the US to fulfil the needs of customers they
served, in line with what the customers wanted. Explaining the
program, Tom Coughlin, President and CEO of Wal-Mart Stores
Division, said, "The one-size-fits-all concept simply doesn't work
anymore in the retail industry. Customers tell us what they want
and it is our responsibility to meet those needs. Our store
associates live and work in each store's community and interact
(c)
with over 100 million customers each week.

Plans and Challenges
Wal-Mart has chalked out an aggressive expansion plan to
accelerate its growth in the near future. By the fiscal year ending
2007-08, Wal-Mart aims at achieving a revenue target of $500
billion.
Contd...
186
The company plans to achieve this by expanding aggressively in
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Notes international markets. In the US, Wal-Mart plans to increase its
store count and to introduce new product categories. The company
___________________
plans to increase the total number of stores in the US from 3,400
___________________ to 5,000 in the next five years. By 2008, Wal-Mart plans to open
1,000 Supercenters in the US. Analysts and media reports are
___________________ expressing doubts as to whether Wal-Mart will be able to achieve
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its ambitious $500 billion revenue target. Given the size of its
___________________
operations, some analysts felt that Wal-Mart may also face the
___________________ danger of anti-trust suits. However, not all analysts agree on this
issue, as Wal-Mart enjoys significant customer support, and the
___________________ customers are the ultimate beneficiaries of low prices.
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___________________ Questions:
1. Examine how the important components of Porter's cost
___________________
leadership strategy have been applied by the company?
___________________ 2. After analysing the case thoroughly, examine how a company
___________________
can emerge as an industry leader by effectively implementing
a generic strategy?
Source: http://www.volunteeringaustralia.org/files/1E8H8EVUL8/Case%20Studies.pdf
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(c)
UNIT 21: Strategic Control and Evaluation
187
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Notes
___________________
___________________
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___________________
___________________
___________________
___________________
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___________________
___________________
___________________
___________________
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BLOCK-V
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(c)
188
F
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Notes
UNIT 21: STRATEGIC CONTROL AND
___________________ UNIT 23: LIFE CYCLE APPROACH TO STRATEGIC
EVALUATION PLANNING
z ___________________
Introduction z Introduction
z Strategic Control Process
___________________ z Arthur D. Little’s Life Cycle Approach
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z Strategic Evaluation Process
___________________ z Business Portfolio Balancing
z Strategic Funds Programming
___________________
UNIT 22: TOOLS FOR STRATEGIC PLANNING
AND EVALUATION
___________________ UNIT 24: STRATEGIC MANAGEMENT OF
Introduction TECHNOLOGICAL INNOVATION
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z
___________________
z Competitive Cost Dynamics z Introduction
z ___________________
Learning Curve z Strategic Management
z BCG Matrix
___________________ z Technological Innovation
z SWOT Analysis z Strategic Innovation
___________________
UNIT 25: CASE STUDY

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(c)
Unit 21
189
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Notes
Activity
Strategic Control and Evaluation Visit___________________

an organization and
prepare a presentation on the
___________________
Strategic Control Process of
the organization.
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___________________
Objectives
___________________
topics: ___________________
\ Strategic Control Process ___________________
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\ Strategic Evaluation Process ___________________
___________________
Introduction ___________________
In order that the system should work effectively, credibility of its ___________________
leaders has to be maintained. For example, credibility may arise
from being a member of the peer group – this is why so many
seniors in professional service departments or organizations are
professional themselves. The software industry – which is one of
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the country’s best growth industries – reflects the values of such
organizations. Generally, the head of the department is competent
enough to undertake assignments personally as well as overseeing
the work of others.
The contribution of senior managers to this process is to ensure
that individuals have the channels to interact, and that the
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social/cultural controls which this process of interaction creates are

properly regulated to avoid rigidities. Senior managers have to be
actively concerned with shaping the context in which the members
of the organization are working so that the individuals remain
highly motivated.
One of these key resources to maintain the channels of interaction
is likely to be information. The organization’s IT strategy is a
critical ingredient in this process of supporting such individuals.
The control through information technology is being discussed
separately.
(c)
Strategic Control Process

Strategic control involves tracking a strategy as its being
implemented. It's also concerned with detecting problems or
changes in the strategy and making necessary adjustments. As a
190 manager, you tend to ask yourself questions, such as whether the
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Notes company is moving in the right direction, or whether your
___________________ assumptions about major trends and changes in the company's
environment are correct. Such questions necessitate the
___________________
establishment of strategic controls.
___________________
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Different types of Strategic Control Systems are required to
___________________
effectively exercise control. Standard systems of controls are
___________________ generally classified into four types:
___________________ z Premise controls
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___________________
z Implementation controls
___________________
z Strategic surveillance
___________________
z Special alert control
___________________
Premise Control
Every strategy is based on certain planning premises or
predictions. It highlights and identifies these and checks if these
are still valid as future events unfold. Premise control is designed
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to check methodically and constantly whether the premises on
which a strategy is grounded on are still valid. If you discover that
an important premise is no longer valid, the strategy may have to
be changed. The sooner you recognize and reject an invalid
premise, the better. This is because the strategy can be adjusted to
reflect the reality.
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It highlights and identifies these and checks if these are still valid
as future events unfold. The sooner these invalid premises are
detected, better are the chances of devising an acceptable shift in
the strategy. These premises can be from environmental factors
external to the organization. The firm has little control on them,
but they have a profound impact on the success of strategy. These
include:
z Rate of inflation
z Interest rates
Legislations and regulations by government
(c)
z Demographic changes
z Social changes, etc.
Other industry factors external to the organization that set are
unique to the industry that should be considered include:
z Competitors 191
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Notes
z New entrants
___________________
z Suppliers
___________________
z Substitutes
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___________________
z Buyers
___________________
z Barriers to entry and exit, etc.
___________________
These premises may be major or minor; they are categorized on the
___________________
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basis of their impact on the success of strategy. Since tracking all
___________________
premises is time consuming, short lists of premises that have a
significant effect on the implementation of strategy are prepared. ___________________
These are identified and recorded and their monitoring ___________________
responsibility is fixed. If these premises are not in line with the
___________________
assumptions made at the beginning, adjustments to strategy,
either operational or functional, may become necessary.
Implementation Control
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Implementing a strategy takes place as a series of steps, activities,
investments and acts that occur over a lengthy period. As a
manager, you'll mobilize resources, carry out special projects and
employ or reassign staff. Implementation control is the type of
strategic control that must be carried out as events unfold. There
are two types of implementation controls: strategic thrusts or
projects, and milestone reviews. Strategic thrusts provide you with
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information that helps you determine whether the overall strategy

is shaping up as planned. With milestone reviews, you monitor the
progress of the strategy at various intervals or milestones.
Implementation control serves the purpose of assessing whether
the overall strategy needs modification/changes in the light of
events unfolding and results accomplished. It is of two types:
z Assessing Strategic Thrust, and
z Milestone Reviews
This information on the thrust of the strategy is used to point out
(c)
changes that may have to be incorporated in the strategy.

However, it is important to agree to the evaluation of thrust points
during the formulation of strategy itself. And also agree to gate-
keeping thresholds in terms of time, cost, degree of progress of
project, or/and success of a program. These are major hold-points
192 for the overall strategy, and lack of progress or unforeseen
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Notes happenings at these checkpoints may even require abandonment of
___________________ the strategy.
___________________ Milestone review is a full-scale reassessment of the overall
___________________ strategy and is usually linked to:
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___________________ z Critical events
___________________ z Stage of major allocation of resources

___________________ z Time frame.
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___________________ Milestones are more effective if they are related to major stages
___________________ where uncertainty needs to be resolved. These reviews may
determine the need to continue or reinforce strategy
___________________
implementation.
___________________
Strategic Surveillance
Strategic surveillance, as the name implies, is intended to monitor
a very broad range of events inside and outside the firm. The
choice of the events is not pre-selected or pre-planned. It is a
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general system of monitoring different sources of information to
uncover important but unanticipated information that can have
major impact on the strategy. This is somewhat of a loose scanning
activity. Trade magazines, technical or industry conferences,
business newspapers, industry watchers, etc.; provide a wide range
of information.
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Strategic surveillance is designed to observe a wide range of events

within and outside your organization that are likely to affect the
track of your organization's strategy. It's based on the idea that
you can uncover important yet unanticipated information by
monitoring multiple information sources. Such sources include
trade magazines, journals such as the Wall Street Journal, trade
conferences, conversations and observations.
Special Alert Control

A special alert control is the rigorous and rapid reassessment of an
(c)
organization's strategy because of the occurrence of an immediate,

unforeseen event. An example of such event is the acquisition of
your competitor by an outsider. Such an event will trigger an
immediate and intense reassessment of the firm's strategy. Form
crisis teams to handle your company's initial response to the
unforeseen events. This control is a subset of the other types of
controls. This is a rapid but thorough review of the entire strategy 193
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in the light of sudden and unexpected events. Unforeseen events Notes
trigger immediate reassessment of strategy. Many firms have ___________________
‘crisis teams’ in place to respond and coordinate the activities
___________________
through the period of crisis. These reviews often lead to
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contingency plans. ___________________
Controls can be generated either to focus on the actual outputs or ___________________
on the activities that generate the performance. Output control ___________________

specifies what is to be accomplished by focusing on the end result ___________________
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of the behaviours through the use of objectives and performance
___________________
targets. Behaviour control specifies how something is to be done
through policies, rules, standard operating procedures, etc. This ___________________
type of control is used when performance results are difficult to ___________________
measure but the cause-effect relationship between activities and
___________________
results is clear. Output control and behaviour control are not
interchangeable.
The process needs to be an ongoing and continuous process. It
provides, on a continuous basis, a clinical check up on the progress
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of the business objectives in the near term Annual Operating Plan
and the long-term Strategic Plan. It determines if the performance
requirements are being met within the timeframe. In addition,
evaluation and control process determines whether the results are
meaningful and whether they add to the goals of continuous
improvement for the organization and add real value to the
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customer.
Figure 21.1 shows the different components of the strategy control
process with a control system in place. The relationship of the
strategy control process with the strategy of the organization is
apparent. As will be seen from the figure, the different components
and the feedback loop is cyclical and the different elements mesh
into each other to form two connected systems. One is the strategy
implementation system, and this is connected to the different
components of strategy which is the second system. The control
process is the connecting element.
(c)
194
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Notes Mission and Goals
Activity
___________________
Prepare a chart on the
Strategic Evaluation Process External Analysis Internal Analysis
Strategic Choice
with___________________
Opportunities and Strengths and
a diagrammatic Threats Weaknesses
representation of your own.
___________________
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Functional-level
___________________ Strategy
Business-level
___________________ Strategy
___________________ Corporate-level
Strategy
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___________________ Resource
Allocation
___________________
Designing Matching Strategy Designing
Org Structure Structure/Controls Control Systems
___________________
___________________ Managing
Strategic Change Strategy Implementation
Feedback
Figure 21.1: Control through the Planning Process

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Check Your Progress
Fill in the blanks:
1. Output control specifies what is to be accomplished by
focusing on the ………………… of the behaviours.
2. Evaluation and control process determines whether the
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results are meaningful for the ………………… and add

real value to the …………………….
Strategic Evaluation Process

Strategic evaluation is as significant as strategy formulation
because it throws light on the efficiency and effectiveness of the
comprehensive plans in achieving the desired results. The
managers can also assess the appropriateness of the current
strategy in today’s dynamic world with socio-economic, political
and technological innovations. Strategic evaluation is the final
phase of strategic management.
(c)
The significance of strategy evaluation lies in its capacity to

co-ordinate the task performed by managers, groups, departments
etc., through control of performance. Strategic evaluation is
significant because of various factors such as - developing inputs
for new strategic planning, the urge for feedback, appraisal and
reward, development of the strategic management process, judging 195
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the validity of strategic choice etc. Notes
The process of Strategy Evaluation consists of following steps: ___________________
___________________
Fixing Benchmark of Performance
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___________________
While fixing the benchmark, strategists encounter questions such
___________________
as - what benchmarks to set, how to set them and how to express
them. In order to determine the benchmark performance to be set, ___________________
it is essential to discover the special requirements for performing ___________________
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the main task. The performance indicator that best identify and
___________________
express the special requirements might then be determined to be
used for evaluation. The organization can use both quantitative ___________________
and qualitative criteria for comprehensive assessment of ___________________

performance. Quantitative criteria include determination of net ___________________
profit, ROI, earning per share, cost of production, rate of employee
turnover etc. Among the Qualitative factors are subjective
evaluation of factors such as - skills and competencies, risk taking
potential, flexibility etc.
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Measurement of Performance
The standard performance is a bench mark with which the actual
performance is to be compared. The reporting and communication
system help in measuring the performance. If appropriate means
are available for measuring the performance and if the standards
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are set in the right manner, strategy evaluation becomes easier.

But various factors such as managers’ contribution are difficult to
measure. Similarly divisional performance is sometimes difficult to
measure as compared to individual performance. Thus, variable
objectives must be created against which measurement of
performance can be done. The measurement must be done at right
time else evaluation will not meet its purpose. For measuring the
performance, financial statements like - balance sheet, profit and
loss account must be prepared on an annual basis.
Analysing Variance
(c)
While measuring the actual performance and comparing it with

standard performance there may be variances which must be
analysed. The strategists must mention the degree of tolerance
limits between which the variance between actual and standard
performance may be accepted. The positive deviation indicates a
better performance but it is quite unusual exceeding the target
196 always. The negative deviation is an issue of concern because it
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Notes indicates a shortfall in performance. Thus in this case the
___________________ strategists must discover the causes of deviation and must take
corrective action to overcome it.
___________________
___________________ Taking Corrective Action
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___________________ Once the deviation in performance is identified, it is essential to
___________________ plan for a corrective action. If the performance is consistently less
___________________
than the desired performance, the strategists must carry a detailed
analysis of the factors responsible for such performance. If the
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___________________
strategists discover that the organizational potential does not
___________________ match with the performance requirements, then the standards
___________________ must be lowered. Another rare and drastic corrective action is
reformulating the strategy which requires going back to the
___________________
process of strategic management, reframing of plans according to
new resource allocation trend and consequent means going to the
beginning point of strategic management process.
Check Your Progress

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Fill in the blanks:
1. Strategic ………………… is the final phase of strategic
management.
2. Strategic evaluation is as significant as strategy
………………….
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Summary
There are many kinds of strategic control systems. The evaluation
and control process is designed to ensure that the organization is
achieving its goals and objectives. The Evaluation Process is the
early warning system for the organization. The objective of the
activities of the organization is to implement the critical success
factors which identify the levels of performance needed to
outperform competition, to measure corporate performance as well
as implement the appropriate strategy. Performance is the end
(c)
result of activities. The organization has to develop a system of

measurement of outputs through a series of agreed Performance
Indicators (PIs).
Strategic control approach is based on providing a high level of
autonomy to the operating units. It is basically a hands-off
organizational strategy with control systems to monitor and
evaluate the performance of the business unit. Strategic control 197
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architecture, therefore, is not single stereotype architecture, but a Notes
set of organizational structures that bridge all of the space
___________________
between strategic planning and financial control.
___________________
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Lesson End Activity ___________________
___________________
Prepare a presentation on strategic control vs. strategic evaluation.
___________________
Keywords ___________________
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___________________
Behaviour Control: Behaviour Control specifies how something
is to be done through policies, rules, standard operating ___________________
procedures, etc. ___________________
Evaluation and Control Process: The Evaluation and Control ___________________

Process is a process designed to ensure that the organization is
achieving its goals and objectives. It compares performance with
the desired results and provides the management with a feedback
to evaluate results and take the necessary corrective action.
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Output Control: Output Control specifies what is to be
accomplished by focusing on the end result of the behaviours
through the use of objectives and performance targets.

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1. Write a brief note on strategic control.

2. Briefly describe strategic evaluation.
3. What are the steps involved in strategic control process?
4. What do you understand by analysing variance while
evaluating strategies?
5. Discuss the steps involved in strategic evaluation process.
Further Readings
Books
(c)

198 Dicke Wilhelmina Margaretha (2005), “Managing Technology and
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Notes Innovation: An Introduction”, Routledge.
___________________
Web Readings
___________________
http://smallbusiness.chron.com/four-types-strategic-control-
___________________
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14720.html
___________________
http://www.managementstudyguide.com/strategy-evaluation.htm
___________________
___________________
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___________________
___________________
___________________
___________________
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(c)
UNIT 22: Tools for Strategic Planning and Evaluation
Unit 22
199
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Notes
Activity
Tools for Strategic Planning and Draft___________________

an article for a magazine
on competitive cost dynamics.
___________________
Evaluation
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___________________
___________________
Objectives ___________________
___________________
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topics:
___________________
\ Competitive Cost Dynamics
\ Learning Curve ___________________
\ BCG Matrix ___________________

\ SWOT Analysis ___________________
Introduction
Continuous Improvement Plan provides a structural program for
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identifying root causes to problems and the best solution to help
eliminate the problem. It's formatted for use by "your quality tiger
team" leader with step-by-step slides to make for easy
implementation.
Strengths and Weakness Analysis clearly defines current
strengths and weaknesses of a company providing solid
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information upon which to base strategic decisions. It helps a

company to define new business opportunities which may not
otherwise have surfaced.
Competitive Cost Dynamics

This strategy emphasizes efficiency. By producing high volumes of
standardized products, the firm hopes to take advantage of
economies of scale and experience curve effects. The product is
often a basic no-frills product that is produced at a relatively low
cost and made available to a very large customer base.
(c)
Maintaining this strategy requires a continuous search for cost

reductions in all aspects of the business. The associated
distribution strategy is to obtain the most extensive distribution
possible. Promotional strategy often involves trying to make a
virtue out of low cost product features.
200 To be successful, this strategy usually requires a considerable
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Notes market share advantage or preferential access to raw materials,
___________________ components, labour, or some other important input. Without one or
more of these advantages, the strategy can easily be mimicked by
___________________
competitors. Successful implementation also benefits from:
___________________
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z Process engineering skills
___________________
z Products designed for ease of manufacture
___________________
z Sustained access to inexpensive capital
___________________
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___________________ z Close supervision of labour
___________________ z Tight cost control
___________________ z Incentives based on quantitative targets.

___________________ Always ensure that the costs are kept at the minimum possible
level.
Examples include low-cost airlines such as EasyJet and Southwest
Airlines, and supermarkets such as KwikSave. "Achieving a
sustainable competitive advantage in the IT industry through
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hybrid business strategy: A contemporary perspective" – Tharinda
Jagathsiri MBA, University of East London.
When a firm designs, produces and markets a product more
efficiently than competitors such firm has implemented a cost
dynamics strategy. Cost reduction strategies across the activity
cost chain will represent low cost dynamics. Attempts to reduce
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costs will spread through the whole business process from

manufacturing to the final stage of selling the product. Any
processes that do not contribute towards minimization of cost base
should be outsourced to other organisations with the view of
maintaining a low cost base.
Low costs will permit a firm to sell relatively standardised
products that offer features acceptable to many customers at the
lowest competitive price and such low prices will gain competitive
advantage and increase market share. These writings explain that
cost efficiency gained in the whole process will enable a firm to
(c)
mark up a price lower than competition which ultimately results in

high sales since competition could not match such a low cost base.
If the low cost base could be maintained for longer periods of time
it will ensure consistent increase in market share and stable
profits hence consequent in superior performance. However all
writings direct us to the understanding that sustainability of the
competitive advantage reached through low cost strategy will 201
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depend on the ability of a competitor to match or develop a lower Notes
cost base than the existing cost leader in the market. ___________________
A firm attempts to maintain a low cost base by controlling ___________________
production costs, increasing their capacity utilization, controlling
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___________________
material supply or product distribution and minimizing other costs
including R&D and advertising. Mass production, mass ___________________
distribution, economies of scale, technology, product design, ___________________

learning curve benefit, work force dedicated for low cost ___________________
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production, reduced sales force, less spending on marketing will
___________________
further help a firm to main a low cost base.
___________________
Decision makers in a cost dynamics firm will be compelled to
closely scrutinise the cost efficiency of the processes of the firm. ___________________
Maintaining the low cost base will become the primary ___________________
determinant of the cost dynamics strategy. For low cost dynamics
to be effective a firm should have a large market share. New
entrants or firms with a smaller market share may not benefit
from such strategy since mass production, mass distribution and
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economies of scale will not make an impact on such firms. Low cost
dynamics becomes a viable strategy only for larger firms. Market
leaders may strengthen their positioning by advantages attained
through scale and experience in a low cost dynamics strategy. But
is there any superiority in low cost strategy than other strategic
typologies? Can a firm that adopts a low cost strategy outperform
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another firm with a different competitive strategy? If firms costs

are low enough it may be profitable even in a highly competitive
scenario hence it becomes a defensive mechanism against
competitors.
Further they mention that such low cost may act as entry barriers
since new entrants require huge capital to produce goods or
services at the same or lesser price than a cost leader. The
academic framework of competitive advantage raising barriers for
competition wills consequent in sustainable competitive advantage
and in consolidation with the above writings we may establish the
fact that low cost competitive strategy may generate a sustainable
(c)
competitive advantage.
Further in consideration of factors mentioned above that facilitate
a firm in maintaining a low cost base; some factors such as
technology which may be developed through innovation and some
may even be resources developed by a firm such as long-term
202 healthy relationships build with distributors to maintain cost
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Notes effective distribution channels or supply chains (inimitable,
Activity
___________________
Prepare a slideshow on the unique, valuable non-transferable resource). Similarly economies
learning curve of an of scale may be an ultimate result of a commitment made by a firm
___________________
established organization in
technology sector. such as capital investments for expansions. Also raising barriers
___________________
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for competition by virtue of the low cost base that enables the low
___________________ prices will result in strong strategic positioning in the market.
___________________ These significant strengths align with the four perspectives of
sustainable competitive advantage mentioned in the early parts of
___________________
this literature review. Low cost dynamics could be considered as a
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___________________ competitive strategy that will create a sustainable competitive
___________________ advantage.
___________________ However, low cost dynamics is attached to a disadvantage which is
___________________ fewer customers. Relatively low prices will result in creating a
negative attitude towards the quality of the product in the mind-
set of the customers. Customer's impression regarding such
products will enhance the tendency to shift towards a product
which might be higher in price but projects an image of quality.
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Considering analytical in depth view regarding the low cost
strategy, it reflects capability to generate a competitive advantage
but development and maintenance of a low cost base becomes a
vital, decisive task.
Check Your Progress

Fill in the blanks:
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1. Low cost dynamics could be considered as a ……………

strategy that will create a sustainable competitive
advantage.
2. Cost ………………… strategies across the activity cost
chain will represent low cost dynamics.
Learning Curve
The learning curve effect and the closely related experience curve
effect express the relationship between experience and efficiency.
(c)
As individuals and/or organizations get more experienced at a task,

they usually become more efficient at it. Both concepts originate in
the adage, "practice makes perfect", and both concepts are opposite
to the popular misapprehension that a "steep" learning curve
means that something is hard to learn. In fact, a "steep" learning
curve implies that something gets easier quickly.
The term "learning curve" was introduced by the 19th-century 203
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German psychologist Hermann Ebbinghaus in the context of the Notes
efficiency of memorizing vs. the number of repetitions. ___________________
Later the term acquired a broader meaning. The learning curve ___________________
effect states that the more times a task have been performed, the
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___________________
less time will be required on each subsequent iteration. This
relationship was probably first quantified in 1936 at Wright- ___________________
Patterson Air Force Base in the United States, where it was ___________________
determined that every time total aircraft production doubled, the ___________________
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required labour time decreased by 10 to 15 per cent. Subsequent
___________________
empirical studies from other industries have yielded different
values ranging from only a couple of per cent up to 30 per cent, but ___________________
in most cases it is a constant percentage: It did not vary at ___________________
different scales of operation. Learning curve theory states that as
___________________
the quantity of items produced doubles, costs decrease at a
predictable rate. This predictable rate is described by Equations 1
and 2. The equations have the same equation form. The two
equations differ only in the definition of the Y term, but this
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difference can make a significant difference in the outcome of an
estimate.
1. The following equation 1 describes the basis for what is called
the unit curve. In this equation, Y represents the cost of a
specified unit in a production run. For example, if a production
run has generated 200 units, the total cost can be derived by
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taking the equation below and applying it 200 times (for units
1 to 200) and then summing the 200 values. This is
cumbersome and requires the use of a computer or published
tables of predetermined values.
log 2 b[ 2 ]
Yx = Kx …(1)
where,
K is the number of direct labour hours to produce the first unit
Yx is the number of direct labour hours to produce the xth unit
x is the unit number

(c)
b is the learning percentage

2. The following equation 2 describes the basis for the cumulative
average or cum average curve. In this equation, Y represents
the average cost of different quantities (X) of units. The
significance of the "cum" in cum average is that the average
204 costs are computed for X cumulative units. Therefore, the total
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Notes cost for X units is the product of X times the cum average cost.
Activity
Draw___________________
BCG matrix for Apple For example, to compute the total costs of units 1 to 200, an
Inc. and present it in the class. analyst could compute the cumulative average cost of unit 200
___________________
and multiply this value by 200. This is a much easier
___________________
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calculation than in the case of the unit curve.
___________________
1
x1+ log2 b
___________________ 1 + log 2 b
Yx = K
___________________ x …(2)
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___________________ where,
___________________ K is the number of direct labour hours to produce the first unit
___________________
Yx is the average number of direct labour hours to produce
___________________
First xth units
x is the unit number
b is the learning percentage
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Check Your Progress
Fill in the blanks:
1. The learning curve effect states that the …………………
times a task has been performed, the …………………
time will be required on each subsequent iteration.
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2. The learning curve effect and the closely related

experience curve effect express the relationship
between ………………… and ………………….
BCG Matrix
Boston Consulting Group (BCG) Matrix is a four celled matrix
(a 2 × 2 matrix) developed by BCG, USA. It is the most renowned
corporate portfolio analysis tool. It provides a graphic
representation for an organization to examine different businesses
in it’s portfolio on the basis of their related market share and
industry growth rates. It is a two dimensional analysis on
(c)
management of SBU’s (Strategic Business Units). In other words,

it is a comparative analysis of business potential and the
evaluation of environment.
According to this matrix, business could be classified as high or low
according to their industry growth rate and relative market share.
Relative Market Share = SBU Sales this year leading competitors 205
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sales this year. Notes
Market Growth Rate = Industry sales this year - Industry Sales ___________________
last year. ___________________
The analysis requires that both measures be calculated for each
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___________________
SBU. The dimension of business strength, relative market share,
___________________
will measure comparative advantage indicated by market
___________________
dominance. The key theory underlying this is existence of an
experience curve and that market share is achieved due to overall ___________________
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cost leadership. ___________________
BCG matrix has four cells, with the horizontal axis representing ___________________
relative market share and the vertical axis denoting market
___________________
growth rate. The mid-point of relative market share is set at 1.0. if
___________________
all the SBU’s are in same industry, the average growth rate of the
industry is used. While, if all the SBU’s are located in different
industries, then the mid-point is set at the growth rate for the
economy.
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Resources are allocated to the business units according to their
situation on the grid. The four cells of this matrix have been called
as stars, cash cows, question marks and dogs. Each of these cells
represents a particular type of business.
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(c)
Figure 22.1: BCG Matrix
1. Stars: Stars represent business units having large market

share in a fast growing industry. They may generate cash but
because of fast growing market, stars require huge
206 investments to maintain their lead. Net cash flow is usually
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Notes modest. SBU’s located in this cell are attractive as they are
___________________ located in a robust industry and these business units are
highly competitive in the industry. If successful, a star will
___________________
become a cash cow when the industry matures.
___________________
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2. Cash Cows: Cash Cows represent business units having a
___________________
large market share in a mature, slow growing industry. Cash
___________________ cows require little investment and generate cash that can be
___________________ utilized for investment in other business units. These SBU’s
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are the corporation’s key source of cash, and are specifically
___________________
the core business. They are the base of an organization. These
___________________
businesses usually follow stability strategies. When cash cows
___________________ loose their appeal and move towards deterioration, then a
___________________ retrenchment policy may be pursued.
3. Question Marks: Question marks represent business units
having low relative market share and located in a high growth
industry. They require huge amount of cash to maintain or
gain market share. They require attention to determine if the
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venture can be viable. Question marks are generally new
goods and services which have a good commercial prospective.
There is no specific strategy which can be adopted. If the firm
thinks it has dominant market share, then it can adopt
expansion strategy, else retrenchment strategy can be
adopted. Most businesses start as question marks as the
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company tries to enter a high growth market in which there is

already a market-share. If ignored, then question marks may
become dogs, while if huge investment is made, and then they
have potential of becoming stars.
4. Dogs: Dogs represent businesses having weak market shares
in low-growth markets. They neither generate cash nor require
huge amount of cash. Due to low market share, these business
units face cost disadvantages. Generally retrenchment
strategies are adopted because these firms can gain market
share only at the expense of competitor’s/rival firms. These
business firms have weak market share because of high costs,
(c)
poor quality, ineffective marketing, etc. Unless a dog has some

other strategic aim, it should be liquidated if there are fewer
prospects for it to gain market share. Number of dogs should
be avoided and minimized in an organization.
Limitations of BCG Matrix 207
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Notes
The BCG Matrix produces a framework for allocating resources Activity
among different business units and makes it possible to compare Pick___________________
an organization of your
choice in technology sector
many business units at a glance. But BCG Matrix is not free from and___________________
prepare its SWOT
limitations, such as: analysis.
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___________________
z BCG matrix classifies businesses as low and high, but ___________________
generally businesses can be medium also. Thus, the true
___________________
nature of business may not be reflected.
___________________
Market is not clearly defined in this model.
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z
___________________
z High market share does not always leads to high profits. There
___________________
are high costs also involved with high market share.
___________________
z Growth rate and relative market share are not the only
indicators of profitability. This model ignores and overlooks ___________________
other indicators of profitability.

z At times, dogs may help other businesses in gaining
competitive advantage. They can earn even more than cash
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cows sometimes.
z This four-celled approach is considered as to be too simplistic.
Check Your Progress

Fill in the blanks:
1. When cash cows loose their appeal and move towards
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deterioration, then a …………… policy may be pursued.

2. …………… are generally new goods and services which
have a good commercial prospective.
SWOT Analysis
SWOT is an acronym for Strengths, Weaknesses, Opportunities
and Threats. By definition, Strengths (S) and Weaknesses (W) are
considered to be internal factors over which you have some
measure of control. Also, by definition, Opportunities (O) and
Threats (T) are considered to be external factors over which you
(c)
have essentially no control.

SWOT Analysis is the most renowned tool for audit and analysis of
the overall strategic position of the business and its environment.
Its key purpose is to identify the strategies that will create a firm
specific business model that will best align an organization’s
208 resources and capabilities to the requirements of the environment
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Notes in which the firm operates. In other words, it is the foundation for
___________________ evaluating the internal potential and limitations and the
probable/likely opportunities and threats from the external
___________________
environment. It views all positive and negative factors inside and
___________________
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outside the firm that affect the success. A consistent study of the
___________________ environment in which the firm operates helps in
___________________ forecasting/predicting the changing trends and also helps in
including them in the decision-making process of the organization.
___________________
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An overview of the four factors (Strengths, Weaknesses,
___________________
Opportunities and Threats) is given below:
___________________
___________________ Strengths
___________________ Strengths are the qualities that enable us to accomplish the
organization’s mission. These are the basis on which continued
success can be made and continued/sustained. Strengths can be
either tangible or intangible. These are what you are well-versed in
or what you have expertise in, the traits and qualities your
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employees possess (individually and as a team) and the distinct
features that give your organization its consistency. Strengths are
the beneficial aspects of the organization or the capabilities of an
organization, which includes human competencies, process
capabilities, financial resources, products and services, customer
goodwill and brand loyalty. Examples of organizational strengths
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are huge financial resources, broad product line, no debt,

committed employees, etc.
Weaknesses
Weaknesses are the qualities that prevent us from accomplishing
our mission and achieving our full potential. These weaknesses
deteriorate influences on the organizational success and growth.
Weaknesses are the factors which do not meet the standards we
feel they should meet. Weaknesses in an organization may be
depreciating machinery, insufficient research and development
facilities, narrow product range, poor decision-making, etc.
(c)
Weaknesses are controllable. They must be minimized and

eliminated. For instance - to overcome obsolete machinery, new
machinery can be purchased. Other examples of organizational
weaknesses are huge debts, high employee turnover, complex
decision making process, narrow product range, large wastage of
raw materials, etc.
Opportunities 209
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Notes
Opportunities are presented by the environment within which our
organization operates. These arise when an organization can take ___________________
benefit of conditions in its environment to plan and execute ___________________

strategies that enable it to become more profitable. Organizations
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___________________
can gain competitive advantage by making use of opportunities.
___________________
Organization should be careful and recognize the opportunities and
grasp them whenever they arise. Selecting the targets will best ___________________
serve the clients while getting desired results is a difficult task. ___________________
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Opportunities may arise from market, competition,
___________________
industry/government and technology. Increasing demand for
telecommunications accompanied by deregulation is a great ___________________
opportunity for new firms to enter telecom sector and compete with ___________________
existing firms for revenue.
___________________
Threats
Threats arise when conditions in external environment jeopardize
the reliability and profitability of the organization’s business. They
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compound the vulnerability when they relate to the weaknesses.
Threats are uncontrollable. When a threat comes, the stability and
survival can be at stake. Examples of threats are - unrest among
employees; ever changing technology; increasing competition
leading to excess capacity, price wars and reducing industry
profits; etc.
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Check Your Progress

Fill in the blanks:
1. …………………… can be either tangible or intangible.
2. Opportunities are presented by the ……………………
within which our organization operates.
Summary
The starting place of strategy evaluation is the strategic analysis of
the organization.
(c)
New deflationary pressures are facing businesses today, which are

squeezing profit margins and the availability of capital for
investment. Indeed, many management thinkers question whether
existing business models are sustainable, and if there is a need to
develop new business models to face the situation.
210 SWOT Analysis is the most renowned tool for audit and analysis of
S
Notes the overall strategic position of the business and its environment.
___________________ A consistent study of the environment in which the firm operates
helps in forecasting/predicting the changing trends and also helps
___________________
in including them in the decision-making process of the
___________________
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organization.
___________________
___________________ Lesson End Activity

___________________ Make two groups of four students each and prepare SWOT
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___________________ analysis of two organizations in the same sector, one for each
___________________ group and them compare the SWOT analysis.
___________________
Keywords
___________________
Cash Cow: A cash cow is a business venture which generates a
steady return of profits which far exceed the outlay of cash
required to acquire or start it.
Opportunities: Opportunities are presented by the environment
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within which our organization operates.
Strengths: Strengths are the qualities that enable us to
accomplish the organization’s mission.
Threats: Threats arise when conditions in external environment
jeopardize the reliability and profitability of the organization’s
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business.
Weaknesses: Weaknesses are the qualities that prevent us from
accomplishing our mission and achieving our full potential.

1. What is the effect of low cost strategy on the sale of a firm’s
products?
2. Discuss the negative impact of low cost dynamics.
3. Explain learning curve in detail.
(c)
4. Draw and explain each component of BCG matrix.

5. What do you understand by SWOT analysis?
Further Readings 211
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Notes
Books ___________________
White Margaret Alice (2010), “The Management of Technology and ___________________

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___________________
Christensen Clayton (2008), “Strategic Management of Technology ___________________
___________________
___________________
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___________________
Web Readings ___________________
http://www.managementstudyguide.com/bcg-matrix.htm ___________________
http://www.managementstudyguide.com/swot-analysis.htm ___________________
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(c)
212
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Notes
___________________
___________________
___________________
E
___________________
___________________
___________________
UP
___________________
___________________
___________________
___________________
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(c)
UNIT 23: Life Cycle Approach to Strategic Planning
Unit 23
213
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Notes
Life Cycle Approach to Strategic

___________________
___________________
Planning
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___________________
___________________
Objectives ___________________
___________________
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topics:
___________________
\ Arthur D. Little’s Life Cycle Approach
\ Business Portfolio Balancing ___________________
\ Strategic Funds Programming ___________________
___________________
Introduction
Formal planning and evaluation processes can play an important
part in organizations which develop and select strategies through
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these fragmented, incremental processes. They can be an
important influence to insure that best practice is communicated
through the various parts of the organization, and communicating
the wider organizational context to their 'local' decision makers.
Planning can be about changing minds, not just making plans.
In some organizations, especially in family managed business
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houses or the visionary type organizations the dominant process

for the selection of strategies is command. The decision is taken at
the highest level with involvement/advice from the organization to
varying degrees. The efforts of those involved in formal evaluation
are concerned to ensure that selections made through command
process are well informed. It is important that, if strategies are
selected in this way, they have some completeness and are
workable in practice.
Without some detailed substance in terms of specific strategic
choices development directions and methods, the vision and
intentions are not a basis on which strategy selection should
(c)
proceed. The role of formal planning in these circumstances is to

devise useful means of raising the level of debate among the
decision-makers during the selection process.
The pace of change, today, is unrelenting. It has created
challenges, ranging from direct threats like increased competition
214 to technological discontinuities. Organizations that have to
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Notes maintain or improve their position in the marketplace and create
Activity
___________________
Search over the internet and competitive advantage for themselves will find that well thought
find out some more facts out strategies will play an increasingly important role in the
___________________
about Arthur D. Little’s Life
Cycle Approach and prepare a future. They will have to move towards a style of management that
___________________
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small report. closely resembles a planned approach.
___________________
___________________ Arthur D. Little’s Life Cycle Approach

___________________ Strategy selection is a complex process. Strategy will be driven by
UP
___________________ the perception of the challenges and opportunities facing the
___________________
organization, and our strategic response to them. Choice of
strategies will depend on the relationship between the company
___________________
and its competitive environment; allocation of resources among
___________________ competing investment opportunities; and committing resources –
often long-term – needed to realize these opportunities.
Notwithstanding the complexity of the process of strategic choice,
the organization cannot live in a vacuum; it has to choose its
strategies so that it can survive in the marketplace. Once strategy
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formulation is undertaken by the organization, it needs to evaluate
the strategic options it can exercise. In assessing strategies, there
are three types of evaluation criteria that can be used.
z Suitability
z Acceptability
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z Feasibility
Assessing Suitability
Assessing the suitability of strategic options is the starting point of
the selection process. On the basis of the results of the exercise, a
more detailed analysis concerning the acceptability and feasibility
of these options can be undertaken.
It addresses the concern that under what circumstances of the
organization and its strategic intent, does the strategy bring the
results that it is looking for. There are a number of analytic
(c)
techniques that can be used to bring in clarity.

As shown in Figure 23.1, the different techniques that have been
identified provide answers for different points of view. Life Cycle
Analysis examines the stage of development of the products;
Portfolio Analysis examines the ability of the strategy to
strengthen the balance of activities; the Business Profile examines 215
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the financial performance; Positioning tells the organization Notes
whether or not the position is viable; and Value Chain Analysis ___________________
provides information whether or not the strategy improves the
___________________
value for money and exploits the core competencies of the
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organization. An organization can use all or a combination of some ___________________
of these techniques described above. ___________________
___________________
Portfolio Analysis Suitability Business Profile ___________________
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Does it strengthen Is this a Will it lead to good
the balance of good financial ___________________
activities? strategy? performance?
___________________
___________________
___________________
Value Chain Analysis

Does it improve value
Life Cycle Analysis for money? Positioning
Does it fit the stage we Does it exploit core Is the positioning
will be in? viable?
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competencies?
Figure 23.1: Testing Suitability
Life Cycle Analysis

One of the tools described in this unit is the Product Life Cycle
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Model. The product life cycle model is a representation of life stage

of a product. Based on the life stage of the product the organization
can decide the type of strategy it would like to follow for the
product.
Table 23.1 describes the relationship between the stage of the
product's life and its market position. This is called the Life Cycle-
Portfolio matrix. The market status is defined by its competitive
position. This has been broken up into five categories ranging from
dominant to weak. The product development stage has been
classified as embryonic, growth, mature and aging. The purpose of
the matrix is to establish the appropriateness of particular
(c)
strategies in relation to the two dimensions. It shows the likely or

suitable strategies that can be used, depending upon the life cycle
position of the product.
216 The position of the product within the life cycle is normally
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Notes determined by eight external factors; market growth rate; growth
___________________ potential; breadth of product lines; number of competitors; spread
of market share between these competitors; customer loyalty, entry
___________________
barriers and technology.
___________________
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Table 23.1: Life Cycle-Portfolio Matrix by Arthur D. Little
___________________
STAGES OF INDUSTRY MATURITY
___________________
Embryonic Growth Mature Ageing
___________________ Fast Grow Fast Grow Defend Defend
Start-up Cost Position Position
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___________________ Dominant Leadership Cost Focus
Renew Leadership Renew
___________________ Defend Renew Grow
Position Fast Grow
___________________
Differentiate Fast Grow Cost Find
Fast Grow Catch-up Leadership Niche
___________________
Strong Start-up Differentiate Renew Hold
Cost Focus Niche
Leadership Differentiate Grow
COMPETITIVE POSITION
Grow Harvest
Differentiate Catch-up Harvest; Retrench
Fast Grow Differentiate Hang-in; Turn
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Focus Focus Find Niche; around
Favorable Start-up Grow Hold Niche;
Renew; Turn
around;
Focus;
Differentiate;
Grow
Focus Harvest; Harvest Divest
Start-up Hang-in Find Niche Retrench
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Grow Find Niche; Turn around

Tenable Hold Niche; Retrench
Catch-up
Turn around;
Focus
Differentiate;
Grow
Find Niche Turn around Withdraw Withdraw
Weak Turn around Retrench Divest
Grow
The competitive position of the organization within its industry

can also be established by looking at the characteristics of each
category. Few organizations are in a dominant position in an
industry, unless they are state monopolies. For example, the State
(c)
Trading Corporation and the Mines & Minerals Trading

Corporation were set up by the Government of India in the early
sixties to give the Government better control over foreign
exchange. Even now, Oil & Natural Gas Corporation (ONGC) has
virtual monopoly in the exploration sector. Normally, dominant
businesses are controlled by the State under the monopolies 217
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prevention legislations. However, in specific products it is possible Notes
for an organization to be in a dominant position. ___________________
Strong organizations are those that are in a position to follow ___________________
strategies without feeling threatened by competition. An
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___________________
organization is in a favourable position where no single competitor
stands out, but where the company is better placed than most. ___________________
Tenable and weak competitive position indicates either the ___________________

organization is maintained by specialization or will find it difficult ___________________
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to survive independently in the long run.
___________________
Positioning ___________________
Positioning is a basic proposition promoted by Michael Porter in ___________________

determining the generic strategies for competitive advantage. ___________________
So assessing whether the existing and future positioning is viable
can be done by asking whether demand is likely to grow or decline.
For example, the quality of the resources and the uniqueness of the
competencies are the basic features that determine the ability and
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suitability of a positioning the product or service using a strategy
of differentiation. The extent to which the organization is capable
of supporting a particular positioning can be determined by using
the format given as Table 23.2.
The first step in the analysis on the suitability of the positioning
strategy of the organization is to list out the key resources and
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competencies underpinning the strategy. In order to complete the

first step, you need to fill in column A in the table.
Table 23.2: Assessing the Suitability of a Strategy
A B1 B2 C
Resources & Which of these Which will be sustainable/
Competencies Resources/ difficult to Imitate
underpinning Competencies is
Strategy likely to create
Cost Added
Reduction Value in
terms of
Needs
perceived
by
(c)
Customers
Valued Rare Complex Tacit
218 These are then scored against two important competencies of the
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Notes firm. These competencies, 'cost reduction' and 'value added' have a
___________________ significant impact on the outcome. In the table above, these are
given in columns B1 and B2. We need to ask the question whether
___________________
each of the competencies identified in A strengthens cost reduction
___________________
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or adds to the perceived value. A score is given on a scale of 1 to 5.
___________________ For example, the in-house R&D activities may be the source of
___________________ significant cost reductions and unique product features valued by
the customers. It would, then, score highly both in columns B1 as
___________________
well as B2.
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___________________
Finally, the analysis requires re-examining each of the resources
___________________
and competencies to establish whether it is sustainable and/or
___________________ difficult to imitate. Unique resources and core competencies are
___________________ sources of competitive advantage. The criteria used to judge the
competitive advantage through the resources and competencies
include: whether it is valued by the consumers; whether it is rare;
is it complex to replicate; and whether it is embedded in the tacit
knowledge of the organization.
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Generally speaking, few resources and competencies are difficult to
imitate. Most often, competitive advantage may not come directly
from specific resources and competencies but on the ability of the
organization to manage linkages between the separate activities.
However, assessing the relationship between the generic
product/market strategy and the strategic capability of the
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organization is useful in preparing resource plans for the strategy

and in identifying its critical success factors.
Assessing Acceptability
Life cycle approaches must suit the requirements of all relevant
stakeholders, particularly also including those from developing
countries. There is a need to strengthen the implementation of the
related policies, and there is a need to reach out to those who are
still unfamiliar to the issues. Capacity building, training and
information are key for making our current consumption and
production patterns more sustainable. Both capacity building and
(c)
training have to provide important contributions in order to

achieve this ambitious aim. In every stage of its life cycle,
products interact with other systems: life cycles are therefore
called open cycles. In order to make a product, substances, energy,
labour, technology and money are required, while other substances
are emitted to the environment. Products can interact with the 219
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environmental (extraction or addition of substances, land use), Notes
economic (the cost to produce a product, implement technology, the ___________________
profit to sell) and social domain. The relations between the
___________________
environmental, economic and social domains are quite dynamic.
E
The implementation of cleaner technology will decrease the ___________________
pollution of the environment, but might increase the cost to make ___________________
that product, at least in short term.
___________________
Assessing Flexibility ___________________
UP
In a life cycle economy, all decisions are made based upon an ___________________
analysis of its consequences on the total life cycle, including the ___________________
environmental, economic and social domains. In a life cycle ___________________
economy, a company that wants to design a new product will
___________________
analyse the consequences of its proposal in a broad range of issues,
including the environment, the company costs, and the benefits for
the local economy where the production will take place, the social
workers rights, and so on. A proposal will be implemented if it has
E-
a good balance between its positive and negative effects. Life cycle
approaches are used to assess this proposal; they are the tools,
programs, and procedures to help making such life cycle based
decisions. To achieve a life cycle economy, a change in attitude/
mentality is required, from one-phased thinking to system
thinking. Being able to oversee the entire life cycle of a product,
the use of a life cycle approach gives the potential to optimise the
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effects of improvements. By making adjustments in that part of the

life cycle where intervening is relatively cheap, the costs of
environmental improvements can be minimised. For example, it
can be cheaper to redesign a product to make it better fit for
recycling, then to invest in the improvement of recycling methods.
In this way, better design for recycling will reduce both the
environmental and economic costs of recycling.
Check Your Progress

Fill in the blanks:
(c)
1. Positioning is a basic proposition in determining the

generic strategies for …………………… advantage.
2. Few resources and competencies are difficult to
…………………….
220
Business Portfolio Balancing
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Notes
Activity
A number of techniques have been developed for displaying a
___________________
Prepare a presentation on
Business Portfolio Balancing. diversified organization's operations as a portfolio of businesses.
___________________ The techniques provide simple frameworks for reviewing the
___________________ performance of multiple Strategic Business Units (SBUs')
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___________________
collectively. An SBU is a business that can be planned separately
from others, has its own set of Competitors, and is managed as a
___________________
Profit Centre. Techniques of portfolio analysis have their greatest
___________________ applicability in developing strategy at the corporate level. It charts
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___________________ and characterizes the different businesses in the organization's
portfolio and helps in determining the implications for resource
___________________
allocation.
___________________
A business portfolio is the collection of Strategic Business Units
___________________
(SBU) that makes up a corporation. The optimal business portfolio
is one that fits perfectly to the company's strengths and helps to
exploit the most attractive industries or markets. A SBU can
either be an entire mid-size company or a division of a large
corporation. It normally formulates its own business level strategy
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and often has separate objectives from the parent company.
The aim of a portfolio analysis is:
z Analyse its current business portfolio and decide which SBUs
should receive more or less investment,
z Develop growth strategies for adding new products and
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businesses to the portfolio, and

z Decide which businesses or products should no longer be
retained.
The basis for many of these matrix analyses grew out of work
carried out in the 1960s by the Boston Consulting Group (BCG).
BCG observed in many of their studies that producers tend to
become increasingly efficient as they gain experience in making
their product and costs usually declined with cumulative
production. They came up with a hypothesis to explain how an
organization with the highest market share in the industry
(c)
generally will have the greatest accumulated volume of production

and therefore the lowest cost relative to other producers in the
market.
Techniques of business portfolio balancing have their greatest
applicability in developing strategy at the corporate level. It charts
and characterizes the different businesses in the organization's 221
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portfolio and helps in determining the implications for resource Notes
Activity
allocation. The Boston Consulting Group Matrix (BCG Matrix) is
Visit___________________
a reputed and financially
the best-known portfolio planning framework. The GE/Mckinsey sound organization and find
Business screen is another well- known portfolio framework, but it out ___________________
how do they strategize
their funds and prepare an
E
is a more complex version of the BCG matrix. The aim of these ___________________
article.
techniques is to develop growth strategies for adding new products ___________________
and businesses to the portfolio, and decide which businesses or
___________________
products should no longer be retained.
___________________
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1. A business portfolio is the collection of Strategic ___________________

Business Units (SBU) that makes up a …………………. ___________________
2. …………………… of business portfolio balancing have

their greatest applicability in developing strategy at the
corporate level.
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Strategic Funds Programming
Funds are used to maintain (1) the same level of production or
services, (2) the organization’s “market share,” or (3) a specified,
ongoing rate of growth.
Strategic funds are invested in the new programs required to meet
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the organization’s goals and objectives. They are used to purchase

new assets, such as equipment, facilities, and inventory; to
increase working capital; and to support direct expenses for
research and development, marketing, advertising and promotion.
In the private sector, strategic funds are also used for mergers,
acquisitions and market development. A market penetration
strategy, for example, may call for a more intensive investment of
funds in the current business. A market expansion strategy
usually requires aggressive use of strategic funds for advertising
and promotion. A company must use strategic funds to produce
more diverse products or services and to develop new markets for
(c)
them.
The programming of strategic funds begins with the identification
of basic organizational units (program or budget units) and the
formulation of goals and objectives for these units. The total
amount of strategic funds available to the organization can be
222 determined by subtracting baseline funds from total assets
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Notes (revenue or appropriation). Strategies must be formulated to carry
___________________ out the goals and objectives of each unit. Once estimates have been
made as to the funds required for each strategy, they can be
___________________
ranked according to their potential contribution to the achievement
___________________
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of the identified goals and objectives. In undertaking this ranking,
___________________ the kinds of strategic funds available and the level of risk involved
___________________ must be taken into account.
___________________ The available strategic funds should be allocated to each program
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according to some set of priorities. Key decision points concerning
___________________
risk and return are encountered (1) when funds available from
___________________
internal sources have been fully consumed, and (2) when readily
___________________ available credit sources have been exhausted. At this point,
___________________ proposed strategies must be evaluated in terms of changes
required in the financial structure of the organization. The final
step is to establish a management control structure to monitor the
generation and application of funds to achieve the desired results.
The programming of strategic funds simply identifies feasible
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options under different fiscal assumptions. A further assessment or
risk and return on investment must be made before the final
option is chosen.
Check Your Progress

Fill in the blanks:
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1. Strategic funds are invested in the new programs

required to meet the organization’s ………………… and
………………….
2. A market ……………………… strategy usually requires
aggressive use of strategic funds for advertising and
promotion.
Summary
Different techniques that have been identified provide answers for
different points of view. Life Cycle Analysis examines the stage of
(c)
development of the products; Portfolio Analysis examines the

ability of the strategy to strengthen the balance of activities; the
Business Profile examines the financial performance; Positioning
tells the organization whether or not the position is viable; and
Value Chain Analysis provides information whether or not the
strategy improves the value for money and exploits the core 223
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competencies of the organization. Notes
Positioning is a basic proposition in determining the generic ___________________

strategies for competitive advantage. Gap analysis is a useful ___________________
technique that can be used to identify the extent to which the
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___________________
existing strategies will fail to meet the performance objectives in
the future. Screening options basically are concerned with the ___________________
relative merits between different strategies. ___________________
The Life Cycle-Portfolio matrix depicts the relationship between ___________________
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the stage of the product's life and its market position. The purpose ___________________
of the matrix is to establish the appropriateness of particular
___________________
strategies in relation to the two dimensions.
___________________
Collect various facts on the business portfolio balancing from the

newspapers and prepare a poster on the same.
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Keywords
Divestment: A Divestment is a sale of healthy firms that don't
"fit" the organization's strategic plan or those businesses that the
organization cannot operate effectively.
Profit Strategy: A profit strategy is one that capitalizes on a
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situation in which a long time trend or type of product is being

replaced by a new one.
Spin-off: A Spin-off is when an organization sets up a business
unit as a separate business through a distribution of stock or a
cash deal. Spin offs are another expression of withdrawal strategy.
Stability Strategies: Stability Strategies are characterized by an
absence of significant changes.
Stable Growth: This is the generic form. It simply means that the
organization's strategy includes no bold initiatives. It will just seek
to do what it already does a bit better.
(c)
Worldwide Sourcing: "Worldwide sourcing" is a system used by

multinational companies of integrating the supply chain by
operating supplier's plants abroad and integrating those plants to
manufacture components as subdivisions of a globally organized
production process.
224
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Notes
1. Describe the relationship between the stage of product's life
___________________
and its market position.
___________________
2. Comment on Life Cycle-Portfolio matrix.
___________________
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3. How is the programming of strategic funds useful in meeting
___________________
the goals and objectives of organisational units?
___________________
4. Portfolio balancing provides a framework for reviewing the
___________________ performance of multiple Strategic Business Units (SBUs)
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___________________ collectively. Comment.
___________________ 5. The Programming of Strategic funds identifies feasible options
___________________ under different physical assumptions. Discuss.
___________________
Further Readings
Books
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Web Readings
http://dspace.mit.edu/bitstream/handle/1721.1/2061/SWP-1493-
15478032.pdf
www.degroote.mcmaster.ca/ogp/gdiplomas.html
(c)
UNIT 24: Strategic Management of Technological Innovation
Unit 24
225
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Notes
Activity
Strategic Management of
___________________
Prepare a lecture on strategic
management to present in
your___________________
junior class.
Technological Innovation
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___________________
___________________
Objectives ___________________
___________________
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topics:
___________________
\ Strategic Management
\ Technological Innovation ___________________
\ Strategic Innovation ___________________
___________________
Introduction
Innovation is the most important determinant of business
competitiveness, growth, and economic prosperity in a world of
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global markets and rapid technological change (Christensen et al.,
2004; Houston, 2003). By providing new and improved solutions in
healthcare, personal security, and the quality of our environment,
innovation also improves the quality of life of every country.
Innovation is ultimately a business investment decision.
Government policies aiming to encourage business investment in
innovation should: Encourage investment in productive assets in
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R&D, machinery and equipment used in producing goods and

services of greater value, and workplace training; Increase the
cash that businesses have available to invest by leaving more
money in the hands of those companies making the investments
(Carlsson and Stankiewicz, 1991); Raise the rate of return on
productive assets, thereby making investments in R&D,
technology; Workforce skills more attractive for businesses than
other ways of allocating cash (Brookfield, 2000); and Assure
businesses that policy measures will remain in place during the
course of their investment cycle and provide greater certainty and
consistency with respect to the application of rules and eligibility
(c)
requirements (Leonard-Barton, 1995).
The increasing importance of strategic management may be a
result of several trends. Increasing competition in most industries
226 has made it difficult for some companies to compete. Modern and
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Notes cheaper transportation and communication have led to increasing
___________________ global trade and awareness (Gatignon and Robbertson, 1985).
Technological development has led to accelerated changes in the
___________________
global economy. Regardless of the reasons, the past two decades
___________________
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have seen a surge in interest in strategic management. Many
___________________ perspectives on strategic management and the strategic
___________________ management process have emerged.
___________________ This unit’s approach is based predominantly on three of these
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perspectives: (1) the traditional perspective, (2) the resource based
___________________
view of the firm, and (3) the stakeholder approach, which are
___________________
outlined in Table 24.1.
___________________
Table 24.1: Three Perspectives
___________________
Traditional Resource Based Stakeholder
Perspective View View
Origin Economics, other Economics, Business ethics
business distinctive and Social
disciplines, and competencies, responsibility
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consulting firms and general
management
capability
Firm An economic entity A collection of A network of
resources, skills, relationships
and abilities among the firm
and its
stakeholders
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Strategy Situation analysis Analysis of Analysis of the

Formulation of internal and organizational economic power,
external resources, skills, political
environments and abilities influence, rights,
leading to Acquisition of and demands of
formulation of superior various
mission and resources, skills, stakeholders
strategies and abilities
Competitive Best adapting the Possession of Superior linkages
Advantage organization to its resources, skills, with stakeholders
environment by and abilities that leading to trust.
taking advantage are valuable rare, goodwill, reduced
of strengths and and difficult to uncertainty,
opportunities and imitate by improved
(c)
overcoming competitors business dealings,

weaknesses and and ultimately
threats higher firm
performance
227
Check Your Progress
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Notes
Activity
Fill in the blanks:
___________________
Compare and contrast
1. Increasing competition in most industries has made it technological innovation and
___________________
strategic innovation.
difficult for some companies to …………………….
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___________________
2. Many …………………… on strategic management and
___________________
the strategic management process have emerged.
___________________
Technological Innovation ___________________
UP
___________________
The technological innovation system is a concept developed within
the scientific field of innovation studies which serves to explain the ___________________
nature and rate of technological change. A technological innovation ___________________
system can be defined as ‘a dynamic network of agents interacting
___________________
in a specific economic/industrial area under a particular
institutional infrastructure and involved in the generation,
diffusion, and utilization of technology. The approach may be
applied to at least three levels of analysis: to a technology in the
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sense of knowledge field, to a product or an artifact, or to a set of
related products and artifacts aimed at satisfying a particular
[societal] function’. With respect to the latter, the approach has
especially proven itself in explaining why and how sustainable
(energy) technologies have developed and diffused into a society, or
have failed to do so.
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The concept of a technological innovation system was introduced as

part of a wider theoretical school, called the innovation system
approach. The central idea behind this approach is that
determinants of technological change are not only to be found in
individual firms or in research institutes, but also in a broad
societal structure in which firms, as well as knowledge institutes,
are embedded. Since the 1980s, innovation system studies have
pointed out the influence of societal structures on technological
change, and indirectly on long-term economic growth, within
nations, sectors or technological fields. The purpose of analysing a
Technological Innovation System is to analyse and evaluate the
(c)
development of a particular technological field in terms of the

structures and processes that support or hamper it. Besides its
particular focus, there are two, more analytical, features that set
the Technological Innovation System approach apart from other
innovation system approaches.
228 Firstly, the Technological Innovation System concept emphasizes
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Notes that stimulating knowledge flows is not sufficient to induce
___________________ technological change and economic performance. There is a need to
exploit this knowledge in order to create new business
___________________
opportunities. This stresses the importance of individuals as
___________________
sources of innovation, something which is sometimes overseen in
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___________________ the, more macro-oriented, nationally or sector ally oriented
___________________ innovation system approaches. Secondly, the Technological
Innovation System approach often focuses on system dynamics.
___________________
The focus on entrepreneurial action has encouraged scholars to
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___________________ consider a Technological Innovation System as something to be
___________________ built up over time.
___________________ This was already put forward by Carlsson and Stankiewicz:

___________________
Technological Innovation Systems are defined in terms of
knowledge/competence flows rather than flows of ordinary goods
and services. They consist of dynamic knowledge and competence
networks. In the presence of an entrepreneur and sufficient critical
mass, such networks can be transformed into development blocks,
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i.e. synergistic clusters of firms and technologies within an
industry or a group of industries. This means that a Technological
Innovation System may be analysed in terms of its system
components and/or in terms of its dynamics.
Innovation Challenges
Some innovations are technology based. Other innovations, such as
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new products or services in retailing financial services, are

facilitated by new technology. The critical for success technological
innovation are commercial rather than technical: A successful
innovation is one that returns original investment in its
development plus some additional returns. This requires that a
sufficiently large market for the innovation can be developed.
Innovations are the outcome of the innovation process, which can
be defined as the combined activities leading to new, marketable
products or new production and delivery systems. We showed
Figure 24.1 the relationships among key concepts in the
(c)
technological innovation process. It highlights the activities

constituting the process and the outcome produced. The process
depicted in Figure 24.1 can start with market development or
technical activities. In reality, the technological innovation process
will almost always be iterative and concurrent rather than
unidirectional and sequential.
229
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Notes
Activity
___________________
Prepare an article on strategic
innovation for a business
___________________
magazine.
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___________________
___________________
___________________
___________________
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___________________
___________________
Figure 24.1: The Relationship among Key Concept Concerning ___________________

Technological Innovation ___________________
Check Your Progress

Fill in the blanks:
1. Innovations are the outcome of the ………………………
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process.
2. The critical for success technological innovation are
……………………… rather than technical.
Strategic Innovation
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Strategic innovations are wholly and radically new creative

business ideas. They end up changing life as we know it, business
as usual, or both. They create new markets. They stimulate
research in areas related to their improvement. They create
demand for competencies uniquely suited to them. Bringing these
ideas to the market necessarily involves a bold departure from the
existing, proven and established business models. As a result,
strategic innovations take longer, cost more and are ambiguous, as
compared to continuous process improvements, process revolutions
and product/service innovations.
Now, we define of Cognitive Dimensions of Strategic Innovation.
(c)
Strategic Thinking is pattern recognition, the ability to “connect

the dots” at a strategic level to see underlying patterns,
discontinuities, and future scenarios, and how they interact to
create opportunities for new growth. Sense making is to scan and
interpret, rapidly reframe, and generate insight into the changing
230 environment. The ability to mine periphery, to make deep intuitive
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Notes meaning out of the maelstrom of trends and force that shape
___________________ markets.
___________________
___________________
E
___________________
___________________
___________________
UP
___________________
___________________
Figure 24.2: Cognitive Dimensions of Strategic Innovation
___________________
Divergent thinking is the capability to expand the boundaries of
___________________ mental models and see things from many, often paradoxical,
perspective. The ability is to break existing frames, and make new
combinations among seemingly disparate elements. Critical
Thinking is the ability to examine and transform strategic
assumptions, orthodoxies, mental models, and other blind spots
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that impede divergent thinking and strategic innovation.
Malleable learning orientation is a malleable, non-liner learning
orientation that is “at home” in a dynamic environment rife with
ambiguous information, loosely structured problems, deep
uncertainty, paradox, and complex trade-offs. The ability is to
learn through continuous experimentation as well as from and
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through experience. Conceptual Capacity is the ability conceives

and conceptualizes; to think holistically and abstractly in terms of
concepts, models and architectures.
Check Your Progress

Fill in the blanks:
1. Strategic innovations are wholly and radically new
creative …………………… ideas.
2. Divergent thinking is the capability to expand the
…………………… of mental models.
(c)
Summary
Joint definition of a complex product such as an aircraft requires a
high degree of interaction among all the teams and firms involved.
Prospective customers must also be included in the process, with 231
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all their requirements at varying levels of stringency. The Notes
specialties involved in the development of systems, equipment, and ___________________
components are often similar. Most important challenges in choice
___________________
of product (Technological Innovation approach) are in market
culture and company abilities.
E
___________________
___________________
Prepare a diagram as per your understanding showing the inter- ___________________
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relationship between strategy, innovation and technology and ___________________
draw it on a chart.
___________________
___________________
Keywords
___________________
Innovation Challenges: Some innovations are technology based.
Other innovations, such as new products or services in retailing
financial services, are facilitated by new technology.
Strategic Innovation: Strategic innovations are wholly and
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radically new creative business ideas. They end up changing life as
we know it, business as usual, or both.
Technological Innovation: The Technological Innovation
System is a concept developed within the scientific field of
innovation studies which serves to explain the nature and rate of
technological change.
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1. Describe the Strategic Management.
2. Explain the Technological Innovation.
3. What do you understand by strategic innovation?
4. Write a brief note on divergent thinking.
Further Readings
(c)
Books
232 Dicke Wilhelmina Margaretha (2005), “Managing Technology and
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Notes Innovation: An Introduction”, Routledge.
___________________
Web Readings
___________________
www.sce.carleton.ca/.../Christensen_Strategy_%26_TIM_
___________________
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in_large_fir.
___________________
www.floridatechonline.com/.../strategic-management-technology-
___________________
inn.
___________________
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___________________
___________________
___________________
___________________
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(c)
UNIT 25: Case Study
Unit 25
233
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Notes
Case Study
___________________
___________________
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___________________
Objectives
___________________
___________________
Case Study: Avon Case in Strategic Management (SCM)
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___________________
Avon Products, Inc. (Avon) is based in New York. The firm
engages in the manufacture and marketing of beauty and ___________________
complimentary products primarily in North America, Latin
___________________
America, Europe, and Asia Pacific. Avon’s products are classified
into three product categories: Beauty, Beauty Plus, and Beyond ___________________
Beauty. The Beauty category consists of cosmetics, fragrances,
skin care, and toiletries; Beauty Plus includes fashion jewellery,
watches, apparel, and accessories; and Beyond Beauty comprises
home products, gift and decorative products, candles, and toys.
The company sells and markets its products through a
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combination of direct selling, marketing by independent Avon
representatives, and via its consumer Web site, avon.com.
Avon was one of the prominent direct sales companies in the
beauty products industry. Started in the late 1800s by David
McConnell, the company sold a wide variety of beauty-related
products to homemakers through its direct sales agents. However,
by the 1980s, the company had lost its lustre and performance
began to falter. A failed diversification strategy made it the target
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of several takeover attempts. Turnaround efforts were initiated in

the 1990s under then CEO James Preston and continued by his
successor Charles Perrin, however, they failed to make a
significant impact. Performance began to improve only after
Andrea Jung became the CEO of the company in 1999.
Andrea Jung became president and CEO of Avon in 1999 and has
totally revamped the company. Under her leadership, the
company has updated its product line, launched new advertising,
and created a new image. Avon’s sales have increased by 30%,
profits 40%, and the stock price has dramatically improved.
Jung’s has been able to align the firm’s core capabilities with its
strategic targets which have led to phenomenal results. It appears
that Jung has been able to establish a clear vision for the firm
that has been incorporated in every aspect of the firm’s operating
(c)
system. This vision is shared by all employees and

representatives of Avon priming the company for continued
success.
Other strategies of Jung include cost cutting by reducing number
of raw material suppliers, shifting production from smaller plants
to larger ones, moving manufacturing from high cost nations like
Contd...
234 Great Britain to lower cost countries such as Poland. As
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Notes mentioned in the Avon case study, the e-representative initiative
also has helped Avon cut costs. The direct sellers are asked to fill
___________________ in the order online.
___________________ Avon’s brand has definitely resonated for women through the
years. During the 1980s, the company began to diversify by
___________________ investing in retirement properties and healthcare products, and
E
___________________ launching catalogues for men and children. During the initial
stages of this strategy, Avon started to remove itself from its core
___________________ market of selling to women. The results were downward revenue
trends and slow growth throughout the 1990′s which resulted in
___________________ several takeover bids.
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___________________ Unfortunately, Sears Roebuck and JC Penny do not really
resonate well with being a carrier of women’s beauty supplies.
___________________
The name “Sears” have been associated with appliance and not
___________________ beauty products. The move of aligning with this companies and
trying to sell higher end beauty products will only push Avon in
___________________ the opposite direction that it should be heading, which is to move
back towards tailoring to women domestically and globally.
Over the years, Avon has experienced several problems leveraging
its brand in many of its product lines. As a result, positive net
sales and earnings growth for the past five years have been in
single digits and steadily declining year after year. Specific
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problem areas are stagnated sales, slow earnings growth, limited
distribution capabilities and shift in personal care preferences
and spending habits.
Andrea Jung’s proposal to expand into certain retail markets will
only perpetuate Avon’s trend of declining net sales. The proposed
plan will indeed create an additional distribution outlet and cater
to this market segment. However, the question to examine is at
what expense or cost will Avon endure making this decision?
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Avon has faced tremendous pitfalls marketing its product lines to

effectively increase brand loyalty and recognition. Examples of
this include the hair care product line. Avon did not effectively
develop products for ethnic hair types. Additionally, Avon did not
have a hair colouring product line. As a result, Avon suffered in
building brand awareness and loyalty with the younger
generation as well as the older generation that also demanded
this product.
Avon has lost loyalty and brand recognition as a result of its
decision to diversify into different industries and different product
lines. This has resulted in a loss of market share drastically
affecting annual profit margins. To examine the previous question
of what cost will Avon endure deciding to move into the retail
markets? It is clear and evident; the cost will be a further
(c)
extension of the existing internal problems that Avon faces.

Deciding to move into the retail market to create a store inside a
store is not in Avon’s best interest. This move would be a further
expansion of Avon’s previous decisions to diversify into markets
that do not have synergy and thus will hurt the overall branding
of the company. Finally, implementing Andrea Jung’s proposal to
Contd...
UNIT 25: Case Study
enter the retail market would be detrimental to the already 235
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fragile state of Avon’s brand awareness, recognition and loyalty. Notes
Another factor for the underperformance of Avon in the late 1990s
is its failure to develop the online business. For the fear of ___________________
alienating its labour force, Avon downplayed the importance of ___________________
developing the e-business. A company cannot ignore the
environment and expect to be successful in the long run. Due to
E
___________________
its internal struggle with the internet strategy, Avon fell behind
other less established companies in taking advantage of the ___________________
explosive growth of the internet ___________________
Avon’s approach should build on original direction and
implementations however expanding as necessary to fit current ___________________
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trends and environmental assessments. The focus should be on ___________________
existing internal structures to build, create and advance current
product lines. Avon’s focus should also exist in the field of ___________________
technology to increase online selling opportunities, update
internet technology and to re-brand themselves to be a leader of ___________________
online sells. To accomplish this, strategy should focus on
___________________
expanding kiosks globally and domestically. The expansion will
leverage Avon by appealing to the market segment requesting
additional distribution channels. This strategy will allow for
trained beauty consultants to offer advice, education and samples
thus increasing brand awareness and loyalty. Kiosks will have
minimal start up cost and lower overheads. Focusing on product
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lines and catering to the needs and wants of each demographic
group will prevent the previous pitfalls of lack of integration and
decreased brand awareness and loyalty.
Keeping Avon’s product offering separate and distinct will help
existing challenges of branding. Focusing on technology
improvements and online sales, Avon will have an opportunity to
emerge as a leader in this area, thus adding additional channels
of distribution and appealing to the overwhelming need.
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Under Andrea Jung’s leadership, Avon has faced a number of

challenges. Some of these challenges were addressed successfully
and others were not. In the early part of 2000, the management
team had the daunting task of choosing an appropriate strategy
for the immediate and long-term future for the company. One
setback was a decrease in the firm’s growth rate to single digits
and stagnated earnings. Avon’s CEO, Andrea Jung, was
presented with a multitude of options that ranged from
distributing through other departments stores, establishing
kiosks, to overhauling the firm’s e-business. Jung was right in
acknowledging that Avon’s core competency is direct selling and
its major strength is its brand name. By refocusing on the core
competency, improving efficiencies, and adapting to the
environment with new initiatives, Avon could overcome the
(c)
hurdles of the past and turn the company in the new direction.
Questions:
1. What is your assessment of Andrea Jung’s performance as
chief strategist at Avon Products? What has she done well?
What overall grade would you give Andrea Jung for the job
she has done as CEO?
Contd...
236
2. What is Andre Jung’s strategic vision for Avon? Do you
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Notes approve of the company’s new strategic direction? Why was it
time for Avon to fundamentally change direction?
___________________
Source: http://ranjitmalayath.wordpress.com/2010/04/17/avon-case-study-in-strategic-
___________________ management-scm/
___________________
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___________________
___________________
___________________
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___________________
___________________
___________________
___________________
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(c)
Glossary
Glossary
237
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Notes
___________________
Actors: Actors involve organisations contributing to a technology, as a
___________________
developer or adopter, or indirectly as a regulator, financer, etc.
E
___________________
Behaviour Control: Behaviour Control specifies how something is to be
done through policies, rules, standard, operating procedures, etc. ___________________
Business: A business (also known as enterprise or firm) is an ___________________

organization involved in the trade of goods, services, or both to ___________________
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consumers.
___________________
Cash Cow: A cash cow is a business venture which generates a steady
return of profits which far exceed the outlay of cash required to acquire or ___________________
start it. ___________________
Change: It refers to become different or undergo alteration. ___________________
Competence: Competence (or competency) is the ability of an individual

to do a job properly.
Competency: The quality of being adequately or well qualified physically

and intellectually.
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Competitive Advantage: An advantage that a firm has over its
competitors, allowing it to generate greater sales or margins and/or retain
more customers than its competition.
Cost Focus: Cost focus exploits differences in cost behaviour in some

markets. In cost focus, a firm seeks a cost advantage in its target market.
The objective is to achieve lower costs than competitors in serving the
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market – this is a low cost producer strategy focused on the target market
only.
Cost-leadership Strategy: A firm pursuing a cost-leadership strategy

attempts to gain a competitive advantage primarily by reducing its
economic costs below its competitors.
Creative: It relates to or involves the imagination or original ideas.
Creativity: It refers to the use of the imagination or original ideas, esp.

in the production of an artistic work.
Customer Satisfaction: It is a term frequently used in marketing, is a

measure of how products and services supplied by a company meet or
(c)
surpass customer expectation.
Different Strategy: In a differentiation strategy a firm seeks to be

unique in its industry along some dimensions that are widely valued by
buyers. It selects one or more attributes that many buyers in an industry
perceive as important, and uniquely positions it to meet those needs.
238 Differentiation Focus: Differentiation focus offers niche buyers
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Notes something different from other competitors. The firm seeks product
differentiation in its target market.
___________________
Divestment: A Divestment is a sale of healthy firms that don't "fit" the
___________________
organization's strategic plan or those businesses that the organization
___________________ cannot operate effectively.
E
___________________ Enterprise Data: It defines a plan for how an enterprise utilizes the
___________________ data required to execute its business process through strategic
technology.
___________________
Entrepreneur: An entrepreneur is a person who undertakes new
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___________________
financial ventures despite the risks.
___________________
Environment: It refers to the setting or conditions in which a particular
___________________ activity is carried on.
___________________ Environmental Scanning: It refers to possession and utilization of

information about occasions, patterns, trends, and relationships within
an organization’s internal and external environment.
Evaluation and Control Process: The Evaluation and Control Process

is a process designed to ensure that the organization is achieving its goals
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and objectives. It compares performance with the desired results and
provides the management with a feedback to evaluate results and take
the necessary corrective action.
Financial Control: It refers to defining and agreeing to specific

financial parameters and laying down targets for a number of measurable
financial quantities.
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Forecasting: It is the process of making statements about events whose

actual outcomes have not yet been observed.
Generic Competitive Strategies: Generic competitive strategies are

those competitive strategies that can be used by the organization to
outperform competition and defend its position in the industry.
Generic Strategy: The generic strategy of focus rests on the choice of a

narrow competitive scope within an industry. The focuser selects a
segment or group of segments in the industry, or buyer groups, or a
geographical market and tailors its strategy to serving them to the
exclusion of others.
Global: It means Pertaining to the entire globe rather than a specific

(c)
region or country.
Globalization: Globalisation is the process by which the world is

becoming increasingly interconnected as a result of massively increased
trade and cultural exchange.
Goal: A goal is a desired future state or objective that an organization

tries to achieve.
Glossary
Growth: It means development from a lower or simpler to a higher or 239
S
more complex form; evolution. Notes
Innovation: Innovation is the development of new values through ___________________
solutions that meet new requirements, inarticulate needs, or old customer
___________________
and market needs in value adding new ways.
E
___________________
Innovation Challenges: Some innovations are technology based. Other
innovations, such as new products or services in retailing financial ___________________
services, are facilitated by new technology.
___________________
Innovation System: The concept of the innovation system stresses that
___________________
the flow of technology and information among people, enterprises and
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institutions is key to an innovative process. ___________________
Mission: 'Mission' is the founders' intentions at the outset of the ___________________

organization – what they wanted to achieve. ___________________
Mission Engineering: An innovation that bridges the gap between ___________________
business and engineering by addressing requirements from a user and
developer perspective.
Objective: It refers to a specific result that a person or system aims to

achieve within a time frame and with available resources.
E-
Opportunities: Opportunities are presented by the environment within
which our organization operates.
Opportunity: A set of circumstances that makes it possible to do

something.
Output Control: Output Control specifies what is to be accomplished by

focusing on the end result of the behaviours through the use of objectives
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and performance targets.
Outsourcing: Outsourcing is the contracting out of an internal business

process to a third party organization.
Profit Strategy: A profit strategy is one that capitalizes on a situation in

which a long time trend or type of product is being replaced by a new one.
Radio Frequency Identification (RFID): Radio-frequency

identification (RFID) is the wireless non-contact use of radio-frequency
electromagnetic fields to transfer data, for the purposes of automatically
identifying and tracking tags attached to objects.
Society: Society made up of individuals who have agreed to work

together for mutual benefit.
(c)
Spin-off: A Spin-off is when an organization sets up a business unit as a

separate business through a distribution of stock or a cash deal. Spin offs
are another expression of withdrawal strategy.
Stability Strategies: Stability Strategies are characterized by an

absence of significant changes.
240 Stable Growth: This is the generic form. It simply means that the
S
Notes organization's strategy includes no bold initiatives. It will just seek to do
what it already does a bit better.
___________________
Strategic Control Approach: It is based on improving the competitive
___________________
capacity of the organization by providing a high level of autonomy to the
___________________ operating units.
E
___________________ Strategic Decisions: Decisions concerning policy that have a long term
___________________ impact on a business.
___________________ Strategic Innovation: Strategic innovations are wholly and radically
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new creative business ideas. They end up changing life as we know it,
___________________
business as usual, or both.
___________________
Strategic Intent: Strategic intent is defined as a compelling statement
___________________ about where an organization is going that succinctly conveys a sense of
what the organization wants to achieve long-term.
___________________
Strategic Management: Strategic management is a firm’s effort to
analyse its environment and its own strengths and weaknesses and then
consciously choose the competitive path it wants to follow.
Strategic Objective: A broadly defined objective that an organization

E-
must achieve to make its strategy succeed.
Strategic Plan: A strategic plan is a document used to communicate

with the organization the organizations goals, the actions needed to
achieve those goals and all of the other critical elements developed during
the planning exercise.
Strategic Thinking: Strategic thinking is defined as a mental or

CC
thinking process applied by an individual in the context of achieving

success in a game or other endeavour.
Strategy: Strategy is a high level plan to achieve one or more goals under
conditions of uncertainty.
Strategy Formulation: It includes planning and decision-making

involved in developing organisation’s strategic goals and plans. In short,
strategy formulation is placing the forces before the action.
Strategy Implementation: Strategy Implementation refers to the sum

total of the activities and choices required for execution of a strategic
plan.
Strengths: Strengths are the qualities that enable us to accomplish the

(c)
organization’s mission.
System Dynamics: System dynamics is an approach to understanding

the behaviour of complex systems over time.
Tactic: A tactic is a conceptual action implemented as one or more

specific tasks.
Glossary
Technological Change (TC): It is a term that is used to describe the 241
S
overall process of invention, innovation and diffusion of technology or Notes
processes.
___________________
Technological Innovation: The Technological Innovation System is a
___________________
concept developed within the scientific field of innovation studies which
serves to explain the nature and rate of technological change.
E
___________________
Technological Structures: It consists of artifacts and the technological ___________________

infrastructures in which they are integrated.
___________________
Technology: Technology is a body of knowledge used to create tools,
___________________
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develop skills, and extract or collect materials.
___________________
Threats: Threats arise when conditions in external environment
jeopardize the reliability and profitability of the organization’s business. ___________________
Value Creation: The performance of actions increases the worth of ___________________

goods, services or even a business. ___________________
Values: 'Values' manifest in what the organization does as a group and
how it operates. It is a guide to ways of choosing among competing
priorities and about how to work together.
Vision: 'Vision' is a long term perspective of what is the final destination

E-
of the organization. A vision is a description in words that conjures up a
similar picture for each member of the organizations of the path and the
destination.
Weaknesses: Weaknesses are the qualities that prevent us from

accomplishing our mission and achieving our full potential.
Worldwide Sourcing: "Worldwide sourcing" is a system used by

CC
multinational companies of integrating the supply chain by operating

supplier's plants abroad and integrating those plants to manufacture
components as subdivisions of a globally organized production process.
(c)
242
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Notes
___________________
___________________
___________________
E
___________________
___________________
___________________
UP
___________________
___________________
___________________
___________________
E-
CC
(c)

MB403D Strategic Management of Technology &amp; Innovation

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MB403D Strategic Management of Technology &amp; Innovation

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UNIT 20: Case Study

Dr S R Das Dr Sanjay Mittal Prof V K Nangia

SLM Development Team

Mr Kapil Mehra Mr A N Sinha

Manager – Material Sr Manager – Printing

Course Code: MB-403D

Course Name: Strategic Management of Technology & Innovation

Version: July 2013

© MPower Applied Learning Enterprise

Unit 6 Strategic Objectives ...................................................................................................... 51

Unit 11 Technology and Innovation .......................................................................................... 95

Unit 16 Strategy Formulation ................................................................................................. 139

Unit 17 Generic Strategies ...................................................................................................... 151

Unit 22 Tools for Strategic Planning and Evaluation............................................................ 199

Unit 23 Life Cycle Approach to Strategic Planning ............................................................... 213

Unit 25 Case Study .................................................................................................................. 233

Glossary ............................................................................................................................................ 237

___________________ z Strategic Planning Phase

\ Meaning of Strategy ___________________

use to create market share in the business environment. Core

to a complex web of thoughts, ideas, insights, experiences, goals,

4 economic, technological, and psychological factors, along with

Figure 1.1: Strategy

Every firm competing in an industry has a strategy, because

defines what it is we want to achieve and charts our course in the

z What business are we in? What products and services will we

Chandler: Strategy is the determination of the basic long-term ___________________

and its environment: consistent patterns in streams of

position makes it more difficult for others to catch up.

6 Normann: Strategy is the art of creating value.

___________________ Mahoney: Strategy is a search for balance.

___________________ Check Your Progress

language of tactics. 'Tactics' follow and facilitate strategy and is

Despite distinctions in theory, strategy and tactics cannot always

movement begets an action; and the action results in new 7

Aspects Strategy Tactics

There is a unique relationship between strategy and tactics. Every ___________________

tactic can be a significant strategic opportunity. It is necessary to

salesperson is simply trying to make a sale, then he is operating

Figure 1.2: Strategy

8 If he can think strategically, he must ask "What should I do to sell

strategies are commonly used by business owners to create a

an evaluation of their relative importance.

3. Strategy is relative. It is an action to meet particular 9

far reaching. In part, it is about the preparations made before

with the ends or results we hold in view. Tactics, of course, is

10 sake of action. Strategy, then, is relative, which is to say that

Check Your Progress

Strategy is a general plan of attack, an approach to a problem, the

Lesson End Activity 11

Opportunity: A set of circumstances that makes it possible to do ___________________

Strategy: Strategy is a high level plan to achieve one or more ___________________

Questions for Discussion

\ Meaning of Strategic Thinking ___________________

authors further support the conclusion; and also draw a clear

However, both thought processes must work hand-in-hand in order

meaningful with a long term perspective so that it can motivate

In strategic thinking, we first seek a clear understanding of the

means to analyse a situation is to break it up into its constituent 15

Check Your Progress ___________________

1. ………………… improves the ability of the organization ___________________

to make its business vision a reality. ___________________

2. Strategic thinking has become a critical requirement of ___________________

process of abstraction should bring the crucial issues to light

MB403D Strategic Management of Technology & Innovation

MB403D Strategic Management of Technology & Innovation