GURU GOBIND SINGH INDRAPRASTHA UNIVERSITY, DELHI

MASTER OF BUSINESS ADMINISTRATION (MBA)

STRATEGIC MANAGEMENT (MS - 206)

Rahul Verma
Assistant Professor
Bhai Parmanand Institute of Business Studies

Course Contents
Unit I
Nature of Strategic Management: Concept of Strategy; Vision Mission, Goals and Objectives; External
Environmental Analysis; Analyzing Companies Resource in Competitive Position; Mintzbergs 5Ps of
Strategy; Strategic Management Process, Corporate Governance . (10 Hours)
Unit II
Strategy Formulation: External Environmental Analysis; Analyzing Companies Resource in Competitive
Position- Concept of Stretch, Leverage and Fit; Strategic Analysis and Choice, Porters Five Forces
Model, Concept of Value Chain, Grand Strategies; Porters Generic Strategies; Strategies for
Competing in Global Markets. (10 Hours)
Unit III
Corporate-Level Strategies: Diversification Strategies: Creating Corporate Value and the Issue of
Relatedness, Vertical Integration: Coordinating the Value Chain, The Growth of the Firm: Internal
Development, Mergers & Acquisitions, and Strategic Alliances Restructuring Strategies: Reducing
the Scope of the Firm. (12 Hours)
Unit IV
Strategy Implementation and Evaluation : Structural Considerations and Organizational Design;
Leadership and Corporate Culture; Strategy Evaluation: Importance and Nature of Strategic
Evaluation; Strategic and Operational Control, Need for Balanced Scorecard. (10 Hours)
Text Books
1. Thomas L. Wheelen, J. David Hunger (2010). Strategic Management and Business Policy,
Pearson/Prentice Hall.
2. Arthur, A, Thomson and Strickland, A. J. (2002). Strategic Management Concept and Cases. Tata

Unit I : Nature of Strategic

Management

Concept of Strategy
Strategy(Greek""stratgia, "art of troop leader;
office of general, command, generalship) is a high
levelplanto achieve one or more goals under conditions of
uncertainty.
Henry MintzbergfromMcGill Universitydefined strategy as "a
pattern in a stream of decisions" to contrast with a view of
strategy as planning whileMax McKeown(2011) argues
that "strategy is about shaping the future" and is the
human attempt to get to "desirable ends with available
means.
Strategy is important because the resources available to
achieve these goals are usually limited.

Contd.
Strategic managementanalyzes the major initiatives taken by a company's top management on behalf of
owners, involvingresourcesand performance in internal and external environments.It entails specifying
theorganization'smission, vision and objectives, 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. Abalanced scorecardis often used to evaluate the overall
performance of thebusinessand its progress towards objectives. 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 settinggoalsand abovetactics. Strategic
management provides overall direction to the enterprise and is closely related to the field ofOrganization
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 "there is strategic consistency
when the actions of an organization are consistent with the expectations of management, and these in turn are
with the market and the context."
"Strategic management is an ongoing process that evaluates and controls the business and the industries in which
the company is involved; assesses its competitors and sets goals and strategies to meet all existing and
potential competitors; and then reassesses each strategy annually or quarterly [i.e. regularly] 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,
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."

Vision Mission
Vision:outlines what the organization wants to be, or how
it wants the world in which it operates to be (an
"idealised" view of the world). It is a long-term view and
concentrates on the future. It can be emotive and is a
source of inspiration. For example, a charity working with
the poor might have a vision statement which reads "A
World without Poverty.
Mission:Defines the fundamental purpose of an
organization or an enterprise, succinctly describing why it
exists and what it does to achieve its vision. For example,
the charity above might have a mission statement as
"providing jobs for the homeless and unemployed".

Contents of Mission statement

Amission
statementis
a
statement
of
the
purpose
of
acompany,organizationorperson, itsreason for existing.
The mission statement should guide the actions of the organization, spell out its
overall goal, provide a path, and guidedecision-making. It provides "the
framework or context within which the company's strategies are formulated."
It's like agoalfor what the company wants to do for the world.
Effective mission statements start by cogently articulating the organization's
purpose of existence.
Mission statements often include the following information:
Aim(s) of the organization
The organization's primary stakeholders: clients/customers, shareholders,
congregation, etc.
How the organization provides value to these stakeholders, for example by
offering specific types of products and/or services
A declaration of an organization's sole core purpose. A mission statement
answers the question, "Why do we exist?"

Contd.
According to Bart, the commercial mission statement consists of 3 essential components:
Key market who is your target client/customer? (generalize if needed)
Contribution what product or service do you provide to that client?
Distinction what makes your product or service unique, so that the client would choose
you?
Examples of mission statements that clearly include the 3 essential components:
For example:
McDonald's - "To provide the fast food customer food prepared in the same high-quality
manner world-wide that has consistent taste, serving time, and price in a low-key dcor and
friendly atmosphere.

Key Market: The fast food customer world-wide

Contribution: consistent taste and reasonably-priced food prepared in a high-quality manner
Distinction: delivered consistently (world-wide) in a low-key dcor and friendly atmosphere.

Courtyard by Marriott - "To provide economy and quality minded travelers with a premier,
moderate priced lodging facility which is consistently perceived as clean, comfortable, wellmaintained, and attractive, staffed by friendly, attentive and efficient people

Key Market: economy and quality minded travelers

Contribution: moderate priced lodging
Distinction: consistently perceived as clean, comfortable, well-maintained, and attractive, staffed by
friendly, attentive and efficient people

Contd.
The mission statement can be used to resolve trade-offs between
different businessstakeholders. Stakeholders include: managers &
executives, non-management employees, shareholders, board of
directors, customers, suppliers, distributors, creditors/bankers,
governments (local, state, federal, etc.), labour unions,
competitors,NGOs, and the community or general public. By
definition, stakeholders affect or are affected by the organization's
decisions and activities.
According to Vern McGinis, a mission should:
Define what the company is
Be limited to exclude some ventures
Be broad enough to allow for creative growth
Distinguish the company from all others
Serve as framework to evaluate current activities
Be stated clearly so that it is understood by all

Goals and Objectives

Agoalis adesiredresult apersonor asystemenvisions, plans and commits
to achieve a personal or organizational desired end-point in some sort of
assumed development. Many people endeavor to reach goals within a finite
time by settingdeadlines.
It is roughly similar to purpose or aim, the anticipated result which guides
reaction, or anend, which is anobject, either aphysical objector
anabstract object, that hasintrinsic value.
Goal-setting ideally involves establishing specific, measurable, attainable,
realistic and time-bounded (S.M.A.R.T.) objectives.Work on thegoal-setting
theorysuggests that it can serve as an effective tool for making progress by
ensuring that participants have a clear awareness of what they must do to
achieve or help achieve an objective. On a personal level, the process of
setting goals allows people to specify and then work towards their own
objectives most commonly, financial or career-based goals. Goal-setting
comprises a major component of personal development.
A goal can be long-term or short-term. The primary difference is the time
required to achieve them.

Contd.
Organizationally, goal management consists of the process of recognizing or
inferring goals of individual team-members, abandoning no longer relevant goals,
identifying and resolving conflicts among goals, and prioritizing goals
consistently for optimal team-collaboration and effective operations.
For any successfulcommercialsystem, it means derivingprofitsby making the
best quality ofgoodsor the best quality ofservicesavailable to the end-user
(customer) at the best possiblecost. Goal management includes:
Assessment and dissolution of non-rational blocks to success
Time management
Frequent reconsideration (consistency checks)
Feasibilitychecks
Adjustingmilestonesand main-goal targets
Morten Lind and J.Rasmussen distinguish three fundamental categories of goals
related to technological system management:
Production goal
Safety goal
Economy goal

Contd.
An organizational goal-management solution ensures that individual employee
goals and objectives align with the vision and strategic goals of the entire
organization. Goal-management provides organizations with a mechanism to
effectively communicate corporate goals and strategic objectives to each
person across the entire organization. The key consists of having it all emanate
from a pivotal source and providing each person with a clear, consistent
organizational-goal message. With goal-management, every employee
understands how their efforts contribute to an enterprise's success.
An example of goal types in business management:
Consumer goals: this refers to supplying a product or service that the
market/consumer wants
Product goals: this refers to supplying a product outstanding compared to other
products perhaps due to the likes of quality, design, reliability and novelty
Operational goals: this refers to running the organization in such a way as to
make the best use of management skills,technology and resources
Secondary goals: this refers to goals which an organization does not regard as
priorities

External Environmental Analysis

The analysis of the external environment of a company is calledexternal
environmental analysis. This analysis is part of a companys analysis-system,
which also comprises various other analyses, like the industry analysis,
themarket analysisand the analyses of companies, clients andcompetitors. This
system can be divided into a macro and micro level. Except for the external
environmental analysis, all other analyses can be found on the micro level.
Though, the external environmental analysis describes the macro environment of
a company.Obviously, a company is influenced by its environment. Many
environmental factors, especially economical or social factors, play a big role in a
companys decisions, because the analysis and the monitoring of those factors
reveal chances and risks for the companys business. This environmental
framework also gives information about location issues. A company is thereby
able to determine its location sites. Furthermore, many other strategic decisions
are based on this analysis.In addition, the factors are analyzed to evaluate
external business developments.It is finally the task of the management to
adapt the firm to its environment or to influence the environment in an adequate
way. The latter is mostly the more difficult option. There are different instruments
to analyze the companys environment which are going to be explained
afterwards.

PESTLE analysis
One instrument to analyse the companys external environment is thePEST analysis. PEST stands for political,
economical, social and technological factors. Two more factors, the legal and environmental factor, are defined
within the PESTLE analysis.To explain these environmental factors, it is necessary to say that most of the factors
depend on each other and that they change over the years. Consequently, when one factor changes it also
affects the others. The equality for every company is the main characteristic of the factors in an environmental
analysis. The different environmental factors are covered below.
Political and legal factors
Political and legal factors are here regarded as a unit. They refer to framework given by politics. There exist
regulatory or legal frameworks, which can be binding for regions, nations or on an international basis. The
frameworks deal with economical issues or issues concerning thelabour market.Subsidiesfor instance fall in the
category of economical issues. According to the degree of support through subsidies, a country can be more or
less attractive for a company. With respect to thelabour lawof a country, it can highly influence location
decisions, too. If e.g. the dismissal protection in a country is very good, a firm may tend to choose a country with
a more flexible hire-and-fire-system. Furthermore, the stability of a political system is a real important aspect for
most firms. Asocial market economywith rights for co-determination, regulations for patents, the companys
investment and environment protection are main characteristics for a political stable system.
Economical factors
Economical factors deal with national or international economical developments and have a direct influence on
supplier and consumer markets. Examples of economical factors that play a big role are: theGDP, therate of
inflation, interests, the change rate, employment or the situation of money markets. These economical factors
influence demand, competition intensity, cost pressure and the will to invest. For instance, if the gross domestic
product of a country is fairly low, the demand is in general lower than in countries with a higher GDP.

Contd.
Social factors
Social factors deal with social issues regarding the values, ideals, opinions and the culture of market
participants. Market participants can be employees, customers or suppliers. Through their contact
with the company, they influence it due to their opinions. The company needs to follow the market
participants change of value and adapt its strategies. Nowadays, a change of values
concerningenvironmental protectionis on the move.
Technological environmental factors
Technological environmental factors are meanwhile of a great importance, especially for industrial
companies, which underlie a fast technological change. The increasing speed of technological
changes, like in microelectronics or robotics can either indicate risks or chances for a company.
Particularly producing companies are affected of that fast evolution.
Environmental factors
At last, environmental factors are becoming more and more important nowadays. They
regardnatural resourcesand the basis of human life. Among those, the availability of raw
materials and energy is the main topic. As the availability of fossil fuels, like oil or coal, gets worse
within the next decades, the dependency on those fuels stays pretty risky. Moreover, to show an
ecological responsibility, companies should assess and reduce their ecological damage. Through
rare raw materials and increasing pollution, an environmentally friendly management gets
spotlighted more and more by the public interest. Consequently, eco-friendly products or
technologies can even signify a competitive advantage.

Contd.
The six environmental factors of the PESTEL analysis are the following:
Political factors
Taxation Policy
Trade regulations
Governmental stability
Unemployment Policy, etc.
Economical factors
Inflation rate
Growth in spending power
Rate of people in a pensionable age
Recession or Boom
Customer liquidations
Socio-cultural
Values, beliefs
language
religion
education
literacy
time orientation

Contd.
Technological factors
Internet
E-commerce
Social Media
Electronic Media
Research and Development
Rate of technological change
Environmental factors
Competitive advantage
Waste disposal
Energy consumption
Pollution monitoring, etc.
Legal factors
Unemployment law
Health and safety
Product safety
Advertising regulations
Product labeling
labor laws etc.

Methods of the external

environmental analysis
Thesegmentationaccording to the six presented factors of the
PESTLE analysis is the starting point of the global
environmental analysis. The analysis can be done with the help
of a checklist that evaluates every criteria of a segment. In this
manner, the status of the global environment shall be defined.
In general, every segment needs to be worked on
systematically to recognize changes. Then, the factors and its
impacts can be interpreted right. After the segmentation, the
analysis consists of four further steps:

Environmental
Environmental
Environmental
Environmental

Scanning
Monitoring
Forecasting
Assessment

Environmental scanning
The first step is called scanning. Throughenvironmental scanning, every segment is analyzed to find
trend indicators. Thus, after having examined the segment, indicators for its development are
defined. According to Fahey and Narayanan, scanning reveals actual or imminent change because it
explicitly focuses on areas that the organisation may have previously neglected.Scanning is also
used to detect weak signals in the environment, before these have conflated into a recognizable
pattern, which might affect the organizations competitive environment.
Scanning can include every material published in the media such as television, newspapers and
periodicals.This method of scanning is called media-scanning. Product-scanning includes scanning
of products which announce re-emerging consumer behaviour. Looking for global trends on the
internet can be defined as online-scanning.
Modes of scanning
Four modes of scanning can be distinguished. Francis Joseph Aguilar (1967) differentiates between
undirected viewing, conditioned viewing, informal search and formal search.

'Undirected viewing' means reading a variety of publications for no specific purpose with the
possible exception of exploration. This mode is the most cost-efficient one but it also offers the most
benefits. There are a lot of varied sources and information which means that the potential data are
unlimited. Data are imprecise and vague and there are no guidelines which determine where the
search should be focused.

Applying 'conditioned viewing' the viewer pays attention to the particular kinds of data and
assesses their significance for the organization. The field of information is more or less clearly
identified.

'Informal searching' can be defined as actively seeking specific information in a relatively

unstructured way.

The contrast of informal searching is called 'formal searching'. This proactive mode of scanning
contains methodologies for obtaining information for specific purposes.

Environmental monitoring
Environmental scanning is only one component of global
environmental analysis. After having identified critical
trends and potential events they have to be monitored. The
next
step
in
global
environmental
analysis
is
calledenvironmental monitoring. It can be defined as 'the
process of repetitive observing for defined purposes, of one
or more elements or indicators of the environment
according to pre-arranged schedules in space and time, and
using comparable methodologies for environmental sensing
and data collection. Through environmental monitoring,
data about environmental developments are recorded,
followed and interpreted. Out of this, historical
development changes that are important for the company
can be recognized and evaluated. Additionally, the
relevance and the reliability of the data sources are tested.
Furthermore it is checked, where prognoses are required.

Environmental forecasting
The

direction,
intensity
and
speed
of
environmental
trends
are
explored
through
environmentalforecasting. Especially the search for possible threats is of importance. Aprognosisof
trends is necessary to get a picture of the future. This is done by adequate methods, likestrategic
foresightorscenario analysis.Several other methods of forecasting are the following: guessing,rule
of thumb, expert judgement,extrapolation,leading indicators, surveys,time-seriesmodels and
econometric systems.
'Guessing' and related methods totally rely on luck. Consequently it is not generally a useful
method. In addition, it is almost impossible to evaluate the uncertainty of a guess in advance.
'Expert judgement' lacks validation being the only component of forecasting. It is hardly to predict
which oracle is successful.
'Extrapolation' is effective when tendencies exist. Forecasts are most effective when changes are
predicted in tendencies. Prediction in changes in tendencies is likely to miss concerning
extrapolative methods.
'Forecasting based on leading indicators' needs a stable relationship between the variables that lead
and the variables that are led. If the reasons for the lead are not clear the indicators may give
misleading information.
'Surveys' of businesses can give information about the future. They rely on planning which needs to
be realized. Changes in business implicate changes in planning.
'Time-series models' are popular forecasting methods. They describe historical patterns of data and
they focus on measurable uncertainty.
'Econometric systems' of equations are the main tool of economic forecasting. They consist of
equations which attempt to model the behaviour of economic groups such as consumers,
producers, workers, investors etc. moderated by historical experience. There are several
advantages of using formal econometric systems: Economists are able 'to consolidate existing
empirical and theoretical knowledge..., provide a framework for a progressive research strategy...,
help to explain their own failures, as well as provide forecasts and policy advice.'

Environmental assessment
In the last step of the global environmental analysis, the results of the
previous three steps (Scanning, Monitoring, Forecasting) are assessed.
The discovered environmental trends are reviewed to estimate the
probability of their occurrence. Furthermore, they need to be analyzed
to evaluate whether they represent a chance or a risk for the company.
The dimension of the chances or risks is also of importance. Moreover, a
reaction strategy to the occurring risks or chances needs to be defined.
This is done with the help of the Issue-Impact-Matrix, an adequate
instrument to evaluate and prioritize trends. The forecasted
environmental factors are here classified with respect to their
probability of occurrence and their impact on the company. According to
their classification, they demonstrate a high, medium or low priority for
the company. The factors with a high occurrence probability and a high,
significant impact on the company have the highest priority. The higher
the priority, the faster need to be reacted to avoid risks and to benefit
from chances.The environmental assessment represents the last step
of the global environmental analysis.

Analyzing Companies Resource in

Competitive Position
Acore competencyis a concept in management theory originally advocated by two business
authors,C. K. PrahaladandGary Hamel. In their view a core competency is a specific factor that
abusinesssees as central to the way the company or itsemployeeswork. It fulfills three key
criteria:

It is not easy for competitors to imitate.

It can be reused widely for many products and markets.

It must contribute to the end consumer's experienced benefits and the value of the product or
service to its customers.
A core competency can take various forms, including technical/subject matter know-how, a reliable
process and/or close relationships with customers and suppliers.It may also include product
development or culture, such as employee dedication, best Human Resource Management (HRM),
good market coverage, etc.
Core competencies are particular strengths relative to other organizations in the industry, which provide
the fundamental basis for the provision of added value. Core competencies reflect the collective
learning of an organization and involve coordinating diverse production skills and integrating
multiple streams of technologies. It includes communication, involvement and a deep commitment
to working across organizational boundaries.Few companies are likely to build world leadership in
more than five or six fundamental competencies.
As an example of core competencies, Walt Disney World Parks and Resorts has three main core
competencies:

Animatronics and Show Design

Storytelling, Story Creation and Themed Atmospheric Attractions

Efficient operation of theme parks

Contd.
A core competency results from a specific set of skills or production techniques that deliver additional value to the
customer. These enable an organization to access a wide variety of markets. Executives should estimate the future
challenges and opportunities of the business in order to stay on top of the game in varying situations.
In an article from 1990 titled "The Core Competence of the Corporation", Prahalad and Hamel illustrate that core
competencies lead to the development of core products which further can be used to build many products for end
users. Core competencies are developed through the process of continuous improvements over the period of time
rather than a single large change. To succeed in an emerging global market, it is more important and required to build
core competencies rather thanvertical integration.NECutilized its portfolio of core competencies to dominate the
semiconductor, telecommunications and consumer electronics market. It is important to identify core competencies
because it is difficult to retain those competencies in a price war and cost-cutting environment. The author used the
example of how to integrate core competences using strategic architecture in view of changing market requirements
and evolving technologies. Management must realize that stakeholders to core competences are an asset which can
be utilized to integrate and build the competencies Competence building is an outcome of strategic architecture which
must be enforced by top management in order to exploit its full capacity.
InCompeting for the Future, the authors Prahalad and Hamel show how executives can develop the industry foresight
necessary to adapt to industry changes and discover ways of controlling resources that will enable the company to
attain goals despite any constraints. Executives should develop a point of view on which core competencies can be
built for the future to revitalize the process of new business creation. Developing an independent point of view of
tomorrow's opportunities and building capabilities that exploit them is the key to future industry leadership.
For an organization to be competitive, it needs not only tangible resources but intangible resources like core competences
that are difficult and challenging to achieve. It is critical to manage and enhance the competences in response to
industry changes in the future. For example, Microsoft has expertise in manyITbased innovations where, for a variety
of reasons, it is difficult for competitors to replicate or compete with Microsoft's core competences.
In a race to achieve cost cutting, quality and productivity, most executives do not spend their time developing a corporate
view of the future because this exercise demands high intellectual energy and commitment. The difficult questions
may challenge their own ability to view the future opportunities but an attempt to find their answers will lead towards
organizational benefits.

Competitive advantage
Competitive advantageseeks to address some of the criticisms ofcomparative advantage.Michael Porterproposed
the theory in 1985. Porter emphasizes productivity growth as the focus of national strategies. Competitive
advantage rests on the notion that cheap labor is ubiquitous and natural resources are not necessary for a good
economy. The other theory, comparative advantage, can lead countries to specialize in exporting primary goods
and raw materials that trap countries in low-wage economies due to terms of trade. Competitive advantage
attempts to correct for this issue by stressing maximizing scale economies in goods and services that garner
premium prices (Stutz and Warf 2009).[1]
Competitive advantage occurs when an organization acquires or develops an attribute or combination of attributes that
allows it to outperform its competitors. These attributes can include access to natural resources, such as high
grade ores or inexpensive power, or access to highly trained and skilled personnel human resources. New
technologies such as robotics and information technology can provide competitive advantage, whether as a part of
the product itself, as an advantage to the making of the product, or as a competitive aid in the business process
(for example, better identification and understanding of customers).
The term competitive advantage is the ability gained through attributes and resources to perform at a higher level than
others in the same industry or market (Christensen and Fahey 1984, Kay 1994, Porter 1980 cited by Chacarbaghi
and Lynch 1999, p.45).[2]The study of such advantage has attracted profound research interest due to
contemporary issues regarding superior performance levels of firms in the present competitive market conditions.
"A firm is said to have a competitive advantage when it is implementing a value creating strategy not
simultaneously being implemented by any current or potential player" (Barney 1991 cited by Clulow et al.2003,
p.221).[3]Successfully implemented strategies will lift a firm to superior performance by facilitating the firm with
competitive advantage to outperform current or potential players (Passemard and Calantone 2000, p.18).[4]To gain
competitive advantage a business strategy of a firm manipulates the various resources over which it has direct
control and these resources have the ability to generate competitive advantage (Reed and Fillippi 1990 cited by
Rijamampianina 2003, p.362).[5]Superior performance outcomes and superiority in production resources reflects
competitive advantage (Day and Wesley 1988 cited by Lau 2002, p.125).[6]
Above writings signify competitive advantage as the ability to stay ahead of present or potential competition, thus
superior performance reached through competitive advantage will ensure market leadership. Also it provides the
understanding that resources held by a firm and the business strategy will have a profound impact on generating
competitive advantage. Powell (2001, p.132)[7]views business strategy as the tool that manipulates the resources
and create competitive advantage, hence, viable business strategy may not be adequate unless it possess control
over unique resources that has the ability to create such a unique advantage. Summarizing the view points,
competitive advantage is a key determinant of superior performance and it will ensure survival and prominent

Competitive Strategies/advantages
Cost Leadership Strategy
The goal of Cost Leadership Strategy is to offer products or services at the lowest cost in the industry. The challenge of
this strategy is to earn a suitable profit for the company, rather than operating at a loss and draining profitability
from all market players. Companies such as Walmart succeed with this strategy by featuring low prices on key items
on which customers are price-aware, while selling other merchandise at less aggressive discounts. Products are to
be created at the lowest cost in the industry. An example is to use space in stores for sales and not for storing
excess product.
Differentiation Strategy
The goal of Differentiation Strategy is to provide a variety of products, services, or features to consumers that
competitors are not yet offering or are unable to offer. This gives a direct advantage to the company which is able to
provide a unique product or service that none of its competitors is able to offer. An example is Dell which launched
mass-customizations on computers to fit consumers' needs. This allows the company to make its first product to be
the star of its sales.
Innovation Strategy
The goal of Innovation Strategy is to leapfrog other market players by the introduction of completely new or notably
better products or services. This strategy is typical of technology start-up companies which often intend to "disrupt"
the existing marketplace, obsoleting the current market entries with a breakthrough product offering. It is harder for
more established companies to pursue this strategy because their product offering has achieved market acceptance.
Apple has been a notable example of using this strategy with its introduction of iPod personal music players, and
iPad tablets. Many companies invest heavily in their research and development department to achieve such statuses
with their innovations.
Operational Effectiveness Strategy
The goal of Operational Effectiveness as a strategy is to perform internal business activities better than competitors,
making the company easier or more pleasurable to do business with than other market choices. It improves the
characteristics of the company while lowering the time it takes to get the products on the market with a great start.
State Farm Insurance pursues this strategy by promoting their agents as "good neighbors" who actively help
customers.

Mintzbergs 5Ps of Strategy

In 1988,Henry Mintzberglooked at the changing world around him and decided it was time to
reexamine how strategic management was done.He examined the strategic process and
concluded it was much more fluid and unpredictable than people had thought. Because of this, he
could not point to one process that could be calledstrategic planning. Instead Mintzberg
concludes that there are five types of strategies:
Strategy as plan a direction, guide, course of action intention rather than actual
Strategy as ploy a maneuver intended to outwit a competitor
Strategy as pattern a consistent pattern of past behaviour realized rather than intended
Strategy as position locating of brands, products, or companies within the conceptual framework
of consumers or other stakeholders strategy determined primarily by factors outside the firm
Strategy as perspective strategy determined primarily by a master strategist
In 1998, Mintzberg developed these five types of management strategy into 10 schools of thought
and grouped them into three categories. The first group is normative. It consists of the schools of
informal design and conception, the formal planning, and analytical positioning. The second group,
consisting of six schools, is more concerned with how strategic management is actually done,
rather than prescribing optimal plans or positions. The six schools are entrepreneurial, visionary,
cognitive, learning/adaptive/emergent, negotiation, corporate culture and business environment.
The third and final group consists of one school, the configuration or transformation school, a
hybrid of the other schools organized into stages, organizational life cycles, or episodes.

Strategic planning
Strategic planningis anorganization's process of defining itsstrategy, or
direction, and makingdecisionson allocating its resources to pursue this strategy.
In order to determine the future direction of the organization, it is necessary to
understand its current position and the possible avenues through which it can
pursue particular courses of action. Generally, strategic planning deals with at least
one of three key questions:
"What do we do?"
"For whom do we do it?"
"How do we excel?
Many organizations view strategic planning as a process for determining where an
organization is going over the next year ormore typically3 to 5 years (long
term), although some extend their vision to 20 years, or even (in the case
ofMitsubishi) 500 years.
George FriedmaninThe Next 100 Yearssummarises "the fundamental principle of
strategic planning: hope for the best, plan for the worst".

Key components
The key components of 'strategic planning' include an understanding of an entity'svision,
mission,valuesand strategies. (In the commercial world a "Vision Statement" and/or a
"Mission Statement" may encapsulate the vision and mission).
Vision:outlines what the organization wants to be, or how it wants the world in which it
operates to be (an "idealised" view of the world). It is a long-term view and concentrates on
the future. It can be emotiveand is a source of inspiration. For example, a charity working
with the poor might have a vision statement which reads "A World without Poverty."
Mission:Defines the fundamental purpose of an organization or an enterprise, succinctly
describing why it exists and what it does to achieve its vision. For example, the charity above
might have a mission statement as "providing jobs for the homeless and unemployed".
Values:Beliefs that are shared among thestakeholdersof an organization. Values drive
anorganization's culture and priorities and provide a framework in which decisions are made.
For example, "Knowledge and skills are the keys to success" or "give a man bread and feed
him for a day, but teach him to farm and feed him for life". These examplemaximsmay set
the priorities of self-sufficiency over shelter.
Strategy:Strategy, narrowly defined, means "the art of the general. - a combination of the
ends (goals) for which the firm is striving and the means (policies) by which it is seeking to
get there. A strategy is sometimes called aroadmap- which is the path chosen to plow
towards theend vision. The most important part of implementing the strategyis ensuring the
company is going in the right direction - defined as towards the end vision.

Contd.
Organizations sometimes summarize goals and objectives into amission
statementand/or avision statement. Others begin with a vision and
mission and use them to formulate goals and objectives. A newly emerging
approach is to use avisual strategic plansuch as is used within planning
approaches based onoutcomes theory. When using this approach, the first
step is to build a visual outcomes model of the high-level outcomes being
sought and all of the steps which it is believed are needed to get to them.
The vision and mission are then just the top layers of the visual model.
Many people mistake the vision statement for the mission statement, and
sometimes one is simply used as a longer term version of the other.
However they are distinct; with the vision being a descriptive picture of a
desired future state; and the mission being a statement of a rationale,
applicable now as well as in the future. The mission is therefore the means
of successfully achieving the vision. This may be in thebusiness worldor
themilitary.
For an organization's vision and mission to be effective, they must become
assimilated into the organization's culture. They should also be assessed
internally and externally. The internal assessment should focus on how
members inside the organization interpret their mission statement. The
external assessment which includes all of the businesses stakeholders
is valuable since it offers a different perspective. These discrepancies

Tools and approaches

Among the most widely used tools for strategic planning isSWOT
analysiswhich means (Strengths, Weaknesses, Opportunities, and
Threats). The main objective of this tool is to analyze internal strategic
factors, strengths and weaknesses attributed to the organization, and
external factors beyond control of the organization such as
opportunities and threats.
Other tools include:
Balanced Scorecards, which creates a systematic framework for
strategic planning;
PEST analysis(Political,Economic,Social, andTechnological)
STEER analysis (Socio-cultural,Technological,Economic,Ecological,
andRegulatory factors)
EPISTEL
(Environment,Political,Informatic,Social,Technological,Economic
andLegal).

Balanced scorecard
Thebalanced
scorecard(BSC)
is
a
strategyperformance managementtool - a semistandard structured report, supported by design
methods and automation tools, that can be used
by managers to keep track of the execution of
activities by the staff within their control and to
monitor the consequences arising from these
actions.It is perhaps the best known of several
such frameworks (it was the most widely adopted
performance management framework reported in
the 2010 annual survey of management tools
undertaken by Bain & Company.).

Contd.
The 1st generation design method proposed by Kaplan and Norton was based on the use
of three non-financial topic areas as prompts to aid the identification of non-financial
measures in addition to one looking at financial. Four "perspectives" were proposed:

Financial: encourages the identification of a few relevant high-level financial

measures. In particular, designers were encouraged to choose measures that helped
inform the answer to the question "How do we look to shareholders?"

Customer: encourages the identification of measures that answer the question "How
do customers see us?"

Internal business processes: encourages the identification of measures that

answer the question "What must we excel at?"

Learning and growth: encourages the identification of measures that answer the
question "How can we continue to improve, create value andinnovate?".
These 'prompt questions' illustrate that Kaplan and Norton were thinking about the needs
of small to medium sized commercial organizations in the USA(the target
demographic for the Harvard Business Review) when choosing these topic areas.
They are not very helpful to other kinds of organizations, and much of what has been
written on balanced scorecard since has, in one way or another, focused on the
identification of alternative headings more suited to a broader range of organizations.

Strategic Management Process

Contd.
Strategic managementinvolves the formulation and implementation of the major
initiatives taken by a company's top management on behalf of owners, based on
consideration of resourcesand an assessment of the internal and external
environments in which the organization competes.
Strategic
management
is
often
described
as
involving
two
major
processes:formulationandimplementationof strategy. While described sequentially
below, in practice the two processes are iterative and each provides input for the
other.
Formulation
Formulationof strategy involves analyzing the environment in which the organization
operates, then making a series of strategic decisions about how the organization will
compete. Formulation ends with a series of goals or objectives and measures for the
organization to pursue.
Environmental analysis includes the:

Remote external environment, including the political, economic, social and regulatory
landscape;

Industry environment, such as the competitive behavior of rival organizations, the

bargaining power of buyers/customers and suppliers, threats from new entrants to
the industry, and the ability of buyers to substitute products; and

Internal environment, regarding the strengths and weaknesses of the organization's

resources (i.e., its people, processes and IT systems).

Contd.
Strategic decisionsare based on insight from the environmental assessment and are responses to
strategic questions about how the organization will compete, such as:
Who is the target customer for the organization's products and services?
Which businesses, products and services should be included or excluded from the portfolio of offerings?
What differentiates the company from its competitors in the eyes of customers and other stakeholders?
Which skills and resources should be developed within the firm?
What are the important opportunities and risks for the organization?
How can the firm grow, through both its base business and new business?
How can the firm generate more value for investors?
The answers to these and many other strategic questions result in a series of specific short-term and
long-term goals or objectives and related measures.
Implementation
The second major process of strategic management isimplementation, which involves decisions
regarding how the organization's resources (i.e., people, process and IT systems) will be aligned and
mobilized towards the objectives. Implementation results in how the organization's resources are
structured (such as by product or service or geography), leadership arrangements, communication,
incentives, and monitoring mechanisms to track progress towards objectives, among others.
Running the day-to-day operations of the business is often referred to as "operations management" or
specific terms for key departments or functions, such as "logistics management" or "marketing
management," which take over once strategic management decisions are implemented.

Corporate Governance
Corporate governancerefers to the system by which corporations are
directed and controlled. The governance structure specifies the distribution
of rights and responsibilities among different participants in the corporation
(such as the board of directors, managers, shareholders, creditors,
auditors, regulators, and otherstakeholders) and specifies the rules and
procedures for making decisions in corporate affairs. Governance provides
the structure through which corporations set and pursue their objectives,
while reflecting the context of the social, regulatory and market
environment. Governance is a mechanism for monitoring the actions,
policies and decisions of corporations. Governance involves the alignment
of interests among the stakeholders.
There has been renewed interest in the corporate governance practices of
modern corporations, particularly in relation to accountability, since the
high-profile collapses of a number of large corporations during 20012002,
most of which involved accounting fraud.Corporate scandalsof various
forms have maintained public and political interest in the regulation of
corporate
governance.
In
the
U.S.,
these
includeEnron
CorporationandMCI Inc.(formerly WorldCom). Their demise is associated
with theU.S. federal governmentpassing theSarbanes-Oxley Actin 2002,
intending to restore public confidence in corporate governance.
Comparable failures in Australia (HIH,One.Tel) are associated with the

Contd.
Corporate governance has also been defined as "a system of law and sound approaches by which
corporations are directed and controlled focusing on the internal and external corporate structures with the
intention of monitoring the actions of management and directors and thereby mitigating agency risks
which may stem from the misdeeds of corporate officers."
In contemporary business corporations, the main external stakeholder groups are shareholders, debtholders,
tradecreditors, suppliers, customers and communities affected by the corporation's activities. Internal
stakeholders are theboard of directors,executives, and other employees.
Much of the contemporary interest in corporate governance is concerned with mitigation of the conflicts of
interests between stakeholders. Ways of mitigating or preventing these conflicts of interests include the
processes, customs, policies, laws, and institutions which have an impact on the way a company is
controlled.An important theme of governance is the nature and extent of corporateaccountability.
A related but separate thread of discussions focuses on the impact of a corporate governance system
oneconomic efficiency, with a strong emphasis on shareholders' welfare. In large firms where there is a
separation of ownership and management and no controlling shareholder, theprincipalagent issuearises
between upper-management (the "agent") which may have very different interests, and by definition
considerably more information, than shareholders (the "principals"). The danger arises that rather than
overseeing management on behalf of shareholders, the board of directors may become insulated from
shareholders and beholden to management.This aspect is particularly present in contemporary public
debates and developments in regulatory policy.(seeregulationandpolicy regulation).
Economic analysis has resulted in a literature on the subject.One source defines corporate governance as
"the set of conditions that shapes theex postbargaining over thequasi-rentsgenerated by a firm.The
firm itself is modelled as a governance structure acting through the mechanisms of contract.Here
corporate governance may include its relation tocorporate finance.

Principles of corporate governance

Contemporary discussions of corporate governance tend to refer to principles raised in three documents
released since 1990: TheCadbury Report(UK, 1992), the Principles of Corporate Governance (OECD, 1998
and 2004), theSarbanes-Oxley Actof 2002 (US, 2002). The Cadbury and OECD reports present general
principles around which businesses are expected to operate to assure proper governance. The SarbanesOxley Act, informally referred to as Sarbox or Sox, is an attempt by the federal government in the United
States to legislate several of the principles recommended in the Cadbury and OECD reports.
Rights and equitable treatment of shareholders:Organizations should respect the rights of
shareholders and help shareholders to exercise those rights. They can help shareholders exercise their rights
by openly and effectively communicating information and by encouraging shareholders to participate in
general meetings.
Interests of other stakeholders:Organizations should recognize that they have legal, contractual, social,
and market driven obligations to non-shareholder stakeholders, including employees, investors, creditors,
suppliers, local communities, customers, and policy makers.
Role and responsibilities of the board:The board needs sufficient relevant skills and understanding to
review and challenge management performance. It also needs adequate size and appropriate levels of
independence and commitment.
Integrity and ethical behavior:Integrity should be a fundamental requirement in choosing corporate
officers and board members. Organizations should develop a code of conduct for their directors and
executives that promotes ethical and responsible decision making.
Disclosure and transparency:Organizations should clarify and make publicly known the roles and
responsibilities of board and management to provide stakeholders with a level of accountability. They should
also implement procedures to independently verify and safeguard the integrity of the company's financial
reporting. Disclosure of material matters concerning the organization should be timely and balanced to
ensure that all investors have access to clear, factual information.

Unit II : Strategy Formulation

Concept of Stretch, Leverage and Fit

Stretch is a misfit between resources and
aspirations.
Leverage
refers
to
concentrating,
accumulating, complementing, conserving
and recovering resources in such a manner
that the meager resource base is stretched
to meet the aspirations that the organization
dares to have.
Fit means positioning the firm by matching its
organizational resources to its environment.

Strategic Analysis and Choice

Strategic Analysis is the investigation
of the objective factors being
considered in the process of strategic
Choice.
Strategic Choice is a process based on
strategic decision making, which is a
highly complex activity.

Strategic Choice Process

Porters Five Forces Model

Contd.
Porter five forces analysisis a framework for industry analysis and business strategy development. It draws
uponindustrial organization (IO) economicsto derive five forces that determine the competitive intensity and
therefore attractiveness of amarket. Attractiveness in this context refers to the overall industry profitability.
An "unattractive" industry is one in which the combination of these five forces acts to drive down overall
profitability. A very unattractive industry would be one approaching "pure competition", in which available
profits for all firms are driven tonormal profit.
Three of Porter's five forces refer to competition from external sources. The remainder are internal threats.
Porter referred to these forces as themicro environment, to contrast it with the more general termmacro
environment. They consist of those forces close to acompanythat affect its ability to serve its customers
and make aprofit. A change in any of the forces normally requires a business unit to re-assess
themarketplacegiven the overall change inindustry information. The overall industry attractiveness does
not imply that everyfirmin the industry will return the same profitability. Firms are able to apply theircore
competencies,business modelor network to achieve a profit above the industry average. A clear example of
this is the airline industry. As an industry, profitability is low and yet individual companies, by applying
unique business models, have been able to make a return in excess of the industry average.
Porter's five forces include - three forces from 'horizontal' competition: the threat of substitute products or
services, the threat of established rivals, and the threat of new entrants; and two forces from 'vertical'
competition: thebargaining powerof suppliers and the bargaining power of customers.
This five forces analysis, is just one part of the complete Porter strategic models. The other elements are
thevalue chainand thegeneric strategies.
Porter developed his Five Forces analysis in reaction to the then-popularSWOT analysis, which he found
unrigorous andad hoc.Porter's five forces is based on the Structure-Conduct-Performance paradigm in
industrial organizational economics. It has been applied to a diverse range of problems, from helping
businesses become more profitable to helping governments stabilize industries.

Threat of new entrants

Profitable markets that yield high returns will attract new firms. This results in many new
entrants, which eventually will decrease profitability for all firms in the industry. Unless the
entry of new firms can be blocked byincumbents, the abnormal profit rate will trend
towards zero (perfect competition).
The existence ofbarriers to entry(patents,rights, etc.) The most attractive segment is one
in which entry barriers are high and exit barriers are low. Few new firms can enter and nonperforming firms can exit easily.
Economies of product differences
Brand equity
Switching costs orsunk costs
Capital requirements
Expected retaliation
Access to distribution
Customer loyaltyto established brands
Absolute cost
Industry profitability; the more profitable the industry the more attractive it will be to new
competitors.
Threat of new entrants, sources. 1)Economies of scale, 2)Product differentiation, 3)Cost
disadvantages independent of size, 4)Access to distribution channels, 5)Government Policy.

Threat of substitute products or

services
The existence of products outside of the realm of the common product
boundaries increases thepropensityof customers to switch to alternatives.
For example, tap water might be considered a substitute for Coke, whereas
Pepsi is a competitor's similar product. Increased marketing for drinking tap
water might "shrink the pie" for both Coke and Pepsi, whereas increased Pepsi
advertising would likely "grow the pie" (increase consumption of all soft
drinks), albeit while giving Pepsi a larger slice at Coke's expense. Another
example is the substitute of traditional phone with VoIP phone.
Buyer propensity to substitute
Relative price performance of substitute
Buyerswitching costs
Perceived level ofproduct differentiation
Number of substitute products available in the market
Ease of substitution. Information-based products are more prone to
substitution, as online product can easily replace material product.
Substandard product
Quality depreciation

Bargaining power of customers

(buyers)
The bargaining power of customers is also described as the market of
outputs: the ability of customers to put thefirmunder pressure,
which also affects the customer's sensitivity to price changes. e.g.
firm can implement loyalty program to reduce the buyer power.
Buyer concentration tofirmconcentration ratio
Degree of dependency upon existing channels of distribution
Bargaining leverage, particularly in industries with highfixed costs
Buyer switching costs relative tofirmswitching costs
Buyer information availability
Force down prices
Availability of existing substitute products
Buyerprice sensitivity
Differential advantage (uniqueness) of industry products
RFM (customer value)Analysis

Bargaining power of suppliers

The bargaining power of suppliers is also described as the market of inputs.
Suppliers of raw materials, components, labor, and services (such as
expertise) to thefirmcan be a source of power over the firm, when there
are few substitutes. Suppliers may refuse to work with the firm, or, e.g.,
charge excessively high prices for unique resources.
Supplier switching costs relative tofirmswitching costs
Degree of differentiation of inputs
Impact of inputs on cost or differentiation
Presence of substitute inputs
Strength of distribution channel
Supplier concentration tofirmconcentration ratio
Employee solidarity (e.g.labor unions)
Supplier competition - ability to forward vertically integrate and cut out
the BUYER
E.g. if you are making biscuits and there is only one person who sells flour,
you have no alternative but to buy it from them.

Intensity of competitive rivalry

For most industries, the intensity of competitive
rivalry is the major determinant of the
competitiveness of the industry.
Sustainablecompetitive
advantagethroughinnovation
Competition
between
online
and
offline
companies
Level ofadvertisingexpense
Powerful competitive strategy
Firm concentration ratio
Degree of transparency

Usage of Five forces

Porter five forces analysisis a framework for industry analysis and business
strategy development formed byMichael E. PorterofHarvard Business Schoolin
1979.
Strategy consultants occasionally use Porter's five forcesframeworkwhen making a
qualitative evaluation of afirm's strategic position. However, for most consultants,
the framework is only a starting point or "checklist." They might use "Value Chain"
afterward. Like all general frameworks, an analysis that uses it to the exclusion of
specifics about a particular situation is considered nave.
According to Porter, the five forces model should be used at the line-of-business
industry level; it is not designed to be used at the industry group or industry sector
level. An industry is defined at a lower, more basic level: a market in which similar
or closely related products and/or services are sold to buyers. Afirmthat competes
in a single industry should develop, at a minimum, one five forces analysis for its
industry. Porter makes clear that for diversified companies, the first fundamental
issue incorporate strategyis the selection of industries (lines of business) in which
the company should compete; and each line of business should develop its own,
industry-specific, five forces analysis. The average Global 1,000 company
competes in approximately 52 industries (lines of business).

Concept of Value Chain

Contd.
Avalue chainis a chain of activities that a firm operating in a specific industry performs
in order to deliver a valuableproductorservicefor themarket. The concept comes
from business management and was first described and popularized byMichael
Porterin his 1985 best-seller,Competitive Advantage: Creating and Sustaining
Superior Performance.
"The idea of the value chain is based on the process view of organizations, the idea of
seeing a manufacturing (or service) organisation as a system, made up of
subsystems each with inputs, transformation processes and outputs. Inputs,
transformation processes, and outputs involve the acquisition and consumption of
resources - money, labour, materials, equipment, buildings, land, administration and
management. How value chain activities are carried out determines costs and affects
profits.
IfM,Cambridge
The concept of value chains as decision support tools, was added onto the competitive
strategies paradigm developed by Porter as early as 1979.In Porter's value chains,
Inbound Logistics, Operations, Outbound Logistics, Marketing and Sales and Service
are categorized as primary activities. Secondary activities include Procurement,
Human Resource management, Technological Development and Infrastructure.
According to the OECD Secretary-General (Gurra 2012)the emergence of global value
chains (GVCs) in the late 1990s provided a catalyst for accelerated change in the
landscape of international investment and trade, with major, far-reaching

Grand Strategies
Grand Strategies help to exercise the choice of direction that an
organization adopts :
Growth Strategies: To expand the companys activities either
through Diversification Strategy
Concentration
Strategy
(Either
through
Internal
Development (Horizontal & Vertical Integration) or
External Development (Mergers & Acquisitions, and
Strategic Alliances))
Stability Strategies (To make no change to the companys
current activities)
Retrenchment Strategies (To reduce the companys level of
activities)
Combination Strategies (A mixture of above strategies)

Diversification Strategies: Creating Corporate

Value and the Issue of Relatedness

Contd.
Diversificationis a corporate strategy to increase sales volume from new products and new markets.
Diversification can be expanding into a new segment of an industry that the business is already in, or
investing in a promising business outside of the scope of the existing business.
Diversification is part of the four main growth strategies defined by IgorAnsoff's Product/Market matrix.
Ansoff pointed out that a diversification strategy stands apart from the other three strategies. The first three
strategies are usually pursued with the same technical, financial, and merchandising resources used for the
original product line, whereas diversification usually requires a company to acquire new skills, new
techniques and new facilities.
Note:The notion of diversification depends on the subjective interpretation of new market and new product,
which should reflect the perceptions of customers rather than managers. Indeed, products tend to create or
stimulate new markets; new markets promoteproduct innovation.
Product diversification involves addition of new products to existing products either being manufactured or being
marketed. Expansion of the existing product line with related products is one such method adopted by many
businesses. Adding tooth brushes to tooth paste or tooth powders or mouthwash under the same brand or
under different brands aimed at different segments is one way of diversification. These are either brand
extensions or product extensions to increase the volume of sales and the number of customers.
According to Calori and Harvatopoulos (1988), there are two dimensions of rationale for diversification. The first
one relates to the nature of the strategic objective: Diversification may be defensive or offensive.
Defensive reasons may be spreading the risk of market contraction, or being forced to diversify when current
product or current market orientation seems to provide no further opportunities for growth. Offensive
reasons may be conquering new positions, taking opportunities that promise greater profitability than
expansion opportunities, or using retained cash that exceeds total expansion needs.
The second dimension involves the expected outcomes of diversification: Management may expect great
economic value (growth, profitability) or first and foremost great coherence and complementary to their
current activities (exploitation of know-how, more efficient use of available resources and capacities). In
addition, companies may also explore diversification just to get a valuable comparison between this strategy
and expansion.

The different types of diversification

strategies
The strategies of diversification can include internal development of new products or
markets, acquisition of a firm,alliancewith a complementary company,licensingof
new technologies, and distributing or importing aproducts linemanufactured by
another firm. Generally, the final strategy involves a combination of these options.
This combination is determined in function of available opportunities and consistency
with the objectives and the resources of the company.
There are three types of diversification: concentric, horizontal, and conglomerate.
Concentric diversification
This means that there is a technological similarity between the industries, which means
that the firm is able to leverage its technical know-how to gain some advantage. For
example, a company that manufactures industrial adhesives might decide to diversify
into adhesives to be sold via retailers. The technology would be the same but the
marketing effort would need to change.
It also seems to increase its market share to launch a new product that helps the
particular company to earn profit. For instance, the addition of tomato ketchup and
sauce to the existing "Maggi" brand processed items of Food Specialities Ltd. is an
example of technological-related concentric diversification.
Thecompanycouldseeknewproductsthathavetechnologicalormarketingsynergieswi
th existingproductlinesappealingtoa newgroupofcustomers. This also helps the
company to tap that part of the market which remains untapped, and which presents
an opportunity to earn profits.

Contd.
Horizontal diversification
The company adds new products or services that are often technologically or commercially unrelated to
current products but that may appeal to current customers. This strategy tends to increase the firm's
dependence on certain market segments. For example, a company that was making notebooks earlier
may also enter the pen market with its new product.
When is Horizontal diversification desirable?
Horizontal diversification is desirable if the present customers are loyal to the current products and if the
new products have a good quality and are well promoted and priced. Moreover, the new products are
marketed to the same economic environment as the existing products, which may lead to rigidity and
instability.
Horizontal integrationoccurs when a firm enters a new business (either related or unrelated) at the same
stage of production as its current operations. For example, Avon's move to market jewelry through its
door-to-door sales force involved marketing new products through existing channels of distribution. An
alternative form of that Avon has also undertaken is selling its products by mail order (e.g., clothing,
plastic products) and through retail stores (e.g.,Tiffany's). In both cases, Avon is still at the retail stage
of the production process.
Conglomerate diversification (or lateral diversification)
The company markets new products or services that have no technological or commercial synergies with
current products but that may appeal to new groups of customers. The conglomerate diversification has
very little relationship with the firm's current business. Therefore, the main reasons for adopting such a
strategy are first to improve the profitability and the flexibility of the company, and second to get a
better reception in capital markets as the company gets bigger. Though this strategy is very risky, it
could also, if successful, provide increased growth and profitability.

The Growth of the Firm: Internal

Development
The growth of the firm internally
includes both Horizontal & Vertical
Integration.

Horizontal Integration
Inbusiness,horizontal integrationis a strategy where acompanycreates
or acquiresproductionunits for outputs which are alike - either
complementary or competitive. One example would be when a company
acquires competitors in the same industry doing the same stage of
production. Another example is the management of a group of products
which are alike, yet at different price points, complexities, and qualities. This
strategy
may
reducecompetitionand
increasemarket
shareby
usingeconomies of scale. For example, a car manufacturer acquiring its
competitor who does exactly the same thing.
Horizontal integrationis the opposite tovertical integration, where
companies integrate multiple stages of production of a small number of
production units.
Benefits of horizontal integration :
Economies of scale
Economies of scope
Strong presence in the reference market.

Vertical Integration: Coordinating the

Value Chain

Contd.
Inmicroeconomicsandmanagement, the termvertical integrationdescribes a style
of growth andmanagement control. Vertically integrated companies in asupply
chainare united through a common owner. Usually each member of the supply chain
produces a differentproductor (market-specific) service, and the products combine
to satisfy a common need. It is contrasted with horizontal integration. Vertical
integration has also described management styles that bring large portions of the
supply chain not only under a common ownership, but also into one corporation (as
in the 1920s when theFord River Rouge Complexbegan making much of its own
steel rather than buying it from suppliers).
Vertical integration is one method of avoiding thehold-up problem. A monopoly
produced through vertical integration is called a vertical monopoly.
Nineteenth-centurysteeltycoonAndrew Carnegie's example in the use of vertical
integrationled others to use the system to promote financial growth and efficiency in
their businesses.
Vertical integration is the degree to which a firm owns its upstream suppliers and its
downstream buyers. Contrary tohorizontal integration, which is a consolidation of
many firms that handle the same part of the production process, vertical integration
is typified by one firm engaged in different parts of production (e.g., growing raw
materials, manufacturing, transporting, marketing, and/orretailing).

Contd.
There are three varieties: backward (upstream) vertical integration,
forward (downstream) vertical integration, and balanced (both
upstream and downstream) vertical integration.
A company exhibitsbackward vertical integrationwhen it
controlssubsidiariesthat produce some of the inputs used in the
production of its products. For example, an automobile company may
own atirecompany, aglasscompany, and a metal company. Control
of these three subsidiaries is intended to create a stable supply of
inputs and ensure a consistent quality in their final product. It was
the main business approach ofFordand other car companies in the
1920s, who sought to minimize costs by integrating the production of
cars and car parts as exemplified in theFord River Rouge Complex.
A company tends towardforward vertical integrationwhen it
controls distribution centers and retailers where its products are sold.

Contd.
Examples
One of the earliest, largest and most famous examples of vertical integration was theCarnegie
Steelcompany. The company controlled not only the mills where thesteelwas made, but also the
mines where theiron orewas extracted, the coal mines that supplied thecoal, the ships that
transported the iron ore and the railroads that transported the coal to the factory, thecokeovens
where the coal was cooked, etc. The company also focused heavily on developing talent internally
from the bottom up, rather than importing it from other companies.[2]Later on, Carnegie even
establishedan instituteof higher learning to teach the steel processes to the next generation.
Oil industry
Oil companies, both multinational (such asExxonMobil,Royal Dutch Shell,ConocoPhillipsorBP) and
national (e.g.Petronas) often adopt a vertically integrated structure. This means that they are active
along the entire supply chain fromlocating deposits, drilling and extractingcrude oil, transporting it
around the world,refiningit into petroleum products such aspetrol/gasoline, to distributing the fuel
to company-owned retail stations, for sale to consumers.
Telephone
Telephone companies in most of the 20th century, especially the largest (theBell System) were
integrated, making their owntelephones,telephone cables,telephone exchangeequipment and
other supplies.
Reliance
TheIndianpetrochemical giantReliance Industrieshas integrated back intopolyesterfibres from textiles
and further intopetrochemicals, beginning withDhirubhai Ambani. Reliance has entered the oil
andnatural gassector, along with retail sector. Reliance now has a complete vertical product
portfolio from oil and gas production, refining, petrochemicals, synthetic garments and retail outlets.

Contd.
Media industry
From the early 1920s through the early 1950s, the Americanmotion picturehad evolved into an industry controlled by a few
companies, a condition known as a "matureoligopoly". The film industry was led by eightmajor film studios. The most
powerful of these studios were the fully integrated Big Five studios:MGM,Warner Brothers,20th Century Fox, Paramount
Pictures, andRKO. These studios not only produced and distributed films, but also operated their ownmovie theaters.
Meanwhile, the Little Three studios:Universal Studios,Columbia Pictures, andUnited Artistsproduced and distributed
feature films, but did not own their own theaters.
The issue of vertical integration (also known as common ownership) has been a main focus of policy makers because of the
possibility of anti-competitive behaviors affiliated with market influence. For example, in United States v. Paramount
Pictures, Inc., the Supreme Court ordered the five vertically integrated studios to sell off their theater chains and all trade
practices were prohibited (United States v. Paramount Pictures, Inc., 1948).The prevalence of vertical integration wholly
predetermined the relationships between both studios and networks and modified criteria in financing. Networks began
arranging content initiated by commonly owned studios and stipulated a portion of the syndication revenues in order for a
show to gain a spot on the schedule if it was produced by a studio without common ownership.In response, the studios
fundamentally changed the way they made movies and did business. Lacking the financial resources and contract talent
they once controlled, the studios now relied on independent producers supplying some portion of the budget in exchange
for distribution rights.
Certainmedia conglomeratesmay, in a similar manner, own television broadcasters (either over-the-air or on cable), production
companies that produce content for their networks, and also own the services that distribute their content to viewers (such
as television and internet service providers).Bell Canada,Comcast, andBSkyBare vertically integrated in such a manner
operating media subsidiaries (in the case of Bell and Comcast,Bell MediaandNBCUniversalrespectively), and also both
provide "triple play" services of television, internet, and phone service in some markets (such asBell TV/Bell
Internet,Xfinity, and Sky's satellite TV services).
Apple
Apple Inc.have been listed as an example of vertical integration, specifically with many elements of the ecosystem for
theiPhoneandiPad, where they control the processor, the hardware and the software.Hardware itself is not typically
manufactured by Apple, but isoutsourcedtocontract manufacturerssuch asFoxconnorPegatronwho manufacture Apple's
branded products to their specifications. Apple retail stores sell its own hardware, software and services directly to
consumers.

Mergers & Acquisitions

Mergers and acquisitions(abbreviatedM&A) are both an aspect of corporate
strategy, corporate finance andmanagementdealing with the buying, selling,
dividing and combining of differentcompaniesand similarentitiesthat can help
an enterprise grow rapidly in its sector or location of origin, or a new field or new
location, without creating a subsidiary, other child entity or using a joint venture.
The distinction between a "merger" and an "acquisition" has become increasingly
blurred in various respects (particularly in terms of the ultimate economic
outcome), although it has not completely disappeared in all situations. From a
legal point of view, amergeris a legal consolidation of two companies into one
entity, whereas anacquisitionoccurs when one company takes over another
and completely establishes itself as the new owner (in which case the target
company still exists as an independent legal entity controlled by the acquirer).
Either structure can result in the economic and financial consolidation of the two
entities. In practice, a deal that is an acquisition for legal purposes may
beeuphemisticallycalled a "merger of equals" if both CEOs agree that joining
together is in the best interest of both of their companies, while when the deal is
unfriendly (that is, when the target company does not want to be purchased) it is
almost always regarded as an "acquisition".

Contd.
Year

Purchaser

2011

Google

2011

Microsoft Corpo
ration
Berkshire Hath
away
Deutsche Telek
om
Softbank

2011
2012
2013
2013
2013

Berkshire Hath
away
Microsoft Corpo
ration

Purchased

Transaction
value (inUSD)

Motorola Mobilit 9,800,000,000

y
Skype
8,500,000,000
Lubrizol

9,220,000,000

MetroPCS

29,000,000,000

Sprint Corporati 21,600,000,000

on
H. J. Heinz Com 28,000,000,000
pany
Nokia Handset & 7,200,000,000
Services Busin
ess

Strategic Alliances
Astrategic allianceis an agreement between two or more
parties to pursue a set of agreed upon objectives need while
remaining
independent
organizations.
This
form
of
cooperation lies between Mergers & AcquisitionM&Aand
organic growth.
Partners may provide the strategic alliance with resources such
as products, distribution channels, manufacturing capability,
project funding, capital equipment, knowledge, expertise, or
intellectual
property.
The
alliance
is
acooperationorcollaborationwhich aims for asynergywhere
each partner hopes that the benefits from the alliance will be
greater than those from individual efforts. The alliance often
involvestechnology transfer(access to knowledge and
expertise),economic specialization,shared expenses and
shared risk.

Contd.
One typology of strategic alliances conceptualizes them as
horizontal, vertical or inter-sectoral:
Horizontal strategic alliance: Strategic alliance characterized by
the collaboration between two or more firms in the same
industry, e.g. the partnership betweenSina Corpand Yahooin
order to offer online auction services in China;
Vertical strategic alliances: Strategic alliance characterized by
the collaboration between two or more firms along thevertical
chain, e.g.Caterpillar's provision of manufacturing services
toLand Rover;
Intersectoral strategic alliances: Strategic alliance characterized
by the collaboration between two or more firms neither in the
same industry nor related through the vertical chain, e.g. the
cooperation ofToys "R" UswithMcDonald'sin Japan resulting in
Toys "R" Us stores with built-in McDonald's restaurants.

Restructuring Strategies: Reducing

the Scope of the Firm
Restructuringis thecorporate managementterm for the act of reorganizing the legal, ownership,
operational, or other structures of acompanyfor the purpose of making it more profitable, or
better organized for its present needs. Other reasons for restructuring include a change of
ownership or ownership structure,demerger, or a response to a crisis or major change in the
business such asbankruptcy,repositioning, orbuyout. Restructuring may also be described as
corporate restructuring,debt restructuringand financial restructuring.
Executives involved in restructuring often hire financial and legal advisors to assist in the
transaction details and negotiation. It may also be done by a newCEOhired specifically to make
the difficult and controversial decisions required to save or reposition the company. It generally
involves financing debt, selling portions of the company to investors, and reorganizing or reducing
operations.
The basic nature of restructuring is azero-sumgame. Strategic restructuring reduces financial
losses, simultaneously reducing tensions betweendebtandequityholders to facilitate a prompt
resolution of a distressed situation.
Corporate debt restructuring is the reorganization of companies outstanding liabilities. It is
generally a mechanism used by companies which are facing difficulties in repaying their debts. In
the process of restructuring, the credit obligations are spread out over longer duration with smaller
payments. This allows companys ability to meet debt obligations. Also, as part of process, some
creditors may agree to exchange debt for some portion of equity. It is based on the principle that
restructuring facilities available to companies in a timely and transparent matter goes a long way
in ensuring their viability which is sometimes threatened by internal and external factors. This
process tries to resolve the difficulties faced by the corporate sector and enables them to become
viable again.

Contd.
Steps:
Ensure the company has enough liquidity to
operate during implementation of a complete
restructuring
Produce accurate working capital forecasts
Provide open and clear lines of communication
with creditors who mostly control the
company's ability to raise financing
Update
detailed
business
plan
and
considerations

Porters Generic Strategies

Contd.
Michael Porterhas described a category scheme consisting of three general types ofstrategiesthat
are commonly used by businesses to achieve and maintaincompetitive advantage. These three
generic strategies are defined along two dimensions: strategic scope and strategic
strength.Strategic scopeis a demand-side dimension (Michael E. Porter was originally an engineer,
then an economist before he specialized in strategy) and looks at the size and composition of the
market you intend totarget.Strategic strengthis a supply-side dimension and looks at the strength
orcore competencyof the firm. In particular he identified two competencies that he felt were most
important:product differentiation and product cost (efficiency).
He originally ranked each of the three dimensions (level of differentiation, relative product cost, and
scope of target market) as either low, medium, or high, and juxtaposed them in a three dimensional
matrix. That is, the category scheme was displayed as a 3 by 3 by 3 cube. But most of the 27
combinations were not viable.
In his 1980 classicCompetitive Strategy: Techniques for Analyzing Industries and Competitors, Porter
simplifies the scheme by reducing it down to the three best strategies. They are cost leadership,
differentiation, andmarket segmentation(or focus). Market segmentation is narrow in scope while
both cost leadership and differentiation are relatively broad in market scope.
Empirical research on theprofit impact of marketing strategyindicated that firms with a high market
share were often quite profitable, but so were many firms with low market share. The least
profitable firms were those with moderate market share. This was sometimes referred to as the hole
in the middle problem. Porters explanation of this is that firms with high market share were
successful because they pursued a cost leadership strategy and firms with low market share were
successful because they used market segmentation to focus on a small but profitable market niche.
Firms in the middle were less profitable because they did not have a viable generic strategy.

Contd.
Porter suggested combining multiple strategies is successful in only one
case. Combining a market segmentation strategy with a product
differentiation strategy was seen as an effective way of matching a firms
product strategy (supply side) to the characteristics of your target market
segments (demand side). But combinations like cost leadership with
product differentiation were seen as hard (but not impossible) to
implement due to the potential for conflict between cost minimization
and the additional cost of value-added differentiation.
Since that time, empirical research has indicated companies pursuing both
differentiation and low-cost strategies may be more successful than
companies pursuing only one strategy.
Some commentators have made a distinction between cost leadership,
that is, low cost strategies, and best cost strategies. They claim that a
low cost strategy is rarely able to provide asustainable competitive
advantage. In most cases firms end up inprice wars. Instead, they claim
a best cost strategy is preferred. This involves providing the best value
for a relatively low price.

Cost Leadership Strategy

This strategy involves the firm winning market share by appealing to cost-conscious or price-sensitive
customers. This is achieved by having the lowest prices in the target market segment, or at least
the lowest price to value ratio (price compared to what customers receive). To succeed at offering
the lowest price while still achieving profitability and a high return on investment, the firm must be
able to operate at a lower cost than its rivals. There are three main ways to achieve this.
The first approach is achieving a high asset turnover. In service industries, this may mean for example a
restaurant that turns tables around very quickly, or an airline that turns around flights very fast. In
manufacturing, it will involve production of high volumes of output. These approaches mean fixed
costs are spread over a larger number of units of the product or service, resulting in a lower unit
cost, i.e. the firm hopes to take advantage ofeconomies of scaleandexperience curve effects. For
industrial firms, mass production becomes both a strategy and an end in itself. Higher levels of
output both require and result in high market share, and create an entry barrier to potential
competitors, who may be unable to achieve the scale necessary to match the firms low costs and
prices.
The second dimension is achieving low direct and indirect operating costs. This is achieved by offering
high volumes of standardizedproducts, offering basic no-frills products and limiting customization
and personalization of service. Production costs are kept low by using fewer components, using
standard components, and limiting the number of models produced to ensure larger production
runs. Overheads are kept low by paying low wages, locating premises in low rent areas, establishing
a cost-conscious culture, etc. Maintaining this strategy requires a continuous search for cost
reductions in all aspects of the business. This will include outsourcing, controlling production costs,
increasing asset capacity utilization, and minimizing other costs including distribution, R&D and
advertising. 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.

Contd.
The third dimension is control over the supply/procurement chain to ensure low costs. This could
be achieved by bulk buying to enjoy quantity discounts, squeezing suppliers on price, instituting
competitive bidding for contracts, working with vendors to keep inventories low using methods
such as Just-in-Time purchasing or Vendor-Managed Inventory. Wal-Mart is famous for squeezing
its suppliers to ensure low prices for its goods. Dell Computer initially achieved market share by
keeping inventories low and only building computers to order. Other procurement advantages
could come from preferential access to raw materials, or backward integration.
Some writers assume that cost leadership strategies are only viable for large firms with the
opportunity to enjoy economies of scale and large production volumes. However, this takes a
limited industrial view of strategy. Small businesses can also be cost leaders if they enjoy any
advantages conducive to low costs. For example, a local restaurant in a low rent location can
attract price-sensitive customers if it offers a limited menu, rapid table turnover and employs
staff on minimum wage. Innovation of products or processes may also enable a startup or small
company to offer a cheaper product or service where incumbents' costs and prices have
become too high. An example is the success of low-cost budget airlines who despite having
fewer planes than the major airlines, were able to achieve market share growth by offering
cheap, no-frills services at prices much cheaper than those of the larger incumbents.
A cost leadership strategy may have the disadvantage of lower customer loyalty, as pricesensitive customers will switch once a lower-priced substitute is available. A reputation as a
cost leader may also result in a reputation for low quality, which may make it difficult for a firm
to rebrand itself or its products if it chooses to shift to a differentiation strategy in future.

Differentiation Strategy
Differentiate the products in some way in order to compete successfully.
Examples of the successful use of a differentiation strategy are Hero Honda,
Asian Paints, HLL, Nike athletic shoes, BMW Group Automobiles, Perstorp
BioProducts, Apple Computer, Mercedes-Benz automobiles, and RenaultNissan Alliance.
A differentiation strategy is appropriate where the target customer segment is
not price-sensitive, the market is competitive or saturated, customers have
very specific needs which are possibly under-served, and the firm has unique
resources and capabilities which enable it to satisfy these needs in ways that
are difficult to copy. These could include patents or other Intellectual Property
(IP), unique technical expertise (e.g. Apple's design skills or Pixar's animation
prowess), talented personnel (e.g. a sports team's star players or a brokerage
firm's star traders), or innovative processes. Successful brand management
also results in perceived uniqueness even when the physical product is the
same as competitors. This way, Chiquita was able to brand bananas,
Starbucks could brand coffee, and Nike could brand sneakers. Fashion brands
rely heavily on this form of image differentiation.

Focus or Leadership Strategy

This dimension is not a separate strategy per se, but describes the scope over which the company should
compete based on cost leadership or differentiation. The firm can choose to compete in the mass market
(like Wal-Mart) with a broad scope, or in a defined, focused market segment with a narrow scope. In either
case, the basis of competition will still be either cost leadership or differentiation.
In adopting a narrow focus, the company ideally focuses on a fewtarget markets(also called a segmentation
strategy or niche strategy). These should be distinct groups with specialized needs. The choice of offering
low prices or differentiated products/services should depend on the needs of the selected segment and the
resources and capabilities of the firm. It is hoped that by focusing your marketing efforts on one or two
narrow market segments and tailoring yourmarketing mixto these specialized markets, you can better meet
the needs of that target market. The firm typically looks to gain a competitive advantage through product
innovation and/or brand marketing rather than efficiency. It is most suitable for relatively small firms but can
be used by any company. A focused strategy should target market segments that are less vulnerable to
substitutes or where a competition is weakest to earn above-average return on investment.
Examples of firm using a focus strategy include Southwest Airlines, which provides short-haul point-to-point
flights in contrast to the hub-and-spoke model of mainstream carriers, and Family Dollar.
In adopting a broad focus scope, the principle is the same: the firm must ascertain the needs and wants of the
mass market, and compete either on price (low cost) or differentiation (quality, brand and customization)
depending on its resources and capabilities. Wal Mart has a broad scope and adopts a cost leadership
strategy in the mass market. Pixar also targets the mass market with its movies, but adopts a differentiation
strategy, using its unique capabilities in story-telling and animation to produce signature animated movies
that are hard to copy, and for which customers are willing to pay to see and own. Apple also targets the mass
market with its iPhone and iPod products, but combines this broad scope with a differentiation strategy based
on design, branding and user experience that enables it to charge a price premium due to the perceived
unavailability of close substitutes.

Unit IV : Strategy Implementation

and Evaluation

Structural Considerations and

Organizational Design
There is no unanimity with regard to
the type of structure that satisfies
the requirements of a particular
strategy.

Contd.
Anorganizational structuredefines how activities such as task
allocation, coordination and supervision are directed towards the
achievement of organizational aims. It can also be considered as the
viewing glass or perspective through which individuals see their
organization and its environment.
Organizationsare a variant ofclustered entities.
An organization can be structured in many different ways, depending on
their objectives. The structure of an organization will determine the modes
in which it operates and performs.
Organizational structure allows the expressed allocation of responsibilities
for different functions and processes to different entities such as
thebranch,department,workgroupand individual.
Organizational structure affects organizational action in two big ways. First,
it provides the foundation on which standard operating procedures and
routines rest. Second, it determines which individuals get to participate in
which decision-making processes, and thus to what extent their views
shape the organizations actions.

Contd.
Functional structure
A functional organizational structure is a structure that consists of activities such as coordination, supervision and task
allocation. The organizational structure determines how the organization performs or operates. The term
organizational structure refers to how the people in an organization are grouped and to whom they report. One
traditional way of organizing people is by function. Some common functions within an organization include production,
marketing, human resources, and accounting.
This organizing of specialization leads to operational efficiencies where employees become specialists within their own
realm of expertise. The most typical problem with a functional organizational structure is however that communication
within the company can be rather rigid, making the organization slow and inflexible. Therefore, lateral communication
between functions become very important, so that information is disseminated, not only vertically, but also
horizontally within the organization.
Employees within the functional divisions of an organization tend to perform a specialized set of tasks, for instance the
engineering department would be staffed only with software engineers. This leads to operational efficiencies within
that group. However it could also lead to a lack of communication between the functional groups within an
organization, making the organization slow and inflexible.
As a whole, afunctional organizationis best suited as a producer of standardized goods and services at large volume and
low cost. Coordination and specialization of tasks are centralized in a functional structure, which makes producing a
limited amount of products or services efficient and predictable. Moreover, efficiencies can further be realized as
functional organizations integrate their activities vertically so that products are sold and distributed quickly and at low
cost.For instance, a small business could make components used in production of its products instead of buying them.
Communication in organizations with functional organizational structures can be rigid because of the standardized ways of
operation and the high degree of formalization. This can further make the decision-making process slow and inflexible.
Even though functional units often perform with a high level of efficiency, their level of cooperation with each other is
sometimes compromised. Such groups may have difficulty working well with each other as they may be territorial and
unwilling to cooperate. The occurrence of infighting among units may cause delays, reduced commitment due to
competing interests, and wasted time, making projects fall behind schedule. This ultimately can bring down
production levels overall, and the company-wide employee commitment toward meeting organizational goals.

Contd.
Divisional structure
The Divisional structure or product structure is a configuration of an organization, which breaks down the company
into divisions that are self-contained. A division is self-contained and consists of a collections of functions which
work to produce a product. It also utilizes a plan to compete and operate as a separate business or profit center.
According to Zainbooks.com, divisional structure in America is seen as the second most common structure for
organization today.
Employees who are responsible for certain market services of types of products, are placed in divisional structure
in order to increase their flexibility. The process can be further broken down into geographic(for example a U.S
Division and an EU division), and product services for different consumers; companies or households). Another
example of divisional structure would be an automobile company which utilizes a divisional structure. The
company would have one division for trucks, another for SUVS, and another for cars. The divisions may also have
their own departments such as marketing, sales, and engineering.
The advantage of divisional structure is that it uses delegated authority so the performance can be directly
measured with each group. This results in managers performing better and high employee morale. Another
advantage of using divisional structure is that it is more efficient in coordinating work between different divisions,
and there is more flexibility to respond when there is a change in the market. Also, a company will have a simpler
process if they need to change the size of the business by either adding or removing divisions. When divisional
structure is utilized more specialization can occur within the groups. When divisional structure is organized by
product, the customer has their own advantages especially when only a few services or products are offered
which differs greatly. When using divisional structures that are organized by either markets or geographic areas
they generally have similar function and are located in different regions or markets. This allows business
decisions and activities coordinated locally.
The disadvantages of the divisional structure is that it can support unhealthy rivalries among divisions. This type
of structure may increase costs by requiring more qualified managers for each division. Also, there is usually an
over-emphasis on divisional more than organizational goals which results in duplication of resources and efforts
like staff services, facilities, and personnel.

Contd.
Matrix structure
Thematrix structuregroups employees by both function and product. This structure can combine the best of both
separate structures. A matrix organization frequently uses teams of employees to accomplish work, in order
to take advantage of the strengths, as well as make up for the weaknesses, of functional and decentralized
forms. An example would be a company that produces two products, "product a" and "product b". Using the
matrix structure, this company would organize functions within the company as follows: "product a" sales
department, "product a" customer service department, "product a" accounting, "product b" sales
department, "product b" customer service department, "product b" accounting department. Matrix structure
is amongst the purest of organizational structures, a simple lattice emulating order and regularity
demonstrated in nature.
Weak/Functional Matrix:Aproject managerwith only limited authority is assigned to oversee the crossfunctional aspects of theproject. The functional managers maintain control over their resources and project
areas.
Balanced/Functional Matrix:A project manager is assigned to oversee the project. Power is shared equally
between the project manager and thefunctional managers. It brings the best aspects of functional and
projectized organizations. However, this is the most difficult system to maintain as the sharing of power is a
delicate proposition.
Strong/Project Matrix:Aproject manageris primarily responsible for the project. Functional managers provide
technical expertise and assign resources as needed.
Matrix structure is only one of three major structures such as Functional and Project structure. Matrix
management is more dynamic then functional management in that it is a combination of all the other
structures and allows team members to share information more readily across task boundaries. It also allows
for specialization that can increase depth of knowledge in a specific sector or segment.
There are both advantages and disadvantages of the matrix structure; some of the disadvantages are an increase
in the complexity of the chain of command. This occurs because of the differentiation between functional
managers and project managers, which can be confusing for employees to understand who is next in the
chain of command. An additional disadvantage of the matrix structure is higher manager to worker ratio that
results in conflicting loyalties of employees. However the matrix structure also has significant advantages
that make it valuable for companies to use. The matrix structure improves upon the silo critique of
functional management in that it diminishes the vertical structure of functional and creates a more

Leadership and Corporate Culture

Leadershiphas been described as "a process ofsocial
influencein which one person can enlist the aid
andsupportof others in the accomplishment of a
commontask",although there are alternative definitions
of leadership. For example, some understand
aleadersimply as somebody whom people follow, or as
somebody who guides or directs others,while others
define leadership as "organizing a group of people to
achieve a common goal".
Studies of leadershiphave produced theories involving
traits,situational
interaction,
function,
behavior,power,visionandvalues,charisma,
and
intelligence, among others.

Contd.
Organizational cultureis the behavior of humans who are part of an
organization and the meanings that the people attach to their actions.
Culture includes the organization values, visions, norms, working language,
systems, symbols, beliefs and habits. It is also the pattern of such
collective behaviors and assumptions that are taught to new organizational
members as a way of perceiving, and even thinking and feeling.
Organizational culture affects the way people and groups interact with
each other, with clients, and with stakeholders.
Ravasi and Schultz (2006) state that organizational culture is a set of shared
mental assumptions that guide interpretation and action in organizations
by defining appropriate behavior for various situations.At the same time
although a company may have their "own unique culture", in larger
organizations, there is a diverse and sometimes conflicting cultures that
co-exist due to different characteristics of the management team. The
organizational culture may also have negative and positive aspects.
Schein (2009), Deal & Kennedy (2000), Kotter (1992) and many others state
that organizations often have very differing cultures as well as subcultures.
According to Needle (2004),organizational culture represents the collective
values, beliefs and principles of organizational members and is a product of
such factors as history, product, market, technology, and strategy, type of
employees, management style, and national cultures and so on. Corporate

Contd.
Mergers, organizational culture, and cultural leadership
One of the biggest obstacles in the way of the merging of two organizations is
organizational culture. Each organization has its own unique culture and most
often, when brought together, these cultures clash. When mergers fail employees
point to issues such as identity, communication problems, human resources
problems, ego clashes, and inter-group conflicts, which all fall under the category
of "cultural differences".
One way to combat such difficulties is through cultural leadership. Organizational
leaders must also be cultural leaders and help facilitate the change from the two
old cultures into the one new culture. This is done through cultural innovation
followed by cultural maintenance.
Cultural innovation includes:

Creating a new culture: recognizing past cultural differences and setting realistic
expectations for change
Changing the culture: weakening and replacing the old cultures

Cultural maintenance includes:

Integrating the new culture: reconciling the differences between the old cultures and the new
one
Embodying the new culture: Establishing, affirming, and keeping the new culture

Importance and Nature of Strategic

Evaluation
Frameworks for analysis
Formulation and implementation of strategy have resulted in a variety of frameworks to
direct and inform analysis. The difficulty of fully comprehending and responding to
the complex issues faced by an organization has led to a proliferation of such
frameworks. Each attempts to organize a number of issues and make them more
readily understandable.

External environment:PEST analysisorSTEEP analysisis a framework used to

examine the remote external environmental factors that can affect the organization,
such as political, economic, social/demographic, and government regulation.
Common variations include SLEPT, PESTLE, STEEPLE, and STEER analysis, each of
which incorporates slightly different emphases.

Industry environment: ThePorter Five Forces Analysisframework helps to determine

the competitive rivalry and therefore attractiveness of a market. It is used to help
determine the portfolio of offerings the organization will provide and in which
markets.

Relationship of internal and external environment: One of the most basic and widelyused frameworks is theSWOTanalysis, which examines both internal elements of the
organization Strengths andWeaknesses and external elements Opportunities
andThreats. It helps examine the organization's resources in the context of its
environment.

Determining objectives and measures: TheBalanced Scorecardattempts to measure

the performance of an organization from the perspective of various stakeholders.
While often used in a performance management or operational management context,

Contd.
Industry analysis
Porter also developed a framework for analyzing the profitability of
industries. Infive forces analysishe identified the forces that shape the
industry environment. The framework involves the bargaining power of
buyers and suppliers, the threat of new entrants, the availability of
substitute products, and the competitive rivalry of firms in the industry.
The framework helps describe how a firm can use these forces to obtain
asustainable competitive advantage. Porter modifies Chandler's dictum
about structure following strategy by introducing a second level of
structure: while organizational structure follows strategy, it in turn
follows industry structure. Porter's generic strategiesdetail the
interaction between cost minimization strategies, product differentiation
strategies, and market focus strategies. Although he did not introduce
these terms, he showed the importance of choosing one of them rather
than trying to position your company between them. He also challenged
managers to see their industry in terms of avalue chain.

Contd.
Scenario planning
A number of strategists usescenario planningtechniques to deal with change. The wayPeter
Schwartzput it in 1991 is that strategic outcomes cannot be known in advance so the
sources of competitive advantage cannot be predetermined.The fast changing business
environment is too uncertain for us to find sustainable value in formulas of excellence or
competitive advantage. Instead, scenario planning is a technique in which multiple
outcomes can be developed, their implications assessed, and their likeliness of occurrence
evaluated. According toPierre Wack, scenario planning is about insight, complexity, and
subtlety, not about formal analysis and numbers.
Some business planners are starting to use acomplexity theory approach to strategy.
Complexity can be thought of as chaos with a dash of order.Chaos theorydeals with
turbulent systems that rapidly become disordered. Complexity is not quite so
unpredictable. It involves multiple agents interacting in such a way that a glimpse of
structure may appear.
Balanced scorecard
Information systems allow managers to take a much more analytical view of their business
than
before.
One
such
system
is
thebalanced
scorecard.
It
measuresfinancial,marketing,production,organizational development, andnew product
developmentfactors to achieve a 'balanced' perspective.

Strategic and Operational Control

Important Questions

Contd.

Contd.

Contd.